Annual Report
FY2019-20
PERFORMANCE HIGHLIGHTS
$2b+
Value of transactions
processed annually
+60%
Processing revenue
increase on previous
financial year
+50%
Approximate average total
revenue increase each year
across past three years
+33%
Total revenue increase on
previous financial year
After partnering with Visa in
2019, Novatti now issues
physical and digital Visa
payment cards, enabling
consumers to make digital
payments.
CONTENTS
CORPORATE DIRECTORY ........................................................................................................................................................ 1
ABOUT ......................................................................................................................................................................................... 2
CHAIRMAN’S REPORT .............................................................................................................................................................. 4
MANAGING DIRECTOR’S REPORT .......................................................................................................................................... 5
DIRECTOR PROFILES ............................................................................................................................................................... 6
REVIEW OF OPERATIONS ........................................................................................................................................................ 7
DIRECTORS’ REPORT ............................................................................................................................................................. 14
AUDITOR’S INDEPENDENCE DECLARATION ....................................................................................................................... 30
FINANCIAL STATEMENTS …………………………………………………………………………………………………………… 31
INDEPENDENT AUDITOR'S REPORT ……………………………………………………………………………………………… 73
SHAREHOLDER INFORMATION ……………………………………………………………………………………………………. 79
Novatti Group Limited
Corporate directory
30 June 2020
CORPORATE DIRECTORY
Directors
Peter Pawlowitsch (Non-Executive Chairman)
Peter Cook (Managing Director and Chief Executive Officer)
Kenneth Lai (Non-Executive Director)
Paul Burton (Non-Executive Director)
Steven Zhou (Non-Executive Director)
Company secretary
Ian Hobson
Registered office and principal
place of business
Share register
Auditor
Solicitors
Bankers
Level 3
461 Bourke Street
Melbourne VIC 3000
+61 3 9011 8490
Automic Registry Services
267 St Georges Terrace
Perth WA 6000
+61 8 9324 2099
William Buck
Level 20
181 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.novattigroup.com
Corporate Governance Statement
www.novattigroup.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
1
Novatti Group Limited
About
30 June 2020
ABOUT
Who we are?
Novatti is a leading digital banking and payments company.
Through our innovative technology, and a global network, we enable every person to transact from any device, anywhere. In
doing so, we position our customers to thrive as we shift to a digital, cashless society.
In recent years, Novatti has been methodically developing and acquiring the complementary capabilities to provide
consumers with a fully-digital banking service. Novatti now processes more than $2 billion of transactions annually.
In addition to creating a complete business based on digital banking, each of Novatti’s business units operate successfully
on their own, providing a sustainable and scalable growth platform.
Digital Banking
Transaction Processing
Leveraging our
infrastructure and platforms
to process the global digital
payments of consumers
and businesses from any
device
Card Issuing
Providing consumers with
the physical platform to
make digital payments
through reloadable debit
cards, including gifts
cards
Payment Acquiring
Enabling customers to
receive funds quickly
and securely though
fully-digital and
borderless payment
acceptance solutions
2
Novatti Group Limited
About
30 June 2020
What is digital banking?
Digital banking is all about connection. In the 1800s, this was done through railways. In the 1900s, the telephone took
charge. In the 2000s, the internet took over to truly connect the world.
The same revolution is currently taking place in the way we pay for things. Technology has enabled consumers to make
purchases digitally, without cash, instantly, seamlessly, and securely. In doing so, this revolution is connecting all of us
financially, wherever we are in the world.
Novatti is a leader in this revolution, providing the technology platforms and services that enable digital transactions to take
place, on any device, anywhere in the world.
Merchant
Purchase
complete
Digital payment
Novatti
processing
Revenue streams
include:
▪ Payment card issuing
▪ Payment processing
▪ Payment acceptance
▪
International payments
▪ Technology licensing
▪ Subscription billing
3
Novatti Group Limited
Chairman’s Report
30 June 2020
CHAIRMAN’S REPORT
Over the past financial year, Novatti has continued to grow strongly. This is particularly
notable given the challenges and disruption the community faced during COVID-19. Despite
these challenges, Novatti continues to make excellent progress against its long-term growth
plan.
Novatti recorded total revenue of $11.86 million for FY20, an increase of more than 33% on
the previous financial year. Importantly, Novatti continues to deliver consistent, long-term
growth, with total revenue now growing by an average of approximately 50% each year for
the past three financial years.
Further, Novatti’s core processing business remained particularly resilient, increasing 60%
on the previous financial year.
Across the financial year we sought to strengthen our business through a number of
strategic activities, including
acquiring and successfully integrating Emersion, a leading business process integration platform, with performance
beating expectations;
launching Novatti’s new payment card issuing business after being awarded a Principal Issuer Licence by Visa;
submitting Novatti’s final Restricted Authorised Deposit Taking Institution (RADI) licence application to the Australian
Prudential Regulation Authority;
securing $10.2 million in new funds through a share placement to fully fund and accelerate Novatti’s current growth
strategy.
We strongly believe that the shift to a cashless society will only accelerate going forward, particularly with an increase in
working and operating remotely following COVID-19. With Novatti already fully-digital, we are in a strong position to
capitalise on this rapidly expanding market and will pursue larger, more strategic growth opportunities in the year ahead.
On behalf of the Board, I thank all the Novatti team for their efforts during the year, particularly in remaining positive during
the challenges of COVID-19. To all our shareholders, I look forward to continuing our journey to deliver long-term growth
together.
Peter Pawlowitsch
Chairman
4
Novatti Group Limited
Managing Director’s Report
30 June 2020
MANAGING DIRECTOR’S REPORT
In the years ahead, when we reflect on the previous financial year, no doubt a key discussion
point will be the impact that COVID-19 had on our community.
From a global level to a local level, COVID-19 was felt by all. For Novatti, some of the very real
challenges included shifting our workforce to working safely remotely while working
constructively with Australia’s banking regulator as it paused the issuing of new banking
licences.
Despite these challenges, our entire team adapted quickly, maintaining the safety of our
workforce, continuing to provide innovative solutions to our customers, and always maintaining
a focus on our long-term growth strategy. I’m incredibly proud of our entire team for the way
they responded.
This positive response helped us achieve a number of strategic goals for the year, including
maintaining our record of continuous annual total revenue growth, completing our latest
strategic acquisition, Emersion, securing new funding for our current growth strategy, while also beginning a refresh of our
corporate brand.
For the financial year ahead, we will aim to:
Drive further payments processing growth.
Continue our strong total revenue growth.
Deliver new strategic partnerships.
Build payments banking services.
While COVID-19 has had many negative impacts on our community, it has also accelerated the shift to a cashless economy,
a shift that Novatti is ready for and that will deliver long-term value for our shareholders.
I thank you for your ongoing engagement over the past financial year and look forward to another exciting year ahead.
Peter Cook
Managing Director
5
Novatti Group Limited
Director Profiles
30 June 2020
DIRECTOR PROFILES
Peter Pawlowitsch
Non-Executive Chairman
BCom, CPA, MBA, FGIA
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.
Peter Cook
Managing Director and Chief Executive Officer
BSc, Grad Dip Computing, Grad Dip Securities, GAICD
Peter has over 25 years of experience as a director and executive with companies including Coopers & Lybrand (now
PWC), Catsco Pty Ltd and Advanced Network Management Pty Ltd (Telstra joint venture company) and many start-up
technology companies. 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.
Paul Burton
Non-Executive Director
Chartered Accountant
Paul has over 14 years of leadership experience in the payments industry and was 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.
Kenneth Lai
Non-Executive Director
Bachelor of Science – Majoring in Computer Science
Kenneth is the managing director and wholly owner of Prestige Team Limited, an investment company which, together with
its subsidiaries, holds an investment portfolio in Hong Kong and Southeast Asia. Prestige Team Limited has interests in real
estate, payment processing, digital marketing and information technology support services. Kenneth has funded and
invested in various Silicon Valley technology funds focusing on business opportunities within Asia. He also co-founded
Legend World Development Technology Limited, a limited liability company incorporated in Hong Kong, which provides
information technology solutions and integrated marketing solutions to business setups, and in which he is a shareholder
and advisor.
Steven Zhou
Non-Executive Director
Steven Zhou is an experienced executive with payments industry experience in both China and Australia. Steven has
recently aided Novatti in a number of deals involving new business operations between Australia and China.
6
Novatti Group Limited
Review of Operations
30 June 2020
REVIEW OF OPERATIONS
Overview
In recent years, Novatti has also been methodically developing and acquiring the complementary capabilities to provide
consumers with a fully digital banking service.
The 2019-20 financial year saw Novatti continue to deliver on this objective, while maintaining strong results within its
existing business.
Financial results
Revenue
Over the past financial year, Novatti continued to experience strong revenue growth, with an ongoing focus on delivering
transactional and recurring revenues.
Novatti recorded total revenue of $11.86 million for the financial year, an increase of more than 33% on the previous
financial year’s result of $8.9 million.
Across the last three financial years, Novatti has now grown total revenue by an average of approximately 50% each year,
delivering consistent and sustained growth.
Total annual revenue
12
10
8
6
4
2
0
$Millions
FY16-17
FY17-18
FY18-19
FY19-20
7
Novatti Group Limited
Review of Operations
30 June 2020
Novatti’s core processing business recorded revenue of $6.53 million for the financial year, an increase of more than 60%
on the previous financial year result of $4.1 million. Importantly, this core business achieved record growth in each quarter.
Quarterly processing revenue
2.25
2
1.75
1.5
1.25
1
0.75
0.5
0.25
0
$Millions
Cash flow
Jun 18
Sep 18
Dec 18 March 19
Jun 19
Sep 19
Dec 19 March 20
Jun 20
Novatti’s cash flow continued to strengthen across the financial year, with a focus on revenue growth and cost base
management. This approach enables Novatti to continue to prioritise cashflow for its long-term growth strategy.
A continued focus on cost efficiencies delivered savings. Notably, product manufacturing and operating costs as a
percentage of receipts from customers reduced from 75.9% in FY2018-19 to 68.5% in FY2019-20, enabling Novatti to
deliver increased processing revenue from lower direct costs.
While Novatti was almost cashflow positive in the June quarter, with net cash used in operations for the quarter narrowing to
just $16,000, the priority remains leveraging cash for future growth.
Novatti held $2.6 million in cash at the end of the financial year. However, this does not include the $10.2 million raised
through a share placement announced at the end of the June quarter.
Going forward, Novatti’s management will continue to prudently balance cashflow to navigate the challenges of COVID-19
while pursuing its growth strategy.
Inovapay is a new international
wallet designed for the
Brazilian market that will
enable secure transfers and
payments.
8
Novatti Group Limited
Review of Operations
30 June 2020
Fundraising
At the end of the June quarter, Novatti announced that it had secured $10.2 million in new funds through a share place. This
share placement, to be completed in the 2020-21 financial year, will enable Novatti to accelerate its current growth strategy,
including:
increasing business development resources;
acquiring new Visa card issuing programs;
securing new strategic, global partnerships; and
fast-tracking Novatti’s integration into other payment networks.
9
Novatti Group Limited
Review of Operations
30 June 2020
Business operations
Across the financial year, Novatti’s operational performance was also strong, with a number of significant achievements. A
number of these were particularly notable given the broader disruption to the economy caused by COVID-19.
These achievements included:
Acquiring and successfully integrating Emersion, with performance beating expectations.
Launching Novatti’s new payment card issuing business after being awarded a Principal Issuer Licence by Visa.
Securing new tier-one partnerships for further growth.
Submitting Novatti’s final Restricted Authorised Deposit Taking Institution (RADI) licence application to the Australian
Prudential Regulation Authority.
Acquisition and successful integration of Emersion
In April, Novatti announced the acquisition of Emersion, a leading business
process integration platform. Through Emersion’s platform, businesses are able
to combine diverse applications, including subscription billing, payments and
provisioning, into existing business platforms, saving time and energy.
Emersion integrates with more than 70 software platforms, including majors such as Salesforce, Xero, and ConnectWise,
providing a strong platform for ongoing sales.
Within the June quarter, Novatti swiftly and smoothly integrated Emersion, with immediate positive impacts, including
strengthened revenue.
FY21 is expected to be a strong year for Emersion with further plans for international expansion and ongoing demand for
customer engagement, integration, automation and payment services post-COVID-19.
Emersion is a leading business
process integration platform that
enables businesses to combine
diverse applications, including
subscription billing, payments
and provisioning, into existing
business platforms, saving time
and energy.
10
Novatti Group Limited
Review of Operations
30 June 2020
Launch of Visa issuing business
Novatti launched its Visa issuing business after partnering with leading European
payments processor, Decta Limited, to develop new business in the Asia-Pacific
region.
The launch of this business was the culmination of a multi-year campaign to develop
the required infrastructure and resources to operate in this area.
In 2018, Novatti acquired Vasco Pay, which provided Novatti with the capabilities to
produce reloadable debit cards.
In September 2019, Novatti was provided with the platform to leverage these capabilities by being awarded with a Principal
Issuer Licence by Visa, one of the world’s largest payments technology companies, enabling Novatti to issue and distribute
both physical and digital Visa cards.
In launching this new business, Novatti will specifically provide Decta Limited with payment processing support, particularly
leveraging its anti-fraud and pre-paid card management capabilities and experience.
More broadly, going forward Novatti’s Visa issuing business will provide support to industries that require flexible but secure
banking products, including fintech and neobank projects, retail chains and large membership organisations.
New tier-one partnerships
During the financial year, Novatti secured a number of partnerships with tier-one players, which continues to validate the
quality of Novatti’s product and service offering. These partnerships not only create new revenue opportunities for Novatti,
they also create opportunities for significant scale and growth in new and expanding markets.
Marqeta
Global payments leader Marqeta chose Novatti as its partner to
launch its prepaid card business in Australia.
Marqeta is already a partner of Afterpay, Square, Uber, Affirm,
Instacart and DoorDash and has issued around 140 million payment
cards globally. It was recently named in the Forbes 2020 Fintech 50 and the CNBC 2020 Disrupter 50 lists.
Novatti will support Marqeta by utilising the capabilities of its Visa card issuing licence and platform and will receive fees for
project implementation, ongoing services, and also project performance.
After partnering with
Visa in 2019,
Novatti now issues
physical and digital
Visa payment
cards, enabling
consumers to make
digital payments.
11
Novatti Group Limited
Review of Operations
30 June 2020
Alipay
Novatti’s China-focused, cross-border payments platform,
ChinaPayments, was successfully integrated directly into the main page
of Alipay’s app.
ChinaPayments will provide substantial value-add to Alipay’s users by
enabling them to pay more than 35,000 different Australian Bpay billers
directly using Chinese currency. Novatti will receive a fee per any
transaction going forward.
Alipay is a leading open digital lifestyle platform operated by Ant Group. It serves more than 1.2 billion users worldwide
together with its global e-wallet partners.
Rent.com.au
Novatti partnered with Rent.com.au to redevelop the rental payments platform, RentPay.
RentPay was developed to provide an automated rental payments platform for both tenants and
agents. In addition to administering rental payments and value added market place services for
tenants, the platform also enables administrative support for agents, including automated
missed-payment communications.
Novatti will receive $250,000 for access to its technology and will provide paid processing
services for three years, with automatic renewal. Novatti also invested directly in RentPay to gain exposure to the rental
payments industry.
ChinaPayments enables Chinese
residents to pay more than 35,000
different Australian BPAY billers using
Chinese currency. In June 2020, the
business was further validated with a
partnership announced with Alipay.
12
Novatti Group Limited
Review of Operations
30 June 2020
Development of a digital payments bank
The culmination of all Novatti’s capabilities will be a fully-digital banking service. This will enable consumers to obtain the full
benefits of a cashless economy, with a flexible product that suits their lifestyle.
Novatti is currently developing a borderless, digital-only neobank that will leverage more than 100,000 customers through
Novatti’s partners.
In November 2019, Novatti submitted its final application for a Restricted Authorised Deposit Taking Institution licence to the
Australian Prudential Regulation Authority (APRA), the regulator of Australia’s banking sector.
In April 2020, Novatti received guidance from APRA that it would be placing a temporary hold on the issuing of new banking
licences during COVID-19. However, following the conclusion of the financial year, APRA announced that it will
recommence issuing banking licences in two phases, with licensing of new operations, such as Novatti’s, to begin from
March 2021.
In the meantime, APRA has noted that Novatti's application will continue to be assessed, minimising any potential delays.
While this process takes place, Novatti continues to make great progress in building its new banking business, including
developing a strong customer and partner base to be ready for launch. Novatti also continues to actively engage with
potential new investment partners for the new banking business following a restructure of its investment partners earlier in
the financial year.
This new banking business is a key part of Novatti’s long-term growth strategy.
Novatti provides the
platform to power
SplitPay, a new Buy-
Now-Pay-Later
provider in the United
Kingdom.
13
Novatti Group Limited
Directors’ Report
30 June 2020
DIRECTORS’ REPORT
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 ‘Company’, ‘Novatti’ or ‘parent entity’) and the
entities it controlled at the end of, or during, the year ended 30 June 2020.
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 (Non-Executive Chairman)
Peter Cook (Managing Director and Chief Executive Officer)
Kenneth Lai (Non-Executive Director)
Paul Burton (Non-Executive Director)
Steven Zhou (Non-Executive Director)
Brandon Munro (Non-Executive Director) (resigned on 5 August 2020)
Principal activities
During the financial year the principal continuing activities of the consolidated entity are the provision of payment services
by way of financial transaction processing, subscriber billing, card issuing, merchant acquiring services and payment network
integration.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Review of operations
The loss for the consolidated entity after providing for income tax amounted to $10,960,326 (30 June 2019: $4,954,313).
The Group’s net deficit position as at 30 June 2020 was $485,563 with $2,599,878 held in cash and cash equivalents.
Net loss from operations
Add:
Interest
Less:
Depreciation and amortisation
Finance charges
Indirect tax expenses
EBITDA
Add back/(less):
Vesting of share-based payments
Due diligence costs
Loss on embedded derivative
Impairment of capitalised bank licensing costs
Underlying EBITDA*
Cash
Operating cash flow
2020
$
2019
$
Change
Change
$
%
(10,960,326)
(4,954,313)
(6,006,013)
121%
(8,745)
(10,282)
1,537
(15%)
904,815
1,366,425
158,987
(8,538,844)
389,337
75,664
245,006
(4,254,588)
515,478
1,290,761
(86,019)
(4,284,256)
1,332,486
-
726,942
3,012,715
(3,466,701)
386,085
497,853
-
-
(3,370,650)
946,401
(497,853)
726,942
3,012,715
(96,051)
2,599,878
(1,237,067)
1,806,924
(2,103,520)
792,954
866,453
132%
1706%
(35%)
101%
245%
(100%)
-
-
3%
44%
(41%)
14
Novatti Group Limited
Directors' report
30 June 2020
*
AASB 16 Leases was adopted for the first time requiring capitalisation and amortisation of the Group’s Right of Use
Assets, as outlined in note 1 of the financial statements. The modified retrospective approach was used and as such
the comparatives have not been restated. Therefore, the current and comparative EBITDA is not directly comparable.
In March 2020, the World Health Organisation declared the outbreak of a novel coronavirus (COVID-19) as a pandemic,
which continues to spread globally as well as in Australia. The spread of COVID-19 has caused significant volatility in
Australian and international markets. There is significant uncertainty around the breadth and duration of business disruptions
related to COVID-19 and therefore the Group has taken precautionary measures by temporarily closing the Company’s
offices (for all but essential services) and having arranged for its the employees to work remotely, as well as curtailing travel.
At the date of this report, the impact of these measures is not expected to significantly affect Novatti's business operations.
Significant changes in the state of affairs
During the financial year, the Group impaired the previously capitalised costs associated with the Restricted Authorised
Deposit-taking Institution (RADI) license of $2.9M and the previously capitalised costs associated with the Electronic Money
Issuing license (EMI) of $120K.
On 7 November 2019, the Group raised $2.275 million in convertible notes secured against its US subsidiary Novatti Inc.
These funds have been allocated to working capital and funding of a collateral deposit of approximately $147K.
In addition, Novatti B Holding Company Pty Ltd, the Parent entity’s wholly owned subsidiary and head of its banking services
unit entered into a convertible note loan arrangement with an Australian based investment group. The investment has raised
$1.1 million into Novatti B Holding Company Pty Ltd via a non-interest bearing converting note at a $20M pre-money
valuation.
In February 2020, the Group, entered into an agreement with investors for an extension on its convertible note facility. A
further $1.225 million was raised, bringing the total funds in from the parent entity’s convertible note facility to $3.5 million.
The terms and conditions of the extension is identical to those of the original convertible note taken up on 15 November
2019.
On 2 April 2020, The Group announced the acquisition of the business assets as a going concern from Emersion Software
Systems Pty Ltd, a leading business process integration platform. The acquisition extends the Group's capability offering
and strengthens core payments business.
The consideration for the acquisition comprises a $1 million cash component and a shares component comprising 16,725,000
Novatti fully paid ordinary shares, all of which will be subject to voluntary escrow until 31 March 2021.
On 29 June 2020, the Group announced it had secured the funds for its next growth phase, with binding commitments from
institutional and sophisticated investors for a $10.2 million capital raising.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Matters subsequent to the end of the financial year
On 3 July 2020, the Group issued 875,000 fully paid ordinary shares on conversion of 175,000 Novatti Group Limited
Convertible Notes (4 for 1) and the exercise of 175,000 unlisted options exercisable at $0.25 per share, expiring 30 November
2022. Following this conversion, the Novatti Group Limited Convertible Note facility is now $3.325 million.
On 7 July 2020, the Group issued 40,000,000 ordinary shares at $0.25 per share to institutional and sophisticated investors
in a placement as announced on 29 June 2020, raising $10 million. An additional 800,000 shares totalling $200,000 will be
issued to Directors Peter Pawlowitsch and Peter Cook, for which shareholder approval was granted on 19 August 2020, at
the General Meeting of Shareholders.
On 8 July 2020, the Group announced that it had exited its investment in cross-border payments provider, SendFX, and
ended its provision of ongoing technology and compliance services. Under its exit, the Group will receive $900,000 in cash
representing payment for the buy-back of Novatti's shareholding, plus repayment of loan funds from an aggregate cash
investment by Novatti of $400,000. The funds will be paid in three equal tranches over six months.
15
Novatti Group Limited
Directors' report
30 June 2020
No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect the
consolidated entity's operations, the results of those operations, or the consolidated entity'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, transactions and billing services.
The Group will use the $10.2 million received from recent placement to accelerate Novatti's growth strategy, including:
●
●
●
●
increasing business development resources;
acquiring new Visa card issuing programs;
securing new strategic, global partnerships; and
fast-tracking Novatti’s integration into other payment networks
This next growth phase will continue Novatti’s recent expansion and strategic achievements, that included:
●
●
●
●
●
●
Partnering with Alipay to integrate Novatti’s China-focused, cross-border payments platform, ChinaPayments, into
Alipay’s app.
Being chosen by global payments leader Marqeta as its partner to launch its prepaid card business in Australia.
Launching the new Visa card issuing business after being awarded a Principal Issuer Licence by Visa Worldwide Pty
Limited.
Maintained record quarterly operating revenue of $3.05 million (for the June 2020 quarter), slightly higher than its March
2020 quarter result.
Cashflow continued to strengthen over the FY20 year. Product manufacturing and operating costs as a percentage of
receipts from customers reduced from 75.9% in FY19 to 68.5% in FY20, reflecting the lower direct costs to deliver its
increased processing revenue.
Successfully navigating the challenges of COVID-19, including integrating the recent acquisition of the assets of
Emersion Software Systems Pty Ltd, with performance beating expectations.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State
law.
Information on directors
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Peter Pawlowitsch
Non-Executive Chairman
BCom, CPA, MBA, FGIA
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
Non-Executive Chairman, Family Zone Cyber Safety Ltd (ASX: FZO)
Non-Executive Director, VRX Silica Ltd (ASX: VRX)
Non-Executive Director, Dubber Corporation Ltd (ASX: DUB)
Non-Executive Director, Knosys Ltd (ASX: KNO)
Former directorships (last 3 years): Non-Executive Director, Rewardle Holdings Limited (ASX: RXH)
Special responsibilities:
Interests in shares:
Interests in options:
Member of Audit, Risk and Compliance Committee
3,182,662 fully paid ordinary shares
3,000,000 unlisted options
16
Novatti Group Limited
Directors' report
30 June 2020
Name:
Title:
Qualifications:
Experience and expertise:
Peter Cook
Managing Director and Chief Executive Officer
BSc, Grad Dip Computing, Grad Dip Securities, GAICD
Peter has over 25 years of experience as a director and executive with companies
including Coopers & Lybrand (now PWC), Catsco Pty Ltd and Advanced Network
Management Pty Ltd (Telstra joint venture company) and many start-up technology
companies. Peter’s career has been largely based on founding and leading multiple
telecommunications and payments companies. Integrapay Pty Ltd, 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
Non-Executive Director, P2P Transport Limited (ASX: P2P)
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Member of Audit, Risk and Compliance Committee
11,107,904 fully paid ordinary shares
5,000,000 unlisted options
Name:
Title:
Qualifications:
Experience and expertise:
Kenneth Lai
Non-Executive Director
BSc Majoring in Computer Science
Kenneth is the managing director and wholly owner of Prestige Team Limited, an
investment company which, together with its subsidiaries, holds an investment portfolio
in Hong Kong and Southeast Asia. Prestige Team Limited has interests in real estate,
payment processing, digital marketing and information technology support services.
Kenneth has funded and invested in various Silicon Valley technology funds focusing
on business opportunities within Asia. He also co-founded Legend World Development
Technology Limited, a limited liability company incorporated in Hong Kong, which
provides information technology solutions and integrated marketing solutions to
business setups, and in which he is a shareholder and advisor.
None
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Member of Audit, Risk and Compliance Committee
13,116,118 fully paid ordinary shares
1,000,000 unlisted options
Name:
Title:
Qualifications:
Experience and expertise:
Paul Burton
Non-Executive Director
B.Com, B.Accounting Science (honours), Chartered Accountant
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.
None
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Chair of Audit, Risk and Compliance Committee
263,158 fully paid ordinary shares
1,000,000 unlisted options
Name:
Title:
Qualifications:
Experience and expertise:
Steven Zhou
Non-Executive Director
BSc, Grad Dip Computing, Grad Dip Securities, GAICD
Steven is an experienced executive with payments industry experience in both China
and Australia. Steven has recently aided Novatti in a number of deals involving new
business operations between Australia and China.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Member of Audit, Risk and Compliance Committee
None
1,000,000 unlisted options
17
Novatti Group Limited
Directors' report
30 June 2020
Name:
Title:
Qualifications:
Experience and expertise:
Brandon Munro
Non-Executive Director (resigned on 4 August 2020)
BEco, LLB, Grad Dip Applied Finance & Investment from the Securities Institute of
Australia, GAICD, F.Fin
Brandon is a corporate lawyer by profession with executive experience leading ASX
listed companies. He brings regulatory, governance, mergers and acquisitions and
capital markets knowledge to the team.
Managing Director, Bannerman Resources Limited (ASX: BMN)
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Member of Audit, Risk and Compliance Committee
1,669,348 fully paid ordinary shares on the date of resignation
1,500,000 unlisted options on the date of resignation
'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
Ian 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 company's Board of Directors ('the Board') and of each Board committee held during the year
ended 30 June 2020, and the number of meetings attended by each director were:
Peter Pawlowitsch
Peter Cook
Kenneth Lai
Paul Burton
Steven Zhou
Brandon Munro
Full Board
Audit, Risk and Compliance
Committee
Attended
Held
Attended
Held
5
5
4
5
5
5
5
5
5
5
5
5
2
2
1
1
1
2
2
2
2
2
2
2
Held: represents the number of meetings held during the time the director held office or was a member of the relevant
committee.
Remuneration report (audited)
The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in
accordance with the requirements of the Corporations Act 2001 and its Regulations.
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.
18
Novatti Group Limited
Directors' report
30 June 2020
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 consolidated entity's executive reward framework is to ensure reward for performance is competitive
and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives
and the creation of value for shareholders, and it is considered to conform 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
performance linkage / alignment of executive compensation
transparency
The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The
performance of the consolidated entity 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.
Additionally, the reward framework should seek to enhance executives' interests by:
●
●
●
rewarding capability and experience
reflecting competitive reward for contribution to growth in shareholder wealth
providing a clear structure for earning rewards
In accordance with best practice corporate governance, the structure of non-executive director and executive director
remuneration is 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.
For the FY20 financial period there was no advice from independent remuneration consultants. 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.
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. The current level of
fees was approved at the Group’s 27 November 2018 Annual General Meeting.
Executive remuneration
The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of
remuneration which has both fixed and variable components.
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 with the targets outside of the Chief
Executive Officer being set by the Managing Director.
The Group rewards its executives with a level and mix of remuneration based on their position and responsibility, which may
have both fixed and variable components.
19
Novatti Group Limited
Directors' report
30 June 2020
The executive remuneration and reward framework can have four components:
●
●
●
●
base pay and non-monetary benefits
short-term performance incentives
share-based payments
other remuneration such as superannuation and long service leave
The combination of these comprises the executive's total remuneration.
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 or the Managing Director 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
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 or the Managing Director as the case may be.
Long Term Incentive program (LTI)
LTI awards are reviewed 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 Company’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.
In addition, the Managing Director has performance options that are tied to total shareholder return with that being measured
by providing share price targets.
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 and or rights or the issue of options), are made in accordance with thresholds as set out in the executive
remuneration policy. 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.
20
Novatti Group Limited
Directors' report
30 June 2020
Consolidated entity performance and link to 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 global software technology, utility billing and payment services. Through technology and services, Novatti helps
economies, corporations and consumers digitise cash transactions.
Align the interest of executives with shareholders
Attract, motivate and retain high performing individuals
- The remuneration strategy incorporates “at-risk”
components, with short-term paid in cash 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
Company 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
Fixed Remuneration
Short Term Incentive
Vehicle
Purpose
Consisting of base salary,
superannuation and
nonmonetary 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.
Is paid in cash.
To provide competitive fixed
remuneration set with
reference to role, market,
experience and performance.
Long Term Performance
Equity including Options,
Shares and/or Rights.
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.
Link to
Performance
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.
Voting and comments made at the company's 2019 Annual General Meeting ('AGM')
At the 2019 AGM, 99.7% of the votes received supported the adoption of the remuneration report for the year ended 30 June
2019. The company did not receive any specific feedback at the AGM regarding its remuneration practices.
Details of remuneration
Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables.
The key management personnel of the consolidated entity consisted of the following directors of Novatti Group Limited:
●
●
●
●
●
●
Peter Pawlowitsch (Non-Executive Chairman)
Peter Cook (Managing Director and Chief Executive Officer)
Kenneth Lai (Non-Executive Director)
Paul Burton (Non-Executive Director)
Steven Zhou (Non-Executive Director)
Brandon Munro (Non-Executive Director) (resigned on 4 August 2020)
21
Novatti Group Limited
Directors' report
30 June 2020
Other key management personnel:
●
●
Alan Munday (Group Chief Operating Officer)
Steven Stamboultgis (Chief Financial Officer)
Amounts of remuneration
Short-term benefits
Long-term
benefits
Post-
employment
benefits
Share-
based
payments
Cash salary
and fees monetary
Non-
$
$
Annual
leave
$
Long
service
leave
$
Super-
annuation
$
Equity-
settled
$
Total
$
-
-
-
45,662
45,662
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,845
-
-
4,338
4,338
248,322*
73,434*
85,934*
35,934
45,233
259,167
73,434
85,934
85,934
95,233
286,029
37,318
38,613
6,753
17,768
311,500
697,981
250,500
183,691
811,544
-
-
37,318
23,742
13,327
75,682
5,224
3,720
15,697
347,432
47,435
20,531
17,451
256,137
37,948
75,271 885,740** 1,901,252
2020
Non-Executive Directors:
Peter Pawlowitsch
Kenneth Lai
Paul Burton
Steven Zhou
Brandon Munro
Executive Directors:
Peter Cook
Other Key Management
Personnel:
Alan Munday
Steven Stamboultgis
*
**
Director fees were paid through the issue of shares, see Share Based Payments Section below for further information.
FY20 share-based payments charge includes $288,368 of equity instruments issued in prior financial years.
Short-term benefits
Long-term
benefits
Post-
employment
benefits
Share-
based
payments
Cash salary
and fees monetary
Non-
$
$
Annual
leave
$
Long
service
leave
$
Super-
annuation
$
Equity-
settled
$
Total
$
104,560
-
-
33,485
38,814
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,940
-
-
3,181
3,687
131,833
52,733
52,733
52,733
79,100
243,333
52,733
52,733
89,399
121,601
335,432
45,568
31,223
7,180
19,000
131,833
570,236
261,196
191,781
965,268
-
-
45,568
(9,207)
3,930
25,946
4,956
2,854
14,990
20,531
18,219
71,558
-
-
277,476
216,784
500,965 1,624,295
2019
Non-Executive Directors:
Peter Pawlowitsch
Kenneth Lai
Paul Burton
Steven Zhou
Brandon Munro
Executive Directors:
Peter Cook
Other Key Management
Personnel:
Alan Munday
Steven Stamboultgis
22
Novatti Group Limited
Directors' report
30 June 2020
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Non-Executive Directors:
Peter Pawlowitsch
Kenneth Lai
Paul Burton
Steven Zhou
Brandon Munro
Executive Directors:
Peter Cook
Other Key Management
Personnel:
Alan Munday
Steven Stamboultgis
Fixed remuneration
2019
2020
At risk - STI
At risk - LTI
2020
2019
2020
2019
4%
-
58%
58%
53%
46%
-
-
41%
35%
55%
77%
86%
85%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96%
100%
42%
42%
47%
54%
100%
100%
59%
65%
45%
23%
14%
15%
-
-
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:
Agreement commenced:
Term of agreement:
Details:
Peter Cook
Managing Director and Chief Executive Officer
20 November 2015
The term is not fixed.
Base salary of $400,000 (including statutory superannuation). 2.5M incentive options
exercisable at $0.19 upon the achievement of three milestones.
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 KPIs, company remuneration policy, its financial position and
current market equivalent positions. KPIs to be agreed each year and may be varied
by mutual agreement.
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
Novatti Group Limited
Directors' report
30 June 2020
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Alan Munday
Group Chief Operating Officer
20 November 2015
The term is not fixed.
Base salary of $304,468 (including statutory superannuation).
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 KPIs, company remuneration policy, its financial position and
current market equivalent positions. KPIs to be agreed each year and may be varied
by mutual agreement.
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 month’s 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:
Agreement commenced:
Term of agreement:
Details:
Steven Stamboultgis
Chief Financial Officer
20 November 2015
The term is not fixed.
Base salary of $213,368 (including statutory superannuation).
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 KPIs, company remuneration policy, its financial position and
current market equivalent positions. KPIs to be agreed each year and may be varied
by mutual agreement.
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 executive on one
month’s 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.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
Share-based compensation
Issue of shares
Details of shares issued to directors and other key management personnel as part of compensation, in lieu of cash salary,
during the year ended 30 June 2020 are set out below:
Name
Peter Pawlowitsch
Paul Burton
Kenneth Lai
Date
9 June 2020
9 June 2020
9 June 2020
Shares
Issue price
$
600,816
263,158
197,368
$0.190
$0.190
$0.190
114,155
50,000
37,500
24
Novatti Group Limited
Directors' report
30 June 2020
Options
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 are as follows:
Name
Peter Pawlowitsch
Peter Pawlowitsch
Peter Pawlowitsch
Peter Cook
Peter Cook
Peter Cook
Brandon Munro
Brandon Munro
Brandon Munro
Peter Pawlowitsch
Peter Pawlowitsch
Peter Pawlowitsch
Peter Cook
Peter Cook
Peter Cook
Brandon Munro
Brandon Munro
Kenneth Lai
Kenneth Lai
Kenneth Lai
Paul Burton
Paul Burton
Paul Burton
Steven Zhou
Steven Zhou
Steven Zhou
Alan Munday
Alan Munday
Alan Munday
Steven Stamboultgis
Steven Stamboultgis
Steven Stamboultgis
Number of
options
granted Grant date
Vesting date and
exercisable date
Expiry date
Fair value
Exercise per option
price at grant date
166,666 25 November 2019
166,666 25 November 2019
166,667 25 November 2019
833,333 25 November 2019
833,333 25 November 2019
833,333 25 November 2019
166,666 25 November 2019
166,666 25 November 2019
166,667 25 November 2019
833,333 27 November 2018
833,333 27 November 2018
833,334 27 November 2018
833,333 27 November 2018
833,333 27 November 2018
833,334 27 November 2018
500,000 27 November 2018
500,000 27 November 2018
333,333 27 November 2018
333,333 27 November 2018
333,334 27 November 2018
333,333 27 November 2018
333,333 27 November 2018
333,334 27 November 2018
333,333 27 November 2018
333,333 27 November 2018
333,334 27 November 2018
375,000 19 December 2019
187,500 19 December 2019
187,500 19 December 2019
300,000 19 December 2019
150,000 19 December 2019
150,000 19 December 2019
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2020 30 November 2023
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
30 November 2022
22 March 2019
22 March 2019
30 November 2022
31 December 2019 19 December 2022
31 December 2020 19 December 2022
31 December 2021 19 December 2022
31 December 2019 19 December 2022
31 December 2020 19 December 2022
31 December 2021 19 December 2022
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.086
$0.074
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.106
$0.086
$0.074
$0.104
$0.087
$0.063
$0.104
$0.087
$0.063
Options granted carry no dividend or voting rights.
25
Novatti Group Limited
Directors' report
30 June 2020
The number of options over ordinary shares granted to and vested by directors and other key management personnel as
part of compensation during the year ended 30 June 2020 are set out below:
Name
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai
Paul Burton
Steven Zhou
Alan Munday
Steven Stamboultgis
Number of
Number of
Number of
Number of
options
granted
options
granted
options
vested
options
vested
during the
during the
during the
during the
year
2020
year
2019
year
2020
year
2019
500,000
2,500,000
500,000
-
-
-
750,000
600,000
2,500,000
2,500,000
1,500,000
1,000,000
1,000,000
1,000,000
-
-
-
-
-
-
-
-
375,000
300,000
833,334
833,334
500,000
333,334
333,334
333,334
250,000
200,000
Additional information
The factors that are considered to affect total shareholders return ('TSR') are summarised below:
Share price at financial year end ($)
Total dividends declared (cents per share)
Basic earnings per share (cents per share)
0.310
-
(6.398)
0.165
-
(3.098)
0.225
-
(1.530)
0.115
-
(5.030)
0.140
-
(9.060)
2020
2019
2018
2017
2016
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the company held during the financial year by each director and other members of key management
personnel of the consolidated entity, including their personally related parties, is set out below:
Balance at Received Participation Exercise
the start of
as part of
the year
remuneration
of
share
placement
of
Balance at
the end of
options
the year
Ordinary shares
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai
Paul Burton
Alan Munday
Steven Stamboultgis
2,343,750
11,107,904
1,562,500
12,918,750
-
50,000
20,000
28,002,904
600,816
-
-
197,368
263,158
-
-
1,061,342
238,096
-
-
-
-
-
-
238,096
106,848
-
3,182,662
- 11,107,904
1,669,348
- 13,116,118
263,158
-
50,000
-
20,000
-
106,848 29,409,190
*
Mr Steven Zhou does not hold any fully paid ordinary shares.
26
Novatti Group Limited
Directors' report
30 June 2020
Option holding
The number of options over ordinary shares in the company held during the financial year by each director and other
members of key management personnel of the consolidated entity, including their personally related parties, is set out below:
Options over ordinary shares
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai
Paul Burton
Steven Zhou
Alan Munday
Steven Stamboultgis
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
2,500,000
2,500,000
1,500,000
1,000,000
1,000,000
1,000,000
-
-
9,500,000
500,000
2,500,000
500,000
-
-
-
750,000
600,000
4,850,000
-
-
(500,000)
-
-
-
-
-
(500,000)
3,000,000
-
5,000,000
-
1,500,000
-
1,000,000
-
1,000,000
-
1,000,000
-
750,000
-
-
600,000
- 13,850,000
Loans to key management personnel and their related parties
Novatti Group Ltd entered into a loan agreement on 10 June 2019, for $600,000 with an entity associated with Peter
Pawlowitsch. The loan drawn down as at 30 June 2019 was $400,000. The interest rate payable on the loan facility is 12%
per annum. The loan was fully repaid during the 2020 financial year.
Novatti Group Ltd entered into a loan agreement on 12 February 2020, for $400,000 with an entity associated with Peter
Pawlowitsch. The interest rate payable on the loan facility is 12% per annum. The loan was fully repaid on 27 March 2020.
Other transactions with key management personnel and their related parties
Services
No other payments were made to Directors outside of their normal duties as Directors for Novatti Group Ltd.
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 30th June 2020.
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
27 November 2018
15 November 2019
25 November 2019
19 December 2019
10 July 2020
10 July 2020
10 July 2020
10 July 2020
10 July 2020
Expiry date
30 November 2022
30 October 2022
30 November 2023
19 December 2022
10 July 2023
1 March 2024
1 March 2025
1 March 2026
31 December 2022
Exercise
Number
price
under option
$0.196
$0.250
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
9,000,000
3,325,000
3,500,000
5,370,000
850,000
441,667
441,667
66,666
3,200,000
26,195,000
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
company or of any other body corporate.
27
Novatti Group Limited
Directors' report
30 June 2020
Shares issued on the exercise of options
The following ordinary shares of Novatti Group Limited were issued during the year ended 30 June 2020 and up to the date
of this report on the exercise of options granted:
Date options granted
21 July 2016
27 November 2018*
20 October 2019
Exercise
price
Number of
shares issued
$0.200
$0.190
$0.250
200,000
106,848
175,000
481,848
*
On 24 June 2020, Mr Brandon Munro exercised 500,000 unlisted options using the cashless exercise facility contained
in the option terms. 106,848 fully paid ordinary shares were issued.
Shares issued on conversion of convertible notes
On 3 July 2020, the Group issued 700,000 ordinary shares on conversion of 175,000 convertible notes (4 for 1).
As at the date of this report, the Group has 3,325,000 convertible notes on issue.
Indemnity and insurance of officers
The company has indemnified the directors and executives of the company 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 company paid a premium in respect of a contract to insure the directors and executives of the
company against a 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 company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
company or any related entity against a liability incurred by the auditor.
During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company
or any related entity.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf
of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility
on behalf of the company for all or part of those proceedings.
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 24 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.
The directors are of the opinion that the services as disclosed in note 24 to the financial statements do not compromise the
external auditor's independence requirements of 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 (including Independence Standards) 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 company, acting as advocate for the company or jointly sharing economic risks and rewards.
●
28
Novatti Group Limited
Directors' report
30 June 2020
Officers of the company who are former partners of William Buck
There are no officers of the company who are former partners of William Buck.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
immediately after this directors' report.
Auditor
William Buck continues in office in accordance with section 327 of the Corporations Act 2001.
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
27 August 2020
29
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 2020
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
N. S. Benbow
Director
Dated this 27th day of August, 2020
Novatti Group Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2020
Revenue
Other income
Expenses
Client hosting fees and other direct services
Employee benefits
Depreciation and amortisation expense
Occupancy
Finance charges
Foreign currency translation (losses)/gains
Travel expenses
Marketing and selling expenses
Insurance
Data management expenses
Share of net profit of joint ventures accounted for using the equity method
Accounting fees
Due diligence costs
Public company running costs
Gain/(loss) on embedded derivative - convertible note facility into Novatti Group Ltd
the parent entity
Impairment of capitalised bank licensing costs
Other expenses
Loss before income tax expense
Income tax expense
Consolidated
Note
2020
$
2019
$
4
11,003,666
8,416,464
853,469
473,938
(3,134,471)
(11,234,811)
(904,815)
(144,720)
(1,366,425)
(181,631)
(248,043)
123,213
(179,191)
(254,766)
17,322
(290,985)
-
(190,383)
(1,879,065)
(7,684,661)
(389,337)
(336,365)
(75,664)
(248,644)
(478,069)
(602,196)
(157,977)
(226,394)
(40)
(160,167)
(497,853)
(246,957)
13
(726,942)
(3,012,715)
(1,041,307)
-
-
(831,567)
(10,913,535)
(4,924,554)
5
(46,791)
(29,759)
Loss after income tax expense for the year attributable to the owners of
Novatti Group Limited
(10,960,326)
(4,954,313)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners of Novatti
Group Limited
Basic earnings per share
Diluted earnings per share
90,343
102,049
90,343
102,049
(10,869,983)
(4,852,264)
Cents
Cents
31
31
(6.398)
(6.398)
(3.098)
(3.098)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
31
Novatti Group Limited
Statement of financial position
As at 30 June 2020
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets - funds in trust
Other investments
Other current assets
Total current assets
Non-current assets
Investments accounted for using the equity method
Other investments
Plant and equipment
Right-of-use assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Settlement and remittance funds payable
Loans
Lease liabilities
Unearned revenue
Convertible note facilities
Employee benefits
Total current liabilities
Non-current liabilities
Lease liabilities
Convertible note facilities
Employee benefits
Total non-current liabilities
Total liabilities
Net assets/(liabilities)
Equity
Issued capital
Reserves
Accumulated losses
Total equity/(deficiency)
Consolidated
Note
2020
$
2019
$
6
7
8
10
9
10
11
12
13
14
15
16
17
18
16
18
2,599,878
2,784,991
17,452,001
560,000
360,133
23,757,003
1,806,924
4,287,947
3,754,633
-
512,772
10,362,276
22,456
300,000
572,509
2,244,594
5,703,440
239,567
9,082,566
5,224
800,000
623,124
-
4,645,343
99,739
6,173,430
32,839,569
16,535,706
5,854,239
17,452,001
-
245,027
860,863
1,100,000
920,714
26,432,844
4,641,419
3,754,633
402,506
-
937,160
-
508,095
10,243,813
2,233,365
4,544,578
114,345
6,892,288
117,334
-
51,502
168,836
33,325,132
10,412,649
(485,563)
6,123,057
19
20
26,684,947
2,376,730
(29,547,240)
24,074,324
2,180,965
(20,132,232)
(485,563)
6,123,057
The above statement of financial position should be read in conjunction with the accompanying notes
32
Novatti Group Limited
Statement of changes in equity
For the year ended 30 June 2020
Consolidated
Share based
payment
reserve
$
Foreign
currency
translation
reserve
$
Issued
capital
$
Accumulated
losses
$
Total equity
$
Balance at 1 July 2018
22,234,239
1,265,108
427,723
(15,177,919)
8,749,151
Loss after income tax expense for the year
Other comprehensive income for the year, net
of tax
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Shares issued during the period net of
transaction costs
Vesting of share-based payments
-
-
-
-
-
-
-
(4,954,313)
(4,954,313)
102,049
-
102,049
102,049
(4,954,313)
(4,852,264)
1,840,085
-
-
386,085
-
-
-
-
1,840,085
386,085
Balance at 30 June 2019
24,074,324
1,651,193
529,772
(20,132,232)
6,123,057
Consolidated
Share-based
payment
reserve
$
Foreign
currency
translation
reserve
$
Issued
capital
$
Accumulated
losses
$
Total
deficiency in
equity
$
Balance at 1 July 2019
24,074,324
1,651,193
529,772
(20,132,232)
6,123,057
Adjustment on initial application of AASB 16–
Leases, (note 1)
-
-
-
53,940
53,940
Balance at 1 July 2019 - restated
24,074,324
1,651,193
529,772
(20,078,292)
6,176,997
Loss after income tax expense for the year
Other comprehensive income for the year, net
of tax
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Vesting of share-based payments
Issue of shares as consideration for acquisition
of assets from Emersion Software Systems Pty
Ltd
Issue of shares to Directors in lieu of fees
Issue of shares for the settlement of convertible
note debt
Lapse of expired share options
Issue of options from convertible notes
Issue of convertible notes
-
-
-
-
-
-
-
(10,960,326)
(10,960,326)
90,343
-
90,343
90,343
(10,960,326)
(10,869,983)
143,000
1,279,484
2,207,700
201,655
-
-
58,268
-
-
-
(14,518)
(1,491,378)
293,847
37,987
-
-
-
-
-
-
-
-
1,422,484
-
-
2,207,700
201,655
-
1,491,378
-
-
43,750
-
293,847
37,987
Balance at 30 June 2020
26,684,947
1,756,615
620,115
(29,547,240)
(485,563)
The above statement of changes in equity should be read in conjunction with the accompanying notes
33
Novatti Group Limited
Statement of cash flows
For the year ended 30 June 2020
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 grant
Receipt of Government Stimulus
Interest and other finance costs paid
Consolidated
Note
2020
$
2019
$
28,972,915
(31,377,788)
36,599
1,021,818
270,615
(161,226)
27,464,350
(30,380,369)
(35,496)
923,660
-
(75,665)
Net cash used in operating activities
30
(1,237,067)
(2,103,520)
Cash flows from investing activities
Payment for purchase of business, net of cash acquired
Payments for acquisition of investment partnership
Loans to investment business
Payments for plant and equipment
Payments for intangible assets
Payments for security deposits
Payments for banking licence
Proceeds from disposal of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from related party borrowing
Repayment of borrowings
Interest and other finance costs paid
Proceeds from issue of convertible note facility
Cost of debt - convertible note facilities
Share issue transaction costs
Repayment of lease liabilities
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
27
11
13
(190,000)
-
-
(51,477)
(1,138,788)
(146,952)
-
850
-
(200,000)
(200,000)
(527,511)
-
-
(1,662,628)
-
(1,526,367)
(2,590,139)
133,750
400,000
(800,000)
(2,506)
4,600,000
(353,360)
-
(239,865)
1,972,094
400,000
-
-
-
-
(132,009)
-
3,738,019
2,240,085
974,585
1,806,924
(181,631)
(2,453,574)
4,509,142
(248,644)
Cash and cash equivalents at the end of the financial year
6
2,599,878
1,806,924
The above statement of cash flows should be read in conjunction with the accompanying notes
34
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies
Statement of Compliance
The consolidated financial statements are general-purpose financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001.
The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the
International Accounting Standards Board (IASB). For the purposes of preparing the consolidated financial statements, the
Company is a for-profit entity.
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 financial year ended 30 June 2020.
Disclosures required by these standards that are deemed material have been included in this financial report on the basis
that they represent a significant change in the information from that previously made available.
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 year ended 30 June 2020.
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 16 Lease
The Group has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 'Leases' and for lessees eliminates
the classifications of operating leases and finance leases. Except for short-term leases and leases of low value assets, right-
of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating
lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and
an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the
expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117.
However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results improve as the operating expense
is now replaced by interest expense and depreciation in profit or loss. For classification within the statement of cash flows,
the interest portion is disclosed in operating activities and the principal portion of the lease payments are separately disclosed
in financing activities. For lessor accounting, the standard does not substantially change how a lessor accounts for leases.
AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been restated.
The impact of adoption on opening retained profits as at 1 July 2019 was as follows:
Assets
Right-of-use assets
Liabilities
Lease liabilities
Total adjustment on equity
Reduction in opening accumulated losses as at 1 July 2019*
1 July 2019
$
2,460,324
(2,514,264)
(53,940)
*The adjustment to opening accumulated losses arises from lease incentive liability on the date of AASB 16 adoption.
The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019 as follows:
35
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
Operating lease commitments as at 1 July 2019
Discounted operating lease commitments using weighed average incremental borrowing rate of 5.25% at 1
July 2019
Less:
Commitments relating to short-term leases
Lease liabilities as at 1 July 2019
1 July 2019
$
3,343,032
(793,419)
(35,349)
2,514,264
The short term leases which were exempted from AASB 16 have been expensed in the statement of profit or loss and
comprehensive income. $135,699 was recognised and disclosed in occupancy expenses for the year ending 30 June 2020.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which
comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the
commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the
cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and
restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful
life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the
lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for
any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms
of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as
incurred.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or,
if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected
to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably
certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or
a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured
if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual
guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an
adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset
is fully written down.
Basis of preparation
The financial statements have been prepared on an accruals basis and are based on the historical cost convention. Unless
otherwise stated the carrying amounts of financial assets and liabilities reflect their fair value.
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.
36
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
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 27.
Principles of consolidation
These are the financial statements of Novatti Group Limited (the ‘Company’) and its controlled entities (the ‘Group’) as at 30
June 2020.
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
The ability to use its power over the investee to affect its returns
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.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. 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.
Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and
non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The
consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained
together with any gain or loss in profit or loss.
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.
37
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
Revenue recognition
The Group recognises revenue as follows:
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 that are recognised at the stage of
performance completion and the revenue for ongoing maintenance and support, recognised on a straight-line basis, monthly
over the subscription term.
Billing solutions
Provision of technologically advanced billing and customer information system platforms for the utilities industry. Yearly
licence fees are amortised over the relevant year and professional services revenue is recognised in the month the service
is provided at that point in time.
Transaction sales
Included within transaction sales are:
●
●
●
●
Fees for software as a service
Fees for the facilitation of top up vouchers
Settlement Services of financial transactions
Fees from ‘Prepaid’ reloadable cards
Revenue from transaction sales are recognised at the point in time for which the transaction takes place.
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 performance obligations
and have outstanding services owing for the financial year ended 30 June 2020.
Other revenue
Other revenue is recognised at the time it is received or when the right to receive payment is established.
Accrued revenue
Accrued revenue includes revenue from the sales of services unbilled as at 30 June 2020.
Government grants
Government grants, including Research and Development revenues, are recognised at the point in time 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 rate for each jurisdiction, 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.
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.
38
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
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.
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 allowance for expected credit losses. Trade receivables are generally due for settlement within 30
days.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at
either amortised cost or fair value depending on their classification. Classification is determined based on both the business
model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an
accounting mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the
Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of
recovering part or all of a financial asset, it's carrying value is written off.
Financial assets at amortised cost
A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business
model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial
asset represent contractual cash flows that are solely payments of principal and interest.
Financial assets at fair value through profit or loss
Financial assets not measured at amortised cost are classified as financial assets at fair value through profit or loss. Typically,
such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term
with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair
value movements are recognised in profit or loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are measured at amortised cost.
The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to
whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and
supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit
loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a
default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is
determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit
losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of
anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
39
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
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.
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:
Plant and equipment
Leasehold fixtures and fittings at cost
2 years
10 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
An item of 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.
The estimated useful lives for intangibles for the current period are:
Product Development: Technology
Customer lists
Intellectual Property: Technology - Billing Software
Vasco Pay brand
5 years
5 - 10 years
10 years
10 years
Intangible assets acquired in a business combination
Intangible assets, including customer lists, intellectual property and brand 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).
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.
40
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
Impairment of tangible and intangible assets
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.
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.
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.
Convertible note facilities
During the year the Group issued convertible note tranches with conversion clauses that were both fixed and variable. For
convertible notes with variable conversion terms, at initial recognition an embedded derivative is recognised on the statement
of financial position at fair value and that embedded derivative is subsequently recorded at its fair value thereafter, with
changes in fair value going through to the statement of profit or loss and other comprehensive income. The difference
between the consideration received (net of costs) and the embedded derivative is reflected in the principal value of the
convertible note liability.
For convertible notes with fixed conversion terms, at initial recognition the separate debt component of the note is recorded
at its fair value (net of costs of the note) with the residual difference between the note and equity taken to a convertible note
reserve in equity.
Over the duration of the maturity of the convertible note, the discount applied to the note at initial recognition is unwound
through a finance charge using the effective interest rate up to the face value of the note at maturity. Costs directly attributable
to the issue of the convertible notes are amortised over the life of the underlying note.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities
are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are
measured at 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 high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
Share-based payments
Equity-settled and cash-settled share-based compensation benefits are provided to employees.
41
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the
rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash
is determined by reference to the share price.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using
either the Binomial or 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.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting
period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate
of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit
or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous
periods.
The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the
Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was
granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows:
●
during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the
expired portion of the vesting period.
from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the
reporting date.
●
All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to
settle the liability.
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 the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a
cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period,
any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
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.
Issued capital
Ordinary shares are classified as equity.
42
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
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.
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, 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.
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.
43
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 1. Significant accounting policies (continued)
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. 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 consolidated entity for the annual reporting period ended 30 June 2020. The Group's
assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the
consolidated entity, are set out below.
The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early
adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance
on measurement that affects several Accounting Standards. Where the Group has relied on the existing framework in
determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian
Accounting Standards, the Group may need to review such policies under the revised framework. At this time, the application
of the Conceptual Framework is not expected to have a material impact on the Group's financial statements.
Note 2. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in
relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and
assumptions on historical experience and on other various factors, including expectations of future events, management
believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal
the related actual results. The judgements, 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.
Coronavirus (COVID-19) pandemic
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have,
on the Group based on known information. This consideration extends to the nature of the products and services offered,
customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific
notes, there does not currently appear to be either any significant impact upon the financial statements or any significant
uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or
subsequently as a result of the Coronavirus (COVID-19) pandemic.
Share-based payment transactions
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 either the Black-Scholes or Binomial
models 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.
Allowance for expected credit losses
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the
lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit
loss rate for each group. These assumptions include recent sales experience and historical collection rates.
44
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 2. Critical accounting judgements, estimates and assumptions (continued)
Fair value measurement hierarchy
The Group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the
lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than
quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3:
Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value
and therefore which category the asset or liability is placed in can be subjective.
The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include
discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable
inputs.
The financial asset investments have been classified by the Group in level 3 (refer note 10). These investments are in private
entities where obtaining input values is not readily possible. Input values recognised were based on judgement and most
recent transaction values.
Estimation of useful lives of finite life intangible assets
The Group determines the valuation, estimated useful lives and related amortisation charges for its finite life intangible assets.
The useful lives could change significantly as a result of technical innovations or some other event. The amortisation charge
will increase where the useful lives are less than previously estimated lives, or, technically obsolete or non-strategic assets
that have been abandoned or sold will be written off or written down.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future
taxable amounts will be available to utilise those temporary differences and losses. The directors have determined that the
losses to date do not validate the requirement to book any DTA for carry forward losses and will consider the recognition of
DTAs in future periods.
Lease term
The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement
is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying
asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included
in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise
an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors
considered may include the importance of the asset to the Group's operations; comparison of terms and conditions to
prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs
and disruption to replace the asset. The Group reassesses whether it is reasonably certain to exercise an extension option,
or not exercise a termination option, if there is a significant event or significant change in circumstances.
Incremental borrowing rate
Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount
future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is
based on what the Group estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a
similar value to the right-of-use asset, with similar terms, security and economic environment.
Assessment of the conversion features of the convertible notes
During the year the Group issued convertible note tranches with conversion clauses that were both fixed and variable. For
the convertible note tranches with variable conversion terms, at initial recognition an embedded derivative is recognised on
the statement of financial position at fair value and that embedded derivative is subsequently recorded at its fair value
thereafter, with changes in fair value going through to the statement of profit or loss and other comprehensive income. The
difference between the consideration received (net of costs) and the embedded derivative is reflected in the principal value
of the convertible note liability.
The fixed component of the convertible note tranches in accordance with AASB 132 Financial instruments, are classified as
equity.
45
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 2. Critical accounting judgements, estimates and assumptions (continued)
Business combinations
As discussed in note 1, business combinations are initially accounted for on a provisional basis. The fair value of assets
acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all
available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting
is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and
liabilities, depreciation and amortisation reported.
Note 3. Operating segments
Identification of reportable operating segments
The Group is organised into five operating business segments:
(1) Novatti Platform, incorporating enterprise sales and Maintenance & Support via the Novatti Platform
(2) Billing Solutions, incorporating Basis2 operating under Novatti Incorporated
(3) Transaction Services incorporating Flexewallet Pty Ltd, Flexe Payments (South Africa) Pty Ltd, Flexe Payments Ltd,
Vasco Pay Pty Ltd and Emersion Software Systems Pty Ltd.
(4) Banking, incorporating the banking services under Novatti IBA Pty Ltd. Novatti B Holding Company Pty Ltd hold the
financial assets as its parent entity
(5) Novatti Group Limited, 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.
Types of products and services
The principal products and services of each of these operating segments are as follows:
Novatti Platform
Billing Solutions
Transaction Processing
Banking Services
Develops, deploys and supports specialised mobile and alternate payment technology,
primarily through the deployment of the Novatti Platform.
Basis2 trading under Novatti Inc. provides a technologically advanced billing and CIS
solution to service providers in the utilities industry.
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.
Emersion Software Systems Pty Ltd integrates diverse business applications, such as
subscription billing, payments and provisioning, into existing business platforms such as
Customer Relationship Management Software.
Vasco Pay Pty Ltd: Provides a payment system centred around reloadable prepaid cards that
meets the needs and wants of international and local university and college students.
Novatti IBA Pty Ltd, on approval as a Restricted Authorised Deposit-Taking Institution ('RADI')
or its banking licence by APRA, Novatti IBA Pty Ltd will offer new banking services to
Australian customers with a focus on the migrant demographic.
Intersegment transactions
Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation.
46
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 3. Operating segments (continued)
Intersegment receivables, payables and loans
Intersegment loans are initially recognised at the consideration received. Intersegment loans are eliminated on consolidation.
Operating segment information
Consolidated - 2020
Revenue
Sales to external customers
Other revenue
Total revenue
EBITDA
Depreciation and amortisation
Interest revenue
Finance costs
Other costs
Profit/(loss) before income
tax expense
Income tax expense
Loss after income tax
expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Novatti
Platform
$
Billing
Solutions
Transaction
Services
Banking
Services
$
$
$
Novatti
Group
Limited
$
Total
$
2,271,796
175,807
2,447,603
2,214,263
-
2,214,263
6,517,607
42,823
6,560,430
-
45,500
45,500
- 11,003,666
580,594
844,724
580,594 11,848,390
(2,241,059)
(325,929)
4,556
(194,367)
(43,385)
294,662
(211,742)
-
(2,839)
(22,976)
(94,420)
(212,927)
3,799
(79,947)
(45,836)
(4,669,248)
(12,785)
2
(38,143)
(139,700)
(1,828,778)
(141,433)
388
(605,701)
(305,727)
(8,538,844)
(904,815)
8,745
(920,997)
(557,624)
(2,800,184)
57,105
(429,331)
(4,859,874)
(2,881,251)
(10,913,535)
(46,791)
(10,960,326)
4,292,554
1,779,062 24,112,444
33,721
4,874,838
545,241 21,218,049
1,804,496
2,621,788 32,839,569
32,839,569
4,882,508 33,325,132
33,325,132
Employee Benefits
5,628,300
34,856
2,664,075
1,236,320
1,671,260
11,234,811
Additions to non-current
assets (other than financial
assets, deferred tax, post-
employment benefits
assets, rights under
insurance contracts)
2,405,024
-
3,546,928
30,620
-
5,982,572
47
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 3. Operating segments (continued)
Consolidated - 2019
Revenue
Sales to external customers
Other revenue
Total revenue
EBITDA
Depreciation and amortisation
Interest revenue
Finance costs
Other costs
Profit/(loss) before income
tax expense
Income tax expense
Loss after income tax
expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
Novatti
Platform
$
Billing
Solutions
Transaction
Services
Banking
Services
$
$
$
Novatti
Group
Limited
$
Total
$
2,289,873
-
2,289,873
2,224,146
-
2,224,146
3,902,445
-
3,902,445
-
-
-
-
463,656
463,656
8,416,464
463,656
8,880,120
(1,771,002)
(43,021)
4,760
(29,637)
(9,899)
248,963
(198,153)
-
(795)
(28,849)
(1,793,756)
(63,509)
15
(39,508)
(176,499)
(66,231)
-
-
-
-
(872,562)
(84,654)
5,507
(5,724)
-
(4,254,588)
(389,337)
10,282
(75,664)
(215,247)
(1,848,799)
21,166
(2,073,257)
(66,231)
(957,433)
(4,924,554)
(29,759)
(4,954,313)
2,112,875
2,872,489
7,124,600
1,782,082
2,643,660 16,535,706
16,535,706
Employee Benefits
4,678,844
42,287
2,397,542
2,427,419
472,741
6,204,495
-
-
1,307,994 10,412,649
10,412,649
565,988
7,684,661
Additions to non-current
assets (other than financial
assets, deferred tax, post-
employment benefits assets,
rights under insurance
contracts)
518,568
-
8,942
-
1,662,628
2,190,138
For the breakdown of operating segment revenue into disaggregated revenue components, refer to Note 4.
Revenue from Australian customers is $3,549,440 (FY19: $2,038,278).
Revenue from customers in other countries is $7,454,226 (FY19: $6,378,186).
Revenue from a single customer in a country other than Australia is $3,497,650 (FY19: $1,959,434), generated from Billing
Solution and Transactional Services segments.
48
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 4. Revenue
2020
Sales revenue:
Platform sales
Billing Solutions
Transaction processing
2019
Sales revenue
Platform sales
Billing Solutions
Transaction processing
Note 5. Income tax expense
Timing of
revenue
recognition
Timing of
revenue
recognition
Services
provided at
point in time
$
Services
provided
over time
$
Consolidated
2020
$
-
1,287,820
6,517,608
2,271,796
926,442
-
2,271,796
2,214,262
6,517,608
7,805,428
3,198,238 11,003,666
Timing of
revenue
recognition
Timing of
revenue
recognition
Services
provided at
point in time
$
Services
provided
over time
$
Consolidated
2019
$
-
1,418,910
3,902,445
2,289,873
805,236
-
2,289,873
2,224,146
3,902,445
5,321,355
3,095,109
8,416,464
Numerical reconciliation of income tax expense and tax at the statutory rate
Loss before income tax expense
Tax at the statutory tax rate of 27.5%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Adjustment for tax rate differences in foreign jurisdictions
Adjustment for income tax payable in foreign jurisdictions
Adjustment for tax exempt research and development tax
Adjustments from prior periods
Share-based payments
Adjustment for R&D accounting expense included within R&D incentive
Other non-deductible expenses
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
Income tax expense
49
Consolidated
2020
$
2019
$
(10,913,535)
(4,924,554)
(3,001,222)
(1,354,252)
40,806
46,791
(155,462)
390,490
366,434
357,384
67,435
(1,887,344)
2,353,782
328,227
(747,874)
23,800
27,395
(126,695)
20,546
107,563
291,252
21,075
(992,774)
814,248
520,084
(311,799)
46,791
29,759
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 5. Income tax expense (continued)
Deferred tax assets not brought to account:
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 27.5%
Note 6. Current assets - cash and cash equivalents
Cash on hand
Cash at bank
Note 7. Current assets - trade and other receivables
Trade receivables
Less: Allowance for expected credit losses
Accrued revenue
Consolidated
2020
$
2019
$
18,906,227
10,982,770
5,199,212
3,020,262
Consolidated
2020
$
2019
$
595
2,599,283
7,910
1,799,014
2,599,878
1,806,924
Consolidated
2020
$
2019
$
2,376,159
(87,086)
2,289,073
3,787,197
-
3,787,197
495,918
500,750
2,784,991
4,287,947
Allowance for expected credit losses
The consolidated entity has recognised a loss of $87,086 (2019: Nil) in statement of profit or loss and other comprehensive
income in respect of the expected credit losses for the year ended 30 June 2020.
Other than the provision noted above, management are of the opinion that these receivables are reflective of fair value and
should not be impaired.
The ageing of the past due but not impaired receivables are as follows:
Trade receivables
Current
3 to 6 months overdue
Over 6 months overdue
Other receivables
Accrued revenue
50
Consolidated
2020
$
2019
$
1,319,909
93,985
875,179
1,462,811
467,979
1,856,407
495,918
500,750
2,784,991
4,287,947
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 8. Current assets - financial assets - funds in trust
Settlement funds*
Remittance funds*
* Refer to Note 15 Current liabilities – Settlement and Remittance funds payable
Note 9. Current assets - other current assets
Prepayments
Loan to unlisted entity*
Other
Consolidated
2020
$
2019
$
9,102,731
8,349,270
1,934,582
1,820,051
17,452,001
3,754,633
Consolidated
2020
$
2019
$
115,553
200,000
44,580
144,184
200,610
167,978
360,133
512,772
*Terms of loan agreement include:
Borrower: SendFX
Principal amount: $200,000
Term: 12 months from the first drawdown. The loan was first drawn down on 20 May 2019.
Interest: 6%
Repayment: The principal is repayable at the expiry of the term. The borrower may extend the date for repayment by up to
6 months. The borrower may repay all or any portion of the principal and interest prior to the end of the loan term.
Conversion: Where the principal amount and interest has not been repaid within 6 months after the end of term, as may be
extended, the lender may convert some or all of the monies outstanding into fully paid ordinary shares in the borrower.
Security: The borrower charges in favour of the lender all its right, title and interest in present and after acquired property
including any interest to grant a security interest. The charge continues to real property. The borrower has no power to create
any security in the collateral ranking in priority or equal rank to the agreement without obtaining the lender's prior written
consent.
On 8 July 2020, the Group announced that, by mutual agreement, it had exited its investment in SendFX and ended its
provision of ongoing technology and compliance services. Under the terms of the exit agreement, the Group will receive
$900,000 in cash representing payment for the buy-back of the Group's shareholding (refer note 10) and repayment of the
outstanding loan balance as at 30 June 2020.
Note 10. Other investments
Current
Investment in SendFX*
Non-current
Investment in SendFX*
Investment in Slice Payments*
Consolidated
2020
$
2019
$
560,000
-
-
300,000
560,000
240,000
860,000
800,000
* These investments are in private entities where obtaining input values is not readily possible. Input values recognised were
based on judgement and most recent transaction values (refer note 2).
51
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 11. Non-current assets - plant and equipment
Leasehold fixture and fittings - at cost
Less: Accumulated depreciation
Plant and equipment - at cost
Less: Accumulated depreciation
Consolidated
2020
$
2019
$
534,436
(102,504)
431,932
708,684
(568,107)
140,577
495,636
(27,636)
468,000
626,781
(471,657)
155,124
572,509
623,124
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2018
Additions
Depreciation expense
Balance at 30 June 2019
Additions
Disposals
Depreciation expense
Balance at 30 June 2020
Note 12. Non-current assets - right-of-use assets
Buildings - right-of-use
Less: Accumulated depreciation
Leasehold
Plant &
Equipment at
cost
$
Fixtures
& Fittings at
cost
$
136,571
57,957
(39,404)
155,124
38,604
(743)
(52,408)
5,936
469,553
(7,489)
468,000
12,873
-
(48,941)
Total
$
142,507
527,510
(46,893)
623,124
51,477
(743)
(101,349)
140,577
431,932
572,509
Consolidated
2020
$
2019
$
2,525,761
(281,167)
2,244,594
-
-
-
52
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 12. Non-current assets - right-of-use assets (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Buildings -
Right-of-use
$
2,460,324
30,270
35,167
(281,167)
2,244,594
Consolidated
2020
$
2019
$
567,630
(116,183)
451,447
847,000
(262,542)
584,458
567,630
(59,637)
507,993
847,000
(177,657)
669,343
3,784,726
(723,679)
3,061,047
2,017,760
(423,221)
1,594,539
-
1,661,863
45,592
211,605
1,642,764
(81,868)
1,560,896
-
-
-
5,703,440
4,645,343
Consolidated
Recognition on adoption of AASB 16 (note 1)
Additions
Exchange differences
Depreciation expense
Balance at 30 June 2020
Note 13. Non-current assets - intangible assets
Brand Asset
Less: Accumulated amortisation
Intellectual property - at cost
Less: Accumulated amortisation
Customer Lists
Less: Accumulated amortisation
Licences
Other intangible assets
Product development
Less: Accumulated amortisation
53
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 13. Non-current assets - intangible assets (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2018
Reclassification of Brand Asset
and Other Intangible Assets
Additions
Exchange differences
Amortisation expense
Balance at 30 June 2019
Additions
Additions through business
combinations (note 27)
Exchange differences
Impairment of assets*
Amortisation expense
Brand Asset
$
Intellectual
Property
$
Customer
Lists
$
Licences
$
Intangible
Assets
$
Product
Development
$
Total
$
Other
-
753,997 1,703,724
208,840
779,235
- 3,445,796
567,630
-
-
(59,637)
-
-
-
(84,654)
-
-
- 1,453,023
-
-
88,968
(198,153)
(567,630)
-
-
-
507,993
-
669,343 1,594,539 1,661,863
- 1,138,788
-
211,605
-
-
-
- 1,453,023
88,968
-
(342,444)
-
- 4,645,343
- 1,138,788
-
-
-
(56,546)
-
-
-
(84,885)
1,727,841
36,517
(297,850)
-
2,459
- (2,803,110)
-
43,592
-
(209,605)
-
1,642,764 3,414,197
-
38,976
- (3,012,715)
(521,149)
(81,868)
Balance at 30 June 2020
451,447
584,458 3,061,047
-
45,592
1,560,896 5,703,440
*During November 2018, Novatti’s management team submitted an application to the Australian Prudential Authority (APRA)
for a Restricted Authorized Deposit-taking Institution license (ADI license). Due to the difficulty in assessing the potential
financial impact of the granting of the license and notwithstanding the uncertainty as to when the licence will be granted by
APRA, the Directors have determined that the costs in relation to its license should be impaired from the statement of financial
position. The full impact of this impairment charge has been recorded as a charge to the statement of profit or loss and other
comprehensive income.
Note 14. Current liabilities - trade and other payables
Trade payables
Accrued expenses
Amounts payable to Emersion Software Systems Pty Ltd (note 27)
Other payables
Consolidated
2020
$
2019
$
3,018,037
1,914,520
810,000
111,682
3,592,651
1,038,221
-
10,547
5,854,239
4,641,419
54
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 15. Current liabilities - settlement and remittance funds payable
Settlement funds payable*
Remittance funds payable*
Consolidated
2020
$
2019
$
9,102,731
8,349,270
1,934,582
1,820,051
17,452,001
3,754,633
* Client Funds held for Settlement and Remittance, refer to Note 8.
All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value.
Note 16. Lease liabilities
Consolidated
2020
$
2019
$
245,027
-
-
2,233,365
117,334
-
2,478,392
117,334
Consolidated
2020
$
2019
$
860,863
937,160
Consolidated
2020
$
2019
$
937,160
3,131,941
(3,198,238)
660,532
3,008,561
(2,731,933)
860,863
937,160
Current
Office lease liabilities for Melbourne, United Kingdom and Malta
Non-Current
Lease incentive liability - Melbourne office
Office lease liabilities for Melbourne, United Kingdom and Malta
Note 17. Current liabilities - unearned revenue
Revenue billed in advance
Reconciliation of the values at the beginning and end of the current
and previous financial year:
Opening balance
Amounts billed in advance (ex GST)
Less revenue recognised over a period of time
Closing balance
55
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 18. Convertible note facilities
Current
Loan payable - Convertible note facility for $1.1M at 0% pa
Non-current
Loan payable - Convertible note facility for $2,275M and $1.225M at 9% pa
Embedded derivative - Convertible note facility
Consolidated
2020
$
2019
$
1,100,000
2,817,927
1,726,651
5,644,578
-
-
-
-
$2.275 million 9% convertible note facility
- Proceeds from issue $2,275,000, less transaction costs of $150,150.
On 7 November 2019, Novatti Group issued convertible notes for the amount of $2.275 million to professional and
sophisticated investors.
The primary terms of the convertible note facility are:
Issuer: Novatti Group Ltd
Face value: $2.275M ($1 per note) Interest: 9% pa – payable quarterly based on the face value
Term: 15 November 2019 to 30 July 2021
Conversion price:
Lesser of
i. $0.25 and
ii. lowest share issue price under any capital raising by Novatti Group Ltd between the date of issue of the notes and the
date of receipt of conversion notice.
Bonus options issued as attaching to the convertible notes: 2.275 million options exercisable at $0.25 per share fixed price
exercisable any time before 30 October 2022. The value attached to the options is $188,735, classified in equity reserve.
$1.225 million 9% convertible note facility
- Proceeds from issue $1,225,000, less transaction costs of $63,500.
On 18 February 2020, Novatti Group issued an additional convertible note facility for the amount of $1.225 million to
professional and sophisticated investors under the same terms as the $2.275 million notes noted above.
The primary terms of the convertible note facility are:
Issuer: Novatti Group Ltd
Face value: $1.225M ($1 per note) Interest: 9% pa – payable quarterly based on the face value
Term: 18 February 2020 to 30 July 2021
Conversion price:
Lesser of
i. $0.25 and
ii. lowest share issue price under any capital raising by Novatti Group Ltd between the date of issue of the notes and the
date of receipt of conversion notice.
Bonus options issued as attaching to the convertible notes: 1.225 million options exercisable at $0.25 per share fixed price
exercisable any time before 30 October 2022. The value attached to the options is $105,112, classified in equity reserve.
56
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 18. Current liabilities - convertible note facilities (continued)
$1.1million convertible note facility
- Proceeds from issue $1,100,000 less transaction costs of $139,710.
On the 8 November 2019, Novatti B Holding Company Pty Ltd (NBHC) the Group’s wholly owned subsidiary and head of its
banking services unit, issued a $1.1 million convertible note to Australian Fintech Investment Group Pty Ltd (AFIG).
The primary terms of the convertible note facility are:
Issuer: NBHC
Holder: AFIG
Face value: $1.1M
Interest: nil
Term: 8 November 2019 to 31 March 2020*.
Conversion formula: If NBHC obtains its Restricted Authorised Deposit-taking Institution (RADI) license from the Australian
Prudential Regulation Authority (APRA), the facility automatically converts into the number of NBHC shares equal to 5.5%
of its issued capital, (1,100,000 NBHC shares based on 20M shares on issue at the time of agreement).
The value attached to the conversion of notes into NBHC shares is equal to $37,987, classified in equity reserve.
*
The Group had held multiple discussions with AFIG on possible options including extending the term of the convertible
note. As at the date of this report, no agreement has been reached and AFIG continues to await the outcome of NBHC's
application of RADI license.
As financial instruments, the Group’s convertible note facilities are initially measured at fair value. The loan component, or
the financial liability of the convertible notes are accounted for at amortised cost using the effective interest method in
accordance with AASB 9.
As part of its convertible note, Novatti Group’s embedded derivative is subsequently valued at fair value with gains or losses
recognised in the statement of profit or loss and other comprehensive income.
The three convertible notes are measured at level two of the fair value hierarchy as these have been calculated utilising
market observable factors.
The convertible notes are unsecured.
Note 19. Equity - issued capital
Ordinary shares - fully paid
185,210,500 166,879,214
26,684,947
24,074,324
Consolidated
2020
Shares
2019
Shares
2020
$
2019
$
57
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 19. Equity - issued capital (continued)
Movements in ordinary share capital
Details
Date
Shares
$
Balance
Fully paid ordinary shares on exercise of options
Placement to further the Company’s application for a restricted
banking licence
Placement fee to corporate adviser for share placement
1 July 2018
28 February 2019
157,508,333 22,234,239
21,954
84,500
29 March 2019
9,286,381
-
1,950,140
(132,009)
Balance
Take up of fully paid ordinary shares
Fully paid ordinary shares on exercise of options
Issue of shares as consideration for acquisition of assets from
Emersion Software Systems Pty Ltd
Issue of shares to Directors in lieu of fees
Conversion of 500,000 director options
Issue of shares for the settlement of convertible note debt*
30 June 2019
25 November 2019
31 December 2019
166,879,214 24,074,324
50,000
40,000
238,096
200,000
2 April 2020
9 June 2020
24 June 2020
16,725,000
1,061,342
106,848
-
2,207,700
201,655
53,000
58,268
Balance
30 June 2020
185,210,500 26,684,947
*On 3 July 2020, the Group issued 875,000 fully paid ordinary shares for the settlement of convertible note debt.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends, when declared and the proceeds on the winding up of the
Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par
value and the Company 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
share shall have one vote.
Share buy-back
There is no current on-market share buy-back.
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 20. Equity - reserves
Foreign currency reserve
Share-based payments reserve
Consolidated
2020
$
2019
$
620,115
1,756,615
529,772
1,651,193
2,376,730
2,180,965
58
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 20. Equity - reserves (continued)
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. It is also used to recognise gains and losses on hedges of the net investments in foreign
operations.
Share-based payments 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
exercised and balance is transferred to retained earnings when options lapse.
The following options form part of the reserve for the year ended 30 June 2020:
On the 25 November 2019, 5,370,000 unlisted options were granted to staff and contractors under the Group’s Employee
Share Option Plan (ESOP). The options issued have an exercise price of $0.20 each. The options will vest in three tranches:
●
●
●
50% of options provided to employees will vest on grant date
A further 25% will vest 12 months from grant date, on the 25 November 2020
The remaining 25% will vest 24 months from grant date on the 25 November 2021
All unexercised options will lapse 36 months after grant date on the 25 November 2022.
The fair value of these options are valued at “grant date” using the Black-Scholes option pricing model.
At the FY19 AGM of shareholders, 3.5 million unlisted incentive options were approved to be issued to Group Directors at
an exercise price of $0.22 per share.
In accordance with Resolution 9 of the AGM the incentive options will be issued free of charge and within one month after
the date of the meeting, options issued to directors will be exercisable upon the successful completion of three milestones:
●
●
Options that are linked to a specific milestone will not “vest” unless and until the relevant milestone has been achieved
within the prescribed timeframe or a “Change of Control Event” occurs during that period. If neither of these events
occurs within the prescribed timeframe, then the relevant number of Incentive Options will automatically lapse.
In addition, all “unvested” Options will be forfeited and automatically lapse upon the recipient terminating or being
removed from their role with the Company, unless the Board determines otherwise.
See the terms and conditions in Schedule 3 of the Notice of 2019 AGM for further details.
Details of these milestones and timeframes for achievement are as follows:
Milestone 1: The 20-day VWAP achieving a price greater than or equal to 130% of the November 2019 20- day VWAP at
any time during the period commencing 1 December 2019 and ending 30 November 2020 (inclusive).
Milestone 2: The 20-day VWAP achieving a price greater than or equal to 160% of the November 2019 20- day VWAP at
any time during the period commencing 1 December 2019 and ending 30 November 2021 (inclusive).
Milestone 3: The 20-day VWAP achieving a price greater than or equal to 190% of the November 2018 20- day VWAP at
any time during the period commencing 1 December 2019 and ending 30 November 2022 (inclusive).
The exercise price for the Incentive Options will be equal to the November 2019 20-day VWAP. The Incentive Options will
expire on 30 November 2023 after which date all of the Incentive Options not yet exercised automatically lapse.
As part of the Group’s convertible note facility issued during the year ended 30 June 2020:
(1) the bonus options exercisable for a fixed number of shares (3,500,000 shares) for a fixed price ($0.25 per share) has
been categorised as equity.
(2) The conversion of the 1.1 million convertible note resulting in a fixed number of shares (1,100,000 million Novatti B
Holding Company shares) for a fixed price ($1 per share) has been classed as equity under the ‘fixed’ test guidelines
of AASB 132 Financial Instruments Presentation (2014)
59
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 20. Equity - reserves (continued)
Accordingly, the equity component of the financial instrument is never remeasured in subsequent reporting periods. Please
see note 18 for further information on the terms of the convertible notes
Note 21. Equity - dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Note 22. 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
Lease liabilities
Convertible note facilities
Client funds held for settlement and remittance are not recognised as financial instruments as the net value of the two net
off in total.
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.
60
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 22. Financial instruments (continued)
Credit risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other
receivables and other financial assets. The Group’s exposure to credit risk arises from potential default by the counter-party,
with maximum exposure equal to the carrying amount of these instruments. Exposure at the reporting date is addressed in
each applicable note.
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. Refer to Note 7 trade and other receivable for the ageing analysis.
The Group does not have any material credit risk exposure for other receivables or other financial instruments.
Market risk
Foreign 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, accounts receivable and payable accounts and on its financial assets
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).
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities at the
reporting date were as follows:
Consolidated
Canadian dollars
US dollars
Euros
GBP
Assets
2020
$
2019
$
Liabilities
2020
$
2019
$
3,463,134
1,052,126
9,217,938
35,113
3,108,184
2,323,458
1,067,922
14,300
(692,804)
(226,950)
(188,433)
(36,090)
(1,327,733)
(135,958)
(819,300)
(37,965)
13,768,311
6,513,864
(1,144,277)
(2,320,956)
The following tables below illustrate the sensitivity of the net result for the year and equity in regard 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 2020. 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.
61
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 22. Financial instruments (continued)
Consolidated - 2020
% change
profit before
tax
Effect on
equity
% change
profit before
tax
Effect on
equity
AUD strengthened
Effect on
AUD weakened
Effect on
Canadian dollars
US dollars
Euros
GBP
5%
5%
5%
5%
(131,920)
(39,294)
(429,976)
47
(601,143)
AUD strengthened
Effect on
Consolidated - 2019
% change
profit before
tax
Effect on
equity
Canadian dollars
US dollars
Euros
GBP
5%
5%
5%
5%
(84,783)
(104,167)
(11,839)
1,127
(199,662)
-
-
-
-
-
-
-
-
-
-
5%
5%
5%
5%
145,807
43,430
475,237
(51)
664,423
AUD weakened
Effect on
% change
profit before
tax
Effect on
equity
5%
5%
5%
5%
93,708
115,132
13,085
(1,246)
220,679
-
-
-
-
-
-
-
-
-
-
Price risk
The Group is exposed to other price risk on its investments in unlisted entities. These investments are classified on the
statement of financial position as investment assets initially recorded at cost and are subsequently measured at fair value
through the statement of profit or loss and other comprehensive income. The investments are in two different entities. The
assets and liabilities within these investments indirectly expose the Group to equity price risks. It is not considered practicable
to ‘look through’ the investments to analyse these risks in detail. These investments were acquired in the FY19 year.
If the fair value of investments increased by 10% this would have increased other income for both the Group by $86,000. A
decrease of 10% would have reduced other income by the same amount.
Investments measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy:
●
●
●
Level 1 – the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – a valuation technique is applied using inputs other than quoted prices within Level 1 that are observable for
the financial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices)
Level 3 – a valuation technique is applied using inputs that are not based on observable market data (unobservable
inputs)
2020
Assets
Shares in unlisted entities
2019
Assets
Shares in unlisted entities
Level 1
$
Level 2
$
Level 3
$
Total
$
Level 1
$
-
-
-
860,000
860,000
Level 2
$
Level 3
$
Total
$
-
800,000
800,000
These investments are in private entities where obtaining input values is not readily possible. Input values recognised were
based on judgement and most recent transaction values.
62
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 22. Financial instruments (continued)
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 2020, the financial liabilities of the Group include:
●
●
●
Trade and other payables. For further details including breakdown of balances, refer to trade and other payables in
Note 14 for a breakdown of account balances
Lease liabilities. Refer to Note 16 for a summary of the outstanding lease liabilities
Convertible note facilities. Refer to Note 18 for a summary of terms and conditions
The contractual amounts of financial liabilities are equal to their carrying values.
The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are
required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities
and therefore these totals may differ from their carrying amount in the statement of financial position.
Consolidated - 2020
Non-derivatives
Non-interest bearing
Trade payables and other
payables
Interest-bearing - fixed rate
Convertible note facilities
Lease liabilities
Total non-derivatives
Consolidated - 2019
Non-derivatives
Non-interest bearing
Trade payables and other
payables
Lease liabilities
Total non-derivatives
Weighted
average
interest rate
%
1 year or less
$
Between 1
and 2 years
$
Between 2
and 5 years
$
Over 5 years
$
Remaining
contractual
maturities
$
-
5,854,239
-
9.00%
5.21%
1,100,000
245,027
7,199,266
4,544,578
2,233,365
6,777,943
-
-
-
-
-
5,854,239
-
5,644,578
2,478,392
-
- 13,977,209
Weighted
average
interest rate
%
1 year or less
$
Between 1
and 2 years
$
Between 2
and 5 years
$
Over 5 years
$
Remaining
contractual
maturities
$
-
-
4,641,419
117,334
4,758,753
-
-
-
-
-
-
-
-
-
4,641,419
117,334
4,758,753
63
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 23. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the consolidated entity
is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Note 24. Remuneration of auditors
Consolidated
2020
$
2019
$
924,544
75,271
15,697
885,740
1,036,782
71,558
14,990
500,965
1,901,252
1,624,295
During the financial year, the following fees were paid or payable for services provided by William Buck, the auditor of the
Company, its network firms and unrelated firms:
Consolidated
2020
$
2019
$
90,500
79,540
72,635
-
58,905
11,970
72,635
70,875
163,135
150,415
Audit services - William Buck
Audit or review of the financial statements
Other services - William Buck
Preparation of the tax return and associated tax services (including R&D)
Investigative consulting
Note 25. Related party transactions
Parent entity
Novatti Group Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 28.
Key management personnel
Disclosures relating to key management personnel are set out in note 23 and the remuneration report included in the
directors' report.
Transactions with related parties
There were no transactions with related parties during the current and previous financial year.
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting date.
64
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 25. Related party transactions (continued)
Loans from Directors
Current and non-current liabilities to a Director
There were no other Director related services that have been provided to the Group outside of the Directors normal fiduciary
duties and responsibilities as Directors of Novatti Group other than as outlined in this report.
Loans to/from related parties
Loan provided to the Group’s joint venture partner, Hi Impact. This loan agreement is for a total of USD 18,335 (AUD 26,611)
as at 30 June 2020 (FY19, USD 18,335 (AUD 29,940)). The loan is on commercial terms and interest has been calculated
daily at 6% per annum.
There were no other loans to or from related parties at the current reporting date.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 26. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Loss after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Share-based payments reserve
Accumulated losses
Total equity
Parent
2020
$
2019
$
(2,812,836)
(964,177)
(2,812,836)
(964,177)
Parent
2020
$
2019
$
31,081,847
1,172,317
32,115,258
27,413,112
629,064
1,307,994
5,173,642
1,307,994
29,601,950
2,318,628
(4,978,962)
26,991,327
2,251,193
(3,137,402)
26,941,616
26,105,118
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
There exists a bank guarantee for offices leased in Melbourne. As at 30 June 2020, this totalled $79,169 (FY19: $78,031).
No other guarantees exist.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2020 (2019: Nil).
65
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 26. Parent entity information (continued)
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 (2019: Nil).
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except
for the following:
●
●
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Investments in associates 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 and its receipt may be an
indicator of an impairment of the investment.
Note 27. Business combinations
Acquisition of Emersion Software Systems Pty Ltd
On 2 April 2020, Novatti Group Limited announced the acquisition of business assets from Emersion Software Systems Pty
Ltd, a leading business process integration platform. The acquisition extends the Group's capability offering and strengthens
core payments business. The acquisition has been accounted as a Business Combination under AASB 3. The goodwill of
$43,592 was primarily related to the Company’s growth expectations through customer expansion. The acquired business
contributed revenues of $479,295 and loss after tax of $258,963 to the consolidated entity for the period from 2 April 2020
to 30 June 2020. If the acquisition occurred on 1 July 2019, the full year contributions would have been revenues of
$1,891,632 and loss after tax of $373,829.
The fair values of the identifiable net assets acquired are detailed below:
Prepayments
Customer Lists
Product Development
Employee benefits
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
Less: shares issued by company as part of consideration
Net cash used
Fair value
$
6,735
1,727,841
1,642,764
(213,232)
3,164,108
43,592
3,207,700
3,207,700
(2,207,700)
1,000,000
*The $1 million in cash is payable over monthly instalments of varying amounts until June 2021. The Group paid $190,000
prior to 30 June 2020, with the remaining balance of $810,000 to be paid in 2021 financial year (refer note 14).
The share consideration was issued to the Seller and third party nominees of the Seller (including to holders of outstanding
convertible notes in the Seller) in two tranches, the first being 7,493,256 shares at completion and the balance of 9,231,744
shares on 29 May 2020 upon receiving shareholder approval from a general meeting. Neither the Seller nor any of the third-
party nominees are related to Novatti.
66
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 28. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy described in note 1:
Name
Novatti Group Ltd Subsidiaries
Novatti Pty Ltd
Flexe Payments Ltd
Flexe Payments Pty Ltd
Flexe Payments (MLT) Ltd
Novatti Commerce Solutions Inc.
Novatti Commerce Solutions (MLT) Ltd
Novatti Technologies Ltd
Novatti Inc.
Vasco Pay Pty Ltd
Novatti B Holding Pty Ltd
Principal place of business /
Country of incorporation
Ownership interest
2019
2020
%
%
Australia
United Kingdom
South Africa
Malta
Canada
Malta
United Kingdom
United States of America
Australia
Australia
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
67
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 28. Interests in subsidiaries (continued)
Name
Novatti IBA Pty Ltd
Novatti Billing Solutions Pty Ltd
Flexe Payments (AUS) Pty Ltd
UAB Novtec Global
Emersion Systems Pty Ltd
Novatti Pty Ltd Subsidiaries
Flexewallet Pty Ltd
Flexewallet (NZ) Ltd
TransferBridge Pty Ltd
Principal place of business /
Country of incorporation
Ownership interest
2019
2020
%
%
Australia
Australia
Australia
Lithuania
Australia
Australia
New Zealand
Australia
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
-
-
100%
100%
100%
Note 29. Events after the reporting period
On 3 July 2020, the Group issued 875,000 fully paid ordinary shares on conversion of 175,000 Novatti Group Limited
Convertible Notes (4 for 1)and the exercise of 175,000 unlisted options exercisable at $0.25 per share, expiring 30 November
2022. Following this conversion, the Novatti Group Limited Convertible Note facility is now $3.325 million.
On 7 July 2020, the Group issued 40,000,000 ordinary shares at $0.25 per share to institutional and sophisticated investors
in a placement as announced on 29 June 2020, raising $10 million. An additional 800,000 shares totalling $200,000 will be
issued to Directors Peter Pawlowitsch and Peter Cook, for which shareholder approval was granted on 19 August 2020.
On 8 July 2020, the Group announced that it had exited its investment in cross-border payments provider, SendFX, and
ended its provision of ongoing technology and compliance services. Under its exit, the Group will receive $900,000 in cash
representing payment for the buy-back of Novatti's shareholding, plus repayment of loan funds from an aggregate cash
investment by Novatti of $400,000. The funds will be paid in three equal tranches over six months.
No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect the
consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial
years.
68
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 30. Reconciliation of loss after income tax to net cash used in operating activities
Loss after income tax expense for the year
(10,960,326)
(4,954,313)
Consolidated
2020
$
2019
$
Adjustments for:
Depreciation and amortisation
Share-based payments
Equity investments received for services rendered
Share of joint venture profit
Unrealised foreign exchange gain
Impairment of capitalised bank licensing costs
Non-cash finance changes
Gain on convertible notes
Movements in reserves
Change in operating assets and liabilities:
Increase in trade and other receivables
Increase in trade and other payables
Increase in employee benefits
Increase/(decrease) in deferred income
Net cash used in operating activities
Note 31. Earnings per share
904,815
1,601,659
(60,000)
(17,322)
201,017
3,010,255
1,900,119
(726,942)
374,596
389,337
391,138
-
(40)
248,644
-
5,054
-
-
(12,666,053)
15,015,183
262,229
(76,297)
(2,398,156)
3,760,425
177,763
276,628
(1,237,067)
(2,103,520)
Consolidated
2020
$
2019
$
Loss after income tax attributable to the owners of Novatti Group Limited
(10,960,326)
(4,954,313)
Weighted average number of ordinary shares used in calculating basic earnings per share
171,307,937 159,902,694
Weighted average number of ordinary shares used in calculating diluted earnings per share 171,307,937 159,902,694
Number
Number
Basic earnings per share
Diluted earnings per share
Cents
Cents
(6.398)
(6.398)
(3.098)
(3.098)
As at 30 June 2020, the Group has 21,370,000 unlisted options on issue. These options are considered to be non-dilutive
whilst the Group is in a loss position.
Note 32. Share-based payments
Options issued under employee share option plan
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 Company to certain key management
personnel and staff of the Group.
69
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 32. Share-based payments (continued)
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 options granted in FY20 were calculated based on the Binomial model method of calculation for share-based payments.
The following Share-based payment arrangements were in existence during the current financial year and are supported by
the table below.
Options issued to senior management and staff of the Group vest in three equal portions each year from the first year of
vesting over 36 months.
Set out below are summaries of options granted under the plan:
2020
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
21/07/2016
21/07/2016
21/07/2016
27/11/2018
25/11/2019
19/12/2019
31/12/2019
31/12/2019
31/12/2019
30/11/2022
30/11/2023
19/12/2022
$0.200
$0.200
$0.200
$0.190
$0.200
$0.200
333,333
333,333
333,334
9,500,000
-
-
10,500,000
-
-
-
-
3,500,000
5,370,000
8,870,000
-
-
-
(500,000)
-
-
(500,000)
(333,333)
(333,333)
(333,334)
-
-
-
-
-
-
9,000,000
3,500,000
5,370,000
(1,000,000) 17,870,000
Weighted average exercise price
$0.191
$0.200
$0.190
$0.200
$0.185
2019
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
12/11/2015
12/11/2015
12/11/2015
12/11/2015
08/01/2016
03/02/2016
08/02/2016
31/05/2016
31/05/2016
24/06/2016
24/06/2016
24/06/2016
21/07/2016
21/07/2016
21/07/2016
27/11/2018
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
30/06/2019
31/12/2019
31/12/2019
31/12/2019
30/11/2022
$0.200 13,750,000
1,150,000
$0.200
1,150,000
$0.200
1,150,000
$0.200
2,859,250
$0.200
750,000
$0.200
2,005,750
$0.200
750,000
$0.250
750,000
$0.250
259,489
$0.200
741,217
$0.200
1,035,628
$0.200
333,333
$0.200
333,333
$0.200
333,334
$0.200
-
$0.190
27,351,334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,500,000
9,500,000
-
-
-
-
-
-
(84,500)
-
-
-
-
-
-
-
-
-
(84,500)
(13,750,000)
(1,150,000)
(1,150,000)
(1,150,000)
(2,859,250)
(750,000)
(1,921,250)
(750,000)
(750,000)
(259,489)
(741,217)
(1,035,628)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
333,333
333,333
333,334
9,500,000
(26,266,834) 10,500,000
Weighted average exercise price
$0.203
$0.190
$0.200
$0.203
$0.191
*
Refer to Note 2 'Critical accounting estimates' for share-based payment assumptions and Note 20 'Share based
payments reserve' for details on the option vesting conditions.
70
Novatti Group Limited
Notes to the financial statements
30 June 2020
Note 32. Share-based payments (continued)
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the
grant date, are as follows:
Grant date
Expiry date
25/11/2019
25/11/2019
25/11/2019
19/12/2019
19/12/2019
19/12/2019
30/11/2023
30/11/2023
30/11/2023
19/12/2022
19/12/2022
19/12/2022
Share price Exercise
at grant date
price
Expected
volatility
Dividend
Risk-free
Fair value
yield
interest rate at grant date
$0.215
$0.215
$0.215
$0.195
$0.195
$0.195
$0.200
$0.200
$0.200
$0.200
$0.200
$0.200
100.00%
100.00%
100.00%
80.00%
80.00%
80.00%
-
-
-
-
-
-
0.82%
0.82%
0.82%
0.98%
0.98%
0.98%
$0.106
$0.086
$0.074
$0.104
$0.087
$0.063
The options granted on 25 November 2019 were valued using the Binomial valuation model, which took into account the
following market performance vesting conditions:
●
●
●
Milestone 1: The 20-day VWAP achieving a price greater than or equal to 130% of the November 2019 20-day VWAP
at any time during the period commencing 1 December 2019 and ending 30 November 2020 (inclusive).
Milestone 2: The 20-day VWAP achieving a price greater than or equal to 160% of the November 2019 20-day VWAP
at any time during the period commencing 1 December 2019 and ending 30 November 2021 (inclusive).
Milestone 3: The 20-day VWAP achieving a price greater than or equal to 190% of the November 2019 20-day VWAP
at any time during the period commencing 1 December 2019 and ending 30 November 2022 (inclusive).
Options issued for convertible notes
The Group issued 3,500,000 bonus options to the convertible note holders as part of the convertible note facility arrangement.
These options were valued using on the Binomial model method of calculation for share-based payments.
Set out below are summaries of options granted to convertible note holders:
Grant date
Expiry date
Exercise
price
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
15/11/2019
18/02/2020
30/10/2022
30/10/2022
$0.25
$0.25
Weighted average exercise price
-
-
-
-
2,275,000
1,225,000
3,500,000
$0.250
-
-
-
-
-
-
-
-
2,275,000
1,225,000
3,500,000
$0.250
For the options granted to convertible note holders during the current financial year, the valuation model inputs used to
determine the fair value at the grant date, are as follows:
Grant date
Expiry date
Share price Exercise
at grant date
price
Expected
volatility
Dividend
Risk-free
Fair value
yield
interest rate at grant date
15/11/2019
18/02/2020
30/10/2022
30/10/2022
$0.210
$0.200
$0.250
$0.250
80.00%
80.00%
-
-
0.74%
0.59%
$0.085
$0.087
71
Novatti Group Limited
Directors' declaration
30 June 2020
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 consolidated entity's financial position as at
30 June 2020 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the company 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
27 August 2020
72
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
controlled entities (the Group), which comprises the consolidated statement of financial
position as at 30 June 2020, the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the financial
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 2020 and of its
financial performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the 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
(including Independence Standards) (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 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.
REVENUE RECOGNITION
Area of focus
Consistent with the prior year the Group continues to
enter agreements with new trading partners for
generating new sources of income and include the
following:
- Platform sales;
- Software as a Service fees (Saas);
- Support and maintenance fees; and
-
Licence fees.
The Group continues to expand its product and service
offerings and geographical reach; this has
necessitated transacting with customers to which the
Group has limited or no trading history. As a
consequence, some of these customers have long
payment terms which have impacted the age of the
Group’s book of debtors.
Each revenue stream requires a bespoke revenue
recognition model to ensure that revenue is only
recognised:
a) when a performance milestone is achieved;
b) can be reliably measured; and
c) there is a low likelihood for dispute by the customer
for revenues that are recognised which are beyond
that originally scoped at the inception of the
engagement.
How our audit addressed it
Our audit procedures included:
- Determining whether revenue recognised
-
is in-compliance with the Group’s
accounting policies;
Identifying and verifying the achievement
of performance milestones and recognition
of revenue relative to the accretion of that
achievement;
- Agreeing revenue streams to a sample of
underlying contracts with third parties;
- Examining the existence of the revenue,
both by testing to contract and to
subsequent receipt of invoicing of the
revenue to the customer;
- Examining significant aged debtors for
evidence of collectability and/or dispute
with the services provided; and
- Analytically reviewing the reasonableness
of accrued revenue and billings-in-advance
accounts.
We also assessed the appropriateness of
disclosures attached to revenues and
expected credit losses on receivables,
particularly those mandatorily required by the
Accounting Standard AASB 15 and AASB 9.
ACQUISITION OF EMERSION SOFTWARE
Area of focus
How our audit addressed it
Our audit procedures involved the following:
- A detailed review of the Emersion Software asset sale
agreement, and concurring with management,
notwithstanding the legal nature of the transaction as
an asset purchase, that from an accounting
perspective the acquisition met the definition of a
business;
- Consulting our Group Technical Team on the
accounting treatment of the acquisition;
- Comparing the completion accounting to independent
purchase price allocation reports;
- Assessing the impact of the acquisition on the results
of the Group;
- Consulting our tax team for any indirect tax
obligations arising from the purchase, including any
possible stamp duty and goods and services tax; and
- Vouching the accounting treatment of the transaction
to the date of execution of the sale to ensure that the
results of the Emersion business were appropriately
consolidated into the results of the Group from that
date.
We also considered the adequacy of the Group’s
disclosures in relation to the business combination.
On 2 April 2020 the Group completed an
acquisition of Emersion Software. This
acquisition was material to the results of the
Group in the following respects:
-
Intangible assets totalling $3,414,197
were capitalised to the Statement of
Financial Position; and
- New revenues streams totalling
$479,295 were recognised in the
Statement of Profit or Loss and Other
Comprehensive Income.
The Group’s Directors have assessed that
Emersion met the definition of a business
under AASB 3 Business Combinations
owing to strength of Emersion’s existing
trading relationships with its suppliers and
customers and its workforce.
We note that at reporting date the fair value
attribution accounting is complete (which
under Accounting Standards they are
afforded 12 months from the date of
acquisition), including:
a) the attribution of provisional goodwill
calculations to identifiable intangible assets;
b) the setting of tax cost bases for
calculating deferred tax assets and
liabilities; and
c) identifying any vendor guarantees or
contingent liabilities that may be separately
fair valued as part of the business
purchase.
ISSUE OF CONVERTIBLE NOTES
Area of focus
The Group has issued three convertible notes
during the year to meet its working capital needs
and to continue to finance its project of applying for
an ADI licence from APRA.
Two of these convertible notes have variable equity
conversion formulae, entitling the investor to the
lesser of a 25 cent price conversion or the lowest
share price between the date of issue and the date
of the conversion notice.
Because of this variable feature, the right of
conversion has been recorded as a derivative
liability in the Statement of Financial Position.
In-addition to this, bonus call options were issued to
investors in order to incentivise their investment in
the convertible notes. The fair value of these call
options has been accounted for as an amortised
cost of the convertible note.
In accounting for these convertible notes and in-
particular, measuring the fair value of the
convertible note conversion feature, the Group
contracted an external expert.
How our audit addressed it
Our audit procedures involved the following:
- A detailed review of the terms and conditions
of the convertible notes;
- Corroborating the accounting treatment of the
notes with our Group Technical Team;
- Examining the skill and experience of the
expert contracted by the Group; and
- Recalculating the value of the derivative
liability, attaching options and amortised cost
value of the convertible notes, both at initial
recognition and at report date.
- We also reviewed the disclosures of the
convertible notes made in the financial
statements to ensure that they were
appropriate and complete.
ISSUE OF SHARES AND MANAGEMENT OF AVAILABLE WORKING CAPITAL
Area of focus
How our audit addressed it
On 29 June 2020, in order to continue to finance its
organic and transactional growth strategy the
Group announced an intention to issue 40,800,000
shares at 25 cents per share to raise $10,200,000.
Our audit procedures involved the following:
- Tracing to bank funds raised from the
successful fundraising;
40,000,000 of these shares were subsequently
issued and quoted on 7 July 2020.
As at 30 June 2020 the Group was in the process
of fundraising for the issue of those shares, and any
proceeds from the raise were held in trust.
The cash raised from the fundraising and the
access to working capital it delivered will clearly
allow the Group to execute its strategic and
operational goals over the next 12 months.
- Accounting for the cut-off of the fundraising –
that is, funds and shares issued are
accounted for as a non-adjusting subsequent
event, disclosed in the financial statements;
and
- Examining the latest cashflow forecast of the
Group as at report date, to ensure that those
funds would be sufficient for the Group’s
working capital needs for the period of 12
months from the date of this report.
IMPAIRMENT OF BANKING LICENCE
Area of focus
How our audit addressed it
As recorded in the interim December 2019 financial
statements and in response to the difficulty in
assessing the financial impact and uncertainty of
when APRA may grant an ADI licence to Novatti,
the Group impaired licences, website and software
totalling $3,012,715.
This impairment charge significantly impacts upon
the profit or loss result of the Group for the financial
year ended 30 June 2020.
In testing this impairment charge we performed
the following:
— We corroborated our understanding of the
progress of the licence project with
discussions with management, legal counsel
and market announcements;
— We reviewed key file documentation
discussing the delays in granting the licence
by APRA and management’s assessment
thereon as to how those delays may impact
the capitalised value of the licence; and
— We vouched charges made to the profit or
loss in-respect of the licence to the carrying
value subtracted from the value of the
Group’s intangible assets.
We also assessed the adequacy of the Group’s
disclosures in respect of the impairment of the
licence.
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 2020, 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.
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.
A further description of our responsibilities for the audit of these financial statements is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our independent auditor’s report.
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
2020.
In our opinion, the Remuneration Report of Novatti Group Limited, for the year ended 30 June 2020,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
William Buck Audit (Vic) Pty Ltd
ABN: 59 116 151 136
N. S. Benbow
Director
Melbourne, dated this 27th day of August, 2020
Novatti Group Limited
Shareholder information
30 June 2020
The shareholder information set out below was applicable as at 17 August 2020.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Ordinary shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Unquoted options
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Convertible notes
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Number
of holders
of ordinary
shares
Number
of
ordinary
shares
%
of ordinary
shares
27
440
306
824
184
5,396
1,431,077
2,568,223
30,779,539
191,301,264
0.01
0.63
1.14
13.61
84.61
1,781
226,085,499
100.00
129
194,548
0.09
Number
of holders
of
unquoted
options
Number
of
unquoted
options
%
of unquoted
options
-
-
6
40
30
-
-
60,000
1,915,000
24,220,000
-
-
0.23
7.31
92.46
76
26,195,000
100.00
Number
of holders
of
convertible
notes
Number
of
%
convertible of convertible
notes
notes
-
-
6
17
5
28
-
-
60,000
670,000
2,770,000
-
-
1.71
19.14
79.15
3,500,000
100.00
79
Novatti Group Limited
Shareholder information
30 June 2020
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
1. BRAYTER LIMITED
2. QING LI
2. XIADI CHEN
3. CORANGAMITE PTY LTD (LAKE CORANGAMITE A/C)
4. MR CHI WAI KENNETH LAI
5. MADAM QINGLI
6. MR QIANG WEI
7. EMERSION SOFTWARE SYSTEMS PTY LTD
8. CITICORP NOMINEES PTY LIMITED
9. DASISTAS PTY LTD (DASISTAS SUPER FUND A/C)
10. MR KENNETH LAI
11. MR PAUL MCLAREN
12. DAK DRAFTING SERVICES PTY LTD (THE PETER DIAMOND FAMILY A/C)
13. KAPAU ENTERPRISES PTY LTD (DUNDAS INVESTMENT A/C)
14. UBS NOMINEES PTY LTD
15. COALHILL INVESTMENTS PTY LTD
16. GOLDFIRE ENTERPRISES PTY LTD
17. BEARAY PTY LIMITED (BRIAN CLAYTON S/F A/C)
18. VAULT (WA) PTY LTD (VAULT A/C)
19. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
20. MOSCH PTY LTD
Unquoted equity securities
Options over ordinary shares issued
Ordinary shares
% of total
17 August
2020
Number held
46,631,507
12,500,000
12,500,000
11,107,904
10,532,368
10,407,452
7,705,589
6,683,826
3,742,132
2,677,802
2,583,750
2,312,500
2,000,000
1,797,918
1,700,000
1,608,439
1,331,577
1,328,609
1,229,537
1,219,942
1,171,875
shares
issued
20.63
5.53
5.53
4.91
4.66
4.60
3.41
2.96
1.66
1.18
1.14
1.02
0.88
0.80
0.75
0.71
0.59
0.59
0.54
0.54
0.52
142,772,727
63.15
Number
on issue
Number
of holders
26,195,000
76
There are no holders of unquoted equity securities holding 20% or greater of the number of unquoted equity securities on
issue.
Substantial holders
Substantial holders in the company are set out below:
Ordinary shares
% of total
shares
issued
Number held
46,631,506
22,907,452
12,918,750
20.63
10.13
5.71
BRAYTER LIMITED
QINGLI
XAIDI CHEN
80
Novatti Group Limited
Shareholder information
30 June 2020
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.
Securities subject to voluntary escrow
Class
Ordinary shares
Use of funds
Expiry date
31 March 2021
Number
of shares
16,725,000
Since admission, the Company has used its cash in a way consistent with business objectives.
81
Novatti Group Limited
Shareholder information
30 June 2020
Novatti invites investors to keep up to date with news, events and
industry research by joining the Novatti mailing list at:
https://www.novattigroup.com/subscribe
For further information, please contact:
Peter Cook
Managing Director
Novatti Group Limited
peter.cook@novatti.com
+61 411 111 153
This report has been approved for release to the ASX by Peter Cook, Managing Director.
82