O B J E C T I V E A N N U A L R E P O R T 2 0 1 6 ANNUAL REPORT 2016 CONTENTS Achievements & Performance Financial Results Delivering Results for Customers Business Line Report CEO’s Review Directors’ Report Financial Statements Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Auditor’s Independence Declaration Shareholder Information Corporate Directory 2 3 4 8 10 12 17 22 39 40 42 43 44 OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES Objective creates information and process governance solutions that are effortless to use and enable organisations to confidently advance their own digital transformation. Designed for regulated industries, these solutions turn the imperative of compliance, accountability and governance into an opportunity to streamline business processes and deliver the innovative services that customers expect. With a heritage in Enterprise Content Management (ECM), Objective’s expanded solutions extend governance across the spectrum of the modern workplace; underpinning information, processes and collaborative work-spaces. Through a brilliant user experience, people access the information they need to progress processes from wherever they choose to work. ANNUAL REPORT 2016 | 1 6 VALUES Define us. Drive us. Inspire us. WE GROW AND WE SUCCEED BY… Behaving with integrity Demonstrating expertise in everything we do Championing great people and great teams Fostering tenacity Applying entrepreneurial spirit Knowing results matter most 12 11 10 12 LOCATIONS 1 Sydney – Global HQ 2 Brisbane 3 Canberra 4 Melbourne 5 Adelaide 6 Perth 7 Wellington, NZ 8 Palmerston North, NZ 9 Singapore 10 Washington, USA 11 Maidenhead, England 12 Edinburgh, Scotland 9 6 2 1 5 3 4 8 7 240 EMPLOYEES 73 Software Engineers 58 Professional Services Consultants 24 Customer Care Consultants EMPLOYEES BREAKDOWN 3 Sydney, Australia Maidenhead, UK Palmerston North, NZ DEVELOPMENT LABS Expertise & Diversity Staff Development Fostering Innovation Objective embraces diversity and inclusion evidenced through the broad skill-sets, technical capabilities and backgrounds of our people. We are passionate about working with great people and seek thought-leaders, deep domain expertise and people who demonstrate the values we uphold. At Manly Beach in Sydney, this year our staff came together to immerse themselves in company strategy, forward planning and collaboration with peers from all over the world. Activate, our annual staff conference, provides the vision, context and networking opportunity to empower our people to make a difference. Innovate, our bi-annual hack-a-thons, foster creativity and innovation, not only for our software engineers, but the entire company. 24 hours devoted purely to nurturing new ideas or solving problems in a light-hearted competition amongst team mates. Teams worked on 30 projects that delivered new product ideas, automation and productivity tools, while other teams explored new technology and how it could be applied at Objective. 2 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES FINANCIAL RESULTS R&D INVESTMENT 23% of revenue NPAT DIVIDEND $5.3M +18% 4.0CPS 100% franked RESULTS SUMMARY FOR YEAR ENDED 30 JUNE 2016 Revenue EBITDA Net Profit After Tax Cash at Balance Date Asia Pacific revenue European revenue R & D Expense Earnings per share Final dividend (100% franked) TOTAL REVENUE & RECURRENT REVENUE Total Revenue Recurrent Revenue 42 40 40 40 41 32 33 14 12 10 18 19 22 20 49 50 50 31 27 25 FY2016 $m FY2015 $m CHANGE % 50.2 6.3 5.3 12.5 41.6 8.0 11.3 50.0 5.4 4.5 20.2 41.1 8.2 11.0 5.8 cps 5.0 cps 4.0 cps 3.75 cps 0.3 16.7 17.7 (38.0) 1.2 (2.4) 2.7 16.0 6.7 96.2 84.9 74.0 64.3 RESEARCH & DEVELOPMENT Annual R&D Cumulative R&D 54.9 45.8 36.5 27.1 17.4 8.7 8.7 8.8 9.6 9.4 9.3 9.1 9.4 9.7 11.0 11.3 FY16 ANNUAL REPORT 2016 | 3 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 DELIVERING RESULTS FOR CUSTOMERS There was no other option. We wanted something that would integrate into HP TRIM. Objective Connect was the only product that hit the mark. Peter O’Halloran, Executive Director and Chief Information Officer, National Blood Authority. National Blood Authority implements secure collaboration Working across nine state and territory governments; and with more than 400 hospitals, secure collaboration is critical to the National Blood Authority (NBA) being able to ensure a safe blood supply to all Australians. But with sensitive health information being shared, the NBA must ensure strict information governance. NBA searched for a collaborative platform that was able to extend the strict information governance it had in place internally, to the information it shared with external parties. Thanks to its deep integration with HP TRIM, Objective Connect is now used across the NBA whenever they work with anyone outside their organisation. Committee papers, tender evaluations, benchmarking data and expert panel reviews are all securely shared using Objective Connect. Beyond extending its information governance, the NBA saved more than $40,000 p.a. in postage and courier costs, it has significantly reduced printing and saved more than $100,000 in staff hours. The organisation is also now more flexible in its working arrangements, enabling consultants to work effectively, wherever they’re located around Australia. 4 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES It’s not only about cost savings, it’s about adapting the business to the digital environment. Angie Garnett, Coordinator Records and Knowledge Management, Moreton Bay Regional Council. Moreton Bay Regional Council delivers innovative services while making substantial efficiency gains TIME TO PROCESS DEVELOPMENT APPLICATIONS REDUCED BY 70% Australia’s large and fast growing regional councils must ensure they remain efficient and effective, comply with a raft of regulatory requirements, and deliver innovative services to residents. Moreton Bay Regional Council in Queensland is Australia’s third largest council. It provides services to a population of 406,000 spread across 2,000 km². Given the pace of growth across the region, Moreton Bay Regional Council understood that delivering the modern services its community expected was contingent upon a collaborative, digital information platform. It fostered this vision throughout the organisation and put in place a raft of new digital processes and services using Objective ECM. The council created a completely electronic workplace by integrating information governance into the fabric of its systems and operations, providing staff with the information they need to work efficiently and effectively, wherever they need to work. The council also automated around 100 business processes that streamlined its operations and delivered significant cost savings. ANNUAL REPORT 2016 | 5 DELIVERING RESULTS FOR CUSTOMERS On average, we’ve reduced turnaround times in some approval processes from 10 days to 2. We’re injecting a new found agility into our operations. David Schneider, Chief Information Officer, NSW Department of Premier & Cabinet. NSW Department of Premier & Cabinet fosters public sector reform, leading by example % Leading the charge in optimising public sector performance, the NSW Department of Premier & Cabinet (DPC) has embedded a shift in the way the business of government is now conducted. The Department achieved a paperless office, increased responsiveness, substantially reduced office space and ultimately created a culture of efficiency and innovation. DPC processes 7,000 pieces of ministerial correspondence each year. In a project characterised by far reaching innovation, DPC implemented full ‘Activity Based Working’ and uses Objective ECM to automate the process of approving all briefs and correspondence produced by the department. Electronic workflow provides: the transparency the department needs monitor every process; flexible approval paths enabling staff to assign the most appropriate team to the work; and mobile approvals enabling executives to process approvals quickly, directly from email on their chosen device, wherever they are located. The DPC injected a new found agility into its operations, enabling it to make decisions faster, the key to responsiveness. 6 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES Objective’s simple and efficient consultation system empowers the community to be fully informed and contribute to the Plan. Damon Hackley, Strategic Planning Officer, States of Guernsey. A simple and efficient consultation system that complies with the required laws while maximising engagement with the community In modernising its strategic framework for land use planning, The States of Guernsey drafted a new Island Development Plan, shared it with its residents and gathered community feedback, all within a secure, efficient and simple system. With excellent community engagement, the Plan will become the principal policy document that Guernsey relies upon to determine its land planning applications meet its strategic aims to: improve the quality of life of islanders, secure the island’s economic future and protect the island’s environment, unique cultural identity and rich heritage. Objective Keystone provided the collaborative authoring platform the government needed to securely author and publish the principal policy document that the Environment Department uses to determine future land planning applications. Objective Keystone facilitated online sharing of the plan with residents and other stakeholders, resulting in online responses greater than 75%, increased transparency of its representations and enabled the government to meet its statutory obligations while maximising engagement with the Island’s community. ANNUAL REPORT 2016 | 7 BUSINESS LINE REPORT Leverage information and processes across the enterprise Extend your information governance to the cloud SUMMARY $43.4m Sales revenue HIGHLIGHTS $9.6m Operating profit SUMMARY $1.1m Sales revenue HIGHLIGHTS $(2.6m) Operating profit Next Generation Release Significant progress was made on the next generation of the Company’s Enterprise Content Management solution, Objective ECM. Revenue growth Objective Connect experienced another year of outstanding growth. Subscription revenue grew by more than 100% during FY16. With evidence of success of both the direct digital distribution model and partner contributions, continued growth from this business line is expected. Market growth and opportunity While growth continued in the existing Objective customer base, 55% of new customers in FY2016 were new names to the Objective portfolio. This indicates the maturity of both the solution and value proposition to a market independent from Objective’s existing installed base. Research & Development Research & Development efforts were concentrated on meeting the requirements of enterprise class rollouts, enabling this business to focus on becoming the de facto standard for cross-agency collaboration within the public sector. Invest to grow Investment in Objective Connect will continue. This is an important process in order to capitalise on the opportunities presented and enable the business to scale materially from its current revenue base. New customers New customers came from a variety of industries and geographies including England, Scotland, Wales, New Zealand and throughout Australia. Organisations included: Whole of Welsh Government, Glasgow City Council, Falkirk Community Trust, Glasgow Marketing Bureau, TAY Plan SPDA, Housing New Zealand, Southern Ports Authority, Fremantle Ports Authority, Western Australian Department of Transport, ACT Government Procurement, Infrastructure NSW, Barangaroo Delivery Authority in NSW, Veolia Water Technologies, Future Fund Management Agency and the Victorian Department of Environment, Land, Water and Planning. Developed in close partnership with Microsoft, the next release is characterised by a revolution in user experience and mobility. It also introduces the ability to run high value business processes on top of non-Objective document and information management applications. Unprecedented demand Existing customers successfully trialled preview software throughout the year which, in the second half resulted in customer decisions to delay incremental upgrades, a trend often seen in the industry. The next generation of Objective ECM will be released in October 2016 to known, unprecedented demand. Transition to cloud Evidence of organisations transitioning to cloud computing models continued. Objective Managed Services run rate increased by 51% compared to the previous year. Managed Services is the subscription service where Objective manages customers’ environments for them, as a precursor to ultimately moving to a full cloud service. Major contracts & forward revenue Highlights of the year were major contracts with Department of Defence via partner, IBM for the End User Compute project, valued at $10 million+ over the next two financial years and a 15 year, $8 million contract with Gold Coast City Council via partner, Infor. New customers New Objective ECM customers included: Queensland Parliamentary Services, Barangaroo Delivery Authority in NSW, Infrastructure NSW, in South Australia; the Attorney General’s Department, the Independent Commissioner Against Corruption and City of West Torrens, in the United Kingdom; Kent County Council and Brighton & Hove City Council. 8 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES Author, verify and publish on-brand content, with ease Digitally transform plan approval collaboration SUMMARY $4.2m Sales revenue HIGHLIGHTS $(1.2m) Operating profit Market opportunity Increasing regulation in the global financial services industry created opportunity for Objective Keystone (formerly Objective ECC) beyond its traditional use in the public sector. Objective Keystone delivers a unique value proposition to the wealth management sector where the solution underpins the financial product disclosure process, appealing to all participants in the governance, risk and compliance areas of financial services. Public sector use of Objective Keystone continued to provide a substantial contribution to revenue and remains an opportunity for additional growth. Research & Development Investment in the Objective Keystone technology platform continued in order to provide solutions to the wealth management industry and to support the needs of the established public sector market. Pre-sales investment The sales cycle for new business in public sector is relatively short in contrast to financial services. As a transformational solution for wealth management companies, these high profile projects demanded greater investment in pre-sales effort, increasing time-to-contract. With many Australian wealth management brands now using Objective Keystone the time-to-contract for new customers will continue to reduce. Subscription revenue model In wealth management, two key projects contracted, together with new contracts since balance date, will contribute revenue in FY2017 and beyond. In the public sector, Objective Keystone continued its sustained performance and contracted substantial forward subscription revenue. New customers In addition to two high profile wealth management customers, Objective welcomed many new public sector customers including: Manchester City Council, Liverpool (UK) City Council, Harrogate Borough Council, Wrexham County Borough Council, Purbeck District Council, Hambleton District Council, Borough of Broxbourne, London Borough of Havering, Tendring District Council. SUMMARY $1.0m* Sales revenue HIGHLIGHTS $0.2m* Operating profit Acquired in March 2016 Objective Corporation acquired Onstream Systems on 1st March 2016. Onstream Systems was a successful, New Zealand headquartered company that specialised in the capture, collaboration and manipulation of large document, complex drawings, maps and plans. Its flagship product known as Trapeze, enjoys a user base of more than 2 million users in 2,000+ organisations around the world. Onstream Trapeze was re-branded to Objective Trapeze and the business line performed to expectations in the 4 months it contributed to Objective Corporation in FY16. Market opportunity Trapeze is pivotal to the digital transformation of local government and statutory authorities, enabling paperless processing of building consents and development applications. It is used by more than 80 councils in Australia, 50 councils in NZ, 100 councils in the UK. Historically a complementary technology to Objective solutions, tighter integration of both the business and technology presents significant opportunity to deliver higher value solutions to local government. Valuable partnerships and new customers The underpinning Trapeze API technology is licensed to Hewlett Packard Enterprise and used in its Records Manager product. It is also licensed by Northgate Solutions in the UK and Redman Solutions in Australia. With these partners, the Objective Trapeze business added 20 customers in the first four months of ownership including: Bournemouth Council, Preston City Council, Ebbsfleet District Council, Waikato District Council, Waimate District Council, Whakatane Council, Port Phillip City Council, Fremantle City Council, Manningham City Council, Kingston City Council and Moonee Valley City Council. Expansion of development centre in NZ Plans are in place to expand the operations and product development capability in Palmerston North, New Zealand during FY17. Throughout FY16 significant progress was made on addressing the specific needs of the building plan collaboration and consenting processes in local government. The next generation of solutions will coincide with the transition to subscription based licensing of all Trapeze solutions. * 4 month’s contribution ANNUAL REPORT 2016 | 9 CEO’S REVIEW We continued to grow our recurrent revenue and maintained cost discipline throughout the year, reporting an increase in net profit after tax of 18% to $5.3 million. 62% Recurrent Revenue 18% Increase in NPAT Dear fellow shareholders, We present Objective Corporation’s annual report for the financial year ending 30 June 2016 (FY2016). Revenue increased from the previous year to $50.2 million (FY2015: $50.0 million). We continued to grow our recurrent revenue and maintained cost discipline throughout the year, reporting an increase in net profit after tax of 18% to $5.3 million (FY2015: $4.5 million). The Company contracted an unprecedented $20 million+ of forward revenue, which contributed less than $1 million to the FY2016 results. We expect a significant contribution from these contracts during the 2017 financial year (FY2017). These types of contracts are illustrative of Objective embracing the new shape of business where government procurement practices are transitioning to subscription based contracting and demand for cloud based computing models is growing. Further evidence of this shift was seen in the company’s 13% lift in recurrent revenue to $31.0 million (FY2015: $27.1 million). The company invested $11.3 million in Research & Development, fully expensed, representing 23% of revenues. This investment is approximately twice the industry average. Investing in our future solutions remains critical to our business strategy and ability to retain and grow market share. Since paying for the acquisition of Onstream Systems in full in March 2016, the Company’s cash balance remained healthy; $12.5 million at balance date and $22.3 million at reporting date of 26 August, with no external borrowings. Highlights by Solution Line Objective ECM Highlights of the year for Objective ECM were two major contracts; a $10 million+ contract at the Australian Department of Defence and an $8 million contract at the Gold Coast City Council. Both of these new contracts are heavily weighted to future periods, with less than $1 million in revenue recognised in FY2016. Throughout the year we made significant progress on developing the next generation of our Enterprise Content Management (ECM) solution, to be formally launched in October 2016. While we experienced a short-term delay in incremental upgrades, successful preview trials with existing customers has generated unprecedented demand for the next generation release of Objective ECM. With known, existing demand together with contracts already in hand, we expect a material growth in our ECM revenue and profitability in the year ahead. Objective Connect I am pleased to report more than 100% growth in revenue on FY2015 from Objective Connect. This growth is a result of the customer base for Objective Connect extending well beyond the traditional Objective ECM customer base. Objective Connect is now recognised as a true value-add for all major information management systems as its target market comprehends the necessity to extend information governance to the cloud. We expect this trend to continue. Objective Connect has become a trusted, enterprise-grade solution. With evidence of the success of both the digital distribution and our trusted go-to-market partners, we remain confident that it will again experience very high growth in FY2017. Our investment will continue to exceed revenues in the near term in order to capitalise on opportunities and enable this business to grow materially from its current revenue base. Objective Keystone Investment in developing the technology platform throughout FY2016 continued. In addition to supporting the needs of the historic public sector market, effort was channeled into delivering product to meet specific demand from the wealth management industry. 10 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES We rebranded the solution from Objective Enterprise Content Creation (Objective ECC) to Objective Keystone, for broader appeal to industries beyond the public sector. The wealth management sector became an active target market, however time-to-contract with new customers was longer than expected. The investment in pre-sales was rewarded at the end of the year by winning two of the “big four” banks as customers, and a third post balance date. Success in the public sector continued, where our reputation and value proposition, particularly in the UK and New Zealand, are market-leading. In addition to maintaining our position in the public sector, we anticipate adding more major wealth management groups to the Objective Keystone platform during 2017 as we expand our Australian successes and target new global markets. The business performed to expectations, contributing earnings in this financial year. In conjunction with Redman Solutions in Australia and Northgate Solutions in the UK, we added 20 new Trapeze customers in the first four months of ownership. Based in Palmerston North, New Zealand we are investing in growing operations and product development capability to transform Trapeze’s key target markets of building plan collaboration, assessment and consent processes in local government and statutory authorities. The broad and well established customer base for Objective Trapeze presents significant opportunity to extend the footprint of our other solutions. We anticipate growth in both revenue and earnings during the year ahead. Outlook We made significant progress during FY2016, which can best be described as a transitional year. At an absolute minimum we expect this business to break even before the end of FY2017. In spite of the 18% lift in NPAT and the strong portfolio of forward contracts, we expect a far more robust FY2017. Objective Trapeze It was with great pleasure and anticipation that we welcomed Onstream Systems to the Objective family in March 2016, transitioning Onstream Trapeze to Objective Trapeze. As we continue to transition to subscription licensing across all solution lines, revenue and earnings will become more predictable. The results of this can already be seen in the 13% growth in recurrent revenue. We have laid the foundation for innovation in our technology, business solutions and the services we deliver to customers: we are progressing with deeper vertical market focus delivering industry specific solutions, we have developed process governance solutions that run on top of non-Objective document and information management platforms, and we are further extending cloud deployment opportunities across all solution lines. We expect the Company to deliver a meaningful step up during the first half of FY2017. We remain committed to growing all of our business lines, we are confident in our competitive position in the markets in which we operate and we are well positioned to capitalise on the many opportunities these markets present. As always, the Board and management of Objective Corporation expresses deep gratitude to our customers, staff and shareholders, whose loyalty and contribution to our company are highly valued. Tony Walls Chief Executive Officer ANNUAL REPORT 2016 | 11 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Objective Corporation Limited (ABN 16 050 539 350) and the entities it controlled at the end of, or during, the year ended 30 June 2016. DIRECTORS The Directors in office at any time during the financial year up to the date of this report were as follows: Mr Tony Walls Mr Gary Fisher Mr Leigh Warren Mr Nick Kingsbury INFORMATION ON DIRECTORS MR TONY WALLS Chairman and Chief Executive Officer Tony founded the business in 1987 and has extensive experience in the IT industry. Tony has a B.Math (Computing Science), a Grad.Dip in Applied Finance (SIA) and is a Fellow of the Australian Institute of Company Directors. MR GARY FISHER Non Executive Director Gary was appointed a Director of Objective Corporation Limited in March 1991. In October 2007 Gary became a Non Executive director. Gary has an extensive background in Finance, IT Management and global product software sales. Gary has a B.Economics and further tertiary education in Law and Business Administration. MR LEIGH WARREN Independent Non Executive Director Leigh was appointed as a Non-Executive Director in August 2007 and is Chairman of the Audit Committee. Leigh has over 20 years’ experience in the IT Industry and has held Executive roles for several multinational companies, including SAP where he was Chief Operating Officer for North Asia, Oracle where he was the Managing Director for Australia and New Zealand, Ventyx where he was President for the EMEA region and Bluecoat Systems where he was Vice President Asia Pacific Field Operations. Leigh also serves on the Board of ASX/NZX listed Gentrack and Hong Kong based Solution Access. MR NICK KINGSBURY Independent Non Executive Director Nick was appointed as a Non Executive Director in July 2008 and is a member of the Audit Committee. Nick is an experienced international software entrepreneur, strategist and venture capitalist. Nick founded, led and then sold a leading UK Business Process Management company. Nick then spent 7 years with the international venture capital company 3i, where he headed up the software sector. Until recently he chaired a UK listed cyber security company Accumuli, plc, which was sold to NCC Group in April 2015. As well as his role with Objective, he sits on the boards of the UK operation of Growthpoint Technology Partners, a US investment bank, and three early stage businesses Pushfor Limited, Loot Financial Services Limited and Tailored Media Ventures (UK) Limited. MR MARK KATZ Company Secretary Mark was appointed Company Secretary in August 2015. Mark has over 20 years’ experience in financial roles within the Financial Services and Travel sectors in Australia and South Africa, most recently with American Express. Mark is a member of the Institute of Chartered Accountants, Australia & New Zealand. MR ROB PATERSON Company Secretary Rob was appointed Company Secretary in May 2013. Rob has over 15 years’ experience in financial roles within software, technology and consulting businesses both in Australia and the UK. Rob is a fellow member of the Association of Chartered Certified Accountants. Rob resigned as Company Secretary in August 2015. 12 12 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES PRINCIPAL ACTIVITIES The principal activity of the Group during the year was the supply of information technology software and services. There was no significant change in the nature of the Group’s activities during the year. DIVIDENDS An ordinary final fully franked dividend of $3,405,000 was paid on 9 September 2015. Since the end of the financial year, the Directors have declared a final fully franked dividend of 4.00 cents per ordinary share (2015: fully franked dividend of 3.75 cent per ordinary share). The aggregate amount of the dividends expected to be paid by 14 September 2016 is $3,647,000 (2015: $3,405,000). There is no conduit foreign income attributed to the final dividend declared. REVIEW OF OPERATIONS Operating result The consolidated operating profit attributable to members increased by 17.7 per cent to $5,263,000 (2015: $4,470,000). The Group continued to invest significantly in Research and Development (“R&D”) with expenditure of $11,259,000 (2015: $10,959,000). This investment in R&D was fully expensed during the year. Revenue Consolidated revenue from sales and services increased by 0.4 per cent from the prior financial year to $49,651,000 (2015: $49,435,000). Total consolidated revenue has also increased by 0.3 per cent from the last financial year to $50,150,000 (2015: $50,007,000). Asia Pacific revenues increased by 1.0 per cent to $41,560,000 (2015: $41,140,000). European revenues decreased by 2.2 per cent to $8,048,000 (2015: $8,232,000). See Note 25 for more details of the financial performance of the group’s key geographic segments. The group is a key participant in its market, with a diverse customer base; the group does not have any dependencies on key customers. Financial position Objective’s statement of financial position remains strong. At 30 June 2016, cash and cash equivalents is $12.5 million and there continues to be no external borrowings. The Group’s receivables and cash flow management also continue to support overall strength in working capital. With a diverse customer base, the group continues to focus on receivables management. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the financial year. SHARE CAPITAL As at 30 June 2016 the Company had 91,165,169 (2015: 90,797,277) fully paid ordinary shares on issue. Voting rights are detailed in Note 14 to the financial statements. SHARE OPTIONS The number of options over the unissued ordinary shares of Objective Corporation Limited at the date of this report were: Options on Issue at Balance Date Employee options exercisable at $0.50 Employee options exercisable at $0.50 Employee options exercisable at $0.50 Employee options exercisable at $0.75 Employee options exercisable at $1.00 Employee options exercisable at $1.17 Employee options exercisable at $1.20 Total options on issue 2016 2015 Number Expiry Date Number Expiry Date 204,000 250,000 200,000 500,000 01/09/2016 05/02/2024 07/10/2024 24/03/2024 80,000 07/10/2024 150,000 24/02/2025 324,000 300,000 200,000 500,000 240,000 150,000 01/09/2016 05/02/2024 07/10/2024 24/03/2024 07/10/2024 24/02/2025 1,000,000 05/03/2025 1,000,000 05/03/2025 2,384,000 2,714,000 Details of the options on issue are contained in Note 14 to the financial statements. There were no new options issued, no options expired and 330,000 were exercised during the financial year ended 30 June 2016. LIKELY DEVELOPMENTS The company was satisfied with its progress during the 2016 financial year. There have been increased investments in all facets of the company. These included the acquisition of Onstream Systems, research and development and geographic reach initiatives. The Directors remain confident of improving revenue in all business lines in FY2017, and will be diligently focused on managing the cost-base growth, without stifling an opportunity to continue to grow in future periods. The company is committed to a strategy of growing all business lines. There are significant growth opportunities and the company is confident in their competitive position in the marketplace. ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 13 | 13 DIRECTORS’ REPORT CONTINUED EVENTS SUBSEQUENT TO BALANCE DATE The Directors have not become aware of any matter or circumstance not otherwise dealt with in the report or in the financial statements that has significantly or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. INDEMNIFYING OFFICERS OR AUDITOR During the financial year the Company has paid an insurance premium for a Directors’ and Officers’ insurance policy. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the Directors or Company Secretary as a result of the work performed in their capacity as officers of entities in the Group to the extent permitted by law. The Directors have not disclosed the amount of the premium as such disclosure is prohibited under the terms of the contract. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred. CORPORATE GOVERNANCE STATEMENT The Company’s directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (3rd Edition) (‘Recommendations’) to the extent appropriate to the size and nature of the Group’s operations. The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations. The Company’s Corporate Governance Statement and policies will be approved at the same time as the Annual Report and will be found on its website: http://www.objective.com/corporate-governance DIRECTORS’ INTEREST Directors’ beneficial interest in shares and options at the date of this report were: Tony Walls Gary Fisher Nick Kingsbury Leigh Warren Ordinary Shares Options 62,000,000 11,000,000 120,000 285,443 73,405,443 – – 200,000 50,000 250,000 DIRECTORS’ MEETINGS The number of Director’s and Audit Committee meetings held during the financial year and the number of meetings attended by each of the Directors are as follows: Meeting Director Tony Walls Gary Fisher Nick Kingsbury Leigh Warren Directors’ Meetings Audit Committee Meetings Number of Meetings Held Number of Meetings Attended Number of Meetings Held Number of Meetings Attended 8 8 8 8 8 4 8 8 1 – 1 1 1 – 1 1 AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration in relation to the financial year is included on page 42. AUDITOR’S NON AUDIT SERVICES The Company has not engaged the auditor, Pitcher Partners to provide non audit services during the financial year. ROUNDING OF AMOUNTS The Company is an entity to which ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191 applies and accordingly, amounts in the financial statements and Directors’ Report have been rounded to the nearest thousand dollars, unless specifically stated to be otherwise. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court 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. The Company was not a party to any such proceedings during the year. REMUNERATION REPORT The Board from time to time reviews the remuneration packages of all Directors and Executive Officers with due regard to performance and other relevant factors. The remuneration policy generally is to ensure the remuneration package properly reflects the person’s duties and responsibilities and that the remuneration is competitive to attract, retain and motivate employees of the highest calibre. The remuneration of Directors and other key management personnel is not directly linked to the company’s performance. 14 14 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES The remuneration of Directors and the other key management personnel is fixed annually with some of the specified Executives being entitled to a performance bonus based on achievement of targets based on individual Key Performance Indicators (“KPIs”). The KPIs generally include measures relating to the relevant segment, covering financial, sales, and development measures. Ultimately, bonuses and discretionary payments to key management personnel are at the discretion of the Board. Non Executive Directors’ retirement payments are limited to compulsory employer superannuation. There are no retirement and termination benefits for Executive Directors or Executives apart from those that accrue from the relevant laws such as unpaid annual leave, superannuation, long service leave and notice of termination. The Group may consider payments on termination even though legally not required, to protect its rights if it is commercially beneficial to its interests. The key management personnel of the Group for the year ended 30 June 2016 were: Directors Tony Walls Gary Fisher Nick Kingsbury Leigh Warren Executives Stephen Bool Frank Volckmar Jeremy Goddard Adrian Rudman Scott McIntyre Robert Mills Chairman and Chief Executive Officer Non-Executive Director Independent Non Executive Director Independent Non Executive Director Chief Operating Officer – resigned 28 August 2015 Chief Operating Officer – appointed 10 August 2015 Global Vice President, Enterprise Solutions Global Vice President, Keystone Solutions Managing Director EMEA Global Vice President, Connect Solutions Remuneration and other terms of employment of the Executive Director and the other key management personnel are formalised in employment agreements. These agreements may be terminated by either party with between one and three months’ notice. In the event of termination of Mr Walls’ services, Mr Walls is entitled to be paid six months’ salary. The individual details of remuneration of the key management personnel, for the year ended 30 June 2016 are listed in the table following: Short-Term Share Based Payment Post Employment Salary and Fees $ Motor Vehicle $ Cash Bonus $ Other $ Options $ Super- annuation $ Portion of Remuneration Performance Related % Value of Options as Proportion of Remuneration % Total $ 2016 G Fisher N Kingsbury T Walls S McIntyre L Warren F Volckmar2 S Bool1 J Goddard R Mills A Rudman 2015 G Fisher N Kingsbury T Walls S McIntyre L Warren S Bool J Goddard A Rudman – 43,025 280,000 276,712 32,877 207,500 110,496 235,692 220,692 212,892 – 47,862 280,000 301,065 32,877 291,217 231,217 213,417 1 S Bool resigned on 28 August 2015. 2 F Volckmar appointed on 10 August 2015. – – – – – – – – – – – – – – – – – – – – – 73,107 – 111,171 163,768 206,260 60,000 – – – – 73,222 – 150,000 175,120 – 6,383 – – – – – – – – – 6,448 – – 812 – – – – – 7,402 – 14,031 7,402 – – 18,889 – – – 12,629 – 57,368 12,629 – 32,082 – – – 19,308 15,373 3,123 19,308 19,308 19,308 19,308 19,308 – – 18,783 16,726 3,123 18,783 18,783 18,783 6,383 50,427 299,308 379,223 43,402 337,979 293,572 480,149 300,000 232,200 6,448 60,491 298,783 449,193 48,629 460,000 457,202 232,200 – – – 19.3 – 32.9 55.8 43.0 20.0 – – – – 16.3 – 32.6 38.3 – – 14.7 – 3.7 17.1 – – 3.9 – – – 20.9 – 12.8 26.0 – 7.0 – ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 15 | 15 DIRECTORS’ REPORT CONTINUED The bonuses in the above tables are short-term incentives fully vested to the Executive for that year. The bonuses were based on KPIs determined by the Board including sales and other performance measures. The fair value of options have been determined using the Black-Scholes method, taking into account the exercise price, the term of the option, the vesting criteria, the impact of dilution, the non-tradeable nature of the option, the price at grant date of the underlying share and the expected price volatility of that share, the expected dividend yield and the risk free interest rate for the term of the option. The value of the option at grant date is then amortised over the relevant vesting period. The value included in remuneration of key management personnel above relates to the amortised value of options granted that have either vested in the current year or are yet to vest. ANALYSIS OF MOVEMENT IN OPTIONS HELD BY KEY MANAGEMENT PERSONNEL N Kingsbury L Warren S McIntyre F Volckmar R Mills J Goddard Number of Options at 30 June 2015 Number Granted Number Exercised Number Lapsed Number of Options at 30 June 2016 Number Vested at 30 June 2016 200,000 100,000 200,000 500,000 300,000 500,000 – – – – – – – (50,000) – – – – – – – – – – 200,000 50,000 200,000 500,000 300,000 500,000 150,000 – 100,000 500,000 300,000 500,000 SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL T Walls G Fisher N Kingsbury L Warren S Bool A Rudman J Goddard Number of Shares at 30 June 2015 Share Options Exercised Purchase of Shares Shares sold Number of Shares at 30 June 2016 62,000,000 11,000,000 120,000 235,443 497,291 500,000 113,357 – – – 50,000 – – – – – – – – – – – – – – (497,291) – – 62,000,000 11,000,000 120,000 285,443 – 500,000 113,357 Balance 1 July 2015 $ 298,646 375,000 Interest charged $ Balance 30 June 2016 $ – – – 356,250 The 50,000 shares exercised were issued at 50 cents each and were fully paid. LOANS TO KEY MANAGEMENT PERSONNEL Details of loans provided: - Name Stephen Bool Adrian Rudman Loans are provided interest free. There have been no write downs or allowances for doubtful debts. Signed in accordance with a resolution of the Board of Directors. Tony Walls Director Date: 26 August 2016 16 16 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2016 Revenue Cost of sales Gross profit Distribution expenses Research and development expenses Administration expenses Foreign exchange loss Profit from continuing operations before income tax Income tax expense Profit after tax attributable to members of the Company Basic earnings per share Diluted earnings per share The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes. CONSOLIDATED 2016 $’000 50,150 (1,403) 48,747 (25,396) (11,259) (6,230) 203 6,065 (802) 5,263 2015 $’000 50,007 (1,350) 48,657 (26,289) (10,959) (6,022) (112) 5,275 (805) 4,470 CENTS CENTS 5.8 5.7 5.0 4.9 Note 2 4 23 23 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 17 | 17 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit and loss Foreign currency translation differences for foreign operations Total comprehensive income for the year Attributable to members of the Company The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. CONSOLIDATED 2016 $’000 5,263 122 5,385 5,385 2015 $’000 4,470 690 5,160 5,160 18 18 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Current assets Cash and cash equivalents Receivables Other Total current assets Non-current assets Property, plant and equipment Receivables Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Payables Tax liabilities Provisions Other Total current liabilities Non-current liabilities Provisions Other Total non-current liabilities Total liabilities Net assets Equity Contributed equity Retained profits and reserves Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Note 5 6 7 8 6 4 9 11 12 13 12 13 14 15 CONSOLIDATED 2016 $’000 12,468 6,969 5,804 25,241 602 755 342 10,754 12,453 37,694 7,008 12 891 11,422 19,333 369 32 401 19,734 17,960 3,631 14,329 17,960 2015 $’000 20,245 8,923 2,553 31,721 883 935 329 7,604 9,751 41,472 6,883 881 1,049 13,541 22,354 453 3,043 3,496 25,850 15,622 3,048 12,574 15,622 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 19 | 19 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Total equity at the beginning of the year Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year Transactions with owners in their capacity as owners: Recognition of share-based payments Proceeds from the exercise of employee share options Share buyback (including transaction costs) Dividends provided for or paid Total equity at the end of the year The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Note 15 15 15 20 CONSOLIDATED 2016 $’000 15,622 5,263 122 5,385 48 583 (269) (3,409) 17,960 2015 $’000 11,982 4,470 690 5,160 122 1,447 – (3,089) 15,622 20 20 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Cash flow from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Income tax paid Net cash generated from operating activities Cash flow from investing activities Payments for property, plant and equipment Proceeds from employee loans Purchase of Onstream Net cash used in investing activities Cash flow from financing activities Payment for share buy-back costs (including transaction costs) Proceeds from the exercise of employee share options Dividends paid Net cash used in financing activities Net (decrease) /increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on the balance of cash held in foreign currencies Note 16 Cash and cash equivalents at the end of the financial year 5 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. CONSOLIDATED 2016 $’000 2015 $’000 53,125 (53,655) 499 (1,684) (1,715) (171) 180 (2,874) (2,865) (268) 245 (3,409) (3,432) (8,012) 20,245 235 12,468 59,290 (49,902) 572 (1,509) 8,451 (442) – – (442) – 512 (3,089) (2,577) 5,432 14,969 (156) 20,245 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 21 | 21 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1. BASIS OF PREPARATION This financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers Objective Corporation Limited and controlled entities as a consolidated entity. Objective Corporation Limited is a company limited by shares, incorporated and domiciled in Australia. It is a for-profit entity for the purpose of preparing the financial statements. The financial report was authorised for issue by resolution of the Directors on 26 August 2016. The following is a summary of material accounting policies adopted by the Group in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Summary of significant accounting policies A. Basis of preparation of the financial report Compliance with IFRS The financial statements comply with International Financial Reporting Standards (IFRS’s). Basis of measurement These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities at fair value through profit or loss. Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Objective Corporation Limited’s functional and presentation currency. B. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by the Company at the end of the financial year and the results of all controlled entities for the year then ended. Objective Corporation Limited and its controlled entities together are referred to in this financial report as the Group. The effects of all transactions between entities in the Group are eliminated in full. Where control of an entity is obtained during a financial year, its results are included in the consolidated statement of profit or loss from the date on which control commences. Where control ceases during a financial year its results are included for that part of the year during which control existed. C. Financial instruments Classification The consolidated entity classifies its financial instruments based on the purpose for which the financial instruments were acquired. Management determines the classification of its investments at initial recognition. Loans and receivables Loans and receivables are measured at fair value at inception. Outstanding balances are tested for impairment when overdue. Loans and receivables are subsequently measured at amortised cost. Financial liabilities Financial liabilities include trade payables, other creditors and loans payable to third parties. Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Investments in controlled entities Investments in controlled entities are carried in the Company’s financial statements at the lower of cost and net realisable value. The carrying amount of investments is assessed annually to ensure that they are not in excess of the recoverable amount. The Company operates an Employee Incentive Plan details of which are disclosed in Note 19. The Company does not record profits or losses incurred by employees, being the difference between market value and the par value of the shares acquired, as remuneration paid to employees. The Company charges as an expense the notional value of the options at the time they are granted and or vest to employees. Dividends A provision is recognised for dividends at the date they are declared. D. Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value less, any accumulated depreciation. Property, plant and equipment is measured on a cost basis. The carrying value of property, plant and equipment is reviewed annually to ensure that they are not in excess of the net recoverable amount. Property, plant and equipment are depreciated over their estimated useful life to the Group (2 to 6 years) on a straight line basis. E. Leased assets Leases of property, plant and equipment of the Group, which assume substantially all the risks and benefits of ownership, are classified as finance leases. Other leases are classified as operating leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the period in which they are incurred. F. Receivables, payables and provisions Trade debtors Trade debtors are initially recognised at fair value less any allowance for impairment. Trade debtors are subsequently measured at amortised cost. An impairment allowance is raised for any doubtful debts based on a review of all outstanding amounts at the reporting date and after considering their age and the debtors’ financial situation. Bad debts are written off during the period in which they are identified directly against the receivable. Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year, which are unpaid. Trade payables are unsecured and are generally settled within the time agreed with suppliers. Employee entitlements Liabilities for wages and salaries, and annual leave expected to be settled wholly within twelve months of the reporting date are recognised, and are measured as the amount unpaid at the reporting date at the remuneration rate expected to apply at the time of settlement, including allowances for on costs if applicable, in respect of employees’ services up to that date. Benefits expected to be settled wholly after twelve months from the reporting date are measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. Contributions are made by the Group to employee superannuation funds and are charged as expenses when incurred. The Group does not operate any defined benefit superannuation plan. G. Cash For the purposes of the statement of cash flows, cash includes: • Cash on hand and cash on deposit with banks or financial institutions, net of bank overdrafts; and • Investments in money market instruments or investments in floating rate interest bearing securities listed on the ASX. H. Revenue Sales represent revenue from the sale of the Group’s products, net of returns and duties paid and consulting and support service fees. Other revenue includes interest income on short-term deposits. Revenues are recognised at the fair value of the consideration received or receivable net of goods and services tax. The following specific revenue recognition criteria have been applied in the preparation of financial statements: Product sales Revenue from the sale of product or licence fees is recognised at the earliest of when the Group has passed control of the relevant product or granted a right or licence for the use of the product to a buyer. Rendering of services Revenue from services is recognised on a time or percentage complete basis for the period during which the relevant services are performed. Online Subscription Revenue Income in respect of hosting and support services is deferred and released over the period of the contract with the customer. Upgrade and Support Program (USP)/ Maintenance Support Revenue from USP and maintenance support is recognised over the period during which the relevant service is provided. Interest revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. I. Foreign currency transactions and balances Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. 22 22 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group Companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: • assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; • income and expenses are translated at average exchange rates for the period; and • retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. These differences are recognised in profit or loss in the period in which the operation is disposed. J. Capital Raising Costs Capital raising costs are deducted from contributed equity. K. Research and development expenditure Research and development expenditure (“R&D”) is expensed to the statement of profit or loss as and when incurred. L. Income tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. M. Goods and service tax Revenues, expenses and assets are recognised net of the amount of GST except: • Where the amount of GST incurred is not recoverable from the relevant taxation authority • For receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of the receivables or payables. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities is classified as operating cash flows. N. Earnings per share Basic earnings per share is determined by dividing the profit after income tax attributable to members of Objective Corporation Limited by the weighted average number of ordinary shares on issue during the financial year. Diluted earnings per share is determined by dividing the profit after income tax attributable to members of Objective Corporation Limited by the weighted average number of ordinary shares and dilutive potential ordinary shares. O. Intangible assets Goodwill Goodwill arises on the acquisition of subsidiaries. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill and intangible assets arising on the acquisition of a foreign operation shall be treated as assets of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. For the purpose of impairment testing, goodwill acquired in a business combination, from the acquisition date, is allocated to each of the Group’s cash-generating units, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated includes the cash generating units. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Intangibles Intangible assets acquired are capitalised at cost, unless acquired as part of a business combination in which case they are capitalised at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less provision for impairment. Useful lives are established for all non-goodwill intangible assets. Amortisation charges are expensed in the income statement on a straight line basis over those useful lives. Estimated useful lives are reviewed annually. Intellectual Property is amortised over a period of 10 years. P. Adoption of new and amended accounting standards that are first operative at 30 June 2016 There are no new and amended accounting standards effective for the financial year beginning 1 July 2015 which affect any amounts recorded in the current or prior year. Q. Accounting standards and Interpretations Issued but not Operative at 30 June 2016 The following standards and interpretations have been issued at the reporting date but are not yet effective. The directors’ assessment of the impact of these standards and interpretations is set out below; AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods commencing on or after 1 January 2018). AASB 16: Leases (applicable to annual reporting periods commencing on or after 1 January 2019). AASB 9: Financial Instruments The Standard will be applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, and upfront accounting for expected credit loss. Although the directors anticipate that the adoption of AASB 9 may have an impact on the Group’s financial instruments it is impracticable at this stage to provide a reasonable estimate of such impact. AASB 15: Revenue from Contracts with Customers When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: 1. identify the contract(s) with a customer; 2. identify the performance obligations in the contract(s); 3. determine the transaction price; 4. allocate the transaction price to the performance obligations in the contract(s); and 5. recognise revenue when (or as) the performance obligations are satisfied. This Standard will require retrospective restatement, as well as enhanced disclosures regarding revenue. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 23 | 23 NOTES TO THE FINANCIAL STATEMENTS CONTINUED NOTE 1. BASIS OF PREPARATION CONTINUED • Variable lease payments that depend on an index or a Q. Accounting standards and Interpretations Issued but not Operative at 30 June 2016 continued AASB 16: Leases AASB 16: Leases will replace the current standard AASB 117: Leases. The main changes include:- • Recognition of a “right to use” asset and liability for all leases, excluding leases less than 12 months of tenure and leases relating to low value assets • Depreciation of right to use assets in line with AASB 116: Property, Plant and Equipment and unwinding of the liability in principal and interest components over the life of the lease rate are included in the initial measurement of the lease liability using the index or rate at the commencement of the lease • A lessee is permitted to elect not to separate non-lease components and instead account for all components as a lease • Additional disclosure requirements. The transitional provisions of the standard allow a lessee to either retrospectively apply the standard or recognise the cumulative effect of retrospective application as an adjustment to opening equity on initial application. Although the directors anticipate that the adoption of the standard will impact the financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. R. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. S. Rounding of Amounts The parent entity has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000. NOTE 2. REVENUE Sales and service revenue Other revenue Interest receivable/received Sundry revenue Total revenue NOTE 3. PROFIT FROM CONTINUING OPERATIONS BEFORE INCOME TAX Profit from continuing operations before income tax has been determined after including the following items: Auditors remuneration: Group auditor – audit and review fees Other auditors – audit fees Other auditors – other Auditors remuneration - total Depreciation of furniture, fittings and office equipment Depreciation of computer equipment Depreciation of leasehold improvements Amortisation of intangible assets Rental expense on operating leases Employee benefits expense Employee superannuation Employee share based payment expense Research and development expenditure Depreciation and amortisation expense is included in distribution expenses as per the consolidated statement of profit or loss. 24 24 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED 2016 $’000 2015 $’000 49,651 49,435 499 – 572 – 50,150 50,007 CONSOLIDATED 2016 $ 72,000 35,000 11,000 118,000 CONSOLIDATED 2016 $’000 74 313 97 229 2,032 31,592 2,130 48 11,259 2015 $ 68,000 25,000 4,000 97,000 2015 $’000 72 309 110 232 2,034 32,693 2,104 122 10,959 NOTE 4. INCOME TAX a) Components of tax expense: Current tax paid/payable Current tax benefit received/ receivable1 Deferred tax asset (Over) / under provision in prior years Total income tax expense 1 Current tax receivable of $112,052 (2015: $466,499) is included in Other Assets per Note 7 to the financial statements. b) Prima facie tax on profit before income tax is reconciled to income tax as follows: Prima facie tax on profit before income tax at 30% Tax effect of amounts which are not assessable/deductible in calculating taxable income: Research and development deductions Amortisation of intangibles Non allowable deductions Sundry items/difference in tax rates Deferred tax asset not recognised (Over) /under provision in prior years Income tax expense c) Deferred tax asset relates to the following: Unrealised foreign exchange losses Employee benefits Other provisions Accrued interest receivable Accrued expenses Tax Depreciation Rent incentive Total deferred tax asset CONSOLIDATED 2016 $’000 1,046 (112) 28 (160) 802 2015 $’000 1,365 (466) (23) (71) 805 CONSOLIDATED 2016 $’000 2015 $’000 1,819 1,583 (786) 69 29 (10) (159) 962 (160) 802 (333) 696 (4) (31) 16 (34) 32 342 (861) 70 101 55 (72) 876 (71) 805 (413) 642 29 (31) 21 (40) 121 329 d) Deferred tax assets not recognised in the statement of financial position: Unused tax losses (tax effected) 907 893 The benefit for tax losses will only be obtained if the Group: (i) Derives future assessable income of a nature and amount sufficient to enable the benefit from the deductions for the losses to be realised; or (ii) Continues to comply with the conditions of deductibility imposed by tax legislation and no change in tax legislation adversely affects the Group in realising the benefit from the deductions for the losses. ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 25 | 25 NOTE 5. CASH AND CASH EQUIVALENTS Cash at bank Cash on deposit Cash on deposit held as security for rental guarantees Total cash and cash equivalents NOTE 6. RECEIVABLES Current Trade receivables Other receivables Total current receivables Non-current Employee loans Total non-current receivables CONSOLIDATED 2016 $’000 5,488 6,554 426 12,468 CONSOLIDATED 2016 $’000 5,317 1,652 6,969 755 755 2015 $’000 6,083 13,621 541 20,245 2015 $’000 6,791 2,132 8,923 935 935 Trade and other receivables generally have 30 day terms. The carrying values of these receivables are assumed to approximate their fair value, after considering their recoverability. NOTE 7. OTHER ASSETS Current Work in Progress Prepayments Current Tax Receivable Total other assets CONSOLIDATED 2016 $’000 4,218 1,413 173 5,804 2015 $’000 1,172 915 466 2,553 26 26 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED NOTE 8. PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED Furniture, fittings and office equipment Less accumulated depreciation Computer equipment Less accumulated depreciation Leasehold improvements Less accumulated depreciation Total property, plant and equipment Reconciliation of carrying amounts Furniture, fittings and office equipment at cost Opening balance Additions Disposals Depreciation Depreciation on disposal Exchange difference Balance at year end Computer equipment at cost Opening balance Additions Disposals Depreciation Depreciation on disposal Exchange difference Balance at year end Leasehold Improvements at cost Opening balance Additions Depreciation Exchange difference Balance at year end 2016 $’000 1,998 (1,845) 2,941 (2,647) 1,289 (1,134) 602 154 75 – (74) – (2) 153 477 138 – (313) – (8) 294 252 – (97) – 155 2015 $’000 2,107 (1,953) 2,828 (2,351) 1,287 (1,035) 883 173 51 – (72) – 2 154 579 195 (7) (316) 7 19 477 159 203 (110) – 252 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 27 | 27 NOTE 9. INTANGIBLE ASSETS Intellectual property at cost Opening balance Exchange difference Balance at year end Goodwill on acquisition of subsidiaries Opening balance Additions Exchange difference Balance at year end Accumulated amortisation Opening balance Exchange difference Amortisation Balance at year end Total intangible assets, at cost Total intangible assets, net CONSOLIDATED 2016 $’000 2,500 (60) 2,440 6,654 3,486 (160) 9,980 (1,550) 113 (229) (1,666) 12,420 10,754 2015 $’000 2,204 296 2,500 5,865 – 789 6,654 (1,146) (172) (232) (1,550) 8,069 7,604 Impairment Testing of Goodwill Goodwill and intellectual property acquired through business combinations have been allocated to the Limehouse Software cash-generating unit. The recoverable amount of the Limehouse Software unit has been determined based on a value-in-use calculation using cash flow projections based on financial forecasts approved by senior management. The key assumptions used in value-in-use calculations for 30 June 2016 are: • The discount rate applied to cash flow projections is 15.5% (pre-tax). • Forecast margins are based on past performance and managements expectation for the future. • The forecast cash flows are based on a forecast for financial year 2017. For subsequent periods assumptions vary by market. In the established UK market which represents the majority of current net cash inflows, revenue growth has been forecast at 10% per annum with expenses remaining constant. In the US market revenue growth has been forecast at -15% per annum with expenses remaining constant. For new markets representing the balance of current cash inflows, higher growth rates in net income have been applied as the anticipated growth is from a lower base. The revenue in new markets reflects an identified anticipated pipeline of customers. • Terminal value at end of year 5 of 5 times EBITDA. There are no impairment losses in the current year. No reasonable change in the key assumptions of the value in use calculations would result in impairment. Intellectual Property (IP) The IP was acquired as part of the Limehouse acquisition in April 2009 and amortised over 10 years. 28 28 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED NOTE 10. ACQUISITION OF SUBSIDIARIES Onstream On 26 February 2016, the Group acquired 100% of the shares in Onstream Systems Limited (Onstream), a New Zealand headquartered company which specialises in the capture, collaboration and manipulation of large documents, complex drawings, maps and plans. The total cash consideration was $2,873,911. The acquisition was strategic as it enhances the group’s product offering. From the date of acquisition, Onstream contributed a total revenue of $968,035 and a net profit after tax of $193,850 to the Group. The acquisition had the following effect on the group’s assets and liabilities on acquisition: Trade receivables Other receivables Property, plant and equipment Deferred tax asset Payables Provisions Unearned income Identifiable intangible assets1 Net identifiable assets and liabilities Goodwill on acquisition1 Consideration paid, satisfied in cash Consideration paid Pre-acquisition carrying amounts $ Recognised values on acquisition $ 392,961 76,096 38,614 156,286 (172,393) (81,668) (684,036) – 392,961 76,096 38,614 156,286 (172,393) (81,668) (684,036) – (274,140) (274,140) 3,485,534 3,485,534 2,873,911 3,211,394 2,873,911 3,211,394 1 On acquisition of the subsidiary, the company acquired identifiable intangible assets including brand names, computer software, copyrights, and other intellectual property rights, service rights and operating rights, customer contacts, model designs and prototypes and intangible assets under development. As at the date of this report the fair value of these intangible assets have not been determined and have not been included in the provisional accounting for the business combination. The fair value of intangible assets acquired will be determined as soon as practicable and within one year as required under AASB 3: Business Combinations. At that time final accounting for the business combination will be reflected in the financial statements on a retrospective basis. The disclosure of revenues and profits of Onstream, had the acquisition occurred at the beginning of the financial year, is not practicable as Onstream underwent a restructuring exercise during the year of acquisition and as such, these results are not reflective of the nature and trade of Onstream. The carrying amounts for receivables are equivalent to their fair values. NOTE 11. PAYABLES Trade and sundry creditors Goods and services taxes Employee entitlements Dividends payable Total payables CONSOLIDATED 2016 $’000 3,354 2,212 1,375 67 7,008 2015 $’000 3,495 2,004 1,319 65 6,883 Trade and sundry creditors are unsecured and generally have 30 day terms. The carrying values of these payables are assumed to approximate their fair value. ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 29 | 29 NOTE 12. PROVISIONS Current Employee entitlements Rent incentive1 Total current provisions Non current Employee entitlements Rent incentive1 Other provisions Total non current provisions 1 The rent incentive will reverse over the remaining period of the leases. Movements in each class of provision during the current financial year are set out below: Opening balance Provision for the current year Payment during the year Balance at year end NOTE 13. OTHER LIABILITIES Current Unearned income Total current unearned income Non current Unearned income Total non current unearned income NOTE 14. CONTRIBUTED EQUITY Ordinary shares fully paid Total contributed equity Movements in ordinary share capital Opening balance Issue of shares/(Share buy-back)1 Closing balance 1 During the current financial year, the Company issued 530,000 shares, and bought back 162,108 shares. 30 30 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED 2016 $’000 858 33 891 261 108 – 369 2015 $’000 697 352 1,049 245 111 97 453 Employee Entitlements $’000 942 310 (133) 1,119 Rent incentive $’000 463 1,103 (1,425) 141 Other provisions $’000 97 – (97) – CONSOLIDATED 2016 $’000 11,422 11,422 32 32 2016 $’000 3,631 3,631 3,048 583 3,631 2015 $’000 13,541 13,541 3,043 3,043 2015 $’000 3,048 3,048 1,601 1,447 3,048 2016 Number of shares 2015 Number of shares 91,165,169 90,797,277 91,165,169 90,797,277 90,797,277 88,253,277 367,892 2,544,000 91,165,169 90,797,277 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present (whether in person or by proxy) at a meeting of shareholders is entitled to one vote, and upon a poll each share is entitled to one vote. The ordinary shares have no par value and the company does not have a limited amount of authorised capital. Options issued during the year under the Employee Incentive Plan The Company issues employee share options pursuant to the Employee Incentive Plan. Each option entitles the holder to the right to acquire one share at the nominated exercise price during the period commencing on the vesting date of the options. At 30 June 2016 there are 2,384,000 (2015: 2,714,000) employee options outstanding. During the year 330,000 options were exercised into ordinary shares (2015: 2,544,000). Options on Issue at Balance Date Employee options exercisable at $0.50 Employee options exercisable at $0.50 Employee options exercisable at $0.50 Employee options exercisable at $0.75 Employee options exercisable at $1.00 Employee options exercisable at $1.17 Employee options exercisable at $1.20 Total options on issue NOTE 15. RETAINED PROFITS AND RESERVES Retained profits Share Buy-Back Reserve Share-based payments reserve Foreign currency translation reserve Retained profits and reserves at year end Movements in retained profits and reserves a) Retained profits Opening balance Net profit for the year Total available for appropriation Dividends paid Balance at year end b) Share buy-back reserve Opening balance Movement during the year Balance at year end This reserve represents the premium received on share buybacks. c) Share-based payments reserve Opening balance Movement during the year Balance at year end This reserve is used to record the value of equity benefits provided to employees as part of their remuneration. 2016 2015 Number Expiry Date Number Expiry Date 204,000 250,000 200,000 500,000 01/09/2016 05/02/2024 07/10/2024 24/03/2024 80,000 07/10/2024 150,000 24/02/2025 324,000 300,000 200,000 500,000 240,000 150,000 01/09/2016 05/02/2024 07/10/2024 24/03/2024 07/10/2024 24/02/2025 1,000,000 05/03/2025 1,000,000 05/03/2025 2,384,000 2,714,000 CONSOLIDATED 2016 $’000 23,952 (9,569) 290 (344) 14,329 22,098 5,263 27,361 (3,409) 23,952 (9,300) (269) (9,569) 242 48 290 2015 $’000 22,098 (9,300) 242 (466) 12,574 20,717 4,470 25,187 (3,089) 22,098 (9,300) - (9,300) 120 122 242 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 31 | 31 NOTE 15. RETAINED PROFITS AND RESERVES CONTINUED d) Foreign currency translation reserve Opening balance Movement during the year Balance at year end This reserve records exchange differences arising on translation of foreign controlled entities. Total retained profits and reserves NOTE 16. CASH FLOW INFORMATION Reconciliation of profit after tax to net cash flow from operating activities: Profit from operating activities after tax Add/(Less): Non cash items Depreciation/amortisation Non-cash employee benefits expense share-based payments Decrease/(Increase) in receivables Increase in other assets Decrease/(Increase) in deferred tax assets Decrease in income tax payable Decrease in payables (Decrease)/increase in provisions (Decrease)/increase in unearned income Net cash (used in) / generated from operating activities CONSOLIDATED 2016 $’000 (466) 122 (344) 2015 $’000 (1,156) 690 (466) 14,329 12,574 CONSOLIDATED 2016 $’000 5,263 713 48 2,567 (3,395) 143 (869) (47) (324) (5,814) (1,715) 2015 $’000 4,470 723 122 (1,117) (466) (20) (217) (752) 41 5,667 8,451 Changes in other Assets relates to the timing of invoice milestones of Work in Process on significant contracts as at balance date which would otherwise have been in Receipts from Customers. Decrease in unearned income relates to the June 2015 advance prepayment of two years maintenance fees from specific customers at their request. This inflated cash flow from operations in FY2015 had the reverse effect in FY2016. This should not be repeated in future periods. NOTE 17. RELATED PARTIES a) Directors The Directors in office at any time during the financial year up to the date of this report were as follows: Tony Walls Gary Fisher Nick Kingsbury Leigh Warren b) Key management The key management in office (excluding directors) at any time during the financial year were S. McIntyre, F. Volckmar, A. Rudman, R. Mills, J. Goddard and S. Bool. 32 32 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED c) The consolidated entity The consolidated entity comprises the parent entity, being Objective Corporation Limited, and the following controlled entities: Direct Interest Objective Corporation Solutions NZ Limited Objective Corporation Singapore Pte Limited Objective Corporation North America Inc Objective Corporation USA Inc Objective Corporation UK Limited Limehouse Software Limited Onstream Systems Limited Country of Incorporation New Zealand Singapore United States of America United States of America United Kingdom United Kingdom New Zealand Ownership 2016 100% 100% 100% 100% 100% 100% 100% 2015 100% 100% 100% 100% 100% 100% – d) Transactions with other related parties (i) During the year the Group was provided management consulting services and was charged $32,445 (2015: $38,942) by Kingsbury Ventures Limited, a company associated with Nick Kingsbury, a Non-Executive Director of the Company. These transactions were conducted on normal commercial terms and conditions. At 30th June 2016 there were no amounts owing to Kingsbury Ventures Limited (2015: $nil). e) Directors’ and executives compensations Short-term employment benefits Post-employment benefits Share-based payments Total Loans to key management Personnel Details of loans provided: - Name Stephen Bool Adrian Rudman Loans are provided interest free. There have been no write downs or allowances for doubtful debts. NOTE 18. EMPLOYEE ENTITLEMENTS Amounts payable as in Note 11 Provisions – current as in Note 12 Provisions – non current as in Note 12 Total employee entitlements CONSOLIDATED 2016 $ 2015 $ 2,240,575 1,803,000 134,344 47,724 95,000 115,000 2,422,643 2,013,000 Balance 1 July 2015 $ 298,646 375,000 Interest charged $ Balance 30 June 2016 $ – – – 356,250 CONSOLIDATED 2016 $’000 1,375 858 261 2,494 2015 $’000 1,319 697 245 2,261 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 33 | 33 NOTE 19. EMPLOYEE INCENTIVE PLAN Objective Corporation Limited has an Employee Incentive Plan which was approved at the 2003 Annual General Meeting of the Company. The Plan is described as follows: Offers Under the Plan the Board may offer to any employee either options to acquire shares or loans to acquire shares in the Company. Tony Walls, Chief Executive Officer and Gary Fisher, Non-Executive Director will not be participating in the Plan. Price The Board has discretion to grant options for a fee and set the exercise price and term of the options. Quotation Options issued under the Plan will not be quoted on the ASX. Where the Company issues options and the options are exercised, the Company will apply to have the issued shares quoted on the ASX. Maximum number of shares or options The Company must not issue shares or options to any employee if to do so would contravene applicable laws or result in any employee holding an interest in more than 5% of the shares in the Company. Sales restrictions Options issued under the Plan are not transferable. Shares acquired under the Plan are not transferable unless any loan to acquire the shares has been repaid in full. New shares All shares issued on the exercise of options will rank equally with all existing shares from the date of issue. Dividends All shares acquired pursuant to the Plan rank equal in all respects and will be entitled to any dividends declared by the Company. Any dividends paid on shares acquired under the Plan will be offset against the loan balance outstanding to acquire shares under the Plan. Options issued under the Plan are not entitled to dividends. Restrictions The Board may impose vesting and performance conditions before which options cannot be exercised or the shares sold. The options issued pursuant to the Plan will usually lapse and the loans to acquire shares will usually become repayable if the holder ceases to be an employee. Participation in future issues Under the Employee Option Plan’s rules, the number of shares over which an option is granted and or the exercise price of the options may be altered in the event of a reconstruction of the Company’s share capital or a bonus or rights issue of shares to shareholders. Shares acquired under the Plan will rank equal in all respects with existing shares. Loans The Board has discretion to provide a loan for the acquisition of shares in the Company with a term of up to five years, together with further terms and conditions attaching to the loan. There is currently $755,000 of employee loans outstanding at the balance sheet date. NOTE 20. DIVIDENDS Dividends paid during the year: The Company/Group paid the 2015 final fully franked dividend of 3.75 cents per share on 9 September 2015. There was no special dividend. (2015: Payment of 2014 final unfranked dividend of 3.5 cent per share.) Dividends proposed and not recognised as a liability at year end: Since the end of the financial year, the Directors have declared the following dividend: Final fully franked dividend of 4.0 cents per ordinary share (2015: fully franked dividend 3.75 cents per ordinary share) Total Dividend CONSOLIDATED 2016 $’000 2015 $’000 3,409 3,089 3,647 3,647 3,405 3,405 As the dividends were declared after year end, the financial effect has not been brought to account in the financial statements for the year ended 30 June 2016. There is no Conduit Foreign Income (CFI) attributed to the final dividend. The balance of franking credit account at balance date adjusted for the payment of the provision for income tax. 712 1,317 NOTE 21. FINANCIAL COMMITMENTS The Group has the following financial commitments which are not recognised as liabilities at the end of the financial year as these expenses related to future periods: Operating leases Payable less than one year Payable later than one year but less than five years Total CONSOLIDATED 2016 2015 1,325 1,413 2,738 2,048 2,235 4,283 The Group pays rental on property as occupancy costs under operating leases. Leases generally provide the Group with rights of renewals at which time all terms will be renegotiated. The above excludes outgoing recoveries relating to the property leases. 34 34 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED NOTE 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Overview The Group’s principal financial instruments comprise cash and cash equivalents. The main purpose of these financial instruments is to finance the Group’s operations. The Group has other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk, and liquidity risk. The Group uses different methods to manage the different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate, price and foreign exchange risk and assessments of market forecasts. Ageing analysis is undertaken to manage credit risk while liquidity risk is monitored through business performance and cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of these risks as summarised below. Interest rate risk The Group’s exposure to market interest rates relates to the Group’s cash and cash equivalents. The Group regularly monitors its interest rate exposure and the mix between fixed and floating interest rates on cash held. At balance date, the Group had the following exposure to interest rate risk: Cash at bank Cash on deposit – Within one year At 30 June, if interest rates had moved, with all other variables held constant, post tax profit and equity would have been affected as follows: Post Tax Profit +1% (100 basis points) in interest rates -1% (100 basis points) in interest rates Equity +1% (100 basis points) in interest rates -1% (100 basis points) in interest rates CONSOLIDATED 2016 $’000 5,488 6,980 12,468 2015 $’000 6,155 14,090 20,245 CONSOLIDATED 2016 $’000 2015 $’000 87 (87) 87 (87) 142 (142) 142 (142) Foreign currency risk As a result of operations in the Asia Pacific region, the United Kingdom and the United States of America, the Group’s statement of financial position can be affected by exchange rate movements. The Group also has transactional currency exposures which arise from sales or purchases by an operating entity in currencies other than the functional currency. Foreign currency risk is defined as the fair value of future cash flows of a financial instrument fluctuating because of changes in foreign exchange rates. The sensitivity analysis provided does not include the currency risk of financial assets and liabilities of the controlled entities denominated in the controlled entity’s functional currency or their conversion into the functional currency of Objective Corporation Limited on consolidation as outside the scope of the definition. The conversion of these financial assets and liabilities on consolidation may result in a gain or loss to the consolidated entity. The Group’s main exposure is to the British Pound and New Zealand Dollar which is partly mitigated by a natural hedge arising from operations in these countries. The Group regularly monitors its foreign currency exposure which includes considering the level of cash in foreign currency. At 30 June, the Group had the following exposure to foreign currency risk: Cash and cash equivalents Trade and other receivables Trade and other payables Net foreign currency exposure CONSOLIDATED 2016 $’000 3,088 1,100 (3,324) 864 2015 $’000 1,343 1,733 (2,388) 688 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 35 | 35 NOTE 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES CONTINUED Foreign currency risk continued At 30 June, if the Australian Dollar (“AUD”) had moved, with all other variables held constant, post tax profit and equity for material foreign exchange exposures would have been affected as follows: NEW ZEALAND DOLLAR EXPOSURE Post Tax Profit +10% favourable movement in AUD -10% adverse movement in AUD Equity +10% favourable movement in AUD -10% adverse movement in AUD BRITISH POUND EXPOSURE Post Tax Profit +10% favourable movement in AUD -10% adverse movement in AUD Equity +10% favourable movement in AUD -10% adverse movement in AUD CONSOLIDATED 2016 $’000 2015 $’000 228 (228) 387 (387) – – 60 (60) 32 (32) 65 (65) – – 24 (24) Fair Values The fair values of financial assets and financial liabilities including cash and cash equivalents, trade and other receivables, and trade and other payables are short-term instruments in nature whose carrying amounts are equivalent to their fair values. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Cash and cash equivalents are spread amongst a number of financial institutions to minimise the risk of default. The Group trades only with recognised, creditworthy third parties with no significant concentrations of credit risk. As the majority of the Group’s customers are government organisations, collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. At 30 June, the Group had the following exposure to credit risk: CONSOLIDATED 2016 $’000 12,468 6,098 5,724 134 99 141 6,098 2015 $’000 20,245 8,923 6,856 1,809 234 24 8,923 Cash and cash equivalents Trade and other receivables (before provision for doubtful debt) At 30 June, the analysis of trade and other receivables is as follows: Fully performing debts Past due more than 30 days* Past due more than 60 days* Past due more than 90 days* Total * The directors believe these amounts are fully recoverable. 36 36 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED Liquidity risk Liquidity risk is monitored through business performance and cash flow forecasts. The Group continues to assess its liquidity risk as low. Assuming that all financial assets and liabilities of the Group fall due within 12 months, the net exposure of the Group to liquidity risk is as follows: Cash and cash equivalents Receivables Payables Tax assets/(liabilities) Net financial assets CONSOLIDATED 2016 $’000 12,468 6,098 (7,008) (12) 11,546 2015 $’000 20,245 8,923 (6,883) (881) 21,404 As the Group is in a net financial assets position, the Directors are of the opinion that the Group is in low risk and will be able to pay off its debts as and when they are due and payable. Net financial assets Cash not available for use CONSOLIDATED 2016 $’000 11,546 (222) 11,324 2015 $’000 21,404 (541) 20,863 Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of business. The Board monitors the return on capital and the level of dividends to ordinary shareholders. There were no significant changes in the Group’s approach to capital management during the year. NOTE 23. EARNINGS PER SHARE Basic earnings per share – cents Net profit used in calculating basic earnings per share – ’000 Weighted average number of shares used as the denominator in calculating basic earnings per share Diluted earnings per share – cents Net profit used in calculating diluted earnings per share – $’000 Weighted average number of shares used as the denominator in calculating diluted earnings per share * Options over 1,167,454 ordinary shares are dilutive. CONSOLIDATED 2016 5.8 5,263 2015 5.0 4,470 91,018,670 89,803,891 5.7 5,263 4.9 4,470 92,186,125* 90,894,681 NOTE 24. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of goodwill and intangibles The Group tests annually whether goodwill and other intangibles have suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash generating units have been determined based on discounted cash flow calculations. These calculations require the use of assumptions. Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Long service leave provision As discussed in note 1, the liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 37 | 37 NOTE 25 SEGMENT INFORMATION The consolidated entity’s chief executive officer has identified the reportable segments based on geographical areas. All these operating segments have been identified based on internal reports reviewed by the consolidated entity’s chief executive officer in order to allocate resources to the segment and assess its performance. The consolidated entity’s chief executive officer uses segment revenue, segment result, segment assets and segment liabilities to assess each operating segment’s financial performance and position. Amounts reported for each operating segment are the same amount recorded in the internal reports to the chief executive officer. Amounts of segment information are measured in the same way in the financial statements. They include items directly attributable to the segment and those that can reasonably be allocated to the segment based on its operations. Asia Pacific $’000 Europe $’000 Unallocated $’000 Consolidated $’000 41,560 – 41,560 25,271 16,289 – 92 16,197 27,992 14,953 176 396 41,140 – 41,140 24,343 16,797 – – 16,797 31,128 19,921 400 435 8,048 – 8,048 6,715 1,333 – – 1,333 2,861 1,450 37 68 8,232 – 8,232 7,776 456 – – 456 2,977 1,862 42 56 43 499 542 840 (298) 11,259 710 (12,267) 6,841 3,331 – 249 63 572 635 1,654 (1,019) 10,959 805 (12,783) 7,367 4,067 – 232 49,651 499 50,150 32,826 17,324 11,259 802 5,263 37,694 19,734 213 713 49,435 572 50,007 33,773 16,234 10,959 805 4,470 41,472 25,850 442 723 a) Geographic segments 2016 Segment Revenue Sales to external customers Interest revenue Total revenue Expenses (not including R&D) Profit/(Loss) before R&D R&D expenses Income tax expense Net profit/(loss) Assets Liabilities Capital expenditure Depreciation and amortisation 2015 Segment Revenue Sales to external customers Interest revenue Total revenue Expenses (not including R&D) Profit/(Loss) before R&D R&D expenses Income tax expense Net profit/(loss) Assets Liabilities Capital expenditure Depreciation and amortisation b) Industry segments The Group operates in the information technology software and services industry. NOTE 26. CONTINGENT LIABILITIES There are no material contingent liabilities other than as disclosed elsewhere in the financial statements. NOTE 27. SUBSEQUENT EVENTS There are no material subsequent events other than as disclosed elsewhere in the financial statements. 38 38 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS CONTINUED NOTE 28. PARENT ENTITY DETAILS As at, and throughout, the financial year ending 30 June 2016 the parent company of the Group was Objective Corporation Limited. A summary of the financial performance and financial position of the parent entity is detailed below: a) Summarised statement of comprehensive income Profit for the year after tax Total comprehensive income for the year b) Summarised statement of financial position Assets Current assets Non current assets Total assets Liabilities Current liabilities Non current liabilities Total liabilities Net assets Equity Contributed equity Retained profits and reserves Total equity THE COMPANY 2016 $’000 4,618 4,618 23,079 8,761 31,840 15,649 291 15,940 15,900 3,631 12,269 15,900 2015 $’000 5,201 5,201 30,664 5,783 36,447 18,726 3,502 22,228 14,219 3,048 11,171 14,219 c) Guarantees entered into by the parent entity The parent entity Objective Corporation Limited continues to support its subsidiaries in their operations, by way of financial support. NOTE 29. COMPANY DETAILS The registered office and principal place of business of the company is: Level 5, 77 Berry Street, North Sydney NSW 2060, Australia DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. The attached financial statements and notes set out on pages 17 to 39 are in accordance with the Corporations Act 2001; and a) Comply with Accounting Standards in Australian and the Corporations Regulations 2001; b) As stated in note 1, the consolidated financial statements also comply with International Reporting Standards; and c) Give a true and fair view of the financial position of the consolidated entity as at 30 June 2016 and its performance for the year ended on that date. 2. The Chief Executive Officer and Chief Financial Officer have each declared that: a) The financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; b) The financial statements and notes for the financial year comply with the Accounting Standards; and c) The financial statements and notes for the financial year give a true and fair view. 3. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay their debts as and when they become due and payable. This declaration is made in accordance with a resolution of Directors. Tony Walls Director Date: 26 August 2016 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 39 | 39 INDEPENDENT AUDITOR’S REPORT Level 22 MLC Centre 19 Martin Place Sydney NSW 2000 Australia Postal Address: GPO Box 1615 Sydney NSW 2001 Australia Tel: Fax: +61 2 9221 2099 +61 2 92231762 www.pitcher.com.au partners@pitcher-nsw.com.au Pitcher Partners is an association of independent firms Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF OBJECTIVE CORPORATION LIMITED We have audited the accompanying financial report of Objective Corporation Limited, which comprises the consolidated statement of financial position as at 30 June 2016, 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, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility 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 Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement in the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. An independent New South Wales Partnership. ABN 35 415 759 892 Liability limited by a scheme approved under Professional Standards Legislation 40 40 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF OBJECTIVE CORPORATION LIMITED We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Opinion In our opinion: (a) the financial report of Objective Corporation Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2016. 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. Opinion In our opinion, the Remuneration Report of Objective Corporation Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. M A GODLEWSKI Partner 26 August 2016 PITCHER PARTNERS Sydney ANNUAL REPORT 2016 | 41 AUDITOR’S INDEPENDENCE DECLARATION Level 22 MLC Centre 19 Martin Place Sydney NSW 2000 Australia Postal Address: GPO Box 1615 Sydney NSW 2001 Australia Tel: Fax: +61 2 9221 2099 +61 2 92231762 www.pitcher.com.au partners@pitcher-nsw.com.au Pitcher Partners is an association of independent firms Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle AUDITOR'S INDEPENDENCE DECLARATION TO THE DIRECTORS OF OBJECTIVE CORPORATION LIMITED In relation to the independent audit for the year ended 30 June 2016, to the best of my knowledge and belief there have been: (i) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (ii) no contraventions of any applicable code of professional conduct. M A GODLEWSKI Partner PITCHER PARTNERS Sydney 26 August 2016 An independent New South Wales Partnership. ABN 35 415 759 892 Liability limited by a scheme approved under Professional Standards Legislation 42 42 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES SHAREHOLDER INFORMATION The shareholder information set out below was applicable on the 14th September 2016. Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below: A) DISTRIBUTION OF EQUITY SECURITIES SECURITY CLASSES FULLY PAID ORDINARY SHARES Size of Holdings 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over No. of Holders 113 265 103 148 31 660 Total Ordinary Shares 60,950 764,103 845,484 4,811,965 85,136,667 91,619,169 There were 24 holders of less than a marketable parcel of ordinary shares. B) VOTING RIGHTS The voting rights attaching to ordinary shares are that every member in person or by proxy, attorney or representative shall have one vote on a show of hangs and one vote for each share held on a poll. There are no voting rights attaching to options over unissued shares. C) TWENTY LARGEST QUOTED EQUITY SECURITY HOLDERS ORDINARY SHARES Name TBW TRUSTEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MIRRABOOKA INVESTMENTS LIMITED AMCIL LIMITED CLAPSY PTY LTD CITICORP NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA ARRAS PTY LTD MRS ELAINE WALLS & MS MICHELLE ROBYN WALLS MR ADRIAN RUDMAN AUST EXECUTOR TRUSTEES LTD ONMELL PTY LTD MYALL RESOURCES PTY LTD MR DAVID GORDON RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED AUST EXECUTOR TRUSTEES LTD MR MITCHELL JAMES HARRISON & DR ROSALIND FRANCES MENZIES MR ANDREW JAMES BOWEN MRS JOAN CAMERON FISHER MOAT INVESTMENTS PTY LTD D) SUBSTANTIAL HOLDERS IN THE COMPANY ORDINARY SHARES Name TBW TRUSTEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED Number of Ordinary Shares Held 62,000,000 11,021,992 1,873,337 1,384,943 1,185,395 813,892 575,293 543,832 535,000 500,000 448,467 440,000 425,000 400,000 338,076 281,391 237,609 224,000 219,000 208,115 % of Listed Shares 67.671 12.030 2.045 1.512 1.294 0.888 0.628 0.594 0.584 0.546 0.489 0.480 0.464 0.437 0.369 0.307 0.259 0.244 0.239 0.227 83,655,342 91.308 Number of Ordinary Shares Held 62,000,000 11,021,992 % of Listed Shares 67.671 12.030 ANNUAL REPORT 2016 ANNUAL REPORT 2016 | 43 | 43 CORPORATE DIRECTORY SHARE REGISTRY Boardroom Pty Ltd Grosvenor Place Level 12, 225 George Street Sydney NSW 2000 GPO Box 3993 Sydney NSW 2001 Tel: +61 (0)2 9290 9600 Fax: +61 (0)2 9279 0664 AUDITOR Pitcher Partners Level 22, MLC Centre 19 Martin Place Sydney NSW 2000 WEBSITE www.objective.com EMAIL enquiries@objective.com REGISTERED OFFICE Level 5 77 Berry Street North Sydney NSW 2060 Australia Tel: +61 2 9955 2288 Fax: +61 2 9955 5011 ASX CODE OCL ABN 16 050 539 350 DIRECTORS Tony Walls Gary Fisher Nick Kingsbury Leigh Warren COMPANY SECRETARY Mark Katz STOCK EXCHANGE LISTING The Company’s shares are listed on the ASX. ELECTRONIC ANNOUNCEMENTS Shareholders who wish to receive a copy of announcements made to the ASX are invited to provide their email address to the Company. This can be done by emailing us at enquiries@objective.com or writing to us at our registered office. 44 44 | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES | OBJECTIVE CORPORATION LIMITED AND ITS CONTROLLED ENTITIES INFORMATION GOVERNANCE ORGANISATION OF THE YEAR Australian Navy Fleet Air Arm FAA Governance and Reporting Unitywater Information Management Project PROCESS GOVERNANCE ORGANISATION OF THE YEAR Department of the Premier & Cabinet, South Australia Parliamentary Briefings COLLABORATION ORGANISATION OF THE YEAR Wyndham City Council Planning Approval Automation MICROSOFT AWARD FOR EXCELLENCE Wyndham City Council Major Projects PMO O B J E C T I V E A N N U A L R E P O R T 2 0 1 6 www.objective.com