OFX Group Limited
Annual Report 2016

Plain-text annual report

OUR FUTURE IS CLEAR ANNUAL REPORT 2016 OzForex Group Limited ACN 165 602 273 CONTENTS 02 WE ARE OFX... 04 OFX PROVIDES GLOBAL PAYMENT SOLUTIONS 06 OUR STRATEGY 07 BRAND AND MARKETING 07 TECH STORY 08 OUR VALUES 10 OUR KEY ACHIEVEMENTS 12 FINANCIAL HIGHLIGHTS 13 CHAIRMAN’S LETTER 16 CEO’S LETTER 18 EXECUTIVE TEAM 21 2016 DIRECTORS’ REPORT AND FINANCIAL REPORT 89 SHAREHOLDER INFORMATION 91 CORPORATE INFORMATION WHATEVER THE REASON FOR AN INTERNATIONAL MONEY TRANSFER, WE UNDERSTAND HOW IMPORTANT IT IS TO EACH CUSTOMER. WE TREAT EVERY TRANSFER LIKE IT’S THE ONLY THING THAT MATTERS TO US. ANNUAL GENERAL MEETING 4PM ON WEDNESDAY 3 AUGUST 2016 OZFOREX GROUP LIMITED ACN 165 602 273 LEVEL 19, 60 MARGARET STREET SYDNEY NSW 2000 ANNUAL REPORT 2016 01 WE ARE OFX... ESTABLISHED SINCE 1998, OFFERING BANK TO BANK INTERNATIONAL MONEY TRANSFER SERVICES FINTECH GROWTH COMPANY WITH PREDOMINATELY ONLINE TRANSACTIONS AND 24/7 PHONE SUPPORT SPECIALISING IN TRANSACTION SIZES OVER $10K FOR SMALL‑MEDIUM BUSINESSES AND HIGH NET WORTH CUSTOMERS 14M OPPORTUNITY TO REACH 14M HOUSEHOLDS IN THE US ALONE DOUBLING REVENUE OVER THE NEXT THREE YEARS THROUGH ACCELERATE STRATEGY 02 OZFOREX GROUP Our customer, her story... MAINTAINING A HARD‑EARNED HOME FROM HOME After spending many winters skiing in Chamonix, France, Martha and her husband decided to buy property there. “Initially, I was frustrated with the cost of wiring money to France. It took a long time, the exchange rate was poor, and the transfer fees were large. There had to be something better available online – that’s how I found OFX. OFX has excellent rates and you know exactly how much of your hard-earned money will arrive at your bank account. Plus, the wire fees are more than fair – it’s a bargain.” ANNUAL REPORT 2016 03 OFX PROVIDES GLOBAL PAYMENT SOLUTIONS San Francisco San Francisco Toronto Toronto London London OFX Toronto processing payments OFX London processing payments PAYMENT PROCESSING OFX Sydney processing payments How OFX works as a business: The client is called by OFX, identified and their reason for transfer evaluated. An electronic verification (EV) check is performed; if further ID is required, it is requested and vetted. Transfer is booked and currency is purchased by OFX through a panel of wholesale foreign exchange providers. OFX covers foreign exchange market exposure via peer to peer netting and clears residual balances. 04 OZFOREX GROUP San Francisco Toronto London Hong Kong How OFX disrupts: Standard rate – the rate banks and other providers ordinarily give to customers. OFX rate – the rate OFX provides customers, with a small margin taken. Interbank rate – the rate banks give each other to swap currency. Up to 85% saving  on average. Average margin rate taken by OFX – 0.55%. Sydney Auckland How OFX works as a business: Global payments made locally: A client registers and makes a transfer through our online platform. They transfer funds from their bank account into a local OFX bank account in that country. OFX then transfers the funds from our local bank account within the country they are sending money to. ANNUAL REPORT 2016 05 OUR STRATEGY In August 2015, we announced that we would double revenue within the next three years. In order to deliver our vision and achieve this goal, we have implemented the Accelerate Strategy, which has three core enablers at its heart: Brand and Marketing, Technology and People. 06 OZFOREX GROUP BRAND AND MARKETING We’re moving from seven independent brands to a single global brand, OFX. We have already launched OFX in Australia and are rolling the brand out globally. • Brand differentiation – stand out versus our competitors • Efficiency – team productivity, and ability to diversify media • More identifiable to customers moving markets TECH STORY We’re a disruptor in the Financial Services industry – the original Australian Fintech. We continue to successfully merge the finance and technology world to drive innovation, which is fundamental to deliver on customer expectations, and continue to disrupt. VELOCITY OF FEATURES DELIVERED Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY15 FY16 FY17 Technology and people are the key enablers for our business. Over the last six months, we have brought product and technology together with dedicated product teams, and implemented a technology restructure to ensure that we remain agile and deliver successfully on our vision. Our key technology investments involve moving production and product development to Amazon Web Services, enabling better business decisions through big data, exploiting global cloud‑based phone and call centre solutions and investments in our new websites. ANNUAL REPORT 2016 07 number of features deliveredOUR VALUES OUR PEOPLE The People and Culture team helps to ensure that our more than 270 employees achieve their best self. New office space in Sydney, Toronto and Auckland has seen a dramatic increase in enjoyment and productivity, together with being a very attractive element of our overall employee value proposition. People and Culture initiatives such as Elevate, which focuses on wellness and overall OFX experience; the Good Vibes Committee, which delivers fun social occasions; and training, reward and recognition programs linked closely to our values ensure that OFX continues to attract and retain the highest calibre of employees. A large element of the OFX culture continues to be driven by diversity of gender (over 40% of our business is supported by women) and nationality (47 different nationalities ensure innovative thinking and customer empathy) alongside the values shared by everyone at OFX. 08 OZFOREX GROUP PUSH BOUNDARIES THERE’S ALWAYS A SMARTER WAY. FIND IT. USE IT. WIN. GSD WE ARE SELF STARTERS AND TEAM FINISHERS. ALWAYS KEEP LEARNING GROW YOUR EXPERTISE. SHARE IT FREELY. WE’RE BETTER TOGETHER UNDERSTAND INTUITIVELY, DEFINE ARTICULATELY AND SOLVE JOINTLY. INSPIRE CUSTOMER CONFIDENCE YOUR COMMITMENT TO THEM WILL EARN THEIR COMMITMENT TO US. ANNUAL REPORT 2016 09 OUR KEY ACHIEVEMENTS Launch of the Accelerate Strategy PEOPLE: Richard Kimber, Chief Executive Officer. PEOPLE: Kirsten Pollard, Head of People and Culture. Maria Loyez, Chief Marketing Officer. Adam Smith, Chief Operating Officer. TECHNOLOGY: Toronto network upgrade. April 2015 10 OZFOREX GROUP TECHNOLOGY: Mobile app launch. PEOPLE: Karin Visnick, Acting Head of North America. TECHNOLOGY: Xero integration. MARKETING: Web analytics integration with Google stack. OFX brand positioning and tone of voice. Programmatic display activity launched. Set up content and social team. MARKETING: Lower minimum transaction spend. OFX brand identity finalised. October 2015 PEOPLE: Neville Lacey, Head of UK and Europe. New offices, Toronto. PEOPLE: Craige Pendleton‑Browne, Chief Technology Officer. New offices, Sydney. PEOPLE: Ken Wills, Head of Canada. TECHNOLOGY: Sydney network upgrade. OFX.com website launch. Partner currency widgets. Corporate onboarding customer due diligence (CDD). OFX.com running on Amazon Web Services. TECHNOLOGY: Big data warehouse. March 2016 MARKETING: Weekend trading. TECHNOLOGY: Lifesize video conferencing. MARKETING: Proprietary quantitative study in field to determine market sizing and consumer need. Refreshed consumer focused public relations. Internal roll‑out of brand. Rebrand to OFX in Australia. ANNUAL REPORT 2016 11 FINANCIAL HIGHLIGHTS UNDERLYING EBITDA ($M) UNDERLYING NPAT ($M) NET OPERATING INCOME ($M) 2014 2015 2016 5% 28.3 34.5 36.1 2014 2015 2016 20.1 24.3 23.9 2014 2015 2016 72.6 90.1 103.9 2% 15% ACTIVE CLIENTS TRANSACTIONS TURNOVER ($B) 2014 2015 2016 6% Macquarie became a 51% shareholder. Toronto office opened and CanadianForex brand launched. Established first international payments solution with Macquarie. Annual international payments transaction turnover exceeded $1 billion. London office opened and UKForex brand launched. International payments services offered 24 hours a day, 5 days a week. 120,500 142,500 150,900 2014 2015 2016 581,100 702,800 784,200 2014 2015 2016 13.6 16.6 19.6 12% 18% Annual international payments transaction turnover exceeded $7 billion. Hong Kong office opened and ClearFX brand launched. San Francisco office opened and USForex brand launched. Established international payment solution with Travelex in the UK. Funds associated with Accel Partners and The Carlyle Group became shareholders. Launched Macquarie International Money Transfers service for Macquarie staff and retail clients in Australia. OFX brand launched. OzForex Group Limited publicly listed on the Australian Stock Exchange. 40% GROWTH IN ACTIVE CLIENTS SINCE ASX LISTING. 0 0 0 0 5 1 , 0 0 0 0 0 1 , 0 0 0 0 5 , 150,900 ACTIVE CLIENTS HAVE TRUSTED US WITH THEIR INTERNATIONAL TRANSFERS IN THE PAST 12 MONTHS. Year 05 06 07 08 09 10 11 12 13 14 15 s t n e i l c e v i t c A 0 16 12 OZFOREX GROUP CHAIRMAN’S LETTER PETER WARNE CHAIRMAN Dear shareholder The past year has been one of transition for the Company and, whilst we have once again delivered strong results, we have also weathered our challenges well. 2016 RESULTS OFX is the leading international payments business in Australia and New Zealand, and this position was further cemented during the year. We have demonstrated our ability to scale in this market, and the opportunity to penetrate this market further remains significant. Our newest geography, the United States, is also experiencing growth, and we continue to expect that this market will be our largest future market opportunity. OFX passed a significant milestone in delivering net operating income of $103.9million, up 15% on the previous year. We also grew active clients by 6% to 150,900. OFX sent money to almost 200 countries on behalf of its customers. Last year, our turnover grew to $19.6billion. Notwithstanding our final outcome we did miss the EBTDA guidance we gave at the Annual General Meeting, and we updated that guidance in February with a slightly reduced guidance for the full year, which was ultimately delivered. This was due to factors both within and outside of our control, principally during the third quarter. Subsequently, the factors within our control have been addressed, and we saw a more positive fourth quarter to the year which enabled us to deliver full year results within the reforecast we provided. As a consequence, Executives gave up their short‑term incentive bonus, as the outcome did not meet the hurdle rate. During the third quarter, the Company was faced with an unsolicited takeover bid in the form of a preliminary, non‑binding, indicative conditional proposal from Western Union. After careful consideration, the Board agreed to grant Western Union access to exclusive due diligence. In the end, this process took a great deal longer than expected and did not result in a successful transaction. The investment of time and the significant distraction created by this process cannot be underestimated. It was undoubtedly a factor that led to a softer third quarter performance. The Board acknowledges the enormous commitment shown by the Executive Team during the process. THE BOARD AND THE EXECUTIVE TEAM The Board welcomed Richard Kimber as its new CEO to OFX at the beginning of June last year. Richard has 25 years of diverse global leadership experience that has included several chief executive and board roles in the financial services and technology sectors and has extensive experience in consumer financial services, marketing, search and social media, as well as capital markets. Richard very quickly went on to strengthen the OFX Executive Team with a number of key appointments. The team was boosted with the appointment of Maria Loyez, Chief Marketing Officer, Adam Smith joined as Chief Operating Officer to lead the global operations and Kirsten Pollard was appointed as Head of People and Culture. Craige Pendleton‑Browne was appointed as Chief Technology Officer and brings a wealth of experience in the technology sector, in particular in software development. He has rapidly transformed the technology team, and it is pleasing to see the velocity of delivery already ramping up under Craige’s leadership. Most recently, Karin Visnick has moved from an acting role to being appointed Executive Vice President – General Manager North America. Karin has a strong background in Silicon Valley and was most recently a senior product leader at eBay. She is based in our San Francisco office. The Board is very pleased with the composition of the entire Executive Team and the background, skills and experience that each member brings to OFX. The Board is confident that with our investments in people, technology and facilities, the solid foundations are now in place to deliver on our Accelerate strategy over the next three years. CAPITAL MANAGEMENT OFX continues to have a robust balance sheet with no external interest bearing debt and strong cash flow conversion. This strong financial position allows us to continue to invest in the business to meet our goals and execute on our Accelerate Strategy. SHAREHOLDER RETURNS The Board was pleased to announce a dividend of 3.1 cents per share fully franked. The dividend payment will have a record date of 10 June 2016 and a payment date of 24 June 2016. This brings the total to $16.1million for the year. The Group’s dividend policy is to pay out approximately 70%‑80% of NPAT per annum and this remains unchanged from last year. ACKNOWLEDGEMENTS OFX has the foundations in place from which to realise its growth potential and to continue to scale. The Board is very pleased with the progress to date and has confidence in the entire Company to deliver the strategy it has set out. On behalf of the Board and Executive Team, we wish to express our thanks to our customers, our business partners and to our very dedicated OFX team around the world and to you, our shareholders, for your continued support. ANNUAL REPORT 2016 13 14 OZFOREX GROUP Our customer, his story... HOW TO BUILD THE PERFECT PROPERTY PORTFOLIO At the age of 22, Chris started investing in property. At 27, he relocated to Australia, taking his property portfolio with him. across banks when I looked at using OFX. The difference was considerable, and I haven’t looked back.” “I began pulling equity out of my UK properties, transferring the money to Australia. I was moving up to $100,000 at a time and was comparing rates Chris is now a regular host on Sky News Business, and also travels around Australia and Asia conducting seminars using OFX to pay for venues and sponsorships. ANNUAL REPORT 2016 15 CEO’S LETTER Dear shareholder I am delighted to be presenting my first annual report as Managing Director and CEO of the OzForex Group. We have had a turbulent year, with a number of challenges thrown our way. I am very proud of the courage and resilience demonstrated by our leadership team as we actively dealt with a range of external events, whilst at the same time putting in place the foundations of our new strategy. This testing period has placed us in a position to flex the operations of the business and allowed me to deeply understand the levers we have and where we need to strengthen our capability. Whilst the fundamentals of our business remain incredibly strong, we have to continue to innovate and iterate like all modern companies in an increasingly technologically driven world. We spent a lot of time considering our key strategic questions, and now have real clarity on our future direction, our growth ambitions and the tactics to achieve them. I believe that good strategy is about making clear choices, and that we have made significant strides in detailing our path forward and are now well underway in executing the vision. We are a global Fintech company competing in an enormous market where we have a distinct and unique position that will scale significantly with marketing and sales investment. During the year, we saw net operating income pass the significant $100million milestone, with a large portion of that revenue being derived offshore. This milestone is a key point in setting a baseline for our growth objective. ACCELERATE STRATEGY At the AGM in August 2015, I presented the Company’s Accelerate Strategy and our goal to double FY16 revenue to $200million by FY19. The Accelerate Strategy is based around three pillars of increasing penetration in the Australian market, leveraging our global footprint outside Australia and targeting adjacent products. To deliver on this strategy, 2017 will be focused around strengthening our core customer proposition and building an even more scalable and agile digital platform. As we outlined at the AGM, we will be making additional investment, and 2017 will see selected cost expansion to support the strategy, and flatter overall profit, before we see the benefits of the investment paying off towards the end of the year and then into 2018 and beyond. A NEW BRAND Most significantly, during the year, OzForex Group made its first step in its global rebranding away from its geographically specific naming standard to becoming a single global brand and domain – OFX (www.ofx.com). This initial step occurred in December with the launch of the OFX brand and totally new public website in Australia. The benefits of this change will be seen in marketing efficiencies and in stronger brand recognition across our international operations. We will invest in our brand by broadening our marketing channels beyond search marketing to include marketing in social media, television, print and other channels. Our advertising will be highly targeted using our data platform to ensure that we achieve greater awareness, consideration and conversion. Our customers have always endorsed our services, and we consistently achieve net promoter scores above 65%; this drives great word of mouth referrals. The opportunity to spread the word more widely and increase awareness of our services is one we must harness. 24/7 Since January, we have been delivering 24/7 service to our customers using our ‘follow the sun’ service model, enabling our customers to transact at a time that suits them and have access to our customer service team for help when they need it. This is a clear example of harnessing latent opportunity within our business. We have identified a number of other areas to leverage our existing scale and operational reach. PEOPLE AND CULTURE During the year, we moved our Sydney headquarters to a more modern working environment. We also used this move to re‑articulate our beliefs and behavioural norms. Achieving our growth plans will require a strong performance‑oriented culture, where diversity and inclusion are harnessed to achieve great results. I am very keen to foster an environment where everyone in our team feels empowered to take initiative and challenge outdated conventions for a better outcome. The OFX team grew globally to more than 270 by year end, and we expect that the growth will be similar in the 2017, year with particular emphasis in the technology and product teams. RICHARD KIMBER MANAGING DIRECTOR AND CEO 16 OZFOREX GROUP PRODUCT DEVELOPMENT PROFITABLE GROWTH OFX has a proprietary technology platform that has been built over several years. There is a significant amount of intellectual property in our software, and we will continue to invest in the scalability of our platform and the way we develop and deploy our code to support our growth. As OFX’s platform continues to evolve, we are very focused on accelerating the pace of delivery and, to achieve that, we will move our systems to a cloud‑based environment using Amazon Web Services during 2017. Craige Pendleton‑Browne, our new Chief Technology Officer has taken over the leadership of our product teams and integrated them with the technology teams. This approach is already seeing an increase in the number of features we are able to launch per release and a tighter linkage between our business and technical teams. During 2016, we delivered a new transactional mobile app, enabling our customers to make international payments wherever they are and whenever they want. There have been more than 55,000 downloads of the app since it was launched in August, with one in 10 transactions now being undertaken on a mobile device. I expect this proportion will continue to grow. BANKING PARTNERS AND BREADTH OF CURRENCIES Our banking partners are an integral part of our business model. We were delighted to add to the strength of our banking relationships during the year with the addition of another two key global banking partners supporting our growth, particularly in important markets in New Zealand, India and some Nordic countries. During the year, we increased the number of countries that we paid to almost 200, using the 880 currency pairs available to us. OFX is well positioned to address the vast opportunity in the international payments market. There remains significant growth in current and new geographies. Our strategic priorities are to: • • • • • Continue penetration in our primary market of Australia and New Zealand through efficient online engagement and building of brand awareness through diversified marketing channels in social media, online, mobile and television; Place clear emphasis on international expansion, with particular focus on North America; Continue evolution of the technology platform and move to an AWS cloud‑based environment to enable rapid innovation and cadence in delivery of features; Continue development of our customer service model through product innovation; Further embed ourselves in ecosystems with global brands. We have made a substantial start on our Accelerate journey and have the financial resources and balance sheet to internally support the investment in our organic growth. OUTLOOK We are well on our way to the goal we set ourselves of delivering $200million in revenue by 2019. We have bolstered our leadership, begun our move to a single global brand under OFX, developed a clear marketing strategy and are increasing the speed of innovation through a cloud‑based technical environment and an empowered global team. We are confident and excited about our future. Thank you for your ongoing support. ANNUAL REPORT 2016 17 EXECUTIVE TEAM RICHARD KIMBER MANAGING DIRECTOR AND CEO Richard Kimber is Managing Director and Chief Executive Officer of the OzForex Group. Richard Kimber has 25 years of diverse global leadership experience that has included several chief executive and board roles. Richard has lived and worked in Australia, Hong Kong, the USA and the UK. He worked for the HSBC Group for eight years in several ecommerce roles and was the president of online payments for North America and Global Head of Internet Marketing. He was then promoted to ADAM SMITH CHIEF OPERATING OFFICER Adam Smith commenced his role as Chief Operating Officer at OFX in October 2015. Adam has more than 20 years of experience in top tier financial institutions, most recently as Co‑Head of ANZ ETFS. Prior to OFX, Adam has held a number of commercial and operational positions within ANZ Global Markets, Chief Executive of Firstdirect Bank in the UK – the pioneering service leader using direct channels. Richard then became the first Regional Managing Director of Google in South East Asia. Whilst at Google, he led all the commercial and country operations in the region and more than doubled its multi‑billion dollar revenues. He has extensive experience in financial services, marketing, social media and capital markets. He is an active investor in technology start‑ups, sits on the boards of RTI (internet cable) and Unlockd Media (mobile advertising). Richard holds a Bachelor of Science in Psychology/ Statistics and an MBA from the Macquarie Graduate School of Management (1992). Macquarie Group and Deutsche Bank. Adam combines a strong background in financial markets products with an extensive knowledge of business support functions such as product development, technology, operations, risk and finance. Adam has a Bachelor of Economics from the University of Sydney and a Master of Business (Finance) from the University of Technology (Sydney). CRAIGE PENDLETON‑BROWNE CHIEF TECHNOLOGY OFFICER Craige Pendleton‑Browne is Chief Technology Officer and commenced his role in November 2015. Craige has more than 20 years of experience in technology roles, with over 15 years of those working in digital. He has worked as Chief Technology Officer in both the UK and Australia. His most recent roles include Chief Technology Officer for News Digital Media, Head of Content and Digital for News Corp Australia and Chief Technology Officer of iCareHealth, Australia’s leading provider of residential aged care software. Craige has extensive experience in creating the technology vision and strategy as well as a proven ability to execute and deliver. He has a Bachelor of Science in Computer Science as well as an MBA from London Business School. MARIA LOYEZ CHIEF MARKETING OFFICER Maria Loyez joined OFX in August 2015 as Chief Marketing Officer. Maria has 18 years’ experience in commercial roles encompassing strategy consulting, business development and marketing. She has spent the last nine years in marketing leadership roles, including most recently at AMP, where she was the Director of Channel Marketing, and prior to that as Head of Marketing Communications at Optus for seven years. She is a strategic marketeer who was awarded 2012 AdNews Top 40 under 40. Maria also has start‑up experience, having worked at Virgin Management Limited in London, where she launched Virgin Mobile in France, Canada and South Africa. Maria has a Master of Engineering, Mechanical Engineering with European Studies from the University of Bristol. MARK LEDSHAM CHIEF FINANCIAL OFFICER Mark Ledsham joined OFX as Chief Financial Officer in April 2008. Since joining OFX, Mark has developed a robust financial control framework driving the Company’s strategies. Prior to joining OFX, Mark worked in the finance department of Macquarie Group’s retail section, BFS, and was responsible for the financial management of the section’s strategic investments. Mark brings over 11 years’ experience working in public practice and both privately owned and publicly listed international companies. Mark graduated from the University of Manchester, where he gained a BA Honours degree in Accounting and Finance, and qualified as a Chartered Accountant in 2004. 18 OZFOREX GROUP JASON ROHLOFF CHIEF RISK OFFICER Jason Rohloff is the Chief Risk Officer at OFX and has previously held the positions of Head of Compliance and Chief Operating Officer at OFX. Prior to joining OFX in 2007, Jason spent four years at Macquarie Group and, prior to that, was at Westpac Bank and in retail stock broking in New Zealand. Jason has 18 years of broad operational experience working with retail, JEFF PARKER CHIEF ENTERPRISE OFFICER Jeff Parker commenced working with OFX in September 2013 as Chief Operating Officer responsible for the operations, treasury and banking functions of the business globally. Recently, Jeff moved into his new role as Chief Enterprise Officer, responsible for building and growing the business to business side wholesale and institutional clients across a number of financial products and services including foreign exchange, equities, cash instruments, bonds and unit trusts. Jason holds a Bachelor of Commerce and Administration from Victoria University in Wellington, New Zealand, a Diploma of Financial Markets from the Securities Institute of Australia and an Advanced Diploma of Financial Services from the Australian Financial Markets Association. of the business. Jeff has over 13 years’ experience across operations, strategy, consulting and mergers and acquisitions. Prior to joining OFX, Jeff held roles at Macquarie, Accenture and JP Morgan. Jeff holds a Bachelor of Science in Management Sciences from the University of Manchester in England and qualified as a Chartered Management Accountant (ACMA) in 2006. KARIN VISNICK EXECUTIVE VICE PRESIDENT – GENERAL MANAGER NORTH AMERICA Karin Visnick joined OFX in July 2015. She brings more than 15 years experience in product management, marketing, and business operations, working for both large Fortune 500 companies such as Yahoo!, The Gap, and eBay to small start up organisations. She has spent the majority of her career in the technology space, with extensive experience in the e‑commerce and finance industries. Karin holds a Bachelor of Arts in Mathematics from the University of Virginia, Charlottesville, Virginia. KIRSTEN POLLARD HEAD OF PEOPLE AND CULTURE Prior to joining OFX, Kirsten had a 10‑year career in global equities at Merrill Lynch and four years in a profitable start‑up business. Kirsten Pollard began working with OFX in November 2014 and commenced her role as Head of People and Culture in September 2015. She has a Bachelor of Commerce from the University of Western Australia and has attended an Executive Education program at the Harvard Business School. LINDA COX GROUP COMPANY SECRETARY AND HEAD OF INVESTOR RELATIONS Linda Cox commenced working with OFX in early 2014 as Company Secretary. Prior to joining the Group, Linda had operated her own company secretarial services business where her key clients included dual listed companies, Xero, Trade Me Group and Summerset Group. Prior to that, she was Company Secretary for Telecom New Zealand (now Spark New Zealand). Linda holds a Bachelor of Laws degree from Victoria University of Wellington and a Diploma in Investor Relations from the Australasian Investor Relations Association. She is admitted to the bar in New Zealand and Australia and is a Fellow of the Governance Institute of Australia. ANNUAL REPORT 2016 19 Our customer, his story... HELPING A BUSINESS BOOM James Johnson, Managing Director of energy efficiency company Shine On, has been importing energy efficiency products from China since 2009. “In 2011, we did an audit and realised that we were spending far too much money on money transfers. Our first priority at the time was to find the best rates; an acquaintance recommended OFX.” James signed up and made his company’s first invoice with OFX – making an estimated saving of over $1,000. In the years since Shine On partnered with OFX, it has saved over $80,000 in international money transfers. 20 OZFOREX GROUP 2016 DIRECTORS’ REPORT AND FINANCIAL REPORT 65 NOTE 9. PROPERTY, PLANT AND EQUIPMENT 66 NOTE 10. INTANGIBLE ASSETS 67 NOTE 11. DEFERRED INCOME TAX ASSETS/ (LIABILITIES) 67 NOTE 12. CLIENT LIABILITIES 67 NOTE 13. OTHER LIABILITIES (CURRENT LIABILITIES) 68 NOTE 14. PROVISIONS 68 NOTE 15. CONTRIBUTED EQUITY 69 NOTE 16. RETAINED EARNINGS 69 NOTE 17. DIVIDENDS PAID AND DISTRIBUTIONS PAID OR PROVIDED FOR 69 NOTE 18. CAPITAL 70 NOTE 19. COMMITMENTS 70 NOTE 20. NOTES TO THE STATEMENT OF CASH FLOWS CONTENTS 22 DIRECTORS’ REPORT 32 REMUNERATION REPORT 47 AUDITOR’S INDEPENDENCE DECLARATION 48 FINANCIAL REPORT 48 STATEMENT OF COMPREHENSIVE INCOME 49 STATEMENT OF FINANCIAL POSITION 71 NOTE 21. RELATED PARTY INFORMATION 50 STATEMENT OF CHANGES IN EQUITY 72 NOTE 22. KEY MANAGEMENT PERSONNEL 51 STATEMENT OF CASH FLOWS 52 NOTES TO THE FINANCIAL STATEMENTS 52 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 60 NOTE 2. SEGMENT INFORMATION 73 NOTE 23. EMPLOYEE EQUITY PARTICIPATION 76 NOTE 24. CONTINGENT LIABILITIES AND ASSETS 76 NOTE 25. FINANCIAL RISK MANAGEMENT 77 NOTE 25.1 CREDIT RISK 80 NOTE 25.2 LIQUIDITY RISK 80 NOTE 25.3 MARKET RISK 62 NOTE 3. PROFIT FOR THE FINANCIAL YEAR 83 NOTE 26. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES 63 NOTE 4. INCOME TAX EXPENSE 64 NOTE 5. CASH AND CASH EQUIVALENTS 64 NOTE 6. RECEIVABLES DUE FROM FINANCIAL INSTITUTIONS 64 NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS 64 NOTE 8. OTHER ASSETS 84 NOTE 27. REMUNERATION OF AUDITORS 84 NOTE 28. EVENTS OCCURRING AFTER BALANCE SHEET DATE 85 NOTE 29. EARNINGS PER SHARE 85 NOTE 30. PARENT ENTITY FINANCIAL INFORMATION 86 DIRECTORS’ DECLARATION 87 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF OZFOREX GROUP LIMITED 89 SHAREHOLDER INFORMATION 91 CORPORATE INFORMATION ANNUAL REPORT 2016 21 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 The Directors of OzForex Group Limited (OzForex, the Company), submit their report (including the Remuneration Report), Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year ended 31 March 2016 and the Statement of Financial Position as at 31 March 2016 of the Company and its subsidiaries (the Consolidated Entity, the Group), the auditor’s report, and report as follows: 1. DIRECTORS The Directors of the Company as at 31 March 2016 at any time during or since the end of the financial year are: PETER WARNE CHAIRMAN – BA, FAICD Member of the Audit, Risk and Compliance Committee and Member of the Remuneration and Nomination Committee Age: 60 years Appointed: 19 September 2013 Independent Director Residence – Sydney, Australia Peter joined OzForex in September 2013 and has over 30 years’ experience in banking and finance. Peter’s prior professional experience includes 12 years as Head of Bankers Trust Australia Limited’s Financial Markets Group. Current directorships Chairman: Australian Leisure and Entertainment Property Group; Macquarie Group Limited; Macquarie Bank Limited Director: ASX Limited Member: NSW Treasury Corporation; Patron of Macquarie University Foundation Interest in shares: 250,000 ordinary shares RICHARD KIMBER MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER – BSC, MBA (MACQUARIE) Age: 47 years Appointed: 1 June 2015 Not independent Residence – Sydney, Australia Richard was appointed Managing Director and Chief Executive Officer on 1 June 2015. Richard has 25 years of diverse global leadership experience that has included several chief executive and board roles in the banking and technology sectors and has extensive experience in financial services, marketing, social media and capital markets. Current Directorships Director: RTI Cable Limited; Unlockd Media Limited; Strone Limited. Interest in shares: 21,000 ordinary shares, 135,995 performance rights, 400,000 options. MELINDA CONRAD NON-EXECUTIVE DIRECTOR – MBA (HARVARD), FAICD Chair of the Remuneration and Nomination Committee and Member of the Audit, Risk and Compliance Committee Age: 47 years Appointed: 19 September 2013 Independent Director Resident – Sydney, Australia Melinda joined OzForex in September 2013 and has over 20 years’ experience in business strategy and marketing. Melinda’s prior professional experience includes executive roles at Harvard Business School, Colgate-Palmolive, and several retail businesses. Melinda was previously a director of APN News & Media Limited and David Jones Limited. Current directorships Director: The Reject Shop Limited; the George Institute for Global Health; the Australian Brandenburg Orchestra Member: Minter Ellison Advisory Council; Australian Institute of Company Directors Corporate Governance Committee Interest in shares: 100,000 ordinary shares 22 OZFOREX GROUP The Directors of OzForex Group Limited (OzForex, the Company), submit their report (including the Remuneration Report), Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year ended 31 March 2016 and the Statement of Financial Position as at 31 March 2016 of the Company and its subsidiaries (the Consolidated Entity, the Group), the auditor’s report, and report as follows: 1. DIRECTORS The Directors of the Company as at 31 March 2016 at any time during or since the end of the financial year are: PETER WARNE Member of the Audit, Risk and Compliance Committee and Member of the Remuneration CHAIRMAN – BA, FAICD and Nomination Committee Age: 60 years Appointed: 19 September 2013 Independent Director Residence – Sydney, Australia Financial Markets Group. Current directorships Macquarie Bank Limited Director: ASX Limited Peter joined OzForex in September 2013 and has over 30 years’ experience in banking and finance. Peter’s prior professional experience includes 12 years as Head of Bankers Trust Australia Limited’s Chairman: Australian Leisure and Entertainment Property Group; Macquarie Group Limited; Member: NSW Treasury Corporation; Patron of Macquarie University Foundation Interest in shares: 250,000 ordinary shares RICHARD KIMBER Age: 47 years MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER – BSC, MBA (MACQUARIE) Appointed: 1 June 2015 Not independent Residence – Sydney, Australia Richard was appointed Managing Director and Chief Executive Officer on 1 June 2015. Richard has 25 years of diverse global leadership experience that has included several chief executive and board roles in the banking and technology sectors and has extensive experience in financial services, marketing, social media and capital markets. Current Directorships Director: RTI Cable Limited; Unlockd Media Limited; Strone Limited. Interest in shares: 21,000 ordinary shares, 135,995 performance rights, 400,000 options. MELINDA CONRAD Chair of the Remuneration and Nomination Committee and Member of the Audit, NON-EXECUTIVE DIRECTOR – MBA (HARVARD), FAICD Age: 47 years Risk and Compliance Committee Appointed: 19 September 2013 Independent Director Resident – Sydney, Australia Limited and David Jones Limited. Current directorships Melinda joined OzForex in September 2013 and has over 20 years’ experience in business strategy and marketing. Melinda’s prior professional experience includes executive roles at Harvard Business School, Colgate-Palmolive, and several retail businesses. Melinda was previously a director of APN News & Media Director: The Reject Shop Limited; the George Institute for Global Health; the Australian Brandenburg Orchestra Member: Minter Ellison Advisory Council; Australian Institute of Company Directors Corporate Governance Committee Interest in shares: 100,000 ordinary shares GRANT MURDOCH NON-EXECUTIVE DIRECTOR – MCOM (HONS), FAICD, FICAA. Chair of the Audit, Risk and Compliance Committee Appointed: 19 September 2013 Age: 64 years Independent Director Resident – Brisbane, Australia DOUGLAS SNEDDEN NON-EXECUTIVE DIRECTOR – BEC, MAICD Grant joined OzForex in September 2013 and has over 35 years’ experience in accounting and corporate finance. Grant’s prior professional experience includes Head of Corporate Finance for Ernst & Young Queensland, and he is a graduate of the Kellog Advanced Executive Program at the North Western University, Chicago, United States. Current directorships Director: ALS Limited; QIC Limited; Redbubble Limited, UQ Holdings Limited Other: Senator of the University of Queensland; Adjunct Professor School of Business, Economics and Law at the University of Queensland; member of Queensland State Council of AICD Interest in shares: 145,000 ordinary shares Member of the Remuneration and Nomination Committee and Member of the Audit, Risk and Compliance Committee Age: 58 years Appointed: 16 March 2015 Independent Director Resident – Sydney, Australia Doug joined OzForex in March 2015 and has over 30 years’ experience in finance, consulting, strategic management and outsourcing. Doug has previously worked as Country Managing Director of Accenture Australia. Current directorships Director: Broadspectrum Limited; Sirca Technology Limited Chairman: Odyssey House NSW; McGrath Foundation; Chris O’Brien Lifehouse Interest in shares: 39,000 ordinary shares NEIL HELM CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR – BSC (HONS) Age: 51 Appointed: 2 September 2013 Resigned: 1 June 2015 Not independent Residence – Sydney, Australia Neil commenced working with OzForex in June 2007 and resigned as an employee of the Group on 6 August 2015. Prior to joining the Group, Neil was a Senior Manager at Accenture, a Business Manager for the Foreign Exchange Division at Bankers Trust Australia and an Executive Director at Macquarie. Neil is AFMA accredited and was a responsible manager for the OzForex Group’s AFSL. Interest in shares as at 6 August 2015: 176,250 performance rights in the OzForex Group Limited Performance Rights Plan and 275,000 ordinary shares. ANNUAL REPORT 2016 23 DIRECTORS’ REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 2. STATE OF AFFAIRS AND SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the Directors’ opinion, there have been no significant changes in the state of affairs of the Group during the year. A further review of matters affecting the Group’s state of affairs is contained on pages 26 and 27 in the Operating and Financial Review. 3. STATUTORY AND UNDERLYING INFORMATION As required for statutory reporting purposes, the consolidated financial statements of the Consolidated Entity have been presented for the financial year ended 31 March 2016. The Group’s statutory financial information for the year ended 31 March 2016 and for the comparative year ended 31 March 2015 present the Group’s performance in compliance with statutory reporting obligations. To assist shareholders and other stakeholders in their understanding of the Group’s financial information as a publicly listed entity, additional underlying financial information for the years ended 31 March 2016 and 31 March 2015 are provided in the Operating and Financial Review section of this report. A reconciliation of the Company’s statutory and underlying financial information is included on page 27. The reconciliation and the underlying information have not been audited. 4. DIRECTORS The following persons were Directors of the Group either during the year or as at 31 March 2016: Peter Warne Richard Kimber1 Neil Helm2 Melinda Conrad Grant Murdoch Douglas Snedden Chairman Managing Director and Chief Executive Officer (CEO) Managing Director and Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director 1. Mr Kimber was appointed a Director on 1 June 2015. 2. Mr Helm ceased to be a Director on 1 June 2015. The background, qualifications and experience of each of the Directors as at the date of this report are included on pages 22 and 23. 5. COMPANY SECRETARY Ms Linda Cox was appointed Group Company Secretary and Head of Investor Relations of OzForex on 31 January 2014. Ms Cox has over 16 years of experience working in company secretarial roles in ASX and NZX listed companies including Telecom Corporation of New Zealand Limited (now Spark), Xero Limited and Trade Me Group Limited. Ms Cox holds a Bachelor of Laws from Victoria University of Wellington and a Diploma of Investor Relations. She is a Fellow of the Governance Institute of Australia and a member of the NSW Law Society. 24 OZFOREX GROUP 6. DIRECTORS’ MEETINGS The following table shows meetings held between 1 April 2015 and 31 March 2016 and the number attended by each Director or Committee member. Director P Warne R Kimber1,2 N Helm1,3 M Conrad G Murdoch4 D Snedden Board Audit, Risk and Compliance Committee Remuneration and Nomination Committee Eligible Attended Eligible Attended Eligible Attended 22 17 5 22 22 22 20 17 5 20 21 21 6 4 2 6 6 6 5 4 2 6 6 6 5 3 2 5 5 5 5 3 2 5 5 5 1. Mr Kimber and Mr Helm attended the Audit, Risk and Compliance Committee and the Remuneration and Nomination Committee meetings at the invitation of the Committees. 2. Mr Kimber was appointed a Director on 1 June 2015. 3. Mr Helm ceased to be a Director on 1 June 2015. 4. Mr Murdoch attended the Remuneration and Nomination Committee meetings at the invitation of the Committee. 7. DIRECTORS’ INTERESTS The relevant interest of each Director in the equity of the Company as at the date of this report is outlined in the table below. All interests are ordinary shares unless otherwise stated. P Warne R Kimber M Conrad G Murdoch D Snedden Type ordinary ordinary performance rights share options ordinary ordinary ordinary Opening balance 150,000 – – – 50,000 95,000 – Acquisition Disposals/ forfeit 100,000 21,000 135,995 400,000 50,000 50,000 39,000 – – – – – – – Closing balance 250,000 21,000 135,995 400,000 100,000 145,000 39,000 There were no disposals of shares by the Directors during the year or share transactions post year end. 8. PRINCIPAL ACTIVITIES The Group’s principal activity during the year was the provision of international payments and foreign exchange services. 9. DIVIDENDS AND DISTRIBUTIONS Dividends paid or declared by the Company during and since the end of the year are set out in Notes 17 and Notes 28 to the Financial Statements respectively. Per share (cents) Total amount ($’000) Franked5 Payment date 5. All dividends are fully franked based on tax paid at 30%. Final 2016 Interim 2016 Final 2015 3.100 7,440 100% 3.600 8,640 100% 3.584 8,602 100% 24 June 2016 18 December 2015 26 June 2015 ANNUAL REPORT 2016 25 DIRECTORS’ REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 10. OPERATING AND FINANCIAL REVIEW A summary of financial results for the years ended 31 March is outlined below: Net operating income1 Underlying EBITDA2 Underlying EBITDA margin3 Underlying net profit (after tax)4 Underlying earnings per share (EPS) (cents)5 Statutory EBITDA2 Statutory EBITDA margin3 Statutory net profit (after tax) Earnings per share (cents) Cash balance as at 31 March6 2016 $’000 103,913 34,453 33.2% 23,889 9.95 31,488 30.3% 21,814 9.09 2015 $’000 90,144 32,758 36.3% 24,266 10.11 32,758 36.3% 24,266 10.11 Growth 15.3% 5.2% (1.6%) (3.9%) (10.1%) 162,890 174,004 (6.3%) 1. Net operating income is the combination of interest income and net fee and commission income. Net operating income is a non-IFRS measure. 2. Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-IFRS measure that is unaudited. 3. EBITDA margins are calculated with reference to net operating income. 4. Underlying net profit (after tax) (NPAT) is net profit after tax adjusted for one-time expenses. Underlying net profit (after tax) is a non-IFRS measure that is unaudited. Refer to the NPAT reconciliation on page 27. 5. Underlying earnings per share was calculated with reference to underlying net profit after tax. 6. Cash includes cash held for subsequent settlement of client liabilities and term deposits of all maturities. The net cash position after client liabilities is $38.1 million at 31 March 2016 (31 March 2015: $49.4 million). Higher active client numbers with an increased propensity to deal in 2016 helped to drive revenue growth, increasing net operating income by 15.3% to $103.9 million. As part of the enablement phase of the Accelerate Strategy, significant investment was made in the Group’s core business processes and infrastructure and, together with the one-off impacts of corporate actions, rebranding to OFX and an Executive Team restructure, resulted in statutory net profit after tax (NPAT) decreasing by 10.1% to $21.8 million. Underlying NPAT adjusted for the one-off impacts was down by 1.6% to $23.9 million. In order to better understand the underlying NPAT of the Group, the reconciliation is outlined on the following page. Australia and New Zealand (ANZ) and Europe were the two largest contributors to the Group’s fee and commission income. These regions experienced growth of 18.4% and 9.0% respectively. They continue to provide the majority of the Group’s fee and commission income, delivering 72.8% of the Group total. The proportion attributable to ANZ and Europe has decreased marginally from 73.1 % for the year ended 31 March 2015. This decrease is being driven by the strong growth being achieved in the Group’s core strategic growth market, North America. In North America, there are operations in Canada and the US. As at 31 March 2016 the Group was able to operate in 46 of the states in the United States of America and has been continuing to develop its presence in North America, utilising search engine marketing, social media and customer advocacy in order to gain brand awareness. The US customers of the North American segment have, in the main, been with the Group less than four years; however, the existing customer base is becoming more significant. This growth has enabled the Group to grow fee and commission income by 35.9% to $17.6 million. North America’s contribution to the Group’s fee and commission income increased from 13.5% in the year ended 31 March 2015 to 15.8% in the year ended 31 March 2016. Hong Kong remained the Group’s key Asian focus during the year. The segment experienced 16.7% growth in fee and commission income to $2.1 million. Hong Kong is typified by a banking market place that offers significantly lower retail margins than in other geographies. 26 OZFOREX GROUP The International Payment Solutions (IPS) division (Wholesale division) continued to develop the Group’s existing branded partnership solutions for Macquarie Bank, ING and MoneyGram in Australia and New Zealand, as well as the Group’s global partner Travelex (Australia, New Zealand, Canada and the US). The IPS division’s fee and commission income decreased by 3.9% to $10.6 million due to the closure of the OzForex ‘branded’ prepaid Travel Card in November 2015. The Group also introduced its embedded payments functionality into the cloud-based accounting software Xero. Underlying NPAT Corporate action costs after tax Rebranding expenditure after tax Executive Team restructure costs after tax Statutory NPAT Growth % (1.6) 2016 $’000 23,889 (827) (506) (742) 2015 $’000 24,266 – – – 21,814 24,266 (10.1) EBITDA is a non-IFRS unaudited measure that is calculated by deducting interest and adding back tax, depreciation and amortisation. The reconciliation is outlined below: Underlying EBITDA Corporate action costs before tax Rebranding expenditure before tax Executive Team restructure costs before tax Statutory EBITDA Add back interest income Earnings before tax, depreciation and amortisation (EBTDA)1 Less income tax expense Less depreciation and amortisation Statutory NPAT 2016 $’000 34,453 (1,182) (723) (1,060) 31,488 1,662 33,150 (9,979) (1,357) 21,814 2015 $’000 32,758 – – – 32,758 1,754 34,512 (9,667) (579) 24,266 Growth % 5.2 (3.9) (5.2) (3.9) (3.2) (134.4) (10.1) 1. The Group actively uses its cash balances as part of its hedging strategy, making the interest income integral to its earnings. For this reason, the Group regularly uses EBTDA as a measure of performance. The Group’s financial position remains strong. The balance sheet consists predominantly of cash and client liabilities. The cash position net of client liabilities decreased to $38.1 million from $49.4 million as a result of significant investment in capital items due to two office moves in Toronto and Sydney, and investment in core business applications such as the new website and mobile app. The Group currently has no external debt. Cash1,2 Client liabilities1 Net cash position 1. Cash and client liabilities can vary greatly depending on the timing of deal flows. 2. Cash includes cash held for subsequent settlement of client liabilities and term deposits of all maturities. The financial position provides a good platform to pursue future growth opportunities. 2016 $’000 162,890 (124,827) 38,063 2015 $’000 174,004 (124,591) 49,413 Growth % (6.4) (0.2) (23.0) ANNUAL REPORT 2016 27 DIRECTORS’ REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 11. STRATEGY The Group is embarking on the execution phase of the three-year Accelerate Strategy with the aim of doubling revenue. The Group’s key strategic focus is on expanding penetration within the Australian market to reinforce its presence as the market leader, increase offshore presence with a focus on the US and expanding adjacent opportunities within the wholesale market. Critical to our success will be maintaining and sustaining a high performing diverse workforce across all office locations. OPERATIONAL HIGHLIGHTS • Developed brand positioning, rolled out new brand with new website in Australia and started website build for other markets globally. • Conducted quantitative research study in key markets to size the market that OFX operates in, and better understand consumers and how to realise the opportunity. • Invested in acquisition capability and started to expand beyond search as a marketing medium. • Invested in social media capability in the marketing team and significantly increased customer engagement. • Implemented relational database in order to better understand and respond to customers. • Updated mobile app to be transactional. • Integrated into Xero, Australia’s largest cloud accounting platform, which significantly reduces manual processing effort and eliminates the chance of human error when processing invoices. Capability has been rolled out in Australia, New Zealand and the UK to date. • Developed a new suite of representational state transfer (REST)-based application programming interfaces (APIs) that makes it easy for partners to integrate their system into our international payments platform, removing the need for partners to build their own capability. • Launched an accounts receivable facility for clients selling internationally through online marketplaces who receive foreign currencies with a need to translate back to their home currency. • Employed three new key executives. • Developed product impact teams in order to increase development efficiencies within the IT department. • Successfully moved to a cloud-based server hosting environment. • Launched a 24 hour, 7 days a week service, providing customers with the convenience of transacting on weekends. The service will enable customers to make international transfers, speak to an OFX customer representative and check current exchange rates 363 days of the year, 24 hours a day. • Implemented new telephony infrastructure that will deliver superior customer service and operational efficiencies. • Established an Operational Compliance team within the business to reduce customer on-boarding times. • Developing the capability of the treasury function to facilitate better customer pricing and enhanced internal risk management practices. • Added new banking partners to support our global growth plans, as our network banking relationship is a key strategic asset and competitive advantage of our business. • Initiated the money transmitter licensing process for Ohio, Hawaii and New Hampshire in the US, which would bring our licensed states to 49 out of 50. • Received favourable outcomes from all the external regulatory examinations conducted in a number of jurisdictions throughout the year. • Continued to invest in fraud risk management systems and technology integration. • Accepted as a member of the Fraud Focus Group Committee in Australia for 2016, the first time a business like OFX has been appointed to the Committee. • Continued to investigate merger and acquisition opportunities in offshore markets to aid geographic expansion. • Relocated the Sydney and Toronto teams to new offices to accommodate future growth expectations. 28 OZFOREX GROUP 12. RISK The potential risks associated with the Group’s business are outlined below. The list does not show every risk that may be associated with the Group, and the occurrence or consequences of some of the risks described are partially or completely outside the control of the Group, its Directors and senior management. There is also no guarantee or assurance that the risks will not change or that other risks will not emerge: • Competition – A substantial increase in competition could result in the Group’s services becoming less attractive to consumer or business clients and partner companies; require the Group to increase its marketing or capital expenditure; or require the Group to lower its spreads or alter other aspects of its business model to remain competitive. The Group continues to invest in product innovation, marketing efforts and monitoring competition to ensure that it is able to respond to such challenges. • Relationships with banking counterparties – The Group relies on a range of banking counterparties to conduct its business, particularly to provide its network of local and global bank accounts and act as counterparties in the management of foreign exchange and interest rate risk. There is a risk that one or more of these banks may cease to deal with the Group (which may occur on short notice), cease to deal with international payments services generally, substantially reduce the services it offers, substantially alter the terms on which it is willing to offer services to the Group, exit one or more of the markets for which the Group uses its services, or collapse. This has occurred in the past and may occur again in the future. The Group manages this risk by having a suite of banking service providers to ensure that there is redundancy in its banking relationships to operate effectively. • Regulatory compliance – The international payments market is a highly regulated area of economic activity. The Group devotes significant resources to comply with applicable regulations. However, there is a risk that any new or changed regulations could require the Group to increase its spending on regulatory compliance and/or change its business practices, which could adversely affect the Group’s profitability. There is a risk that such regulations could also make it uneconomic for the Group to continue to operate in places where it currently does business. In addition, there is a risk that evidence of a serious failure to comply with laws may result in severe penalties, including being forced to cease doing business as a result of a revocation or cancellation of one or more of the Group’s regulatory licences or authorisations. • Information technology (IT) – The Group’s business operations rely on IT infrastructure and systems. Any interruptions to these operations could impair the Group’s ability to operate its customer-facing websites, which could have a negative impact on performance. The Group has a number of operational processes and disaster risk recovery plans in place to mitigate this risk. • Data security – Through the ordinary course of business, the Group collects a wide range of personal and financial data from clients. The Group takes measures to protect this data; however, there is a risk that a cyber-attack may result in data being compromised, resulting in loss of information integrity, breaches of the Group’s obligations under applicable laws or client agreements and website and system outages, each of which may potentially have a material adverse impact on the Group’s reputation and financial performance. • Fraud – There is a risk that, if the Group’s services are used to transfer money in connection with a fraud or theft, the Group may be required to take steps to recover the funds involved and may in certain circumstances be liable to repay amounts that it accepted for transfer, even after it has made the corresponding international payment. For example, when the Group accepts payment by direct debit, it may ultimately be held liable for the unauthorised use of bank account details in an illegal activity and be required to refund the transaction. If the rate of refunds becomes excessive, banks and card associations also may require the Group to pay additional penalties. The Group has a range of fraud prevention controls in place to mitigate this risk. • Foreign exchange rate fluctuations – The Group may be affected by a change in the value of currencies, in particular a strengthening of the Australian dollar, which may impact both transaction turnover and reported earnings. The Group continues to increase its geographic footprint and therefore the diversity of its currency flows in order to mitigate the impact of any one currency’s fluctuation. 13. OUTLOOK OzForex is a high growth business with a strong balance sheet, no external interest bearing debt and strong cash flow conversion. The focus is on growth in net operating income and EBTDA but still with the emphasis on cost containment and efficiency. There will be continued investment in people, new opportunities, marketing and sales initiatives and development of the Group’s IT and physical infrastructure. The Group’s wholesale business, which includes international payment services, is a large and growing market driven by increases in global population and migration, leading to a larger level of cross border transactions and investment. OzForex is participating in, and in many respects leading, a successful industry disruption of traditional international payment methods and processes, driven by technology. OzForex will look to continue developing its strong position in the market through its: • Scalable proprietary technology platform; • Attractive customer value proposition; • Large portfolio of Tier 1 banking relationships; • Effective operational risk and compliance management; • Clearly defined organic and inorganic growth strategies. ANNUAL REPORT 2016 29 DIRECTORS’ REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 14. EVENTS SUBSEQUENT TO BALANCE DATE As at the date of this report, the Directors are not aware of any circumstance that has arisen since 31 March 2016 that has significantly affected, or may significantly affect the Group’s operations in future financial years, the results of those operations in future financial years, or the Group’s state of affairs in future financial years. 15. LIKELY DEVELOPMENTS AND EXPECTED RESULTS While the impacts of foreign exchange market conditions make accurate forecasting challenging, it is currently expected that the combined net profit for the financial year ending 31 March 2017 will be up on the financial year ended 31 March 2016. The key growth driver for the business is the number of active clients (the number of clients who have transacted at least once in the prior 12 months). The growth in active clients for the financial year ended 31 March 2016 was up 5.9% to 150,900. The existing client base of the North American segment is expected to continue to become a more significant portion of the segments active clients. This will help to drive further profitability in the North American market, increasing the segment’s contribution to the Group’s profit for the financial year ending 31 March 2017. While Europe is a more competitive market, growth in active clients in this region is expected to be more challenging. It is expected to be broadly in line with the financial period ended 31 March 2016. Subject to consistent currency exchange rates, contribution in the UK is expected to be up in the financial year ending 31 March 2017. The Australia and New Zealand segment is expected to continue to be the largest single contributor to the net profit of the Group. The growth in contribution, assuming a constant Australian dollar exchange rate, is expected to be in line with the growth in active clients. The tax rate for the financial year ending 31 March 2017 is expected to be in line with the financial year ended 31 March 2016. Accordingly, the Group’s result for the financial year ending 31 March 2017 is expected to be up on the result in the financial year ended 31 March 2016, with the potential for a better result if market conditions continue to improve, and the Group’s investment in above the line marketing is more successful than anticipated. The Group’s short-term outlook remains subject to the range of challenges outlined in the risks on page 29, including market conditions, the impact of volatility in the foreign exchange markets, the cost of its customer acquisition through online channels, potential regulatory changes and tax uncertainties. OzForex remains well positioned to deliver continued growth in the short to medium term. 16. INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS The Directors of the Company, and such other officers as the Directors determine, are entitled to receive the benefit of an indemnity contained in the Constitution of the Company, to the extent allowed by the Corporations Act 2001. The Company has entered into a standard form deed of indemnity, insurance and access with the Non-Executive Directors against liabilities they may incur in the performance of their duties as Directors of the Company, to the extent permitted by the Corporations Act 2001. The indemnity operates only to the extent that the loss or liability is not covered by insurance. During the year, the Company has paid premiums in respect of contracts insuring the Directors and Officers of the Company against liability incurred in that capacity to the extent allowed by the Corporations Act 2001. The terms of the policies prohibit disclosure of the details of the liability and premium paid. 30 OZFOREX GROUP 17. NO OFFICERS ARE FORMER AUDITORS No officer of the Consolidated Entity has been a partner of an audit firm or a Director of an audit company that is the auditor of the Company and the Consolidated Entity for the financial year. 18. NON-AUDIT SERVICES The Company may decide to employ the external auditor on assignments additional to its statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. The Audit, Risk and Compliance Committee is required to pre-approve all audit and non-audit services provided by the external auditor. The Committee is not permitted to approve the engagement of the auditor for any non-audit services that may impair or appear to impair the external auditor’s judgement or independence in respect of the Company. The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice provided by resolution of the Audit, Risk and Compliance Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Companies Act 2001 for the following reasons: • All non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the Audit, Risk and Compliance Committee to ensure that they do not impact the integrity and objectivity of the auditor; and • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risk or rewards. During the year, the following fees were paid or payable for non-audit services provided by the external auditor (PWC) of the Company to its related practices and non-related audit firms: Due diligence services Taxation services Total remuneration for non-audit services 2016 $’000 30 148 178 2015 $’000 – 86 86 19. AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the year ended 31 March 2016 is on page 47 of this report. 20. CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER DECLARATION The Chief Executive Officer and the Chief Financial Officer have given the declarations to the Board concerning the Group’s Financial Statements and other matters as required under section 295A(2) of the Corporations Act 2001. 21. ROUNDING AMOUNTS The Group is of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998 and, in accordance with that Class Order, amounts in the directors’ report and the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. ANNUAL REPORT 2016 31 REMUNERATION REPORT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 INTRODUCTION The Directors are pleased to present the Group’s Remuneration Report describing the remuneration practices for the Group’s Non-Executive Directors and Group Executive Team (Executives), including key management personnel (KMP). The information provided in this Remuneration Report has been prepared in accordance with the requirements of the Corporations Act 2001 (Cth) (the Corporations Act) and has been audited as required by section 308(3C) of the Corporations Act. Sections 1-5 set out the remuneration arrangements that apply to all Executives. Section 6 sets out the remuneration disclosures required in respect of KMP Executives. Sections 7-8 set out the remuneration disclosures required in respect of Non-Executive Directors. 1. REMUNERATION SNAPSHOT Executives of the Group receive Total Reward Remuneration (TRR) that comprises fixed and variable (at risk) annual pay. The three components of the remuneration framework are outlined as follows: Total Fixed Remuneration (TFR) Short Term Incentive (STI) • 15-50% of TRR Long Term Incentive (LTI) • 15-30% of TRR • TFR is set by reference to benchmark market information for comparable roles and individual performance • Includes cash, non-financial benefits, and superannuation • 50% of target STI is based on • Grant of performance rights or share non-financial PIs and 50% of target STI is based on financial KPIs • Paid in cash • EBTDA gateway options under the Long Term Incentive Plan • Designed to link long-term Executive reward with value creation • Three-year performance period • Performance hurdles linked to EBTDA and EPS 2. ROLE OF THE REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee (‘Remuneration Committee’) is responsible for reviewing and making recommendations to the Board on the remuneration arrangements for the CEO and Executives. The Charter of the Remuneration and Nomination Committee is available on the Group’s website at www.ofx.com. To assist in performing its duties and making recommendations to the Board, the Remuneration Committee seeks independent advice from external consultants on various remuneration-related matters. The Remuneration Committee follows protocols around the engagement and use of external remuneration consultants to ensure compliance with the relevant Executive remuneration legislation. During the year, the Company engaged 3 Degrees Consulting to provide remuneration recommendations as defined under the Corporations Act 2001 in relation to the CEO and Executive remuneration structure to be implemented in FY17, including STI and LTI design features and incentive opportunities, as well as the retention arrangements put in place upon the unsolicited, non-binding indicative proposal from Western Union. 3 Degrees Consulting was paid $96,800 for these services. The Board is satisfied that this advice received from 3 Degrees Consulting was made free from undue influence from the KMP to whom the recommendations relate as 3 Degrees Consulting was engaged by and reported directly to, the Chair of the Remuneration Committee. In this regard, in addition to adhering to Board approved protocols, 3 Degrees Consulting provided a formal declaration to the Chair of the Remuneration Committee. The recommendations were made free from undue influence from Executives to whom the advice was related. In addition to providing remuneration recommendations, 3 Degrees Consulting provided market practice data and advice on other aspects of the Company’s remuneration framework throughout the year including governance, legal and stakeholder communications. Together, for these additional remuneration related services, 3 Degrees Consulting was paid $62,950. 32 OZFOREX GROUP 3. EXECUTIVE REMUNERATION PRINCIPLES AND STRUCTURE PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns Executive reward with achievement of strategic objectives and the creation of value for shareholders and conforms to market practice for delivery of reward. The Board, in consultation with external remuneration consultants, ensures that Executive reward satisfies the following key criteria for good reward governance practices: • Competitiveness and reasonableness; • Incorporates shareholders’ feedback; • Performance linkage/alignment of Executive compensation; • Transparency. Other criteria which are considered in the Company’s remuneration principles are: • Alignment to shareholders’ interests: • has economic profit as a core component of plan design; • focuses on sustained growth in shareholder wealth, growth in share price and delivering constant return on assets as well as focusing the Executive on key non-financial drivers of value; • attracts and retains high quality Executives. • Alignment to participant interests: • rewards capability and experience; • reflects competitive reward for contribution to growth in shareholder wealth; • provides a clear structure for earning rewards; • provides recognition for contribution to operational performance. OVERVIEW OF EXECUTIVE REMUNERATION COMPONENTS The Total Reward Remuneration (TRR) framework provides a blend of fixed short-term and long-term incentives and has three components: • Fixed – TFR; • At Risk – STI; • At Risk – LTI. The relative proportion of ‘fixed’ and ‘target at risk’ components of Executive remuneration varies by Executive. Executives with a closer link to the growth drivers of the business have a higher proportion of ‘at risk’, whilst Executives more aligned to risk and compliance functions have a lower ‘at risk’ component. The table below outlines the percentage allocations for the CEO and the Executives. Participation in special retention plans is not taken into account in determining the Executives’ percentage allocations. Total Reward Remuneration CEO1 CEO2 Executives Fixed TFR 40% 33% 50%-70% At Risk Target STI 30% 50% 15%-30% Target LTI 30% 17% 15%-20% 1. Mr Helm ceased to be CEO on 1 June but remained an employee until 6 August 2015 2. Mr Kimber was appointed CEO on 1 June 2015 Remuneration is reviewed annually to ensure it remains competitive within the market. Remuneration increases are subject to merit and are in respect of Executives, subject to the approval of the Remuneration Committee. The Remuneration Committee has the discretion to change performance-based elements of remuneration, including short-term and long-term incentives, at any time, where it considers it appropriate. ANNUAL REPORT 2016 33 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 3. EXECUTIVE REMUNERATION PRINCIPLES AND STRUCTURE CONTINUED OVERVIEW OF EXECUTIVE REMUNERATION COMPONENTS CONTINUED Total Fixed Remuneration (TFR) TFR may be delivered as a combination of cash and prescribed non-financial benefits at the Executives’ discretion. Executives are offered a competitive base pay that comprises the fixed cash component of pay and rewards inclusive of superannuation. External remuneration consultants from time to time provide analysis and advice to ensure TFR is set to reflect the market for a comparable role. (i) Benefits Executives may structure their remuneration to include non-cash benefits. (ii) Superannuation Retirement benefits are provided via defined contributions to approved superannuation funds. Short Term Incentive (STI) The key details of the STI Plan for the FY16 financial year are as outlined below: STI component Details Eligibility Opportunity KPIs Payment Delivery All Executives participated in the STI Plan during the year. The size of the STI opportunity available to each Executive is based on their accountabilities and impact of their role on the Company. This is typically in the range of 15-50% of TRR. Executives who commence or leave during the financial year are generally paid a pro-rata share of their STI entitlements. The STI is subject to the achievement of annual KPIs. See (i) below for further detail. Payments of the STI are made after the financial results are released in May. Cash. (i) Key performance indicators The Remuneration Committee will annually approve the KPIs to link the STI Plan and the level of payout if the KPI targets are met. This includes setting any maximum payout under the STI Plan, and minimum levels of performance. The Remuneration Committee is responsible, after the preparation of the financial statements each year (in respect of financial measures) and after a review of performance against non-financial measures by the CEO (and in the case of the CEO, by the Board following recommendation by the Committee), for recommending to the Board the final STI payout for the previous financial year. The Board retains the discretion to vary the final STI payout if performance is considered to be deserving of either a greater or lesser amount. The KPI’s linked to the STI Plan comprise two equal tranches (50% each) and within each tranche are a series of objectives. To be eligible for access to STI, a minimum EBTDA performance must be achieved of at least 90% of target EBTDA. Target EBTDA is approved by the Board at the commencement of the performance period. Tranche A are non-financial performance indicators for the particular Executive and Tranche B are financial performance indicators. (ii) Tranche A (50%) The non-financial performance indicators are designed to drive leadership performance and behaviours consistent with the role and expectations for that individual Executive. These include objectives around leadership and culture, risk and compliance and project management. A maximum of 50% of the total target STI is available in Tranche A. If an Executive does not meet a minimum performance threshold in Tranche A, they are not eligible to participate in Tranche B. 34 OZFOREX GROUP (iii) Tranche B (50%) The financial performance indicators are an appropriate way to align the delivery of the Group’s objective of delivering growth to the shareholders and ultimately improving shareholder returns. In the event of outperformance against the target financial performance indicators, there is a potential additional 20% outperformance bonus available on the Total STI (Tranche A and Tranche B). If financial performance is more than 25% negative to target then no STI will be payable irrespective of whether the minimum performance threshold in Tranche A was met for a particular Executive. The financial performance indicators for 2016 were: • Net operating income; • EBTDA (earnings before tax, depreciation and amortisation); • New dealing clients; and • Net active clients. (iv) 2016 STI outcome For the 2016 financial year, the minimum gateway performance of 90% of the EBTDA target set at the start of the financial year was not met. Therefore, as explained under (i) above, irrespective of performance under Tranche A or Tranche B, no STI was payable for the year. The amount of target STI forfeited by KMPs is set out below. KMP R Kimber1 M Ledsham M Loyez2 A Smith3 C Pendleton-Browne4 Former KMP5 L Cox6 J Davidson7 S Griffin8 N Helm9 D Higgins10 J Parker6 J Rohloff6 Target STI payment % of Target STI payable % of Target STI forfeited 624,525 116,667 71,673 53,537 56,464 4,732 19,506 106,084 124,648 52,700 35,133 15,726 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 1. R Kimber commenced employment with the Group 1 June 2015. 2. M Loyez commenced employment with the Group 3 August 2015. 3. A Smith commenced employment with the Group 6 October 2015. 4. C Pendleton-Browne commenced employment with the Group 16 November 2015. 5. The amount shown as the target STI payment is the target payment for the period that employee was a KMP, not the full year payment. 6. L Cox, J Parker and J Rohloff ceased being a KMP on 31 May 2015, but remain Executives. L Cox is a part-time employee. 7. J Davidson ceased to be an employee on 4 September 2015. 8. S Griffin resigned as a KMP and employee on 18 September 2015. 9. N Helm ceased to be an employee on 6 August 2015. 10. D Higgins resigned as KMP on 30 September 2015, and ceased to be an employee on 31 March 2016. ANNUAL REPORT 2016 35 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 3. EXECUTIVE REMUNERATION PRINCIPLES AND STRUCTURE CONTINUED OVERVIEW OF EXECUTIVE REMUNERATION COMPONENTS CONTINUED Long Term Incentive (LTI) Long-term incentives are provided to Executives pursuant the OzForex Group Long Term Incentive Plan (‘the LTI Plan’). The key details of the plan are as outlined below: LTI components Details Objective Eligibility Instrument The LTI Plan is designed to link long-term Executive reward with the ongoing creation of shareholder value, with the allocation of equity awards which are subject to satisfaction of performance hurdles. Under the LTI Plan, either performance rights or options can be issued. All Executives participated in the LTI Plan in the 2016 financial year if they were an employee at the start of the year. In certain circumstances, one-off allocations of performance rights have been made as part of the initial employment arrangements of a particular Executive. Performance rights enable the Executive KMP to acquire an ordinary share in the Company in the future subject to time-based and performance-based vesting conditions being achieved. They are granted for nil cash consideration and have a nil exercise price. They carry no right to vote or receive a dividend. Award value An Executive KMP LTI award is typically in the range of 15-30% of their TRR. Allocation methodology The number of performance rights issued to each Executive KMP is calculated by dividing their LTI target value by the value per right, being the volume weighted share price in the five days prior to issuance adjusted for the probability of achieving performance levels, and the present value of expected dividends that will not be received by employees during the vesting period. Allocation timing Generally, performance rights will be issued annually in June. An additional issuance of performance rights outside of the annual issuance may occur as a retention mechanism at different times. Performance period Three years. Vesting conditions Performance rights are subject to a performance hurdle and ongoing employment. The performance hurdle to apply to each issuance of performance rights will be determined by the Board at the time of issue. Forfeiture conditions Performance rights will automatically be converted to one ordinary share upon the vesting date provided the Executive complies with the rules of the LTI Plan. Performance rights that are not converted will be forfeited where: • The expiry date applicable to the performance right is reached; and • If, upon the employee ceasing to be employed or their employment is terminated, the Board notifies the employee of the forfeiture; or • Performance conditions are not met. Any performance rights which do not vest following testing of the performance hurdles at the end of the performance period will be automatically forfeited. Shareholder approval Any performance rights to be issued to the CEO are subject to shareholder approval. Changes in share capital If there are any changes in the share capital of the Company (such as a rights issue, subdivision, consolidation or reduction in capital) then the Directors may make adjustments as they consider appropriate subject to the ASX Listing Rules. Implications of the CEO stepping down during 2016 On 6 February 2015, the Company announced that Neil Helm CEO would be stepping down over the forthcoming months. As a result the Board resolved as follows with regard to the performance rights on issue to him at that time: • That the 46,454 performance rights issued in February 2014 will be forfeited, being a pro-rata amount of the original 176,250 performance rights issued at that time, known as the IPO Performance Rights. The balance of 129,796 performance rights will remain on foot subject to the terms and conditions set out under ‘IPO performance rights issuance’ (Section 4) below. The Board has determined that 31.2% of these will vest on 7 June 2016. • That 474,653 performance rights would be forfeited (being 304,653 of the 330,000 performance rights issued in December 2014 and the further 170,000 performance rights for which shareholder approval was intended to be sought in 2015). This leaves 25,347 performance rights which will remain on foot and subject to the terms and conditions that were approved by shareholders at the 2014 AGM. These performance rights are eligible to vest on 7 June 2017, subject to satisfying the performance conditions set out in the 2014 Notice of Meeting. The 25,347 performance rights represent the pro-rata portion of the standard annual allocation of performance rights that were issued and does not include any portion of the special issuance of performance rights that were approved at the 2014 AGM. 36 OZFOREX GROUP In both cases, the pro-rata calculation has been determined by reference to the end of Mr Helm’s six month notice period following the date of his resignation, being 6 August 2015. Performance rights and options issued during 2016 At the 2015 Annual General Meeting approval was sought to grant the CEO, Mr Kimber, an initial issuance of performance rights and options under the LTI Plan. There was a standard annual issuance of performance rights to Executives in June 2015 (FY15 performance rights). The performance conditions that apply to FY15 performance rights, including to Mr Kimber are as follows: Performance Measurement Period (PMP) Vesting Gateway (EPS CAGR) 100% vesting Pro-rata vesting: 25% - 100% 0% vesting Vesting schedule (EBTDA CAGR) % of allocation eligible to vest (vesting date) 1 April 2015 – 31 Mar 2018 (36 months) ≥17% ≥22% 17%-22% <17% 100% (7 June 2018) The options issued to Mr Kimber will vest 50% on 30 June 2018 and 50% on 30 June 2019 subject to ongoing employment conditions as shown on page 44. Two new Executives, Mr Smith and Mr Pendleton-Browne, were granted a one-off initial issuance of performance rights at the commencement of their employment to replace forfeited incentives from their previous employment. No performance hurdles apply to the issuances to Mr Smith and Mr Pendleton-Browne, except tenure. Further information on the number of performance rights and options held by KMPs can be found in Section 6 of this Remuneration Report. Additional retention arrangements implemented during 2016 In light of the unsolicited, non-binding indicative proposal from Western Union (Indicative Proposal) as announced on 19 November 2015, the Board considered the need to put retention arrangements in place for new Executives who commenced in the six months prior to that Proposal. Since the commencement of Richard Kimber as CEO of OzForex on 1 June 2015, the Company has recruited five new Executives being the Chief Operating Officer, Chief Technology Officer, Head of People and Culture, Chief Marketing Officer and Acting Head of North America. A total retention pool of $2.66 million was allocated to the six Executives who commenced in their roles during the six months prior to the receipt of the Indicative Proposal. This included $1.25 million allocated to CEO, Richard Kimber. The Board believed that these arrangements were fair and reasonable in the circumstances because the new Executives had little or no unvested equity allocated to them under the Company’s LTI Plan and as such presented a retention risk if provided with more certain offers of employment. It was in shareholders’ best interests that the services of Mr Kimber and newer Executives were retained to lead the Company during the period of uncertainty and beyond. The retention arrangement remains on foot until 31 December 2016, such that if a change of control event occurs before then, the retention pool will vest in favour of eligible Executives as to 50% upon a change of control, and 50% six months from financial close of any transaction to ensure continuity and retention post the transaction period. The retention pool will be progressively reduced/replaced by any LTI granted (which for the next LTI grant to the CEO will be subject to shareholder approval at the next AGM) before any change of control transaction completes (or if no change of control transaction eventuates) with normal performance conditions attached to ensure Executives do not receive any windfall gain from the arrangements if there is no change of control. Longer serving Executives who have multiple grants under the existing LTI Plan still on foot will not be entitled to participate in the retention pool. The Board has indicated, however, that it intends to exercise discretion such that all unvested incentives will vest in full, subject to satisfactory individual performance, should a change of control transaction occur. In the event there has been no change of control by 31 December 2016, the balance of the retention pool that has not been granted in LTI will lapse. As per AASB 137 Provisions, Contingent Liabilities and Contingent Assets, there is no requirement to recognise a provision and therefore expense for this arrangement until the likelihood of the arrangement crystallising, on a change of control event, becomes probable. A change of control event has currently been assessed as remote and so there is no requirement to provide for this expense. ANNUAL REPORT 2016 37 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 4. LEGACY (IPO RELATED) REMUNERATION PRACTICES IPO PERFORMANCE RIGHTS ISSUANCE As foreshadowed in the prospectus prior to the IPO (sections 6.3.1 – 6.3.3 of the Prospectus), all Executives who were employed by the Company at the listing date (and others who were members of the Leadership Team at the time of the IPO) were issued performance rights on the listing date, which subject to satisfaction of relevant performance conditions will vest on 7 June 2016 (reflecting a 32-month vesting period to align the vesting date with annual issuances of performance rights). A key performance condition for full vesting of the performance rights will be that the Group meets or exceeds earnings growth targets for the performance period and the employment of the relevant Executive at the vesting date. The performance conditions will be measured for the period 1 October 2013 to 31 March 2016 (Performance Period), or 30 months. The Board has determined that the vesting of some or all of the performance rights would be determined on the basis outlined below: Performance level At or above Target EBTDA over a 30-month Performance Period to 31 March 2016 Greater than or equal to 18% CAGR Vesting level 100% Between Threshold and Target Between 13% and 18% CAGR Pro-rata from 25% to 100% Below Threshold Below 13% 0% The Board considered EBTDA to be an appropriate hurdle as one that best aligned the interest of shareholders with those of the Executives. 176,250 performance rights were issued to the previous CEO, Neil Helm, and 360,325 (KMPs 253,000) performance rights were issued to Executives and several other select employees on 26 February 2014. These performance rights were valued using a trinomial model and discounted for the probability of achieving performance levels and the present value of dividends that will not be received by employees during the vesting period. They were issued at a nil exercise price with a 32-month vesting period. The vesting date is 7 June 2016. The Board has determined that EBTDA over the 30-month performance period from 1 October 2013 to 31 March 2016 was 13.41% and therefore 31.2% of the performance rights will vest on 7 June 2016. See Section 6 for further detail. The details of these performance rights were also outlined in the prospectus. 5. GROUP PERFORMANCE As the Company only listed on 11 October 2013, it is not possible to present five years of financial company performance data. The Group’s 2014-2016 annual financial performance measures are listed below. The financial measures for the Group for the period 1 April 2013 to 11 October 2013 are based on the results of OzForex Limited (formerly OzForex Pty Limited), as the Group’s financial results have been prepared as a continuation of the OzForex Limited consolidated group. Performance metrics Net operating income1 EBTDA Underlying EBTDA Active clients Basic earnings per share2 Underlying basic earnings per share3 Dividend per share4 Closing share price 2016 $103.9m $33.1m $36.1m 150,900 9.09cps 9.95cps $0.07184cps 2.02 2015 $90.1m $34.5m $34.5m 142,500 10.11cps 10.11cps $0.05875 2014 $72.6m $22.4m $29.4m 120,500 6.84cps 8.92cps N/A 2.41 3.30 (1.30 above ‘retail’ price) 1. Net operating income, a non-IFRS measure, is the combination of ‘Interest income’ and ‘Net fee and commission income’. 2. For the calculation of EPS refer to Note 29 of the financial statements. 3. Underlying basic earnings per share is the basic earnings per share calculation utilising the Underlying NPAT of the Group. 4. This represents dividends distributed in the period. 38 OZFOREX GROUP 6. KEY MANAGEMENT PERSONNEL (KMP) On appointment as CEO, Richard Kimber made an assessment of the KMP and resolved to reduce the number of Executives involved in planning, directing and controlling the Group’s activities. This was formalised by the introduction of the Strategy Execution Committee which is representative of the KMPs. The following Executives and Non-Executive Directors of the Group were classified as KMP during the 2016 financial year and unless otherwise indicated were classified as KMP for the entire year. Craige Pendleton-Browne Chief Technology Officer (CTO) Executives Richard Kimber Adam Smith Maria Loyez Mark Ledsham David Higgins Jacqueie Davidson Jason Rohloff Jeff Parker Linda Cox Neil Helm Simon Griffin Non-Executive Directors Peter Warne Melinda Conrad Grant Murdoch Douglas Snedden Title Term as KMP in 2016 Managing Director and Chief Executive Officer (CEO) From 1 June 2015 Chief Operating Officer (COO) Chief Marketing Officer (CMO) Chief Financial Officer (CFO) Chief Technology Officer (CTO) Head of Human Resources Chief Risk Officer Chief Enterprise Officer From 6 October 2015 From 16 November 2015 From 3 August 2015 Full year Resigned 30 September 2015 Resigned 4 September 2015 Until 31 May 2015 Until 31 May 2015 Company Secretary and Head of Investor Relations Until 31 May 2015 Managing Director and Chief Executive Officer Resigned 6 August 2015 Chief Commercial Officer (CCO) Resigned 18 September 2015 Chairman Non-Executive Director Non-Executive Director Non-Executive Director Full year Full year Full year Full year CONTRACTUAL ARRANGEMENTS Richard Kimber – Managing Director and CEO Mr Kimber was appointed Managing Director and CEO effective 1 June 2015. For the 2016 financial year, Mr Kimber’s remuneration arrangements comprised a combination of TFR, STI and LTI with greater weighting to STI as shown on page 33. Mr Kimber’s TFR is $500,000 and he was also eligible for STI at a target amount of $750,000. Initial equity awards of performance rights to the value of $250,000 and 400,000 options were approved at the Annual General Meeting on 4 August 2015. The performance hurdles applying to this issuance are set out on page 37. As explained on page 35, no STI was payable for the 2016 financial year as the minimum gateway performance was not met. The terms of his appointment and termination arrangements are set out below. Contract components Details Duration Termination by Executive Ongoing contracts Six months’ notice Termination by the Company Six months’ notice Post-employment restraints Six month post-employment restraints. Treatment of STI and LTI Upon termination, if the CEO is considered a good leaver (such as cessation due to redundancy), the CEO will be entitled to a pro-rata STI award. Board discretion applies to the treatment of any unvested LTI. ANNUAL REPORT 2016 39 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 6. KEY MANAGEMENT PERSONNEL (KMP) CONTINUED CONTRACTUAL ARRANGEMENTS CONTINUED KMP Executive (excluding Managing Director and CEO) employment contracts and notice periods Contract components Details Duration All KMP Executive have ongoing contracts Termination by Executive Six months’ notice for all KMP Executive Termination by the Company Six months’ notice for all KMP Executive Post-employment restraints Treatment of STI and LTI M Loyez, C Pendleton-Browne, A Smith have six-month post-employment restraints. No other KMP Executive have post-employment restraints. Upon termination, if the KMP Executive is considered a good leaver (such as cessation due to redundancy), the KMP Executive will be entitled to a pro-rata STI award. Board discretion applies to the treatment of any unvested LTI. EXECUTIVE REMUNERATION DISCLOSURES Short-term employee benefits Post- employment benefits Long-term benefits Share-based payments1 Cash salary and fees Cash bonus Non- monetary benefits2 Other3 Super- annuation Long service leave Per- formance rights Options Total 71,170 42,587 551,076 419,129 – 330,810 – – – 311,469 67,000 197,132 – 152,159 – 124,221 – – – – – – – – – – – – – – – 17,236 – – – – – – – – – – – 18,190 – 19,177 18,531 12,872 – 9,654 – 7,765 – – – – 10,660 282,681 6,079 157,368 – – – – – – – – 61,170 – 18,199 – – – – – – – – – – – 643,328 560,447 210,004 – 222,983 – 167,421 – Current KMP R Kimber4 M Ledsham M Loyez5 A Smith6 C Pendleton- Browne7 Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 40 OZFOREX GROUP Short-term employee benefits Post- employment benefits Long-term benefits Share-based payments1 Cash salary and fees Cash bonus Non- monetary benefits2 Super- annuation Other3 Long service leave Per- formance rights Options Total 23,492 106,471 82,859 164,996 167,483 – 32,895 – 36,163 – 326,469 107,416 157,348 – 452,108 329,253 147,907 – 296,469 40,000 54,293 – 296,469 98,075 43,134 – 263,469 50,000 – – – – – – – – – – – – – – – – 44,257 – 118,564 – – – – – – – – – 2,485 10,056 9,414 15,572 14,350 18,531 8,927 17,892 9,588 18,531 3,147 18,531 3,147 18,531 29 108 82 135 2,982 4,719 2,887 8,252 2,244 16,800 38,313 (37,181) 38,313 (88,981) 172,068 28,663 97,485 (87,547) 5,508 129,897 82 335 863 47,221 146,568 36,159 (9,272) 125,654 – – – – – – – – – – – – – – 42,806 187,843 99,431 255,179 214,398 629,203 197,825 904,990 72,192 490,405 104,743 559,978 83,303 448,382 Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 1,899,967 – 17,236 162,821 118,716 19,829 8,354 42,587 2,609,510 2015 2,217,920 760,802 – – 136,175 15,864 905,666 – 4,036,427 Former KMP8 L Cox9 J Davidson10 S Griffin11 N Helm12 D Higgins13 J Parker9 J Rohloff9 Total KMP remuneration (Group) 1. The share-based payments reflect the amounts accrued during the period. No performance rights or share options vested during the year ended 31 March 2016. 2. Non-monetary benefits received by C Pendleton-Browne related to relocation costs paid by the Company as part of him becoming an employee of the Group. 3. Other payments relate to amounts paid as part of a termination including pay in lieu of notice. 4. R Kimber commenced employment with the Group 1 June 2015. 5. M Loyez commenced employment with the Group 3 August 2015. 6. A Smith commenced employment with the Group 6 October 2015. 7. C Pendleton-Browne commenced employment with the Group 16 November 2015. 8. The 2016 disclosures shown for former KMP are up until the date they ceased to be a KMP. 9. L Cox, J Parker and J Rohloff ceased being a KMP on 31 May 2015, but remain Executives. L Cox is a part-time employee. 10. J Davidson resigned as a KMP and employee on 4 September 2015. 11. S Griffin resigned as a KMP and employee on 18 September 2015. 12. N Helm resigned as a KMP and employee on 6 August 2015. 13. D Higgins resigned as KMP on 30 September 2015, and ceased to be an employee on 31 March 2016. ANNUAL REPORT 2016 41 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 6. KEY MANAGEMENT PERSONNEL (KMP) CONTINUED FIXED AND AT-RISK REMUNERATION The percentage of remuneration received as fixed pay and at-risk pay during the year ending 31 March 2016 by the Executive KMP is outlined below: Name R Kimber M Ledsham M Loyez A Smith C Pendleton-Browne PERFORMANCE RIGHTS Fixed remuneration Other At risk – STI 79.36% 55.96% 100.00% 72.57% 78.83% – – – – 10.30% – – – – – At risk – LTI Rights 12.91% 44.04% – 27.43% 10.87% Options 7.73% – – – – Details of the performance rights provided as remuneration to each of the Executive KMP during the financial year are set out below. On vesting, each performance right is convertible into one ordinary share of the Company. No exercise price is payable and no performance rights vested during the period. Further information on the performance rights is set out in Note 23 of the Financial Statements. Issuance IPO rights Retention rights Tranche 1 Tranche 2 Tranche 3 FY15 performance rights Retention rights Executive A1 Date performance rights can be converted into shares Value per performance right at grant date $ Grant date 11 October 2013 7 June 2016 20 October 2014 20 October 2014 20 October 2014 26 June 2015 16 October 2015 7 June 2017 7 June 2018 7 June 2019 7 June 2018 7 June 2017 1.83 2.21 2.21 2.21 1.84 2.51 To be determined To be determined To be determined To be determined To be determined Performance achieved Partly % vested 31.2%2 – – – – – – Retention rights Executive B1 20 November 2015 20 November 2018 2.42 To be determined 1. The Group issued the retention rights (Executive A & Executive B) during the 2016 financial year for new Executives employed during the period in lieu of forfeited incentive amounts from previous employment. 2. See further details in Section 4 of this Remuneration Report. 42 OZFOREX GROUP The movement in the performance rights over the year is outlined below: Number of performance rights granted during the year Number vested during the year Value of rights at grant date $ Number of performance rights forfeited during the year Held at 1 April 2015 Held at 31 March 2016 Current KMP R Kimber FY15 performance rights Total M Ledsham IPO rights Retention rights FY15 performance rights Total A Smith Retention rights Executive A Total C Pendleton-Browne Retention rights Executive B Total Former KMP L Cox Retention rights FY15 performance rights Total J Davidson Retention rights FY15 performance rights Total D Higgins IPO rights Retention rights FY15 performance rights Total S Griffin IPO rights Retention rights FY15 performance rights Total – – 135,995 135,995 55,000 450,000 – 505,000 – – – – 150,000 – 150,000 150,000 – 150,000 52,500 350,000 – 402,500 57,500 500,000 – 557,500 – – 59,838 59,838 92,829 92,829 82,645 82,645 – 19,326 19,326 – 22,337 22,337 – – 57,118 57,118 – – 62,558 62,558 – – – – – – – – – – – – – – – – – – – – – – – – 250,231 250,231 100,650 994,500 110,102 – – 37,840 – – 1,205,252 37,840 233,001 233,001 200,001 200,001 331,500 35,560 367,060 331,500 41,100 372,600 96,075 773,500 105,097 974,672 105,225 1,105,000 115,107 1,325,332 – – – – – – – 150,000 17,345 167,345 36,145 327,792 38,079 402,016 41,229 475,677 46,419 563,325 135,995 135,995 17,160 450,000 59,838 526,998 92,829 92,829 82,645 82,645 150,000 19,326 169,326 – 4,992 4,992 16,355 22,208 19,039 57,602 16,271 24,323 16,139 56,733 ANNUAL REPORT 2016 43 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 6. KEY MANAGEMENT PERSONNEL (KMP) CONTINUED PERFORMANCE RIGHTS CONTINUED N Helm IPO rights Retention rights Total J Rohloff IPO rights Retention rights FY15 performance rights Total J Parker IPO rights Retention rights FY15 performance rights Total 129,796 25,347 155,143 47,000 350,000 – 397,000 41,000 450,000 – 491,000 – – – – – 51,134 51,134 – – 57,118 57,118 – – – – – – – – – – – 322,538 1,105,000 1,427,538 86,010 773,500 94,087 953,597 75,030 994,500 105,097 1,174,627 89,300 – 89,300 32,336 – – 32,336 28,208 – – 28,208 40,496 25,347 65,843 14,664 350,000 51,134 415,798 12,792 450,000 57,118 519,910 OPTIONS Details of the options provided as remuneration to each of the Executive KMP during the financial year are set out below. On vesting, each option is convertible into one ordinary share of the Company. The exercise price is $2.49. No options vested during the period. Further information on the options is set out in Note 23 of the Financial Report. Issuance Share options tranche 1 Share options tranche 2 The movement in the share options over the year is outlined below. Grant date 1 June 2015 1 June 2015 Date options can be converted into shares 30 June 2018 30 June 2019 Value of options at grant date $0.52 $0.50 R Kimber Share options tranche 1 Share options tranche 2 Total Number of options granted during the year Number vested during the year Value of options at grant date $ Number of options forfeited during the year Held at 1 April 2015 Held at 31 March 2016 – – – 200,000 200,000 400,000 – – – 104,000 100,000 204,000 – – – 200,000 200,000 400,000 44 OZFOREX GROUP 7. NON-EXECUTIVE DIRECTOR DISCLOSURES FEE FRAMEWORK The Board seeks to set fees for the Non-Executive Directors that reflect the demands which are made on and the responsibilities of the Directors, and at a level which will attract and retain directors of the highest quality. The Non-Executive Director fees are based on the findings of a benchmarking exercise undertaken by KPMG prior to the listing which reviewed Board remuneration relative to peer and comparable sized companies. Going forward, Non-Executive Directors’ fees will be reviewed from time to time and they may seek the advice of external remuneration advisers for this purpose. There were no changes in fees during the year. FEE POOL The maximum total of all fees payable to all Non-Executive Directors was set at $1,000,000 per annum, prior to listing. To preserve independence, Non-Executive Directors do not receive any equity as part of their remuneration and do not receive any performance-related compensation. Non-Executive Directors receive superannuation contributions where required by Superannuation Guarantee legislation. Fees applicable for 2016 Role Chairperson fee Base Director fee Committee Chair fee Committee Member fee Statutory Non-Executive Director Fees for the year ended 31 March 2016 Details of the fees paid to the Non-Executive Directors are outlined below. Non-Executive Directors P Warne M Conrad G Murdoch D Snedden W Allen1 Total Non-Executive Director remuneration (Group) 1. W Allen resigned as non-Executive Director on 31 March 2015. $ 200,000 100,000 25,000 15,000 Total 230,394 230,000 140,000 140,000 125,000 125,000 130,583 – – 115,000 625,977 610,000 Short-term employee benefits Cash salary and fees Post- employment benefits Super- annuation 211,217 211,314 127,854 127,927 114,155 114,221 119,254 – – 115,000 572,480 568,462 19,177 18,686 12,146 12,073 10,845 10,779 11,329 – – – 53,497 41,538 Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 ANNUAL REPORT 2016 45 REMUNERATION REPORT CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 8. NON-EXECUTIVE DIRECTOR SHAREHOLDINGS Details of the Non-Executive Director and their affiliates’ shareholdings in OzForex Group Limited are set out below. Non-Executive Director P Warne M Conrad G Murdoch D Snedden Shares held at the beginning of the year Shares held at the end of the year Movements 150,000 125,000 50,000 50,000 95,000 50,000 – – 100,000 25,000 50,000 – 50,000 45,000 39,000 – 250,000 150,000 100,000 50,000 145,000 95,000 39,000 – Year 2016 2015 2016 2015 2016 2015 2016 2015 9. SECURITIES TRADING POLICY All Directors and employees are required to comply with the Group’s Securities Trading Policy in undertaking any trading in the Company’s shares and may not trade if they are in possession of any inside information. Directors and employees can only trade during the specified trading windows immediately following the release of the half year and full year results and the annual meeting. In addition, Directors and certain restricted employees may only trade during the trading windows with prior written clearance as set out in the Policy. The Policy prohibits employees who participate in any equity-based plan from entering into any transaction in relation to unvested securities which would have the effect of limiting the economic risk of an unvested security. 10. OUTLOOK The Group will continue to review and adjust its reward mechanisms annually, as required to ensure that its long-term growth aspirations are met. In particular, a new Executive remuneration structure is being implemented for the 2017 financial year, which has been specifically structured to ensure close alignment of Executives to the delivery of the Accelerate Strategy and the long-term creation of shareholder value. Further details about the new Executive remuneration structure will be provided in the 2017 annual report. This report is made in accordance with a resolution of the Directors. On behalf of the Board PETER WARNE CHAIRMAN 16 May 2016 RICHARD KIMBER MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER 16 May 2016 46 OZFOREX GROUP AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration As lead auditor for the audit of OzForex Group Limited for the year ended 31 March 2016, I declare that to the best of my knowledge and belief, there have been: 1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of OzForex Group Limited and the entities it controlled during the period. CPG Cooper Partner PricewaterhouseCoopers Sydney 16 May 2016 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. ANNUAL REPORT 2016 47 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 Interest and similar income Interest income Fee and commission income Fee and commission expense Net fee and commission income Other income Total other income Employment expenses Occupancy expenses Promotional expenses IPO-related expenses Other operating expenses Total operating expenses Net profit before income tax Income tax expense Net profit after income tax Net profit attributable to ordinary equity holders of OzForex Group Limited1 Other comprehensive income Exchange differences on translation of foreign operations2 Total comprehensive income Total comprehensive income attributable to: Ordinary equity holders of OzForex Group Limited 1. Represents profit from continuing operations. 2. Represents other comprehensive income that may be reclassified to profit or loss. Notes 3 3 3 3 3 3 3 3 3 4 2016 $’000 1,662 1,662 111,246 (8,995) 102,251 – – (38,979) (3,855) (15,306) – (13,980) (72,120) 31,793 (9,979) 21,814 21,814 2015 $’000 1,754 1,754 95,646 (7,256) 88,390 101 101 (30,430) (2,122) (13,909) (96) (9,755) (56,312) 33,933 (9,667) 24,266 24,266 (33) 21,781 314 24,580 21,781 24,580 Cents Cents Earnings per share based on profit from continuing operations, attributable to the ordinary equity holders of the parent entity: Basic Fully diluted 29 29 9.09 8.99 10.11 10.03 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 48 OZFOREX GROUP STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016 Notes 2016 $’000 2015 $’000 Assets Cash and cash equivalents Receivables due from financial institutions Derivative financial instruments – positive values Other assets Property, plant and equipment1 Intangible assets1 Prepaid income tax Deferred income tax assets Total assets Liabilities Client liabilities Derivative financial instruments – negative values Other liabilities Current tax liabilities Provisions Deferred income tax liabilities Total liabilities Net assets Equity Ordinary share capital Foreign currency translation reserve Share-based payments reserve Retained earnings 5 6 7 8 9 10 11 12 7 13 14 11 15 16 Total capital and reserves attributable to equity holders of OzForex Group Limited Total equity 1. Comparative information has been restated to conform to presentation in the current year. Please see Note 10 for further details. The above Statement of Financial Position should be read in conjunction with the accompanying notes. 142,088 20,802 26,977 3,202 6,512 2,760 1,945 1,310 205,596 124,827 20,297 4,754 – 2,467 22 152,367 53,229 24,360 278 2,298 26,293 53,229 53,229 168,804 5,200 10,294 3,083 1,014 198 – 3,919 192,512 124,591 10,327 4,263 2,686 2,999 15 144,881 47,631 24,360 311 1,239 21,721 47,631 47,631 ANNUAL REPORT 2016 49 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 Balance at 1 April 2014 Net profit, after income tax Other comprehensive income, net of tax Total comprehensive income Transactions with equity holders in their capacity as equity holders: Share issue Dividends and distributions paid Employee share options – value of employee services Share-based payment expense Balance at 31 March 2015 Net profit, after income tax Other comprehensive income, net of tax Total comprehensive income Transactions with equity holders in their capacity as equity holders: Share issue Dividends and distributions paid Employee share options – value of employee services Share-based payment expense Notes Contributed equity $’000 24,360 – – – – – – – – 24,360 – – – – – – – – 17 23 23 17 23 23 Balance at 31 March 2016 24,360 Foreign currency translation reserve¹ $’000 Share-based payments reserve¹ $’000 (3) – 314 314 – – – – – 311 – (33) (33) – – – – – 278 91 – – – – – (91) 1,239 1,148 1,239 – – – – – 43 1,016 1,059 2,298 Total equity $’000 36,003 24,266 314 24,580 – (14,100) (91) 1,239 (12,952) 47,631 21,814 (33) 21,781 – (17,242) 43 1,016 (16,183) 53,229 Retained earnings $’000 11,555 24,266 – 24,266 – (14,100) – – (14,100) 21,721 21,814 – 21,814 – (17,242) – – (17,242) 26,293 1. The foreign currency translation reserve and the share-based payments reserve are non-distributable reserves of the Group. The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 50 OZFOREX GROUP STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 Cash flows from operating activities Interest received Total cash inflows from customers Total cash outflows to customers, suppliers and employees Income tax paid Net cash flows from operating activities Cash flows from investing activities Loss on sale of property, plant and equipment Payments for property, plant and equipment Payments for intangible assets Payments for deposits with financial institutions Net cash flows used in investing activities Cash flows from financing activities Dividends paid Net cash flows used in financing activities Net increase in cash Cash and cash equivalents at the beginning of the financial year Exchange (losses)/gains on cash and cash equivalents Cash and cash equivalents at the end of the financial year 5 142,088 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Comparative information has been restated to conform to presentation in the current year. Notes 2016 $’000 2015 $’000 1,662 1,754 19,596,083 16,647,053 (19,569,976) (16,599,859) 20 17 (11,994) 15,775 – (6,490) (2,927) (15,602) (25,019) (17,242) (17,242) (26,486) 168,804 (230) (10,444) 38,504 – (548) (192) (5,000) (5,740) (14,100) (14,100) 18,664 148,558 1,582 168,804 ANNUAL REPORT 2016 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (I) BASIS OF PREPARATION OzForex Group Limited (the Company) is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The principal accounting policies adopted in the preparation of this financial report and that of the previous financial year are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. OzForex Group Limited is a for-profit entity for the purpose of preparing the financial statements. OzForex Group Limited and its subsidiaries together are referred to in this financial report as the Group. The Directors have the power to amend and reissue the financial report. Compliance with IFRS as issued by the IASB Compliance with Australian Accounting Standards ensures that the financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has also been prepared in accordance with and complies with IFRS as issued by the IASB. Historical cost convention This financial report has been prepared under the historical cost convention, as modified by the revaluation of certain assets and liabilities (including derivative instruments) at fair value. Critical accounting estimates and significant judgements The preparation of the financial report in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the accounting policies. The notes to the financial statements set out areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the Group and the consolidated financial report such as: • Fair value of financial instruments (Notes 1(viii) and 26). • Accounting for remuneration arrangements (Notes 1(xv), 22 and 23). Estimates and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Management believes the estimates used in preparing the financial report are reasonable. Actual results in the future may differ from those reported and therefore it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from our assumptions and estimates could require an adjustment to the carrying amounts of the assets and liabilities reported. New Accounting Standards and amendments to Accounting Standards that became effective in the current financial year When a new accounting standard is first adopted, any change in accounting policy is accounted for in accordance with the specific transitional provisions (if any), otherwise retrospectively. The Group’s and parent entity’s assessment of the impact of the key new Accounting Standards, amendments to Accounting Standards and Interpretations is set out below. No new key Accounting Standards and amendments to Accounting Standards became applicable to the Group in the current financial year. New Accounting Standards, amendments to Accounting Standards and Interpretations that are not yet effective AASB 9 Financial Instruments and consequential amendments – AASB 9 will replace AASB 139 Financial Instruments: Recognition and Measurement. It will lead to changes in the accounting for financial instruments, primarily relating to: Financial assets: A financial asset is measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash flows and the asset gives rise to cash flows on specified dates that are payments solely of principal and interest (on the principal amount outstanding). All other financial assets are measured at fair value. Changes in fair value of financial assets carried at fair value are reported in the income statement. Financial liabilities: The component of change in fair value of financial liabilities designated at fair value through profit or loss due to an entity’s own credit risk are presented in other comprehensive income, unless this creates an accounting mismatch. If a mismatch is created or enlarged, all changes in fair value (including the effects of credit risk) are presented in profit or loss. These requirements may be applied early without applying all other requirements of AASB 9. Hedge accounting: Hedge accounting is more closely aligned with financial risk management, and may be applied to a greater variety of hedging instruments and risks. 52 OZFOREX GROUP All other key requirements for classification and measurement of financial liabilities have been carried forward unamended from AASB 139. The recognition and derecognition requirements in AASB 139 have also been retained and relocated to AASB 9 unamended. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018. The Group will first apply AASB 9 in the financial year beginning 1 April 2018. The Group is continuing to assess the full impact of the new requirements on the consolidated financial statements. AASB 15 Revenue from Contracts with Customers – The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for services. The new standard is based on the principle that revenue is recognised when control transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. AASB 15 is effective for annual periods beginning on or after 1 January 2017. The Group will first apply AASB 15 in the financial year beginning 1 April 2017. The impact of AASB 15 on the Group’s financial statements on initial application has not yet been assessed. IFRS 16 Leases – The International Accounting Standards Board issued IFRS 16 in January 2016. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Lessees will be required to bring all leases on Balance Sheet as the distinction between operating and finance leases has been eliminated. Lessor accounting remains largely unchanged. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. The Group will first apply IFRS 16 in the financial year beginning 1 April 2019. The Group is continuing to assess the full impact of the new requirements on the consolidated financial statements. (II) PRINCIPLES OF CONSOLIDATION Subsidiaries The consolidated financial report comprises the assets and liabilities of all subsidiaries of OzForex Group Limited (‘the Company’) as at 31 March 2016 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has the power to direct the relevant activities, exposure to significant variable returns and the ability to utilise power to affect the Group’s own returns. The determination of control is based on current facts and circumstances and is continuously assessed. The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 1(xix)). Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the separate financial statements of OzForex Limited in accordance with AASB 127 Separate Financial Statements. (III) SEGMENT REPORTING Operating segments are identified on the basis of internal reports to senior management about components of the Group that are regularly reviewed by senior management and the board of directors who have been identified as the chief operating decision makers, in order to allocate resources to the segment and to assess its performance. Information reported to senior management and the board of directors for the purposes of resource allocation and assessment of performance is specifically focused on core products and services offered, comprising five reportable segments as disclosed in Note 2. Information about products and services and geographical segments is based on the financial information used to produce the Group’s financial statements. (IV) FOREIGN CURRENCY TRANSLATIONS Functional and presentation currency Items included in the financial statements of foreign operations are measured using the currency of the primary economic environment in which the foreign operation operates (the functional currency). The Group’s financial statements are presented in Australian dollars, which is OzForex Group Limited’s functional currency and the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as a result of meeting net investment hedge accounting requirements. ANNUAL REPORT 2016 53 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED (IV) FOREIGN CURRENCY TRANSLATIONS CONTINUED Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of the Statement of Financial Position; • Income and expense for each Statement of Comprehensive Income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. (V) REVENUE Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major revenue streams as follows: Interest income Interest income is recognised using the effective interest rate method. When a receivable is impaired, the Group reduces the carrying value amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Fee and commission income Fee and commission income consists of the margin generated from foreign currency spreads, fees charged on low-value transactions and the cost or benefit of the Group’s hedging policy. The cost or benefit of the Group’s hedging policy is the result of changes in exchange rates between the time when a client rate is agreed and the subsequent hedge transaction is entered. As a result of timing differences inherent to OzForex Group Limited’s policy of aggregating and netting foreign currency contracts, these two balances should be viewed in combination to give a true reflection of revenue generated for the period. Fee and commission income is presented inclusive of realised and unrealised income earned from the sale of foreign currency contracts to customers. (i) Unrealised gain/loss on foreign exchange contracts Gains and losses on foreign exchange contract financial assets/liabilities arise from fair valuation of foreign exchange contract financial assets/ liabilities recognised in profit or loss. (ii) Retranslation of foreign exchange assets and liabilities Gains and losses arise from the retranslation of foreign currency denominated assets/liabilities into functional currency. Fee and commission expense Fee and commission expenses are transaction costs which relate to fees paid to partners and transactional banking fees. Dividends and distributions Dividends and distributions are recognised as income when the entity becomes entitled to the dividend or distribution. 54 OZFOREX GROUP (VI) INCOME TAXES The income tax expense for the financial year is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their respective carrying amounts which give rise to a future tax benefit, or where a benefit arises due to unused tax losses, but are only recognised in both cases to the extent that it is probable that future taxable amounts will be available to utilise those temporary differences or tax losses. Deferred tax liabilities are recognised when such temporary differences will give rise to taxable amounts being payable in future periods. Deferred tax assets and liabilities are recognised at the tax rates expected to apply when the assets are recovered or the liabilities are settled. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset when there is a legally enforceable right to offset and an intention to either settle on a net basis, or realise the asset and settle the liability simultaneously. Current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. The Group and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 15 October 2013. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (VII) DIVIDENDS Provision for dividends to be paid by the Group are recognised on the Statement of Financial Position as a liability and a reduction in retained earnings when the dividend has been declared. (VIII) DERIVATIVE INSTRUMENTS Derivative instruments entered into by the Group include forward rate agreements and options in the foreign exchange markets. These derivative instruments are principally used for the risk management of existing financial assets and liabilities. All derivatives, including those used for Statement of Financial Position hedging purposes, are recognised on the Statement of Financial Position and are disclosed as an asset where they have a positive fair value at balance date or as a liability where the fair value at balance date is negative. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured to their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. Movements in the carrying amounts of derivatives are recognised in the Statement of Comprehensive Income, unless the derivative meets the requirements for cash flow or net investment hedge accounting. (IX) HEDGE ACCOUNTING The Group designates certain derivatives or financial instruments as hedging instruments in qualifying hedge relationships. On initial designation of the hedge, the Group documents the hedge relationship between hedging instruments and hedged items, as well as its risk management objectives and strategies. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether hedging relationships have been and will continue to be highly effective. Derivatives or financial instruments of the Group are designated as net investment hedge relationships. Net investment hedges For a derivative or borrowing designated as hedging a net investment in a foreign operation, the gain or loss on revaluing the derivative or borrowing associated with the effective portion of the hedge is recognised in the foreign currency translation reserve and subsequently released to the income statement when the foreign operation is disposed of. The ineffective portion is recognised in the Statement of Comprehensive Income immediately. The fair values of various financial instruments used for hedging purposes are disclosed in Note 26. ANNUAL REPORT 2016 55 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED (X) INVESTMENTS AND OTHER FINANCIAL ASSETS Classification With the exception of derivatives which are classified separately in the Statement of Financial Position, the remaining investments in financial assets are classified in the following categories: other financial assets at fair value through profit or loss, loans and receivable. The classification depends on the purpose for which the investments were acquired, which is determined at initial recognition and, except for other financial assets at fair value through profit or loss, is re-evaluated at each reporting date. (i) Other financial assets at fair value through profit or loss This category includes only those financial assets which have been designated by management as held at fair value through profit or loss on initial recognition. The policy of management is to designate a financial asset as such if the asset contains embedded derivatives which must otherwise be separated and carried at fair value; if it is part of a group of financial assets managed and evaluated on a fair value basis; or if by doing so eliminates, or significantly reduces, a measurement or recognition inconsistency that would otherwise arise. Interest income on debt securities designated as at fair value through profit or loss is recognised in the Statement of Comprehensive Income in interest income using the effective interest method as disclosed in Note 1(v). (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. A regular way of purchase or sale of a financial asset under contract is a purchase or sale that requires delivery of the assets within the period established generally by regulation or convention in the marketplace. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement Loans and receivables are carried at amortised cost using the effective interest method. Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘other financial assets at fair value through profit or loss’ category are presented in the Statement of Comprehensive Income. The fair value of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. Impairment Impairment is assessed at the end of each reporting period based on whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is evidence of impairment for any of the financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in the Statement of Comprehensive Income. 56 OZFOREX GROUP (XI) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Assets are reviewed for impairment at each reporting date. Historical cost includes expenditure directly attributable to the acquisition of the asset. Depreciation on assets is calculated on a straight-line basis to allocate the difference between their cost and their residual values over their estimated useful lives, at the following rates: • Furniture and fittings • Leasehold improvements1 • Computer equipment • Plant and equipment 10 per cent to 20 per cent 20 per cent 33 per cent 20 per cent to 33 per cent 1. Where remaining lease terms are less than five years, leasehold improvements are depreciated over the lease term. Useful lives and residual values are reviewed annually and reassessed in light of commercial and technological developments. If an asset’s carrying value is greater than its recoverable amount due to an adjustment to its useful life, residual value or impairment, the carrying amount is written down immediately to its recoverable amount. Adjustments arising from such items and on disposal of fixed assets are recognised in the Statement of Comprehensive Income. Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are recognised in the Statement of Comprehensive Income. (XII) INTANGIBLE ASSETS Certain internal and external costs directly incurred in acquiring and developing certain software are capitalised and amortised over the estimated useful life, usually a period of three years. Costs incurred on software maintenance are expensed as incurred. (XIII) PROVISIONS Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and accumulating sick and annual leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for accumulating annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Other long-term employee benefit obligations The liabilities for long service leave and employee bonus provisions that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted at the end of the reporting period using market yields of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Provisions for unpaid employee benefits are derecognised when the benefit is settled, or is transferred to another entity and the Group is legally released from the obligation and do not retain a constructive obligation. ANNUAL REPORT 2016 57 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED (XIV) EARNINGS PER SHARE Basic earnings per share is calculated by dividing the Group’s profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share is calculated by dividing the Group’s profit attributable to ordinary equity holders by the weighted average number of ordinary shares that would be issued on the exchange of all the dilutive potential ordinary shares into ordinary shares. Refer to Note 15 for information concerning the classification of securities. (XV) PERFORMANCE-BASED REMUNERATION Share-based payments OzForex Group long term incentive plan The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). The fair value of each performance right is estimated at grant date using a Monte Carlo simulation and discounted for the probability of employee retention and the probability of achieving performance levels. The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the performance period). At each subsequent reporting date until vesting, the cumulative charge to the income statement is in accordance with the vesting conditions as set out under the Group’s Long Term Incentive Plan (Note 23). Equity settled awards granted by the Company to employees of subsidiaries are recognised in the subsidiaries’ separate financial statements as an expense with a corresponding credit to equity. As a result, the expense recognised by the Group is the total expense associated with all such awards. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated. The Group currently does not provide benefits in the form of cash settled share-based payments. Share option plan During the year ended 31 March 2016, OzForex Group Limited operated share options plans which were granted to Managing Director and CEO Richard Kimber. OzForex Group Limited recognised a share option expense in relation to options granted with the offsetting adjustment recognised as a contribution of capital from the shareholders. The options were measured at their grant dates based on their fair value and using the number expected to vest. This amount will be recognised as an expense evenly over the respective vesting periods. The fair value of each option was estimated on the date of grant using a trinomial option pricing framework. The following key assumptions were adopted for grants made during the financial year: Risk free rate Expected life Volatility of share price Dividend yield Share options tranche 1 2.96 per cent 4 years 25 per cent 2.41 per cent Share options tranche 2 2.96 per cent 5 years 25 per cent 2.41 per cent OzForex Limited annually revises its estimates of the number of options that are expected to become exercisable. Where appropriate, the impact of revised estimates is reflected in the income statement over the remaining vesting period, with a corresponding adjustment to the share option reserve. Short-term incentives Staff profit share scheme The Group recognises a liability and an expense for profit share based on a formula that takes into consideration the growth rate of the Group’s earnings before tax and the employee’s performance over the financial year. Short-term incentive plan The Group recognises a liability and an expense for 15-50% of the Total Reward Remuneration (TRR) of Executives and select employees. The short-term incentive awards are based on the achievement of annual Key Performance Indicators (KPIs). (XVI) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and deposits held at short call with financial institutions with original maturity of three months or less. 58 OZFOREX GROUP (XVII) RECEIVABLES DUE FROM FINANCIAL INSTITUTIONS Receivables due from financial institutions are primarily short-term deposits with an original maturity of greater than three months that are brought to account at the gross value of the outstanding balance. Interest is brought to account in the Statement of Comprehensive Income as interest income (see Note 1(v)). (XVIII) LEASES Leases entered into by the Group as lessee are operating leases. The total fixed payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. (XIX) BUSINESS COMBINATIONS The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • Fair values of the assets transferred; • Liabilities incurred; • Equity interests issued by the Group; • Fair value of any asset or liability resulting from a contingent consideration arrangement; and • Fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the: • Consideration transferred; • Amount of any non-controlling interest in the acquired entity; and • Acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. (XX) CLIENT LIABILITIES Client liabilities represent an obligation of the Group for amounts unpaid to customers that transacted with the Group prior to the end of the financial year. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (XXI) GST Revenues, expenses and fixed assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amounts of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Position. Cash flows are presented on a gross basis. The GST components of the cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (XXII) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (XXIII) ROUNDING OF AMOUNTS The Company is of a kind referred to in Australian Securities and Investments Commission Class Order 98/100 (as amended), relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars unless otherwise indicated. ANNUAL REPORT 2016 59 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 2. SEGMENT INFORMATION The Group operates international payment services in defined geographic regions (based on client location) and international payment solutions globally. International Payment Solutions is a package offered to strategic partners which consists of the OFX IT platform, customer service, compliance sophistication, banking relationships, and payments capabilities. Australia and New Zealand $’000 60,099 60,099 Europe $’000 20,897 20,897 North America $’000 17,574 17,574 Asia $’000 2,119 2,119 10,557 10,557 International Payment Solutions $’000 Consolidated $’000 18,670 7,982 725 584 3,527 155,138 – 18,379 (5,554) 29,344 – 7,456 (477) (117,742) (15,507) 827 – (23,636) 5,204 37,396 827 2,872 (5,554) 5,708 5,204 (1,491) – 5,965 (477) – – – – – – 111,246 111,246 31,488 (1,357) 1,662 31,793 (9,979) 21,814 210,317 (6,031) 1,310 205,596 (158,376) 6,031 (22) (152,367) 51,941 – 1,288 53,229 Year ended 31 March 2016 Segment revenue Fee and commission income Total segment revenue Segment result EBITDA Depreciation and amortisation Interest income Profit before income tax Income tax expense Profit for the year Segment assets At 31 March 2016 Segment assets Intergroup eliminations Deferred tax assets Total assets Segment liabilities At 31 March 2016 Segment liabilities Intergroup eliminations Deferred tax liabilities Total liabilities Segment net assets Intergroup eliminations Net deferred tax Total net assets 60 OZFOREX GROUP Year ended 31 March 2015 Segment revenue Fee and commission income Total segment revenue Segment result EBITDA1 Depreciation and amortisation Interest income Profit before income tax Income tax expense Profit for the year Segment assets At 31 March 2015 Segment assets Intergroup eliminations Deferred tax assets Total assets Segment liabilities At 31 March 2015 Segment liabilities Intergroup eliminations Deferred tax liabilities Total liabilities Segment net assets Intergroup eliminations Net deferred tax Total net assets Australia and New Zealand $’000 50,740 50,740 Europe $’000 19,165 19,165 North America $’000 12,935 12,935 Asia $’000 1,816 1,816 10,990 10,990 International Payment Solutions $’000 Consolidated $’000 20,153 7,077 1,173 643 3,712 149,035 – 24,238 (10,937) 23,784 (3,342) 6,430 (615) (119,340) 14,894 (21,329) (18,304) (787) 29,695 14,894 2,909 (10,937) 5,480 (3,342) 5,643 (615) – – – – – 95,646 95,646 32,758 (579) 1,754 33,933 (9,667) 24,266 203,487 (14,894) 3,919 192,512 (159,760) 14,894 (15) (144,881) 43,727 – 3,904 47,631 1. Comparative information has been restated to conform to presentation in the current year. ANNUAL REPORT 2016 61 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 3. PROFIT FOR THE FINANCIAL YEAR Net profit before income tax has been determined as follows: Interest income Interest and similar income received/receivable Interest income Net fee and commission income Realised margin and fees on foreign exchange contracts Unrealised gains/(losses) on foreign exchange contracts Retranslation of foreign exchange assets and liabilities Fee and commission expense Net fee and commission income Other income Reimbursement of IPO expenses1 Other Total other income Employment expenses Salary-related costs including commissions2 Employee benefits Share-based payments2 Defined contribution plan Provision for annual leave Provision for long service leave Total compensation expense Other employment expenses including on-costs, staff procurement and staff training Total employment expenses Occupancy expenses Operating lease rentals Depreciation: Furniture, fittings and leasehold Other occupancy expenses Total occupancy expenses Promotional expenses Advertising Other promotional expenses Total promotional expenses 2016 $’000 1,662 1,662 104,628 6,376 242 (8,995) 102,251 – – – (31,531) (1,058) (1,059) (1,769) (206) 202 (35,421) (3,558) (38,979) (2,606) (613) (636) (3,855) (14,095) (1,211) (15,306) 2015 $’000 1,754 1,754 97,906 (2,272) 12 (7,256) 88,390 96 5 101 (24,784) (1,023) (1,148) (1,339) (21) (59) (28,374) (2,056) (30,430) (1,509) (150) (463) (2,122) (13,007) (902) (13,909) 1. Relates to income to the Group from arranger fees in relation to the IPO. 2. Comparative information has been restated to conform with presentation in the current year. Share-based payments previously formed part of salary-related costs including commissions. This has been classified separately in the current year. 62 OZFOREX GROUP IPO-related expenses Professional fees1 Total IPO-related expenses Other operating expenses Professional fees Information technology Depreciation and amortisation: computer equipment and software Communication expenses Compliance expenses Insurance expenses Travel expenses Bad and doubtful debts expense Non-recoverable GST Other expenses Total other operating expenses 1. Relates to costs incurred by the Group while acting as an arranger throughout the IPO transaction. NOTE 4. INCOME TAX EXPENSE (a) Income tax expense Current tax expense Adjustments for current tax of prior periods Total tax on profits for the year Deferred income tax: Decrease/(Increase) in deferred tax assets Increase/(Decrease) in deferred tax liabilities Total deferred income tax expense/(benefit) Total income tax expense (b) Reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Prima facie income tax expense on operating profit2 Tax effect of amounts adjusted in calculating taxable income: Other items Total income tax expense 2. Prima facie income tax on operating profit is calculated at the rate of 30% (2015: 30%). The Group has a tax year ending on 30 September. No tax losses were transferred to the parent or utilised during the period. 2016 $’000 2015 $’000 – – (3,942) (2,172) (744) (682) (1,824) (844) (999) (1,091) (446) (1,236) (96) (96) (3,222) (1,196) (429) (601) (1,510) (581) (728) (845) (131) (512) (13,980) (9,755) 2016 $’000 2015 $’000 8,058 (695) 7,363 2,609 7 2,616 9,979 31,793 9,538 441 9,979 8,785 (695) 8,090 1,598 (21) 1,577 9,667 33,933 10,180 (513) 9,667 ANNUAL REPORT 2016 63 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 5. CASH AND CASH EQUIVALENTS (CURRENT ASSETS) Cash held 1 Cash held for subsequent settlement of client liabilities Total cash and cash equivalents 2016 $’000 17,261 124,827 142,088 2015 $’000 44,213 124,591 168,804 1. Included in cash and cash equivalents are balances of $14,612,000 (2015: $13,760,000) which are held as collateral by counterparties for over the counter derivative transactions and other services. NOTE 6. RECEIVABLES DUE FROM FINANCIAL INSTITUTIONS (CURRENT ASSETS) Receivables due from financial institutions2 Total receivables due from financial institutions 2016 $’000 20,802 20,802 2015 $’000 5,200 5,200 2. Included in receivables due from financial institutions are balances of $10,414,000 (2015:$0) which are held as collateral by counterparties for over the counter derivative transactions and other services. Receivables due from financial institutions relate to term deposits with an original maturity of more than three months, but less than 12 months. NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Value of forward contracts – positive values Value of forward contracts – negative values Total derivative financial instruments at fair value through profit or loss3 3. All derivative financial instruments are expected to mature within 12 months after the reporting date. NOTE 8. OTHER ASSETS (CURRENT ASSETS) Prepayments Goods and services tax receivable Other debtors Total other assets 2016 $’000 26,977 (20,297) 6,680 2015 $’000 10,294 (10,327) (33) 2016 $’000 2,216 384 602 3,202 2015 $’000 1,469 379 1,235 3,083 64 OZFOREX GROUP NOTE 9. PROPERTY, PLANT AND EQUIPMENT Furniture, fittings and leasehold improvements Cost Less accumulated depreciation Exchange adjustment Total furniture, fittings and leasehold improvements Computer equipment Cost Less accumulated depreciation Exchange adjustment Total computer equipment Total property, plant and equipment Reconciliation of the movement in the Group’s property, plant and equipment at their written-down value: Balance at 31 March 2014 Acquisitions Disposals Depreciation expense Exchange adjustment Balance at 31 March 2015 Acquisitions Disposals Depreciation expense Exchange adjustment Balance at 31 March 2016 Furniture, fittings and leasehold improvements $’000 Computer equipment $’000 531 191 – (193) – 529 5,665 – (613) – 5,581 421 357 – (294) 1 485 825 – (379) – 931 2016 $’000 2015 $’000 7,319 (1,738) – 5,581 2,769 (1,838) – 931 6,512 1,648 (1,119) – 529 1,938 (1,454) 1 485 1,014 Total $’000 952 548 – (487) 1 1,014 6,490 – (992) – 6,512 ANNUAL REPORT 2016 65 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 10. INTANGIBLE ASSETS Website and mobile application Cost Less accumulated amortisation Total website and mobile application Software1 Cost Less accumulated depreciation Exchange adjustment Total software Total intangible assets 2016 $’000 2015 $’000 2,519 (212) 2,307 1,116 (663) – 453 2,760 – – – 702 (507) 3 198 198 1. Software has been reclassified into intangible assets from property, plant and equipment. In the prior year software on its own was not significant and therefore was included within property, plant and equipment. With the additions of the website and mobile application intangible assets became significant and as a result software was reclassified to its appropriate classification. Reconciliation of the movement in the Group’s intangible assets Website and mobile application $’000 Software $’000 Total $’000 – – – – – 2,519 – (212) 2,307 95 192 – (92) 3 198 408 – (153) 453 95 192 – (92) 3 198 2,927 – (365) 2,760 Balance at 31 March 2014 Acquisitions Disposals Amortisation expense Exchange adjustment Balance at 31 March 2015 Acquisitions Disposals Amortisation expense Balance at 31 March 2016 66 OZFOREX GROUP NOTE 11. DEFERRED INCOME TAX ASSETS/(LIABILITIES) Deferred income tax assets The balance comprises temporary differences attributable to: Provisions and accrued expenses IPO expenditure deemed capital for taxation Financial instruments Total deferred income tax assets Deferred income tax liabilities The balance comprises temporary differences attributable to: Other timing differences Total deferred income tax liabilities Net deferred income tax assets1 2016 $’000 2015 $’000 1,575 1,739 (2,004) 1,310 (22) (22) 1,288 1,338 2,571 10 3,919 (15) (15) 3,904 1. Unless otherwise stated the material portion of the balance represents amounts expected to be settled within 12 months after the reporting date. The principles of the balance sheet method of tax effect accounting have been adopted whereby the income tax expense for the financial year is the tax payable on the current period’s taxable income adjusted for changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The tax assets relating to deductible temporary differences are not carried forward as an asset unless the benefit is probable of realisation. The deferred tax assets have been applied against deferred tax liabilities to the extent that they are expected to be realised in the same period, within the same tax paying entity. NOTE 12. CLIENT LIABILITIES Client liabilities of $124,827,000 (2015: $124,591,000) relate to amounts owed to clients in order to settle outstanding deals. Client liabilities are unsecured and are short term in nature. The carrying amounts of client liabilities are assumed to be the same as their fair values, due to their short-term nature (expected to be settled within 12 months after the balance sheet date). NOTE 13. OTHER LIABILITIES (CURRENT LIABILITIES) Accrued charges and sundry liabilities Trade creditors2 Other Total other liabilities 2016 $’000 3,382 51 1,321 4,754 2015 $’000 2,437 743 1,083 4,263 2. Unless otherwise stated the material portion of the balance represents amounts expected to be settled within 12 months after the reporting date. ANNUAL REPORT 2016 67 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 14. PROVISIONS Current – provision for employee entitlements Annual leave Employee benefits Long service leave Non-current – provision for employee entitlements Long service leave Total provisions Movements in provision balances Annual leave Employee benefits Long service leave Total NOTE 15. CONTRIBUTED EQUITY Ordinary share capital Opening balance of fully paid ordinary shares Closing balance of fully paid ordinary shares Total equity contribution ORDINARY SHARES 2016 $’000 2015 $’000 1,175 964 35 2,174 293 293 2,467 Additional provisions made Release of provisions 1,923 964 68 2,955 (1,725) (1,492) (270) (3,487) 2016 $’000 24,360 24,360 24,360 977 1,492 241 2,710 289 289 2,999 Carrying amount at the end of the period 1,175 964 328 2,467 2015 $’000 24,360 24,360 24,360 Carrying amount at beginning of the period 977 1,492 530 2,999 2016 Number of shares 2015 Number of shares 240,000,000 240,000,000 240,000,000 240,000,000 240,000,000 240,000,000 Ordinary shares entitle the holder to participate in dividends and the proceeds of the Company in a liquidity event in proportion to the number of and amounts paid on the shares held. Each ordinary shareholder is entitled to one vote per share held. 68 OZFOREX GROUP NOTE 16. RETAINED EARNINGS Balance at the beginning of the financial year Profit attributable to ordinary equity holders of OzForex Group Limited Dividends paid Balance at the end of the financial year NOTE 17. DIVIDENDS PAID AND DISTRIBUTIONS PAID OR PROVIDED FOR First interim dividend paid ($0.03600 (2015: $0.03500) per share)1 Final dividend paid ($0.03584 (2015: $0.02375) per share)1,2 Total dividends paid 1. These dividends were 100% franked at the 30% corporate tax rate. 2. The final dividend relates to the year ended 31 March 2015 which was declared on 26 May 2015. 2016 $’000 21,721 21,814 (17,242) 26,293 2016 $’000 (8,640) (8,602) (17,242) 2015 $’000 11,555 24,266 (14,100) 21,721 2015 $’000 (8,400) (5,700) (14,100) Dividend per share is calculated based on the ordinary shares outstanding on the dividend declaration date. Details of the movement in the number of shares outstanding are disclosed in Note 15 and details of the share transactions are disclosed in the directors’ report. Franked dividends Franking credits available for subsequent financial years based on a tax rate of 30% (2015: 30%) 8,122 4,699 The above amounts represent the balance of the franking account as at the end of the financial period, adjusted for franking credits that will arise from the payment of the amount of the provision for income tax. NOTE 18. CAPITAL The Group’s capital management strategy is to maximise shareholder value through optimising the level and use of capital resources. 2016 $’000 2015 $’000 The Group’s capital management objectives are to: • Ensure sufficient capital resource to support the Group’s business and operational requirements. • Maintain sufficient capital to exceed externally imposed capital requirements. • Safeguard the Group’s ability to continue as a going concern. Periodic reviews of the entity’s capital requirements are performed to ensure the Group is meeting its objectives. Capital is defined as share capital plus reserves. During the financial year ended 31 March 2016, the Group has continued to meet its capital requirements under the licence and no breaches have occurred. The Group has satisfied its externally imposed capital requirements. ANNUAL REPORT 2016 69 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 19. COMMITMENTS OPERATING LEASES The Group leases offices under non-cancellable operating leases expiring within one to seven years. The leases have escalating clauses and renewable rights. On renewal, the terms of the leases are renegotiated. During the year ended 31 March 2016 the Group entered into two new operating leases for office space in Sydney and Toronto. This resulted in a significant increase when compared to the prior year. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: 2016 $’000 2,479 8,129 2,739 13,347 2015 $’000 1,714 4,106 – 5,820 2016 $’000 2015 $’000 21,814 24,266 1,357 1,059 230 – (6,713) (33) (119) 2,609 727 7 (532) (4,631) 15,775 579 1,148 (1,582) – 3,011 314 550 1,598 17,174 (21) (6,178) (2,355) 38,504 Not later than one year Later than one year and not later than five years Later than five years Total capital and other expenditure commitments NOTE 20. NOTES TO THE STATEMENT OF CASH FLOWS RECONCILIATION OF CASH AND CASH EQUIVALENTS Reconciliation of profit from ordinary activities after income tax to net cash flows from operating activities Profit from ordinary activities after income tax Adjustments to profit from ordinary activities Depreciation and amortisation Share-based payments expense Foreign exchange revaluation Loss on disposal of property, plant and equipment Fair value changes on financial assets and liabilities at fair value through profit or loss Movement in foreign currency translation reserve Changes in assets and liabilities (Increase)/decrease in debtors and prepayments Decrease in deferred tax assets Increase in accrued charges and creditors Increase/(decrease) in deferred tax liabilities (Decrease) in provisions for employee entitlements (Decrease) in tax provision Net cash flows from operating activities Comparative information has been restated to conform to presentation in the current year. 70 OZFOREX GROUP NOTE 21. RELATED PARTY INFORMATION (A) ULTIMATE PARENT ENTITY The ultimate parent entity is OzForex Group Limited. (B) SUBSIDIARIES All entities have a 31 March financial year end. The following entities are wholly-owned subsidiaries of the Company Entity CanadianForex Limited OzForex (HK) Limited OzForex Limited OFX Australia Pty Limited OFX Group Pty Limited OFX (SNG) PTE. Limited NZForex Limited UKForex Limited USForex Incorporated Country of incorporation Canada Hong Kong Australia Australia Australia Singapore New Zealand United Kingdom United States Equity holding 100% 100% 100% 100% 100% 100% 100% 100% 100% (C) KEY MANAGEMENT PERSONNEL Disclosures relating to directors and other key management personnel are set out in Note 22. (D) TRANSACTIONS WITH OTHER RELATED PARTIES Directors and parent entities of OzForex Group Limited may from time to time have investments in entities which transact with OzForex Group Limited. These transactions are based on normal commercial terms and conditions. Transactions with Cloudbreak Settlements Pty Limited relate to arranger fees and costs incurred relating to the initial public offering and are as follows: Transaction type Income received Expense incurred 2016 $’000 – – 2015 $’000 96 96 ANNUAL REPORT 2016 71 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 22. KEY MANAGEMENT PERSONNEL (A) DIRECTORS (I) Chairman – Non-Executive Peter Warne (II) Executive Director Richard Kimber (appointed on 1 June 2015) Neil Helm (resigned as director on 1 June 2015) (III) Non-Executive Director Grant Murdoch Melinda Conrad Douglas Snedden (B) OTHER KEY MANAGEMENT PERSONNEL The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year. Name Mark Ledsham Maria Loyez (appointed 3 August 2015) Adam Smith (appointed on 6 October 2015) Position Chief Financial Officer Chief Marketing Officer Chief Operating Officer Craige Pendleton-Browne (appointed on 16 November 2015) Chief Technology Officer Jason Rohloff (ceased being a KMP on 31 May 2015) Head of Compliance Jeff Parker (ceased being a KMP on 31 May 2015) Chief Wholesale Officer Employer OzForex Group Limited OzForex Group Limited OzForex Group Limited OzForex Group Limited OzForex Group Limited OzForex Group Limited Linda Cox (ceased being a KMP on 31 May 2015) Company Secretary and Head of Investor Relations OzForex Limited Jacqueie Davidson (resigned on 4 September 2015) Head of Human Resources Simon Griffin (resigned on 18 September 2015) Chief Commercial Officer David Higgins (ceased being a KMP on 30 September 2015) Chief Technology Officer OzForex Limited OzForex Group Limited OzForex Group Limited (C) KEY MANAGEMENT PERSONNEL REMUNERATION Remuneration Short-term employee benefits Post-employment benefits Termination payments Long-term employee benefits Share-based payments Total remuneration paid to key management personnel Detailed remuneration disclosures are provided in the remuneration report. 2016 $ 2015 $ 2,489,683 3,547,185 172,213 162,821 19,829 390,941 177,713 – 15,864 905,666 3,235,487 4,646,428 72 OZFOREX GROUP (D) SHARE HOLDINGS AND SHARE OPTIONS The number of shares and share options in the Company held during the financial year by each Director of OzForex Group Limited and other key management personnel of the Group, including their personal related parties, are set out below. Ordinary shares Shareholding movement during the year Shares held at 31 March 2016 Shares held at 31 March 2015 150,000 100,000 – 50,000 95,000 – 27,500 – – – 21,000 50,000 50,000 39,000 – – – – 250,000 21,000 100,000 145,000 39,000 27,500 – – – Directors of OzForex Group Limited P Warne R Kimber M Conrad G Murdoch D Snedden Other key management personnel of the Group M Ledsham M Loyez A Smith C Pendleton-Browne NOTE 23. EMPLOYEE EQUITY PARTICIPATION SHARE-BASED PAYMENTS The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). The cost of equity settled transactions is recognised as an expense in the Statement of Comprehensive Income, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the Statement of Comprehensive Income is in accordance with the vesting conditions. Equity settled awards granted by the Company to employees of subsidiaries are recognised in the subsidiaries’ separate financial statements as an expense with a corresponding credit to equity. As a result, the expense recognised by the Group is the total expense associated with such awards. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated. OzForex Group Long Term Incentive Plan The Group has a Long Term Incentive Plan for employees (including Executives) identified by the Board. The plan is based on the grant of performance rights that vest into shares on a one-to-one basis at no cost to the employee. Settlement of the performance rights is made in ordinary shares. If the employee leaves during or before the performance period due to illness, redundancy or death, any granted rights which the Board has the discretion to allow them to vest, otherwise will lapse. If the employee leaves due to other reasons, the granted rights may be forfeited at the Board’s discretion. The plan was modified in 2016 to allow the issuance of share options. There were no cancellations during 2016. ANNUAL REPORT 2016 73 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 23. EMPLOYEE EQUITY PARTICIPATION CONTINUED (A) ISSUANCES UNDER THE OZFOREX GROUP LONG TERM INCENTIVE PLAN Issuance IPO rights Retention rights tranches 1, 2 & 3 Employee LTI rights FY15 performance rights Retention rights Executive A & B Description The Group issued the IPO rights during the 2014 financial year for Executives and other select employees identified by the Board. Performance rights granted in this plan will vest subject to performance hurdles approved by the Board which are based on Group EBTDA. The Group issued the retention rights (tranches 1, 2 & 3) during the 2015 financial year for Executives and other select employees identified by the Board. Performance rights granted in this plan will vest subject to performance hurdles approved by the Board which are based on earnings per share (EPS) and the Group EBTDA. There is a minimum standard for earnings per share compound annual growth rate (EPS CAGR) performance that must be achieved in order for any performance right to vest. The Group issued the Employee LTI rights during the 2015 financial year for select employees identified by the Board. This plan will vest subject to the employees, who have been granted shares, remaining in employment until the vesting date. This plan is not subject to any performance hurdles. The Group established the FY15 performance rights during the 2016 financial year for Executives and select employees identified by the Board. Performance rights granted in this plan will vest subject to performance hurdles approved by the Board which are based on earnings per share (EPS) and the Group EBTDA. There is a minimum standard for earnings per share compound annual growth rate (EPS CAGR) performance that must be achieved in order for any performance right to vest. The Group issued the retention rights (Executive A & Executive B) during the 2016 financial year for new Executives employed during the period in lieu of forfeited incentive amounts from previous employment. This plan will vest subject to  the Executives, who have been granted shares, remaining in employment until the vesting date. This plan is not subject to any performance hurdles. Share options tranches 1 & 2 The Group issued share options to the CEO, Richard Kimber, during the 2016 financial year to ensure immediate alignment with shareholder interests. These options will vest subject to ongoing employment on the vesting date. This is a once off grant which is not subject to any performance hurdles. (B) VESTING CONDITIONS OF PERFORMANCE RIGHTS Vesting level (EBTDA CAGR) EPS CAGR 100% 25%-100% N/A ≥ 18% ≥ 16% ≥ 14% N/A ≥ 17% N/A N/A ≥ 18% ≥ 23% ≥ 21% ≥ 19% N/A 13%-18% 18%-23% 16%-21% 14%-19% N/A ≥ 22% 17%-22% N/A N/A N/A N/A 0% <13% <18% <16% <14% N/A <17% N/A N/A Performance period 30 Months 30 Months 42 Months 54 Months N/A 36 Months N/A N/A Issuance IPO rights Retention rights tranche 1 Retention rights tranche 2 Retention rights tranche 3 Employee LTI rights FY15 performance rights Retention rights Executive A Retention rights Executive B 74 OZFOREX GROUP (C) FAIR VALUE OF EQUITY INSTRUMENTS GRANTED DURING THE PERIOD Set out below are summaries of performance rights and share options granted under the OzForex Group Long Term Incentive Plan. Issuance Performance rights IPO rights Retention rights tranche 1 Retention rights tranche 2 Retention rights tranche 3 Employee LTI rights FY15 performance rights Retention rights Executive A Retention rights Executive B Share options Share options tranche 1 Share options tranche 2 Performance period end date 31 March 2016 31 March 2017 31 March 2018 31 March 2019 N/A 31 March 2018 N/A N/A N/A N/A Balance as at 31 March 2015 427,047 883,347 858,000 884,000 220,814 – – – – – Granted during the year Exercised during the year Forfeited/ cancelled during the year Balance as at 31 March 2016 – – – – – 490,719 92,829 82,645 200,000 200,000 – – – – – – – – – – (302,405) (299,969) (346,500) (357,000) (23,932) (101,843) – – – – 124,642 583,378 511,500 527,000 196,882 388,876 92,829 82,645 200,000 200,000 Rights are vested after the performance period. The performance period ends at the end of the relevant financial year and will vest upon approval by the Board in June of that year. As all vesting dates lie in the future, no performance rights or share options were exercisable (or have been exercised) at balance date. The table below shows the number and fair value of performance rights and share options granted at grant date. Grant date Performance period Vesting date Number of rights granted Value of rights as at grant date Price per share at grant date Issuance Performance rights IPO rights Retention rights tranche 1 Retention rights tranche 2 Retention rights tranche 3 Employee LTI rights FY15 performance rights 11 October 2013 1 October 2014 1 October 2014 1 October 2014 1 October 2014 26 June 2015 2016 2017 2018 2019 N/A 2018 N/A 1 June 2016 7 June 2017 7 June 2018 7 June 2019 7 June 2016 7 June 2018 7 June 2017 Retention rights Executive A 16 October 2015 Retention rights Executive B 20 November 2015 N/A 20 November 2018 536,575 1,097,250 1,097,250 1,130,500 225,555 490,719 92,829 82,645 981,932 2,424,923 2,424,923 2,498,405 498,477 902,923 233,001 200,001 1.83 2.21 2.21 2.21 2.21 1.84 2.51 2.42 ANNUAL REPORT 2016 75 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 23. EMPLOYEE EQUITY PARTICIPATION CONTINUED (C) FAIR VALUE OF EQUITY INSTRUMENTS GRANTED DURING THE PERIOD CONTINUED The fair value of each performance right at grant date was estimated by taking the market price of the Company’s shares on that date discounted for the probability of employee retention, probability of achieving performance levels and the present value of expected dividends that will not be received by the employees during the vesting period. Issuance Share options Share options tranche 1 Share options tranche 2 Grant date Vesting date Number of options granted Value of options as at grant date Price per option at grant date 1 June 2015 30 June 2018 1 June 2015 30 June 2019 200,000 200,000 104,000 100,000 $0.52 $0.50 The fair value of the share options was calculated using a trinomial pricing model. The inputs were as follows: Grant Share options tranche 1 Share options tranche 2 Underlying share price at grant date $2.52 $2.52 Exercise price $2.49 $2.49 Expected volatility1 Dividend yield Risk free interest rate Contractual life 25% 25% 2.41% 2.41% 2.96% 2.96% 4 years 5 years 1. The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information. (D) EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS Expenses arising from share-based payment transactions recognised during the period as part of employee benefit expenses were as follows: Performance rights Share options Total share-based payment expense 2016 $’000 1,016 43 1,059 2015 $’000 1,148 – 1,148 NOTE 24. CONTINGENT LIABILITIES AND ASSETS In light of the unsolicited, non-binding indicative proposal from Western Union as announced on 19 November 2015, the Board considered the need to put retention arrangements in place for new Executives who commenced in the six months prior to that proposal. A total retention pool of $2.66 million was allocated to the six Executives who commenced in their roles during the six months prior to the receipt of the Indicative proposal. The retention arrangement remains on foot until 31 December 2016, such that if a change of control event occurs before that date the retention pool will vest in favour of the eligible Executives. In the event that there has been no change of control by 31 December 2016, the balance of the retention pool not granted in long term incentives will lapse. NOTE 25. FINANCIAL RISK MANAGEMENT RISK MANAGEMENT Risk is an integral part of the Group’s businesses. The main risks faced by the Group are market risk, credit risk, liquidity risk, operational risk and legal compliance risk. Responsibility for management of these risks lies with the individual businesses giving rise to them. It is the responsibility of the Executive Team and the Risk Committee to ensure appropriate assessment and management of these risks. The risks which the Group is exposed to are managed on a globally consolidated basis for OzForex Group Limited as a whole, including all subsidiaries, in all locations. The Group’s approach to risk ensures that risks in subsidiaries are subject to the same rigour and risk acceptance decisions at the parent entity level (i.e. not differentiating where the risk is taken within the OzForex Group). 76 OZFOREX GROUP NOTE 25.1 CREDIT RISK Credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. Bad and doubtful debts for the year are disclosed in Note 3 and can be caused by counterparty defaults or fraudulent transactions. Credit risk within the Group is managed on a group basis by the Executive Team. At an entity level the Group actively monitors the forward positions of its counterparties to ensure adequate collateral is held against a client position. The balances disclosed in the credit risk tables below exclude financial assets that are subject to risks other than credit risk, such as equity investments or banknotes and coin. Maximum exposure to credit risk The table below details the concentration of credit exposure of the Group’s assets to significant geographical locations and counterparty types. The amounts shown represent the maximum credit risk of the Group’s assets. In all cases this is equal to the carrying value of the assets with the exception of derivatives which are recorded at the maximum credit exposure. Consolidated Australia Financial institutions Other Total Australia New Zealand Financial institutions Other Total New Zealand Asia Financial institutions Other Total Asia Europe Financial institutions Other Total Europe North America Financial institutions Other Total North America Other Financial institutions Other Total Other Total gross credit risk 2016 Derivative financial instrument- positive values $’000 Cash and cash equivalents $’000 48,168 – 48,168 30,294 – 30,294 8,692 – 8,692 21,485 – 21,485 26,805 26,805 6,644 – 6,644 142,088 884 12,540 13,424 1,656 2,581 4,237 4,750 49 4,799 82 1,285 1,367 691 154 845 – 2,305 2,305 26,977 Other assets $’000 20,802 521 21,323 – 85 85 – 61 61 – 312 312 – 7 7 – – – Total $’000 69,854 13,061 82,915 31,950 2,666 34,616 13,442 110 13,552 21,567 1,597 23,164 27,496 161 27,657 6,644 2,305 8,949 21,788 190,853 ANNUAL REPORT 2016 77 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 25. FINANCIAL RISK MANAGEMENT CONTINUED NOTE 25.1 CREDIT RISK CONTINUED Consolidated Australia Financial institutions Other Total Australia New Zealand Financial institutions Other Total New Zealand Asia Financial institutions Other Total Asia Europe Financial institutions Other Total Europe North America Financial institutions Other Total North America Other Financial institutions Other Total Other 2015 Derivative financial instrument- positive values $’000 Cash and cash equivalents $’000 80,559 – 80,559 10,828 – 10,828 8,972 – 8,972 24,223 – 24,223 41,501 – 41,501 2,721 – 2,721 111 1,911 2,022 267 355 622 – 327 327 3,996 1,464 5,460 253 414 667 – 1,196 1,196 Other assets $’000 5,200 1,067 6,267 – 169 169 – 59 59 – 304 304 – 15 15 – – – Total $’000 85,870 2,978 88,848 11,095 524 11,619 8,972 386 9,358 28,219 1,768 29,987 41,754 429 42,183 2,721 1,196 3,917 Total gross credit risk 168,804 10,294 6,814 185,912 78 OZFOREX GROUP Credit quality of financial assets The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of financial asset for Statement of Financial Position lines. Credit Quality – 2016 Cash and cash equivalents – Financial institutions Derivative financial instruments – positive values – Financial institutions – Other Other assets – Financial institutions – Other Total Credit Quality – 2015 Cash and cash equivalents – Financial institutions Derivative financial instruments – positive values2 – Financial institutions – Other Other assets – Other Total Neither past due nor impaired Investment grade $’000 Below investment grade $’000 Unrated1 $’000 Total $’000 142,088 8,064 – 20,802 – 170,954 – – – – – – – – 18,913 – 986 19,899 142,088 8,064 18,913 20,802 986 190,853 Neither past due nor impaired Investment grade $’000 Below investment grade $’000 Unrated1 $’000 Total $’000 168,804 4,627 – 5,200 178,631 – – – – – – – 5,667 1,614 7,281 168,804 4,627 5,667 6,814 185,912 1. Unrated balances relate to amounts due from entities that are not graded by the Company or by a public ratings agency. 2. Comparative information has been restated to conform to presentation in the current year. There are no balances that are past due or impaired as at 31 March 2016 (2015: Nil). ANNUAL REPORT 2016 79 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 25. FINANCIAL RISK MANAGEMENT CONTINUED NOTE 25.2 LIQUIDITY RISK Liquidity risk is the risk of an entity encountering difficulty in meeting obligations with financial liabilities when they are due. Liquidity risk within the Group is managed on a group basis by Group Treasury. If counterparty banks do not provide the volume of counterparty hedging required by the OzForex Group, the Group would be exposed to movements in exchange rates and interest rates. The Group manages this liquidity risk by ensuring that at any point in time a minimum of two counterparty banks facilitate counterparty hedging. Contractual undiscounted cash flows The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2016 based on contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were given immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group’s deposit retention history. Derivatives and trading portfolio liabilities are included in the less than three months column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity, since they are not held for settlement according to such maturity and will frequently be settled in the short term at fair value. Derivatives designated in a hedging relationship are included according to their contractual maturity. 2016 Other liabilities1 Derivative financial instruments Inflows (Outflows) Total 2015 Other liabilities1 Derivative financial instruments Inflows (Outflows) Total On demand $’000 3 months or less $’000 3 to 12 months $’000 1 to 5 years $’000 Over 5 years $’000 (1,210) (127,163) – (315) – – (1,210) 876,846 (874,488) (124,805) 360,641 (356,425) 4,216 1,323 (1,217) (209) (1,218) (127,909) (2,686) (304) – – (1,218) 716,965 (717,249) (128,193) 156,215 (155,964) (2,435) – – (304) – – – – – – – – Total $’000 (128,688) 1,238,810 (1,232,130) (122,008) (132,117) 873,180 (873,213) (132,150) 1. Excludes items that are not financial instruments and non-contractual accruals and provisions. NOTE 25.3 MARKET RISK Market risk is the exposure to adverse changes in the value of Group’s trading portfolios as a result of changes in market prices or volatility. The Group is exposed to the following risks in each of the major markets in which it trades: • Interest rates: changes in the level, shape and volatility of yield curves, the basis between different interest rate securities and derivatives and credit margins; • Foreign exchange: changes in spot and forward exchange rates and the volatility of exchange rates. Market risk of the Group is managed on a globally consolidated basis for the Group as a whole, including all subsidiaries, in all locations. The Group’s internal approach to risk ensures that risks in subsidiaries are subject to the same rigour and risk acceptance decisions at the parent entity level. 80 OZFOREX GROUP Interest rate risk The Group has exposure to non-traded interest rate risk generated by cash and cash equivalents. The Group also offers forward contracts to its clients that enable clients to lock in exchange rates up to 12 months in advance. In addition to movements in foreign exchange rates (which are managed in the manner described under foreign currency risk further in this Note), these forward contract transactions are exposed to changes in interest rates. To manage this risk, the Group runs interest scenario testing across the aggregated transactions and may enter into swap contracts with counterparty banks to reduce their aggregate exposure when applicable. The table below indicates the Group’s sensitivity to movements in interest rates as at 31 March 2016 and 31 March 2015. Movement in basis points (%) AUD CAD EUR GBP NZD SGD USD Other Total Movement in basis points (%) AUD CAD EUR GBP NZD SGD USD Other Total 31 March 2016 +50 -50 +50 -50 Sensitivity of profit before tax $’000 Sensitivity of profit before tax $’000 Sensitivity of equity after tax $’000 Sensitivity of equity after tax $’000 368 33 31 53 143 9 129 48 814 (368) (33) (31) (53) (143) (9) (129) (48) (814) 261 25 24 38 102 6 84 36 576 (261) (25) (24) (38) (102) (6) (84) (36) (576) 31 March 2015 +50 -50 +50 -50 Sensitivity of profit before tax $’000 Sensitivity of profit before tax $’000 Sensitivity of equity after tax $’000 Sensitivity of equity after tax $’000 457 11 47 45 16 189 20 85 870 (457) (11) (47) (45) (16) (189) (20) (85) (870) 322 9 33 32 12 126 16 63 613 (322) (9) (33) (32) (12) (126) (16) (63) (613) ANNUAL REPORT 2016 81 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 25. FINANCIAL RISK MANAGEMENT CONTINUED NOTE 25.3 MARKET RISK CONTINUED Foreign currency risk When a foreign exchange transaction is booked, the exchange rate (and therefore the amount of foreign currency which the Group will be required to deliver to the client’s beneficiary) is agreed. Typically, funding from the client for the international payment is not received by the Group for another 12 to 24 hours and in that time the available exchange rate (which the Group could use to acquire the required currency) is likely to have moved. The Group manages this risk at the time the transaction is agreed by regular hedging of its net foreign currency exposures with one of its counterparty banks. To manage the movement in foreign exchange rates, the Group’s technology platform aggregates transactions across its entire client base and nets out buy transactions against sell transactions. The Group’s staff clear exposures by entering into hedging contracts with counterparty banks pursuant to internal guidelines which provide for hedging to occur once exposure to a single currency reaches or exceeds a defined threshold. The Group’s financial risk on these exposures is limited to potential loss or gain from currency movements which may occur between when the transaction with the client is booked and when hedging occurs. The table below indicates the Group’s sensitivity to movements in foreign currency exchange rates as at 31 March 2016 and 31 March 2015. 31 March 2016 +10% -10% +10% -10% Sensitivity of profit before tax $’000 Sensitivity of profit before tax $’000 Sensitivity of equity after tax $’000 Sensitivity of equity after tax $’000 (10) (12) (75) (5) 3 99 59 59 10 12 75 5 (3) (99) (59) (59) 4 11 (97) 17 (4) (60) 79 (50) (4) (11) 97 (17) 4 60 (79) 50 31 March 2015 +10% -10% +10% -10% Sensitivity of profit before tax $’000 Sensitivity of profit before tax $’000 Sensitivity of equity after tax $’000 Sensitivity of equity after tax $’000 (32) 1 53 (115) 14 (21) 80 (20) 32 (1) (53) 115 (14) 21 (80) 20 (22) 1 37 (80) 10 (15) 56 (13) 22 (1) (37) 80 (10) 15 (56) 13 Movement in exchange rate (%) CAD EUR GBP NZD SGD USD Other Total Movement in exchange rate (%) CAD EUR GBP NZD SGD USD Other Total 82 OZFOREX GROUP NOTE 26. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value reflects the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Quoted prices or rates are used to determine fair value where an active market exists. If the market for a financial instrument is not active, fair values are estimated using present value or other valuation techniques, using inputs based on market conditions prevailing on the measurement date. The values derived from applying these techniques are affected by the choice of valuation model used and the underlying assumptions made regarding inputs such as timing and amounts of future cash flows, discount rates, credit risk, volatility and correlation. Financial instruments measured at fair value are categorised in their entirety, in accordance with the levels of the fair value hierarchy prescribed under the accounting standards as outlined below: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices in an active market (for example, over-the-counter derivatives) are determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates; Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). The appropriate level for an instrument is determined on the basis of the lowest level input that is significant to the fair value measurement. The following methods and significant assumptions have been applied in determining the fair values of financial instruments: Liabilities, financial assets and liabilities at fair value through profit or loss, derivative financial instruments and other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available (e.g. listed securities). If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognised valuation techniques. The following methods and significant assumptions have been applied in determining the fair values of financial instruments which are carried at amortised cost: • The fair values of liquid assets and other instruments maturing within three months approximate their carrying amounts. This assumption is applied to liquid assets and the short-term elements of all other financial assets and financial liabilities. • The fair value of demand deposits with no fixed maturity is approximately their carrying amount as they are short term in nature or are payable on demand. • The fair values of balances due from/to related entities are approximated by their carrying amount as the balances are generally receivable/ payable on demand. The table below summarises the carrying value and fair value of all financial instruments of the Group at 31 March. Assets Cash Receivables due from financial institutions Derivative financial instruments – positive values Total financial assets Liabilities Client liabilities Derivative financial instruments – negative values Total financial liabilities 2016 Carrying amount $’000 142,088 20,802 26,977 189,867 124,827 20,297 145,124 2016 Fair value $’000 142,088 20,802 26,977 189,867 124,827 20,297 145,124 2015 Carrying amount $’000 168,804 5,200 10,294 184,298 124,591 10,327 134,918 2015 Fair value $’000 168,804 5,200 10,294 184,298 124,591 10,327 134,918 The above financial assets and liabilities held at amortised cost are measured at fair value on a non-recurring basis and are all classified as Level 2 in the fair value hierarchy. ANNUAL REPORT 2016 83 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 NOTE 26. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES CONTINUED The following table summarises the levels of the fair value hierarchy for financial instruments measured at fair value of the Group at 31 March: Assets Derivative financial instruments – positive values Total assets Liabilities Derivative financial instruments – negative values Total liabilities 2016 Level 2 $’000 26,977 26,977 20,297 20,297 2016 Total $’000 26,977 26,977 20,297 20,297 2015 Level 2 $’000 10,294 10,294 10,327 10,327 2015 Total $’000 10,294 10,294 10,327 10,327 NOTE 27. REMUNERATION OF AUDITORS During the year, the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms: (a) PricewaterhouseCoopers Australia Audit and review of financial statements Total remuneration for audit and other assurance services Taxation services Due diligence services Total remuneration of PricewaterhouseCoopers Australia (b) Non-PricewaterhouseCoopers audit firms Audit and review of financial reports Total remuneration of non-PricewaterhouseCoopers audit firms Total auditors’ remuneration 2016 $ 2015 $ 303,847 303,847 148,006 29,675 481,528 33,480 33,480 515,008 373,866 373,866 86,324 – 460,190 11,422 11,422 471,612 It is the Company’s policy to employ PricewaterhouseCoopers (PwC) on assignments additional to their statutory audit duties where PwC’s expertise and experience with the Company are important. These assignments are principally tax advice and due diligence reporting on acquisitions, or where PwC is awarded assignments on a competitive basis. It is the Company’s policy to seek competitive tenders for all major consulting projects. NOTE 28. EVENTS OCCURRING AFTER BALANCE SHEET DATE DIVIDEND DETERMINED On 16 May 2016, a dividend of $0.031 per share ($7,440,000) was determined. Ex‑dividend date Record date Payment date 9 June 2016 10 June 2016 24 June 2016 There were no other material post balance sheet events occurring after the reporting date requiring disclosure in these financial statements. As the parent entity, OzForex Group Limited is a holding company which has no trading profits, dividends declared but not paid will be funded through the profits of subsidiary entities. 84 OZFOREX GROUP NOTE 29. EARNINGS PER SHARE (a) Basic earnings per share From continuing operations attributable to the ordinary equity holders of the Company Total basic earnings per share attributable to the ordinary equity holders of the Company (b) Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the Company Total diluted earnings per share attributable to the ordinary equity holders of the Company (c) Earnings used in calculating earnings per share Basic earnings per share Profit from continuing operations Diluted earnings per share Profit from continuing operations 2016 Cents 9.09 9.09 8.99 8.99 $’000 2015 Cents 10.11 10.11 10.03 10.03 $’000 21,814 24,266 21,814 24,266 (d) Weighted average number of shares used as denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 240,000,000 240,000,000 Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share 242,735,382 241,839,264 NOTE 30. PARENT ENTITY FINANCIAL INFORMATION SUMMARY FINANCIAL INFORMATION Statement of Financial Position Investment in subsidiary Total assets Ordinary share capital Total equity Profit or loss for the year1 Total comprehensive income 1. Profit for the year relates to intercompany dividends received. Earnings per share based on profit from continuing operations, attributable to the ordinary equity holders of the parent entity: Basic earnings per share Diluted earnings per share Parent entity 2016 $’000 24,360 24,360 24,360 24,360 17,242 17,242 2015 $’000 24,360 24,360 24,360 24,360 14,100 14,100 Cents Cents 7.18 7.10 5.88 5.83 ANNUAL REPORT 2016 85 DIRECTORS’ DECLARATION In the Directors’ opinion: (a) the financial statements and notes for the year ended 31 March 2016 are in accordance with the Corporations Act 2001, including; (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity’s financial position as at 31 March 2016 and of its performance for the financial year ended on that date, and (b) there are reasonable grounds to believe that OzForex Group Limited will be able to pay its debts as and when they become due and payable, and (c) Note 1(i) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. On behalf of the Board: PETER WARNE CHAIRMAN RICHARD KIMBER MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER 16 May 2016 86 OZFOREX GROUP INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF OZFOREX GROUP LIMITED Independent auditor’s report to the members of OzForex Group Limited Report on the financial report We have audited the accompanying financial report of OzForex Group Limited (the company), which comprises the statement of financial position as at 31 March 2016, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for OzForex Group Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at 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 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 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 of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report 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 entity’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. 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. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. ANNUAL REPORT 2016 87 INDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF OZFOREX GROUP LIMITED Auditor’s opinion In our opinion: (a) the financial report of OzForex Group 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 31 March 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 32 to 46 of the directors’ report for the year ended 31 March 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. Auditor’s opinion In our opinion, the remuneration report of OzForex Group Limited for the year ended 31 March 2016 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers CPG Cooper Partner Sydney 16 May 2016 88 OZFOREX GROUP SHAREHOLDER INFORMATION The shareholder information set out below is current as at 30 April 2016. CORPORATE GOVERNANCE STATEMENT In accordance with ASX Listing Rule 4.10.3, the Company’s 2016 Corporate Governance Statement can be found on its website at www.ozforex.com.au/investors/corporate governance. DISTRIBUTION OF SHAREHOLDERS AS AT 30 APRIL 2016 Number of shares 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-999,999,999 Total Total holders of ordinary shares 1,236 3,404 1,709 1,644 67 8,060 Number of ordinary shares 742,822 9,960,589 13,601,432 40,356,966 175,338,191 240,000,000 % of Issued capital 0.31 4.15 5.67 16.82 73.06 100.00 There were 173 holders of less than a marketable parcel of ordinary shares, based on a market price of $2.16 at the close of trading on 30 April 2016. TWENTY LARGEST SECURITY HOLDERS OF ORDINARY SHARES AS AT 30 APRIL 2016 Rank Name Units % of units 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD G AND A LORD PTY LTD MR MATTHEW GILMOUR CITICORP NOMINEES PTY LIMITED MIRRABOOKA INVESTMENTS LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMS (NZ) LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED–GSCO ECA RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED AMCIL LIMITED MAP CAPITAL PTY LTD CS FOURTH NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD MR JOHN LETCHER HOCKING + MRS JEANNETTE ANNE HOCKING M & J GILMOUR PTY LTD Totals: top 20 holders of fully paid ordinary shares Total remaining holders balance 41,937,787 36,887,566 23,231,784 18,935,339 9,844,783 9,600,000 9,245,200 1,906,850 1,750,000 1,717,944 1,686,000 1,631,957 1,333,537 1,308,695 1,275,000 1,000,000 873,533 803,039 660,000 599,806 166,228,820 73,771,180 17.47 15.37 9.68 7.89 4.10 4.00 3.85 0.79 0.73 0.72 0.70 0.68 0.56 0.55 0.53 0.42 0.36 0.33 0.28 0.25 69.26 30.74 ANNUAL REPORT 2016 89 SHAREHOLDER INFORMATION CONTINUED UNQUOTED EQUITY SECURITIES AS AT 31 MARCH 2016 Performance rights and share options issued under the OzForex Group Long Term Incentive Plan which, subject to vesting conditions, entitle the holder to ordinary shares: Performance rights Share options Number held 2,507,752 400,000 Number of holders 28 1 SUBSTANTIAL SHAREHOLDERS Substantial shareholders (holding not less than 5%) as shown in substantial shareholder notices received by the Company pursuant to 671B of the Corporations Act 2001 as at 30 April 2016 are shown below. AustralianSuper Pty Limited National Australia Bank Number held 12,370,760 12,295,698 % of issued capital 5.15% 5.12% VOTING RIGHTS The voting rights are governed by clause 37 of the Company’s Constitution, which provides that every member present personally or by proxy, attorney or representative, shall on a show of hands have one vote and on a poll shall have one vote for every share held. ORDINARY SHARES On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. PERFORMANCE RIGHTS There are no voting rights attached to performance rights issued under the OzForex Group Long Term Incentive Plan. BUYBACK There is no current on-market buyback. 90 OZFOREX GROUP CORPORATE INFORMATION DIRECTORS OFX FINANCIAL CALENDAR Mr Peter Warne (Chairman) Mr Richard Kimber (Managing Director and CEO) Ms Melinda Conrad Mr Grant Murdoch Mr Douglas Snedden COMPANY SECRETARY Ms Linda Cox 17 MAY 2016 2016 full year result 10 JUNE 2016 Record date for 2016 final dividend 24 JUNE 2016 NOTICE OF ANNUAL GENERAL MEETING Payment date for 2016 final dividend 3 AUGUST 2016 Annual General Meeting NOVEMBER 2016 2017 interim result MAY 2017 2017 full year result Wednesday 3 August at 4pm Establishment Hotel 252 George Street Sydney NSW 2000 Australia PRINCIPAL REGISTERED OFFICE IN AUSTRALIA Level 19 60 Margaret Street Sydney NSW 2000 Australia Ph +61 2 8667 8000 Fax +61 2 8667 8080 Email investors@ofx.com.au SHARE REGISTER Computershare Registry Services Pty Limited 60 Carrington Street Sydney NSW 2000 Australia Ph +61 3 9415 4000 Ph 1300 850 505 (Australian shareholders) AUDITOR PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 2000 Australia STOCK EXCHANGE LISTING OzForex Group shares are listed on the Australian Securities Exchange: OFX WEBSITE ADDRESS www.ofx.com ANNUAL REPORT 2016 F www.OFX.com 

Continue reading text version or see original annual report in PDF format above