Oppenheimer Holdings Inc. Annual Report 2020

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FY2020 Annual Report · Oppenheimer Holdings Inc.

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Openpay
Group Limited
Annual Report.

For the year ended 30 June 2020.

Openpay Group Limited

Contents

The good news this year

Reporting on a strong year of growth

About Openpay

Message from the Chair

A note from our CEO

We’re on the ASX

Our industry verticals

New markets and innovations

How our tech has evolved

Our commitment to people

The Openpay way

Key risks and challenges

Directors’ Report

Remuneration Report

Auditor’s Independence Declaration

Financial Report

Independent Auditor’s Report

Additional Security Exchange Information

Corporate Information

105

109

Annual Report 2020

At Openpay,
we’re on a mission
to change the
way people pay,
for the better.

Delivering on our strategic growth pillars.

$18m Revenue
64% Growth

$192.8m TTV
98% Growth

Well funded:
strong mix of cash
and undrawn debt

Key partnerships:
Pentana, MSL Solutions,
MyHealth1st

4 established
verticals,
2 emerging

Excellent Trustpilot
rating*
AUS: 4.7/5.0
UK: 4.8/5.0

Launch of
SaaS-based B2B

2 key geographies:
ANZ and UK

164
Team members

* Openpay is rated 4.7 out of 5 stars on AU Trustpilot and 4.8 out of 5 stars on UK Trustpilot

1
1

Openpay Group Limited

The good news this year.

What we’ve achieved:
strong growth in key metrics

+229%

+141%

+52%

+98%

+64%

824k

319k

2,162

$192.8m

$18.0m

1,420

$11.0m

133k

896
133k

896

$97.3m

$6.8m

250k

250k
82k

82k

120k

FY18

FY19 FY20
FY18

FY18
FY19 FY20

FY19 FY20
FY18

FY18

FY19 FY20

FY19 FY20
FY18

$60.5m

FY18
FY19 FY20

FY18

FY19 FY20

FY18
FY19 FY20

FY19 FY20
FY18

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

Number of Ac�ve Plans
Number of
Active Plans

Number of Ac�ve Plans

Number of Ac�ve Customers

Number of Ac�ve Merchants

Total Transac�on Value

Revenues

Number of Ac�ve Customers
Number of
Active Customers

Total Transac�on Value

Number of Ac�ve Merchants
Number of
Active Merchants

+229%

+141%

+52%

+98%

+64%

824k

319k

2,162

$192.8m

$18.0m

1,420

$11.0m

133k

896

$97.3m

$6.8m

250k

82k

120k

$60.5m

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

FY18

FY19 FY20

$70.1m
Cash at bank

$45m
Undrawn
debt AU

£20m
Undrawn
debt UK

Number of Ac�ve Plans

Number of Ac�ve Customers

Number of Ac�ve Merchants

Total Transac�on Value

Total Transac�on Value
Total
Transaction Value

Revenues

Revenues
Revenue

Strong cash and debt
funding position

What we’ve achieved:

strong growth in key metrics

229%

Record Active Plans

up 229% vs FY19

141%

Record Active Customers
up 141% vs FY19,

with increased repeat usage

52%

Active Merchants
up 52% vs FY19

$192.8m
Record Total Transaction Value
(TTV) grew to a record

$192.8m in FY20, up 98% vs FY19

$18m

Revenue

for FY20 of

$18m, up 64% vs FY19

$46.3m

Net Receivables
for FY20 $46.3m, up 75%

from $26.5m in FY19

9.3%

Gross Revenue Yield
as a percentage of TTV

was 9.3% (FY19 11.3%)

Annual Report 2020

FY20 key achievements.

Some of the ways we delivered
on our FY20 strategy

Local market growth

Strong growth in Australia

Record operational and financial results

Successful UK launch

Strong and rapid growth

Signing and launching of enterprise

merchant JD Sports

Well funded

IPO and ASX Listing – Dec 2019

UK debt facility of £25m secured

Institutional placement raised

$33.8m at 50% premium to IPO

Launch into B2B

Launch of Openpay for Business –
capital light, low risk SaaS product

Signing of three year deal
with Woolworths Group

Openpay brand refresh

Branding better communicates our

purpose and personality
Aussie Amber stands out from

the crowd

Strong people focus

Strengthened Board and
Management Teams

Supported Merchants,

Customers and team members
during COVID-19

3
3

Openpay Group Limited

About Openpay.

We’re on a mission to
change the way people pay,
for the better.

We believe that everyone
deserves more freedom and
flexibility in how they use
their money, without having
to think “what’s the catch?”

That’s why we provide
customers with an
appropriate way to purchase
their wants and needs,
with no hidden fees.

Annual Report 2020

Ownership

Passion

Excellence

Nimbleness

We pride ourselves on our transparent relationships with our merchants,
partners and customers, and everything we do is fuelled by our core beliefs:

Ownership: If something is valuable to our customers, it’s valuable to us. We care about their financial wellbeing and want

to earn their trust as a reliable partner.

Passion: We put people first by keeping our standards high, and always taking concrete action. Our goal is to empower

customers with the ability to manage their cashflow.

Excellence: Whatever we do, we won’t stop until it exceeds expectations. That means hiring, developing and retaining

the best people for the job.

Nimbleness: Innovation is in our DNA, our nimbleness helps us find new ways to make life simpler for our customers.

Our values articulate the types of behaviours and personal interactions we expect at Openpay. They represent what we stand for as
an organisation and help guide the behaviour of our people. Our values are:

Performance: Achieving superior business results and growth through a strong work ethic, customer service and disciplined

financial management, and with the confidence to learn from mistakes and to continually seek improvement across the business.

Customer-focused: Understanding that Openpay’s success is based on customer success, with a clear focus on listening to

and understanding merchant and customer needs so as to build strong and lasting relationships.

Integrity: Undertaking our work with honesty, efficiency and accountability, and fulfilling our promises.

Respect: Embracing openness, trust, teamwork, diversity and relationships that are mutually beneficial. Creating an

environment where new ideas are welcomed and where the workforce, as a whole, is challenged to learn and develop,
both at an individual and company level.

Corporate social responsibility: Putting health and safety first, being environmentally responsible and supporting

our communities.

Openpay Group Limited

Message from the Chair.

“The COVID-19
pandemic has
merely accelerated
the adoption of
BNPL across a much
higher proportion of
consumers as they
embrace the obvious
benefits of transacting
online from home in
a highly efficient, safe
and convenient way.”

Annual Report 2020

to sincerely thank Openpay’s senior
management and employees for their
superb contribution to Openpay’s
achievements in FY20. They have
collectively done a tremendous job in
not only preparing for and successfully
delivering our initial public offering, but
also in skilfully navigating the business
through what has been an extremely
challenging and uncertain Australian
and global economy, due to the
unprecedented COVID-19 pandemic.
Similarly, on behalf of our entire Board of
Directors, I’d like to express our gratitude
to Openpay’s loyal customers, merchants
and the many retail and institutional
shareholders who continue to place their
trust and confidence in our business.
Your support is genuinely appreciated
and never taken for granted.

We look forward to another exciting year
ahead, and the opportunity to further
entrench Openpay as a global leader in
the fast-growing consumer and enterprise
payments sector.

Patrick Tuttle
Independent Chairman

consumers and merchants, all within a safe,
frictionless eco-system which eliminates
the need for physical cash and highly
expensive consumer credit products. It is a
simple and elegant solution for managing
a broad range of household transactions.

It is against this backdrop that I’m pleased
to reflect on Openpay’s inaugural financial
year as a publicly listed company.
Aside from the successful completion
of our initial public offering on the ASX
in December, Openpay has achieved
impressive growth across a core range
of objective operating metrics, including
Active Customers, Active Plans, Active
Merchants, Repeat Customers and Total
Transaction Value (TTV). We expect our
strong progress to continue through FY21,
underpinned by Openpay’s ongoing
investment in its core BNPL technology
platform and emerging B2B solution,
Openpay for Business.

This substantial investment focuses
on the delivery of continuous and
industry-leading improvements to our
customer and merchant onboarding
processes, including automated self-
servicing capabilities, further increasing
customer conversion rates through more
streamlined identity verification, fraud and
credit-decisioning tools, supported by
enhanced portfolio analytics to drive even
better customer experience and credit
performance.

Our proprietary Openpay for Business
platform provides a unique opportunity for
Openpay to become a provider of choice
in a multi-trillion dollar Australian and
international market for B2B payment and
lending services. To date the B2B market,
which is many times larger than the widely
serviced consumer (B2C) customer
market, has not been systematically
addressed by any of the existing BNPL
players. Openpay for Business sees us
enter the enterprise merchant market with
a payment Software-as-a-Service (SaaS)
solution for their business customers
(B2B). We will operationalise this solution
for the first time in H1 FY21 with a strong
focus on expanding our targeted
corporate customer base across multiple
geographies.

In closing, it would be remiss of me not

1. Source: ASIC Report 600: Review of buy now pay

later arrangements, November 2018.

The Buy Now Pay Later (BNPL) sector is on
the verge of becoming (if this milestone
hasn’t already been achieved) the
ubiquitous payment method for people
of all ages, seeking cashless convenience
in completing their daily purchases, large
and small, whilst prudently managing
their everyday household cash flows
for budgetary purposes. The COVID-19
pandemic has merely accelerated the
adoption of BNPL across a much higher
proportion of consumers as they embrace
the obvious benefits of transacting online
from home in a highly efficient, safe and
convenient way. No more is BNPL seen
as purely the domain of millennials. To
the contrary, older adults are becoming
increasingly adept adopters of the BNPL
phenomenon. For Openpay, this is evident
as the median age of our customers is
around 38 years old.

Many BNPL users also bear the scars of
having previously managed personal
revolving credit card debt, highly aware
of the exorbitant interest rates historically
incurred on the plastic. This is reflected
by the fact that 74%1 of all BNPL payment
plans are typically linked to debit cards.
This gives control back to the consumer,
enabling them to spread payments for
all manner of life’s purchases over a
timeline that better suits their personal
financial circumstances. It also gives
consumers the power to adjust the timing
of such payments to pivot in response
to unforeseen events. The disruption
created by the COVID-19 pandemic has
reinforced the desire of individuals to
take control of their finances at a time
when unpredictability is one of the more
likely outcomes.

Equally, for a broad cross-section of
merchants, retailers and service providers,
COVID-19 has reinforced the need for
their businesses to increasingly embrace
e-commerce solutions and to foster
a stronger digital presence, if only to
augment their core instore offerings.
In BNPL, merchants can see the direct
benefits of increased sales conversion
rates, higher customer numbers (both
new and returning), lower goods returned
rates, higher checkout volumes, and more
timely cash payments, to name a few.
BNPL, as a payments solution, seamlessly
facilitates real-time transactions between

Openpay Group Limited

A note from our CEO.

“Our vision to change
the way people pay,
for the better, is now
coming to life in key
markets, fuelled by our
strongly differentiated
Buy now. Pay smarter.
(BNPS) approach.”

Dear shareholder,
It is my pleasure to present Openpay’s
FY20 annual report, where we look back
upon what has been an extraordinary time
for your company.

2020 may have been a volatile year, but
it was also a year of firsts. Despite the
economic challenges felt around the
world, Openpay celebrated its ASX listing,
a $50 million Initial Public Offering and
historic growth levels in our key markets.

Our vision to ‘change the way people
pay, for the better’ is now coming
to life in key markets, fuelled by our
strongly differentiated ‘Buy now. Pay
smarter.’ (BNPS) approach. Leveraging
our powerful technical platform, we’re

able to deliver the most flexible plans
in the market, in industries where we
can make a real difference, particularly
Home Improvement, Healthcare and
Automotive. It’s been rewarding to see
our finance-savvy customers (typically
of a more mature demographic) using
Openpay to truly budget smarter and
spread payments along their pay cycle.

Reaching our strategic goals:
delivering on three core pillars.

When we listed on the ASX, we promised
investors that we would deliver growth
across three strategic growth pillars.
We’re pleased to have successfully
delivered on all three of these objectives
and are well on track to keep growing:

Local market
growth
Win Merchants, attract
new Customers, increase
repeat business

Geographic
expansion
Expansion into the UK,
EU and Beyond

Extended platform
capabilities
Innovate and develop
adjacent products

Capitalise on already strong position
in Automotive, Healthcare and Home
Improvement in Australia; continued
growth in consumer retail;

Position Openpay as the “go to”

provider for responsible, financially
savvy Customers;

Drive utilization through best-in-
class marketing and Customer
engagement;

Invest in partnerships to accelerate

growth (software providers, platform
integrators, marketplaces)

Drive our market-entry campaign and
grow our business in the UK, app and
online first, instore to follow;

Follow our UK Merchant clients into

their main European markets;

Strengthen our presence in

New Zealand;

Exploring emerging, fast growing

markets in Asia

Adapt BNPL product to enter new
verticals (Memberships, Education
etc.) and segments (SMEs);

Develop B2B payment solution
as a capital light tech business
(SaaS model);

Create unique Customer insights;

Enhance our credit risk and fraud

engine with AI and machine learning
capabilities

Annual Report 2020

Highlights
from FY20.

Strong growth in the
Australian market

Successful launch in the UK,
including Merchant wins such
as JD Sports

Strengthened our Board and
Management team

Historic IPO and ASX listing
in December 2019

Launch of B2B product
Openpay for Business with
new client Woolworths

Secured UK debt facility
of £25m

Oversubscribed placement in
June 2020 raised $33.77m

Ongoing support for
Merchants, Customers
and team members
during COVID-19

Record results in FY20
for Active Plans, Active
Customers and TTV

Openpay Group Limited

A note from our CEO.

“At Openpay, we’re only
just getting started. We’re
confident that with our
purpose-driven responsible
payment services in B2B
and B2C, and differentiated
BNPS approach, we will
continue to grow and
scale, both in Australia and
overseas.”

1. A Repeat Customer is defined as a

customer who has previously transacted
with Openpay – this is not their first plan.

2. EBITDA is a non-IFRS measure that has
not been audited but is a key financial
metric used by management to operate
the business at the group level. EBITDA
represents Earnings Before Interest Tax
Depreciation and Amortisation.

3. Significant items include fair value
calculation of financial derivatives,
convertible notes; share-based payments
expense arising on Initial Public Offering;
costs of equity raising, IPO and share
placement.

A stronger local market.

Evolving our platform.

At home in Australia, Openpay’s BNPL
offering has exceeded all expectations.
This financial year saw more than 636,000
Active Plans (+155%), 210,373 Active
Customers (+59%) and over 2,100 Active
Merchants (+51%). More than 76% of
new plans were generated from Repeat
Customers1 and 49% of our customers had
more than one Active Plan.

In May 2020, we celebrated ‘OpenMay’,
a partner-marketing and sales campaign
that reached more than 5 million Aussies.
The campaign resulted in $16.7m Total
Transaction Value (TTV) (+28% month-on-
month), an additional 48,000 Active Plans,
and 7,500 new Active Customers, with
40% of these online and 60% instore.

In terms of new partnerships, our
agreement with leading Automotive
technology provider Pentana Solutions
was certainly a highlight, with Openpay’s
BNPL services now being integrated in
up to 60% of Australia’s vehicle franchise
dealerships. Another notable partnership
was with health insurance provider Bupa,
through which our BNPS service will
modernise the payments experience
at hundreds of dental, audiology
and optometry clinics and practices
across Australia.

A global vision.

In just one year in the UK market, our
Active Merchants have grown to 25,
attracting 108,951 Active Customers
with 187,184 Active Plans. Our flagship
launch with a major sports retailer in
Q4 will continue to attract partners on
an enterprise level and raise awareness
among smaller Merchants about the
opportunity to grow with our BNPS
offering.

In terms of our expansion in the UK and
into Europe, we’ve made significant
progress in preparing for credit
authorisation with the Financial Conduct
Authority (FCA) in the UK and are
exploring more opportunities in the EU
as we continue to acquire multinational
Merchants.

Strong growth does not come from
standing still. Openpay has continued
to extend its platform capabilities this
year, with important milestones including
our entry into the high-volume, low-risk
B2B sector via our Openpay for Business
product with retailer Woolworths.

Openpay for Business is a Software-as-
a-Service solution (SaaS) that allows
companies to manage their trade accounts
end-to-end, including applications,
credit checks, approvals and account
management – all in one system. This low
capital, SaaS-based product is a huge
differentiator for us, and we’re excited to
see it in action across Australia and the UK
in the coming months.

We also launched a new consumer app
in March 2020, making it quicker for
customers to sign up and easier for them
to manage their payments. A new release
of our Automated Risk Management (ARM)
technology significantly reduced fraud
write-offs in Q4 FY20.

You may have seen our soft launches
in new verticals of Memberships and
Education too, which we expect to
welcome as key industries from H1 FY21.

Strong financial performance.

Strong growth in our leading active
indicators translated into a TTV this
financial year of $192.8m (+98% vs
pcp) and revenue of $18.0m (+64%
vs pcp). Our EBITDA2 loss excluding
significant items3 of $30.1m is in line with
management expectations and reflects the
significant investment made in supporting
Openpay’s continued geographic
expansion and innovation, such as our new
Openpay for Business offering.

Our Group Net Transaction Margin was
2.5% and Net Transaction Loss was 2.3%.
From a temporary peak of our Net Bad
Debt from credit and fraud in Q3 of 4.7%
of TTV due to targeted fraud challenges,
we have been able to reduce the rate
significantly to 2.9% in Q4 and to 1.5% in
July 2020 through our ARM technology
improvements. Credit risk has remained
at very low levels despite the COVID-19
impact, due to our focus on finance-savvy
people, accommodating instalments that
suit their pay cycle, and tightening our
credit rules where required.

Annual Report 2020

Financial highlights.

$192.8m

Total Transaction Value
(+98% vs FY19)

($30.1m)

EBITDA loss before
significant items
in line with management
expectations

$18.0m

Revenue
(+64% vs FY19)

The view from here looks good.

Despite a profoundly strange and difficult
year in the world, Openpay’s outlook
is promising. BNPL has proven to be
an attractive way for consumers to pay,
with significant adoption in all large
retail and consumer markets around the
globe. Demand for what is a relatively
new financial product has grown at
extraordinary rates and continues to
increase as new markets, products and
geographies open up.

At Openpay, we’re only just getting
started. We’re confident that with
our purpose-driven ‘responsible’
payment services in B2B and B2C, and
differentiated BNPS approach, we will
continue to grow and scale, both in
Australia and overseas.

In addition to our existing growth areas,
FY21 will see a new focus on strategic
partnerships in Australia and the UK
for BNPL and B2B, entering merchant
agreements, for example, with enterprise
retailers and tech platform providers to
scale both products. We will also continue
to explore a merchant-led expansion into
new markets.

To further enrich and extend the
capabilities of our technical platform,
we will focus in FY21 on integration,
automation and self-service of merchant
onboarding and activation; on the
continuous improvement of customer
experience and conversion; and on
data analytics to inform credit and fraud
decisioning and reporting.

As a fintech company, the continuous
improvement of our core technical assets
to drive sustainable growth is key to
our strategy and the foundation for our
ambition to become a global provider
of leading payment services for people
and businesses. Thanks for your trust and
support during this eventful and successful
year. We’re looking forward to another
12 months of delighting our customers
and delivering value to our shareholders.

Michael Eidel
CEO and Managing Director

Our balance sheet is more than ready to
fund new growth ambitions in Australia
and the UK, with $70.1m in cash, $45m
in Australian undrawn debt funding and
£20m in undrawn UK debt facilities. We
have two strong funding partners in our
home market and securing our first UK
debt facility in June 2020 was a huge
milestone. This support allows us not
only to grow our UK business, but also
reinforces the strong, resilient and high-
performing nature of Openpay’s model
during COVID-19.

Thanks to the UK facility agreement and
our ongoing performance, we stimulated
interest in Openpay from a number of
top Australian institutional investors, who
joined our share register through a heavily
oversubscribed private placement in
June 2020, raising more than $33 million.

A uniquely identifiable brand.

FY20 was the year we made significant
improvements in communicating our
mission: ‘to change the way people pay,
for the better’. A key part of this was
designing a new look and feel to stand out
amongst the competition. Phase one of
our global rebrand saw us unveil our new
look across Openpay owned channels,
in all markets, including our app. Phase
two will see the brand refreshed across
merchant partner channels.

Responding to COVID-19.

It’s not only the business growth that
makes me proud of our Company this
year, but also the responsibility and
responsiveness we showed from the
onset of COVID-19.

Openpay acted quickly to protect
our people, customers, business and
shareholders. We provided vulnerable
customers with financial hardship
support, temporarily reduced our
employee expenses by 35% to preserve
cash levels, adjusted plan settings and
tightened credit rules, strengthened our
credit risk decisioning and fraud prevention
technology, and closely supported our
essential services Merchants.

After raising equity and securing our UK
debt facility, our team was restored to full
capacity from 1 July 2020, and we’re back
on track to continue our growth strategy.

Openpay Group Limited

We’re on the ASX.

In December 2019, Openpay
listed on the Australian Securities
Exchange (ASX: OPY), ringing
in a new era for the Group.

Annual Report 2020

“We were absolutely delighted
to see Openpay complete its ASX
debut in December. Listing on
the ASX not only reinforces our
growth strategy and objectives,
but also our commitment to strong
regulation and governance.
Being a public company provides
a great opportunity for investors
to participate in what we see as a
fast-growing, globally relevant,
Australian company. I thank both
the long-term shareholders and the
ones that invested in the IPO for
supporting our great business.”

Openpay CEO, Michael Eidel

This followed a historic Initial Public Offer that raised $50 million, strongly supported by institutional and retail investors.

Chairman Patrick Tuttle, CEO Michael Eidel and members of the Openpay senior leadership team attended a listing ceremony
at the ASX in Sydney where Michael rang the bell. The team watched the shares go live under Openpay’s ticker code OPY.

Our ASX listing was a landmark milestone and is testament to the strength of the market opportunities that lie ahead.

Openpay Group Limited

Building our brand.

Aussie Amber rules.

Building brand trust.

During FY20 we refreshed our brand
to better communicate our purpose,
personality, proposition and, crucially, to
stand out from the traditional blue and
green hues of the finance sector.

We crafted an identity featuring a new
logo that reflects our brand ethos of
simplifying payments for consumers and
making transactions less intimidating. Our
bespoke Openpay Headline font has a
simple round design to further reinforce
the message of simplified payments and
openness and the three squares that break
away represent splitting payments into
manageable chunks (also affectionately
known as wombat poos).

Our new hero colour, ‘Aussie Amber’
pays homage to our Australian heritage
and brings warmth, charm and some rays
of Australian sunshine to the markets we
operate in. Alongside our new look and
feel, we have retained our original tagline
‘Buy now. Pay smarter.’ for its witty play on
the BNPL language used so frequently in
the market.

Helping customers be smarter with their
cash flow is a key part of what we do,
and our positive app store and Trustpilot
ratings demonstrate that we are building
a trusted brand with a strong focus on
customer happiness.

“Awesome way to buy! I’ve had many
completed plans now with Openpay
and found them to be a great business
to deal with. Especially when you’re
out shopping at a place and you come
across something you always wanted
or needed, it only takes mins to set up a
purchase, and you are done.” – P Wynne

We are rated Excellent*
on Trustpilot

* Rated 4.7 out of 5 stars Excellent on AU Trustpilot and 4.8 out of 5 stars excellent on UK Trustpilot.

Our brand book: Brand strategy | Brand assets | Bringing the brand to life

Out of home

This is an example of how our out
of home media should look.

The Openpay community.

We have seen continued positive customer
engagement during FY20 from our
finance-savvy audience who use our plans
as a cashflow management tool. Tending
to be of an older demographic, juggling
multiple household needs, from fixing the
home, car or cat to treating themselves to
a new pair of shoes, they understand the
value of spreading payments over time
with no interest.

During FY20 our Active Plans increased
by 229% and Active Customers increased
by 141%. By Q4 FY20, 70% of customers
had routinely made use of Openpay
plans, with 82% of plans in AU created by
Repeat Customers and 49% of Active AU
Customers holding Concurrent Plans1.

Our UK Q4 FY20 numbers were also
strong with 48% of plans being created by
Repeat Customers and 30% of Active UK
Customers holding Concurrent Plans.

Our customer database has grown by
105% in our home market and we can
now communicate with over 180,000
UK customers. Social is a key channel
for our brand and we have seen our
Facebook audience grow by 40% in
AU and our engagement rates across
Instagram continue to be in line with
industry benchmarks. Improvements to
our website have seen visitor numbers
in Australia grow by 80%.

We have also enhanced our app, creating
more ways to call out key merchants
and offers as well as refreshing the look
and feel in line with our new branding.
Our total app downloads have increased
by 140%.

High conversion marketing.

We see our brand as an extension of our
partners and use our channels of influence
to ensure our audience knows exactly
where they can use Openpay. As our
customers are highly engaged and active,
our partners love to work with us on co-
branded campaigns – from TV advertising
to social competitions and more.

OpenMay is a prime example of the power
of the Openpay customer base, achieving
what was, at the time, a record-breaking
month in Australia, reaching an audience
of over 5 million and increasing Active
Plans by 26% in May FY20 vs April FY20.

We also really love new brands and get
very excited when we launch a new
partner – we like to shout about it, a lot!

Our recent UK launches demonstrate
the power of the Openpay proposition
amongst the competition, where our
Aussie Amber stands out at checkout and
helps customers embrace the smarter way
to pay.

Annual Report 2020

Home owners

Parents

Car owners

Digital natives

Pet owners

1. Concurrent Plans are multiple Active Plans which an Active Customers holds.

19.78% 19.63%

20% 20%

15.55%

14.44%

16%

8.72%
9%

13%

11.02% 10.86%
11% 11%

3.7

Overall

$272

5.3

5.6

$782

$949

Healthcare

14.3

Home Improvement

$3,919

18-24
18-24

25-31 32-38
25-31 32-38

39-45
39-45

46-52
46-52

53-59 60+
53-59 60+

3.5

Retail

$201

Customer demographics
Customer demographics

Average plan length
Ave Plan Length

Average transaction value (ATV)
ATV $

Openpay Group Limited

Our industry verticals.

Openpay is making a real
difference in people’s lives,
helping customers buy the
products and services they
want and need – across
Healthcare, Automotive,
Home Improvement and
Retail.

Annual Report 2020

This year, we were proud to call many of
Australia and the UK’s leading retailers our partners.

Openpay Group Limited

Our industry verticals.

Healthcare.

Automotive.

Home
Improvement.

Retail.

“Openpay helped cover
Lulu’s surgery and
medication, allowing
me the flexibility to pay for
it in instalments instead
of the total sum.”
– Veterinary customer.

Healthcare.

Compared with FY19, this year Openpay
helped 83% more people (and their
pets) cope with the financial burden of
healthcare, a sector that is worth $18.4
billion2. We’re proud to act as a fair partner
in dental, veterinary, optical, audiology,
pharmacy and allied health – all core
sectors that keep Aussies healthy and well.

Significant new partners this financial
year included Vision Australia, Australia’s
largest provider of services for people
with blindness and low vision; vet
practice organisation United Vets Group;
and animal hospital Lort Smith.

With BNPL increasingly popular in
pharmacy, optometry, dental and
veterinary businesses, we also signed
some key integration partners this year
to ensure that Openpay appears when
patients are researching and booking
medical treatments or seeking advice.

These include a strategic revenue share
partnership agreement with digital health
group 1st Group (ASX: 1ST) in June,
integrations with EzyVet and Ciderhouse,
and another with Henry Schein’s leading
practice management software.

The agreement with 1st Group will see
Openpay plans offered to patients of
practices that provide services through
the MyHealth1st.com.au health services
marketplace. It’s an initial three-year term
and we’re expecting rollout across 60
sites in Q1 FY21. Openpay will also market
the MyHealth1st platform to existing
Healthcare practices within our Merchant
network.

We increased our presence in the dental
market by acquiring the MySmilePlan Pty
Ltd. brand and marketing rights to directly
offer Openpay in more than 600 dental
practices nationally.

Now practices can easily offer our solution
to their customers and give people the
peace of mind that they can manage the
cost of staying well.

Automotive.

Driven by a national passion for cars and
an ongoing need to improve road safety,
Australia’s Automotive industry is now
worth an impressive $22.8 billion3. But
a huge number of car owners are under-
servicing their vehicles due to cost.

Depending on your make and model,
a service can set car owners back
anywhere from $1854 to thousands

2. IBIS World Australia Market Research Dental Services Report, 2019. IBIS World Australia Market Research

Optometry and Optical Dispensing, 2019. IBIS World Australia Market Research Veterinary Services Report, 2019.

3. IBIS World Australia Market Research Tyre Retailing Report, 2019. IBIS World Australia Market Research Motor

Vehicle Parts Retailing Report, 2019. IBIS World Australia Market Research Motor Vehicle Engine and Parts Repair
and Maintenance Report, 2019.

4. Canstar – Car Servicing Costs: What Should You Be Paying?

Annual Report 2020

“Openpay is an important
partner with Eagers Automotive
Ltd. Openpay has been valuable
during the COVID-19 crisis in
providing a contactless payment
option for our customers.
Added to this, Openpay
proactively worked with our
Group to promote a Vehicle
Air Conditioning Sanitisation
service offer. This allowed us
to deliver an important health
and safety message to our
valued customers directly via
Openpay’s database.”

Wade Herrmann – GM of Fixed
Operations, Eagers Automotive Ltd

“Quality dental care can at
times stretch the budget, and
if ignored dental problems can
become exponentially more
expensive to treat over time.
Openpay allows our patients
to attend to their dental health
when it’s actually needed with
the convenience of no interest
repayments. This is a crucial benefit
in minimising the long
term financial and health burden
on our patients.”

Dr Kia Pajouhesh – Smile Solutions

of dollars, and 29%5 of people have
Automotive tasks waiting on their to-do
list. To keep drivers safe and able to enjoy
their vehicles, Openpay is now widely
available as a payment option at service
centres and garages across Australia,
making essential repairs and upgrades
easier to manage.

Openpay launched in the Automotive
industry in June 2016 and is now the
leading Australian BNPL provider in this
space. We are often the only BNPL player,
or one of only two available to motorists,
due to the flexibility we offer in plan values
and durations. The majority of Australia’s
enterprise dealership groups now use
Openpay.

Openpay’s Automotive vertical delivers
a significant uplift in Average Transaction
Value (ATV). Based on internal data, the
ATV uplift ranges between 85% in tyres to
120% in dealerships. We fund car servicing,
tyres, batteries, warranties and aftermarket
accessories through dealerships, service
centres and automotive retailers. Feedback
from dealers is that giving customers more
time and flexible payment options improves
retention for the car service industry and
boosts their Customer Satisfaction Index
and Net Promoter Scores.

In March, Openpay announced an
exclusive multi-year partnership with
leading Automotive technology provider,
Pentana Solutions. Through its Dealer
Management System (DMS) called
eraPower, Pentana Solutions is embedded
in approximately 2,500 car franchise
dealerships across Australia, or 60% of
the domestic market. Our partnership will
help motorists at over 1,900 additional
dealerships service their vehicles with
flexible repayments to suit their cashflow.

“After a competitive tender process, we
chose Openpay, being at the forefront
in the buy now, pay later space for
automotive dealerships. Openpay offers
a flexible product delivering higher value
plans at attractive terms for our dealers
and for dealer customers who are asking
for BNPL solutions.” – CEO of Pentana
Solutions, Steve Kloss

“Pentana Solutions’ dealers service
more than 4.2 million vehicles per
year, equating to around $2.5 billion
in annual servicing value. Integrating
Openpay into eraPower means dealers
can simply and easily activate a plan for
their customers at the point of sale. It has
been our experience that dealerships
offering Openpay as a payment option
see average requisition order increase
from $450 to $950 per customer. Given
the market share that Pentana Solutions
services, this agreement consolidates our
market share in the Automotive vertical,
increases highly sought-after payment
functionality for Pentana Solutions and
provides the platform for us to reinforce
our reputation as the BNPL supplier of
choice for the Australian automotive
industry and a positive customer
experience for vehicle owners.” – CEO
& Managing Director of Openpay,
Michael Eidel

Prior to the Pentana announcement,
we already had direct agreements with
around 1,000 dealer Merchants, of which
600 had the Pentana software, which adds
more than 20,000 plans a year and over
$16 million in plan value.

Since the onset of COVID-19, Aussies
have been using public transport less,
so we’re seeing more people treating car
servicing as an essential service. This gives
Openpay the opportunity to innovate and
vary our flexible product suite, supporting
Merchants with even more mobile car
and tyre services.

5. Openpay – Doers Report 2019

Openpay Group Limited

Our industry verticals.

“I’ve used Openpay a few
times for bigger purchases
(car servicing, kids dental,
Bunnings) and never had an
issue. Easy to use and when
I had my hours at work cut
back recently, their customer
service team were great and
really helpful with moving
repayment dates around
so I didn’t miss a payment
or get penalised.” –
Melb Marc, AU

Annual Report 2020

Home Improvement.

Refreshing your home doesn’t come
cheap, as reflected by the $19.5 billion6
value of the Home Improvement vertical.
Openpay offers real value in the Home
Improvement vertical with long term
plans and higher lending amounts, so
that Australians can spread the cost of
their investments in their home over time,
without paying interest.

Openpay partners with leading Merchants
such as Bunnings and Spotlight Retailer
Group for popular DIY and do-it-for-me
(DIFM) projects, as well as Merchants
offering professional services for the
supply and installation of flooring, blinds,
plumbing and kitchen renovations.

More recently, Openpay signed a
deal with leading Home Improvement
company National Tiles for both their
instore and online businesses.

Retail.

Openpay’s roots are in Retail. Since the
beginning, we’ve helped Aussie shoppers
get instant access to a wide range of
products – from high-velocity goods in
fashion, homewares, outdoor, pet care,
technology, sporting goods to bedding
and furniture and more.

Our differentiated approach gives
consumers more choice, with flexible
plan lengths and values that support
people at all stages of their lives.
Whether consumers are moving into
their first home, becoming parents or
simply enjoying some light gardening in
retirement, Openpay gives them a smarter
way to manage their cashflow.

We’re proud partners of many iconic
Australian brands including Hanes Brands
Inc., PETstock, Global Retail Brands,
MyDeal.com.au, Taking Shape and the
Retail Apparel Group. This year we also
extended our family offering by entering
the “baby” category, with new merchant
acquisitions including Tell Me Baby, Silver
Cross Prams and Baby Mode.

Our Retail footprint is always expanding,
with 98% growth in Merchant acquisition
during FY20 and services now available in
over 279 Active Merchants – consistently
driving up Active Plans.

In the COVID-19 era, we’ve seen a big
shift in channels, with online business in
Australia currently contributing 28% of TTV
and 39% of plan originations, versus 9%
and 14% in the same period last year.

Our integrations with leading
eCommerce partners like Shopify, Big
Commerce, Pronto and Harmony helped
accelerate this shift, also driven by the
strong growth of online retail in the UK.
Despite all this, however, instore Retail
has remained strong.

“Our partnership with Openpay is
collaborative and dynamic. During
the COVID-19 pandemic, MyDeal and
Openpay have been determined to
ensure that our customers have been
able to get everything they need for
their homes including office furniture
and home entertainment, with costs
being spread over time. Openpay has
acted with pace to support our growing
demand and ensure effective promotion
through their channels. This partnership
was enhanced during Openpay’s
month of promotions, OpenMay, where
we continued to increase transaction
volume.”
– John Barkle, MyDeal.com.au,
Head of Marketing

6. ABS, 8501.0 Retail Trade Australia 2019

Openpay Group Limited
Openpay Group Limited

Openpay goes global.

“Openpay is an ingenious
method of paying for goods
in just a few instalments,
interest free. It is simply
brilliant, and I hope more
UK online stores accept this
method of payment!”

– Numaan, UK

Annual Report 2020

+329%

+223%

187k

109k

44k

34k

H1
FY20

H2
FY20

H1
FY20

H2
FY20

H1
FY20

H2
FY20

H1
FY20

H2
FY20

Number of Ac�ve Plans

Number of Ac�ve Customers

UK Retail opportunity alone:

~£390b1

Major growth in Openpay UK business from standing start in June 2019

Openpay UK currently trades in online Retail channel only

Substantial opportunities exist to move into other Openpay verticals

Significant growth in Active Plans and Active Customers

Merchant additions in FY20 included leading brands: The Watch Hut,

Masdings and JD Sports. Post year end signing, The Hut Group

A successful UK Retail launch.

This year, we introduced our
differentiated ‘Buy now. Pay smarter.’
approach in the UK through online
Retail, offering our broad audience
more flexibility with their spending.
Over time we’ll expand into other
lifestyle areas to mirror our Australian
success and become a partner of choice
for consumers looking to responsibly
manage their cashflow across multiple
areas of their lives.

Our UK business has been growing
significantly this year, emerging as a
strong contributor to Openpay’s overall
Total Transaction Value. We currently
offer among the longest and most
flexible interest-free BNPL plans in the
UK Retail market, and our BNPS offering
has been welcomed by both Merchants
and Customers.

“So simple and easy to use. No charge
for ‘credit’ and I didn’t feel too guilty
about treating myself as I treated my
wife as well. Have used several times
and will definitely use again. Great
service, many thanks.” – Steve, UK

Since June 2019, we’ve partnered with
the likes of Watchshop, The Watch
Hut, Ideal Shopping Direct, Skinny
Tan, Roots, House, KC Sofas, Atlantic
Electronics, Hand on Heart Jewellery,
Makers Retail, Oxygen Clothing and
Masdings. In May we also launched
with enterprise merchant JD Sports and
post year agreements included global
e-commerce technology group and
brand owner, The Hut Group (THG).

1. United Kingdom Office of National Statistics: Retail Sales, Great Britain, July 2019.

Openpay Group Limited
Openpay Group Limited

New markets and innovations.

From a brand-new product
to two new industries, the
Openpay team has been
constantly evolving our
offering this year.

Annual Report 2020

“From account applications
through to reconciliation
and remittance, Openpay
for Business is a B2B
platform that fully digitises
business and trade
accounts, end to end.”

Exploring new industries.

In line with our IPO strategy, we conducted
a soft launch into the new verticals of
Education and Memberships in H2 FY20.

We expect to have a hard launch in H1
FY21, with products specifically designed
to meet the needs of merchants and
customers in these sectors.

Already, a number of Active Merchants are
on board, such as listed SaaS technology
provider MSL Solutions Limited in
Memberships and social media training
group Digital Picnic in Education.

MSL Solutions CEO, Pat Howard said,
“We are proud and excited to partner
with Openpay. As with all potential
partners, we have carefully reviewed
and selected Openpay on the strength of
the quantifiable benefits that we believe
Openpay can bring to our customers.

Openpay is at the forefront of the buy-
now-pay-later sector, offering a flexible
product delivering attractive terms for
golf clubs and their patrons. We expect
this partnership to add an attractive
new dimension to MSL’s golf suite
of services as it allows for greater
profitability and customer retention
among our golf club customers.”

These new verticals give Openpay a
significant growth pipeline, backed by our
partnerships with the Australian Society
of Association Executives and others.

The launch into these two new verticals
is a testament to Openpay’s commitment
to extend its plan availability into areas of
customers lives where they want greater
cash flow management.

A new B2B product.

We were very proud to announce
Openpay for Business in February this year
– a unique Software-as-a-Service solution
(SaaS) that allows companies to manage
trade accounts end-to-end, including
applications, credit checks, approvals and
account management.

We are proud to support Woolworths’
wholesale business.

The B2B solution provides an affordable,
scalable, low-risk way for businesses
with long-term contracts to manage their
accounts and will deliver revenues to
Openpay based on usage. First revenues
from Openpay for Business are expected in
H1 FY21.

New verticals:
Education and
Memberships

New Active
Merchants

Significant
growth pipeline

Hard launch
in H1 FY21

In line with IPO strategy, we
conducted a soft launch
into new industry verticals:
Education and Memberships
in H2 FY20

Launch has been
promising with a number of
Active Merchants established
in each new vertical

Also driven by new
partnerships with Australian
Society of Association
Executives, Sports
Community, among others

With these products that
specifically target the needs
of Merchants and Customers
in these verticals

Openpay Group Limited
Openpay Group Limited

How our tech has evolved.

We bring our customer-
centric thinking to the
technology that underpins
Openpay’s BNPS and B2B
offerings.

Simple, efficient, flexible,
customer-led BNPS technology.

quickly and efficiently, using the same,
familiar process.

A key point of difference is that our
flexible infrastructure enables Openpay
to deliver plan lengths of 2 to 24 months
and values of up to $20,000, all under
the same BNPS customer journey. This
simple plan initiation process makes it
easy for customers to set up each new plan

One major innovation we introduced
during the year was an update to our
plan origination process. We can now
verify customer identities through the
onboarding process using an Australian
driver’s license, passport or Medicare card.

This provides customers with more ways of
verifying themselves and has made it easier
for us to check customer identities.

Our customers regularly offer great
feedback about the flexibility we bring to
repayment schedule management – we
understand our approach to be quite
unique in the BNPL sector.

We made these important investments
in our innovative tech platform in FY20:

Data
and analytics:

New
consumer app:

New release of our
Automated Risk
Management (ARM)
technology:

Our cloud-based data infrastructure
enables advanced
analytics and insights

It’s now quicker for customers
to sign up and easier for them to
manage their payment cards

Better detection and
prevention of fraud and improved
credit decisioning

We continue to invest in our core technology
platform to underpin our strong growth.

Annual Report 2020

PCI data security compliant
Level 1 service provider

Instant approval
Powerful decision engine
grants instant approval

Strong customer identification
ID & contact detail verification

Simple integration
Innovative APIs for POS,
online integrations and
partnerships

Data analytics
Credit card and transaction
fraud prevention

Automated Risk Management
Sophisticated algorithms manage
credit risk and lending amounts
for new and existing customers

Dynamic billing engine
Automatic debit of repayments

Business/customer insights
Big data enabling unique
customer insights

We don’t lock customers into just weekly
or fortnightly repayments. Instead,
through our app and web portal,
customers can choose from a repayment
schedule that is right for them.

A new Openpay app was launched during
the year which has been well adopted by our
customer community. It is rated 4.6 out of 5
stars in the Apple AU App Store.

To support our merchant partners, we
launched a configurable, dynamic section
of Openpay’s new app to promote
Merchants and offers. This was launched
in time to support successful OpenMay
promotions.

Ongoing customer feedback is what drives
our product and platform improvements.
We continue to engage with our
customers and merchants to research how
we could improve the Openpay platform.

B2B offering – a unique
differentiator.

A major area of product development
for FY20 was our B2B product, Openpay
for Business. From account applications
through to reconciliation and remittance,
Openpay for Business is a B2B platform that
fully digitises business and trade accounts,
end to end. We look forward to launching
the product in H1 FY21.

Our new data and advanced analytics
infrastructure was introduced to enhance
credit risk decisioning. This has enabled
the targeted adaptation of credit rules in
response to the challenges of COVID-19,
keeping credit risk healthy and minimising
financial hardship. We delivered new data
and advanced analytics infrastructure to
enable the generation of rich customer
behaviour insights for merchants.

We also upgraded our ARM technology
to better detect and prevent fraud,
while improving credit decisioning.
This continued investment in our core
technology is what makes our growth
possible.

Other innovations.

In order to support our UK debt funding
process, we developed back end tools
which enable funders to see how we are
allocating their debt funding. Flexible
special purpose vehicles accommodate
specific debt covenant requirements across
the Company’s verticals and geographies,
supporting the recent addition of Global
Growth Capital (GGC) as the Company’s
first debt funder in the UK.

Openpay Group Limited
Openpay Group Limited

Our commitment to people.

Everything we do and
create is inspired by how
our customers will benefit.

This year it was even more
important to protect our
people, customers, business
and shareholders – whether
that was during Australian
national bushfires or the
global health and economic
crisis of COVID-19.

Responding to COVID-19.

Protecting our partners.

We moved swiftly to implement decisive
measures in response to COVID-19. These
initiatives have greatly helped us to strike
the right balance between supporting our
merchants and customers, protecting the
company by preserving cash and keeping
our staff safe and healthy. Thanks to our
strong performance and investor support,
the Openpay team returned to full time
hours from 1 July 2020, setting us back on
track for continued growth.

Helping through hardship.

The bottom line is that we care. We also
want our customers to stay with us for
the long term, so we lend appropriately
from the outset and have measures in
place to support people, should they find
themselves in times of true hardship. This
approach helps protect our customers in
hard times, but this year, few people were
completely immune to the impacts of the
COVID-19 lockdowns.

Although our customer base is financially
savvy and of an older demographic,
we saw an increase in hardship claims
in March due to the onset of COVID-19,
driven by the uncertainty around
restrictions and government support.
In response, we put in place a range of
helpful measures including revisiting our
credit rules, extending payment plans,
deferring payments, and reversal of fees
where appropriate.

We have seen the number of hardship
claims reduce moving into April. The
volume of these hardship calls, most of
which we have been able to solve with
customers, is immaterial and has not
adversely impacted the credit quality
of the portfolio with arrears at a low of
0.8% at the end of FY20.

“Very supportive and understanding
about the problems I [had] been having,
when I needed to delay some payments,
it’s a shame other companies were not of
the same high standards, well done for
looking after your customers properly.
Many thanks.” – Ann

Openpay’s focus on supporting merchants
in specialised industries has resulted in
strong coverage of essential products
and services across all verticals that we
operate in.

Customers are using Openpay plans
to support their everyday needs. Our
merchant partners are key to our success,
we see them as an extension of our brand
and always work collaboratively to ensure
opportunities are maximised through
our channels of influence and theirs.
This has been more important than ever
through 2020 when we have been able to
support our partners during an extremely
challenging trading period.

“I’ve used Openpay a few times for
bigger purchases (car servicing, kids
dental, Bunnings) and never had an
issue.” - Melb Marc

With the breadth of products and services
available through Openpay, we were able
to drive relevant and timely messaging to
our consumers, offering them products
and services that they needed or wanted
in lockdown. Our aim was to ensure
consumers could keep themselves, their
families and pets, their homes and their
cars happy and healthy during lock down.

For example, in Automotive, the decline in
use of public transport led to an increase
in people viewing car servicing as an
essential service. This gave Openpay the
opportunity to introduce new variations
to our flexible product suite, supporting
merchants with the introduction of more
mobile car and tyre services.

Openpay marketing channels were used
extensively to update consumers on the
latest news and offers from key partners,
with a heavy focus on online but also
crucial trading information updates such as
stores reopening, new essential services
being introduced to be COVID-safe and
much needed items being back in stock.
These extended marketing opportunities
were very well received by merchants and
saw strong customer engagement.

Annual Report 2020

Responding to
COVID-19.

Some of the ways we’ve
proven our commitment to
people during the COVID-19
pandemic include:

Providing vulnerable
customers with financial
hardship support

Closely supporting
essential services
merchants to provide
relevant support to
customers

Adjusted plan settings
and tightened credit
rules, strengthened credit
risk decisioning and fraud
prevention technology

Reduced
employee expenses by
35% to preserve cash

Acted quickly and flexibly
to enable our people to
work safely from home

Openpay Group Limited
Openpay Group Limited

The Openpay Way.

“Love Openpay. The way
they set their payments out
so I can pay ahead whenever
I want to is so flexible for me,
I love that I can keep track
of all my accounts, what
I owe and when I can pay.”

Novaheyez

“As a woman of colour,

I have not always had the privilege of

experiencing the inclusion and comfort I feel while

working at Openpay, in other parts of my life. From my

very first day, two and a half years ago, I have always been

made to feel comfortable in my own skin and not had to try

be someone else in order to be accepted. I am proud to be

working for a company that has not seen my race and cultural

background as a hindrance to my ability to do the role I was

employed to do. Openpay continues to be on the front foot

in working towards an even more diverse and inclusive

community within its employees and that’s a

movement I am honoured to be a part of.”

Emalka Hewawasam

“I’m a father of four

young children, so having the right

work life balance is very important to me.

Openpay offers and encourages that.

I am able to arrange meetings and work tasks

around my schedule whilst not neglecting my

duties as a father especially around these

times of uncertainty.”

Ola Jacobson

We’ve continued to support our
employees through our family-friendly
workplace policies which include paid
parental leave, serious illness and injury
leave, additional annual leave and paid
domestic violence leave. We offer flexible
work arrangements, including remote
working, flexitime, compact weeks and
job share opportunities.

To top it all off, our health and wellness
program is designed to aid the wellbeing
of our people and provide access to
healthcare and mental health support
services to help them with whatever they
might be going through.

Diversifying our team.

With team members from all five
continents, the Openpay workplace
celebrates the unique differences that
everyone brings to the table. Our hope
is that employees feel like they can
come to work as their authentic selves
each day.

We consistently advance our policies,
education and guidance on diversity
and inclusion, and take part in gender
equity initiatives and the Lean in Circles
women’s network.

Our overall company mix is 62% male,
37% female, and 1% unspecified with an
average age of 34.

Doing the right thing
matters to us.

Our mission is to change the way people
pay, for the better. We know we can
do this by building a culture where our
employees live and breathe our company
beliefs of Ownership, Passion, Excellence
and Nimbleness.

We are a responsible brand by nature,
and this is evident in how we respect our
people, respect our customers, and also
respect the environment.

We’re proud of how we’re building a
diverse and happy workforce by focusing
on diversity and inclusion, long-term
employee satisfaction, career progression,
health and wellbeing, and creating
a positive impact on local and global
communities.

From national bushfires to COVID-19: it
has been a matter of importance to us to
protect our people, customers, business
and shareholders during these crises.

Focusing on people.

Openpay is home to 164 employees
globally, with teams in Australia and the
UK. We’re very proud that our employees
want to work for us, with an average time
to fill a role of only 33 days and a 93% offer
acceptance rate.

We look after our teams and seek their
feedback through a structured, regular
pulse check on our employer value
proposition. This proposition is key
to helping us become an employer
of choice in the wider market and
strengthening our appeal to top talent
– especially in places already home
to established tech firms. We also do
a quarterly culture and engagement
survey to see how we’re faring.

Despite a disruptive year of COVID-19
lockdowns and global stress, FY20 saw
consistent improvements, with a 9% uplift
in team engagement by Q4. This is even
more remarkable given the significant
workplace changes that occurred due to
the expansion of our business.

Annual Report 2020

Company gender mix

Male
Female
Unspecified

Age (average age 34)
18-24 (8%)
25-34 (48%)
35-44 (27%)
45-54 (16%)
Unspecified (1%)

Openpay Group Limited

The Openpay Way.

“We decided to use
Openpay in January this
year when our son was sick
in hospital and we were in
the middle of renovating
our home. We loved the fact
Openpay allowed us to have
flexible payments, it took
the pressure of us during a
difficult time. It was really
refreshing to talk to a person
when it came time to calling
Openpay’s customer service.
They answered our questions
around wanting to increase
our limit and the team were
fantastic to deal with. We
really appreciated that a
bigger company was taking
the time to listen and talk to
their customers directly.”
– Mr C Scott

1. https://www.ipcc.ch/

In January 2020, our senior leadership
team took part in a team-building event
where they built two state-of-the-art bikes
for a family from Heart Kids, a charity
dedicated to supporting children, teens
and adults affected by congenital heart
disease. The Scott family’s youngest child
had undergone multiple heart surgeries
and receiving the two bikes brought a
smile to all their faces.

We later found out that the family were
Openpay customers. Mr Scott had
discovered Openpay through point of
sale signage in Bunnings.

This was an unexpected example of how
Openpay can help everyone budget
smarter – no matter their individual
circumstances. We’re still in touch with
the Scott family today.

Giving back.

Through the OpenArms Community
Program, our team can contribute to
community partners via team member
giving, structured volunteering,
fundraising, vocational programs and
pro bono support.

We’ve also formed partnerships with
not-for-profit organisations who
promote careers in technology for
women, our indigenous communities
and other minority groups. And during
the catastrophic bushfires in Australia
earlier this year, we donated $100,000
to Wildlife Victoria.

With COVID-19 wreaking havoc on the
retail sector, Openpay saw an opportunity
to pay it forward and became a Corporate
Partner to RetailTrust, the UK’s leading
retail charitable organisation. Openpay
passionately believes in and supports
the Trust’s mission: to improve the lives
of all involved in retail and its supporting
service industries.

Reducing our carbon footprint.

Climate change is a global existential risk already impacting our environment
and population, as detailed in the Intergovernmental Panel on Climate Change
(IPCC) reports1.

We’re looking into a number of initiatives that we can use to make an ongoing
and positive difference to the environment, including:

Measuring and analysing our emissions leading to reductions

Reducing our energy consumption

Investigating increased renewables usage

Fighting waste and item redundancy

Optimising staff transportation and work from home options

Greener infrastructure and equipment

Sustainable suppliers and partnerships

Education of staff, stakeholders, and customers

Promoting environmentally responsible ways of working

Becoming more active on the global stage

These projects may feel small when compared to global emission levels, but
Openpay believes that every positive step by every party makes a big difference
and promoting a culture of awareness and action is beneficial for everyone.
Our first action will be to measure and understand our operations in order to
identify room for improvement.

Annual Report 2020

“I was extremely
pleased with the
outcome and the person
that helped was awesome
to deal with, very happy!”

Andre

“Amazing,
used them to pay
for a vet bill. Literally saved
my dog’s life, I wouldn’t have been
able to afford the
bill without them.”

Peter

“Garden
looks amazing
with many compliments
from passersby. This
has been all due to
Openpay.”

Helen

“Very supportive
and understanding
when I needed to delay
some payments, it’s a shame other
companies are not of the same high
standards. Well done for looking
after your
customers properly.”

Ann

Openpay Group Limited
Openpay Group Limited

Key Risks and Challenges.

At Openpay, we aim to
deliver innovative solutions
to customers in a timely
manner. But this needs to be
balanced with a considered
approach to the risks and
challenges that come hand
in hand with our business
model and growth objectives.
Given the nature and pace
of change within the BNPL
industry, these risks will
change over time and new
challenges may arise that
impact our business.

We are committed to providing a
sustainable, ethical and responsible
service to our customers, and therefore
the identification, assessment and
management of these risks form a
cornerstone for how we operate. By
managing risks appropriately, we’re able
to strengthen our decision making and
prioritisation efforts and accelerate growth
in a sustainable way.

Openpay is committed to the ongoing
improvement of our risk management
framework and internal control
environment to ensure that we deliver the
right business outcomes while protecting
the organisation from relevant threats to
the largest extent possible.

The competition.

Openpay operates in a competitive
environment. That means there’s a
risk of new BNPL providers or existing
competitors delivering a superior solution
and customer experience to our current
offering. There is also a possibility that
competitors may consolidate with other
providers to deliver benefits at a scale that
Openpay can’t effectively compete with.
To avoid competition having an adverse
impact on our financial performance, we
must stay informed and innovate ahead of
the curve.

Advancing technology.

We must continuously develop our
technology platform to maintain its
competitive edge and position as the
most relevant and flexible BNPL plan
configurations for Merchants and
Customers. Ongoing innovation to
advance our tech remains a core focus.

In our target market segments, our
technology needs to address:

Customer preferences and

product design risk

Product delivery risk and speed

to market

Availability and reliability

Third-party services.

Openpay partners with third-party service
providers to support our offering. There is
a risk that a third-party provider’s service is
below expected standards, or experiences
disruption. Any such failures will have a
consequential impact on the reliability and
quality of the Openpay service offering
and may adversely affect our relationship
with our Merchants and Customers.

Business maturity and key
personnel risk.

Openpay is a growing business. As our
operations expand, we have to continually
standardise and streamline our processes.
Any lack of process maturity may lead to
inconsistent outcomes, manual errors,
inefficiencies, and loss of organisational
memory, which may have an adverse effect
on the profitability and reputation of our
business.

Developing more robust processes also
helps to reduce associated key personnel
risk. The loss of key personnel may
impose significant costs on Openpay in
the form of lost investment in employee
training, possible loss of proprietary
knowledge to competitors and employee
commencement and recruitment costs.
These may have an adverse impact on
Openpay’s operational and financial
performance.

Bad and doubtful debts.

Relevant controls have been implemented
across Openpay to optimise our front-to-
back credit decisioning and management
process for bad and doubtful debts. But
we must continue to improve our credit
decisioning capability to match the scale
and growth of our operations. A failure to
implement any upgrade or enhancement,
or failure to manage the upgrade or
enhancement process efficiently and
appropriately, may result in an increase
in bad and doubtful debts, which will
adversely impact Openpay’s financial
performance.

Annual Report 2020

“We are committed to
providing a sustainable,
ethical and responsible
service to our customers,
and therefore the
identification, assessment
and management of these
risks form a cornerstone for
how we operate.”

Openpay Group Limited

Key Risks and Challenges.

Regulatory compliance.

Just like any BNPL provider, we are
subject to a range of laws, regulations
and industry compliance requirements
in the jurisdictions in which we currently
conduct business. The main types of
laws, regulation, and industry standards
applicable to Openpay include, but are
not limited to:

Financial services and consumer

protection

Anti-money laundering and
counter-terrorism financing

Privacy and data protection

Financial and taxation

Employment

Failure to comply with requirements in
these jurisdictions (or in other jurisdictions
in which Openpay may operate in the
future), or to appropriately respond to
any changes, could adversely impact
Openpay’s reputation and financial
performance. Failure to comply could
also result in increased compliance costs,
the requirement to cease specific or all of
Openpay’s business activities, litigation,
penalties or other regulatory inquiry or
investigation.

There is also a risk that any increased
regulation, or changed regulatory
requirements, may increase Openpay’s
costs of compliance, which may result
in existing operations becoming
uneconomic, or limit or reduce our scope
to expand operations in accordance with
our strategy. There can be no assurance
that such laws and regulations will not
change in ways that will require Openpay
to modify business models and objectives
or affect the returns on investment by
making existing practices more restricted
or subject to escalating costs.

Cybersecurity and data
protection.

Openpay collects and holds a wide range
of personal and commercial information
about our Customers and Merchant
partners. There is a risk that Openpay’s
systems, or those of third-party service
providers, may be impacted by external
malicious attacks, or that internal control
measures are not sufficient to detect
and prevent any unauthorised access
to, or disclosure of, such confidential
information.

Market growth
(Customers and Merchants).

Openpay’s ability to increase revenue and
achieve profitability is dependent on our
ability to profitably scale the business,
which in turn is dependent on increases
in transaction volumes and growth in our
Customer and Merchant base. Failure to
grow in this manner may materially impact
our ability to achieve economies of scale,
optimise our systems and increase market
share, which may have an adverse impact
on Openpay’s financial performance.
We have to keep moving upward.

Exposure to general
market conditions.

Openpay’s performance depends, to
a certain extent, on macroeconomic
factors outside our control that impact the
spending power and habits of Customers.
These factors include economic growth,
unemployment rates, interest rates,
consumer confidence, taxation, inflation
and the availability and cost of credit.

In addition, consumer spending may be
affected by unforeseen global events
such as floods, droughts, pandemics, and
other natural disasters. We are regularly
monitoring the market and economic
conditions to identify any potential
impacts and adapt to those situations.
Exploring new and different BNPL
industry verticals also helps Openpay to
manage any adverse market conditions
more effectively.

“Exploring new and
different BNPL industry
verticals helps Openpay
to manage any adverse
market conditions more
effectively.”

Economic impact of COVID-19.

Several uncertainties have arisen
because of the COVID-19 pandemic,
impacting macroeconomic factors such as
unemployment and consumer confidence
in the jurisdictions in which we operate.
In light of these uncertainties, there is an
increased risk of economic downturn in
these jurisdictions, which may result in
a reduction of plans, delays in acquiring
new partners or the closure of some of
our Merchants, all of which may adversely
impact Openpay’s financial performance.

Liquidity and funding risk.

Openpay’s business model is reliant on
the ability to fund Merchants by enabling
Customers to use Openpay services to
acquire goods and services. If sufficient
liquid funds are not available to transfer
to Merchants within the specific service
level agreed in relation to purchases made
by the Customer, there is a risk that the
Merchant will become dissatisfied and
terminate their agreements, which could
have an adverse effect on Openpay’s
operations and financial performance.
There is also a risk of significant
reputational damage if we are unable
to satisfy our contractual obligations in
this regard.

Litigation and contingent
liabilities.

Openpay may be subject to potential
litigation and other claims or disputes
in the course of our business, including
contractual disputes, intellectual property
infringement claims, employment disputes
or occupational and personal claims.
Even if Openpay is ultimately successful in
defending any such claims, there is a risk
that such litigation, claims and disputes
could adversely impact our business
reputation, as well as our operating and
financial performance.

As set out in the Company’s IPO
Prospectus, Openpay received a letter
of demand from a former employee,
Mr Simon Scalzo, who was CEO of
Openpay Pty Ltd from 1 November 2016 to
late June 2017. Mr Scalzo has subsequently
commenced legal proceedings against
Openpay Pty Ltd in the Supreme Court
of Victoria.

Openpay is defending the proceedings
brought by Mr Scalzo and continues to
consider that the claim lacks substantive
merit. For further information in relation
to Mr Scalzo’s claim, please see section
5.1.13 of the Company’s IPO Prospectus.

Annual Report 2020

Openpay Group Limited

Directors’ Report

Remuneration Report

Auditor’s Independence Declaration

Financial Report

Consolidated Statement of Profit or Loss and
other Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors’ Declaration

Independent Auditor’s Report

Additional Security Exchange Information

Corporate Information

105

109

These financial statements are consolidated financial statements
for the Group consisting of Openpay Group Ltd and its subsidiaries.
A list of major subsidiaries is included in Note 23.
The financial statements are presented in the Australian currency.

Openpay Group Ltd is a company limited by shares, incorporated
and domiciled in Australia. Its registered office and principal place
of business is at Level 9, 469 La Trobe Street, Melbourne VIC 3000.
Its shares are listed on the Australian Stock Exchange.

The financial statements were authorised for issue by the Directors
on 31 August 2020. The Directors have the power to amend and
reissue the financial statements.

Contents.

Annual Report 2020

Your directors present their report on the consolidated entity
consisting of Openpay Group Limited (‘Openpay or ‘the
Company’) and the entities it controlled (‘the Consolidated
Entity’ or ‘the Group’) at the end of, or during, the year ended
30 June 2020.

Significant changes in the state of affairs

Significant changes in the state of affairs of the Group during the
financial year were as follows:

Corporate reorganisation

In November 2019, Openpay Pty Ltd (Openpay Australia)
undertook a corporate restructure. Under this corporate
restructure the shareholders in Openpay Australia exchanged
their shares in that company for shares in Openpay Group
Ltd (Openpay) in a “top hat restructure” (Restructure). Each
shareholder’s proportionate interest in Openpay Australia was
not altered as a result of the Restructure. Prior to the Restructure,
Openpay Australia was the parent company of the Group,
however, the effect of the Restructure was to interpose Openpay
as the new legal parent of the Group.

While Openpay became the legal parent of Openpay Australia,
this did not result in a business combination for accounting
purposes. When preparing the financial information for
Openpay, the Restructure has been accounted for as a capital
reorganisation by Openpay. The financial statements of Openpay
present a continuation of the operations of the existing Openpay
Australia. Assets and liabilities are recorded at their existing
values in the balance sheet for Openpay. The statement of profit
or loss for Openpay is a continuation of the existing statement of
profit or loss for Openpay Australia.

Initial Public Offering

On 16 December 2019 Openpay completed an Initial Public
Offering (IPO) and became listed on the Australian Stock
Exchange (ASX).

In accordance with the prospectus, Openpay raised
$50,000,000 ($44,876,002 net of costs) through the issue of
31,250,000 shares.

Directors and company secretary

The following people were directors of Openpay Pty Ltd from the
beginning of the reporting period until their resignation on
22 November 2019:

Darron Gary Kupshik

Kelly Bayer Rosmarin

Leslie Yau Chak Leung

Avi Schechter

The following people were appointed directors of Openpay
Group Ltd during the period and remain in office as at the date of
this report:

Patrick Tuttle (appointed 19 November 2019)

Michael Eidel (appointed 30 October 2019)

Kelly Bayer Rosmarin (appointed 19 November 2019)

Sibylle Krieger (appointed 19 November 2019)

David Phillips (appointed 30 October 2019)

Yaniv Meydan (appointed 30 October 2019)

The company secretary, Edward Bunting LLB, BComm, was
appointed 30 October 2019 and has over 10 years’ experience
as a corporate, commercial and regulatory lawyer with
leading Australian and international organisations. Prior to his
appointment, Ed was General Counsel at Meydan Group which
involved extensive advisory services to listed and unlisted
companies. Ed previously served in legal and commercial roles
at Ashurst, Cricket Australia and Toyota Australia. Ed is a member
of the Law Institute of Victoria and is admitted as a barrister and
solicitor in Victoria.

Principal activities

Openpay Group Ltd (ASX: OPY) is a well-established player in
the fast-growing global market for ‘Buy Now Pay Later’ (BNPL)
payment solutions. Openpay partners with merchants to provide
BNPL repayment plans to customers instore, in-app and online.
Openpay’s BNPL offering allows customers to purchase what
they want and need while spreading repayments over time with
no interest costs.

The following persons were directors of Openpay Pty Ltd from
the beginning of the reporting period and up to the date of
signing this report:

By providing flexible payment solutions to customers, Openpay’s
BNPL offering also facilitates increased transaction values and
conversion rates for merchants at checkout.

Yaniv Meydan

David Peter Phillips

Openpay provides services to customers and merchants in
Australia, New Zealand and the United Kingdom.

In addition, Openpay has launched into the B2B sector with its
Openpay for Business, Software as a Service (SaaS) portal. This
product enables enterprise customers to manage trade accounts
end to end, including applications, credit checks, approvals and
account management in one system.

3939

Directors’ Report.Openpay Group Limited

Dividends

No dividends were declared or paid since the start of the financial
year. No recommendation for payment of dividends has been
made.

Review of operations

Openpay delivered outstanding operational performance in
FY20, resulting in significant growth of key markets via our
strongly differentiated ‘Buy now. Pay smarter.’ approach, with the
aim of changing the way people pay, for the better. The Group
has delivered successfully on its growth initiatives as outlined
at its IPO and experienced strong growth in its key verticals
of Retail, Healthcare, Automotive and Home Improvement.
In parallel, the Group has made significant investments in our
people, processes and platforms to establish Openpay as a
growing global player in the Buy Now, Pay Later (BNPL) industry.

online sales channel. More than 39% of plans originated in
Australia over the final quarter of FY20 were online (Q4 FY19
14%), with 100% of plans in the UK all supported by Openpay’s
eCommerce platform.

Active Customers

The business continues to see strong growth in Active Customers
with an increase of 141%, or more than 319k Active Customers,
as of 30 June 2020 compared to 132.6k in FY19. Pleasingly,
the usage of Openpay as a preferred payment method is
increasing with more than 40% of Active Customers as at 30
June 2020 having more than one Active Plan at any time. The
increase in concurrent plans and Repeat Customers is driving the
incremental growth seen in Active Plans.

Key Operating Metrics

‘000

30 June
2020

30 June
2019

Change
%

Openpay experienced strong growth across all its key operating
metrics for the financial year ended 30 June 2020. Continued
growth in its key metrics of Active Plans, Active Customers, Active
Merchants and Total Transaction Value (TTV) have been fuelled by
successful execution of the Group’s core growth strategy; rapid
growth in its UK business, increased UK debt funding and solid
cash position.

This strong growth occurred despite the onset of COVID-19 and
the resulting market volatility. As soon as the immediate impact of
COVID-19 was understood, Openpay acted quickly to ensure the
continued safety of its people, merchants and customers, while
providing the flexibility that customers needed to responsibly
utilise our ‘Buy Now. Pay Smarter.’ offering.

The Group continues its close dialogue with merchants and
customers affected by the recent Victorian lockdown, while
ensuring that our team continues to operate safely from home.

Active Plans

Active Plans grew by a record 229% over the financial year.
Active Plans continue to outperform the Active Customers
growth rate of 141%, due to increased usage and a greater
number of Concurrent Plans by Active Customers. For the month
of June 2020, 70% of new plans were from Repeat Customers1,
up from 65% in June of 2019. This was driven by increased
engagement from a growing customer base, and Openpay’s
increased availability at merchants covering a broader range of
customer needs.

Active Customers

319.3

132.6

141%

Active Merchants

Despite national lockdowns in both Australia and the UK during
the financial year and associated forced business closures, Active
Merchants increased to 2,162, up 52% compared to FY19.
Openpay delivered strong Active Merchant growth across all
key verticals, including 98% growth in Retail merchants, 65% in
Automotive and 42% in Healthcare (Openpay is typically either
the sole BNPL provider or one of only two in Automotive and
Healthcare merchants). In early March, Openpay announced an
agreement to integrate its ‘Buy now. Pay smarter.’ offering into
Pentana Solutions’ leading car dealer management software,
EraPower, which services more than 60% of the Australian
car dealer market. Other sample merchant wins during the
financial year include Ryde Motor Group and Zagame Group
in Automotive, National Optical Care, Hearing Australia in
Healthcare and National Tiles in Home Improvement.

In Retail, significant wins included Retail Apparel Group and
Crumpler while new Merchants like Tell Me Baby and Baby
Mode marked Openpay’s entry into the ‘Baby’ merchant
category. Openpay also soft-launched into the Education and
Memberships verticals during the period and enters FY21 with a
significant pipeline of potential merchant partnerships in these
areas.

30 June
2020

30 June
2019

Change
%

$ ‘000

Active Plans

30 June
2020

30 June
2019

Change
%

Active Merchants

2,162

1,420

52%

823.9

250.2

229%

Total Transaction Value

COVID-19 restrictions implemented in March 2020 saw a
continued shift in channel usage with more consumers moving
online, leading to an acceleration of Active Plans through the

TTV from underlying sales grew by 98% to $192.8 million during
the financial year, primarily driven by growth in the ANZ Retail
vertical of 99%, also strongly supported by the establishment of
the UK Retail business. The Automotive and Health verticals have

A Repeat Customer is defined as a customer who has previously transacted with Openpay.

Directors’ Report.Annual Report 2020

continued to grow strongly, with 45% and 33% growth year-on-
year, respectively. The Home Improvement vertical was flat (3%)
as a result of the reclassification of certain merchants into the
Retail vertical.

A$m

TTV

30 June
2020

30 June
2019

Change
%

192.8

97.3

98%

Group Financial Performance

The Group’s statutory loss for the year ended 30 June 2020
was $35.4 million, a loss increase of 141% on the prior year.
The Group’s loss for the year excluding significant items was
$36.6 million representing a loss increase of 156% on the prior year.

Openpay saw significant growth in Total Income of 66% during
FY20. Key growth drivers included the increase in TTV from
underlying sales, robust growth across all ‘Active’ operating
metrics and significant growth in the Group’s UK business,
following the establishment of UK operations in June 2019.

EBITDA2 (excluding significant items) for the financial year was
a loss of $30.1 million, a loss increase of 164%, up from the
FY19 loss of $11.4 million. This result is in line with management
expectations. It reflects the significant, early investment into the
people and platforms required to successfully deliver on the
Company’s core growth initiatives. These included local market
growth, geographic expansion and the extension of platform
capabilities. This investment led to an increase in operating
expenses of 116% during the period, which was offset by the
strong revenue growth.

$ ‘000 (Excluding significant items)

30 June 2020

30 June 2019

Change %

BNPS Income
Other Income
Total Income
Receivables impairment expense
Employee benefits expense
Share-based payments expense
Advertising and marketing expenses
Other operating expenses
Operating expenses
EBITDA before significant items3
Depreciation and amortisation expense
Finance costs
Net loss before tax and significant items
Significant Items:
Fair value calculation of financial derivatives,
Convertible Notes
Share-based payments expense arising on Initial
Public Offering
Costs of equity raising, IPO and share placement
Net Profit (Loss) before tax
Income tax expense/(benefit)
Statutory net profit (Loss)

18,005
248
18,253
(7,890)
(18,134)
(441)
(3,183)
(18,746)
(48,394)
(30,141)
(1,312)
(5,130)
(36,583)

10,993
-
10,993
(2,970)
(7,160)
(96)
(2,178)
(10,020)
(22,424)
(11,431)
(94)
(2,742)
(14,267)

6,407

(415)

(2,279)
(2,946)
(35,401)
-
(35,401)

-
-
(14,682)
-
(14,682)

64%
n/a
66%
166%
153%
359%
46%
87%
116%
164%
1,296%
87%
156%

n/a

n/a
n/a
141%
-
141%

BNPS Income (Revenue)

BNPS Income for FY20 was $18.0 million, representing a 64%
increase on FY19. BNPS Income growth was driven by the record
growth in TTV, resulting from increased merchant and customer
acquisition, as well as the increased propensity of use of the
Openpay platform as a preferred payment method.

Openpay generates fees from both merchants and customers
in exchange for the use of its payments platform. These fees
are recognised over the expected life of the associated end
consumer’s BNPS receivable using the effective interest rate (EIR)
method. The revenue sources are as follows:

Merchant fees represent a percentage of the transaction

value of the good or service paid for by customers using the
Openpay payment platform. Openpay pays the merchant the
value of the transaction less the applicable fee.

Customer fees include plan management fees and, in some

cases, an initial plan establishment fee and late fees. Late fees
help to offset some of the costs incurred through plans being
in arrears.

No interest is ever charged by Openpay on any of its current

plans.

EBITDA is a non-IFRS measure that has not been audited but is a key financial metric used by management to operate the business at the Group level. EBITDA
represents Earnings Before Interest Tax Depreciation and Amortisation.
Significant items are those that the Group considers non-recurring in nature and therefore not representative of the ongoing financial performance of the
Group. Significant items include fair value calculation of financial derivatives, convertible notes; share-based payments expense arising on Initial Public
Offering; costs of equity raising, IPO and share placement.

4141

Openpay Group Limited

During the year, Openpay has seen a shift in revenue mix with
merchant fees representing 46% (FY19 52%) and customer fees
representing 54% (FY19 48%).

loss position by 24% in Australia and 20% in the UK. The provision
for expected credit loss prior to the COVID-19 adjustment was
3.5% of gross receivables.

Merchant Fees
Customer Fees

$18.0m

$8.3m

$9.7m

$11.0m

$5.7m

$5.3m

Jun19

Jun 20

The revenue mix is driven by many factors including the
originating merchants and average transaction values that drive
merchant fees as well as the number, term length and value of
plans that drives customer fees. As reflected above, there has
been a record increase in Active Plans, up 229% during the
financial year which has in turn driven the proportion of customer
fees higher in the period. The average transaction value of
plans in FY20 has reduced to $272 (FY19: $467) driven by the
increased use of the platform for everyday lifestyle choices and
the increase in online retail shopping in both Australia and the UK
as a result of the lockdown.

Employee benefits expense increased to $18.1 million over the
year to 30 June excluding significant items, due to the increase in
operational capacity and the strategic investment in establishing
Openpay’s UK operations and the Openpay for Business B2B
solution. During the year, Openpay established an Equity
Incentive Plan to align Board identified eligible persons’ interests
with the interests of shareholders and provide a strategic, value-
based reward system.

Other expenses of $18.7 million represent continued operating
expenses for technology, communications and processing costs
during FY20. The Group also enlisted third-party professional
service providers for strategic and corporate support in the
continued development and enhancement of our technical
platforms, business processes and policies while ramping up the
employee base.

Credit and Fraud Performance

The reported significant improvement in arrears rate of 0.8% as
at 30 June 2020 (30 June 2019: 1.2%) was driven by improved
credit quality of the portfolio over the last quarter through
enhanced credit decisions and despite the economic conditions
caused by COVID-19. Openpay wrote off $5.8 million in bad
debts, consisting of both credit and fraud, which accounted for
3.0% of TTV during the financial year, up from 2.5% in FY19.

Operating Expenses
Operating Expenses (excluding significant items) for FY20 were
$48.4 million, an increase of 116% over FY19. In FY20, Openpay
invested significantly in the foundation of people, processes and
its technical platforms. These strategic investments align with
growth of the business, its expansion into the UK market and the
launch of Openpay for Business via the inaugural agreement with
major Australian retailer, Woolworths Group Limited.

During the year, Openpay experienced an increase in targeted
fraud resulting in rolling three months Net Bad Debts to increase
to 4.7% of TTV in Q3 FY20, recovering to 2.9% in Q4 FY20.
The Group was able to address these challenges through
enhancements to our internal Automated Risk Management (ARM)
system and the implementation of additional third-party fraud
solutions in March which had an immediate impact on overall loss
exposure, reducing Net Bad Debts to 2.9% in Q4 FY20.

The receivables impairment expense for FY20 was $7.9 million
representing 4.1% of TTV (FY19: 3.1%). The increase over the
financial year represents an increase in bad debts (addressed in
the Credit and Fraud Performance section below) during the year,
as well as the increase in provisions for expected credit loss. As
of 30 June 2020, the provision for expected credit loss (including
additional provisions for the COVID-19 overlay) was 4.2% of the
gross receivables, down from 4.6% in FY19, representing an
improvement in the underlying credit quality of the book. Given
the ongoing market uncertainty due to the impact of COVID-19,
Openpay has increased the underlying calculated expected credit

Arrears - % of Receivables by Month

Openpay maintained the portfolio arrears rate below 1.7% during
the financial year, with the March peak relating to the suspected
targeted fraud pending final qualification and write off.

The business ended the year with 0.8% of arrears reflecting
continued optimisation of credit rules and our decisioning
process which, in conjunction with the implementation of
enhanced fraud capabilities, has resulted in a significant
improvement in the credit quality of the portfolio during the
tough economic environment introduced by COVID-19.

1.6%

1.4%

0.8%

0.9%

1.1%

1.0%

0.7%

Aug
2019

Sep
2019

Oct
2019

0.9%

Nov
2019

Jul
2019

Dec
2019

Jan
2020

Feb
2020

Mar
2020

Apr
2020

May
2020

0.8%

Jun
2020

Directors’ Report.Annual Report 2020

Financial Position

Receivables

Gross receivables as at 30 June 2020 were $50.1 million, representing a 71% increase on FY19. The movement in Openpay’s accounts
receivables balance reflects the timing difference between the collection of TTV from customers and payments made to merchants
at the time of purchase. During the FY20 period, the business increased its average repayment rate to 35% (FY19: 26%), which
has increased the velocity of collections to 4.2x for the year compared to 3.1x in FY19, driving up the Company’s capital efficiency,
enabling reinvestment to support continued growth.

36%

34%

33%

34%

33%

34%

33%

40%

43%

38%

Repayment Rates

Jul
2019

Aug
2019

Sep
2019

Oct
2019

Nov
2019

Dec
2019

Jan
2020

Feb
2020

Mar
2020

Apr
2020

May
2020

Jun
2020

The provision for expected credit loss as outlined as at
30 June 2020 was $2.1 million ($1.3 million FY19) being 4.2%
of the gross receivables, representing an improvement in the
underlying credit quality of the book.

Capital Management

Openpay successfully listed on the ASX in December after
an oversubscribed IPO which raised $50 million (gross)
through the issue of 31.3 million new shares at a listing price of
$1.60 per share.

In June 2020 after receiving strong inbound interest, Openpay
raised approximately $33.8 million gross of placement fees
through the issue of 14.1 million new shares, at a price of
$2.40 per share through a Share Placement.

Proceeds from the IPO and Share Placement are being primarily
used to support Openpay’s growth strategies of increasing our
addressable market through continued geographic expansion,
local market growth, talent acquisition, and investments to
enhance our technology platform and decisioning tools.

In addition, Openpay has Australian debt facilities in place of up
to $75 million (30 June 2019: $55 million) and a newly established
UK debt facility of up to £25 million. As of 30 June 2020, Openpay
has undrawn facilities of $45 million in Australia and £20 million
in the UK. These facilities are being used to fund growth in the
receivables book and to balance the lag time between Openpay’s
outgoing payments to merchants and incoming payments from
customers. Openpay continues discussions with several financiers
for additional facilities to augment its strong balance sheet and
fund its continued rapid growth.

Cashflows

Cash as at 30 June totalled $70.1 million (30 June 2019: $8.7
million). The movement in cash during the year includes several
one-off expenses associated with the company’s IPO and ASX
listing in December 2019 and Share Placement in June 2020 as
well as the associated cash inflows.

Cash receipts from customers in the year ended 30 June 2020
were $186.9 million (FY19: $96.3 million), a 94% increase over
the period. Cash receipts are comprised of the collection of cash
from accounts receivable, including customer fees and late fees
collected during the year.

Operating cash outflows for FY20 were $57.6 million (FY19:
$19.4 million), with the increase being driven by investment
into the receivables book to support growth in Active Plans and
TTV volumes, as well as continued investment in people and
platform in support of future growth. Of the $57.6 million, $27.2
million represents the timing differences between the payment of
merchants and receipts of cash from consumers.

Movement in financing cashflows relates to drawdowns on
receivables funding of $19.4 million, supporting growth in the
book and a net cash inflow of $103.2 million relating to equity
raised through the issue of convertible notes, the IPO process in
December 2019 and subsequent Share Placement in June 2020.

Outlook

Openpay has made significant progress towards its stated
goal of becoming a leading provider of payment services.
Looking ahead, the Company will continue to leverage its
strong investment in the growth of the business and further
deliver on the three strategic growth pillars as outlined in its IPO
prospectus:

1. Continued local expansion (strong home market)

Focus will be on driving further BNPL platform utilisation and
revenue growth, capitalising upon Openpay’s strong position
with engaged customers and merchants in existing verticals.
A strong focus on new strategic integration partnerships
(like Pentana in Automotive, announced in FY20) will extend
Openpay’s reach into extensive networks of downstream
merchants.

4343

Openpay Group Limited

2. Expanded geographic expansion (global vision)

The Company will continue to build upon the rapid momentum established during its first year of trading in the UK. Openpay is currently
preparing to seek authorisation (expected H2 FY21) from the UK’s Financial Conduct Authority (FCA) to conduct regulated credit activities
which will enable further product diversity. The Company will also explore other markets to complement current strong growth.

3. Platform enrichment

The unique Openpay For Business platform is expected to launch in H1 FY21 with inaugural customer, Woolworths, and will drive a
completely new SaaS-based revenue source.

Following a successful soft launch in H2 FY20, Openpay will conduct its hard launch into the new verticals, Education and Memberships.

A continued investment into Openpay’s core technology platform, product innovations and advanced analytics will further underpin
the Company’s strong growth.

Events since the end of the financial year

No material events have occurred subsequent to the end of the year at the time of issuing this report.

Environmental regulation

The Group’s operations are not regulated by any significant environmental regulation.

Information on directors

The following information is current as at the date of this financial report.

Patrick Tuttle BEc (Accounting and Finance), CA. Independent Chair, Non-Executive Director

Expertise and
experience

Patrick joined Openpay in November 2019. Patrick has in excess of 30 years’ experience in non-bank,
consumer, SME and asset-based finance.

Patrick is an Australian Chartered Accountant and has previously acted as divisional finance director for a
range of operating businesses within Macquarie Bank Limited, before becoming finance director of Pepper
Group in 2001. Patrick became CEO of Pepper Group’s Australian mortgage lending and asset finance
business in 2008, before also being appointed as Co-Group CEO of Pepper’s global business in 2012, a
role he held until March 2017.

Other current
directorships

Non-Executive Chairman – Consolidated Operations Group Limited (ASX: COG)

Non-Executive Director - GetCapital Pty Ltd, Azora Finance Pty Ltd, Divipay Pty Ltd and Douugh Limited

Non-Executive Director of Australian Ireland Fund Limited (registered charity)

Former listed
directorships in
last 3 years

None

Special responsibilities Chair of the Board

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

180,906

Nil

Directors’ Report.Annual Report 2020

Michael Eidel PhD (Magna Cum Laude), MEc, BEc, BA (Hist). CEO and Managing Director

Expertise and
experience

Michael joined as Chief Executive Officer of Openpay in March 2019. Michael has over 20 years’
experience in payments, banking, growth transformation, product and strategic development.

Michael has previously held senior executive roles at Credit Suisse, McKinsey and CBA, and served as
the Chairman of Fides Treasury Services Ltd, and as a Director on the New Payments Platform (NPP) Ltd
and on the Australian Payments Council.

Other current
directorships

Former listed
directorships in
last 3 years

None

Special responsibilities Chief Executive Officer (CEO)

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

Nil

1,941,965

Kelly Bayer Rosmarin MS (Management Science and Industrial Engineering), BS (Industrial Engineering), MAICD
Non-Executive Director

Expertise and
experience

Kelly joined Openpay in February 2019. Kelly has extensive experience growing and operating large
global businesses, leadership, banking, risk management, regulated markets, and driving innovation.

Kelly is currently CEO at Optus, having previously held the Group Executive role at CBA for Institutional
Banking & Markets. Previously Kelly was a management consultant with the Boston Consulting Group,
and spent time in Silicon Valley in both start-up and established software companies.

Other current
directorships

Former listed
directorships in
last 3 years

None

Special responsibilities Chair of the Remuneration and Nomination Committee

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

26,560

125,000

4545

Openpay Group Limited

Sibylle Krieger LLB(Hons), LLM, FAICD, MBA. Non-Executive Director

Expertise and
experience

Sibylle joined Openpay in November 2019. Sibylle is a professional independent Non-Executive
Director with over 35 years’ experience as a commercial lawyer, economic regulator and Non-Executive
Director of a range of companies.

Sibylle’s particular focus as a Non-Executive Director has been on corporate governance, organisational
culture and remuneration governance in sectors undergoing significant change or reform.

Non-Executive Director – My State Limited (ASX: MYS) and Australian Energy Market Operator

Non-Executive Chair – Xenith IP Group Limited (from 2015 to August 2019)

Non-Executive Director – Vector Limited (from May 2018 to November 2018)

Other current
directorships

Former listed
directorships in
last 3 years

Special responsibilities Chair of the Audit and Risk Management Committee

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

53,125

Nil

David Phillips LLB(Hons), LLM, BComm. Non-Executive Director

Expertise and
experience

David joined Openpay in September 2017. David has nearly 25 years’ experience in financial services,
the last 14 of which were with Investec where he has been the Head of Structured Finance, Global
Co-head of Investec Aviation Finance and Head of Investec Emerging Companies. David currently
remains as a specialist consultant to Investec.

David has held a number of board positions including Goshawk Aviation Limited, IGAF and IASL (which
collectively owned US$6bn+ of commercial aircraft globally), as well as a number of Investec investee
companies including ICM Airport Technics, H2 Ventures, Pulse iD, Propelair and Splend. David has also
been a Responsible Manager on Investec licenses related to certain fund management activities it carries on.

Prior to joining Investec, David was a Director in the Corporate Advisory division of Deutsche Bank for
5 years where he was involved in large mergers and acquisitions transactions both domestically and
offshore, and prior to that was a tax adviser and lawyer with KPMG and Freehills respectively.

Other current
directorships

Former listed
directorships in
last 3 years

None

Special responsibilities None

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

113,496

Nil

Directors’ Report.Annual Report 2020

Yaniv Meydan Non-Executive Director

Expertise and
experience

Yaniv is a co-founder of Openpay and has extensive experience in structured and property finance,
receivables financing and business operations both globally and in Australia.

Yaniv has been the CEO of the Meydan Group since 2004. He is responsible for the Meydan Group’s
worldwide operations. Yaniv has a key role in the strategic and senior management of all of the Meydan
Group’s finance, operational and new business activities within Australia and international markets.

None

Non-Executive Director - Axsesstoday Limited (from 2014 to September 2019)

Other current
directorships

Former listed
directorships in
last 3 years

Special responsibilities None

Interests in shares
and options

Ordinary shares – Openpay Group Ltd

Options over ordinary shares – Openpay Group Ltd

22,781,920

Nil

Meetings of directors

The numbers of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June
2020, and the numbers of meetings attended by each director were:

Board of Director
Meetings

Audit & Risk
Committee Meetings

Nomination &
Remuneration
Committee Meetings

Number
eligible
to attend

Number
attended

Number
eligible
to attend

Number
attended

Number
eligible
to attend

Number
attended

Patrick Tuttle
Michael Eidel
Kelly Bayer Rosmarin
Sibylle Krieger
David Phillips
Yaniv Meydan

5
5
5
5
5
5

2
-
-
2
2
-

-
-
1
1
-
1

4747

Openpay Group Limited

The Openpay Group Ltd 2020 remuneration report outlines
key aspects of our remuneration policy and framework, and
remuneration awarded this year. The report is set out under the
following main headings:

– Key management personnel (KMP) covered in this report;

–

Remuneration philosophy;

Performance;

– Details of remuneration;

–

Service agreements with executive KMP;

– Non-executive director arrangements;

–

Share-based compensation;

– Additional disclosures relating to KMP; and

– Other information

Key management personnel covered in this report
Patrick Tuttle, Non-Executive Chairman
(from 19 November 2019);

–

– Michael Eidel, Managing Director and

Chief Executive Officer (from 30 October 2019);

–

Sibylle Krieger, Non-Executive Director
(from 19 November 2019);

– Yaniv Meydan, Non-Executive Director

(from 30 October 2019);

– Kelly Bayer Rosmarin, Non-Executive Director

(from 19 November 2019);

– David Phillips, Non-Executive Director

(from 30 October 2019); and

– Andrew Burns, Chief Financial Officer

(from 21 November 2019)4.

Remuneration philosophy
The board reviews and determines our remuneration policy and
structure annually to ensure it remains aligned to business needs,
and meets our remuneration principles. In particular the board
aims to ensure that remuneration practices are:

– Competitive and reasonable, enabling the company to

attract and retain key talent

– Aligned with the company’s strategic and business
objectives and the creation of shareholder value

–

Transparent and easily understood; and

– Acceptable to shareholders.

The KMP remuneration framework is designed to support the
Company’s reward philosophies and to underpin the Company’s
growth strategy. The framework comprises the following
components:

Fixed Remuneration – consists of base salary plus

superannuation and is set to reflect the market median for
the role, having regard to the responsibilities and complexity
of the role, and the experience and skills required to
successfully perform the role. Fixed Remuneration is paid in
cash.

Short Term Incentive (STI) – based on an assessment of a
balanced scorecard (with threshold and target levels of
vesting in respect of each measure). Eligible employees are
entitled to a maximum cash bonus of between 40% and 50%
of their fixed annual remuneration. Short Term Incentives
consists of a cash component (50%) payable at the end of
the performance period and a deferred component (50%).
The deferred component is also paid in cash of which 25% is
payable on the 1st anniversary of the vesting date and 25%
payable on the 2nd anniversary of the vesting date.

Long Term Incentive – aligned to the delivery of long-term
performance and delivery of returns to shareholders.
Performance conditions are based on the achievement of
growth targets for revenue and total shareholder return
(with threshold and target levels of vesting in respect of each
measure) over a three-year period. Long Term Incentives are
delivered through the issue of Performance Rights and/or
Options.

The Remuneration and Nomination Committee (RNC) is
responsible for determining and reviewing compensation
arrangements for the KMP. The RNC determines the
appropriateness, and amount, of remuneration for each KMP
annually by reference to relevant market conditions with the
overall objective of ensuring maximum stakeholder benefit from
the retention of a high-quality board and executive team.

All remuneration paid to KMP is valued at the cost to the
Company and expensed. Options granted were independently
valued and the benefits are amortised over the vesting period.

Please note that Andrew Burns resigned from the position of Chief Financial Officer on 13 August 2020 and will remain with the Group until 4 September 2020, post
the covered reporting period.

Remuneration Report.Annual Report 2020

The Board will continue to review KMP packages annually by
reference to the Company’s performance, KMP performance,
and comparable information from industry sectors and other
listed companies in similar industries.

Performance
We aim to align our executive remuneration to our strategic and
business objectives and the creation of shareholder value. The
table below outlines the group’s performance as required by

the Corporations Act 2001 in addition to other key operating
metrics. However, these are not necessarily always consistent
with all the measures used in determining the variable amounts
of remuneration. As a result, there may not always be a direct
correlation between the statutory key performance measures
and the variable remuneration awarded. Company performance
is presented for 4 years as FY17 was the first year results were
audited and share price is only presented for FY20 as the
Company became listed on 16 December 2019.

Loss for the year ($)
Dividend payments
Increase/(decrease) in share price %
TTV (ie underlying sales)
Active customers (#)
Active plans (#)
Buy Now Pay Smarter income ($)

2020

2019

2018

2017

(35,401,258)
-
58.5%
192,828,657
319,324
823,873
18,004,736

(14,682,165)
-
N/A
97,299,999
132,573
250,168
10,992,809

(4,439,260)
-
N/A
60,478,377
82,221
119,613
6,835,402

(2,310,402)
-
N/A
27,674,075
39,696
55,805
3,511,566

Short Term Incentive Overview
STI performance is assessed against a balanced scorecard of measures across five categories being financial, customer, people and
culture, strategy execution, and reputation and risk management as set out below. The balanced scorecard reflects annual objectives
aligned with our key value drivers and generation of long-term value for our shareholders.

Balanced Scorecard
Performance Conditions Measures

Weight Rationale

Financial (40%)

Revenue Growth
Net Transaction Margin
Operating Profit Before Tax

Customer (30%)

Number of Active Merchants

Number of Active Customers

Number of Active Plans

People & Culture (10%)

Employee Engagement Score

Attrition Rate – Senior Leadership
and Direct Reports

20%
10%
10%

10%

Strategy Execution (10%) Achievement of FY20 Strategic

10%

Reputation and Risk
Management (10%)

Initiatives

Review of Management’s response
to risk events including customer
complaints during FY20

Strong revenue growth and cost controls directly
impacts on shareholder value.

Continued expansion of the Merchant and Customer
base drives the growth in underlying transactional
value which is the basis of our short term and mid-
term expansion strategy.

Employees are essential to the success of Openpay.
We are committed to attracting and retaining the
highest quality employees and strive to provide
them with exciting and satisfying opportunities.

Execution on key initiatives drives the basis of
innovation and expansion for continued future growth.

10% Managing our compliance and risk environment

is a crucial aspect of ensuring the business is a
good corporate citizen and is responsive to all our
customers’ feedback.

The Board has assessed performance against the balanced scorecard for FY20 as shown below.

4949

Openpay Group Limited

Balanced Scorecard
Performance Conditions

FY20 Outcome

Commentary on outcome

Financial (40%)

Partially met (Threshold >50%)

Revenue Growth only partially met due to reduced

Customer (30%)

Partially met (Threshold >50%)

People & Culture (10%)

Partially met (Threshold >50%)

volumes in high margin Industry verticals due to COVID-19
(lockdowns of stores)

Net transaction margin not met due to heightened net bad
debt from fraud and reduced high-margin instore business

Operating profit before tax partially met
Number of Active Merchants only partially met due to delays

in merchant onboarding due to COVID-19

Number of Active Customers: partially met

Number of Active Plans: fully met
Threshold employee engagement score met for ANZ

Unwanted attrition rate of senior team members fully

achieved

Strategy Execution (10%)

Fully met (Target 100%)

UK and AU debt funding secured

Reputation and Risk
Management (10%)

Fully met (Target 100%)

B2B product delivered for launch in H1 FY21

Launch and growth in the UK
Risk framework, Business Continuity Planning (BCP) and

Disaster Recovery Program (DRP) delivered

No adverse finding by a regulator or ombudsman about

handling of customer complaints

No allegations or findings of material breach of regulatory

obligations

As part of the COVID-19 response and the Company’s structured cash preservation program, the Board suspended all STI bonuses for
executives of Openpay in FY20, despite the criteria achievement meaning that in all categories the 50% threshold was met, and the
bonus payout would have been between 50 and 100%. However, in recognition of successfully leading the business response to the
COVID-19 pandemic, the Board has issued the CEO a discretionary bonus of $100,000.

Long Term Incentive Overview
The LTI component of the remuneration framework is assessed against two time-based performance hurdles, and both hurdles must
be satisfied for vesting to occur. The performance-based hurdles are two equally weighted measures: revenue compound average
growth rate (CAGR) and absolute total shareholder return (TSR) CAGR. Both are measured over a three year performance period.
These measures were selected as they align with the Company’s strategy, are reflective of the key value drivers of the business over
the long term and, in the Board’s view, strike an appropriate balance between growth and long-term profitability. Additionally, there is
a time-based service hurdle which requires the participant to remain continuously employed at the assessment date set by the Board.

Remuneration Report.Annual Report 2020

The structure of the long-term incentive plan for FY20 is set out below:

Feature

Description

Opportunity /
Allocation

CEO: 100% of fixed remuneration; CFO: 80% of fixed remuneration. The opportunity is divided by the
Black-Scholes value of options to determine the number of instruments.

Performance Hurdles

Revenue CAGR

TSR CAGR

Revenue and TSR CAGR Relative to Target

The Revenue CAGR is determined based on
revenue growth in dollar value for the period from
1 July 2019 to 30 June 2022 with the reported full
year revenue for the period ended 30 June 2019 as
the base of the calculation.

The TSR CAGR is calculated by the growth in capital
(assuming dividends are reinvested) of the period
from 16 December 2019 to 1 September 2022.

Proportion of Each Performance Hurdle to
Vest

Less than 80%

80%

100%

25%

50%

Exercise price

Forfeiture and
termination

A minimum threshold has been determined for both hurdles at 80% of target. Pro-rata vesting occurs
between 80% and 100% of target.

The options issued under the LTI plan consist of both zero strike price options (ZEPOs), which are nil
exercise price options and market priced options (MPOs) which have an exercise price referable to the
fair value of the options at the date of the grant as determined by an independent valuer.

Options will lapse if performance conditions are not met. Unvested options will be forfeited on
cessation of employment unless the Board determines otherwise, e.g. in the case of retirement due to
injury, disability, death or redundancy.

During the year, the Board issued 708,484 options under the LTI program to KMP. For further information, see Long Term Incentive
Plan section of this report.

There are no changes proposed to non-executive KMP remuneration for FY21.

Details of Remuneration
The following table shows details of the remuneration expense recognised for the Company’s KMP for the current financial period
measured in accordance with the requirements of the accounting standards. As the Group was only formed during the year ended
30 June 2020, KMP remuneration information is presented only for that same period.

5151

Openpay Group Limited

Member of KMP

Executive Director
Michael Eidel

Other KMP
Andrew Burns
Total executive
director and
other KMP
Non-executive directors

Patrick Tuttle
Sibylle Krieger
Yaniv Meydan
Kelly Bayer Rosmarin
David Phillips
Total NED
remuneration

Total KMP
remuneration
expenses

Fixed remuneration

Variable remuneration

Annual
and long
service
leave

Salary &
Fees

Super-
annuation

Cash
bonus

Options

Total

Performance
related

404,664

20,526

20,999

100,000

1,295,261

1,841,450

76%

191,835

11,146

12,911

168,199

384,091

44%

596,499

31,672

33,910

100,000

1,463,460 2,225,541

83,333
56,947
47,456
57,292
52,083

297,111

-
-
-
-
-

-
5,410
4,508
-
-

9,918

-
-
-
-
-

-
-
-
200,0001
-

83,333
62,357
51,964
257,292
52,083

200,000

507,029

893,610

31,672

43,828

100,000

1,663,460 2,732,570

1. Options relate to compensation in recognition of services provided prior to the IPO as disclosed in the Company’s Prospectus dated 22 November 2019.

Service agreements with executive KMPs
Remuneration and other terms of employment for executive KMP are formalised in service agreements. Details of these agreements
are as follows:

Name:

Title:

Michael Eidel

Chief Executive Officer and Managing Director

Agreement commenced:

21 November 2019

Contract duration:

Ongoing contract

Remuneration Report.Annual Report 2020

Term of agreement:

Annual salary of $500,000, inclusive of superannuation contributions. Michael is eligible to receive a
discretionary short term incentive bonus of up to $250,000 and options under the long term incentive
plan up to a value equal to 100% of his fixed annual remuneration.

Michael may terminate his employment with Openpay on provision of 6 months’ notice. Openpay may
terminate Michael’s employment on provision of 6 months’ notice.

Openpay may elect to pay Michael in lieu of all or part of any notice period, with such payment to be
based on Michael’s remuneration over the relevant period.

Michael’s employment may also be terminated by Openpay without notice in certain circumstances
such as serious misconduct, material breach of any Openpay company policy or anything that would
entitle Openpay to summarily terminate the employment at common law.

Any payments made to Michael upon termination of his employment will be limited to the maximum
amount permitted by the Corporations Act without Shareholder approval.

Name:

Title:

Andrew Burns

CFO

Agreement commenced:

21 November 2019

Contract duration:

Ongoing contract

Term of agreement:

Annual salary of $380,000, inclusive of superannuation contributions. Andrew is eligible to receive a
discretionary short term incentive bonus of up to $152,000 and options under the long term incentive
plan up to a value equal to 50% of his fixed annual remuneration.

Andrew may terminate his employment with Openpay on provision of 6 months’ notice. Openpay may
terminate Andrew’s employment on provision of 6 months’ notice.

Openpay may elect to pay Andrew in lieu of all or part of any notice period, with such payment to be
based on Andrew’s remuneration over the relevant period.

Andrew’s employment may also be terminated by Openpay without notice in certain circumstances
such as serious misconduct, material breach of any Openpay company policy or anything that would
entitle Openpay to summarily terminate the employment at common law.

Any payments made to Andrew upon termination of his employment will be limited to the maximum
amount permitted by the Corporations Act without Shareholder approval.

KMP have no entitlement to termination payments in the event of removal for misconduct.

Non-executive director arrangements
Non-executive directors receive a Board fee and fees for chairing or participating on Board committees. They do not receive
performance-based pay or retirement allowances. The fees are inclusive of superannuation. Director fees were established as part of
the IPO by the Board taking into account comparable roles and market data provided by the remuneration adviser, as appointed by
the Board, and are expected to be reviewed annually. The maximum annual aggregate directors’ fee pool limit is $1 million and will be
presented for approval by the shareholders at the annual general meeting.

5353

Openpay Group Limited

Base fees

Chair
Other non-executive directors

Additional fees

Audit and risk committee – chair
Audit and risk committee – member
Remuneration and nomination committee – chair
Remuneration and nomination committee – member

$150,000
$90,000

$20,000
$10,000
$20,000
$10,000

All non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter
summarises the board policies and terms, including remuneration, relevant to the office of director.

Share-Based Compensation
Issue of Shares
There were no shares issued to KMP as part of compensation during the year ended 30 June 2020.

Options
The terms and conditions of each grant of options over ordinary shares affecting remuneration of KMP in this financial year or future
reporting years are as follows:

Option Category

Retention Offer (MPOs)
Retention Offer (ZEPOs)
Revenue LTI (MPOs)
Revenue LTI (ZEPOs)
TSR LTI (MPOs)
TSR LTI (ZEPOs)

Grant Date

Expiry Date

Exercise Price

22 November 2019
22 November 2019
23 June 2020
23 June 2020
23 June 2020
23 June 2020

9 December 2029
9 December 2029
15 July 2030
15 July 2030
15 July 2030
15 July 2030

$1.60
Nil
$1.60
Nil
$1.60
Nil

Fair Value per
Option at
Grant Date

$0.81
$1.60
$1.68
$2.52
$0.84
$0.96

Long Term Incentive Plan
The Group has established an Equity Incentive Plan (EIP) designed to provide long-term incentives to eligible employees and/or
directors. Under the EIP, the Group has provided both a Long Term Incentive (LTI) offer and a Retention Offer. There are two categories
of options issued under each offer: zero strike price options (ZEPOs), which are nil exercise price options and market price options
(MPOs) which have an exercise price referable to the fair value of options at the date of the grant.

The Retention Offer options vested immediately on admission of the Group to the official list of ASX and were not subject to any
other performance conditions. Vested Retention Offer MPOs are subject to exercise restrictions for 2 years from vesting. Options are
granted under the plan for no consideration and carry no dividend or voting rights.

The amount of options that will vest under the LTI Offer depends on the Group’s Total Shareholder Return (TSR) and Revenue CAGR
over a period covering FY20 through to FY22. The vesting of the LTI Offer options is also contingent on service-based conditions.

Options granted carry no dividend or voting rights.

Remuneration Report.Annual Report 2020

The number of options in the Company held by each of the Company’s KMP, including their related parties, during the year ended
30 June 2020 is set out below:

Member of KMP and
Option Category

Balance at
1 July 2019

Cancelled

Granted as
Remuneration

Number

Vested

Unvested

Vested

Balance at 30 June 2020

Michael Eidel

Cash Settled LTI1
Retention Offer (MPOs)
Revenue LTI (MPOs)
Revenue LTI (ZEPOs)
TSR LTI (MPOs)
TSR LTI (ZEPOs)

500,652
-
-
-
-
-

(500,652)
-
-
-
-
-

Andrew Burns

Retention Offer (MPOs)
Revenue LTI (MPOs)
Revenue LTI (ZEPOs)
TSR LTI (MPOs)
TSR LTI (ZEPOs)
Kelly Bayer Rosmarin

Retention Offer (ZEPOs)

-
-
-
-
-

-
1,428,571
178,572
78,125
178,572
78,125

-
1,428,571
-
-
-
-

142,857
67,857
29,688
67,857
29,688

142,857
-
-
-
-

-
100
-
-
-
-

100
-
-
-
-

-
1,428,571
-
-
-
-

142,857
-
-
-
-

-
-
178,572
78,125
178,572
78,125

-
67,857
29,688
67,857
29,688

125,000

100

125,000

1. Before listing, 500,652 Cash Settled LTI options were granted to Michael Eidel. These were cancelled on 21 November 2019, the related liability of $96,503 was

derecognised in accordance with applicable accounting standards.

Additional Statutory Information
Shares Held by KMP
The number of ordinary shares in the Company held by each of the Company’s KMP, including their related parties, during the year
ended 30 June 2020 is set out below:

Member of KMP

Michael Eidel
Andrew Burns
Patrick Tuttle
Sibylle Krieger
Yaniv Meydan
Kelly Bayer Rosmarin
David Phillips

Balance at 1
July 2019

Granted as
Remuneration

Received on
Exercise

Other
Changes

Held at 30
June 2020

-
-
-
-
-
-
-

-
-
-
-
22,781,9201
-
-

-
-
180,906
53,125
-
26,560
113,496

-
-
180,906
53,125
22,781,920
26,560
113,496

These shares were issued on the conversion of convertible notes at the time of the IPO.

Other Transactions with KMP
Andrew Burns provided services under a consultancy agreement prior to his appointment as Chief Financial Officer. Consulting fees
of $119,517 were paid in connection with this agreement during the financial year. Payments were made on normal commercial terms
and conditions, and at market rates.

Patrick Tuttle and Sibylle Krieger provided consulting services related to the listing of the Company prior to their appointment as Non-
Executive Directors. Payments for these services totalled $18,700 and $24,214, respectively and were made on normal commercial
terms and conditions, and at market rates.

There were no loans made during the year to any KMP.

This concludes the remuneration report, which has been audited.

5555

Openpay Group Limited

Shares under option

Unissued ordinary shares
Unissued ordinary shares of Openpay Group Ltd under option at the date of this report are as follows:

Date options issued

22 November 2019
22 November 2019
23 June 2020
23 June 2020

Expiry date

Exercise price

9 December 2019
9 December 2019
15 July 2030
15 July 2030

$1.60
Nil
$1.60
Nil

Number under
option

2,457,143
125,000
1,298,084
567,912

No option holder has any right under the options to participate
in any other share issue of the Company or any other entity.

Included in these options are options granted as remuneration to
the directors and key management personnel.

Audit and non-audit services

Details of the amounts paid or payable to the auditor
(PricewaterhouseCoopers Australia) for audit and non-audit
services during the year are disclosed in Note 22 Remuneration
of auditors.

Insurance of officers and indemnities

The Group has indemnified each director and the company
secretary against liabilities or loss that may arise from their
position as officers of the Group and its controlled entities, to
the extent permitted by law, under agreements between each
director and the Company.

During the financial period, the Group paid a premium in
respect of a contract insuring the directors of the company, the
company secretary and executive officers of the Company and
of any related body corporate against liabilities incurred by
such a director, company secretary or executive officer to the
extent permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability and the
amount of the premium.

Proceedings on behalf of the company

No person has applied for leave of Court to bring proceedings
on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking
responsibility on behalf of the Company for all or any part of
those proceedings. The Company was not a party to any such
proceedings during the year.

The Company may decide to employ the auditor on assignments
additional to their statutory audit duties where the auditor’s
expertise and experience with the company and/or the Group
are important.

The board of directors, in accordance with advice provided
by the audit committee, is satisfied that the provision of the
non-audit services is compatible with the general standard of
independence for auditors imposed by the Corporations Act
2001. The directors are satisfied that the provision of non-
audit services by the auditor did not compromise the auditor
independence requirements of the Corporations Act 2001 for
the following reasons:

all non-audit services have been reviewed by the audit

committee to ensure they do not impact the impartiality and
objectivity of the auditor, and

none of the services undermine the general principles

relating to auditor independence as set out in APES 110 Code
of Ethics for Professional Accountants.

Directors’ Report.Annual Report 2020

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 58.

This report is made in accordance with a resolution of directors.

Patrick Tuttle

Chairman

Melbourne

31 August 2020

Michael Eidel

Managing Director

Melbourne

31 August 2020

5757

Openpay Group Limited

Auditor’s Independence Declaration

Financial Report.Openpay Group Limited

Consolidated Statement of Profit or Loss and
other Comprehensive Income.
For the year ended 30 June 2020

As at 30 June

Income
Other income
Total income
Receivables impairment expense
Employee benefits expense
Share-based payments expense
Depreciation and amortisation expense

Advertising and marketing expense
Changes in fair value of derivatives at fair value through profit or loss
Other operating expenses
Finance costs
Loss before tax
Income tax expense/(benefit)
Loss for the year

Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations
Other comprehensive loss for the year
Total comprehensive loss for the year
Loss attributable to:

Owners of Openpay Group Ltd

Total comprehensive loss attributable to:

Owners of Openpay Group Ltd

Loss per share of loss attributable to the ordinary equity
holders of Openpay Group Ltd

Notes

6
6

20
6(e)

21
6(c)
6(d)

2020
$

18,004,736
248,442
18,253,178
(7,890,239)
(18,509,516)
(2,719,828)
(1,311,917)

(3,197,704)
6,406,615
(20,635,877)
(5,795,970)
(35,401,258)
-
(35,401,258)

2019
$

10,992,809
-
10,992,809
(2,969,993)
(7,159,986)
(96,503)
(93,748)

(2,177,787)
(415,194)
(10,019,812)
(2,741,951)
(14,682,165)
-
(14,682,165)

18(b)

(1,194,540)
(1,194,540)
(36,595,798)

(417)
(417)
(14,682,582)

(35,401,258)

(14,682,165)

(36,595,798)

(14,682,582)

Basic loss per share
Diluted loss per share

19
19

Cents
(0.51)
(0.51)

Cents
(0.39)
(0.39)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.

Consolidated Balance Sheet.
As at 30 June 2020

As at 30 June

ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables

Property, plant and equipment
Intangible assets
Right-of-use assets
Other financial assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS

LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Employee benefits
Borrowings
Lease liabilities
Derivative financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
Lease liabilities
Employee benefits
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS/(LIABILITIES)

EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY

Annual Report 2020

Notes

2020
$

2019
$

8
9
10

11
12
3
13

14
17
15
3
16

15
3
17

70,058,763
45,179,708
2,144,573
117,383,044

1,099,394

824,648
1,095,317
3,913,296
146,079
7,078,734
124,461,778

6,553,035
991,296
-
1,694,219
-
9,238,550

37,220,677
2,456,235
35,767
39,712,679
48,951,229
75,510,549

8,705,229
25,136,269
186,398
34,027,896

1,365,181

300,602
-
-
113,190
1,778,973
35,806,869

4,709,004
436,025
1,500,000
-
2,296,324
8,941,353

34,498,931
-
29,514
34,528,445
43,469,798
(7,662,929)

18(a)
18(b)
18(c)

138,160,501
1,532,374
(64,182,326)
75,510,549

15,179,113
(417)
(22,841,625)
(7,662,929)

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

6161

Openpay Group Limited

Consolidated Statement of Changes in Equity.
For the year ended 30 June 2020

2020

Balance at 1 July 2019
Loss for the period
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners in their capacity
as owners
Options exercised
Conversion of convertible notes
Issue of share capital, net of costs

Employee shares issued
Share-based payments
Balance at 30 June 2020

2019

Balance at 1 July 2018
Initial application of accounting standards
Adjusted balance at 1 July 2018
Loss for the period
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Balance at 30 June 2019

Note

Ordinary
Shares
$

Accumulated
Losses
$

15,179,113
-
-
-

(22,841,625)
(35,401,258)
-
(35,401,258)

Reserves
$

(417)
-
(1,194,540)
(1,194,540)

Total
$

(7,662,929)
(35,401,258)
(1,194,540)
(36,595,798)

287,652
45,562,049
77,042,687

89,000
-
138,160,501

1,835,674
(7,775,117)
-

-
(64,182,326)

-
-
-

-
2,727,331
1,532,374

2,123,326
37,786,932
77,042,687

89,000
2,727,331
75,510,549

Ordinary
Shares
$

Accumulated
Losses
$

Reserves
$

Note

15,179,113
-
15,179,113
-
-
-
15,179,113

(8,018,654)
(140,806)
(8,159,460)
(14,682,165)
-
(14,682,165)
(22,841,625)

-
-
-
-
(417)
(417)
(417)

Total
$

7,160,459
(140,806)
7,019,653
(14,682,165)
(417)
(14,682,582)
(7,662,929)

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows.
For the year ended 30 June 2020

Annual Report 2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers
Payments to merchants
Payments to suppliers and employees (inclusive of GST)
Interest received on cash and cash equivalents
Interest paid - borrowings
Interest paid - leases
Net cash outflow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property, plant and equipment
Payments for internally developed technology
Net cash outflows from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings
Proceeds from issue of convertible notes
Proceeds from shareholder loans
Repayment of shareholder loans
Proceeds from capital raisings
Share issue costs
Principal elements of lease payments
Net cash inflows from financing activities

Net increase in cash and cash equivalents held
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year

Notes

2020
$

2019
$

186,930,348
(195,672,371)
(44,699,261)
172,541
(3,868,980)
(423,413)
(57,561,136)

96,341,157
(94,928,751)
(18,203,169)
-
(2,636,166)
-
(19,426,929)

(779,677)
(1,115,101)
(1,894,778)

(181,088)
-
(181,088)

19,382,623
26,200,000
-
-
83,767,380
(6,724,694)
(817,803)
121,807,506

62,351,592
8,705,229
(998,058)
70,058,763

7,500,000
13,160,441
17,589,559
(12,450,000)
-
-
-
25,800,000

6,191,983
2,513,246
-
8,705,229

The above consolidated statement of cashflows should be read in conjunction with the accompanying notes.

6363

Openpay Group Limited

Note 1:

Significant changes in the current
reporting period

a) Corporate reorganisation

Prior to the Restructure, Openpay Australia was the parent
company of the Group. Post the Restructure, Openpay became
the new legal parent of Openpay Australia. However, this did not
result in a business combination for accounting purposes. When
preparing the financial report for Openpay, the Restructure has
been accounted for as a capital reorganisation by Openpay. The
financial statements of Openpay present a continuation of the
existing financial performance and financial position of Openpay
Australia. Assets and liabilities are recorded at their existing
values in the balance sheet for Openpay. The statement of profit
or loss for Openpay is a continuation of the existing statement of
profit or loss for Openpay Australia.

b) ASX Listing and Initial Public Offering

On 16 December 2019 Openpay completed an Initial Public
Offering (IPO) and became listed on the Australian Stock
Exchange (ASX).

In accordance with the prospectus, Openpay raised
$50,000,000 through the issue of 31,250,000 shares.

c) Impact of COVID-19

Background
COVID-19 is a respiratory illness caused by a new form of
coronavirus. This outbreak and related government measures to
slow the spread of the virus have and are expected to continue
to have a significant impact on global economies, consumer
confidence and demand, financial wellbeing, capital markets and
most importantly the health and safety of our employees. The
extent of the impact of these measures and the expected economic
slowdown on the Group’s operational and financial performance will
depend on future developments, including the spread and duration
of the outbreak and the nature and duration of response measures
implemented which are uncertain and cannot be predicted.

To date, the Group has experienced continued growth during
the COVID-19 outbreak despite national lockdowns and forced
business closures and has not observed evidence of any
significant negative impact on other key business indicators
such as repayment behaviour or funding availability. The Group
continued to achieve strong growth in Australia and the UK
as exhibited by indicators such as Active Merchants, Active
Customers, Active Plans, and Total Transaction Values. New
merchants continue to be onboarded, particularly in Automotive
and Healthcare verticals, to increase reach and scale.

The Group has considered the impact of COVID-19 and other
market volatility in preparing its financial statements as outlined
below. Given the dynamic and evolving nature of COVID-19,
limited recent experience of the economic and financial impacts
of a pandemic, changes to the estimates and outcomes that
have been applied in the measurement of the Group’s assets
and liabilities may arise in the future. Other than adjusting events
that provide evidence of conditions that existed at the end of
the reporting period, the impact of events that arise after the
reporting period have been disclosed and will be accounted for
in future reporting periods.

Consideration of the statements of financial position and
further disclosures
In addition, the Group has considered the following key balance
sheet items and related disclosures that have been impacted by
COVID-19:

(i) Recoverability of Receivables and Provisions for

Doubtful Debts

In response to the challenges of COVID-19, the Group has
enhanced its credit risk decisioning processes to keep its credit
risk profile healthy and minimise financial hardship. The Group
has therefore observed that the percentage of receivables in
arrears has not deteriorated significantly from pre-COVID-19
levels and the number of financial hardship requests has not been
significant since the beginning of the pandemic.

The Group also undertook a model recalibration and validation
of the expected credit loss of its plan receivables. The model
parameters were revised but its ECL methodology, SICR
thresholds, and definition of default remained consistent with
prior periods. The impact of COVID-19 on the ECL disclosures
was also considered.

Impact of COVID‑19 on the macro‑economic outlook
The Group has used judgement to apply an overlay in adjusting
modelled ECL results during the period. This overlay reflects the
Group’s assessment of the economic impact of the pandemic
on the expected credit losses of its plan receivables portfolio. It
considered unemployment rates to be the key driver of stress in
future economic scenarios. Noting the wide range of possible
scenarios and macroeconomic outcomes, and the relative
uncertainty of how COVID-19 and its social and economic
consequences will flow, this overlay represents reasonable and
supportable forward-looking views as at the reporting date. Refer
to Note 9.

(ii) Availability of and repayment of borrowings

The Group funds its receivables through a combination of
external debt facilities and equity. Despite challenging market
conditions during the year, it has managed to secure new debt
funding for its UK business and raise additional equity via a
private placement from Australian institutional investors shortly
after.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

All the debt facilities currently in use are not contractually due for
repayment and/or renewal during the next 12 months. The Group
monitors its funding requirements closely, including a rolling
cashflow forecast for at least the next 12 months to ensure adequate
funding is available to support receivables growth, operating costs
and continued investment. As outlined in Note 4, based on this
assessment, the Group is confident that the group will be able to pay
its debts as and when they become due and payable.

Debt covenants have been assessed regularly to determine
whether there were any breaches for which disclosure is
required and considered in the forward forecast. Covenants
have been complied with throughout the year and up to the
date of this report, with the exception of one instance where
a technical covenant requirement was formally waived by the
relevant lender.

Note 2:

Statement of significant accounting
policies

(a) Basis of preparation

These general-purpose financial statements have been prepared
in accordance with Australian Accounting Standards and other
authoritative pronouncements of the Australian Accounting
Standards Board and the Corporations Act 2001.

The financial statements are for the Group consisting of Openpay
Group Ltd and its subsidiaries. Openpay Group Ltd is a company
limited by shares, incorporated and domiciled in Australia.
Openpay Group Ltd is a for-profit entity for the purpose of
preparing the financial statements.

(i) Compliance with IFRS
The consolidated financial statements of Openpay Group Ltd also
comply with International Financial Reporting Standards (IFRS) in
their entirety as issued by the International Accounting Standards
Board (IASB).

The following is a summary of the material accounting policies
adopted by the economic entity in the preparation of the financial
report, that have not been disclosed elsewhere in the financial
statements. The accounting policies have been consistently
applied, unless otherwise stated.

The financial statements were approved by the Board of Directors
and authorised for issue on 31 August 2020. The directors have
the power to amend and reissue the financial statements.

(ii) Historical cost convention
These financial statements have been prepared on a historical
cost basis except for the following:

Certain financial liabilities (including derivative instruments)

that have been measured at fair value.

(iii) New and amended standards adopted by the Group
The Group has applied AASB 16 Leases for the first time for the
annual reporting period commencing 1 July 2019.

The Group had to change its accounting policies as a result of
adopting AASB 16. The Group elected to adopt the new rules

retrospectively but recognise the cumulative effect of initially
applying the new standard on 1 July 2019. This is disclosed in Note 3.

The Group has applied AASB 133 Earnings per Share for the first
time as a result of becoming listed on the ASX. The accounting
policies applied are described in Note 2(s).

(iv) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 30 June 2020 reporting
periods and have not been early adopted by the Group.
These standards are not expected to have a material impact
on the entity in the current or future reporting periods and on
foreseeable future transactions.

(b) Principles of consolidation

Subsidiaries are all entities (including structured entities) over
which the Group has control. The Group controls an entity where
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the
date that control ceases.

Inter-company transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of impairment of the transferred asset.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with those policies adopted by
the Group.

(i) Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker. The Group operates within one operating segment. Refer
to Note 5.

(i) Function and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operations (“the functional
currency”). The consolidated financial statements are presented
in Australian Dollars ($) which is Openpay Group Ltd’s functional
and presentation currency.

(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies
at year end exchange rates are generally recognised in profit
or loss. They are deferred in equity if they relate to qualifying
cash flow hedges and qualifying net investment hedges or are
attributable to part of the net investment in a foreign operation.

6565

Openpay Group Limited

Foreign exchange gains and losses that relate to borrowings are
presented in the statement of profit or loss, within finance costs.
All other foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis within other operating
expenses.

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.

Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date
when the fair value was determined. Translation differences on
assets and liabilities carried at fair value are reported as part of
the fair value gain or loss. For example, translation differences
on non-monetary assets and liabilities such as equities held at
fair value through profit or loss are recognised in profit or loss
as part of the fair value gain or loss and translation differences
on non-monetary assets such as equities classified at fair value
through other comprehensive income are recognised in other
comprehensive income.

(iii) 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 balance sheet presented are

translated at the closing rate at the date of that balance sheet

income and expenses for each statement of profit or loss

and 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.

(d) Income tax

The income tax expense or credit for the period 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 and its
subsidiaries and associates operate and generate taxable income.

Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill.
Deferred income tax is also not accounted for if it arises from
initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been enacted
or substantially enacted by the end of the reporting period and
are expected to apply when the related deferred income tax
asset is realised, or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.

Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax
bases of investments in foreign operations where the company
is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not reverse
in the foreseeable future.

Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and liabilities
and where the deferred tax balances relate to the same taxation
authority. Current tax assets and tax liabilities are offset where
the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.

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.

Tax consolidation legislation
Openpay Group Ltd and its wholly-owned Australian controlled
entities have implemented the tax consolidation legislation. The
head entity, Openpay Group Ltd and the controlled entities in
the tax consolidated Group account for their own current and
deferred tax amounts. These amounts are measured as if each
entity in the tax consolidated Group continues to be a stand-
alone taxpayer in its own right.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

In addition to its own current and deferred tax amounts,
Openpay Group Ltd also recognises the current tax liabilities (or
assets) and the deferred tax assets arising from unused tax losses
and unused tax credits assumed from controlled entities in the
tax consolidated Group.

The entities have also entered into a tax funding agreement
under which the wholly-owned entities fully compensate
Openpay Group Ltd for any current tax payable assumed and
are compensated by Openpay Group Ltd for any current tax
receivable and deferred tax assets relating to unused tax losses
or unused tax credits that are transferred to Openpay Group Ltd
under the tax consolidation legislation. The funding amounts
are determined by reference to the amounts recognised in the
wholly-owned entities’ financial statements.

Assets or liabilities arising under tax funding agreements with
the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement are
recognised as a contribution to (or distribution from) wholly-
owned tax consolidated entities.

(e) Income

Openpay Buy Now Pay Smarter income (BNPS income) is derived
from the difference between the customer’s underlying sale
transaction value and the amount paid to the merchant for that
transaction, referred to as merchant fees. BNPS income including
merchant and consumer fees are recognised in the consolidated
statement of profit or loss using the effective interest rate (EIR)
method. These fees are accreted over the period from initial
payment to the merchant by Openpay to the final instalment paid
by the customer to Openpay. The Group defers BNPS income
over the life of the associated end consumer’s BNPS receivable.

Merchant fees
Merchant fees are a percentage of the customer sale transaction
value for each BNPS consumer plan. Openpay pays merchants
upfront the net amount of the previous day orders less the
merchant fees and Openpay then assumes all non-repayment
risk from the customer.

Consumer fees
BNPS services are designed with flexibility for the best consumer
experience and value considering the associated credit and
other business risks. Depending on the terms and conditions
of each BNPS product plan entered into and the associated
plan duration, the amount of the fixed transaction fees for each
payment can vary. Consumer fixed transaction fees are credited
against their outstanding BNPS receivable at the time payment
is made. Late fees are assessed when customers fail to make
payments when due and are recognised when paid.

(f) Plan receivables

Plan receivables are generated in the ordinary course of
business. They are generally due for settlement within 1 to
720 days. If collection of the amount is expected in one year
or less, they are classified as current assets, otherwise, they are
classified as non-current assets. The Group’s model is to hold
the receivables with the objective to collect the contracted
cashflows. Plan receivables are initially recognised at fair value
and are subsequently measured at amortised cost less an
allowance for impairment.

Impairment
The Group applies the general provision approach to account
for expected credit losses on receivables measured at amortised
cost. Expected credit losses are based on the difference between
the contractual cashflows due in accordance with the receivable
terms and all the cash flows that the Group expects to receive.

The Group has developed a model loss rate curve to estimate
future losses expected to be incurred on plan receivables. The
model loss rate curve is developed by factoring in historical loss
rates by consumer credit risk groups over time. The Group also
considers the impact of external macro-economic factors in the
expected credit loss rate.

At each reporting date, the Group assesses impairment risk
on initial recognition of the receivables and movements in the
ageing of outstanding receivables to estimate the expected
credit losses.

The Group classifies its receivables into three stages and measures
the expected credit loss based on credit migration between the
stages. Refer to Note 9 for further details on each stage.

(g) Leases

The Group’s accounting policies relating to leases are discussed
in Note 3.

(h) Impairment of assets

Assets are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair
value less costs of disposal and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows which
are largely independent of the cash inflows from other assets
or groups of assets (cash-generating units). Non-financial assets
other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at the end of each reporting
period.

6767

Openpay Group Limited

(i) Cash and cash equivalents

For the purpose of presentation in the statement of cash flows,
cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that
are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value, and bank
overdrafts. Bank overdrafts are shown within borrowings in
current liabilities in the balance sheet.

(j) Property, Plant and Equipment

Development costs that are directly attributable to the design
and testing of the technology are recognised as an intangible
asset when the following criteria are met:

It is technically feasible to complete the technology so that it

will be available for use;

Management intends to complete the technology and use or

sell it;

There is an ability to use or sell the technology;

It can be demonstrated how the technology will generate

probable future economic benefits;

Property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.

Adequate technical, financial and other resources to

complete the development and to use or sell the technology
are available; and

Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of any component accounted for
as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to profit or loss during the
reporting period in which they are incurred.

All property, plant and equipment is depreciated on a straight-
line basis over the expected useful life of the asset. The expected
useful life of assets within each asset class are as follows:

Furniture and fittings
IT equipment

5 years
3 years

The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.

Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit or
loss.

(k) Trade and other payables

These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year
which are unpaid. The amounts are unsecured and are usually
paid within 30 days of recognition. Trade and other payables
are presented as current liabilities unless payment is not due
within 12 months after the reporting period. They are recognised
initially at their fair value and subsequently measured at
amortised cost using the effective interest rate method.

(l) Intangible assets

The Group has developed technology to support its core
activities of providing technology-based payment solutions to
merchants and customers.

The expenditure attributable to the technology during its

development can be reliably measured.

Directly attributable costs that are capitalised as part of the
technology include payments to external contractors, any
purchase of materials and equipment, and personnel costs of
employees directly involved in the project.

Capitalised development costs are recorded as intangible assets
and amortised from the point at which the asset is ready for
use using the straight-line method. The expected useful lives of
intangible assets is as follows:

Internally developed technology

3-5 years

Costs associated with maintaining the technology are
recognised as an expense as incurred. Research expenditure and
development expenditure that do not meet the criteria above
are recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an
asset in a subsequent period.

Refer to Note 2(h) for the Group’s impairment policy.

(m) Borrowings

Borrowings are initially recognised at fair value, net of transaction
costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount is recognised
in profit or loss over the period of the borrowings using the
effective interest rate method. Fees paid on the establishment of
loan facilities are recognised as transaction costs of the loan to
the extent that it is probable that some or all of the facility will be
drawn down. In this case, the fee is deferred until the draw-down
occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised
over the period of the facility to which it relates.

Where borrowings include a conversion option, the portion of
the proceeds that relate to the fair value of the conversion option
are recognised as an embedded derivative. The embedded
derivative is recognised at fair value through profit and loss.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

Borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled
or expired. The difference between the carrying amount of a
financial liability that has been extinguished or transferred to
another party and the consideration paid, including any noncash
assets transferred or liabilities assumed, is recognised in profit or
loss as other income or finance costs.

Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting period.

(n) Borrowing costs

Borrowing costs are recognised as an expense in the period in
which they are incurred.

(o) Employee benefits

(i) Short‑term obligations
Liabilities for wages and salaries, including non-monetary
benefits 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 liabilities are presented as current
employee benefit obligations in the balance sheet.

(ii) Other long‑term employee benefit obligations
The Group also has liabilities for long service leave and annual
leave 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. These obligations are therefore 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 using market yields at the end of the
reporting period of high-quality corporate bonds with terms
and currencies that match, as closely as possible, the estimated
future cash outflows. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are recognised
in profit or loss.

The obligations are presented as current liabilities in the balance
sheet if the entity does not have an unconditional right to defer
settlement for at least 12 months after the reporting period,
regardless of when the actual settlement is expected to occur.

(iii) Share‑based payments
Share-based compensation benefits are provided to employees
via the Openpay Equity Incentive Plan and the Tax Exempt Plan.
Information relating to these plans is set out in Note 20.

Equity Incentive Plan
The fair value of options granted under the Openpay Equity
Incentive Plan is recognised as a share-based payments expense
with a corresponding increase in equity.

The total amount to be expensed is determined by reference to
the fair value of the options granted:

Including any market performance conditions (for example

the entity’s shar e price);

Excluding the impact for any service and non-market

performance vesting conditions (for example, sales growth
targets, profitability and an employee remaining an employee
of the entity over a specified time period); and

Including the impact of non-vesting conditions (for example
the requirement for employees to hold shares for a specified
period of time).

The total expense is recognised over the vesting period, which
is the period over which all of the specific vesting conditions
are to be satisfied. At the end of each period, the entity revises
estimates of the number of options that are expected to vest
based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if any,
in profit or loss, with a corresponding adjustment to equity.

Tax Exempt Plan
Under the Tax Exempt Plan, shares issued to employees for
no cash consideration vest immediately on grant date. On this
date, the market value of the shares issued is recognised as a
share-based payments expense with a corresponding increase in
equity.

(iv) Profit‑sharing and bonus plans
The Group recognises a provision for bonuses where
contractually obligated or where there is a past practice that has
created a constructive obligation.

(p) 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.

(q) Goods and Services Tax (GST)

Revenues, expenses and 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 acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of
GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included with other
receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components
of cash flows arising from investing or financing activities which
are recoverable from, or payable to the taxation authority, are
presented as operating cash flows.

(r) Provisions

Provisions are recognised when the Group has a present
legal or constructive obligation as a result of past events, it is

6969

Openpay Group Limited

probable that an outflow of resources will be required to settle
the obligation and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.

(s) Earnings per share

(i) Basic earnings per share
Basic earnings per share is calculated by dividing:

Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. The discount rate
used to determine the present value is a pre-tax rate that reflects
current market assessments of the time value of money and the
risks specific to the liability. The increase in the provision due to
the passage of time is recognised as interest expense.

Provisions are recognised when the Group has a legal or
constructive obligation, as a result of past events, for which it is
probable that an outflow of economic benefits will result, and
that outflow can be reliably measured.

Note 3:

Changes in accounting policies

the profit attributable to owners of the Company, excluding
any costs of servicing equity other than ordinary shares

by the weighted average number of ordinary shares

outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year and
excluding treasury shares

(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account:

the after-income tax effect of interest and other financing

costs associated with dilutive potential ordinary shares, and

the weighted average number of additional ordinary shares
that would have been outstanding assuming the conversion
of all dilutive potential ordinary shares

This note explains the impact of the adoption of AASB 16 Leases on the Group’s financial statements and also discloses the new
accounting policies that have been applied from 1 July 2019, where they are different from those applied in prior periods.

The Group has adopted AASB 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting period,
as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.

a) Adjustments recognised on adoption of AASB 16

All operating leases held by the Group as at 30 June 2019 were short-term in nature and are therefore recognised on a straight-line
basis under AASB 16.

Accordingly, there were no adjustments required to the financial statements as at 1 July 2019.

The following table reconciles the operating leases commitments of the Group as at 30 June 2019 to the lease liability recognised as at
1 July 2019.

Operating lease commitments disclosed as at 30 June 2019
Less: short-term leases recognised on a straight-line basis as expense
Lease liability recognised as at 1 July 2019

217,185
(217,185)
–

During the year ended 30 June 2020, the Group signed agreements relating to property leases in both Australia and the United
Kingdom. The Group recognises right-of-use assets and lease liabilities in relation to these leases based on the accounting policies
described in Note 3 (b) below. The Group’s weighted average incremental borrowing rate applied to lease liabilities was 13.04%.

Total right-of-use assets
Total lease liabilities

30 June 2020
$

1 July 2019
$

3,913,296
4,150,454

–
–

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

(b) The Group’s leasing activities and how these are

the exercise price of a purchase option if the lessee is

accounted for

reasonably certain to exercise that option; and

The Group leases its offices in Australia and the United Kingdom.
Rental contracts are typically made for fixed periods of 2 to 5
years. There are no extension options on the Group’s leases.

Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease
agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.

payments of penalties for terminating the lease, if the lease

term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit
in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee
would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions.

Until 30 June 2019, leases of property, plant and equipment were
classified as either finance or operating leases. Payments made
under operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight-line basis over
the period of the lease.

From 1 July 2019, leases are recognised as a right-of-use asset
and a corresponding liability at the date at which the leased asset
is available for use by the Group.

Each lease payment is allocated between the liability and finance
cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-use
asset is depreciated over the shorter of the asset’s useful life and
the lease term on a straight-line basis.

Right-of-use assets are measured at cost comprising the following:

Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net present
value of the following lease payments:

the amount of the initial measurement of lease liability;

any lease payments made at or before the commencement

date less any lease incentives received ;

fixed payments (including in-substance fixed payments), less

any lease incentives receivable;

variable lease payments that are based on an index or a rate; and

amounts expected to be payable by the lessee under residual

value guarantees.

(i) Amounts recognised in the balance sheet
The balance sheet shows the following amounts relating to leases:

any initial direct costs; and

restoration costs.

Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease
term of 12 months or less.

Right-of-use assets
Buildings

Lease liabilities
Current
Non-current

Additions to the right-of-use assets for the year ended 30 June 2020 were $4,947,377.

(ii) Amounts recognised in the statement of profit or loss

Depreciation – buildings
Interest (included in finance costs)

The total cash outflow for leases in the year ended 30 June 2020 was $1,241,214.

30 June 2020
$

1 July 2019
$

3,913,296

1,694,219
2,456,235
4,150,454

2020
$

1,057,396
423,412

–

–
–
–

2019
$

–
–

7171

Openpay Group Limited

Note 4:

Significant estimates and judgements

The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal
actual results. Management needs to exercise judgement in
applying the Group’s accounting policies.

This note provides an overview of the areas that involve a higher
degree of judgement or complexity and of items which are more
likely to be materially adjusted due to estimates and assumptions
turning out to be incorrect.

Detailed information about each of these estimates and
judgements is included in other notes together with information
about the basis of calculation for each affected line item in the
financial statements.

(a) Liquidity and funding

Overview
The Group’s business model is to make payments to merchants
in advance of the Group receiving the purchase price over time
from the customer. The business model and the stage of the
Group’s development requires external debt and equity funding
to support the growth in customer receivables, the Group’s
continued investment in platform capability and its operational
expenditure until it reaches scale and is in a profitable position.

During the year, the Group continued to secure additional debt
funding for receivables growth and raise funds through equity,
with net operating cash outflow of $57,561,136 offset by net cash
inflows from financing of $121,807,506.

Ongoing Cash Flow Management
The Directors have reviewed the cashflow forecasts for the Group
that indicate that the Group will have sufficient funding available
from working capital and unused committed debt facilities to
continue its current operations for at least 12 months from the
date of this report. The Group will need to renew expiring debt
facilities by November 2021 and continue to source new funding;
and/or raise funds through the issue of new shares in line with
the continued growth of the business.

The Group is required to comply with certain debt covenants
throughout the forecast period, which include: Loan-to-Value
Ratio (LVR) requirements and sufficient cash allocated to lender-
controlled cash accounts.

The Group is confident that they will be successful in obtaining
funding or capital in the future given the Group has been successful
in securing a new £25 million (approximately $44.8 million) debt
facility to fund its UK operations; and raised $33.7 million in share
capital from institutional placement through the second half of the
year ended 30 June 2020.

Funding Sources
To support the operations of the Group as a going concern, the
following sources of funding are available as of 30 June 2020

Cash at bank – $70,058,763

Debt financing in Australia – The debt financing is

represented by key facilities (Facilities) which are utilised to
fund its Australian receivables as follows:

– $40 million facility ($10 million undrawn at balance date)

expiring in November 2022

– $25 million facility ($25 million undrawn at balance date)
that the Group expects to draw down during the year
ending 30 June 2021. The facility requires repayment or
renewal by 30 November 2021. The Group has recently
signed amended terms to this facility in August 2020.
There are certain conditions that the Group needs to
satisfy prior to drawdown of this facility. The Group is
confident that these conditions will be met prior to the
date when the Group expects to require these funds.

Debt financing in UK – The business has secured a debt
financing facility in June 2020 to fund its UK receivables as
follows:

– £25 million (approximately $44.8 million) facility (£20

million (approximately $35.8 million) undrawn at balance
date) expiring in May 2022

Working capital – The Company also has a working capital
facility of $10 million ($10 million undrawn) available to fund
operating expenses.

(b) Provision for estimated credit loss on plan

receivables – refer Note 9

refer Note 21

Note 5:

Segment information

The Group provides ‘buy now pay later’ (BNPL) payment solutions
by partnering with merchants to provide BNPL repayment plans to
customers instore, in-app and online. The Group provides services
to Customers and Merchants in Australia/New Zealand and the
United Kingdom, which commenced operations during the year
ended 30 June 2020. While distinct geographic locations, the
operations in the United Kingdom are still in an early growth stage.
Additionally, as of 30 June 2020, management has not found
any significant difference in the economic performance of each
geographic location to justify a separate reportable segment. The
Chief Executive Officer is Chief Operating Decision Maker (CODM)
and monitors the operating results on a consolidated basis, and
accordingly, the Group has concluded that it has one reportable
segment. Revenues and non-current assets related to locations
outside Australia are not considered material as at 30 June 2020.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Note 6:

Profit and loss information

(a) Income

Income
Buy Now Pay Smarter income

Other income
Interest income on cash and cash equivalents
Other income

Annual Report 2020

2020
$

2019
$

18,004,736

10,992,809

183,395
65,047
248,442

–
–
–

Included within other items are government “cash boost” payments totalling $50,000 (2019: nil). There are no unfulfilled conditions
or contingencies attached to these payments. The Group did not benefit directly from any other forms of government assistance.

(b) Significant items

Net loss for the year includes the following items that are significant because of their nature, size or incidence:

2020
$

2019
$

Changes in fair value of derivatives at fair value through profit or loss

6,406,615

(415,194)

Expenses
Share-based payments expense arising on initial public offering
Other costs associated with initial public offering
Total costs associated with initial public offering

(2,279,286)
(2,945,884)
(5,225,170)

–
–
–

Other costs associated with initial public offering are included within other expense – professional services ($1,888,850), finance
costs ($666,000), employee benefits expense ($375,861) and advertising and marketing expense ($15,173) in the consolidated
statement of profit or loss.

Processing and data costs
Professional services
Technology and communication
Sales, general, and administrative
Total other expense

(d) Finance costs

Interest and finance costs – borrowings
Interest and finance costs – leases
Total finance costs

(e) Depreciation and amortisation

Depreciation – property, plant and equipment
Depreciation – right-of-use assets
Amortisation – intangible assets
Total depreciation and amortisation

2020
$

(5,262,374)
(8,401,561)
(2,677,595)
(4,294,347)
(20,635,877)

2019
$

(1,665,598)
(3,674,525)
(2,675,779)
(2,003,910)
(10,019,812)

(5,372,558)
(423,412)
(5,795,970)

(2,741,951)
–
(2,741,951)

234,737
1,057,396
19,784
1,311,917

93,748
–
–
93,748

7373

Openpay Group Limited

Note 7:

Income tax expense

This note provides an analysis of the Group’s income tax expense, shows what amounts are recognised directly in equity and how the
tax expense is affected by non-assessable income and non-deductible items. It also explains significant estimates made in relation to
the Group’s tax position.

(a) Numerical reconciliation of income tax expense to prima facie tax payable

Loss from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2019: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Difference in tax rates for foreign subsidiary
Change in fair value of derivatives
Share-based payment expenses
Other
Subtotal
Deferred tax assets not recognised
Income tax expense / (benefit)

(b) Tax losses

Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 30% (Australia)
Potential tax benefit at 18% (United Kingdom)
Total potential tax benefit

2020
$

2019
$

(35,401,258)
(10,620,377)

(14,628,165)
(4,137,063)

(1,041,065)
(1,921,985)
815,948
35,929
(12,731,550)
12,731,550
-

(251,386)
–
–
25,583
(4,362,866)
4,362,866
–

2020
$

52,342,869
12,177,993
2,232,416
14,410,409

2019
$

15,999,689
4,799,907
–
4,799,907

The unused losses have been incurred by the Group, the Directors have determined it is not prudent to recognise the deferred tax
asset as at 30 June 2020. The unrecognised tax losses can be carried forward indefinitely. Refer below for further details.

The balance comprises temporary differences attributable to:
Employee benefits
Research and Development costs for inhouse software expensed
Deferred receivables
Provision for impairment of receivables
Tax losses carried forward
Other
Total deferred tax assets not recognised

2020
$

2019
$

308,119
987,516
512,703
636,498
14,410,409
312,121
17,167,366

139,662
762,296
459,288
395,408
4,799,907
231,615
6,788,176

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

Note 8:

Cash and cash equivalents

Cash at bank and on hand

70,058,763

8,705,229

Restricted cash
The cash and cash equivalents disclosed above includes $8,500,000 (2019: $4,261,986) in restricted cash not available to the
Group at balance date. The restricted cash is held in Openpay SPV Pty Ltd. The cash is restricted under debt covenants to meet Loan
to Valuation Ratio (LVR) requirements on eligible receivables funded plus restricted cash. The Group notes that additional cash is
retained in the restricted cash facility to ensure compliance with debt covenant LVR requirements.

Note 9:

Receivables

Current
Plan receivables – face value
Unearned future income

Provision for expected credit loss
Net current plan receivables

Non-Current
Plan receivables – face value
Unearned future income

Provision for expected credit loss
Total non-current plan receivables
Total receivables

Impairment

2020
$

2019
$

48,725,135
(1,446,379)
47,278,756

27,578,297
(1,127,328)
26,450,969

(2,099,048)
45,179,708

(1,314,700)
25,136,269

1,384,640
(262,632)
1,122,008

(22,614)
1,099,394
46,279,102

1,798,736
(403,633)
1,395,103

(29,922)
1,365,181
26,501,450

The Group classifies its plan receivables into three stages, based on the age of receivables, to determine the impairment charge.

The Group has defined the three stages as follows:

Stage

Measurement Base

Receivables
not yet due
(Stage 1)
Receivables aged
1 to 90 days
(Stage 2)

Receivables aged
90 days or more
(Stage 3)

While the receivables are not yet due, a loss allowance has been established based on the expected
credit losses from a default event occurring over the next 12 months.

Although there is usually no objective evidence of impairment, when a consumer has not paid by
the due date, it is an indication that credit risk has increased. As a result, the loss allowance for that
receivable is measured at an amount equal to the lifetime ECL, being the expected credit losses that
result from all possible default events over the expected life of the receivables and BNPS income is
calculated on the gross carrying amount of the asset.
Stage 3 includes receivables aged 90 days or more where there is objective evidence of impairment
at reporting date. Ageing greater than 90 days is considered to have an adverse impact on the
estimated future cash flows of the receivables. The loss allowance is measured at an amount equal to
the lifetime ECL for increased credit risk and BNPS income is calculated on the net carrying amount.

Significant increase in credit risk since initial recognition

The provisioning model utilises receivables past due 1 day as the absolute criteria to identify increases in credit risk.

7575

Openpay Group Limited

Definition of default and credit-impaired assets

A receivable is considered to be in default at 90 days past due or if it satisfies the criteria for being written off. It is the Group’s policy to
write off balances that are outstanding for over 120 days or when the Group is unlikely to receive the outstanding amount in full based
on internal or external indicators.

Provision for expected credit loss movement

The provision for expected credit loss has increased $777,040 from 30 June 2019 to 30 June 2020. This was driven by the increase
in the value of customer receivables of $20,732,742 primarily in stages 1 and 2 as well as the economic overlay applied to adjust
modelled ECL results to reflect the Group’s assessment of the economic impact of the COVID-19 pandemic on the expected
credit losses of its plan receivables portfolio. The key driver of stress in future economic scenarios in determining the overlay was
unemployment rates. This resulted in an increase of 22.9% of the provision for expected credit loss prior to COVID-19 adjustment. The
provision for expected credit loss as a percentage of receivables has fallen from 4.58% of the gross customer receivables balance at
30 June 2019 to 4.23% at 30 June 2020 largely as a result of an improvement in the underlying credit quality of the receivables book.

The value of receivables in each of the stages, and the corresponding provision for expected credit loss is as follows:

2020
Receivables – face value
Provision for expected credit loss
Net receivables

2019
Receivables – face value
Provision for expected credit loss
Net receivables

Stage 1
Not yet due

Stage 2
Aged 1 – 90 days

Stage 3
Aged greater
than 90 days

Total

47,427,330
(983,582)
46,443,748

2,480,347
(943,009)
1,537,338

202,098
(195,071)
7,027

50,109,775
(2,121,662)
47,988,113

Stage 1
Not yet due

Stage 2
Aged 1 – 90 days

Stage 3
Aged greater
than 90 days

Total

27,550,518
(292,573)
27,257,945

1,286,959
(531,332)
755,627

539,556
(520,717)
18,839

29,377,033
(1,344,622)
28,032,411

The provision for expected credit loss as at 30 June reconciles to the opening provision as follows:

Balance at the beginning of the year
Impact of adoption of AASB 9
Increase in expected credit loss recognised in profit or loss during the year1
Receivables written off during the year as uncollectible1
Balance at the end of the year

1. Amounts include impairment losses due to credit and fraud.

Note 10:

Other current assets

Prepayments
Sundry debtors

2020
$

(1,344,622)
–
(6,533,440)
5,756,400
(2,121,662)

2019
$

(805,612)
(140,806)
(2,969,993)
2,571,789
(1,344,622)

2020
$

1,074,249
1,070,324
2,144,573

2019
$

133,524
52,874
186,398

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Note 11:

Property, plant and equipment

IT equipment
At cost
Accumulated depreciation
Total IT equipment

Furniture and fittings
At cost
Accumulated depreciation
Total furniture and fittings
Total property, plant and equipment

Annual Report 2020

2020
$

578,759
(265,263)
313,496

613,079
(101,927)
511,152
824,648

2019
$

321,666
(106,062)
215,604

123,447
(38,449)
84,998
300,602

Movements in carrying amounts of property, plant and equipment

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the year:

Year ended 30 June 2020
Balance at the beginning of the year
Additions
Disposals
Depreciation expense
Balance at the end of year

Year ended 30 June 2019
Balance at the beginning of the year
Additions
Depreciation expense
Balance at the end of the year

Note 12:

Intangible assets

Internally developed technology
At cost
Accumulated amortisation

Work in progress
Total intangible assets

IT equipment
$

Furniture and
fittings
$

215,604
257,093
–
(159,201)
313,496

109,190
175,768
(69,354)
215,604

84,998
516,806
(15,116)
(75,536)
511,152

107,769
1,623
(24,394)
84,998

Total
$

300,602
773,899
(15,116)
(234,737)
824,648

216,959
177,391
(93,748)
300,602

2020
$

2019
$

203,497
(19,784)
183,713

911,604
1,095,317

–
–
–

–
–

7777

Openpay Group Limited

Movements in intangible assets

Movement in the carrying amounts for each class of intangible assets between the beginning and the end of the year:

Year ended 30 June 2020
Balance at the beginning of the year
Additions
Transfers
Disposals
Amortisation expense
Balance at the end of year

Note 13:

Other financial assets

Non-Current
Other financial assets

Other financial assets are rental bonds relating to leases of the Group.

Note 14:

Trade and other payables

Trade payables
Share-based payments accrual
Other payables

Internally
developed
technology

-
203,497
-
-
(19,784)
183,713

Work in
progress
$

-
911,604
-
-
-
911,604

Total
$

-
1,115,101
-
-
(19,784)
1,095,317

2020
$

2019
$

146,079

113,190

2020
$

2,484,824
–
4,068,211
6,553,035

2019
$

2,815,857
96,503
1,796,644
4,709,004

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Note 15: Borrowings

Current
Unsecured liabilities
Loans from shareholders
Total current borrowings
Non-Current
Secured liabilities
Commercial bills

Unsecured liabilities
Convertible notes
Total non–current borrowings
Total borrowings

Annual Report 2020

2020
$

2019
$

–
–

1,500,000
1,500,000

37,220,677

19,354,386

–
37,220,677
37,220,677

15,144,545
34,498,931
35,998,931

Commercial bills
Openpay SPV Pty Ltd (as Borrower), a subsidiary of Openpay Pty
Ltd (as Agent, Originator and Servicer) has an agreement with
Global Credit Investments Pty Ltd in its capacity as trustee for
GCI Consumer Credit Finance Trust 1 (as Lender/Financier) to
provide a committed limited recourse commercial bill facility of
$40 million, of which $30 million is committed and $10 million is
uncommitted. This facility is secured against eligible receivables
and was established for the sole permitted purpose of funding
plan receivable assets for a term of three years. As at balance date,
the facility is drawn to $30 million. The total amount is repayable
on maturity being 28 November 2022. The facility bears interest
that is payable monthly in arrears. The interest rate is based on the
Bank Bill Swap Rate plus a fixed margin.

In June 2020, the Group entered into a UK funding agreement
with Global Growth Capital (GGC) for £25 million (approx. $44.8
million) with an option to extend to £60 million (approx. $107.4
million) for funding plan receivable assets. As at 30 June 2020, £10
million (approx. $17.9 million) is immediately available and a further
£15 million (approx. $26.9 million) available upon satisfaction
of further conditions precedent. Of the £25 million (approx.
$44.8 million) committed, £5 million (approx. $9.0 million) is
drawn as of 30 June 2020. The facility bears interest that is payable
monthly in arrears based on a fixed interest rate and the total facility
amount is repayable on maturity being 31 May 2022.

Convertible notes
Convertible notes totalling $26,200,000 were issued during the
year ended 30 June 2020. All convertible notes were redeemed
for ordinary shares in the Company at the time of the IPO.

255 finance facility
Openpay SPV 2 Pty Ltd (as Borrower), a subsidiary of Openpay
Pty Ltd (as Guarantor, Originator and Servicer) has an agreement
with Lease Collateral Pty Ltd as trustee for the Specialised Finance

Warehouse Trust 1 (as Lender/Financier) to provide a committed
limited recourse loan facility of $25 million, with the option to
extend to $100 million. The facility was established for the sole
purpose of funding plan receivable assets on an undisclosed
basis. As at balance date this facility has not been drawn as the
financial close has not occurred. Financial close will occur upon
the satisfaction of conditions precedent at which time a 12 month
availability period will commence with a maturity date for the
facility three months after the last day of the availability period.

The facility bears interest that is payable monthly in arrears. The
interest rate is based on the “cash rate target” as published by
the Reserve Bank of Australia plus a fixed margin. Openpay Pty
Ltd is required to provide a minimum credit enhancement of
$5 million for the duration of the facility term.

Working capital facility
The Group has access to a working capital facility provided by
A H Meydan Pty Ltd, a related party, totalling $10 million. The
facility bears interest that is payable monthly in arrears based on a
fixed rate and expires on or about 25 October 2021. This facility
remained undrawn at 30 June 2020.

Debt covenants
The facilities are subject to covenants that are in line with
standard market practice given the nature of the financing
facilities. The primary covenant for all facilities is a maximum LVR
which varies based on negotiated terms. The LVR is measured
as the value of the facility drawn over total eligible receivables
funded plus restricted cash. Covenants have been complied
with throughout the year and up to the date of this report,
with the exception of one instance where a technical covenant
requirement was formally waived by the relevant lender.

7979

Openpay Group Limited

d) Assets pledged as security

The amounts of assets pledged as security for current and non-current borrowings are:

Current

Plan receivables

2020
$

2019
$

49,928,370

27,923,593

The plan receivables have been pledged as security against $30 million of the commercial bill facility and £5 million (approx.
$9.0 million) of the UK financing facility.

Note 16: Financial derivative liabilities

Embedded derivative – convertible notes
Embedded derivative – commercial bills

Details of the inputs used to calculate the fair values of embedded derivatives are disclosed in Note 21.

Note 17: Employee benefit obligations

2020
$

–
–
–

2019
$

1,541,500
754,824
2,296,324

Current
Leave obligations
Non-Current
Leave obligations

2020
$

2019
$

991,296

436,025

35,767

29,514

The leave obligations cover the Group’s liabilities for long service leave and annual leave which are classified as either other long-term
benefits or short-term benefits, as explained in Note 2(o).

The current portion of this liability includes all the accrued annual leave, the unconditional entitlements to long service leave
where employees have completed the required period of service and also for those employees who are entitled to pro-rata payments
in certain circumstances.

Note 18: Equity

(a) Share Capital

Ordinary shares – fully paid

2020
$

2019
$

138,160,501

15,179,113

No. Shares
107,868,028

No. Shares
12,516,250

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020
Annual Report 2020

(i) Movements in ordinary shares

Opening balance
Share split
Options converted
Conversion of convertible notes
Issue of share capital, net of costs
Employee shares issued under employee
gift plan
Closing balance

2020
No.

12,516,250
25,032,500
1,327,079
23,616,832
45,319,742

2019
No.

12,516,250
–
–
–
–

2020
$

15,179,113
–
287,652
45,562,049
77,042,687

55,625
107,868,028

–
12,516,250

89,000
138,160,501

2019
$

15,179,113
–
–
–
–

–
15,179,113

(ii) Ordinary shares
Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion
to the number of and amounts paid on the shares held.

On a show of hands, every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and on a poll
each share is entitled to one vote.

Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

(b) Reserves

Foreign currency translation reserve
Balance at the beginning of the year
Other comprehensive loss for the year
Balance at the end of the year

Share-based payments reserve
Balance at the beginning of the year
Share-based payments expense
Balance at the end of the year
Total reserves

2020
$

(417)
(1,194,540)
(1,194,957)

2020
$

–
2,727,331
2,727,331
1,532,374

2019
$

–
(417)
(417)

2019
$

–
–
–
(417)

Foreign currency translation reserve
Exchange differences arising on translation of the foreign-controlled entity are recognised in other comprehensive income as
described in Note 2(c) and accumulated within a separate reserve within equity. The cumulative amount is reclassified to profit or loss
when the net investment is disposed of.

Share-based payments reserve
This reserve records the cumulative value of employee service received for the issue of share options. When the option is exercised
the amount in the share option reserve is transferred to share capital.

8181

Openpay Group Limited

Movements in accumulated losses were as follows:

Balance at beginning of the year
Impact of initial adoption of accounting standards
Net loss for the period
Options exercised
Conversion of convertible notes
Balance at end of the year

2020
$

(22,841,625)
–
(35,401,258)
1,835,674
(7,775,117)
(64,182,326)

2019
$

(8,018,654)
(140,806)
(14,682,165)
–
–
(22,841,625)

Conversion of convertible notes
The convertible notes were mandatorily converted on IPO at a conversion price that was greater than the market price, resulting in
23,616,832 shares issued (see Note 18 (a)) with a net value of $37,786,932: being $7,775,117 less than the carrying amount of the
host debt as at conversion of $42,958,500 plus the opening carrying value of the embedded derivative of $1,541,500 plus accrued
interest of $1,062,049.

Note 19: Loss per Share

(a) Losses used in calculating loss per share

Loss attributable to the owners of the consolidated entity used to calculate
basic and diluted loss per share

(b) Weighted average number of shares used as the denominator

Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted loss per share

2020
$

2019
$

(35,401,258)

(14,682,165)

2020
$

2019
$

68,747,665

37,548,750

Potential ordinary shares as at 30 June 2020 are not dilutive and therefore no adjustment is required to the denominator used in
calculating loss earnings per share.

Note 20: Share-based payments

The Group has established an Equity Incentive Plan (EIP) designed
to provide long-term incentives to eligible employees and/or
directors. Under the plan, cash, performance rights, options or
shares may be granted to participants. Participation in the plan is
at the Board’s discretion and no individual has a contractual right
to participate in the plan or to receive any guaranteed benefits.

Under the EIP, the Group has provided both a Long Term
Incentive (LTI) offer and a Retention Offer. There are two
categories of options issued under each offer: zero strike price
options (ZEPOs), which are nil exercise price options and market

price options (MPOs) which have an exercise price referable to
the fair value of options at the date of the grant.

Long Term Incentive (LTI)
The amount of options that will vest under the LTI depends on the
Group’s Total Shareholder Return (TSR) and Revenue CAGR over
a period covering FY20 through to FY22. The vesting of options
is also contingent on service-based conditions. All options will
expire 10 years past the grant date.

Options are granted under the plan for no consideration and
carry no dividend or voting rights.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Set out below are summaries of options granted under the plan:

As at 1 July 2019
Granted during the period:

Zero strike price options (ZEPOs)
Market price options (MPOs)

As at 30 June 2020

Annual Report 2020

Average exercise
price per share
option

–

Nil
$1.60
$1.11

Number of
options

–

567,912
1,298,084
1,865,996

During the year ended 30 June 2019, 500,652 Cash Settled LTI options were granted. These were cancelled on 21 November 2019,
and the related liability of $96,503 was derecognised.

Retention Offer
The Retention Offer options vested immediately on admission of the Group to the official list of ASX and were not subject to any other
performance conditions. Vested Retention Offer MPOs are subject to exercise restrictions for 2 years from vesting.

Options are granted under the plan for no consideration and carry no dividend or voting rights.

Set out below are summaries of options granted under the plan:

As at 1 July 2019
Granted during the period:

Zero strike price options (ZEPOs)
Market price options (MPOs)

As at 30 June 2020

Average exercise
price per share
option

–

Nil
$1.60
$1.52

Number of
options

–

125,000
2,457,143
2,582,143

Fair value of options granted
The assessed fair value at grant date of options granted during the period ended 30 June 2020 ranges between $0.81 and $2.52
per option.

The fair value at grant date is independently determined using an adjusted form of the Black-Scholes Model which includes a Monte
Carlo simulation model that takes into account the exercise price, the term of the option, the impact of dilution (where material), the
share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate
for the term of the option and the correlations and volatilities of the peer Group companies.

The model inputs for options granted during the period ended 30 June 2020 included:

Input

LTI Plan

a) Exercise price:
b) Grant date
c) Expiry date:
d) Share price at grant date:
e) Expected share-price volatility:
f) Expected dividend yield:
g) Risk-free interest rate:

$1.60 (MPO), Nil (ZEPO)
23 June 2020
15 July 2030
$2.49
70%
0%
0.41% (MPO), 0.27% (ZEPO)

Retention Plan

$1.60 (MPO), Nil (ZEPO)
22 November 2019
9 December 2029
$1.60
60%
0%
0.82%

The expected price volatility is based on historic volatility (based on the remaining life of the options), adjusted for any expected
changes to future volatility due to publicly available information.

8383

Openpay Group Limited

Note 21: Fair value measurement of financial instruments

(i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised
and measured at fair value in the financial statements. To provide an indication of the reliability of the inputs used in determining fair
value, the Group has classified its financial instruments into the three levels prescribed in the accounting standards. An explanation of
each level follows underneath the table.

June 2020
Embedded derivative – convertible notes
Embedded derivative – commercial bills

June 2019
Embedded derivative – convertible notes
Embedded derivative – commercial bills

Level 1

Level 2

Level 3

Total

–
–
–

1,541,500
754,824
2,296,324

There were no transfers between levels during the year.

Level 1: The fair value of financial instruments traded in active
markets (such as publicly traded derivatives and equity securities)
is based on quoted market prices at the end of the reporting
period. The quoted market price used for financial assets held
by the Group is the current bid price. These instruments are
included in level 1.

Level 2: The fair value of financial instruments that are not traded
in an active market (for example, over-the-counter derivatives) is
determined using valuation techniques which maximise the use
of observable market data and rely as little as possible on entity-
specific estimates. If all significant inputs required to fair value an
instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on
observable market data, the instrument is included in level 3. This
is the case for unlisted equity securities.

(ii) Valuation techniques
Embedded derivatives are valued using option pricing
techniques, including the Black-Scholes model. Given that, at
the time of performing valuations, the Company’s shares were
unlisted, the resulting valuations are classified as level 3.

(iii) Fair value estimates using significant unobservable inputs
The following table summarises the movements in level 3
instruments:

Opening balance at 30 June 2019
Changes in fair value through profit and loss
Derecognition on conversion of option
Closing balance at 30 June 2020

Embedded
derivatives –
commercial bills

Embedded
derivatives –
convertible
notes

754,824
1,368,502
(2,123,326)
–

1,541,500
(7,775,117)
6,233,617
–

Total

2,296,324
(6,406,615)
4,110,291
–

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

Opening balance at 30 June 2018
Initial recognition
Changes in fair value through profit and loss
Closing balance at 30 June 2019

Embedded
derivatives –
commercial bills

339,630
–
415,194
754,824

Embedded
derivatives –
convertible
notes

–
1,541,500
–
1,541,500

Total

339,630
1,541,500
415,194
2,296,324

(iv) Valuation inputs and relationships to fair value
Accounting for embedded derivative liabilities is a key accounting estimate. The following outlines the key inputs that are used to
determine the valuation of these liabilities:

Item

Unobservable inputs

Embedded derivatives – commercial bills and
convertible notes

Share Price
Volatility
Risk-free rate
Expected dividend yield
Likelihood of conversion

2020

(at conversion)

$1.60
N/A
N/A
N/A
N/A

Inputs

2019

$4.11
50%
0.98%
0%
75%

(v) Valuation processes
Openpay engages third party service providers to assist with the
valuation of embedded derivatives at each reporting date. The
work of the service provider is overseen by the Openpay finance
team.

The valuation of the embedded derivatives uses a number of
inputs including share price, expected volatility of share price,
exercise price, expected dividend yield, the risk-free interest rate
and expected life (or exercise date) of the options.

The main level 3 inputs used by the Group are derived and
evaluated as follows:

–

The IPO share price of $1.60 has been used in the
valuation calculations at the time of conversion. The

share price as at 30 June 2019 was calculated using a
multiple of revenue approach including the following
unobservable inputs:

– Discount rates for financial liabilities are determined
as a capital asset pricing model to calculate a pre-tax
rate that reflects current market assessments of the
time value of money and the risk of the specific asset

–

Earnings growth factors for unlisted securities are
estimated based on market information for similar
types of companies

–

Expected volatility was measured using the historical
volatility of selected benchmark listed companies.

8585

Openpay Group Limited

Note 22: 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:

Audit and review of financial reports
Total remuneration for audit and review of financial reports

Other services
Initial public offering advisory services
Other advisory services
Total other services
Total remuneration of PricewaterhouseCoopers Australia

Note 23:

Interests in other entities

2020
$

370,000
370,000

477,231
215,220
692,451
1,062,451

2019
$

220,000
220,000

–
–
–
220,000

The Group’s subsidiaries as at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of
ordinary shares that are held directly by the Group, and the proportion of ownership interests held equates to the voting rights held
by the Group. The country of incorporation or registration is also their principal place of business.

Subsidiary

Openpay Pty Ltd
Openpay SPV Pty Ltd
Openpay Solutions Pty Ltd
Openpay SPV 2 Pty Ltd
Openpay SPV 3 Pty Ltd
Openpay UK Limited
Openpay UK SPV 1 Ltd

Principal place of
business /
Country of
Incorporation

Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom

Ownership interest
held by the Group

Principal
activities

2020

2019

100
100
100
100
100
100
100

100
100
100
100
100
100
-

(1)
(2)
(3)
(4)
(5)
(6)
(7)

Principal Activities
(1) Australian operations
(2) Special purpose vehicle for global investments facility
(3) Holder of Australian Credit Licence
(4) Special purpose vehicle for 255 finance
(5) Special purpose vehicle for funding as required
(6) United Kingdom operations
(7) Special purpose vehicle for UK finance/funding arrangements

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

Note 24: Related party transactions

(a) Key management personnel compensation

Key management personnel remuneration (excluding Directors Fees) included within employee expenses for the year is shown below:

Short-term employee benefits
Post-employment benefits
Share-based payments

(b) Transactions with other related parties

Purchases of consulting services from other related parties
Purchases of software development services from entities controlled by key
management personnel

Balance at the beginning of the year
Loans advanced
Loans repaid
Loans converted to convertible notes
Interest charged
Interest paid
Balance at the end of the year

(d) Terms and conditions

The related party loan facilities expired in February 2020.

Note 25: Financial Risk Management

2020
$

628,171
33,910
1,463,460
2,125,541

2019
$

522,535
33,356
96,503
652,394

2020
$

–

2019
$

65,741

362,602

592,411

2020
$

–
–
–
–
–
–
–

2019
$

–
13,450,000
(12,450,000)
(1,000,000)
273,715
(273,715)
–

The Group’s principal financial instruments comprise receivables, payables, cash and short-term deposits and interest-bearing
borrowings.

The Group manages its exposure to key financial risks, including interest rate risk, foreign currency risk, liquidity and credit risk in
accordance with the Group’s financial risk management policy.

These mitigations include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts
for interest rate and foreign exchange, and by depositing funds with several different banking institutions. Ageing analysis and
monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of
future rolling cash flow forecasts.

8787

Openpay Group Limited

Interest rate risk

Foreign currency risk

Credit risk

Liquidity risk

(a) Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash
equivalents, other financial assets and interest-bearing borrowings. Refer Note 25(a).
Risk that fluctuations in foreign exchange rates may impact the Group’s results. The Group’s
consolidated balance sheet at 30 June 2020 can be affected by movements in the US Dollar,
New Zealand Dollar, and Great British Pound. Refer Note 25(b).
The Group’s exposure to credit risk arises from potential default of plan receivables, with a
maximum exposure equal to the carrying amount of these instruments.

The Group regularly reviews the adequacy of the provision for expected credit loss to ensure
that it is sufficient to mitigate credit risk exposure in terms of financial reporting. The provision
for expected credit loss represents management’s best estimate at reporting date of the
expected credit losses based on their experienced judgement. Further details have been
provided in Note 2(c).

Credit risk also arises from cash held with banks and financial institutions.
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of credit facilities. The Group mitigates funding and liquidity risks by ensuring
it has (1) sufficient funds on hand to meet its working capital and investment objectives;
(2) has sufficient controlled cash allocated in Openpay SPV Pty Ltd, in a lender-controlled cash
account, to meet LVR requirements (3) is focused on improving operational cash flow; (4) has
adequate flexibility in financing facilities to balance the growth objectives with short-term and
long-term liquidity requirements and (5) complied with all debt covenants. Refer Note 25(d).

At balance date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk:

Financial assets
Cash and cash equivalents
Total financial assets

Financial liabilities
Interest bearing borrowings
Total financial liabilities
Net exposure

2020
$

2019
$

44,365,044
44,365,044

3,000,046
3,000,046

28,495,535
28,495,535
15,869,509

19,354,386
19,354,386
(16,354,340)

During the 2020 financial year the weighted average of the variable interest rate component for interest bearing borrowings subject
to interest rate risk was 9.35% (2019: 11.12%). Interest rate risk is based on the variable component of interest bearing borrowings that
is exposed to change.

There are no other financial liabilities subject to interest rate risk as at 30 June 2020. The Group has not hedged any interest rate risks
during the year or at 30 June 2020.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June, if interest
rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been
affected as follows:

Post tax profit

Higher / (Lower)

Equity

Higher / (Lower)

2020

2019

2020

2019

60,616
(242,466)

43,815
(187,209)

60,616
(242,466)

43,815
(187,209)

Judgements of reasonable possible
movements
-0.25% (25 basis points)
+1.00% (100 basis points)

(b) Foreign currency risk

The Group has not hedged any foreign currency risk during the financial year or at 30 June 2020.

At 30 June 2020, the Group has the following exposure to foreign currency, expressed in Australian dollars.

Financial assets
Cash and cash equivalents
NZD
GBP
Receivables and other financial assets
NZD
GBP
Financial liabilities
Trade and other payables
NZD
GBP
USD

The aggregate net foreign exchange gains/losses recognised in profit or loss were as follows:

2020
$

2019
$

122,884
13,245,992

171,469
15,071,909

5,974
853,064
103,998

58,656
171,601

257,251
210,743

25,914
550,584
205,846

2020
$

2019
$

Net foreign exchange gain/(loss) recognised in loss before income tax

(49,493)

175,934

8989

Openpay Group Limited

The following sensitivity analysis is based on the foreign currency
risk exposures in existence at the reporting date. At 30 June, if
foreign exchange rates had moved, as illustrated in the table

below, with all other variables held constant, post tax profit and
equity would have been affected as follows:

Judgements of reasonable possible movements
AUD / NZD +5%
AUD / NZD -5%

AUD / USD +5%
AUD / USD -5%

AUD / GBP +5%
AUD / GBP -5%

Credit risk arises from cash and cash equivalents and credit
exposures to customers through outstanding plan receivables.

(i) Risk management
Credit risk is managed on a Group basis.

The Group utilises its proprietary risk decision rules to mitigate
credit risk for plan receivables. The Group regularly reviews the
adequacy of the provision for expected credit loss to ensure that
it is sufficient to mitigate credit risk exposure in terms of financial
reporting. Third party providers are engaged to review the inputs
used in the Group’s impairment models.

(ii) Impairment of financial assets
The Group’s plan receivables are subject to impairment under
the expected credit loss model. While cash and cash equivalents
are also subject to the impairment requirements of AASB 9, the
identified impairment loss was immaterial due to the Group’s
banking partners having strong credit ratings. A description of
the credit loss model applied by the Group to plan receivables
decision making can be found in Note 9.

Post tax profit

Higher / (Lower)

Equity

Higher / (Lower)

2020
$

2019
$

2020
$

2019
$

(14,419)
14,419

5,200
(5,200)

(14,500)
14,500

10,292
(10,292)

(14,419)
14,419

5,200
(5,200)

1,373,242
(1,373,242)

8,412
(8,412)

1,373,242
(1,373,242)

(14,500)
14,500

10,292
(10,292)

8,412
(8,412)

The provision for expected credit loss is measured on the
following basis. The Group has developed a model loss rate
curve to estimate future losses expected to be incurred on our
plan receivables. The model loss rate curve is developed by
factoring in historical loss rates by consumer credit risk groups
over time. The Group also considers the impact of external
macro-economic factors in the expected credit loss rate. The
Group note that the expected credit losses have not been
discounted for the time value of money due to the short-term
nature of most consumer plans which have a duration of less than
6-12 months, and the Group has assessed the financial impact of
discounting as immaterial.

As outlined in Notes 1(c) and 9, given the ongoing market
uncertainty due to the impact of COVID-19, the Group has
applied an overlay to adjust modelled ECL results to reflect the
Group’s assessment of the economic impact of the pandemic on
the expected credit losses of its plan receivables portfolio.

(iii) Net impairment losses on financial assets recognised in
the profit or loss
During the year, the followings gains/(losses) were recognised in
profit or loss in relation to impaired financial assets:

Impairment losses on movement in provision for expected loss for plan receivables
Net impairment losses on financial assets

2020
$

7,890,238
7,890,238

2019
$

2,969,993
2,969,993

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

(d) Liquidity risk

Liquidity risk management implies maintaining sufficient cash
and the availability of funding through an adequate amount of
committed credit facilities to meet obligations when due and to
ensure there is sufficient cash allocated in Openpay SPV Pty Ltd,
the lender-controlled cash account, to meet LVR requirements.

Management monitors rolling budgets of the Group’s liquidity
reserve (comprising the undrawn borrowing facilities below) and
cash and cash equivalents on the basis of expected cash flows
and expected cash restrictions.

(i) Financing arrangements
The Group had access to the following undrawn borrowing
facilities at the end of the reporting period:

Expiring within one year (bank overdraft and bill facility)
Expiring beyond one year (bill facility)
Convertible notes issued but not subscribed

2020
$

–
80,803,795
–
80,803,795

2019
$

20,000
–
43,200,000
43,220,000

(ii) Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into
relevant maturity groups based on their contractual maturities.

The amounts disclosed in the table are the contractual
undiscounted cashflows and do not include future interest.
Balances due within 12 months equal their carrying values as the
impact of discounting is not significant.

Between
1 and 2 years
$

Between 2
and 5 years
$

Total
contractual
cash flows
$

Carrying
amount of
liabilities
$

–
8,950,949
1,281,670
10,232,619

–
30,000,000
2,008,171
32,008,171

2,484,824
38,950,949
5,082,049
46,517,822

2,484,824
37,220,677
4,150,454
43,855,955

As at 30 June 2020

Trade payables
Borrowings
Lease liabilities
Total

As at 30 June 2019

Trade payables
Borrowings
Total

Less than 6
months
$

2,484,824
–
886,472
3,371,296

Less than 6
months
$

2,815,857
1,500,000
4,315,857

Between
6 and 12
months
$

–
–
905,736
905,736

Between
6 and 12
months
$

Between
1 and 2 years
$

Between 2
and 5 years
$

–
–
–

–
20,000,000
20,000,000

–
16,800,000
16,800,000

The timing of expected outflows is not expected to be materially different from contracted cashflows.

Total
contractual
cash flows
$

2,815,857
38,300,000
41,115,857

Carrying
amount of
liabilities
$

2,815,857
35,998,931
38,814,788

9191

Openpay Group Limited

Note 26: Capital Management

The Group’s objectives when managing capital are to:

–

Safeguard their ability to continue as a going concern, in
order to provide returns for shareholders and benefits for
other stakeholders, and

– Maintain an optimal capital structure to reduce the cost

of capital.

In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders or issue new shares or sell assets to
reduce debt.

(i) Debt covenants
As detailed in Note 15, the Group has various financing facilities
in place. Covenants have been complied with throughout the
year and up to the date of this report, with the exception of one
instance where a technical covenant requirement was formally
waived by the relevant lender.

(ii) Dividends
No dividends have been paid or declared. The Directors have
not recommended the payment of any dividends post year end.

(iii) Franking credits
There are no franking credits available for subsequent reporting
periods.

Note 27: Capital and leasing commitments

(a) Operating Leases

The Group leases various offices under non-cancellable
operating leases expiring within 2 to 5 years. The leases have
varying terms, escalation clauses and renewal rights. On renewal,
the terms of the leases are renegotiated.

From 1 July 2019, the Group has recognised right-of-use assets
for these leases, except for short-term and low-value leases.

Minimum lease payments under non-cancellable operating leases:
– not later than one year
– between one year and five years
– later than five years

(b) Capital Commitments

The Group had no capital commitments as at 30 June 2020 (2019: Nil).

2020
$

–
–
–
–

2019
$

217,185
–
–
217,185

The Group has a bank guarantee totalling $915,103 as at 30 June 2020 (2019: Nil). The bank guarantee relates to security for the
Group’s lease of its premises.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020Annual Report 2020

Note 28: Contingencies

As set out in the Company’s IPO Prospectus, Openpay received a
letter of demand from a former employee, Mr Simon Scalzo, who
was CEO of Openpay Pty Ltd from 1 November 2016 to late June
2017, claiming the former employee is required to be vested with
a 15% equity entitlement in “Openpay Pty Ltd’s group”.

Mr Scalzo subsequently commenced legal proceedings against
Openpay Pty Ltd in the Supreme Court of Victoria.

Openpay has retained and is advised by Senior Counsel in respect
of the claim. Openpay continues to consider that the claim lacks
substantive merit.

Note 29: Cash flow information

(a) Reconciliation of loss after income tax to net cash
inflow from operating activities

Loss for the period
Adjustments for:
Depreciation and amortisation
Receivables impairment
Non cash share based payments
Fair value adjustment to embedded derivatives
Accrued interest on convertible notes and shareholder loans
Gain on modification of loan
Net capitalisation of financing costs
Loss on disposal of property, plant and equipment
Changes in operating assets and liabilities:
Decrease / (increase) in other operating assets

Increase / (decrease) in trade creditors and other operating liabilities

Net cash inflow (outflow) from operating activities

(b) Non-cash investing and financing activities

Conversion of convertible notes to shares
Conversion of shareholder loans to shares
Shares issued to employees for no cash consideration
Shares issued to financiers on the exercise of options

The Group’s cash and net debt position at the end of the reporting period is as follows:

Cash and cash equivalents
Borrowings – repayable within one year
Borrowings – repayable after one year
Net cash / (net debt)

2020
$

2019
$

(35,401,258)

(14,682,165)

1,311,917
6,533,441
2,719,828
(6,406,615)
1,176,005
(619,112)
(476,434)
12,435

93,748
2,969,993
96,503
415,194
105,785
–
–
–

(28,994,364)
2,583,021
(57,561,136)

(9,602,822)
1,176,835
(19,426,929)

2020
$

43,000,000
1,500,000
89,000
467,172

2019
$

–
3,639,559
–
–

2020
$

70,058,763
–
(37,220,677)
32,838,086

2019
$

8,705,229
(1,500,000)
(34,498,931)
(27,293,702)

9393

Openpay Group Limited

Cash and cash equivalents
Gross debt – fixed interest rates
Gross debt – variable interest rates
Net cash / (net debt)

Note 30: Parent entity

(a) Summary financial information

2020
$

70,058,763
(8,725,142)
(28,495,535)
32,838,086

2019
$

8,705,229
(16,644,545)
(19,354,386)
(27,293,702)

The individual financial statements for the parent entity, Openpay Group Ltd, show the following aggregate amounts:

2020
$

–
138,160,501
–
–

138,160,501
–
138,160,501

–
–

(ii) Tax consolidation legislation
Openpay Group Ltd and its wholly-owned Australian controlled
entities have implemented the tax consolidation legislation. The
head entity, Openpay Group Ltd and the controlled entities in
the tax consolidated Group account for their own current and
deferred tax amounts. These amounts are measured as if each
entity in the tax consolidated Group continues to be a stand-
alone taxpayer in its own right.

Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities

Shareholders equity
Issued capital
Accumulated losses
Total equity

Statement of profit or loss and other comprehensive income
Profit/(loss) for the period
Total comprehensive income/(loss)

As disclosed in Note 1, Openpay Group Ltd became the parent
entity in November 2019.

(b) Contingent liabilities of the parent entity

There are no contingent liabilities as at 30 June 2020 except as
disclosed in Note 28.

The financial information for the parent entity has been prepared
on the same basis as the consolidated financial statements,
except as set out below:

(i) Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the
financial statements of Openpay Group Ltd.

Notes to the Consolidated Financial Statements.For the year ended 30 June 2020The entities have also entered into a tax funding agreement
under which the wholly-owned entities fully compensate
Openpay Group Ltd for any current tax payable assumed and
are compensated by Openpay Group Ltd for any current tax
receivable and deferred tax assets relating to unused tax losses
or unused tax credits that are transferred to Openpay Group Ltd
under the tax consolidation legislation. The funding amounts
are determined by reference to the amounts recognised in the
wholly-owned entities’ financial statements.

Assets or liabilities arising under tax funding agreements with
the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement
are recognised as a contribution to (or distribution from)
wholly-owned tax consolidated entities.

Note 31: Events occurring after the reporting
date

No material events have occurred subsequent to the end of the
year at the time of issuing this report.

Annual Report 2020

9595

Openpay Group Limited

In the directors’ opinion:

(a) the financial statements and notes set out on pages 64 to 95 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional requirements;

(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for the financial

period ended on that date, and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and

payable.

This declaration is made in accordance with a resolution of the directors.

Patrick Tuttle

Chairman

Melbourne

31 August 2020

Michael Eidel

Managing Director

Melbourne

31 August 2020

Directors’ Declaration.
Independent Auditor’s Report

Annual Report 2020

9797

PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Independent auditor’s report To the members of Openpay Group Ltd Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Openpay Group Ltd (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • the consolidated balance sheet as at 30 June 2020 • the consolidated statement of changes in equity for the year then ended • the consolidated statement of cash flows for the year then ended • the consolidated statement of profit or loss and other comprehensive income for the year then ended • the notes to the consolidated financial statements, which include a summary of significant accounting policies • the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Openpay Group Limited

Independent Auditor’s Report

Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope • For the purpose of our audit we used overall Group materiality of $1.24 million, which represents approximately 1% of the Group's total assets. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. • We chose Group total assets because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. • We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • The Group is principally involved in providing services to customers and merchants in Australia, the United Kingdom and New Zealand, which they report under one operating segment. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk Management Committee. Independent Auditor’s Report

Annual Report 2020

9999

Key audit matter How our audit addressed the key audit matter Provision for expected credit losses (ECL) for receivables (Refer to note 1(c) and 9) Receivables from customers are generated in the ordinary course of the Group’s business. Under the credit impairment model required by AASB 9: Financial Instruments (AASB9), losses on receivables are recognised on an Expected Credit Loss (ECL) basis. ECLs are required to incorporate forward-looking information, reflecting potential future economic events. To meet the requirements of AASB 9, the Group has developed ECL models. Judgement is applied in determining the appropriate construct of the model and relevant assumptions such as defining a significant increase in credit risk (SICR). The models rely on numerous data elements and certain post model adjustments (overlays) are applied based on the Group’s judgement. The rapidly developing COVID-19 pandemic has meant that assumptions regarding the economic outlook and the impact on the Group’s customers is uncertain, increasing the degree of judgement required to be exercised by the Group in calculating the ECL. Specifically, this includes judgements regarding the impact of COVID-19 on forward looking information, given the range of potential economic outcomes and impacts from COVID-19. Given the inherent estimation uncertainty in this area and the extent of judgement involved, we considered this to be a key audit matter. Our audit procedures included the following: • We, along with PwC credit modelling experts, assessed whether the methodologies and assumptions applied by the Group to estimate the ECL are in accordance with the requirements of AASB 9. This included inspecting the methodology applied and the reasonableness of conclusions reached by the Group from model monitoring performed on key models during the year. • We agreed a sample of data used as inputs into the ECL models to relevant source documentation. • We assessed the mathematical accuracy of the modelled calculations by reperforming the ECL calculations. • We obtained ECL model source codes to assess whether these appropriately reflected the Group’s methodologies. • Together with PwC credit modelling experts, we assessed the reasonableness of forward-looking information incorporated into the ECL calculation, including overlays for the impact of COVID-19, by assessing the appropriateness of the assumptions applied in the multiple economic scenarios, and comparing against external supporting evidence where applicable. • We assessed the adequacy of the related disclosures in the financial report against the requirements of Australian Accounting Standards. Liquidity and funding (Refer to note 4(a) and 15) The financial statements have been prepared on a going concern basis, which contemplates that the Group will continue to meet its commitments, realise its assets and settle its liabilities in the normal course of business. The Group’s business model and current stage of development requires external debt and equity funding to support receivables growth, investment and operational expenditure. During the year, the Group recorded a significant net operating cash outflow, In assessing the appropriateness of the Group’s going concern basis of preparation for the financial report, we performed the following procedures, amongst others: • We evaluated the appropriateness of the Group's assessment of their ability to continue as a going concern, including whether the level of analysis is appropriate given the nature of the Group, the period covered is at least 12 months from the date of our auditor’s report and relevant information of which we are aware as a result of the audit has been included. • We evaluated selected data and assumptions used in the Group’s cash flow forecasts for at Openpay Group Limited

Independent Auditor’s Report

100

Key audit matter How our audit addressed the key audit matter which was offset by financing cash inflow from equity raised and debt funding drawn down during the year. The Group’s assessment of the appropriateness of the going concern basis of preparation requires judgement with respect to the forecast cash flows of the Group for at least 12 months from the audit report date. This includes judgement as to the Group’s ability to access borrowings, compliance with debt covenants and the satisfaction of conditions in order to access certain undrawn borrowing facilities in future periods. This was a key audit matter due to its importance to the financial report and the level of judgement involved. least 12 months from the date of the auditor’s report, including forecast borrowing requirements. • We enquired of management and the board of directors as to their knowledge of events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. • We read the most up-to-date borrowing agreements between the Group and its financiers to develop an understanding of the terms associated with the facilities and the amount of facility available for drawdown over the forecast period. • We obtained confirmations directly from the Group’s financiers to confirm the borrowings’ outstanding principal balance, facility limits, tenure and rates. • Where debt was regarded as non-current, we evaluated the Group’s assessment that they had the unconditional right to defer payment such that there were no repayments required within 12 months from the balance date. • We requested written representations from management and the board of directors regarding their plans for future action and the feasibility of these plans. • We evaluated whether in view of the requirements of Australian Accounting Standards, the financial report provides adequate disclosures about the Group’s assessment of its liquidity and funding position and its borrowings. Accounting for Share Capital - Initial Public Offering (Refer to note 18) During the year, the Group completed an Initial Public Offering (IPO) and became listed on the Australian Stock Exchange (ASX), raising funds through the issue of ordinary shares. The IPO triggered the conversion of convertible notes options into ordinary shares, based on a conversion formula contained in the convertible note agreement. Under Australian Accounting Standards, the Group was required to value the options at the point of conversion and recognise the movement in the income statement. The value of the options was then transferred to share Our audit procedures over the IPO related transactions included the following: • We agreed cash received (IPO proceeds net of Lead manager and underwriting fees) on share issue to the Group’s bank statement. • We agreed the conversion formulas to the underlying convertible note agreement and correspondence with key noteholders. • We recalculated the number of shares issued based on the conversion formula in the convertible note agreement. • We tested a sample of transaction cost invoices to assess the allocation of the IPO Independent Auditor’s Report

Annual Report 2020

101101

Key audit matter How our audit addressed the key audit matter capital and adjusted against accumulated losses. The Group also incurred transaction costs in the course of the IPO that under Australian Accounting Standards are required to be deducted from equity. We considered the Group’s accounting for share capital related to the IPO to be a key audit matter as the valuation of the convertible notes options and treatment of transaction costs involved significant judgement and estimates by the Group. transaction costs between the income statement and equity was in accordance with Australian Accounting Standards. IT General Controls The Group’s operations and financial reporting systems are dependent on its IT systems for the processing and recording of a significant volume of transactions. The Group’s controls over key financial IT systems include: • Overall IT governance, including policies and procedures. • Change management controls. • Access controls over programs and data. • IT operation controls (i.e. system monitoring and backups). Change management controls are particularly important because they are intended to ensure changes to IT systems and data are appropriately initiated, tested, approved and implemented. User access management controls are intended to ensure staff have appropriate access to IT systems and that access is appropriately provisioned and monitored, to mitigate the potential for fraud or error as a result of underlying changes to an application or data. We considered this to be a key audit matter because of the reliance on IT systems in the financial reporting process. Our procedures included, amongst others: • We assessed the design and implementation of relevant and key IT controls over the Group’s IT governance, Change Management, User Access Management, and IT Computer Operations over key financial systems supporting the Group's financial reporting. • Where we noted design deficiencies in Change Management and User Access Management processes relevant to our audit, we performed alternative or additional audit procedures. • These included further tests on a sample basis to assess the accuracy of selected system calculations and the completeness and accuracy of information contained in certain reports used in our audit procedures. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Openpay Group Limited

Independent Auditor’s Report

102

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 48 to 55 of the directors’ report for the year ended 30 June 2020. Independent Auditor’s Report

Annual Report 2020

103103

In our opinion, the remuneration report of Openpay Group Ltd for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Sam Garland Melbourne Partner 31 August 2020 Openpay Group Limited

In accordance with ASX Listing Rule 4.10, Openpay provides the
following information to shareholders not elsewhere disclosed
in this Annual Report. The information is current as at 13 August
2020 (Reporting Date).

Corporate Governance Statement

Openpay’s Directors and management are committed to
conducting Openpay’s business in an ethical manner and aspire
to the highest standard of corporate governance. The Board
assesses its corporate governance policies and procedures
to ensure they are suitable and meet corporate governance
standards and regulatory requirements. Openpay’s corporate
governance policies and charters are available at https://
investors.openpay.com.au/site/investor-centre/corporate-
governance.

For the 2020 financial year, Openpay’s governance
practices substantially complied with the ASX Corporate
Governance Council’s Corporate Governance Principles

and Recommendations (Fourth Edition) (Principles and
Recommendations). Further details are provided in Openpay’s
Corporate Governance Statement, which sets out the key
components of Openpay’s corporate governance practices and
frameworks, and states how Openpay substantially complied
with the Principles and Recommendations.

Openpay’s Corporate Governance Statement, together with
the ASX Appendix 4G, have been lodged with the ASX and are
available at https://investors.openpay.com.au/site/investor-
centre/corporate-governance.

Substantial holders

As at the Reporting Date, the names of the substantial holders
of Openpay and the number of equity securities in which those
substantial holders and their associates have a relevant interest,
as disclosed in the substantial holding notices given to Openpay,
are as follows:

Holder of Equity Securities

Class of Equity
Securities

Number of Equity
Securities Held

% of Total Issued
Securities Capital
in Relevant Class

OPENPAY GROUP LIMITED1

PROGRAM FORCE PTY LTD, YEMIVA PTY LTD, BNPL PTY LTD,
MOSHE MEYDAN, YANIV MEYDAN AND EIDO MEYDAN
CHOW TAI FOOK ENTERPRISES LIMITED, SWIFT HUNTER
LIMITED AND THE CTF GROUP
INVESTEC AUSTRALIA LIMITED

FULLY PAID
ORDINARY SHARES
FULLY PAID
ORDINARY SHARES
FULLY PAID
ORDINARY SHARES
FULLY PAID
ORDINARY SHARES

57,082,748

22,781,920

11,033,163

9,582,131

52.92

21.12

10.23

9.13

1. A technical interest in its own shares under s608(1)(c) of the Corporations Act 2001 due to the restrictions on disposal of the shares held under mandatory and voluntary

escrow.

104

Additional Security Exchange Information.Annual Report 2020

Number of holders

As at the Reporting Date, the number of holders in each class of equity securities is as follows:

Class of Equity Securities

FULLY PAID ORDINARY SHARES
UNLISTED OPTIONS

Number of Holders

13,985
14

Less than marketable parcels of ordinary shares (UMP Shares)

The number of holders of less than a marketable parcel of ordinary shares based on the closing market price at the Reporting Date is
as follows:

Total Shares

107,868,028

UMP Shares

UMP Holders

% of Issued Shares
Held By UMP
Holders

70,387

649

0.07

Voting rights of equity securities

The only class of equity securities on issue in Openpay that carries
voting rights is fully paid ordinary shares.

At the Reporting Date, there were 13,985 holders of a total of
107,868,028 ordinary shares of Openpay.

At a general meeting of the Company, every holder of ordinary
shares present in person or by proxy, attorney or representative
has one vote on a show of hands and on a poll, one vote for each
ordinary share held. On a poll, every member (or the member’s

proxy, attorney or representative) is entitled to vote for each
fully paid share held and in respect of each partly paid share, is
entitled to a fraction of a vote equivalent to the proportion of the
amount paid up (not credit) on that partly paid share bears to the
total amounts paid and payable (excluding amounts credited) on
that share. Amounts paid in advance of a call are ignored when
calculating the proportion.

Distribution of holders of equity securities

The distribution of holders of equity securities on issue in
Openpay as at the Reporting Date is as follows:

Distribution of Ordinary Share Holders

Holding Ranges

1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
Totals

Holders

Total Units

8,221
4,239
821
658
46
13,985

3,800,470
10,247,744
6,303,091
15,704,913
71,811,810
107,868,028

3.52
9.50
5.84
14.56
66.57
100.00

105105

Openpay Group Limited

Distribution of Option Holders

Holding Ranges

1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
Totals

Twenty largest shareholders

Holders

Total Units

0
0
0
4
10
14

0
0
0
258,565
4,189,576
4,448,141

0.00
0.00
0.00
5.81
94.19
100.00

Openpay has only one class of quoted securities, being ordinary shares. The names of the 20 largest holders of ordinary shares, and
the number of ordinary shares and percentage of capital held by each holder, is as follows:

Balance as at
Reporting Date

18,956,920
9,852,131
7,946,433
4,748,071
3,570,000
3,306,724
2,550,000
2,533,042
2,341,341
2,281,240
1,449,501
1,327,079
1,275,000
1,148,850
892,500
718,750
685,202
538,131
531,995
526,694
67,179,604
40,688,424

17.57
9.13
7.37
4.40
3.31
3.07
2.36
2.35
2.17
2.11
1.34
1.23
1.18
1.07
0.83
0.67
0.64
0.50
0.49
0.49
62.28
37.72

Rank Holder Name

PROGRAM FORCE PTY LTD
INVESTEC AUSTRALIA LIMITED
CHOW TAI FOOK ENTERPRISES LTD
COLOURDOME PTY LTD
MRGS PTY LTD
CITICORP NOMINEES PTY LIMITED
YEMIVA PTY LTD
WISE PARK INTERNATIONAL LTD
V-LEADER PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
INNVALE PROPRIETARY LIMITED
GLOBAL CREDIT INVESTMENTS PTY LTD
BNPL PTY LTD
PIZ BY PIZ PTY LTD
RBFT PTY LTD
MR AVI SCHECHTER
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
CS THIRD NOMINEES PTY LIMITED
LESLIE LEUNG
Total number of shares of Top 20 Holders
Total Remaining Holders’ Balance

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

106

Additional Security Exchange Information.Annual Report 2020

Escrow

Class of Restricted Securities

Type of Restriction

Number of
Securities

End Date of Escrow
Period

FULLY PAID ORDINARY SHARES
FULLY PAID ORDINARY SHARES

ASX MANDATORY ESCROW
ASX MANDATORY ESCROW

24,844,664
1,666,604

FULLY PAID ORDINARY SHARES

VOLUNTARY ESCROW

30,571,480

16 December 2021
16 December 2020
10 days post release of
FY20 preliminary results

Unquoted equity securities

Openpay has the following classes of unquoted equity securities on issue.

Class of Unquoted Securities

FULLY PAID ORDINARY SHARES – MANDATORY ESCROW
UNLISTED OPTIONS

Number of
Securities

26,511,268
4,448,141

Number of
Holders

20
14

PROGRAM FORCE PTY LTD holds 60.56% of the unquoted fully paid ordinary shares.

Other information

Openpay is not currently conducting an on-market buy-back.

There are no issues of securities approved for the purposes of
item 7 of section 611 of the Corporations Act 2001 (Cth) that have
not yet been completed.

No securities were purchased on-market during the reporting
period under or for the purposes of an employee incentive
scheme or to satisfy the entitlements of the holders of options
or other rights to acquire securities granted under an employee
incentive scheme.

In accordance with ASX Listing Rule 4.10.19, the Company
confirms the cash and assets in a form readily convertible to cash
that it had at the time of admission to the official list of ASX (being
16 December 2019 ) has been used in a way consistent with its
business objectives.

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Openpay Group Limited

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108

Corporate Information.

Openpay Group Limited ACN 637 148 200

Board of Directors

Patrick Tuttle (Chair, Independent Non-Executive Director)
Michael Eidel (Chief Executive Officer and Managing Director)
Sibylle Krieger (Independent Non-Executive Director)
Kelly Bayer Rosmarin (Independent Non-Executive Director)
Yaniv Meydan (Non-Executive Director)
David Phillips (Non-Executive Director)

General Counsel & Company Secretary

Openpay’s General Counsel and Company Secretary is Edward
Bunting.

Registered Office

Level 9
469 La Trobe Street
Melbourne VIC 3000
Telephone: +61 1300 168 359
Email: investors@openpay.com.au
Website: www.openpay.com.au

Solicitors

Clayton Utz
Level 18
333 Collins Street
Melbourne VIC 3000

Auditor

PricewaterhouseCoopers
Level 19
2 Riverside Quay
Southbank VIC 3006

Share Registry

Automic Pty Ltd
Level 5
126 Phillip Street
Sydney NSW 2000
Telephone: +61 1300 288 664

Securities Exchange Listing

Openpay’s ordinary shares are quoted on the Australian
Securities Exchange (ASX). Openpay was admitted to the official
list of the ASX on 16 December 2019 (ASX issuer code: OPY).

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