Annual Report
2018
www.overthewire.com.au | 1300 689 689
Over the Wire Holdings Limited
ACN 151 872 730
ANNUAL REPORT
2018
Over the Wire Holdings Limited
ACN 151 872 730
Share Register
Auditor
Solicitors
GENERAL
This Annual Report is dated 29 October 2018.
Currency
Monetary amounts shown in this Annual Report are expressed in Australian dollars unless otherwise
stated.
Photographs and diagrams
Photographs used in this report without descriptions are only for illustration. Diagrams used in this
report may not be drawn to scale. The assets depicted in photographs in this report are not assets of the
Company unless otherwise stated.
TABLE OF
CONTENTS
Chairman's Letter
Business Overview
General Information
Corporate Directory
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Corporate Governance Statement
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Contact Details
5
6
9
10
11
20
25
27
37
42
84
86
93
CHAIRMAN'S
LETTER
On behalf of the Board of
Over the Wire Holdings Limited,
it is with great pleasure that we
present to you the annual report
for the 2018 financial year.
Highlights of the year
• Revenue increased by 57% to $53.6m
• EBITDA increased by 66% to $12.3m
• NPAT increased by 54% to $5.5m
• Achieved customer retention of 97.3%
• Successfully acquired VPN Solutions Pty Ltd
• EPS increased by 53% to 12.63cps
We would attribute the year’s success to effectively
implementing our geographic expansion plans complemented
by quality acquisitions. Our overall organic growth of 20%
was once again pleasing.
The integration of the businesses that we have acquired have
progressed well with the VPN Solutions integration remaining
ahead of schedule and the remainder of the businesses fully
integrated.
We would like to thank all of our staff for achieving another
great result for our company. We would also like to thank
our clients for their continued support, and we maintain our
commitment to you of being the telecommunications provider
that does focus on providing great service.
Finally, we thank all shareholders for your continued and
loyal support. We look forward to another successful and
rewarding year ahead.
John Puttick
Chairman
5
ANNUAL REPORT 2018
BUSINESS
OVERVIEW
Our objective is to be the
telecommunications, cloud and
IT services provider of choice to
businesses in Australia and
New Zealand.
We aim to do this through:
• Our products - reliable, flexible and good value
• Our people – knowledgeable, passionate and helpful
• Our performance - superior service and highly
recommended
Providing a broad and integrated offering of products and
services provides our customers with a complete solution
from one supplier dedicated to customer service. Our suite of
services to businesses include:
• Data Networks and Internet;
• Voice;
• Cloud and Managed Services; and
• Data Centre Colocation.
Over the Wire Customer Retention
Revenue Year-on-Year
96.7%
98.6%
97.1%
98.2%
97.3%
100%
80%
60%
40%
20%
0%
2014
2015
2016
2017
2018
Customer Service
Our dedication to customer service remains uncompromising
and we have a culture which consistently delivers high levels
of customer service and retention. This is verified by our high
levels of customer retention, shown in the graph above as
year on year customer revenue retained.
6
ANNUAL REPORT 2018
SIGNIFICANT ORGANIC GROWTH AND STRONG FINANCIAL
PERFORMANCE
Total revenue from ordinary activities for the year was $53.6m (2017: $34.2m), representing an increase of 57% on the
corresponding year. The result demonstrates demand from customers across all four product lines. 20% of the revenue growth
was achieved organically.
The group made a net profit after tax expense of $5.5m (2017: $3.6m), representing an increase of 54% on the corresponding
year. Net profit after tax before amortisation (NPATA) was $6.8m, up from $4.1m in 2017, representing an increase of 68% on
the corresponding year. Statutory EBITDA profit was $12.3m, up from $7.4m in 2017, representing an increase of 66% on the
corresponding year.
The group has delivered consistent growth in revenue and profitability since listing, as represented by the following graphs.
Total Revenue
EBITDA
$M
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
H1 H2 H1 H2 H1 H2 H1 H2
H1 H2 H1 H2 H1 H2 H1 H2
2015
2016
2017
2018
2015
2016
2017
2018
NPATA
NPAT
$M
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
2015
2016
2017
2018
2015
2016
2017
2018
$M
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
$M
5.0
4.0
3.0
2.0
1.0
-
7
ANNUAL REPORT 2018
SUCCESSFUL ACQUISITIONS
On 1 November 2017, Over the Wire acquired 100% of the shares in VPN Solutions Pty Ltd (VPN Solutions). VPN Solutions was
headquartered in New South Wales and delivers managed networks to approximately 150 business customers. The Company
acquired VPN Solutions for:
• Geographic expansion, as the VPN Solutions acquisition accelerates Over the Wire’s expansion into the New South Wales and
South Australian markets;
• A high quality customer base that offers cross sell and interstate expansion opportunities;
• Synergies that are expected to be achieved in the 2018 financial year, with further cost savings to be delivered in the next
financial year;
• A quality team that will integrate well with Over the Wire; and
• Attractive EBITDA and EPS accretion to Over the Wire.
Over the Wire has developed a track record of acquiring and then integrating acquisitions, with timely realisation of synergies and
cost savings.
POSITIVE OUTLOOK
Our commitment to being able to provide a complete telecommunications, cloud and IT Services offering to businesses, that is
supported by an Australian based network operations centre dedicated to a positive customer experience, gives us confidence that
our growth will continue in 2019.
We remain focussed on achieving our vision and continuously improving the financial performance of the business and the returns
for our shareholders through:
GROW
Grow organically
by 20% annually
and supplement our
growth with strategic
acquisitions that
accelerate our growth
and add long term
value.
IMPROVE
Continuously improve
our product offering
to offer seamless
solutions with no gaps.
FOCUS
Our customers remain
at the epicentre of all
that we do, receiving
exceptional service
and recommending us
to others.
ENGAGE
Ensure our team is
engaged and customer
focussed, embodying
our core values.
EVOLVE
Evolve our systems to
support and enhance
customer experience,
our growth and
our corporate
performance.
Continue investment in
Sales and Marketing.
Further develop our
offering in:
Intelligent Networks
•
• Cyber Security
• Mobility
Continue cross selling to
existing customers.
Selective future
acquisitions.
Realisation of synergies
from VPN Solutions
acquisition.
Continuously focus on
how we are improving
the experience for our
customers.
Build on our performance
culture.
Be a great place to work.
Strengthen our
Leadership team
Attract, develop and retain
great talent.
Continue integration
of systems to ensure
seamless customer and
team experience
Further enhance our
customer portal for
optimal customer
experience
8
ANNUAL REPORT 2018 GENERAL
INFORMATION
The annual report covers
Over the Wire Holdings
Limited as a consolidated
entity consisting of Over the
Wire Holdings Limited and the
entities it controls. The report is
presented in Australian dollars,
which is Over the Wire Holdings
Limited’s functional and
presentational currency.
Over the Wire Holdings Limited is a listed public company
limited by shares, incorporated and domiciled in Australia. Its
registered office and principal place of business are:
Registered Office & Principal Place of Business
Level 21, 71 Eagle Street
Brisbane Qld 4000
A description of the nature of the consolidated entity’s
operations and its principal activities are included in the
directors’ report.
The financial statements were authorised for issue, in
accordance with a resolution of directors on 22 August 2018.
The directors have the power to amend and/or reissue the
financial report.
9
ANNUAL REPORT 2018
CORPORATE
DIRECTORY
DIRECTORS
JOHN PUTTICK DUNIV QUT, FACS, ACA
Chair
MICHAEL OMEROS MAICD, BE(ELECTRONICS), BINFOTECH
Chief Executive Officer
BRENT PADDON BINFOTECH, GRADDIPBUSADMIN
Executive Director
SUSAN FORRESTER BA, LLB (HONS), EMBA, FAICD
Non-Executive Director
SECRETARY
MIKE STABB FCA, MAICD, BBUS(ACCY,BUSLAW), RTA
Chief Financial Officer
KEY MANAGEMENT
BEN CORNISH
Chief Operating Officer
Registered Office and Principal Place of Business
Level 21, 71 Eagle Street
Brisbane QLD 4000
Share Register
Link Market Services
10 Eagle St
Brisbane QLD 4000
Auditor
PKF Hacketts Audit
Level 6, 10 Eagle Street
Brisbane QLD 4000
Solicitors
McCullough Robertson Lawyers
Level 11, Central Plaza Two
66 Eagle Street
Brisbane, QLD 4000
Bankers
Westpac
260 Queen Street
Brisbane QLD 4000
National Australia Bank
308-322 Queen Street
Brisbane QLD 4000
Stock Exchange Listings
Over the Wire Holdings Limited (OTW) shares are listed on
the Australian Securities Exchange (ASX)
Website Address
www.overthewire.com.au
10
ANNUAL REPORT 2018
1.0
DIRECTORS’
REPORT
11
ANNUAL REPORT 2018 DIRECTORS’ REPORT
REVIEW OF OPERATIONS
Your directors present their report on the consolidated
entity consisting of Over the Wire Holdings Limited (“the
Company”) and the entities it controlled (“the consolidated
entity”, “Group”) for the year ended 30 June 2018.
Total revenue from ordinary activities for the year was
$53,561K (2017: $34,217K), representing an increase of 57%
on the corresponding year. The result demonstrates demand
from customers across all four product lines including:
DIRECTORS AND
COMPANY SECRETARY
The name of the directors who held office during or since the
end of the year.
JOHN PUTTICK
Non-Executive Chairman
(appointed 1 December 2015)
MICHAEL OMEROS
Managing Director and Chief Executive Officer
(appointed 1 July 2011)
BRENT PADDON
Executive Director
(appointed 1 July 2011)
SUSAN FORRESTER
Non-Executive Director
(appointed 1 December 2015)
MIKE STABB
Company Secretary and Chief Financial Officer
(appointed 9 July 2012)
PRINCIPAL ACTIVITIES
The consolidated entity is a profitable, high growth provider of
telecommunications, cloud and IT solutions. It has a national
network presence with Points of Presence (POPs) in all major
Australian capital cities and Auckland, New Zealand.
During the year the principal continuing activities of the
consolidated entity consisted of offering an integrated
product suite of the following services to businesses in
Australia and New Zealand:
• Data Networks and Internet;
• Voice;
• Cloud and Managed Services; and
• Data Centre Co-location
There has been no significant change to the principal
activities of the group during the year. VPN Solutions Pty
Ltd was acquired on 1 November 2017, and its product suite
predominantly includes Data Networks and Internet, along
with a very small amount of Voice and Cloud, which is in line
with the consolidated entity’s existing principal activities.
• Data Networks revenue of $29,383K (2017: $15,915K),
representing an increase of 85% on the corresponding
year and delivered through organic growth and the
successful acquisition of VPN Solutions on 1 November
2017;
• Voice revenue of $14,060K (2017: $10,714K), representing
an increase of 31% on the corresponding year and
predominantly delivered through strong organic growth;
• Cloud and Managed Services revenue of $7,258K (2017:
$4,845K), representing an increase of 50% on the
corresponding year and predominantly delivered through
strong organic growth;
• Data Centre co-location revenue of $2,860K (2017:
$2,742K), representing an increase of 4% on the
corresponding year and delivered through organic growth.
The consolidated entity continued to build upon its
geographic expansion strategy outlined in its Initial Public
Offering (IPO).
A primary focus was to deliver growth in the New South
Wales and Victorian markets and this has been successfully
achieved both organically and through acquisition.
The below table shows comparative figures from 2017 to
2018:
Revenue
growth
2017 to 2018
(Organic)
Revenue
Growth
2017 to 2018
(Statutory)
6%
30%
153%
62%
23%
60%
133%
276%
Geographic Area
Queensland
New South Wales
Victoria
Other
12
ANNUAL REPORT 2018
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND
AMORTISATION (EBITDA)
EBITDA refers to earnings before interest, tax, depreciation and amortisation, and is an important metric to the consolidated entity
because it shows the strong gross profit and expenditure management delivered by the consolidated entity and correlates well
with operating cashflow. Set out below is a reconciliation of Profit before Income Tax Expense and EBITDA.
Profit before Income Tax Expense
Depreciation & Amortisation
Finance Costs
EBITDA
Consolidated
2018
$ ,000
7,843
3,937
476
12,256
2017
$ ,000
4,857
2,330
182
7,369
Earnings before interest, tax, depreciation and amortisation (EBITDA) was $12,256K (2017: $7,369K), representing an increase
of 66% on the corresponding year. Net Profit after Income Tax Expense (NPAT) was $5,531K (2017: $3,598K), representing an
increase of 54% on the corresponding year. The increase in profitability has been achieved through maintaining gross margins
whilst increasing revenue and the effective management of operating expenses whilst still investing for future growth.
As at 30 June 2018, the consolidated entity had $7,013K in cash or cash equivalents. Net Cashflow from Operating Activities
(before Interest and Tax) for the 2018 year was $12,203K ($7,930K in 2017) demonstrating an alignment with EBITDA. The
consolidated entity’s continued sound management of overhead expenses in the underlying business, maintaining debtors days
and creditors days metrics, recognising cost synergies in the acquired entities, and when combined with revenue growth of 57%,
has generated the growth in EBITDA and positive Cash from Operating Activities outlined in the Consolidated Statement of Cash
flows.
DIVIDENDS PAID AND PROPOSED
A final dividend for 30 June 2017 of 1.25 cents per share fully franked was paid in October 2017.
An interim dividend of 1.00 cents per share fully franked, for the six months ended 31 December 2017, was paid in April 2018.
Subsequent to year-end, on 22 August 2018, the Company declared a fully franked final dividend of 1.50 cents per share, for the
year ended 30 June 2018. The dates of the dividend are as follows:
Ex Date
Record Date
Payment Date 9 October 2018
17 September 2018
18 September 2018
As this final dividend was declared subsequent to year-end, no provision has been made in the accounts for the dividend.
13
ANNUAL REPORT 2018 BUSINESS STRATEGIES AND
PROSPECTS FOR FUTURE
FINANCIAL YEARS
The Group operates four product lines; Data Networks, Voice,
Cloud and Managed Services, and Data Centre Co-location.
Each product line is capable of being delivered stand-alone
or bundled with one or more other product lines to deliver a
complete solution.
The Group will continue its business development and
marketing initiatives, and leverage its investment in the four
product lines to grow organically, both through the acquisition
of new customers and selling more products and services to
existing customers.
The Group will leverage its investments in Telarus and VPN
Solutions to deliver further synergies. It will also continue
to look to grow through identifying and acquiring suitable
businesses that deliver a strategic fit, readily achievable
synergies and add shareholder value.
SIGNIFICANT CHANGES IN
STATE OF AFFAIRS
ACQUISITION OF VPN SOLUTIONS
VPN SOLUTIONS PTY LTD
On 1 November 2017, the Company acquired 100% of the
shares in VPN Solutions Pty Ltd (VPN Solutions) for a total
upfront consideration of $15,615K less a subsequent working
capital adjustment of $647K, for a total upfront consideration
of $14,968K. The vendor is also entitled to receive further
deferred consideration of up to $1,735K in cash, payable
in November 2018, based on a number of performance
measures being achieved, for a total potential consideration
of $16,703K.
VPN Solutions employed 21 staff and was headquartered
in New South Wales, and delivers managed networks to
approximately 150 business customers. The acquisition of
VPN accelerates the Group’s expansion into the New South
Wales and South Australian markets.
The cash component of the acquisition was funded through
a newly established $18,000K debt facility with Westpac.
The facility has been used to fund the cash component of
this acquisition, as well as refinance the remaining balance
of the debt facility with NAB established for the acquisition
of Telarus in 2017. The facility comes with customary lending
covenants around Debt-to-EBITDA (<2.25 times) and Debt-
Service-Coverage (>1.75 times), as well as periodic financial
reporting requirements.
The strategic rationale:
• The acquisition of VPN Solutions accelerates the Group’s
expansion into the New South Wales and South Australian
markets;
• Data Networks represents over 90% of VPN’s revenue and
offers cross sell opportunities;
• VPN Solution’s customer base is high quality and offers
interstate expansion opportunities;
• VPN Solutions has a quality team that will integrate well
with the Group;
• The acquisition is expected to offer attractive EBITDA and
EPS accretion to the Group immediately; and
• Synergies are expected to be achieved in this financial
year with further cost savings to be delivered in the next
financial year.
14
ANNUAL REPORT 2018 EVENTS SINCE THE END OF THE FINANCIAL YEAR
On 22 August 2018, the Company declared a fully franked
final dividend of 1.50 cents per share, for the year ended 30
June 2018. The dates of the dividend are as follows:
Ex Date
Record Date
Payment Date 9 October 2018
17 September 2018
18 September 2018
As this final dividend was declared subsequent to year-end,
no provision has been made in the accounts for the dividend.
No matter or circumstances have arisen since the end of
the financial period which significantly affected or may
significantly affect the operations of the consolidated entity,
the results of those operations, or the state of affairs of the
consolidated entity in future financial periods.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
OF OPERATIONS
The Consolidated entity will continue its focus on growing
organically through geographic expansion, cross-selling of
complementary products and new or enhanced product and
service initiatives within its existing product lines.
Acquisitions will continue to be targeted where they
provide synergies, complement the current offering and add
shareholder value.
ENVIRONMENTAL REGULATION
The consolidated entity's operations are not currently subject
to significant environmental regulation under the law of the
Commonwealth and State.
15
ANNUAL REPORT 2018 OUR OBJECTIVE IS TO BE THE
TELECOMMUNICATIONS,
CLOUD AND IT SERVICES
PROVIDER OF CHOICE FOR
BUSINESSES IN AUSTRALIA
AND NEW ZEALAND.
Data
Networks
Managed
Security
Internet
Voice
Hosted PBX
Private Cloud
Infrastructure
Managed
Services
Colocation
16
ANNUAL REPORT 2018 JOHN PUTTICK
DUNIV QUT, FACS, ACA
Non-Executive Chairman
John was appointed as Chairman
of the company in December 2015.
He was the founder and chairman of
GBST Holdings Limited.
John holds an Honorary Doctorate
from The Queensland University
of Technology and a Chartered
Accounting qualification from Auckland
University of Technology.
John has over forty years of
experience in building commercial
systems with information technology,
over thirty of which were in developing
financial services solutions at GBST
Holdings Limited.
MICHAEL OMEROS
MAICD, BE(ELECTRONICS)(HONS), BINFOTECH
Managing Director
Chief Executive Officer
Michael is a co-founder and the
Managing Director of the company.
He has over twenty years of
experience in the telecommunications
and IT services sectors, and graduated
from QUT in 1994 with a Bachelor of
Engineering – Electronics (First Class
Honours) and Bachelor of IT (with
Distinction).
Prior to Over the Wire, Michael held
a Senior Management role at GBST,
worked for Zurich Insurance in the UK
and founded Celentia which has now
been absorbed by Over the Wire.
Other Current Directorships
None
Other Current Directorships
None
Former Directorships in last 3 years
GBST Holdings Limited (ASX: GBT)
Former Directorships in last 3 years
None
Special Responsibilities
• Chair of the Board
• Chair of nominations and
remuneration committee
• Member of audit and risk
committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings
80,000
Special Responsibilities
• Member of audit and risk
committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings
13,616,115
INFORMATION
ON DIRECTORS
& COMPANY
SECRETARY
The following information is
current as at the date of
this report.
17
ANNUAL REPORT 2018
MIKE STABB
FCA, MAICD, BBUS(ACCY,BUSLAW), RTA
Chief Financial Officer & Company
Secretary
Mike was appointed CFO and Company
Secretary in July 2012.
He is a Fellow of the Institute of
Chartered Accountants with over twenty
years of experience, and graduated with
Distinction from QUT in 1995 with a
Bachelor of Business (Accy & BusLaw).
Mike worked for Deutsche Bank in
London and on Wall Street, and held CFO
and senior finance roles in the property,
radio communications and banking
industries in Australia.
Other Current Directorships
None
Former Directorships in last 3 years
None
Special Responsibilities
• Chief Financial Officer / Company
Secretary
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings: 251,513
BRENT PADDON
BINFOTECH, GRADDIPBUSADMIN
Executive Director
SUSAN FORRESTER
BA, LLB (HONS), EMBA, FAICD
Non-Executive Director
Brent is a co-founder and Director of the
Company.
Susan was appointed as Non-Executive
Director in December 2015.
He has over twenty years of experience
in telecommunications and IT services
sectors and graduated from QUT in 1996
with a bachelor of IT. He also completed
a Graduate Diploma in Business
Administration from QUT in 2008.
Brent held a senior management
role at Web Central, worked for Pipe
Networks and founded Brisbane Internet
Technology, which was sold to Asia
Online.
Other Current Directorships
None
Former Directorships in last 3 years
None
Special Responsibilities
• Member of nominations and
remuneration committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings
13,150,000
She is an accomplished company
director, with significant experience
as non-executive director across a
range of listed and unlisted company
boards, spanning the professional
services, healthcare and childcare
sectors. In particular, she has chaired,
or being a member of various audit,
risk management and remuneration
committees.
With a Bachelor of Laws (Honours)
and a Bachelor of Arts (Japanese) from
the University of Queensland, Susan
completed an executive Masters of
Business Administration (EMBA) from
the Melbourne Business School. She is
also a fellow of the Australian Institute of
Company Directors (FAICD).
Other Current Directorships
Chair and Non-Executive Director of
National Veterinary Care Ltd (ASX:NVL)
(appointed February 2015)
Non-Executive Director of G8 Education
Limited (ASX:GEM) (appointed November
2011)
Non-Executive Director of Xenith IP
Group Limited (ASX:XIP) (appointed
October 2015)
Former Directorships in last 3 years
None
Special Responsibilities
• Chair of audit and risk committee
• Member of nominations and
remuneration committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings: 155,413
18
ANNUAL REPORT 2018
MEETINGS OF DIRECTORS
The number of meetings of the company’s board of directors and of each board committee held during the year ended 30 June
2018, and the numbers attended by each director were:
Full Meetings of directors
Meetings of committees
Held
Attended
Held
Attended
Held
Attended
Audit
Nominations & Remuneration
John Puttick
Michael Omeros
Brent Paddon
Susan Forrester
12
12
12
12
12
12
9
12
5
5
NA
5
5
5
NA
5
2
NA
2
2
2
NA
2
2
INSURANCE OF OFFICERS AND INDEMNITIES
During the financial year, Over the Wire Holdings Limited paid a premium of $54,500 to insure the directors and secretaries of the
company and its Australian-based controlled entities, and the general managers of each of the divisions of the group.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the
officers in their capacity as officers of entities in the group, and any other payments arising from liabilities incurred by the officers
in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty
by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone
else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance
against legal costs and those relating to other liabilities.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the
company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of
the company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the company
with leave of the Court under section 237 of the Corporations Act 2001.
NON-AUDIT SERVICES
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.
Details of the amounts paid or payable to the auditor (PKF Hacketts Audit) for audit and non-audit services provided during the year
are set out below.
The board of directors has considered the position and, in accordance with advice received from 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, as set out below, 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.
• None of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
19
ANNUAL REPORT 2018
During the year the following fees were paid or payable for
non-audit services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
Michael Omeros
Managing Director and Chief Executive Officer
(appointed 1 July 2011)
Consolidated
2018
$ ,000
2017
$ ,000
30
30
30
39
39
39
Taxation Services
Tax Compliance Services
Total Remuneration for Taxation
Services
Total Remuneration for Non-Audit
Services
AUDITOR’S INDEPENDENCE
DECLARATION
A copy of the auditor’s independence declaration as required
under section 307C of the Corporations Act 2001 is set out on
page 26.
ROUNDING OF AMOUNTS
The consolidated entity is of a kind referred to in ASIC
Corporations (Rounding in Financial / Directors’ Reports)
Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to the ‘rounding off’ of
amounts in the directors’ report and financial report. Amounts
in the directors’ report and financial report have been rounded
off to the nearest thousand dollars in accordance with that
Legislative Instrument.
REMUNERATION REPORT
The directors present the Over the Wire Holdings Limited
2018 remuneration report, outlining key aspects of our
remuneration policy and framework as well as remuneration
awarded this year. It has also been audited as required by
section 308(3C) of the Corporations Act (2001).
The Report is structured as follows:
(a) Key management personnel (KMP) covered in this report
(b) Remuneration policy and link to performance
(c) Elements of remuneration
(d) Remuneration expenses for executive KMP
(e) Non-executive director arrangements
(f) Other statutory information
(g) Options & Performance Rights
(A) KEY MANAGEMENT PERSONNEL (KMP)
COVERED IN THIS REPORT
John Puttick
Non-Executive Chairman
(appointed 1 December 2015)
Brent Paddon
Executive Director
(appointed 1 July 2011)
Susan Forrester
Non-Executive Director
(appointed 1 December 2015)
Other key management personnel:
Mike Stabb
Chief Financial Officer and Company Secretary
Ben Cornish
Chief Operating Officer
There have been no changes in KMP since the end of the
reporting period.
(B) REMUNERATION POLICY AND LINK TO
PERFORMANCE
Our remuneration committee is made up of two independent
non-executive directors and one executive director. The
committee will review and determine our remuneration
policy and structure annually to ensure it remains aligned to
business needs, and meets our remuneration principles.
Executive KMP Remuneration Policy Statement
Consistent with contemporary Corporate Governance
standards Over the Wire Holdings’ remuneration policy
aims to set employee and executive remuneration that is
fair, competitive and appropriate for the markets in which
it operates and is mindful of internal relativities. Over the
Wire Holdings will aim to ensure that the mix and balance of
remuneration is appropriate to reward fairly, attract, motivate
and retain senior executives and other key employees.
20
ANNUAL REPORT 2018 Specific objectives of this policy will include the
following:
• Provide a fair and competitive (internal and external) fixed
annual remuneration for all positions under transparent
policies and review procedures;
• Link executive KMP rewards to shareholder value accretion
by providing appropriate equity (or equivalent) incentives to
selected senior executives and employees linked to long-
term company performance and core values;
• Provide competitive total rewards to attract and retain
appropriately skilled employees and executives;
• Have a meaningful portion of remuneration ‘at risk’,
dependent upon meeting pre-determined performance
benchmarks, both short (annual), medium (deferred STI)
and long term (+ 3 years); and
• Establish appropriate, demanding performance hurdles
for any executive short or long term equity incentive
remuneration.
This broad remuneration policy will be delivered by Over the
Wire Holdings under a Total Targeted Remuneration (TTR) or
Total Annual Remuneration (TAR) framework. Appropriate
remuneration policy settings will be achieved by consistently
applying a clear remuneration strategy directed at supporting
the Board approved business strategy with appropriate and
flexible processes, policies and procedures established by the
Board from time to time.
Short-term Incentives – Operational Bonuses
In 2018, elements of KMP remuneration were dependent
on the satisfaction of operational performance conditions as
follows:
• A cash bonus of $12,500 for Mike Stabb linked to the
achievement of operational KPIs.
• A cash bonus of $12,500 for Ben Cornish linked to the
achievement of operational KPIs.
Long-term Incentives
On 1 April 2018, the consolidated entity issued 99,732
performance rights to key management personnel and select
senior staff as part of a Long Term Incentive (LTI scheme
under an Employee Share Plan as a means of rewarding and
incentivising key employees.
Further details of the performance rights, including details of
rights issued during the financial year, are set out in note 34.
The Long term incentive (LTI) scheme contains features that
meets contemporary general accepted market standards, and
that:
• Encourage the long term retention of selected key
executives and aligns the interests of the key executives
with shareholders;
• Reward service and performance by these executives;
• Meet contemporary governance and executive
remuneration standards; and
(C) ELEMENTS OF REMUNERATION
• Satisfy all executive employment contract obligations and
meet all regulatory requirements.
Fixed Annual Remuneration (FR)
Executives may receive their fixed remuneration as cash,
superannuation and fringe benefits such as mobile phones,
car allowances and in house fringe benefits.
During 2018 there were fixed remuneration increases given to
executive KMP as follows:
• Michael Omeros:
Base Salary increased from $250,000 to $300,000
• Mike Stabb:
Car Allowance increased from $nil to $8,938
21
ANNUAL REPORT 2018 (D) REMUNERATION EXPENSES FOR EXECUTIVE KMP
The following table shows details of the remuneration expense recognised for the group’s executive key management personnel for the
current and previous financial year measured in accordance with the requirements of the accounting standards. Remuneration paid to
directors and executives is valued at the cost to the group.
Key Management Personnel Remuneration
Name
Year
Fixed remuneration
Variable
remuneration
Total
Perfor-
mance
Based
Cash
Salary*
Non-
monetary
Benefits*
Annual
Leave*
Long
service
Leave
**
Post-
employ-
ment
Benefits
***
Cash
Bonus*
Share
Based
Payments
****
$
$
$
$
$
$
$
$
%
Executive Directors
Michael Omeros
2018
257,306
48,234
23,077
Brent Paddon
2017
2018
2017
208,765
251,105
254,134
46,411
16,650
3,306
19,231
2,754
19,231
Other Management Personnel
229,407
195,000
-
-
16,923
15,385
207,520
15,786
16,923
200,000
677
15,385
5,000
3,607
4,167
4,167
3,667
3,333
3,667
3,333
20,049
19,616
20,049
19,616
-
-
-
-
-
-
-
-
353,666
295,049
297,858
299,902
24,049
12,500
194,337
480,883
26,375
25,000
1,222
266,315
20,049
12,500
194,337
470,782
21,451
25,000
1,222
267,068
945,338
67,326
76,154
16,501
84,196
25,000
388,674
1,603,189
857,899
49,842
66,651
14,440
87,058
50,000
2,444
1,128,334
145,000
135,000
-
-
-
-
-
-
-
-
-
-
-
-
145,000
135,000
2018
2017
2018
2017
2018
2017
2018
2017
Mike Stabb
Ben Cornish
Total Executive
Directors &
Other KMPs
Total NED
Remuneration
(see section (e)
below)
Total KMP
remuneration
Expensed
2018
1,090,338
67,326
76,154
16,501
84,196
25,000
388,674
1,748,189
2017
992,899
49,842
66,651
14,440
87,058
50,000
2,444
1,263,334
-
-
-
-
43.0
9.8
43.9
9.8
25.8
4.6
-
-
23.7
4.2
Short-term benefits as per Corporations Regulation 2M.3.03(1) Item 6
Other long-term benefits as per Corporations Regulation 2M.3.03(1) Item 8
*
**
*** Post-employment benefits are provided through contributions to a superannuation fund. The amounts disclosed as remuneration represent the amount
contributed by the employer at the statutory rate 9.5%, plus any salary sacrificed amounts if applicable, measured in accordance with AASB 119 Employee Benefits.
**** Shares issued under an employee share scheme established by the group on 30 November 2015, as well as Performance Rights issued,
as set out at Note 34.
22
ANNUAL REPORT 2018
Balance at
30/06/2018
104,920
104,920
19,946
19,946
OPTIONS AND RIGHTS GRANTED AS REMUNERATION
Name
Balance at
01/07/2017
Grant Details
Exercised
Lapsed
Directors
Issue Date
No.
Mike Stabb
100,000
1/04/2018
Ben Cornish
100,000
1/04/2018
Dennis Muscat
Daniel Roates
-
-
1/04/2018
1/04/2018
Group Total
200,000
29,920
29,920
19,946
19,946
99,732
Value
$*
86,361
86,361
57,572
57,572
No.**
25,000
25,000
-
-
Value
$**
54,772
54,772
-
-
No.**
-
-
287,866
50,000
109,544
-
249,732
* The fair value of performance rights granted as remuneration and as shown in the above table has been determined in accordance with Australian Accounting
Standards and will be recognised as an expense over the relevant vesting period to the extent that conditions necessary to vesting are satisfied.
** Tranche 1 of the 2017 performance rights were eligible for conversion to shares as all criteria has been satisfied, and they did vest and were converted on 28
November 2017.
Details of the performance rights granted as remuneration to those KMP in the above table are included in Note 34 to the financial
statements.
(E) NON-EXECUTIVE DIRECTOR ARRANGEMENTS
Board fees are $75,000 ($70,000 in 2017) for John Puttick and $50,000 ($45,000 in 2017) for Susan Forrester. In addition, they are
paid $10,000 for chairing their respective committees. There are no performance-based payments or retirement allowances.
The table below represent the amounts paid for the periods in which their services were provided.
Base fees
Chair
Other Non-executive Directors
Total
Consolidated
2018
$
85,000
60,000
2017
$
80,000
55,000
145,000
135,000
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.
23
ANNUAL REPORT 2018
(F) OTHER STATUTORY INFORMATION
(i) Shareholdings
The numbers of shares in the company held (directly, indirectly or beneficially) during the financial year by KMP, including their
related parties, are set below
Directors
Michael Omeros
Brent Paddon
John Puttick
Susan Forrester
Total Directors
Balance at
1/07/2017
Sold on
Market
Employee
Share Scheme
Bought on
Market
Balance at
30/06/2018
15,116,115
(1,500,000)
-
-
13,616,115
14,900,000
(1,750,000)
-
-
13,150,000
20,000
-
-
60,000
80,000
155,413
-
-
-
155,413
30,191,528
(3,250,000)
-
60,000
27,001,528
Other Key Management Personnel (OKMP)
Mike Stabb
Ben Cornish
Total OKMP
Group Total
179,441
-
25,360
46,712
21,400
-
25,360
-
200,841
-
30,392,369
(3,250,000)
50,720
50,720
46,712
106,712
251,513
46,760
298,273
27,299,801
(G) OPTIONS & PERFORMANCE RIGHTS
(i) Options
At the date of this report, there were no unissued shares of Over the Wire Holdings Limited under option. (2017: Nil)
(i) Performance Rights
At the date of this report, there were 249,732 performance Rights over Over the Wire Holdings Limited shares. (2017: 200,000)
End of Remuneration Report
This report, incorporating the Remuneration Report is signed in accordance with a resolution of Directors.
Michael Omeros
Managing Director
Brisbane
22 August 2018
John Puttick
Chair Person
Brisbane
22 August 2018
24
ANNUAL REPORT 2018
2.0
AUDITOR’S
INDEPENDENCE
DECLARATION
25
ANNUAL REPORT 2018 AUDITOR’S INDEPENDENCE DECLARATION
UNDER SECTION 307C OF THE CORPORATIONS ACT 2001
TO THE DIRECTORS OF
OVER THE WIRE HOLDINGS LIMITED
I declare that, to the best of my knowledge and belief, during the year ended 30 June 2018, there have
been no contraventions of:
(a)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b)
any applicable code of professional conduct in relation to the audit.
PKF HACKETTS
LIAM MURPHY
PARTNER
22 AUGUST 2018
BRISBANE
26
ANNUAL REPORT 2018 3.0
CORPORATE
GOVERNANCE
STATEMENT
27
ANNUAL REPORT 2018 CORPORATE GOVERNANCE STATEMENT
Compliance with ASX Corporate Governance Principles and Recommendations
Over the Wire Holdings Limited and the board are committed to achieving and demonstrating the highest standards of corporate
governance. Over the Wire Holdings Limited has reviewed its corporate governance practices against the Corporate Governance
Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council.
The 2018 corporate governance statement is dated as at 30 June 2018 and reflects the corporate governance practices in place
throughout the 2018 financial year. The 2018 corporate governance statement was approved by the board on 26 October 2018.
A description of the group’s current corporate governance practices is set out in the group’s corporate governance statement
which can be viewed at www.overthewire.com.au/investors/corporate-governance.
Over the Wire’s corporate governance charter has been drafted in light of these Guidelines and the table below summarises the
Company’s compliance, in accordance with ASX Listing Rule 4.10.3.
Principles and Recommendations
Compliance
Principle 1 – Lay solid foundations for management and oversight
1.1 Establish the functions expressly
reserved to the Board and those delegated
to management, and disclose those
functions.
1.2 Undertake appropriate checks before
appointing a person as a director, and
provide shareholders with all material
information relevant to a decision on
whether or not to elect or re-elect a
director.
1.3 Have a written agreement with each
director and senior executive setting out
the terms of their appointment.
The Board is responsible for the overall corporate
governance of the Company.
The Board has adopted a Board charter that formalises
its roles and responsibilities and defines the matters that
are reserved for the Board and specific matters that are
delegated to management.
The Company will conduct police checks, solvency and
banned director searches in relation to all appointed and
future nominated directors.
The Company will publish Director profiles on the
Company’s website outlining biographical details, other
directorships held, commencement date of office and
level of independence.
The Company has written agreements with each director
and senior executive. On appointment of directors and
senior executives the Company will issue necessary
written agreements outlining the terms of their
appointment.
1.4 The company secretary should be
accountable directly to the Board on all
matters to do with the proper functioning
of the Board.
This is consistent with the Charter and corporate
structure of the Company. The company secretary has
a direct relationship with the Board in relation to these
matters.
Comply
Complies
Complies
Complies
Complies
Partially Complies
1.5 Establish a diversity policy and disclose
the policy or a summary of that policy.
The policy should include requirements
for the Board to establish measurable
objectives for achieving gender diversity
and for the Board to assess annually both
the objectives and progress in achieving
them, for reporting against in each
reporting period.
The Board has adopted a diversity policy that outlines
objectives to ensure that the Company has as diverse a
workforce as practicable.
The Board determined that given the Company’s size
and structure, it is not appropriate or
possible to mandate a fixed number of women at any
given level within the organisation, so no measurable
objectives are included.
As a measurement of gender diversity, the proportion of
women working within Over the Wire as at 30 June 2018
is as follows:
• Women on the Board – 25%
• Women in Senior Executive positions – 17%
• Women in the organisation – 24%
28
ANNUAL REPORT 2018 1.6 Have a process for periodically
evaluating the performance of the Board,
its committees and individual directors,
and disclose that process and, at the end
of each reporting period, whether such
performance evaluation was undertaken in
that period.
The Company conducts the process for evaluating the
performance of the Board, its committee and individual
directors as outlined in the Board Charter. Performance
evaluation was conducted in this period.
Complies
1.7 Have a process for periodically
evaluating the performance of the
company’s senior executives, and
disclose that process and, at the end
of each reporting period, whether such
performance evaluation was
undertaken in that period.
A summary of the processes for performance evaluation
of key executives, directors and the
Board is available on the Company’s website. The Chief
Executive Officer (CEO) reviews the
performance of the senior executives. The Board reviews
the CEO’s performance. These reviews were conducted
in this period.
Complies
Principles and Recommendations
Compliance
Principle 2 – Structure the Board to add value
2.1 The Company should have a nomination
committee, which has at least three
members, a majority of independent
directors and is chaired by an independent
director.
The functions and operations of the
nomination committee should be disclosed.
2.2 Have and disclose a board skills matrix,
setting out what the board is looking to
achieve in its membership.
2.3 Disclose the names of the directors
that the Board considers to be independent
directors, and an explanation of why the
Board is of that opinion if a factor that
impacts on independence applies to a
director, and disclose the length of service
of each director.
Comply
Complies
A combined Nominations and Remuneration Committee
has been established with its own
charter and consists of:
• John Puttick (committee chair);
• Susan Forrester; and
• Brent Paddon.
The Company has established charter rules for the
Nominations and Remuneration Committee as a guide
for Board deliberations. Together, the Directors have a
broad range of experience, expertise, skills, qualifications
and contacts relevant to the Company and its business.
The Board considers John Puttick (appointed in
December 2015) to be an independent director.
The Board also considers Susan Forrester (appointed in
December 2015) to be an independent director.
Partially
Complies
Complies
The Board notes the following directors are deemed not
independent for the purposes of the Guidelines:
• Michael Omeros (appointed in July 2011) – Michael
is a founding shareholder of Over the Wire and is an
executive director of the Company.
• Brent Paddon (appointed in July 2011) – Brent is also
a founding shareholder of Over the Wire and is an
executive director of the Company.
2.4 A majority of the Board should be
independent directors.
The Board currently comprises four Directors, of which
two are independent non-executive Directors.
2.5 The chair of the Board should be an
independent director and should not be the
CEO.
The chairman, John Puttick, is a non-executive and
independent director.
29
Partially Complies.
The Board is equally
weighted between
independent and
executive Directors.
The size of the
Company does not
justify the cost of
appointing additional
independent
Directors at this
stage.
Complies
ANNUAL REPORT 2018
2.6 There should be a program for inducting
new directors and providing appropriate
professional development opportunities for
directors to develop and maintain the skills
and knowledge needed to perform their
role as a director effectively.
This is consistent with the Board Charter.
Complies
Principles and Recommendations
Compliance
Principle 3 – Act ethically and responsibly
3.1 Have a code of conduct for the Board,
senior executives and employees, and
disclose that code or a summary of that
code.
The Company has adopted a code of conduct, which
sets out a framework to enable Directors to achieve
the highest possible standards in the discharge of their
duties and to give a clear understanding of best practise
in Corporate Governance.
Principles and Recommendations
Compliance
Principle 4 – Safeguard integrity in corporate reporting
4.1 The Company should have an audit
committee, which consists of only
non-executive directors, a majority of
independent directors, is chaired by an
independent chairman who is not chairman
of the Board, and has at least three
members. The functions and operations of
the audit committee should be disclosed.
The Board has established an Audit and Risk Committee
which operates under an audit and risk committee
charter.
The Audit and Risk Committee members are:
• John Puttick;
• Susan Forrester; and
• Michael Omeros.
Comply
Complies
Comply
Partially
Complies
The committee includes two independent directors and
is chaired by an independent director.
This is consistent with the approach to be adopted by
the Audit and Risk Committee and the Board.
Complies
4.2 The Board should, before approving
financial statements for a financial period,
receive a declaration from the CEO and
CFO that, in their opinion, the financial
records have been properly maintained and
that the financial statements comply with
the appropriate accounting standards and
give a true and fair view of the financial
position and performance of the Company,
formed on the basis of a sound system
of risk management and internal controls,
operating effectively.
4.3 The Company’s auditor should attend
the AGM and be available to answer
questions from security holders relevant to
the audit.
Over the Wire’s auditors will be requested to attend the
AGM and shareholders will be entitled to ask questions
in accordance with the Corporations Act and these
guidelines.
Complies
Principles and Recommendations
Compliance
Principle 5 – Make timely and balanced disclosures
5.1 Have a written policy for complying
with continuous disclosure obligations
under the Listing Rules, and disclose that
policy or a summary of it.
The Company has a written continuous disclosure policy
which is designed to ensure that all material matters are
appropriately disclosed in a balanced and timely manner
and in accordance with the requirements of the ASX
Listing Rules.
Comply
Complies
30
ANNUAL REPORT 2018
Principles and Recommendations
Compliance
Comply
Principle 6 – Respect the rights of security holders
6.1 Provide information about the Company
and its governance to investors via its
website.
6.2 Design and implement an investor
relations program to facilitate effective two-
way communication with investors.
6.3 Disclose the policies and processes
in place to facilitate and encourage
participation at meetings of security
holders.
The Board Charter and other applicable policies
are available on the Company’s website.
Complies
The Company has adopted a shareholder
communications policy. The Company will
use its website, half year and annual reports,
market announcements and media disclosures
to communicate with its shareholders, as well
as encourage participation at general meetings.
The Company intends to facilitate effective
participation in the AGM, as well as the ability
to submit written questions ahead of the AGM.
The Company intends to adopt appropriate
technologies to facilitate the effective
communication and conduct of general
meetings.
Complies
The Company has not
disclosed a formal policy or
process, but it has engaged
a recognised and reputable
share registry service provider
to further these objectives.
6.4 Give security holders the option to
receive communications from, and send
communications to, the Company and its
share registry electronically.
The company has instructed its share registry
to facilitate this option for shareholders.
Complies
Principles and Recommendations
Compliance
Comply
The Company has a combined Audit and Risk
Committee. See 4.1 above.
Partially Complies
The charter establishes the role of the
committee. Risk review was conducted in this
period.
Complies
Due to the Company’s limited number of
employees and relative nature and scale of its
operations, the costs of an independent internal
audit function would be disproportionate. The
Company has an external auditor and the Audit
and Risk Committee will monitor and evaluate
material or systemic issues.
Does not comply due to
the nature and scale of
operations, however the
Board believes it and the
Audit and Risk Committee
have adequate oversight of
the existing operations.
The Board does not believe that the Company
has any such material risks.
Complies
Principle 7 – Recognise and manage risk
7.1 The Board should have a risk committee
which is structured so that it consists of
a majority of independent directors, is
chaired by an independent director, and has
at least three members.
The functions and operations of the risk
committee should be disclosed.
7.2 The Board or a committee of the Board
should review the entity’s risk management
framework with management at least
annually to satisfy itself that it continues to
be sound, and disclose, in relation to each
reporting period, whether such a review
has taken place.
7.3 Disclose if the Company has an
internal audit function, how the function
is structured and what role it performs,
or if it does not have an internal audit
function, that fact and the processes the
Company employs for evaluating and
continually improving the effectiveness of
its risk management and internal control
processes.
7.4 Disclose whether the Company has
any material exposure to economic,
environmental and social sustainability risks
and, if so, how it manages those
risks.
31
ANNUAL REPORT 2018 Principles and Recommendations
Compliance
Comply
Principle 8 – Remunerate fairly and responsibly
8.1 The Board should have a remuneration
committee which is structured so that it consists
of a majority of independent directors, is chaired
by an independent director, and has at least three
members. The functions and operations of the
remuneration committee should be
disclosed.
8.2 The policies and practices regarding the
remuneration of non-executive directors, and the
remuneration of executive directors and other senior
executives, should be separately disclosed.
The Company has a combined Nominations and
Remuneration Committee. See 2.1 above.
Partially Complies
The Nominations and Remuneration Committee
charter is available on the Company’s website.
Complies
8.3 If the Company has an equity-based
remuneration scheme, it should have a policy on
whether participants are permitted to enter into
transactions (whether through the use of derivatives
or otherwise) which limit the economic risk of
participating in the scheme, and disclose that policy
or a summary of it.
The Company operates an exempt share plan
and has approved a performance rights plan for
the potential issue of rights in the future.
In accordance with the Company’s Securities
Trading Policy participants are not permitted to
enter into transactions which limit economic
risk without written clearance.
Complies
RESPONSIBILITY OF THE BOARD
The Board is responsible for the Company’s proper corporate governance. To carry out this obligation, the Board must act:
• Honestly, conscientiously and fairly;
• In accordance with the law;
• In the interests of the Shareholders (with a view to building sustainable value for them); and
• In the interests of employees and other stakeholders.
The Board’s broad function is to:
• Represent, serve and protect the interests of shareholders;
• Develop, implement, oversee, and review the strategies and performance of the Company;
• Optimise Company performance and build sustainable shareholder value within an effective corporate governance framework of
internal controls and risk management;
• Ensure shareholders and stakeholders are regularly and effectively informed of developments affecting the Company, as well as
the ongoing performance of the Company; and
• Ensure that no decision or action is taken that has the effect of prioritising their personal interests over the Company’s interests.
Power and authority in certain areas is specifically reserved to the Board – consistent with its function described above. These
areas include:
• Providing leadership and setting the strategic objectives of the Company;
• Composition of the Board itself including the appointment and removal of the Chairman or deputy chairman (if applicable);
• Oversight of the Company including its control and accountability system;
• Appointment and removal of senior management (including the CEO or equivalent) and the Company Secretary;
• Reviewing, ratifying and monitoring the risk management framework and setting the risk appetite within which the Board
expects management to operate;
• Approving and formulating company strategy and policy;
• Approving and monitoring operating budgets and major capital expenditure;
• Overseeing the integrity of the Company’s accounting and corporate reporting systems, including the external audit;
• Overseeing corporate strategy and performance objectives developed by management;
• Overseeing the Company’s compliance with its continuous disclosure obligations;
• Approving the Company’s remuneration framework;
• Monitoring the overall corporate governance of the Company (including its strategic direction and goals for management, and
the achievement of these goals); and
• Oversight of the Board’s various committees.
32
ANNUAL REPORT 2018
The committee performs functions relevant to risk
management and internal and external reporting and reports
to the Board following each meeting. The committee’s
responsibilities include:
• Setting Board and committee structures to facilitate a
proper review function by the Board;
• Internal control framework including management
information systems;
• Corporate risk assessment (including economic,
environmental and social sustainability risks) and
compliance with internal controls;
• Management processes supporting external reporting
practices;
• Review of financial statements and other financial
information distributed externally;
• Review of the effectiveness of the audit function;
• Review of management corporate reporting
processes supporting external reporting, including the
appropriateness of the accounting judgements;
• Review of the performance and independence of the
external auditors;
• Review of the external audit function to ensure prompt
remedial action by management, where appropriate, in
relation to any deficiency in or breakdown of controls; and
• Reviewing any proposal for the external auditor to provide
non-audit services and whether it might compromise the
independence of the external auditor.
Meetings will be held at least four times each financial year. A
broad agenda is laid down for each regular meeting according
to an annual cycle. The committee invites the external
auditors to attend each of its meetings.
The Audit and Risk Committee information is available on the
Company’s website at www.overthewire.com.au/investors/
corporate-governance.
COMPOSITION OF BOARD
The Board is comprised of four directors. Half of the Board
are non-executive directors independent from management.
The Chairman of the Board is an independent non-executive
director.
BOARD CHARTER AND POLICY
The Board has adopted a charter which formally recognises
its responsibilities, functions, power and authority and
composition. This charter sets out other things which are
important for effective corporate governance including:
• A detailed definition of ‘independence’;
• A framework for the identification of candidates for
appointment to the Board and their selection (including
undertaking appropriate background checks);
• A framework for individual performance review and
evaluation;
• Proper training to be made available to Directors both at
the time of their appointment and on an on-going basis;
• Basic procedures for meetings of the Board and its
committees including frequency, agenda, minutes
and private discussion of management issues among
nonexecutive Directors;
• Ethical standards and values (in a detailed code of ethics
and values);
• Dealings in securities (in a detailed code for securities
transactions designed to ensure fair and transparent
trading by Directors and senior management and their
associates); and
• Communications with Shareholders and the market.
The purpose of the charter is to ‘institutionalise’ good
corporate governance and to build a culture of best practice
both in Over the Wire’s internal practices and its dealings with
others.
This information is available on the Company’s website at
www.overthewire.com.au/investors/corporate-governance.
AUDIT AND RISK COMMITTEE
The purpose of this committee is to advise on the
establishment and maintenance of a framework of internal
control and appropriate ethical standards for the management
of the Company. Its current members are:
• Susan Forrester (committee chair);
• John Puttick; and
• Michael Omeros.
33
ANNUAL REPORT 2018
NOMINATIONS AND REMUNERATION COMMITTEE
The purpose of this committee is to assist the Board and
report to it on remuneration and related policies and practices
(including remuneration of senior management and non-
executive Directors). Its current members are:
Diversity Policy
Over the Wire is committed to complying with the diversity
recommendations published by ASX and promoting diversity
among employees, Directors and senior management, and
has adopted a policy in relation to diversity (Diversity Policy).
Over the Wire defines diversity to include, but not be limited
to, gender, age, disability, ethnicity, marital or family status,
religious or cultural background, sexual orientation and gender
identity.
The Diversity Policy adopted by the Board outlines Over the
Wire’s commitment to fostering a corporate culture that
embraces diversity and provides a process for the Board
to determine measurable objectives and procedures to
implement and report against to achieve its diversity goals.
The Company’s Nominations and Remuneration Committee
is responsible for implementing the Diversity Policy, setting
the Company’s measurable objectives and benchmarks for
achieving diversity and reporting to the Board on compliance
with the Diversity Policy.
As part of its role, the Company’s Nominations and
Remuneration Committee is responsible for formulating and
implementing a Company remuneration policy. Under the
Diversity Policy, a facet of this role will include reporting to
the Board annually on the proportion of men and women
in Over the Wire’s workforce and their relative levels of
remuneration.
The Board will assess and report annually to Shareholders on
progress towards achieving its diversity goals. The Diversity
Policy is available on the Company’s website at www.
overthewire.com.au/investors/corporate-governance.
• John Puttick (committee chair);
• Susan Forrester; and
• Brent Paddon.
The committee’s functions include:
• Recommendations to the Board about the Company’s
remuneration policies and procedures;
• Oversight of the performance of senior management and
non-executive Directors;
• Recommendations to the Board about remuneration of
senior management and non-executive Directors; and
• Reviewing the Company’s reporting and disclosure
practices in relation to the remuneration of Directors and
senior executives.
Meetings will be held at least four times each financial year
and more often as required.
The Nominations and Remuneration Committee information
is available on the Company’s website at www.overthewire.
com.au/investors/corporate-governance.
POLICIES
Securities Trading Policy
A securities trading policy (Trading Policy) has been adopted
by the Board to provide guidance to Directors, identified
employees including senior management, and other
employees of Over the Wire, where they are contemplating
dealing in the Company’s securities or the securities of
entities with whom Over the Wire may have dealings. The
Trading Policy is designed to ensure that any trading in the
Company’s securities is in accordance with the law and
minimises the possibility of misperceptions arising in relation
to Directors’ and employees’ dealings in the Company’s
securities or securities of other entities.
The Trading Policy is directed at dealing in the Company’s
securities by the Directors and employees, dealings through
entities or trusts controlled by a relevant person, or in which
they have an interest, and encouraging family or friends
to so deal. It also extends to addressing dealings in the
securities of other entities that may be transacting with or be
counterparties of Over the Wire.
Any non-compliance with the Trading Policy will be regarded
as an act of serious misconduct. The Trading Policy is available
on the Company’s website at www.overthewire.com.au/
investors/corporate-governance.
34
ANNUAL REPORT 2018
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 18 October 2018.
Over The Wire Holdings Limited
Issued capital ordinary shares: 44,048,441 as at 18 October 2018.
Substantial Shareholders
Substantial shareholders in the company are set out below:
Michael Omeros (Including Related Entities and Indirect Holdings)
Brent Paddon (Including Related Entities and Indirect Holdings)
National Nominees Limited
Total Substantial Shareholders
Ordinary Shares
Number
Held
% of Total Shares
Issued
13,616,115
13,150,000
3,222,722
29,988,837
30.91%
29.85%
7.32%
68.08%
Number Of Holders Of Each Class Of Equity Securities And Distribution Schedule Of The Number Of Holders
The number of holders of each class, and distribution schedule of the number of holders of equity securities, is set below:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and Over
Total
Unmarketable Parcels
VOTING RIGHTS
Ordinary Shares
Number
Held
195,949
1,460,352
1,832,089
4,497,605
36,062,446
44,048,441
0
Number
of Holders
375
496
220
170
18
1279
0
The voting rights attached to each class of equity securities are set out below:
ORDINARY SHARES
On a show of hands every member present at a meeting in person, or by proxy, shall have one vote, and upon a poll each share
shall have one vote.
35
ANNUAL REPORT 2018
THE NUMBER AND CLASS OF RESTRICTED SECURITIES SUBJECT TO VOLUNTARY ESCROW THAT ARE ON
ISSUE
Voluntary Escrow
The number and class of securities subject to Voluntary Escrow are set out below:
Date that Voluntary Escrow Period Ends:
One year anniversary of acquisition of VPN (Escrow Release Date - 31 October
2018)
Total
The 20 Largest Holders of Each Class of Quoted Equity Securities
Michael Omeros (Including Related Entities and Indirect Holdings)
Brent Paddon (Including Related Entities and Indirect Holdings)
National Nominees Limited
Jay Heddon Binks
Pershing Australia Nominees Pty Ltd
J P Morgan Nominees Australia Limited
Dynamic Supplies Investments Pty Ltd
Aust Executor Trustees Ltd
Hsbc Custody Nominees (Australia) Limited
Hampel Computer Pty Ltd
Carter Haywood Pty Ltd
Bnp Paribas Nominees Pty Ltd
Bnp Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
Birkdale Holdings (Qld) Pty Ltd
Ms Susan Margaret Forrester & Mr Bruce Forrester
Equitas Nominees Pty Limited
Mr David Noel Groth & Mrs Kathryn Renae Taylor-Groth
Est Nominees Pty Ltd
Bcitf (Qld)
Bm Jag Pty Ltd
Total
Ordinary Shares
Number
Held
% of Total Shares
Issued
382,721
382,721
Ordinary Shares
13,616,115
13,150,000
3,222,722
1,360,743
1,060,000
1,235,865
860,000
569,721
474,571
382,721
269,753
214,240
204,619
200,000
155,413
135,000
110,000
105,000
100,000
100,000
0.87%
0.87%
30.91%
29.85%
7.32%
3.09%
2.41%
2.81%
1.95%
1.29%
1.08%
0.87%
0.61%
0.49%
0.46%
0.45%
0.35%
0.31%
0.25%
0.24%
0.23%
0.23%
37,526,483
85.19%
36
ANNUAL REPORT 2018
4.0
FINANCIAL
STATEMENTS
37
ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For Year Ended 30 June 2018
Revenue from Continuing Operations
Other Income
Expenses
Data Centre & Co-Location Expense
Calls & Communications Expense
Other Cost of Goods Sold
Employee Benefits Expense
Depreciation & Amortisation Expense
Finance Costs
Other Expenses
Profit Before Income Tax Expense
Income Tax Expense
Profit After Income Tax Expense for the Year Attributable to members
Other Comprehensive Income
Other Comprehensive Income for the Year, Net of Tax
Total Comprehensive Income for the Year Attributable to members
Basic Earnings per Share
Diluted Earnings per Share
Note
3
4
5
5
5
5
5
5
5
6
7
7
Consolidated
2018
$ ,000
53,561
116
(3,624)
(19,061)
(3,054)
(13,247)
(3,937)
(476)
(2,432)
7,843
(2,312)
5,531
-
-
5,531
Cents
12.625
12.566
2017
$ ,000
34,217
293
(2,595)
(11,851)
(1,815)
(8,744)
(2,330)
(182)
(2,136)
4,857
(1,259)
3,598
-
-
3,598
Cents
8.270
8.270
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
38
ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As At 30 June 2018
Assets
Current Assets
Cash & Cash Equivalents
Trade & Other Receivables
Inventories
Other Current Assets
Total Current Assets
Non-Current Assets
Property, Plant & Equipment
Intangibles
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade & Other Payables
Borrowings
Current Tax Liability
Employee Benefits
Deferred Consideration
Total Current Liabilities
Non-Current Liabilities
Borrowings
Employee Benefits
Deferred Consideration
Deferred Tax
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Reserves
Retained Profits
Total Equity
Note
Consolidated
2017
$ ,000
2017
$ ,000
8
9
10
11
12
13
15
16
17
18
20
21
14
22
34
23
7,013
4,357
263
899
12,532
5,061
36,649
41,710
54,242
7,298
4,027
977
1,293
1,968
5,484
3,242
189
643
9,558
4,830
17,737
22,567
32,125
4,867
2,240
437
772
353
15,563
8,669
9,205
186
-
4,421
13,812
29,375
24,867
12,246
361
12,260
24,867
1,662
89
234
2,448
4,433
13,102
19,023
11,308
2
7,713
19,023
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
39
ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For Year Ended 30 June 2018
Consolidated
Balance at 1 July 2016
Profit after Income Tax for the Year
Other Comprehensive Income
Total Comprehensive Income for the Year
Transactions with Owners, in their Capacity
as Owners:
Dividends Paid
Performance Rights Issued
Shares Issued Net of Capital Raising Costs
Tax Effect of Capitalised Costs of IPO
Balance at 30 June 2017
Consolidated
Balance at 1 July 2017
Profit after Income Tax for the Year
Other Comprehensive Income
Total Comprehensive Income for the Year
Transactions with Owners, in their Capacity
as Owners:
Dividends Paid
Performance Rights Issued
Movements as a result of existing
performance rights
Employee Share Plan
Shares Issued Net of Capital Raising Costs
Tax Effect of Capitalised Costs of IPO
Balance at 30 June 2018
Note
34
22
Note
34
34
22
22
Issued
Capital
$ ,000
11,280
-
-
-
-
-
77
(49)
11,308
Issued
Capital
$ ,000
11,308
-
-
-
-
-
109
97
781
(49)
12,246
Share Based
Payment
Reserve
$ ,000
-
-
-
-
-
2
-
-
2
Share Based
Payment
Reserve
$ ,000
2
-
-
-
-
29
260
70
-
-
361
Retained
Profits
$ ,000
4,876
3,598
-
3,598
(761)
-
-
-
Total
Equity
$ ,000
16,156
3,598
-
3,598
(761)
2
77
(49)
7,713
19,023
Retained
Profits
$ ,000
7,713
5,531
-
5,531
(984)
-
-
-
-
-
Total
Equity
$ ,000
19,023
5,531
-
5,531
(984)
29
369
167
781
(49)
12,260
24,867
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
40
ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CASH FLOWS
For Year Ended 30 June 2018
Consolidated
Note
2018
$ ,000
2017
$ ,000
Cash Flows from Operating Activities
Receipts from Customers
Payments to Suppliers & Employees
Interest Received
Interest Paid & Other Finance Costs Paid
Income Taxes Paid
Net Cash From / (Used) in Operating Activities
29
Cash Flows from Investing Activities
Payments for Business Combinations (net of cash acquired)
Payments for Property, Plant & Equipment
Payments for Intangible Assets
Proceeds from Sale of Property, Plant & Equipment
Net Cash From / (Used) Investing Activities
Cash Flows from Financing Activities
Proceeds from Borrowings
Repayment of Borrowings
Dividends Paid
Net Cash From / (Used) Financing Activities
Net Increase (Decrease) in Cash & Cash Equivalents
Cash & Cash Equivalents at the Beginning of the Year
Cash & Cash Equivalents at the End of the Year
8
Non-Cash Financing Activities
57,858
(44,835)
13,023
37
(476)
(2,240)
10,344
(14,532)
(2,074)
(555)
-
37,489
(29,559)
7,930
67
(182)
(2,719)
5,096
(7,057)
(1,775)
(379)
68
(17,161)
(9,143)
17,724
(8,394)
(984)
8,346
1,529
5,484
7,013
7,318
(4,068)
(761)
2,489
(1,558)
7,042
5,484
Shares Issued as Consideration for Business Acquisitions
781
-
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes
41
ANNUAL REPORT 2018 5.0
NOTES TO THE
FINANCIAL
STATEMENTS
42
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For Year Ended 30 June 2018
These consolidated financial statements and notes represent
those of Over the Wire Holdings Limited (the “Company”)
and controlled entities (the “consolidated group” or “Group”).
The separate financial statements of the parent entity Over
the Wire Holdings Limited have not been presented within
the financial report as permitted by the Corporations Act 2001.
The financial statements were authorised for issue on 22
August 2018 by the directors of the company.
NOTE 1: SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PREPARATION
These general purpose financial statements have been
prepared in accordance with Australian Accounting Standards
and Interpretations issued by the Australian Accounting
Standards Board (‘AASB’) and the Corporations Act 2001,
as appropriate for for-profit oriented entities. These financial
statements also comply with International Financial Reporting
Standards as issued by the International Accounting
Standards Board (‘IASB’).
Except for cash flow information, the financial statements
have been prepared on an accruals basis and are based on
historical costs, modified, where applicable, by the revaluation
of available for sale financial assets, financial assets and
liabilities at fair value through profit & loss, investment
properties, certain classes of property, plant & equipment,
and derivative financial instruments.
NET CURRENT ASSET DEFICIENCY
The consolidated entity recorded a net current liability
position of $3.03m (June 2017: net current asset position of
$0.89m) as at 30 June 2018.
Given the consolidated entity’s net current liability position,
the ability of the consolidated entity to continue as a going
concern, including its ability to pay its debts as and when they
fall due, needs to be considered.
The net current liability position is due to the acquisition of
VPN Solutions, which was predominately funded through
external borrowings (Refer to notes 19 and 20).
The continuation of the consolidated entity as a going
concern is dependent upon the continuation of generating
future profits by the underlying businesses.
It is on the basis of the consolidated entity's ability to
maintain future profits and cash inflows from operations that
the Directors have prepared the financial report on a going
concern basis.
43
A. NEW ACCOUNTING STANDARDS ADOPTED IN
THE CURRENT FINANCIAL PERIOD
The consolidated entity has considered the implications of
new or amended Accounting Standards, but determined
that their application to the financial statements is either not
relevant or not material.
B. NEW ACCOUNTING STANDARDS FOR
APPLICATION IN FUTURE PERIODS
Accounting Standards issued by the AASB that are not
yet mandatorily applicable to the Group, together with an
assessment of the potential impact of such pronouncements
on the Group when adopted in future periods, are discussed
below:
AASB 9: Financial Instruments and associated Amending
Standards (applicable to annual reporting periods beginning
on or after 1 January 2018).
The Standard will be applicable retrospectively and includes
revised requirements for the classification and measurement
of financial instruments, revised recognition and recognition
requirements for financial instruments and simplified
requirements for hedge accounting.
The directors do not anticipate that the adoption of AASB
9 will have a material impact on the Group’s financial
instruments.
AASB 15: Revenue from Contracts with Customers
(applicable to annual reporting periods beginning on or after
1 January 2018, as deferred by AASB 2015-8: Amendments
to Australian Accounting Standards – Effective Date of AASB
15).
When effective, this Standard will replace the current
accounting requirements applicable to revenue with a
single, principles-based model. Except for a limited number
of exceptions, including leases, the new revenue model in
AASB 15 will apply to all contracts with customers as well
as non-monetary exchanges between entities in the same
line of business to facilitate sales to customers and potential
customers.
The core principle of the Standard is that an entity will
recognise revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for the goods or services. To achieve this objective,
AASB 15 provides the following five-step process:
• Identify the contract(s) with a customer;
• Identify the performance obligations in the contract(s);
• Determine the transaction price;
• Allocate the transaction price to the performance
obligations in the contract(s); and
• Recognise revenue when (or as) the performance
obligations are satisfied.
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The transitional provisions of this Standard permit an
entity to either:
elect not to separate non-lease components and instead
account for all components as a lease; and
Restate the contracts that existed in each prior period
presented per AASB 108: Accounting Policies, Changes in
Accounting Estimates and Errors (subject to certain practical
expedients in AASB 15); or recognise the cumulative effect
of retrospective application to incomplete contracts on the
date of initial application. There are also enhanced disclosure
requirements regarding revenue.
The directors anticipate that the adoption of AASB 15
will have an immaterial impact on the Group's financial
statements, for the following reasons:
• The Group already accounts for revenue from contracts
with customers materially in line with the performance
obligations of the contract, and in a manner similar to the
outcomes the new standard seeks to achieve;
• The Group already accounts for the expenses
corresponding to the contracts with customers materially
in line with the performance obligations of the contract,
and in a manner similar to the outcomes the new standard
seeks to achieve;
• Where installation or set up fees are charged at the
commencement of a contract with customers, they
are reflective of the up-front costs and efforts involved
in preparing and installing the service ready for use, as
well as the economic benefits that pass to the customer,
and are therefore already accounted for by the Group
in accordance with the performance obligations of the
contract, and in a manner similar to the outcomes the new
standard seeks to achieve.
Management have begun their assessment of the financial
impact of AASB 15 as at 30 June 2018, and, it is estimated
that, for the reasons outlined above, the financial impact of
these changes will be immaterial.
AASB 16: Leases (applicable to annual reporting periods
beginning on or after 1 January 2019).
When effective, this Standard will replace the current
accounting requirements applicable to leases in AASB 117:
Leases and related Interpretations. AASB 16 introduces
a single lessee accounting model that eliminates the
requirement for leases to be classified as operating or finance
leases.
The main changes introduced by the new Standard
include:
• Recognition of a right-to-use asset and liability for all leases
(excluding short-term leases with less than 12 months of
tenure and leases relating to low-value assets);
• Depreciation of right-to-use assets in line with AASB
116: Property, Plant and Equipment in profit or loss
and unwinding of the liability in principal and interest
components;
• Variable lease payments that depend on an index or a rate
are included in the initial measurement of the lease liability
using the index or rate at the commencement date;
• By applying a practical expedient, a lessee is permitted to
• Additional disclosure requirements.
The transitional provisions of AASB 16 allow a lessee to
either retrospectively apply the Standard to comparatives
in line with AASB 108 or recognise the cumulative effect of
retrospective application as an adjustment to opening equity
on the date of initial application.
The standard will primarily affect the accounting for the
Group’s operating leases. As at the reporting date, the Group
has noncancellable operating lease commitments of $2,994K
(see note 28) primarily associated with the rental of office
premises. Although the directors anticipate that the adoption
of AASB 16 will affect the Group's financial statements
by altering the ratio of net current assets to net non-
current assets, as the operating leases are all arms-length
commercial leases at fair market value, they do not anticipate
any material impact on profit. Also, as the majority of
operating leases in place at present will have expired before
the adoption of AASB 16 (see note 28), it is impracticable at
this stage to provide a reasonable estimate of the impacts
on the financial statements. Management will consider
the financial impacts of the new standard leading up to its
adoption from 1 July 2019, when in a better position to do so
once the operating leases discussed above are considered for
renewal.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of the consolidated
entity (‘Company’ or ‘Parent Entity’) as at 30 June 2018 and
the results of all subsidiaries for the year then ended. The
consolidated entity and its subsidiaries together are referred
to in these financial statements as ‘the consolidated entity’.
Subsidiaries are all those entities over which the consolidated
entity has the power to govern the financial and operating
policies, generally accompanying a shareholding of more
than one half of the voting rights. The effects of potential
exercisable voting rights are considered when assessing
whether control exists. Subsidiaries are fully consolidated
from the date on which control is transferred to the
consolidated entity. They are de-consolidated from the date
that control ceases.
Intercompany transactions, balances and unrealised gains on
transactions between entities in the consolidated entity are
eliminated. Unrealised losses are also eliminated unless the
transaction provides evidence of the impairment of the asset
transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the
policies adopted by the consolidated entity.
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. Refer to the ‘Business
Combinations’ accounting policy for further details. A
change in ownership interest, without the loss of control, is
accounted for as an equity transaction, where the difference
between the consideration transferred and the book value
of the share of the non-controlling interest acquired is
44
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
recognised directly inequity attributable to the parent.
Where the consolidated entity loses control over a subsidiary,
it derecognises the assets including goodwill, liabilities and
noncontrolling interest in the subsidiary together with any
cumulative translation differences recognised in equity.
The consolidated entity recognises the fair value of the
consideration received and the fair value of any investment
retained together with any gain or loss in profit or loss.
the provisional amounts recognised and also recognises
additional assets or liabilities during the measurement
period, based on new information obtained about the facts
and circumstances that existed at the acquisition-date.
The measurement period ends on either the earlier of (i)
12 months from the date of the acquisition or (ii) when the
acquirer receives all the information possible to determine fair
value.
D. BUSINESS COMBINATIONS
The acquisition method of accounting is used to account
for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-
date fair values of the assets transferred, equity instruments
issued or liabilities incurred by the acquirer to former owners
of the acquire and the amount of any non-controlling interest
in the acquire. For each business combination, the non-
controlling interest in the acquire is measured at either
fair value or at the proportionate share of the acquirer’s
identifiable net assets. All acquisition costs are expensed as
incurred to profit or loss.
On the acquisition of a business, the consolidated entity
assesses the financial assets acquired and liabilities assumed
for appropriate classification and designation in accordance
with the contractual terms, economic conditions, the
consolidated entity’s operating or accounting policies and
other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the
consolidated entity remeasures its previously held equity
interest in the acquire at the acquisition-date fair value and
the difference between the fair value and the previous
carrying amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer
is recognised at the acquisition-date fair value. Subsequent
changes in the fair value of contingent consideration
classified as an asset or liability is recognised in profit or
loss. Contingent consideration classified as equity is not
remeasured and its subsequent settlement is accounted for
within equity.
The difference between the acquisition-date fair value of
assets acquired, liabilities assumed and any non-controlling
interest in the acquire and the fair value of the consideration
transferred and the fair value of any pre-existing investment
in the acquire is recognised as goodwill. If the consideration
transferred and the pre-existing fair value is less than the fair
value of the identifiable net assets acquired, being a bargain
purchase to the acquirer, the difference is recognised as a
gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and
measurement of the net assets acquired, the non-controlling
interest in the acquire, if any, the consideration transferred
and the acquirer’s previously held equity interest in the
acquirer.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts
45
E. FOREIGN CURRENCY TRANSLATION
The financial statements are presented in Australian dollars,
which is the consolidated entity’s functional and presentation
currency.
Foreign Currency Transactions
Foreign currency transactions are translated into Australian
dollars using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at financial year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
F. REVENUE RECOGNITION
Revenue is recognised when it is probable that the economic
benefit will flow to the consolidated entity and the revenue
can be reliably measured. Revenue is measured at the fair
value of the consideration received or receivable.
Sale of Goods
Sale of goods revenue is recognised at the point of sale,
which is where the customer has taken delivery of the goods,
the risks and rewards are transferred to the customer, and
where there is a valid sales contract. Amounts disclosed as
revenue are net of sales returns and discounts.
Rendering of Services
Rendering of services revenue is recognised by reference
to when the service has been provided. In the case of voice
revenue, this is the timing of the phone calls made, whilst
for the Data Networks, Data Centre Co-Location and Cloud
Services divisions, it is generally the monthly provision of, or
access to, the service.
Interest
Interest revenue is recognised as interest accrues using the
effective interest method. This is the method of calculating
the amortised cost of a financial asset and allocating the
interest income over the relevant period using the effective
interest rate, which is the rate that exactly discounts
estimated future cash receipts through the expected life of
the financial asset to the net carrying amount of the financial
asset.
Other Revenue
Other revenue is recognised when it is received or when the
right to receive payment is established.
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAX
G.
The income tax expense or benefit for the period is the
tax payable on that period’s taxable income based on the
applicable income tax rate for each jurisdiction, adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences, unused tax losses and the adjustment
recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for
temporary differences at the tax rates expected to apply
when the assets are recovered or liabilities are settled, based
on those tax rates that are enacted or substantively enacted,
except for:
• When the deferred income tax asset or liability arises from
the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at
the time of the transaction, affects neither the accounting
nor taxable profits; or
• When the taxable temporary difference is associated
with interests in subsidiaries, associates or joint ventures,
and the timing of the reversal can be controlled and it is
probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those
temporary differences and losses.
The carrying amount of recognised and unrecognised
deferred tax assets are reviewed each reporting date.
Deferred tax assets recognised are reduced to the extent
that it is no longer probable that future taxable profits will be
available for the carrying amount to be recovered. Previously
unrecognised deferred tax assets are recognised to the
extent that it is probable that there are future taxable profits
available to recover the asset.
Deferred tax assets and liabilities are offset only where there
is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against
deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable
entities which intend to settle simultaneously.
H. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months
or less that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes
in value. For the statement of cash flows presentation
purposes, cash and cash equivalents also includes bank
overdrafts, which are shown within borrowings of current
liabilities on the statement of financial position.
I. TRADE AND OTHER RECEIVABLES
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest method, less any provision for impairment. Trade
receivables are generally due for settlement within 30 days.
Collectability of trade receivables is reviewed on an ongoing
basis. Debts which are known to be uncollectable are written
off by reducing the carrying amount directly. A provision
for impairment of trade receivables is raised when there
is objective evidence that the consolidated entity will not
be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of
the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation and default or delinquency in
payments (more than 60 days overdue) are considered
indicators that the trade receivable may be impaired. The
amount of the impairment allowance is the difference
between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the original
effective interest rate.
Other receivables are recognised at amortised cost, less any
provision for impairment.
INVENTORIES
J.
Finished goods are stated at the lower of cost or net
realisable value, on a first-in-first-out basis. Costs of
purchased inventory are determined after deducting rebates
and discounts received or receivable.
Stock in transit is stated at the lower of cost and net
realisable value. Cost comprises purchase and delivery costs,
net of rebates and discounts received or receivable.
Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the
sale.
46
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The residual values, useful lives and depreciation methods are
reviewed, and adjusted if appropriate, at each reporting date.
Leasehold improvements and plant and equipment under
lease are depreciated over the unexpired period of the lease
or the estimated useful life of the assets, whichever is
shorter.
An item of property, plant and equipment is derecognised
upon disposal or when there is no future economic benefit
to the consolidated entity. Gains and losses between the
carrying amount and the disposal proceeds are taken to profit
or loss.
N. LEASES
The determination of whether an arrangement is or contains
a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which
effectively transfer from the lessor to the lessee substantially
all the risks and benefits incidental to ownership of leased
assets, and operating leases, under which the lessor
effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability
are established at the fair value of the leased assets, or if
lower, the present value of minimum lease payments. Lease
payments are allocated between the principal component
of the lease liability and the finance costs, so as to achieve
a constant rate of interest on the remaining balance of the
liability.
Leased assets acquired under a finance lease are depreciated
over the asset’s useful life or over the shorter of the asset’s
useful life and the lease term if there is no reasonable
certainty that the consolidated entity will obtain ownership at
the end of the lease.
Operating lease payments, net of any incentives received
from the lessor, are charged to profit or loss on a straight-line
basis over the term of the lease.
O.
INTANGIBLE ASSETS
Brand Value
Brands are acquired in a business combination. Some brands
are not amortised, given the Board has assessed them to
have indefinite useful lives due to the strength of the brand in
the market. These are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that
they might be impaired. Some brands are amortised where
the Board has identified the Brand as likely to be transitioned
to an Over the Wire Brand in the future.
K.
INVESTMENTS AND OTHER FINANCIAL
ASSETS
Investments and other financial assets are initially measured
at fair value. Transaction costs are included as part of the
initial measurement, except for financial assets at fair value
through profit or loss. They are subsequently measured
at either amortised cost or fair value depending on their
classification. Classification is determined based on the
purpose of the acquisition and subsequent reclassification
to other categories is restricted. The fair values of quoted
investments are based on current bid prices.
For unlisted investments, the consolidated entity establishes
fair value by using valuation techniques. These include the
use of recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash
flow analysis, and option pricing models.
Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or have
been transferred and the consolidated entity has transferred
substantially all the risks and rewards of ownership.
L. LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are carried at amortised cost using
the effective interest rate method. Gains and losses are
recognised in profit or loss when the asset is derecognised or
impaired.
M. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment is stated at historical cost less
accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the
acquisition of the items.
Depreciation is calculated on both a straight-line and
diminishing value basis, depending on the asset. The
depreciation method chosen is based on what is deemed
the most reliable to write off the net cost of each item of
property, plant and equipment over their expected useful
lives.
The depreciation rates used for each class of depreciable
assets are:
Straight Line
Diminishing Value
13 - 33%
15 – 67%
2½ - 33%
20 – 40%
15%
N/A
Computer,
Network &
IT Plant &
Equipment
Furniture and
Fixtures
Motor Vehicles
47
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Right-to-Use Assets
Right-to-Use assets are acquired in a business combination,
whereby a right to access a specified asset is conveyed, for
a period of time, in exchange for consideration. Right-to-Use
assets are amortised on a straight-line basis over the period
of their expected benefit, generally being the expected finite
life of the underlying lease which grants the access, including
the period of any options where the option is considered
likely to be exercised. Right-to-Use assets are carried at cost
less any accumulated amortisation and impairment losses.
Goodwill
Goodwill arises on the acquisition of a business combination.
Goodwill is calculated as the excess sum of:
• the consideration transferred;
• any non-controlling interest; and
• the acquisition date fair value of any previously held
equity interest; over the acquisition date fair value of net
identifiable assets acquired.
Goodwill is not amortised. Instead, goodwill is tested
annually for impairment, or more frequently if events or
changes in circumstances indicate that it might be impaired,
and is carried at cost less accumulated impairment losses.
Impairment losses on goodwill are taken to profit or loss and
are not subsequently reversed.
Goodwill is allocated to the Group's cash-generating units or
groups of cash-generating units, representing the lowest level
at which goodwill is monitored.
Customer Contracts
Customer contracts and relationships acquired in a business
combination are amortised on a straight-line basis over
the period of their expected benefit, being their expected
finite life of approximately 10 years, based upon the
consolidated entity’s historical levels of customer retention.
Customer contracts are carried at cost less any accumulated
amortisation and impairment losses.
Internally Generated Computer Software
Costs associated with developing computer software
programmes are generally expensed as incurred.
Costs that are clearly associated with an identifiable and
unique product, which will be controlled by the Group and
have a profitable benefit exceeding the cost beyond one year,
are recognised as intangible assets. The following criteria
are required to be met before the related expenses can be
capitalised as an intangible asset.
• The technical feasibility of completing the intangible asset
so that it will be available for use or sale.
• The intention to complete the intangible asset and use or
sell it.
• The Group’s ability to use or sell the intangible asset.
• How the intangible asset will generate probable future
economic benefits. Among other things, the Group can
demonstrate the existence of a market for the output of
the intangible asset or the intangible asset itself or, if it
is to be used internally, the usefulness of the intangible
asset.
• The availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset, and
• Its ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Computer software development costs recognised as assets
are amortised over their useful lives, not exceeding a period
of five years.
IMPAIRMENT OF NON-FINANCIAL ASSETS
P.
Goodwill and other intangible assets that have an indefinite
useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or
changes in circumstances indicate that they might be
impaired. Other non-financial assets are reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less
costs of disposal and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to
the asset using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that
do not have independent cash flows are grouped together to
form a cash-generating unit.
Q. TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services
provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short-term
nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid
within 30 days of recognition.
R. BORROWINGS
Loans and borrowings are initially recognised at the fair value
of the consideration received, net of transaction costs. They
are subsequently measured at amortised cost using the
effective interest method.
Where there is an unconditional right to defer settlement of
the liability for at least 12 months after the reporting date, the
loans or borrowings are classified as non-current.
S. FINANCE COSTS
Finance costs attributable to qualifying assets are capitalised
as part of the asset. All other finance costs are expensed in
the period in which they are incurred, including:
• Interest on short-term and long-term borrowings
• Interest on finance leases
48
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
U. PROVISIONS
Provisions are recognised when the consolidated entity has a
present (legal or constructive) obligation as a result of a past
event, it is probable the consolidated entity will be required
to settle the obligation, and a reliable estimate can be made
of the amount of the obligation. The amount recognised as a
provision is the best estimate of the consideration required
to settle the present obligation at the reporting date, taking
into account the risks and uncertainties surrounding the
obligation. If the time value of money is material, provisions
are discounted using a current pre-tax rate specific to the
liability. The increase in the provision resulting from the
passage of time is recognised as a finance cost.
V. EMPLOYEE BENEFITS
Wages and Salaries and Annual Leave
Liabilities for wages and salaries, including non-monetary
benefits, and annual leave expected to be settled within12
months of the reporting date are recognised in current
liabilities in respect of employees’ services up to the reporting
date and are measured at the amounts expected to be paid
when the liabilities are settled.
Long Service Leave
The liability for long service leave is recognised in current and
non-current liabilities, depending on the unconditional right
to defer settlement of the liability for at least 12 months after
the reporting date. The liability is measured as the present
value of expected future payments to be made in respect
of services provided by employees up to the reporting date
using the projected unit credit method. Consideration is given
to expected future wage and salary levels, experience of
employee departures and periods of service.
Expected future payments are discounted using market
yields at the reporting date on Australian corporate bonds
(the Milliman G100 Australian Corporate bonds discount rate
at the end of June) with terms to maturity and currency that
match, as closely as possible, the estimated future cash
outflows.
W. ISSUED CAPITAL
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
X. DIVIDENDS
Dividends are recognised when declared during the financial
year and no longer at the discretion of the Company.
T. FINANCIAL INSTRUMENTS
Initial Recognition and Measurement
Financial assets and financial liabilities are recognised when
the entity becomes a party to the contractual provisions to
the instrument. For financial assets, this is equivalent to the
date that the company commits itself to either purchase
or sale of the asset (i e trade date accounting is adopted).
Financial instruments are initially measured at fair value plus
transactions costs except where the instrument is classified
as ‘at fair value through profit or loss in which case the
transaction costs are expensed to profit or loss immediately.
Classification and Subsequent Measurement
The effective interest method is used to allocate interest
income or interest expense over the relevant period and is
equivalent to the rate that exactly discounts estimated future
cash payments or receipts (including fees, transaction costs
and other premiums or discounts) through the expected life
(or when this cannot be reliably predicted, the contractual
term) of the financial instrument to the net carrying amount of
the financial asset or financial liability. Revisions to expected
future net cash flows will necessitate an adjustment to the
carrying value with a consequential recognition of an income
or expense in profit or loss.
The Group does not designate any interests in subsidiaries,
associates or joint venture entities as being subject to the
requirements of accounting standards specifically applicable
to financial instruments.
• Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted
in an active market and are subsequently measured at
amortised cost.
Loans and receivables are included in current assets,
except for those which are not expected to mature within
12 months after the end of the reporting period. (All other
loans and receivables are classified as non-current assets.)
• Financial liabilities
Non-derivative financial liabilities (excluding financial
guarantees) are subsequently measured at amortised cost.
De-recognition
Financial assets are derecognised where the contractual
rights to receipt of cash flows expires or the asset is
transferred to another party whereby the entity no longer
has any significant continuing involvement in the risks
and benefits associated with the asset. Financial liabilities
are derecognised where the related obligations are either
discharged, cancelled or expire. The difference between
the carrying value of the financial liability extinguished or
transferred to another party and the fair value of consideration
paid, including the transfer of non-cash assets or liabilities
assumed, is recognised in profit or loss.
49
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Y. EARNINGS PER SHARE
Basic Earnings Per Share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the consolidated entity, by the
weighted average number of ordinary shares outstanding
during the financial year.
Diluted Earnings Per Share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account
the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares
and the weighted average number of shares assumed to
have been issued for no consideration in relation to dilutive
potential ordinary shares.
Z. GOODS AND SERVICES TAX (‘GST’) AND
OTHER SIMILAR TAXES
Revenues, expenses and assets are recognised net of
the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case it is
recognised as part of the cost of the acquisition of the asset
or as part of the expense.
Receivables and payables are stated inclusive of the amount
of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included
in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax
authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the
amount of GST recoverable from, or payable to, the tax
authority.
AA. ROUNDING OF AMOUNTS
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial / Directors’ Reports) Instrument
2016/191, issued by the Australian Securities and Investments
Commission, relating to ‘rounding-off’. Amounts in this report
have been rounded off in accordance with that Legislative
Instrument to the nearest thousand dollars, or in certain
cases, the nearest dollar.
BB. COMPARATIVE FIGURES
When required by Accounting Standards, comparative figures
have been adjusted to conform to changes in presentation for
the current financial year.
NOTE 2: CRITICAL ACCOUNTING
JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
The preparation of the financial statements requires
management to make judgements, estimates and
assumptions that affect the reported amounts in the
financial statements. Management continually evaluates its
judgements and estimates in relation to assets, liabilities,
contingent liabilities, revenue and expenses. Management
bases its judgements, estimates and assumptions on
historical experience and on other various factors, including
expectations of future events, management believes to be
reasonable under the circumstances. The resulting accounting
judgements and estimates will seldom equal the related
actual results. The judgements, estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are discussed below.
PROVISION FOR IMPAIRMENT OF RECEIVABLES
The provision for impairment of receivables assessment
requires a degree of estimation and judgement. The level of
provision is assessed by taking into account the recent sales
experience, the ageing of receivables, historical collection
rates and specific knowledge of the individual debtor’s
financial position.
PROVISION FOR IMPAIRMENT OF INVENTORY
The provision for impairment of inventory assessment
requires a degree of estimation and judgement. The level of
provision is assessed by taking into account the recent sales
experience, the ageing of inventory, and other factors that
affect inventory obsolescence.
ESTIMATION OF USEFUL LIVES OF ASSETS
The consolidated entity determines the estimated useful
lives and related depreciation and amortisation charges for
its property, plant and equipment and finite life intangible
assets. The useful lives could change significantly as a result
of technical innovations or some other event. The depreciation
and amortisation charge will increase where the useful lives
are less than previously estimated. Technically obsolete or
non-strategic assets that have been abandoned or sold will be
written off or written down.
GOODWILL AND OTHER INDEFINITE LIFE
INTANGIBLE ASSETS
The consolidated entity tests annually, or more frequently
if events or changes in circumstances indicate impairment,
whether goodwill and other indefinite life intangible assets
have suffered any impairment, in accordance with the
accounting policy stated in note 1.
50
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LONG SERVICE LEAVE PROVISION
As discussed in note 1, the liability for long service leave
is recognised and measured at the present value of the
estimated future cash flows to be made in respect of all
employees at the reporting date. In determining the present
values of the liability, estimates of attrition rates and pay
increases through promotion and inflation have been taken
into account.
LEASE MAKE GOOD PROVISION
A provision has been made for the present value of
anticipated costs for future restoration of leased premises.
The provision includes future cost estimates associated with
closure of the premises. The calculation of this provision
requires assumptions such as application of closure dates
and cost estimates. The provision recognised for each
site is periodically reviewed and updated based on the
facts and circumstances available at the time. Changes to
the estimated future costs for sites are recognised in the
statement of financial position by adjusting the asset and
the provision. Reductions in the provision that exceed the
carrying amount of the asset will be recognised in profit or
loss.
BUSINESS COMBINATIONS
Business combinations are initially accounted for on a
provisional basis. The fair value of assets acquired, liabilities
and contingent liabilities assumed are initially estimated by
the consolidated entity taking into consideration all available
information at the reporting date. Fair value adjustments on
the finalisation of the business combination accounting is
retrospective, where applicable, to the period the combination
occurred and may have an impact on the assets and liabilities,
depreciation and amortisation reported.
IMPAIRMENT OF NON-FINANCIAL ASSETS OTHER
THAN GOODWILL AND OTHER INDEFINITE LIFE
INTANGIBLE ASSETS
The consolidated entity assesses impairment of non-financial
assets other than goodwill and other indefinite life intangible
assets at each reporting date by evaluating conditions
specific to the consolidated entity and to the particular
asset that may lead to impairment. If an impairment trigger
exists, the recoverable amount of the asset is determined.
This involves fair value less costs of disposal or value-in-use
calculations, which incorporate a number of key estimates
and assumptions.
INCOME TAX
The consolidated entity is subject to income taxes in the
jurisdictions in which it operates. Significant judgement is
required in determining the provision for income tax. There
are many transactions and calculations undertaken during
the ordinary course of business for which the ultimate tax
determination is uncertain. The consolidated entity recognises
liabilities based on the consolidated entity’s current
understanding of the tax law. Where the final tax outcome of
these matters is different from the carrying amounts, such
differences will impact the current and deferred tax provisions
in the period in which such determination is made.
RECOVERY OF DEFERRED TAX ASSETS
Deferred tax assets are recognised for deductible temporary
differences only if the consolidated entity considers it is
probable that future taxable amounts will be available to
utilise those temporary differences and losses.
UNEARNED REVENUE
Customers of Netsip and Faktortel are invoiced for telephone
calls monthly in arrears on the anniversary date of the
establishment of their account. Unearned Revenue is
recorded for telephone calls made between the invoice date
which occurs mid-month, and the last day of the month in
order to match the period of revenue recognition with the
period in which the service (telephone calls) was provided.
VALUATION OF DEFERRED CONSIDERATION
PAYABLE
As the value of deferred consideration payable for business
combinations is dependent upon vendors achieving revenue
targets in future years, management is required to make
judgements that affect the reported amounts in the financial
statements. Management has used their best judgement in
determining the fair value of the reported liabilities, including
estimating the likelihood of achieving the revenue targets and
in turn the likelihood of having to make the future payments.
51
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Voice
The consolidated entity provides Session Initiation Protocol
(SIP) based internet voice solutions that offer high quality,
high availability, voice calls at a lower cost to traditional
telephony.
Over the Wire’s voice platform supports a range of client
usage scenarios, from Private Branch exchanges (PBX) to call
centre diallers, for both inbound and outbound calling.
Cloud and Managed Services
The consolidated entity provides a range of private cloud-
based services to its customers consisting of:
Infrastructure as a Service (IaaS):
Forming the base of a fully outsourced infrastructure solution.
The consolidated entity offers its customers a range of IaaS
platforms with cloud-based server, storage and network
services.
Hosted PBX:
The consolidated entity provides a business-grade hosted
telephony solution, eliminating the need for high capital
expenditure and costly upgrade cycles to gain access to new
features.
Amazon Web Services Direct Connect and Microsoft
Azure Express Route:
Being the two major public cloud service providers in
Australia. The consolidated entity provides a dedicated
connection, directly into a customer’s public cloud service
provider’s hosted environment.
Managed Services:
The consolidated entity offers a range of Managed Services
from basic maintenance through to complete outsourced IT
support and administration. This division also includes one-off
project work and equipment sales where requested by the
customer.
Data Centre Co-location
Data Centre Co-Location allows customers to house their
equipment, such as servers and network equipment, in the
consolidated entity’s secure, highly stable and monitored
data centres reducing the risk of downtime and saving on
environmental infrastructure costs (such as power and air-
conditioning).
NOTE 3: OPERATING
SEGMENTS & PRODUCT LINES
The consolidated entity has identified its operating segments
based on the internal reports that are reviewed and used by
the Chief Operating Decision Makers (‘CODM’) in assessing
performance and determining the allocation of resources.
The CODM considers that the business has one reportable
segment, being IT and Telecommunications. Therefore, all
segment assets and liabilities, and the segment result, relate
to one business segment and consequently no detailed
segment analysis has been prepared.
Product Lines are presented using the ‘management
approach’, where the information presented is on the same
basis as the internal reports provided to the Chief Operating
Decision Makers (‘CODM’). The CODM is responsible for the
allocation of resources to product lines and assessing their
performance. This is also the basis on which the board receive
internal management results.
A. DESCRIPTION OF PRODUCT LINES
The consolidated entity is a profitable, high growth provider of
telecommunications, cloud and IT solutions. It has a national
network presence with Points of Presence (POPs) in all
major Australian capital cities and Auckland, New Zealand.
The consolidated entity utilises more than 20 wholesale
infrastructure providers to deliver services into these POPs
for delivery of a complete data and voice solution to meet
each customer’s specific requirements. The Chief Operating
Decision Makers (‘CODM’) consider the business from both a
product and a geographic perspective and have identified four
reportable Product Lines.
Data Networks and Internet
The consolidated entity typically enters into an initial three
year contract with a customer for the establishment,
provision and maintenance of its WAN. Customers include
small to large businesses with single to multiple sites.
The Data Networks Product Line includes the provision
of internet products and services. Access to affordable,
high speed and reliable connectivity is a prerequisite for
consuming cloud based applications and services, facilitating
transactions, and utilising IP-based communications. The
consolidated entity provides high bandwidth, dependable,
business grade internet connectivity to enable Internet
services, video conferencing, Software as a Service
applications and online collaboration for businesses of any
size.
The consolidated entity supplies internet connections
matching the most appropriate technology to location and/or
price requirements of its customers.
52
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B. PRODUCT LINE INFORMATION PROVIDED TO THE CHIEF OPERATING DECISION MAKERS (‘CODM’).
The breakdown of revenue has been shown below geographically and by Product Line.
Consolidated
2018
$ ,000
29,383
14,060
7,258
2,860
53,561
53,561
53,561
2017
$ ,000
15,915
10,714
4,845
2,742
34,217
34,217
34,217
Consolidated
2018
$ ,000
2017
$ ,000
37
-
79
116
67
200
26
293
Revenue by Product Line
Data Networks and Internet
Voice
Cloud and Managed Services
Data Centre Co-location
Total Revenue by Product Line
Revenue by Geographic Area
Australasia
Total Revenue by Geographic Area
NOTE 4: OTHER INCOME
Other Income
Interest Income
Data Retention Industry Grant
Other Sundry Income
Total Other Income
53
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5: EXPENSES
Profit before income tax includes the following expenses:
Cost of Sales & Services
Data Centre & Co-Location Expense
Calls & Communications Expense
Other cost of goods sold
Total Cost of Sales & Services
Employee Benefits
Salaries and Wages
Superannuation
Annual and Long Service Leave
Other Employee Expenses
Total Employee Benefits
Depreciation
Computer, Network & IT Plant & Equipment
Furniture & Fittings
Motor Vehicles
Total Depreciation
Amortisation
Amortisation of Intangibles
Total Amortisation
Total Depreciation & Amortisation
Finance Costs
Interest and Finance Charges Paid/Payable
Total Finance Costs
Other Expenses
Legal, Accounting & Business Acquisition Costs
Rent
Licenses & Subscriptions
Travel & Marketing
Data Centre & Communications
General Expenses
Total Other Expenses
Total Expenses
Consolidated
2018
$ ,000
2017
$ ,000
1,705
18,965
3,057
23,727
11,027
935
190
1,095
13,247
1,408
11,796
1,815
15,019
7,068
646
199
831
8,744
2,001
1,405
71
3
82
26
2,075
1,513
1,862
1,862
3,937
476
476
150
655
407
382
2,015
838
4,447
817
817
2,330
182
182
240
675
243
318
1,242
660
3,378
45,834
29,653
Expenses increased largely due to the growth in revenue, and in turn a corresponding increase in cost of goods sold, as well as the
acquisition of Telarus in prior year, for which a full year of results was included in 2018 financial year, as well as the acquisition of
VPN Solutions on 1 November 2017 (refer to note 19 for more information).
54
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6: INCOME TAX EXPENSE
Income Tax Expense
Current Tax
Deferred Tax – origination and reversal of temporary differences
Deferred Tax – adjustment recognised for prior periods
Adjustment recognised for prior periods
Aggregate Income Tax Expense
Deferred tax included in income tax expense comprises:
(Increase) / Decrease in Deferred Tax Assets
Increase / (Decrease) in Deferred Tax Liabilities
Deferred Tax – origination and reversal of temporary differences
Numerical Reconciliation of Income Tax Expense and Tax at Statutory Rate
Profit before income tax expense
Tax at the statutory rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Entertainment
Amortisation of Intangibles
Accounting & Legal & Business Acquisition Costs
IPO Costs
Research & Development
Other Sundry Items
Adjustment recognised for prior periods
Movement in Timing Differences
Income Tax Expense
The applicable weighted average effective tax rates are as follows:
Consolidated
2018
$ ,000
2017
$ ,000
3,035
(723)
-
-
2,312
(210)
(513)
(723)
7,843
2,353
20
-
11
(49)
-
(23)
(41)
-
-
1,666
(314)
-
(93)
1,259
(23)
(291)
(314)
4,857
1,457
17
6
24
(49)
(29)
23
(8)
(93)
(97)
2,312
29%
1,259
26%
55
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7: EARNINGS PER SHARE
Reconciliation of Earnings to Profit or Loss
Earnings Used to Calculate Basic Earnings Per Share
Earnings Used to Calculate Diluted Earnings Per Share
Weighted Average Number of Ordinary Shares
Weighted Average Number of Ordinary Shares Outstanding During the Year Used in
Calculating Basic Earnings Per Share
Adjustments for calculation of diluted earnings per share:
Weighted Average Number of Ordinary Shares Outstanding During the Year Used in
Calculating Dilutive Earnings Per Share
Weighted Average Number of Ordinary Shares Outstanding During the Year Used in
Calculating Dilutive Earnings Per Share
Basic Earnings Per Share (Cents Per Share)
Diluted Earnings Per Share (Cents Per Share)
Consolidated
2018
$,000
5,531
5,531
,000
43,809
2017
$,000
3,598
3,598
,000
43,505
208
1
44,061
43,506
Cents
12.625
12.566
Cents
8.270
8.270
NOTE 8: CURRENT ASSETS – CASH & CASH EQUIVALENTS
Cash & Cash Equivalents
Cash on Hand
Cash at Bank
Total Cash & Cash Equivalents
Reconciliation to Cash and Cash Equivalents at the End of the Financial Year
The above figures are reconciled to cash and cash equivalents at the end of the
financial year as shown in the statement of cash flows as follows:
Balance as Above
Balance as per Statement of Cash Flows
Consolidated
2018
$ ,000
2017
$ ,000
1
7,012
7,013
1
5,483
5,484
7,013
7,013
5,484
5,484
Cash and cash equivalents increased during the year primarily due to the strong cashflows from operations. Cash reserves were
used for principal reductions in debt, capital expenditure, and payment of dividends. The Consolidated Statement of Cashflows
provides greater detail on the sources and uses of cash during the year.
56
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9: CURRENT ASSETS – TRADE & OTHER RECEIVABLES
The following table details the Group’s trade and other receivables exposed to credit risk with aging analysis and impairment
provided for thereon. Amounts are considered ‘past due’ when the debt has not been settled with the terms and conditions
agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for
impairment by ascertaining the debtors and are provided for where there are specific circumstances indicating that the debt may
not be fully repaid to the Group.
Trade & Other Receivables
Trade Receivables
Less: Provision for Impairment of Receivables
Term Deposits
Deposits Paid
Other Receivables
Consolidated
2018
$ ,000
2017
$ ,000
3,053
(303)
2,750
653
128
826
2,325
(80)
2,245
500
128
369
Total Trade & Other Receivables
4,357
3,242
Impairment of Receivables
The consolidated entity has recognised a loss of $ 249,000 (2017 $79,000) in profit
and loss in respect of impairment of receivables for the year ended 30 June 2018.
The aging of the impaired receivables provided for above are as follows:
0 – 3 months overdue
4 – 6 months overdue
More than 6 months overdue
Total Provision for Impairment of Receivables
Movements in the Provision for Impairment of Receivables are as Follows:
Opening Balance
Additional Provision Recognised through Business Combinations
Additional Provision Recognised
Receivables Written off During the Year as Uncollectable
Closing Balance
231
67
5
303
80
-
249
(26)
303
58
3
19
80
109
40
39
(108)
80
57
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Past Due But Not Impaired:
Customers with balances past due but without provision for impairment of
receivables amount to $484,000 as at 30 June 2018 ($227,000 as at 30 June 2017).
The consolidated entity did not consider a credit risk on the aggregate balances
after reviewing credit terms of customers based on collection practices.
The aging of the past due but not impaired receivables are as follows:
0 – 3 months overdue
4 – 6 months overdue
More than 6 months overdue
Total Receivables past due but not impaired
Consolidated
2018
$ ,000
2017
$ ,000
432
52
-
484
215
12
-
227
Trade and Other Receivables increased largely due to the acquisition of Telarus, and the overall growth in revenue of the business.
NOTE 10: CURRENT ASSETS – INVENTORIES
Inventories
Finished Goods – at Net Realisable Value
Total Inventories
NOTE 11: OTHER ASSETS
Other Assets
Prepayments
Total Other Assets
Consolidated
2018
$ ,000
2017
$ ,000
263
263
189
189
Consolidated
2018
$ ,000
2017
$ ,000
899
899
643
643
58
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 12: NON-CURRENT ASSETS –PLANT & EQUIPMENT
Computer, Network & IT Plant & Equipment
Computer, Network & IT Plant & Equipment – at cost*
Less: Accumulated Depreciation
Furniture & Fixtures
Furniture & Fixtures – at cost
Less: Accumulated Depreciation
Motor Vehicles
Motor Vehicles – at cost
Less: Accumulated Depreciation
Consolidated
2018
$ ,000
14,724
(9,846)
4,878
454
(275)
179
23
(19)
4
2017
$ ,000
11,062
(6,480)
4,582
308
(67)
241
23
(16)
7
Total Plant & Equipment at written Down Value
5,061
4,830
Reconciliations
Reconciliations of the written down value at the
beginning and end of the current and previous financial
year are set out below:
Balance at 1 July 2016
Additions through Business Combinations
Additions
Disposals
Depreciation Expense
Balance at 30 June 2017
Additions Through Business Combinations
Additions
Transfer between classes*
Disposals
Depreciation Expense
Balance at 30 June 2018
Computer,
Network,
IT Plant &
Equipment
Furniture
& Fixtures
Motor
Vehicles
$,000
3,235
1,134
1,618
-
(1,405)
4,582
174
2,123
-
-
(2,001)
4,878
$,000
142
24
157
-
(82)
241
9
-
-
-
(71)
179
$,000
101
-
-
(68)
(26)
7
-
-
-
-
(3)
4
Total
$,000
3,478
1,158
1,775
(68)
(1,513)
4,830
183
2,123
-
-
(2,075)
5,061
* A transfer between classes occurred, but as the written down value of the assets was nil, no value appears in the reconciliation
above.
59
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13: NON-CURRENT ASSETS – INTANGIBLES
Intangibles
Goodwill – at Cost
Brand Value
Less: Accumulated Amortisation
Location and Right-to-Use
Less: Accumulated Amortisation
Customer Lists
Less: Accumulated Amortisation
Internally Generated Software
Less: Accumulated Amortisation
Consolidated
2018
$ ,000
16,300
16,300
3,460
(214)
3,246
1,817
(543)
1,274
17,250
(2,252)
14,998
971
(140)
831
2017
$ ,000
5,331
5,331
3,210
(65)
3,145
1,817
(378)
1,439
8,290
(867)
7,423
850
(451)
399
Total Intangibles
36,649
17,737
60
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Reconciliations
Reconciliations of the written down value at the beginning and end of the current and previous financial year are set out below:
Balance at 1 July 2016
Additions - Business Combinations
Additions
Disposals
Amortisation Expense
Balance at 30 June 2017
Additions - Business Combinations
Additions
Disposals*
Amortisation Expense
Balance at 30 June 2018
Internally
Generated
Software
$,000
-
23
379
-
(3)
399
-
555
-
(123)
831
Goodwill
$,000
2,344
2,987
-
-
5,331
Brand
Value
$,000
2,750
460
-
-
(65)
3,145
10,969
250
-
-
16,330
-
-
(149)
3,246
Location
& Right
to Use
$,000
1,605
-
-
-
(166)
1,439
-
-
-
Customer
List
$,000
3,506
4,500
-
-
(583)
7,423
Total
$,000
10,205
7,970
379
-
(817)
17,737
9,000
20,219
-
-
555
-
(1,862)
36,649
(165)
1,274
(1,425)
14,998
*During the year $434K of assets with a written down value of nil was scrapped during the year.
Finite Life Intangible Assets
Outlined below are the carrying amounts and remaining amortisation periods of the individual intangible assets that are material to
the consolidated entity’s financial statements at 30 June 2018.
Remaining
Amortisation Period
Carrying
Amount
Location & Right to Use – Sanity
Right to Use – WebCentral
Location & Right to Use
Customer List – Faktortel
Customer List – Sanity
Customer List – Telarus
Customer List – SpiderBox
Customer List – VPN Solutions
Customer List
Brand – Sanity
Brand – Telarus
Brand – VPN Solutions
Brand
Internally Generated Computer Software - 2017
Internally Generated Computer Software - 2018
Internally Generated Computer Software
61
Years
9
2
7
7
9
7
9
4
4
4
4
5
$,000
1,168
106
1,274
1,417
1,114
3,862
205
8,400
14,998
200
330
216
746
277
554
831
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Impairment Disclosures
Both goodwill and a select number of brand values are allocated to cash generating units, which are based on the Group’s reporting
segments. As per Note 3, the Group has one reportable segment, being IT and Telecommunications.
Brand Value has been previously recorded in relation to the acquisition of Faktortel and these costs are not amortised, given the
Board has assessed them to have indefinite useful lives due to the strength of the brand in the market, and the intention of the
Board to continue to trade under this brand indefinitely. Instead, this Brand is tested annually for impairment, or more frequently if
events or changes in circumstances indicate that they might be impaired. Other acquired Brand values are being amortised, where
the Board has assessed that the Brands will eventually be replaced in the market by the Over the Wire brand after an appropriate
period of co-branding.
Impairment Testing of Goodwill
All Goodwill is allocated to the consolidated entity’s one cash generating unit (CGU) being IT & telecommunications.
The recoverable amount of the cash-generating unit is determined based on value-in-use calculations. These calculations use the
present value of cash flow projections over a 5 year period, with growth rates based on historical growth rates achieved in the past
and budgets approved by management. Cash flows are not extrapolated beyond 5 years.
Key assumptions used for value-in-use calculations:
CGU – IT & Telecommunications:
EBITDA & Net Cashflow from Operations (growth rate)
Discount Rate
2018
2017
20%
10%
20%
10%
As the consolidated entity runs a business structure that is light on capital expenditure requirements and utilises back-to-back
purchasing arrangements aligned with the contractual terms of customers contracts, revenue, cost of goods sold and overhead
have not been assessed in isolation, but instead EBITDA has been used for future cashflow projections, based on the entity’s
historical accuracy on forecasting EBITDA growth and its ability to manage expenses in line with revenue growth.
The Discount rate has been based upon an estimate of the entity’s weighted average cost of capital, and is similar to that used in
the valuation of other intangible assets such as customer lists.
Impairment Charge for Goodwill
As a result of the impairment testing and evaluation, the consolidated entity has determined that the carrying value of Goodwill
does not exceed their value-in-use, and no impairment charge is required.
Impact of possible changes in key assumptions
If the growth rate for EBITDA and Net Cashflow from Operations was reduced by 50% to 10%, there would still be no impairment
charge required.
If the discount rate, based on an estimate of the entity’s weighted average cost of capital was increased by 25% to 12.5%, there
would still be no impairment charge required.
62
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14: NON-CURRENT ASSETS – DEFERRED TAX
Deferred Tax Consist Of:
Deferred Tax Assets (a)
Deferred Tax Liabilities (b)
Net Deferred Tax Asset / (Liability)
a) Deferred Tax Assets:
The Balance Comprises Temporary Differences Attributable to:
Accrued Expenses
Provision for Doubtful Debts
Employee Benefits
Claimable IPO Costs
Other
Deferred Tax Asset
Movement in Deferred Tax Assets
Consolidated
2018
$ ,000
779
(5,200)
(4,421)
2017
$ ,000
490
(2,938)
(2,448)
144
91
444
100
-
779
57
25
259
149
-
490
Balance at 1 July 2016
(Charged) / Credited to Profit or Loss
(Charged) / Credited through Equity
Additions Through Business Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2017
(Charged) / Credited to Profit or Loss
(Charged) / Credited through Equity
Additions Through Business Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2018
Accrued
Expenses
$,000
51
5
-
1
-
57
87
-
-
-
144
Prov. for
Doubtful
Debts
$,000
33
(20)
-
12
-
25
66
-
-
-
91
Employee
Benefits
Claimable
IPO Costs
Other
Total
$,000
147
47
-
65
-
259
57
-
128
-
444
$,000
$,000
$,000
199
-
(50)
-
-
149
-
(49)
-
-
100
9
(9)
-
-
-
-
-
-
-
-
-
439
23
(50)
78
-
490
210
(49)
128
-
779
63
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
b) Deferred Tax Liabilities:
The Balance Comprises Temporary Differences Attributable to:
Accrued Revenue
Provision for Change in Contingent Liability
Provision for Doubtful Creditors
Intangibles on Acquisitions – Right to Use
Intangibles on Acquisitions – Brand
Intangibles on Acquisitions – Customer List
Property Plant & Equipment
Deferred Tax Liability
Movement in Deferred Tax Liability
Consolidated
2018
$ ,000
2017
$ ,000
(202)
-
(46)
(350)
(164)
(4,438)
-
(5,200)
(110)
(17)
(59)
(387)
(119)
(2,227)
(19)
(2,938)
Accrued
Revenue
Prov. for
Change in
Contingent
Liability
Prov. For
Doubtful
Creditors
Intangibles
on
Acquisitions
Other
Total
Balance at 1 July 2016
(Charged) / Credited to Profit or Loss
Additions Through Business Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2017
(Charged) / Credited to Profit or Loss
Additions Through Business Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2018
$,000
(117)
8
-
-
(109)
(93)
-
-
(202)
$,000
(22)
5
-
-
(17)
17
-
-
-
$,000
(4)
(55)
-
-
(59)
13
-
-
$,000
(1,577)
332
(1,488)
-
$,000
-
1
(1,720)
291
(21)
(1,509)
-
-
(2,733)
(20)
(2,938)
556
(2,775)
-
20
513
-
-
-
(2,775)
-
(5,200)
(46)
(4,952)
NOTE 15: CURRENT LIABILITIES – TRADE & OTHER PAYABLES
Trade & Other Payables
Trade Payables
GST Payable
Accrued Expenses
Prepaid Revenue
Other payables
Total Trade & Other Payables
Consolidated
2018
$ ,000
2017
$ ,000
3,520
596
1,904
1,015
263
7,298
1,938
316
1,472
943
198
4,867
Trade and Other Payables increased largely due to the inclusion of the Trade Payables, Prepaid Revenue, and Accrued Expenses of
VPN Solutions.
64
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 16: CURRENT LIABILITIES – BORROWINGS
Borrowings (Current)
Cisco Finance Lease
NAB Term Loan
Westpac Term Loan
IBM Equipment Finance
Total Current Borrowings
Note
28
28
Consolidated
2018
$ ,000
2017
$ ,000
64
-
3,925
38
4,027
64
2,000
-
176
2,240
Borrowings increased due to the Term Loan taken out as funding for the acquisition of Telarus, as well as the inclusion of the IBM
equipment financing which Telarus was already utilising.
NOTE 17: CURRENT LIABILITIES – CURRENT TAX LIABILITY
Current Tax Liability
Provision For Income Tax Payable
Total Current Tax Liability
Consolidated
2018
$ ,000
2017
$ ,000
977
977
437
437
NOTE 18: CURRENT LIABILITIES – EMPLOYEE BENEFITS
Consolidated
2018
$ ,000
2017
$ ,000
341
952
-
1,293
191
581
-
772
Employee Benefits
Provision for Long Service Leave
Provision for Annual Leave
Other employee benefits payable
Total Employee Benefits Payable
65
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Movement in Provisions
Provision for Long Service Leave
Balance at 1 July
Additional Provisions
Additions Through Business Combinations
Amounts Used
Balance at 30 June
Provision for Annual Leave
Balance at 1 July
Additional Provisions
Additions Through Business Combinations
Amounts Used
Balance at 30 June
Analysis of Total Employee Provisions
Current
Non-Current (Note 21)
Total Provisions
Consolidated
2018
$ ,000
2017
$ ,000
191
(4)
154
-
341
581
682
274
(585)
952
1,293
186
1,479
60
131
-
-
191
352
628
-
(399)
581
772
89
861
Amounts Not Expected to be Settled Within the Next 12 Months:
The current provision for long service leave includes all unconditional entitlements where employees have completed the required
period of service and also where employees are entitled to pro-rata payments in certain circumstances. Based on past experience
the consolidated entity does not expect all employees to take the full amount of accrued long service leave or require payment
within the next 12 months.
NOTE 19: BUSINESS COMBINATIONS
(a) Acquisition of VPN Solutions Pty Ltd (Trading as VPN Solutions)
On 1 November 2017, the company acquired 100% of the shares in VPN Solutions Pty Ltd. Established in 2002, VPN is based
in New South Wales and delivers business grade telecommunications solutions to the Australian SME and Corporate markets.
VPN Solutions has approximately 150 business customers, has experienced high levels of customer retention and specialises in
delivering complex managed network solutions.
Revenue of VPN Solutions included in the consolidated revenue of the group since acquisition amounted to $7,739K. Profit before
tax of VPN Solutions included in consolidated profit before tax of the group since acquisition amounted to $86K.
Had the results of VPN Solutions been consolidated from 1 July 2017, using a simple pro-rata calculation and ignoring any
seasonality, if any, revenue of the consolidated group would have been $57,403 and consolidated profit before tax would have been
$8,910K for the year ended 30 June 2018.
66
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(b) Details on acquisitions
Company
Primary
Business
Division
Acquisition
Purchase
Price
Intangibles
Acquired
Shares
Issued to
Settle
Units
382,721
Shares
Issued to
Settle
$,000
781
Cash to
Settle
Deferred
Consideration
$,000
14,834
$,000
1,735
$,000
17,350
$,000
20,219
Data
Networks
100%
of shares
VPN
Solutions
(finalised)
Total
17,350
20,219
382,721
781
14,834
1,735
The company engaged the services of independent consultants to provide the economic valuation of the acquisition of VPN Solutions,
including purchase price, net assets acquired and intangibles (both identifiable and goodwill).
Under the agreement, the vendor and its affiliates are restrained for five years from engaging in business similar to or in competition
with the business of VPN Solutions, including being restrained from inducing an employee of VPN Solutions to terminate their
employment or soliciting any clients of VPN Solutions. The vendor has provided customary warranties (including those relating to the
share capital of VPN Solutions) that there are no liabilities or encumbrances, as well as the information relating to the accounts and
records of VPN Solutions and tax related matters.
67
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The assets and liabilities recognised as a result of the acquisitions are as follows:
Assets
Current Assets
Cash & Cash Equivalents
Trade & Other Receivables
Income Tax Receivable
Other Assets
Total Current Assets
Non-Current Assets
Property, Plant & Equipment
Deferred Tax
Other Non-Current Assets
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade & Other Payables
Borrowings (Related Party)
Unearned Income
Employee Benefits
Total Current Liabilities
Non-Current Liabilities
Deferred Tax Liabilities
Borrowings
Employee Benefits
Total Non-Current Assets
Total Liabilities
Net Assets
Nov 2017
$ ,000
302
748
204
218
1,472
183
128
1
312
1,784
406
759
932
350
2,447
-
-
78
78
2,525
(741)
68
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Acquired Intangibles
Description
Brand Value
Location /
Right-to-
Use
Customer
List /
Relationships
Goodwill
Total
Class:
Limited Life
Limited Life
Limited Life
Treatment:
Rate:
Amortised
and
Impaired
Forecast
Use of
Brand
Amortised
and
Impaired
Length of
Lease
Amortised
and Impaired
Churn/
Customer
Retention
Indefinite
Life
Impaired
$,000
$,000
$,000
$,000
$,000
$,000
VPN Solutions
Purchase Price:
Less: Identifiable Net
Assets
Add: Deferred tax
liability recognised on
limited life intangibles
17,350
(647)
2,775
Intangible Assets upon
Acquisition
20,219
Allocation of
Intangibles:
Estimate Useful Life of
Limited Life Assets:
Annual Forecast
Amortisation
250
-
9,000
10,969
20,219
5 Years
10 Years
50
900
950
NOTE 20: NON-CURRENT LIABILITIES – BORROWINGS
Borrowings
IBM Equipment Finance
Cisco Finance Lease
NAB Term Loan
Westpac Term Loan*
Total Borrowings
Note
28
28
Consolidated
2018
$ ,000
2017
$ ,000
-
77
-
9,128
9,205
38
139
1,485
-
1,662
Borrowings increased due to the Term Loan taken out as funding for the acquisition of VPN Solutions (which also refinanced the
previous NAB Term Loan).
69
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Westpac has approved the following facilities, with the balance of the facilities as at 30 June 2018 being as follows:
Facility
Bank Bill Business Loan
Limit
Used
$,000
18,000
$,000
13,053
This facility is secured by an interlocking guarantee and indemnity given by all entities in the Group supported by a first registered
general security agreement over all present and subsequently-acquired property over each of the entities in the consolidated
group.
Loan Covenants
Under the terms of the Group’s major borrowing facility, the Group is required to comply with the following financial covenants:
• Debt Service Coverage Ratio must at all times exceed 1.75 times
• Financial debt / EBITDA Ratio must at all times be less than 2.25x
As at 30 June 2018, the Group had complied with these covenants.
NOTE 21: NON-CURRENT LIABILITIES – EMPLOYEE BENEFITS
Employee Benefits
Provision for Long Service Leave
Total Employee Benefits Payable
Consolidated
2018
$ ,000
2017
$ ,000
186
186
89
89
70
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 22: EQUITY – ISSUED CAPITAL
Consolidated
2018
$ ,000
12,246
12,246
2017
$ ,000
11,308
11,308
Paid up
Amount
$,000
11,280
77
(49)
11,308
Paid up
Amount
$,000
11,308
781
109
97
(49)
12,246
Issued Capital
Ordinary Shares – Fully Paid
Total Issued Capital
Movements in ordinary share capital
Balance
Employee Share Plan
Tax Effect of Capitalised Costs of IPO
Date
No. of Shares
Issue Price
30 June 2016
28 Apr 2017
30 Jun 2017
,000
43,500
31
-
$
2,50
-
Balance
30 June 2017
43,531
Balance
Shares Issued on Acquisitions
ESOP Shares Vested from Performance Rights
Employee Share Plan
Tax Effect of Capitalised Costs of IPO
Date No. of Shares
Issue Price
1 Jul 2017
1 Nov 2017
26 Feb 2018
18 Apr 2018
30 Jun 2018
,000
43,531
382
50
35
-
$
2.04
-
2.77
-
Balance
30 June 2018
43,998
ORDINARY SHARES
Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up the company in proportion to the
number of and amounts paid on the shares held. The fully paid ordinary shares have no par value.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall
have one vote.
SHARE BASED PAYMENTS - EMPLOYEE SHARES
On 18 April 2018, 34,920 ordinary shares were issued to employees under an Employee Share Plan with an issue price of $2.77
per share and for nil consideration.
Shares acquired under this plan carry all of the same rights and obligations of other shares, except for any rights attaching to
shares by reference to a record date prior to the date of issue or transfer.
SHARE BASED PAYMENTS – PERFORMANCE RIGHTS
On 26 February 2018, 50,000 performance rights (2017 Tranche 1) vested and were converted to Ordinary Shares.
On 1 April 2018, the consolidated entity issued 99,732 performance rights to key management personnel and select senior staff
under an Employee Share Plan as a means of rewarding and incentivising key employees.
Further details of the performance rights, including details of rights issued during the financial year, are set out in note 34.
71
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CAPITAL RISK MANAGEMENT
The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can
provide returns for shareholders and benefits to other stakeholders and to maintain an optimum capital structure to reduce the cost
of capital.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The consolidated entity is subject to certain financing arrangement covenants and meeting these are given priority in all capital risk
management decisions. There have been no events of default on the financing arrangements during the financial year.
NOTE 23: EQUITY – RETAINED PROFITS
Retained Profits
Retained Profits at the Beginning of the Financial Year
Profits After Income Tax Expense for the Financial Year
Dividends Paid
Retained Profits at the End of the Financial Year
NOTE 24: EQUITY – DIVIDENDS
Dividends
Interim fully franked ordinary dividend of 1.00 cents per share franked at the tax
rate of 30% for the 30 June 2018 Financial Year
Final fully franked ordinary dividend of 1.25 cents per share franked at the tax rate
of 30% for the 30 June 2017 Financial Year
Total Dividends for the Financial Year
Consolidated
2018
$ ,000
2017
$ ,000
7.713
5,531
(984)
12,260
4,876
3,598
(761)
7,713
Consolidated
2018
$,000
2017
$,000
439
545
984
326
435
761
Subsequent to year-end, on 22 August 2018, the Company declared a fully franked final dividend of 1.50 cents per share, for the
year ended 30 June 2018. The dates of the dividend are as follows:
Ex date
Record Date
Payment Date 9 October 2018
17 September 2018
18 September 2018
As this final dividend was declared subsequent to year-end, no provision has been made in the accounts for the dividend.
72
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Franking Credits
Franking Credits Available at the Reporting Date Based on a Tax Rate of 30%
Franking Credits that Will Arise From the Payment of the Amount of the Provision
for Income Tax at the Reporting Date Based on a Tax Rate of 30%
Franking Credits Available for Subsequent Financial Years Based on a Tax Rate
of 30%
NOTE 25: FINANCIAL RISK MANAGEMENT
Consolidated
2018
$,000
5,138
977
2017
$,000
4,455
379
6,115
4,834
FINANCIAL RISK MANAGEMENT OBJECTIVES
The group’s financial instruments consist mainly of deposits with banks, local money market instruments, accounts receivable and
payable, loans to and from subsidiaries, and leases.
The main purpose of non-derivative financial instruments is to raise finance for group operations.
The group does not have any derivative instruments at 30 June 2018 or 30 June 2017.
The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies
to these financial statements, are as follows.
Financial Assets
Cash & Cash Equivalents (Note 8)
Trade & Other Receivables (Note 9)
Total Financial Assets
Financial Liabilities
Trade & Other Payables (Note 15)
Borrowings (Note 16,20)
Total Financial Liabilities
Consolidated
2018
$ ,000
7,013
4,357
11,370
7,298
13,232
20,530
2017
$ ,000
5,484
3,242
8,726
4,867
3,902
8,769
TREASURY RISK MANAGEMENT
The Boards overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, whilst
minimising potential adverse effects on financial performance.
FINANCIAL RISK EXPOSURES AND MANAGEMENT
The main risks the group is exposed to through its financial instruments are interest rate risk, liquidity risk and credit risk.
FOREIGN CURRENCY RISK
The group has no material exposure to fluctuations in foreign currencies.
LIQUIDITY RISK
The group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are
maintained.
Cash flows realised from financial assets in the table below reflect management’s expectation as to the timing of realisation.
Actual timing may therefore defer from that disclosed.
73
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Contracted maturities at
30 June 2017
Cash & Cash Equivalents
Trade & Other Receivables
TOTAL
Contracted maturities at
30 June 2018
Cash & Cash Equivalents
Trade and Other Receivables
Total
0 – 12
Months
$ ,000
5,484
3,242
8,726
0 – 12
Months
$ ,000
7,013
4,357
11,370
1 – 2
Years
$ ,000
-
-
-
1 – 2
Years
$ ,000
-
-
-
2 – 5
Years
$ ,000
-
-
-
2 – 5
Years
$ ,000
-
-
-
> 5
Years
Total
Cash Flows
Carrying
Amount
$ ,000
$ ,000
$ ,000
-
-
-
5,484
3,242
8,726
5,484
3,242
8,726
> 5
Years
Total
Cash Flows
Carrying
Amount
$ ,000
-
-
-
$ ,000
7,013
4,357
$ ,000
7,013
4,357
11,370
11,370
The consolidated entity has recognised a loss of $249K (2017 $79K) in profit and loss in respect of impairment of receivables for
the year ended 30 June 2018. The movements in the provision for impairment of receivables were outlined in Note 9.
The table below sets out the maturity periods of the financial liabilities of the consolidated group as at 30 June 2018 and 30 June
2017. All carrying amounts of equipment finance are discounted contractual cash flows.
Contracted
maturities at
30 June 2017
Trade & Other
Payables
Borrowings
Total
Contracted
maturities at
30 June 2018
Trade & Other
Payables
Borrowings
Total
< 6
Months
6 – 12
Months
1 – 2
Years
2 – 5
Years
> 5
Years
Total
Cash Flows
Carrying
Amount
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
-
-
4,867
1,217
6,084
1,145
1,145
-
92
92
-
-
-
4,867
4,867
4,069
8,936
3,902
8,769
2 – 5
Years
> 5
Years
Total
Cash Flows
Carrying
Amount
1,615
1,615
1 – 2
Years
< 6
Months
6 – 12
Months
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
7,298
2,016
9,314
-
-
2,017
2,017
9,195
9,195
-
13
13
-
-
-
7,298
7,298
13,241
20,539
13,232
20,529
74
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CREDIT RISK
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial
assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to
the financial statements.
There are no material amounts of collateral held as security at 30 June 2018 or 30 June 2017.
Credit risk is managed on a group basis and reviewed regularly by the Board. It arises from exposures to customers as well as
through deposits with financial institutions.
The Board monitors credit risk by actively assessing the rating quality and liquidity of counter parties:
• only major Australian banks and financial institutions are utilised;
• potential customers with a monthly spend in excess of $1,000 are often rated for credit worthiness taking into account their
size, market position and financial standing; and
• customers that do not meet the group’s strict credit policies may only purchase in cash or using recognised credit cards.
The following table provides information regarding the credit risk relating to cash and money market securities based on Moody’s
counterparty credit ratings.
Cash & Cash Equivalents
Aa2 Rated
Aa3 Rated
A1 Rated
Total Cash & Cash Equivalents
Consolidated
2018
$ ,000
2017
$ ,000
-
7,009
4
7,013
-
5,480
4
5,484
The consolidated group does not have any material credit risk exposure to any single receivable or group of receivables under
financial instruments entered into by the consolidated group.
INTEREST RATE AND MARKET RISK
Market risk is the risk that changes in market prices, such as interest rates will affect the Company’s income or the value o f its
holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising returns.
All of the Group’s equipment finance leases are at a fixed interest rate, and while the Group has term debt, the pricing is a
fixedmargin above BBSY, the Group has significant cash and cash equivalents, and generally maintains a Debt-to-EBITDA ratio of
less than 1:1, and accordingly the Directors consider interest rate and market risk to be low.
75
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SENSITIVITY ANALYSIS
As the Group’s equipment finance leases are not material to the Group and at a fixed interest rate, no sensitivity analysis has been
performed, as any +/- variation in interest rates would not have a material impact on the post-tax profit for the remaining period of
the loans.
A change in interest rates on the Westpac Term Loan would have the following impact on the post-tax profit over the remainder of
the expected term of the loan:
2% Decrease in Interest Rates
1% Decrease in Interest Rates
1% Increase in Interest Rates
2% Increase in Interest Rates
3% Increase in Interest Rates
Consolidated
2019
$ ,000
225
113
(114)
(230)
(346)
2020
$ ,000
61
31
(32)
(64)
(98)
DEBT MATURITY AND REFINANCING RISK
Refinancing risk is the risk that the Company is not able to refinance the full amount of its ongoing debt requirements on
appropriate terms and pricing. To reduce this risk, Group maintains significant cash and cash equivalents, generally maintains a
Debt-to-EBITDA ratio of less than 1:1 making the company an attractive lending proposition, and maintains regular contact and
good relationships with a variety of debt and equity funding institutions.
NOTE 26: REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services
provided by PKF Hacketts Audit, the auditor of the consolidated entity
PKF Hacketts Audit
Audit Services
PKF Hacketts Pty Ltd
Other Services – Tax compliance services
Total
NOTE 27: CONTINGENT ASSETS & LIABILITIES
CONTINGENT ASSETS
The consolidated entity had no contingent assets as at 30 June 2018 or 30 June 2017.
Consolidated
2018
$ ,000
2017
$ ,000
85
31
116
66
39
105
CONTINGENT LIABILITIES
The consolidated entity had bank guarantees in place totalling $269,174 as at 30 June 2018 and $119,174 as at 30 June 2017.
76
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 28: CAPITAL & LEASING COMMITMENTS
Lease commitments - Operating
Committed at the reporting date but not recognised as liabilities payable:
Within one year
One to five years
More than five years
Total Lease commitments - Operating
Consolidated
2018
$ ,000
2017
$ ,000
1,134
1,791
69
2,994
1,110
1,542
-
2,652
Operating lease commitments include contracted amounts for various offices under non-cancellable operating leases expiring
within one to ten years with, in some cases, options to extend. On renewal, the terms of the leases will be renegotiated.
Commitments in relation to non-cancellable finance leases are as follows:
Not Later Than 1 Year
Later Than 1 Year But Not Later Than 5 Years
Minimum Lease Payments
Less Future Finance Charges
Representing Finance Lease Commitments
Current (Note 16)
Non-Current (Note 20)
Total Lease Commitments - Financing
Consolidated
2018
$ ,000
2017
$ ,000
105
83
188
(9)
179
102
77
179
258
187
445
(28)
417
240
177
417
77
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 29: CASH FLOW INFORMATION
Reconciliation of Cash Flows from Operations with Profit After Income Tax
Profit After Income Tax
Non cash flows in profit/(loss):
Depreciation
Amortisation
Provision for Doubtful Debts
(Write-down) / Increase of Earn-out Payments
Other Non Cash Movements
Changes in Assets and Liabilities
(Increase) / Decrease in Trade and Other Receivables
(Increase)/ Decrease in Inventories
(Increase)/ Decrease in Other Assets
(Decrease)/ Increase in Deferred Tax Liabilities
(Decrease)/ Increase in Payables
(Decrease)/ Increase in Provisions
(Decrease)/ Increase in Current Tax Liabilities
Net Cash Flows from Operating Activities
Consolidated
2018
$ ,000
2017
$ ,000
5,531
3,598
2,075
1,862
156
5
105
(238)
(74)
(617)
(672)
1,277
191
744
10,345
1,513
817
(69)
18
(20)
(318)
(33)
(7)
(269)
906
151
(1,191)
5,096
RECONCILIATION OF CASH FLOWS FROM FINANCE ACTIVITIES
Balance at 1 July 2017
Dividends declared
Net cash (used in)
financing activities
Other changes
Balance at 30 June 2018
Cisco Lease
Financing
$ ,000
203
-
(62)
-
141
NAB Term Loan
Westpac Term
Loan
IBM Equip
Finance
Dividends Payable
$ ,000
3,485
-
(3,485)
-
-
$ ,000
$ ,000
-
-
13,053
-
13,053
214
-
(176)
-
38
$ ,000
-
984
(984)
-
-
78
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 30: PARENT INFORMATION
The following information has been extracted from the books and records of the parent and has been prepared in accordance with
Australian Accounting Standards.
PARENT ENTITY STATEMENT OF FINANCIAL POSITION
As At 30 June 2018
2018
$ ,000
2017
$ ,000
Assets
Current Assets
Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Retained Profits
Total Equity
PARENT ENTITY STATEMENT OF COMPREHENSIVE INCOME
For Year Ended 30 June 2018
Total Profit
Total Comprehensive Income
2,747
33,856
36,593
15,577
9,128
24,705
11,888
12,246
(358)
11,888
2018
$ ,000
1,170
1,170
1,692
17,146
18,838
3,065
5,009
8,074
10,764
11,308
(544)
10,764
2017
$ ,000
16
16
GUARANTEES AND CONTRACTUAL COMMITMENTS
During the reporting period, Over the Wire Holdings Limited has a parent entity guarantee in place over the credit card facilities
with NAB operated by two of its subsidiaries (OTW Corp Pty Ltd and Over the Wire Pty Ltd) totalling $150,000, as well as a bank
guarantee facility with ANZ for $119,174.
CONTINGENT LIABILITIES
Other than the bank guarantees above, the parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017.
79
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 31: RELATED PARTY TRANSACTIONS
Over the Wire Holdings Limited is the ultimate parent entity in the wholly owned group comprising the Company and its wholly
owned controlled entities. Transactions between the Company and its controlled entities have been eliminated in the consolidated
financial statements.
The aggregate amounts of transactions between the Company and its controlled entities are in the respective classification
categories in the financial statements. The nature, terms and conditions of each different type of transaction area are as follows:
• Fees charged by OTW Corp Pty Ltd to the members of the group are in respect of the company acting as a central provider of
corporate services to the group, including employing all staff, providing office and administration services.
• Management fees charged by Over the Wire Holdings Limited to cover the costs of being listed on the Australian Stock
Exchange.
• A limited number of re-charged costs between Over the Wire Pty Ltd, Netsip Pty Ltd, Faktortel Pty Ltd and Telarus Pty Ltd,
for discretionary operational reasons such as ease of reconciliations, facilitating a customer to receive a single invoice despite
ordering services from multiple companies, etc.
• Operational Loans for day-to-day working capital between the Company and its controlled entities are unsecured and advanced
on an interest free basis.
During the year, the Group has conducted the following related party transactions:
• Management fees paid to Over the Wire Holdings by its controlled entities for 2018: $2.4m (2017: $0.3m)
• Fees charged by OTW Corp to the members of the group for 2018: $12.99m (2017: $9.35m)
• Operational recharged costs between group companies for 2018: $1.2m (2017: $1.2m)
KEY MANAGEMENT PERSONNEL (KMP) COMPENSATION
Short –Term Employee Benefits
Long-Term Employee Benefits
Post-Employment Benefits
Termination Payments
Share based Payments
Key Management Personnel
Consolidated
2018
$ ,000
1,259
17
84
-
388
1,748
2017
$ ,000
1,160
14
87
-
4
1,265
Detailed remuneration disclosures are provided in the remuneration report on pages 20 to 24.
80
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 32: SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policies described in Note1:
Consolidated
2018
2017
Name of Entity
Over the Wire Pty Ltd
Netsip Pty Ltd
Faktortel Pty Ltd (Acquired 28 July 2015)
Faktortel Holdings Pty Ltd (Acquired 28 July 2015)
Aero Telecom Pty Ltd (Acquired 28 July 2015)
Sanity Holdings Pty Ltd ( Acquired 30 November 2015)
OTW Corp Pty Ltd ( Registered 25 September 2015)
Telarus ( Acquired 16 January 2017)
VPN Solutions (Acquired 1 November 2017)
Country of
Incorporation
Equity
Holding
Equity
Holding
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
0 %
NOTE 33: SUBSEQUENT EVENTS
On 22 August 2018, the Company declared a fully franked final dividend of 1.50 cents per share, for the year ended 30 June 2018.
The dates of the dividend are as follows:
Ex date
Record Date
Payment Date 9 October 2018
17 September 2018
18 September 2018
As this final dividend was declared subsequent to year-end, no provision has been made in the accounts for the dividend.
No other matter or circumstances have arisen since the end of the financial period which significantly affected or may significantly
affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in
future financial periods.
81
ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 34: SHARE-BASED PAYMENTS - PERFORMANCE RIGHTS
In line with its remuneration policy, the Board approved the issue of performance rights under the OTW Performance Rights Plan
during the 2017 and 2018 financial years to key management personnel.
The Performance Rights will not give the holder a legal or beneficial interest in ordinary fully paid shares in Over the Wire until
those Performance Rights vest. Prior to vesting, Performance Rights do not carry a right to vote or receive dividends.
When the Performance Rights have vested, ordinary fully paid shares will be allocated, and these shares will rank equally with
existing Over the Wire Shares.
The Performance Rights over Ordinary Shares have been issued in tranches as set out below.
2017
Tranche 1
(2017-1)
2017
Tranche 2
(2017-2)
2017
Tranche 3
(2017-3)
2018
Issue Date
29 June 2017
29 June 2017
29 June 2017
1 April 2018
Vesting Date & Test Date
31 January 2018
1 July 2018
3 December 2018
30 September 2020
Expiry Date
Exercise Price
Amount Payable on Grant
Performance Hurdles
28 February 2018
1 August 2018
3 January 2019
31 October 2020
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Service tenure from
Grant to Vesting.
Issued in recognition
of the FYE2016
short term incentive
achievement and
represent an STI
deferral benefit.
Service tenure from
Grant to Vesting.
Issued in recognition
of the FYE2016
short term incentive
achievement and
represent an STI
deferral benefit.
Service Tenure
and TSR absolute
Compound Annual
Growth Rate from
IPO date to vesting:
<10% p.a. 0%
10%-15% 50-100%
pro-rata
>15% p.a. 100%
Service Tenure
& EPS absolute
Compound Annual
Growth Rate hurdle
from FY2017 to
FY2020:
<10% pa 0%
10%-15% 50-100%
pro-rata
>15% pa 100%
Performance Rights Granted to:
Mike Stabb
Ben Cornish
Dennis Muscat
Daniel Roates
25,000
25,000
-
-
25,000
25,000
-
-
50,000
50,000
-
-
29,920
29,920
19,946
19,946
Fair Value of Performance Rights Issued
30 June 2017
Mike Stabb
Ben Cornish
TOTAL
Opening
Balance
Qty
-
-
-
Granted
Vested
Qty
100,000
100,000
200,000
Qty
-
-
-
Closing
Balance
Qty
100,000
100,000
200,000
Fair Value
$
218,292
218,292
436,584
82
ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
30 June 2018
Mike Stabb
Ben Cornish
Dennis Muscat
Daniel Roates
TOTAL
Opening
Balance
Granted
Vested
Closing
Balance
Weighted
Average
Fair Value
Qty
100,000
100,000
200,000
-
$
249,882
Qty
Qty
Qty
19,946
29,920
29,920
104,920
(25,000)
(25,000)
6.0
DIRECTORS’
DECLARATION
(50,000)
249,732
104,920
99,732
19,946
19,946
19,946
614,908
249,882
57,572
57,572
-
-
-
The weighted average fair value of the performance rights granted to employees has been calculated by an independent valuer at
the date the performance rights were granted.
The weighted average fair value of performance rights granted is set out below. This value was calculated using the Black-Scholes
pricing model applying the following inputs:
Weighted average fair value
Weighted average life of the rights
Expected share price volatility
Risk-free interest rate
Consolidated
2018
2017
$2.8864
$2.1829
2.5 Years
1.11 Years
40.6%
2.04%
50%
1.75%
Historical share price volatility has been the basis for determining expected share price volatility as it is assumed that this is
indicative of future volatility.
83
ANNUAL REPORT 2018 6.0
DIRECTORS’
DECLARATION
84
ANNUAL REPORT 2018 DIRECTORS’
DECLARATION
In the directors’ opinion:
i The financial statements and notes set out on pages 37 to 83 are in accordance with the
Corporations Act 2001, including:
a
complying with Accounting Standards, which, as stated in accounting policy Note 1 to the
financial statements, constitutes explicit and unreserved compliance with International
Financial Reporting Standards (IFRS) and the Corporations Regulations 2001; and
b giving a true and fair view of the financial position as at 30 June 2018 and of the performance
for the year ended on that date of the company and consolidated group;
ii There are reasonable grounds to believe that the consolidated group will be able to pay its debts as
and when they become due and payable.
The directors have been given the declarations by the Chief Executive Officer and the Chief Financial
Officer required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Board of Directors.
Michael Omeros
Managing Director
Brisbane
22 August 2018
John Puttick
Chair Person
Brisbane
22 August 2018
85
ANNUAL REPORT 2018
7.0
INDEPENDENT
AUDITOR’S
REPORT
86
ANNUAL REPORT 2018
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF OVER THE WIRE HOLDINGS LIMITED
Report on the Financial Report
Opinion
We have audited the accompanying financial report of Over the Wire Holdings Limited (the company), which
comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement
of comprehensive income, the consolidated statement of changes in equity and the consolidated statement
of cash flows for the year then ended, notes comprising a summary of significant accounting policies and
other explanatory information, and the directors’ declaration of the company and the consolidated entity
comprising the company and the entities it controlled at the year’s end or from time to time during the
financial year.
In our opinion the financial report of Over the Wire Holdings Limited is in accordance with the Corporations
Act 2001, including:
a)
b)
Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018
and of its performance for the year ended on that date; and
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the financial report is free from material misstatement. Our
responsibilities under those standards are further described in the Auditor’s Responsibility 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 consolidated entity in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the code) that are relevant to our audit of the financial report in Australia. We
have also fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
87
ANNUAL REPORT 2018
1.
Impairment testing of intangible assets
Why significant
As at 30 June 2018 the carrying value of intangible
assets was $36.6m (2017: $17.7m), as disclosed in
Note 13.
The Group’s accounting policy in respect of intangible
assets is outlined in Note 1. This represents 68% of
total assets.
An annual impairment test for goodwill and other
indefinite life intangible assets is required under
Australian Accounting Standard (AASB) 136
Impairment of Assets.
The evaluation of the recoverable amount requires the
Group to exercise significant judgement in determining
the key assumptions, which include:
5 year cash flow forecast
Terminal growth factor
Discount rate
The determination that the Group has one
CGU, being the whole Group
The outcome of the impairment assessment could vary
if different assumptions were applied. As a result, the
evaluation of the recoverable amount of intangible
assets including goodwill is an area of significant
estimation and judgement
How our audit addressed the key audit matter
Our work included, but was not limited to, the following
procedures:
assessing and challenging:
o
o
o
o
the FY19 budget by comparing the
budget to FY18 and FY 17 actuals
the assumptions used for the growth
rate by comparing normalised average
growth rate from FY17 to FY18 to the
growth rate adopted in the impairment
model
the key assumptions for long term
growth in the forecast cash flows by
comparing them to historical results
and industry forecasts; and
the discount rate applied by comparing
the WACC to industry benchmarks
testing, on a sample basis, the mathematical
accuracy of the cash flow models;
agreeing inputs in the cash flow models to
relevant data including approved budgets and
latest forecasts
performing sensitivity analysis in relation to key
assumptions including discount rate, growth
rate and terminal value
Additionally, as part of our procedures:-
we assessed the Group’s determination of
Cash Generating Units (CGUs); and
we assessed
the
disclosures
to
sensitivities in the assumptions used, included
in Note 13.
the appropriateness of
relating
those
including
88
ANNUAL REPORT 2018
2. Business Combinations, including valuation of acquired identifiable intangible assets and
allocation of goodwill
Why significant
How our audit addressed the key audit matter
During the year, the Group acquired the shares of VPN
Solutions Pty Ltd. As disclosed in Note 19, as part of
the transaction, goodwill of $11.0m, brand names of
$0.3m, and customer contracts $9m were recognised.
Significant judgement is required in valuing the
acquired identifiable intangible assets and allocation of
goodwill. The Group engaged an independent expert to
assist in the valuation of identifiable intangible assets.
Our work included, but was not limited to, the following
procedures:
Obtaining a detailed understanding of the acquired
business
Assessing the competency and objectivity of the
independent expert and the scope of their work
Analysing the independent expert’s report to
understand the valuation methodology and key
judgements made in determining the fair values such
as:
EBIT multiples
o
o Growth rates
o Customer retention rates
Estimated useful lives
Internal rate of return
o
o
Assessing the appropriateness of the valuation
methodology of the intangible assets employed by
the external expert and evaluating the key
assumptions used in determining the fair values
In addition, we assessed the appropriateness of the
disclosures in relation to both the business combination
and intangible assets acquired included in note 19.
89
ANNUAL REPORT 2018
3. Recognition of Revenue
Why significant
How our audit addressed the key audit matter
The recognition of revenue, totalling $53.6m and
associated unearned revenue liabilities of $1.0m is
considered a key audit matter due to the number of
different revenue streams and the complexity in the
nature and timing of revenue generated by the Group
through each stream.
Note 3 to the financial statements details the revenue
streams of the Group and associated accounting
policies. Revenue amounts are disclosed in the
Consolidated Statement of Comprehensive Income,
and associated unearned revenue liabilities are
disclosed in Note 15 and the Consolidated Statement
of Financial Position.
Our work included, but was not limited to, the following
procedures:
We performed procedures on the significant revenue
streams as noted below and as disclosed in Note 3 to
the financial statements:
Data networks and internet
Voice
Cloud and managed services
Data centre co-location
For a sample of contracts across each of the revenue
streams, we evaluated the individual contract and
agreed revenue amounts to the financial statements and
other records such as bank statements. As part of these
procedures we assessed the values recorded and the
timing of recognition over the service period.
We considered the adequacy of the Group’s revenue
recognition accounting policies and assessed
compliance with the policies in terms of applicable
Australian Accounting Standards.
Other Information
The Directors are responsible for the other information. The other information comprises the information
included in the consolidated entity’s Annual Report, but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The Directors of the company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the Directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1,
the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of
Financial Statements, that the financial report complies with International Financial Reporting Standards.
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ANNUAL REPORT 2018
In preparing the financial report, the Directors are responsible for assessing the consolidated entity’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using a
going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to
cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our responsibility is to express an opinion on the financial report based on our audit. 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 Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individual or in aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report.
The procedures selected depend on the auditor’s judgement, including assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true
and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial
report.
We conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the consolidated entity to cease to continue as a going concern.
We evaluate the overall presentation, structure and content of the financial report, including the disclosures,
and whether the financial report represents the underlying transactions and events in a manner that
achieves fair presentation.
We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the consolidated entity to express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.
91
ANNUAL REPORT 2018
We communicate with the Directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
The Auditing Standards require that we comply with relevant ethical requirements relating to audit
engagements. We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be communicated
in our report because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
Report on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June
2018. The Directors of the company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Over the Wire Holdings Limited for the year ended 30 June 2018
complies with section 300A of the Corporations Act 2001.
PKF HACKETTS AUDIT
LIAM MURPHY
PARTNER
22 AUGUST 2018
BRISBANE
92
ANNUAL REPORT 2018
CONTACT
DETAILS
WEBSITE
www.overthewire.com.au
EMAIL
info@overthewire.com.au
PHONE
1300 689 689
+61 7 3847 9292
BRISBANE
Level 21, 71 Eagle Street
Brisbane, Queensland, 4000
+61 7 3847 9292
SYDNEY
Level 9, 33 York Street
Sydney, New South Wales, 2000
+61 2 9191 9333
MELBOURNE
Level 8, 473 Bourke Street
Melbourne, Victoria, 3000
+61 3 9938 8222
93
ANNUAL REPORT 2018 www.overthewire.com.au | 1300 689 689