Over the Wire
Annual Report
2019
www.overthewire.com.au | 1300 689 689
Over the Wire Holdings Limited
ACN 151 872 730
Over the Wire
ANNUAL REPORT
2019
Over the Wire Holdings Limited
ACN 151 872 730
Share Register
Auditor
Solicitors
GENERAL
This Annual Report is dated 29 October 2019.
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
11
12
13
22
27
29
39
44
94
96
103
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 2019 financial year.
Highlights of the year
• Revenue increased by 49% to $79.6m
• EBITDA increased by 64% to $20.1m
• NPAT increased by 83% to $10.1m
• Achieved customer retention of 96%
• Successfully acquired Access Digital Networks Pty Ltd
and Comlinx Pty Ltd
• EPS increased by 63% to 20.66cps
We would attribute the year’s success to effectively
implementing our geographic expansion plans
complemented by quality acquisitions. Our overall organic
growth of 15% was once again pleasing.
The integration of the businesses that we have acquired
have progressed well with the Access Digital and Comlinx
integration remaining on 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 exceptional 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 2019
BUSINESS
OVERVIEW
Our purpose is to simplify technology to empower business.
Simplify
We love the
challenge of turning
our complex environment
into solutions for our customers.
We are the trusted advisors that
make sense, remove barriers,
and reduce confusion. We make
it our business to understand our
customers and their problems. We
take tech problems out of the way
so our customers can get on
with what they do best.
Technology
Every day we are creating the future. We
are known for our expertise in using all
kinds of technology to empower our
customers. Our proactive focus on tech
solutions informs our approach; agile
and adaptable, product-agnostic
and customer-focused.
To Simplify
Technology
To Empower
Business
Empower
Our customers' success
is our success. We grow when they
grow. We partner with our customers
to achieve their goals. We provide
transparency and knowledge to tailer
solutions that ensure their ongoing
competitive advantage.
Business
We're here for business. We love to
work with those who have an appetite
for doing things better. We are passionate
about partnering in our customers' journey.
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
• Hosting (Cloud and Data Centre Colocation) and
• Managed Services and Security
6
ANNUAL REPORT 2019 CUSTOMER SERVICE
Our vision is to be the technology solution provider
passionately promoted by our customers.
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 below as year on year customer revenue retained.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Customer Retention
96.7%
98.6%
97.1%
98.2%
97.3%
96.0%
2014 2015 2016 2017 2018 2019
7
ANNUAL REPORT 2019
SIGNIFICANT ORGANIC GROWTH AND
STRONG FINANCIAL PERFORMANCE
Total revenue from ordinary activities for the year was $79.6m (2018: $53.6m), representing an increase of 49% on the
corresponding year. The result demonstrates demand from customers across all four product lines. 15% of the revenue
growth was achieved organically.
The group continued to build upon its geographic expansion strategy. The below table shows revenue growth figures from
2018 to 2019:
Geographic Area
Queensland
New South Wales
Victoria
South Australia
Revenue growth 2018 to 2019
(Organic)
Revenue growth 2018 to 2019
(Statutory)
17%
14%
11%
13%
56%
31%
18%
230%
The group made a net profit after income tax expense of $10.1m (2018: $5.5m), representing an increase of 83% on the
corresponding year. Net profit after tax before amortisation (NPATA) was $13.1m, up from $6.8m in 2018, representing an
increase of 91% on the corresponding year. Statutory EBITDA profit was $20.1m, up from $12.3m in 2018, representing an
increase of 64% on the corresponding year.
The group has delivered consistent growth in revenue, profitability and shareholder return since listing, as represented by
the graphs below.
Revenue
EBITDA
NPATA
EPS
90
80
70
60
50
40
30
20
10
25
20
15
10
5
14
12
10
8
6
4
2
25
20
15
10
5
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
All graphs in $m except EPS in c/share.
8
ANNUAL REPORT 2019 SUCCESSFUL ACQUISITIONS
Acquisition of Access Digital
On 1 November 2018, Over the Wire acquired 100% of
the shares in Access Digital. Access Digital Networks is a
leading South Australian based provider of business grade
telecommunications services including data networks, voice
and private cloud solutions and services.
Acquisition of Comlinx
On 1 November 2018, Over the Wire acquired 100% of
the shares in Comlinx. Comlinx is a leading provider
of IT managed solutions to Corporate, Enterprise and
Government customers.
The strategic rationale for acquiring Comlinx was:
The strategic rationale for acquiring Access Digital was:
The acquisition accelerates the consolidated entity’s
expansion into the South Australian market;
Creates opportunities for the combined group to cross-sell
to existing Access Digital customers;
Access Digital has a quality team that will integrate well
with the consolidated entity;
The acquisition is expected to offer attractive EBITDA and
EPS accretion to the consolidated entity immediately; and
Potential for addressable near-term synergies and margin
expansion.
The acquisition accelerates the consolidated entity’s move
into the provision of Software Defined WAN (SD-WAN)
solutions;
Provides Over the Wire customers with a broader product
offering, and creates opportunities for the combined
group to cross-sell to existing Comlinx customers;
Comlinx has a quality team that will integrate well with the
consolidated entity;
The acquisition is expected to offer attractive EBITDA and
EPS accretion to the consolidated entity immediately; and
Synergies are expected to be achieved in this financial
year with further cost savings to be delivered in the next
financial year.
Over the Wire has a track record of acquiring and then integrating acquisitions,
with timely realisation of synergies and cost savings.
2015
2016
2017
2018
2019
Integrated
Integrated
Integrated
Integrating
9
ANNUAL REPORT 2019
POSITIVE OUTLOOK
Our commitment to being able to provide a complete telecommunications, cloud and IT Services offering to businesses, that
is supported by a team that is dedicated to a positive customer experience, gives us confidence that our growth will continue
in FY20.
We remain focussed on achieving our vision and continuously improving the financial performance of the business and the
returns for our shareholders.
GROW
IMPROVE
FOCUS
ENGAGE
EVOLVE
To identify, understand, and
realise our opportunities
to grow
For our systems to reduce
friction, enhance customer
experience, and support
our growth
For our customers to value
our technical expertise
and strength of our
relationships
For our people to embody
our purpose and values,
and make a positive
contribution to their and
our success
To offer seamless solutions
to our customers and
partners
Organic revenue
growth >15%
targeted
Take advantage
of industry
tailwinds in
SD-WAN, Cyber
Security and
Hosted Voice
Living our
values
Continuously focus on how we
are improving the experience
for our customers, resulting in
retention and growth
Purpose led
leadership
Selective future
acquisitions
Operational
efficiencies
Build on our
performance
culture
Attract, develop
and retain great
talent
Further enhance
our systems and
processes for
optimal customer
and team
experience
Realisation of
synergies from
acquisitions
10
ANNUAL REPORT 2019
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.
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:
The report is presented in Australian dollars, which is Over
the Wire Holdings Limited’s functional and presentational
currency.
Registered Office & Principal Place of Business
Level 21, 71 Eagle Street
Brisbane QLD 4000
A description of the nature of the group’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 15 August
2019. The directors have the power to amend and/or
reissue the financial report.
11
ANNUAL REPORT 2019
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 AM 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 Technology Officer
GARY PITTORINO
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 Brisbane 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
259 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
12
ANNUAL REPORT 2019
1.0DIRECTORS’
REPORT
13
ANNUAL REPORT 2019 DIRECTORS’
REPORT
Your directors present their report on the consolidated
entity consisting of Over the Wire Holdings Limited (“the
Company”) and the entities it controlled (“the Group”) for
the year ended 30 June 2019.
There has been no significant change to the principal
activities of the group during the year. Access Digital
Networks Pty Ltd was acquired on 1 November 2018, and
its product suite predominantly includes Data Networks,
Managed Services and Cloud, along with a small amount
of Voice and Colocation, which is in line with the group’s
existing principal activities.
Comlinx Pty Ltd was acquired on 1 November 2018, and
its product suite is predominantly managed services,
however it too has a small amount of Voice, Data, Cloud
and Colocation which is in line with the group’s existing
principal activities.
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 AM
Non-Executive Director
(appointed 1 December 2015)
MIKE STABB
Company Secretary and Chief Financial Officer
(appointed 9 July 2012)
PRINCIPAL ACTIVITIES
The group is a profitable, high-growth provider of
telecommunications, cloud and IT solutions. It has a
national network with Points of Presence (POPs) in all
major Australian capital cities and Auckland, New Zealand.
During the year, the principal continuing activities of the
group 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 Colocation
REVIEW OF OPERATIONS
Total revenue from ordinary activities for the year was
$79,589K (2018: $53,561K), representing an increase of
49% on the corresponding year. The result demonstrates
demand from customers across all four product lines
including:
• Data Networks revenue of $36,959K (2018: $29,383K),
representing an increase of 26% on the corresponding
year and delivered through organic growth and the
successful acquisition of Access Digital on 1 November
2018;
• Voice revenue of $16,417K (2018: $14,060K), representing
an increase of 17% on the corresponding year and
predominantly delivered through organic growth;
• Cloud and Managed Services revenue of $23,028K
(2018: $7,258K), representing an increase of 217% on the
corresponding year and delivered through organic growth
and the successful acquisition of Comlinx on 1 November
2018;
• Data Centre Colocation revenue of $3,185K (2018: $2,860K),
representing an increase of 11% on the corresponding
year and delivered through the acquistion of Comlinx and
Access Digital.
The group continued to build upon its geographic
expansion strategy.
The below table shows revenue-growth figures from 2018
to 2019:
Revenue growth
2018 to 2019
(Organic)
Revenue Growth
2018 to 2019
(Statutory)
Geographic
Area
Queensland
New South Wales
Victoria
South Australia
17%
14%
11%
13%
56%
31%
18%
230%
14
ANNUAL REPORT 2019
DIVIDENDS PAID AND
PROPOSED
A final dividend for 30 June 2018 of 1.5 cents per share fully
franked was paid in October 2018.
An interim dividend of 1.25 cents per share fully franked, for
the six months ended 31 December 2018, was paid in April
2019.
Subsequent to year-end, on 15 August 2019, the company
declared a fully franked final dividend of 2.00 cents per
share, for the year ended 30 June 2019. The dates of the
dividend are as follows:
Ex Date
Record Date
Payment Date 10 October 2019
9 September 2019
10 September 2019
As this final dividend was declared subsequent to year-
end, no provision has been made in the accounts for the
dividend.
BUSINESS STRATEGIES AND
PROSPECTS FOR FUTURE
FINANCIAL YEARS
The primary objective of the group is to continue adding
value for shareholders through a combination of organic
growth, and strategic acquisitions.
The group operates four product lines: Data Networks, Voice,
Cloud and Managed Services, and Data Centre Colocation.
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 additional products
and services to existing customers.
The group will leverage its investments in Comlinx and
Access Digital 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.
FINANCIAL POSITION
Net assets of the group have increased by $40,264K from
$24,867K to $65,131K due the following factors:
• $21,500K capital raise in October 2018
• $5,000K share placement in November 2018
• Acquisitions of both Access Digital Networks and Comlinx
for total combined consideration of $35,025K, including
$11,260K of deferred consideration and shares issued
• Net profit after tax for the year of $10,137K.
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 group
because it shows the strong gross profit and expenditure
management delivered by the group and correlates well with
operating cash flow. Set out below is a reconciliation of Profit
before Income Tax Expense and EBITDA.
Consolidated
2019
$ ,000
2018
$ ,000
Profit before Income Tax Expense
12,765
7,843
Depreciation & Amortisation
6,818
3,937
Finance Costs
EBITDA
476
476
20,059
12,256
EBITDA was $20,059K (2018: $12,256K), representing an
increase of 64% on the corresponding year. Net Profit after
Income Tax Expense (NPAT) was $10,137K (2018: $5,531K),
representing an increase of 83% 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 2019, the group had $10,325K in cash or cash
equivalents. Net cash flow from Operating Activities (before
Interest and Tax) for the 2019 year was $15,869K ($12,203K
in 2018) demonstrating an alignment with EBITDA once the
one-off gain on change in expected deferred consideration
payable (non-cash) is taken into consideration. The group’s
continued sound management of overhead expenses in the
underlying business, maintaining net debtor days metrics,
recognising cost synergies in the acquired entities, and when
combined with revenue growth of 49%, has generated the
growth in EBITDA and positive Cash from Operating Activities
outlined in the Consolidated Statement of Cash flows.
15
ANNUAL REPORT 2019 SIGNIFICANT CHANGES IN
STATE OF AFFAIRS
ACQUISITION OF ACCESS DIGITAL
ACCESS DIGITAL NETWORKS PTY LTD
On 1st of November 2018, the company acquired
100% of the shares in Access Digital for a total upfront
consideration of $13,050K. The upfront consideration
comprised $10,440K in cash, 567,393 OTW shares ($2,610K
in OTW shares at an issue price of $4.60, being the volume
weighted average price for the 10 trading days prior to
the announcement of the acquisition), plus or minus a
net assets adjustment to reflect the profits retained in
the business by the vendor on settlement. The vendor
provided a warranty that Access Digital would be free of
all debt at completion with the exception of finance leases
acquired.
The vendor is also entitled to receive further deferred
consideration of up to $1,450K in cash, payable in
November 2019, based on a number of performance
measures being achieved. As at 30 June 2019, it is
estimated that $1,392K is likely to become payable.
The acquisitions of Access Digital & Comlinx (below)
were settled concurrently, and were funded through a
combination of cash on hand, as well as funds raised
through a share placement of $21,500K and share
purchase plan of $5,000K.
The acquisition of Access Digital has delivered
approximately 250 business customers to Over the Wire
and accelerates the group’s geographic expansion into
South Australia. With revenue of $8,500K and EBITDA of
$2,900K for the 12 month period to 30 June 2018, Access
Digital is expected to make a significant contribution to the
group's future results.
The strategic rationale:
• The acquisition accelerates the group’s expansion into
the South Australian market;
• Creates opportunities for the group to cross-sell to
existing Access Digital customers;
• Access Digital 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
• Potential for addressable near-term synergies.
ACQUISITION OF COMLINX
COMLINX PTY LTD
On 1st of November 2018, the company acquired 100% of
the shares in Comlinx for a total upfront consideration of
$16,000K. The upfront consideration comprised $12,800K
in cash, 695,655 OTW shares ($3,200K in OTW shares at an
issue price of $4.60, being the volume weighted average
price for the 10 trading days prior to the announcement
of the acquisition), plus or minus a working capital
adjustment to reflect the profits retained in the business
by the vendors against a target amount at settlement. A
warranty provided by the vendors provided that Comlinx
would be free of all debt at completion.
The vendors are also entitled to receive further deferred
consideration of up to $4,000K in cash, payable in
September 2019, based on a number of performance
measures being achieved, however as at 30 June 2019, it is
estimated that no amount is likely to become payable.
The acquisitions of Access Digital (above) & Comlinx
were settled concurrently, and were funded through a
combination of cash on hand, as well as funds raised
through a share placement of $21,500K and share
purchase plan of $5,000K.
The acquisition of Comlinx has delivered approximately
100 business customers to the group and accelerates
the group’s move into the provision of Software Defined
WAN (SD-WAN) solutions and Security. With revenue of
$16,100K and EBITDA of $3,200K for the 12 month period
to 30 June 2018, Comlinx is expected to make a significant
contribution to the group’s future results.
The strategic rationale:
• The acquisition accelerates the group’s move into the
provision of Software Defined WAN (SD-WAN) solutions
and Security;
• Provides the group's customers with a broader product
offering, and creates opportunities for the group to cross-
sell to existing Comlinx customers;
• Comlinx has a quality team that will integrate well with
the group; and
• The acquisition is expected to offer attractive EBITDA and
EPS accretion to the group immediately.
16
ANNUAL REPORT 2019 EVENTS SINCE THE END OF THE FINANCIAL YEAR
On 15 August 2019, the company declared a fully franked
final dividend of 2.00 cents per share, for the year ended
30 June 2019. The dates of the dividend are as follows:
Ex Date
Record Date
Payment Date 10 October 2019
9 September 2019
10 September 2019
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 group, the results
of those operations, or the state of affairs of the group in
future financial periods.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF
OPERATIONS
The group 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 group's operations are not currently subject to
significant environmental regulation under the law of the
Commonwealth or of a State or Territory.
17
ANNUAL REPORT 2019 OUR VISION IS TO BE THE
TECHNOLOGY SOLUTION
PROVIDER PASSIONATELY
PROMOTED BY OUR
CUSTOMERS.
18
ANNUAL REPORT 2019 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
None
Former Directorships in last 3 years
None
Special Responsibilities
• Chair of the Board
• Chair of remuneration and
nominations committee
• Member of audit and risk
committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings 78,778
Special Responsibilities
• Member of audit and risk
committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings 13,623,245
INFORMATION
ON DIRECTORS
& COMPANY
SECRETARY
The following information is
current as at the date of
this report.
19
ANNUAL REPORT 2019
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: 333,134
BRENT PADDON
BINFOTECH, GRADDIPBUSADMIN
Executive Director
SUSAN FORRESTER AM
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 remuneration and
nominations committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings 12,150,000
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 Viva Leisure
Limited (ASX:VVA) (appointed 18
October 2018)
Former Directorships in last 3 years
Non-Executive Director of Xenith IP
Group Limited (ASX:XIP) (appointed
October 2015)
Special Responsibilities
• Chair of audit and risk committee
• Member of remuneration and
nominations committee
Direct and indirect interest in shares
and options
Ordinary Shares
Over the Wire Holdings: 161,738
20
ANNUAL REPORT 2019
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 2019, 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
12
12
3
3
NA
3
3
3
NA
3
4
NA
4
4
4
NA
3
4
INSURANCE OF OFFICERS AND INDEMNITIES
During the financial year, Over the Wire Holdings Limited maintained policies to insure the directors and secretaries of the
company and its Australian-based controlled entities, and the executives and general managers of each of the divisions of
the group. The terms of the insurance contracts prohibit disclosure of the premiums payable and other terms of the policies.
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 Brisbane 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.
21
ANNUAL REPORT 2019
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:
(A) KEY MANAGEMENT PERSONNEL (KMP) COVERED IN
THIS REPORT
Consolidated
2019
$ ,000
2018
$ ,000
22
22
22
30
30
30
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 28.
ROUNDING OF AMOUNTS
The group 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 2019 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
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)
Other key management personnel:
Mike Stabb
Chief Financial Officer and Company Secretary
Ben Cornish
Chief Technology Officer
Gary Pittorino
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. As the group now has a
dedicated HR Manager, our remuneration policy is now
being developed and finalised through input by the
remuneration committee and recommendations provided
by externally engaged consultants.
Executive KMP Remuneration Policy Statement
Consistent with contemporary Corporate Governance
standards, Over the Wire Holdings’ remuneration policy
will aim 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.
22
ANNUAL REPORT 2019 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.
(C) ELEMENTS OF REMUNERATION
Fixed Annual Remuneration
Executives may receive their fixed remuneration as
cash, superannuation and fringe benefits such as
mobile phones, car allowances and in house fringe
benefits.
During 2019 there were no fixed remuneration
increases given to executive KMP.
During 2019, one new member of the KMP was hired.
Their fixed remuneration is as follows:
• Gary Pittorino:
Base Salary $220,000
Short-term Incentives – Operational Bonuses
In 2019, elements of KMP remuneration were
dependent on the satisfaction of operational
performance conditions as follows:
Short term incentive cash bonuses paid in relation to
2018:
• $99,237 for Michael Omeros linked to the
achievement of operational KPIs.
• $39,695 for Brent Paddon linked to the achievement
of operational KPIs.
• $59,634 for Mike Stabb linked to the achievement of
operational KPIs.
• $53,364 for Ben Cornish linked to the achievement of
operational KPIs.
Long-term Incentives
On 1 June 2019, the group issued 63,733 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 32.
The Long term incentive (LTI) scheme contains features
that meets contemporary generally 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
• Satisfy all executive employment contract obligations
and meet all regulatory requirements.
Details of performance measures used in relation to
performance rights issued to KMP can be located at
note 32 of the accompanying financial statements.
23
ANNUAL REPORT 2019 (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
2019
263,170
45,768
23,077
5,000
20,531
99,237
2018
2019
2018
257,306
48,234
23,077
244,327
251,105
5,244
18,794
3,306
19,231
20,049
-
20,531
39,695
20,049
-
Other Management Personnel
-
-
-
-
456,783
353,666
332,663
297,858
5,000
4,072
4,167
3,667
3,667
3,667
3,667
2,903
-
2019
2018
2019
2018
2019
2018
224,938
229,407
-
-
16,923
16,923
207,520
17,724
16,923
207,520
15,786
16,923
174,608
-
-
-
13,397
-
24,531
59,634
70,151
399,844
24,049
12,500
194,337
480,883
20,531
53,364
70,151
389,880
20,049
12,500
194,337
470,782
15,399
-
-
-
2,784
209,091
-
-
2019
1,114,563
68,736
89,114
19,309
101,523
251,930
143,086
1,788,261
2018
945,338
67,326
76,154
16,501
84,196
25,000
388,674
1,603,189
2019
2018
145,000
145,000
-
-
-
-
-
-
-
-
-
-
-
-
145,000
145,000
2019
1,259,563
68,736
89,114
19,309
101,523
251,930
143,086
1,933,261
2018
1,090,338
67,326
76,154
16,501
84,196
25,000
388,674
1,748,189
Michael
Omeros
Brent Paddon
Mike Stabb
Ben Cornish
Gary Pittorino
Total
Executive
Directors &
Other KMPs
Total NED
Remuneration
(see section (e)
below)
Total KMP
remuneration
Expensed
%
22
-
12
-
32
43
32
43
1
-
22
25
-
-
20
24
*
**
***
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 (re-approved 29 November 2018), as well as Performance Rights
issued as set out at Note 32.
24
ANNUAL REPORT 2019
OPTIONS AND RIGHTS GRANTED AS REMUNERATION - LONG TERM INCENTIVE PLAN
Grant Details
Exercised
Lapsed
Name
Directors
Balance at
1/07/2018
Issue Date
No.*
Mike Stabb
104,920
1/06/2019
Ben Cornish
104,920
1/06/2019
Gary Pittorino
-
1/06/2019
13,333
13,333
10,400
Group Total
209,840
Value
$*
65,078
65,078
50,762
No.**
75,000
75,000
-
Value
$**
163,520
163,520
-
No.**
-
-
-
Balance at
30/06/2019
43,253
43,253
10,400
96,906
* 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 2 & 3 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 23
August 2018 and 10 December 2018 respectively.
Details of the performance rights granted as remuneration to those KMP in the above table are included in Note 32 to the
financial statements.
(E) NON-EXECUTIVE DIRECTOR ARRANGEMENTS
Board fees are $75,000 ($75,000 in 2018) for John Puttick and $50,000 ($50,000 in 2018) 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
2019
$
85,000
60,000
2018
$
85,000
60,000
145,000
145,000
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.
25
ANNUAL REPORT 2019
(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 out below:
Balance at
1/07/2018
Sold on
Market
Share
Purchase
Plan
Employee
Share
Scheme
Vested
Performance
Rights
Bought on
Market
Balance at
30/06/2018
Directors
Michael Omeros
13,616,115
-
Brent Paddon
13,150,000
(1,000,000)
John Puttick
80,000
(20,000)
Susan Forrester
155,413
-
7,130
-
4,278
2,139
Total Directors
27,001,528
(1,020,000)
13,547
Other Key Management Personnel (OKMP)
Mike Stabb
Ben Cornish
Gary Pittorino
Total OKMP
251,513
46,760
-
298,273
-
-
-
-
Group Total
27,299,801
(1,020,000)
6,417
2,139
-
8,556
22,103
End of Remuneration Report
OPTIONS & PERFORMANCE RIGHTS
-
-
-
-
-
204
204
204
612
612
-
-
-
-
-
75,000
75,000
-
150,000
150,000
-
-
13,623,245
12,150,000
14,500
78,778
4,186
161,738
18,686
26,013,761
-
-
-
-
333,134
124,103
204
457,441
18,686
26,471,202
(i) Options
At the date of this report, there were no unissued shares of Over the Wire Holdings Limited under option. (2018: Nil)
(ii) Performance Rights
At the date of this report, there were 163,465 performance Rights over Over the Wire Holdings Limited shares. (2018:
249,732)
This report, incorporating the Remuneration Report is signed in accordance with a resolution of Directors.
Michael Omeros
Managing Director
Brisbane
15 August 2019
John Puttick
Chair Person
Brisbane
15 August 2019
26
ANNUAL REPORT 2019
2.0
AUDITOR’S
INDEPENDENCE
DECLARATION
27
ANNUAL REPORT 2019 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 2019, 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 BRISBANE AUDIT
LIAM MURPHY
PARTNER
15 AUGUST 2019
BRISBANE
28
ANNUAL REPORT 2019
3.0
CORPORATE
GOVERNANCE
STATEMENT
29
ANNUAL REPORT 2019 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 2019 corporate governance statement is dated as at 30 June 2019 and reflects the corporate governance practices in
place throughout the 2019 financial year. The 2019 corporate governance statement was approved by the board on 29
October 2019.
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.
Comply
Complies
Complies
Complies
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.
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
2019 is as follows:
•
•
•
Women on the Board – 25%
Women in Senior Executive positions – 13%
Women in the organisation – 21%
30
ANNUAL REPORT 2019 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.
Principles and Recommendations
Compliance
Principle 2 – Structure the Board to add value
Complies
Comply
Complies
A combined Nominations and Remuneration Committee
has been established with its own
charter and consists of:
•
• Susan Forrester; and
• Brent Paddon.
John Puttick (committee chair);
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.
The company has established charter rules 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.
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.
31
ANNUAL REPORT 2019
The chairman, John Puttick, is a non-executive and
independent director.
Complies
This is consistent with the Board Charter.
Complies
2.5 The chair of the Board should be an
independent director and should not be
the CEO.
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.
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
Comply
Complies
Comply
Partially
Complies
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:
• Susan Forrester (committee chair)
John Puttick; and
•
• Michael Omeros.
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
4.1 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.
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
32
ANNUAL REPORT 2019
Principles and Recommendations
Compliance
Principle 6 – Respect the rights of security holders
6.1 Provide information about the
company and its governance to investors
via its website.
The Board Charter and other applicable
policies are available on the company’s
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 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.
Comply
Complies
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
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.
33
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
ANNUAL REPORT 2019 Principles and Recommendations
Compliance
Comply
The company has a combined Nominations
and Remuneration Committee. See 2.1 above.
Partially Complies
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 Nominations and Remuneration
Committee charter is available on the
company’s website.
Complies
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.
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.
34
ANNUAL REPORT 2019
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 https://overthewire.com.au/
investors/
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
https://overthewire.com.au/investors/
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.
35
ANNUAL REPORT 2019
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
https://overthewire.com.au/investors/
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:
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
https://overthewire.com.au/investors/
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 https://
overthewire.com.au/investors/
36
ANNUAL REPORT 2019
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 30 September 2019.
Over The Wire Holdings Limited
Issued capital ordinary shares: 51,602,187 as at 30 September 2019.
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
13,623,245
12,150,000
6,684,069
32,457,314
% of Total Shares
Issued
26.40%
23.55%
12.95%
62.90%
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
334,011
2,053,222
2,034,496
5,742,556
41,437,902
51,602,187
-
Number
of Holders
638
759
267
243
26
1,933
-
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.
37
ANNUAL REPORT 2019
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:
Ordinary Shares
Number
Held
% of Total Shares
Issued
Date that Voluntary Escrow Period Ends:
One year anniversary of acquisition of Access Digital (Escrow release date - 31
October 2019)
50% of shares issued on acquistion of Cominx (Escrow release date - 30 June
2020)
50% of shares issued on acquistion of Cominx (Escrow release date - 30 June
2021)
Total Substantial Shareholders
567,392
347,828
347,828
1,263,048
The 20 Largest Holders of Each Class of Quoted Equity Securities
Michael Nictarios Omeros (Including Related Entities And Indirect Holdings)
13,623,245
Brent Evans Paddon (Including Related Entities And Indirect Holdings)
12,150,000
Ordinary Shares
National Nominees Limited
Jay Heddon Binks
Hsbc Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Dynamic Supplies Investments Pty Ltd
Bnp Paribas Noms Pty Ltd
Christopher Peter Marciano
Citicorp Nominees Pty Limited
Wayne Albert Shaw
Scott Anthony Smith
Birkdale Holdings (QLD) Pty Ltd
Carter Haywood Pty Ltd
Bnp Paribas Nominees Pty Ltd
Mr Jamie Pherous
Aust Executor Trustees Ltd
Bnp Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
Ms Susan Margaret Forrester & Mr Bruce Forrester
Netwealth Investments Limited
Total
6,684,069
1,362,882
1,267,670
1,087,067
739,619
689,170
567,392
494,283
347,827
347,827
337,139
243,256
207,766
200,000
184,419
176,593
157,552
130,486
1.10%
0.67%
0.67%
2.45%
26.40%
23.55%
12.95%
2.64%
2.46%
2.11%
1.43%
1.34%
1.10%
0.96%
0.67%
0.67%
0.65%
0.47%
0.40%
0.39%
0.36%
0.34%
0.31%
0.25%
40,998,262
79.45%
38
ANNUAL REPORT 2019
4.0
FINANCIAL
STATEMENTS
39
ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For Year Ended 30 June 2019
Revenue from Contracts with Customers
Other Income
Expenses
Data Centre & Colocation 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
4
5
6
6
6
6
6
6
6
7
8
8
Consolidated
2019
$ ,000
79,589
4,123
(3,954)
(24,846)
(13,032)
(18,511)
(6,818)
(476)
(3,310)
12,765
(2,628)
10,137
-
-
10,137
Cents
20.661
20.596
2018
$ ,000
53,561
116
(3,624)
(19,061)
(3,057)
(13,247)
(3,937)
(476)
(2,432)
7,843
(2,312)
5,531
-
-
5,531
Cents
12.625
12.566
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
40
ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As At 30 June 2019
Assets
Current Assets
Cash & Cash Equivalents
Trade & Other Receivables
Inventories
Other Current Assets
Total Current Assets
Non-Current Assets
Other 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
Unearned Income
Deferred Consideration
Total Current Liabilities
Non-Current Liabilities
Borrowings
Employee Benefits
Unearned Income
Deferred Tax
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Reserves
Retained Profits
Total Equity
Note
Consolidated
2019
$ ,000
2018
$ ,000
9
10
11
12
12
13
14
15
16
17
18
19
16
18
19
20
21
22
10,325
8,920
217
2,304
21,766
204
8,043
74,844
83,091
104,857
10,732
4,252
1,046
1,872
2,384
1,392
7,013
4,357
263
899
12,532
46
5,015
36,649
41,710
54,242
6,283
4,027
977
1,293
1,015
1,968
21,678
15,563
6,512
239
256
11,041
18,048
39,726
65,131
43,884
155
21,092
65,131
9,205
186
-
4,421
13,812
29,375
24,867
12,246
361
12,260
24,867
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
41
ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For Year Ended 30 June 2019
Share Based
Payment
Reserve
Retained
Profits
$ ,000
$ ,000
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
Consolidated
Balance at 1 July 2018
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 2019
Note
23
21
21
Note
23
21
21
Issued
Capital
$ ,000
11,308
-
-
-
-
-
109
97
781
(49)
12,246
Issued
Capital
$ ,000
12,246
-
-
-
-
-
327
135
31,235
(59)
43,884
2
-
-
-
-
29
260
70
-
-
361
$ ,000
361
-
-
-
-
11
(147)
(70)
-
-
155
Total
Equity
$ ,000
19,023
5,531
-
5,531
(984)
29
369
167
781
(49)
Total
Equity
$ ,000
24,867
10,137
-
10,137
7,713
5,531
-
5,531
(984)
-
-
-
-
-
$ ,000
12,260
10,137
-
10,137
(1,305)
(1,305)
-
-
-
-
-
21,092
11
180
65
31,235
(59)
65,131
12,260
24,867
Share Based
Payment
Reserve
Retained
Profits
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
42
ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CASH FLOWS
For Year Ended 30 June 2019
Consolidated
Note
2019
$ ,000
2018
$ ,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(a)
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 In) Investing Activities
Cash Flows from Financing Activities
Proceeds from Issue of Shares (net of transaction costs)
Proceeds from Borrowings
Repayment of Borrowings
Dividends Paid
Net Cash From / (Used In) 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
Non-Cash Financing Activities
Shares Issued as Consideration for Business Acquisitions
Assets acquired through finance leases
29(b)
9
83,224
(67,355)
15,869
35
(476)
(4,092)
11,336
(24,821)
(2,602)
(896)
12
57,858
(44,835)
13,023
37
(476)
(2,240)
10,344
(14,532)
(2,074)
(555)
-
(28,307)
(17,161)
25,441
-
(3,853)
(1,305)
20,283
3,312
7,013
10,325
5,810
1,353
-
17,724
(8,394)
(984)
8,346
1,529
5,484
7,013
781
-
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
43
ANNUAL REPORT 2019 5.0NOTES TO THE
FINANCIAL
STATEMENTS
44
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
For Year Ended 30 June 2019
These consolidated financial statements and notes
represent those of Over the Wire Holdings Limited (the
“Company”) and its controlled entities (the “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 15
August 2019 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 accrual basis and are based
on historical costs, modified, where applicable, by the
measurement at fair value of selected non-current assets,
financial assets and financial liabilities.
A. NEW ACCOUNTING STANDARDS ADOPTED IN THE
CURRENT FINANCIAL PERIOD
The group has considered the implications of new or
amended Accounting Standards which have become
applicable for the current financial reporting period and
the group had to change its accounting policies as a result
of adopting the following standards:
• AASB 9: Financial Instruments; and
• AASB 15: Revenue from Contracts with Customers.
The impact of the adoption of these standards and the
respective accounting policies are disclosed in Note 3.
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:
45
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. This standard is applicable to the group for
the reporting period commencing 1 July 2019.
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
elect not to separate non-lease components and instead
account for all components as a lease; and
• 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 non-cancellable operating lease commitments
of $2,126K (see note 28) primarily associated with the
rental of office and data centre 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 a significiant portion 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.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of the group
(‘Company’ or ‘Parent Entity’) as at 30 June 2019 and the
results of all subsidiaries for the year then ended. The
group and its subsidiaries together are referred to in these
financial statements as ‘the group’.
Subsidiaries are all those entities over which the group has
the power to govern the financial and operating policies,
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 group. They are
de-consolidated from the date that control ceases.
Inter-company transactions, balances and unrealised
gains on transactions between entities in the group are
eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with
the policies adopted by the group.
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. 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 recognised directly in equity attributable to the
parent.
Where the group loses control over a subsidiary, it de-
recognises the assets including goodwill, liabilities and
non-controlling interest in the subsidiary together with any
cumulative translation differences recognised in equity.
The group 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.
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 acquiree and the amount
of any non-controlling interest in the acquiree. For each
business combination, the non-controlling interest in
the acquiree is measured at either fair value or at the
proportionate share of the acquirer’s identifiable net
assets. All acquisition costs are expensed as incurred to
profit or loss.
On the acquisition of a business, the group assesses
the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance
with the contractual terms, economic conditions, the
group’s operating or accounting policies and other
pertinent conditions in existence at the acquisition-date.
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.
The difference between the acquisition-date fair value
of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of
the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the
pre-existing fair value is less than the fair value of
the identifiable net assets acquired, being a bargain
purchase to the acquirer, the difference is recognised
as a gain directly in profit or loss by the acquirer on the
acquisition-date, but only after a reassessment of the
identification and measurement of the net assets acquired,
the non-controlling interest in the acquiree, if any, the
consideration transferred and the acquirer’s previously
held equity interest in the acquiree.
The acquisition date fair value of the consideration
transferred for a business combination plus the acquisition
date fair value of any previously held equity interest forms
the cost of the investment.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises
additional assets or liabilities during the measurement
period, based on new information obtained about the
facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier
of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to
determine fair value.
E. FOREIGN CURRENCY TRANSLATION
The financial statements are presented in Australian
dollars, which is the group’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 group and the revenue
can be reliably measured. Revenue is measured at the fair
value of the consideration received or receivable.
Sale of Goods
Customers obtain control of products when the goods are
delivered to their premises, unless otherwise stated in the
contract. Revenue is recognised at this point in time. Any
deposits taken as part of a contract with a customer are
recorded as a contract liability and are only recognised
as revenue once the relevant performance obligation is
met, in this case being the delivery of goods. Invoices are
usually payable within 14 to 30 days.
46
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For contracts that permit the customer to return an item,
revenue is recognised to the extent that it is probable
that a significant reversal in the amount of cumulative
revenue recognised will not occur. Therefore, the amount
of revenue recognised is adjusted for expected returns,
which are estimated based on the historical data for
specific types of goods. No provision for returns is
provided for by the group given the historical low levels of
returns.
All goods sold come with a manufactor's warranty. As such,
no provision for warranties is provided for by the group.
Rendering of Services
Services to be provided to customers are described in each
contract and revenue is recognised on the following basis:
Recurring services:
Recurring services (monthly services for data networks,
data centre, colocation and cloud and managed services)
are recognised as revenue on a monthly basis as services
are provided over the term of the contract. Set up fees
in relation to signing up a customer on a contract are
capitalised and recognised as revenue over the period of
the contract, normally between 12 and 36 months.
Non-recurring services:
For non-recurring services, where no breakdown of
individual service performance obligations are outlined
in a contract, services are taken to be provided to the
customer at the conclusion of the contract, at which point
revenue for these services will be recognised, otherwise
revenue is recognised as each performance obligation is
met based on either:
• The price allocated to each performance obligation under
the contract; or
• Where no price has been allocated to individual
performance obligations, the total revenue per the
contract, allocated based on the weighted sales price
for each performance obligation had they been sold
individually.
Where there is a difference in timing between payment
milestones and completion of performance obligations the
following will be recognised:
• A contract liability is recognised where a payment
milestone is invoiced prior to the satisfaction of
performance obligations.
• A contract asset is recognised where a performance
obligation is met, however under the relevant contract
the amount is not yet able to be invoiced.
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
47
amount of the financial asset.
Other Revenue
Other revenue is recognised when it is received or when
the right to receive payment is established.
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 un-recognised
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 un-recognised 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.
Tax Consolidation
The company and its wholly owned Australian subsidiaries
have formed a tax consolidated group with effect from 1
November 2015. The head entity within the group is Over
the Wire Holdings Limited.
The members of the tax-consolidated group are
identified in Note 33. Tax expense/income, deferred tax
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
liabilities and deferred tax assets arising from temporary
differences of the members of the tax-consolidated group
are recognised in the separate financial statements of
the members of the tax-consolidated group using the
"separate taxpayer within group" approach by reference to
the carrying amounts in the separate financial statements
of each entity and the tax values applying under tax
consolidation.
Current tax liabilities and assets and deferred tax assets
arising from unused tax losses and relevant tax credits of
the members of the tax-consolidated group are recognised
by Over the Wire Holdings Limited (as head entity in the
tax-consolidated group). Due to the existence of a tax
funding arrangement between the entities in the tax-
consolidated group, amounts are recognised as payable to
or receivable by Over the Wire Holdings Limited and each
member of the group in relation to the tax contribution
amounts paid or payable between the parent entity and
the other members of the tax-consolidated group in
accordance with the arrangement.
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.
TRADE AND OTHER RECEIVABLES
I.
Trade receivables are initially recognised at fair value
and subsequently measured at amortised cost using the
effective interest method, less any loss allowance. Trade
receivables are generally due for settlement within 14 to
30 days.
Details about the group’s impairment policies and the
calculation of the loss allowance are provided in note 25.
Other receivables are recognised at amortised cost, less
any loss allowance.
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.
K. CONTRACT ASSETS AND COSTS
Accrued revenue (contract assets) relate to contracts
where the group has recognised an asset for work
performed and which the group has a right to payment
when performance obligations are completed. A contract
asset is recognised for work previously performed. When
invoicing takes place, any amount that has previously been
classified as a contract asset will be reclassified to trade
receivables. Contract assets are generally converted to
sales invoices / trade receivable within 1-3 months of being
recognised.
Details about the group’s impairment policies and the
calculation of the loss allowance are provided in note 25.
Contract costs (prepayments) represent external or
staff costs incurred as part of satisfying a contract to
a customer. Where the cost relates to a performance
obligation that is satisfied at a point in time, it will be
recognised in profit and loss on the date the performance
obligation is met. Where the related performance
obligation is satisfied over time, the cost will be amortised
over the corresponding period.
L. CONTRACT LIABILITIES
The group recognises two types of contract liabilities being
accrued expenses and unearned income.
The group recognises unearned income where it
has received or is unconditionally entitled to receive
consideration before there is a transfer of goods or
services to a customer. Unearned income represents
the group’s obligation to transfer goods or services to a
customer for which it has received consideration.
Accrued expenses are recognised when the group has
received a benefit from an employee or external source
and has not yet been invoiced for the goods or services
provided. The liability recognised is equal to the group's
estimate of the cost to be incurred for the goods or
services received, but not yet invoiced.
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.
48
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The depreciation rates used for each class of depreciable
assets are:
Computer,
Network &
IT Plant &
Equipment
Furniture and
Fixtures
Motor Vehicles
Straight Line
Diminishing Value
13 - 33%
15 – 67%
2½ - 33%
20 – 40%
15%
N/A
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 de-recognised
upon disposal or when there is no future economic benefit
to the group. Gains and losses between the carrying
amount and the disposal proceeds are taken to 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
fulfillment 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 group 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
49
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 and the intention to continue
using the brand indefinitely into the future. 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.
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 group’s historical levels of customer
retention. Customer contracts are carried at cost less any
accumulated amortisation and impairment losses.
Internally Generated Computer Software
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:
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
• 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 group prior to the end of the financial year
and which are unpaid. Due to their short-term nature they
are measured at amortised cost and are not discounted.
The amounts are unsecured and are usually paid within 30
days of recognition.
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
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 (except
for trade receivables) 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.
Trade receivables are initially measured at the transaction
price if the trade receivables do not contain a significant
financing component.
Classification and Subsequent Measurement
• Financial Liabilities
Financial liabilities are subsequently measured at
amortised cost or fair value through profit or loss.
All financial liabilities are subsequently measured at
amortised cost using the effective interest method except
for:
• contingent consideration of an acquirer in a business
combination to which AASB 3: Business Combinations
applies
• held for trading financial liabilities; or
• financial liabilities initially designated as at fair value
through profit or loss.
Financial liabilities cannot be reclassified.
• Financial Assets
Financial assets are subsequently measured at amortised
cost, fair value through profit or loss or fair value through
other comprehensive income. Measurement is on the
basis of contractual cash flow characteristics of the
financial asset and the business model for managing the
financial assets.
Financial assets that meet the following conditions are
subsequently measured at amortised cost:
• The financial asset is managed solely to collect
contractual cash flows; and
• the contractual terms within the financial asset give
rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding on
specified dates.
Financial assets that meet the following conditions are
subsequently measured at fair value through other
comprehensive income:
• the contractual terms within the financial asset give
50
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding on
specified dates; and
• the business model for managing the financial assets
comprises both contractual cash flows collection and
the selling of the financial asset.
All other financial assets are measured at fair value
through profit or loss.
De-recognition
Financial assets are de-recognised 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
de-recognised 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.
U. PROVISIONS
Provisions are recognised when the group has a present
(legal or constructive) obligation as a result of a past
event, it is probable the group 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 within
12 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. Based on past
experience, the group does not expect the full amount of
annual leave classified as current to be settled within the
next 12 months.
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. Consideration is given to expected
future wage and salary levels, experience of employee
departures and periods of service. Based on past
experience, the group does not expect the full amount of
51
long service leave classified as current to be settled within
the next 12 months.
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.
Equity-settled compensation
The group operates an employee share and performance
rights plan. Share-based payments to employees are
measured at the fair value of the instruments issued and
amortised over the vesting periods. As performance rights
do not contain any market based targets, the fair value
of the rights is determined using probability weighted
pricing model. The number of rights expected to vest is
reviewed and adjusted at the end of each reporting period
such that the amount recognised for services received as
consideration for the equity instruments granted is based
on the number of equity instruments that eventually vest.
Until vested, the expenses recognised are accumulated in
the share based payment reserve.
ISSUED CAPITAL
W.
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. SHARE BASED PAYMENT RESERVE
This reserve is used to record expenses in relation to
share based payments during the vesting period of the
underlying equity instruments.
Y. DIVIDENDS
Dividends are recognised when declared during the
financial year and no longer at the discretion of the
company.
Z. EARNINGS PER SHARE
Basic Earnings Per Share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the group, 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.
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AA. 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.
AB. 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.
AC. 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.
IMPAIRMENT OF RECEIVABLES
The loss allowances for financial assets are based on
assumptions about risk of default and expected loss rates.
The group uses judgement in making these assumptions
and selecting the inputs to the impairment calculation,
based on the group’s past history, existing market
conditions as well as forward looking estimates at the end
of each reporting period. Details of the key assumptions
and inputs used are disclosed in Note 25.
TIMING OF SATISFACTION OF PERFORMANCE
OBLIGATIONS
For performance obligations that are satisfied over time,
the output method is used to determine the satisfaction
of performance obligations, and therefore revenue
recognised. This method is used due to the fact that
services are provided evenly over the relevant contract
period.
For performance obligations that are satisfied at a point in
time, revenue is deemed to be earned where the customer
has taken delivery of the goods or service, the risks and
rewards are transferred to the customer, and where there
is a valid sales contract.
TRANSACTION PRICE AND AMOUNTS ALLOCATED TO
PERFORMANCE OBLIGATIONS
With the exception of larger contracts entered into by
Comlinx, other contracts entered into by the group include
the transaction price for each performance obligation
contained within each contract. For Comlinx contracts,
where the transaction price of a contract is not split out
against individual performance obligations, the transaction
price is allocated in proportion to stand-alone selling prices
that would have been charged for each performance
obligation. Stand-alone selling prices are based on the
current sales prices of the group excluding any customer
or volume discounts. Since acquisition, Comlinx are
adopting contract pricing policies consistent with the rest
of the group.
ESTIMATION OF USEFUL LIVES OF ASSETS
The group 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 group 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.
52
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
IMPAIRMENT OF NON-FINANCIAL ASSETS OTHER THAN
GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE
ASSETS
The group 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 group 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 group 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 group recognises liabilities
based on the group’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 group considers it is
probable that future taxable amounts will be available to
utilise those temporary differences and losses.
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.
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.
CREDIT RISK OF TRADE RECEIVABLES
As the group provides a loss allowance against specific
53
trade receivables that have been identified as a higher
credit risk, remaining balances are deemed to be lower
risk, even if over 30 days past due. This assumption is
based on historical trends of low levels of trade receivable
write-offs along with consistent aging of trade receivable
balances of the group across current and prior periods.
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 group taking into consideration
all available information at the reporting date. Fair
value adjustments on the finalisation of the business
combination accounting is retrospective, where applicable,
to the period the combination occurred and may have
an impact on the assets and liabilities, depreciation and
amortisation reported.
NOTE 3: CHANGES IN
ACCOUNTING POLICIES
This note describes the nature and effect of the adoption
of AASB 9: Financial Instruments and AASB 15: Revenue
from Contracts with Customers on the group’s financial
statements and also discloses the new accounting policies
that have been applied from 1 July 2018, where they are
different to those applied in prior periods.
As the resulting changes in the group’s accounting policies
had an insignificant impact on the reported balances of
the group, comparative balances were not restated. The
details of new significant accounting policies and the
nature and effect of the changes to previous accounting
policies are set out below.
(a)
AASB 9: Financial Instruments
AASB 9 sets out requirements for recognising and
measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard
replaces AASB 139 Financial Instruments: Recognition and
Measurement.
(i) Classification and Measurement of Financial Assets and
Financial Liabilities
AASB 9 largely retains the existing requirements in AASB
139 for the classification and measurement of financial
liabilities. However, it eliminates the previous AASB 139
categories for financial assets of: held to maturity, loans
and receivables and available for sale.
The adoption of AASB 9 has not had a significant effect
on the group’s accounting policies related to financial
liabilities. The impact of AASB 9 on the classification and
measurement of financial assets is set out below.
Under AASB 9, on initial recognition, a financial asset
is classified as measured at: amortised cost; fair value
through other comprehensive income (“FVOCI”) – debt
investment; FVOCI – equity investment; or fair value
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
through profit and loss (“FVTPL”). The classification of financial assets under AASB 9 is generally based on the business model
in which a financial asset is managed and its contractual cash flow characteristics.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
•
•
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the group may irrevocably elect to present
subsequent changes in the investment’s fair value in other comprehensive income ("OCI"). This election is made on an
investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This
includes all derivative financial assets. On initial recognition, the group may irrevocably designate a financial asset that
otherwise meets the requirements to be measured at amortised cost, or at FVOCI as at FVTPL if doing so eliminates or
significantly reduces an accounting mismatch that would otherwise arise.
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at
the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition. The following accounting policies apply to the subsequent measurement of financial assets.
Financial Asset Type
Accounting Policy
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gains and losses,
including any interest or dividend income, are recognised in profit or loss.
Financial assets at amortised cost
Debt investments at FVOCI
Equity investments at FVOCI
These assets are subsequently measured at amortised cost using the effective
interest method. The amortised cost is reduced by impairment losses (see (ii)
below). Interest income, foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on de-recognition is recognised in
profit or loss.
These assets are subsequently measured at fair value. Interest income calculated
using the effective interest method, foreign exchange gains and losses and
impairment are recognised in profit or loss. Other net gains and losses are
recognised in OCI. On de-recognition, gains and losses accumulated in OCI are
reclassified to profit or loss.
These assets are subsequently measured at fair value. Dividends are recognised
as income in profit or loss unless the dividend clearly represents a recovery of
part of the cost of the investment. Other net gains and losses are recognised in
OCI and are never reclassified to profit or loss.
The effect of adopting AASB 9 on the carrying amounts of financial assets and liabilities at 1 July 2018 relates solely to the
new impairment requirements, as described further below. The following table below outlines the original measurement
categories under AASB 139 and the new measurement categories under AASB 9 for each class of the group’s financial assets
and liabilities as at 1 July 2018.
54
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Financial Assets &
Liabilities
Original classification
under AASB 139
New classification
under AASB 9
Original carrying
amount under
New carrying amount
under AASB 9
Trade and other
receivables
Cash and cash
equivalents
Total Financial Assets
Trade and other
payables
Borrowings
Total Financial
Liabilities
Loans and receivables
(amortised cost)
Financial assets at
amortised cost
Loans and receivables
(amortised cost)
Financial assets at
amortised cost
Loans and payables
(amortised cost)
Financial liabilities at
amortised cost
Loans and payables
(amortised cost)
Financial liabilities at
amortised cost
AASB 139
$ ,000
4,357
7,013
11,370
6,283
13,232
19,515
$ ,000
4,354
7,013
11,367
6,283
13,232
19,515
As the initial adoption of AASB 9 had an insignificant impact on the carrying value of financial assets or liabilities, the group
did not adjust opening balances to account for the change in accounting policies.
(ii)
Impairment of financial assets
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (“ECL”) model. The new impairment
model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to
investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139.
The financial assets at amortised cost consist of trade receivables, cash and cash equivalents, and contact assets. Under
AASB 9, loss allowances are measured on either of the following bases:
•
12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date;
and
•
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The group measures loss allowances at an amount equal to lifetime ECLs, except for bank balances for which credit risk (i.e.
the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial
recognition, which are measured as 12-month ECLs.
The group has elected to use the simplified approach to measure loss allowances for trade receivables and contract assets
at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly
since initial recognition and when estimating ECLs, the group considers reasonable and supportable information that is
relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis,
based on the group’s historical experience and informed credit assessment and including forward-looking information.
The group considers a financial asset to be in default when the customer is unlikely to pay its credit obligations to the group
in full, without recourse by the group to actions such as realising security (if any is held).
The maximum period considered when estimating ECLs is the maximum contractual period over which the group is exposed
to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that
the group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
In measuring the expected credit loss, a provision matrix for trade receivables was used, based on actual credit loss
experience over the past five years, adjusted for any specific trade receivables which were identified as a higher risk of being
non-recoverable. For companies which have been part of the group for less than five years, the credit loss experience for
the time they have been controlled has been used. The group performed the calculation of the ECL rates separately for each
company within the group, as this was considered an appropriate basis for segmentation. Assumptions underpinning the
company's expected credit loss model are outlined in Note 25.
55
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Credit-impaired financial assets
At each reporting date, the group assesses whether financial assets carried at amortised cost are credit-impaired. A financial
asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred.
Presentation of Impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Impairment losses related to trade and other receivables, including contract assets, are recognised in the consolidated
statement of comprehensive income.
Impact of the new impairment model
For assets in the scope of the AASB 9 impairment model, initial application of the new impairment requirements had an
insignificant impact on the loss allowance on adoption. As such, the group did not adjust opening balances to account for the
change in impairment. Below is a summary outlining the impact to the group’s loss allowance balance on 1 July 2018:
Loss allowance at 30 June 2018 under AASB 139
Adjustment to impairment at 1 July 2018 on:
Trade and other receivable as at 30 June 2018
Contract assets recognised on adoption of AASB 15
Cash and cash equivalents
Loss allowance at 1 July 2018 under AASB 9
$ ,000
303
(1)
-
-
302
No impairment was recognised on contract assets with the adoption of AASB 9 as contract assets are generally converted to
sales invoices within 1-3 months, and as such do not reach an age where impairment would be probable.
(iii)
Transition
While application of AASB 9 was required to be applied retrospectively, as the adoption of AASB 9 had an insignificant impact
on financial information of the group, changes in accounting policies were applied prospectively with no adjustments made
to opening balances as at 1 July 2018.
(b)
AASB 15: Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It
replaced AASB 118 Revenue and related interpretations. The group has adopted AASB 15 using the cumulative effect method,
with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018). Accordingly, the
information presented for comparative periods has not been restated.
Under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of
the transfer of control – at a point in time or over time – requires judgement.
(i)
Financial impact on adoption
Initial application of the new revenue standard had an insignificant impact on the opening balance of the group in the
current reporting period. As such, no adjustment was made to opening balances to account for the change in accounting
policy. Below is a summary outlining the impact to each financial statement line item that would have been adjusted on 1
July 2018:
Net asset at 30 June 2018 under AASB 118
Current Liabilities
Unearned income (setup fees)
Net assets at 1 July 2018 under AASB 15
$ ,000
24,867
(27)
24,840
56
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ii)
Changes in revenue recognition policy
The table below summarises the nature of change in accounting policy for each type of product / service:
Product/
Service
Nature, timing of satisfaction of performance obligations, significant
payment terms
Nature of change in accounting policy
Sale of goods
(hardware &
software)
Customers obtain control of products when the goods are delivered
to and have been accepted at their premises, unless otherwise
stated in the contract. Revenue is recognised at this point in
time. Any deposits taken as part of a contract with a customer are
recorded as a contract liability and are only recognised as revenue
once the relevant performance obligation is met, in this case being
the delivery of goods. Invoices are usually payable within 14 to 30
days.
For contracts that permit the customer to return an item, under
AASB 15 revenue is recognised to the extent that it is probable
that a significant reversal in the amount of cumulative revenue
recognised will not occur. Therefore, the amount of revenue
recognised is adjusted for expected returns, which are estimated
based on the historical data for specific types of goods.
Under AASB 118, sale of goods
revenue was 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.
As the group had previously recorded
deposits received as a liability, the
adoption of AASB 15 did not result in
any significant impact on the group’s
accounting policy.
57
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Product/
Service
Nature, timing of satisfaction of performance obligations, significant
payment terms
Nature of change in accounting policy
Under AASB 118, 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 Colocation and Cloud Services
divisions, it is generally the monthly
provision of, or access to, the service.
Under AASB 15, administrative setup
fees will now be capitalised and
recognised as revenue over the
period of the relevant contract.
There will also be larger fluctuations
in both accrued income and unearned
income (contract assets and
liabilities) with movement dependent
on the specific terms of individual
contracts in place at each reporting
period end. This is predominately due
to the acquisition of Comlinx which
has larger project based contracts
and larger maintenance contracts
which are paid up front compared
with the other companies within
the group, which predominately bill
on a monthly basis as services are
provided.
Rendering of
services
Services to be provided to customers are described in each contract
and revenue is recognised on the following basis:
Recurring services:
Recurring services (monthly services for data networks, data centre,
colocation and cloud and managed services) are recognised as
revenue on a monthly basis as services are provided over the term
of the contract. Administrative setup fees in relation to signing
up a customer on a contract are capitalised and recognised as
revenue over the period of the contract, normally between 12 and
36 months.
With the exception of maintenance contracts within Comlinx,
recurring services are invoiced to customers monthly and will give
rise to a contract asset for services provided which will not be
invoiced until the subsequent month (such as call & data usage), or
a contract liability for services which in some instances are invoiced
monthly in advance (such as access or fixed plan charges).
Maintenance contracts within Comlinx are generally invoiced up
front with a contract liability recognised at the date of invoicing. A
contract asset is also recognised in relation to the vendor cost paid
upfront for each maintenance contract. The revenue and expense in
relation to each maintenance contract is recognised over the period
of service, typically between 12 to 36 months.
Non-recurring services:
For non-recurring services, where no breakdown of individual
service performance obligations are outlined in a contract, services
are taken to be provided to the customer at the conclusion of
the contract, at which point revenue for these services will be
recognised, otherwise revenue is recognised as each performance
obligation is met based on either:
•
The price allocated to each performance obligation under the
contract; or
• Where no price has been allocated to individual performance
obligations, the total revenue per the contract, allocated based
on the weighted sales price for each performance obligation
had they been sold individually.
Where there is a difference in timing between payment milestones
and completion of performance obligations the following will be
recognised:
•
•
A contract liability is recognised where a payment milestone is
invoiced prior to the satisfaction of performance obligations.
A contract asset is recognised where a performance obligation
is met, however under the relevant contract the amount is not
yet able to be invoiced.
With the exception of revenue for non-recurring services, there has been no change in the way that revenue is recognised
in the current financial year compared with the comparative period. In the comparative period, revenue for non-recurring
services was recognised in proportion to the stage of completion of the work performed at the reporting date.
(iii)
Contract assets, liabilities and costs
Contract assets
The group recognises a contract asset (excluding any amounts presented as a receivable) where it has satisfied a
performance obligation under a contract before the customer pays consideration or before payment is due. Contract
assets are assessed for impairment in accordance with the accounting policy described in Note 3(a)(ii). Contract assets are
reclassified to receivables when the group has an unconditional right to consideration.
58
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Contract liabilities
The group recognises a contract liability where it has received or is unconditionally entitled to receive consideration before
there is a transfer of goods or services to a customer. A contract liability represents the group’s obligation to transfer goods
or services to a customer for which it has received consideration.
Contract costs
The group capitalises costs incurred to fulfil a contract provided the costs relate directly to a contract, can be specifically
identified, the costs will generate or enhance resources of the group that will be used in satisfying performance obligations
in the future and the costs are expected to be recovered. The most common contract cost of the group is direct labour
costs incurred in providing services. Contract costs are amortised over the expected life of the contract, and is assessed for
impairment to the extent that the carrying amount of the asset exceeds the remaining amount of consideration expected to
be received to which the asset relates, less costs that relate directly to providing goods or services and that have not been
recognised as expenses.
(iv)
Transition
As the adoption of AASB 15 had an insignificant impact on financial information of the group, changes in accounting policies
were applied prospectively with no adjustments made to opening balances as at 1 July 2018. As permitted under AASB 15,
the group has applied the practical expedient regarding disclosure of remaining performance obligations on the basis that
the output method is used to measure progress towards complete satisfaction of performance obligations.
NOTE 4: OPERATING SEGMENTS & PRODUCT LINES
The group 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 group 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 group 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 group 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 group 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 group supplies Internet connections matching the most appropriate technology to location and/or price requirements of
its customers.
Voice
The group predominately 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.
59
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cloud and Managed Services
The group 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 group offers its customers a range of IaaS platforms with
cloud-based server, storage and network services.
Hosted PBX:
The group provides a business-grade hosted telephony solution, eliminating the need for high capital expenditure and costly
upgrade cycles to gain access to new features.
Managed Services:
The group 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 where requested by the customer.
Equipment:
The group provides high quality equipment solutions, allowing customers to maximise their network performance and
reliability.
Data Centre Colocation
Data Centre colocation allows customers to house their equipment, such as servers and network equipment, in the group’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).
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, split between revenue derived from
the transfer of goods and services over time and at a point in time.
30 June 2018
Timing of Revenue Recognition
Contract Revenue by Product Line
Data Networks and Internet
Voice
Cloud and Managed Services
Data Centre Colocation
Total Contract Revenue by Product Line
30 June 2019
Contract Revenue by Product Line
Data Networks and Internet
Voice
Cloud and Managed Services
Data Centre Colocation
Total Contract Revenue by Product Line
Contract Revenue by Geographic Area
Australasia
Total Contract Revenue by Geographic Area
At a point in
time
$ ,000
44
293
2,025
-
2,362
100
251
9,487
-
9,838
Over time
$ ,000
29,339
13,767
5,233
2,860
51,199
36,859
16,166
13,541
3,185
69,751
Consolidated
2019
$ ,000
2018
$ ,000
29,383
14,060
7,258
2,860
53,561
53,561
53,561
60
36,959
16,417
23,028
3,185
79,589
79,589
79,589
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5: OTHER INCOME
Other Income
Interest Income
Provision for change in expected deferred consideration payable
Other Sundry Income
Total Other Income
NOTE 6: EXPENSES
Profit before income tax includes the following expenses:
Data Centre & Colocation Expense
Data Centre & Colocation - Cost of Sales
Data Centre & Colocation - Other Expenses
Total Data Centre & Colocation Expense
Calls & Communications Expense
Calls & Communications - Cost of Sales
Calls & Communications - Other Expenses
Total Calls & Communications Expense
Other Cost of Goods Sold
Hardware, Software & Maintenance
Other Cost of Goods Sold
Total Other Cost of Goods Sold
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
61
Consolidated
2019
$ ,000
35
4,058
30
4,123
2018
$ ,000
37
-
79
116
Consolidated
2019
$ ,000
2018
$ ,000
1,005
2,949
3,954
24,708
138
24,846
10,895
2,137
13,032
15,042
1,334
344
1,791
18,511
2,558
56
3
2,617
1,705
1,919
3,624
18,965
96
19,061
1,528
1,529
3,057
11,027
935
190
1,095
13,247
1,985
71
3
2,059
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6: EXPENSES (CONTINUED)
Amortisation
Amortisation of Internally Generated Software
Amortisation of other Intangibles
Amortisation of Borrowing Costs
Total Amortisation
Total Depreciation & Amortisation
Finance Costs
Interest and Finance Charges Paid/Payable
Total Finance Costs
Other Expenses
Legal, Accounting & Business Acquisition Costs
Premises
Licenses & Subscriptions
Travel & Marketing
Loss allowance & impairment of financial assets
General Expenses
Total Other Expenses
Total Expenses
Consolidated
2019
$ ,000
2018
$ ,000
287
3,896
18
4,201
6,818
476
476
534
1,061
665
657
42
351
3,310
70,947
113
1,739
26
1,878
3,937
476
476
356
815
407
449
204
201
2,432
45,834
Expenses increased largely due to the growth in the business (both revenue, and in turn a corresponding increase in cost of
goods sold), as well as the acquisition of VPN in the prior year, for which a full year of results was included in 2019 financial
year, as well as the acquisition of Access Digital and Comlinx on 1 November 2018 (refer to note 24 for more information).
62
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7: 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
Provision for change in deferred consideration
Other Sundry Items
Adjustment recognised for prior periods
Movement in Timing Differences
Difference in tax balances acquired on business combinations
Income Tax Expense
The applicable weighted average effective tax rates are as follows:
Consolidated
2019
$ ,000
4,095
(1,464)
-
(3)
2018
$ ,000
3,035
(723)
-
-
2,628
2,312
(138)
(1,326)
(1,464)
12,765
3,830
24
-
34
(59)
(1,218)
23
(1,196)
(3)
-
(3)
2,628
21%
(210)
(513)
(723)
7,843
2,353
20
-
11
(49)
-
(23)
(41)
-
-
-
2,312
29%
The applicable weighted average effective tax rate is low in 2019 due to the reduction in the Provision for Deferred
Consideration taken to profit and loss, which is not subject to tax.
63
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8: 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 Performance Rights 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)
NOTE 9: CASH & CASH EQUIVALENTS
Cash & Cash Equivalents (Current)
Cash on Hand
Cash at Bank
Total Cash & Cash Equivalents
Consolidated
2019
$,000
10,137
10,137
,000
49,062
2018
$,000
5,531
5,531
,000
43,809
157
207
49,219
44,016
Cents
20.661
20.596
Cents
12.625
12.566
Consolidated
2019
$ ,000
1
10,324
10,325
2018
$ ,000
1
7,012
7,013
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
10,325
10,325
7,013
7,013
Cash and cash equivalents increased during the year primarily due to the strong cash flows from operations. Cash reserves
were used for principal reductions in debt, capital expenditure, and payment of dividends. The Consolidated Statement of
Cash flows provides greater detail on the sources and uses of cash during the year.
64
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10: 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 counter-party 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 (Current)
Trade Receivables
Loss allowance
Term Deposits
Deposits Paid
Other Receivables
Total Trade & Other Receivables
Impairment of Receivables
The group has applied the lifetime expected loss model for calculating the
loss allowance on trade receivables. The accounting policies in relation to
the calculation of expected credit losses is outlined in Note 3. Assumptions
underpinning the expected credit loss model and other information on credit risk
is outlined in Note 25.
Loss allowance at 30 June
The aging of the impaired receivables provided for above are as follows:
Gross Trade Receivables
Less expected credit loss for specific balances
Expected credit loss - Based on weighted expected loss rate on remaining
balances at 1.09% for 30 June 2019 (2018: 2.50%)
Consolidated
2019
$ ,000
2018
$ ,000
6,030
(191)
5,839
822
140
2,119
8,920
6,030
(127)
5,903
(64)
3,053
(303)
2,750
653
128
826
4,357
3,053
(232)
2,821
(70)
Total Loss Allowance
(191)
*(302)
* Prior year loss allowance of $303K was not adjusted based on calculation of loss allowance of $302K on
adoption of AASB 9.
Movements in Loss Allowance of Receivables is as Follows:
Opening Balance
Amounts restated through opening retained earnings
Opening loss allowance calculated under AASB 9
Additional Provision Recognised
Receivables Written off During the Year as Uncollectable
Unused amount reversed
Closing Balance
303
-
303
156
(268)
-
191
80
-
80
249
(26)
-
303
Trade and Other Receivables increased largely due to the acquisition of Comlinx and Access Digital, and the overall growth in
revenue of the business.
65
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11: INVENTORIES
Inventories (Current)
Finished Goods – at Net Realisable Value
Total Inventories
NOTE 12: OTHER ASSETS
Other Assets (Current)
Prepayments - Maintenance Contracts
Prepayments - Other contracts
Prepayments - Other
Total Other Assets (Current)
Other Assets (Non-current)
Borrowing Costs
Prepayments - Maintenance Contracts
Total Other Assets (Non-current)
Total Other Assets
Amortisation of prepaid maintenance contracts recognised as a cost of providing
services during the period
Consolidated
2019
$ ,000
2018
$ ,000
217
217
263
263
Consolidated
2019
$ ,000
2018
$ ,000
1,056
779
469
2,304
32
172
204
2,508
2,498
-
510
389
899
46
-
46
945
-
Other assets increased due to the inclusion of prepaid maintenance contracts following the acquisition of Comlinx. This
should be read in conjunction with the corresponding Unearned Income - Maintenance Contracts, at Note 19.
66
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13: PLANT & EQUIPMENT
Computer, Network & IT Plant & Equipment (Non-Current)
Computer, Network & IT Plant & Equipment – at cost*
Less: Accumulated Depreciation
Furniture & Fixtures (Non-Current)
Furniture & Fixtures – at cost
Less: Accumulated Depreciation
Motor Vehicles (Non-Current)
Motor Vehicles – at cost
Less: Accumulated Depreciation
Consolidated
2019
$ ,000
20,150
(12,279)
7,871
591
(428)
163
95
(86)
9
2018
$ ,000
14,667
(9,835)
4,832
454
(275)
179
23
(19)
4
Total Plant & Equipment at written Down Value
8,043
5,015
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 2017
Additions through Business Combinations
Additions
Transfer between classes*
Disposals
Depreciation Expense
Balance at 30 June 2018
Additions Through Business Combinations
Additions
Transfers from inventory
Disposals**
Depreciation Expense
Balance at 30 June 2019
Computer,
Network,
IT Plant &
Equipment
$,000
4,569
174
2,074
-
-
(1,985)
4,832
1,143
3,892
566
(3)
(2,558)
7,871
Furniture
& Fixtures
Motor
Vehicles
$,000
241
9
-
-
-
(71)
179
46
1
-
(7)
(56)
163
$,000
7
-
-
-
-
(3)
4
8
-
-
-
(3)
9
Total
$,000
4,817
183
2,074
-
-
(2,059)
5,015
1,196
3,893
566
(10)
(2,617)
8,043
* A transfer between classes occurred, but as the written down value of the assets was nil, no value appears in the
reconciliation above.
** During the year $1,177K of assets with a written down value of nil were scrapped during the year.
67
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14: INTANGIBLES
Intangibles (Non-Current)
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
2019
$ ,000
29,032
29,032
5,510
(439)
5,071
1,817
(709)
1,108
43,950
(5,757)
38,193
1,867
(427)
1,440
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
Total Intangibles
74,844
36,649
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 2017
Additions - Business Combinations
Additions
Disposals*
Amortisation Expense
Balance at 30 June 2018
Additions - Business Combinations
Additions
Disposals
Amortisation Expense
Balance at 30 June 2019
Internally
Generated
Software
$,000
389
-
555
-
(113)
831
-
896
-
(287)
1,440
Goodwill
$,000
5,331
10,969
-
-
-
16,300
Brand
Value
$,000
3,145
250
-
-
(149)
3,246
12,732
2,050
-
-
-
29,032
-
-
(225)
5,071
Location &
Right
to Use
$,000
1,439
-
-
-
(165)
1,274
-
-
-
(166)
1,108
*During the prior year $434K of assets with a written down value of nil were scrapped.
Customer
List
$,000
7,423
9,000
-
-
(1,425)
14,998
Total
$,000
17,727
20,219
555
-
(1,852)
36,649
26,700
41,482
-
-
(3,505)
38,193
896
-
(4,183)
74,844
68
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Finite Life Intangible Assets
Outlined below are the carrying amounts and remaining amortisation periods of the individual intangible assets that are material
to the group’s financial statements at 30 June 2019.
Remaining
Amortisation Period
Carrying
Amount
Years
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 - Access Digital
Customer List - Comlinx
Customer List
Brand - Sanity
Brand - Telarus
Brand - VPN Solutions
Brand - Access Digital
Brand
Internally Generated Computer Software - 2017
Internally Generated Computer Software - 2018
Internally Generated Computer Software - 2019
Internally Generated Computer Software
8
1
6
6
8
6
8
9
9
3
3
3
4
3
4
5
1,045
63
1,108
1,217
965
3,413
179
7,500
12,973
11,946
38,193
150
238
167
217
772
156
388
896
1,440
Impairment Disclosures
Both goodwill and a select number of brand values are allocated to a cash generating unit, which is based on the group’s
reporting segment. As per Note 4, the group has one reportable segment, being IT and Telecommunications.
Brand Value has been recorded in relation to the acquisition of Faktortel & Comlinx, 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, these Brands are 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 group’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. A terminal value based on the EBITDA exit multiple method was used in the
calculation.
69
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Key assumptions used for value-in-use calculations:
CGU – IT & Telecommunications:
EBITDA & Net Cash flow from Operations (growth rate)
Discount Rate
2019
2018
18%
10%
20%
10%
As the group 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 cash flow 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 group 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 Cash flow from Operations was reduced by 50% to 9%, 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 50% to 15%, there
would still be no impairment charge required.
NOTE 15: TRADE & OTHER PAYABLES
Trade & Other Payables (Current)
Trade Payables
GST Payable
Accrued Expenses
Other payables
Total Trade & Other Payables (Current)
Consolidated
2019
$ ,000
7,396
761
1,930
645
10,732
2018
$ ,000
3,433
596
1,903
351
6,283
Trade and Other Payables increased largely due to the inclusion of the Trade Payables and Accrued Expenses of Access
Digital and Comlinx.
70
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 16: BORROWINGS
Borrowings (Current)
Equipment Financing
Westpac Term Loan
Total Borrowings (Current)
Borrowings (Non-Current)
Equipment Financing
Westpac Term Loan
Total Borrowings (Non-Current)
Consolidated
2019
$ ,000
328
3,924
4,252
886
5,626
6,512
2018
$ ,000
102
3,925
4,027
77
9,128
9,205
28
28
Total Borrowings
10,764
13,232
Equipment Financing
Lease liabilities are secured by the underlying leased assets.
Westpac Term Loan
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. The nominal interest rate for the loan is 2.06% on top of the bank bill swap rate, with a maturity date of
31 July 2021.
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 2019, the group had complied with these covenants.
Facilities Available
The group has access to the following facilities, with the balance of the facilities as at 30 June 2019 being as follows:
Facility
Westpac Term Loan
NAB Credit Card Facility
ANZ Bank Guarantee Facility
Limit
$,000
10,390
150
250
Used
$,000
9,551
105
119
In May 2019, the group acquired the following facilities which will be used to eventually replace the NAB facility above:
Facility
Westpac Credit Card Facility
Westpac Bank Guarantee Facility
71
Limit
$,000
250
1,000
Used
$,000
-
282
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 17: CURRENT TAX LIABILITY
Current Tax Liability
Provision For Income Tax Payable
Total Current Tax Liability
NOTE 18: EMPLOYEE BENEFITS
Employee Benefits (Current)
Provision for Long Service Leave
Provision for Annual Leave
Other employee benefits payable
Total Employee Benefits Payable (Current)
Employee Benefits (Non-Current)
Provision for Long Service Leave
Total Employee Benefits Payable (Non-Current)
Total Employee Benefits
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
Consolidated
2019
$ ,000
1,046
1,046
2018
$ ,000
977
977
Consolidated
2019
$ ,000
2018
$ ,000
570
1,302
-
1,872
239
239
341
952
-
1,293
186
186
2,111
1,479
Consolidated
2019
$ ,000
2018
$ ,000
527
209
94
(21)
809
952
1,053
193
(896)
1,302
280
93
154
-
527
581
682
274
(585)
952
72
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 group 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: UNEARNED INCOME
Unearned Income (Current)
Customer prepayments and deposits
Setup fees
Unearned income - maintenance contracts
Total Unearned Income (Current)
Unearned income (Non-current)
Unearned income - maintenance contracts
Total Unearned Income (Non-Current)
Total Unearned Income
Revenue recognised in the reporting period that was included in unearned
income at the beginning of the period
Consolidated
2019
$ ,000
2018
$ ,000
1,031
15
1,338
2,384
256
256
2,640
1,015
1,015
-
-
1,015
-
-
1,015
946
Unearned income increased due to the inclusion of Unearned Income - Maintenance Contracts, following the acquisition of
Comlinx. This should be read in conjunction with the corresponding prepaid maintenance contracts, at Note 12.
NOTE 20: 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
73
Consolidated
2019
$ ,000
1,014
(12,055)
(11,041)
261
57
633
63
-
1,014
2018
$ ,000
779
(5,200)
(4,421)
144
91
444
100
-
779
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Movement in Deferred Tax Assets
Accrued
Expenses
$,000
Prov. for
Doubtful
Debts
$,000
Employee
Benefits
Claimable
IPO Costs
Other
Total
$,000
$,000
$,000
$,000
Balance at 1 July 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
(Charged) / Credited to Profit or Loss
(Charged) / Credited through Equity
Additions Through Business Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2019
57
87
-
-
-
144
83
-
34
-
261
25
66
-
-
-
91
(55)
-
21
-
57
259
57
-
128
-
444
110
-
79
-
633
149
-
(49)
-
-
100
-
(37)
-
-
63
-
-
-
-
-
-
-
-
-
-
-
490
210
(49)
128
-
779
138
(37)
134
-
1,014
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
Consolidated
2019
$ ,000
2018
$ ,000
(89)
-
(63)
(313)
(186)
(202)
-
(46)
(350)
(164)
(11,404)
(4,438)
-
-
(12,055)
(5,200)
74
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Movement in Deferred Tax Liability
Balance at 1 July 2017
(Charged) / Credited to Profit or Loss
Additions Through Business
Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2018
(Charged) / Credited to Profit or Loss
Additions Through Business
Combinations
(Over) / Under Provision of Prior Year
Balance at 30 June 2019
Accrued
Revenue
$,000
(109)
(93)
-
-
(202)
206
(93)
-
(89)
Prov. for
Change in
Contingent
Liability
$,000
(17)
17
-
-
-
-
-
-
-
NOTE 21: ISSUED CAPITAL
Issued Capital
Ordinary Shares – Fully Paid
Total Issued Capital
Movements in ordinary share capital
Prov. For
Doubtful
Creditors
Intangibles
on
Acquisitions
Other
Total
$,000
(59)
13
-
-
(46)
(13)
(4)
-
(63)
$,000
(2,733)
556
(2,775)
-
(4,952)
1,133
(8,084)
-
(11,903)
$,000
(20)
20
-
-
-
-
-
-
-
Consolidated
2019
$ ,000
43,884
43,884
Date
No. of Shares
Issue Price
Balance
Shares Issued on Acquisitions
ESOP Shares Vested from Performance Rights
Employee Share Plan
Tax Effect of Capitalised Costs of IPO
1 Jul 2017
1 Nov 2017
26 Feb 2018
18 Apr 2018
30 Jun 2018
,000
43,531
382
50
35
-
Balance
30 June 2018
43,998
ESOP Shares vested from Performance Rights
Shares issued on Capital Raise
Shares issued on Acquisitions
Share placement
ESOP Shares Vested from Performance Rights
Employee Share Plan
Tax Effect of Capitalised Costs of IPO
Balance
75
23 Aug 2018
25 Oct 2018
1 Nov 2018
19 Nov 2018
10 Dec 2018
21 May 2019
30 Jun 2019
50
5,000
1,263
1,163
100
28
30 June 2019
51,602
$
2.04
-
2.77
-
-
4.30
4.60
4.30
-
4.88
-
$,000
(2,938)
513
(2,775)
-
(5,200)
1,326
(8,181)
-
(12,055)
2018
$ ,000
12,246
12,246
Paid up
Amount
$,000
11,308
781
109
97
(49)
12,246
109
20,627
5,794
4,814
218
135
(59)
43,884
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 21 May 2019, 27,744 ordinary shares were issued to employees under an Employee Share Plan with an issue price of
$4.88 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. Further details of the shares issued under the
Employee Share Plan are set out in note 32.
SHARE BASED PAYMENTS – PERFORMANCE RIGHTS
On 23 August 2018, 50,000 performance rights (2017 Tranche 2) vested and were converted to Ordinary Shares.
On 10 December 2018, 100,000 performance rights (2017 Tranche 3) vested and were converted to Ordinary Shares.
On 1 June 2019, the group issued 63,733 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 32.
CAPITAL RISK MANAGEMENT
The group’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. Based on the current capital structure, issued capital is the only balance that the group manages as
capital.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares, or sell assets to reduce debt. Issued capital increased significantly in the
current financial year, as can be seen from the above table, predominately due to a capital raise, share placement and
shares issued on acquisitions.
The group 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 22: 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
Consolidated
2019
$ ,000
12,260
10,137
(1,305)
21,092
2018
$ ,000
7,713
5,531
(984)
12,260
76
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 23: EQUITY – DIVIDENDS
Dividends
Interim fully franked ordinary dividend of 1.25 cents per share franked at the tax
rate of 30% (2018: 1.00 cents per share fully franked at 30%)
Final fully franked ordinary dividend of 1.50 cents per share franked at the tax
rate of 30% (2018: 1.25 cents per share fully franked at 30%)
Total Dividends for the Financial Year
Consolidated
2019
$,000
2018
$,000
644
661
1,305
439
545
984
Subsequent to year-end, on 15 August 2019, the company declared a fully franked final dividend of 2.00 cents per share, for the
year ended 30 June 2019. The dates of the dividend are as follows:
Ex date
Record Date
Payment Date
9 September 2019
10 September 2019
10 October 2019
As this final dividend was declared subsequent to year-end, no provision has been made in the accounts for the dividend.
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%
Consolidated
2019
$,000
9,973
1,046
Franking Credits available for Subsequent Financial Years based on a Tax Rate of 30%
11,019
2018
$,000
5,138
977
6,115
NOTE 24: BUSINESS COMBINATIONS
(a) Acquisition of Access Digital Networks Pty Ltd (Trading as Access Digital)
On 1 November 2018, the company acquired Access Digital. The acquisition of Access Digital has delivered approximately
250 business customers to the group and accelerates the group’s geographic expansion in South Australia.
The original contracted price was $14,500K, comprising upfront consideration comprised $10,440K in cash, plus 567,393
OTW shares ($2,610K in OTW shares at an issue price of $4.60, being the volume weighted average price for the 10 trading
days prior to the announcement of the acquisition), plus or minus a net assets adjustment to reflect the profits retained in
the business by the vendor at settlement. Upon completion of the settlement accounts, the net tangible assets adjustment is
$249K payable to the vendor. Accordingly, the provisional adjusted purchase price is $14,749K.
Revenue of Access Digital included in the consolidated revenue of the group since acquisition amounted to $5,437K. Profit
before tax of Access Digital included in consolidated profit before tax of the group since acquisition amounted to $2,072K.
Had the results of Access Digital been consolidated from 1 July 2018, using a simple pro-rata calculation and ignoring any
seasonality, if any, revenue of the consolidated group would have been $82,308K and consolidated profit before tax would
have been $13,801K for the year ended 30 June 2019.
77
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
567,393
Shares
Issued to
Settle
$,000
2,610
Cash to
Settle
Deferred
Consideration
$,000
10,689
$,000
1,450
$,000
14,749
$,000
18,429
Data
Networks
100%
of shares
Access
Digital
(finalised)
Total
14,749
18,429
567,393
2,610
10,689
1,450
The company engaged the services of independent consultants to provide the economic valuation of the acquisition of
Access Digital, including purchase price, net assets acquired and intangibles (both identifiable and goodwill). Goodwill on
the acquisition is attributable to the internal systems and processes, an established skilled workforce, and other proprietary
knowledge, loyalties and relationships.
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 Access Digital in Australia, including being restrained from inducing an employee of
Access Digital to terminate their employment or soliciting any clients of Access Digital. The vendor has provided customary
warranties including those relating to the share capital of Access Digital, that there are no liabilities or encumbrances,
information relating to the accounts and records of Access Digital and tax related matters.
Deferred consideration is payable in November 2019, and is calculated based on a combination of the retention of identified
key clients and identified key staff. As at 30 June 2019, it is estimated that $1,392K is likely to become payable.
78
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The assets and liabilities recognised as a result of the acquisitions are as follows:
Access Digital Networks
Assets
Current Assets
Cash & Cash Equivalents
Trade & Other Receivables
Other Assets
Total Current Assets
Non-Current Assets
Property, Plant & Equipment
Intangible Assets
Other Non-Current Assets
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade & Other Payables
Borrowings (Related Party)
Income Tax
Borrowings
Employee Benefits
Total Current Liabilities
Non-Current Liabilities
Deferred Tax Liabilities
Borrowings
Employee Benefits
Total Non-Current Assets
Total Liabilities
Net Assets
79
Nov 2018
$ ,000
164
287
120
571
346
5,506
45
5,897
6,468
292
4,848
108
7
46
5,301
887
25
6
918
6,219
249
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
250
-
13,900
4,279
18,429
5 Years
10 Years
50
1,390
1,440
Acquired Intangibles
$,000
14,500
249
(565)
4,245
Access Digital
Purchase Price:
Add: Net Assets
Adjustment
Less: Identifiable Net
Assets
Add: Deferred tax
liability recognised on
limited life intangibles
Intangible Assets upon
Acquisition
18,429
Allocation of
Intangibles:
Estimate Useful Life of
Limited Life Assets:
Annual Forecast
Amortisation
80
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(c) Acquisition of Comlinx Pty Ltd (Trading as Comlinx)
On 1 November 2018, the company acquired Comlinx. The acquisition of Comlinx has delivered approximately 100 business
customers to the group and accelerates the group’s move into the provision of Software Defined WAN (SD-WAN) solutions,
further enhancing the group’s data network capability.
The original contracted price was $20,000K, comprising upfront consideration comprised $12,800K in cash, plus 695,655
OTW shares ($3,200K in OTW shares at an issue price of $4.60, being the volume weighted average price for the 10 trading
days prior to the announcement of the acquisition), plus or minus a working capital adjustment to reflect the profits retained
in the business by the vendors at settlement. Upon completion of the settlement accounts, the working capital adjustment is
$276K payable to the vendors. Accordingly, the provisional adjusted purchase price is $20,276K.
Revenue of Comlinx included in the consolidated revenue of the group since acquisition amounted to $11,132K. Profit before
tax of Comlinx included in consolidated profit before tax of the group since acquisition amounted to $3,185K.
Had the results of Comlinx been consolidated from 1 July 2018, using a simple pro-rata calculation and ignoring any
seasonality, if any, revenue of the consolidated group would have been $85,155K and consolidated profit before tax would
have been $14,358K for the year ended 30 June 2019.
(d) Details on acquisitions
Company
Primary
Business
Division
Acquisition
Purchase
Price
Intangibles
Acquired
Comlinx
(finalised)
Managed
Services
100%
of shares
$,000
20,276
$,000
23,053
Shares
Issued to
Settle
Units
695,655
Shares
Issued to
Settle
$,000
3,200
Cash to
Settle
Deferred
Consideration
$,000
13,076
$,000
4,000
Total
20,276
23,053
695,655
3,200
13,076
4,000
The company engaged the services of independent consultants to provide the economic valuation of the acquisition of
Comlinx, including purchase price, net assets acquired and intangibles (both identifiable and goodwill). Goodwill on the
acquisition is attributable to the internal systems and processes, an established skilled workforce, and other proprietary
knowledge, loyalties and relationships.
Under the agreement, the vendors and their affiliates are restrained for five years from engaging in business similar to or in
competition with the business of Comlinx in Australia, including being restrained from inducing an employee of Comlinx to
terminate their employment or soliciting any clients of Comlinx. The vendors have provided customary warranties including
those relating to the share capital of Comlinx, that there are no liabilities or encumbrances, information relating to the
accounts and records of Comlinx and tax related matters.
Deferred consideration is payable in September 2019, calculated with reference to agreed gross profit targets on a scaling
basis, and is also conditional upon, continuing employment of the vendors of the company, and meeting minimum revenue
targets, however as at 30 June 2019, it is estimated that no amount is likely to become payable.
81
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The assets and liabilities recognised as a result of the acquisitions are as follows:
Comlinx
Assets
Current Assets
Cash & Cash Equivalents
Trade & Other Receivables
Inventory
Income Tax
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
Unearned Income
Employee Benefits
Total Current Liabilities
Non-Current Liabilities
Unearned Income
Employee Benefits
Total Non-Current Assets
Total Liabilities
Net Assets
Nov 2018
$ ,000
748
1,748
209
61
1,976
4,742
768
25
438
1,231
5,973
1,393
2,742
213
4,348
539
23
562
4,910
1,063
82
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Acquired Intangibles
Description
Brand Value
Class:
Indefinite
Life
Treatment:
Impaired
Rate:
Location /
Right-to-
Use
Customer
List /
Relationships
Limited Life
Limited Life
Amortised
and
Impaired
Length of
Lease
Amortised
and Impaired
Churn/
Customer
Retention
Goodwill
Total
Indefinite
Life
Impaired
$,000
$,000
$,000
$,000
$,000
1,800
-
12,800
8,453
23,053
10 Years
1,280
1,280
$,000
20,000
276
(1,063)
3,840
Comlinx
Purchase Price:
Add: Working Capital
Adjustment
Less: Identifiable Net
Assets
Add: Deferred tax
liability recognised on
limited life intangibles
Intangible Assets upon
Acquisition
23,053
Allocation of
Intangibles:
Estimate Useful Life of
Limited Life Assets:
Annual Forecast
Amortisation
83
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 25: FINANCIAL RISK MANAGEMENT
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 2019 or 30 June 2018.
The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting
policies to these financial statements, are as follows.
Financial Assets
Cash & Cash Equivalents (Note 9)
Trade & Other Receivables (Note 10)
Total Financial Assets
Financial Liabilities
Trade & Other Payables (Note 15)
Borrowings (Note 16)
Total Financial Liabilities
Consolidated
2019
$ ,000
10,325
8,920
19,245
10,732
10,764
21,496
2018
$ ,000
7,013
4,357
11,370
6,283
13,232
19,515
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.
Contracted maturities at
30 June 2018
Cash & Cash Equivalents
Trade and Other Receivables
Total
0 – 12
Months
$ ,000
7,013
4,357
11,370
1 – 2
Years
$ ,000
-
-
-
2 – 5
Years
$ ,000
-
-
-
> 5
Years
$ ,000
-
-
-
Total
Cash Flows
Carrying
Amount
$ ,000
$ ,000
7,013
4,357
7,013
4,357
11,370
11,370
84
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Contracted maturities at
30 June 2019
Cash & Cash Equivalents
Trade and Other Receivables
Total
0 – 12
Months
$ ,000
10,325
8,920
19,245
1 – 2
Years
$ ,000
-
-
-
2 – 5
Years
$ ,000
-
-
-
> 5
Years
$ ,000
-
-
-
Total
Cash Flows
Carrying
Amount
$ ,000
10,325
8,920
19,245
$ ,000
10,325
8,920
19,245
The group has recognised a loss of $156K (2018: $249K) in profit and loss in respect of impairment of receivables for the year
ended 30 June 2019. The movements in the provision for impairment of receivables were outlined in Note 10.
The table below sets out the maturity periods of the financial liabilities of the consolidated group as at 30 June 2019 and 30
June 2018. All carrying amounts of equipment finance are discounted contractual cash flows.
Contracted
maturities at
30 June 2018
Trade & Other
Payables
Borrowings
Total
Contracted
maturities at
30 June 2019
Trade & Other
Payables
Borrowings
Total
< 6
Months
6 – 12
Months
1 – 2
Years
2 – 5
Years
> 5
Years
Total
Cash Flows
Carrying
Amount
$ ,000s
6,283
2,016
8,299
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
-
-
2,017
2,017
9,195
9,195
1 – 2
Years
-
13
13
-
-
-
6,283
6,283
13,241
19,524
13,232
19,515
2 – 5
Years
> 5
Years
Total
Cash Flows
Carrying
Amount
< 6
Months
6 – 12
Months
$ ,000s
10,732
2,465
13,197
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
$ ,000s
-
-
-
1,811
1,811
4,249
4,249
2,741
2,741
-
-
-
10,732
10,732
11,266
21,998
10,764
21,496
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 2019 or 30 June 2018.
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.
There has been no substantive changes to credit risk in the current financial year.
85
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table provides information regarding the credit risk relating to cash and money market securities based on
Moody’s counter-party credit ratings.
Cash & Cash Equivalents
Aa3 Rated
A1 Rated
Unallocated
Total Cash & Cash Equivalents
Consolidated
2019
$ ,000
10,131
193
1
10,325
2018
$ ,000
7,008
4
1
7,013
The following table summarises the assumptions underpinning the consolidated group's expected credit loss model.
Category
Consolidated group definition of category
Performing
Customers have a low risk of default and a
strong capacity to meet contractual cash flows
Under-performing
Non-performing
Balances are past due, however there is no
further indication that interest or principal
repayments will be unrecoverable
Basis for recognition of expected credit loss
provision
12 month expected losses for Cash & Cash
Equivalents. Lifetime expected losses for Trade
& Other Receivables
Lifetime expected losses
Balances are past due and there are other
indicators that interest or principal repayments
will be unrecoverable
Lifetime expected losses for Cash & Cash
Equivalents. Full balance of specific customer
for Trade & Other Receivables
Write-off
Confirmation that amounts will not be
recovered
Asset is written off
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 of 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
fixed margin 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.
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.
86
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
2020
$ ,000
154
77
(78)
(157)
(237)
2021
$ ,000
81
42
(44)
(90)
(138)
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 Brisbane Audit, the auditor of the group
PKF Brisbane Audit
Audit Services
PKF Brisbane Pty Ltd
Other Services – Tax compliance services
Total
Consolidated
2019
$ ,000
2018
$ ,000
102
22
124
85
31
116
NOTE 27: CONTINGENT ASSETS & LIABILITIES
CONTINGENT ASSETS
The group had no contingent assets as at 30 June 2019 or 30 June 2018.
CONTINGENT LIABILITIES
The group had bank guarantees in place totalling $612,327 as at 30 June 2019 and $269,174 as at 30 June 2018.
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
87
Consolidated
2019
$ ,000
2018
$ ,000
1,077
1,349
-
2,426
1,134
1,791
69
2,994
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 16)
Total Lease Commitments - Financing
Consolidated
2019
$ ,000
2018
$ ,000
351
921
1,272
(58)
1,214
328
886
1,214
105
83
188
(9)
179
102
77
179
Finance leases are for computer and IT equipment, generally leased over a 3-5 year period, with payments being made
monthly or quarterly in advance.
NOTE 29: CASH FLOW INFORMATION
(a) 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 Unearned Income
(Decrease)/ Increase in Provisions
(Decrease)/ Increase in Current Tax Liabilities
Net Cash Flows from Operating Activities
Consolidated
2019
$ ,000
2018
$ ,000
10,137
5,531
2,617
4,201
(226)
(4,058)
223
(2,754)
255
1,015
(1,427)
2,643
(1,656)
344
22
2,059
1,878
156
5
105
(238)
(74)
(618)
(672)
1,208
69
191
744
11,336
10,344
88
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(b) Reconciliation of Cash Flows from Financing Activities
Equipment
Financing
NAB Term
Loan
Westpac Term
Loan
Dividends
Payable
$ ,000
$ ,000
Balance at 1 July 2017
Dividends declared
Shares issued
Net cash provided by/
(used in) financing
activities
Other changes
Balance at 30 June 2018
Dividends declared
Shares issued
Net cash (used in)
financing activities
Other changes
Balance at 30 June 2019
$ ,000
417
-
-
$ ,000
3,485
-
-
-
-
-
(238)
(3,485)
13,053
-
179
-
-
(351)
1,386
1,214
-
-
-
-
-
-
-
-
13,053
-
-
(3,502)
-
9,551
-
984
-
(984)
-
-
1,305
-
(1,305)
-
-
Shares
Issued
$ ,000
-
-
-
-
-
-
-
(25,441)
25,441
-
-
Total
$ ,000
3,902
984
-
8,346
13,232
1,305
(25,441)
20,283
1,386
10,765
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 2019
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
89
2019
$ ,000
2018
$ ,000
10,938
64,010
74,948
21,467
5,626
27,093
47,855
43,884
3,971
47,855
2,747
33,846
36,593
15,577
9,128
24,705
11,888
12,246
(358)
11,888
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PARENT ENTITY STATEMENT OF COMPREHENSIVE INCOME
For Year Ended 30 June 2019
Total Profit
Total Comprehensive Income
2019
$ ,000
5,509
5,509
2018
$ ,000
1,170
1,170
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 2019 or 30 June
2018.
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 Securities
Exchange.
• A limited number of re-charged costs between Over the Wire Pty Ltd, Netsip Pty Ltd, Faktortel Pty Ltd, Telarus Pty Ltd and
Comlinx 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 2019: $3,360K (2018: $2,400K)
• Fees charged by OTW Corp to the members of the group for 2019: $19,140K (2018: $12,990K)
• Operational recharged costs between group companies for 2019: $1,230K (2018: $1,200K)
KEY MANAGEMENT PERSONNEL (KMP) COMPENSATION
Short –Term Employee Benefits
Long-Term Employee Benefits
Post-Employment Benefits
Termination Payments
Share based Payments
Key Management Personnel
Detailed remuneration disclosures are provided in the remuneration report on pages 22 to 26.
Consolidated
2019
$ ,000
1,669
19
102
-
143
1,933
2018
$ ,000
1,259
17
84
-
388
1,748
90
ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 32: SHARE-BASED PAYMENTS - PERFORMANCE RIGHTS
EMPLOYEE SHARE PLAN
The Employee Share Plan was established to assist in maintaining a company culture of promoting employee ownership.
Under the plan, employees who are employed on the anniversary of the group's listing date are eligible to receive $1,000
of shares in the company. The table below summarises details of shares issued to eligible employees under the group's
Employee Share Plan.
Issue Date
Number of shares issued
Eligibility date
Share price on eligibility date
Consideration
Escrow period (from issue date)
Expense recognised in profit and loss
PERFORMANCE RIGHTS
Consolidated
2019
2018
21 May 2019
18 Apr 2018
27,744
35,280
31 Oct 2018
31 Oct 2017
$4.88
-
3 years
$135,391
$2.77
-
3 years
$97,726
In line with its remuneration policy, the Board approved the issue of performance rights under the OTW Performance Rights
Plan during the 2018 and 2019 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.
91
ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Performance Rights over Ordinary Shares have been issued in tranches as set out below.
2017
Tranche 2
(2017-2)
2017
Tranche 3
(2017-3)
2018
2019
Issue Date
29 June 2017
29 June 2017
1 April 2018
1 June 2019
Vesting Date & Test Date
1 July 2018
3 December 2018
30 September 2020
30 September 2021
Expiry Date
Exercise Price
Amount Payable on Grant
Performance Hurdles
1 August 2018
3 January 2019
31 October 2020
31 October 2021
$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
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% p.a. 0%
10%-15% 50-100%
pro-rata
>15% pa 100%
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%
Performance Rights Granted to:
Mike Stabb
Ben Cornish
Gary Pittorino
Dennis Muscat
Daniel Roates
Rebecca Tuma
Fair Value of Performance Rights Issued
30 June 2018
Mike Stabb
Ben Cornish
Dennis Muscat
Daniel Roates
TOTAL
30 June 2019
Mike Stabb
Ben Cornish
Gary Pittorino
Dennis Muscat
Daniel Roates
Rebecca Tuma
TOTAL
25,000
25,000
-
-
-
-
Opening
Balance
Qty
100,000
100,000
-
-
200,000
Opening
Balance
Qty
104,920
104,920
-
19,946
19,946
-
50,000
50,000
-
-
-
-
Granted
Vested
Qty
29,920
29,920
19,946
19,946
99,732
Qty
(25,000)
(25,000)
-
-
29,920
29,920
-
19,946
19,946
-
13,333
13,333
10,400
8,889
8,889
8,889
Closing
Balance
Qty
104,920
104,920
19,946
19,946
Weighted
Average
Fair Value
$
249,882
249,882
57,572
57,572
(50,000)
249,732
614,908
Granted
Vested
Closing
Balance
Weighted
Average
Fair Value
Qty
13,333
13,333
10,400
8,889
8,889
8,889
Qty
(75,000)
(75,000)
-
-
-
-
Qty
43,253
43,253
10,400
28,835
28,835
8,889
$
45,422
45,422
1,785
30,281
30,281
1,526
249,732
63,733
(150,000)
163,465
154,717
92
ANNUAL REPORT 2019 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
2019
$4.881
2018
$2.8864
2.3 Years
2.5 Years
41.0%
1.10%
40.6%
2.04%
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.
NOTE 33: SUBSIDIARIES
Consolidated
2019
2018
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policies described in Note1:
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 Pty Ltd ( Acquired 16 January 2017)
VPN Solutions Pty Ltd (Acquired 1 November 2017)
Access Digital Networks Pty Ltd (Acquired 1 November 2018)
Comlinx Pty Ltd (Acquired 1 November 2018)
Country of
Incorporation
Equity
Holding
Equity
Holding
Australia
Australia
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 %
100 %
100 %
100 %
0 %
0 %
NOTE 34: SUBSEQUENT EVENTS
On 15 August 2019, the company declared a fully franked final dividend of 2.00 cents per share, for the year ended 30 June
2019. The dates of the dividend are as follows:
Ex date
Record Date
Payment Date 10 October 2019
9 September 2019
10 September 2019
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 group, the results of those operations, or the state of affairs of the group in future
financial periods.
93
ANNUAL REPORT 2019 6.0
DIRECTORS’
DECLARATION
94
ANNUAL REPORT 2018 DIRECTORS’
DECLARATION
In the directors’ opinion:
i The financial statements and notes set out on pages 39 to 93 are in accordance with the
Corporations Act 2001, including:
a
b
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
giving a true and fair view of the financial position as at 30 June 2019 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
15 August 2019
John Puttick
Chair Person
Brisbane
15 August 2019
95
ANNUAL REPORT 2018
7.0
INDEPENDENT
AUDITOR’S
REPORT
96
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 2019, 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)
Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019
and of its performance for the year ended on that date; and
b)
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.
97
ANNUAL REPORT 2018
1.
Impairment testing of intangible assets
Why significant
As at 30 June 2019 the carrying value of intangible
assets was $74.8m (2018: $36.6m), as disclosed in
Note 14. This represents 71% of total assets.
The Group’s accounting policy in respect of intangible
assets is outlined in Note 1.
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
the FY20 budget by comparing the
budget to FY19 and FY 18 actuals
the assumptions used for the growth
rate by comparing normalised average
growth rate from FY18 to FY19 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
o
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 14.
the appropriateness of
relating
those
including
98
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
Access Digital Networks Pty Ltd and Comlinx Pty Ltd.
As disclosed in Note 24, as part of the transaction,
goodwill of $12.732m, brand value of $2.05m, and
customer list / relationships of $26.7m 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:
o EBIT multiples
o Growth rates
o Customer retention rates
o Estimated useful lives
o
Internal rate of return
• 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 24.
99
ANNUAL REPORT 2018
3. Recognition of Revenue
Why significant
How our audit addressed the key audit matter
The recognition of revenue, totalling $79.6m and
associated unearned revenue liabilities of $2.6m 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 4 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 19 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 4 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.
100
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.
101
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
2019. 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 2019
complies with section 300A of the Corporations Act 2001.
PKF BRISBANE AUDIT
LIAM MURPHY
PARTNER
15 AUGUST 2019
BRISBANE
102
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 QLD 4000
+61 7 3847 9292
SYDNEY
Level 9, 33 York Street
Sydney NSW 2000
+61 2 9191 9333
MELBOURNE
Level 8, 473 Bourke Street
Melbourne VIC 3000
+61 3 9938 8222
ADELAIDE
168 Greenhill Rd
Parkside SA 5063
+61 8 7100 0600
103
Over the Wire
ANNUAL REPORT 2018 104
ANNUAL REPORT 2018 Over the Wire
www.overthewire.com.au | 1300 689 689