Redbubble
Annual Report 2016

Plain-text annual report

1 Annual Report 2016 Redbubble Contents Pg Contents 3 4 5 6 9 18 19 40 80 81 83 85 FY2016 in Review Highlights and Commentary Chairman’s Letter CEO’s Review Directors’ Report Auditor’s Independence Declaration Remuneration Report Consolidated Financial Statements Directors’ Declaration Independent Auditors’ Report Shareholder and other ASX Required Information Corporate Information Founded in 2006, Redbubble is a global online marketplace (redbubble.com) powered by over 400,000 independent artists. Redbubble’s community of passionate creatives sell uncommon designs on high-quality, everyday products such as apparel, stationary, housewares, bags, wall art and so on. Through the Redbubble marketplace independent artists are able to profit from their creativity and reach a new universe of adoring fans. For customers, it’s the ultimate in self-expression. A simple but meaningful way to show the world who they are and what they care about. Redbubble is listed on the ASXw This report covers Redbubble Limited as a consolidated entity consisting of Redbubble Limited (referred to in this report as Redbubble or the Company) and its controlled entities. Redbubble is a company limited by shares, incorporated and domiciled in Australia (ACN 119200592). Its registered office is at Level 3, 271 Collins Street, Melbourne VIC 3000. Redbubble is listed on the Australian Securities Exchange (ASX:RBL). Through the use of the internet, the Company ensures that our corporate reporting is timely, complete and available globally. All press releases, financial reports and other information are available on the Redbubble Investor Centre at shareholders.redbubble.com 2 Annual Report 2016 FY2016 in Review Key financial and other metric highlights (year on year comparison) $m for financial year (unless otherwise indicated) FY15 FY16 % change** Key financial metrics – Income Statement GTV* Repeat GTV* Revenue from ordinary activities Fulfiller expenses Gross profit* Gross profit margin (%)* Operating expenses (exclusive of capitalised development costs) EBITDA Loss* (inclusive of IPO costs $2.0M) Loss per security (cents) Key financial metrics – Balance Sheet (at 30 June) Cash at bank Borrowings Intangible assets (Capitalised development costs) Net tangible assets per security (cents) Other metrics Site visits (millions) Conversion rate (% of visits) Average Order Value (AOV) ($ per order) Selling artists (thousands) Unique customers (millions) Products (as at 30 June) (number) People (incl. contractors) (as at 30 June) (FTE) 88.4 28.8 71.1 47.0 24.1 142.9 50.7 114.6 75.6 39.0 33.9% 34.0% 30.1 6.5 0.07 14.0 15.2 4.6 (7.4) 103.1 1.75% 49.60 96 1.44 48 138 49.2 10.7 0.13 42.0 0.0 7.4 15.1 147.8 1.87% 52.60 154 2.20 57 182 61.7% 76.0% 61.2% 60.8% 61.8% 0.5% 57.2% 64.2% 85.7% 200% (100%) 61.5% 304% 43.4% 6.9% 6.0% 61.6% 52.8% 18.8% 31.9% * GTV, Gross profit, Gross profit margin and EBITDA (earnings before interest, tax, depreciation and amortisation) are non-IFRS measures that are presented to provide readers a better understanding of Redbubble’s financial performance and position. The non-IFRS measures are unaudited, however, they have been derived from the audited financial statements. ** % change calculations for key financial metrics based on numbers to nearest thousand dollars ($000). 2 3 Highlights and Commentary • Gross Transaction Value (GTV), Revenue, Gross Profit • Paid marketing expense was $7.7M up 79.8% and and EBITDA Loss for FY16 are in line with or better generated $45.9M in GTV ($12.3M in gross profit). than the forecast set out in the company’s prospectus Total paid marketing spend was 5.4 cents for every issued in May 2016. dollar of GTV generated. • GTV, the total of sales processed through the An analysis of FY16 operating expenses and the extent Redbubble site less refunds, fraudulent transactions they were expended to generate growth can be found and chargebacks, was up $54.5M or 61.7% due to on slide 39 of the attached Investor Presentation. increase in all major metrics: o Visits were up 44.7M or 43.4% to 147.8M • EBITDA Loss (Gross profit less operating expenses) was $8.7 million (before IPO costs) (up from $6.5 with growth in visits from mobiles (70.9%) million) as the company continued to grow its significantly outstripping growth from desktop (28.5%) with mobile visits representing 44.5% marketplace. The scaling benefits began to show in the second half of the year. of total visits for the year. o Conversion rate up 6.9% to 1.87% despite the increasing incidence of mobile visits which • Tax expense of $3.4M despite the loss before tax, due largely to the non-recognition of tax losses and R&D offsets totalling $25.9M incurred prior to IPO. This typically convert to sales at a lower rate than comprises $15.5M of accumulated tax losses and R&D those from desktop. offsets as at June 2015 and $10.4M relating to FY16 o Average Order Value (AOV) up $3.00 or 6.0% to $52.60 entirely as a result as of the impact of foreign exchange rates. Nominally, AOV up until the IPO. • IPO completed on 16 May 2016 raising $30.0M of new equity capital and resulting in conversion of was down by 4.2% reflecting product mix with $15.5M Cumulative Redeemable Preference Shares minimal price movements. and$12.25M of Pre-IPO convertible notes into equity. • Geographic split of GTV by region is largely • Cash on hand balance at 30 June was $42.0M, up from $14.0M following completion of the IPO. unchanged compared to prior year (FY16/ FY15): • As at 30 June 2016, the company has no debt. o Americas 65%/64% o Europe 27%/27% o Oceania 7%/8% o Rest of world 1%/1% • Revenue (GTV less sales taxes and artists’ margin, adjusted for unearned revenue pending shipment) was up $43.5M or 61.2%. • Gross profit (Revenue less Fulfiller expenses) as a percentage of Revenue was 34.0% up from 33.9% in the prior year. • Operating expenses of $47.2M (exclusive of costs relating to the IPO) were up 57.2% although the increase slowed significantly in 2HFY16 (see half-year by half-year analysis below). 4 Redbubble Chairman’s Letter The past year has been a big year for Redbubble, the Redbubble’s strong FY2016 results reflect the skill and highlight being our successful listing on the ASX on 16th dedication of a strong and capable executive team. On May. The arduous listing process did not distract the behalf of the board, I would like to thank all the operating teams. Redbubble delivered strong financial Redbubble staff for all their achievements over the year. performance and high growth across all strategic We look forward to continuing to grow Redbubble with measures. you. The best is yet to come! Redbubble continues to make great strides on its goal to Yours faithfully, build a company of enduring value. To achieve the goal, Redbubble’s is creating the world’s largest marketplace for independent artists. In doing so, Redbubble will bring more creativity into the world. I am more confident than ever that Redbubble will deliver and become a great Australian-based company on the global stage. Redbubble is not immune from global economic conditions and foreign exchange volatility. Redbubble Richard Cawsey seeks to mitigate this by diversifying and broadening Chairman its business while localising production. To this end, 19 September 2016 Redbubble brought on new fulfillment partners around the world. Redbubble also launched its German and Spanish language websites. Redbubble also continues to strengthen and develop its governance practices, processes and capabilities. They are described in our 2016 Corporate Governance Statement on our Investor Centre website. During the year Grant Murdoch joined our board as an independent Non executive Director and Chair of the Audit and Risk Committee. Grant has tremendous listed company experience and has proved to be an invaluable addition to the board. Chris Nunn, moved from the board into an executive role, becoming our CFO. 4 5 Annual Report 2016CEO’s Review FY2016 was an exceptional year for Redbubble. The The Company’s mission reflects the value it delivers to Company achieved outstanding growth in its top-line and the various participants in the Redbubble marketplace. continued rapid scaling in its business. At the same time it Redbubble is not just a business, it is a myriad of human concluded a successful IPO raising a total of $42 million experiences. As some of the customers have said: (including the conversion of a pre-IPO round). Redbubble is well positioned for continued strong growth. It has the capabilities, resources and balance sheet to pursue the opportunity before it. Future growth is not limited by the Australian domestic market as over 90% of the Company’s revenue is from offshore. The Company participates in large consumer categories, online apparel, accessories and homewares, where the ability to grow is limited only by effective execution capabilities. Further the Company can grow in a highly scaleable way given its strong cash flow cycle and low customer acquisition costs. During FY2016 Redbubble’s full year revenue was $114.6M (up 61.2% on FY2015) with a Gross Profit of $39.0M (up • “Redbubble is overflowing with wonderful and creative designs that offer so much for reasonable prices. I am a very happy repeat customer who is looking forward to my next purchase.” Nichole via Delighted • “I love how Redbubble provides independent artists with a platform for selling their work. The customer service, quality, and range of pieces is amazing!” Coppelia via Delighted • “It was just an awesome experience. The products are beyond unique, you can’t find certain t-shirts, throw pillow cases, or iPad cases anywhere else. And the quality of the t-shirts is great. Very much worth the money.” David via Delighted 61.8% on FY2015) and an EBITDA loss of $8.7M. The EBITDA Or in the words of some of the artists: loss was $1.5M better than forecast at the time of the IPO. These results show that the business is scaling well. Revenue growth is ahead of operating expenditure growth, margins are stable and customer acquisition costs are low. The success in the business during FY 2016 reflects over 9 years of work that has gone into building a dynamic marketplace that matches artists with consumers who love their work. We are committed to building a company of enduring value, focused on our mission of “creating the world’s largest marketplace for independent artists, bringing more creativity into the world.” • “I sell my artwork on a lot of different sites, but my success on Redbubble is leaps and bounds ahead of any of the other websites. It’s crazy - because Redbubble is the only one that lets me set my royalty. Thank you for being the BEST at what you do.” Kelly, USA. • “I’ve tried most of the others but have found Redbubble to be far superior as it is incredibly easy to upload, the community is much more open and friendly and I’ve earned much more money through it than any other site.” Tom, Australia • “One of the nicest things I’ve found about Redbubble One measure of the Company’s success in pursuing the is the fact that you actually seem to care about artists mission is that during FY2016 artists earned $20.7 million and the people behind the work.” Michaela, Canada through the marketplace (up 56.8% on FY2015), taking their total earnings since the launch of Redbubble in 2007 to $53.3m. 6 RedbubbleCEO’s Review (continued) FY2016 Summary FY2016 Operational Review The core of the Company’s strategy is building on the distinctive value created in the Redbubble marketplace. In summary, this involves enhancing the marketplace dynamics by attracting more artists, content and customers in a virtuous cycle. In FY2016 the strategy has been successful in delivering top-line Gross Transaction Value (GTV) growth of 61.7% to $142.9 million, revenue growth of 61.2% to $114.6 million and gross profit growth of 61.8% to $39.0 million. The growth in the business builds on nine years of strong, organic growth. Over the past 3 years the compound annual growth rate in GTV was 62% per year. 27% 65% 7% Americas Europe Oceania 1% Rest of World New Products Over the year Redbubble increased the range of physical Gross Transaction Value by Financial Year, $Millions products, with a particular focus on women’s apparel. Redbubble introduced advanced technology that involves $142.9 printing on the material before laser cutting and sewing. $88.4 $59.3 $33.7 $15.7 $3.6 $4.2 $6.0 $1.2 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Growth in financial outcomes have been supported by growth in the key operating metrics: Overall, twelve new products were added: • Journals • Women’s Fitted Scoop Neck Tee • Women’s V-neck Tee • Women’s Relaxed Fit Tee • Laptop Sleeve • Graphic Tee • Women’s A-Line Dress • Men’s Tri-blend Tee • Women’s Chiffon Top • Women’s Contrast Tank • Men’s Heavy Tee • iPhone Wallet • Visits to the site – Up 43% to 147.8 million for the year Three products were discontinued during the year. • Conversion of those visits to purchase – Up 7% to 1.87% of visits • Average Order Value (AOV) – Up 6% to $52.60 Artists The number of selling artists grew in line with GTV growth, with 154,000 artists making sales during the year (a growth of 62%). At year end there were 438,000 artists The geographic split of sales (as shown below) remained and 10.2 million works in the Redbubble marketplace. essentially unchanged from last year, reflecting the During FY2016 the artists earned a total of $20.7 million. strong, balanced growth across all regions. 1 GTV (Gross Transaction Value) = Total receipts from customers less fraud, refunds and chargebacks Mobile Reflecting general trends in internet user behaviour, over 50% of traffic to the Redbubble marketplace now comes from mobile devices. Significant work has gone into improving the functionality and performance of 6 7 Annual Report 2016 CEO’s Review (continued) the mobile website and growth in mobile visits has been Supply chain enhancements the primary driver of overall growth in visits. Mobile In the first half of FY2017 Redbubble will focus on visits tend to convert to sales at a lower rate than those delivering greater direct-to-garment print capacity in core from desktop. Despite this, improvements in the site markets (specifically West Coast of the USA and Canada) experience overall, and particularly in mobile, generated for peak Christmas demand as well as more home-wares increased overall conversion rates. capability including bringing on new fulfillers. The second Fulfilment half will likely bring additional fulfillers including for wall art and associated print products and home-wares in An expanded and more localised third party fulfilment Europe. network has significantly improved the customer experience by enabling shorter delivery times. One new Artist community fulfiller and eight new production locations were added to Redbubble’s main focus this year will be on enhancing the network during the year. The average delivery time fell the ability of artists to drive traffic from social networks from 5.1 business days to 4.2 business days (June 2015 vs by improving the set of tools available to them to easily June 2016). Customer satisfaction, as measured by Net share new works, promotions and special activities on the Promoter Score, increased from 59 to 63 (June 2015 vs Redbubble platform. Work will also continue on piracy June 2016). New Markets protection for artists and further automation of artist authentication. Considerable investment was made into developing the New markets technology and capabilities to launch native language Redbubble’s new markets team will be concentrating on websites in order to increase penetration into non-English bedding down the three new sites (German, French and speaking markets. A German language site was launched Spanish) and driving deeper penetration into these new in March, a French language site launched in June and a markets. Spanish language site launched in August. FY2017 Outlook Change in Key Management Personnel (KMP) In FY2017, Redbubble will continue to pursue a strategy During FY2016 of enhancing the marketplace dynamics, focusing in particular on improving the on-site user experience, launching new physical products, increasing delivery speeds, growing artist earnings and strengthening penetration into the western European markets. • Vanessa Freeman was appointed as Chief People and Culture Officer with effect from 25 August 2015. • Chris Nunn was appointed as the Chief Financial Officer with effect from 1 November 2015 (following his time as a Director and Chair of Redbubble’s Audit On-site user experience & Risk Committee). Redbubble will continue to focus on the mobile experience. • Victor Kovalev was appointed as the Chief Technology There will be renewed attention on site speed as the Officer with effect from 14 December 2015. total content library expands and it becomes increasingly important to serve customers images quickly and Additional Information seamlessly. Personalisation will be a new theme, enabling Additional background on Redbubble, the core drivers Redbubble to learn about users (and groups of users) and and metrics for the business and strategy is covered in to serve more relevant content to every unique visitor to the Management Presentation delivered on the release the site. A prototype native iOS application, with different of the FY2016 Full Year Results. These may be found at: capabilities than the core experience, will also be trialled. shareholders.redbubble.com. New products A strong flow of new product is in the pipeline for FY2017, with a focus on homewares and art categories for the first half of the year. At this stage, it is anticipated the second half focus will be line extensions to the existing apparel categories, offering customers greater choice and better value. Martin Hosking Chief Executive Officer 19 September 2016 8 RedbubbleDirectors’ Report 8 9 Directors’ Report Your Directors present their report on the consolidated consumers. The products are produced and shipped by entity, consisting of Redbubble Limited and the entities it third party service providers (i.e., product manufacturers, controlled during the year ended 30 June 2016 (referred printers and shipping companies) referred to as fulfillers. to hereafter as Redbubble). No significant change in the nature of these activities Directors occurred during the year. Dividends The following persons were directors of the Redbubble during the 2016 financial year (FY2016): No dividends were paid or declared since the start of FY2016. Mr Richard Cawsey Chair, Non-executive Director Review of operations Mr Martin Hosking Managing Director and Chief Executive Officer (CEO) Ms Stephanie Tilenius Non-executive Director Through FY2016 Redbubble focused on delivering growth by continuing to enhance the marketplace dynamics: attracting more artists, content and customers in a virtuous cycle. The strategy has been successful in delivering top-line Gross Transaction Value (GTV) growth of 61.7% to $142.9 million, revenue growth of 61.2% to $114.6 million and gross profit growth of 61.8% to $39.0 Ms Teresa Engelhard Non-executive Director million. Mr Greg Lockwood Non-executive Director Mr Grant Murdoch Non-executive Director (appointed 1 January 2016) Mr Chris Nunn Non-executive Director (resigned 28 October 2015 to take up role as Chief Financial Officer commencing 1 November 2015) Principal activities Growth in financial outcomes has been supported by growth in the key operating metrics: • Visits to the site – Up 43% to 147.8 million for the year • Conversion of those visits to purchase – Up 7% to 1.87% of visits • Average Order Value (AOV) – Up 6% to $52.60 Reflecting general trends in user behavior, over 50% of traffic to the Redbubble marketplace now comes from mobile devices. Significant activity has gone into improving the functionality and performance of the mobile website and growth in mobile visits has been the primary driver of overall growth in visits. Mobile visits tend to convert to sales at a significantly lower rate than those from desktop. Despite this, improvements in the site experience overall, and particularly in mobile, resulted in the increase overall conversion rates. Redbubble, through its website at Redbubble.com and Over the year Redbubble increased the range of physical three foreign language sites, is an online marketplace that products, with a particular focus on women’s apparel, facilitates the sale and purchase of art and designs on a including using advanced technology printing of the range of products between independent creatives and material before laser cutting it and sewing it. 10 11 RedbubbleOverall, twelve new products were added: circumstances arising since the end of the 2016 financial • Journals • Women’s Fitted Scoop Neck Tee • Women’s V-neck Tee • Women’s Relaxed Fit Tee • Laptop Sleeve • Graphic Tee • Women’s A-Line Dress • Men’s Tri-blend Tee • Women’s Chiffon Top • Women’s Contrast Tank • Men’s Heavy Tee • iPhone Wallet Three products were discontinued during the year. year that has significantly affected, or may significantly affect: • Redbubble’s operations in future financial years; • the results of those operations in future financial years; or • Redbubble’s state of affairs in future financial years. Strategy and likely developments in operations In FY2017, Redbubble will continue to pursue a strategy of enhancing the marketplace dynamics, focusing in particular on improving the on-site user experience, launching new physical products, increasing delivery speeds, growing artist earnings and strengthening penetration into the German, French and Spanish language markets. An expanded and more localised third party fulfillment network has significantly improved the customer On-site user experience: There will be a continuing experience by enabling shorter delivery times. One new focus on the mobile experience. Site speed will fulfiller and eight new production locations were added receive renewed attention as the total content library to the network during the year. The average delivery time expands and it becomes increasingly important to serve fell from 5.1 business days in June 2015 to 4.2 business customers images quickly and seamlessly. Personalisation days in June 2016. Customer satisfaction as measured by will be a new theme enabling Redbubble to learn about Net Promoter Score increased from 59 in June 2015 to 63 in June 2016. users (and groups of users) and to serve more relevant content to every unique visitor to the site. A prototype native iOS application, with different capabilities than the The number of selling artists grew in line with GTV core experience, will also be trialed. growth with 154,000 artists making sales during the year (a growth of 62%). At year end there were 438,000 artists New products: A strong flow of new product is in the and 10.2 million works in the Redbubble marketplace. pipeline for FY2017 with a focus on homewares and art categories for the first half of the year. At this stage, it is Considerable investment was made into developing the anticipated the second half focus will be line extensions technology and capabilities to launch native language to the existing apparel categories, offering customers websites in order to increase penetration into non- greater choice and better value. English markets. A German language site was launched in March and a French language site was launched in Supply chain enhancements: In the first half of FY2017 June (ahead of plan). A Spanish language site is now in there will be a focus on delivering greater direct-to- final testing and will be launched in full in the September garment print capacity in core markets (specifically quarter of FY2017. Significant changes in the state of affairs West Coast of the USA and Canada) for peak Christmas demand as well as more homewares capability including bringing on new fulfillers. The second half will likely bring additional fulfillers including for wall art and associated print products and homewares in Europe. Redbubble launched its initial public offering (IPO) and listed on the Australian Securities Exchange (ASX) on Artist community: The main focus this year will be 16 May 2016. Apart from the IPO and ASX listing, in the on enhancing the ability of artists to drive traffic from Directors’ opinion there have been no significant changes social networks by improving the set of tools available in the state of affairs of Redbubble during the year. Significant events after end of 2016 financial year to them to easily share new works, promotions and special activities on the Redbubble platform. Work will also continue on piracy protection for artists and further In the Directors’ opinion there have been no matters or automation of artist authentication. 10 11 Annual Report 2016New markets: After full roll-out of the Spanish site early Information on directors in FY2017, the new markets team will be concentrating on bedding down the three new sites (German, French and Mr Richard Cawsey Spanish) and driving deeper penetration into these new Non-executive Director and Chair of the Board markets. Chair of Nomination Committee Member of Audit and Risk Committee Change in Key Management Personnel (KMP) during Richard Cawsey has a 27-year track record of building FY2016 and since the end of that financial year high-performing organisations in Australia, Europe, North • Vanessa Freeman was appointed as Chief People and Culture Officer with effect from 25 August 2015. • Chris Nunn was appointed as the Chief Financial Officer with effect from 1 November 2015 (following his resignation as a Director and Chair of Redbubble’s Audit & Risk Committee). America and Asia. in addition to chairing Redbubble, he is the executive chair of Denali Venture Partners, a team of advisers and execution partners that help fast growing companies realise their potential. Richard has held a number of board and senior executive roles for ASX listed companies including OAMPS Ltd (as a non-executive director), Centrepoint Alliance Ltd (as the managing director and CEO), Advance Property Management Ltd • Victor Kovalev was appointed as the Chief Technology (as chair) and Wealthpoint ltd (as chair). As the managing Officer with effect from 14 December 2015. Governance and risk director and CEO of Centrepoint Alliance ltd, Richard drove the cultural and organisational transformation required to survive as a listed finance company during the global financial crisis. At St. George Bank (then Australia’s 5th largest), as group executive investment services, Redbubble is committed to strong and effective Richard created a new division and played a significant governance frameworks. Redbubble’s corporate role in the bank’s restructure and increased profit and governance policies are described in the Redbubble growth by over 25%. In Asia for Morgan Stanley, as a Corporate Governance Statement - available in the managing director, Richard had success in both starting Corporate Governance section of Redbubble’s Investor and growing a number of businesses. Richard has a Centre: shareholders.redbubble.com Bachelor of Commerce (Hons) degree from Australian National University and is a graduate of the Australian The Company is committed to managing its risks in Institute of Company Directors. an integrated, systematic and practical manner. The overall objective of risk management is to assist the Company to achieve its objectives by appropriately Mr Martin Hosking considering both threats and opportunities, and making CEO and Managing Director informed decisions. The Audit and Risk Committee Member of Nomination Committee oversees the process for identification and management of risk in the Company, as described in the Redbubble Martin Hosking has spent 20 years scaling Australian Corporate Governance Statement. The Company technology companies. He is a co-founder of Redbubble Secretaries are responsible for providing oversight of and became the CEO and Managing Director in July the risk management framework and assurance on the 2010. Previously, Martin was the chair of Aconex, a SaaS management of significant risks to the CEO and the provider to construction firms, and Southern Innovation, Board. a digital pulse processing solution. He was instrumental in the development and subsequent listing on the NASDAQ The Company’s risk management framework, of search company, LookSmart. Martin started his career responsibilities and accountabilities are aligned with as a diplomat with the Australian Department of Foreign the Company’s business model. A statement of the Affairs and Trade before joining McKinsey & Company, Company’s risk management policy is provided in the serving clients focusing on emerging technologies. Martin Redbubble Corporate Governance Statement. The key has a Bachelor of Arts (Hons – First class) degree from organisational controls within the risk management the University of Melbourne and an MBA (with distinction) framework help to shape the strategies, capabilities from Melbourne Business School, where he has also and culture of the organisation, identify and address lectured. Martin is a graduate of the Australian Institute of vulnerabilities, strengthen the system of internal controls Company Directors. and build a more resilient organisation. The Company also has a risk register with risk profiles populated across various functions within the organisation. 12 Redbubble Ms Teresa Engelhard Independent Non-executive Director Chair of Remuneration Committee Mr Greg Lockwood Independent Non-executive Director Member of Audit and Risk Committee Teresa Engelhard is a Silicon Valley transplant with 20 Greg Lockwood was appointed as a Non-executive years of experience working with growth technology Director with effect from June 2015. Greg is a partner companies as a director, executive and venture capitalist. of Piton Capital, which is a shareholder in Redbubble. Teresa has served on over 10 boards and in addition to In 1999, Greg founded UBS Capital’s early stage being a Non-executive director of Redbubble, is currently venture investing activities in Europe. Subsequently, he a non-executive director of Planet Innovation, Ltd. and co-founded Piton Capital, the London-based venture StartupAUS. Teresa also serves on the Entrepreneurs’ capital fund specialising in marketplaces and business Programme Committee for the Australian Government, a models with network effects. Prior to his venture sub-committee of the Innovation Australia Board. Teresa capital activities, Greg worked in telecommunications transitioned to a non-executive director path following corporate finance with UBS in London and Zurich and six years as a managing partner with Jolimont Capital in held operating roles in classified media publishing in Melbourne, where she was responsible for the investment Toronto. Greg has an Honours Business degree from in Next Window, which received an Australian Private the University of Western Ontario, and a Master’s degree Equity & Venture Capital Association Limited chairman’s in management from the Kellogg Graduate School of award in 2010 for outstanding exit performance. Prior to moving to Australia, Teresa worked as a c-level executive at both private and public IT companies and as a venture Management. capitalist with Mohr Davidow Ventures in California. Mr Grant Murdoch Teresa spent the early years of her career at McKinsey & Independent Non-executive Director Company in Los Angeles. She has a Bachelor of Science Chair of Audit and Risk Committee (Hons) degree from the California Institute of Technology Member of Remuneration Committee and an MBA from Stanford University. Teresa is a graduate of the Australian Institute of Company Directors. Grant Murdoch joined the Board as an independent Ms Stephanie Tilenius Independent Non-executive Director Member of Remuneration Committee Member of Nomination Committee Non-executive Director and Chair of the Audit and Risk Committee in January 2016. Grant has subsequently joined the Remuneration Committee. Grant has more than 37 years’ chartered accounting experience. From 2004 to 2011, Grant led the corporate finance team for Ernst & Young Queensland and was an audit and corporate finance partner with Deloitte from 1980 to Stephanie Tilenius has been an executive-in-residence at 2000. Grant has extensive experience in providing advice Kleiner Perkins Caufield & Byers, a venture capital firm, in relation to mergers, acquisitions, takeovers, corporate since June 2012, primarily focusing on companies within restructures, share issues, pre-acquisition pricing due its digital growth fund. From February 2010 until June diligence advice, expert reports for capital raisings and 2012, Stephanie was a vice president of global commerce initial public offerings. Grant is currently a director and and payments at Google, Inc., where she oversaw digital the chair of the audit committees for each of ALS limited commerce, product search and payments. Prior to joining (formerly Campbell Brothers), QIC limited and OFX Google, Stephanie was at eBay, Inc. from March 2001 limited (previously Ozforex Limited). He is a senator of until October 2009, where she progressed to senior vice the University of Queensland (as well as chair of the risk president of eBay.com global products. Stephanie was committee and a member of the finance committee), also a co-founder of PlanetRx.com and has worked at an adjunct professor at the University of Queensland other technology and business enterprises. Stephanie Business School and a director of UQ Holdings Limited. has served as a director of Coach, a NYSE-listed luxury accessories brand, since August 2012, and as a director Grant has a Master’s degree in Commerce (Honours) from the University of Canterbury, New Zealand, is a of Seagate Technology since October 2014. She is also graduate of the Kellogg Advanced Executive Program on the board of Tradesy, and is the chair of the advisory and the Advanced Leadership Program at North Western board of the Harvard Business School California Research University and a fellow of the Institute of Chartered Center. Stephanie holds a Bachelor of Arts degree and a Accountants in Australia (as well as past chair at the Master’s degree in International Finance from Brandeis Queensland committee and a member of the national University, Massachusetts, and an MBA from Harvard professional standards committee) and of the Australian University, Massachusetts. Institute of Company Directors and is a member of the AICD Queensland State Council. 13 12 Annual Report 2016 Company Secretaries Redbubble’s Company Secretaries are Ms Corina Davis (located in the United States) and Mr Paul Gordon (located in Australia). Ms Corina Davis Mr Paul Gordon General Counsel and Company Secretary (US) Regional Counsel and Company Secretary (Australia) Corina Davis joined Redbubble in 2012 and oversees the Paul Gordon joined Redbubble in early 2015. Paul has company’s legal function. Corina has a wide range of broad corporate and commercial legal experience, cross-functional experience with particular expertise gained in-house and in top-tier law firms in Australia, in copyright and trademark law, litigation, compliance the UK and New Zealand. Before joining Redbubble, and risk management. Before joining Redbubble, Paul was the General Counsel at ASX-listed REA Group Corina practiced law in Los Angeles and New York City Ltd, operator of realestate.com.au. Before that Paul was at Milstein Adelman, McCurdy & Fuller and Mendes & a Senior Corporate Associate at Nabarro in the UK and Mount. Corina is an active member of the Women’s also practiced at Hogan Lovells (UK) and Chapman Tripp General Counsel Network and (NZ). Paul holds a Bachelor of Laws (Honours), Masters the San Francisco General Counsel Group. Corina holds a of Commerce from the University of Canterbury, New Bachelor of Arts degree from the University of Michigan, Ann Arbor and a Juris Doctor degree from the University Zealand, and is currently completing a Diploma in Applied Corporate Governance. of San Diego School of Law, California. Meetings of directors Meetings of directors Meetings of directors Richard Cawsey Richard Cawsey Martin Hosking Martin Hosking Teresa Engelhard Teresa Engelhard Greg Lockwood Greg Lockwood Stephanie Tilenius Stephanie Tilenius Grant Murdoch (1) Grant Murdoch (1) Chris Nunn (2) Chris Nunn (2) Board Board Held whilst in office Held whilst in office 15 Attended whilst in office Attended whilst in office 15 Audit and Risk Management Committee Audit and Risk Management Committee Held whilst in office Held whilst in office 6 Attended whilst in office Attended whilst in office 6 Remuneration Committee Nomination Committee Remuneration Committee Nomination Committee Held whilst in office Held whilst in office - Attended whilst in office Attended whilst in office - Held whilst in office Held whilst in office 1 Attended whilst in office Attended whilst in office 1 15 15 15 15 15 15 15 15 15 10 10 4 4 15 15 15 15 15 15 15 11 11 9 9 4 4 6 - - - - 6 6 - - 3 3 3 3 6 - - - - 6 6 - - 3 3 3 3 - - - 4 4 - - 4 4 1 1 3 3 - - - 4 4 - - 2 2 1 1 3 3 1 1 1 - - - - 1 1 - - - - 1 1 1 - - - - 1 1 - - - - (1) Grant Murdoch joined the Audit and Risk Committee as Chair on 1 January 2016 (2) Chris Nunn resigned from the Board abd as Audit and Risk Committee Chair on 28 October 2015 (before commencing as CFO on 1 November 2015). 14 Redbubble Retirement, election, continuation in office of directors Customer Support and Business Intelligence. Originally trained as a chemical engineer, Rob completed his MBA Under Redbubble’s constitution, directors cannot serve at the Melbourne Business School and has held various beyond three years or the third Annual General Meeting senior roles in the fuel cell and e-commerce industries in (AGM) after their appointment, whichever is longer, North America and Australia. without submitting for re-election by the Company. A retiring Director is eligible for re-election without Ms Corina Davis, General Counsel and Company needing to give any prior notice of an intention to submit Secretary for re-election and holds office as a Director (subject to Corina Davis joined Redbubble in 2012 and oversees re-election) until the end of the general meeting at which the Company’s legal function. Corina has a wide range the Director retires. of cross-functional experience with particular expertise in copyright and trademark law, litigation, compliance and risk management. Before joining Redbubble, The Redbubble Senior Leadership Team Corina practiced law in Los Angeles and New York City Mr Martin Hosking, Chief Executive Officer Mount. Corina is an active member of the Women’s at Milstein Adelman, McCurdy & Fuller and Mendes & See above. General Counsel Network and the San Francisco General Counsel Group. Corina holds a Bachelor of Arts degree Mr Barry Newstead, Chief Operating Officer Barry Newstead joined Redbubble in 2013 and has from the University of Michigan, Ann Arbor and a Juris Doctor degree from the University of San Diego School executive responsibility for Redbubble’s web product, of Law, California. technology, physical product development, new markets and strategy teams. Barry has held internet focused Ms Vanessa Freeman, Chief People and Culture Officer executive roles at the Wikimedia Foundation (which Vanessa Freeman joined Redbubble as Chief People and runs Wikipedia) and Australia Post. Earlier he was a Culture Officer in August 2015. Vanessa previously held strategy consultant with the Boston Consulting Group senior human resources and strategy roles at Pacific and the Bridgespan Group. He has worked extensively Brands. Vanessa began her career with the New Zealand in North America, Asia, Europe and Australia. Barry has Trade Development Board in New York before joining a Bachelor’s degree from Ivey Business School, Canada, McKinsey & Company, London, where she focused and a Master’s degree in Public Policy from Harvard on corporate strategy, post-merger management and University, USA. Barry is a graduate of the Australian operational transformation. Vanessa has Bachelor of Institute of Company Directors. Arts and Bachelor of Commerce degrees from Auckland University and an MBA from Stanford University, Mr Chris Nunn, Chief Financial Officer California. Before Chris Nunn’s appointment as Chief Financial Officer (CFO) in November 2015, Chris served as a Mr Victor Kovalev, Chief Technology Officer Non-executive Director and Chair of the Audit and Risk Victor Kovalev joined Redbubble in December 2015 as Committee of Redbubble from April 2015. Chris has more Chief Technology Officer. Previously, he led Indiegogo’s than 28 years of experience in the financial services and technical team as vice president of engineering. Prior property funds management industries, and has spent to that, Victor held technical leadership roles at Yelp (as most of the past 21 years as the senior finance executive head of mobile, business owner portal, Yelp platform for working with and reporting to the boards of ASX listed fulfiller transactions and partner APIs) and also VMware – companies and property trusts. Chris is a Chartered having gone through both of their initial public offerings. Accountant, a Graduate of the Australian Institute of His professional expertise is in building driven cultures Company Directors and has a Bachelor of Science to foster radical innovation through rapid scaling. Victor (Economics) degree from Loughborough University, holds Bachelor of Science in Computer Engineering and United Kingdom. Master of Science in Computer Science degrees from Georgia Institute of Technology and is a partner at a California-based non-profit artist accelerator, Zoo Labs. Mr Robert Baumert, Chief Fulfilment and Analytics Officer Rob Baumert joined Redbubble in April 2010 as head of operations and finance. In August 2011, he moved to San Francisco to establish Redbubble’s United States operations, and has recently returned to Melbourne to continue in his role as head of Supply Chain, Logistics, 14 15 Annual Report 2016 Details of share options and performance rights The table that follows shows: (i) the total number of unissued ordinary shares under options, performance rights and warrants, as at the date of this Report and as at 30 June 2016 (including Directors, Executives and staff); (ii) details of options and performance rights granted to Directors during or since the end of the 2016 financial year and total options and performance rights of these individuals at the date of this Report; and (iii) options exercised (and ordinary shares issued) as a result of exercise of options. Details of share options and performance rights Unissued ordinary shares under Options Performance rights Warrants over ordinary shares Total unissued ordinary shares Granted Options Performance rights Total granted Exercised Options Performance rights Total exercised As at the date of Directors' Report As at 30 June 2016 19,949,086 19,821,755 5,780,244 5,825,204 654,560 654,560 26,383,890 26,301,519 As at the date of Directors' Report As at 30 June 2016 9,606,260 9,256,260 60,000 60,000 9,666,260 9,316,260 As at the date of Directors' Report As at 30 June 2016 3,764,025 3,710,273 610,700 565,740 4,374,725 4,276,013 Holders of options, performance rights or warrants do not, by virtue of their holdings, have any pre-emptive right to participate in any share issue of the Company or any related body corporate. Indemnification and Insurance of officers it is not practicable to state the timing of any payment that may arise from an adverse finding. The Company Redbubble has entered into Deeds of Indemnity with considers that it is only possible but not probable that all Redbubble Limited directors in accordance with any of the actions will succeed. The Company does not the Redbubble constitution. During the 2016 financial consider that any of the current actions are likely to have year, Redbubble paid a premium to insure the directors, a material adverse effect on the business or financial officers and managers of Redbubble and its controlled position of the Company. entities. The insurance contract requires that the amount of the premium paid is confidential. The Company is not aware of any other current or Proceedings against the Company governmental prosecutions in which the Company or other members of the Redbubble Group are directly or As at the date of this Report, there are current lawsuits indirectly concerned. threatened civil litigation proceedings, arbitration proceedings, administration appeals, or criminal or filed against members of the Redbubble Group that relate to alleged intellectual property infringement and/ or breach of consumer laws. It is not possible for the Company to provide any reliable assessment of the likely quantum of damages that may become payable upon an adverse finding under any of the actions. No trial dates have been set for any of the actions and therefore 16 Redbubble CEO and CFO declaration Auditor The CEO and CFO have provided a written statement EY Australia was appointed as Redbubble’s Auditor on 25 to the Board in accordance with Section 295A of the November 2014 and continues in office in accordance Corporations Act. With regard to the financial records with section 327 of the Corporations Act 2001. and systems of risk management and internal compliance in this written statement, the Board received assurance To the extent permitted by law, the Company has agreed from the CEO and CFO that the declaration was founded to indemnify EY Australia, as part of the terms of its audit on a sound system of risk management and internal engagement agreement against claims by third parties control, and that the system was operating effectively in arising from the audit (for an unspecified amount). No all material aspects in relation to the reporting of financial payment has been made to indemnify EY during or since risks. the end of the 2016 financial year. Remuneration Report Non-audit services The Remuneration Report is set out on pages 14 to 34 During the year EY performed other services in addition and forms part of the Directors’ Report for the financial to its audit responsibilities. The Directors are satisfied year ended 30 June 2016. Rounding of Amounts that the provision of non-audit services by EY during the reporting period did not compromise the auditor independence requirements set out in the Corporations Act. All non-audit services were subject to the Company’s External Auditor Policy and do not undermine the general The amounts contained in the Financial Report have principles relating to auditor independence set out in been rounded to the nearest $1,000 (where rounding APES 110 Code of Ethics for Professional Accountants as is applicable) where noted ($000) under the option they did not involve reviewing or auditing the auditor’s available to the Company under ASIC Class Order own work, acting in a management or decision-making 2016/191. The Company is an entity to which the Class capacity for the Company, or jointly sharing risks and Order applies. rewards. Details of the amounts paid to the auditor of the Company and its related practices for non-audit services provided throughout the FY2016 and FY2015 financial years are as set out below. 2016 $ 2015 $ 680,000 - 231,509 67,739 32,510 34,819 944,019 102,558 Non-audit services Initial public offering Taxation services Other services Total Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration, as required under section 307C of the Corporations Act, is set out on page 18. The Auditor’s Independence Declaration forms part of the Directors’ Report. 16 17 Annual Report 2016 Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s Independence Declaration to the Directors of Redbubble Limited As lead auditor for the audit of Redbubble Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Redbubble Limited during the financial year. Ernst & Young Kylie Bodenham Partner 25 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 18 Redbubble Remuneration Report 18 1919 Annual Report 2016Remuneration Report Letter from Remuneration Committee Dear Shareholder, To complement the first public Remuneration Report by Redbubble, this introductory letter provides background on Redbubble’s remuneration policies. Redbubble is pursuing a valuable mission: to create the world’s largest marketplace for independent artists, bringing more creativity in the world. This mission is long-term and audacious. The Company is well advanced but building on the established position requires continued scalable growth. If the company is successful, significant shareholder value will be created and Redbubble will establish itself as an iconic Australian technology company. Redbubble remuneration policies from the Board and CEO down are aligned to the mission and its long-term nature. Given the inevitable uncertainties, we have sought to craft policies that create an alignment of interests with long-term share value creation. Specifically, we opt to provide: • Base level fixed compensation that is at market for the position • • Short-term incentives, for KMP, based on achievement of specific Key Performance Indicators (KPIs) Long-term incentives, across the organisation, in the form of stock options granted at no less than the share-price at time of grant and vesting out over 4 years. These practices have served Redbubble well. In the five years prior to its listing, trailing twelve-month GTV, which is a sum total of all successful transactions on the platform, including taxes and artist margin, excluding refunds, fraud and chargebacks, expressed in Australian dollars, has grown from under $10 million to over $140 million and the share price Compound Annual Growth Rate (CAGR) has been 65%. Along the way, competitors, backed by some of Silicon Valley’s best venture firms, have been outpaced by Redbubble. Application of these practices has allowed Redbubble to recruit and retain a strong board, executive team and exceptional employees. These practices have ensured that all parties are aligned on long-term share value price accretion and participate in the value created. As we look to FY 2017 we are intending on moving further to bolster the focus on long-term shareholder value creation by increasing the importance of stock options in all remuneration packages. Such options only becoming valuable with share value growth and with Redbubble now publically listed, share value is more apparent and useful in attracting, retaining and motivating all parties. The existing practices reflect the motivations and intentions of the CEO and co-founder, Martin Hosking to create a mission driven company of enduring value. His own shareholding in the Company, at ~25% ensures alignment between his interests and those of other shareholders. His own compensation is based on the same methodology as used for other executives. With welcome and appreciation for both new and continuing shareholders, Your Remuneration Committee, Teresa Engelhard (Chair), Grant Murdoch (member) and Stephanie Tilenius (member) 20 Redbubble1. Remuneration Report overview The Directors of Redbubble Limited present the Remuneration Report (the Report) for the Company for the financial year ended 30 June 2016. This Report forms part of the Director’s Report and has been audited in accordance with section 300A of the Corporations Act 2001. The report details the remuneration arrangements for KMP. KMP are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the major activities of the Company. The table below outlines the KMP of the Group and their movements during FY2016. Key Management Personnel Name Position Non-executive directors Richard Cawsey Chair, Non-executive director Teresa Engelhard Non-executive director Greg Lockwood Non-executive director Grant Murdoch Non-executive director (appointed 1 January 2016) Chris Nunn Non-executive director (resigned 28 October 2015) Stephanie Tilenius Non-executive director Executive director Martin Hosking Managing Director and Chief Executive Officer (CEO) Other key management personnel Rob Baumert Chief Fulfilment and Analytics Officer (CF&AO - effective 1 November 2015, CFO up to 31 October 2015) Corina Davis General Counsel and Company Secretary (US) Vanessa Freeman Chief People and Culture Officer (CP&CO - appointed 24 August 2015) Victor Kovalev Chief Technology Officer (CTO - appointed 14 December 2015) Barry Newstead Chief Operating Officer (COO) Chris Nunn Chief Financial Officer (CFO - appointed 1 November 2015) 2. Overview of executive remuneration 2.1 What is Redbubble’s remuneration strategy? Redbubble’s remuneration strategy is based on three principles: • The creation of enduring value • Motivating and rewarding an engaged ownership mindset • Aligning remuneration to shareholder value growth Redbubble’s remuneration framework is designed to attract, motivate and retain qualified and experienced leaders; to fairly remunerate executives for their contribution to Redbubble; and to reward high performance and shareholder value growth.   Redbubble’s executive remuneration framework has higher at risk and equity components than Australian and global peers (discussed below).  Redbubble aims to set annual remuneration (fixed plus Short Term Incentives (STI)) below the 50th percentile. Total remuneration potential is above the 50th percentile if target share price appreciation over four years is realised. 20 21 Annual Report 2016Executive remuneration levels are reviewed annually by the Remuneration Committee with reference to both Redbubble’s remuneration strategy, company performance and external benchmarks.   As a high-growth, online marketplace, Redbubble benchmarks itself against Australian and global peers. For Australian based roles, the primary source of remuneration benchmarking is a group of Australian listed companies in the technology sector with similar values for market capitalisation, employee headcount and revenue. For the CEO and Australian-based KMP remuneration levels for comparable roles in Silicon Valley are also taken into account. For US- based KMP, the primary source of remuneration benchmarking is a group of US-based private and public companies in consumer internet sector also with similar market capitalisation, revenue levels and headcount. 2.2 How does Redbubble’s remuneration strategy take into account shareholders’ interests? Redbubble remuneration strategy is aligned with long-term shareholder value growth through the use of four-year option grants for Long Term Incentives (LTIs) and measurable KPIs which determine STI awards. The company-wide KPI goals for the organisation in FY 2016 were GTV and repeat GTV growth as drivers of company valuation and Redbubble’s share price.  In addition, effective recruiting and staff satisfaction, measured via participation in the Great Place to Work (GPTW) survey, and organisational integration are part of the personal KPIs. The survey is conducted annually by The Great Place to Work Institute and is published in BRW magazine. 2.3 Elements of remuneration The remuneration of the CEO and KMP are set out in section 6 (Statutory and Share-based reporting). Redbubble provides an appropriate and competitive mix of remuneration components with an emphasis on value derived from share price growth and a long-term focus. The three components of Redbubble’s remuneration framework post listing are Fixed Remuneration, STIs and LTIs. Fixed remuneration The fixed component comprises base salary, allowances and superannuation (or foreign equivalent).   Fixed remuneration is designed to reward for: • The scope of the executive’s role • The executive’s skills, experience and qualifications • Individual performance Total fixed remuneration (TFR) is set to reflect the market for a comparable role. TFR for KMP is generally targeted at or below median levels compared to similar roles at comparator companies. Short term incentives STI awards are granted under the Company’s Short Term Incentive Plan (STI Plan). The STI benefit for a participant is subject to the achievement of company and personal KPIs. Where targets are achieved and a participant receives an STI benefit, a portion of the benefit is given in the form of cash, with the remainder given in the form of performance rights under the Company’s Employee Equity Plan with a 2 year deferral. The Redbubble Board retains discretion in approving STI cash payments and equity. 22 RedbubbleUnder the Company’s STI Plan, executives have the opportunity to earn an annual incentive award which is delivered in cash and Performance Rights. The terms of the STI Plan are set out below. It is anticipated that the terms of the STI awards will be reviewed and, if considered appropriate, amended on an annual basis. The aim of the STI program at Redbubble is to set, focus and align the organisation to actionable and measurable annual targets.  While it is the smallest component of remuneration in terms of relative magnitude, the STI targets are key drivers of share price value, so an explicit outcome of performance against STI targets is a parallel increase in LTI value. Annual remuneration (fixed + STI) Due to higher than typical, albeit at risk, LTI potential, annual remuneration for KMP is generally targeted below median levels compared to similar roles at comparator companies. Who is eligible? Invitation to participate in the STI Plan is at the discretion of the CEO. Participation is limited to executives who can materially impact the financial and operational performance of the Company. A participant must have six or more months’ active employment to be eligible to receive an STI benefit in respect of a particular financial year. A participant’s STI benefit will be pro‐ rated where they have not been actively employed (or participating in the STI Plan) for the whole of the financial year. How is performance measured? For FY2016, for the CEO, the STI benefit is dependent on the Company achieving specified performance targets which apply to the entire STI award. For participants other than the CEO, an STI award comprises two equal (i.e. 50%) components, the first being dependent upon achievement of the Company’s performance targets, and the second upon achievement of the participant’s personal performance targets (which are tailored to each participant). A participant will not receive a benefit in respect of either component unless they achieve at least a satisfactory review for the purpose of their personal performance targets (see further in ‘STI benefits’ below). How much can A target STI award is set for each participant, expressed as a dollar value. A participant’s executives earn in target STI award is set having regard to the participant’s role and responsibilities. STI? The amount of the STI benefit that a participant actually receives is dependent upon the extent to which Company and personal performance targets have been achieved. For FY2016, the CEO’s STI benefit depends on the Company’s performance against the GTV and Repeat GTV targets below. The Board has the discretion to adjust the benefit depending on the Company’s Gross Profit (GP) and personal measures for the CEO, specifically the results of a ‘Great Place to Work’ survey and Completion of the IPO. The maximum STI benefit that the CEO may receive for FY2016 is 150% of target STI. 22 23 Annual Report 2016How much can For FY2016, for participants other than the CEO: executives earn in - assuming the participant meets their personal targets, their STI benefit for the STI? (Continued) component of STI relating to Company performance will range between 50% (where a minimum threshold GTV of $116.0 million is achieved) to 125% (where the target GTV is exceeded by at least 30%) of the target for that component; and - the participant’s STI benefit for the component of their STI award relating to personal performance will range between 50% (in the case of a ‘large miss’ of their personal targets) to 100% (in the case of achievement of their personal targets) of the target for that component. In each case, the Board has the right to increase or decrease a participant’s STI benefit by 20% to reflect ‘headwind’ or ‘tailwind’ conditions respectively. The maximum STI benefit a participant may receive for FY2016 is 132% of target STI. How is an STI An STI benefit will be delivered partly in cash and partly in the form of $Nil price options benefit provided and Performance Rights granted under one of the Employee Equity Plans. For FY2016, the CEO will receive 60% of any STI benefit in cash and 40% in the form of Performance Rights. Other participants who joined the Company: • prior to the start of FY2016 will receive two thirds of their STI benefits in cash and one third in the form of Performance Rights; and • after the start of FY2016 will receive half of their STI benefits in cash and half in the form of Performance Rights. When is it paid? The STI award is determined after the end of the financial year following a review of performance over the year against the STI performance measures by the CEO (and in the case of the CEO, by the Board). The Board approves the final STI award based on this assessment of performance. Deferral terms In calculating the number of Performance Rights to be granted, the dollar value of the relevant component of the STI benefit will be divided by the Volume Weighted Average Price (VWAP) over a representative 5-day period. The board retains the right to review the VWAP period for extraordinary events that are considered to have distorted the VWAP. All Performance Rights will be subject to time based vesting conditions with 50% of Performance Rights comprised in a particular award vesting one year after their date of allocation and the remaining 50% vesting two years after their date of allocation What happens if an If an executive voluntarily resigns from Redbubble, or has their employment with the executive leaves? Redbubble group terminated for poor performance or misconduct, prior to the relevant vesting date, no STI is awarded for that year. Similarly, any unvested deferred STI is forfeited, unless otherwise determined by the Board. The Board has the discretion to accelerate vesting of Performance Rights and may exert this discretion in certain cases (for example due to the death or disablement of a participant or a change of control of the Company). 24 RedbubbleLong term incentives LTIs, in the form of stock options that vest over four years are the remuneration differentiator at Redbubble. All executives have received LTI awards in the form of Options or Performance Rights that vest over multiple years. Redbubble LTI plans have a 4-year vesting schedule and the realisable value of the options is 100% at risk. All Redbubble executives have received LTI awards, in the form of Options or Performance Rights that vest over multiple years. LTI grants are made to executives to align remuneration with the creation of shareholder value over the long-term. How is it paid? KMP receive share options or performance rights in accordance with Redbubble’s employee equity plan How much can The value KMP will realise from LTI grants will depend on the appreciation of Redbubble’s executives earn? share price over four years. How much is at Redbubble’s LTIs are 4 year vesting options with the strike price set at the market value risk? at time of issue. If Redbubble’s share price does not increase or if it declines from the exercise price  at issuance, the LTI will be worthless, thus it is effectively 100% at risk relative to share price performance. What happens if an If an executive resigns or is terminated for cause, any unvested LTI awards are forfeited, executive leaves? unless otherwise determined by the Board. The treatment of unvested and vested and unexercised awards will be determined by the Board with reference to the circumstances of cessation. 2.4 Changes in FY2016 The Board introduced the deferred component of STI in FY2016 to better align the STI plan to shareholder value.   24 25 Annual Report 20163. Performance and executive remuneration outcomes in FY2016 A key underlying principle of the Group’s executive remuneration framework is that the remuneration levels should be linked to Group performance. The Group’s key financial measures of performance over the last 5 years are summarised in the table below. Redbubble’s five year performance Key indicators Gross Transaction Value (GTV) Revenue Revenue as a % of GTV 2016 $'000 2015 $'000 2014 $'000 2013 $'000 2012 $'000 142,869 88,367 59,321 33,689 15,726 114,578 71,070 48,561 27,467 12,455 80.2% 80.4% 81.9% 81.5% 79.2% GTV less sales taxes and artists’ margin, adjusted for unearned revenue pending shipment, equals Group's revenue. Revenue has consistently been approximately 80% of GTV. The growth in the Group’s revenue and GTV not its earnings has been the significant driver in the share price appreciation.  The Company listed on the ASX on 16 May 2015 so limited trading history exists, however, the Company’s offer price of $1.33 at Listing represents a CAGR of 65% in its valuation from $0.11 5 years ago. 3.1 Performance against STI measures A combination of financial and non-financial measures are used to measure performance for STI awards. Redbubble performance against those measures is as follows for FY2016: Financial measures Measure GTV at stable GP Repeat GTV at stable GP Non-financial measures Measure Percentage of employees who would recommend Redbubble as a Great Place to Work Target FY 2016 performance Assessment $145.0 million $142.9 million Threshold (98.5%) $55.0 million $50.7 million Threshold (92.1%) Target 80.0% FY 2016 performance Assessment 96.0% Over achieved (120.0%) In assessing holistically the performance of KMP in FY2016, the Board has used its discretion to award 100% of target STI. In making this decision the Board considered: higher than forecasted earnings before interest, tax, depreciation and amortisation (EBITDA) and GP, and significantly higher than targeted GPTW survey improvements.  The STI award as a percent of maximum potential STI was 67% for the CEO and 76% for other KMP. 26 Redbubble4. How remuneration is governed 4.1 Remuneration Committee role The Committee is responsible for reviewing and advising the Board on remuneration policies and practices. The Committee also reviews and advises the Board on the design and implementation of short and long term incentive performance packages, superannuation entitlements, termination entitlements and fringe benefits policies. The remuneration of Directors, the CEO, KMP, managers and team members is reviewed by the Remuneration Committee which then provides recommendations to the Board. The members of the Committee during FY2016 were: Teresa Engelhard (Committee Chair), Stephanie Tilenius, Grant Murdoch (appointed 1 January 2016) and Chris Nunn (ceased 28 October 2015 upon appointment as CFO). 4.2 Use of remuneration advisors The Committee obtains independent advice from remuneration consultants, Hewitt Associates Pty Ltd on the appropriateness of remuneration based trends in the US and Australia. Both Hewitt Associates Pty Ltd and the Committee are satisfied the advice is free from undue influence from the KMP to whom the remuneration recommendations apply. The Remuneration Committee engaged remuneration advisors to provide remuneration recommendations leading up to Redbubble’s IPO. The remuneration advisors provided market remuneration data and recommendations on the remuneration mix and quantum for senior executives. The remuneration advisor’s recommendations were provided to Redbubble as an input into decision-making only. The Remuneration Committee considered the recommendations, along with other factors, in making its remuneration decisions. Hewitt Associates Pty Ltd was paid a fees of $40,000 for the remuneration recommendations. 4.3 Clawback of remuneration In the event of serious misconduct or a material misstatement of the Group’s financial statements, the Board has the discretion to reduce, cancel or clawback any unvested STI or LTI. 4.4 Executive employment agreements CEO and Managing Director The Company has entered into an employment agreement contract dated 10 August 2006 with Martin Hosking, the Company’s CEO and Managing Director, to govern his employment with Redbubble. The table below summarises the remuneration arrangements of the CEO. 26 27 Annual Report 2016Summary of CEO Remuneration for FY2016 Remuneration element Base pay, including superannuation (1) Value $344,266 Proportion of package 46% Nature of remuneration Details Fixed pay $262,800 p.a. up to 30 September 2015; $343,000 p.a. effective 1 October 2015 and $395,120 p.a. (including housing allowance of $52,120 p.a.) effective 1 April 2016 Cash bonus Benefits $75,000 $52,864 10% 7% At risk Fixed pay Deferred short term incentive $6,363 1% At risk Performance rights $164,188 22% At risk Share options $93,330 12% At risk Long service leave $17,588 2% Fixed pay Total $753,599 100% (1) Includes superannuation on wellness allowance and bonus paid during the year. 60% of target STI award in cash for FY 2016 Benefits received include taxable value of an apartment up to 31 March 2016 and wellness allowance Represents share based payment expense recognised during the year for 40% of target STI award for which grant would be made in FY 2017 Represents share based payment expense recognised during the year over the vesting period, for performance rights granted in prior years Represents share based payment expense recognised during the year over the vesting period, for options granted in prior year Represents provision for long service leave made during the year Martin’s contract provides that he will receive an amount of fixed annual remuneration, which amount is subject to review by the Company. His fixed annual remuneration is currently $395,120 per annum (inclusive of 9.5% employer superannuation contribution). The Company has also agreed to provide Martin with discretionary benefits of: • Until 31 March 2016, personal accommodation at a leased premises in Melbourne during the working week. From 1 April 2016 the financial equivalent of this benefit was transferred into salary. • A wellness allowance (a benefit that is generally available to all Redbubble employees). In FY2016 this allowance was valued at $600. In FY2016 Martin’s target STI award is $125,000, with a maximum STI benefit of $187,500. Martin will receive 60% of any STI benefit in cash and the remainder in Performance Rights. The Performance Rights will be subject to time based vesting conditions with 50% of Performance Rights comprised in a particular award vesting one year after their date of allocation and the remaining 50% vesting two years after their date of allocation. Under the terms of Martin’s employment contract, either party is entitled to terminate Martin’s employment contract by giving one month’s written notice. The Company may, at its election, make a payment in lieu of that notice based on Martin’s base remuneration package. Other senior employment arrangements All other executives are employed on open ended individual employment contracts that set out their terms of their employment. Each agreement varies according to the individual KMP but typically includes: • Termination provisions incorporating notice periods and payments of one month • Performance and confidentiality obligations on the part of both the employer and employee • Eligibility to participate in the Company’s Employee Equity Plan 28 RedbubbleTermination provisions The Board considers the CEO’s significant shareholding and the unvested options of all KMP to be more effective means of retaining critical talent than termination notice periods. KMP contractual termination provisions are as follows: CEO notice period (by company or executive) CFO notice period (by company or executive) Other executives' notice period (by company or executive) Resignation 1 month 6 months 1 month (AUS) None (US) In the case of termination due to death, disablement, redundancy or notice without cause the Board may in certain circumstances use its discretion to approve a payment of up to 6 months’ salary. 5. Overview of non-executive Director (NED) remuneration Redbubble’s NED policy is designed to attract and retain high calibre directors who can discharge the roles and responsibilities required in terms of good governance, strong oversight, independence and strong alignment of interests with long-term shareholder value creation. NED remuneration reflect the demands and responsibilities of the directors. The Remuneration Committee reviews NED remuneration against comparable companies. The Board also considers advice from external advisors when undertaking the review process. NED remuneration reflects the directors’ board and committee activities. Directors are also to be reimbursed for all reasonable travelling and other expenses properly incurred by them in attending Board meetings or any meetings of committees of Directors, in attending any general meetings of the Company or otherwise in connection with the business or affairs of the Company. Directors may be paid such additional or special remuneration if they, with the approval of the Board, perform any extra services or make special exertions for the benefit of the Company. There are no retirement benefit schemes for Directors, other than statutory superannuation contributions. Maximum aggregate NED fee pool The total amount paid to all Directors for their services must not exceed in aggregate in any financial year the amount fixed by shareholders in a general meeting. Upon establishment this amount has been fixed by the Board in accordance with the Constitution at $1,200,000. Any changes to this amount in future will require approval by shareholders in a general meeting in accordance with the ASX Listing Rules. 28 29 Annual Report 2016Redbubble 6. Statutory and share-based reporting 6.1 Executive KMP remuneration for the year ended 30 June 2016 Executive statutory remuneration for FY2016 Short term benefits Post-employment benefits Long-term benefits Share-based payments Total Percentage of remuneration that consists of: Non-monetary Cash Salary Cash Bonus (1) $ $ benefits (2) $ Superannuation $ Long service leave (3) $ Share-based payments - Performance Share-based payments - Share options (Performance Share-based payments - Share options At risk Performance rights (4) $ & Time based) (5) $ (Time based) (4) $ Deferred STI (6) $ Fixed (7) At risk STI (8) $ $ $ Rights At risk LTI (9) $ $ 307,962 75,000 52,864 36,304 17,588 164,188 93,330 - 6,363 753,599 55% 11% 22% 12% 305,365 61,794 28,293 18,845 - 19,009 64,885 3,996 6,749 508,936 247,816 48,062 26,908 13,378 - 27,351 51,908 - 5,249 420,672 136,370 31,011 150 12,969 109 - - 50,324 6,797 237,730 - 155,769 23,171 600 245,857 80,000 191,781 33,151 - 1,590,920 352,189 108,815 14,798 30,646 18,219 145,159 116 1,418 135 19,366 - 126,356 - 336,904 - 97,553 103,248 127,769 - 38,957 337,892 4,512 8,737 7,313 294,078 45,720 295,919 724,631 289,556 3,231,043 69% 68% 63% 58% 38% 73% 13% 13% 16% 9% 12% 14% 4% 7% 0% 0% 17% 0% 14% 12% 21% 33% 33% 13% Executive director Martin Hosking Other key management personnel Rob Baumert (*) Corina Davis (*) Vanessa Freeman (10) Victor Kovalev (11) Barry Newstead Chris Nunn (12) Total (1) Represents cash bonus accrued for the year. (2) Non-monetary benefits for Martin Hosking include the taxable value of an apartment up to 31 March 2016. All other non-monetary benefits relate to wellness benefits for all the executives and health benefits for the US executives. (3) Only Australian executives are entitled to long service leave. (4) Amounts disclosed reflect the value of remuneration consisting of performance rights/options, based on the value of rights/options expensed during the year. The fair value of rights is equivalent to fair value of shares at the grant date and the fair value of options is ascertained using Black- Scholes model and is amortised over the vesting period. (5) Amounts disclosed reflect the value of remuneration consisting of options, based on the value of options expensed during the year. The fair value of options is ascertained using Black-Scholes model and is amortised over the vesting period. These options were subject to company performance conditions in FY 2015. (6) Represents value of deferred STI expensed during the year which would be granted as $Nil price options to Australian executives and performance rights to US executives in FY 2017. The value of the deferred component is amortised over the vesting period. (7) Fixed remuneration includes cash salary, non-monetary benefits, all superannuation benefits and long service leave. (8) At risk STI includes cash bonus and deferred STI. (9) At risk LTI includes share based payments expense for options. (10) Vanessa Freeman was appointed effective 24 August 2015. She worked full-time for part of the year and part-time for the balance. (11) Victor Kovalev was appointed effective 14 December 2015. (12) Chris Nunn was appointed effective 1 November 2015. (*) Remuneration is paid in USD. The numbers disclosed are in AUD and are derived by using USD to AUD average exchange rate of 1.3732. 30 Annual Report 2016 Fees for 2016 6.2 NED remuneration for the year ended 30 June 2016 Short term benefits Post-employment benefits Share-based payments Share-based payments - Share-based payments - Share options (Time Director fees $ Superannuation $ Performance rights (1) $ 97,667 - - 20,548 - - 118,215 - - - 1,952 - - 1,952 7,271 36,117 - - 17,586 10,019 70,993 based) (1) $ 40,973 - - 20,231 - 39,036 100,240 Total $ 145,911 36,117 - 42,731 17,586 49,055 291,400 Non-executive directors Richard Cawsey (2) Teresa Engelhard Greg Lockwood Grant Murdoch (3) Chris Nunn (4) Stephanie Tilenius Total (1) Amounts disclosed reflect the value of remuneration consisting of rights/options, based on the value of rights/options expensed during the year. The fair value of rights/options is ascertained using Black-Scholes model. (2) Director fees are paid to and performance rights are issued to Denali Venture Partners (Aust). In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. (3) Grant Murdoch was appointed effective 1 January 2016 and is entitled to directors fees (inclusive of superannuation) in cash of $40,000 per annum for being a Director, and $5,000 per annum for being Chair of the Audit & Risk Committee. (4) Chris Nunn resigned as a non-executive director effective 28 October 2015 to take up the position of the CFO. PB 31 7. Equity instruments held by Directors and KMP 7.1 Option, performance rights and warrant holdings The tables below disclose the number of share options, performance rights and warrants granted, exercised, vested or forfeited during the year. Option holdings Share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met, until their expiry date. Option holdings Equivalent post-split numbers (1) Balance at the start of the year Granted during the year as compensation (2) Exercised during the year Forfeited during the year (3) Balance at the end of the year Vested and exercisable at the end of the year Unvested options at the end of the year 1,440,000 - - - 1,440,000 1,440,000 - 633,600 - (633,600) - - - - - 89,540 - - 89,540 14,551 74,989 2016 Non-executive directors Richard Cawsey (4) Teresa Engelhard Grant Murdoch Stephanie Tilenius 731,520 - - - 731,520 508,000 223,520 Executive director Martin Hosking Other key management personnel Rob Baumert Corina Davis Vanessa Freeman Victor Kovalev Barry Newstead (5) Chris Nunn Related party Jellicom Pty Ltd as trustee for the Three Springs Family Trust (Beneficiary - Martin Hosking) 2,894,000 - (1,040,000) (370,800) 1,483,200 617,920 865,280 2,628,480 - (961,280) (240,000) 1,427,200 867,200 560,000 960,000 - (272,000) (192,000) 496,000 320,000 176,000 - 600,000 - - 600,000 - 600,000 - 1,200,000 - - 1,200,000 - 1,200,000 2,400,000 578,720 - (480,000) 2,498,720 884,399 1,614,321 - 680,000 - - 680,000 - 680,000 1,600,200 - - - 1,600,200 1,600,200 - Total 13,287,800 3,148,260 (2,906,880) (1,282,800) 12,246,380 6,252,270 5,994,110 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Options granted during the year with an exercise price of $Nil: Grant Murdoch: 89,540 options Barry Newstead: 578,720 options Vanessa Freeman: 120,000 options (3) The noting of options as forfeited (20% of the grant in each case) in fact reflects that 80% of a total pool of shares became subject to the option for each individual, following determination of company performance conditions outlined in the relevant option agreements. (4) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. (5) The opening balance was subject to a liquidity event condition. 32 RedbubbleOption holdings Performance rights holdings Equivalent post-split numbers (1) is satisfied on 16 November 2016, 6 months after the date of the IPO, whereupon a proportion of the rights will fully Performance rights do not carry any voting or dividend rights. The liquidity event condition for the performance rights Unvested options at the end of the year vest by reference to time-based vesting schedules. 2016 Balance at the start of the year Exercised during the year Granted during the year as Balance at the end of the year Vested and exercisable at the end of the year compensation (2) Forfeited during the year (3) Non-executive directors Performance Rights holdings Richard Cawsey (4) Teresa Engelhard Grant Murdoch 2016 Stephanie Tilenius Non-executive directors Executive director Teresa Engelhard Martin Hosking Chris Nunn (4) Other key management personnel Stephanie Tilenius Rob Baumert Executive director Corina Davis Martin Hosking Vanessa Freeman Other key management personnel Victor Kovalev Rob Baumert Barry Newstead (5) Corina Davis Chris Nunn Barry Newstead Related party Related Party Jellicom Pty Ltd as trustee for the Denali Venture Partners (Aust) - Three Springs Family Trust (Beneficary - Richard Cawsey) (Beneficiary - Martin Hosking) 1,440,000 - 633,600 Balance at the start of the year 731,520 - Granted during - 89,540 the year as compensation - - - 1,440,000 1,440,000 - Equivalent post-split numbers (1) - Forfeited during the (633,600) Exercised - during the year - - - Balance at - 89,540 the end of the year Vested (3) at the 14,551 74,989 end of the year - 731,520 508,000 - Unvested at the end of the year 223,520 year (2) 299,640 2,894,000 - - - (1,040,000) - 299,640 208,080 91,560 (370,800) 1,483,200 617,920 865,280 294,960 - (57,360) (237,600) - - - 81,360 2,628,480 - - - (961,280) - 81,360 54,240 27,120 (240,000) 1,427,200 867,200 560,000 960,000 - (272,000) (192,000) 496,000 320,000 176,000 1,580,720 - - 600,000 - - - 1,580,720 856,240 724,480 - 600,000 - 600,000 - 1,200,000 - - 1,200,000 - 1,200,000 200,160 - 2,400,000 578,720 - - - 200,160 133,440 66,720 (480,000) 2,498,720 884,399 1,614,321 288,000 - - 680,000 - - - 288,000 192,000 96,000 - 680,000 - 680,000 1,157,440 - - - 1,157,440 602,800 554,640 151,920 1,600,200 - - - - - 151,920 151,920 - 1,600,200 1,600,200 - - Total Total 13,287,800 3,148,260 4,054,200 - (2,906,880) (57,360) 12,246,380 6,252,270 5,994,110 (1,282,800) (237,600) 3,759,240 2,198,720 1,560,520 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Forfeited during the year on termination. (2) Options granted during the year with an exercise price of $Nil: Grant Murdoch: 89,540 options (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based Barry Newstead: 578,720 options contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied). The liquidity event condition will be met in FY 2017 on the Vanessa Freeman: 120,000 options date six months after the date of the IPO. (3) The noting of options as forfeited (20% of the grant in each case) in fact reflects that 80% of a total pool of shares became subject to the option for (4) The performance rights exercised represent shares issued for performance rights that were not subject to a liquidity event condition. These were each individual, following determination of company performance conditions outlined in the relevant option agreements. exercised in the capacity as a non-executive director, prior to taking up the position of CFO. (4) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. (5) The opening balance was subject to a liquidity event condition. 32 33 Annual Report 2016Warrant holdings Warrants do not carry any voting or dividend rights, and can be exercised until their expiry date. Warrants over Ordinary Shares holdings These were issued in terms of the Facility Agreement. Balance at the start of the year Granted during the year as compensation Equivalent post-split numbers (1) Forfeited during the year Balance at the end of the year Exercised during the year Vested and exercisable at the end of the year Unvested at the end of the year 654,560 - - - 654,560 654,560 - 2016 Related Party Denali Capital Managers Pty Ltd (Beneficiary - Richard Cawsey) (2) (1) Effective 1 December 2015, each share of the company was split into 40. The warrant holdings above have been converted to equivalent post-split numbers. (2) Denali Capital Managers Pty Ltd (Denali), an associated entity of Richard Cawsey, was issued with the warrants set out above as consideration for Denali providing a loan facility to the Company. The loan facility agreement terminated in December 2012. The warrants may be exercised at any time up to and including 31 December 2016. Shares provided on exercise of remuneration options/rights 7.2 Shares issued on exercise of options/rights Equivalent post-split numbers (1) Date of exercise Number of ordinary shares issued on exercise Exercise price per option Fair value per share at exercise date Value at exercise date (2) 29 September 2015 633,600 $0.13 $0.78 412,632 31 August 2015 1,040,000 $0.05 $0.78 755,300 2016 Non-executive directors Teresa Engelhard Executive director Martin Hosking Other key management personnel Rob Baumert 20 November 2015 161,280 Corina Davis Chris Nunn Total 18 April 2016 23 March 2016 11 November 2015 800,000 272,000 57,360 2,964,240 $0.08 $0.13 $0.48 - $1.20 182,125 $1.33 964,000 $1.20 196,860 $0.78 44,526 2,555,443 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Value at exercise date is calculated as fair value available on exercise date less exercise price paid, multiplied by number of options exercised. For presentation purposes, price per option/value per share has been rounded to two decimal places, however the value at exercise date has been calculated based on unrounded numbers. 34 Redbubble Share holdings in Redbubble Limited 7.3 Shareholdings of Directors and KMP 2016 - Redbubble Limited ordinary shares Balance at the start of the year Equivalent post-split numbers (1) Received during the year on exercise of options/ performance rights Purchase of shares Sale/transfer of shares Balance at the end of the year Non-executive directors Teresa Engelhard Executive directors Martin Hosking Other key management personnel Rob Baumert Corina Davis Chris Nunn Related Parties Beneficiary - 633,600 112,780 - 746,380 601,880 1,040,000 - - 1,641,880 240,000 961,280 - (1,201,280) - - 272,000 - - 272,000 - 57,360 - - 57,360 Cawsey Superannuation Fund Pty Ltd Richard Cawsey 8,966,480 - 760,000 - 9,726,480 Denali Investors Pty Ltd Richard Cawsey 760,000 - - (760,000) - Denali Venture Partners Fund 1 LP Richard Cawsey 1,840,240 - - - 1,840,240 Denali Venture Partners (Aust) Richard Cawsey 57,360 - - - 57,360 Grattan Group Capital Pty Ltd Rob Baumert 45,040 - - (45,040) - Jellicom Pty Ltd as trustee for the Three Springs Family Trust Piton Capital Venture Fund II LP (2) Martin Hosking 48,330,880 - - (421,360) 47,909,520 Greg Lockwood - - 5,537,291 - 5,537,291 Piton Capital Investments Cooperatief B Greg Lockwood - - 927,840 - 927,840 G & M Murdoch Pty Ltd as trustee for the Murdoch Family Superannuation Fund Grant Murdoch - - 75,187 - 75,187 Overan Holdings Pty Ltd Chris Nunn - - 76,000 - 76,000 Total 60,841,880 2,964,240 7,489,098 (2,427,680) 68,867,538 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Includes 3,681,571 shares issued as a consequence of conversion of cumulative redeemable preference shares to ordinary shares. For the purpose of conversion, both the face value and unpaid accumulated dividend were aggregated. 34 35 Annual Report 20168. Equity grants outstanding Equity grants outstanding These were issued in terms of the Facility Agreement. Warrants over Ordinary Shares holdings Grant date 2016 # of options/ Related Party rights granted Vest period/date Denali Capital Managers Pty Ltd Richard Cawsey (5) 27-Oct-09 720,000 Equal monthly vesting over 36 654,560 (Beneficiary - Richard Cawsey) (2) months commencing from 1 April 2010 to 1 March 2013 Balance at the start of the year Granted during the year as compensation Expiry date 01-Mar-17 Exercise price $0.05 - Equivalent post-split numbers (1) Forfeited during the Vested year during the Exercised Value of options/ during the year rights at grant Balance at the end of the year date (2) $15,840 - year # (3) Exercised % 0% 654,560 - - Vested and exercisable at the end of the year Unvested at the end of the year Forfeited/ Forfeited/ Exercised # - 654,560 lapsed %(4) 0% lapsed #(4) - - Value of options/ rights post forfeiture $15,840 29-Sep-10 720,000 Equal monthly vesting over 36 (1) Effective 1 December 2015, each share of the company was split into 40. The warrant holdings above have been converted to equivalent post-split 0% numbers. (2) Denali Capital Managers Pty Ltd (Denali), an associated entity of Richard Cawsey, was issued with the warrants set out above as consideration for Denali providing a loan facility to the Company. The loan facility agreement terminated in December 2012. The warrants may be exercised at any time up to and including 31 December 2016. 1,267,200 months commencing from 1 October 2010 to 1 September 2013 01-Oct-17 21-Jul-17 $15,840 $56,074 800,000 52,800 $0.05 $0.13 63% 0% 0% - - - - $15,840 $56,074 Rob Baumert 01-Sep-11 01-Oct-24 $0.48 $312,900 400,000 0% 01-Oct-18 $0.00 $69,806 50,040 0% - - 20% 240,000 $250,320 0% - $69,806 01-Oct-24 $0.48 $250,320 320,000 28% 272,000 20% 192,000 $200,256 24-Oct-14 1,200,000 01-Oct-13 200,160 Corina Davis 24-Oct-14 960,000 01-Oct-13 288,000 Equal monthly vesting over 48 months commencing from 1 September 2011 to 1 August 2015 25% on the first anniversary of the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions 25% on the first anniversary of the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition 25% on the first anniversary of the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions 25% on the first anniversary of the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition 120,000 01-Nov-15 05-Mar-15 1,854,000 01-Oct-18 $0.00 $100,440 72,000 0% Vanessa Freeman Martin Hosking Teresa Engelhard 03-Jun-14 299,640 Equal monthly vesting over 36 03-Jun-21 $0.00 $104,499 99,880 0% months commencing from 3 June 2014 to 3 May 2017, subject to a liquidity event condition 25% to vest on 1 March 2017 and 1/48th over the next 36 months in equal monthly numbers up to 1 March 2020 01-Nov-15 480,000 25% to vest on 1 March 2017 and 1/48th over the next 36 months in equal monthly numbers up to 1 March 2020 25% on the first anniversary of the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions 01-Nov-25 $0.00 $93,150 01-Nov-25 $0.75 $179,731 - - 0% 0% 05-Mar-25 $0.51 $464,891 617,920 0% 01-Oct-20 $0.00 $275,638 197,600 0% 01-Oct-21 $0.00 36 $379,768 329,320 0% - - - - - - - - - - - - - - - - - - - - - 0% 0% 0% 0% - - - - $100,440 $104,499 $93,150 $179,731 20% 370,800 $371,912 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% - - - - - - - - - - - - - - - $275,638 $379,768 $108,631 $28,374 $19,146 $148,019 01-Oct-13 790,360 01-Oct-14 790,360 25% on the first anniversary of the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition 25% on the first anniversary of the grant date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to a liquidity event condition the vesting commencement date, being 1 December 2016 and 1/48th over the next 36 months in equal monthly numbers up to 1 December 2019 grant date and 2,150 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Director of the Company date and 269 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Chair of the Company's Audit & Risk Committee of the grant date, being 5 March 2016 and 1/48th over the next 31 months in equal monthly numbers up to 1 October 2018, subject to performance conditions and liquidity event months commencing from 1 December 2015 to 1 November 2019 the grant date, being 25 November 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2017, subject to a liquidity event condition the grant date, being 25 November 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2018, subject to a liquidity event condition the grant date, being 1 November 2016 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2019 months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Chair of the Company's Audit & Risk Committee months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Director of the Company months commencing from 1 June 2014 to 1 May 2017 the grant date, being 1 June 2015 and 1/36th over the next 24 months in equal monthly numbers up to 1 June 2017, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition months commencing from 1 October 2011 to 1 September 2012. These were transferred from Martin Hosking on 2 May 2014, effective 1 November 2011 Victor Kovalev 14-Dec-15 1,200,000 25% on the first anniversary of 14-Dec-25 $1.20 $672,285 - 0% 0% $672,285 Grant Murdoch 01-Feb-16 79,590 4,340 vest immediately on 01-Feb-26 $0.00 $95,846 12,940 0% 0% $95,846 01-Feb-16 9,950 535 vest immediately on grant 01-Feb-26 $0.00 $11,982 1,611 0% 0% $11,982 Barry Newstead 05-Mar-15 2,400,000 35.42% on the first anniversary 05-Mar-25 $0.51 $614,400 800,000 0% 20% 480,000 $491,520 25-Nov-15 578,720 Equal monthly vesting over 48 01-Nov-25 $0.00 $696,924 84,399 0% $696,924 25-Nov-13 578,720 25% on the first anniversary of 25-Nov-20 $0.00 $201,829 144,680 0% $201,829 25-Nov-14 578,720 25% on the first anniversary of 24-Nov-21 $0.00 $278,075 229,080 0% 0% $278,075 Chris Nunn 01-Nov-15 680,000 25% on the first anniversary of 01-Nov-25 $0.85 $235,193 - 0% 0% $235,193 20-Mar-15 88,480 Equal monthly vesting over 36 n/a $0.00 $44,992 17,200 19% 17,200 81% 71,280 $8,746 20-Mar-15 206,480 Equal monthly vesting over 36 n/a $0.00 $104,995 40,160 19% 40,160 81% 166,320 $20,421 Stephanie Tilenius 12-May-14 731,520 Equal monthly vesting over 36 12-May-21 $0.37 $108,631 243,840 0% 01-Jun-14 81,360 1/3rd on the first anniversary of 01-Jun-19 $0.00 $28,374 27,120 0% Denali Venture 28-Mar-13 138,480 Equal yearly vesting over 3 28-Mar-20 $0.00 $26,370 46,160 0% $26,370 14-Nov-13 13,440 Equal yearly vesting over 3 14-Nov-20 $0.00 $4,687 4,480 0% $4,687 Denali Capital 21-Dec-12 654,560 21 December 2012 31-Dec-16 $0.14 $19,146 Jellicom Pty Ltd as 08-Aug-12 1,600,200 Equal monthly vesting over 12 01-Oct-18 $0.14 $148,019 - - 0% 0% Partners (Aust) - (Beneficiary - Richard Cawsey) Managers Pty Ltd (Beneficiary - Richard Cawsey) trustee for the Three Springs Family Trust (Beneficiary - Martin Hosking) (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Value at grant date for options / performance rights has been determined by using the Black-Scholes method. (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied). The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. (4) For Barry Newstead, Corina Davis, Martin Hosking and Rob Baumert, the noting of options as 'forfeited/lapsed' (20% in each case) in fact reflects that 80% of a total pool of shares became subject to the option for each individual, following determination of company performance conditions outlined in the relevant option agreements. (5) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. Redbubble Equity grants outstanding # of options/ Grant date rights granted Vest period/date Richard Cawsey (5) 27-Oct-09 720,000 Equal monthly vesting over 36 Value of options/ Vested rights at grant during the Exercise Expiry date price 01-Mar-17 $0.05 date (2) $15,840 year # (3) Exercised % Exercised # lapsed %(4) lapsed #(4) Forfeited/ Forfeited/ - - 0% 0% 0% 0% Value of options/ rights post forfeiture $15,840 $15,840 29-Sep-10 720,000 Equal monthly vesting over 36 01-Oct-17 $0.05 $15,840 Rob Baumert 01-Sep-11 1,267,200 Equal monthly vesting over 48 21-Jul-17 $0.13 $56,074 52,800 63% 800,000 0% $56,074 24-Oct-14 1,200,000 25% on the first anniversary of 01-Oct-24 $0.48 $312,900 400,000 0% 20% 240,000 $250,320 01-Oct-13 200,160 25% on the first anniversary of 01-Oct-18 $0.00 $69,806 50,040 0% 0% - $69,806 Corina Davis 24-Oct-14 960,000 25% on the first anniversary of 01-Oct-24 $0.48 $250,320 320,000 28% 272,000 20% 192,000 $200,256 01-Oct-13 288,000 25% on the first anniversary of 01-Oct-18 $0.00 $100,440 72,000 0% 0% $100,440 months commencing from 1 April 2010 to 1 March 2013 months commencing from 1 October 2010 to 1 September 2013 2015 months commencing from 1 September 2011 to 1 August the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition Teresa Engelhard 03-Jun-14 299,640 Equal monthly vesting over 36 03-Jun-21 $0.00 $104,499 99,880 0% months commencing from 3 June 2014 to 3 May 2017, subject to a liquidity event condition - - - - - - 0% Warrants over Ordinary Shares holdings - - 0% 2016 $0.00 120,000 $93,150 01-Nov-15 01-Nov-25 These were issued in terms of the Facility Agreement. Vanessa Freeman Equity grants outstanding 25% to vest on 1 March 2017 and 1/48th over the next 36 months in equal monthly numbers up to 1 March 2020 Balance at the 01-Nov-15 480,000 25% to vest on 1 March 2017 start of the and 1/48th over the next 36 year months in equal monthly numbers up to 1 March 2020 Richard Cawsey (5) 27-Oct-09 720,000 Equal monthly vesting over 36 25% on the first anniversary of Martin Hosking 654,560 months commencing from 1 the vesting commencement April 2010 to 1 March 2013 date, being 1 October 2015 and (1) Effective 1 December 2015, each share of the company was split into 40. The warrant holdings above have been converted to equivalent post-split 1/48th over the next 36 months 29-Sep-10 720,000 Equal monthly vesting over 36 numbers. in equal monthly numbers up months commencing from 1 (2) Denali Capital Managers Pty Ltd (Denali), an associated entity of Richard Cawsey, was issued with the warrants set out above as consideration for to 1 October 2018, subject to October 2010 to 1 September Denali providing a loan facility to the Company. The loan facility agreement terminated in December 2012. The warrants may be exercised at any time performance conditions 2013 up to and including 31 December 2016. Equivalent post-split numbers (1) Forfeited during the year Exercised during the year Exercise price $0.05 $0.51 # of options/ rights granted Vest period/date year # (3) Exercised % 0% - 617,920 0% 654,560 - Related Party Denali Capital Managers Pty Ltd Vested and 0% - exercisable at the end of the year - Balance at the Vested end of the year during the $179,731 Value of options/ rights at grant Granted during 01-Nov-25 the year as compensation (Beneficiary - Richard Cawsey) (2) date (2) $15,840 $464,891 Expiry date 01-Mar-17 05-Mar-25 Grant date 05-Mar-15 Exercised # 1,854,000 - - 654,560 01-Oct-17 $15,840 Unvested at 0% the end of the year Forfeited/ lapsed %(4) 0% 20% - $0.75 $0.05 0% 0% 0% - - - - - - - - - - - Forfeited/ lapsed #(4) - 370,800 - - - $104,499 $93,150 Value of $179,731 options/ rights post forfeiture $15,840 $371,912 $15,840 $56,074 $275,638 88,480 79,590 790,360 578,720 790,360 288,000 200,160 120,000 960,000 01-Oct-14 24-Oct-14 01-Oct-13 24-Oct-14 01-Feb-16 14-Dec-15 14-Dec-15 01-Nov-15 20-Mar-15 1,200,000 1,200,000 2,400,000 1,200,000 05-Mar-15 25-Nov-13 1,854,000 578,720 680,000 790,360 01-Nov-15 01-Oct-14 01-Sep-11 01-Oct-13 1,267,200 790,360 21-Jul-17 01-Oct-20 $0.13 $0.00 52,800 $56,074 $275,638 197,600 63% 0% 800,000 - 0% 0% 36 Rob Baumert Victor Kovalev Corina Davis Grant Murdoch Teresa Engelhard Barry Newstead Vanessa Freeman Martin Hosking Chris Nunn Victor Kovalev Partners (Aust) - (Beneficiary - Richard Cawsey) Managers Pty Ltd (Beneficiary - Richard Cawsey) trustee for the Three Springs Family Trust (Beneficiary - Partners (Aust) - (Beneficiary - Richard Cawsey) Managers Pty Ltd (Beneficiary - Richard Cawsey) trustee for the Three Springs Family Trust (Beneficiary - Martin Hosking) 25-Nov-14 578,720 25% on the first anniversary of 01-Oct-13 25% on the first anniversary of the grant date, being 25 the grant date, being 1 October November 2015 and 1/48th 2014 and 1/48th over the next over the next 36 months in 36 months in equal monthly equal monthly numbers up to 1 numbers up to 1 October 2017, November 2018, subject to a subject to a liquidity event liquidity event condition condition 25% on the first anniversary of 25% on the first anniversary of the grant date, being 1 the grant date, being 1 October November 2016 and 1/48th 2015 and 1/48th over the next over the next 36 months in 36 months in equal monthly equal monthly numbers up to 1 numbers up to 1 October 2018, November 2019 subject to a liquidity event Equal monthly vesting over 36 condition months commencing from 1 25% on the first anniversary of April 2015 to 1 March 2018, the vesting commencement subject to holding the office of Equal monthly vesting over 48 25% on the first anniversary of months commencing from 1 the grant date, being 1 October September 2011 to 1 August 2014 and 1/48th over the next 2015 36 months in equal monthly 25% on the first anniversary of numbers up to 1 October 2017, the vesting commencement subject to a liquidity event date, being 1 October 2015 and condition 1/48th over the next 36 months 25% on the first anniversary of in equal monthly numbers up the grant date, being 1 October to 1 October 2018, subject to 2015 and 1/48th over the next performance conditions 36 months in equal monthly numbers up to 1 October 2018, 25% on the first anniversary of subject to a liquidity event the grant date, being 1 October condition 2014 and 1/48th over the next 25% on the first anniversary of 36 months in equal monthly the vesting commencement numbers up to 1 October 2017, date, being 1 December 2016 subject to a liquidity event and 1/48th over the next 36 condition months in equal monthly 25% on the first anniversary of numbers up to 1 December the vesting commencement 2019 date, being 1 October 2015 and 4,340 vest immediately on 1/48th over the next 36 months grant date and 2,150 monthly in equal monthly numbers up thereafter over the next 35 to 1 October 2018, subject to months up to 1 January 2019 performance conditions subject to holding the office of Director of the Company 01-Oct-13 25% on the first anniversary of 01-Feb-16 9,950 535 vest immediately on grant the grant date, being 1 October date and 269 monthly 2014 and 1/48th over the next thereafter over the next 35 36 months in equal monthly months up to 1 January 2019 numbers up to 1 October 2017, subject to holding the office of subject to a liquidity event Chair of the Company's Audit & condition Risk Committee 03-Jun-14 299,640 Equal monthly vesting over 36 35.42% on the first anniversary 05-Mar-15 months commencing from 3 of the grant date, being 5 June 2014 to 3 May 2017, March 2016 and 1/48th over subject to a liquidity event the next 31 months in equal condition monthly numbers up to 1 25% to vest on 1 March 2017 October 2018, subject to and 1/48th over the next 36 performance conditions and months in equal monthly liquidity event numbers up to 1 March 2020 25-Nov-15 Equal monthly vesting over 48 01-Nov-15 480,000 25% to vest on 1 March 2017 months commencing from 1 and 1/48th over the next 36 December 2015 to 1 November months in equal monthly 2019 numbers up to 1 March 2020 25% on the first anniversary of 25% on the first anniversary of the vesting commencement the grant date, being 25 date, being 1 October 2015 and November 2014 and 1/48th 1/48th over the next 36 months over the next 36 months in in equal monthly numbers up equal monthly numbers up to 1 to 1 October 2018, subject to November 2017, subject to a performance conditions liquidity event condition 01-Oct-24 $0.48 $312,900 400,000 0% 01-Oct-21 $0.00 $379,768 329,320 0% 01-Oct-18 $0.00 $69,806 50,040 14-Dec-25 $1.20 $672,285 - 0% 0% - - - - 20% 240,000 $250,320 0% 0% 0% - - - $379,768 $69,806 $672,285 01-Oct-24 $0.48 $250,320 320,000 28% 272,000 20% 192,000 $200,256 01-Feb-26 $0.00 $95,846 12,940 0% 01-Oct-18 01-Feb-26 $0.00 $0.00 $100,440 $11,982 72,000 1,611 0% 0% 03-Jun-21 05-Mar-25 $0.00 $0.51 $104,499 $614,400 99,880 800,000 0% 0% 01-Nov-25 $0.00 $93,150 - 0% 01-Nov-25 01-Nov-25 $0.00 $0.75 $696,924 $179,731 84,399 - 0% 0% 05-Mar-25 25-Nov-20 $0.51 $0.00 $464,891 $201,829 617,920 144,680 0% 0% 24-Nov-21 01-Oct-20 $0.00 $0.00 $278,075 229,080 $275,638 197,600 0% 0% 01-Nov-25 01-Oct-21 $0.85 $0.00 $235,193 $379,768 329,320 - 0% 0% 37 - - - - - - - - - - - - - - 0% 0% 0% - - - $95,846 $100,440 $11,982 0% 20% - 480,000 $104,499 $491,520 0% 0% 0% - - - $93,150 $696,924 $179,731 20% 0% 370,800 - $371,912 $201,829 0% 0% 0% 0% - - - - $278,075 $275,638 $235,193 $379,768 n/a $0.00 $44,992 17,200 19% 17,200 81% 71,280 $8,746 14-Dec-25 $1.20 $672,285 - 0% - - - - - - - - - - - - - - - - - - - - 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% - - - - - - - - - - - - - - - - - - $672,285 $95,846 $108,631 $28,374 $11,982 $4,687 $696,924 $19,146 $201,829 $148,019 $108,631 $28,374 $19,146 $148,019 20-Mar-15 206,480 Equal monthly vesting over 36 n/a $0.00 $104,995 40,160 19% 40,160 81% 166,320 $20,421 Grant Murdoch 01-Feb-16 79,590 01-Feb-26 $0.00 $95,846 12,940 Stephanie Tilenius 12-May-14 731,520 12-May-21 $0.37 $108,631 243,840 01-Jun-14 01-Feb-16 9,950 535 vest immediately on grant 1/3rd on the first anniversary of 81,360 01-Jun-19 01-Feb-26 $0.00 $0.00 $28,374 $11,982 27,120 1,611 Barry Newstead Denali Venture 05-Mar-15 28-Mar-13 2,400,000 138,480 35.42% on the first anniversary Equal yearly vesting over 3 05-Mar-25 28-Mar-20 $0.51 $0.00 $614,400 $26,370 800,000 46,160 0% 0% 20% 0% 480,000 - $491,520 $26,370 14-Nov-13 13,440 October 2018, subject to Equal yearly vesting over 3 14-Nov-20 $0.00 $4,687 4,480 0% 25-Nov-15 578,720 subject to a liquidity event Equal monthly vesting over 48 01-Nov-25 $0.00 $696,924 84,399 Denali Capital 21-Dec-12 654,560 December 2015 to 1 November 21 December 2012 31-Dec-16 $0.14 $19,146 25-Nov-13 578,720 25% on the first anniversary of 25-Nov-20 $0.00 $201,829 144,680 Jellicom Pty Ltd as 08-Aug-12 1,600,200 November 2014 and 1/48th Equal monthly vesting over 12 01-Oct-18 $0.14 $148,019 Martin Hosking) 25-Nov-14 578,720 25% on the first anniversary of 2014, effective 1 November 24-Nov-21 $0.00 $278,075 229,080 0% 0% $278,075 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. over the next 36 months in (2) Value at grant date for options / performance rights has been determined by using the Black-Scholes method. equal monthly numbers up to 1 November 2018, subject to a (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity liquidity event condition event condition being satisfied). The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. 680,000 25% on the first anniversary of 01-Nov-25 $0.85 $235,193 - Chris Nunn 01-Nov-15 0% 0% $235,193 (4) For Barry Newstead, Corina Davis, Martin Hosking and Rob Baumert, the noting of options as 'forfeited/lapsed' (20% in each case) in fact reflects that 80% of a total pool of shares became subject to the the grant date, being 1 option for each individual, following determination of company performance conditions outlined in the relevant option agreements. November 2016 and 1/48th (5) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This over the next 36 months in grant will be put up for shareholders' approval during the AGM. equal monthly numbers up to 1 November 2019 20-Mar-15 88,480 Equal monthly vesting over 36 n/a $0.00 $44,992 17,200 19% 17,200 81% 71,280 $8,746 20-Mar-15 206,480 Equal monthly vesting over 36 n/a $0.00 $104,995 40,160 19% 40,160 81% 166,320 $20,421 Stephanie Tilenius 12-May-14 731,520 Equal monthly vesting over 36 12-May-21 $0.37 $108,631 243,840 0% 01-Jun-14 81,360 1/3rd on the first anniversary of 01-Jun-19 $0.00 $28,374 27,120 0% Denali Venture 28-Mar-13 138,480 Equal yearly vesting over 3 28-Mar-20 $0.00 $26,370 46,160 0% $26,370 14-Nov-13 13,440 Equal yearly vesting over 3 14-Nov-20 $0.00 $4,687 4,480 0% $4,687 Denali Capital 21-Dec-12 654,560 21 December 2012 31-Dec-16 $0.14 $19,146 Jellicom Pty Ltd as 08-Aug-12 1,600,200 Equal monthly vesting over 12 01-Oct-18 $0.14 $148,019 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% - - - - date, being 1 December 2016 Chair of the Company's Audit & and 1/48th over the next 36 Risk Committee months in equal monthly numbers up to 1 December months commencing from 1 2019 April 2015 to 1 March 2018, 4,340 vest immediately on subject to holding the office of grant date and 2,150 monthly Director of the Company thereafter over the next 35 Equal monthly vesting over 36 months up to 1 January 2019 months commencing from 1 subject to holding the office of June 2014 to 1 May 2017 Director of the Company the grant date, being 1 June date and 269 monthly 2015 and 1/36th over the next thereafter over the next 35 24 months in equal monthly months up to 1 January 2019 numbers up to 1 June 2017, subject to holding the office of subject to a liquidity event Chair of the Company's Audit & condition Risk Committee of the grant date, being 5 years commencing from 1 March 2016 and 1/48th over March 2014 to 1 March 2016, the next 31 months in equal subject to a liquidity event monthly numbers up to 1 condition performance conditions and years commencing from 1 liquidity event March 2014 to 1 March 2016, condition months commencing from 1 2019 the grant date, being 25 over the next 36 months in months commencing from 1 equal monthly numbers up to 1 October 2011 to 1 September November 2017, subject to a 2012. These were transferred liquidity event condition from Martin Hosking on 2 May 2011 the grant date, being 25 November 2015 and 1/48th months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Chair of the Company's Audit & Risk Committee months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Director of the Company months commencing from 1 June 2014 to 1 May 2017 the grant date, being 1 June 2015 and 1/36th over the next 24 months in equal monthly numbers up to 1 June 2017, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition months commencing from 1 October 2011 to 1 September 2012. These were transferred from Martin Hosking on 2 May 2014, effective 1 November 2011 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Value at grant date for options / performance rights has been determined by using the Black-Scholes method. (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied). The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. (4) For Barry Newstead, Corina Davis, Martin Hosking and Rob Baumert, the noting of options as 'forfeited/lapsed' (20% in each case) in fact reflects that 80% of a total pool of shares became subject to the option for each individual, following determination of company performance conditions outlined in the relevant option agreements. (5) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. Annual Report 2016 - - - - Equity grants outstanding # of options/ Grant date rights granted Vest period/date Richard Cawsey (5) 27-Oct-09 720,000 Equal monthly vesting over 36 Value of options/ Vested rights at grant during the Exercise Expiry date price 01-Mar-17 $0.05 date (2) $15,840 year # (3) Exercised % Exercised # lapsed %(4) lapsed #(4) Forfeited/ Forfeited/ 0% 0% 0% 0% Value of options/ rights post forfeiture $15,840 $15,840 29-Sep-10 720,000 Equal monthly vesting over 36 01-Oct-17 $0.05 $15,840 Rob Baumert 01-Sep-11 1,267,200 Equal monthly vesting over 48 21-Jul-17 $0.13 $56,074 52,800 63% 800,000 0% $56,074 24-Oct-14 1,200,000 25% on the first anniversary of 01-Oct-24 $0.48 $312,900 400,000 0% 20% 240,000 $250,320 01-Oct-13 200,160 25% on the first anniversary of 01-Oct-18 $0.00 $69,806 50,040 0% 0% - $69,806 Corina Davis 24-Oct-14 960,000 25% on the first anniversary of 01-Oct-24 $0.48 $250,320 320,000 28% 272,000 20% 192,000 $200,256 01-Oct-13 288,000 25% on the first anniversary of 01-Oct-18 $0.00 $100,440 72,000 0% 0% $100,440 Teresa Engelhard 03-Jun-14 299,640 Equal monthly vesting over 36 03-Jun-21 $0.00 $104,499 99,880 0% 0% $104,499 Vanessa Freeman 01-Nov-15 120,000 25% to vest on 1 March 2017 01-Nov-25 $0.00 $93,150 01-Nov-15 480,000 25% to vest on 1 March 2017 01-Nov-25 $0.75 $179,731 0% 0% 0% 0% $93,150 $179,731 Martin Hosking 05-Mar-15 1,854,000 25% on the first anniversary of 05-Mar-25 $0.51 $464,891 617,920 0% 20% 370,800 $371,912 01-Oct-13 790,360 25% on the first anniversary of 01-Oct-20 $0.00 $275,638 197,600 0% 0% $275,638 01-Oct-14 790,360 25% on the first anniversary of 01-Oct-21 $0.00 $379,768 329,320 0% 0% $379,768 Victor Kovalev 14-Dec-15 1,200,000 25% on the first anniversary of 14-Dec-25 $1.20 $672,285 - 0% 0% $672,285 Grant Murdoch 01-Feb-16 79,590 4,340 vest immediately on 01-Feb-26 $0.00 $95,846 12,940 0% 0% $95,846 01-Feb-16 9,950 535 vest immediately on grant 01-Feb-26 $0.00 $11,982 1,611 0% 0% $11,982 Barry Newstead 05-Mar-15 2,400,000 35.42% on the first anniversary 05-Mar-25 $0.51 $614,400 800,000 0% 20% 480,000 $491,520 25-Nov-15 578,720 01-Nov-25 $0.00 $696,924 84,399 0% $696,924 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0% 0% 0% $201,829 $278,075 months commencing from 1 April 2010 to 1 March 2013 months commencing from 1 October 2010 to 1 September 2013 2015 months commencing from 1 September 2011 to 1 August the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition months commencing from 3 June 2014 to 3 May 2017, subject to a liquidity event condition and 1/48th over the next 36 months in equal monthly numbers up to 1 March 2020 and 1/48th over the next 36 months in equal monthly numbers up to 1 March 2020 the vesting commencement date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition the grant date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to a liquidity event condition the vesting commencement date, being 1 December 2016 and 1/48th over the next 36 months in equal monthly numbers up to 1 December 2019 grant date and 2,150 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Director of the Company date and 269 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Chair of the Company's Audit & Risk Committee of the grant date, being 5 March 2016 and 1/48th over the next 31 months in equal monthly numbers up to 1 October 2018, subject to performance conditions and liquidity event Equal monthly vesting over 48 months commencing from 1 December 2015 to 1 November 2019 25% on the first anniversary of the grant date, being 25 November 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2017, subject to a liquidity event condition Equity grants outstanding 25-Nov-14 578,720 25% on the first anniversary of 24-Nov-21 $0.00 $278,075 229,080 0% 25-Nov-20 $0.00 $201,829 144,680 0% Warrants over Ordinary Shares holdings 25-Nov-13 578,720 These were issued in terms of the Facility Agreement. the grant date, being 25 November 2015 and 1/48th Balance at the over the next 36 months in start of the equal monthly numbers up to 1 year November 2018, subject to a liquidity event condition 2016 # of options/ rights granted Vest period/date Related Party Denali Capital Managers Pty Ltd Grant date 01-Nov-15 Granted during the year as compensation Expiry date 01-Mar-17 01-Nov-25 Exercised during the year Exercise price $0.05 $0.85 Equivalent post-split numbers (1) Forfeited during the year Value of options/ rights at grant Balance at the Vested end of the year during the Vested and exercisable at the end of the year Unvested at the end of the year Forfeited/ date (2) $15,840 $235,193 year # (3) Exercised % 0% 0% 654,560 Exercised # lapsed %(4) 0% 0% - 0% 81% 0% 20% 81% - - - - - - - 0% n/a 19% 63% $0.00 $0.13 $0.05 88,480 17,200 52,800 17,200 731,520 680,000 $44,992 800,000 $56,074 $15,840 0% 19% 21-Jul-17 01-Oct-17 - - 654,560 01-Sep-11 20-Mar-15 1,267,200 1,200,000 $0.48 $0.00 Rob Baumert - 40,160 400,000 40,160 01-Oct-24 n/a $312,900 $104,995 Stephanie Tilenius 12-May-14 (Beneficiary - Richard Cawsey) (2) Richard Cawsey (5) 27-Oct-09 720,000 Equal monthly vesting over 36 25% on the first anniversary of Chris Nunn 654,560 months commencing from 1 the grant date, being 1 April 2010 to 1 March 2013 November 2016 and 1/48th (1) Effective 1 December 2015, each share of the company was split into 40. The warrant holdings above have been converted to equivalent post-split over the next 36 months in 29-Sep-10 720,000 Equal monthly vesting over 36 numbers. equal monthly numbers up to 1 months commencing from 1 (2) Denali Capital Managers Pty Ltd (Denali), an associated entity of Richard Cawsey, was issued with the warrants set out above as consideration for November 2019 October 2010 to 1 September Denali providing a loan facility to the Company. The loan facility agreement terminated in December 2012. The warrants may be exercised at any time Equal monthly vesting over 36 2013 up to and including 31 December 2016. months commencing from 1 Equal monthly vesting over 48 April 2015 to 1 March 2018, months commencing from 1 subject to holding the office of September 2011 to 1 August Chair of the Company's Audit & 2015 Risk Committee 24-Oct-14 25% on the first anniversary of 20-Mar-15 206,480 Equal monthly vesting over 36 the vesting commencement months commencing from 1 date, being 1 October 2015 and April 2015 to 1 March 2018, 1/48th over the next 36 months subject to holding the office of in equal monthly numbers up Director of the Company to 1 October 2018, subject to Equal monthly vesting over 36 performance conditions months commencing from 1 June 2014 to 1 May 2017 25% on the first anniversary of 1/3rd on the first anniversary of the grant date, being 1 October the grant date, being 1 June 2014 and 1/48th over the next 2015 and 1/36th over the next 36 months in equal monthly 24 months in equal monthly numbers up to 1 October 2017, numbers up to 1 June 2017, subject to a liquidity event subject to a liquidity event condition condition 25% on the first anniversary of the vesting commencement Equal yearly vesting over 3 date, being 1 October 2015 and years commencing from 1 1/48th over the next 36 months March 2014 to 1 March 2016, in equal monthly numbers up subject to a liquidity event to 1 October 2018, subject to condition performance conditions Equal yearly vesting over 3 years commencing from 1 25% on the first anniversary of March 2014 to 1 March 2016, the grant date, being 1 October subject to a liquidity event 2014 and 1/48th over the next condition 36 months in equal monthly 21 December 2012 numbers up to 1 October 2017, subject to a liquidity event condition Denali Venture Partners (Aust) - (Beneficiary - Richard Cawsey) 01-Oct-18 01-Jun-19 01-Oct-13 01-Jun-14 $69,806 $28,374 200,160 81,360 50,040 27,120 $0.00 $0.00 Corina Davis 12-May-21 28-Mar-20 28-Mar-13 14-Nov-20 14-Nov-13 31-Dec-16 21-Dec-12 $250,320 $100,440 $108,631 01-Oct-24 01-Oct-18 24-Oct-14 01-Oct-13 $26,370 320,000 272,000 960,000 138,480 654,560 $19,146 288,000 243,840 0% 0% 46,160 $4,687 72,000 13,440 $0.00 $0.00 $0.14 $0.48 $0.00 4,480 $0.37 28% 0% 0% 0% 0% 0% - - - - - - - - 0% 0% 0% 0% 0% 0% 20% 0% Value of options/ rights post forfeiture $15,840 $235,193 Forfeited/ lapsed #(4) - - - $15,840 71,280 $8,746 - $56,074 240,000 166,320 $250,320 $20,421 - - - $108,631 $69,806 $28,374 192,000 $200,256 - - - - $26,370 $4,687 $100,440 $19,146 $104,499 $148,019 - - - - $0.00 0% 0% 0% 0% 120,000 01-Nov-15 01-Nov-25 1,600,200 $0.00 $0.14 99,880 - $104,499 $148,019 03-Jun-21 01-Oct-18 03-Jun-14 299,640 Equal monthly vesting over 36 08-Aug-12 Equal monthly vesting over 12 months commencing from 3 months commencing from 1 June 2014 to 3 May 2017, October 2011 to 1 September subject to a liquidity event 2012. These were transferred condition from Martin Hosking on 2 May 25% to vest on 1 March 2017 2014, effective 1 November and 1/48th over the next 36 2011 months in equal monthly numbers up to 1 March 2020 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. 01-Nov-15 480,000 25% to vest on 1 March 2017 and 1/48th over the next 36 (2) Value at grant date for options / performance rights has been determined by using the Black-Scholes method. months in equal monthly (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity numbers up to 1 March 2020 event condition being satisfied). The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. $0.51 25% on the first anniversary of Martin Hosking (4) For Barry Newstead, Corina Davis, Martin Hosking and Rob Baumert, the noting of options as 'forfeited/lapsed' (20% in each case) in fact reflects that 80% of a total pool of shares became subject to the the vesting commencement option for each individual, following determination of company performance conditions outlined in the relevant option agreements. date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to performance conditions (5) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. 1,854,000 05-Mar-25 05-Mar-15 01-Nov-25 $179,731 $464,891 $93,150 617,920 370,800 $0.75 20% 0% 0% 0% 0% 0% - - - - - - - $179,731 $371,912 $93,150 01-Oct-20 $0.00 $275,638 197,600 0% 01-Oct-21 $0.00 $379,768 329,320 0% 38 14-Dec-25 $1.20 $672,285 - 0% 01-Oct-13 790,360 01-Oct-14 790,360 Victor Kovalev 14-Dec-15 1,200,000 25% on the first anniversary of the grant date, being 1 October 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2017, subject to a liquidity event condition 25% on the first anniversary of the grant date, being 1 October 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 October 2018, subject to a liquidity event condition 25% on the first anniversary of the vesting commencement date, being 1 December 2016 and 1/48th over the next 36 months in equal monthly numbers up to 1 December 2019 grant date and 2,150 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Director of the Company date and 269 monthly thereafter over the next 35 months up to 1 January 2019 subject to holding the office of Chair of the Company's Audit & Risk Committee of the grant date, being 5 March 2016 and 1/48th over the next 31 months in equal monthly numbers up to 1 October 2018, subject to performance conditions and liquidity event months commencing from 1 December 2015 to 1 November 2019 the grant date, being 25 November 2014 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2017, subject to a liquidity event condition the grant date, being 25 November 2015 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2018, subject to a liquidity event condition the grant date, being 1 November 2016 and 1/48th over the next 36 months in equal monthly numbers up to 1 November 2019 months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Chair of the Company's Audit & Risk Committee months commencing from 1 April 2015 to 1 March 2018, subject to holding the office of Director of the Company months commencing from 1 June 2014 to 1 May 2017 the grant date, being 1 June 2015 and 1/36th over the next 24 months in equal monthly numbers up to 1 June 2017, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition years commencing from 1 March 2014 to 1 March 2016, subject to a liquidity event condition months commencing from 1 October 2011 to 1 September 2012. These were transferred from Martin Hosking on 2 May 2014, effective 1 November 2011 - - - - - - - - - - - - - - - - 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% - - - - - - - - - - - - - - - $275,638 $379,768 $672,285 $108,631 $28,374 $19,146 $148,019 Grant Murdoch 01-Feb-16 79,590 4,340 vest immediately on 01-Feb-26 $0.00 $95,846 12,940 0% 0% $95,846 01-Feb-16 9,950 535 vest immediately on grant 01-Feb-26 $0.00 $11,982 1,611 0% 0% $11,982 Barry Newstead 05-Mar-15 2,400,000 35.42% on the first anniversary 05-Mar-25 $0.51 $614,400 800,000 0% 20% 480,000 $491,520 25-Nov-15 578,720 Equal monthly vesting over 48 01-Nov-25 $0.00 $696,924 84,399 0% $696,924 25-Nov-13 578,720 25% on the first anniversary of 25-Nov-20 $0.00 $201,829 144,680 0% $201,829 25-Nov-14 578,720 25% on the first anniversary of 24-Nov-21 $0.00 $278,075 229,080 0% 0% $278,075 Chris Nunn 01-Nov-15 680,000 25% on the first anniversary of 01-Nov-25 $0.85 $235,193 - 0% 0% $235,193 20-Mar-15 88,480 Equal monthly vesting over 36 n/a $0.00 $44,992 17,200 19% 17,200 81% 71,280 $8,746 20-Mar-15 206,480 Equal monthly vesting over 36 n/a $0.00 $104,995 40,160 19% 40,160 81% 166,320 $20,421 Stephanie Tilenius 12-May-14 731,520 Equal monthly vesting over 36 12-May-21 $0.37 $108,631 243,840 0% 01-Jun-14 81,360 1/3rd on the first anniversary of 01-Jun-19 $0.00 $28,374 27,120 0% Denali Venture 28-Mar-13 138,480 Equal yearly vesting over 3 28-Mar-20 $0.00 $26,370 46,160 0% $26,370 14-Nov-13 13,440 Equal yearly vesting over 3 14-Nov-20 $0.00 $4,687 4,480 0% $4,687 Denali Capital 21-Dec-12 654,560 21 December 2012 31-Dec-16 $0.14 $19,146 Jellicom Pty Ltd as 08-Aug-12 1,600,200 Equal monthly vesting over 12 01-Oct-18 $0.14 $148,019 - - 0% 0% Partners (Aust) - (Beneficiary - Richard Cawsey) Managers Pty Ltd (Beneficiary - Richard Cawsey) trustee for the Three Springs Family Trust (Beneficiary - Martin Hosking) (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post-split numbers. (2) Value at grant date for options / performance rights has been determined by using the Black-Scholes method. (3) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied). The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. (4) For Barry Newstead, Corina Davis, Martin Hosking and Rob Baumert, the noting of options as 'forfeited/lapsed' (20% in each case) in fact reflects that 80% of a total pool of shares became subject to the option for each individual, following determination of company performance conditions outlined in the relevant option agreements. (5) In October 2014, the Board approved a grant of 248,360, $Nil price options to Richard Cawsey, vesting over 3 years from 1 October 2014. However, the agreement was not executed at that time. This grant will be put up for shareholders' approval during the AGM. Denali Capital Managers Pty Ltd (Beneficiary - Richard Cawsey) Teresa Engelhard Jellicom Pty Ltd as trustee for the Three Springs Family Trust (Beneficiary - Vanessa Freeman Martin Hosking) Redbubble 9. Loans, transactions and other balances with KMP and their related parties 9.1 Other transactions with KMP Richard Cawsey, the Chair of the Board, is a partner of Denali Venture Partners. Denali Venture Partners has provided various consulting services to the Group for which fees of $50,000 were paid. The consulting fees are based on the time and service provided and the rates are equivalent to other similarly sized entities. As at 30 June 2016, there was no balance outstanding towards the consulting fees. Chris Nunn (CFO), is a director of Elite Executive Services Pty Ltd, which provided executive relocation services to the employees of Redbubble during the year for which the fees totaled $12,710. The fees are based on the time and service provided and the rates are equivalent to other similarly sized entities. At the year end, the balance outstanding was $1,865. Rob Baumert (CF&AO), exercised a part of his options and sold the related shares during the year ended 30 June 2016, resulting in a receivable balance of $79,000 in relation to exercise and withholding taxes on the sale. As at year end, the balance stands recovered. The Directors’ Report is made in accordance with a resolution of the Directors of the Company. Richard Cawsey Chairman Melbourne 25 August 2016 38 39 Annual Report 2016 Consolidated statement of comprehensive income for the year ended 30 June 2016 40 RedbubbleConsolidated statement of comprehensive income for the year ended 30 June 2016 Consolidated statement of comprehensive income for the year ended 30 June 2016 Revenue from services Operating expenses Fulfiller expenses Employee and contractor costs Marketing expenses Operations and administration Depreciation and amortisation Finance costs Total operating expenses Other income Other expenses Loss before income tax Income tax (expense)/benefit Total loss for the year attributable to owners Other comprehensive income Items that will be reclassified subsequently to profit or loss Loss on foreign currency translation Total other comprehensive loss attributable to owners Total comprehensive loss for the year attributable to owners Loss per share attributable to the ordinary equity holders of the company Basic loss per share Diluted loss per share Notes 4 5 6 7 & 8 9 10 11 12 13 14 14 2016 $'000 114,578 (75,575) (24,696) (9,786) (14,761) (4,009) (1,829) (130,656) 300 (606) (16,384) (3,433) (19,817) (304) (304) (20,121) (0.13) (0.13) 2015 $'000 71,070 (46,998) (14,748) (6,529) (8,776) (2,027) (235) (79,313) 178 (669) (8,734) 2,466 (6,268) (541) (541) (6,809) (0.07) (0.07) The above consolidated statement of comprehensive income should be read in conjunction with accompanying notes. 40 41 Annual Report 2016 Consolidated statement of comprehensive income for the year ended 30 June 2016 Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other current assets Current tax assets Total current assets Non-current assets Property, plant and equipment Intangible assets Other financial assets Deferred tax assets Related party loan Total non-current assets Total assets Current liabilities Trade and other payables Unearned revenue Current tax liabilities Employee benefit liabilities Total current liabilities Non-current liabilities Non-current borrowings Employee benefit liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Share based payment reserve Foreign exchange translation reserve Accumulated losses Total equity Notes 2016 $'000 2015 $'000 15 41,977 13,974 18 490 708 19 181 184 20 40 - 21 919 622 637 - 44,244 15,488 22 1,245 1,191 23 7,416 4,591 20 1,088 517 13 1,649 5,043 36 - 331 11,398 11,673 55,642 27,161 24 13,079 10,285 2,443 1,652 - 83 25 1,070 692 16,592 12,712 26 - 15,166 25 67 46 67 15,212 16,659 27,924 38,983 (763) 27 67,865 9,532 28 3,214 1,680 28 (906) (602) (31,190) (11,373) 38,983 (763) The above consolidated balance sheet should be read in conjunction with accompanying notes. 42 RedbubbleConsolidated balance sheet for the year ended 30 June 2016 Consolidated statement of changes in equity for the year ended 30 June 2016 2015 Balance at 1 July 2014 Loss for the year Other comprehensive loss Total comprehensive loss Exercise of share options Transfer of exercised options Share based payments reserve $'000 Accumulated Losses $'000 9,167 533 (61) (5,105) Share Capital $'000 Foreign exchange translation reserve $'000 Notes Total $'000 4,534 - - - (6,268) (6,268) - - (541) - (541) - - (541) (6,268) (6,809) 27 177 - - - 177 188 (188) - - - Issue of options as share based compensation - 461 - - 461 Issue of performance rights as share based compensation Balance at 30 June 2015 - 874 - - 874 9,532 1,680 (602) (11,373) (763) 2016 Balance as at 1 July 2015 Loss for the year Other comprehensive loss Total comprehensive loss Share based payments reserve Foreign exchange translation reserve Accumulated Losses Share Capital Notes $'000 $'000 $'000 $'000 Total $'000 9,532 1,680 (602) (11,373) (763) - - - (19,817) (19,817) - - (304) - (304) - - (304) (19,817) (20,121) Issue of ordinary shares pursuant to the IPO 27 30,000 - - - 30,000 IPO costs, net of tax 8 (1,433) - - - (1,433) Conversion of cumulative redeemable preference shares 26 16,273 - - - 16,273 Conversion of pre-IPO convertible notes 34 12,250 - - - 12,250 Exercise of share options 27 672 - - - 672 Transfer of exercised options / performance rights 571 (571) - - - Issue of options as share based compensation - 1,361 - - 1,361 Issue of performance rights as share based compensation Balance at 30 June 2016 - 744 - - 744 67,865 3,214 (906) (31,190) 38,983 The above consolidated statement of changes in equity should be read in conjunction with accompanying notes. 42 43 Annual Report 2016 Consolidated statement of changes in equity for the year ended 30 June 2016 Consolidated statement of cash flows for the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments to artists Payments to fulfillers Payments to other suppliers and employees Finance income received Other income Income taxes paid Notes 2016 $'000 2015 $'000 145,442 87,901 (20,364) (12,092) (74,902) (45,191) (54,886) (29,856) 190 40 120 119 (285) (754) Net cash (used in)/provided by operating activities 16 (4,685) 167 Cash flows from investing activities Payment for property, plant and equipment Payment for intangible assets Payment for deposit on capital works Repayment of related party loan and interest Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital pursuant to the IPO IPO costs Proceeds from issue of pre-IPO convertible notes Transaction costs for issue of pre-IPO convertible notes Proceeds from issue of cumulative redeemable preference shares Transaction costs for cumulative redeemable preference shares Proceeds from exercise of share options Transaction costs for establishment of loan facility Net cash provided by financing activities Net increase in cash and cash equivalents held Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash and cash equivalents (812) (1,001) (6,121) (4,216) (331) - 333 53 (6,931) (5,164) 27 30,000 - 8 (1,902) - 34 12,250 10 (608) - - - 15,500 - (437) 27 672 - 177 (245) 40,412 14,995 28,796 9,998 13,974 4,621 (793) (645) 26 26 Cash and cash equivalents at the end of the financial year 15 41,977 13,974 The above consolidated statement of cash flows should be read in conjunction with accompanying notes. 44 Redbubble1. Corporate information The consolidated financial statements of Redbubble Limited for the year ended 30 June 2016 were authorised for issue by a resolution of the Directors on 25 August 2016. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or the areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. The financial report covers Redbubble Limited and its controlled entities as the consolidated group (the Group). (b) Principles of consolidation 
 Redbubble Limited is the ultimate parent company, the parent entity, of the Group. Subsidiaries are all entities over which the Group has control. Control is established when the Group is Redbubble Limited (the Company) is a for profit company exposed to, or has rights to variable returns from its limited by shares, incorporated and domiciled in Australia, involvement with the entity and has the ability to affect whose shares are publicly traded on the Australian Stock those returns through its power to direct the relevant Exchange. The Company completed an Initial Public activities of the entity. Subsidiaries are fully consolidated Offering (IPO) on 16 May 2016 totalling $39.83 million, from the date on which the Group gains control. They which included $30.0 million from a primary issue (note would be deconsolidated from the date that control 27). The Group is a global online marketplace for independent artists. 2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation ceases. A list of the subsidiaries is provided in note 29 to the financial statements. Intercompany transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Foreign currency transaction (i) Functional and presentation currency The functional currency of each of the Group's entities is the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity's functional and presentation currency. These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. (ii) Transaction and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. The financial report is presented in Australian dollars and all the values are rounded to the nearest thousand dollars ($000) unless otherwise stated as disclosed in note 2(w). At the end of the reporting period: • Foreign currency monetary items are translated using the closing exchange rate; (i) Compliance with IFRS • Non-monetary items that are measured at historical The consolidated financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention These financial statements have been prepared under the historical cost convention. (iii) Critical accounting estimates cost are translated using the exchange rate at the date of the transaction; and • Non-monetary items that are measured at fair value are translated using the exchange rate at the date when fair value was determined. 44 45 Annual Report 2016 Exchange differences arising on the settlement of monetary (e) Government grants items or on translating monetary items at exchange rates different from those at which they were translated on initial Grants from government are recognised at the fair recognition or in prior reporting periods are recognised value when there is reasonable assurance that the grant through profit or loss, except where they relate to an item will be received and the Group has complied with the of other comprehensive income. required conditions. Grants relating to expense items (iii) Group companies The results and financial position of all the Group are recognised as income over the periods necessary to match the grant to costs they are compensating. entities that have a functional currency different from (f) Income tax the presentation currency are translated into the The tax expense recognised in the statement of presentation currency (none of which has the currency of comprehensive income relates to current income tax a hyperinflationary economy) as follows: expense plus deferred tax expense (being the movement • Assets and liabilities for each balance sheet are in deferred tax assets and liabilities and unused tax losses translated at the closing exchange rate at the date of during the year). that balance sheet; • Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates; and • All resulting exchange differences are recognised in other comprehensive income. Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for the year and is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. (d) Revenue recognition (i) Revenue from rendering of services The Group provides an internet based marketplace platform and associated logistics services to facilitate the sale of goods from artists to those who want to purchase goods bearing the artists’ designs. Artists display and sell art via the Group’s website. The Group aggregates demand from the buyers to support preferential relationships between third party suppliers, fulfillers and drop shippers and the artists, using the Group’s platform. Revenue from services provided in connection with facilitating the sale of goods is recognised when the amount can be measured reliably at the value of the consideration received or receivable. The Group is acting as the artists’ agent in arranging for the selling of the artist’s goods to customers. The amounts collected on behalf of artists are not recognised in the income statement. The revenue recognised by the Group is Deferred tax is provided on temporary differences which are determined by comparing the carrying amounts of tax bases of assets and liabilities to the carrying amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent: • it is probable that future taxable profits will be available against which the deductible temporary differences and losses can be utilised • the likelihood of continuing to meet the relevant definitions of “same business” are met effectively the cost of fulfilment and shipment plus the • there are no changes in tax legislation that adversely Group’s margin. affect the ability to realise the deferred tax asset benefits. Amounts disclosed as revenue are net of trade discounts, returns, rebates, taxes and fraud. (ii) Interest income Interest income is recognised on a time proportion basis using the effective interest method (EIR). The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument Current tax assets and liabilities are offset where there is a legally enforceable right to set off the recognised amounts and there is an intention either to settle on a net basis or to realise the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset where there is or would be a legal right to set off current tax assets or a shorter period, where appropriate, to the net carrying against current tax liabilities and the deferred tax assets amount of the financial asset. and the deferred tax liabilities relate to income taxes 46 Redbubblelevied by the same taxation authority on either the same (i) Impairment of non-financial assets taxable entity or different taxable entities which intend At the end of each reporting period, the Group assesses either to settle current tax liabilities and assets on a net whether there is any indication that an asset may be basis, or to realise the assets and settle the liabilities impaired. If such an indication exists, an impairment test simultaneously in each future period in which significant is carried out on the asset by comparing the recoverable amounts of deferred tax liabilities or assets are expected amount of the asset, being the higher of the asset’s fair to be settled or recovered. value less costs to dispose, and value in use, to the asset's carrying amount. Current and deferred tax is recognised as income or an expense and included in profit or loss for the period Any excess of the asset’s carrying amount over its except where the tax arises from a transaction which is recoverable amount is recognised immediately in profit recognised in other comprehensive income or equity, in or loss, unless the asset is carried at a revalued amount which case the tax is recognised in other comprehensive income or equity respectively. in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset (g) Property, plant and equipment is treated as a revaluation decrease in accordance with that other Standard. Plant and equipment is measured on a cost basis and is therefore carried at cost less accumulated depreciation and any accumulated impairment losses. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which Depreciation the asset belongs. The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the (j) Inventories Group commencing from the time the asset is held ready Inventories of packaging materials are measured at the for use. Leasehold improvements are depreciated over lower of cost and net realisable value. Cost of inventory is the shorter of either the unexpired period of the lease or determined using the first-in-first-out basis and are net of the estimated useful lives of the improvements. any rebates and discounts received. The depreciation rates used for each class of depreciable asset are shown below: Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of Class of Fixed Assets Useful life Leasehold improvements Life of lease Computer equipment 3 years Furniture and equipment 2-5 years At the end of each annual reporting period, the depreciation method, useful life and residual value of each asset is reviewed. Any revisions are accounted for prospectively as a change in estimate. (h) Intangible assets other than goodwill Capitalised development costs Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Capitalised development costs have a finite useful life and are amortised on a straight-line basis based on the future economic benefits over the useful life of the project, typically between 2 to 3 years. completion and the costs necessary to make the sale. Net realisable value is estimated using the most reliable evidence available at the reporting date and inventory is written down through an obsolescence provision if necessary. (k) Financial assets Loans, trade and other receivables and other financial assets do not include derivative financial assets without fixed or determinable payments that are quoted in an active market. After initial recognition, loans and trade and other receivables are measured at amortised cost using the effective interest method. Any change in their value is recognised in profit or loss. Collectability of financial assets is reviewed on an ongoing basis. Financial assets which are known to be uncollectible are written off by reducing the carrying amount directly. 46 47 Annual Report 2016(l) Cash and cash equivalents terminate an employee’s employment before the normal Cash and cash equivalents comprises cash on hand an offer of benefits in exchange for the termination of retirement date or an employee’s decision to accept and short term deposits which are readily convertible employment. to known amounts of cash and which are subject to an insignificant risk of change in value. Termination benefits are recorded as a provision when the Group can no longer withdraw the offer of those (m) Trade and other payables benefits. Trade and other payables represent the liabilities for (o) Leases goods and services received by the Group that remain unpaid at the end of the reporting period. The balance Lease payments for operating leases, where substantially is recognised as a current liability with the amounts all of the risks and benefits remain with the lessor, are normally paid within 30 days of recognition of the liability. charged as expenses on a straight-line basis over the life of the lease term. (n) Employee benefits (p) Goods and Services Tax (GST), Value Added Tax (VAT) and Sales Tax (i) Wages, salaries, annual and long service leave Provision is made for the Group's liability for employee Revenue, expenses and assets are recognised net of the benefits arising from services rendered by employees to amount of goods and services tax (GST), value added the end of the reporting period. Employee benefits that tax (VAT) and sales tax, except where the amount of are expected to be settled within one year have been GST, VAT and sales tax incurred is not recoverable from measured at the amounts expected to be paid when the the Australian Taxation Office (ATO) or other similar liability is settled. International bodies. Employee benefits expected to be settled more than Receivables and payable are stated inclusive of GST, VAT twelve months after the end of the reporting period have and sales tax, where applicable. been measured at the present value of the estimated future cash outflows to be made for those benefits. The net amount of GST, VAT and sales tax recoverable In determining the liability, consideration is given to from, or payable to, the ATO or other similar International employee wage increases and the probability that the bodies, is included as part of receivables or payables in employee may satisfy vesting requirements. Cash flows the statement of financial position. are discounted using market yields on corporate bonds with terms to maturity that match the expected timing of cash flows. The statement of cash flows includes cash on a gross basis and the GST, VAT and sales tax component of cash Changes in the measurement of the liability are flows arising from investing and financing activities which recognised in profit or loss. is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Employee benefits are presented as current liabilities in the balance sheet if the Group does not have an USA operations are subject to sales tax and UK operations unconditional right to defer settlement of the liability are subject to VAT. for at least 12 months after the reporting date regardless of the classification of the liability for measurement purposes under AASB 119. (q) Equity-settled compensation The Group operates equity-settled share-based payment employee share and option schemes. The fair value (ii) Defined contribution schemes of the equity to which employees become entitled is Obligations for contributions to defined contribution measured at grant date and recognised as an expense superannuation plans are recognised as an employee over the vesting period, with a corresponding increase to benefit expense in profit or loss in the periods in which services are provided by employees. an equity account. (iii) Termination benefits Termination benefits are those benefits paid to an employee as a result of either the Group’s decision to The fair value of options is ascertained using a Black- Scholes pricing model which incorporates all market vesting conditions. The amount to be expensed is determined by reference to the fair value of the options 48 Redbubble or shares granted, this expense takes into account any ordinary shares; • the weighted average number of shares assumed to have been issued for no consideration in relation to the dilutive potential ordinary shares. (t) Parent entity financial information The financial information for the parent entity, Redbubble Limited, disclosed in note 30 has been prepared on the same basis as the consolidated financial statements except investments in subsidiaries. They are accounted for at cost in the financial statements of the parent entity. (u) Segment reporting Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision makers, who provide the strategic direction and management oversight of the Group in terms of monitoring results and approving strategic planning for the business. Given that the internal reporting provided is not disaggregated in a way that identifies any unique reportable segments, the Group has identified being a global online marketplace as its only operating segment. (v) Comparative amounts Comparatives are consistent with prior years, unless otherwise stated. Where a change in comparatives would also affect the opening retained earnings previously presented in a comparative period, an opening statement of financial position at the earliest date of the comparative period would be presented. (w) Rounding of amounts The Company is of the kind referred to in class order 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the class order to the nearest thousand dollars or in certain other cases, nearest dollars, unless otherwise stated. market performance conditions and the impact of any non-vesting conditions but ignores the effect of any service and non-market performance vesting conditions. Non-market vesting conditions are taken into account when considering the number of options expected to vest and at the end of each reporting period, the Group revisits its estimate. Revisions to the prior period estimate are recognised in profit or loss and equity. The fair value of performance rights is determined in accordance with the fair market value of the shares available at the grant date. Up to the date of Listing, the fair value of shares was ascertained by carrying out an independent valuation. (r) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit or loss over the period of borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw- down of the facility, are recognised as transaction costs of the loan to the extent that it is probable that some or all the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is amortised on a straight-line basis over the term of the facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (s) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing: • the profit attributable to owners of the Company, excluding any cost of servicing equity other than ordinary shares; • by the weighted average number of ordinary shares outstanding during the financial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • the after income tax effect of interest and other financing costs associated with the dilutive potential 48 49 Annual Report 20163. Critical accounting estimates (iii) Recognition of deferred tax assets Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense, the incurrence of tax losses and entitlement to non-refundable tax offsets. In evaluating the Group’s ability to recover deferred tax assets within the jurisdiction from which they arise, the Group considers all available positive and negative evidence, including probability of achieving appropriate continuity of ownership levels, likelihood of meeting relevant definitions of “same business”, scheduled reversals of deferred tax liabilities, projected future taxable income and results of recent operations. This evaluation requires significant management judgment. Refer to note 13 for more details. (iv) Share-based payments Equity-settled share-based payments with employees are measured at the fair value of the equity instrument at the grant date. Fair value of options is measured by using a Black-Scholes model and fair value of performance rights is measured by using the fair value of shares available at the grant date. Up to the date of Listing, the fair value of shares was determined by carrying out an independent valuation. Refer to notes 5 and 35 for more details. (v) USA sales tax The Group currently collects and remits sales tax on sales made via the Redbubble website to customers in the US state of California. Management believes a sales tax nexus may exist due to its own offices being situated in that state. Significant management judgement is required to determine if nexus exists in other states. Management has determined that no taxes are payable in relation to sales in other states. and judgements Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under circumstances. The Group makes estimates and assumptions concerning the future which may not equal the related actual results. These are discussed below. (i) Revenue recognition principal versus agent The Group is acting as the artists’ agent in arranging for the selling of the artist’s goods to customers for accounting purposes only. The amounts collected on behalf of artists are not recognised in the income statement. The revenue recognised by the Group is effectively the cost of fulfilment and shipping plus Group’s margin. Given the nature of the relationship between the Group and product fulfillers and the associated risks and rewards, the Group has determined, for accounting purposes only, that it is acting as a principal with respect to fulfillers as opposed to as an agent. (ii) Development costs – capitalisation, valuation and impairment Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Determining the feasibility of the project and the likelihood of the project delivering future economic benefits, which can be measured reliably, is a significant management estimate and judgement. Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project, typically between 2 to 3 years and are considered for impairment at each reporting date. Refer to note 23 for more details. 50 Redbubble 4. Fulfiller expenses Fulfiller expenses (1) Total fulfiller expenses 2016 $'000 2015 $'000 75,575 46,998 75,575 46,998 (1) Fulfiller expenses comprise of product and printing, shipping and transaction costs and are equivalent to cost of goods sold. 5. Employee and contractor costs Salary costs Contractor costs Share-based payments and other long-term incentives Superannuation costs and other pension related costs (1) Total employee and contractor costs 2016 $'000 2015 $'000 16,819 10,745 4,575 1,958 2,105 1,340 1,197 705 24,696 14,748 (1) Includes contribution to 401K funds, which is the superannuation equivalent for the USA subsidiary. 6. Marketing expenses Paid marketing Other marketing expenses Total marketing expenses 7. Operations and administration Technology infrastructure and software costs IPO costs (note 8) Travel expenses Rental expense on operating leases Recruiting expenses Other operations and administration expenses Total operations and administration 2016 $'000 7,661 2,125 9,786 2015 $'000 4,260 2,269 6,529 2016 $'000 2015 $'000 4,352 2,071 2,011 - 1,480 998 1,208 991 1,009 1,098 4,701 3,618 14,761 8,776 50 51 Annual Report 2016 8. Initial Public Offering (IPO) costs IPO costs expensed IPO costs, net of tax, charged to equity Total IPO costs 2016 $'000 2015 $'000 2,011 - 1,433 - 3,444 - In May 2016, the Company completed an IPO totalling $39.83 million. The IPO comprised a primary issue of 22,556,391 ordinary shares ($30.00 million) and a secondary sale 7,393,401 shares ($9.83 million). Total costs of $3.44 million were incurred as a result of the offer of which $1.43 million ($1.90 million before tax) related to the primary issue and has been charged to equity in accordance with AASB132 (note 27). 9. Depreciation and amortisation Depreciation of property, plant and equipment (note 22) Amortisation of capitalised development costs (note 23) Total depreciation and amortisation 10. Finance costs 2016 $'000 752 3,257 4,009 2015 $'000 249 1,778 2,027 2016 $'000 2015 $'000 Interest and amortised transaction costs on cumulative redeemable preference shares (CRPS) (1) Transaction costs on pre-IPO convertible notes (Convertible Notes) (2) Transaction costs on loan facility with the Commonwealth Bank of Australia (CBA) (3) Total finance costs 1,108 103 608 - 113 132 1,829 235 (1) The CRPS were issued on 21 May 2015 and converted into ordinary shares upon the IPO. The interest for the year up to the date of IPO of $0.69 million is included above. The transaction costs incurred in relation thereto were being amortised over a period of 3 years. On conversion, however, the remaining unamortised transaction costs of $0.42 million were amortised (note 26). (2) On 21 March 2016, the Company raised $12.25 million (face value) by issuing Convertible Notes which converted into ordinary shares upon the IPO. The transaction costs of $0.61 million incurred in relation thereto have been expensed during the year (note 34). (3) Represents amortisation of transaction costs incurred for establishment of a loan facility with CBA that expired on 8 December 2015 and was not renewed. 52 Redbubble 11. Other income Finance income Government grant - export market development grant Total other income 12. Other expenses Net foreign exchange loss recognised in loss before income tax Other expenses Total other expenses 13. Income tax (a) Income tax expense/(benefit) Current tax Deferred tax Over provision in prior years Total income tax expense/(benefit) Deferred income tax expense/(benefit) included in income tax expense/(benefit) comprises: Decrease/(increase) in deferred tax assets Increase in deferred tax liability Deferred tax 2016 $'000 180 120 300 2016 $'000 598 8 606 2016 $'000 (424) 3,863 (6) 3,433 2,910 953 3,863 2015 $'000 59 119 178 2015 $'000 661 8 669 2015 $'000 951 (3,313) (104) (2,466) (3,917) 604 (3,313) 52 53 Annual Report 2016 13. Income tax (continued) (b) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable Loss from ordinary activities before income tax expense/(benefit) Income tax calculated @ 30% Tax effect of amounts that are not deductible/(taxable) in calculating income tax: Tax effect of non-allowable items Tax effect of US tax rate 2016 $'000 (16,384) (4,915) 153 14 2015 $'000 (8,734) (2,620) 206 28 Unrecognised tax losses and research and development tax offsets 7,764 - Recognition of previously unrecognised deferred tax assets in the US subsidiary US income tax benefit due to exercise/disposition of employee stock options (475) - (401) - Research and development Share-based payments Other non-deductible/non-assessable items Income tax adjusted for permanent differences: Effect of movements in foreign exchange Over provision in prior year Income tax expense/(benefit) attributable to loss from ordinary activities 923 475 115 (214) (6) 3,433 (311) 252 89 (6) (104) (2,466) 54 Redbubble 13. Income tax (continued) (c) Deferred tax assets (c) Deferred tax assets The balance comprises temporary differences attributable to: (c) Deferred tax assets The balance comprises temporary differences attributable to: The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Amounts recognised in profit or loss: Employee benefits Employee benefits Carry forward state tax credits Carry forward state tax credits Deferred expenditure - other Deferred expenditure - other Unrealised foreign exchange losses Unrealised foreign exchange losses Legal and acquisition costs Legal and acquisition costs Carried forward tax losses Carried forward tax losses Research and development tax offset Research and development tax offset Property, plant, equipment and intangible assets Property, plant, equipment and intangible assets IPO costs IPO costs Other items Other items Net deferred tax assets Net deferred tax assets Movements: Movements: Opening balance at 1 July Opening balance at 1 July Credited to the consolidated balance sheet Credited to the consolidated balance sheet (Debited)/Credited to the consolidated statement of comprehensive income (Debited)/Credited to the consolidated statement of comprehensive income Closing balance at 30 June Closing balance at 30 June 2016 2016 $'000 $'000 2015 2015 $'000 $'000 536 536 133 133 361 361 - - 127 127 385 385 - - (973) (973) 141 141 1,649 1,649 563 563 61 61 85 85 287 287 171 171 2,474 2,474 2,175 2,175 (769) (769) 939 - 939 - (4) (4) 5,043 5,043 5,043 5,043 469 469 (3,863) (3,863) 1,649 1,649 - - 1,730 1,730 3,313 3,313 5,043 5,043 (d) Unrecognised deferred tax assets (d) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: (1) (d) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: (1) Deferred tax assets have not been recognised in respect of the following items (1): Tax losses Tax losses Research and development tax offsets Research and development tax offsets Total Total 2016 2016 $'000 $'000 5,088 5,088 2,676 2,676 7,764 7,764 2015 2015 $'000 $'000 - - - - - - (1) During the current year, the Group de-recognised deferred tax assets (DTA) of $4.65 million attributable to Australian carried forward tax (1) During the current year, the Group de-recognised deferred tax assets (DTA) of $4.65 million attributable to Australian carried forward tax losses and non-refundable research and development offsets up to 30 June 2015, reflecting a more conservative approach to the treatment of losses and non-refundable research and development offsets up to 30 June 2015, reflecting a more conservative approach to the treatment of tax losses. Further, DTA of $3.11 million in relation to tax losses incurred and non-refundable research and development offsets up to the date tax losses. Further, DTA of $3.11 million in relation to tax losses incurred and non-refundable research and development offsets up to the date of IPO have not been recognised. of IPO have not been recognised. 54 55 Annual Report 2016 14. Loss per share Information concerning the classification of securities (i) Fully paid ordinary shares All ordinary shares are fully paid and have been included in determination of both the basic loss per share and the diluted loss per shares. (ii) Potential ordinary shares None of the options over ordinary shares, performance rights, warrants over ordinary shares and former preference shares that could be considered as potential ordinary shares have been included in determination of diluted EPS, since they are anti-dilutive. Due to losses incurred during the current as well the prior year, inclusion of potential ordinary shares in weighted average number of shares would increase the denominator used in calculating diluted EPS and thereby reduce the loss per share. Basic loss per share Basic loss per share attributable to the ordinary equity holders of the company Diluted loss per share Diluted loss per share attributable to the ordinary equity holders of the company Weighted average number of shares used as the denominator 2016 $ per share 2015 $ per share (0.13) (0.13) 2016 number (0.07) (0.07) 2015 number Weighted average number of shares used as denominator in calculating basic and diluted loss per share (1) 150,413,364 92,118,160 (1) Effective 1 December 2015, each share of the Company was split into 40. The weighted average number of shares has been converted to equivalent post split number. Reconciliation of loss used in calculating loss per share Loss attributable to the ordinary equity holders of the company used in calculating basic and diluted loss per share 2016 $'000 (19,817) 2015 $'000 (6,268) 56 Redbubble 15. Cash and cash equivalents Cash at bank and on hand Fixed term bank deposits (1) Total cash and cash equivalents 2016 $'000 2015 $'000 20,977 3,974 21,000 10,000 41,977 13,974 (1) Fixed term bank deposits attract interest at normal term deposit rates. They are placed for a period of 1-3 months and are not subject to any risk of change of values. 16. Reconciliation of loss for the year to net cash (outflow)/inflow from operating activities Loss for the year Non-cash items De-recognition/(recognition) of deferred tax asset Depreciation and amortisation Amortisation of share-based payments Unrealised foreign exchange losses 2016 $'000 2015 $'000 (19,817) (6,268) 3,863 (3,313) 4,009 2,027 2,105 1,340 868 799 Net loss on the disposal/write off of property, plant and equipment and intangible assets 82 34 Finance costs on CRPS and loan facility with CBA Classified as investing/financing activities Interest on related party loan Transaction costs on Convertible Notes Change in operating assets and liabilities Decrease/(Increase) in trade and other receivables Increase in prepayments Decrease/(Increase) in inventories (Increase)/Decrease in current tax assets Increase in other financial assets Increase in trade and other payables Increase in unearned revenue (Decrease)/Increase in current tax liabilities Increase in employee benefit liabilities Exchange loss on translation of foreign operations Net cash (outflow)/inflow from operating activities 1,221 235 (2) (6) 608 - 205 (323) (410) (220) 3 (142) (237) 10 (280) (81) 2,655 5,631 867 730 (83) 83 399 263 (341) (632) (4,285) 167 56 57 Annual Report 201617. Financial risk management This note explains the Group’s financial risk management and how the exposure to these risks affects the Group’s future financial performance. The Group’s risk management is carried out by the senior management through delegation from the Board of Directors. The Board oversees and monitors senior management’s implementation of the Group’s risk management framework. This is based on recommendations from the Audit & Risk Committee, where appropriate. The risk management framework includes policies and procedures approved by the Board and managed by internal legal counsel and the finance function. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Other financial assets Related party loan Financial liabilities Trade and other payables Non-current borrowings (principal) Non-current borrowings (interest) Notes 2016 $'000 2015 $'000 15 41,977 13,974 18 490 708 20 1,128 36 - 517 331 24 13,079 10,285 26 26 - 15,500 - 87 The carrying value of the assets and liabilities disclosed in the table closely approximates or equals their fair value. Cash and cash equivalents (note 15) and security held with banks (note 20) attract variable interest rates. All other financial assets and liabilities are non-interest bearing. (a) Market risk Foreign exchange risk The Group collects funds from customers in five currencies (USD, AUD, EUR, CAD and GBP) and maintains bank accounts in these currencies. The Group has liabilities to vendors or artists in these currencies. The Group settles its liabilities in the native currency hence creating a natural hedge. Any surplus funds are converted to AUD or USD based operating accounts when management feels it is prudent to do so. During the year, the Group began to employ European suppliers for European sales. The Group is progressively localising fulfilment which will further aid in the natural hedge. 58 Redbubble17. Financial risk management (continued) (a) Market risk (continued) The foreign currency assets and liabilities (expressed in AUD) held by the Group, which are largely held by the USA subsidiary whose functional currency is USD, are as below: At 30 June 2016 Cash and cash equivalents Trade receivables Trade and other payables Net exposure At 30 June 2015 Cash and cash equivalents Trade receivables Trade and other payables Net exposure GBP $'000 USD $'000 EUR $'000 1,677 105 1,389 76 - 36 (1,275) 478 (272) (167) (1,043) 382 GBP $'000 426 USD $'000 (17) 133 - (1,450) (891) (202) (219) EUR $'000 331 60 (210) 181 CAD $'000 450 26 (118) 358 CAD $'000 64 35 (74) 25 Total $'000 3,621 138 (2,708) 1,051 Total $'000 804 228 (1,936) (904) Since the foreign currency exposure as at year-end is minimal, the impact of movement in foreign exchange rates on Group’s net profit and equity would be immaterial. (b) Credit risk Credit risk is a risk that counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group faces primary credit risk from potential default on receivables by payment service providers. The Group receives payments of the balance due from two service providers every 1-3 days. The credit risk of balances held with another service provider is managed by regularly sweeping funds out of the provider accounts into a portfolio of managed banking facilities held with highly rated and regulated financial institutions. (i) Cash and bank balances/financial assets As at 30 June 2016, the Group has $21.0 million (2015: $10.0 million) held in bank deposits, classified as cash and cash equivalents, and $0.44 million (2015: $0.26 million) in deposits placed with banks as security, classified as other financial assets, that attract interest at normal term deposit rates. The Group’s bank accounts are predominantly non-interest bearing accounts. In Australia, funds in excess of the short- term liquidity requirements are moved to savings account that attracts interest at normal bank rates on balances over $0.01 million. The financial assets include certain other operational deposits over and above the deposits placed with banks as security. The banks with which the accounts are maintained/deposits are placed are reputable financial institutions and hence, the credit risk is considered low. Further, the balances are not concentrated with any one bank. 58 59 Annual Report 2016 17. Financial risk management (continued) (b) Credit risk (continued) (ii) Trade receivables The Group is not exposed to any significant credit risk on account of trade receivables. The Group accepts payments either via credit card, Paypal or Amazon payments. In any case, the Group ensures that cash is received up front prior to the product being manufactured. The trade receivables balance as at 30 June 2016 represents amounts receivable from two of these payment service providers. It is believed that the credit risk from collections from payment service providers is minimal. The Group does encounter credit card fraud, which is typical for the industry. Such fraud has been immaterial to the Group. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and ensuring that all term deposits can be converted to funds in accordance with forecast cash usage. Due to the dynamic nature of the underlying business, flexibility in funding is maintained by ensuring ready access to the cash reserves of the business. Term deposits classified as cash and cash equivalents are placed for a period of 1 to 3 months. These can be withdrawn prematurely but may incur a minor penalty in the form of reduced interest earned. During the year, the Group raised $12.25 million by issuing pre-IPO convertible notes (note 34) that were converted into ordinary shares upon IPO. Further, the Group raised $30 million through the IPO (note 27). All financial liabilities are current and anticipated to be repaid over the normal payment terms, usually 30 days. (i) Financial arrangements The Group had no borrowing facilities at the end of reporting period. Fixed rate Expiring within one year (bank loan) 2016 $'000 Drawn 2015 $'000 Undrawn 2015 $'000 2016 $'000 2016 $'000 Total 2015 $'000 - - - 5,000 - 5,000 Expiring beyond one year (cumulative redeemable preference shares) - 15,500 - - - 15,500 Total - 15,500 - 5,000 - 20,500 The cumulative redeemable preference shares were converted into ordinary shares upon the IPO (note 26). (ii) Maturities of financial liabilities The following table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. 60 Redbubble17. Financial risk management (continued) (c) Liquidity risk (continued) Contractual maturities of financial liabilities At 30 June 2016 Trade and other payables Borrowings (principal) Borrowings (interest) Total financial liabilities Contractual maturities of financial liabilities At 30 June 2015 Trade and other payables Borrowings (principal) Borrowings (interest) Total financial liabilities Less than 6 months $'000 6 to 12 months $'000 Between 1 and 2 years $'000 Between 2 and 3 years $'000 Total contractual cash flows $'000 13,079 - - - 13,079 - - - - - - - - - - 13,079 - - - 13,079 Less than 6 months $'000 6 to 12 months $'000 Between 1 and 2 years $'000 Between 2 and 3 years $'000 Total contractual cash flows $'000 10,285 - - - 10,285 - - - 15,500 15,500 - - - 2,325 2,325 10,285 - - 17,825 28,110 The Group’s policy is to maintain a capital structure for the business which ensures sufficient liquidity, provides support for business operations, maintains shareholder confidence and positions the business for future growth. The Group manages its capital structure and makes adjustments in light of changes in economic conditions. The ongoing maintenance of the Group’s policy is characterised by ongoing cash flow forecast analysis and detailed budgeting processes which, combined with continual development of banking relationships, is directed at providing a sound financial positioning for the Group’s operations and financial management activities. The Group is not subject to externally imposed capital requirements. The Group complied with all the bank lending requirements to maintain the loan facility during the prior year and this year until the facility expired in December 2015. 18. Trade and other receivables Trade receivables Other receivable Total trade and other receivables Ageing of net trade receivables from due date (a) (a) Impairment None of the above balances are impaired or past due. Current - 30 days Closing balance 2016 $'000 2015 $'000 441 695 49 13 490 708 2016 $'000 2015 $'000 441 695 441 695 60 61 Annual Report 2016(b) Ageing of net trade receivables from due date (b) Ageing of net trade receivables from due date Current - 30 days Trade receivables Closing balance Trade receivables Other receivable Other receivable Total trade and other receivables Total trade and other receivables (a) (c) Credit risk and fair value Ageing of net trade receivables from due date 2016 2016 $'000 $'000 2016 - 441 $'000 2015 2015 $'000 $'000 2015 695 695 $'000 - 441 49 695 695 13 49 490 13 708 490 708 Ageing of net trade receivables from due date (a) The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties. Refer to note 17 for more information on the risk management policy of the group. The carrying Current - 30 days amount of trade and other receivables is considered a reasonable approximation of fair value due to the short-term 695 Current - 30 days 695 Closing balance nature of the balances. The maximum exposure to credit risk at the reporting date is the carrying amount of each class 695 Closing balance of receivable in the financial statements. 441 441 441 2016 $'000 2016 441 $'000 2015 $'000 2015 695 $'000 (d) Collateral held as security The Group does not hold any collateral in relation to these receivables. 19. Inventories At cost: Packaging supplies Total inventories 20. Other financial assets (a) Current other financial assets Security held with banks (1) Current deposits/advances Security held with banks (1) Total current financial assets Current deposits/advances Total current financial assets Non-current financial assets (b) Non-current financial assets Non-current other financial assets Security held with banks (1) Non-current deposits/advances (2) Security held with banks (1) Total non-current financial assets Non-current deposits/advances (2) Total non-current financial assets (1) Relates largely to term deposits held as security against lease obligations. (2) Includes capital advances of $0.33 million (2015: $Nil). (1) Relates largely to term deposits held as security against lease obligations. (2) Includes capital advances of $0.33 million (2015: $Nil). (*) Movement has been combined with movement of non-current other financial assets. (*) Movement has been combined with movement of non-current other financial assets. 62 2016 $'000 181 181 2015 $'000 184 184 2016 $'000 2016 36 $'000 4 36 40 4 2015 $'000 2015 $'000 - - - - - 40 - 2016 $'000 2016 409 $'000 679 409 1,088 679 2015 $'000 2015 263 $'000 254 263 517 254 1,088 517 Redbubble 21. Other current assets Prepayments Unamortised borrowing cost (1) Total other current assets 2016 $'000 2015 $'000 919 509 - 113 919 622 (1) On 8 December 2014, the Group entered into a loan facility agreement with the CBA for $5.00 million. The facility term was for one year and expired during the current year. It has not been renewed and there has been no drawdown. The facility was secured by a floating charge on the Group's present and after acquired property. The unamortised transaction costs of $0.11 million as at 30 June 2015 have been amortised during the current year (note 10). 22. Property, plant and equipment Cost Note $'000 $'000 $'000 Leasehold improvements Furniture and equipment Computer equipment Total $'000 Balance at 1 July 2015 754 344 691 1,789 Additions Disposals 124 84 604 812 - - (30) (30) Exchange differences 10 6 6 22 Balance at 30 June 2016 888 434 1,271 2,593 Balance at 1 July 2014 188 151 422 761 Additions Disposals 537 184 280 1,001 - (14) (46) (60) Exchange differences 29 23 35 87 Balance at 30 June 2015 754 344 691 1,789 Accumulated depreciation Balance at 1 July 2015 Charge for the year Disposals Exchange differences Balance at 30 June 2016 Balance at 1 July 2014 Charge for the year Disposals Exchange differences Balance at 30 June 2015 Net book value As at 30 June 2016 As at 30 June 2015 (136) (396) (94) (86) (368) (598) (270) (752) - - 18 18 (1) (533) (44) (81) (1) (181) (45) (47) (14) (16) (634) (1,348) (245) (334) (121) (249) 9 9 - 7 19 26 (11) (136) 355 618 (9) (94) 253 250 (21) (41) (368) 637 323 (598) 1,245 1,191 The property, plant and equipment shown above relates to Redbubble offices in Melbourne and San Francisco. 62 63 Annual Report 2016 23. Intangible Assets Cost Balance at 1 July 2015 Additions Disposals Exchange differences Balance at 30 June 2016 Balance at 1 July 2014 Additions Disposals Exchange differences Balance at 30 June 2015 Accumulated amortisation Balance at 1 July 2015 Charge for the year Disposals Exchange differences Balance at 30 June 2016 Balance at 1 July 2014 Charge for the year Disposals Exchange differences Balance at 30 June 2015 Net book value As at 30 June 2016 As at 30 June 2015 Capitalised development costs Note $'000 7,434 6,121 (72) 30 13,513 3,157 4,216 - 61 7,434 (2,843) (3,257) 2 1 (6,097) (1,044) (1,778) - 9 9 (21) (2,843) 7,416 4,591 Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. The development costs have finite useful lives typically between 2 to 3 years with a weighted average of 2.2 years. 64 Redbubble 24. Trade and other payables Trade and other payables (1) GST and other value added taxes payable Total trade and other payables (1) Largely includes payables to fulfillers and artists. 25. Employee benefit liabilities (a) Current employee benefit liabilities Annual leave Annual leave Long service leave Long service leave Total current employee benefit liabilities Total current employee benefit liabilities (b) Non-current employee benefit liability (b) Non-current employee benefit liability (b) Non-current employee benefit liability Long service leave Long service leave Total non-current employee benefit liability Total non-current employee benefit liability 2016 $'000 2015 $'000 12,495 9,806 584 479 13,079 10,285 2016 2016 $'000 $'000 976 976 94 94 1,070 1,070 2015 2015 $'000 $'000 627 627 65 65 692 692 2016 2016 $'000 $'000 67 67 67 67 2015 2015 $'000 $'000 46 46 46 46 (c) Unrecognised contingent liabilities The are no unrecognised contingent liabilities as at 30 June 2016 (2015: $Nil). 26. Non-current borrowings Unsecured cumulative redeemable preference shares (CRPS) (1) Total non-current borrowings 2016 $'000 2015 $'000 - 15,166 - 15,166 (1) On 21 May, 2015, the Group raised $15.50 million by issuing 476,774 CRPS at $32.51 per share (face value) and incurred transactions costs of $0.44 million of which $0.02 million was amortised up to 30 June 2015. During the current year, the CRPS were converted into ordinary shares on occurrence of the IPO. In order to calculate the number of ordinary shares issued on conversion, both the face value and the accumulated unpaid dividends up to the date of IPO were aggregated. Effective 1 December 2015, each share of the Company was split into 40. Accordingly, the CRPS were converted at a value of $0.81 (post-split) $32.51 (pre-split) and 20,022,554 ordinary shares were issued for $16.27 million. 64 65 Annual Report 2016(a) Share capital 27. Contributed equity (a) Share capital (a) Share capital (a) Share capital Ordinary shares Ordinary shares Issued and fully paid Issued and fully paid Transfer from share based payments reserve Ordinary shares for exercised options / performance rights Transfer from share based payments reserve for exercised options / performance rights Issued and fully paid Total share capital Total share capital Transfer from share based payments reserve for exercised options / performance rights Check - tie to BS Total share capital Check - tie to BS Should be zero Should be zero Check - tie to BS (b) Movements in ordinary share capital Should be zero (b) Movements in ordinary share capital (b) Movements in ordinary share capital At 1 July 2014 At 1 July 2014 (b) Movements in ordinary share capital Exercise of options 2016 2016 Shares Shares Consolidated and parent entity Consolidated and parent entity Consolidated and parent entity 2015 Shares (1) 2015 Shares (1) 2015 Shares (1) 2016 2016 $'000 $'000 2015 2015 $'000 $'000 2016 198,352,517 141,263,640 67,106 2016 198,352,517 141,263,640 67,106 $'000 - 759 - Shares 2015 9,344 9,344 $'000 188 - - 759 198,352,517 141,263,640 67,106 198,352,517 141,263,640 67,865 188 9,344 9,532 - 198,352,517 141,263,640 67,865 - 759 67,865 198,352,517 141,263,640 67,865 67,865 - 9,532 188 9,532 9,532 9,532 - - - 67,865 9,532 - - $'000 $'000 974 974 177 Number of Shares (1) Number of Shares (1) 47,849,000 47,849,000 2,814,000 Number of Shares (1) 2,814,000 90,600,640 47,849,000 90,600,640 141,263,640 2,814,000 141,263,640 3,710,273 672 8,193 - 177 $'000 8,193 974 8,193 9,344 177 9,344 672 3,710,273 90,600,640 565,740 565,740 141,263,640 22,556,391 3,710,273 22,556,391 - 565,740 - 20,022,554 22,556,391 20,022,554 10,233,919 - 9,344 30,000 672 30,000 (1,433) - (1,433) 16,273 30,000 16,273 12,250 (1,433) 12,250 198,352,517 67,106 Exercise of options Conversion of preference shares to ordinary shares At 1 July 2014 Conversion of preference shares to ordinary shares At 30 June 2015 Exercise of options At 30 June 2015 Exercise of options Conversion of preference shares to ordinary shares Exercise of options Shares issued to employees for vested performance rights At 30 June 2015 Shares issued pursuant to the IPO (2) Shares issued to employees for vested performance rights Shares issued pursuant to the IPO (2) Exercise of options IPO costs, net of tax (2) IPO costs, net of tax (2) Shares issued to employees for vested performance rights Shares issued on conversion of CRPS (3) Shares issued pursuant to the IPO (2) Shares issued on conversion of CRPS (3) Share issued on conversion of pre-IPO convertible notes (Convertible Notes) (4) IPO costs, net of tax (2) Share issued on conversion of pre-IPO convertible notes (Convertible Notes) (4) At 30 June 2016 Shares issued on conversion of CRPS (3) At 30 June 2016 Share issued on conversion of pre-IPO convertible notes (Convertible Notes) (4) 12,250 (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post split numbers (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post split numbers At 30 June 2016 for better understanding and comparison. for better understanding and comparison. (2) Refer to note 8 for details of the IPO. (1) Effective 1 December 2015, each share of the company was split into 40. All the numbers have been converted to equivalent post split numbers (2) Refer to note 8 for details of the IPO. (3) Refer to note 26 for details of the CRPS. for better understanding and comparison. (3) Refer to note 26 for details of the CRPS. (4) Refer to note 34 for details of the Convertible Notes. (2) Refer to note 8 for details of the IPO. (4) Refer to note 34 for details of the Convertible Notes. (3) Refer to note 26 for details of the CRPS. (c) Movements in preference share capital (c) Movements in preference share capital (c) Movements in preference share capital (4) Refer to note 34 for details of the Convertible Notes. At 1 July 2014 Conversion of preference shares to ordinary shares effective 9 January 2015 At 1 July 2014 (c) Movements in preference share capital Conversion of preference shares to ordinary shares effective 9 January 2015 At 30 June 2015 At 1 July 2014 At 30 June 2015 At 30 June 2016 Conversion of preference shares to ordinary shares effective 9 January 2015 At 30 June 2016 8,193 (8,193) $'000 (8,193) - 2,265,016 (2,265,016) Number of Shares (2,265,016) 198,352,517 67,106 198,352,517 67,106 Number of Shares 2,265,016 $'000 8,193 2,265,016 8,193 - - (8,193) - Number of Shares (2,265,016) 10,233,919 20,022,554 10,233,919 16,273 $'000 - - - - - At 30 June 2015 At 30 June 2016 (d) Ordinary shares - - - - The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares. 66 Redbubble 27. Contributed equity (continued) (e) Preference shares (issued up to 30 June 2014 and converted to ordinary shares on 9 January 2015) The holders of Preference shares had preferential rights: to all dividends ahead of ordinary shareholders; to the subscription amount and to the declared but unpaid dividends in the event of liquidation; to the subscription amount in the event of a sale of the existing shares in the Company; to convert to ordinary shares at any time. (f) Transfer from share based payment reserve During the year, an amount of $0.57 million (2015: $0.19 million) was transferred out of the share based payment reserve to share capital representing aggregated fair value of options / performance rights exercised during the year. The prior year amount represents aggregated fair value of options exercised up to 30 June 2015. (g) Dividends No Dividends were declared or paid during the year. 28. Reserves Nature and purpose of reserves (a) Share based payment reserve The share based payments reserve arises on issue of share options / performance rights as payment for services to consultants, employees and Directors. (b) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are recognised in other comprehensive income ‑ foreign currency translation reserve. The cumulative amount is reclassified to profit or loss when the net investment to which it relates is disposed of. 29. Interests in subsidiaries Information about principal subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly by the parent entity, Redbubble Limited. The proportion of ownership interests held equals the voting rights held by the parent entity. Each subsidiary’s principal place of business is also its country of incorporation or registration. Name of Entity Country of incorporation Principal activities Redbubble Incorporated USA Limited risk distributor engaged in world wide marketing and logistics operations for the parent entity Redbubble Europe Limited UK Marketing and logistics operations in Europe Equity holding 2016 % Equity holding 2015 % 100 100 100 100 Subsidiary financial statements used in the preparation of these consolidated financial statements have been prepared as at the same reporting date as the Group’s financial statements. 66 67 Annual Report 201630. Parent entity financial information The following information has been extracted from the books and records of the parent entity, Redbubble Limited and has been prepared in accordance with accounting standards. (a) Summary financial information Statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Share based payment reserve Accumulated losses Total equity Loss and other comprehensive income Loss for the year Total comprehensive loss 2016 $'000 2015 $'000 98,546 42,521 9,003 9,631 107,549 52,152 69,351 52,249 67 46 69,418 52,295 67,865 9,532 3,214 1,680 (32,948) (11,355) 38,131 (143) (20,827) (6,480) (20,827) (6,480) (b) Guarantees entered into by the parent entity The parent entity has not entered into any guarantees as at 30 June 2016 (2015: $Nil). (c) Contingent liabilities of the parent entity As at the date of these financial statements there are current lawsuits filed against entities within the Group that relate to alleged intellectual property infringement and/or breach of consumer laws. It is not possible for the Company to provide any reliable assessment of the likely quantum of damages that may become payable upon an adverse finding under any of the claims. No trial dates have been set for any of the claims and therefore it is not practicable to state the timing of any payment that may arise from an adverse finding. The Company considers that it is only possible but not probable that any action will succeed and accordingly no provision for any liability has been made in these financial statements. 68 Redbubble  30. Parent entity financial information (continued) (c) Contingent liabilities of the parent entity (continued) The Company does not consider that any of the current actions are likely to have a material adverse effect on the business or financial position of the Company. (d) Contractual commitments As at 30 June 2016, the parent entity had contractual commitments for minimum lease payments in relation to non- cancellable operating leases totalling to $4.67 million (2015: $0.56 million). There was a capital commitment towards leasehold improvements as at 30 June 2016 of $0.58 million (2015: $Nil). 31. Contingent liabilities As at the date of these financial statements there are current lawsuits filed against entities within the Group that relate to alleged intellectual property infringement and/or breach of consumer laws. It is not possible for the Group to provide any reliable assessment of the likely quantum of damages that may become payable upon an adverse finding under any of the claims.    No trial dates have been set for any of the claims and therefore it is not practicable to state the timing of any payment that may arise from an adverse finding.     The Group considers that it is only possible but not probable that any action will succeed and accordingly no provision for any liability has been made in these financial statements. The Group does not consider that any of the current actions are likely to have a material adverse effect on the business or financial position of the Group. 32. Commitments for expenditure (a) Capital commitments The Group had a capital commitment towards leasehold improvements of $0.58 million as at 30 June 2016 (2015: $Nil). (b) Other commitments The Group had no other material commitments as at 30 June 2016 (2015: $Nil). Within one year Later than one year but not later than five years (c) Lease commitments Total other commitments Operating leases 2016 $'000 - 2015 $'000 42 Commitments for minimum lease payments in relation non-cancellable operating leases are payable as follows: Lease commitments Within one year Later than one year but not later than five years More than five years Total lease commitments 2016 $'000 2015 $'000 1,229 1,089 6,182 2,394 184 468 7,595 3,951 The Group leases offices under non-cancellable operating leases for periods ranging within 2 to 6 years, with rent payable monthly in advance. The leases have varying terms, escalation clauses and renewal rights. Rental provisions within the lease agreement provide for increase in the minimum lease payments as contracted. 68 69 Annual Report 201633. Events occurring after the balance sheet date The financial report was authorised for issue on 25 August 2016 by the board of Directors. There have been no significant events after the balance sheet date that require disclosure. 34. Pre-IPO convertible notes On 21 March 2016, the Group raised $12.25 million (face value) by issue of Pre-IPO Convertible Notes (Convertible Notes) and incurred transactions costs of $0.61 million. These were converted into ordinary shares upon the IPO (note 27) at a price of $1.197 and 10,233,919 ordinary shares were issued. 35. Share-based payments Options over ordinary shares In September 2015, the Group introduced the “Redbubble Equity Incentive Plan”. Under this plan options over ordinary shares may be granted to Redbubble Limited board members, employees (including senior executives) and contractors. The options are subject to service conditions and have a predetermined time-based vesting schedule. The grantees of options under this Plan may exercise vested options at any time before the earlier of: (a) a specified expiry date (generally 10 years from the grant date); and (b) 90 days after ceasing to be a Director, employee or contractor for Redbubble Limited. Some of the options already granted have a zero exercise price, so as to be akin to performance rights (or restricted stock units). During FY 2015, options were granted under the “2014 Option Plan”. Options granted prior to that were governed by individual agreements with the relevant participants, (i.e. not subject to centralised equity plan rules such as the 2014 Option Plan or Redbubble Equity Incentive Plan) and do not have performance targets. Executive options for FY 2015 These were granted in FY 2015 as a short-term incentive (STI) to senior executives of the Group under the 2014 Option Plan. The number of options granted to participants was subject to: achievement of certain performance- based conditions in relation to the Group's Sales and Gross Profit targets or organic visit growth targets; and personal performance assessment. The options have a predetermined time-based vesting schedule and grantees may exercise the options for a further set number of years after the options are vested. Performance rights Up to the end of FY 2015, performance rights were granted under the Restricted Share and Performance Rights Plan to all employees including senior executives, consultants and board members. Two grants were made under this plan during the current year. Once granted, the rights have a predetermined time-based vesting schedule. All the performance rights are subject to service conditions, a liquidity event condition and share trading restrictions. The liquidity event condition will be met during FY2017 on the date 6 months after the date of the IPO and hence, none of the performance rights vest until then. Executive STI for FY2016 - Options and Performance Rights The Company has contracted with executives who can materially impact the financial and operational performance of the Group to pay an STI benefit under the “Redbubble SLT Short Term Incentive (STI) Plan”. The STI benefits for the current year are subject to: achievement of certain performance-based requirements in relation to the Group's Gross Transaction Value (GTV) and Repeat GTV; and personal performance assessment in the current year. 70 Redbubble35. Share-based payments (continued) The value of the STI is part cash and part equity, with the split depending on the date the executive joined the Company. The equity component will consist of options with a zero exercise price for executives employed by Redbubble Limited and performance rights for executives employed by Redbubble Inc. The options for Redbubble Limited executives will be granted under the Redbubble Equity Incentive Plan. The performance rights for Redbubble Inc. executives will be granted under the “Restricted Share and Performance Rights Plan”. The target dollar value of the grants has been determined during the current year but the grants will be made in FY 2017, calculated by dividing the dollar value by the volume weighted average price over a representative 5 day period. Warrants over ordinary shares (previously over preference shares) Warrants over preference shares were issued in FY 2012 to Denali Capital Managers Pty Ltd, an entity related to Richard Cawsey, the Chair of the Board, under terms of a loan facility agreement in addition to the interest thereon. The loan facility terminated on 31 December 2012. The Warrants were converted to Warrants over ordinary shares when the Company was converted from a private company to a public company on 9 January 2015. 70 71 Annual Report 201635. Share-based payments (continued) (a) Movement The table below summarises the movement in the number of options / performance rights / warrants during the year (a) Movement during the year 2016 Number (*) 2016 WAEP ($) (*) 2015 Number (*) 2015 WAEP ($) (*) Options over ordinary shares Outstanding at 1 July Granted during the year (1) Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June Performance rights Outstanding at 1 July Granted during the year Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Vested at 30 June (2) Warrants over ordinary shares Outstanding at 1 July Outstanding at 30 June Exercisable at 30 June All plans Outstanding at 1 July Granted during the year Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June 17,942,720 9,256,260 (3,710,273) (3,665,826) (1,126) 19,821,755 7,166,690 8,465,400 60,000 (565,740) (2,134,456) - 5,825,204 3,201,959 654,560 654,560 654,560 27,062,680 9,316,260 (4,276,013) (5,800,282) (1,126) 26,301,519 11,023,209 0.36 10,776,120 0.82 9,980,600 0.18 (2,814,000) 0.53 0.85 0.57 0.31 - - - - - - - 0.14 0.14 0.14 0.35 0.82 0.18 0.53 0.85 0.56 0.30 - - 17,942,720 6,716,400 4,669,520 4,371,880 - (576,000) - 8,465,400 1,700,280 654,560 654,560 654,560 16,100,200 14,352,480 (2,814,000) (576,000) - 27,062,680 9,071,240 0.13 0.51 0.06 - - 0.36 0.12 - - - - - - - 0.14 0.14 0.14 0.13 0.51 0.06 - - 0.35 0.12 (*) WAEP stands for Weighted Average Exercise Price. All the numbers have been converted to equivalent post split numbers for better understanding and comparison. (1) 1,068,720 options have zero exercise price (2015: Nil). The expiry period for grants made during the current year and FY 2015 was 10 years. For the grants made in prior years, the expiry period varied from 3-10 years. (2) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied) except 24,560 rights for FY 2015 which were actually vested. The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. The performance rights would have expired in 5-7 years of grant date if the IPO would not have occurred. In FY 2015, 294,960 rights were granted that were not subject to a liquidity event condition. (b) Modifications to the awards (1) 72 Waiver of liquidity event condition / accelerated vesting with respect to performance rights Extension of expiry period by two years for options over ordinary shares Cancellation pursuant to amendment of contract Accelerated vesting of unvested options over ordinary shares upon termination Total 2016 Number (*) 221,904 - 100,000 236,040 557,944 2015 Number (*) 352,400 2,396,160 - - 2,748,560 (1) There was no incremental fair value granted as a result of the modifications. (*) All the numbers have been converted to equivalent post split numbers for better understanding and comparison. Redbubble (a) Movement during the year Options over ordinary shares Outstanding at 1 July Granted during the year (1) Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June Performance rights Outstanding at 1 July Granted during the year Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Vested at 30 June (2) Warrants over ordinary shares Outstanding at 1 July Outstanding at 30 June Exercisable at 30 June All plans Outstanding at 1 July Granted during the year Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June 2016 Number (*) 2016 WAEP ($) (*) 2015 Number (*) 2015 WAEP ($) (*) (565,740) (2,134,456) (576,000) 17,942,720 9,256,260 (3,710,273) (3,665,826) (1,126) 19,821,755 7,166,690 8,465,400 60,000 - 5,825,204 3,201,959 654,560 654,560 654,560 27,062,680 9,316,260 (4,276,013) (5,800,282) (1,126) 26,301,519 11,023,209 10,776,120 9,980,600 0.18 (2,814,000) 0.36 0.82 0.53 0.85 0.57 0.31 - - - - - - - 0.14 0.14 0.14 0.35 0.82 0.18 0.53 0.85 0.56 0.30 17,942,720 6,716,400 4,669,520 4,371,880 8,465,400 1,700,280 654,560 654,560 654,560 - - - - - 16,100,200 14,352,480 (2,814,000) (576,000) 27,062,680 9,071,240 0.13 0.51 0.06 0.36 0.12 0.14 0.14 0.14 0.13 0.51 0.06 0.35 0.12 - - - - - - - - - - - (*) WAEP stands for Weighted Average Exercise Price. All the numbers have been converted to equivalent post split numbers for better understanding and comparison. (1) 1,068,720 options have zero exercise price (2015: Nil). The expiry period for grants made during the current year and FY 2015 was 10 years. For the grants made in prior years, the expiry period varied from 3-10 years. (2) The vesting of performance rights is subject to a liquidity event condition and service conditions. The numbers disclosed represent time based 35. Share-based payments (continued) contingent rights (i.e. vesting contingent on the liquidity event condition being satisfied) except 24,560 rights for FY 2015 which were actually vested. The liquidity event condition will be met in FY 2017 on the date six months after the date of the IPO. The performance rights would have expired in 5-7 years of grant date if the IPO would not have occurred. In FY 2015, 294,960 rights were granted that were not subject to a liquidity (b) Modifications to the awards (1) event condition. The table below details modifications to a number of options/performance rights during the year: (b) Modifications to the awards (1) Waiver of liquidity event condition / accelerated vesting with respect to performance rights Extension of expiry period by two years for options over ordinary shares Cancellation pursuant to amendment of contract Accelerated vesting of unvested options over ordinary shares upon termination Total 2016 Number (*) 221,904 - 100,000 236,040 557,944 2015 Number (*) 352,400 2,396,160 - - 2,748,560 (1) There was no incremental fair value granted as a result of the modifications. (*) All the numbers have been converted to equivalent post split numbers for better understanding and comparison. (c) Additional disclosures 72 73 Annual Report 2016 36. Related party transactions The Group's main related parties are as follows: (a) Entities exercising significant influence over the Group The CEO Martin Hosking and his family trust with Jellicom Pty Ltd as trustee, have significant influence over the Group. During the current year, no transactions were made with Jellicom Pty Ltd (2015: $Nil). (b) Compensation of the key management personnel of the Group Short-term employee benefits Post-employment benefits Share-based employee benefits Other long-term benefits (1) Termination benefits Total transactions with key management personnel 2016 $ 2015 $ 2,170,139 1,884,176 147,111 83,030 1,185,827 938,829 19,366 (16,342) - 63,174 3,522,443 2,952,867 (1) The negative amount in the prior year relates to long service leave provision no longer required. (c) Other related parties Other related parties include immediate family members of key management personnel and entities that are controlled or significantly influenced by those key management personnel, individually or collectively with their immediate family members. (d) Transactions with related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The following transactions occurred with related parties: (i) Richard Cawsey, the Chair of the Board, is a partner of Denali Venture Partners. Denali Venture Partners has provided various consulting services to the Group for which fees of $50,000 were paid (2015: $92,043). The consulting fees are based on the time and service provided at rates equivalent to other providers of the same services. As at 30 June 2016, there were no outstanding balances (2015: $Nil). (ii) Stephanie Tilenius, a member of the Board, is the CEO of Vida Health. Vida Health entered into a sublease agreement with the Group in April 2014 to sublease a portion of the Group's building located in San Francisco, California. The sublease was terminated on 26 March 2015. In FY 2015, Vida Health paid the Group rental payments of $25,457 and there were no outstanding balances. 36. Related party transactions (continued) (iii) Chris Nunn, the Chief Financial Officer, is a Director of Elite Executive Services Pty Ltd, which has provided executive relocation services to employees of Redbubble during the year for which the fees totalled $12,710 (2015: $Nil). The fees are based on the time and service provided at rates equivalent to other providers of the same services. As at 30 June 2016, the outstanding balance was $1,865 (2015: $Nil). (iv) Rob Baumert, the Chief Fulfilment and Analytics Officer, exercised part of his options and sold the related shares during the year ended 30 June 2016, resulting in a receivable balance of $79,000 (2015: $Nil) in relation to exercise and withholding taxes on the sale. As at year end, the balance stands recovered (2015: $Nil). 74 Redbubble(v) The Group granted a loan to Faith Sedlin, the Chief Marketing Officer, in an earlier year. During the year, the related party loan and interest thereon of $331,145 was recovered (2015: $52,847). As at 30 June 2016, there was no outstanding balance (2015: $330,738). 37. Remuneration of auditors Ernst & Young Audit and review of financial reports Taxation services Initial public offering Other services Remuneration of Ernst & Young 38. Segment information (a) Operating segment 2016 $ 133,617 231,509 680,000 32,510 1,077,636 2015 $ 96,350 67,739 - 34,819 198,908 The Group is a global online marketplace and accordingly, has identified that as its only operating segment. (b) Geographical information Australia United States United Kingdom Rest of the world Total 2016 2015 Non-current Non-current Revenue $'000 7,525 72,008 16,734 18,311 assets (1) $'000 7,290 1,318 53 - 114,578 8,661 Revenue $'000 5,197 43,753 10,317 11,803 71,070 assets (1) $'000 4,545 1,237 - - 5,782 (1) Non-current assets for this purpose consist of property, plant and equipment and intangible assets. 74 75 Annual Report 2016 39. New and amended accounting standards and interpretations (i) New and amended accounting standards and interpretations issued and effective The Group has adopted the following new and amended standards which were applicable as disclosed in the table below. Adoption of these new and amended standards and interpretations has not had a material impact on the Group. Reference AASB 2013-9 AASB 2015-3 Title Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The Standard contains three main parts and makes amendments to a number of Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Part C makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge Accounting into AASB 9 Financial Instruments. Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. Application date 1 July 2015 1 July 2015 (ii) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. Initial application of the following standards and interpretations will not affect any of the amounts recognised in the financial report, but may change disclosures presently made in relation to the Group. The Group’s interpretations of the impact of these new standards is set out below: Reference Title Summary AASB 2014-3 AASB 2014-4 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations [AASB 1 & AASB 11] Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) AASB 2014-3 amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. Group Assessment This is only expected to impact the Group if acquisitions are made in the future. This standard will not be early adopted by the Group. AASB 116 and AASB 138 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Group Assessment This is not expected to impact the financial statements as the Group policy is to amortise based on consumption of economic benefits (useful lives of assets and intangibles). Application date of standard 1 January 2016 Application date for Group 1 July 2016 1 January 2016 1 July 2016 AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle This standard will not be early adopted by the Group. The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 134 Interim Financial Reporting: 76 •      Disclosure of information ‘elsewhere in the interim financial report’ - amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. Group Assessment Minimal impact to the Group's financial report. AASB 2015-2 Amendments to Australian The Standard makes amendments to AASB 101 Presentation of Financial Statements 1 January 2016 1 July 2016 Accounting Standards – arising from the IASB’s Disclosure Initiative project. The amendments are designed to Disclosure Initiative: further encourage companies to apply professional judgment in determining what Amendments to AASB 101 information to disclose in the financial statements.  For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.  The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. Group Assessment The Group will continue to draft financial statements in the most effective manner in order to meet the requirements of this standard. AASB 2015-9 Amendments to Australian This standard inserts scope paragraphs into AASB 8 and AASB 133 in place of 1 January 2016 1 July 2016 Accounting Standards - Scope application paragraph text in AASB 1057. This is to correct inadvertant removal of and Application Paragraphs these paragraphs during editorial changes made in August 2015. There is no change [AASB 8, AASB 133 & AASB to the requirements or the applicability of AASB 8 and AASB 133. 1057] Group Assessment Minimal impact to the Group's financial report. AASB 1057 Application of Australian This Standard lists the application paragraphs for each other Standard (and 1 January 2016 1 July 2016 Accounting Standards Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities. Group Assessment The Group will continue to apply standards that are applicable. 2016-1 Amendments to Australian This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income 1 January 2017 1 July 2017 Accounting Standards Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets –Recognition of Deferred Tax for unrealised losses on debt instruments measured at fair value. Assets for Unrealised Losses [AASB 112] 2016-2 Amendments to Australian This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require 1 January 2017 1 July 2017 Group Assessment This is only expected to impact the Group if there are deferred tax assets for unrealised losses on debt instruments measured at fair value in the future. This standard will not be early adopted by the Group. Accounting Standards –Disclosure Initiative: entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to Amendments to AASB 107 evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Group Assessment Minimal impact to the Group's disclosures in the financial report. AASB 9 Financial Instruments AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This 1 January 2018 1 July 2018 AASB 15 Revenue from Contracts with In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, 1 January 2018 1 July 2018 Customers which replaces IAS 11 Construction Contracts, IAS 18 Revenueand related new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 July 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. Group Assessment future. This is only expected to have an impact on the Group if hedging is undertaken in the This standard will not be early adopted by the Group. Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate,IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods An entity recognises revenue in accordance with that core principle by applying the or services. following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance contract obligation Early application of this standard is permitted. The International Accounting Standards Board (IASB) in its July 2015 meeting decided to confirm its proposal to defer the effective date of IFRS 15 (the international equivalent of AASB 15) from 1 January 2017 to 1 January 2018. The amendment to give effect to the new effective date for IFRS 15 is expected to be issued in September 2015 . At this time, it is expected that the AASB will make a corresponding amendment to AASB 15, which will mean that the application date of this standard for the Group will move from 1 July 2017 to 1 July 2018. The Group has not yet made an assessment of whether this standard will be early Group Assessment adopted. (whether it is housed in a subsidiary or not) (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014- 10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016. This is only expected to impact the Group should such activites be undertaken in the Group Assessment future. This standard will not be early adopted by the Group. Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. Group Assessment adopted. The Group has not yet made an assessment of whether this standard will be early AASB 2014-10 Amendments to Australian AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to 1 January 2018 1 July 2018 Accounting Standards – Sale address an inconsistency between the requirements in AASB 10 and those in AASB or Contribution of Assets 128 (August 2011), in dealing with the sale or contribution of assets between an between an Investor and its investor and its associate or joint venture. The amendments require: Associate or Joint Venture (a) A full gain or loss to be recognised when a transaction involves a business AASB 16 Leases The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Redbubble76 Reference Title Summary Application date of Application date standard for Group AASB 2014-3 Amendments to Australian AASB 2014-3 amends AASB 11 to provide guidance on the accounting for 1 January 2016 1 July 2016 Accounting Standards – acquisitions of interests in joint operations in which the activity constitutes a Accounting for Acquisitions of business. Interests in Joint Operations Group Assessment [AASB 1 & AASB 11] This is only expected to impact the Group if acquisitions are made in the future. This standard will not be early adopted by the Group. AASB 2014-4 Clarification of Acceptable AASB 116 and AASB 138 both establish the principle for the basis of depreciation 1 January 2016 1 July 2016 Methods of Depreciation and and amortisation as being the expected pattern of consumption of the future Amortisation (Amendments to AASB 116 and AASB 138) economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Group Assessment This is not expected to impact the financial statements as the Group policy is to amortise based on consumption of economic benefits (useful lives of assets and 39. New and amended accounting standards and interpretations (continued) intangibles). AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 AASB 2015-9 Amendments to Australian Accounting Standards - Scope and Application Paragraphs [AASB 8, AASB 133 & AASB 1057] AASB 1057 Application of Australian Accounting Standards 2016-1 Amendments to Australian Accounting Standards –Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] 2016-2 Amendments to Australian Accounting Standards –Disclosure Initiative: Amendments to AASB 107 AASB 9 Financial Instruments This standard will not be early adopted by the Group. The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 134 Interim Financial Reporting: •      Disclosure of information ‘elsewhere in the interim financial report’ - amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. Group Assessment Minimal impact to the Group's financial report. The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements.  For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.  The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. Group Assessment The Group will continue to draft financial statements in the most effective manner in order to meet the requirements of this standard. This standard inserts scope paragraphs into AASB 8 and AASB 133 in place of application paragraph text in AASB 1057. This is to correct inadvertant removal of these paragraphs during editorial changes made in August 2015. There is no change to the requirements or the applicability of AASB 8 and AASB 133. Group Assessment Minimal impact to the Group's financial report. This Standard lists the application paragraphs for each other Standard (and Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities. Group Assessment The Group will continue to apply standards that are applicable. This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. Group Assessment This is only expected to impact the Group if there are deferred tax assets for unrealised losses on debt instruments measured at fair value in the future. This standard will not be early adopted by the Group. This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Group Assessment Minimal impact to the Group's disclosures in the financial report. AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 July 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. Group Assessment 77 This is only expected to have an impact on the Group if hedging is undertaken in the future. This standard will not be early adopted by the Group. 1 January 2016 1 July 2016 1 January 2016 1 July 2016 1 January 2016 1 July 2016 1 January 2017 1 July 2017 1 January 2017 1 July 2017 1 January 2018 1 July 2018 AASB 15 Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenueand related 1 January 2018 1 July 2018 AASB 2014-10 Amendments to Australian AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to 1 January 2018 1 July 2018 Accounting Standards – Sale address an inconsistency between the requirements in AASB 10 and those in AASB or Contribution of Assets 128 (August 2011), in dealing with the sale or contribution of assets between an between an Investor and its investor and its associate or joint venture. The amendments require: Associate or Joint Venture (a) A full gain or loss to be recognised when a transaction involves a business AASB 16 Leases The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate,IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods An entity recognises revenue in accordance with that core principle by applying the or services. following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance contract obligation Early application of this standard is permitted. The International Accounting Standards Board (IASB) in its July 2015 meeting decided to confirm its proposal to defer the effective date of IFRS 15 (the international equivalent of AASB 15) from 1 January 2017 to 1 January 2018. The amendment to give effect to the new effective date for IFRS 15 is expected to be issued in September 2015 . At this time, it is expected that the AASB will make a corresponding amendment to AASB 15, which will mean that the application date of this standard for the Group will move from 1 July 2017 to 1 July 2018. The Group has not yet made an assessment of whether this standard will be early Group Assessment adopted. (whether it is housed in a subsidiary or not) (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014- 10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016. This is only expected to impact the Group should such activites be undertaken in the Group Assessment future. This standard will not be early adopted by the Group. Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. Group Assessment adopted. The Group has not yet made an assessment of whether this standard will be early Annual Report 2016Reference Title Summary Application date of Application date standard for Group AASB 2014-3 Amendments to Australian AASB 2014-3 amends AASB 11 to provide guidance on the accounting for 1 January 2016 1 July 2016 Accounting Standards – acquisitions of interests in joint operations in which the activity constitutes a AASB 2014-4 Clarification of Acceptable AASB 116 and AASB 138 both establish the principle for the basis of depreciation 1 January 2016 1 July 2016 Accounting for Acquisitions of business. Interests in Joint Operations Group Assessment [AASB 1 & AASB 11] This is only expected to impact the Group if acquisitions are made in the future. This standard will not be early adopted by the Group. Methods of Depreciation and and amortisation as being the expected pattern of consumption of the future Amortisation economic benefits of an asset. (Amendments to AASB 116 The IASB has clarified that the use of revenue-based methods to calculate the and AASB 138) depreciation of an asset is not appropriate because revenue generated by an activity AASB 2015-1 Amendments to Australian The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 2015-2 Amendments to Australian The Standard makes amendments to AASB 101 Presentation of Financial Statements 1 January 2016 1 July 2016 that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Group Assessment This is not expected to impact the financial statements as the Group policy is to amortise based on consumption of economic benefits (useful lives of assets and intangibles). This standard will not be early adopted by the Group. Accounting Standards – Annual Improvements to AASB 134 Interim Financial Reporting: Australian Accounting •      Disclosure of information ‘elsewhere in the interim financial report’ - amends Standards 2012–2014 Cycle AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. Group Assessment Minimal impact to the Group's financial report. Accounting Standards – arising from the IASB’s Disclosure Initiative project. The amendments are designed to Disclosure Initiative: further encourage companies to apply professional judgment in determining what Amendments to AASB 101 information to disclose in the financial statements.  For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.  The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. Group Assessment The Group will continue to draft financial statements in the most effective manner in order to meet the requirements of this standard. AASB 2015-9 Amendments to Australian This standard inserts scope paragraphs into AASB 8 and AASB 133 in place of 1 January 2016 1 July 2016 Accounting Standards - Scope application paragraph text in AASB 1057. This is to correct inadvertant removal of and Application Paragraphs these paragraphs during editorial changes made in August 2015. There is no change [AASB 8, AASB 133 & AASB to the requirements or the applicability of AASB 8 and AASB 133. 1057] Group Assessment Minimal impact to the Group's financial report. AASB 1057 Application of Australian This Standard lists the application paragraphs for each other Standard (and 1 January 2016 1 July 2016 Accounting Standards Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities. Group Assessment The Group will continue to apply standards that are applicable. 2016-1 Amendments to Australian This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income 1 January 2017 1 July 2017 Accounting Standards Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets –Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] for unrealised losses on debt instruments measured at fair value. Group Assessment This is only expected to impact the Group if there are deferred tax assets for unrealised losses on debt instruments measured at fair value in the future. 2016-2 This standard will not be early adopted by the Group. This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. 39. New and amended accounting standards and interpretations (continued) Amendments to Australian Accounting Standards –Disclosure Initiative: Amendments to AASB 107 1 January 2017 1 July 2017 AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2018 1 July 2018 1 January 2018 1 July 2018 1 January 2018 1 July 2018 Group Assessment Minimal impact to the Group's disclosures in the financial report. AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 July 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. Group Assessment This is only expected to have an impact on the Group if hedging is undertaken in the future. This standard will not be early adopted by the Group. In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenueand related Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate,IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Early application of this standard is permitted. The International Accounting Standards Board (IASB) in its July 2015 meeting decided to confirm its proposal to defer the effective date of IFRS 15 (the international equivalent of AASB 15) from 1 January 2017 to 1 January 2018. The amendment to give effect to the new effective date for IFRS 15 is expected to be issued in September 2015 . At this time, it is expected that the AASB will make a corresponding amendment to AASB 15, which will mean that the application date of this standard for the Group will move from 1 July 2017 to 1 July 2018. Group Assessment The Group has not yet made an assessment of whether this standard will be early adopted. AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: (a) A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not) (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014- 10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016. Group Assessment This is only expected to impact the Group should such activites be undertaken in the future. AASB 16 Leases This standard will not be early adopted by the Group. The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and 78 lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. Group Assessment adopted. The Group has not yet made an assessment of whether this standard will be early RedbubbleReference Title Summary Application date of Application date standard for Group AASB 2014-3 Amendments to Australian AASB 2014-3 amends AASB 11 to provide guidance on the accounting for 1 January 2016 1 July 2016 Accounting Standards – acquisitions of interests in joint operations in which the activity constitutes a AASB 2014-4 Clarification of Acceptable AASB 116 and AASB 138 both establish the principle for the basis of depreciation 1 January 2016 1 July 2016 Accounting for Acquisitions of business. Interests in Joint Operations Group Assessment [AASB 1 & AASB 11] This is only expected to impact the Group if acquisitions are made in the future. This standard will not be early adopted by the Group. Methods of Depreciation and and amortisation as being the expected pattern of consumption of the future Amortisation economic benefits of an asset. (Amendments to AASB 116 The IASB has clarified that the use of revenue-based methods to calculate the and AASB 138) depreciation of an asset is not appropriate because revenue generated by an activity AASB 2015-1 Amendments to Australian The subjects of the principal amendments to the Standards are set out below: 1 January 2016 1 July 2016 AASB 2015-2 Amendments to Australian The Standard makes amendments to AASB 101 Presentation of Financial Statements 1 January 2016 1 July 2016 that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Group Assessment This is not expected to impact the financial statements as the Group policy is to amortise based on consumption of economic benefits (useful lives of assets and intangibles). This standard will not be early adopted by the Group. Accounting Standards – Annual Improvements to AASB 134 Interim Financial Reporting: Australian Accounting •      Disclosure of information ‘elsewhere in the interim financial report’ - amends Standards 2012–2014 Cycle AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. Group Assessment Minimal impact to the Group's financial report. Accounting Standards – arising from the IASB’s Disclosure Initiative project. The amendments are designed to Disclosure Initiative: further encourage companies to apply professional judgment in determining what Amendments to AASB 101 information to disclose in the financial statements.  For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.  The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. Group Assessment The Group will continue to draft financial statements in the most effective manner in order to meet the requirements of this standard. AASB 2015-9 Amendments to Australian This standard inserts scope paragraphs into AASB 8 and AASB 133 in place of 1 January 2016 1 July 2016 Accounting Standards - Scope application paragraph text in AASB 1057. This is to correct inadvertant removal of and Application Paragraphs these paragraphs during editorial changes made in August 2015. There is no change [AASB 8, AASB 133 & AASB to the requirements or the applicability of AASB 8 and AASB 133. 1057] Group Assessment Minimal impact to the Group's financial report. AASB 1057 Application of Australian This Standard lists the application paragraphs for each other Standard (and 1 January 2016 1 July 2016 Accounting Standards Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities. Group Assessment The Group will continue to apply standards that are applicable. 2016-1 Amendments to Australian This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income 1 January 2017 1 July 2017 Accounting Standards Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets –Recognition of Deferred Tax for unrealised losses on debt instruments measured at fair value. Assets for Unrealised Losses [AASB 112] 2016-2 Amendments to Australian This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require 1 January 2017 1 July 2017 Group Assessment This is only expected to impact the Group if there are deferred tax assets for unrealised losses on debt instruments measured at fair value in the future. This standard will not be early adopted by the Group. Accounting Standards –Disclosure Initiative: entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to Amendments to AASB 107 evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Group Assessment Minimal impact to the Group's disclosures in the financial report. AASB 9 Financial Instruments AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This 1 January 2018 1 July 2018 AASB 15 Revenue from Contracts with In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, 1 January 2018 1 July 2018 Customers which replaces IAS 11 Construction Contracts, IAS 18 Revenueand related new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 July 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. Group Assessment future. This is only expected to have an impact on the Group if hedging is undertaken in the This standard will not be early adopted by the Group. Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate,IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods An entity recognises revenue in accordance with that core principle by applying the or services. following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance contract obligation Early application of this standard is permitted. The International Accounting Standards Board (IASB) in its July 2015 meeting decided to confirm its proposal to defer the effective date of IFRS 15 (the international equivalent of AASB 15) from 1 January 2017 to 1 January 2018. The amendment to give effect to the new effective date for IFRS 15 is expected to be issued in September 2015 . At this time, it is expected that the AASB will make a corresponding amendment to AASB 15, which will mean that the application date of this standard for the Group will move from 1 July 2017 to 1 July 2018. The Group has not yet made an assessment of whether this standard will be early Group Assessment adopted. 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: (a) A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not) (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014- 10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016. or Contribution of Assets between an Investor and its Associate or Joint Venture AASB 2014-10 Amendments to Australian AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to 1 January 2018 1 July 2018 Accounting Standards – Sale address an inconsistency between the requirements in AASB 10 and those in AASB 39. New and amended accounting standards and interpretations (continued) Group Assessment This is only expected to impact the Group should such activites be undertaken in the future. AASB 16 Leases This standard will not be early adopted by the Group. The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. Group Assessment The Group has not yet made an assessment of whether this standard will be early adopted. 78 79 Annual Report 2016Directors’ Declaration In accordance with a resolution of the Directors of Redbubble Limited, we state that in the Directors’ opinion: (a) the financial statements and notes set out on pages 40 to 79 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that Redbubble Limited will be able to pay its debts as and when they become due and payable. Note 2(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Managing Director & Chief Executive Officer and Chief Financial Officer required by Section 295A of the Corporations Act 2001. Richard Cawsey Chairman Melbourne 25 August 2016 Martin Hosking Chief Executive Officer Melbourne 25 August 2016 80 Redbubble Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent auditor’s report to the members of Redbubble Limited Report on the financial report We have audited the accompanying financial report of Redbubble Limited, which comprises the consolidated statement of financial position as at 30 June 2016, 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 consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2(a)(i), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion In our opinion: a. the financial report of Redbubble Limited is in accordance with the Corporations Act 2001, including: 80 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 81 Annual Report 2016 Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent auditor’s report to the members of Redbubble Limited giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and i Report on the financial report complying with Australian Accounting Standards and the Corporations Regulations 2001; and ii b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a)(i). We have audited the accompanying financial report of Redbubble Limited, which comprises the consolidated statement of financial position as at 30 June 2016, 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 Report on the remuneration report other explanatory information, and the directors' declaration of 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. We have audited the Remuneration Report included in the directors' report for the year ended 30 June Directors' responsibility for the financial report 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with The directors of the company are responsible for the preparation of the financial report that gives a true Australian Auditing Standards. and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial Opinion report that is free from material misstatement, whether due to fraud or error. In Note 2(a)(i), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that In our opinion, the Remuneration Report of Redbubble Limited for the year ended 30 June 2016, the financial statements comply with International Financial Reporting Standards. complies with section 300A of the Corporations Act 2001. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Ernst & Young 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 judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and Kylie Bodenham the reasonableness of accounting estimates made by the directors, as well as evaluating the overall Partner presentation of the financial report. Melbourne We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 25 August 2016 our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion In our opinion: a. the financial report of Redbubble Limited is in accordance with the Corporations Act 2001, including: A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 82 c:\users\kaminje\documents\my ea folder 2015\kylie bodenham\redbubble\fy16 rbl - audit report.docx 2 Shareholder and other ASX Required Information The shareholder information set out below was applicable as at 12 September 2016. A. Distribution of shareholders Analysis of numbers of ordinary shareholders by size of holding: Range Total holders Shares 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Grand Totals 96 256 176 274 74 876 189,650,603 7,072,084 1,432,116 920,933 45,101 199,120,837 % of Issued Capital 95.24 3.55 0.72 0.46 0.02 100 There were 25 holders of less than a marketable parcel of ordinary shares. B. Top 20 Holders of Fully Paid Ordinary Shares The names of the twenty largest registered holders of quoted fully paid ordinary shares are listed below: Name Jellicom Pty Ltd CAV IH No5 Ltd J P Morgan Nominees Australia Ltd Blackbird FOF Pty Ltd Cawsey Superannuation Fund Pty Ltd National Nominees Ltd Simon Yencken Piton Capital Venture Fund II LP HSBC Custody Nominees (Australia) Ltd HSBC Custody Nominees (Australia) Ltd - a/c 2 Australian Direct Investments Pty Ltd G A Bundy & N T Bundy Radiata Investments Pty Ltd Lonsdale Nominees Pty Ltd Jabbour Holdings Pty Ltd Citicorp Nominees Pty Ltd Paul Vanzella Gatum Pty Ltd Denali Venture Partners Fund 1 LP Martin Hosking Top 20 holders of Ordinary Fully Paid Shares (TOTAL) Total Remaining Holders Balance Grand Totals Number of ordinary shares % of Issued Capital 47,909,520 16,719,480 14,519,453 11,361,819 9,726,480 8,062,760 5,890,160 5,537,291 5,411,299 4,833,497 3,259,160 3,200,000 2,966,200 2,408,640 2,068,450 1,919,674 1,905,984 1,881,520 1,840,240 1,641,880 153,063,507 46,057,330 199,120,837 24.06 8.40 7.29 5.71 4.88 4.05 2.96 2.78 2.72 2.43 1.64 1.61 1.49 1.21 1.04 0.96 0.96 0.94 0.92 0.82 76.87 23.13 100.00 82 83 Annual Report 2016Shareholder and other ASX Required Information (continued) C. Unquoted equity securities The numbers of unquoted equity securities in the Company are set out below: Type of equity security Share Options Performance Rights Total number of ordinary shares subject of options and performance rights Number held 19,734,766 5,780,244 25,515,010 D. Substantial Holders Substantial holders in the Company* are set out below: Name Martin Hosking (directly and through controlled entity) Simon Baker (through controlled entity) MXB Holdings LP Richard Cawsey Blackbird FOF Pty Ltd Acorn Capital Ltd *As disclosed in substantial shareholder notices received by the Company E. Securities subject to escrow arrangements Number held % of Issued Capital 49,620,449 16,719,480 13,541,880 12,278,640 11,361,819 10,483,680 24.92 8.40 6.80 6.17 5.71 5.26 As at 12 September 2016, these were 68,758,535 Ordinary Shares subject to voluntary escrow on issue. The escrow period for these shares ends two business days after release of Company’s FY2017 full year results. F. Voting Rights The voting rights attaching 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. • Options and Performance Rights No voting rights G. Other ASX Required Inforantion The Company has used the cash and assets in a form readily convertible to cash, that it had at the time of admission to the ASX, in a way consistant with its business objectives. This statement is made pursuant to ASX Listing Rule 4.10.19. 84 RedbubbleCorporate Information Directors Richard Cawsey (Chair) Martin Hosking (Chief Executive Officer and Managing Director) Stephanie Tilenius Teresa Engelhard Greg Lockwood Grant Murdoch (appointed 1 January 2016) Chris Nunn (resigned as Director on 28 October 2015 - and commenced as CFO on 1 November 2015) Company Secretaries Corina Davis Paul Gordon Registered Office Level 3, 271 Collins Street Share Register Auditors Melbourne VIC 3000 Australia Link Market Services Tower 4, 727 Collins St Melbourne VIC 3008 Australia Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia Bankers Commonwealth Bank of Australia Stock Exchange Listing Redbubble Ltd shares are listed on the Australian Securities Exchange (listing code: RBL) Website redbubble.com Investor Centre shareholders.redbubble.com 84 85 Annual Report 2016 86 Redbubble86 87 Annual Report 201688 Redbubble

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