RPMGlobal Holdings Limited
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 For personal use onlyRPMGlobal Holdings Limited ABN 17 010 672 321 CONTENTS Chairman’s Report …………………………………………………………………………………………………………………….. Managing Director’s Report ……………………………………………………………………………………….……………… Directors' Report …………………………………………………………………………………………..…………………..…….… Auditor’s Independence Declaration………………………………………………………..…………………………………. Consolidated Statement of Comprehensive Income …………………………………..……………………...……… Consolidated Statement of Financial Position ………………………………………………………………….………… Consolidated Statement of Changes in Equity ……………………………………………………………...…………… Consolidated Statement of Cashflows …………………………………………………………………..…………………… Notes on the Financial Statements …..……………………………………………………………………………………….. Directors’ Declaration …………………………………………………………………………………..…..…..………………….. Independent Auditor's Report …………………………………………………………………….…………………..………… Corporate Governance Statement ……………………………………………………..……….…………………..…..…… Shareholder Information …………………………………………………………………………………………………………… Corporate Directory ……………………………………………………………………………………………….…………….….… 1 3 7 22 23 25 26 27 28 70 71 76 77 79 For personal use onlyCHAIRMAN’S REPORT Dear Fellow Shareholders, The past twelve months has seen our business its strategy of continue to execute on developing and delivering world class technology solutions for the mining industry. At the same time, we have not lost focus on the value and strength of our Advisory and GeoGAS businesses which both continue to perform strongly. Revenue from our Advisory division grew again in 2019. Whilst pricing remained competitive in the low to medium sized projects, clients continue to recognise the value we can add in complex multi-asset transactional projects. and The GeoGAS division had another strong year with an increased contribution – a good result considering the number of coal gas tests for exploration reduced 19% year on year. The Software division had a strong year in terms of new customer’s acquiring RPM software products for the first time. The breadth and depth of our software offering, innovative nature of our along with the solutions, resulted in 15 new customers signing on to start to use our software for the first time during 2019. Financial Year 2019 was the first full year that the Company offered a subscription licensing alternative to our customers. We believe this strategy will deliver great benefits to both our customers and shareholders. investment Financial Year 2019 was again a year of above industry average in software development as the Company rounded out its scheduling product suite and completed the development program for its financial product suite. We expect to see our new software development investment decrease to a level more consistent with industry norms over the next two years. Whilst the management team looked at several potential acquisition opportunities during the year, after careful consideration it was determined these opportunities delivered the exposure to the market we are looking for and on that basis the potential acquisitions did not proceed beyond the initial diligence stage. that none of On the 1 September 2018 Stewart Butel was appointed to the RPM Board as a Non- Executive Director. His appointment was by resoundingly subsequently shareholders at the AGM on 30 October 2018. ratified its Stewart has a strong association with the mining industry having sat on, or chaired, several include industry boards. These President of the Queensland Resources Council (QRC) and Chairman of the Australian low emissions Coal Association and technology fund ACALET. Stewart was also previously Chairman of the Minerals Council Coal Forum and a Director with the Minerals the Western Council of Australia and Australian Chamber of Mines and Energy. Stewart is also current Non-Executive Director of Gladstone Ports Corporation Limited and Chairman of Stanmore Coal Limited. He has over 40 years’ experience in the Australian resources industry having formerly been the Managing Director of Wesfarmers Resources and its associated boards until he retired in August 2016. RPM maintains a strong balance sheet with over $28 million of cash in the bank (as at 30 June 2019) and no debt. During 2019, the Company paid out post completion payments iSolutions acquisition ($2.1 million) and for the MinVu ($0.5 million) acquisition. the for The Board has resolved not to pay a dividend this financial year. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |1 For personal use only CHAIRMAN’S REPORT I would again like to acknowledge the effort and commitment of our staff who continue to perform especially well. The Board is particularly pleased with the ability of our management and staff to execute on a clearly defined strategy that we believe will result in increased value for our shareholders. The Board thanks its shareholders for their ongoing support of the Company’s software strategy and remains firmly of the opinion that the software investments made by the Company will provide the growth engine for the business in 2020 and beyond. Allan Brackin Chairman RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |2 For personal use only MANAGING DIRECTOR’S REPORT Market Commentary High Level Summary of Financial Results Pleasingly for the industry, with the exception of Iron Ore, commodity prices remained relatively stable during the 2019 Financial Year. Total revenue for the year increased by $6.4 million (8.7%) to $80.1 million (2018: $73.7 million). The Iron Ore price spiked markedly following the Vale Brumadinho tailings dam disaster and has remained at inflated levels since. With commodity prices remaining strong, mining companies are making healthy profits and as a result have, generally speaking, continued to shareholders through impressive dividend payouts rather than undertaking mergers and acquisitions or investing heavily in Greenfield projects or Brownfield expansions. return excess cash to Just recently, the major mining companies have unsurprisingly started to talk about the lost decade of exploration which has occurred because juniors who have traditionally invested in exploration have had little access to capital. the mining The cost of mining rose again during the year as labour shortages combined with increasing service provider costs flowed through to operational costs. For yet another year capital expenditure constrained with miners continuing to “sweat their assets”. remained Whilst we expect mining companies to remain focused on keeping their operational costs as low as possible, at some stage we expect they will have to increase their capital expenditure in order to maintain and replace production capacity. My comments in last year’s Annual Report that “mining companies remain slow to embrace technology” continues to ring true. There has been little change in their “fast followers” approach which means that in many cases, miners want to effectively test drive new innovative products before committing to them which results in a higher cost of sale for the technology vendors. Financial Year 2019 was the first full year the Company offered a subscription licensing alternative to our customers. During the year we sold $10.3 million in total subscription revenue up $8.6 million from the previous year (2018: $1.7 million). Revenue from these subscription licenses will be spread across the committed for each contract duration transaction which in most cases is three years. in subscription increase This significant licensing has, as expected, impacted on our perpetual license sales which decreased slightly to $12.1 million down $1.5 million from last year’s number of $13.6 million. software On a consolidated basis the total value of contracted and perpetual licenses sold in 2019 was $22.4 million up $7.1 million (46%) over the previous year (2018: $15.3 million). subscriptions Given $9.4 million of $10.3 million in total subscription revenue sold during the year will be spread across future years, we were pleased to report a full year EBITDA of $5.9 million up $1.5 million on the previous year’s result (2018: $4.4 million). in inherently results Given the move to the subscription license model, which lower revenue and earnings over the initial years whilst the Company grows its total committed annual recurring revenue, the Board has taken a conservative approach to projections on future taxable income to calculate deferred tax assets relating to the Group’s tax losses in prior years. The write down of the deferred tax asset in 2019 by $6.4 million has resulted in a Loss after Tax of $5.9 million (2018: Profit after Tax of $0.2 million). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |3 For personal use only MANAGING DIRECTOR’S REPORT Software Division Total software revenue increased 9.2% to $48.8 million (2018: $44.7 million). The Company sold $22.4 million of software licences in 2019 of which $12.1 million were perpetual licences (and are recognised as one- off revenue during the financial year) and $10.3 million in subscription licences (which will be the committed term of each contract across multiple financial reporting periods). recognised monthly over Of the $10.3 million in subscription licenses sold, $0.9 million, was recognised as revenue in the 2019 financial statements. The total revenue from subscription licences reported in 2019 was $2.4 million a 200% increase on the previous year (2018: $0.8 million). The Annual Recurring Revenue (ARR) run rate for subscription software licences (as at the date of this report) is $7.1 million per annum. The Company has already sold $6.1 million in total contracted subscription revenue in 2020 financial year. Annual recurring revenue from software maintenance finished the year at $21.8 million (2018: $19.6 million) an 11% year on year increase. The 46% growth in perpetual and subscription software licence sales has driven demand for software consulting services which finished the year at $12.5 million a $1.8 million (17%) increase over 2018 ($10.7 million). The Company started the 2019 financial year with an annual Research and Development expenses run rate of $14.4 million and finished the year with an annual run rate of $13.1 million. The last quarters of the financial year saw the completion of two six-year accelerated development next programmes. evolution software The resultant launch following the completion of the development programmes of the mining industry’s leading financial modelling software — XERAS Enterprise 3.0 (XE3) and the second instalment of XPAC Solutions Underground Coal Solution marks two major milestones. These important product releases not only build upon the Company’s strong foundations as the pre-eminent supplier of technical software to the mining industry but also enable RPM to kick off the 2020 financial year having cleared a considerable backlog of complicated new software development. The highly anticipated release of XE3 marks the completion of a work program that included rebuilding the entire underlying architecture within the product. As a result, RPM has taken XERAS from a respected desktop product to a that provides true enterprise offering complete standardisation and integration across mining operations and departments. RPM’s advanced mine planning and scheduling software is used extensively around the world. The objective of the XPAC Solutions programme, when we development commenced the undertaking back in 2013, was to deliver to the market mine planning products that were built to be used for specific types of commodities and mining methods. The intention was to remove the need for bespoke development at each mining operation and introduce a best practice process driven application. Since the programme commenced RPM has released a total of ten commodity-based solutions (Open Pit Metals, Stratigraphic Metals, Underground Metals, Oil Sands, Open Pit Diamonds, Open Cut Coal, Steep Coal, Quarry, Open Cut Phosphate and Underground Coal). This financial year saw a 77% increase in sales of these scheduling products over the previous year. During the year we announced that the Company would release a new Intelligent RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |4 For personal use only MANAGING DIRECTOR’S REPORT Design Product in the first half of 2020 financial year. Advisory Division This product will apply the very latest parametric design capabilities and use the most advanced software technology and enterprise architecture. It will compete with the currently available products in the market which are based upon 30-year-old principles and the same underlying code base which has been adapted, tailored and reformed, customised over the years. and across applications We had previously elected not to develop our own mine design software and instead focused on ‘open integration’ with other third-party design applications. This approach was built on the assumption that third party vendors would embrace and allow the free flow of data between the enterprise. The catalyst for building our own design solution has been driven by the realisation that other suppliers to the industry have inherent limitations around enterprise interoperability. the engineering process ‘starts with design’ a comprehensive RPM suite of planning products needs to include Intelligent Design solutions round-out RPM’s to established suite of integrated solutions in the areas of Mine Scheduling, Simulation, Finance, Maintenance and Operations. Furthermore, as in order The breadth and depth of our innovative software offering has seen 15 new customers sign up during 2019. While all these customers have purchased software modules to address a specific need, our hope is that over time they will purchase and roll out more of our suite of integrated products. The move to subscription licensing has necessitated RPM establishing a dedicated Cloud delivery team who are responsible for installing and monitoring our customers’ Cloud implementations. Over time we expect this team to be cost neutral. Demand for our mining advisory services increased 8.4% during 2019 to $25.9 million (2018: $23.9 million). This division continues to positively contribute to the financial results of the business. There is no doubt that resisting the urge to compete for lower and risker projects during focusing on the downturn and delivering services the highest quality (sometimes with little financial return), was the right approach. instead reputation Our advisory division’s for independent assessment and financier due diligence roles remains second to none, which positions us well for the larger and more complex projects now on the horizon. The Advisory team continues to provide advice on the majority of the largest Mergers and Acquisitions, most of which are sourced from North Asian clients for assets right across the globe. The ability to leverage RPM’s technology in is a key market large studies globally advantage resulting in the Advisory team winning sizeable studies during 2019. This our supports technology but also allows us to demonstrate the real value clients can derive from combining our Advisory industry expertise and our leading technology products. improvements team’s both to Our previously reported dispute with a Russian mining company (which dates back to June 2015) has now been fully resolved and the wash up with reimbursement from RPM’s insurance is accounted for in these financial statements. GeoGAS Division GeoGAS had another solid year with revenue flat at $4.7 million (2016: $4.6 million). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |5 For personal use only MANAGING DIRECTOR’S REPORT has resulted in a more complete and richer set of products than we had this time last year. There is no doubt in my mind that our simulation products will become the de-facto for mobile mining equipment standard simulation for mining companies, consulting companies and the global original equipment manufacturers. We are expecting great things from XECUTE, our ultra-short-term scheduling product, in 2020 financial year with seven new customers acquiring last fourteen months. licenses over the I, along with the rest of the team remain enthusiastic about our software products and expect to see strong growth across all of the product suites in 2020. Richard Mathews Managing Director and Chief Executive Officer The drop-off in testing volumes associated with coal exploration was offset by an increase in compliance testing. Company Expenses Operating expenses for the full year came in at $67.3 million, $4.1 million more than 2018 ($63.2 million). This increase was mainly attributable to a 17% increase in software consulting headcount along with the resumption of annual salary increases due to the market demand for skilled employees. The Company also incurred $1.0 million in once off Merger and Acquisition ($0.1 million), Litigation ($0.1 million), Restructuring ($0.4 million) and Recruitment ($0.4 million) costs which were reported above the line. The Company was also required to increase its provision for doubtful debts by $0.8 million due to its growth in revenue. Net cash inflows from operations for 2019 was $7.3 million (2018: $7.0 million) and at 30 June 2019 the Company had $28.2 million cash in the bank and no debt after paying $2.6 million in acquisition earnouts. Future Outlook We expect to see continued growth in our Advisory and Software divisions. licensing software We anticipate that with the right economic incentives customers will continue to move from perpetual to subscription licensing. It feels to me like we are one year through a two-to-three-year journey. Having said that there are many customers who will always prefer to purchase perpetual licenses for many reasons (e.g. size, location, capital structure etc.) and hence there will always be a level of perpetual licenses sold. The Company invested another $13.7 million on its software products during the year which RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |6 For personal use only DIRECTORS’ REPORT Your Directors present their report on RPMGlobal Holdings Limited (the “Company”) and its subsidiaries (referred to hereafter as the “Group”) for the year ended 30 June 2019. 1. Directors The Directors of RPMGlobal Holdings Limited at any time during or since the end of the period were: Non-executive Allan Brackin – Chairman Stewart Butel Ross Walker Executive Richard Mathews – CEO and Managing Director 2. Principal Activities The Group’s principal activities during the financial year consisted of: a) b) c) Software licensing, consulting, implementation and maintenance; Technical, advisory and training services to the resources industry; and Laboratory gas testing. There were no significant changes in the nature of the Group’s principal activities during the financial year. 3. Dividends No dividends were paid or declared during the financial year. 4. Review and Results of Operations Revenue in the 2019 financial year grew by 8.7% to $80.1 million (2018: $73.7 million). All divisions increased their revenue, Software by 9.2%, Advisory by 8.4% and GeoGAS by 2.2%. Software - Licence Sales - Licence subscriptions - Maintenance - Consulting Total Software Advisory GeoGAS Other Revenue Total Revenue Direct Costs Net Revenue 2019 $m 12.1 2.4 21.8 12.5 48.8 25.9 4.7 0.7 80.1 (6.9) 73.2 2018 $m 13.6 0.8 19.6 10.7 44.7 23.9 4.6 0.5 73.7 (6.1) 67.6 Change % (11.0%) 200.0% 11.2% 16.8% 9.2% 8.4% 2.2% 40.0% 8.7% 13.1% 8.3% RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |7 For personal use only DIRECTORS’ REPORT 4. Review and Results of Operations (Continued) Reconciliation between IFRS and non-IFRS financial performance items used in the Directors Report is presented below: Net Revenue Operating Expenses EBITDA1 Depreciation and Amortisation Russian Litigation iSolutions Earn out Provision Net Finance (costs)/income Profit/(Loss) before income tax Income tax expense Profit/(Loss) Earnings Per Share (cents per share) 2019 $m 73.2 (67.3) 5.9 (4.0) (0.2) (0.3) 0.3 1.7 (7.6) (5.9) (2.7) 2018 $m 67.6 (63.2) 4.4 (3.4) (0.3) (0.3) 0.2 0.6 (0.4) 0.2 0.11 Change % 8.3% 6.5% 34.1% 17.7% - - 50.0% 183.3% - - - 1 Earnings before Interest, Tax, Depreciation, Amortisation and Litigation is a non-IFRS disclosure. In the opinion of the Directors, the Group’s EBITDA reflects the results generated from ongoing operating activities and is calculated in accordance with AICD/Finsia principles. The non-operating adjustments outlined above are considered to be non-cash and/or non- recurring in nature. These items are included in the Group’s consolidated statutory result but excluded from the underlying result. EBITDA has not been audited or reviewed. Other operating costs increased by $4.1m of which $3.5m related to employment costs including additional software sales representatives ($0.7 million), software consulting headcount ($1.9 million), once-off restructuring costs ($0.4 million). The Company also increased its provision for doubtful debts ($0.8 million) and spent more on professional fees ($0.6 million) following commencement of litigation in China and South Africa to recover debts owed to the Company. As a result of this investment EBITDA (Earnings before Interest, Tax, Depreciation, Amortisation, Litigation) increased by $1.5 million to $5.9 million (2018: $4.4 million). The Group produced $7.3 million in net operating cashflow and had cash reserves of $28.2 million (2017: $23.3 million) and no bank debt at the end of the financial year. During the year the Group paid out $2.6 million for software acquisitions and earn-out payments for prior acquisitions. Software Division The Software division provides mine scheduling, financial costing/budgeting, simulation and asset management software solutions to the mining industry. It also provides software consulting, implementation, training and support for these products. Net Software revenue increased by 9.2%. In 2019, the Company offered subscription licence alternative to its perpetual licence offering. During the year the Group sold $10.3 million in subscription licences (2018: $1.7 million). However, as the subscription revenue is recognised over the term of the subscription, the revenue recognised in 2019 from these subscription licenses was $0.9 million resulting in a total subscription revenue for the financial year of $2.4 million (2018: $0.8 million). With the increase in subscription license sales, revenue from perpetual licence sales decreased to $12.1 million (2018: $13.6 million). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |8 For personal use only DIRECTORS’ REPORT 4. Review and Results of Operations (Continued) The Annual Recurring Revenue (ARR) run rate for subscription software licences (as at the date of this report) is $7.1 million per annum and the Company has sold $6.1 million in total subscription revenue already in the 2020 financial year. The Group decreased its investment in R&D to $13.7 million following completion of its scheduling solutions development programme of work. The Company welcomed 15 new customers who purchased RPM software for the first time. We expect these customers to expand their use of our software as they become more familiar with our suite of integrated products. Advisory Division The Advisory division provides independent consulting and advisory services which cover technical and economic analysis and assessment of mining activities and resources on behalf of mining companies, financial institutions, government agencies and suppliers to mining projects. The market for Advisory services is heavily reliant on expansion, development, financing and transacting of mining assets and projects. Revenue from Advisory services for the year grew by 8.4% to $25.9 million (2018: $23.9 million). GeoGAS The GeoGAS business provides mine gas consulting and laboratory testing services primarily to the coal industry on the East Coast of Australia. Revenue from the GeoGAS business increased by 2.2% to $4.7 million (2018: $4.6 million). Operating Expenses Total Operating expenses increased by 6.8% ($4.1 million) to $67.3 million during the year (2018: $63.2 million). This increase was mainly attributable to an increase in employee benefits expenses as a result of an increase in software consulting and sales headcount and annual salary increases for the Company’s advisory and technical consulting divisions. There was also $1.2 million in once-off costs incurred during the year. Provision of doubtful debts increased by $0.8 million as a result of an increase in revenue. 5. Likely Future Developments - Business Strategies and Prospects for Future Financial Years As a Board and management team we remain fully invested in growing our suite of software products. In 2019 we completed the last of our dedicated scheduling solutions. This brings to an end an eight year development programme during which we will have developed and released 10 commodity based scheduling solutions each one addressing a different mining method. We also completed the final key functional requirement for XERAS Enterprise which also concludes a seven year development programme. It has now been twenty months since we started to offer subscription style agreements to customers who are looking to purchase our software and we are really starting to see some traction in this area. We have already sold $6.1 million of total software subscription license in 2020 financial year and expect to see that number continue to grow. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |9 For personal use only DIRECTORS’ REPORT 5. Likely Future Developments - Business Strategies and Prospects for Future Financial Years (Continued) The near term outlook for our Advisory business remains positive. We remain confident that our internationally respected Advisory team is well placed to benefit from its increased market share and to continue to assist mining companies as they focus on productivity improvements and any associated acquisition and divestiture activity. The division continues to expand its service offerings to leverage the value provided by our existing and recently acquired software products in order to assist its clients with operational advisory demand. We continue to see the value of advisory as a great introducer to RPM’s software offerings. With respect to our GeoGAS business, if coal prices remain firm, we are confident this division will have another solid year. 6. Information on Current Directors and Company Secretary Directors Allan Brackin Stewart Butel Ross Walker Experience Chairman, Non-executive Director. Joined the Board in November 2011. Allan has been involved in the technology industry for over 30 years at both executive and non- executive level. Allan was formerly Director and Chief Executive Officer of Volante Group Limited from 2000-2004. From 1986 – 2000 Allan cofounded a number of IT companies which became part of the Volante Group. Qualifications: Bachelor of Applied Science. Other listed company directorships in last three years: Chairman of GBST Holdings Limited since 2005, Chairman of OptiComm Limited since 2014, Sensera Limited since 2018. Stewart was appointed to the RPMGlobal Holdings Limited Board of Directors on 1 September 2018. Stewart is currently a non-executive director of Gladstone Ports Corporation Limited and Chairman of Stanmore Coal Limited and has over 40 years’ experience in the Australian resources industry. Stewart was formerly managing director of Wesfarmers Resources and its associated boards where he retired in August 2016 following a 16-year tenure with the group having joined Wesfarmers Limited in June 2000. Qualifications: Bachelor of Science (University of Newcastle), Graduate Diploma in Business Studies (University of New England) and is a graduate of AICD and the Advanced Management Programme at Harvard Business School. Other listed company directorships in last three years: Chairman and Director of Stanmore Coal Limited since 2017, Director of Duet Group until 16 May 2018 Non–executive Director. Joined the Board in March 2007. Joined Pitcher Partners Brisbane (previously Johnston Rorke) in 1985, Managing Partner in 1992 – 2008 and again from 2014 to 2017. Predominantly involved in corporate finance, auditing, valuations, capital raisings and mergers and acquisitions for the past 20 years. Qualifications: Bachelor of Commerce, FCA Other listed company directorships in last three years: Wagners Holding Company Limited since its IPO in December 2017 Special responsibilities Chairman Member – HR and Remuneration Committee Member -Audit and Risk Committee Non-executive Director Member and Chairman – Audit and Risk Committee Chairman – HR and Remuneration Committee Non-executive Director Member and Chairman – Audit and Risk Committee Member – HR and Remuneration Committee RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |10 For personal use only DIRECTORS’ REPORT 5. Information on Current Directors and Company Secretary (Continued) Directors Experience Richard Mathews Appointed Managing Director 28 August 2012. Richard’s previous roles includes Senior Vice President, International at J D Edwards, CEO of Mincom Ltd, Chief Executive Officer and then Non- Executive Chairman of eServGlobal Limited. Qualifications: Bachelor of Commerce, Bachelor of Science, ACA Other listed company directorships in last three years: None in the last three years. Richard is a director on the Telstra Health Pty Ltd Board and also previously sat on the Board of METS Ignited. Company Secretary Special responsibilities Executive Managing Director Member – HR and Remuneration Committee James O’Neill, Group General Counsel and Company Secretary, joined RPMGlobal Holdings Limited in December 2012. Qualifications: Bachelor of Laws and Bachelor of Information Technology from Queensland University of Technology, Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia, Solicitor and Member of the Queensland Law Society and Associate Member of the Governance Institute of Australia (AGIA) and Chartered Institute of Secretaries (ACIS). 7. Meetings of Directors The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2019 and the number of meetings attended by each Director were: Full meetings of Board of Directors Audit & Risk Committee HR & Remuneration Committee Attended Held Attended Held Attended Held Allan Brackin Stewart Butel 1 Ross Walker 10 9 10 10 9 10 Richard Mathews 1 Stewart Butel commenced as Director on 1 September 2018 10 10 4 3 4 - 4 3 4 - 1 1 1 - 1 1 1 - 8. Directors’ Interests The relevant interest of each Director in the shares and options issued by the Company, as notified by the Directors to the ASX in accordance with section 205G(1) of the Corporations Act 2001, at the date of this report is as follows: A Brackin S Butel R Walker R Mathews 1 RPMGlobal Holdings Limited Ordinary shares 1,098,311 100,000 958,333 8,220,138 Options over ordinary shares - - - - 1 Includes 175,560 shares held by R Mathews as trustee under a bare trust arrangement for a third party. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |11 For personal use only DIRECTORS’ REPORT 9. Shares Under Option Unissued ordinary shares of RPMGlobal Holdings Limited under option at the date of this report are as follows: Date options granted 31/10/2014 03/03/20151 15/07/20151 08/09/20151 29/08/2016 29/11/2016 09/02/20171 08/06/2017 1/10/20171 15/03/2018 14/09/20181 14/12/20181 15/03/2019 7/06/2019 Expiry date 31/10/2019 03/03/2020 15/07/2020 08/09/2020 29/08/2021 29/11/2021 09/02/2022 08/06/2022 31/10/2022 15/03/2023 14/09/2023 14/12/2023 15/03/2024 07/06/2024 Issue price of shares $0.61 $0.59 $0.57 $0.56 $0.49 $0.54 $0.59 $0.57 $0.77 $0.67 $0.61 $0.58 $0.58 $0.60 Number under option 100,000 3,681,000 100,000 2,995,000 125,000 500,000 2,396,666 290,000 2,654,999 420,000 3,405,166 893,000 1,280,000 300,000 19,140,831 1 Included in these options were options granted as remuneration to the five highest remunerated officers during the year. Details of options granted to the five highest remunerated officers who are also key management personnel are disclosed in section 20E of the Remuneration Report. There are no Officers in the Company who are not also identified as key management personnel. No option holder has any right under the options to participate in any other share issue of the Company or any other entity. 10. Shares issued on the exercise of options During the financial year the following shares were issued following exercise of previously issued share options: Exercise Date 6/07/2018 27/08/2018 4/09/2018 3/10/2018 3/10/2018 24/01/2019 15/02/2019 12/03/2019 Option Grant Date 29/08/2016 8/09/2015 3/03/2015 3/03/2015 8/09/2015 29/11/2016 29/11/2016 8/09/2015 Number of shares issued 66,666 20,000 25,000 22,500 18,334 166,666 100,000 25,000 11. Indemnity and Insurance of Officers The Company has indemnified the Directors and Officers of the Company for costs incurred, in their capacity as a Director or Officer, for which they may be personally liable, except where there is a lack of good faith. During the financial year, the Company paid insurance premiums to insure the Directors and Officers of the Company against certain risks associated with their activities as Officers of the Company. The terms of that policy prohibit disclosure of the nature of liability covered, the limit of such liability and the premium paid. 12. Environmental Legislation RPMGlobal Holdings Limited and its controlled entities are not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |12 For personal use only DIRECTORS’ REPORT 13. Non-audit Services Details of the amounts paid or payable to the Company’s auditor and related practices of the auditor for audit and non-audit services provided during the year are set out below. The Board has considered the position and in accordance with advice received from the Audit Committee, is satisfied that the provision of non-audit services is compatible with the general standard of independence of auditors imposed by the Corporations Act 2001. BDO (QLD) Pty Ltd 2019 $ 2018 $ Preparation of Income tax return and other taxation services 9,100 8,117 14. Indemnity of Auditors The Company has agreed to indemnify and hold harmless its auditors, BDO Audit Pty Ltd, against any and all losses, claims, costs, expenses, actions, demands, damages, liabilities or any other proceedings whatsoever incurred by the auditors in respect of any claim by a third party arising from or connected to any breach by the Company. 15. Auditor’s Independence Declaration In accordance with Section 307C of the Corporations Act 2001, a copy of the auditor’s independence declaration is enclosed on page 23. 16. Legal Proceedings on Behalf of the Group No person has applied for leave of the Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. 17. Significant Changes in the State of Affairs There was no matter or circumstance during the financial year that has significantly affected the state of affairs of the Group not otherwise disclosed. 18. Matters Subsequent to the End of the Financial Year No matter or circumstance has arisen since 30 June 2019 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. 19. Rounding of Amounts The Company is a type of company referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000, or in certain cases, the nearest dollar. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |13 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited The remuneration report is set out under the following main headings: A. B. C. D. E. F. 20A. Principles used to determine the nature and amount of remuneration; Service agreements; Details of remuneration; Bonus and share-based compensation benefits; Equity instruments held by key management personnel; and Other transactions with key management personnel. Principles Used to Determine the Nature and Amount of Remuneration Remuneration and compensation have the same meaning in this report. This report discusses the Group’s policies in regard to compensation of key management personnel (KMP). The identified KMP have authority and responsibility for planning, directing and controlling the activities of the Group. In addition to the Directors, the Company assessed the Chief Financial Officer, Group General Counsel & Company Secretary and the Executive General Manager of the Advisory Division as having authority and responsibility for planning, directing and controlling all activities of the Group, directly or indirectly, during the 2019 financial year. The Board has established a HR and Remuneration Committee to assist with remuneration and incentive policies enabling the Group to attract and retain KMP and Directors who will create value for shareholders and support the Group’s mission. The HR and Remuneration Committee obtains independent advice if required on the appropriateness of compensation packages given trends in comparative companies. In the 2019 financial year the Committee did not use a remuneration consultant. The Group’s Corporate Governance Statement provides further information on the role of this Committee. The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic, operational objectives and achieve the broader outcome of creation of value for shareholders. Executive Director and other Key Management Personnel The compensation structures take into account: • The capability and experience of the KMP; • Their ability to control the relevant segment’s performance; and • The segment or Group earnings. Compensation packages include a mix of fixed, short-term and long-term performance-based incentives. In addition to their salaries, the Group also provides non-cash benefits to its KMP and contributes to a defined contribution superannuation plan (or equivalent pension plan) on their behalf. Fixed Compensation Fixed compensation is calculated on a total cost basis and includes salary, allowances, non-cash benefits, employer contributions to superannuation funds and any fringe benefits tax charges related to employee benefits, including motor vehicles. Compensation levels are reviewed using an individual approach, based on evaluation of the individual, and a comparison to the market. A KMP’s compensation is also reviewed on promotion. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |14 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20A. Principles Used to Determine the Nature and Amount of Remuneration (Continued) Performance Linked Compensation Performance linked compensation includes both short-term and long-term incentives and is designed to reward KMP for meeting and exceeding their Key Performance Objectives (KPOs). The Short-Term Incentive (STI) is an ‘at risk’ incentive provided in the form of cash, while the Long-Term Incentive (LTI) is provided as options over ordinary shares of the Company under the rules of the Employee Share Option Plan (ESOP) (see note 23 to the financial statements). The current long-term performance incentive structure was first implemented in the 2013 year and was most recently approved by shareholders at the 24 November 2016 Annual General Meeting. The table below sets out the performance-based compensation paid to KMP together with earnings for the same period. Performance based compensation consists of STI cash bonus and LTI share-based payments. Performance based compensation Year ended 30 June 2015 2016 2017 2018 2019 STI $’000 1,072 112 968 - 217 LTI $’000 90 230 70 46 119 Total $’000 1,162 342 1,038 46 336 EBITDA1 $’000 2,600 (3,224) 4,582 4,369 5,877 EPS cents (3.9) (5.3) 0.02 0.11 (2.7) Share price $ 0.56 0.41 0.55 0.62 0.59 1 Earnings before Interest, Tax, Depreciation, Impairment and Restructuring costs (non-IFRS disclosure) Short-term Incentive Bonus Effective 1 July 2012, the Group implemented a variable pay structure, referred to as the Executive Incentive Plan (EIP). Each of the identified KMP has a portion of their remuneration linked to the EIP. The key objective of the EIP is to create clear alignment between individual and business performance and remuneration by providing a performance-based reward to participants in line with their relative contribution to the Group. The EIP achieves the alignment by focusing participants on achieving goals which contribute to sustainable shareholder value and providing a clear link between performance and the Group financial result. In 2019 R Mathews, M Kochanowski and J O’Neill had 100% of their STI based on the Company’s adjusted EBITDA performance. P Baudry (Advisory) had 50% of his STI based on the Company’s adjusted EBITDA performance and 50% based on the adjusted EBITDA contribution of the Advisory division. Cash bonuses are paid, provided for or forfeited in the year to which they relate. The Board assessed performance of the KMP for the 2019 Financial Year as shown in the table below: Fixed Compensation R Mathews M Kochanowski J O’Neill P Baudry 50% 83% 83% 50% Variable Compensation 50% 17% 17% 50% STI awarded STI forfeited - - - 50% 100% 100% 100% 50% RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |15 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20A. Principles Used to Determine the Nature and Amount of Remuneration (Continued) Long-term Incentive Options were issued in the 2014, 2015, 2016, 2017, 2018 and 2019 financial years under the Company’s Employee Share Option Plan (ESOP) to KMP at the discretion of the Board. Consistent with the current ESOP plan terms last approved by shareholders at the Company’s 2016 Annual General Meeting, the rules of the ESOP Plan enable the Board to determine the applicable vesting criteria and to set a timetable for vesting of options in the Offer Document, including vesting in tranches over a defined period. The Board has the discretion on whether or not to set performance hurdles for vesting or to link vesting solely to a defined service period in order to drive key staff retention and reward longevity of service. The options issued since November 2013 vest in tranches over a three year period from the date of grant, have vesting conditions linked to the holder maintaining employment with the Group over that period and are issued at an exercise price based on the volume weighted average price of the Company’s shares in the five days prior to each grant. The Board has a Margin Loan policy that restricts Directors and Executives of the Group from entering into financial contracts secured by shares and other securities of the Company. This policy requires the approval of the Chairman of the Board for any financial arrangements or facilities related to Company shares held by the Directors and Executives. Non-executive Directors Fees and payments to Non-executive Directors reflect the demands which are made on, and the responsibilities of the Directors. Non-executive Directors’ fees and payments are reviewed periodically by the Board and are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for approval by shareholders. The pool currently stands at $500,000, unchanged since it was approved in the 2009 Annual General Meeting. 20B. Service Agreements Non-executive Directors’ base remuneration was last reviewed with effect from 1 July 2018. Both the Chairman’s and Non-executive Directors’ remuneration is inclusive of committee fees. Details of contracts with Directors and KMP of the Group are set out below. Termination benefit Notice Period Terms of agreement A Brackin S Butel R Walker R Mathews M Kochanowski J O’Neill P Baudry 1 1 Australian dollar equivalent, salary of P Baudry is set and paid in Chinese Yuan and Russian Roubles. Unlimited in term Unlimited in term Unlimited in term Unlimited in term Unlimited in term Unlimited in term Unlimited in term Nil Nil Nil 6 months 3 months 3 months 3 months Base salary including superannuation $100,000 $80,000 $80,000 $650,000 $306,600 $306,600 $434,000 Nil Nil Nil 6 months 3 months 3 months 3 months The KMP are also entitled to receive upon termination of employment their statutory entitlements of accrued annual and long service leave (where applicable), together with any superannuation benefits (where applicable). Compensation levels are reviewed each year to meet the principles of the remuneration policy. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |16 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20C. Details of Remuneration Directors Chairman (Non-executive) Allan Brackin Executive Directors Richard Mathews – CEO and Managing Director Non-executive Directors Stewart Butel Ross Walker Other Key Management Personnel In addition to executive Directors mentioned above, the following persons were assessed by the Company as the executives who had the greatest authority and responsibility for planning, directing and controlling all activities of the Group, directly or indirectly, during the 2019 financial year: Name Position Michael Kochanowski Chief Financial Officer James O’Neill Group General Counsel and Company Secretary Philippe Baudry Executive General Manager - Advisory Division Details of remuneration of each Director of RPMGlobal Holdings Limited and each of the other KMP of the Group are set out in the following tables. Short-term benefits Cash salary and fees Movement in leave entitle- ments STI cash bonus Non – monetary benefits 1 Post - employ ment benefits Share- based payment (options) Total Proportion of remun- eration perform- ance related $ $ $ $ $ $ $ % 91,324 60,883 80,000 644,000 876,207 - - - (50,673) (50,673) - - - - - - - 11,055 - 11,055 8,676 5,784 - 6,000 20,460 - - - - - 100,000 66,667 80,000 610,382 857,049 - - - - - 2019 Directors A Brackin S Butel2 R Walker R Mathews Other Key Management Personnel M Kochanowski J O’Neill P Baudry 273,927 273,927 438,254 986,108 1,862,315 21,049 31,413 32,991 85,453 34,780 - - 217,000 217,000 217,000 Total 1 Includes car park and health insurance 11,055 11,055 11,448 33,558 44,613 26,023 26,023 - 52,046 72,506 43,777 43,582 31,563 375,831 386,000 731,256 118,922 1,493,087 118,922 2,350,136 12% 11% 34% 22% 14% 2 Stewart Butel started 1 September 2018. Value of options as propor- tion of remun- eration % - - - - - 12% 11% 4% 8% 6% RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |17 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20C. Details of Remuneration (Continued) Short-term benefits Cash salary and fees Movement in leave entitle- ments STI cash bonus Non – monetary benefits 1 Post - employ ment benefits Share- based payment (options) Total Proportion of remun- eration perform- ance related $ $ $ $ $ $ $ % Value of options as propor- tion of remun- eration % 2018 Directors A Brackin Dr I Runge 2 R Walker R Mathews 91,324 80,000 70,000 639,167 880,491 - - - 19,935 19,935 - - - - - - - 10,608 - 10,608 8,676 - - 10,833 19,509 - - - - - 100,000 80,000 70,000 680,543 930,543 - - - - - Other Key Management Personnel M Kochanowski J O’Neill P Baudry 255,708 255,708 361,336 872,752 1,753,242 Total 13,464 19,717 15,734 48,914 68,850 - 10,608 - 10,608 - 11,587 - 32,803 - 43,410 1 Includes car park and health insurance 20D. Bonuses and Share-based Compensation Benefits 24,292 24,292 - 48,584 68,094 18,165 322,236 18,054 328,379 398,893 10,236 46,455 1,049,508 46,455 1,980,051 2 Dr Ian Runge who was a non-executive director for Financial Year 2018 retired effective 30 June 2018. 6% 5% 3% 4% 2% - - - - - 6% 5% 3% 4% 2% All options refer to options over ordinary shares of RPMGlobal Holdings Limited, which are exercised on a one-for- one basis under the ESOP Plan. The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, based on an estimate of the number of options likely to vest, and the amount is included in the remuneration tables above. Fair values at grant date are determined using Trinominal Lattice model that take into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Model inputs for options granted during the year are disclosed in note 23 in the financial report. Details of options over ordinary shares in the Company provided as remuneration to each Director and each of the KMP and the Group are set out below. When exercisable, each option is convertible into one ordinary share of RPMGlobal Holdings Limited. Further information on the options is set out in note 23 to the financial statements. Options granted under the ESOP plan carry no dividend or voting rights until the options vest, are exercised and converted to ordinary shares whereupon those ordinary shares carry dividend and voting rights consistent with all other ordinary shares of the Company. The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |18 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20D. Bonuses and Share-based Compensation Benefits (Continued) A Brackin S Butel 3 R Walker R Mathews M Kochanowski J O’Neill P Baudry Number of options granted during the year - - - - 300,000 300,000 300,000 Value of options at grant date 1 $ - - - - 59,488 59,488 59,488 Number of options vested during the year 2 - - - - 166,668 158,334 133,334 1 The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part of remuneration. 2 The third tranche of options granted in September 2015 vested in September 2018 with an exercise price of $0.56 cents expiring in September 2020 and to-date no options in this grant have been exercised by the KMP. The second tranche of options granted in February 2017 vested in February 2019 with an exercise price of $0.59 cents expiring in February 2022 and to-date no options in this grant have been exercised by the KMP. The first tranche of options granted in October 2017 vested in October 2018 with an exercise price of $0.77 cents expiring in October 2022 and to-date no options in this grant have been exercised by the KMP. The Options granted on 13 September 2018 with an exercise price of $0.61 cents expiring in September 2023 and the options granted on 14 December 2018 with an exercise price of $0.58 cents expiring in December 2023 have yet to vest. 3 S Butel commenced as a Director on 1 September 2018. Details of options over ordinary shares in the Company provided as remuneration to key management personnel are shown in the table on the following page. The vesting conditions are set out in Section 20A. The table also shows the percentages of the options granted that vested and were forfeited during the year. Further information on the options including valuation inputs and assumptions are set out in note 23 to the financial statements. The terms and conditions of each grant of options affecting remuneration of a KMP in the current or a future reporting period are as follows: Grant date 03/03/2015 03/03/2015 03/03/2015 8/09/2015 8/09/2015 8/09/2015 09/02/2017 09/02/2017 09/02/2017 26/10/2017 26/10/2017 26/10/2017 Vesting and exercise date 03/03/2016 03/03/2017 03/03/2018 8/09/2016 8/09/2017 8/09/2018 09/02/2018 09/02/2019 09/02/2020 26/10/2018 26/10/2019 26/10/2020 Expiry date 03/03/2020 03/03/2020 03/03/2020 8/09/2020 8/09/2020 8/09/2020 09/02/2022 09/02/2022 09/02/2022 26/10/2022 26/10/2022 26/10/2022 Exercise Price, $ Value per option at grant date 0.59 0.59 0.59 0.56 0.56 0.56 0.59 0.59 0.59 0.77 0.77 0.77 $0.19 $0.23 $0.25 $0.17 $0.19 $0.21 $0.17 $0.21 $0.23 $0.19 $0.23 $0.26 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |19 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20D. Bonuses and Share-based Compensation Benefits (Continued) Grant date 13/09/2018 13/09/2018 13/09/2018 14/12/2018 14/12/2018 14/12/2018 Vesting and exercise date 13/09/2019 13/09/2020 13/09/2021 14/12/2019 14/12/2020 14/12/2021 Expiry date 13/09/2023 13/09/2023 13/09/2023 14/12/2023 14/12/2023 14/12/2023 Exercise Price, $ Value per option at grant date 0.61 0.61 0.61 0.58 0.58 0.58 $0.17 $0.20 $0.23 $0.14 $0.17 $0.19 Year (FY) of grant Years in which option may vest Number of options granted Value of option at grant date 1 A Brackin S Butel R Walker R Mathews M Kochanowski J O’Neill P Baudry - - - - 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2019 - - - - 2015-2017 2016-2018 2017-2019 2018-2020 2019-2021 2020-2023 2015-2017 2016-2018 2017-2019 2018-2020 2019-2021 2020-2023 2015-2017 2016-2018 2017-2019 2018-2020 2020-2023 - - - - 50,000 200,000 200,000 150,000 150,000 300,000 50,000 225,000 175,000 150,000 150,000 300,000 50,000 550,000 250,000 150,000 300,000 - - - - $0.21 - $0.25 $0.19 - $0.25 $0.17 – $0.21 $0.17 – $0.23 $0.19 – $0.26 $0.14 – $0.23 $0.21 - $0.25 $0.19 - $0.25 $0.17 – $0.21 $0.17 – $0.23 $0.19 – $0.26 $0.14 – $0.23 $0.21 - $0.25 $0.19 - $0.25 $0.17 – $0.21 $0.17 – $0.23 $0.14 – $0.23 Number of options vested during the year - - - - - - 66,668 50,000 50,000 - - - 58,333 50,000 50,000 - - - 83,333 50,000 - Number of options forfeited during the year - - - - 50,000 - - - - - 50,000 - - - - - 50,000 - - - - Vested % - - - - - - 33% 33% 33% - - - 33% 33% 33% - - - 33% 33% - Value at date of forfeiture 2 Forfeited % - - - - - - - - - - - - - - - - - - - - - - - 100% - - - - - 100% - - - - - 100% - - - - 1 The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part of remuneration 2 The value of the options that were granted as part of remuneration and that were forfeited (lapsed) during the year because a vesting condition was not satisfied was determined at the time of lapsing, but assuming the condition was satisfied. Remuneration Report - Audited (Continued) 20E. Equity Instruments held by Key Management Personnel No shares were granted as compensation in 2019 (2018: nil). The number of shares and options over shares in the Company held during the financial year by each Director of RPMGlobal Holdings Limited and each of the other key management personnel of the Group, including their personally-related entities, is set out below: RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |20 For personal use only DIRECTORS’ REPORT 20. Remuneration Report - Audited (Continued) 20E. Equity Instruments held by Key Management Personnel (i) Options Name Balance at the start of the year Granted as compensation Forfeited, exercised and expired Balance at the end of the year Vested and exercisable A Brackin S Butel R Walker R Mathews M Kochanowski J O’Neill P Baudry (ii) Ordinary Shares - - - - - - - - - - - - - - - - - - - - 750,000 750,000 1,000,000 300,000 300,000 300,000 (50,000) (50,000) (50,000) 1,000,000 1,000,000 1,250,000 550,000 550,000 900,000 Balance at the start of the year Sold during the year Exercise of Options Acquired during the year (on market) Balance at the end of the year Directors A Brackin S Butel 1 R Walker R Mathews 2 1,098,311 - 958,333 8,220,138 Other key management personnel of the Group M Kochanowski 183,333 J O’Neill P Baudry 40,000 307,241 - - - - - - - - - - - - - - - 100,000 - - - - - 1,098,311 100,000 958,333 8,220,138 183,333 40,000 307,241 1 S Butel started 1 September 2018. 2 Includes 175,560 shares held by R Mathews as trustee under a bare trust arrangement for a third party. No options were exercised during the 2019 year by the KMP. 20F. Loans and Other Transactions with Key Management Personnel and their related parties There were no transactions or loans with Key Management Personnel and their related parties during the 2019 financial year. 20J. 2018 Annual General Meeting (AGM) The Company’s 2018 remuneration report was unanimously adopted by show of hands at 2018 AGM. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Remuneration report - End This report is made in accordance with a resolution of the Directors. Allan Brackin Chairman Dated: 23 August 2019 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |21 For personal use onlyTel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY T R MANN TO THE DIRECTORS OF RPMGLOBAL HOLDINGS LIMITED As lead auditor of RPMGlobal Holdings Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of RPMGlobal Holdings Limited and the entities it controlled during the period. T R Mann Director BDO Audit Pty Ltd Brisbane, 23 August 2019 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |22 For personal use onlyCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Notes 2019 $’000 2018 $’000 Revenue from contracts with customers Services Licence sales Software maintenance Software subscription Total revenue from contracts with customers Other revenue Rechargeable expenses Net Revenue Expenses Amortisation Depreciation Employee benefits expense Commissions and incentives Other employee costs Office expenses Professional services Professional services – Russian litigation Rent Travel expenses Other expenses Profit/(Loss) before finance costs and income tax Finance income Finance costs Fair value adjustments Net finance costs Profit/(Loss) before income tax Income tax expense Profit/(Loss) after income tax 43,114 12,061 21,807 2,390 79,372 721 (6,889) 73,204 (3,143) (877) (49,797) (3,242) (994) (2,512) (1,839) (185) (3,426) (2,842) (2,675) (71,532) 1,672 363 (18) (272) 73 1,745 (7,598) (5,853) 39,158 13,605 19,606 778 73,147 557 (6,136) 67,568 (2,659) (739) (46,921) (3,960) (775) (2,632) (1,396) (273) (3,418) (2,537) (1,560) (66,870) 698 272 (32) (314) (74) 624 (380) 244 11 10 21(d) 4 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |23 For personal use only CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Notes 2019 $’000 2018 $’000 (5,853) 244 Profit/(Loss) Other comprehensive income Items that will not be classified subsequently to profit or loss: Re-measurements of defined benefit obligations Items that may be classified subsequently to profit or loss: Foreign currency translation differences Other comprehensive income / (loss), net of tax Total comprehensive income Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) 22 22 3 (257) (254) (6,107) (2.7) (2.7) 11 (166) (155) 89 0.11 0.11 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |24 For personal use only CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Notes 2019 $’000 2018 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Contract assets Current tax receivable Other assets Total current assets Non-current assets Trade and other receivables Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provisions Current tax liabilities Other Liabilities Total current liabilities Non-current liabilities Provisions Deferred tax liabilities Other Liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses Total equity 6 7 8 9 7 10 5 11 12 13 14 13 5 14 15 16 28,207 20,785 3,062 208 2,414 54,676 196 1,675 2,729 34,245 38,845 93,521 7,864 4,543 370 19,634 32,411 1,291 - 142 1,433 33,844 59,677 23,319 21,388 3,065 328 1,281 49,381 233 1,876 9,145 37,140 48,394 97,775 7,521 4,650 129 16,486 28,786 1,416 16 2,258 3,690 32,476 65,299 87,936 (1,788) (26,471) 59,677 87,708 (2,284) (20,125) 65,299 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |25 For personal use only CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Contributed equity Reserves Accumulated losses Total equity Balance at 30 June 2018 Adoption of AASB 9 (note 2(a)) Balance at 1 July 2018 Loss for the year Other comprehensive income/(expense) Total comprehensive income $'000 87,708 - 87,708 - - $'000 (2,284) - (2,284) - (208) (208) Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 228 - Employee share options Balance at 30 June 2019 Balance at 1 July 2017 Profit for the year Other comprehensive income/(expense) Total comprehensive income - 228 87,936 704 704 (1,788) (26,471) 59,677 85,175 (2,995) (20,380) 61,800 - - - - (166) (166) Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 2,533 - Employee share options Balance at 30 June 2018 - 2,533 87,708 877 877 (2,284) (20,125) $'000 $'000 (20,125) (496) (20,621) (5,853) 3 (5,850) - - - 65,299 (496) 64,803 (5,853) (205) (6,058) 228 704 932 244 11 255 - - - 244 (155) 89 2,533 877 3,410 65,299 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |26 For personal use only CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2019 Notes 2019 $'000 2018 $'000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Onerous leases payments Income taxes paid Net cash (outflow) / inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for acquisitions of subsidiaries net of cash acquired Payments for contingent consideration Payments for intangible assets Net cash outflow from investing activities Cash flows from financing activities Share buyback Contributions of equity Transaction costs Net cash inflow/(outflow) from financing activities 20 10 21(d) 11 15 15 Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year 6 87,216 (79,069) 8,147 363 (47) (293) (839) 7,331 (670) 31 - (2,644) (251) (3,534) - 241 (13) 228 4,025 23,319 863 28,207 81,433 (73,700) 7,733 272 (32) (147) (793) 7,033 (512) - (828) (2,262) (1,005) (4,607) (9) 312 (20) 283 2,709 20,278 332 23,319 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |27 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. RPMGlobal Holdings Limited is a listed public company, incorporated and domiciled in Australia. The financial report comprises the consolidated entity (“Group”) consisting of RPMGlobal Holdings Limited and its subsidiaries. The financial report was authorised for issue on 23 August 2019. (a) Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 (Cth). RPMGlobal Holdings Limited is a for-profit entity for the purposes of preparing the financial statements. Compliance with IFRS The consolidated financial statements of RPMGlobal Holdings Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention. (b) Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by RPMGlobal Holdings Limited as at 30 June 2019 and the results of all controlled entities for the year then ended. RPMGlobal Holdings Limited and its controlled entities together are referred to in this financial report as the “consolidated entity” or the “Group”. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(l)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |28 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (c) Summary of Significant Accounting Policies (Continued) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses in the tax jurisdiction in which they arose. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Tax consolidation legislation RPMGlobal Holdings Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, RPMGlobal Holdings Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, RPMGlobal Holdings Limited also recognises the current tax liabilities or assets and the deferred tax assets arising from the unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable or payable to other entities in the Group. Details about the tax funding agreements are disclosed in note 4. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |29 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (d) Summary of Significant Accounting Policies (Continued) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operational decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director. The assets and liabilities of the Group are regularly reviewed on a consolidated basis but are not regularly reported to the chief operating decision maker at a segment level. As such this information has not been included in the Operating Segment note 3. (e) i) Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is RPMGlobal Holdings Limited’s functional and presentation currency. ii) Transactions and balances Foreign currency transactions are initially translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non- monetary assets such as equities whose changes in the fair value are presented in other comprehensive income are recognized in other comprehensive income. iii) Group entities The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • • assets and liabilities on consolidation are translated at the closing rate at the reporting date; income and expenses are translated at the exchange rates prevailing at the dates of the transaction; and all resulting exchange differences are recognised in other comprehensive income. In disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |30 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (f) i) Summary of Significant Accounting Policies (Continued) Revenue Recognition from 1 July 2018 Sale of licences Revenue from the sale of perpetual licences is recognised at a point in time when the customer gains access and thus control of the software and where the licences are considered distinct from other services provided to the customer. ii) Software subscription Revenue from the sale of term (subscription) licences is recognised over time on a straight line basis over the subscription term. iii) Consulting Revenue from the provision of consulting services is recognised typically over time as the Group has an enforceable right to payment for its performance completed to date. iv) Software maintenance Revenue for software maintenance is recognised over time on a straight line basis over the service period as performance obligations require the Company to respond to requests made by customers to provide technical product support and unspecified updates, upgrades and enhancements on a when-available and if-available basis. v) Laboratory testing revenue Revenue from sample testing is recognised at a point in time when the laboratory completes testing and the customer receives testing results for their samples. vi) Customer contract with multiple performance obligations The Group frequently enters into multiple contracts with the same customer and where that occurs the Company treats those arrangements as one contract if the contracts are entered into at or near the same time and are commercially interrelated. The Group does not consider contracts closed more than three months apart as a single contract. The Group’s subscription contracts are combining an obligation to receive a licence and software support services obligations. The provision of services and sale of licences is treated as a single performance obligation. In all other cases, the total transaction price for a customer contract is allocated amongst the distinct performance obligations based on their relative stand-alone selling prices. Where the stand-alone prices are highly variable the Group applies a residual approach. vii) Incremental Costs of obtaining Customer Contracts Commissions on software subscriptions are capitalised and amortised over the term, where the term is greater than 12 months. viii) Trade Receivables and Contract Assets Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |31 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (f) Summary of Significant Accounting Policies (Continued) Revenue Recognition (Continued) A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. ix) Contract liability A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. x) Financing components The Group does not recognise adjustments to transition prices or Contract balances where the period between the transfer of promised goods or services to the customer and payment by customer does not exceed one year. The Group reviewed its prior year contracts and did not identify material adjustments in timing and amounts recognised as revenue in prior years. xi) Interest income Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. xii) Significant Estimates In 2017 the Group completed a transaction for the sale of $6,295,000 of perpetual licenses to a customer. The transaction included multiple elements and required management judgement on allocation of the value to the different revenue components as well as assessing whether the Group has transferred to the buyer the significant risks and rewards of ownership due to the inclusion of a reconfiguration right (between licences and maintenance) that was then only exercisable in limited specified circumstances. The Group was confident that these rights could be reliably estimated and the significant risks and rewards had transferred to the customer as at 30 June 2017. As a result, in 2017 the Group deferred revenue of $2,833,000 against the rights to future upgrades and reliably measured reconfiguration and recognized revenue of $3,462,000. The price allocation to these contract components or timing of revenue recognition under the AASB15 did not change. During year ended 30 June 2019 the customer agreed to amend and remove the reconfiguration right and as a result the Group has recognised a further $1,856,000 from this deferred revenue leaving the balance unrecognised at $230,000. The remaining deferred revenue will be recognised as revenue when it satisfies the Group’s revenue recognition policies. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |32 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (g) Summary of Significant Accounting Policies (Continued) Trade Receivables – up to 30 June 2018 Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable may be impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the allowance is recognised in other expenses in profit or loss. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. (h) Work in Progress – up to 30 June 2018 Work in progress represents costs incurred and profit recognised on client assignments and services that are in progress at balance date. Work in progress is valued at net realisable value after providing for any foreseeable losses. (i) Investments and Other Financial Assets Classification From 1 July 2018, the Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI, or through profit or loss); and those to be measured at amortised cost. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The Group reclassifies debt investments when and only when its business model for managing those assets changes. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |33 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (i) Summary of Significant Accounting Policies (Continued) Investments and Other Financial Assets (Continued) Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of profit or loss. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. Again or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. Impairment From 1 July 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. (j) Cash and Cash Equivalents For statement of cashflows presentation purposes, cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily converted to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated statement of financial position. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |34 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (k) Summary of Significant Accounting Policies (Continued) Leases Leases of property, plant and equipment, where the Group as lessee has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term borrowings. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss on a straight line basis over the period of the lease. Lease income from operating leases where the Group is a lessor is recognised in income on a straight line basis over the lease term. (l) Business Combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |35 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) (m) Impairment of Non-Financial Assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (n) Property, Plant and Equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and equipment over its estimated useful life to the consolidated entity, or in case of lease hold improvements, the shorter lease term. Estimates of remaining useful lives are made on a regular basis for all assets. The estimated useful lives for plant and equipment is ranging between 2 and 20 years. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the assets. These are included in profit or loss. (o) i) Intangible Assets Software developed or acquired for sales and licensing Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new areas of products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs and acquired software are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life, which varies from three to five years. ii) Software – internal management systems Software licences used in internal management systems, whether acquired or internally developed are stated at cost less amortisation. They are amortised on a straight line basis over the useful life from 2.5 to 5 years. iii) Patents and trademarks Costs associated with patents and trademarks are expensed as incurred. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |36 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) (o) iv) Intangible Assets (Continued) Customer Contracts and Relationships The net assets acquired as a result of a business combination may include intangible assets other than goodwill. Any such intangible assets are amortised in a straight line over their expected future lives. The estimated useful lives of customer contracts is 5 years. v) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/business at the date of acquisition. Goodwill on acquisition is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash generating units for the purposes of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from business combination in which goodwill arose, identified according to operating segments or components of operating assets (note 3). (p) Trade and Other Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (q) Borrowing Costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. (r) i) Employee Benefits Short term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and long service leave is recognised in the provision for employee benefits. Other long-term employee benefit obligations The liability for long service leave and other benefits which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the consolidated statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |37 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (r) ii) Summary of Significant Accounting Policies (Continued) Employee Benefits (Continued) Bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. iii) Superannuation The Group has a defined contribution superannuation plan for its eligible employees. Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. iv) Share-based payments Share-based compensation benefits are provided to employees via the RPMGlobal Holdings Limited employee share option plan (ESOP) and an employee share purchase plan. Information relating to these schemes is set out in note 23. The fair value of options granted under the ESOP is recognised as an employee benefit expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions, but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. (s) Value Added Taxes (Including Goods and Services Tax) Revenues, expenses and assets are recognised net of the amount of Value Added Tax (VAT), except where the amount of VAT is not recoverable from the relevant tax authority. In these circumstances the VAT is recognised as part of the cost of acquisition of the asset or as part of the item as expense. Receivables and payables are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the relevant tax authority is included as a current asset or liability in the consolidated statement of financial position. Cash flows are presented on a gross basis. The VAT components of the cash flows arising from investing and financing activities which are recoverable from, or payable to, the relevant tax authority are classified as operating cash flows. (t) Contributed Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |38 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. (u) i) Summary of Significant Accounting Policies (Continued) Earnings per Share Basic earnings per share Basic earnings per share is calculated by dividing: • • the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares by the weighted average number of ordinary shares outstanding during the financial year. ii) Diluted earnings per share Dilutive earnings per share adjusts the figures used in determination of basic earnings per share to take into account: • • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (v) Financial Guarantee Contracts Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the loss allowance and the amount initially recognised less cumulative amortisation, where appropriate. (w) Rounding of Amounts The parent entity has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000, or in certain cases, the nearest dollar. (x) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (y) Critical Accounting Estimates and Significant Judgments The preparation of the financial report in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the accounting policies. The notes in the financial statements set out areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the financial report such as: • • • • • intangible assets, including goodwill (note 11), impairment of receivables (note 7, 21(a),note 1(g) and note 1(f) (viii))), deferred tax assets (note 5), contingent consideration (note 21(d)), revenue recognition (note 1(f)). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |39 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) (y) Critical Accounting Estimates and Significant Judgments (Continued) Estimates and judgments are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Management believes the estimates used in preparation of the financial report are reasonable. (z) Parent Entity Financial Information The financial information for the parent entity, RPMGlobal Holdings Limited, disclosed in note 24 has been prepared on the same basis as the consolidated financial statements, except as set out below: (i) Investments in subsidiaries Investment in subsidiaries are accounted for at cost in the financial statements of RPMGlobal Holdings Limited. (aa) New Accounting Standards and Interpretations Not Yet Adopted As at 30 June 2019, certain new relevant accounting standards and interpretations that will become mandatory in future periods have recently been issued or amended but are not yet effective and have not been adopted for the annual reporting period ended 30 June 2019. These are as follows: (i) AASB16 Leases This standard and its consequential amendments are currently applicable to annual reporting period of the Group beginning on 1 July 2019. When effective, this standard will replace the current accounting requirements applicable to leases in AASB117 Leases and related interpretations. AASB16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. This means that for all leases, a right-of-use asset and a liability will be recognised, with the right-to-use asset being depreciated and the liability being unwound in principal and interest components over the life of the lease. Under the standard key non-IFRS metrics of earnings before tax, depreciation and amortization (EBITDA) will be affected as well as lease payments will be represented in the financing activities of the cash flow statement. As at the reporting date, the Group has non-cancellable operating lease commitments of $5,457,000. The Group will apply the standard from its mandatory adoption date of 1 July 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). At this stage the Group has substantially completed its assessment of impact of the new standard, which will result in recognition of Right-of-use asset of $4.1 million and liability of $4.6 million on 1 July 2019 and $0.5 million in accumulated losses. The impact of the new standard for 2019 year if the new standard was applied from 1 July 2018 is as follows: Decrease of Rent expense by $2.8 million, Increase of deprecation by $2.5 million and increase of interest by $0.2 million. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |40 For personal use only NOTES ON THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) (bb) New and amended standards adopted by the Group A number of new or amended standards became applicable for the current reporting period and the group had to change its accounting policies and make retrospective adjustments as a result of adopting the following standards: • AASB 9 Financial Instruments, and • AASB 15 Revenue from Contracts with Customers. The impact of the adoption of these standards and the new accounting policies are disclosed in note 2 below. The other standards did not have any impact on the group’s accounting policies and did not require retrospective adjustments. The effect of adoption of these standards are disclosed in note 2. Early adoption of standards The Group has not elected to apply any pronouncements before their operative date. 2. Changes in Accounting Policies 2 (a). AASB 9 Financial instruments AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements as detailed below. (i) Impairment of financial assets The group has two types of financial assets that are subject to AASB 9’s new expected credit loss model: • Trade receivables; and • Contract assets. The group was required to revise its impairment methodology under AASB 9 for each of these classes of assets. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, there was no material impairment loss identified. The impact of the change in impairment methodology on the group’s retained earnings and equity is disclosed below. Impairment of Trade receivables and Contract assets The Group applies simplified impairment approach using a provision matrix for all trade receivables and contract assets to recognise lifetime expected credit losses. In this credit loss matrix all customers are segregated into different risk classes mainly based on their country of origin and days past due. Determining credit losses allowance involves significant judgement, where the Group considers historical experience with credit losses in a particular country, success of recovery as well as current and historical data on overdue receivables. Receivables balances are written off either partially or in full where the Group estimates the likelihood of recovery to be remote. In accordance with the transitional provisions in AASB 9 (7.2.15) and (7.2.26), comparative figures have not been restated. The adjustments arising from the new impairment rules are therefore recognised in the opening accumulated losses on 1 July 2018. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |41 For personal use only NOTES ON THE FINANCIAL STATEMENTS 2. Changes in Accounting Policies (Continued) 2 (a). AASB 9 Financial instruments (continued) On that basis, the loss allowance as at 1 July 2018 was determined as follows for both trade receivables and contract assets: 1 July 2018 Expected loss rate Gross carrying amount - trade receivables Gross carrying amount – contract assets Loss Allowance Current 1 - 30 days past due 0.37% 12,484 3,065 57 0.44% 3,623 - 16 30 - 90 days past due More than 90 days past due 1.26% 2,416 - 31 30.84% 3,596 - 1,109 TOTAL 22,119 3,065 1,213 The loss allowances for trade receivables and contract assets as at 30 June 2018 reconcile to the opening loss allowances on 1 July 2018 as follows: At 30 June 2018 – calculated under AASB 139 Amounts restated through opening accumulated losses Opening loss allowance as at 1 July 2018 – calculated under AASB 9 Contract assets $'000 Trade Receivables $'000 - 21 21 717 475 1,192 As a result trade receivables and contract assets and opened accumulated losses are lower by $496,000, which resulted from the application of the expected credit loss model, based on historical collection results mainly from the Advisory Division. 3. Operating Segments Operating segments are reported in a manner consistent with the internal reporting provided to the CEO in order to make decisions about resource allocations and to assess performance of the Group. The reports are split into functional divisions: Software Division, Advisory Division and GeoGAS. Software Division provides all of the Group’s Software offerings, including support (maintenance), training and implementation services to mining companies. Advisory Division provides consulting and advisory services which cover technical and economic analysis and assessment of mining activities and resources on behalf of mining companies, financial institutions, customers of mining companies (e.g. coal fired electricity generators), lessors and potential lessors of mineral rights to mining companies, government departments and agencies and suppliers to mining companies and projects. GeoGAS provides services to coal mining clients in respect of gas content testing and relevant consulting services. Segment revenue, expenses and results include transfers between segments. Such transfers are priced on an “arms-length” basis and are eliminated on consolidation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |42 For personal use only NOTES ON THE FINANCIAL STATEMENTS 3. Operating Segments (Continued) (a) Information about reportable segments 2019 2018 Software Division Advisory Division GeoGAS Total Software Division Advisory Division GeoGAS Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 48,826 25,899 4,683 79,408 44,671 23,885 4,613 73,169 523 292 319 1,134 734 156 83 973 49,349 26,191 5,002 80,542 45,405 24,041 4,696 74,142 (231) (843) (60) (1,134) (156) (817) - (973) (2,055) (4,659) (175) (6,889) (2,956) (3,062) (118) (6,136) 47,063 20,689 4,767 72,519 42,293 20,162 4,578 67,033 (24,717) (17,689) (2,318) (44,724) (20,936) (17,245) (2,475) (40,656) Revenue External Sales Inter-segment sales Total Revenue Inter-segment expenses Rechargeable expenses Net revenue Total Expenses Software Development (13,662) - - (13,662) (14,011) - - (14,011) Segment profit/(loss) 8,684 3,000 2,449 14,133 7,346 2,917 2,103 12,366 (b) Disaggregation of revenue from contracts with customers 2019 2018 Software Division Advisory Division GeoGAS Total Software Division Advisory Division GeoGAS Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 49,349 26,191 5,002 80,542 45,405 24,041 4,696 74,142 - - (36) (36) (523) (292) (319) (1,134) (12) (734) - (156) (10) (83) (22) (973) Revenue Segment Revenue Leases and asset disposal Inter-segment revenue Revenue from external customers 48,826 25,899 4,647 79,372 44,659 23,885 4,603 73,147 Timing of revenue recognition At a point in time Over time 12,061 - 36,765 25,899 3,320 1,327 15,381 13,605 - 63,991 31,054 23,885 3,271 1,332 16,876 56,271 Revenue from external customers 48,826 25,899 4,647 79,372 44,659 23,885 4,603 73,147 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |43 For personal use only NOTES ON THE FINANCIAL STATEMENTS 3. Operating Segments (Continued) (c) Geographical Information Segment revenue is based on the geographical location of customers and segment assets are based on the geographical location of the assets. 2019 2018 Revenues $’000 Non-current assets1 $’000 Revenues $’000 Non-current assets1 $’000 27,480 13,531 22,259 16,138 79,408 685 80,093 35,543 172 309 92 36,116 - - 27,976 13,208 20,041 11,944 73,169 535 73,704 38,775 189 196 90 39,250 - - Australia Asia Americas Africa & Europe Operating Segment Unallocated Revenue Total Revenue 1 Excludes financial instruments and deferred tax assets (d) Reconciliation of segment profit to reported net profit: Segment result Adjustments: Foreign exchange gains/(losses) Employment benefits – corporate and IT Other unallocated costs – corporate and IT Depreciation and amortisation Professional services – Russian Litigation Net finance costs Unallocated income Profit/(Loss) before income tax Income tax benefit Net Profit/(Loss) 2019 $'000 2018 $'000 14,133 12,366 550 (5,084) (3,856) (4,020) (185) 73 134 1,745 (7,598) (5,853) 267 (4,941) (3,588) (3,398) (273) (74) 265 624 (380) 244 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |44 For personal use only NOTES ON THE FINANCIAL STATEMENTS 4. Income Tax Expense Tax Recognised in profit or loss Income tax benefit/(expense) Current tax Deferred tax Adjustments to prior periods Income tax expense Numerical reconciliation of income tax expense to prima facie tax Profit/(Loss) before income tax Tax at the Australian tax rate of 30% (2018: 30%) Tax effect of amounts which are not taxable/(deductible) in calculating taxable income: Non-deductible expense/non-assessable income Research and development deduction Unutilised foreign tax credits Derecognised deferred tax assets Unrecognised deferred tax assets Difference in overseas tax rates Foreign Exchange movements Over/(under) provision in prior years Income tax benefit / (expense) 2019 $'000 2018 $'000 (977) (6,375) (246) (7,598) 1,745 (524) (373) - (4) (2,329) (4,344) (7,574) 230 (17) (237) (7,598) (221) 71 (230) (380) 624 (187) (488) 510 (8) - (163) (336) 189 (3) (230) (380) RPMGlobal Holdings Limited and its wholly-owned Australian controlled entities implemented the tax consolidation regime. Under the tax consolidation legislation, the entities in the tax consolidated Group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liabilities of the wholly-owned entities in the case of a default by the head entity, RPMGlobal Holdings Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate RPMGlobal Holdings Limited for any current tax payable assumed and are compensated for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to RPMGlobal Holdings Limited under the tax consolidated legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |45 For personal use only NOTES ON THE FINANCIAL STATEMENTS Deferred Tax Assets and Liabilities 5. Deferred tax assets and liabilities are attributable to the following: Provision for impairment of receivables Employee benefits provision Lease incentive liabilities Tax loss Contract liability Accrued expenses Share capital raising costs Intangibles Contract asset Property, plant and equipment Prepayments Unrealised foreign exchange Other deferred tax liabilities Deferred tax assets Deferred tax liabilities Net Deferred tax assets Movements Balance at 1 July Recognised in profit or loss Recognised in other comprehensive income Recognised in equity Over/(under) provision in prior years Balance at 30 June Unrecognised deferred tax assets Foreign tax credits Tax losses Capital losses Deductible temporary differences Unrecognised deferred tax assets Unrecognised gross temporary differences 2019 $'000 2018 $'000 254 135 2,089 2,411 235 335 2,335 4,664 937 41 115 (2,051) (4) (28) (435) (757) (2) 2,729 - 2,729 9,129 (6,375) 18 - (43) 2,729 1,172 34 162 1,102 (76) (27) (274) (481) (28) 9,145 (16) 9,129 9,165 71 2 - (109) 9,129 691 660 13,451 6,705 493 493 4,117 3,621 18,752 65,337 11,479 40,567 The group has not recognised deferred tax assets for a portion of tax losses in the parent entity and its subsidiaries located in China, Russia, Chile, Brazil, and USA because it is not probable that sufficient future taxable profit will be available. Capital losses do not expire, however, it is not probable that the Group would generate capital gains to utilise the benefit. Deductible temporary differences in subsidiaries located in China, Russia, Chile, Brazil, Kazakhstan, Turkey and USA have not been recognised because it is not probable that sufficient future taxable profit will be available. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |46 For personal use only NOTES ON THE FINANCIAL STATEMENTS 5. Deferred Tax Assets and Liabilities (Continued) Significant Estimates – Deferred Tax Assets The recognition of the deferred tax asset of $2,729,000 is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences. Included in this value are tax losses of $2,335,000 that relate to the Australian tax consolidated group which has incurred a tax loss in the 2019 financial year. The Group has completed an assessment of the recoverability of the net deferred tax assets. As at 30 June 2019 the Group is forecasting that the tax losses recognised in the deferred tax assets will be utilised within three years from balance date. At each reporting period, the recoverability of the net deferred tax assets will be reassessed. This may lead to the recognition of this unrecognized tax benefit in future reporting periods or the derecognition of deferred tax assets that are currently recognised on the consolidated statement of financial position. 6. Cash and Cash Equivalents Cash at bank Short-term bank deposits 7. Trade and Other Receivables Current Trade receivables Loss allowance Other receivables Non-current Other receivables and deposits 8. Contract assets Work in progress Loss allowance Contract assets 9. Other Assets Inventory Asset recognised from costs incurred to fulfil a contract Prepayments 2019 $'000 14,798 13,409 28,207 22,670 (1,885) 20,785 - 20,785 196 196 3,343 (281) 3,062 214 581 1,619 2,414 2018 $'000 11,953 11,366 23,319 22,096 (717) 21,379 9 21,388 233 233 3,065 - 3,065 68 - 1,213 1,281 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |47 For personal use only NOTES ON THE FINANCIAL STATEMENTS 9. Other Assets (Continued) Asset recognised from costs incurred to fulfil a contract In adopting AASB 15, the group recognised an asset in relation to sales commissions and 3rd party royalty costs. These costs had been expensed as incurred in 2018. The asset is amortised on a straight-line basis over the term of the specific subscription contract it relates to, consistent with the pattern of recognition of the associated revenue. 10. Property, Plant and Equipment Plant and equipment - at cost Less: accumulated depreciation Balance at 1 July Exchange differences Additions Disposals Depreciation Balance at 30 June Intangible Assets Software developed and acquired for sale and licensing – at cost Less: accumulated amortisation Software internal management systems – at cost Less: accumulated amortisation Customer contracts and relationships – at cost Less: accumulated amortisation Goodwill – at cost Less: impairment losses 2019 $'000 8,339 (6,664) 1,675 2018 $'000 7,633 (5,757) 1,876 1,876 2,096 15 670 (9) (877) 1,675 17,546 (10,129) 7,417 4,958 (4,820) 138 333 (176) 157 37,006 (10,473) 26,533 34,245 7 512 - (739) 1,876 17,400 (7,123) 10,277 4,805 (4,699) 106 333 (109) 224 36,897 (10,364) 26,533 37,140 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |48 For personal use only NOTES ON THE FINANCIAL STATEMENTS 11. Intangible Assets (Continued) Customer relationships $'000 Software For Sales to Customers 1 $'000 Software For Internal Use Goodwill $'000 $'000 Total $'000 224 - - (67) 157 206 - 76 (58) 224 10,277 146 - (3,006) 7,417 7,058 983 4,733 (2,497) 10,277 106 105 (3) (70) 138 188 22 - (104) 106 26,533 37,140 - - - 26,533 26,533 - - - 26,533 251 (3) (3,143) 34,245 33,985 1,005 4,809 (2,659) 37,140 Balance at 1 July 2018 Additions Exchange differences Amortisation Balance at 30 June 2019 Balance at 1 July 2017 Additions Acquisition of subsidiaries Amortisation Balance at 30 June 2018 1 Software also includes capitalised development costs. (a) Impairment Tests for Goodwill Goodwill is allocated to the Group's cash generating units (CGUs) according to business unit. A segment level summary of the goodwill is presented below. Software Division GeoGAS 2019 $'000 21,612 4,921 26,533 2018 $'000 21,612 4,921 26,533 (b) Key assumptions used for value-in-use calculations In the current and prior years the recoverable amount of the CGUs has been determined by value-in-use calculations. These calculations were based on the following key assumptions: Margin1 Growth Rate2 Discount Rate3 Software Division GeoGAS 2019 47% 48% 2018 53% 50% 2019 2.5% 1.5% 2018 2.5% 1.5% 2019 12.0% 12.0% 2018 12.0% 12.0% 1 Budgeted gross margin 2 Weighted average growth rate used to extrapolate cash flows beyond the budget period 3 In performing the value-in-use calculations for each CGU, the group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount rates are disclosed above These assumptions have been used for the analysis of each CGU. Cash flows were projected based on financial budgets and management projections over a five year period. Management determined budgeted gross margin based on past performance and its expectations for the future. The weighted average growth rates used are consistent with forecasts included in industry reports. The discount rates used reflect specific risks relating to the relevant segments. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |49 For personal use only NOTES ON THE FINANCIAL STATEMENTS 11. (c) Intangible Assets (Continued) Impact of possible changes in key assumptions 20% changes to any of the key assumptions do not indicate impairment for GeoGAS and Software Goodwill. 12. Trade and Other Payables Current Trade payables Other payables and accruals Provisions 13. Current Onerous sublease contracts Make good obligations Russian Litigation Employee benefits Non-current Make good obligations Onerous sublease contracts Employee benefits 2019 $'000 2018 $'000 3,132 4,732 7,864 93 206 - 4,244 4,543 279 - 1,012 1,291 2,374 5,147 7,521 300 - 273 4,077 4,650 375 93 948 1,416 The group also operates defined contribution plans in Australia, Canada and USA which receive fixed contributions from group companies. The group’s legal or constructive obligation for these plans is limited to the contributions. The expense recognised in the current period in relation to these contributions was $3,022,000 (2018: $2,872,000). 14. Other Liabilities Current Contract liabilities - software maintenance and licences Contract liabilities - consulting and other Contingent consideration – at fair value Property lease incentives and straightlining Non-current Contingent consideration – at fair value Property lease incentives and straightlining 12,343 4,709 2,425 157 19,634 - 142 142 10,669 2,878 2,744 195 16,486 2,082 176 2,258 Contract liabilities consist of unearned income for software maintenance, subscriptions, licences and consulting and advisory services. These have increased in line with revenue growth compared to 2018. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |50 For personal use only NOTES ON THE FINANCIAL STATEMENTS 14. Other liabilities (Continued) From the opening contract liability balances of $13,547,000 the group has recognised $12,794,000 in the current reporting period. The group expects to recognise approximately all contract liabilities in its 2020 revenues. 15. Contributed Equity Share capital 2019 Number 2018 Number 2019 $'000 2018 $'000 Ordinary shares - fully paid 216,369,197 215,925,031 87,936 87,708 Ordinary Shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a showing of hands every holder of ordinary shares present at a meeting, in person or by proxy, is entitled to one vote and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Options Information relating to the RPMGlobal Holdings Limited Employee Share Option Plan (ESOP), including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of financial year, is set out in note 23. Capital Risk Management The Group’s objectives when managing capital include safeguarding the ability to continue as a going concern, so they continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group does not have any externally imposed capital requirements. Consistent with the industry practice, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘borrowings’ and ‘trade and other payables’ as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt. As the Group does not have any debt, the gearing ratios at 30 June 2019 and 30 June 2018 were not applicable: Total borrowings, trade and other payables Less: cash and cash equivalents Net (cash) / debt Total equity Total capital Notes 6 2019 $'000 2018 $'000 10,289 (28,207) (17,918) 59,677 41,759 12,347 (23,319) (10,972) 65,299 54,327 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |51 For personal use only NOTES ON THE FINANCIAL STATEMENTS 15. Contributed Equity (Continued) Movements in Share Capital: Date 30/06/2017 Buyback of shares Exercise of Options at $0.59 per share Costs of issue Exercise of Options at $0.56 per share Costs of issue Exercise of Options at $0.39 per share Costs of issue Shares issued for acquisition of Minvu Costs of issue 30/06/2018 Balance Exercise of Options at $0.49 per share Costs of issue Exercise of Options at $0.56 per share Costs of issue Exercise of Options at $0.59 per share Costs of issue Exercise of Options at $0.56 per share Costs of issue Exercise of Options at $0.54 per share Costs of issue Exercise of Options at $0.54 per share Costs of issue Exercise of Options at $0.58 per share Costs of issue Ordinary shares Number $’000 212,368,012 (14,811) 293,498 178,332 100,000 3,000,000 215,925,031 66,666 20,000 25,000 40,834 166,666 100,000 25,000 85,175 (9) 173 (5) 100 (4) 39 (2) 2,250 (9) 87,708 33 (2) 11 (2) 15 (2) 24 (2) 90 (2) 54 (2) 14 (1) 30/06/2019 Balance 216,369,197 87,936 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |52 For personal use only NOTES ON THE FINANCIAL STATEMENTS 16. Reserves Share-based payments (i) Foreign currency translation (ii) Financial assets revaluation reserve (iii) Revaluation surplus Reserve arising from an equity transaction (iv) Nature and Purpose of Reserves (i) Share-based payments 2019 $'000 2018 $'000 4,352 (3,004) (1,601) 18 (1,553) (1,788) 3,647 (2,796) (1,601) 18 (1,552) (2,284) The fair value of options issued to employees is recognised as an employment cost during the option vesting period with corresponding increase in equity recognised in this reserve. (ii) Foreign currency translation Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in accounting policy note 1(e). (iii) Financial assets revaluation reserve Changes in the fair value of investments are recognised in equity securities in other comprehensive income. These changes are accumulated in a separate reserve within equity. The entity has a policy on transferring amounts from this reserve to an asset realization reserve. (iv) Reserve arising from an equity transaction Arose from the acquisition of an additional interest in the controlled entity, RPMGlobal Africa (Pty) Ltd. Movement in Reserves Balance at 1 July Options expensed Foreign currency translation Balance at 30 June Share-based payments 2019 $'000 2018 $'000 3,647 705 - 4,352 2,770 877 - 3,647 Foreign Currency Translation 2019 $'000 (2,796) - (208) (3,004) 2018 $'000 (2,630) - (166) (2,796) There were no other movements in reserves in 2019 and 2018. 17. Dividends Fully paid ordinary shares Cents per share Total 2019 Cents 2018 Cents 2019 $'000 2018 $'000 - - - - No dividend was declared in respect of the current financial year. Parent’s franking account balance is nil (2018: nil). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |53 For personal use only NOTES ON THE FINANCIAL STATEMENTS 18. Remuneration of Auditors During the year the following fees were paid or payable for services provided by the auditors of the Group, its related entities, its network forms and unrelated firms. Audit services - Audit and review of the financial reports: 2019 2018 Auditor of the parent entity: BDO Audit Pty Ltd Auditors of subsidiaries: BDO South Africa (network firm) BDO Hong Kong (network firm) BDO Indonesia (network firm) $ $ 179,830 184,448 37,462 23,113 25,630 40,249 19,693 13,310 266,035 257,700 During the year the Company related to the Auditor of the parent entity BDO (QLD) Pty Ltd provided the following services and received the following fees: Preparation of Income tax return and other taxation services 9,100 8,117 19. (a) Commitments Non-cancellable Operating Leases The Group leases various offices under non-cancellable operating leases expiring within one to seven years. The leases have varying terms, escalation clauses and renewal rights. On renewal the terms of the lease are generally renegotiated. Excess office space is sub-let to third parties also under non-cancellable operating leases. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable: Within one year Later than one year but not later than 5 years Later than 5 years Commitments not recognised in the financial statements Rental expense relating to operating leases Minimum lease payments (b) Sublease payments 2019 $'000 2018 $'000 (2,640) (2,817) - (5,457) (2,356) (3,138) - (5,494) 3,178 3,219 Future minimum lease payments to be received in relation to non-cancellable sub-leases of operating leases: Within one year Later than one year but not later than 5 years Commitments not recognised in the financial statements 40 - 40 118 40 158 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |54 For personal use only NOTES ON THE FINANCIAL STATEMENTS 19. (c) Commitments (Continued) Software Subscription payments The Group sold its software under non-cancellable software subscription agreements expiring within one to five years. The agreements have varying terms and renewal rights. On renewal the terms of the subscriptions lease are generally renegotiated. Future minimum payments to be received in relation to non-cancellable software subscriptions: 2019 $'000 2018 $'000 Within one year Later than one year but not later than 5 years Commitments not recognised in the financial statements 3,235 5,650 8,885 20. Reconciliation of Net Profit to Net Cash Inflow / (outflow) from Operating Activities Net profit/(loss) Depreciation and amortisation Net (gain)/ loss on sale of property, plant and equipment Impairments and fair value movements Net exchange differences Employee share options Change in operating assets and liabilities Decrease / (increase) in trade and other receivables Decrease / (increase) in current tax asset Decrease / (increase) in deferred tax asset Decrease / (increase) in contract asset Decrease / (increase) in other assets Increase / (decrease) in trade and other payables Increase / (decrease) in other liabilities Increase / (decrease) in current tax liabilities Increase / (decrease) in deferred tax liability Increase / (decrease) in provisions Net cash inflow / (outflow) from operating activities Non-cash Investing and Financing Activities (5,853) 4,020 (31) (195) (910) 704 425 120 6,416 (424) (987) 343 3,710 241 (16) (232) 7,331 359 687 1,046 244 3,398 - (314) 118 877 3,775 (31) 50 (1,349) 394 (907) 432 (407) (14) 767 7,033 Options issued to employees under for no cash consideration are shown in note 23. 21. Financial Risk Management The Group has exposure to the following risks from its use of financial instruments: • • • credit risk; liquidity risk; and market risk. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |55 For personal use only NOTES ON THE FINANCIAL STATEMENTS 21. Financial Risk Management (Continued) This note presents information about the Group’s exposure to each of the above risks, the objectives, policies and processes for measuring and managing risk. The Board of Directors is ultimately responsible for reviewing, ratifying and monitoring systems of internal controls and risk management. The Board has established an Audit and Risk Committee, which is responsible for overseeing risk management systems. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group’s finance division is responsible for development and maintenance of policies which deal with each type of risk related to use of financial instruments. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables 1 Financial liabilities Trade and other payables 1 Contingent consideration 2 1 At amortised cost 2 At fair value (a) Credit Risk 2019 $'000 2018 $'000 28,207 20,785 48,992 7,864 2,425 10,289 23,319 21,388 44,707 7,521 4,826 12,347 Credit risk is the risk of financial loss to the Group if a customer or a counter party to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s cash and cash equivalents and its receivables from customers. The Group does not require guarantees or collateral of its trade and other receivables. In some foreign regions the Group works on a prepayment basis to avoid credit risk. The Group has established an allowance for impairment that represents an estimate of incurred losses in respect of trade receivables. This allowance is determined based on the specific information regarding conditions of a particular individual debt. The information regarding the receivables ageing is monitored by both finance and operations management. The maximum credit risk exposure of financial assets of the Group is represented by the carrying amounts of financial assets set out above. The Group had no significant concentrations of credit risk with any single counterparty or group of counterparties, other than banks or financial institutions. The Group holds its cash with AA and A-rated banks, except for the banks located in Brazil (B), Kazakhstan (B), Mongolia (B), Turkey (BB) and South Africa (BB). The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets (work in progress). To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |56 For personal use only NOTES ON THE FINANCIAL STATEMENTS 21. (a) Financial Risk Management (Continued) Credit Risk (Continued) The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the payment profiles of sales over a period of 60 months before 30 June 2019 and 1 July 2018 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. On that basis the loss allowance as at 30 June 2019 and 1 July 2018 on adoption of AASB9 (Note 2a) was determined as follows: 30 June 2019 Current 1 - 30 days past due 30 - 90 days past due Expected loss rate Gross carrying amount - trade receivables Gross carrying amount – contract asset Loss Allowance 2.25% 10,627 3,343 315 0.47% 4,749 0.78% 2,387 - - 19 22 More than 90 days past due 36.88% 4,907 - 1,810 TOTAL 22,670 3,343 2,166 1 July 2018 Expected loss rate Gross carrying amount - trade receivables Gross carrying amount – contract asset Loss Allowance Current 1 - 30 days past due 0.37% 12,484 3,065 57 0.44% 3,623 - 16 30 - 90 days past due 1.26% 2,416 - 31 More than 90 days past due 30.84% 3,596 - 1,109 TOTAL 22,119 3,065 1,213 The closing loss allowances for trade receivables and contract assets as at 30 June 2019 reconcile to the opening loss allowances as follows: 30 June - Calculated under AASB 139 Amounts restated through opening accumulated losses Opening loss allowance as at 1 July 2018 - Calculated under AASB 9 Increase in loss allowance recognised in profit or loss during the period Effects of foreign exchange Unearned income moved to provision Unused amount reversed At 30 June 2019 2019 $'000 2018 $'000 717 496 1,213 889 (23) 147 (60) 2,166 1,014 - 1,014 149 13 - (459) 717 Of the above impairment losses, $889,000 (2018 - $149,000) relate to receivables arising from contracts with customers. (b) Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Group’s reputation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |57 For personal use only NOTES ON THE FINANCIAL STATEMENTS 21. (b) Financial Risk Management (Continued) Liquidity Risk (Continued) The Group regularly reviews cashflow forecasts and maintains sufficient cash on demand. Contractual maturities of the Group’s financial liabilities, including interest thereon, are as follows: 2019 Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years $'000 $'000 $'000 $'000 $'000 $'000 Trade and other payables Contingent consideration 7,864 2,425 7,864 2,454 Total 2018 10,289 10,318 Trade and other payables Contingent consideration 7,521 4,826 7,521 4,947 Total 12,347 12,468 7,864 1,758 9,622 7,521 2,088 9,609 - 696 696 - 671 671 - - - - 2,188 2,188 - - - - - - More than 5 years $'000 - - - - - - (c) Market Risk Currency Risk The current policy is not to take any forward positions. At 30 June 2019 and 30 June 2018 the Group had not entered into any derivative contracts to hedge these exposures. The Group does not engage in any significant transactions which are speculative in nature. As a multinational corporation, the Group maintains operations in foreign countries and as a result of these activities, the Group is exposed to changes in exchange rates which affect its results of operations and cash flows. The Group’s exposure to foreign currency risk at reporting date expressed in Australian Dollars was as follows: 2019 Cash and deposits Trade and other receivables Trade and other payables Net exposure 2018 Cash and deposits Trade and other receivables Trade and other payables Net exposure USD $’000 CAD $’000 ZAR $’000 Other $’000 Total $’000 8,359 9,720 (1,186) 16,893 8,105 10,472 (570) 18,007 1,818 561 (226) 2,153 1,491 481 (64) 1,908 5,857 3,519 (543) 8,833 3,769 1,709 (511) 4,967 2,812 1,130 (429) 3,513 2,041 1,557 (560) 3,038 18,846 14,930 (2,384) 31,392 15,406 14,219 (1,705) 27,920 A 10 percent strengthening of the Australian dollar against the above currencies at 30 June 2019 based on assets and liabilities at 30 June 2019 would have increased/(decreased) equity and profit or loss by the amounts shown in the table on the next page. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2018. The Group manages its exposure to interest rate and foreign currency fluctuations through a policy approved by the Board of Directors. There are no other significant market risks affecting the Group. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |58 For personal use only NOTES ON THE FINANCIAL STATEMENTS 21. (c) Financial Risk Management (Continued) Market Risk (Continued) 2019 2018 Equity $'000 Profit/(Loss) $'000 Equity $'000 Profit/(Loss) $'000 (2,260) (665) (2,002) (774) A 10 percent weakening of the Australian dollar against the above currencies at 30 June 2019 would have had equal but opposite effect on the above currencies to the amounts shown above. Interest rate risk Details of the Group’s borrowing facilities are presented below. Borrowing facilities Other facilities Bank guarantee Bank guarantee Bank guarantee Currency Nominal interest rate 2019 2018 Maturity Facility $’000 Utilised $’000 Facility $’000 Utilised $’000 AUD AUD EUR 1.95% 1.30% 2.50% n/a n/a n/a 1,050 1,038 45 67 45 67 1,000 145 70 870 145 70 In both 2019 and 2018 financial years bank guarantees were secured by the Group’s term deposits. (d) Fair Value of financial instruments Fair value hierarchy AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level in the fair value measurement hierarchy as follows: - Level 1 - the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities - Level 2 - a valuation technique is used using inputs other than quoted prices within level 1 that are observable for the financial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices) - Level 3 - a valuation technique is used using inputs that are not observable based on observable market data (unobservable inputs). Recurring fair value measurements The following financial instruments are subject to recurring fair value measurements: Contingent consideration – level 3 2019 $'000 2018 $'000 2,425 4,826 Contingent consideration has been recognised on the acquisition of the MinVu Group and the acquisition of iSolutions in the prior year. The fair value of the contingent consideration of $2,425,000 has been estimated by calculating the present value of the future expected cash outflows for the annuity of $2,453,000 based on a discount rate of 4%. Should the businesses exceed the forecast results the liability may increase. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |59 For personal use only NOTES ON THE FINANCIAL STATEMENTS 21. (d) Financial Risk Management (Continued) Fair Value of financial instruments (Continued) Changes to discount rate by 100 basis points would result in a change of the contingent consideration by $7,000. Changes to the annuity revenue by 10% would result in change of the contingent consideration by $311,000. Reconciliation of level 3 movements The following table sets out the movements in level 3 fair values for contingent consideration payable. Opening balance 1 July Recognised on business combination Payments of contingent consideration Purchase price adjustments Fair value adjustments Closing balance 30 June Valuation processes for level 3 fair values 2019 $'000 2018 $'000 4,826 - (2,644) (29) 272 2,425 5,481 1,293 (2,262) - 314 4,826 Valuations are performed every six months to ensure that they are current for the half-year and annual financial statements. 22. Earnings Per Share Basic earnings per share Diluted earnings per share Earnings used in Calculating Earnings Per Share Profit / (loss) attributable to the ordinary equity holders used in calculating earnings per share Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Dilutive options Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share 2019 Cents (2.7) (2.7) 2019 $’000 2018 Cents 0.11 0.11 2018 $’000 (5,853) 244 216,174,318 214,012,921 - 2,625,709 216,174,318 216,638,630 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |60 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments Tax Exempt Share Plan The Employee Share Scheme enables the Board to issue up to $1,000 of shares tax free per employee of the Group each year. There were no shares issued under the $1,000 Share Purchase Plan in 2019 or 2018. Eligibility for the tax exempt share plan is approved by the board having regard to individual circumstances and performance. No directors or key management personnel are eligible for the Tax Exempt Share Plan. Employee Share Option Plan (ESOP) The Employee Share Option Plan (ESOP) was approved by the Board of Directors on 5 February 2008, amended on 7 October 2009, 28 October 2011, 29 October 2013 and most recently on 24 November 2016 following approval of shareholders at the Company’s 2016 Annual General Meeting. Eligible participants of the ESOP include any person who is employed by, or is a director, officer or executive (or their approved permitted nominee), of the Group and whom the Board or its nominee determines is eligible to participate in the Option Plan. A permitted nominee includes a company controlled by the employee, a trust in which the employee has, or may have entitlements or such other entity as approved by the Board. Options are granted at the discretion of the Board of Directors. All options under the ESOP are to be offered to eligible employees for no consideration. The offer to the eligible participant must be in writing and specify amongst other things, the number of options for which the eligible employee may apply, the period within which the options may be exercised, any conditions to be satisfied before exercise, the option expiry date and the exercise price of the options, as determined by the Board. The Board can impose any restrictions on the exercise of options as it considers fit. The rules of the ESOP plan enable the Board to determine the applicable vesting criteria and to set a timetable for vesting of options in the offer document, including vesting in tranches over a defined period. The Board has the discretion on whether or not to set performance hurdles for vesting or to link vesting solely to a defined service period in order to drive key staff retention and reward longevity of service. The options may be exercised, in part or full, subject to the employee continuing to be employed at the relevant vesting dates, by the participant giving a signed notice to the Company and paying the exercise price in full. The Company will apply for official quotation of any Shares issued on exercise of any options. The rules of the plan allow the Board to set the exercise price per Option in the offer document. Subject to the accelerated expiry terms set out in the ESOP plan (explained further below), options will expire five years after the date of grant subject to the option holder remaining employed by the Group. Unexercised options will automatically lapse upon expiry. Unless determined otherwise by the Board, in the event of stated events detailed in the plan, including termination of employment or resignation, redundancy, death or disablement or in the event of a change of control of an employee’s permitted nominee, unvested options shall lapse and the expiry date of any vested options will be adjusted in accordance with the accelerated timetables set out in the ESOP plan rules (subject to the Board’s discretion to extend the term of exercise in restricted cases). RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |61 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Once shares are allotted upon exercise of the options the participant will hold the shares free of restrictions. The shares will rank equally for dividends declared on or after the date of issue but will carry no right to receive any dividend before the date of issue. Should the Company undergo a reorganisation or reconstruction of capital or any other such change, the terms of the options (including number or exercise price or both) will be correspondingly changed to the extent necessary to comply with the Listing Rules. With this exception, the terms for the exercise of each Option remains unchanged. In the event of a change of control of the Company, all options will vest immediately and may be exercised by the employee (regardless of whether the vesting conditions have been satisfied). A holder of options is not entitled to participate in dividends, a new or bonus issue of Shares or other securities made by the Company to Shareholders merely because he or she holds options. The Options are not transferable, assignable or able to be encumbered, without Board consent and the options will immediately lapse upon any assignment, transfer or encumbrance, with the exception of certain dealings in the event of death of the option holder. The ESOP plan will be administered by the Board which has an absolute discretion to determine appropriate procedures for its administration and resolve questions of fact or interpretation and formulate terms and conditions (subject to the Listing Rules) in addition to those set out in the ESOP plan. The ESOP plan may be terminated or suspended at any time by the Board. The ESOP plan may be amended or modified at any time by the Board except where the amendment reduces the rights of the holders of options, unless required by the Corporations Act or the Listing Rules, to correct any manifest error or mistake or for which the option holder consents. The Board may waive or vary the application of the ESOP plan rules in relation to any eligible employee at any time. Employee Benefits expense Share-based payment expense recognised during the financial year Options issued under employee option plan 2019 $’000 2018 $’000 704 704 877 877 The vesting conditions attached to the options are set out in the Remuneration Report (20A) of the Directors’ Report. Grant Vesting Expiry Exercise Number Granted Forfeited Exercised Share Number date date date Price 2019 Options granted to management 29/11/13 30/11/14 29/11/18 29/11/13 30/11/15 29/11/18 29/11/13 30/11/16 29/11/18 31/03/14 31/03/15 31/03/19 31/03/14 31/03/16 31/03/19 31/03/14 31/03/17 31/03/19 31/10/14 31/10/15 31/10/19 31/10/14 31/10/16 31/10/19 31/10/14 31/10/17 31/10/19 $ 0.68 0.68 0.68 0.73 0.73 0.73 0.61 0.61 0.61 beginning of year 297,658 297,670 297,672 83,333 83,333 83,334 33,332 33,334 33,334 Price at end $ 1 of year - - - - - - - - - (297,658) - - (297,670) - - (297,672) - - (83,333) - - (83,333) - - (83,334) - - - - - - - - - - - - - - - - - 33,332 33,334 33,334 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |62 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Grant Vesting Expiry Exercise Number Granted Forfeited Exercised Share Number date date date Price 2019 Options granted to management (cont.) $ beginning of year 3/03/15 3/03/16 3/03/20 0.59 1,323,980 3/03/15 3/03/17 3/03/20 0.59 1,323,980 3/03/15 3/03/18 3/03/20 0.59 1,295,540 15/07/15 15/07/16 15/07/20 15/07/15 15/07/17 15/07/20 15/07/15 15/07/18 15/07/20 0.57 0.57 0.57 83,333 83,333 83,334 8/09/15 8/09/16 8/09/20 0.56 1,066,646 8/09/15 8/09/17 8/09/20 0.56 1,066,646 8/09/15 8/09/18 8/09/20 0.56 1,091,708 31/10/15 31/10/16 31/10/20 31/10/15 31/10/17 31/10/20 31/10/15 31/10/18 31/10/20 3/03/16 3/03/17 3/03/21 3/03/16 3/03/18 3/03/21 3/03/16 3/03/19 3/03/21 29/08/16 29/08/17 29/08/21 29/08/16 29/08/18 29/08/21 29/08/16 29/08/19 29/08/21 29/11/16 29/11/17 29/11/21 29/11/16 29/11/18 29/11/21 29/11/16 29/11/19 29/11/21 9/02/17 9/02/18 9/02/22 9/02/17 9/02/19 9/02/22 9/02/17 9/02/20 9/02/22 8/06/18 8/06/18 8/06/22 8/06/18 8/06/19 8/06/22 8/06/18 8/06/20 8/06/22 19/09/17 19/09/18 19/09/22 19/09/17 19/09/19 19/09/22 19/09/17 19/09/20 19/09/22 0.54 0.54 0.54 0.39 0.39 0.39 0.49 0.49 0.49 0.54 0.54 0.54 0.59 0.59 0.59 0.57 0.57 0.57 0.67 0.67 0.67 16,666 16,667 16,667 - - - 108,332 41,667 41,667 299,998 299,998 300,004 949,986 949,986 950,028 96,665 96,665 96,670 66,666 66,667 66,667 31/10/17 31/10/18 31/10/22 0.77 1,189,989 31/10/17 31/10/19 31/10/22 0.77 1,189,998 31/10/17 31/10/20 31/10/22 0.77 1,190,013 15/03/18 15/03/19 15/03/23 15/03/18 15/03/20 15/03/23 15/03/18 15/03/21 15/03/23 0.67 0.67 0.67 206,670 206,670 206,660 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Price at end $ of year (71,665) (8,333) 0.65 1,243,982 (71,665) (22,665) 0.65 1,229,650 (71,670) (16,502) 0.65 1,207,368 (50,000) - - (50,000) - - (50,000) - - (53,331) (21,666) (53,331) (21,666) 0.60 0.60 33,333 33,333 33,334 991,649 991,649 (60,004) (20,002) 0.62 1,011,702 (16,666) - - (16,667) - - (16,667) - - - - - - - - - - - - - - - - (66,666) 0.60 - - - - (133,333) (133,333) 0.55 0.58 - - - - - - 41,666 41,667 41,667 166,665 166,665 (133,334) - - 166,670 (139,997) - - 809,989 (139,997) - - 809,989 (173,340) - - 776,688 - - - - - - - - - 96,665 96,665 96,670 (66,666) - - (66,667) - - (66,667) - - - - - (238,331) - - 951,658 (338,333) - - 851,665 (338,337) - - 851,676 (66,667) - - 140,003 (66,667) - - 140,003 (66,666) - - 139,994 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |63 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Grant date Vesting Expiry Exercise Number Granted Forfeited Exercised Share Number date date Price beginning $ of year Price $ at end of year 2019 Options granted to management (cont.) 13/09/18 13/09/19 13/09/23 13/09/18 13/09/20 13/09/23 13/09/18 13/09/21 13/09/23 14/12/19 14/12/18 14/12/23 14/12/20 14/12/18 14/12/23 14/12/21 14/12/18 14/12/23 15/03/19 15/03/20 15/03/24 15/03/19 15/03/21 15/03/24 15/03/19 15/03/22 15/03/24 7/06/19 7/06/22 7/06/24 7/06/19 7/06/21 7/06/24 7/06/19 7/06/22 7/06/24 0.61 0.61 0.61 0.58 0.58 0.58 0.58 0.58 0.58 0.6 0.6 0.6 - - - - - - - - - - - - 1,285,036 (149,998) - - 1,135,038 1,285,036 (149,998) - - 1,135,038 1,285,094 (150,004) - - 1,135,090 314,325 314,336 314,339 459,996 460,000 460,004 100,000 (16,666) - - (16,667) - - (16,667) - - (33,333) - - (33,333) - - (33,334) - - - - - 100,000 - - - 100,000 - - - 297,659 297,669 297,672 426,663 426,667 426,670 100,000 100,000 100,000 TOTAL 17,333,166 6,478,166 (4,226,335) (444,166) 0.58 19,140,831 Weighted average exercise price, $ 0.63 0.60 0.66 0.54 0.61 2018 Options granted to management 29/11/13 30/11/14 29/11/18 29/11/13 30/11/15 29/11/18 29/11/13 30/11/16 29/11/18 31/03/14 31/03/15 31/03/19 31/03/14 31/03/16 31/03/19 31/03/14 31/03/17 31/03/19 31/10/14 31/10/15 31/10/19 31/10/14 31/10/16 31/10/19 31/10/14 31/10/17 31/10/19 3/03/15 3/03/16 3/03/20 3/03/15 3/03/17 3/03/20 3/03/15 3/03/18 3/03/20 15/07/15 15/07/16 15/07/20 15/07/15 15/07/17 15/07/20 15/07/15 15/07/18 15/07/20 8/09/15 8/09/16 8/09/20 8/09/15 8/09/17 8/09/20 8/09/15 8/09/18 8/09/20 31/10/15 31/10/16 31/10/20 31/10/15 31/10/17 31/10/20 0.68 0.68 0.68 0.73 0.73 0.73 0.61 0.61 0.61 0.59 0.59 0.59 0.57 0.57 0.57 0.56 0.56 0.56 0.54 0.54 305,991 306,003 306,006 83,333 83,333 83,334 33,332 33,334 33,334 1,460,645 1,460,645 1,460,710 83,333 83,333 83,334 1,206,644 1,211,644 1,211,712 16,666 16,667 - - - - - - - - - - - - - - - - - - - (8,333) (8,333) (8,334) - - - - - - - - - - - - - - - - - - 297,658 297,670 297,672 83,333 83,333 83,334 33,332 33,334 33,334 (6,666) (129,999) (6,666) (129,999) (131,670) (33,500) 0.72 0.72 0.64 1,323,980 1,323,980 1,295,540 - - - - - - 83,333 83,333 83,334 (16,999) (122,999) 0.68 1,066,646 (89,665) (55,333) 0.7 1,066,646 (120,004) - - - - - - 1,091,708 16,666 16,667 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |64 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Vesting Expiry Exercise Number Granted Forfeited Exercised Share Number Grant date 2018 date date Price beginning $ of year Price $ at end of year - - 16,667 Options granted to management (cont.) 31/10/15 31/10/18 31/10/20 3/03/16 3/03/17 3/03/21 3/03/16 3/03/18 3/03/21 3/03/16 3/03/19 3/03/21 29/08/16 29/08/17 29/08/21 29/08/16 29/08/18 29/08/21 29/08/16 29/08/19 29/08/21 29/11/16 29/11/17 29/11/21 29/11/16 29/11/18 29/11/21 29/11/16 29/11/19 29/11/21 9/02/17 9/02/18 9/02/22 9/02/17 9/02/19 9/02/22 9/02/17 9/02/20 9/02/22 8/06/17 8/06/18 8/06/22 8/06/17 8/06/19 8/06/22 8/06/17 8/06/20 8/06/22 19/09/17 19/09/18 19/09/22 19/09/17 19/09/19 19/09/22 19/09/17 19/09/20 19/09/22 31/10/17 31/10/18 31/10/22 31/10/17 31/10/19 31/10/22 31/10/17 31/10/20 31/10/22 15/03/18 15/03/19 15/03/23 15/03/18 15/03/20 15/03/23 15/03/18 15/03/21 15/03/23 0.54 0.39 0.39 0.39 0.49 0.49 0.49 0.54 0.54 0.54 0.59 0.59 0.59 0.57 0.57 0.57 0.67 0.67 0.67 0.77 0.77 0.77 0.67 0.67 0.67 16,667 100,000 100,000 100,000 108,332 108,334 108,334 399,997 399,997 400,006 999,985 999,985 1,000,030 113,331 113,331 113,338 - - - - - - - - - - - - - - - - - - - - - - - - - 191,666 191,667 191,667 1,189,989 1,189,998 1,190,013 206,670 206,670 206,660 - - (100,000) (100,000) - (66,667) (66,667) (99,999) (99,999) (100,002) (49,999) (49,999) (50,002) (16,666) (16,666) (16,668) (125,000) (125,000) (125,000) - - - - - - (100,000) 0.72 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - TOTAL 14,745,000 4,765,000 (1,605,004) (571,830) Weighted average exercise price, $ 1 Weighted average share price at the exercise date 0.58 0.74 0.56 0.55 - - - 108,332 41,667 41,667 299,998 299,998 300,004 949,986 949,986 950,028 96,665 96,665 96,670 66,666 66,667 66,667 1,189,989 1,189,998 1,190,013 206,670 206,670 206,660 17,333,166 0.63 0.70 The weighted average remaining contractual life of share options outstanding at the end of the period was 2.7 years (2018: 2.8 years). The fair values at grant date for the options were estimated using a Trinomial Lattice model which defines the conditions under which employees are expected to exercise their options after vesting in terms of the stock price reaching a specified multiple of the exercise price. The model inputs for options granted during the 2019, 2018, 2017, 2016, 2015, 2014 financial years included: RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |65 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Grant date Vesting date Share price 29/11/13 30/11/14 29/11/13 30/11/15 29/11/13 30/11/16 31/03/14 31/03/15 31/03/14 31/03/16 31/03/14 31/03/17 31/10/14 31/10/15 3/03/16 3/03/15 3/03/17 3/03/15 3/03/15 3/03/18 15/07/15 15/07/16 15/07/15 15/07/17 15/07/15 15/07/18 8/09/16 8/09/15 8/09/17 8/09/15 8/09/15 8/09/18 31/10/15 31/10/16 31/10/15 31/10/17 31/10/15 31/10/18 3/03/17 3/03/16 3/03/18 3/03/16 3/03/16 3/03/19 29/08/16 29/08/17 29/08/16 29/08/18 29/08/16 29/08/19 29/11/16 29/11/17 29/11/16 29/11/18 29/11/16 29/11/19 9/02/18 9/02/17 9/02/19 9/02/17 9/02/20 9/02/17 8/06/18 8/06/17 8/06/19 8/06/17 8/06/17 8/06/20 19/09/17 19/09/18 19/09/17 19/09/19 19/09/17 19/09/20 31/10/17 31/10/18 31/10/17 31/10/19 31/10/17 31/10/20 15/03/18 15/03/19 15/03/18 15/03/20 15/03/18 15/03/21 13/09/18 13/09/19 13/09/18 13/09/20 13/09/18 13/09/21 $ 0.68 0.68 0.68 0.72 0.72 0.72 0.60 0.56 0.56 0.56 0.57 0.57 0.57 0.55 0.55 0.55 0.53 0.53 0.53 0.36 0.36 0.36 0.51 0.51 0.51 0.50 0.50 0.50 0.63 0.63 0.63 0.54 0.54 0.54 0.67 0.67 0.67 0.77 0.77 0.77 0.67 0.67 0.67 0.65 0.65 0.65 Exercise Expected Weighted Expected Risk-free Fair value price volatility average dividends $ 0.68 0.68 0.68 0.73 0.73 0.73 0.61 0.59 0.59 0.59 0.57 0.57 0.57 0.56 0.56 0.56 0.54 0.54 0.54 0.39 0.39 0.39 0.49 0.49 0.49 0.54 0.54 0.54 0.59 0.59 0.59 0.57 0.57 0.57 0.67 0.67 0.67 0.77 0.77 0.77 0.67 0.67 0.67 0.61 0.61 0.61 % 40 40 40 50 50 50 55 55 55 55 46 46 46 46 46 46 46 46 46 46 46 46 43 43 43 43 43 43 43 43 43 43 43 43 42 42 42 42 42 42 42 42 42 41 41 41 life, years 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 % nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil interest rate1,% 3.44 3.44 3.44 3.44 3.44 3.44 2.81 1.84 1.84 1.84 2.29 2.29 2.29 2.04 2.04 2.04 2.04 2.04 2.04 2.08 2.08 2.08 1.57 1.57 1.57 2.16 2.16 2.16 2.12 2.12 2.12 1.95 1.95 1.95 2.39 2.39 2.39 2.24 2.24 2.24 2.30 2.30 2.30 2.22 2.22 2.22 at grant Date, $ 0.21 0.23 0.25 0.24 0.27 0.30 0.21 0.19 0.23 0.25 0.18 0.20 0.22 0.17 0.19 0.21 0.17 0.19 0.20 0.10 0.10 0.09 0.13 0.16 0.18 0.11 0.14 0.16 0.17 0.21 0.23 0.12 0.15 0.17 0.17 0.20 0.23 0.19 0.23 0.26 0.17 0.20 0.23 0.17 0.21 0.23 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |66 For personal use only NOTES ON THE FINANCIAL STATEMENTS 23. Share Based Payments (Continued) Grant date Vesting date Share price $ 0.58 0.58 0.58 0.55 0.55 0.55 0.59 0.59 0.59 Exercise price $ 0.58 0.58 0.58 0.58 0.58 0.58 0.60 0.60 0.60 Expected Weighted average volatility life, years % 5.0 41 5.0 41 5.0 41 5.0 41 5.0 41 5.0 41 5.0 41 5.0 41 5.0 41 Expected dividends % nil nil nil nil nil nil nil nil nil Risk-free interest rate1,% 2.14 2.14 2.14 1.60 1.60 1.60 1.14 1.14 1.14 Fair value at grant Date, $ 0.14 0.17 0.19 0.12 0.15 0.17 0.14 0.16 0.19 14/12/18 14/12/19 14/12/18 14/12/20 14/12/18 14/12/21 15/03/19 15/03/20 15/03/19 15/03/21 15/03/19 15/03/22 7/06/20 7/06/19 7/06/21 7/06/19 7/06/22 7/06/19 1 based on government bonds The expected price volatility is based on the historic volatility compared to that of similar listed companies and the remaining life of the options. 24. Parent Entity Disclosures As at and throughout the financial year ending 30 June 2019 the parent entity of the Group was RPMGlobal Holdings Limited. Summary financial information The individual financial statements for the parent entity show the following aggregation: Result of parent entity Profit/(loss) Other comprehensive income Total comprehensive income Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising of: Issued capital Share-based Payments Reserve Revaluation Surplus Reserve Reserve Arising From an Equity Transaction Accumulated losses Total equity Contingent liabilities Contractual commitments for the acquisition or property, plant or equipment 2019 $000 2018 $000 2,611 (1,628) - - 2,611 (1,628) 50,526 77,389 9,662 10,311 87,936 4,352 18 (600) (32,628) 59,078 - - 44,223 75,071 10,614 11,536 87,708 3,648 18 (600) (27,239) 63,535 - - RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |67 For personal use only NOTES ON THE FINANCIAL STATEMENTS 24. Parent Entity Disclosures (Continued) The parent entity has provided guarantees to third parties in relation to the performance and obligations of its subsidiary, GeoGAS Pty Ltd in respect of property lease rentals. The guarantees are for the terms of the leases and total $92,445 (2018: $37,125). The periods covered by the guarantees range from two to three years. No deficiency of net assets existed in the controlled entities covered by guarantees at 30 June 2019 or 30 June 2018. No liability was recognised by the parent entity in relation to these guarantees, as the fair value of the guarantee is immaterial. 25. Interests in other entities (a) Material subsidiaries The Group’s principal subsidiaries at 30 June 2019 are set out below. All subsidiaries have share capital consisting solely of ordinary shares that are 100% (2018: 100%) held directly by the Group, and the proportions of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of entity Place of business/ incorporation GeoGAS Pty Ltd RPM Software Pty Ltd RPM Advisory Services Pty Ltd RPM Software International Pty Ltd RPMGlobal USA, Inc. RPM Software USA, Inc. RPMGlobal Canada Ltd PT RungePincockMinarco RPMGlobal Asia Limited RPMGlobal China Limited RPMGlobal LLC CJSC Runge RPMGlobal LLC RPMGlobal Africa (Pty) Ltd RPMGlobal Chile Limitada RPMGlobal Software Do Brasil Ltda iSolutions International Pty Ltd iSolutions Holdings Pty Ltd MineOptima Holdings Pty Ltd MineOptima Operations Pty Ltd Minvu Pty Ltd Minvu Holdings Pty Ltd Kurilpa Investments Pty Ltd RPM Global Turkey Danışmanlık Hizmetleri ve Ticaret A.Ş. Australia Australia Australia Australia USA USA Canada Indonesia Hong Kong China Mongolia Russia Russia Principal Activities Laboratory Services Software Sales and Services Advisory Services Software Sales and Services Advisory Services Software Sales and Services Software Sales and Services Advisory Services Advisory Services Advisory Services Advisory Services Software and Advisory Services Software Sales and Services South Africa Software Sales and Services Chile Brazil Australia Australia Australia Australia Australia Australia Australia Turkey Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Software Sales and Services Advisory Services RPMGlobal Kazakhstan LLP RPMGlobal Colombia SAS Kazakhstan Colombia Software Sales and Services Software Sales and Services RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |68 For personal use only NOTES ON THE FINANCIAL STATEMENTS 25. Interests in other entities (Continued) All entities other than GeoGAS Pty Ltd trade as RPM and RPMGlobal. (b) Significant Restrictions Cash and Short term deposits held in Chile, Brazil, South Africa, China, Indonesia, Mongolia and Russia are subject to local exchange control regulations. These regulations provide restrictions on exporting capital from those countries other than through normal trading transactions or dividends. The carrying amount of cash included within the consolidated financial statements to which these restrictions apply is $10,574,000 (2018: $8,826,000). 26. Key Management Personnel Disclosures (a) Compensation Short term employee benefits Post-employment benefits Share-based payments 2019 $ 2018 $ 2,158,708 1,865,502 72,506 118,922 68,094 46,455 2,350,136 1,980,051 No other transactions with Key Management personal occurred during the year. 27. Events occurring after the reporting period No matter or circumstance has arisen since 30 June 2019 that has significantly affected the Group’s operations, results or state of affairs, or may do so in the future years. 28. Contingent liabilities and contingent assets There are no contingent liabilities or contingent assets that require disclosure in the financial report. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |69 For personal use only DIRECTORS’ DECLARATION In the directors' opinion: • • • • • the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 (a) to the financial statements; the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; the remuneration disclosures included in pages 14 to 21 of the Directors’ report (as part of audited Remuneration Report), for the year ended 30 June 2019, comply with section 300A of the Corporations Act 2001; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors Allan Brackin, Chairman Dated this 23 day of August 2019 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |70 For personal use onlyTel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of RPMGlobal Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of RPMGlobal Holdings Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |71 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional For personal use only Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue Recognition Key audit matter How the matter was addressed in our audit The group generates revenue from multiple streams Our audit procedures included: including software sales & maintenance services.  Assessing the revenue recognition policy for The Group’s disclosures about revenue recognition are compliance with AASB 15 Revenue from included in Note 1 (f), which details the accounting Contracts with Customers policies applied following the implementation of AASB 15 Revenue from Contracts with Customers.  Selecting a sample of license sales, maintenance services and consulting fees The assessment of revenue recognition was significant recognised as revenue in the general ledger to our audit due to the significance of revenue to the and agreeing to supporting invoices, signed financial report and the complex nature of accounting customer contracts and proof of delivery for the appropriate timing of revenue related to the where applicable sale of software and related maintenance services following adoption of AASB 15 Revenue from Contracts with Customers.  Obtaining and evaluating credit notes issued post year end and the first and last invoices issued post and pre year end, to ensure an appropriate cut-off was achieved at balance date  Analytical review procedures on all significant revenue streams on a disaggregated basis and against expected trends and prior year  Selecting a sample of receipts and maintenance invoices from the clients’ income in advance schedule and recalculating the appropriate deferred portion of maintenance revenue.  Assessing the adequacy of the Group's disclosures within the financial statements BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |72 For personal use onlyCarrying Value of Goodwill – Impairment Assessment Key audit matter How the matter was addressed in our audit The Group’s disclosures about goodwill impairment are Our audit procedures included, amongst others: included in Note 11, which details the allocation of goodwill to the groups various Cash Generating Units (CGU’s), sets out the key assumptions for value-in-use calculations and the impact of possible changes in these assumptions. This annual impairment test was significant to our audit because the balance of goodwill as of 30 June 2019 is material to the financial statements. In addition, management’s assessment process is complex and highly judgmental and is based on assumptions, specifically forecast future cash flows, growth rate, and discount rate, which are affected by expected future market or economic conditions.  Obtaining an understanding of the 'Value in Use' models and critically evaluating management's methodologies and their key assumptions  Assessing management’s allocation of goodwill and assets and liabilities, including corporate assets to CGU's  Evaluating the inputs used in the value in use calculation including the growth rates, discount rates and underlying cash flows applied by management  Involving our internal specialists to assess the discount rates and terminal growth rates against comparable market information  Assessing the disclosures related to the goodwill and the impairment assessment by comparing these disclosures to our understanding of the matter and the applicable accounting standards. Recognition of Deferred Tax Assets Key audit matter How the matter was addressed in our audit Refer to Note 5. Our audit procedures included: The Group’s recognised a material net deferred tax  Evaluating managements forecast of future asset which includes temporary differences and taxable profits and assessing whether it is brought forward tax losses. Australian Accounting Standards require deferred tax assets to be recognised only to the extent that it is probable that there will be sufficient future profits to utilise the deferred tax assets recognised probable that sufficient future taxable profits will be  Assessing the key assumptions used in the generated in order for the benefits of the deferred tax forecast period including revenue, assets to be realised. These benefits are realised by expenditure and growth rates applied against reducing tax payable in future taxable profits. actual results achieved In the current year, the Group has derecognised a  Comparing the taxable income generated for portion of previously recognised tax losses and not the year ended 30 June 2019 with the recognised any additional tax losses generated in the forecast taxable income provided during the 2019 year. 30 June 2018 audit BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |73 For personal use onlyKey audit matter How the matter was addressed in our audit This was a key audit matter as the assessment of the  Assessing the disclosures related to the future taxable profits involves judgement by recognition of the deferred tax assets and management. unrecognised deferred tax assets. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |74 For personal use onlyReport on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 14 to 21 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of RPMGlobal Holdings Limited, for the year 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd T R Mann Director Brisbane, 23 August 2019 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 |75 For personal use onlyCORPORATE GOVERNANCE STATEMENT Corporate Governance Statement – Year Ended 30 June 2019 The Board and Management consider that it is crucial to the Group’s long term performance and sustainability and to protect and enhance the interests of the Company’s shareholders and other stakeholders, that it adopts an appropriate corporate governance framework pursuant to which the Company and its related companies globally will conduct its operations in Australia and internationally with integrity, accountability and in a transparent and open manner. The Company regularly reviews its governance arrangements as well as developments in market practice, expectations and regulation. The Company’s Corporate Governance Statement has been approved by the Board of RPMGlobal Holdings Limited and explains how the Group addresses the requirements of the Corporations Act 2001, the ASX Listing ‘Corporate Governance Principles and Rules 2001 and the ASX Corporate Governance Council’s Recommendations - 3rd Edition’ (the ‘ASX Principles and Recommendations’) and is current as at 30 June 2019. Whilst the Board has elected not to formally early-adopt the 4th Edition of the ASX Principles and Recommendations, the Board has reviewed and updated a number of its governance policies and procedures and has made a number of updates in readiness of full alignment with the 4th Edition from 1 July 2020, including: • • • • • updating the RPM Board Charter to reflect the Board’s involvement in ‘defining, approving and then instilling and continually reinforcing RPM’s culture, values of acting lawfully’ and to oversee that on an ongoing basis; adopting and implementing a new standalone Whistleblower Policy including an express requirement that material incidents be reported to the Board should they arise; adopting and implementing a new standalone Anti-Bribery and Corruption Policy including an express requirement that material incidents be reported to the Board should they arise; adopting and implementing a new Anti-Modern Slavery Policy; updating RPM’s existing Code of Conduct to include RPM’s existing Core Values and referencing the updated Whistleblower, Anti-Bribery and Corruption and Anti-Modern Slavery Policies and implement a new Code of Conduct specifically applying to suppliers to RPM. The Company’s ASX Appendix 4G, which is a checklist cross-referencing the ASX Principles and Recommendations to the relevant disclosures in the statement Corporate Governance Statement, the Company’s 2019 Annual Report and other relevance governance documents and materials on the Company’s website, are provided in the corporate governance section of the Company’s website at https://www.rpmglobal.com/investor-centre/. The Company’s Corporate Governance Statement together with the ASX Appendix 4G and this Annual Report, were also lodged with the ASX on 23 August 2019. The Board of the Company strives to meet the highest standards of Corporate Governance, but recognises that it is also crucial that the Company’s governance framework appropriately reflects the current size, operations and industry in which the Company operates. The Company has complied with the majority of recommendations of the ASX Principles and Recommendations with the exception of a few. The Board believes the areas of non-conformance, which are explained in the Corporate Governance Statement and the ASX Appendix 4G do not materially impact on the Company’s ability to achieve the highest standards of Corporate Governance, whilst at the same time ensuring the Company is able to achieve the expectations of its shareholders and other stakeholders. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 20 19 76 For personal use onlySHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 9 August 2019. A. Distribution of Equity Securities Analysis of number of equity security holders by size of holding: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Ordinary Shares Options 170 440 315 525 132 1582 - - - 48 38 86 The number of shareholdings held in less than marketable parcels of 870 shares is 121 (Close Price 9 August 2019 $0.575). B. Equity Security Holders The names of the twenty largest holders of quoted equity securities (as at 9 August 2019) are listed below: Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED RUNGE INTERNATIONAL PTY LTD BNP PARIBAS NOMINEES PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED PAUA PTY LTD BOND STREET CUSTODIANS LIMITED BNP PARIBAS NOMINEES PTY LTD MR STEPHEN JOHN BALDWIN + MRS ANDREA MAREE BALDWIN MR JOHN CRAIG HALLIDAY FEYDER INVESTMENTS PTY LTD THE RIDGE NZ PTY LTD J & M DONOHUE SUPER PTY LTD TODD GLOBAL INVESTMENTS PTY LTD MR MICHAEL ANTHONY TAYLOR + MS JAN MARGARET JACKSON-MARTIN BOND STREET CUSTODIANS LIMITED MRS DONNA MARGARET LUXTON MRS GOOLESTAN DINSHAW KATRAK Number held Percentage of issued shares 52,043,358 23,767,320 13,591,450 13,578,073 11,260,361 7,535,479 7,439,265 6,795,753 6,025,277 2,830,006 2,642,511 2,247,653 1,889,333 1,424,385 1,398,461 1,385,676 1,358,461 1,161,804 1,026,009 1,000,000 160,400,635 24.05 10.98 6.28 6.28 5.20 3.48 3.44 3.14 2.78 1.31 1.22 1.04 0.87 0.66 0.65 0.64 0.63 0.54 0.47 0.46 74.13 Unquoted equity securities 19,440,832 options over unissued shares (as at the date of this report): for further details see note 23. RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 20 19 77 For personal use onlySHAREHOLDER INFORMATION C. Substantial Holders The names of the substantial shareholders listed in the holding register as at 30 June 2019 are: Estimated beneficial holdings as at 30 June 2019 IOOF Holdings Limited (Perennial Value Management) Ruffer LLP Colonial First State – Growth Runge International Pty Ltd (Ian Runge) D. Voting Rights Refer to note 15 for voting rights attached to ordinary shares. Number held Percentage 32,423,996 26,766,010 15,903,836 14,149,878 14.99 12.57 7.35 6.54 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 20 19 78 For personal use only CORPORATE DIRECTORY Directors Allan Brackin Chairman Richard Mathews Managing Director Ross Walker Non-executive Director Stewart Butel Non-executive Director Company Secretary Registered Office Level 2, 295 Ann Street Brisbane QLD 4000 Ph: +61 7 3100 7200 Fax: +61 7 3100 7297 Web: www.rpmglobal.com Auditor BDO Audit Pty Ltd Level 10, 12 Creek St Brisbane QLD 4000 Share Registry Computershare Investor Services Pty Limited 117 Victoria Street West End QLD 4101 James O’Neill Group General Counsel and Company Secretary Stock Exchange Listing The Company is listed on the Australian Securities Exchange Limited (ASX: RUL) RPMGlobal Holdings Limited ABN 17 010 672 321 RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 20 19 |79 For personal use onlyLevel 2, 295 Ann St, Brisbane QLD 4000 P: +61 7 3100 7200 F: +61 7 3100 7297 www.rpmglobal.com RPMGLOBAL HOLDINGS LIMITED // ANNUAL REPORT 2019 For personal use only

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