Ryman Hospitality Properties
Annual Report 2018

Plain-text annual report

The Cloud Channel Company TM Appendix 4E RHIPE LIMITED AND CONTROLLED ABN: 91 112 452 436 ENTITIES FINANCIAL PROVIDED INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 TO THE ASX UNDER LISTING RULE 4.3A rhipe Appendix 4E Preliminary Final Report Name of entity: rhipe Limited and its controlled entities | ABN: 91 112 452 436 (ASX: RHP) Appendix 4E 1. Reporting Period Report for the financial year ended: 30 June 2018 Previous corresponding period is the financial year ended: 30 June 2017 2. Results for announcement to the market (Item 2) Revenues from ordinary activities (Item 2.1) Up 25.4% to Profit from ordinary activities after tax attributable to members (Item 2.2) Up 22.3% to Net Profit for the period attributable to members (Item 2.3) Dividends (Items 2.4) Interim Dividend paid Final Dividend Up 22.3% to Amount per security 0.5 cent 1.0 cent Record date for determining entitlements to a dividend (Item 2.5) 5 October 2018 Brief explanation of any of the figures reported above necessary to enable the figures to be understood (Item 2.6) Refer to attached financial report $’000 196,608 3,066 3,066 Franked amount per security 0.5 cent 1.0 cent 3. Statement of Comprehensive Income (Item 3) Refer to attached financial report 4. Statement of Financial Position (Item 4) Refer to attached financial report 5. Statement of Cash Flows (Item 5) Refer to attached financial report 6. Statement of Changes in Equity (Item 6) Refer to attached financial report 7. Dividends (Item 7) Interim dividend of 0.5 cent per share was paid on 23 March 2018. Final dividend of 1.0 cent per share is declared subsequent to balance date, on 26 July 2018 and will be paid on 24 October 2018. Interim and Final dividends are fully franked at a tax rate of 30 per cent. 2 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 RHIPE LIMITED AND CONTROLLED ENTITIES ABN 91 112 452 436 Appendix 4E (continued) 8. Dividend Reinvestment Plan (Item 8) There was no dividend reinvestment plan in operation which occurred during the financial year. 9. Net Tangible Assets per Security (Item 9) Net tangible asset backing per ordinary security 2017 $0.1515 2018 $0.1515 10. Details of Entities over which Control has been Gained or Lost during the Period (Item 10) Refer to attached financial report Control gained over entities/acquisitions Name of entities Rhipe Philippines Technology, Inc Loss of control of entities/disposals Name of entities Not applicable Date(s) of gain of control Rhipe 21 June 2018 Date(s) of loss of control 11. Details of Associates and Joint Venture Entities (Item 11) Not applicable 12. Details of Significant Information Relating to the Entity’s Financial Performance and Financial Position (Item 12) Refer to attached financial report. 13. For Foreign Entities, which set of Accounting Standards is Used in Compiling the Report (Item 13) Not applicable 14. Commentary on Results for the Period (Item 14) Refer to attached financial report. 15. Audit of the Financial Report (Items 15 to 17) Not applicable 3 Annual Report | 2018 Contents Chairman’s Report CEO Report 2018 Financial Report Operating and Financial Review Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Information for Listed Public Companies 4 5 6 6 8 14 31 32 33 34 35 36 69 70 74 1 rhipe Annual Report 2018 rhipe Annual Report 2018 rhipe Annual Report 2017 $197m Group Revenue $34m Group Gross Profits $7.8m Group Operating Profits $6.4m Group EBITDA $22.7m Group Cash Balance Financial Highlights $197m $157m $137m $105m FY15 FY16 FY17 FY18 $34m $28m $26m $20m FY15 FY16 FY17 FY18 $7.8m $5.0m $2.0m $1.5m FY15 FY16 FY17 FY18 $6.4m $4.0m $1.5m ($1.4m) FY15 FY16 FY17 FY18 $22.7m $19.8m $13.9m $12.4m FY15 FY16 FY17 FY18 2 FY18 Growth 25% 21% 54% 59% rhipe Annual Report 2018 Our Value Proposition Cloud first Channel first Platform for Recurring Subscription Management (“PRISM”) used by 2,500+ IT resellers to buy, provision and bill their end user clients for monthly cloud software subscriptions. Value added services for our 2,500+ resellers including marketing, consulting, and 24/7 support as a service. These services are aimed at driving the ongoing growth in consumption of software subscriptions. Our offices THAILAND SINGAPORE As at 30 June 2018 rhipe had 203 employees. INDONESIA AustRALIA Strategic Operating Divisions SOUTH KOREA MALAYSIA PHILIPPINES NEW ZEALAND Cloud Licensing Cloud Solution Cloud Operation Software sold and implemented by IT service providers. Monthly pay as you go cloud licensing subscriptions. Professional services and support people to help Vendors and Service Providers with technical needs. Internally developed PRISM. Cloud first, digital first marketing to drive demand for channel partners. 3 Chairman’s Report Dear Shareholder, Mike Hill Non Executive Chairman Our strategy to invest in cloud focused, Asia Pacific focused, software subscription business has delivered strong growth in revenue and profits in FY18. Growth was led from our deep relationship with Microsoft and we were delighted by the support and acknowledgement we received in 2018 when we were named a globally managed account, one of around a dozen in the world and also named Microsoft’s Country Partner of the Year – Australia for 2018. With a recurring revenue model, rhipe enters 2019 in a strong position with more than $22m of cash on hand and continued growth rates compounded by new vendors, new licensing programs, new partners and new geographies. On behalf of the Board I would like to thank all of our stakeholders for believing in rhipe’s future and for believing in the management team to continue to deliver above average growth rates. The Board sincerely acknowledges the first-rate efforts of the whole team at rhipe and congratulates them one and all for delivering another year of records and awards, leaving the Company as one of Microsoft’s key global partners for cloud subscription and the only one headquartered in Asia Pacific. Yours Sincerely, Mike Hill Chairman T he demand for cloud computing continues to grow and once again endorses the promising opportunity for rhipe to generate increasingly profitable growth from its cloud subscription business across Asia Pacific. By investing in us, you are investing in a Company with a proven team which is committed to its vision to be the number one cloud subscription business in its target markets. In light of what we believe to be a successful 2018, I would like to thank you for supporting the Company strategy and believing in the entire rhipe team who work tirelessly to capture this remarkable cloud market opportunity. The financial results for 2018 clearly show the Company has been able to capitalise further on its profitable 2017 result. Importantly, the Company has grown across geographies, products and licensing programs throughout the 2018 year which once again, with its subscription base revenue stream, sets up a bright start looking into the 2019 fiscal year. We were delighted to provide shareholders with a maiden dividend at the half year results, off the back of a Company buy back, which highlights the confidence the Board and management team has in the future cash generation of rhipe’s earning streams. Our continued strategy to build out our footprint in key fast developing Asian markets has provided rhipe with the future enhanced opportunity to create market share dominance as these developing markets adopt more and more cloud based subscription software products. 4 CEO Report As “The Cloud Channel Company”, rhipe has established a strong leadership position in Asia Pacific (“APAC”) as the Platform of choice for monthly Pay-As-You-Go (“PAYG”) cloud license subscriptions. International software vendors such as Microsoft, VMWare, Citrix, Red Hat, Trend Micro, Veeam, Zimbra and Symantec, all rely on rhipe’s PRISM to build and grow consumption of their cloud license programs. In addition, more than 2,500 IT resellers in Asia Pacific now rely on PRISM to help with cloud provisioning, billing, reporting and support of their data centres and/or end-user customers. Since 2003 rhipe has held a firm belief in a subscription-based method for distributing software licenses to a channel of IT resellers. Unlike traditional software distributors who are largely focused on Pay-Up-Front sales models, rhipe has always held a vision that the IT industry will move towards a monthly PAYG sales process; a process in which companies pay a monthly fee for what they have consumed rather than an up-front and much larger amount for products that they may or may not use. As a result of this vision, rhipe has invested in systems, marketing, sales and operational processes that are closely aligned with subscription-based economics. It has taken a number of years for this investment to start bearing fruit. However, as cloud computing has accelerated across the Asia-Pacific (“APAC”) region, resellers and customers have started to demand and expect the subscription-based services that rhipe is able to provide. This has led to rhipe’s growth and expansion from Australia and New Zealand into new offices in Singapore, Malaysia, Thailand, Indonesia, the Philippines, and most recently, South Korea. During the 2018 financial year ending 30 June 2018 (“FY18”), rhipe’s differentiated Dominic O’Hanlon Managing Director and CEO rhipe is “The Cloud Channel Company” with a strong leadership position in Asia Pacific. position as a PAYG license provider has helped the business to add more than 500 new resellers with over 130,000 end user Microsoft Office 365 (“O365”) seats added on rhipe’s PRISM platform during FY18. rhipe’s investment in Microsoft’s Cloud Solutions Provider (“CSP”) program has positioned rhipe as one of Microsoft’s key strategic cloud partners and the only globally managed license partner of Microsoft’s headquartered in Asia Pacific. In addition, rhipe added to its numerous vendor accolades by being named Microsoft Australia’s partner of the year. FY18 was also significant in proving the operational leverage that exists in rhipe’s business model. Operating profit increased from break even in FY16 to $5.0m in FY17 and now $7.8m in FY18 despite ongoing investments in growing rhipe’s business across Asia Pacific. In particular, I would like to highlight a number of significant achievements from the 2018 Financial Year: – $190m in software license revenue with a gross profit of $28.7m. This represents a year-over-year (“YOY”) growth in revenue and gross profit of 25% and 20% respectively; – Achieving a +75% growth in local Asian sales (excluding sales from ANZ customer buying through Asia). Total revenue billed in Asia was $50m which is equivalent to what rhipe billed as a whole Company in FY13; – Driving the adoption of more than 260,000 O365 seats under the Microsoft CSP program. Almost all of these are billed on a monthly subscription basis with an annual run rate revenue from Microsoft CSP including Azure of $42m compared to $22m at the end of FY17 and $6.7m at the end of FY16; – Continued investment in our subscription management and billing system and our support offering that is required to maintain our strong competitive position in the market; and – Expansion and increased profitability of our vendor and customer support operations in the Philippines which now has over 70 full time equivalent employees at the end of June 2018. In FY19 rhipe expects to see the trends from FY18 continue. Revenues, Gross Margin and Operating Profits are expected to continue growing. However, rhipe will also continue to invest in people, systems and growth opportunities so that we can maximise the long-term benefits to our shareholders. On behalf of the Board we would like to thank our staff for a fantastic FY18. It has been a lot of hard work, but the results are a testament to the team’s vision and ongoing dedication. In addition, we would like to thank our key vendor partners for their continued support and collaborative partnership in meeting and often exceeding our growth objectives. To our shareholders we say thanks for your ongoing belief. We are looking forward to another great year in FY19. Yours Sincerely, Dominic O’Hanlon Managing Director and CEO 5 rhipe Annual Report 20182018 Financial Report Operating and Financial Review rhipe Limited and Controlled Entities Principal Activities and Significant Changes in Nature of Activities The principal activity of rhipe Limited (“rhipe” or “the Company”) and controlled entities (the “Group”), during the financial year was the sale and support of subscription software licenses to its 2,500 plus IT service provider resellers in the Asia Pacific region. As “The Cloud Channel Company”, rhipe has established strong momentum as the leading Asia Pacific platform for monthly PAYG cloud license subscriptions. International software vendors such as Microsoft, VMWare, Citrix, Red Hat, Trend Micro, Veeam, Zimbra and Symantec, all rely on rhipe’s PRISM to build, grow and support the consumption of their cloud license programs. In addition, rhipe’s resellers in Asia Pacific rely on PRISM to help with cloud provisioning, billing, and reporting for their data centres and/ or end-user customer licenses. rhipe’s 24x7 technical support desk is now also supporting one of rhipe’s vendors in an Asia Pacific time zone. Operating Results and Review of Operations for the Year During the 12-month period to 30 June 2018 (“FY18”), rhipe has continued to invest in operations that are focused on the industry transition to the cloud business model. rhipe has three integrated business divisions; Cloud Licensing (private, public and hybrid cloud), Cloud Solutions (consulting and support services), and Cloud Operations (subscription billing, provisioning, support, marketing). rhipe has taken much of the know- how from many years of experience in software subscription management to build rhipe’s own intellectual property in the form of PRISM. rhipe believes that PRISM provides a strong differentiator which, when combined with rhipe’s other value- added services, will allow rhipe to continue building on its strong market position in the countries in which rhipe operates. rhipe Licensing In FY18 rhipe continued to invest both in its public cloud and its longer-established private cloud business. Whereas rhipe 6 has provided licenses to private-cloud data centres for well over a decade, rhipe only launched its public cloud business in the financial year to 30 June 2016 (FY16). rhipe did this in anticipation of an industry shift away from on-premise and private data centre software implementations towards hyper- scale public cloud infrastructure. In FY16 rhipe was appointed by Microsoft as an Indirect Cloud Solutions Provider (“CSP”) to build a channel of resellers for Microsoft’s key public cloud products (Microsoft O365 and Microsoft Azure). Growth in O365 and Azure has underpinned the growth delivered by rhipe in FY18 with O365 revenue growing 118% and Azure growing at 239% during this financial year. Growth in these two key products accounted for around 50% of rhipe’s revenue growth in FY18. At the beginning of FY18 rhipe’s partners were consuming approximately 130,000 CSP seats of O365 per month and by June 30, 2018 monthly consumption was more than 260,000 seats, a doubling of this revenue stream in the last twelve months. Annualised Run Rate Revenue (“ARR”) from CSP is now over $42m with O365 contributing $35m and Azure more than $7m. This compares to total ARR from CSP of only $22m twelve months ago. Although migration to public cloud has been a core driver of our revenue growth rate during the year we continue to see growth in the private cloud datacentre licensing business. Growth in the Microsoft private cloud licensing market was 12% across all of rhipe’s markets in the current financial year with Asia delivering revenue growth of 42% YOY. Although Microsoft products deliver around 70% of our licensing sales, rhipe continues to invest in other software vendors including VMWare, Citrix, Veeam, Trend Micro and Redhat. Our strategy is to invest and grow these areas of the business as well as add to our portfolio of other software vendors. Growth in these non-Microsoft products in FY18 customers was approximately 15% and we will continue to invest in these key relationships. rhipe Cloud Solutions rhipe’s Cloud Solutions division provides a small technical consulting group and much larger 24x7 support team to assist rhipe’s resellers and, more recently, one of rhipe’s key vendors. The small consulting business was restructured during FY17 so that it could assist resellers while achieving a breakeven financial result in FY18. The consulting team helps with technical implementation services to deepen our relationships with resellers while also assisting to drive the ongoing sale of additional licenses. rhipe will continue to refine the strategy for our consulting team especially in relation to public cloud growth opportunities for products such as Microsoft Azure and Microsoft Dynamics365. The much larger 24x7 technical support team was significantly expanded in FY18 as a result of the growth in a support contract for one of rhipe’s software vendors. At the end of FY18, rhipe had approximately 70 employees in this support team, primarily based in Philippines. We intend to continue to invest in the capabilities of these employees and operations and will look to provide similar services to other vendors or customers as the opportunity arises. Operating and Financial Review (continued) Overall results Operating Profit and EBITDA The results presented in this financial report reflect the operations of the Group for FY18. The table below outlines the operating profit and underlying EBITDA contribution from the Group for FY18: Financial Summary ($’000) FY18 FY17 Change Adjustments between Operating profit and EBITDA Revenue Gross Profit Gross Margin Operating Profit Reported EBITDA Profit/(Loss) After Tax 196,608 156,970 34,071 28,190 +25% +21% ($’000) Operating profit 17.3% 7,761 6,384 3,066 18.0% (63bps) Less 5,024 4,004 2,507 +54% +59% +22% Foreign exchange loss Restructuring and transaction costs Gain on sale of investments FY18 7,761 FY17 5,024 (286) (380) 309 (126) (485) – For FY18, the Group reported another strong increase in profitability with operating profit of $7.8m compared to $5.0m in the prior year, an increase of 54%. This significant improvement in the financial performance of the Group has been driven by: 1. Investments made in the business over the past few years which have produced strong revenue and gross profit growth in FY18, and 2. Cost management with a cost base that grew at only half of the revenue growth rate. Revenue FY18 revenue growth of almost $40m was driven by the areas of the business where we have made material investments; notably our public cloud business with Microsoft CSP (Microsoft O365 and Azure). Over the last 12 months revenue from these products grew by around 130% from $14m in FY17 to $33m in FY18. The growth in Microsoft CSP delivered almost 50% of the revenue growth in FY18. rhipe’s longer established private cloud license business also continued to grow; particularly in our Asian operations where local private cloud sales of Microsoft licences grew more than 40% YOY. In the larger, more mature market in Australia, growth in private cloud was just over 5% with future growth in Australia expected to be driven predominantly by public cloud licences. Growth from our non-Microsoft vendors has also been strong with a YOY increase of around 15% driven by continued focus on investing in our capabilities and marketing of these often complementary products. Operating expenses Operating expenses in FY18 increased by $3.1m or 13.6% YOY with the majority of this increase driven by increased headcount particularly in our support operations in Philippines. The number of full time equivalent employees (FTE) increased from 118 at 30 June 2017 to 203 at 30 June 2018, an increase of 85 FTE or 72%. The support operations were responsible for the majority of this increase with an increase of approximately 70 FTE. Share-based payments expense (non-cash) (1,020) (409) Reported EBITDA (1,377) (1,020) 6,384 4,004 Operating profit in FY18 grew by $2.7m or 54% YOY with EBITDA growing by $2.4m or 59% over the same period. The improvement in overall profitability was driven by the strong growth in revenue and gross profit in the Licensing business and the turnaround in the financial performance in our Solutions operations primarily driven by the support operations. The Company expensed $0.8m of share based payments expense in relations to performance rights issued in November 2017. Investment and Capital Expenditure rhipe continues to invest in PRISM to ensure the Company remains competitive and can add new vendors and new subscription offerings as they become available. In the 12 months to 30 June 2018 the Group doubled its investment in PRISM to $2.4m as compared to $1.2m, in FY 2017. rhipe believes that PRISM provides a competitive advantage that can be leveraged to support the ongoing growth in rhipe’s business. Cash and Returns to Shareholders The Directors believe that the Group is in a strong and stable financial position to continue to grow and invest in the business. At 30 June 2018 the Group had cash of $22.7m compared to a cash balance of $19.8m at 30 June 2017. This increase in cash resources is after undertaking a share buyback of $2.3m, payment of the Company’s inaugural interim dividend of 0.5 cents per share or $0.7m, the continued investment in Prism of $2.4m and also funding the continued growth in the business. In respect of the financial year ended 30 June 2018, a fully franked interim dividend of 0.5 cents per share was paid on 23 March 2018. The Company will be paying a fully franked final dividend of 1.0 cent per share on 24 October 2018. 7 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Directors’ Report Rhipe Limited And Controlled Entities Your directors present their report on the Group consisting of rhipe Limited and its controlled entities for the financial year ended 30 June 2018. The information in the preceding Operating and Financial Review forms part of this Director’s Report for the financial year ended 30 June 2018 and is to be read in conjunction with the following information. General Information Directors The following persons were directors of rhipe Limited during or since the end of the financial year up to the date of this report: – Mike Hill – Dominic O’Hanlon – Dawn Edmonds – Laurence Sellers – Mark Pierce – Michael Tierney Information relating to Directors and Company Secretary Experience and Qualifications Appointed Non-Executive Chairman effective 31 January 2017 Mr Hill is a former Partner of Ernst & Young in the M&A advisory team and has also worked as a principal investor with the Ironbridge Capital from 2004 to 2014. Ironbridge is a leading domestic private equity firm with $1.5bn of funds under management. Mike is a founder of Bombora Group, an Investment and advisory group based in Sydney. At rhipe Mr Hill plays a hands-on approach and works closely with the executive team on all strategic business development activities. Interest in Shares and Options 1,178,320 ordinary shares and Nil options Special Responsibilities Chairman, Remuneration Committee, Audit Committee and Business Development Directorships held in other listed entities during the three years prior to the current year AHAlife Holdings Limited (Non-Executive Chairman) Janison Education Group Limited (Chairman) Acrow Formwork and Construction Limited (Non-Executive Director (“NED”)) LiveTiles Limited (NED) – (resigned on 5 September 2017) JustKapital Litigation Partners Limited (NED) – (resigned on 27 November 2017) Prime Media Group Limited (NED) – (resigned on 22 August 2016) Experience and Qualifications Appointed 15 June 2015 was Chief Executive Officer from 5 August 2014 until appointment as Managing Director on 15 June 2015. Mr O’Hanlon is a well-known and successful technology entrepreneur who has over 25 years’ experience in software development, marketing, sales, implementation and support. Dominic has served in prior roles as CEO, Chief Strategy Officer, NED and Chairman for numerous high growth technology companies. Dominic is a Fellow of the Australian Institute of Company Directors. Interest in Shares and Options 4,757,840 ordinary shares, 1,200,000 performance rights and 600,000 options Special Responsibilities None Directorships held in other listed entities during the three years prior to the current year None Mike Hill Chairman Dominic O’Hanlon Managing Director and Chief Executive Officer 8 Directors’ Report (continued) Experience and Qualifications Appointed 10 April 2014. Ceased Interim Chief Executive Officer on 5 August 2014 upon appointment of Dominic O’Hanlon. Ms Edmonds is one of the founders of rhipe and has played an integral part in establishing the Company and its continuing success. Until the end of 2016, Dawn served as the Chief Operating Officer for the Company and was responsible for the management of systems, process and performance as well as the day-to-day operations of the organization. Dawn has led the development and implementation of processes and systems that have been recognised as best practice by vendors. Prior to starting NewLease in 2003, she was instrumental in building a successful start-up business in the temporary labour hire and IT outsourcing sectors. Dawn has received industry awards for Women in IT and Entrepreneurship and continues to support diversity and the development of women in the IT industry Interest in Shares and Options 4,002,294 ordinary shares and 100,000 options Special Responsibilities Risk Committee and Remuneration Committee Dawn Edmonds Non-executive Director Directorships held in other listed entities during the three years prior to the current year None Experience and Qualifications Appointed 10 April 2014 Mr Sellers is a NED of rhipe, having joined NewLease in 2013. Laurence (Laurie) has more than 40 years’ experience in the Australian IT Industry and has held roles in; Design and Development of hardware, Software Development, Technical Support, Customer Service Management, Marketing Management, Sales Management, and Country Management both with global Vendors (ICL and Fujitsu) and IT Distributors. During the past 20 years Laurie has served as the Chief Executive Officer of ALSTOM Information Technology Australia, Managing Director of ITX Group Limited – listed on the ASX, and Vice President ANZ of Avnet Technology Solutions – which prior to their recent acquisition by Tech Data was one of the world’s largest distributors of IT hardware and software, listed on the New York Stock Exchange. Interest in Shares and Options 166,666 ordinary shares and 233,334 options Special Responsibilities Risk Committee and Remuneration Committee (Chair) Laurence Sellers Non-executive Director Directorships held in other listed entities during the three years prior to the current year None 9 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Directors’ Report (continued) Experience and Qualifications Appointed 10 April 2014 Mr Pierce has over 25 years’ corporate finance and underwriting experience gained from senior positions held at Credit Suisse, Rabobank, Macquarie Bank and Westpac. Since 2009, Mr Pierce has independently provided financial advisory and arranging services to a number of clients, including managing the treasury and funding for a large operating lease company in Australia and New Zealand. Over the past 2 years, he has successfully established and grown a specialist finance company catering to the SME sector. He is a Graduate of the Australian Institute of Company Directors. Interest in Shares and Options 270,000 ordinary shares and 250,000 options Special Responsibilities Audit Committee (Chair) and Risk Committee (Chair) Mark Pierce Non-executive Director Directorships held in other listed entities during the three years prior to the current year None Experience and Qualifications Appointed 27 January 2017 Mr Tierney brings to the company over 30 years’ experience in global financial markets, most recently as Managing Director and Head of Leverage Finance at Credit Suisse for the Asia Pacific region. Mr Tierney has worked across a wide range of industries and clients advising and executing financing and M&A strategies to enable them to achieve their strategic objectives. He has extensive governance experience fulfilling reporting requirements to APRA and ASIC and is a Senior Fellow of FINSIA Interest in Shares and Options 2,707,191 ordinary shares Special Responsibilities Audit Committee and Remuneration Committee Directorships held in other listed entities during the three years prior to the current year None Michael Tierney Non-executive Director Company Secretary The following persons held the position of company secretary at the end of the financial year: Andrew Whitten Company Secretary Andrew is an admitted solicitor and an Executive Director of the Automic Group of Companies, Australia’s only professional service provider that delivers a complete and integrated ecosystem of Registry, Company Secretarial, Legal, CFO and Accounting services. Andrew is currently the company secretary for a number of publicly listed companies. He has been involved in numerous corporate and investment transactions including IPOs on the ASX and NSX, corporate reconstructions, reverse mergers and takeovers over two decades. Andrew holds a Bachelor of Arts (Economics, UNSW); Master of Laws and Legal Practice (Corporate Finance and Securities Law, UTS); Graduate Diploma in Applied Corporate Governance from the Governance Institute and is an elected Associate of that institute. Maggie Niewidok Company Secretary Maggie joined rhipe in 2015 and was appointed Company Secretary on 31 January 2017. She is also Company Secretary of a number of rhipe Group subsidiaries. Maggie is responsible for rhipes’ board administration, governance, compliance and investor communications initiatives. Maggie holds a double degree, Bachelor of Laws and Bachelor of Commerce majoring in Finance from The University of Wollongong. 10 Directors’ Report (continued) Meetings of Directors During the financial year, ten meetings of directors were held. The audit committee, the remuneration committee and the risk committee met during the reporting period. Attendances by each director during the year were as follows: Directors’ Meetings Audit Committee Remuneration Committee Risk Committee Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Mike Hill Dominic O’Hanlon Dawn Edmonds Laurence Sellers Mark Pierce Michael Tierney 10 10 10 10 10 10 9 10 10 10 10 10 2 n/a n/a n/a 2 2 2 n/a n/a n/a 2 – 4 n/a 4 4 n/a 4 3 n/a 4 4 n/a 4 n/a n/a 2 2 2 n/a n/a 2 2 2 n/a n/a Material Business Risks The Board with the support of management has the responsibility for overseeing the management of risks in the Company and managing the business within the agreed risk appetite of the group. There are a number of mechanisms in place aimed at ensuring the management of the business is aligned with the key risks identified by the Board, the Risk Committee of the Board, and management. These mechanisms include: – Board approval of strategic and financial plans aimed at growing the company and managing the business risks identified; – Regular updates provided by senior management on key strategic and operational matters; – significant matters that have been reserved for the Board to approve; – risk factors identified by the Board and Management and included in the risk register; and – the reports of the external auditor. As part of the risk management approach the Company has identified the following key risks that may affect the Group’s future financial performance: – Technological change: rhipe operates in the fast-changing IT software market with new innovations appearing in the market regularly. As a result, there is a risk that technological change will materially impact the markets where rhipe operates. The company seeks to mitigate this risk through maintaining strong relationships with key vendors at the forefront of technological change. – Dependency on Microsoft: Over 70% of rhipe’s revenue is concentrated on one vendor, Microsoft. If Microsoft decides to change how it operates or the way it incentivises its channel partners there is a risk that any changes will have a material impact on rhipe’s financial performance. Management of this vital relationship has been and continues to be a key focus for management. – Competitive market: rhipe operates in a very competitive market which includes software distributors, some of which are significantly larger than rhipe with significant financial resources. Consequently, there is a risk of increasing competitive pressures eroding gross margins and profitability which would impact rhipe’s financial performance. rhipe continues to invest in its value-added services in order to mitigate this risk. – Geographic risk: rhipe has operations in eight countries across the Asia Pacific region and consequently local regulations including foreign exchange controls and taxation risks associated with each country. In addition the Group is exposed to further foreign exchange rate volatility which is often prohibitively expensive to hedge against. These risks may in the future have a material impact on the financial performance of rhipe. rhipe monitors its exposures to these risks and seeks to maintain a diversified exposure to these jurisdictions. The Board and management continue to monitor these risks and other identified risks in order to respond to the ever-changing market and ensure these risks are mitigated. 11 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Directors’ Report (continued) Indemnifying Officers or Auditor During or since the end of the financial year, the Company has given an indemnity or entered into an agreement to indemnify or paid or agreed to pay insurance premiums as follows: – The Company has paid premiums to insure each of the directors against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of directors of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. – No indemnity has been provided for the auditors. Future Developments, Prospects and Business Strategies The Group has strong existing relationships with a number of key software and technological partners and the Group will look to continue to build and nurture these relationships. The Group will also continue to explore opportunities to further expand its reach from its current bases in Australia, New Zealand, Singapore, Thailand, Malaysia, Philippines, Korea and Indonesia. However, rhipe intends to temper any such expansion in operations so that the business can generate a solid growth in earnings in FY19. rhipe will continue to assess further acquisition opportunities that will complement, create synergies or bring scale and earnings growth to the Company’s existing business model. Environmental Issues The consolidated Group’s operations are not regulated by any significant regulations under a law of the Commonwealth or of a state or territory. Options As at the date of signing this report, there were 3,673,334 unissued ordinary shares under option (30 June 2017: 4,349,584). These options are exercisable as follows: Date of Grant 10/04/2014 27/07/2014 27/07/2014 27/02/2015 27/02/2015 27/02/2015 27/02/2015 27/02/2015 7/06/2016 1/11/2016 1/11/2016 1/12/2016 13/09/2017 13/09/2017 Number of Options Date of Expiry Conversion Price ($) 1,033,334 10/04/2019 300,000 11/08/2018 300,000 11/08/2021 67,500 15/09/2018 67,500 15/09/2021 67,500 67,500 200,000 700,000 135,000 135,000 1/10/2018 1/10/2021 1/07/2021 1/01/2019 1/11/2020 1/11/2023 400,000 1/01/2019 100,000 12/09/2021 100,000 12/09/2022 3,673,334 0.2 0.75 0.75 0.75 0.75 0.75 0.75 0.75 1.25 0.94 0.94 1.25 0.5 0.5 Proceedings on Behalf of Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of the proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non-audit Services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: – All non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and – The nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110 Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to ShineWing Australia for non-audit services provided during the year ended 30 June 2018. Taxation and other services $ 87,000 87,000 Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Group during the financial year. 12 Directors’ Report (continued) Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2018 has been received and can be found on page 31 of the Financial Report. Rounding of Amounts The Company is an entity to which ASIC Legislative Instrument 2016/191 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars. Corporate Governance Statement The Directors of the Group support and adhere to the principles of corporate governance, recognising the need for the highest standard of corporate behaviour and accountability to the corporate governance statement dated 20 August 2018 released to ASX and posted on the Company’s website www.rhipe.com/about/investors/. Events after the Reporting Period Final dividend of 1.0 cent per share, fully franked, is declared subsequent to balance date, on 26 July 2018 and will be paid on 24 October 2018. Apart from this, there has not been any other matter or circumstances occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. Dominic O’Hanlon Managing Director and CEO 13 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration Report rhipe Limited and Controlled Entities 1 Message from the Chair of the Remuneration and Nomination Committee 2 3 Persons Addressed and Scope of the Remuneration Report Context of and Changes to KMP Remuneration for FY18 3.1 Matters Identified as Relevant Context for Remuneration Governance in FY18 15 16 17 17 3.2 Key Remuneration Matters Identified and Adjustments Made or Planned in Response, since the Previous Report 17 4 Overview of rhipe’s Remuneration Governance Framework & Strategy 4.1 Remuneration and Nomination Committee Charter 4.2 Senior Executive Remuneration Policy 4.3 Non-Executive Director (“NED”) Remuneration Policy 4.4 Approach to Determining Comparators for Remuneration Benchmarking 4.5 Short-Term Incentive Policy 4.6 Long-Term Incentive Policy 4.7 Setting Incentive Plans 4.8 Clawback Policy and Procedure 4.9 Securities Trading Policy 4.10 Equity Holding Policy 4.11 Executive Remuneration Consultant Engagement Policy and Procedure 4.12 Variable Executive Remuneration – Short-Term Incentive Plan (STIP) 4.13 Variable Executive Remuneration – Long-Term Incentive Plan (LTIP) – Performance Rights Plan 5 Performance Outcomes for FY18 Including STI and LTI Assessment 5.1 Company Performance 5.2 Links Between Performance and Reward Including STI and LTI Outcomes 5.3 Links between Company Strategy and Remuneration 6 Changes in Equity held by KMP 7 NED Fee Policy Rates for FY18 and FY19, and Fee Limit 8 Remuneration Records for FY18 – Statutory Disclosures 8.1 Senior Executive Remuneration 9 Employment Terms for Key Management Personnel 9.1 Service Agreements 10 External Remuneration Consultant Advice 18 18 18 19 19 19 20 20 20 20 21 21 21 23 24 24 24 25 25 27 28 28 30 30 30 14 rhipe Annual Report 2018 Remuneration (continued) 1. Message from the Chair of the Remuneration and Nomination Committee On behalf of the Board, I am delighted to present the Remuneration Report for the financial year ended 30 June 2018, detailing the Board’s approach to and amount of remuneration for rhipe’s NEDs and other Key Management Personnel (“KMP”). The remuneration structures presented in this report are the result of continuous reviews and considerations, expert external advice, industry benchmarking and the development of enhanced remuneration governance. In developing this Remuneration Report the Board sets out to provide shareholders with frank and open insights into the remuneration governance, policies, procedures and practices being applied. Overall, Total Remuneration Packages (“TRP”) for FY18 for Directors and KMP has increased by approximately 9% over two years from FY16, with remuneration for NEDs remaining flat. The increase is primarily due to incentives rewarded to KMP for exceeding FY18 market guidance and the internal budget which delivered a YOY operating profit increase of 54%. However, only modest overall increases to Base Remuneration Package were agreed by the Board for FY18. Given the results for FY18, the Board is satisfied that the remuneration outcomes in relation to the FY18 results demonstrate a strong link between performance and reward. The Board will continue to devote time and effort into developing its remuneration policies, procedures and practices giving due consideration to external stakeholder feedback. This approach is then balanced with attention to the unique characteristics of the business, and the industry, which need to be taken into account in order to attract, retain and motivate senior talent going forward. Finally, I would like to thank the members of the Remuneration and Nomination Committee for their hard work. Yours sincerely, Laurie Sellers Chair of the Remuneration Committee 15 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) 2. Persons Addressed and Scope of the Remuneration Report The Remuneration Report sets out, in accordance with section 300A of the Corporations Act 2001: (i) the Company’s governance relating to remuneration; (ii) the policy for determining the nature and amount or value of remuneration of KMP; (iii) the various components or framework of that remuneration; (iv) the prescribed details relating to the amount or value paid to key management personnel, as well as a description of any performance conditions; (v) the relationship between the policy and the performance of the Company. In addition, the Group has decided to set out such further information as shareholders may require for them to obtain an accurate and complete understanding of the Company’s approach to the remuneration of Key management personnel. KMP are the NEDs, the Executive Directors and employees who have authority and responsibility for planning, directing and controlling the activities of the Group. On that basis, the following roles/individuals are addressed in this report: NEDs as at the End of the Financial Year Mike Hill Dawn Edmonds Laurence Sellers Mark Pierce Michael Tierney NED since 31 January 2017 – Chairman of the Board since 10 April 2014 – Audit Committee since 10 April 2014 – Remuneration and Nomination Committee since 10 April 2014 NED since 1 January 2017 – Remuneration and Nomination Committee since 10 April 2014 – Risk Committee since 10 April 2014 Independent NED since 10 April 2014 – Remuneration and Nomination Committee Chair since 10 April 2014 – Risk Committee since 10 April 2014 Independent NED since 10 April 2014 – Risk Committee Chair since 10 April 2014 – Audit Committee Chair since 10 April 2014 Independent NED since 27 January 2017 – Remuneration and Nomination Committee since 27 January 2017 – Audit Committee since 27 January 2017 Senior Executives Classified as KMP or Otherwise Addressed in this Report during the Financial Year Dominic O’Hanlon Managing Director since 15 June 2015 and Chief Executive Officer since 5 August 2014 Chris Sharp Warren Nolan Mark McLellan Patara Yongvanich Athena Thompson Cameron McFie Chief Strategy Officer since 1 October 2014 and is located in Singapore Chief Commercial Officer since 2 August 2005 Chief Financial Officer since 1 November 2016 and Chief Operating Officer since 1 March 2018 Managing Director of SEA since 1 July 2015, Managing Director of Asia from 1 July 2017, located in Thailand Chief Marketing Officer since 7 January 2015 Chief Technology Officer since 25 May 2015, left 3 April 2018 During the period the following persons ceased to be Executive KMP of rhipe: – Cameron McFie, Chief Technology Officer from 25 May 2015 until 3 April 2018 – Following an internal restructure, Athena Thompson decided to leave effective 17 August 2018. 16 Remuneration (continued) 3. Context of and Changes to KMP Remuneration for FY18 – The Chief Technology Officer, Cameron McFie, left the business in April 2018; 3.1 Matters Identified as Relevant Context for Remuneration Governance in FY18 The Board continues to devote time and energy to reviewing its approach to remuneration and adapting its approach to external stakeholder feedback. This is balanced with the consideration of unique characteristics of the business which need to be taken into account in order to motivate, retain and attract senior talent. The KMP remuneration structures that appear in this report are the result of these on-going reviews and considerations, which also include benchmarking and enhancements in remuneration governance. The Board has undertaken to make continuous improvements to remuneration governance, policies and practices applied to KMP of the Company, as well as all other employees, to ensure appropriateness to the circumstance of the Company as it evolves over time. The following outlines important context for the remuneration decisions that were made during FY18. Additional progressive changes that continue to be the subject of review and consideration will be reported on once they are settled, as part of the FY19 Annual Report of the Company. – Towards the end of FY17 and throughout FY18, the Board continued to seek and receive feedback from independent expert consultants regarding KMP remuneration governance, disclosure and practices. The Board also took note of feedback from proxy advisors and has sought to be responsive to that feedback. The main themes are dealt with in this, and the following sections. – TRP for FY18 for Directors and KMP increased by approximately 30% compared to the previous year, however, this is primarily due to the reduction in incentive payments made in FY17 following lower than targeted financial performance. Therefore, the increase in TRP over two years from FY16 was only 9%. The increase reflects incentives rewarded in line with the success by KMP in exceeding FY18 market guidance and internal budget, with a YOY operating profit increase of 54% and changes in remuneration structures to incentivise the KMP during FY18. Only modest overall increases were applied to base remuneration package agreed by the Board for FY18. – The Company moved to the use of Performance Rights as the best practice instrument for the Long-Term Incentive Plan (LTIP). – Financial performance during the year exceeded the Company’s guidance by over 10%. Total Shareholder Returns were 128% in FY18. The Company’s strong performance in FY18 was to a large extent due to KMP performance relative to non-financial goals in the previous period and the Company sought to reward that performance and drive momentum into FY18. Subsequently the Board made some adjustments to the Short-Term Incentive Plan (STIP). – During the reporting period the following changes took place to the KMP: – The Chief Financial Officer Mark McLellan was promoted into the position of joint Chief Financial Officer (CFO) and Chief Operating Officer (COO); – The Chief Marketing Officer Athena Thompson, following an internal restructure decided to leave and her last day with rhipe was 17 August 2018. 3.2 Key Remuneration Matters Identified and Adjustments Made or Planned in Response, Since the Previous Report Throughout the reporting period, the Board has consulted with independent external remuneration consultants to further review the Company’s Remuneration Governance Framework, understand stakeholder feedback including that of Proxy Advisors and consider proposals for further engagements to align the Company with best practices, some of which is reflected in this report. The Board will continue to seek advice and progress with modifications in regard to key issues identified during FY18 and will announce any changes when appropriate. During FY18 a number of KMP remuneration related matters were identified for consideration and action during the reporting period and into FY19. These include: – The Board agreed to develop and began work on an improved Remuneration Governance Framework and suite of related policies, procedures and plans; – The Board introduced a Performance Rights Plan (as opposed to the earlier options plan) as the first stage in further developing the LTIP and the Board has committed to continue making improvements to the LTIP; – Mark McLellan, CFO, was promoted to CFO/COO and has taken on a number of additional responsibilities. His remuneration package was increased to reflect these additional responsibilities and the new package is in line with the Company’s policy in relation to benchmark testing. Any other changes to remuneration packages in FY18 were modest and are detailed in the relevant sections that follow. It should be noted that the increase in STI was driven by the company exceeding market guidance; – The Company adopted a quarterly award rather than an annual award for the STI Plan. This was in order to drive strong sales momentum throughout the year which proved to be successful; – The Board replaced the previous EBITDA target with an Operating Profit target as the primary performance measure for KMP. Operating profit represents EBITDA excluding foreign exchange gains or losses, restructuring or due diligence costs, share-based payments, and any one-off gains or losses not considered part of the normal operations of the business. These adjustments are intended to remove one-off items, non-cash items or costs that are out of the control of management. The Board’s view was that a challenging but attainable Operating Profit goal would provide KMP with a concrete, controllable target that would drive high performance and which would, in turn, drive shareholder value; and – The Company has allocated resources to a broadened benchmarking exercise of KMP remuneration in the relevant competitor and other comparator groups and industry sectors across a range of market caps as part of its continued commitment to remuneration governance. 17 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) 4. Overview of rhipe’s Remuneration Governance Framework & Strategy The performance of the Company depends upon the quality of its Directors and Executives. The Group recognises the need to attract, motivate and retain highly skilled directors and executives. The Board, through its Remuneration and Nomination Committee, accepts responsibility for determining and reviewing remuneration arrangements for the Directors and Executives. The Remuneration and Nomination Committee assesses the appropriateness of the nature and amount of remuneration of Directors and Executives on a periodic basis by reference to relevant employment market conditions, giving due consideration to the overall profitability and financial resources of the Company, with the objective of ensuring maximum stakeholder benefit from the retention of a high-quality Board and executive team. Sections 13.7 and 13.8 of the Company’s constitution set out broadly how remuneration is to be dealt with in line with the Corporations Act and ASX Listing Rules. As per Section 3.2 of this report, the Board has begun a detailed review of its Remuneration Governance Framework with a view to improving the documentation suite and streamlining remuneration decision making processes. The following summarises the Board’s current approach to governing and setting remuneration. 4.1 Remuneration and Nomination Committee Charter The Remuneration and Nomination Committee (the “Committee”) is appointed and authorised by the Board to assist the Board in fulfilling its statutory and fiduciary duties. The Committee is responsible for the following: – Reviewing the executive remuneration policy and framework (“Remuneration Policy”) and recommending it to the Board for approval. This includes areas such as: – Assessing the Remuneration Policy for compliance with legal and regulatory requirements; – Reviewing changes to the Remuneration Policy, including remuneration structure, retention and termination policies; – Reviewing changes to the recruitment process, procedures and remuneration approach for the Senior Executives; – Recommending performance-based (at-risk) components of remuneration and targets for the Company’s financial performance as they relate to incentive plans, including equity-based payments; – Reviewing and making recommendations regarding the remuneration framework for NEDs and making remuneration recommendations for NED fees; – Proposing the Remuneration Report to the Board, liaising with external auditors and making recommendations that are in accordance with the Corporations Act and other regulations/laws; – Identifying and recommending candidates to the Board after considering the necessary and desirable competencies of Board members, reviewing induction processes and reviewing succession plans; and – Developing and implementing processes to review Board performance. The Committee shall have free and unfettered access to all personnel and other parties (internal and external), including the external auditors, legal advice or independent remuneration advisers. Committee members may seek independent professional advice for Company related matters. The Committee must approve the engagement of remuneration consultants when obtaining independent advice on the appropriateness of remuneration packages and other employment conditions for Senior Executives. rhipe recognises the importance of ensuring that any recommendations given to the Committee provided by remuneration consultants are provided independently of those to whom the recommendations relate. 4.2 Senior Executive Remuneration Policy The Senior Executive remuneration policy applies to Senior Executives who are defined as follows: – Managing Director and CEO – accountable to the Board for the Company’s performance and long-term planning; – Those roles classified as executive KMP under the Corporations Act; – Direct Reports to the Managing Director – roles that are business unit, functional, or expertise heads; and – Any other members of the executive/senior leadership team as may be determined from time to time. In relation to remuneration for Senior Executives: – Remuneration should be composed of: – Base Package (inclusive of superannuation, allowances, benefits and any applicable Fringe Benefits Tax (“FBT”)); – STIs which provides a reward for performance against annual objectives which may be subject to deferral should the Board determine that this is appropriate from time to time; – LTIs which provides an equity-based reward for performance against indicators of shareholder benefit or value creation, over an extended period, and intended to create alignment with shareholders; and – In total the sum of the elements will constitute a TRP. – Both internal relativities and external market factors should be considered; – TRPs should be structured with reference to relevant market practices; – The Base Package policy mid-points should be set with reference to P50 (the median or the middle) of the relevant market practice; – TRPs at Target (being the Base Package plus incentive awards intended to be paid for targeted levels of performance) should be set with reference to P75 (the upper quartile, the point at which 75% of the sample lies below of the relevant market practice so as to create a strong incentive to achieve targeted objectives in both the short and long-term; – Remuneration of individuals will be managed within a range of a policy benchmark so as to allow for the recognition of individual differences such as the calibre of the incumbent and the competency with which they fulfil a role; 18 Remuneration (continued) – Exceptions will be managed separately such as when particular talent needs to be retained or there are individuals with unique expertise that need to be acquired (“Red circle” exceptions); and – Termination benefits will generally be limited to the default amount allowed for under the Corporations Act (without shareholder approval). 4.3 NED Remuneration Policy Fees and payments to NEDs only reflect the demands which are made of the Directors in fulfilling their responsibilities. The NED remuneration policy applies NEDs of the Company in their capacity as Directors and as members of committees, and may be summarised as follows: – Remuneration may be composed of: – Board fees; – Committee fees; – Superannuation; – Other benefits; and 4.4 Approach to Determining Comparators for Remuneration Benchmarking When the Company seeks external market data in relation to NED or Senior Executive benchmarking, or the Board seeks independent expert advice, the following principles are generally intended to apply: – A benchmarking comparator group will take into account the Company’s estimated sustainable market capitalisation at the time of the exercise, which may include discounting the market capitalisation if and when the Company’s P/E ratio is unusually high relative to peers; – It will include direct competitors of comparable scale to the extent possible, noting that there are a very limited number of these in the Australian market; – The group should be large enough to produce valid statistics, and small enough to be reasonably specific; – To the extent that direct competitors are not sufficient to produce a statistically robust sample, companies of – Comparable scale from the same industry or sector will – Equity (if deemed appropriate as may occur from time be included; to time). – Remuneration will be managed within the Aggregate Fee Limit (AFL) or fee pool approved by shareholders of the Company; – Remuneration should be reviewed annually; – Nominal termination benefits are included in NED Services Agreements (currently under review); – A policy level of Board Fees (being the fees paid for membership of the Board, inclusive of superannuation and exclusive of committee fees) will be set with reference to the P50 (median or middle) of the market of comparable ASX listed companies; – Currently Directors are not paid additional fees for serving on committees; – Per diem fees may be paid on occasions where approved special work is undertaken outside of the expected commitments; – Any NED remuneration package that is subject to fee sacrifice into equity arrangements should fall at or close to P75 of the market of the comparable ASX listed company market. Currently the Company does not provide an equity facility as part of NED remuneration and shareholder approval would be sought for any plan that may facilitate this element of remuneration being paid. – The group should be balanced with an equal number of comparators larger, and smaller, generally limited to those within a range of half to double the Company’s market capitalisation value used in designing the group; – International data benchmarks will be considered when relevant to incumbents who are internationally sourced or located; and – These principles are specific to remuneration benchmarking exercises and therefore may produce different outcomes than those applied to the design of other types of comparator groups. 4.5 Short-Term Incentive Policy The STIP may be summarised as follows: – The purpose of the STIP as part of the TRP offered to Senior Executives is to: – Motivate Senior Executives to achieve the short-term annual objectives linked to Company success and shareholder value creation; – Create a strong link between performance and reward; – Share company success with the Senior Executives that contribute to it; and – Create a component of the employment cost that is responsive to short to medium term changes in the circumstances of the Company; – NEDs are excluded from participation; – The measurement period for performance should be the financial year of the Company which is considered short-term; – Short-term remuneration should be outcome focused rather than input focused, and while an individual performance component may be present, rewards should generally be linked to indicators of shareholder value creation; 19 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) – The Board will retain discretion to adjust actual awards so as to manage circumstances in which the calculated award may be considered inappropriate; – “Target”, being a challenging but achievable outcome, and which is the expected outcome for a Senior Executive/team that is of high calibre and high performing; – The Board will give consideration as to whether deferral – “Stretch”, (the maximum) levels of objectives, which is should apply to a portion of STIP awards, from time to time, to be specified in an invitation to participate in the STIP if it does; and – Any claw back policy as may be developed by the Company from time to time, will apply to the STIP unless otherwise determined by the Board. 4.6 Long-Term Incentive Policy The LTIP may be summarised as follows: – The purpose of the LTIP as part of the TRP offered to Senior Executives (as defined in the policy) is to: – Motivate Senior Executives to achieve long-term objectives linked to shareholder value creation over the long-term; – Create a strong link between performance and reward over the long-term; and – Share the experience of shareholders with the Senior Executives that contribute to it including creating an ownership position; – NEDs are excluded from participation; – The measurement period for performance should be aligned with the financial year of the Company and typically vest over a three-year period; – The Board will retain discretion to adjust actual vesting so as to manage circumstances in which the calculated vesting may be considered inappropriate; and – A claw back policy was applied to the LTIP Performance Rights Plan in FY18 and any further development of this policy as may be required by the Company from time to time will apply to the LTIP unless otherwise determined by the Board. 4.7 Setting Incentive Plans Performance-related incentives are linked to the achievement of financial and non-financial objectives which are relevant to meeting the Company’s business objectives according to its Balanced Scorecard. The major part of the at-risk remuneration component is determined by the actual performance against operating profit targets. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. In relation to the design, implementation and operation of incentives there should be a range of performance and reward outcomes identified and defined. These should be set with regard to the elasticity of the measure, the impact of the measure on shareholder value creation and the ability of Senior Executives to influence the measure. In order to create clarity and consistency, the following concepts and principles are generally applied to the design of incentive scales: – “Threshold”, being a minimum acceptable outcome for a “near miss” of the target, associated with a fraction of the target reward appropriate to the threshold outcome; intended to be a “blue sky” or exceptional outperformance, not expected to be achieved, the purpose of which is to create a continuous incentive to outperform when outperformance of the Target has already been achieved. This is particularly important for shareholders to understand when comparing with other Companies whose maximum levels of incentives may be associated with a planned or target outcome. Awards for outcomes between these levels should generally be scaled up or down on a pro-rata basis dependent on actual performances. This is intended to provide a motivating opportunity to attain a reward and to ensure that reward outcomes align with performance under a range of circumstances. It is recognised that there is a link between the budget setting culture of the Company and the setting of incentive hurdles. In this regard, the Board is confident that budgets developed and agreed to, are sufficiently challenging but also achievable. 4.8 Claw back Policy and Procedure A claw back policy was developed and applied to the Performance Rights Plan in FY18. The Board will continue to review how this may be applied more broadly as part of its FY19 review. However, claw back policies are generally intended to relate to the recovery of overpayments when there has been a material misstatement in the financial reports of the Company, which is a demonstrably low risk based on the frequency of occurrence in the Australian market. The Company has sufficient controls in place as to be confident that this risk is not significant. 4.9 Securities Trading Policy The Company’s Policy on Trading in rhipe Securities by Directors and KMP: – Sets out the guidelines for dealing in any type of rhipe securities by the Company’s KMP; and – Summarises the law relating to insider trading which applies to everyone, including to all rhipe Group employees as well as to KMP. Under the current policy, KMP may only trade during a “trading window” (with some limited exceptions as set out in the policy). The following periods in a year are “trading windows”, unless otherwise determined by the Board: – Four weeks commencing one trading day after the day of release of the Appendix 4D (half-year report), typically in mid-February; – Four weeks commencing one trading day after the day of release of the Appendix 4E (preliminary final report), typically in mid-August; and – Four weeks commencing one trading day after the day of rhipe’s Annual General Meeting, typically in November. In addition to the above all of the CEO’s vested options are restricted from being traded without the approval of the Board. 20 Remuneration (continued) 4.10 Equity Holding Policy The Company does not currently have an equity holding policy applicable to KMP as historically the majority of KMP had material holdings, however this matter is currently under consideration as part of the Remuneration Governance Framework review and given the changing circumstances and makeup of the Company/Board and market practices. 4.11 Executive Remuneration Consultant Engagement Policy & Procedure The Company has an Executive Remuneration Consultant (“ERC”) engagement policy which is intended to manage the interactions between the Company and ERCs, so as to ensure their independence and so that the Remuneration Committee will have clarity regarding the extent of any interactions between management and the ERC. This policy enables the Board to state with confidence whether or not the advice received has been independent and why that view is held. The Policy states that ERCs are to be approved and engaged by the Board before any advice is received, and that such advice may only be provided to a NED. Interactions between management and the ERC must be approved and will be overseen by the Remuneration Committee when appropriate. 4.12 Variable Executive Remuneration – STIP STIP Aspect Purpose Plan, Offers and Comments The STIP’s purpose is to provide an element of remuneration that is tied to financial and operational performance. This element of remuneration constitutes part of a market competitive total remuneration package and aims to provide an incentive for Senior Executives to deliver and outperform annual business plans that will lead to sustainable superior returns for shareholders. The STIP aims to reflect current trading conditions experienced by the Company. Target-based STI’s are also intended to modulate the cost to the Company of employing Senior Executives, such that risk is shared with the Executives themselves and the cost to the Company is reduced in periods of poor performance. Measurement Period The four quarters of the Company’s financial year. As per Section 3 the Company adopted a quarterly award in order to drive sustained momentum throughout the financial year. Award Opportunities FY18 Invitations Performance Indicators (KPIs), Weighting and Performance Goals The MD/CEO was offered a target-based STIP equivalent to 50% of the Base Package for Target performance, with a maximum/stretch opportunity of up to 120% of the Target Award. Other Senior Executives who are KMP were offered a target-based STIP equivalent to 30% to 80% of their Base Package for Target performance, with a maximum/ stretch opportunity of up to 120% of the Target Award. FY19 Invitations No decisions on changes to award opportunities have been made yet. FY18 Invitations FY18 Invitations to participate in the STIP for all participants, had a 100% weighting on an Operating Profit KPI, subject to a sliding scale of Threshold, Target and Stretch goal achievement. Financial targets are set with reference to the annual budget for the financial year. As per Section 3, for FY18 the Board replaced the previous EBITDA target with an Operating Profit target as the primary performance measure for KMP. FY19 Invitations The Board cannot disclose the financial targets for FY19 as this information is commercially sensitive, however this will be disclosed in the FY19 Remuneration Report. The target is set with reference to the annual Group Budget for the financial year. Non-financial targets will be incorporated with KPIs and weightings allocated as appropriate. 21 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) STIP Aspect Plan, Offers and Comments Award Determination and Payment Calculations are performed following the end of the quarterly and annual Measurement Periods and the audit of Company accounts. The Board has discretion to determine the extent and nature of any deferral, as part of invitations. At present, no amounts of STI awards are subject to deferral, and therefore STI awards are paid in cash through payroll soon after the end of each quarter, the final payment being after the end of the financial year. Cessation of Employment During a Measurement Period In the event of cessation of employment due to dismissal for cause, or any other reason considered a “bad leaver”, all entitlements in relation to the Measurement Period are forfeited, as are any unvested deferred amounts. Change of Control In the event of cessation of employment classified as “good leaver”, the Board has discretion to determine the appropriate treatment of STIP entitlements for the period, within the termination benefit limit. In the event of the Board declaring that a Change of Control is likely to occur, including a takeover, the Board has discretion to determine appropriate treatment of STIP entitlements, given the circumstances at the time. This will generally include consideration of performance up to the date of the event. Plan Gate & Board Discretion No plan gate applies to the STIP. Board discretion to modify award outcomes applies to the STIP in circumstances where it would be considered as inappropriate to shareholders. Claw back & Malus The Company does not currently operate a claw back policy in relation to the STIP. This has been discussed in section 4.8. 22 Remuneration (continued) 4.13 Variable Executive Remuneration – (LTIP) – Performance Rights Plan LTIP Aspect Purpose Form of Equity LTI Value Plan Rules, Offers and Comments The LTIP’s purpose is to give effect to an element of Senior Executive remuneration. This element of remuneration constitutes part of a market competitive total remuneration package and aims to provide an incentive for Senior Executives to deliver Company performance that will lead to sustainable superior returns for shareholders. The LTIP is also designed to act as a retention mechanism so as to maintain a stable team of performance focused Senior Executives and to create alignment with the interests and experiences of shareholders through developing the “ownership position” of Executive KMP. Currently the Company operates a Performance Rights plan for the purposes of the LTIP. Performance Rights were selected because they have an inherent incentive to improve the Company’s performance over the longer term, consistent with the intention of the LTIP. The Board retains discretion to determine the value of LTI to be offered each year, subject to shareholder approval in relation to Directors when the Performance Rights or Options are to be settled in the form of a new issue of Company shares. The Board may also seek shareholder approval for grants to Directors in other circumstances, at its discretion. FY18 LTI Invitations LTI allocations were issued to a number of key executives in FY18 in the form of Performance Rights. The Board is of the opinion that the move to allocation of Performance Rights is more appropriate than options for driving performance, is in line with industry standards and is considered market practice among comparable companies due to its simplicity and link to long-term strategic accomplishments. The vesting targets were set with challenging operating profit hurdles in addition to time and service. The amounts and conditions were approved by shareholders at the 2017 AGM. Comments rhipe chose to use Operating Profit over an 18-month period as the key measure for the Performance Rights plan because: – Operating Profit is a clear and direct measure of the performance of business operations. It excludes other non-operating costs and one-off costs that cannot be directly controlled by KMP (refer section 3.2). – Operating Profit continues to be a key lead indicator for the business and one that the Company and shareholders are focussed on when discussing the performance of the business. This has been well received by investors and is now a key metric that is being used by institutional investors to measure the performance of the business. FY19 Invitations In FY19, the Board of rhipe plans to continue improving its LTI program with a horizon and targets to be set over a 3 year rather than an 18-month period. 23 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) 5. Performance Outcomes for FY18 Including STI and LTI Assessment 5.1 Company Performance The following outlines the performance of the Company over the FY18 period and the previous three financial years in accordance with the requirements of the Corporations Act: ($’000’s) unless otherwise stated Revenue Operating profit Reported EBITDA Profit/(Loss) before income tax Profit/(Loss) 30 June Share Price ($) Change in Share Price ($) Basic Earnings/(loss) Per Share (cents) Dividends declared during the period Total Shareholder Return (%) 2018 2017 2016 2015 2014 196,608 156,970 137,120 108,769 74,548 16 1,466 1,168 n/d n/d (1,353) (1,468) (1,535) 1,370 5,024 4,004 3,344 2,507 0.52 7,761 6,384 5,190 3,066 1.18 0.66 2.26 0.5 (129) (2,321) 0.90 1.47 0.67 (0.38) (0.57) 1.83 – (0.1) (1.98) – – 884 0.80 n/a 0.51 – n/a 128% (42%) (39%) 83% Revenue for FY15 is as reported and includes rebates as part of revenue. FY16 revenue number has been restated and is comparable to FY17 and FY18 with rebates being offset against cost of goods sold. The overall executive award takes into account performance over the financial year especially as it relates to improving performance over prior years. As the Company moved further from the investment phase to increasing delivery of bottom line reported earnings, EBITDA grew from $4.0m in FY17 to $6.4m in FY18, growth of 60% YOY. Operating profit, which is the key performance measure for KMP and the Company, grew from $5.0m in FY17 to $7.8m in FY18, growth of 54% which was driven by strong growth in revenue and gross profit in the Licensing business and a return to profitability in the Cloud Solutions business driven by the investment in the support services within Cloud Solutions. 5.2 Links between Performance and Reward Including STI and LTI Outcomes The remuneration of executive KMP is intended to be composed of three parts as outlined earlier, being: – Base Package, which is not intended to vary with performance, but which tends to increase as the scale of the business increases (i.e. following success); – STI which is intended to vary with indicators of annual Company and individual performance, and may include a deferred component which will vary with exposure to the market; and – LTI which is also intended to deliver a variable reward based on long-term measures of Company performance (Operating Profit in the case of LTI Performance Rights). FY17 The STI related to performance during FY17 was awarded in September 2017. The Board awarded short-term incentives in FY17 based on the achievement of only the underlying profit threshold target. On average 36% of the target award opportunity was paid. This level of award was considered appropriate given performance against the financial Target. The Board also took into account its assessment of overall performance including non-financial achievements, such as expanding geographies, exploring new lines of business and further developing its internal processes and performance management methodologies. These non-financial achievements were fundamental to the future financial success of the business and the Board sought to reward and retain key executives through revisions to the LTIP and STIP targets and awards in FY18. FY18 The STI achieved in relation to the FY18 period was paid according to the revised quarterly approach after each relevant quarter throughout the year and the final quarter and any accelerators due are paid after the end of the period (i.e. during FY19). Payment of STI was calculated based on quarterly profit targets totaling an annual target of $7.257m Operating Profit where 100% bonuses were payable, with a threshold applied and a stretch with accelerators also reinstated for FY18. The Operating Profit KPIs outlined were selected because it was the most significant outcome expected to contribute to the success of the Company during FY18 while enabling KMP to focus further on the key factors that can drive long-term value and performance. Following the end of each measurement period, each quarter then the full financial year, the Company accounts were audited and reports on the Company’s activities during each quarter and the year were prepared for the Board. The Board then assessed the extent to which target levels of performance had been achieved and used the pre-determined scales to calculate the total award payable. This method of performance assessment was chosen because it is the most objective approach to short-term incentive governance and drives the desired behaviours to optimise strong quarterly results and maintain momentum throughout the year. Given the Operating Profit target was exceeded, a modest accelerator in accordance with the pre-determined scales rewarded the KMP’s drive towards stretch profit targets. 24 Remuneration (continued) It is the Board’s view that the change to the quarterly award for the STI continued and sustained the momentum that had begun at the end of FY17 and drove a strong close to results at the end of each quarter throughout FY18. The change to the Operating Profit target for both the STI and LTI has provided executives with challenging but attainable and controllable targets that have resulted in excellent results for the business and for shareholders in FY18. The Board is also of the view that continued development of the LTI will further align executive performance with shareholder interests. 5.3 Links between Company Strategy and Remuneration The Company intends to attract the superior talent required to successfully implement the Company’s strategies at a reasonable and appropriately variable cost by: – Positioning Base Packages (the fixed element) around relevant market data benchmarks when they are undertaken; – Supplementing the Base Package with at-risk remuneration, being incentives that motivate Executives to focus on: – Short to mid-term objectives linked to the strategy via KPIs and annual performance assessments. The percentage of total remuneration that constitutes an executive’s STI varies depending on the size of the role and its impact on the attainment of the Company’s short-term targets; and – Long-term value creation for shareholders by linking a material component of remuneration to those factors that shareholders have expressed should be the long-term focus of executives and the Board. The Board maintains the view that linking incentives to Operating Profit, which the KMP can most strongly influence, produces an appropriate relationship to the intended outcomes of the Company’s current strategy. 6. Changes in Equity held by KMP All options and rights in the following table have been issued by rhipe Limited unless stated otherwise. The table outlines the changes in the amount of equity held by executives over the financial year: Balance At Beginning of the Year Granted As Remuneration During The Year Issued On Exercise of Options During The Year Other Changes During the Year Balance At End of The Year Notes Ordinary Shares Mr Mike Hill Mr Dominic O’Hanlon Ms Dawn Edmonds Mr Laurence Sellers Mr Mark Pierce Mr Michael Tierney Mr Warren Nolan Mr Mark McLellan Mr Chris Sharp Mr Patara Yongvanich Mr Cameron McFie Ms Athena Thompson 1,178,320 3,957,840 4,027,294 166,666 270,000 2,707,191 859,475 175,396 200,000 718,064 - - - - - - - - - - - - - - - - - - - 1,178,320 3,957,840 275,000 (300,000) 4,002,294 - - - 200,000 - - - - - - - - - (60,000) - (100,000) - - 166,666 270,000 2,707,191 1,059,475 115,396 200,000 618,064 - - 475,000 (460,000) 14,275,246 Total 14,260,246 1. Dominic O’Hanlon exercised 300,000 options and converted 500,000 performance rights to ordinary shares on 10 August 2018. 2. The KMP disposed of ordinary shares during the period 3. Cameron McFie ceased employment with the Company on 3 April 2018 4. Athena Thompson ceased employment with the Company on 17 August 2018. 1 2 2 2 3 4 25 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) All options and rights in the following table were issued by rhipe Limited unless stated otherwise. The table outlines the changes in the number of options and rights held by NEDs and KMP over the financial year: Options and Rights Granted As Com- pensation During The Year Balance At Beginning of the Year Other Changes During the Year Balance At End Of The Year Exercised No. Balance Vested At 30 June 2018 Exercisable Balance Not Vested and Not Exercisable At 30 June 2018 Notes Mr Mike Hill Options Performance Rights – – – – Mr Dominic O’Hanlon 900,000 Options Performance Rights 1,000,000 – 700,000 Ms Dawn Edmonds Options Performance Rights Mr Laurence Sellers Options Performance Rights 375,000 – 233,334 – Mr Mark Pierce Options Performance Rights 250,000 – Mr Michael Tierney Options Performance Rights – – – – – – – – – – – – – – (275,000) – – – – – – – Mr Warren Nolan Options Performance Rights 500,000 – – 300,000 (200,000) – Mr Mark McLellan Options Performance Rights Mr Chris Sharp Options 270,000 – 435,000 – 700,000 – Performance Rights – 300,000 Mr Patara Yongvanich Options Performance Rights 100,000 – Mr Cameron McFie Options Performance Rights 50,000 40,000 Ms Athena Thompson Options Performance Rights 130,000 – – 100,000 – 100,000 – 100,000 Total Options – Performance Rights 1,040,000 2,300,000 3,243,334 – – – – – – – – 900,000 – – 1,700,000 300,000 600,000 500,000 1,200,000 – – – – – – – – – – – – – – – – 100,000 – 233,334 – 250,000 – – – – – 100,000 – 233,334 – 250,000 – – – – – – – – – 300,000 300,000 270,000 700,000 200,000 – 135,000 – 100,000 300,000 135,000 700,000 435,000 335,000 100,000 300,000 100,000 100,000 50,000 40,000 – – – – 40,000 300,000 100,000 100,000 50,000 – – – – – – – – – – (100,000) 1,2 3 4 1 1 1 1 1,5 6 1,7 – – (30,000) – 100,000 100,000 – – 100,000 100,000 (475,000) (30,000) 2,738,334 1,753,334 – (100,000) 3,240,000 985,000 540,000 2,700,000 1 KMP were granted performance rights as part of their remuneration and incentive packages for FY18 under the rhipe Performance Rights Plan which was approved by shareholders in FY18. 2. Dominic O’Hanlon exercised 300,000 options and converted 500,000 performance rights to ordinary shares on 10 August 2018. 3 Dawn Edmonds exercised options at $0.20 cents per option during the period which were granted as part of compensation by rhipe Limited. 4 Warren Nolan exercised options at $0.75 cents per option during the period which were granted as part of compensation by rhipe Limited. 5 Cameron McFie’s performance rights that were granted as compensation during the year were forfeited upon cessation of employment. 6 Options that had been granted to Athena Thompson in the 2015 financial year expired unvested in FY18. 7 Athena Thompson’s performance rights that were granted as compensation during the year were forfeited upon cessation of employment after balance date. 475,000 options that were granted to KMP as part of their compensation were exercised. 26 Remuneration (continued) No performance rights that were granted to KMP Executives as remuneration during the year vested during the year. 30,000 options lapsed during the financial year that had been granted to KMP as part of their remuneration. 2018 Equity Grants KMP Dominic O’Hanlon Instrument Grant Date Number Issued Exercise Price $ Value Per Security $ Value Expensed in FY18 Percentage Remaining as Unvested Grant Value $ Expiry Date Notes Performance Rights 17-Nov-17 700,000 Warren Nolan Performance Rights 17-Nov-17 300,000 Mark McLellan Performance Rights 17-Nov-17 700,000 Chris Sharp Performance Rights 17-Nov-17 300,000 Patara Yongvanich Cameron McFie Athena Thompson Performance Rights 17-Nov-17 100,000 Performance Rights 17-Nov-17 100,000 Performance Rights 17-Nov-17 100,000 – – – – – – – 0.80 560,000 246,455 100 1-Jan-19 0.80 240,000 105,623 100 1-Jan-19 0.80 560,000 246,455 100 1-Jan-19 0.80 240,000 105,623 100 1-Jan-19 0.80 80,000 35,208 100 1-Jan-19 1 1 1 1 1 0.80 80,000 0.80 80,000 – – 100 1-Jan-19 1,2 100 1-Jan-19 1,2 1. Equity settled share-based payments expense represents amounts accrued for performance rights that have not vested and do not represent payments made to KMP 2. Cameron McFie and Athena Thompson forfeited their Performance Rights upon cessation of employment and therefore the share based payments expense was not recognised by the Company. 7. NED Fee Policy Rates for FY18 and FY19, and Fee Limit NED fees are managed within the current annual fee limit (AFL) of $500,000 as specified in the Company’s constitution. The following table outlines the NED fee policy rates that were applicable as at the end of FY18: Function Main Board Role Chair Member Fee Including Super $150,000 $60,000 During the reporting period the work of the Board was shared equally amongst its Non-Executive members (other than the Chairman, who has a higher workload), and therefore it was deemed not necessary to set committee fees for committee work, which are usually used to recognise differences in contributions. There are no changes intended for the fee pool or board and committee rates for FY19. From time to time, a daily fee may be paid on such occasions where approved special work is undertaken outside of the expected commitments of NEDs. No additional fees were paid for additional work undertaken by a NED in FY18. 27 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) n i e g n a h C - i m r e T n o i t a n - e R l a t o T n o i t a r e n u m s e t o N ) $ ( e v a e L ) $ ( ) $ ( ) P R T ( P R T ) $ ( P R T ) $ ( d e u r c c A * * * s t fi e n e B e g a k c a P f o % t n u o m A f o % t n u o m A f o % P R T t n u o m A s t fi e n e B - u b i r t n o C y r a l a S r e h t O n o i t a u n ) $ ( ) $ ( ) $ ( s n o i t ) $ ( r a e Y ) s ( e l o R e m a N * * I T L * I T S e g a k c a P e s a B - n a r e p u S : s d r a d n a t s g n i t n u o c c a l e b a c i l p p a d n a s t n e m e r i u q e r e r u s o l c s i d y r o t u t a t s o t i g n d r o c c a d e r a p e r p 8 1 Y F g n i r u d y n a p m o C e h t f o s e v i t u c e x E i r o n e S y b d e v i e c e r n o i t a r e n u m e r e h t s e n i l t u o l e b a t i g n w o l l o f s e r u s o l c s i D y r o t u t a t S – 8 1 Y F r o f s d r o c e R n o i t a r e n u m e R n o i t a r e n u m e R e v i t u c e x E i r o n e S . 8 1 . 8 e h T 28 – 8 2 8 , 8 1 0 6 6 , 6 – – – 1 ) 2 0 9 , 1 ( 6 7 4 , 0 7 2 3 – – – – – – – – – – 8 2 8 , 8 1 – – – – – – – – – – – 0 1 7 , 7 5 0 , 1 % 6 2 6 2 5 , 7 7 2 % 7 2 1 3 7 , 2 8 2 % 7 4 3 5 4 , 7 9 4 7 5 9 , 1 4 7 % 3 2 1 1 5 , 9 6 1 % 2 1 1 3 3 , 9 8 % 5 6 5 1 1 , 3 8 4 0 0 0 0 6 , 1 6 5 , 5 0 2 – % 7 6 8 3 , 3 1 0 0 0 0 3 , 0 0 0 0 5 1 , 0 0 0 , 5 7 1 0 0 0 0 6 , 5 6 5 , 9 8 0 0 0 0 6 , 2 6 6 , 0 7 2 0 5 , 5 4 0 0 0 0 6 , 0 0 0 , 5 2 – – – – % 3 3 5 0 4 , 9 2 – % 5 1 2 0 5 , 0 1 % 3 2 2 0 5 , 0 1 – – – – – – – – – – – – – – % 3 9 % 0 0 1 0 0 0 0 6 , 5 7 1 , 2 9 1 % 0 0 1 0 0 0 0 3 , % 0 0 1 0 0 0 0 5 1 , % 0 0 1 0 0 0 , 5 7 1 % 0 0 1 0 0 0 0 6 , % 7 6 0 6 1 , 0 6 % 0 0 1 0 0 0 0 6 , % 5 8 0 6 1 , 0 6 % 7 7 0 0 0 , 5 3 % 0 0 1 % 0 0 1 0 0 0 0 6 , 0 0 0 , 5 2 0 1 7 , 7 4 4 , 1 % 9 1 6 2 5 , 7 7 2 % 0 2 1 3 7 , 2 8 2 % 1 6 3 5 4 , 7 8 8 – – – – – – – – – – – – – – 2 5 6 , 2 9 5 8 , 4 1 – 0 0 0 0 6 , 4 6 6 , 4 7 1 8 1 0 2 7 1 0 2 8 4 0 0 2 , 5 0 4 , 7 7 4 8 1 0 2 r o t c e r i D i g n g a n a M 5 1 6 , 9 1 0 0 5 , 3 6 4 7 1 0 2 r o t c e r i D i g n g a n a M O E C & S R O T C E R D I i c i n m o D r M l n o n a H O ’ – 0 0 0 0 3 , 4 1 0 , 3 1 6 8 9 , 6 3 1 7 1 0 2 8 1 0 2 3 8 1 , 5 1 7 1 8 , 9 5 1 7 1 0 2 – – – – 0 5 0 , 3 – 0 5 0 , 3 0 1 1 , 7 5 0 0 0 0 6 , 0 1 1 , 7 5 0 0 0 0 6 , 0 0 0 , 5 3 0 0 0 0 6 , 0 0 0 , 5 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 r o t c e r i D e v i t u c e x E g n i t a r e p O i f e h C & r e c ffi O D E N O E C & D E N n w a D s M s d n o m d E r o t c e r i D e v i t u c e x E & n a m r i a h C n a m r i a h C e v i t u c e x E - n o N l l i H e k M i r M D E N D E N D E N D E N D E N D E N D E N s r e l l e S e c n e r u a L t t e r e v E l e a h c i M y e n r e T i l e a h c i M e c r e P i k r a M 8 5 7 , 4 6 7 4 , 0 7 7 4 2 , 3 8 3 , 1 % 7 1 6 0 3 , 3 3 2 % 6 1 3 3 , 9 8 % 7 7 0 1 6 , 0 6 0 , 1 2 5 6 , 2 7 5 7 , 5 5 1 0 2 , 2 0 0 , 1 7 1 0 2 s r o t c e r i D 7 1 0 2 l a t o T - b u S 7 1 0 2 y r a u n a J 1 e v i t c e f f e D E N s a w d n a l e o r r o t c e r i D c e x E & O O C t f e l s d n o m d E s M 1 7 1 0 2 y r a u n a J 7 2 e v i t c e f f e n o i t i s o p D E N d e t n o p p a i s a w y e n r e T i r M 3 7 1 0 2 y r a u n a J 7 2 d e n g i s e r t t e r e v E r M 2 2 6 0 , 3 3 1 9 3 , 4 5 8 8 1 0 2 s r o t c e r i D 8 1 0 2 l a t o T - b u S Remuneration (continued) 5 8 9 6 , 5 5 1 4 , 4 – 7 2 0 2 0 3 3 , 8 ) 1 8 8 , 5 ( 1 5 3 , 0 1 – 4 6 8 , 7 ) 9 2 8 ( 9 6 3 , 5 – – – – – – – – – – - c A n i d e u r c e g n a h C - i m r e T n o i t a n - e R l a t o T n o i t a r e n u m * * I T L * I T S e g a k c a P e s a B - n a r e p u S r e h t O n o i t a u n * * * s t fi e n e B e g a k c a P f o % t n u o m A f o % t n u o m A f o % t n u o m A s t fi e n e B - u b i r t n o C s e t o N ) $ ( e v a e L ) $ ( ) $ ( ) P R T ( P R T ) $ ( P R T ) $ ( P R T ) $ ( ) $ ( ) $ ( s n o i t ) $ ( y r a l a S r a e Y ) s ( e l o R e m a N 9 5 0 , 4 4 6 % 6 1 3 2 6 , 5 0 1 % 2 2 3 2 7 , 0 4 1 % 2 6 3 1 7 , 7 9 3 4 7 7 , 3 4 4 % 6 0 4 8 , 6 2 % 8 1 3 0 , 4 3 % 6 8 4 0 9 , 2 8 3 2 3 3 , 0 3 8 % 2 3 3 5 6 , 9 6 2 % 2 2 8 9 2 , 2 8 1 % 6 4 1 8 3 , 8 7 3 5 3 2 , 6 8 3 % 8 8 8 8 , 0 3 % 9 3 3 7 , 5 3 % 3 8 5 1 6 , 9 1 3 – – – – 2 5 6 , 1 1 2 5 2 , 1 7 3 7 1 0 2 y g e t a r t S i f e h C r e c ffi O 0 6 7 , 1 1 3 5 9 , 5 8 3 8 1 0 2 y g e t a r t S i f e h C p r a h S s i r h C r M I S E V T U C E X E R E H T O 8 4 0 0 2 , 3 3 3 , 8 5 3 8 1 0 2 5 1 6 , 9 1 0 0 0 0 0 3 , 7 1 0 2 r e c ffi O g n i t a r e p O l a i c n a n F i i f e h C l a i c n a n F i i f e h C i f e h C & r e c ffi O r e c ffi O r e c ffi O k r a M r M n a l l e L c M 8 9 1 , 7 9 6 % 5 1 3 2 6 , 5 0 1 % 1 4 1 3 7 , 2 8 2 % 4 4 4 4 8 , 8 0 3 3 4 0 , 3 1 8 4 0 0 2 , 3 5 7 , 5 7 2 8 1 0 2 l a i c r e m m o C i f e h C n e r r a W r M 6 9 5 , 8 9 3 % 2 5 6 2 , 9 % 2 2 1 3 3 , 9 8 % 5 7 0 0 0 0 0 3 , 3 4 0 , 3 1 5 1 6 , 9 1 2 4 3 , 7 6 2 7 1 0 2 l a i c r e m m o C i f e h C r e c ffi O n a l o N ) 5 5 0 , 1 1 ( 0 6 2 , 6 6 8 2 7 , 1 1 2 % 2 5 5 6 , 4 % 4 1 0 0 0 0 3 , % 4 8 3 7 0 , 7 7 1 2 3 2 , 6 – 4 8 9 , 6 4 2 % 1 5 8 4 , 2 % 8 9 9 4 , 9 1 % 1 9 0 0 0 , 5 2 2 7 5 9 , 2 3 7 6 , 7 5 5 6 5 , 9 7 % 1 2 5 6 0 , 7 1 – – % 9 7 0 0 5 , 2 6 6 4 8 , 7 5 4 8 3 9 , 2 3 3 0 9 4 , 2 2 3 % 8 % 3 5 6 2 , 9 8 0 2 , 5 3 % 4 2 % 1 1 5 9 0 , 8 3 9 5 6 , 8 0 1 % 8 6 % 6 8 9 6 6 , 3 1 3 8 7 5 , 5 8 2 6 2 9 % 6 2 9 1 8 , 4 8 % 3 7 5 4 7 , 6 3 2 4 0 1 , 7 7 2 % 6 4 0 1 , 7 1 % 1 1 0 0 0 0 3 , % 3 8 0 0 0 0 3 2 , – – – – – – – 7 3 9 , 4 1 9 7 2 , 4 1 2 3 7 , 8 9 2 9 9 2 , 1 7 2 8 4 0 0 2 , 7 9 6 , 6 1 2 8 1 0 2 7 1 0 2 8 1 0 2 g n i t e k r a M i f e h C r e c ffi O a i s A A E S D M D M r e c ffi O h c i n a v g n o Y a r a t a P r M a n e h t A s M n o s p m o h T 5 1 6 , 9 1 5 8 3 , 0 1 2 7 1 0 2 g n i t e k r a M i f e h C r e c ffi O 1 2 5 , 9 1 9 7 4 , 5 0 2 7 1 0 2 l y g o o n h c e T i f e h C r e c ffi O 6 8 7 , 6 1 7 8 2 , 0 6 1 8 1 0 2 l y g o o n h c e T i f e h C n o r e m a C r M r e c ffi O i e F c M 7 2 8 , 4 3 7 6 , 7 5 7 1 0 2 l a i c n a n F i i f e h C l e u m a S i v a R s M r e c ffi O n i i d a p s i d n a D U A n i d e u r c c a s i s e s u n o b d n a e r a h s t fi o r P . r a e y l a i c n a n fi e h t r o f e t a r e g a r e v a a i l a r t s u A f o k n a B e v r e s e R e h t n o d e s a b D U A o t d e t r e v n o c s a w d n u F t n e d i v o r P l a c o l d n a y r a l a S , D G S n i i d a p e r a h c i n a v g n o Y r M d n a p r a h S r M 5 ) 4 8 2 , 5 ( 0 6 2 , 6 6 5 5 6 , 3 6 1 , 3 % 6 1 8 8 6 , 1 2 5 % 7 2 1 4 5 , 9 2 8 % 7 5 5 2 4 , 2 1 8 , 1 3 4 0 , 3 1 7 2 6 , 3 0 1 5 5 7 , 5 9 6 , 1 8 1 0 2 s e v i t u c e x E r e h t O 8 1 0 2 l a t o T - b u S 9 3 2 , 3 3 3 7 6 , 7 5 8 9 1 , 5 6 1 , 2 % 5 2 1 9 , 2 1 1 % 1 1 0 9 6 , 6 4 2 % 3 8 7 9 5 , 5 0 8 , 1 3 4 0 , 3 1 4 2 1 , 9 0 1 0 3 4 , 3 8 6 , 1 7 1 0 2 s e v i t u c e x E r e h t O 7 1 0 2 l a t o T - b u S 4 4 5 , 3 1 0 6 2 , 6 6 5 6 3 , 1 1 6 , 4 % 7 1 4 1 2 , 9 9 7 % 4 2 2 7 2 , 2 1 1 , 1 % 8 5 8 7 8 , 9 9 6 , 2 3 4 0 , 3 1 9 8 6 , 6 3 1 6 4 1 , 0 5 5 , 2 8 1 0 2 P M K l l A 8 1 0 2 l a t o T d n a r G 8 9 9 , 7 3 9 4 1 , 8 2 1 5 4 4 , 8 4 5 , 3 % 0 1 8 1 2 , 6 4 3 % 9 1 2 0 , 6 3 3 % 1 8 7 0 2 , 6 6 8 , 2 5 9 6 , 5 1 1 8 8 , 4 6 1 1 3 6 , 5 8 6 , 2 7 1 0 2 P M K l l A 7 1 0 2 l a t o T d n a r G s e i t i l i b i s n o p s e r d e s a e r c n i s t c e fl e r n o i t a r e n u m e r d e s i v e r d n a 8 1 0 2 h c r a M 1 e v i t c e f f e O F C s a l l e w s a O O C f o l e o r n o k o o t n a l l e L c M r M 7 e r o p a g n S i n i l e b a y a p n o i t u b i r t n o c F P C l r e y o p m e s e d u l c n i I T S p r a h S r M 6 . e t a d t n e m y a p n o D G S 6 1 0 2 r e b m e t p e S 0 3 n o y n a p m o C e h t t f e l l e u m a S s M 9 8 1 0 2 l i r p A 3 n o y n a p m o C e h t t f e l i e F c M r M 8 e r u s a e m d e s a b - t e k r a m a e r e h W . P M K o t s t n e m y a p t n e s e r p e r t o n o d d n a d o i r e p g n i t r o p e r e h t f o t r a t s e h t t a d e t s e v r o d e s p a l t o n e r e w t a h t s t n a r g l l a f o e g r a h c g n i t n u o c c a d e s i t r o m a e h t s i l e b a t s i h t n i d e t r o p e r e u l a v I T L e h t t a h t e t o n e s a e P * * l . r e f f i d l l i w s t n e m y a p h s a c l a u t c A . r a e y l a i c n a n fi t n a v e e r l e h t r o f d e u r c c a s a w t a h t I T S e h t s i l e b a t s i h t n i d e t r o p e r e u l a v I T S e h t t a h t e t o n e s a e P l * . g n i t s e v e h t s e h c t a m e g r a h c g n i t n u o c c a e h t e r u s n e o t e d a m e b t s u m s t n e m t s u d a j , S P E s a h c u s , s n o i t i d n o c t e k r a m - n o n o t n o i t a l e r n i , r e v e w o H . g n i t s e v I T L l a u t c a t c e fl e r o t e d a m e b n a c s t n e m t s u d a j o n , R S T s a h c u s d e s u s i e c n a m r o f r e p f o . s e v i t u c e x e i r o n e s o t s e t a l e r t i s a n o i t a r e n u m e r f o i g n d n a t s r e d n u l e t e p m o c e r o m a i n a t b o o t l s r e d o h e r a h s t s i s s a o t t r o p e R n o i t a r e n u m e R e h t f o s n o i t c e s t n a v e e r l e h t n i d e n i l t u o e r a n o i t a r e n u m e r I T L s a l l e w s a I T S f o s e u l a v d e d r a w a d n a t e g r a T h t o B m o r f A D T B E I n i d n a m 8 . 7 $ o t m 0 $ m o r f t fi o r P g n i t a r e p O n i d o i r e p r a e y - 2 e m a s e h t r e v o e s a e r c n i l a i t n a t s b u s a f o t x e t n o c e h t n i s i s i h T . % 9 f o 6 1 Y F e c n i s e s a e r c n i l l a r e v o n a n i g n i t l u s e r , s t e g r a t i g n d e e c x e n e h t d n a g n i t e e m n o d e s a b n o i t a r e n u m e r P M K n i n o i t a z i l a m r o n a s t c e fl e r e r o f e r e h t d n a , s t e g r a t d e s a b e v i t n e c n i d e s s i m g n i v a h , 6 1 Y F m o r f 7 1 Y F n i n o i t a r e n u m e r n i e s a e r c e d e h t o t e u d d e t a u t n e c c a s i 7 1 Y F m o r f 8 1 Y F n i n o i t a r e n u m e r P M K l a t o t n i e s a e r c n i e h T s t n e m y a p t n e m e l t i t n e e v a e l e c i v r e s g n o l d n a l a u n n a e d u l c x e n w o h s s t fi e n e b i n o i t a n m r e T * * * . 8 1 Y F n i m 4 . 6 $ o t 6 1 Y F n i m 6 4 . 1 $ 29 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Remuneration (continued) 9. Employment Terms for Key Management Personnel 9.1 Service Agreements A summary of contract terms in relation to executive KMP is presented below: Name Position Held at Close of FY18 Duration of Contract Period of Notice From Company From KMP Mr Dominic O’Hanlon Managing Director & CEO Open ended 6 months Mr Chris Sharp Chief Strategy Officer Open ended 1 month Mr Warren Nolan Chief Commercial Officer Open ended 3 months Mr Mark McLellan Chief Financial Officer Open ended 6 months Mr Patara Yongvanich MD ASIA Ms Athena Thompson Chief Marketing Officer Open ended Open ended 1 month 1 month 6 months 1 month 3 months 3 months 1 month 1 month Termination Payments Up to 12 months* Up to 12 months* Up to 12 months* Up to 12 months* Up to 12 months* Up to 12 months* Mr Mike Hill Chairman & Executive Director Open ended 3 months 3 months Up to 12 months* * Under the Corporations Act the Termination Benefit Limit is 12 months average Salary (last 3 years) unless shareholder approval is obtained. The treatment of incentives in the case of termination is addressed in the STI and LTI Plan sections of this report. On appointment to the Board, all NEDs enter into a service agreement with the Company. The service agreement summarises the Board policies and terms, including compensation relevant to the office of the Director. A summary of the appointment terms in relation to Neds is presented below: Name Position Held at Close of FY18 Mr Mike Hill Non-Executive Chairman Ms Dawn Edmonds Mr Laurence Sellers Mr Mark Pierce Mr Michael Tierney NED NED NED NED Duration of Contract Period of Notice From Company From KMP Termination Payments 3 years 3 years 3 years 3 years 3 years 3 months 3 months 3 months 3 months 3 months 3 months 3 months 3 months 3 months 3 months None None None None None Termination payments consist of notice period only, no other benefits apply. The termination components of the agreement are the subject of review in FY19. Other Remuneration Related Matters The following outlines other remuneration related matters that may be of interest to stakeholders, in the interests of transparency and disclosure: – There were no loans to Directors or other KMP at any time during the reporting period; – There were no other relevant material transactions involving KMP other than compensation and transactions concerning shares, performance rights/options as discussed in this report. The following summarises the treatment of remuneration in respect of those KMP who ceased their roles during the reporting period: – Cameron McFie CTO departed the company on 3 April 2018. An ex-gratia payment of $66,260 and accrued annual leave of $14,826 was made. As per the LTIP, Mr McFie’s Performance Rights issued in FY18 lapsed. 10. External Remuneration Consultant Advice The Board approved and engaged Godfrey Remuneration Group Pty Ltd as an independent expert external remuneration consultant to provide broad commentary on improvements that could be made to the Remuneration Report in FY17 and on the overall remuneration arrangements and governance applicable to KMP in FY18. K&L Gates were engaged as regards the FY18 LTIP. Fees charged by consultants are disclosed for the reporting period as follows: $17,000 + GST As of the date of writing this report, fees for additional engagements had not been charged by the consultant and these will be disclosed for the reporting period in which they fall due i.e. the FY19 Remuneration Report. 30 Auditor’s Independence Declaration Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 to the directors of rhipe Limited and Controlled Entities. I declare that, to the best of my knowledge and belief, during the year ended 30 June 2018 there have been: (i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and (ii) No contraventions of any applicable code of professional conduct in relation to the audit. ShineWing Australia Chartered Accountants R Blayney Morgan Partner Sydney, 20 August 2018 ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. ShineWing Australia is an independent member of ShineWing International Limited – members in principal cities throughout the world. 31 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Consolidated Statement of Profit or Loss And Other Comprehensive Income For The Year Ended 30 June 2018 rhipe Limited And Controlled Entities CONSOLIDATED GROUP Revenue Cost of Sales Gross Profit Other income Sales and Marketing General and Administration Other expenses Profit before income tax Tax expense Profit after tax for the year attributable to owners of the parent entity OTHER COMPREHENSIVE INCOME Items that will be reclassified subsequently to profit or loss when specific conditions are met: Revaluation of investment in LiveTiles Limited (net of tax) Exchange differences on translating foreign operations Other comprehensive income for the year Total comprehensive income for the year attributable to owners of the parent entity EARNINGS PER SHARE From continuing and discontinued operations: Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form part of these financial statements. Note 2018 $’000 2017 $’000 3(a) 196,608 156,970 (162,537) (128,780) 34,071 28,190 3(b) 4 4 4(c) 5 315 (14,775) (14,135) (286) 5,190 (2,124) 3,066 (366) 157 (209) 2,857 27 (11,347) (13,400) (126) 3,344 (837) 2,507 86 (796) (710) 1,797 6 6 2.26 2.22 1.83 1.80 32 Consolidated Statement of Financial Position As at 30 June 2018 rhipe Limited And Controlled Entities CONSOLIDATED GROUP ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets Total Current Assets NON-CURRENT ASSETS Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Total Non-Current Assets Total Assets LIABILITIES CURRENT LIABILITIES Trade and other payables Unearned revenue Current tax liabilities Provisions Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital Reserves Accumulated profits Total Equity The accompanying notes form part of these financial statements. Note 2018 $’000 2017 $’000 7 8 9 10 11 15 12 13 14 15 16 15 16 17 22,696 40,047 4,650 67,393 6 917 1,524 23,463 25,910 93,303 41,926 2,718 1,572 679 19,812 36,121 2,910 58,843 946 766 1,084 21,887 24,683 83,526 36,240 1,547 678 656 46,895 39,121 2,245 185 2,430 49,325 43,978 39,287 2,051 2,640 43,978 1,443 156 1,599 40,720 42,806 40,977 1,620 209 42,806 33 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Consolidated Statement of Changes in Equity For The Year Ended 30 June 2018 rhipe Limited And Controlled Entities Share Capital Reserves Accumulated Profits/ (losses) $’000 Foreign Currency Translation Reserve $’000 Investment Revaluation Reserve $’000 General Reserve $’000 Ordinary $’000 Equity Settled Employee Benefits Reserve $’000 Total $’000 39,089 (2,338) (25) 280 (27) 3,018 39,997 CONSOLIDATED GROUP Balance at 1 July 2016 COMPREHENSIVE INCOME Profit for the year Other comprehensive income for the year Revaluation of investments, net of tax Exchange differences on translation of subsidiaries Total comprehensive income for the year TRANSACTIONS WITH OWNERS, IN THEIR CAPACITY AS OWNERS, AND OTHER TRANSFERS Shares issued during the year Transaction costs, net of tax Share-based payments Transfer from SBP Reserves – Options expired Transfer from SBP Reserves – Options exercised Total transactions with owners and other transfers – – – – – 2,507 – – – 2,507 – – – (796) (796) 608 (4) – – 1,284 1,888 – – – 40 – 40 – – – – – – – – 86 – 86 – – – – – – – – – – – – – – – – – – – – – – – – 409 (40) (1,284) 2,507 – 86 (796) 1,797 608 (4) 409 – – (916) 1,012 Balance at 30 June 2017 40,977 209 (821) 366 (27) 2,102 42,806 COMPREHENSIVE INCOME Profit for the year Other comprehensive income for the year Revaluation of investments, net of tax Exchange differences on translation of subsidiaries Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Shares issued during the year Shares bought back during the year Dividend paid Transaction costs, net of tax Share-based payments Reclassification of reserve to accumulated profits Transfer from SBP Reserves – Options expired – – – – – 260 (2,292) – (9) – – – Transfer from SBP Reserves – Options exercised 351 Total transactions with owners and other transfers (1,690) Balance at 30 June 2018 39,287 The accompanying notes form part of these financial statements. 34 3,066 – – – 3,066 – – (664) – – (27) 56 – (635) 2,640 – – – 157 157 – – – – – – – – – (664) – – (366) – (366) – – – – – – – – – – – – – – – – – – – – 27 – – 27 – – – – – – – – – – 3,066 – (366) 157 2,857 260 (2,292) (664) (9) 1,020 1,020 – (56) (351) – – – 613 (1,685) 2,715 43,978 Consolidated Statement of Cash Flows For The Year Ended 30 June 2018 rhipe Limited And Controlled Entities CONSOLIDATED GROUP CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Net income tax paid Net cash provided by operating activities 21 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Payments for intangibles Proceeds from sale of investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Payment for share buy back Dividend paid Net cash (used in) / provided by financing activities Net increase in cash held Cash and cash equivalents at beginning of financial year Effect of exchange rates on cash holdings in foreign currencies 251 (2,292) (664) (2,705) 2,850 19,812 34 Cash and cash equivalents at end of financial year 7 22,696 The accompanying notes form part of these financial statements. Note 2018 $’000 2017 $’000 193,856 148,846 (185,238) (141,980) 6 (868) 7,756 (526) (2,408) 733 27 (5) 6,888 (253) (1,212) - (2,201) (1,465) 604 – – 604 6,027 13,761 24 19,812 35 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements For The Year Ended 30 June 2018 rhipe Limited And Controlled Entities These consolidated financial statements and notes represent those of rhipe Limited and subsidiaries (the “consolidated Group” or “Group”). The financial statements were authorised for issue on 20 August 2018 by the directors of the Company. Note 1. Summary of Significant Accounting Policies (a) Basis of Preparation (b) Principles of Consolidation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented throughout financial statements and have been consistently applied unless stated otherwise. The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at fair value at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis. The consolidated financial statements incorporate all of the assets, liabilities and results of rhipe Limited (the “Parent”) and its subsidiaries. Subsidiaries are entities the Parent controls. The Parent controls an entity when it 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 over the entity. A list of the subsidiaries is provided in Note 28. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Inter-company transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as ‘Non-controlling Interests’. The Group initially recognises non-controlling interests where the group is entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. 36 Notes to the Financial Statements (continued) (c) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase when the consideration is below the fair value of the assets and liabilities acquired. (d) Financial Instruments Recognition and Initial Measurement Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transactions costs. Classification and Subsequent Measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. 37 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. ii. Available for sale (“AFS”) financial assets Listed shares that are traded in an active market are classified as AFS and stated at fair value. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses which are recognised in the profit or loss. When the investment is disposed of or is determined to be impaired the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. Impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In the case of financial assets carried at amortised cost, loss events may include: – indications that the debtors or a group of debtors are experiencing significant financial difficulty; – default or delinquency in interest or principal payments; – indications that they will enter bankruptcy or other financial reorganisation; and Shares in unlisted companies are stated at cost less any reduction from impairment. – changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. De-recognition Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Dividends on AFS are recognised in profit or loss when the Group’s right to receive the dividends is established. iii. Financial Liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. iv. Financial assets at fair value through profit or loss Financial assets are classified as “fair value through profit or loss” when they are held for trading for the purpose of short- term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence that impairment as a result of one or more events (a ‘loss event’) has occurred, which has an impact on the estimated future cash flows of the financial asset(s). For AFS, including listed or unlisted shares, objective evidence of impairment includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment for AFS. 38 Notes to the Financial Statements (continued) (e) Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value-in-use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. (f) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional currency. Transaction and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity when the exchange difference arises on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation). Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income, otherwise the exchange difference is recognised in the profit or loss. Group companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: – Assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; – Income and expenses are translated at average exchange rates for the period; and – Retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than the Australian dollar are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. 39 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) (g) Employee Benefits Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short- term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. (h) Goods and Services Tax (“GST”) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (“ATO”). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key Estimates and Judgments i. Operating segments, cash-generating unit determination Goodwill is allocated to cash-generating units and tested for impairment on an annual basis. Management apply judgement in determining cash-generating units and allocating the goodwill arising from business combinations to these cash-generating units. ii. Recoverability of capitalised development Internally generated intangible assets are capitalised in accordance with AASB 138: Intangible Assets. Assumptions and judgements are made with regard to assessing the expected future economic benefits, the economic useful life and the level of completion. At the point where activities no longer relate to development but only to maintain the asset, capitalisation is discontinued. iii. Equity settled compensation The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. iv. Recoverability of trade and other receivables Trade and other receivables include amounts that are past due but not impaired and balances that are receivable from counter-parties and governments based in Asia. Other receivables include indirect taxes due from governments in Asia. There is a high degree of judgement in estimating whether these receivables require an impairment provision. (k) in Future Periods New Accounting Standards for Application Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: (i) Rounding of Amounts The Group has applied the relief available to it under ASIC Corporations (Rounding in Financial / Directors’ reports) Instrument 2016/191. Accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000. (j) Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a 40 – AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). AASB 9 replaces AASB 139: Financial Instruments: Recognition and Measurement and includes revised requirements for the classification and measurement of financial instruments, revised recognition and de-recognition requirements for financial instruments, revised impairment requirements and simplified requirements for hedge accounting. Notes to the Financial Statements (continued) The revised requirements include: – simplifications to the classification of financial assets – simplifications to the accounting of embedded derivatives – an expected loss impairment model – the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. – a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. The financial assets and liabilities of the Group consist of cash, receivables, payables. The directors do not anticipate that transition to AASB 9 will have a material impact on the financial statements. – AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 January 2018 as further amended by AASB 2015-8). This Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: – identify the contract(s) with a customer; – identify the performance obligations in the contract(s); – determine the transaction price; – allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied. The initial assessment of the impact of AASB 15 is focused on software licensing revenue (representing 96% of total revenue in 2018) as management believe the new standard will not have material impact on the other revenue streams, however a detailed assessment is yet to be performed on this. There are several items to consider when determining the performance obligation in the contract with the key being whether rhipe is a principal or an agent for the transaction. Indicators that an entity controls the specified good or service before it is transferred to the customer (and is therefore a principal) include, but are not limited to, the following: a. The entity is primarily responsible for fulfilling the promise to provide the specified good or service. b. The entity has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer (for example, if the customer has a right of return). c. The entity has discretion in establishing the price for the specified good or service. Management and the Board are continuing to evaluate the impact of AASB15 and in particular if rhipe is a principal or agent. If it is concluded that rhipe is a principal, the impact of the new accounting standard on licensing revenue of rhipe would not be material. If it is determined that rhipe is an agent, the impact will be that rhipe would record revenue in the Consolidated Statement of Profit or Loss as the net amount that it retains for its agency services i.e. fees or commission. Below is a summarised illustration of the Statement of Profit or Loss presentation if rhipe is considered to be a Principal or Agent for FY18 and FY17. Revenue Cost of sales Gross profit Licensing revenue Service & support revenue Total revenue Cost of sales – Service & support Gross profit 2018 $‘000 Principal 196,608 (162,537) 34,071 – – – – – 2018 $‘000 Agent – – – 28,702 6,922 35,624 (1,553) 34,071 2017 $‘000 Principal 156,970 (128,780) 28,190 – – – – – 2017 $‘000 Agent – – – 23,830 5,140 28,970 (780) 28,190 Management believes that there will not be material changes in regards to the timing of revenue recognition regardless of whether rhipe account for revenue as an agent or as a principal. 41 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Revenue will be recognised as and when the performance obligation is satisfied. Management believes that there will be no material change in regards to the timing of revenue recognition. – 1AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019) AASB 16 will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard include: – recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); – depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; – variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; – by applying a practical expedient, a lessee is permitted to elect not to separate non-lease components and instead account for all components as a lease; and – additional disclosure requirements. The directors expect that the adoption of AASB 16 will result in lease assets and liabilities being recognised on balance sheet and a change in how related expenses are incurred. The financial impact of this has not yet been determined. – Interpretation 22: Foreign Currency Transactions and Advance Consideration (applicable to annual reporting periods beginning on or after 1 January 2018) This Interpretation clarifies that the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance the Group shall determine a date of the transaction for each payment or receipt of advance consideration. The directors do not expect a material impact when this interpretation is adopted. – Interpretation 23: Uncertainty over Income Tax Treatments (applicable from annual reporting periods beginning on or after 1 January 2019) This interpretation clarifies that when determining the taxable profit (loss), tax base, unused tax loss, unused tax credit and tax rates, the probability of the ‘uncertain tax treatment’ being accepted by the taxation authority has to be taken into account. Any change in facts and circumstances that impacts the judgement or estimates required by this interpretation has to be recognised with prospective effect. 42 Notes to the Financial Statements (continued) Note 2. Operating Segments Note 3. Revenue and Other Income The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director (chief operating decision maker) in assessing performance and determining the allocation of resources. The Managing Director manages the Group’s activities as one business segment providing cloud based licensing programs and services for its key software vendors across the Asia Pacific region. Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at the end of the reporting period where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. Interest revenue is recognised using the effective interest method. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. All revenue is stated net of the amount of goods and services tax. CONSOLIDATED GROUP (a) Revenue from continuing operations Sales revenue – Licensing revenue 2018 $’000 2017 $’000 189,686 151,830 – Service & support revenue 6,922 5,140 Total revenue 196,608 156,970 (b) Other income Interest income Gain on disposal of Investment 6 309 315 27 – 27 Revenue derived by country include: CONSOLIDATED GROUP Australia Asia New Zealand Other 2018 $’000 121,881 52,656 21,206 865 2017 $’000 93,887 42,455 18,187 2,441 Total rhipe group 196,608 156,970 Information about major customers No single customer contributed 10% or more to the Group’s revenue for both 2018 and 2017. Information about major vendors Included in revenues arising from sales of cloud based licensing programs and services of $196,608,000 are revenues from products of two major vendors of $139,571,000 (71%) and $31,105,000 (16%). In FY17 these two vendors accounted for $105,797,000 and $29,079,000 out of total revenue of 156,970,000 or 67% and 19% respectively. There are no other sales of a single vendors’ product which contributed 10% or more to the Group’s revenue for both 2018 and 2017. Operating Profit The Managing Director assesses the performance of the business based on a measure of Operating Profit. This measure excludes foreign exchange differences, depreciation and amortisation, share-based payments, taxation and the effect of specific expenditure which is not in the ordinary course of business and non-cash losses. These include restructuring costs, business combination related expenses, impairments and the effects of gains from financial instruments. A reconciliation of profit before income tax to Operating Profit is shown below: CONSOLIDATED GROUP Profit before income tax Share based payments Restructuring and due diligence Gain on disposal of investments Depreciation and amortisation Foreign exchange loss/(gain) Interest income Operating profit 2018 $’000 5,190 1,020 380 (309) 1,200 286 (6) 7,761 2017 $’000 3,344 409 485 – 687 126 (27) 5,024 43 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 4. Expenses CONSOLIDATED GROUP (a) Employee benefits Share-based payments Defined contribution superannuation expenses Other employee benefits 2018 $’000 2017 $’000 1,020 1,085 15,801 17,906 409 1,129 15,316 16,854 During the year $494,866 of employee benefits were capitalised to software development (FY17 $412,959). (b) Depreciation and amortisation Depreciation Amortisation (c) Other expenses Foreign exchange loss (d) Rental expense 368 833 1,201 260 427 687 286 126 Rental expenses on operating leases 1,066 847 Note 5. Tax Expense Income Tax The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/ (benefit). Current income tax expense/(benefit) charged to profit or loss is the tax payable on taxable income. Current tax liabilities/ (assets) are measured at the amounts expected to be paid to/ (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense/(income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. 44 Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference cannot be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax consolidation Relevance of tax consolidation to the Group The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 2014 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is rhipe Limited. Tax expense/(benefit), deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the tax consolidated group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Notes to the Financial Statements (continued) Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, rhipe Limited and each of the entities in the tax-consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. CONSOLIDATED GROUP (a) The components of tax (expense)/income comprise: Current tax Deferred tax Over provision in respect of prior years Note 15 (b) The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2017: 30%) – Consolidated Group – Effect of tax rates of subsidiaries operating in other jurisdictions Add tax effect of: – Other non–allowable items Less tax effect of: – Under/(over) provision of prior year income tax – Current year overseas subsidiaries losses not recognised – Research and development offset 2018 $’000 2017 $’000 1,601 518 5 2,124 1,557 23 1,090 2,670 5 265 (816) 2,124 681 464 (308) 837 1,003 85 346 1,435 (308) 209 (498) 837 (c) Amounts recognised directly in equity: Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited to equity: Revaluation of investment (157) 157 45 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 6. Earnings per Share CONSOLIDATED GROUP Basic EPS Diluted EPS 2018 cents 2.26 2.22 2017 Cents 1.83 1.80 NET PROFIT ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT: $000 $000 (a) Reconciliation of earnings to profit or loss Profit/(Loss) Earnings used to calculate basic EPS Earnings used in the calculation of dilutive EPS (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS 3,066 3,066 3,066 2,507 2,507 2,507 2018 No. of Shares 2017 No. of Shares 135,778,667 136,782,823 Weighted average number of dilutive options outstanding 2,140,959 2,529,505 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 137,919,626 139,312,328 Note 7. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. CONSOLIDATED GROUP Cash at bank and on hand Short-term bank deposits 2018 $’000 22,696 – 2017 $’000 19,784 28 22,696 19,812 Note 8. Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Refer to Note 1(d) for further discussion on the determination of impairment losses. CONSOLIDATED GROUP CURRENT Trade receivables Provision for impairment Indirect taxes Accrued revenue 46 Note 2018 $’000 2017 $’000 8(a) 22,367 20,548 (587) 1,645 16,622 40,047 (487) 1,462 14,598 36,121 Notes to the Financial Statements (continued) Debtor Concentration As of 30 June 2018 two customers had a balance greater than 5% of trade receivables. These customer balances represented 16% and 6% of total receivables, respectively. For the largest balance this was unusually high due to a back log of license purchases incurred close to 30 June 2018 (known as “back reporting”). This balance has been paid since the year end with the customer returning to normal trade levels at 2% of the total trade receivable balance. The other customer balance owing 6% (14% at Jun 2017) is due to extended payment terms from 45 to 62 days (from invoice date). This corporate customers corporate bonds are rated “A-” is S&P. Refer to Note 26(a) for further details on credit risk. (a) Provision For Impairment of Receivables Movement in provision for impairment of receivables is as follows: CONSOLIDATED GROUP (i) Current trade receivables 2017 (ii) Current trade receivables 2018 (b) Credit risk Opening Balance $’000 Impairment For The Year $’000 Amounts Written Off During The Year $’000 248 487 461 752 (222) (652) Closing Balance $’000 487 587 Other than two customers that represented 22% of total receivable the Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties. Trade and Other Receivables are considered to be the main source of credit risk related to the Group. On a geographic basis, the Group has significant credit risk exposures in Australia, Singapore, New Zealand, Philippines and Thailand given the substantial operations in those regions. The Group’s exposure to credit risk for receivables at the end of the reporting period in those regions is as follows: CONSOLIDATED GROUP Australia Singapore New Zealand Philippines Thailand Other (Malaysia, Indonesia and Korea) 2018 % 54% 17% 9% 6% 4% 10% 100% 2018 $’000 21,818 6,726 3,694 2,401 1,440 3,968 2017 % 46% 23% 9% 9% 4% 9% 40,047 100% 2017 $’000 16,532 8,352 3,162 3,226 1,539 3,310 36,121 The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled within the terms and conditions agreed between the Group and the customer or counter party to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Gross Amount $’000 Past Due and Impaired $’000 Past Due but <30 $’000 Not Impaired (Days Overdue) 31-60 $’000 >60 $’000 Within Initial Terms $’000 2017 Trade and term receivables 2018 Trade and term receivables 20,548 22,367 (487) (587) 3,787 6,106 3,444 2,375 2,987 1,165 10,330 12,721 Note the trade receivables <30 days is high in FY18 due to the items described in the debtor concentration note. (c) Financial Assets Classified as Loans and Receivables CONSOLIDATED GROUP Note 2018 $’000 2017 $’000 47 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) TRADE AND OTHER RECEIVABLES Total current Less: Indirect taxes Financial assets as trade and other receivables Note 9. Other Assets CONSOLIDATED GROUP CURRENT Prepayments Bonds 8 40,047 40,047 36,121 36,121 (1,645) (1,462) 38,402 34,659 2018 $’000 2017 $’000 4,464 186 4,650 2,368 542 2,910 Prepayments relate to prepaid cost of sales and prepaid operating expenses (such as insurance) and these prepayments will be realised within 12 months (the period of time that these services relate to). Bonds are rental bonds for the property leases. See note 24 for more details on leases. Note 10. Available for Sale Equity Investment CONSOLIDATED GROUP Investment at cost Investment at fair value 2018 $’000 2017 $’000 6 – 6 6 940 946 Note 11. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Property Plant and equipment Plant and equipment is measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss. A formal assessment of the recoverable amount is made when impairment indicators are present (refer to Note 1(e) for details of impairment of assets). 48 Notes to the Financial Statements (continued) Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: CLASS OF FIXED ASSET Computer Equipment Furniture & Fittings Leasehold Improvements Depreciation rate 25% – 33% 13% – 33% 20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. Movements in Carrying Amounts Movements in carrying amounts between the beginning and the end of the current financial year. CONSOLIDATED GROUP Cost at 30 June 2016 Additions Disposals Cost at 30 June 2017 Accumulated depreciation at 30 June 2016 Depreciation expense Disposals Accumulated depreciation at 30 June 2017 Balance at 30 June 2017 Cost at 30 June 2017 Additions Disposals Cost at 30 June 2018 Accumulated depreciation at 30 June 2017 Depreciation expense Disposals Accumulated depreciation at 30 June 2018 Balance at 30 June 2018 Computer Equipment $’000 Furniture & Fittings $’000 Leasehold Improvements $’000 637 204 – 841 (239) (164) – (403) 438 841 228 (25) 1,044 (403) (223) 18 (608) 436 101 48 – 149 (54) (13) – (67) 82 149 22 – 171 (67) (20) – (87) 84 443 – – 443 (115) (82) – (197) 246 443 276 – 719 (197) (125) – (322) 397 Total $’000 1,181 252 – 1,433 (408) (259) – (667) 766 1,433 526 (25) 1,934 (667) (368) 18 (1,017) 917 49 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 12. Intangible Assets Goodwill Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: (i) the consideration transferred; (ii) any non-controlling interest (determined under either the full goodwill or proportionate interest method); and (iii) the acquisition date fair value of any previously held equity interest, less (iv) the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest forms the cost of the investment in the separate financial statements. The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than a 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (proportionate interest method). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination. Goodwill is tested for impairment annually (refer to Note 1(e) for details of impairment) and is allocated to the Group’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored being not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Software development costs have a finite useful life and are amortised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The software development asset has a useful life of five years and is amortised on a straight line basis commencing from the time the asset is held ready for use. 50 Notes to the Financial Statements (continued) CONSOLIDATED GROUP Cost at 30 June 2016 Additions Disposals Cost at 30 June 2017 Accumulated amortisation at 30 June 2016 Amortisation expense Disposals Accumulated amortisation at 30 June 2017 Balance at 30 June 2017 Cost at 30 June 2017 Additions Disposals Cost at 30 June 2018 Accumulated amortisation at 30 June 2017 Amortisation expense Disposals Accumulated amortisation at 30 June 2018 Balance at 30 June 2018 Goodwill $’000 19,897 – – 19,897 – – – – 19,897 19,897 – – 19,897 – – – – 19,897 Trademarks & Licenses $’000 Software Development $’000 Total $’000 21,427 1,212 – 1,520 1,212 – 2,732 22,639 (325) (427) – (752) 1,980 2,732 2,408 – (325) (427) – (752) 21,887 22,639 2,408 – 5,140 25,047 (751) (833) (1,584) 3,556 (751) (833) – (1,584) 23,463 10 – – 10 – – – – 10 10 – – 10 – – – – 10 The amortisation amount of all software development costs are amortised on a straight-line basis over the estimated useful life to the Company commencing from the time the asset is held ready for use. The amortisation rates used for each class of depreciable assets are: Software development Amortisation rate 20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount Intangible assets, other than goodwill and trademarks and licences, have an indefinite useful lives. The current amortisation charges for intangible assets are included under depreciation and amortisation expense per the statement of profit or loss. Goodwill and trademarks and licences have an indefinite useful life. Impairment Goodwill is allocated to cash-generating units which are based on the Group’s reporting regions. Asia Pacific region Total 2018 $’000 19,897 19,897 2017 $’000 19,897 19,897 51 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Goodwill impairment testing The recoverable amount of the Asia Pacific region, the only cash-generating unit to which goodwill is recognised at 30 June 2018, was calculated on the basis of value-in-use using a discounted cash flow model. Management has based the value-in-use calculations on board approved budgets for the 2019 financial year for the cash-generating unit. This budget is adjusted for future years and uses an initial growth rate of 20% decreasing over five years to a terminal growth of 5% and a real pre-tax discount rate of 13.4% (30 June 2017: 13.25%). The terminal growth rate is determined based on the long-term anticipated growth rate of the business. The forecast financial information is based on both past experience and future expectations of cash-generating unit performance. The major inputs and assumptions used in performing an impairment assessment that require judgement include revenue forecasts, operating cost projections, customer numbers, customer churn, discount rates and growth rates. During the year ended 30 June 2018, no impairment arose as a result of the review of goodwill. The recoverable amount of the Asia Pacific cash-generating unit is greater than the carrying amount and, based on sensitivity analysis performed, no foreseeable changes in the assumptions would cause the carrying amount of the cash-generating unit to exceed its recoverable amount. Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating units to which goodwill has been allocated. The value-in-use calculation requires the Directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. Note 13. Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. No interest is charged on trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. CONSOLIDATED GROUP CURRENT Unsecured liabilities Trade payables Sundry payables and accrued expenses Forward Contracts Total trade and other payables (a) Financial liabilities at amortised cost classified as trade and other Trade and other payables, unearned revenue and employee benefits – Total current – Total non-current Financial liabilities as trade and other payables Note 14. Unearned Revenue CONSOLIDATED GROUP CURRENT Unearned revenue Note 2018 $’000 2017 $’000 26,339 15,587 – 23,754 12,457 29 25 41,926 36,240 41,926 36,240 – – 25 41,926 36,240 41,926 36,240 2018 $’000 2017 $’000 2,718 1,547 Unearned revenue is for offerings for which the Group has been paid in advance and the revenue is recognised when the service is provided or otherwise meets the revenue recognition criteria. 52 Notes to the Financial Statements (continued) Note 15. Tax CONSOLIDATED GROUP CURRENT Income tax payable CONSOLIDATED GROUP DEFERRED TAX ASSET Provisions – employee benefits Provisions – doubtful debts Accrued COS Other Balance at 30 June 2017 Provisions – employee benefits Provisions – doubtful debts Accrued COS Other Balance at 30 June 2018 DEFERRED TAX LIABILITY Accrued revenue Other Balance at 30 June 2017 Accrued revenue Other Balance at 30 June 2018 2018 $’000 2017 $’000 1,572 1,572 678 678 Opening Balance $’000 Recognised To Income $’000 Recognised To Equity $’000 Closing Balance $’000 381 63 21 363 828 482 146 – 456 1,084 448 240 688 754 689 1,443 101 83 (21) 93 256 126 30 – 284 440 305 293 598 465 494 959 – – – – – – – – – – – 157 157 – (157) (157) 482 146 – 456 1,084 608 176 – 740 1,524 753 690 1,443 1,219 1,026 2,245 53 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 16. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. Provision for Employee Benefits Provision for employee benefits represents amounts accrued for annual leave and long service leave. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. The probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been detailed in Note 1(g). 2018 $’000 2017 $’000 679 185 656 156 Opening Balance 1 Jul 2016 $’000 Additional Provision For The Year $’000 Utilisation Of Provision During The Year $’000 Closing Balance 30 Jun 2017 $’000 870 116 587 115 (801) (75) 656 156 Opening Balance 1 Jul 2017 $’000 Additional Provision For The Year $’000 Utilisation Of Provision During The Year $’000 Closing Balance 30 Jun 2018 $’000 656 156 785 80 (762) (52) 679 185 CONSOLIDATED GROUP CURRENT Employee Benefits NON CURRENT Employee Benefits Employee benefits – Current Employee benefits – Non-Current Employee benefits – Current Employee benefits – Non-Current 54 Notes to the Financial Statements (continued) Note 17. Issued Capital RHIPE LIMITED 135,429,383 (2017: 138,091,614) fully paid ordinary shares RHIPE LIMITED (a) Movement in ordinary shares on issue rhipe Limited shares as at 30 June 2017 Shares issued upon exercise of $0.20 options Shares issued upon exercise of $0.75 options Share buy back Transfer from equity settled employee benefits reserve Share issue costs, net tax Closing balance at 30 June 2018 2018 $’000 39,287 39,287 No. 2017 $’000 40,977 40.977 Value $’000 138,091,614 40,977 550,000 200,000 110 150 (3,412,231) (2,292) – – 351 (9) 135,429,383 39,287 Ordinary shares participate in dividends and the proceeds on winding-up of the parent entity in proportion to the number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. (b) Capital Management Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets. The Group is subject to externally imposed capital requirements for the facilities detailed in note 21(b). Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders, share issues and share buy-backs. (c) Franking Account RHIPE LIMITED 2018 $’000 2017 $’000 Balance of franking account at year-end adjusted for franking credits arising from: – payment of provision for income tax – dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits that may be prevented from distribution in subsequent financial years Adjusted franking account balance 5,269 4,237 55 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 18. Reserves (a) Equity-settled employee benefits reserve Equity-settled employee benefits reserve relates to share options granted by the Company to its employees under its employee share option plan. Further information about share-based payments to employees is set out in Note 20. (b) Foreign Currency Translation Reserve Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) are reclassified to profit or loss on the disposal of the foreign operation. (c) General Reserve The general reserve is used from time to time to transfer profits from retained earnings for appropriation purpose. There is no policy of regular transfer. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to profit or loss. (d) Investment Revaluation Reserve The investment revaluation reserve represents the cumulative gains and losses arising on the revaluation of AFS financial assets that have been recognised in other comprehensive income, net of tax and amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired. Note 19: Dividends Amount per ordinary share (cents) Franked amount per ordinary share (cents) Dividend Declared Payment date 2018 Interim dividend 2018 Final dividend 0.5 1.0 0.5 1.0 5 February 2018 23 March 2018 26 July 2018 24 October 2018 Note 20. Share-based Payments Equity-settled compensation Share-based payments to employees are measured at the fair value of the instruments issued at the grant date and amortised over the vesting periods. The corresponding amount is recorded to the equity-settled employee benefits reserve. The fair value of options is determined using the Black–Scholes pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. The Group has an ownership-based compensation scheme for executives and senior employees. In accordance with the terms of the plan, as approved by shareholders at a previous annual general meeting, executives and senior employees of the Group may be granted options to purchase ordinary shares. Each employee share option converts into one ordinary share of rhipe Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. 56 Notes to the Financial Statements (continued) (a) Options (i) For information relating to the rhipe Limited employee option plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end. As at 30 June 2018, there were 3,673,334 options under issue (30 June 2017: 4,349,584) exercisable on a 1:1 basis for 3,673,334 ordinary shares in the Company (2017: 4,349,584). These options are exercisable as follows: DETAILS Date Of Grant Number Of Options Date Of Expiry Conversion Price ($) Management incentive options 10/04/2014 27/07/2014 27/07/2014 27/02/2015 27/02/2015 27/02/2015 27/02/2015 27/02/2015 07/06/2016 01/11/2016 01/11/2016 01/12/2016 13/09/2017 13/09/2017 1,033,334 300,000 300,000 67,500 67,500 67,500 67,500 200,000 700,000 135,000 135,000 400,000 100,000 100,000 3,673,334 10/04/2019 11/08/2018 11/08/2020 15/09/2018 15/09/2021 01/10/2018 01/10/2021 01/07/2021 01/01/2019 01/11/2020 01/11/2023 01/01/2019 12/09/2021 12/09/2022 0.20 0.75 0.75 0.75 0.75 0.75 0.75 0.75 1.25 0.94 0.94 1.25 0.50 0.50 The weighted average conversion price of the above options is $0.745 (2017: $0.703) Balance at beginning of the year Granted during the year Exercised during the year Expired during the year Balance at end of year A summary of the movements of management incentive plan options issued is as follows: CONSOLIDATED GROUP Options outstanding as at 30 June 2016 Granted Exercised Expired Options outstanding as at 30 June 2017 Granted Exercised Expired Options outstanding as at 30 June 2018 Options exercisable as at 30 June 2018 Options exercisable as at 30 June 2017 2018 No. Of Options 2017 No. Of Options 4,349,584 200,000 (750,000) (126,250) 3,673,334 6,847,500 670,000 (3,041,666) (126,250) 4,349,584 No Of Options Weighted Average Exercise Price 6,847,500 670,000 (3,041,666) (126,250) 4,349,584 200,000 (750,000) (126,250) 3,673,334 2,238,334 2,853,334 $0.448 $1.125 $0.200 $1.250 $0.703 $0.500 $0.350 $1.250 $0.745 $0.508 $0.444 57 As at the date of exercise, the weighted average share price of options exercised during the year was $0.35. RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) The weighted average remaining contractual life of options outstanding at year end was 1.41 years (2017: 2.08 years). The exercise price of outstanding options at the end of the reporting period was $0.20 – $1.25. There has been no alteration to the terms and conditions of any share-based payments arrangements since the grant date. During the year, 200,000 share options were granted to employees under the rhipe Limited management incentive plan to take up ordinary shares. Details of options issued during the year are disclosed in the table below. Options are forfeited after the holder ceases to be employed by the Group, unless the Board determines otherwise. Fair value of share options granted in the year The fair value of the options granted to employees is considered to represent the value of the employee services received over the vesting period. The weighted average fair value of options granted during the year was $0.3025 (2017: $0.1586). These values were calculated using the Black Scholes option pricing model. Where relevant, the expected life used in the model has been adjusted using management’s best estimate for the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option where applicable), and behavioral considerations. No. Of Options Grant date Share price at grant date Exercise price Risk-free interest rate Expiry date Volatility Vesting conditions Weighted average value per option before discounting for non-transferability Discount as options unlisted and non-transferable Weighted average value per option (a) Vest only after one year’s service with the company from the grant date of options (b) Vest only after the two years’ service with the company from the grant date of options 100,000 100,000 13/09/2017 13/09/2017 $0.65 $0.50 2.24% $0.65 $0.50 2.24% 12/09/2021 12/09/2022 62% (a) $0.3640 20% $0.2912 62% (b) $0.3922 20% $0.3138 The last 12 months of historical share price volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future volatility. The life of the options is based on the historical exercise patterns, which may not eventuate in the future. 58 Notes to the Financial Statements (continued) (b) Performance rights As at 30 June 2018, there were 3,440,000 performance rights to acquire shares (30 June 2017: 1,040,000). These performance rights are exercisable as follows: Details Date Of Grant Number Of Rights Date Of Expiry Conversion Price ($) Management performance rights 29/07/2014 29/07/2014 28/04/2017 17/11/2017 500,000 500,000 40,000 2,500,000 11/08/2020 11/08/2022 27/04/2021 01/01/2019 Nil Nil Nil Nil Balance at beginning of the year Granted during the year Exercised during the year Expired during the year Forfeited during the year Balance at end of year 2018 No. of Rights 2017 No. Of Rights 1,040,000 2,500,000 1,000,000 40,000 – – (100,000) – – – 3,440,000 1,040,000 Fair value of performance rights granted in the year On 17 November 2017, 2,500,000 performance rights were granted to executives as part of a management incentive plan. The performance rights vest on the satisfaction vesting conditions and expire on 01 January 2019 if these are not met. The company expensed $810,000 in relation to these performance rights. The fair value of the performance rights has been determined using the following assumptions: No. of performance rights Grant date Share price at grant date Vesting conditions Value per performance right unlisted and non-transferable status Further discount for market-based vesting conditions Value per performance right 2,500,000 17/11/2017 $0.80 (a) (b) $0.80 n/a $0.80 (a) The Performance Rights vest upon the Company delivering an Operating Profit of not less than $8,900,000 on a prior 12 months’ basis at any stage prior to 31 December 2018 (Profit Target); and (b) the executive remaining employed by the Group at the time of achievement of the Profit Target. 59 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 21. Cash Flow Information CONSOLIDATED GROUP (a) Reconciliation of Cash Flow from Operating Activities with Profit after Income Tax Profit after income tax Cash flows excluded from profit attributable to operating activities Non-cash flows in profit: Share-based payments expense Amortisation Depreciation Gain on sale of investment Net foreign exchange loss Provision for doubtful debts Impairment of asset held for sale Changes in operating assets and liabilities: 2018 $’000 2017 $’000 3,066 2,507 1,020 833 368 (309) 287 100 – 409 427 260 – (126) 239 10 Increase in trade and term receivables and unearned revenue (2,853) (8,362) (Decrease)/increase in other current assets Increase in trade payables and accruals Decrease in income taxes payable Increase in deferred taxes payable Increase in deferred taxes receivable (Decrease)/increase in provisions Net cash provided by operating activities (a) Bank Facilities The group has the following bank facilities in place: Provider Facility Utilised Total Security (1,743) 5,680 894 802 (440) 51 7,756 681 9,851 336 755 (256) 157 6,888 CBA CBA AUD 2,300,000 AUD 2,300,000 AUD 700,000 AUD 607,121 General Security Interest by rhipe Australia Pty Ltd and rhipe Limited comprising: First ranking charge over All Present & After Acquired Property General Security Interest by rhipe Australia Pty Ltd and rhipe Limited comprising: First ranking charge over All Present & After Acquired Property The facility require compliance with certain financial covenants and the group was in compliance with the covenants governing these facilities at year end. 60 Notes to the Financial Statements (continued) Note 22. Related Party Transactions Related Parties (a) The Group’s main related parties are as follows i. Key Management Personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity are considered key management personnel. Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s Key Management Personnel (KMP) for the year ended 30 June 2018. The totals of remuneration paid to KMP of the Company and the Group during the year are as follows: CONSOLIDATED GROUP Short-term employee benefits Post-employment benefits Other Long-Term benefits Termination benefits Total KMP compensation 2018 ($) 2017 ($) 3,675,462 3,037,347 136,689 799,214 66,260 164,881 346,217 128,149 4,677,625 3,676,594 Further information in relation to KMP remuneration can be found in the Remuneration Report. ii. Other Related Parties Other related parties include entities controlled by the ultimate parent entity, entities over which key management personnel have joint control, and entities that directors are common directors of. CONSOLIDATED GROUP 1. Other related parties Recharge from Bombora Group Pty Ltd 2018 ($) 2017 ($) 8,250 – Recharge relates to assistance with due diligence work on a potential acquisition. There is no amount payable to any related parties at 30 June 2018 Note 23. Auditors’ Remuneration CONSOLIDATED GROUP Remuneration of the auditor for: – auditing or reviewing the financial report – taxation and other services Remuneration of other auditors of subsidiaries for: – auditing or reviewing the financial statements of subsidiaries 2018 $’000 2017 $’000 170 87 257 205 88 293 51 29 61 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 24. Capital and Leasing Commitments Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses on a straight line basis in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. CONSOLIDATED GROUP (a) Operating Lease Commitments Non-cancellable operating leases contracted for but not recognised in the financial statements Payable – minimum lease payments – not later than 12 months – between 12 months and five years – greater than five years 2018 $’000 2017 $’000 1,128 2,926 – 4,054 703 1,663 73 2,439 The Group has leases in Sydney, Melbourne, Auckland, Singapore, Manila, Bangkok, Kuala Lumpur, Jakarta, Seoul and New York. More than 80% of the operating lease commitments relate to the Company offices in Sydney and Melbourne. Note 25. Contingent Liabilities and Contingent Assets A litigation proceeding has been filed in the Supreme Court of New South Wales against two members of the Group, rhipe Cloud Solutions and rhipe Solutions Australia, along with 10 other defendants. rhipe Limited is the ultimate holding company of rhipe Cloud Solutions Pty Ltd and rhipe Solutions Australia Pty Ltd who are named as defendants in the proceedings however rhipe Limited is not a named defendant. rhipe has reviewed the allegations with its legal advisors and understands that all of the events which are the subject of the litigation pre-date the acquisition by rhipe of rhipe Cloud Solutions and rhipe Solutions in December 2014. At this time, it is not possible to reliably estimate the possible financial effect on the two companies, however the Board considers this not to be material. Note 26. Financial Risk Management The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: CONSOLIDATED GROUP FINANCIAL ASSETS Cash and cash equivalents Receivables Bonds & deposits Available for sale equity investment Total Financial Assets FINANCIAL LIABILITIES Trade and other payables Forward Contract Liability Total Financial Liabilities Net Financial Assets 62 Note 2018 $’000 2017 $’000 7 8 9 10 22,696 40,047 186 – 19,812 34,659 542 940 62,929 55,953 13 41,926 – 41,926 21,003 36,211 29 36,240 19,713 Notes to the Financial Statements (continued) Financial Risk Management Policies Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk and foreign currency risk. There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. (a) Credit risk Although the Group’s clients are creditworthy, exposure to credit risk relating to financial assets arises from the potential non- performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is managed through the maintenance of procedures (such procedures include the review of customer business activities, regular monitoring of exposures and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Depending on the division within the Group, credit terms are generally 14 to 30 days from the invoice date. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period, excluding the value of any collateral or other security held is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. Credit risk also arises through the provision of financial guarantees, as approved at Board level, given to parties securing the liabilities of certain subsidiaries (refer Note 28(c) for details). For details on concentration of credit risk and geographic break down of trade receivables refer to Note 8. (b) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: – preparing forward-looking cash flow analyses in relation to its operating, investing and financing activities; – obtaining funding from a variety of sources; – maintaining a reputable credit profile; – managing credit risk related to financial assets; – only investing surplus cash with major financial institutions; and – comparing the maturity profile of financial liabilities with the realisation profile of financial assets. The table below reflects an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflect the earliest contractual settlement dates and do not reflect management’s expectations that banking facilities will be rolled forward. Financial liability and financial asset maturity analysis Within 1 Year Over 1 Year No Maturity Total 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 CONSOLIDATED GROUP Financial liabilities due for payment Trade and other payables Forward contract liability Total expected outflows Financial Assets – cash flows realisable Cash and cash equivalents Trade and other receivables Bonds and deposits Other investments 41,926 36,211 – 29 41,926 36,240 22,696 19,812 40,047 34,659 186 – 542 – Total anticipated inflows 62,929 55,013 Net inflow on financial instruments 21,003 18,773 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 940 940 940 41,926 36,211 29 – 41,926 36,240 22,696 19,812 40,047 34,659 186 – 542 940 62,929 55,953 21,003 19,713 63 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) (c) Market Risk i. Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash at bank balances with floating interest rates. The movement in interest rates would not have any material impact on the Group’s profit as the group is debt free. ii. Foreign exchange risk The Group has invested in businesses in Australia, New Zealand, Singapore and other Asian countries. In addition, the Group is billed from a number of software vendors in US dollars whereas for some customers it bills in local currency and this creates an exchange rate risk. Hedging these risks in Asian countries is expensive and in certain countries not possible hence the Group currently undertakes no hedging of these positions. Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Parent. In addition to the US exchange risk identified the group has material operations in Singapore, where functional currency is US Dollar, New Zealand and fluctuations in the US Dollar and New Zealand Dollar may impact on the Group’s financial results unless those exposures are appropriately hedged. The Group has not hedged its exposure to the above currencies. The following table shows the foreign currency risk on the financial assets and liabilities of the Group’s operations denominated in local currencies at year end. NET FINANCIAL ASSETS IN CONSOLIDATED GROUP Functional currency of entity Australian Dollars NZ Dollars US Dollars Other Statement of financial position exposure Foreign currency sensitivity analysis 2018 $’000 2017 $’000 11,825 (65) 1,667 3,129 8,512 2,075 1,479 4,259 16,556 16,325 The Group is mainly exposed to the US Dollar and New Zealand Dollar from a net asset perspective. The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonable possible change in foreign exchange rates. Equity (d) Fair Value NZD 2018 $’000 (25) 2017 $’000 26 USD 2018 $’000 (78) 2017 $’000 (129) The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values. 64 Notes to the Financial Statements (continued) Note 27. Fair Value Measurement Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; – Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and – Level 3 inputs are unobservable inputs for the asset or liability. Due to the availability of quoted prices in active markets, the asset, shareholding in LiveTiles Limited, has been transferred to level 1 and revalued according to its fair value at reporting date. Any fair value uplift is recognised in equity. CONSOLIDATED GROUP Investment at Fair Value Opening balance Fair value adjustment during the year Disposal Closing balance at fair value CONSOLIDATED GROUP Forward contract at Fair Value Opening balance Disposal Closing balance at fair value 2018 $’000 2017 $’000 940 (523) (417) – 817 123 – 940 2018 $’000 2017 $’000 29 (29) – – – 29 65 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 28. Interests in Subsidiaries (a) Information about Subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares or ordinary units which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by the Group. Each subsidiary’s principal place of business is also its country of incorporation. Ownership Interest Held By Group Proportion Of Non-Controlling Interest Name Of Subsidiary rhipe Australia Pty Ltd(i)(iv) rhipe Dynamics Pty Ltd(iv) NewLease G2M Pty Ltd(iii) rhipe Cloud Solutions Pty Ltd(iv) rhipe Solutions Australia Pty Ltd(iv) rhipe New Zealand Limited rhipe Singapore Pte. Ltd rhipe Technology (Thailand) Co., Ltd(ii) rhipe Malaysia Sdn Bhd NewLease Hong Kong Limited(iii) rhipe Philippines, Inc rhipe Philippines Technology, Inc(v) PT rhipe International Indonesia rhipe UK Pty Ltd rhipe Licensing Technology Korea Ltd. Principal Place Of Business 2018 (%) 2017 (%) Australia Australia Australia Australia Australia New Zealand Singapore Thailand Malaysia Hong Kong Philippines Philippines Indonesia United Kingdom Republic of Korea 100% 100% 63% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 63% 100% 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 2018 (%) – – 2017 (%) – – 37% 37% – – – – – – – – – – – – – – – – – – – – – – – – – – rhipe Solutions LLC (formerly Online SC LLC) United States Subsidiary financial statements used in the preparation of these consolidated financial statements have also been prepared as at the same reporting date as the Group’s financial statements. (i) This wholly-owned subsidiary has entered into a deed of cross guarantee with rhipe Limited pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785 and is relieved from the requirement to prepare and lodge an audited financial report. (ii) This wholly-owned subsidiary has entered into a deed of cross guarantee with rhipe Australia Pty Ltd (iii) This company is dormant. (iv) These companies are part of the Australian tax consolidated group. (v) This company is a wholly-owned subsidiary which was incorporated in June 2018. (b) Significant Restrictions There are no significant restrictions over the Group’s ability to access or use assets, and settle liabilities, of the Group. (c) Deed of Cross Guarantee The consolidated income statement and consolidated statement of financial position of the entities party to the deed of cross guarantee are: 66 Notes to the Financial Statements (continued) CONSOLIDATED GROUP Financial information in relation to: i. Statement of Profit or Loss and Other Comprehensive Income: Profit before income tax Income tax expense Profit after income tax Profit attributable to members of the parent entity ii. Retained Earnings: Retained Profit/(loss) at the beginning of the year Profit after income tax Dividend paid Retained profits at the end of the year Statement of Financial Position: CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets Total Current Assets NON-CURRENT ASSETS Other financial assets Loans receivable Property, plant and equipment Deferred tax assets Intangible assets Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Unearned revenue Current tax liability Provisions Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Other provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital Reserves Retained earnings Total Equity 2018 $’000 2017 $’000 6,157 (2,120) 4,037 4,037 2,357 4,037 (664) 5,730 19,892 22,269 3,272 45,433 14,885 10,464 850 1,102 9,016 36,317 81,750 3,611 (1,172) 2,439 2,439 (82) 2,439 – 2,357 11,601 16,398 1,539 29,538 15,737 16,082 661 852 7,540 40,872 70,410 27,460 20,614 1,597 1,733 728 353 1,646 473 31,518 23,086 1,950 520 2,470 33,988 47,762 39,288 2,744 5,730 47,762 1,233 265 1,498 24,584 45,826 40,977 2,492 2,357 45,826 67 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Notes to the Financial Statements (continued) Note 29. Parent Information The following information has been extracted from the books and records of rhipe Limited and has been prepared in accordance with Australian Accounting Standards. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Total profit/(loss) Total comprehensive income STATEMENT OF FINANCIAL POSITION ASSETS Current Assets Non-current Assets Total assets LIABILITIES Current Liabilities Non-current Liabilities Total Liabilities EQUITY Issued Capital Profit Reserve Accumulated Losses Reserves Total Equity Contingent liabilities 2018 $’000 1,283 1,283 2017 $’000 (1,298) (1,298) 17,299 27,978 45,277 16,925 29,028 45,953 880 – 880 627 157 784 101,621 102,275 619 - (60,825) (60,921) 2,981 44,397 3,814 45,169 At 30 June 2018, rhipe Limited had no contingent liabilities (2017: $Nil). Contractual commitments At 30 June 2018, rhipe Limited had not entered into any contractual commitments for the acquisition of property, plant and equipment (2017: $Nil). Note 30. Events After the Reporting Period On 26 July 2018 the Board of Directors approved a fully franked final dividend of 1 cents per share with payment date of 24 October 2018. Note 31. Company Details The registered office and principal place of business of the Company is: rhipe Limited Level 19, 100 Miller Street North Sydney NSW 2060 68 Directors’ Declaration rhipe Limited and Controlled Entities In accordance with a resolution of the directors of rhipe Limited, the directors of the Company declare that: 1. The financial statements and notes, as set out on pages 32 to 68, are in accordance with the Corporations Act 2001 and: a. comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the Group; 2. In the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and 3. The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer. The Company and a wholly-owned subsidiary, rhipe Australia Pty Limited, have entered into a deed of cross guarantee under which the Company and its subsidiary guarantee the debts of each other. At the date of this declaration, there are reasonable grounds to believe that the companies which are party to this deed of cross guarantee will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the deed. Dominic O’Hanlon Managing Director Dated this 20th day of August 69 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Independent Auditor’s Report To the members of rhipe limited and controlled entities 70 Independent Auditor’s Report (continued) 71 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Independent Auditor’s Report (continued) 72 Independent Auditor’s Report (continued) 73 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Additional Information for Listed Public Companies rhipe Limited and Controlled Entities The following information is current as at 2 August 2018 1. Shareholding a. Distribution of Shareholders Distribution of Shareholders Size of Holding 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of Shares % of Issued Capital Number of Holders Ordinary Shares 121,935,058 9,830,403 2,051,695 1,380,915 231,312 90.04 7.26 1.51 1.02 0.17 135,429,383 100.00 68 348 258 482 1,080 2,236 b. The number of shareholdings held in less than marketable parcels is 865. c. The names of the substantial shareholders listed in the holding company’s register are: Shareholder TUTUS MCDONAGH PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED d. Voting Rights Number of Ordinary Fully Paid Shares Held 24,810,730 17,816,438 13,568,862 10,085,932 8,304,503 The voting rights attached to each class of equity security are as follows: Ordinary Shares – Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands 74 Additional Information for Listed Public Companies (continued) e. 20 Largest Shareholders – Ordinary Shares Name 1. TUTUS MCDONAGH PTY LTD 2. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3. J P MORGAN NOMINEES AUSTRALIA LIMITED 4. CITICORP NOMINEES PTY LIMITED 5. NATIONAL NOMINEES LIMITED 6. UBS NOMINEES PTY LTD 7. CS FOURTH NOMINEES PTY LIMITED 8. BRISPOT NOMINEES PTY LTD 9. DAWN EDMONDS 10. CAMPSMOUNT PTY LTD 11. MIRRABOOKA INVESTMENTS LIMITED 12. DOMINIC JOHN O’HANLON 13. BNP PARIBAS NOMINEES PTY LTD 14. PRM INVESTMENTS PTY LTD 15. MR DOMINIC OHANLON & MRS KAREN OHANLON 16. EDMONDS WALLIS PTY LTD 17. LYNN O’NEIL & KIM ROCKMAN 18. BNP PARIBAS NOMS PTY LTD 19. MR WARREN NOLAN 20. JOHN LEON SAYERS Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 24,810,730 17,816,438 13,568,862 10,085,932 8,304,503 6,357,796 4,795,833 2,779,720 2,776,822 2,611,065 2,500,000 2,400,000 2,233,002 2,180,380 1,557,840 1,225,472 1,181,800 949,027 859,475 780,000 18.32 13.16 10.02 7.45 6.13 4.69 3.54 2.05 2.05 1.93 1.85 1.77 1.65 1.61 1.15 0.90 0.87 0.70 0.63 0.58 109,774,697 81.05 75 RHIPE LIMITED AND CONTROLLED ENTITIESABN 91 112 452 436 Additional Information for Listed Public Companies (continued) In addition to the registered holders of shares in RHP as shown above, rhipe Limited has current substantial shareholder notices, in 2018, from the following: Date Holder pursuant to Notice % of voting power 25 July 2018 30 July 2018 30 July 2018 Credit Suisse Holdings (Australia) Limited Pie Funds Management Limited Regal Funds Management Pty Ltd 5.17% 6.22% 7.14% Please note the above is provided for information purposes only and is based on information filed with ASX by the above registered holders pursuant to s671B of the Corporations Act 2001. 2. The names of the joint company secretaries are Andrew Whitten; and Maggie Niewidok. 3. The address of the principal registered office in Australia is Level 19, 100 Miller Street North Sydney New South Wales, 2060. Telephone: +61 3 9642 8695 4. Registers of Securities are held at the following addresses Link Market Services Limited Tower 4, 747 Collins Street Docklands VIC 3008 Investor Enquiries: 1300 554 474 Facsimile: +61 2 9287 0303 5. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the Company on all Member Exchange of the Australian Securities Exchange Limited. 6. Unquoted Securities Options over Unissued Shares A total of 3,673,334 options are on issue to 5 directors and 13 employees. 76 rhipe.com 

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