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 2019
Previous corresponding period is the financial year ended: 30 June 2018
2. Results for announcement to the market (Item 2)
Revenues from ordinary activities (Item 2.1)
Up 36% to
Profit from ordinary activities after tax attributable to members (Item 2.2)
Up 103% to
Net Profit for the period attributable to members (Item 2.3)
Dividends (Items 2.4)
Interim Dividend paid
Final Dividend
Up 103% to
Amount per
security
1.0 cent
2.0 cent
Record date for determining entitlements to a dividend (Item 2.5)
9 October 2019
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
48,356
6,214
6,214
Franked amount
per security
1.0 cent
2.0 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)
2019 interim dividend of 1.0 cent per share was paid on 24 May 2019. 2019 final dividend of 2.0 cent per share is declared
subsequent to balance date, on 16 August 2019 and will be paid on 24 October 2019 Interim and Final dividends are fully franked
at a tax rate of 30 per cent.
1
rhipe Annual Report 2019 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
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
Dymamic Business IT Solutions Pty Limited
Rhipe Lanka (Private) Limited
Loss of control of entities/disposals
Name of entities
Not applicable
2019
$0.14
2018
$0.15
Date(s) of gain of control Rhipe
1 March 2019
21 March 2019
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
2
rhipe Annual Report 2019 Bangkok
Colombo
SEOUL
Kuala Lumpur
BRISBANE
Manila
Auckland
SINGAPORE
Jakarta
SYDNEY
MELBOURNE
Build. Transform. Accelerate.
2019 Annual Report
Contents
Chairman’s Report
CEO Report
2019 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
9
18
35
36
37
38
39
40
77
78
85
1
rhipe Annual Report 2019
rhipe Annual Report 2019
rhipe Annual Report 2017
$252.5m
Sales – software products
and services
$48.4m
Group Revenue
$12.8m
Group Operating Profits
$10m
Group EBITDA
$25.5m
Group Cash Balance
Financial
Highlights
$252.5m
$196.6m
$157.0m
$137.0m
$105.0m
FY15
FY16
FY17
FY18
FY19
$48.4m
$35.6m
$29.0m
$26.2m
$20.2m
FY15
FY16
FY17
FY18
FY19
$12.8m
$7.8m
$5.0m
$1.5m
$0.1m
FY15
FY16
FY17
FY18
FY19
$10m
$6.4m
$4.0m
$1.5m
($1.4m)
FY15
FY16
FY17
FY18
FY19
$25.5m
$22.7m
$19.8m
$13.8m
$12.4m
FY15
FY16
FY17
FY18
FY19
2
FY19 Growth
28%
36%
65%
57%
$2.8m
rhipe Annual Report 2019
Our Value
Proposition
Cloud first
Channel first
Platform for Recurring Subscription Management
(“PRISM”) used by 3,000+ IT resellers to buy,
provision and bill their end user clients for
monthly cloud software subscriptions.
Value added services for our resellers including
technical advice and support, 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
SEOUL
Kuala Lumpur
Manila
Auckland
Jakarta
SYDNEY
brisbane
melbourne
SColombo
Bangkok
As at 30 June 2019
rhipe had 313 employees
(June 2018: 203 employees)
Strategic
Operating Divisions
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,
Gary Cox
Non Executive Chairman
rhipe enters FY20 in a strong position with
more than $25M of cash on hand and
continued growth rates compounded by new
vendors, new licensing programs, new partners
and new geographies.
The Board sincerely acknowledges the
outstanding efforts of the entire staff
at rhipe, its partners and congratulates
them for delivering another year of
records and awards.
Yours Sincerely,
Gary Cox
Chairman
the leadership team and will help provide
the platform for sustainable growth as
the company continues to invest and
expand.
Growth was led from our deep
relationship with Microsoft and we
were delighted with the support and
acknowledgement in 2019 to be named
again as a globally managed account
as well a receive the runners up award
for Microsoft’s 2019 Global CSP Indirect
Provider where rhipe competes against
multi-billion dollar companies across the
globe.
With a recurring revenue model, rhipe
enters 2020 in a strong position with
more than $25M 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 we would like to
thank all our stakeholders for believing
in rhipe’s future and believing in the
management team to continue to deliver
above average growth rates.
Acceptance and adoption of public
and private cloud computing
continues to show no sign of slow
down across the Asia Pacific market.
rhipe’s cloud subscription business
positions the company well to further
capitalise this opportunity across Asia
Pacific.
rhipe is further demonstrating its ability
to work with its partners to drive value
added services which support the desires
of customers to adopt cloud and take
advantage of the flexibility provided.
In light of a very successful 2019, I would
like to thank you for supporting the
Company’s strategy and believing in the
entire rhipe team who work tirelessly to
capture this remarkable cloud market
opportunity. I continue to be excited
about the future for rhipe and that was
one of the reasons I was delighted to be
appointed as Chairman during 2019.
The financial results for 2019
demonstrate the Company has been
able to capitalise further on its profitable
2018 result. Importantly, the Company
has grown across geography, product
and licensing program throughout the
2019 year which once again with its
subscription base revenue stream sets
up a bright start looking into the 2020
fiscal year.
Our continued strategy to build out
and invest in our footprint in key fast
developing Asian markets has provided
rhipe with the opportunity to build
market share and capitalise on the
changing IT industry. The investments
we have made in Asia over the past five
years have proved successful and will
providethe foundation for future growth.
Of significance to rhipe moving forward
is the development of its culture and
people strategy. This will continue to
form a key pillar in the strategic focus of
4
rhipe Annual Report 2019 CEO
Report
rhipe has an established leadership
position in the Asia Pacific region (APAC)
as a Platform of choice for I.T. resellers
to manage monthly Pay-As-You-Go
(PAYG) cloud software and infrastructure
subscriptions. Unlike traditional I.T.
distributors who are largely focused
on Pay-Up-Front sales models, rhipe’s
vision is “A world without shelfware”;
a world in which companies pay a
monthly fee for what they consume
via private or public cloud data centres.
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 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 South Korea.
rhipe is now one of Microsoft’s leading
indirect (or wholesale) global cloud
solutions providers (CSPs), with significant
sales growth in key cloud products
like Office365, Microsoft Azure, and
Dynamics365. In addition, rhipe helps
other international vendors like VMWare,
Citrix, Red Hat, Trend Micro, Veeam,
Zimbra and Symantec to build and
grow consumption of their subscription
license programs. More than 3,000
I.T. resellers in Asia Pacific now rely on
rhipe’s platform for recurring subscription
management (PRISM) to help with cloud
provisioning, billing, reporting and support
of their data centres and/or end-user
customers.
During the 2019 financial year (FY19),
rhipe’s investment in the Microsoft
CSP program has helped the business
to add annual sales growth of +80%
for Microsoft Office365 and +190% for
Microsoft Azure. Over the 12 months
from July 1 2018 to June 30, 2019, end
user Microsoft Office365 seats deployed
Dominic O’Hanlon
Managing Director and CEO
$243m in software
license sales with a
gross revenue of $38.7m.
on rhipe’s PRISM platform grew from
260k to 600k seats, annual growth of
+130%. Over the same time, Microsoft
Azure tenants provisioned on PRISM grew
from 380 to 590 tenants.
FY19 was also a significant year in helping
to build out rhipe’s value added services
offerings. These offerings, collectively
known as rhipe Solutions, include 24x7
technical support and consulting as a
service for rhipe’s key I.T. reseller clients.
In February of 2019, rhipe announced
the acquisition of a Microsoft Dynamics
consulting business “Dynamics Business
IT Solutions Pty Ltd (“DBITS”). The
DBITS business has been integrated
into the rhipe solutions business in
order to help expand the value-added
services that rhipe can provide its reseller
clients. DBITS is performing in line with
expectations and we are excited about
the opportunities for growth with these
added capabilities.
The growth in rhipe’s licensing and
solutions business units over FY19 has
demonstrated a clear validation of the
investment and expansion decisions
that rhipe has taken in recent years.
Operating profit increased from break
even in FY16 to $5.0m in FY17, $7.8m
in FY18, and now $12.8M in FY19. This
growth in profitability has come despite
ongoing investments in growing rhipe’s
business across Asia Pacific.
In particular, I would like to highlight a
number of significant achievements in the
2019 Financial Year:
– $243m in software license sales with
revenue of $38.7m. This represents
a year over year growth in sales and
revenue of 28% and 34% respectively
(compared to 25% and 21% in FY18);
– Achieving a 76% growth in local
Asian sales (excluding sales from ANZ
customer buying through Asia). Total
sales in Asia were $47.2m compared
to $26.9 in FY18 and $16.2 in FY17.
– 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 135 full time equivalent
employees at the end of June 2019.
In FY20 rhipe expects to see the
trends from FY19 continue. Sales,
Gross revenue, and Operating Profits
are expected to continue growing. The
mix of margins and incentives between
different products will continue to change
as vendors focus on moving resellers and
clients onto their most recent or strategic
product sets. However, rhipe will continue
to manage it’s operating expenses in
line with any such changes in order to
capitalise on new growth opportunities
while also delivering the operating profit
guidance that we provide to shareholders.
On behalf of the Board we would like to
thank our staff for a fantastic FY19. 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 FY20.
Yours Sincerely,
Dominic O’Hanlon
Managing Director and CEO
5
rhipe Annual Report 2019 2019
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 over 3,000 IT service provider resellers in the Asia
Pacific region. rhipe has established strong momentum driven
by its vision of a “world without shelfware” and has become one
of the leading Asia Pacific platforms for monthly Pay-As-You-
Go (PAYG) cloud software license subscriptions. International
software vendors such as Microsoft, VMWare, Citrix, Red Hat,
Trend Micro, Veeam, Zimbra and Symantec all rely on rhipe’s
Platform for Recurring Subscription Management (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 for managing end-user customer licenses.
rhipe’s 24x7 technical support desk is now also supporting
one of rhipe’s software vendors to service the vendor’s end
customers.
Operating Results and Review of Operations
for the Year
During the 12-month period to 30 June 2019 (“FY19), rhipe
has continued to invest in operations that are focused on the
IT 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.
6
Impact of AASB 15
As a consequence of the new accounting standard “AASB 15
Revenue from Contracts with Customers” the Company will
now recognise its software licensing revenue on an ‘agent’
basis rather than a principal basis. The impact of this change
is a reduction in reported revenue to reflect the value that
rhipe is receiving for the services it provides which excludes
the value of the software sourced from software vendors.
Therefore, what we remit back to our software vendors will no
longer be captured in our recorded revenue. The impact on our
financial results is summarised below.
– Licensing revenue will now be referred to as “Sales from
software products”
– Licensing gross margin will now be reported as “Licensing
revenue”
– Our services and support revenue is not affected with the
revenue and cost of sales continuing to be presented on a
gross basis
The Group has elected to adopt the fully retrospective approach
to adoption and as a result, the prior year comparatives have
been adjusted to be on a consistent basis with the current year
treatment.
There is no impact on gross profit, operating profit or net profit
after tax for the Group.
rhipe Licensing
In FY19 rhipe continued to invest both in its public cloud and
its longer-established private cloud business. Whereas rhipe
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 Office 365 and Microsoft Azure). Growth
in Office 365 (“O365”) and Azure has underpinned the growth
delivered by rhipe in FY19 with Office 365 sales growing +80%
and Azure growing at +190% during this financial year. Sales of
Microsoft’s public cloud products now represent approximately
30% of total licensing sales and delivered 60% of the
Company’s sales growth in FY19.
At the beginning of FY19 rhipe’s partners were consuming
approximately 260,000 seats of O365 per month and by June
30, 2019 monthly consumption was more than 600,000 seats,
an increase of more than 130% in this activity in the last
twelve months. Annualised Run Rate (ARR) Sales from CSP is
now over $80m with Office365 contributing $59m and Azure
more than $21m. This compares to total ARR Sales from CSP
of $42m twelve months ago and $22m at June 2017.
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 data centre licensing business.
rhipe Annual Report 2019 Operating and Financial Review (continued)
Growth in the Microsoft private cloud licensing market was 8%
across all of rhipe’s markets in the current financial year with
Asia delivering sales growth of 22% year on year. Excluding
one off sales in FY18 growth in the private cloud software
licenses has remained broadly similar year on year despite the
increasing demand for public cloud products.
Although Microsoft products deliver around 74% 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 FY19 customers was
approximately 19% versus 15% in FY18.
rhipe Solutions
rhipe Solutions provides a small technical consulting group and
a much larger 24x7 support team to assist rhipe’s resellers and,
more recently, one of rhipe’s key vendors. In addition, during
FY19 rhipe acquired a Microsoft Dynamics consulting business
“Dynamics Business IT Solutions Pty Ltd (“DBITS) which focuses
on implementing Microsoft’s enterprise resource planning software
application. The DBITS business has been integrated into the
rhipe solutions business in order to expand the value-added
services that rhipe can provide to its reseller partners.
profitability with operating profit of $12.8m up $7.8m from the
previous year, an increase of 64%. The growth in profitability
of the Group has been driven by:
1. Investments made in the business over the past few years,
notably in our public cloud capabilities, our Asian operation
and our 24x7 support activities, all of which have produced
strong sales and revenue growth in FY19;
2. Attracting new customers or partners into the rhipe
ecosystem to increase our customer base in all countries;
and
3. Careful cost management which has allowed us to continue
to invest in a number of areas while also delivering an
increase in profitability.
Sales
FY19 sales growth of $56m, compared to $40m in FY18, was
driven by the areas of the business where we have made material
investments, notably our public cloud business with Microsoft CSP
(Microsoft Office365 and Azure). Over the last 12 months sales
from these products grew by 99% (versus 130% in FY18) from
$14m in FY17 to $33m in FY18 and to $65m in FY19. The growth
in Microsoft CSP delivered circa 60% of the sales growth in FY19
versus 40% in FY18.
The consulting team helps with technical implementation services
to deepen our relationships with resellers while also assisting
to drive the ongoing sale of cloud software licenses. rhipe will
continue to refine the strategy for our consulting team especially
in relation to public cloud growth opportunities for products such
as Microsoft Azure and Microsoft Dynamics365.
rhipe’s longer established Microsoft private cloud business also
continued to grow in FY19, particularly in our Asian operations
where local private cloud sales of Microsoft licences grew by 22%
year on year. Excluding the impact of a number of one-off sales
in FY18, growth of rhipe’s Microsoft private cloud sales were
broadly consistent with the prior year at 8% annual growth.
The much larger 24x7 technical support team was significantly
expanded in FY19 as a result of the growth in a support contract
for one of rhipe’s software vendors. At the end of FY19, rhipe
had approximately 135 employees in this support team, primarily
based in Philippines, compared to 80 employees at June 2018.
In FY20 we intend to continue to invest in the service offering
provided by rhipe Solutions and expansion of the service offering
into related areas.
Overall results
The results presented in this financial report reflect the
operations of the Group from 1 July 2018 to 30 June 2019.
Financial Summary ($’000)
FY19
FY18
Change
Sales
Revenue
Gross Profit
252,537
196,608
48,356
35,624
45,880
34,071
Operating Expenses
(33,038)
(26,310)
Operating Profit
Reported EBITDA
12,842
10,017
7,761
6,384
+28%
+36%
+35%
+26%
+65%
+57%
Profit/(Loss) After Tax
6,214
3,066
+103%
For FY19, the Group reported another strong increase in
Growth from our non-Microsoft vendors has also been strong with
a year on year increase of around 19% versus 15% in FY18 driven
by continued focus on investing in our capabilities and marketing
of these complementary products.
Revenue
As noted earlier, the impact of the new accounting standard
AASB 15 “Revenue from Contracts with Customers” has
resulted in a reduction of reported revenue for the Company to
reflect the value that rhipe is receiving from customers for the
services it provides which excludes the value of the software
sourced from our software vendors.
For our Licensing business, revenue will include the margin
rhipe earns from customers for the services that rhipe provides
and any sales incentives that rhipe receives from its software
vendor. For rhipe Solutions revenue has not been impacted by
the new accounting standard and revenue reflects total amount
received for services provided to partners.
Growth in Group revenue for FY19 of 35% was driven by
growth in sales in our Licensing business plus the benefit of
a ‘strategic growth accelerator’ rebate received from a key
software vendor with Licensing revenue increasing $9.8m or
34% year on year. Growth in rhipe Solutions revenue in FY19
was $2.9m or 42% driven by increased 24x7 support activities
for one of rhipe’s key vendors.
7
rhipe Annual Report 2019 Operating and Financial Review (continued)
Operating expenses
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 come available. In the 12 months
to 30 June 2019 the Group invested over $2.3m in PRISM
comparable to the prior year investment. rhipe believes that
PRISM provides a competitive advantage that can be leveraged
to support the ongoing growth in rhipe’s business, and we
will continue to invest in and add to PRISM to maintain its
competitiveness.
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 2019 the Group had cash of $25.5m
compared to a cash balance of $22.7m at 30 June 2018.
This increase in cash resources is after distributing $2.7m to
shareholders via dividends, the continued investment in PRISM
of $2.3m and the acquisition of DBITS with a cash payment
of $3m made in March 2019. Net cashflow from operating
activities increased from $7.8m in FY18 to $12.6m in line with
our operating profit for each year.
As a result of the strong year end cash position the Board has
approved a final fully franked dividend of 2.0 cents per share
which will yield a total fully franked dividend per share for FY19
of 3.0 cents, an increase of 100% year on year.
Operating expenses in FY19 increased by $6.6m or 25% year
on year with the majority of this increase driven by investment
in front office headcount to help support the strong sales and
revenue growth experienced by the Licensing business. The
number of full-time equivalent employees (FTE) across the
Group increased from 118 at 30 June 2017 to 203 at 30 June
2018 and to a further 313 at 30 June 2019.
Operating Profit and EBITDA
The table below outlines the operating profit and underlying
EBITDA, key performance measures for the management and
the Company, contribution from the Group for the year ending
June 30, 2018:
Adjustments between Operating profit and EBITDA
($’000)
Operating profit
Less
Foreign exchange gain or (loss)
Restructuring and transaction costs
Impairment expense
Gain on sale of investments
FY19
12,842
FY18
7,761
291
(473)
(20)
-
(286)
(380)
-
309
Share-based payments expense (non-cash)
(2,623)
(1,020)
Total adjustments
EBITDA
(2,825)
(1,377)
10,2017
6,384
Operating profit in FY19 grew by $5m or 64% year on year
with EBITDA growing by $3.8m or 60% over the same period.
The improvement in overall profitability was driven by the
strong growth in revenue in both the Licensing and Solutions
businesses and management of our cost base.
8
rhipe Annual Report 2019 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 2019. The information in the preceding Operating and Financial Review forms part of this Director’s Report for the
financial year ended 30 June 2019 and is to be read in conjunction with the following information.
General Information Directors and other Executives
The following persons were directors of rhipe Limited during or since the end of the financial year up to the date of this report:
– Gary Cox, appointed 26 March 2019
– Dominic O’Hanlon
– Dawn Edmonds
– Mark Pierce
– Michael Tierney
– Inese Kingsmill, appointed 15 April 2019
– Olivier Dispas, appointed 15 April 2019
– Laurence Sellers, retired 8 November 2018
– Mike Hill, retired 26 March 2019
Information relating to Directors, other Executives and Company Secretary
Gary Cox
Non-executive Chairman
Experience and Qualifications
Appointed 26th March 2019
Mr Gary Cox has over 35 years of global experience in the technology industry
across the UK, USA, Asia, Japan and ANZ in senior leadership roles with
Microsoft, EMC and Oracle. Recently Mr Cox has held both strategic consulting
and board appointments for technology organisations based in Australia with
global growth focus and leveraging both his broad business management and
extensive experience in cloud and managed services.
His last position at Microsoft was VP Enterprise and Partner business for
Asia (Japan, India, APAC, Hong Kong, Taiwan) excluding China. He retained
responsibility for all key industry segments throughout Asia across 16
subsidiaries which encompassed all Microsoft’s large customers across the
commercial and public sector markets.
Dominic O’Hanlon
Managing Director and Chief Executive Officer
Interest in Shares and Options
None
Special Responsibilities
Remuneration and Nomination Committee
Directorships held in other listed entities during
the three years prior to the current year
None
Experience and Qualifications
Appointed 15 June 2015, Chief Executive Officer from 5 August 2014 and was
appointed as Managing Director on 15 June 2015.
Interest in Shares and Options
3,857,840 ordinary shares, 300,000 options and
1,343,298 performance rights
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.
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
9
rhipe Annual Report 2019 Directors’ Report (continued)
Dawn Edmonds
Non-executive Director
Experience and Qualifications
Appointed 10 April 2014. Ceased Interim Chief Executive Officer on 5 August
2014 upon appointment of Dominic O’Hanlon.
Ms Dawn Edmonds is one of the founders of rhipe (then NewLease) and has
nearly 20 years’ experience in the IT industry. 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 two other successful start up businesses.
Dawn has received industry awards for Women in IT and Entrepreneurship
and continues to be passionate about diversity in the workplace and the IT
industry.
Mark Pierce
Non-executive Director
Experience and Qualifications
Appointed 10 April 2014
Mr Pierce has over 25 years’ corporate finance and business experience gained
from senior positions held at Westpac, Macquarie Bank, Rabobank and Credit
Suisse. Since 2009, he has worked as an independent advisor and company
director. In this role, he has extended his experience to include a deep
understanding of business and product development, company operations,
and corporate governance. In 2016, Mr Pierce co-founded a finance business,
offering specialist finance to the medical sector. This business has grown to
over $100m of assets and continues to grow its assets and profitability with
significant institutional funding support. Mark is a Graduate of the Australian
Institute of Company Directors.
Interest in Shares and Options
2,702,294 ordinary shares
Special Responsibilities
Risk Committee and Remuneration and Nomination
Committee
Directorships held in other listed entities during
the three years prior to the current year
None
Interest in Shares and Options
320,000 ordinary shares
Special Responsibilities
Audit Committee (Chair) and Risk Committee
(Chair)
Directorships held in other listed entities during
the three years prior to the current year
None
Michael Tierney
Non-executive Director
Experience and Qualifications
Appointed 27 January 2017
Interest in Shares and Options
2,007,191 ordinary shares
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
Special Responsibilities
Audit Committee and Remuneration and
Nomination Committee
Directorships held in other listed entities during
the three years prior to the current year
None
10
rhipe Annual Report 2019 Directors’ Report (continued)
Inese Kingsmill
Non-executive Director
Experience and Qualifications
Appointed 15 April 2019
Interest in Shares and Options
32,904 ordinary shares
Spanning a career of over 20 years, Inese is among Australia’s most respected
marketing executives.
Special Responsibilities
Risk Committee
During her career Inese has led marketing, digital, sales and channel functions
at Microsoft, Telstra and Virgin Australia. Transformation and change have
been common themes that have underpinned her career.
Directorships held in other listed entities during
the three years prior to the current year
None
In addition to her corporate career, Inese was a member of the Board and
Chair of the Australian Association of National Advertisers (AANA), Australia’s
peak media, marketing and advertising industry body. She is also currently on
the Board of WorkVentures, Australia’s longest standing IT social enterprise.
With a personal interest in fostering innovation in Australian business, Inese
is currently director and co-founder of Breakfast Epiphanies Consulting
Group, a privately held management consulting practice engaged in digital
transformation, strategy planning and leadership development.
Olivier Dispas
Non-executive Director
Experience and Qualifications
Appointed 15 April 2019
Olivier Dispas has spent more than 25 years in the IT industry, focused on
channel and partner strategy and sales leadership. Most recently, he led the
worldwide partner sales and strategy team focusing on licensing solution
partners at Microsoft, driving deal and investment negotiation and long-
term growth planning. He serves as an advisor to the boards of Enlyft and
Quantiq, and continues to provide consulting and coaching services to partner
organizations within the industry.
Laurence Sellers
Non-executive Director
Interest in Shares and Options
None
Special Responsibilities
Remuneration Committee
Directorships held in other listed entities during
the three years prior to the current year
None
Experience and Qualifications
Appointed 10 April 2014, retired from the board 8 November 2018
Interest in Shares and Options
None
Mr Sellers 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 acquisition by Tech Data was one of the world’s
largest distributors of IT hardware and software, listed on the New York Stock
Exchange.
Special Responsibilities
Risk Committee and Remuneration and Nomination
Committee (Chair), resigned 8 November 2019
Directorships held in other listed entities during
the three years prior to the current year
None
11
rhipe Annual Report 2019 Directors’ Report (continued)
Mike Hill
Non-executive Chairman
Experience and Qualifications
Appointed Non-executive Chairman 31 January 2017, retired from the board
26 March 2019
Mr Hill is a former Partner of Ernst & Young in the M&A advisory team and has
also worked as a principal investor with 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.
Mark McLellan
Chief Financial Officer and Chief Operating Officer
Experience and Qualifications
Mark joined rhipe in November 2016 as Chief Financial Officer and was
appointed Chief Operating Officer in March 2018. Mark qualified as a
member of the Institute of Chartered Accountants of Scotland in 1997 and
also holds a B.A. (Hons) Degree in Economics. Mark has previously worked for
PricewaterhouseCoopers and Ernst & Young and prior to joining rhipe, Mark
worked for The Royal Bank of Scotland plc for twelve years latterly in their
Strategy and Corporate Development team. Mark has extensive experience
in strategic planning, financial and capital allocation modelling and mergers
and acquisitions.
Chris Sharp
Group Executive - Products & Licencing
Interest in Shares and Options
40,000 ordinary shares
Special Responsibilities
Chairman, Remuneration Committee, Audit
Committee and Business Development until
retirement
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)
Interest in Shares and Options
700,000 ordinary shares and 270,000 options
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
Experience and Qualifications
Chris joined rhipe in October 2014 as Chief Strategy Officer and was appointed
Group Executive - Products & Licencing in July 2019. Chris holds undergraduate
qualifications from USQ and a Master of Business Administration from AIB.
Chris has worked in the IT industry for most of his career and has held senior
management roles for Red Hat and Microsoft prior to joining rhipe. Chris
has spent the last 17 years in Singapore helping Multinational companies
like Microsoft and rhipe to expand their partner channel throughout Asia.
Chris has extensive experience in channel strategy, partner planning and
market development.
Interest in Shares and Options
779,225 ordinary shares
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
12
rhipe Annual Report 2019 Directors’ Report (continued)
Warren Nolan
Group Executive - Solutions & Professional Services
Experience and Qualifications
Warren Nolan joined rhipe in 2005. Warren is an experienced senior executive
with a deep understanding of strategic planning, channel development,
relationship management and sales execution. He has been at the forefront of
rhipe’s go to market strategy in the early stages of rhipe’s evolution. Warren
was inducted into the Australian Reseller News ICT industry Hall of Fame in
2017 recognising his contribution to the development of Australian’s Cloud
channel. His previous experience includes senior management positions in the
banking & finance, manufacturing and recruitment sectors.
Interest in Shares and Options
1,009,475 ordinary shares and 200,000 options
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
Patara Yongvanich
Managing Director - Asia
Experience and Qualifications
Patara Yongvanich joined rhipe in 2015 and is responsible for managing
our subsidiaries in South Asia. Patara is a senior business executive and
technologist with extensive experience in strategic planning, business
development, and sales execution. He is a recognized expert in helping global
organizations reengineer and optimize critical business processes. Previous
experience includes working at SAP and Microsoft. He holds a Master’s of
Business Administration from Cornell University and a Master’s Degree from
Stanford University.
Interest in Shares and Options
518,064 ordinary shares
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
Andrew Whitten and Maggie Niewidok
Joint Company Secretaries, resigned 24 May 2019
Marika White
Company Secretary, appointed 24 May 2019
Experience and Qualifications
Marika is Executive Director of Emerson Operations and provides tailored
company secretarial and compliance services to a range of public, private
and not-for-profit organisations in Australia and internationally.
Marika has extensive company secretarial experience, both in Australia and
overseas, and is a member of the Australian Institute of Company Directors
and the Governance Institute of Australia.
Interest in Shares and Options
None
Special Responsibilities
None
Directorships held in other listed entities during
the three years prior to the current year
None
13
rhipe Annual Report 2019 Directors’ Report (continued)
rhipe Limited Risk Governance Framework
The rhipe Limited risk governance framework outlines how risk is managed in the Company including maintenance and ownership of
the risk register and also the Company’s risk appetite statement is determined.
The risk governance framework is reviewed on an annual basis by the Board to ensure that the Company is operating pursuant to the
risk appetite set by the Board.
Overview of Board Responsibilities for Risk Management
Below is a summary of the risk management responsibilities of the Board:
– identify and assess the principal risks facing the company;
– determine risks the organisation is willing to take or “risk appetite”;
– ensure the risk profile of the company is kept under review and measures to manage or mitigate the principal risks are taken;
– regular monitoring and review of identified risks is undertaken;
– regular risk management communication takes place to and from the board;
– ensure that risk management is incorporated within normal processes; and
– review, approve and monitor system of internal controls including those designed to ensure the integrity of budgets, financial
statements and other reporting.
To assist the Board in discharging its responsibilities in relation to risk management, the Board has approved this risk governance
framework and has delegated certain activities to the Audit & Risk Committee. The Board has also delegated various authorities
to the Managing Director and CEO to enable the management of the Company on a day to day basis are carried out within
authorities approved by the Board.
An outline of the risk governance framework is shown below:
GOVERNANCE
Board of Directors
Remuneration and Nomination Committee
Audit and Risk Committee1
Delegation of Authorities, Risk Appetite Statement and Internal Controls
Operational Management
Central Support Functions
Audit Activities
Including Program Operations
Finance, IT, HR and Legal
Including ISO 27001 audit
and external audit
1. From 1 July 2019, Audit Committee and Risk Committee were combined into one committee
14
rhipe Annual Report 2019 Directors’ Report (continued)
The Managing Director/CEO and the Chief Financial Officer are responsible for providing a declaration to the Board regarding the
half and full-year financial statements in accordance with section 295A of the Corporations Act 2001 and recommendation 4.2 of
the ASX Principles and for providing assurance to the Board that the Company’s financial and non-financial risk management and
internal control systems are operating effectively.
Audit and Risk Committee
The Board has established an Audit and Risk Committee (Committee) on 1 July 2019 to assist the Board in its responsibilities
regarding continuous disclosure, financial reporting, legal and regulatory compliance, managing the Company’s risk register and its
internal control systems.
The Committee oversees the internal controls, policies and procedures which the Company has established to identify and manage
key risks and where required the Committee will review matters on behalf of the Board and make recommendations which are
then referred to the Board for resolution (if the committee has an advisory role) or resolve matters entirely (if the committee has
been delegated authority), which is then reported to the Board.
The roles and responsibilities of the Committee are set out in the Audit and Risk Committee Charter.
The CEO/Managing Director and the Chief Financial Officer/Chief Operating Officer, Company Secretary, General Counsel, external
Auditor and any other relevant third-party advisors or personnel may also attend meetings of the Audit and Risk Committee.
Risk Appetite
The Board also have in place a Risk Appetite statement that is reviewed and updated annually as part of the business planning
cycle and reflects the expected financial performance of the company in the next twelve months.
The risk appetite takes into account the level of risk and earnings volatility that the Board is prepared to take to achieve strategic
objectives and offers management practical guidance around risk appetite when managing the business on a day to day basis.
In determining its risk appetite, the Board considers:
– updates provided by senior management on key strategic and operational matters;
– the group’s annual budgeting process;
– significant matters that have been reserved for the Board;
– risk factors identified by the Board and Management and included in the risk register; and
– the reports of the external Auditor
Key Material Business Risks
rhipe’s activities and the industry that it operates within give rise to a broad range of risks. These risks are identified by the Board
and Management and are recorded in the Company’s risk register. Each identified risk is allocated a Senior Management owner
who has responsibility to ensure any appropriate internal controls are in place and operating to provide mitigation or ensure the
Board is regularly informed on any material changes in the identified risk.
The Company’s risk register includes the following key risks categorised under Strategic Risks, People Risks, Operational Risks and
Financial Risks:
Strategic Risks
People Risks
– Competitive pressures from existing competitors and
– Key person risk
new market entrants
– Dependency on Microsoft
– Technological innovation change
– Failure to retain existing customers and attract new
customers
– Geopolitical risks associated with each country that we
operate in
– Inability to retain and attract talent
– Insufficient resources to manage continued growth
– Work place health, safety and welfare
– Ineffective or inappropriate culture
15
rhipe Annual Report 2019 Directors’ Report (continued)
Operational Risks
Financial Risks
– Data loss and data breach
– Liquidity and funding risk
– Cyber Security and disruption to technology systems
– Credit risk - customers and suppliers
– Adequacy of IT systems including Financial systems
– FX risk
– Anti-bribery & corruption
– Inadequate process documentation
– Business continuity and disaster recovery risk
– Compliance with applicable laws and regulations in each
country rhipe operates
– Ability to manage operational change in a careful and
controlled manner
– Completeness and accuracy of revenue recording,
availability and accuracy of systems
– Capitalised software development costs; to date $6.4m
costs have been capitalised and rhipe continue to invest
heavily in improving Prism competitiveness
– Goodwill impairment
– Tax & Compliance risk in certain less developed Asian
countries
The risk register is reviewed by the Audit and Risk Committee at least twice a year. The risks included on the risk register are also
rated as Low, Medium or High from a probability perspective and weighted in terms of impact on the Company. This segmentation
helps to identify the higher risk items and whether they have a low, medium or high impact on rhipe.
The risk register is also reviewed by Senior executives and management every six months to ensure they are aware of their risk
management responsibilities and are required to escalate any key issues which arise or have the potential to arise. The CEO and
the CFO / COO have the primary responsibility to advise the Board of key risk areas which arise and together, the Board and
senior management are responsible for taking all reasonable steps to address and mitigate such risk items.
Indemnifying Officers or Auditor
Non-audit Services
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.
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.
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 Ernst & Young
Australia for non-audit services provided during the year ended
30 June 2019.
Due diligence and taxation
$
237,000
237,000
16
rhipe Annual Report 2019 Directors’ Report (continued)
Significant Changes in State of Affairs
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 2019 released to ASX and posted on the
Company’s website www.rhipe.com/about/investors/.
Events after the Reporting Period
Final dividend of 2.0 cent per share, fully franked, is declared
subsequent to balance date, on 16 August 2019 and will be
paid on 24 October 2019.
In addition, rhipe has acquired 100% of the share capital of
Network2Share Pty Limited, an Australian based security
software company that has developed a user-friendly
encryption product (‘SmartEncrypt’) which rhipe plans to
bundle with Microsoft Office365, Microsoft Azure, and other
vendor software licenses. The share purchase agreement
was executed on 2 August 2019 with completion of the
acquisition on the same day. Total consideration payable for
Network2Share Pty Limited is up to $5.0m of which $2.0m
was paid on completion and the reminder is contingent on
future performance over the next five years.
Apart from these, there has not been any other matter or
circumstances occurring subsequent to the end of the financial
year that has significantly affected, or may significantly affect
the operations of the Group, the results of those operations,
or the state of affairs of the Group in future financial years.
Dominic O’Hanlon
Managing Director and CEO
There were no significant changes in the state of affairs
of the Group during the financial year.
Future Developments, Prospects and
Business Strategies
The Group has strong existing relationships with a number
of key software and technological partners and the Group
will look to continue to build and nurture these relationships.
The Group will also continue to explore opportunities to further
expand its reach from its current bases in Australia, New
Zealand, Singapore, Thailand, Malaysia, Philippines, Korea and
Indonesia. In Q4 FY19 rhipe established a subsidiary in Sri
Lanka. It is expected that our activities in this country will not
be material in a Group context. In addition the Group intends
to expand its activities into the Japanese market. rhipe plans to
temper any such expansion in operations so that the business
can generate a solid growth in earnings in FY20.
rhipe will continue to assess further acquisition opportunities
that will complement, create synergies or bring scale and
earnings growth to the Company’s existing business model.
Environmental Issues
The consolidated Group’s operations are not regulated by any
significant regulations under a law of the Commonwealth or
of a state or territory.
Options
As at the date of signing this report, there were 870,000
unissued ordinary shares under option (30 June 2018:
3,673,334. These options are exercisable as follows:
Date
of Grant
27/07/2014
27/02/2015
1/11/2016
1/11/2016
13/09/2017
13/09/2017
Number
of Options
Date
of Expiry
Conversion
Price ($)
300,000
11/08/2021
200,000
1/07/2021
135,000
135,000
1/11/2020
1/11/2023
50,000
12/09/2021
50,000
12/09/2022
870,000
0.75
0.75
0.94
0.94
0.5
0.5
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended
30 June 2019 has been received and can be found on page 35
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.
17
rhipe Annual Report 2019
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 Key Management Personnel “KMP” Remuneration for FY19
3.1 Matters Identified as Relevant Context for Remuneration Governance in FY19
19
20
21
21
3.2 Key Remuneration Matters Identified and Adjustments Made or Planned in Response, since the Previous Report 21
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 FY19 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 FY19 and FY20, and Fee Limit
8
Remuneration Records for FY19 – Statutory and share-based reporting
8.1 Senior Executive Remuneration
9
Employment Terms for Key Management Personnel
9.1 Service Agreements
10 External Remuneration Consultant Advice
21
22
22
22
23
23
23
24
24
24
24
24
25
26
27
27
28
29
29
31
32
32
34
34
34
18
rhipe Annual Report 2019
Remuneration (continued)
1. Message from
the Chair of the
Remuneration
and Nomination
Committee
On behalf of the Remuneration and Nomination Committee and
the Board, I am very pleased to present rhipe’s Remuneration
Report for the financial year ended 30 June 2019 (“FY19”).
This year has also seen an evolution and expansion of the
Company’s Board with the appointment of three new highly
skilled directors from diverse and broad industry backgrounds.
In its fifth full year as a listed entity, the company has seen
another year of extraordinary organisational growth - the
number of employees across the company grew by more than
50%, operations expanded into Sri Lanka and the strategically
important acquisition of Microsoft Dynamics service provider,
DBITs, was completed.
To support this growth and organisational complexity, the
company has focused on a number of people and performance
measures including the introduction of a Diversity and Inclusion
Council, the launch of a series of management development
workshops and adjustments to the Short Term Incentive Plan
(STIP) to drive a strong people and performance culture.
A key focus has also been on expanding and refining the
company’s Long Term Incentive Plan (LTIP) in order to align
internal goals and objectives with long term value creation for
shareholders and to appropriately reward and retain executive
talent within the organisation. In developing the LTIP, the
Company sought advice from independent consultants on
current best practices and also took into account the Company’s
unique position in the market and its own growth trajectory.
Overall, executive base pay has remained relatively flat with a
total increase of 32% in Total Remuneration Packages largely
due to awards for the successful achievement of STI and LTI
targets. There were no increases to individual NED fees during
FY19.
Given the Company’s excellent financial performance this
year, the Board is satisfied that the adjustments to and
enhancements of the Company’s incentive programs and,
therefore, the remuneration mix, demonstrate a strong link
between performance and reward.
Yours sincerely,
Dawn Edmonds
Chair of the Remuneration and Nomination Committee
19
rhipe Annual Report 2019
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, rhipe Limited (rhipe, the Company or 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 KMP.
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
Gary Cox
Independent NED and Chairman of the Board since 26 March 2019
– Remuneration and Nomination Committee since 26 March 2019
Dawn Edmonds
NED since 1 January 2017
– Remuneration and Nomination Committee since 10 April 2014, Chair since 8 November
Mark Pierce
Michael Tierney
Inese Kingsmill
2018
– 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
Independent NED since 15 April 2019
– Risk Committee since 6 June 2019
Olivier Dispas
Independent NED since 15 April 2019, located in Seattle, USA
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
Group Executive - Products & Licenses since 1 October 2014 and is located in Singapore
Group Executive - Solutions & Professional Services, since 2 August 2005
Chief Financial Officer since 1 November 2016 and Chief Operating Officer since 1 March 2018
Managing Director - Asia since 1 July 2015 and is located in Thailand
Chief Marketing Officer since 7 January 2015, left 17 August 2018
During the period the following persons ceased to be KMPs of rhipe:
– Laurence Sellers, NED from 10 April 2014, retired 8 November 2018.
– Mike Hill, Chairman since 10 April 2014 and NED since 31 January 2017, retired effective 26 March 2019
– Athena Thompson, CMO from 7 January 2015 until 17 August 2018.
20
rhipe Annual Report 2019 Remuneration (continued)
3. Context of and Changes to KMP Remuneration
for FY19
– NED Laurence Sellers retired 8 November 2018 and was
replaced by Inese Kingsmill on 15 April 2019;
3.1 Matters Identified as Relevant Context for Remuneration
Governance in FY19
As the Company continues along its growth trajectory, the
Board and Management Team has, in FY19, devoted time and
energy to organisational development and people and culture
goals in order to lay an appropriate foundation for future
growth.
During the period the number of employees across the
organisation grew from 203 to 313. The Company also
expanded into Sri Lanka and acquired Microsoft Dynamics
service provider, DBITs.
A number of performance and culture initiatives were
implemented including the establishment of the rhipe Diversity
and Inclusion Council, implementation of an employee
feedback tool and a series of management development
workshops in order to further build management capability and
structure within the organisation.
In order to support this growth and increasing complexity,
the Board took the opportunity to review its composition and
ran a formal process to identify candidates with the skills and
experience necessary to drive and govern a larger, growing and
increasingly more sophisticated organisation. Retiring Chairman
Mike Hill and NED Laurence Sellers were replaced by Gary Cox
and Inese Kingsmill respectively. Further, the Board took the
opportunity to expand the NED pool and appointed Seattle
based Olivier Dispas to the Board in mid-April.
As the Company continues to expand and develop, the Board’s
approach to remuneration governance must also keep pace.
Towards the end of FY18 and throughout FY19, the Board
continued to seek advice from independent expert consultants
regarding best practice KMP remuneration governance as well
as consider the unique demands of the business for the short,
medium and longer term. The key focus of FY19 has been
on establishing an appropriate, ongoing Long Term Incentive
Plan (“LTIP”) in order to drive the long term performance of
the business noting feedback from proxy advisors as part of
developing a new LTIP. The main themes are dealt with in this
and the following sections.
Total Remuneration Packages (“TRP”) for FY19 for Directors
and KMP increased by approximately 38% compared to the
previous year. The increase reflects STI and LTI incentives
awarded in line with the success by KMP in exceeding FY19
market guidance, noting at the same time that base packages
increased.
Financial performance during the year exceeded the Company’s
initial guidance by approximately 30%. Total Shareholder
Returns were more than 140% in FY19.
3.2 Key Remuneration Matters Identified and Adjustments
Made or Planned in Response, Since the Previous Report
During FY19 a number of KMP remuneration related matters
were identified for consideration and action during the
reporting period. These include:
– The Chairman Mike Hill retired on 26 March 2019 after 5
years on the Board and was replaced by Gary Cox on the
same date;
– The Board extended the NED pool by one and NED Olivier
Dispas joined on 15 April 2019
– The Chief Marketing Officer, Athena Thompson, left the
business on 17 August 2018;
– The Board developed an improved Remuneration Governance
Framework and suite of related policies, procedures and
plans in relation to the LTIP;
– The Board further developed the LTIP to include a
measurement over 3 years (rather than 18 months as per
prior grant) and set more sophisticated hurdles than those
of prior years. As part of this development the Board has
introduced transitional arrangements for the new 3 year LTIP
which will involve a partial payment after 2 years. The Board
will continue to seek independent recommendations and will
make improvements and enhancements over time;
– To support ongoing organizational development, the
Company incorporated an annual reward component related
to individual non-financial KPIs into the Short Term Incentive
Plan (“STI”) to work alongside the quarterly award which
continued to successfully drive sales momentum throughout
the year;
Changes to Base and STI packages in FY19 were modest
and are detailed in the relevant sections that follow. Some
adjustments to Base and/or STI were made in order to
transition to a more consistent base to incentive pay ratio.
Following the Company’s benchmarking exercise of KMP
remuneration in the relevant competitor groups and industry
sectors, the Board is satisfied that any adjustments made
keep FY19 TRP in line with comparable companies. The Board
will continue to review the remuneration mix as part of its
continued commitment to remuneration governance.
A reorganisation of business structures in late FY19 in line with
the continued growth strategy may result in a further planned
review of TRP for Executive KMP leading the revised business
units into FY20.
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 (the “Committee”), accepts responsibility for
determining and reviewing remuneration arrangements for
the Directors and Executives. The 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
21
rhipe Annual Report 2019 Remuneration (continued)
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. The following
summarises the Board’s current approach to governing and
setting remuneration.
4.1 Remuneration and Nomination Committee Charter
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;
– 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));
– STI 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;
– LTI 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;
– reviewing and making recommendations regarding the
– TRPs should be structured with reference to relevant market
remuneration framework for Non-Executive Directors and
making remuneration recommendations for Non-Executive
Director 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:
22
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 fulfill a role;
– 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 reflect the demands which are
made of the Directors in fulfilling their responsibilities. The NED
remuneration policy applies to NEDs of the Company in their
capacity as Directors and as members of committees, and may
be summarised as follows:
rhipe Annual Report 2019 Remuneration (continued)
– Remuneration may be composed of:
– Board fees;
– Committee fees;
– Superannuation;
– Other benefits; and
– Equity (if deemed appropriate as may occur from time
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;
– 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;
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;
– Per diem fees may be paid on occasions where approved
– NEDs are excluded from participation;
special work is undertaken outside of the expected
commitments;
– Any Non-Executive Director 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 Non-Executive Director remuneration
and shareholder approval would be sought for any plan that
may facilitate this element of remuneration being paid.
4.4 Approach to Determining Comparators for Remuneration
Benchmarking
– The measurement period for performance should be the
financial year of the Company which is considered short-
term;
– The STIP 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;
– The Board will retain discretion to adjust actual awards so as
to manage circumstances in which the calculated award may
be considered inappropriate;
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:
– The Board will give consideration as to whether deferral
should apply to a portion of STI awards, from time to time,
to be specified in an invitation to participate in the STIP if it
does; and
– 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;
– 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:
– the group should be large enough to produce valid statistics,
and small enough to be reasonably specific;
– Motivate Senior Executives to achieve long-term objectives
linked to shareholder value creation over the long-term;
– 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 be included;
– the group should be balanced with an equal number of
comparators larger, and smaller, generally limited to those
– 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;
23
rhipe Annual Report 2019 Remuneration (continued)
– NEDs are currently excluded from participation;
4.8 Claw back Policy and Procedure
A claw back policy continued to apply to the Performance
Rights Plan in FY19. The Board will continue to review how
this may be applied more broadly over time. 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 negligible.
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 not trade during black out
periods. These black out periods are near financial reporting
dates in January and February for 1H reporting , July and
August for full year reporting and October and November for
the Annual General Meeting for rhipe.
In addition to the above all of the CEO’s vested options are
restricted from being traded without the approval of the Board.
4.10 Equity Holding Policy
The Company does not currently have an equity holding policy
applicable to KMP.
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 and
Nomination 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 Non-Executive
Director. Interactions between management and the ERC must
be approved and will be overseen by the Remuneration and
Nomination Committee when appropriate.
– 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 applies to the LTI 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;
– “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;
– “Stretch” (the maximum) levels of objectives, which is
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 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.
24
rhipe Annual Report 2019 Remuneration (continued)
4.12 Variable Executive Remuneration – STIP
STIP
Aspect
Purpose
Plan, Offers and Comments
The STIP’s purpose is to give effect to an element of 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 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
Award Opportunities
The four quarters of the Company’s financial year.
FY19 Invitations
Performance Indicators (KPIs),
Weighting and Performance Goals
The MD/CEO was offered a target-based STIP equivalent to 55% 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 35%
to 70% of their Base Package for Target performance, with a maximum/ stretch opportunity
of up to 150% of the Target Award.
FY20 Invitations
No decisions on changes to award opportunities have been made yet.
FY19 Invitations
FY19 Invitations to participate in the STIP for all participants, had an 80% 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.
Non-financial KPIs for each KMP were incorporated with a 20% weighting, awarded on an
annual basis provided 75% of Operating Profit had been met.
The Operating Profit target remains the primary performance measure for KMP.
FY20 Invitations
The Board cannot disclose the financial targets for FY20 as this information is commercially
sensitive, however this will be disclosed in the FY20 Remuneration Report. The target is set
with reference to the annual Group Budget for the financial year. Non-financial targets will
continue to be incorporated with KPIs and weightings allocated as appropriate.
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 STI 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 STI entitlements,
given the circumstances at the time. This will generally include consideration of performance
up to the date of the event.
25
rhipe Annual Report 2019 Remuneration (continued)
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.
4.13 Variable Executive Remuneration – (LTIP) – Performance Rights Plan
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 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.
FY19 LTI Invitations
LTI allocations were issued to KMP and other key executives in FY19 in the form of
Performance Rights. The LTI Target value was set between 55% and 100% of base packages.
Comments
The target LTI value reflects the Company’s current position in terms of expected growth
trajectory, its intention to retain valued executives and the relative infancy of its ongoing
three-year LTIP. As the remuneration governance framework evolves, the LTI component as
a percentage of base is expected to evolve also.
The Board has discretion to set exercise prices, measurement periods, and vesting conditions
for each round of invitations. Performance Rights that are not exercisable or are unexercised
by their Expiry Date will lapse.
FY19 Invitations
Measurement Period
As this is the first year of an ongoing 3-year measurement period for the LTI, the FY19
Invitations allow 50% of the grant to vest after 2 years and the remaining 50% to vest after
3 years. Subsequently, it is intended that grants will be made on an annual basis and will be
structured to allow some vesting to occur every year thereafter.
Vesting Conditions:
– Gross Profit Growth on a CAGR basis
Threshold 13%
Target 16%
Stretch ≥20%
– EPS Growth on CAGR basis
Threshold 20%
Target 32.5%
Stretch ≥45%
LTIP
Aspect
Purpose
Form of Equity
LTI Value
26
rhipe Annual Report 2019 Remuneration (continued)
– TSR
Threshold- Index TSR
Target – Index TSR plus 5% per annum
Stretch – Index TSR plus 10% or more per annum
– If the employee ceases employment with the Company during the measurement period,
rights may be retained on a pro rata basis with reference to time served. All remaining
rights will lapse.
– The exercise price is Nil; and
– Holders of Performance Rights in the Company do not have any shareholder rights such as
voting or dividend rights
Comments:
– Gross profit growth was chosen as it is an important lead indicator of ongoing, profitable
growth and can be directly impacted by KMP behaviour. EPS growth ensures that there is
an appropriate focus on cost management and tax planning which is also directly controlled
by KMP. TSR is the most direct measure of value creation for shareholders and is therefore
one of the most effective measures available to align the interests of executives with
those of shareholders. The TSR target compares Total Shareholder Return with the TSR of
the S&P/ASX Small Industrials Index. This avoids the problems of gains or losses associated
with broader market movements.
Retesting
Retesting is not available under the plan.
Plan Gate & Board Discretion
Amount Payable for
Performance Rights
Exercise of Vested
Performance Rights
Disposal Restrictions etc.
Cessation of Employment
Change of Control of the Company
No Plan gate applies to the Performance Rights. The Board does not have discretion to
adjust vesting outcomes but does retain some discretion to adjust the number of shares
issued and the terms in certain situations.
No amount is payable by participants for Performance Rights granted as part of
remuneration.
The Company will notify the Participant that a Performance Right has Vested pursuant to the
Plan Rules and allocate shares accordingly.
Performance Rights are not subject to any disposal or dealing restrictions at any time, other
than the Corporation’s Act restrictions or those restrictions outlined in the Group’s share
trading policy and cannot be exercised prior to vesting.
The Board has discretion to specify how the Participant’s Performance Rights will be treated
on cessation of employment and may detail additional or alternative treatment in the
invitation terms. The applicable treatment may vary depending on the circumstances in
which the Participant’s employment of engagement ceases
If a Change of Control Event occurs the Board may, in its absolute discretion, determine that
all or a specified number of a Participant’s Performance Rights Vest or cease to be subject to
Vesting Conditions or restrictions (as applicable).
Claw back & Malus
The Company implements a Claw back Policy in relation to LTIP.
5. Performance Outcomes for FY19 Including STI and LTI Assessment
5.1 Company Performance
The following outlines the performance of the Company over the FY19 period and the previous four financial years in accordance
with the requirements of the Corporations Act:
27
rhipe Annual Report 2019 Remuneration (continued)
($’000’s) unless otherwise stated
Sales – Software Products & Services
Revenue
Operating profit
Reported EBITDA
Profit/(Loss) before income tax ($’000’s)
Profit/(Loss) after income tax ($’000’s)
30 June Share Price ($)
Change in Share Price ($)
Basic Earnings/(loss) Per Share (cents)
Dividends declared during the period
Total Shareholder Return (%)
2019
2018
2017
2016
2015
252,537
196,608
156,970
137,120
108,769
48,356
35,624
28,969
26,214
20,200
12,842
10,017
8,491
6,214
2.86
1.68
4.53
2.00
143%
7,761
6,384
5,190
3,066
1.18
0.66
2.26
0.5
5,024
16
1,500
4,004
1,466
(1,353)
3,344
2,507
1,168
(1,535)
(129)
(2,321)
0.52
0.90
(0.38)
(0.57)
1.47
0.67
1.83
(0.10)
(1.98)
–
–
–
128%
(42%)
(39%)
83%
Note, Revenue for FY 2015 to FY2018 has been restated to
reflect the impact of AASB 15 with licensing revenue reported
on a net agency basis and revenue from solutions and support
services reported on a gross principal basis.
The overall executive award takes into account performance
over the financial year especially as it relates to improving
performance over prior years. The Company’s strong financial
performance over the last few years has been the result of
investment in public cloud operations and expansion into
Asia made since the company floated in 2014. The company
continues to invest every year in its people and operations with
a view to the medium to long term benefit for shareholders.
This investment is also made in the knowledge of market
expectations about continued growth in operating profitability
and it is an ongoing challenge around this decision trade off.
Operating profit, which is the key performance measure for
KMP and the Company, grew from $7.8m in FY18 to $12.8m
in FY19, growth of 64% which was driven by strong growth in
revenue and gross profit in both the Licensing business and the
Solutions business. Delivery of $12.8m operating profit compares
to the original market guidance of $10m made at the beginning
of FY19 which demonstrates the strong year that the company
has delivered.
EBIDTA over the same period grew by a similar amount at 60%
year on year.
FY18
The STI related to performance during 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.
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.
FY19
The Financial Target for FY19, was an annual operating profit
of $12.8M with an 80% weighting for STIs tied to delivery of
this target. 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 for the
Financial component of the STI.
The Operating Profit target was exceeded as per the Company’s
updated guidance throughout the period, based on strong KMP
performance. Therefore an accelerator in accordance with
the pre-determined scales rewarded the KMP’s drive towards
stretch profit targets, which was paid after the end of the
financial year (i.e. during FY20).
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:
Non-financial KPIs according to the Company Balanced
Scorecard were allocated to each KMP with a 20% weighting
for the FY19 period and achievements assessed and also
awarded after the close of the financial year.
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 as well as incentivize KMP towards customer, process
and people and culture targets over the full period.
– 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).
28
rhipe Annual Report 2019 Remuneration (continued)
It is the Board’s view that the combination of quarterly and
annual awards for the STI related to financial and non-financial
targets continued the momentum to drive a strong close to
results at the end of each quarter throughout FY19 as well
as build a sustainable business environment aligned to the
continued growth strategy. The Operating Profit and non-
financial targets for the STI and the extended targets for the
LTI have provided executives with challenging but attainable
and controllable targets that have led to excellent results for
the business and for shareholders in FY19. The Board is also
of the view that continued enhancement of the remuneration
framework 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;
6. Changes in Equity held by KMP
– 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 short term incentives
to Operating Profit combined with relevant non-financial
goals, which the KMP can strongly influence, produces desired
outcomes for the short to medium term, whilst linking long
term goals to sustainable margin growth and shareholder
return best aligns reward with the intended outcomes of the
Company’s current strategy.
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 or Rights
During The Year
Ordinary Shares
Mr Mike Hill
Mr Gary Cox
Ms Inese Kingsmill
Mr Olivier Dispas
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
Ms Athena Thompson
Total
1,178,320
-
-
-
3,957,840
4,002,294
166,666
270,000
2,707,191
1,059,475
115,396
200,000
618,064
-
14,275,246
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. The KMP disposed of ordinary shares during the period
2. Mike Hill resigned on 26 March 2019
3. The KMP exercised options during the period
4. The KMP converted performance rights during the period
5. Athena Thompson resigned on 17 August 2018
6. Laurence Sellers resigned on 8 November 2018
Other Changes
During the Year
Balance At End
of The Year Notes
(1,138,320)
40,000
1,2
-
-
32,904
32,904
-
-
-
-
-
-
1,500,000
(1,600,000)
3,857,840 1,3,4
-
(1,300,000)
2,702,294
1
233,334
(400,000)
- 1,3,6
250,000
(200,000)
320,000
-
(700,000)
2,007,191
300,000
(350,000)
1,009,475
(115,396)
700,000
100,000
(200,000)
-
-
-
779,225
518,064
-
3,662,559
(5,970,812)
11,966,993
700,000
579,225
1,3
1
1,4
1,4
3,4
1,4
5
29
rhipe Annual Report 2019 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
Mr Mike Hill Options
Performance Rights
Mr Gary Cox Options
Performance Rights
Mr Olivier
Dispas
Options
Performance Rights
Ms Inese
Kingsmill
Options
Performance Rights
Granted
As Com-
pensation
During The
Year
Balance At
Beginning
of the Year
Forfeited
Options
During the
Year
Balance At
End Of The
Year
Exercised
No.
Balance
Vested At
30 June
2019 and
Exercisable
Balance
Not Vested
and Not
Exercisable
At 30 June
2019 Notes
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Mr Dominic
O’Hanlon
900,000
Options
–
Performance Rights 1,700,000
–
(300,000)
843,298 (1,200,000)
(300,000)
300,000
– 1,343,298
300,000
–
–
1,343,298
Ms Dawn
Edmonds
Options
Performance Rights
Mr Laurence
Sellers
Options
Performance Rights
–
Mr Mark
Pierce
Options
Performance Rights
250,000
–
Mr Michael
Tierney
Options
Performance Rights
Mr Warren
Nolan
Options
Performance Rights
Mr Mark
McLellan
Options
Performance Rights
Mr Chris Sharp Options
Performance Rights
Options
Mr Patara
Yongvanich
100,000
–
233,334
–
–
300,000
300,000
270,000
700,000
435,000
300,000
100,000
–
–
–
–
–
–
–
–
–
–
(100,000)
–
(233,334)
–
(250,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
_
421,648
_
(300,000)
(100,000)
_
200,000
421,648
–
505,979
–
(700,000)
–
–
270,000
505,979
200,000
–
270,000
–
_
371,050
(335,000)
(300,000)
(100,000)
–
–
371,050
–
–
(100,000)
–
Performance Rights
100,000
303,586
(100,000)
–
303,586
Ms Athena
Thompson
Options
Performance Rights
100,000
100,000
–
–
–
–
(100,000)
(100,000)
–
–
–
–
–
–
–
–
–
–
–
421,648
–
505,979
–
371,050
–
303,586
–
–
–
–
–
–
–
–
Total
Options
– (1,118,334)
Performance Rights 3,200,000 2,445,561 (2,600,000)
2,688,334
(800,000)
770,000
(100,000) 2,945,561
770,000
–
– 2,945,561
1. KMP were granted performance rights as part of their remuneration and incentive packages for FY19 from under the rhipe Performance Rights Plan which was approved by
shareholders in FY19
30
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
1
1
_
1
–
1
–
–
rhipe Annual Report 2019 Remuneration (continued)
The number of Performance Rights granted to KMP of the Group during the year is as follows:
2019 Equity Grants
Instrument
Grant Date
Threshold
Dominic O’Hanlon
Performance Rights
Warren Nolan
Performance Rights
Mark McLellan
Performance Rights
Chris Sharp
Performance Rights
Patara Yongvanich
Performance Rights
31-May-19
31-May-19
31-May-19
31-May-19
31-May-19
210,823
105,410
126,493
92,761
75,894
Number of rights
Base
421,648
210,823
252,987
185,524
151,792
Stretch
843,298
421,648
505,979
371,050
303,586
2019 Equity
Grants
Dominic O’Hanlon
Warren Nolan
Mark McLellan
Chris Sharp
Patara Yongvanich
Exercise
Price
$
Value Per
Security
$
Grant Value
$
Value
Expensed in
FY19
Percentage
Remaining as
Unvested
%
Service
period
–
–
–
–
–
1.19
500,000
487,743
1.19
250,000
243,870
1.19
300,000
292,644
1.19
220,000
214,606
1.19
180,000
175,586
100 Jul-18 to
Jun 21
100 Jul-18 to
Jun 21
100 Jul-18 to
Jun 21
100 Jul-18 to
Jun 21
100 Jul-18 to
Jun 21
Expiry Date for
Exercise Notes
31-May-33
1,2
31-May-33
1,2
31-May-33
1,2
31-May-33
1,2
31-May-33
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. Value per security represents grant value awarded to executives over the base number of performance rights
7. NED Fee Policy Rates for FY19 and FY20, and Fee Limit
Non-Executive Director fees are managed within the current annual fees limit (AFL or fee pool) of $510,000 as specified in the
Company’s constitution. This approach will be reviewed in FY20.
The following table outlines the NED fee policy rates that were applicable as at the end of FY19:
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. This approach will be reviewed in FY20.
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. Additional fees of $30,199 were paid for marketing consulting services undertaken by a Non-Executive
Director in FY19, Inese Kingsmill.
For FY20, in response to the changing needs of the organisation, it is expected that committee member contribution will increase.
Therefore the Board intends to award additional modest fees for chairs and members of committees. Furthermore, given that no
increases have been made to NED fees since the Company was listed and following NED fee benchmarking, the Company intends
to increase its base NED fee in FY20. Any increase to the fee pool is subject to shareholder approval.
31
rhipe Annual Report 2019 Remuneration (continued)
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3
4
2
$
6
0
6
,
4
1
2
$
6
8
5
,
5
7
1
$
6
9
0
,
2
6
3
$
0
3
3
,
5
2
3
$
6
1
6
,
2
3
1
$
6
1
6
,
2
3
1
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2
,
4
4
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33
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*
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*
rhipe Annual Report 2019
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
Termination
Payments
Mr Dominic O’Hanlon Managing Director & CEO
Open ended
6 months
Open ended
1 month
6 months
1 month
Up to 12 months*
Up to 12 months*
Mr Chris Sharp
Mr Warren Nolan
Mr Mark McLellan
Group Executive - Products &
Licensing
Group Executive - Solutions &
Professional Services
Chief Financial Officer & Chief
Operations Officer
Open ended
3 months
3 months
Up to 12 months*
Open ended
6 months
3 months
Up to 12 months*
Mr Patara Yongvanich Managing Director ASIA
Open ended
1 month
1 month
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 Gary Cox
Non-Executive Chairman
Ms Dawn Edmonds
Mr Mark Pierce
Mr Michael Tierney
Ms Inese Kingsmill
Mr Olivier Dispas
NED
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 years
3 months
3 months
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
None
Termination payments consist of notice period only, no other benefits apply.
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:
– Athena Thompson departed the company on 17 August 2018. A redundancy payment of $45,838 and accrued annual leave of
$13,639 was made. As per the LTIP, Ms Thompson’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 review and provide recommendations on the overall remuneration framework and governance applicable to KMP in
FY19 and to assist with the documentation for the improved LTIP. In addition the board is satisfied that recommendations are free
from undue influence by the members of the KMP to whom recommendations relates.
Fees charged by consultants are disclosed for the reporting period as follows: $25,000 + 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 FY20 Remuneration Report.
34
rhipe Annual Report 2019 Auditor’s Independence Declaration
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of rhipe Limited
As lead auditor for the audit of the financial report of rhipe Limited for the financial year ended 30 June
2019, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of rhipe Limited and the entities it controlled during the financial year.
Ernst & Young
Graham Leonard
Partner
19 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
35
35
rhipe Annual Report 2019
Restated
2018
$’000
35,624
(1,553)
34,071
315
(18,107)
(10,803)
(286)
Note
4(a)
2019
$’000
48,356
(2,476)
45,880
4(b)
548
(22,834)
(15,083)
(20)
5(c)
5
6
(37,937)
(29,196)
8,491
(2,277)
6,214
5,190
(2,124)
3,066
-
690
690
6,904
(366)
157
(209)
2,857
7
7
4.53
4.42
2.26
2.22
Consolidated Statement of Comprehensive Income
And Other Comprehensive Income For The Year Ended 30 June 2019
rhipe Limited And Controlled Entities
CONSOLIDATED GROUP
Revenue
Cost of Sales
Gross Profit
Other income
Sales and Marketing
General and Administration
Other expenses
Total 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.
36
rhipe Annual Report 2019 Consolidated Statement of Financial Position
As at 30 June 2019
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
Deferred contingent consideration
Total Current Liabilities
NON-CURRENT LIABILITIES
Deferred tax liabilities
Provisions
Deferred contingent consideration
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
2019
$’000
Restated
2018
$’000
8
9
10
11
12
16
13
14
15
16
17
18
16
17
18
25,530
39,308
1,215
66,053
-
1,110
1,141
32,669
34,920
100,973
22,696
29,442
577
52,715
6
917
203
23,463
24,589
77,304
41,342
29,923
252
2,885
1,037
1,750
43
1,572
679
-
47,266
32,217
264
257
1,750
2,271
49,537
51,436
19
43,320
2,194
5,922
51,436
924
185
-
1,109
33,326
43,978
39,287
2,051
2,640
43,978
37
rhipe Annual Report 2019 Consolidated Statement of Changes in Equity
For The Year Ended 30 June 2019
rhipe Limited And Controlled Entities
Share Capital
Reserves
Accumulated
Profits/
(losses)
$’000
Foreign
Currency
Translation
Reserve
$’000
Investment
Revaluation
Reserve
$’000
General
Reserve
$’000
Equity
Settled
Employee
Benefits
Reserve
$’000
Total
$’000
209
(821)
366
(27)
2,102 42,806
Ordinary
$’000
40,977
CONSOLIDATED GROUP
Balance at 1 July 2017
COMPREHENSIVE INCOME
Profit 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
Transfer from SBP Reserves – Options exercised
–
–
–
–
260
(2,292)
–
(9)
–
–
–
351
Total transactions with owners and other transfers
(1,690)
Balance at 30 June 2018
Effect of adoption of new accounting standard
Balance at 1 July 2018 (Restated)
COMPREHENSIVE INCOME
Profit for the year
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
Investment in DBITS
Shares bought back during the year
Dividend paid
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
Balance at 30 June 2019
39,287
–
39,287
–
–
–
3,085
_
(2,056)
–
(8)
–
–
3,013
4,033
43,320
The accompanying notes form part of these financial statements.
38
3,066
–
–
3,066
–
_
(664)
–
–
(27)
56
–
(635)
2,640
(357)
2,283
6,214
–
6,214
–
(11)
–
(2,721)
–
–
157
–
(2,575)
5,922
–
–
157
157
–
(366)
–
(366)
–
_
–
–
_
–
–
–
(664)
_
(664)
–
690
690
–
_
–
–
–
–
–
–
–
26
–
_
_
–
–
_
–
–
–
_
_
_
–
–
-
–
_
–
–
–
–
–
–
–
–
–
–
–
–
–
_
_
–
–
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
_
_
2,715
43,621
–
–
–
–
_
–
–
–
6,214
690
6,904
3,085
(11)
(2,056)
(2,721)
(8)
2,623
2,623
(157)
(3,013)
–
–
(817)
642
2,168
51,436
rhipe Annual Report 2019 Consolidated Statement of Cash Flows
For The Year Ended 30 June 2019
rhipe Limited And Controlled Entities
CONSOLIDATED GROUP
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from partners
Payments to vendors/customers and employees
Interest received
Net income tax paid
Net cash provided by operating activities
22
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
Payments for intangibles
Payment for subsidiary on acquisition
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
Note
2019
$’000
2018
$’000
242,880
193,856
(228,805)
(185,238)
257
(2,277)
12,055
(689)
(2,281)
(3,000)
_
6
(868)
7,756
(526)
(2,408)
_
733
(5,970)
(2,201)
1,577
(2,056)
(2,721)
(3,200)
2,885
22,696
(51)
251
(2,292)
(664)
(2,705)
2,850
19,812
34
Cash and cash equivalents at end of financial year
8
25,530
22,696
The accompanying notes form part of these financial statements.
39
rhipe Annual Report 2019 Notes to the Financial Statements
For The Year Ended 30 June 2019
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 19 August 2019 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.
40
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
(c) Business Combination and Goodwill
(d) Financial Instruments
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, which is measured
at acquisition date fair value, and the amount of any non-
controlling interests in the acquiree. For each business
combination, the Group elects whether to measure the non-
controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and included
in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition
date. This includes the separation of embedded derivatives in
host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
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 that is
a financial instrument and within the scope of AASB 9 Financial
Instruments, is measured at fair value with the changes in
fair value recognised in the statement of profit or loss in
accordance with AASB 9. Other contingent consideration that
is not within the scope of AASB 9 is measured at fair value at
each reporting date with changes in fair value recognised in
profit or loss.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous
interest held over the net identifiable assets acquired and
liabilities assumed). If the fair value of the net assets acquired
is in excess of the aggregate consideration transferred, the
Group re-assesses whether it has correctly identified all of the
assets acquired and all of the liabilities assumed and reviews
the procedures used to measure the amounts to be recognised
at the acquisition date. If the reassessment still results in
an excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is recognised
in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is,
from the acquisition date, allocated to each of the Group’s
cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit
(CGU) and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included
in the carrying amount of the operation when determining
the gain or loss on disposal. Goodwill disposed in these
circumstances is measured based on the relative values of the
disposed operation and the portion of the cash-generating
unit retained.
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(i) Financial assets
Initial recognition and subsequent measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through
other comprehensive income (OCI), and fair value through
profit or loss.
The Group’s business model for managing financial assets refers
to how it manages its financial assets in order to generate
cash flows. The business model determines whether cash flows
will result from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require delivery
of assets within a time frame established by regulation or
convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date that the Group
commits to purchase or sell the asset. For purposes of
subsequent measurement, financial assets are classified in four
categories:
– Financial assets at amortised cost (debt instruments);
– Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt instruments);
– Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition
(equity instruments);
– Financial assets at fair value through profit or loss. Financial
assets at amortised cost (debt instruments)
Financial assets at amortised cost is the category that is the
most relevant to the Group. The Group measures financial assets
at amortised cost if both of the following conditions are met:
– The financial asset is held within a business model with
the objective to hold financial assets in order to collect
contractual cash flows; and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
The Group’s financial assets at amortised cost includes trade
receivables included under other current financial assets.
The Group measures debt instruments at fair value through OCI
if both of the following conditions are met:
– The financial asset is held within a business model with the
objective of both holding to collect contractual cash flows
and selling; and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income,
foreign exchange revaluation and impairment losses or reversals
are recognised in the statement of profit or loss and computed
in the same manner as for financial assets measured at
amortised cost.
41
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Derecognition
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through
profit or loss.
Gains or losses on liabilities held for trading are recognised in
the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or canceled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the statement
of profit or loss.
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated
statement of financial position) when:
– The rights to receive cash flows from the asset have
expired; or
– The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third
party under a ‘pass-through’ arrangement and either:
(a) the Group has transferred substantially all the risks and
rewards of the asset, or
(b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but
has transferred control of the asset.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement,
it evaluates if, and to what extent, it has retained the risks
and rewards of ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of the asset,
nor transferred control of the asset, the Group continues to
recognise the transferred asset to the extent of its continuing
involvement. In that case, the Group also recognises an
associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and
obligations that the Group has retained.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and
all the cash flows that the Group expects to receive, discounted
at an approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral
to the contractual terms. For trade receivables and contract
assets, the Group applies a simplified approach in calculating
ECLs. Therefore, the Group does not track changes in credit
risk, but instead recognises a loss allowance based on lifetime
ECLs at each reporting date. The Group has established a
provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the
debtors and the economic environment.
(i) Financial liabilities
Initial recognition and subsequent measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and,
in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables,
loans and borrowings including bank overdrafts, and derivative
financial instruments.
42
rhipe Annual Report 2019 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.
43
rhipe Annual Report 2019 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 are payable 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.
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.
(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 Judgements
The directors evaluate estimates and judgements incorporated
into the financial statements based on historical knowledge
and best available current information. Estimates assume a
reasonable expectation of future events and are based on
current trends and economic data, obtained both externally
and within the Group.
Key Estimates and Judgements
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 directly
attributable
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.
v. Contingent consideration
Contingent consideration resulting from business combinations,
is valued at fair value at the acquisition date as part of the
business combination. The determination of the fair value is
based on discounted cash flows. The key assumptions take
into consideration the probability of meeting each performance
target. As part of the accounting for the acquisition of Dynamic
Business IT Solutions Pty Ltd, contingent consideration with
an estimated fair value of $3,500,000 was recognised at the
acquisition in equity. The maximum consideration to be paid
is $8,000,000.
44
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Share-based payments
AASB 15 Revenue from Contract with Customers
Senior executives of the Group receive remuneration in the
form of share-based payments, whereby employees render
services as consideration for equity instruments (equity-settled
transactions).
The cost of equity-settled transactions is determined by the fair
value at the date when the grant is made using an appropriate
valuation model.
That cost is recognised in employee benefits expense (Note
4), together with a corresponding increase in equity (Share-
based payment reserves), over the period in which the service
and, where applicable, the performance conditions are fulfilled
(the vesting period). The cumulative expense recognised for
equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period
has expired and the Group’s best estimate of the number of
equity instruments that will ultimately vest. The expense or
credit in the statement of profit or loss for a period represents
the movement in cumulative expense recognised as at the
beginning and end of that period.
Service and non-market performance conditions are not
taken into account when determining the grant date fair
value of awards, but the likelihood of the conditions being
met is assessed as part of the Group’s best estimate of the
number of equity instruments that will ultimately vest. Market
performance conditions are reflected within the grant date fair
value. Any other conditions attached to an award, but without
an associated service requirement, are considered to be non-
vesting conditions. Non-vesting conditions are reflected in the
fair value of an award and lead to an immediate expensing
of an award unless there are also service and/or performance
conditions.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted earnings
per share.
(k) New Accounting Standards, Interpretation and amendments
adopted by the Group
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are
consistent with those followed in the preparation of the Group’s
annual consolidated financial statements for the year ended 30
June 2018, except for the adoption of new standards effective
as of 1 July 2018 identified below. The Group has not early
adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
The Group has applied, for the first time, AASB 15 Revenue
from Contracts with Customers, using the full retrospective
method and AASB 9 Financial Instruments retrospectively but
without restatement of prior comparatives. The nature and
effect of these changes are disclosed below.
AASB 15 supersedes IAS 11 Construction Contracts, IAS 18
Revenue and related Interpretations and it applies to all
revenue arising from contracts with customers, unless those
contracts are in the scope of other standards. The new
standard establishes a five-step model to account for revenue
arising from contracts with customers. Under AASB 15, revenue
is recognised at an amount that reflects the consideration
to which an entity expects to be entitled to in exchange for
transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking
into consideration all of the relevant facts and circumstances
when applying each step of the model to contracts with their
customers. The standard also specifies the accounting for the
incremental costs of obtaining a contract and the costs directly
related to fulfilling a contract.
Principal versus agent considerations under AASB 15
The Group enters into contracts with its customers to provide
software products and services. Under these contracts,
the Group provides procurement services (i.e. selecting
suitable software products and managing the ordering and
subscriptions). In these contracts, the Group is not primarily
responsible for fulfilling the promise to provide the specified
software. Primary responsibility to provide software products is
with the software vendors, while rhipe provides the access to
products and manage subscriptions. The Group does not have
inventory risk before or after the specified software licenses
have been transferred to the customer. In addition, the Group
has only limited discretion in establishing the price for the
specified software products. The Group bears credit risk on
these transactions as it is obliged to pay the vendors even if
the customer defaults on a payment.
Prior to the adoption of AASB 15, based on the existence of
credit risk, the Group concluded that it had an exposure to
the significant risks and rewards associated with the sale of
software products to its customers, and accounted for the
contracts as if it was a principal. Upon adoption of AASB 15,
the Group determined that it does not control the products
before they are transferred to customers, and hence, is an
agent in these contracts because it does not have the ability
to direct the use of the products or obtain benefits from the
products. In addition, the Group concluded that when the
software is provided to the customer rhipe is already entitled to
agency commission at which point the revenue is recognised.
The statement of profit or loss for the year ended 30 June
2018 was restated resulting in decreases in both Revenue
from contracts with customers and Cost of sales amounting to
$160,984,000. The Statement of Financial Position as of 30
Jun 2018 was restated resulting in decreases in both Current
Assets and Current Liabilities amounting $14,721,000.
The Group adopted AASB 15 using the full retrospective
method of adoption. There is no impact on the statement of
cash flows and calculation on basic and diluted EPS.
45
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Impact on the statement of profit or loss (increase/(decrease)) for the year ended 30 June 2019:
Revenue from contract with customers
Cost of sales
Gross profit for the period
Impact on the statement of financial position (increase/(decrease)) as at 30 June 2018:
Current Assets
Trade and other receivables
Prepayments
Current Liabilities
Trade and other payables
Unearned revenue
AASB 9 Financial Instruments
$‘000
(195,743)
(195,743)
–
$‘000
(10,605)
(4,073)
(14,678)
(12,003)
(2,675)
(14,678)
AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification
and measurement; impairment; and hedge accounting.
The adoption of AASB 9 has changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s
incurred loss approach with a forward-looking expected credit loss (ECL) approach.
AASB 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash
flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective
interest rate.
The Group may consider a financial asset to be in default when internal or external information indicates that the Group is unlikely
to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
For Trade and Other Receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on
lifetime expected credit losses. The Group has established a provision matrix that is based on the Group’s historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The adoption of the ECL requirements of AASB 9 resulted in increases in impairment allowances of the Group’s debt financial
assets. The increase in allowance resulted in decreases in Trade and other receivables and Retained earnings amounting by
$357,000. There was not material change in impairment allowance amount as at 30 June 2019.
46
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Standards issued not yet effective
AASB 16 Leases
AASB 16 was issued in January 2016 and it replaces AASB 117 Leases, AASB Interpretation 4 Determining whether an
Arrangement contains a Lease, AASB Interpretation-115 Operating Leases-Incentives and AASB Interpretation 127 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar
to the accounting for finance leases under AASB 117. The standard includes two recognition exemptions for lessees – leases of
’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the
commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to
separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The
lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under AASB 16 is substantially unchanged from today’s accounting under AASB 117. Lessors will continue to
classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating
and finance leases.
AASB 16, which is effective for annual periods beginning on or after 1 July 2019, requires lessees and lessors to make more
extensive disclosures than under AASB 117.
Based on an assessment of existing leases, the introduction of AASB 16 is not expected to have a material impact on profit before
tax. Rhipe intends on using the modified retrospective approach for transition whereby prior period adjustments are allocated to
retained earnings.
Rhipe has a range of existing lease commitments for its various office locations with all remaining terms less than 4 years. Lease
expense was $1.64m in FY19 (Note 5(d)).
Following the adoption of AASB 16, the group’s operating profit will increase and its depreciation and interest expenses will
also increase.
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.
47
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Change in accounting policy AASB
112 Income Taxes
Paragraph 74 of AASB 112 requires the deferred tax assets and deferred tax liabilities to be offset to the extent that two
conditions are satisfied. An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
(a) the entity has a legally enforceable right to set-off current tax assets against current tax liabilities; and
(b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
- the same taxable entity; or
- different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets
are expected to be settled or recovered.
As both of the above condition have been satisfied, the group has offset the deferred tax assets and deferred tax liabilities
for the period ending 30 June 2019. This has been applied in each individual juristiction for the period ending 30 June 2018 and
therefore the Statement of Financial Performances has been restated.
Deferred tax assets
Deferred tax liabilities
30 Jun 2019
$’000
30 Jun 2018
$’000
Adjustment
$’000
Restated
30 June 2018
$’000
1,141
264
1,524
2,245
(1,321)
(1,321)
203
924
48
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Note 2. Operating Segments
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 derived by region:
CONSOLIDATED GROUP
Oceania
Asia
Other
Total rhipe group
2019
$’000
39,159
9,197
-
2018
$’000
Adjustment
$’000
Restated 2018
$’000
143,087
52,656
865
(113,381)
(47,603)
-
48,356
196,608
(160,984)
29,706
5,053
865
35,624
Information about major vendors and customers
Microsoft represents 74% of the group’s sales. As a result, revenue and incentives earned from Microsoft products and services
equate to more than 80% of the group revenue. Excluding Microsoft, no single customer contributed 10% or more to the Group’s
revenue for both 2019 and 2018.
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 or losses 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
Impairment expense
Foreign exchange loss/(gain)
Interest income
Operating profit
2019
$’000
8,491
2,623
472
-
1,784
20
(291)
(257)
2018
$’000
5,190
1,020
380
(309)
1,200
-
286
(6)
12,842
7,761
49
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 3. Business combination
Acquisition of Dynamic Business IT Solutions Pty Ltd (‘DBITS’) in FY2019
On 28 February 2019, rhipe completed the acquisition of 100% of the share capital in DBITS. The acquisition of DBITS provides
the company with Dynamic implementation and support capabilities allowing rhipe to continue broadening the services that can
be offered to its growing ecosystem of resellers in the Asia Pacific region.
The consideration for the shares was split into the following tranches:
1. Upfront consideration of $4,500,000 paid two-thirds in cash and one third in rhipe ordinary equity shares;
2. Contingent consideration of up to $3,500,000 to be paid in two equal instalments, half in cash and half in shares as follows:
a. Contingent consideration I payable upon completion 12 months from acquisition date up to a maximum of $1,750,000.
The amount of deferred consideration will be tied to the amount of adjusted EBITDA in the 12 months to 28 February
2020;
b. Contingent consideration II payable upon completion 24 months from acquisition date up to a maximum of $1,750,000.
The amount of deferred consideration will be tied to the amount of adjusted EBITDA in the 12 months to 28 February
2021.
Assets acquired and liabilities assumed
Assets
Property, plant and equipment
Cash and cash equivalents
Trade receivables
Bonds
Customer relationships identified at acquisition
Total Assets
Liabilities
Trade payables
Employee leave entitlements
Unearned revenue
Deferred tax liability arising on acquisition
Total Liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration
$’000
18
-
51
34
792
895
9
51
32
237
329
566
7,434
8,000
Transaction cost of $50,830 were expensed and are included in General and Administration expenses.
The fair value of the trade receivables amounts to $51,000. The gross amount of trade receivables is $51,000 and it has been
collected since completion. Accounting for Purchase Price Allocation as of 30 June 2019 was provisional.
Measurement of these identifiable assets has been performed in accordance with paragraph 18 of AASB 3 – at their acquisition
date fair values. The fair value of an intangible asset acquired as part of a business combination reflects market expectations
about the probability that the future economic benefits embodied in the asset will flow to the entity. The customer contracts
being capitalised are for remaining consulting project works of contracts in place at time of acquisition and such have a high
probability of future economic benefits flowing to rhipe. Customer contracts will be amortised over 5 years based on the customer
churn and contribution over the years.
The total intangible assets of $8,226,000 comprises the value of expected synergies arising from the acquisition (Goodwill) and
customer relationships, which is separately recognised. In addition, rhipe’s management has also considered whether there is any
value in vendor relationships, brand, internally developed software or trademarks and patterns and concluded that there are no
material values in these areas.
The company issued 931,677 ordinary shares as a upfront consideration. Fair value of the shares is calculated with reference to
the quoted price of the shares of the Company at the date of acquisition, which was $1.61 per share.
50
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
As at the acquisition date, the fair value of the contingent consideration was estimated to be $3,500,000.
As at 30 June 2019, the key performance indicators of DBITS show that it is highly probable that the target will be achieved due
to expansion of the business and the synergies realised and therefore full amount of deferred consideration has been booked.
The contingent consideration is classified as liability.
Note 4. Revenue and Other Income
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the
customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for
those goods or services. The Group has concluded that it is the agent in its revenue arrangements for licensing
business, except for the provision of services, because it typically controls the goods or services before transferring
them to the customer. If the consideration in a contract includes a variable amount, the Group estimates the
amount of consideration to which it will be entitled in exchange for transferring the goods to the customer.
The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue
reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable
consideration is subsequently resolved. Volume rebates give rise to variable consideration.
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.
All revenue is stated net of the amount of goods and services tax.
Set out below, is the reconciliation of the revenue from contracts with customers with the amount disclosed in the segment
information (Note 2)
CONSOLIDATED GROUP
Sales - Software products & services
Less purchases of software products
Revenue
CONSOLIDATED GROUP
(a) Revenue from continuing operations
Revenue
– Licensing revenue
– Service & support revenue
Total revenue
(b) Other income
Interest income
Foreign exchange gain
Gain on disposal of Investment
2019
$’000
Restated
2018
$’000
252,537
196,608
(204,181)
(160,984)
48,356
35,624
2019
$’000
2018
$’000
Adjustment
$’000
Restated
2018
$’000
38,705
9,651
48,356
189,686
(160,984)
6,922
-
196,608
(160,984)
28,702
6,922
35,624
257
291
-
548
6
-
309
315
51
rhipe Annual Report 2019
Note 5. Expenses
CONSOLIDATED GROUP
(a) Employee benefits
Share-based payments
Defined contribution superannuation expenses
Other employee benefits
2019
$’000
2018
$’000
2,623
1,490
21,872
25,985
1,020
1,085
16,821
18,926
During the year $486,901 of employee benefits were capitalised to software development (FY18: $494,866), while $288,489 were
expensed as research (FY18: $123,716).
(b) Depreciation and amortisation
Depreciation
Amortisation
(c) Other expenses
Impairment expense
Foreign exchange loss
(d) Rental expense
Rental expenses on operating leases
(e) Marketing and travel expense
Marketing and travel expenses
(f) Business administration expense
Business administration expense
497
1,288
1,784
20
-
20
368
833
1,201
-
286
286
1,641
1,066
3,283
3,010
5,224
4,707
Total expenses
37,937
29,196
52
rhipe Annual Report 2019
Note 6. 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.
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.
53
rhipe Annual Report 2019 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
(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%
(2018: 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
– Prior year tax losses utilised in current year
- Overseas subsidiary losses not recognised
– Research and development offset
Note
16
2019
$’000
2018
$’000
3,863
(1,835)
249
2,277
1,601
518
5
2,124
2,547
(321)
1,102
3,328
249
(771)
-
(529)
2,277
1,557
23
1,090
2,670
5
-
265
(816)
2,124
(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)
54
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 7. Earnings per Share
CONSOLIDATED GROUP
Basic EPS
Diluted EPS
2019
cents
4.53
4.42
2018
cents
2.26
2.22
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
6,214
6,214
6,214
3,066
3,066
3,066
2019
No. of Shares
2018
No. of Shares
137,298,135 135,778,667
Weighted average number of dilutive options and performance rights outstanding
3,362,356
2,140,959
Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 140,660,491
137,919,626
Note 8. 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
Short-term highly liquid investments
Cash and cash equivalents
Note 9. Trade and Other Receivables
2019
$’000
18,400
7,130
25,530
2018
$’000
22,696
-
22,696
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.
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss. The Group recognises an allowance for expected credit losses
(ECLs) for trade and other receivables. Refer to Note 1(d) for further discussion on the determination of impairment of financial
assets. Interest rates, unemployment rates and other micro-economic factors were considered when calculating ECL.
CONSOLIDATED GROUP
CURRENT
Trade receivables
Provision for expected credit losses
9(a)
Indirect taxes
Accrued revenue
Note
2019
$’000
2018
$’000
Adjustment
2018
$’000
Restated
2018
$’000
30,258
22,367
(819)
1,744
8,125
39,308
(587)
1,645
16,622
40,047
_
_
_
(10,605)
(10,605)
22,367
(587)
1,645
6,017
29,442
55
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
(a) Provision For Expected Credit Losses
Movement in provision for ECL is as follows:
CONSOLIDATED GROUP
(i) Current trade receivables 2018
(ii) Current trade receivables 2019
(b) Credit risk
Opening
Balance
$’000
Impairment
For The Year
$’000
Amounts
Written Off
During
The Year
$’000
487
587
752
893
(652)
(661)
Closing
Balance
$’000
587
819
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, Malaysia, 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
Malaysia
New Zealand
Philippines
Thailand
Other (Indonesia and Korea)
2019
%
52%
16%
10%
7%
6%
3%
5%
2019
$’000
20,500
6,473
3,742
2,867
2,341
1,346
2,039
2018
%
57%
16%
6%
6%
8%
3%
5%
2018
$’000
16,660
4,586
1,661
1,772
2,345
979
1,439
100%
39,308
100%
29,442
The following table details the Group’s trade and other receivables exposed to credit risk with ageing analysis and ECL 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. All receivables are assessed for ECL using the historical
default rate adjusted for forward-looking estimates based on macro economic indicators.
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
Within
Initial Terms
$’000
Past Due
<30 $’000
(Days Overdue)
31-60 $’000
>60 $’000
2018 Trade and term receivables
2019 Trade and term receivables
22,367
30,258
12,721
17,421
6,106
6,794
2,375
3,984
1,165
2,059
ECL
$’000
(587)
(819)
56
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 10. Other Assets
CONSOLIDATED GROUP
CURRENT
Prepayments
Bonds
2019
$’000
2018
$’000
2018
Adjustment
$’000
945
270
1,215
4,464
186
4,650
(4,073)
-
(4,073)
2018
$’000
391
186
577
Prepayments relate to 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 25 for more details on
leases.
Note 11. Other Financial Assets
This note relates to financial asset disposed off in FY19 with reference to AASB 139.
CONSOLIDATED GROUP
Investment at cost
Investment at fair value
Impairment
2019
$’000
2018
$’000
6
–
(6)
-
6
–
-
6
Note 12. 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).
57
rhipe Annual Report 2019 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.
Computer
Equipment
$’000
Furniture
& Fittings
$’000
Leasehold
Improvements
$’000
841
228
(25)
1,044
(403)
(223)
18
(608)
436
1,044
606
_
1,650
(608)
(316)
_
(923)
727
149
22
–
171
(67)
(20)
–
(87)
84
171
55
–
225
(87)
(24)
–
(111)
115
Total
$’000
1,433
526
(25)
1,934
(667)
(368)
18
443
276
–
719
(197)
(125)
–
(322)
(1,017)
397
719
28
–
748
(322)
(157)
–
(480)
268
917
1,934
689
_
2,623
(1,017)
(497)
-
(1,513)
1,110
CONSOLIDATED GROUP
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
Cost at 30 June 2018
Additions
Disposals
Cost at 30 June 2019
Accumulated depreciation at 30 June 2018
Depreciation expense
Disposals
Accumulated depreciation at 30 June 2019
Balance at 30 June 2019
58
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 13. 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:
1.
The technical feasibility of completing the asset so that it will be available for use or sale;
2.
3.
4.
5.
6.
Intention to complete the asset and use or sell it;
Ability to use or sell the asset;
How the asset will generate probable future economic benefits;
Availability of adequate technical, financial and other resources to complete the development;
Ability to measure reliably the expenditure attributable to the asset during its development.
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.
59
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Customer
Relationships
$’000
Trademarks
& Licenses
$’000
WIP Software
Development
$’000
Software
Development
$’000
CONSOLIDATED GROUP
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
Cost at 30 June 2018
Additions
Additions - business combination
Transfers
Disposals
Cost at 30 June 2019
Accumulated amortisation at 30 June
2018
Amortisation expense
Disposals
Accumulated amortisation at 30 June
2019
Goodwill
$’000
19,897
–
–
19,897
–
–
–
–
19,897
19,897
-
7,434
-
–
27,331
–
–
–
–
_
_
_
_
_
_
_
_
_
-
-
792
-
_
792
_
(53)
_
(53)
Total
$’000
22,639
2,408
–
2,732
2,408
–
5,140
25,047
(751)
(751)
(833)
(833)
–
(1,584)
(1,584)
3,556
5,140
-
-
2,193
–
7,333
23,463
25,047
2,278
8,226
-
(10)
35,541
(1,584)
(1,584)
(1,235)
(1,288)
_
_
(2,819)
(2,872)
-
-
-
-
-
-
-
-
-
-
2,278
-
(2,193)
-
85
-
-
-
-
10
–
–
10
–
–
–
–
10
10
–
-
-
(10)
_
–
–
–
–
_
Balance at 30 June 2019
27,331
739
85
4,514
32,669
Goodwill and Customer Relationships additions arised due to business combination, please refer to note 3 (Business combination)
for more details. The 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
Customer relationship
Amortisation rate
20%
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.
Goodwill is allocated to the group of cash-generating units which is the level at which goodwill is monitored and is based on the
Group’s reporting regions.
Asia Pacific region
60
2019
$’000
27,331
2018
$’000
19,897
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Goodwill impairment testing
The recoverable amount of the Asia Pacific region, includes 3 CGUs, Licensing, Concierge and DBITS, to which goodwill is
recognised at 30 June 2019, 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 2020 financial year for the cash-generating unit. This
budget is adjusted for future years and uses an initial growth rate of 30% (30 June 2018: 20%) decreasing over five years to
a terminal growth of 3.5% (30 June 2018: 5%) and a real pre-tax discount rate of 13.5% (30 June 2018: 13.4%). 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 2019, 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 reasonable 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 14. 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
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
Note
2019
$’000
2018
$’000
Adjustment
$’000
Restated
2018
$’000
35,794
5,548
41,342
26,339
15,587
41,926
_
(12,003)
(12,003)
26,339
3,584
29,923
27
41,342
41,926
(12,003)
29,923
–
–
_
_
Financial liabilities as trade and other payables
27
41,342
41,926
(12,003)
29,923
Note 15. Contract Liabilities
CONSOLIDATED GROUP
CURRENT
Unearned revenue
2019
$’000
2018
$’000
Adjustment
$’000
Restated
2018
$’000
252
2,718
(2,675)
43
61
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 16. Tax
CONSOLIDATED GROUP
CURRENT
Income tax payable
CONSOLIDATED GROUP
Balance at 30 Jun 2017 - NET DEFERRED TAX
LIABILITIES
Provisions - employee benefits
Provisions - doubtful debt
Accrued revenue
Other
Balance at 30 June 2018 - NET DEFERRED TAX
LIABILITIES
Provisions – employee benefits
Provisions – doubtful debts
Accrued revenue
DTL arising on business combination
Other
Balance at 30 June 2019 - NET DEFERRED TAX
ASSETS
Reflected in the statement of financial position as:
CONSOLIDATED GROUP
Deferred tax assets
Deferred tax liabilities
Deferred tax assets (net)
2019
$’000
2018
$’000
2,885
2,885
1,572
1,572
Opening
Balance
$’000
Recognised
To Income
$’000
Recognised
To Equity
$’000
Acquisition
of subsidiary
$’000
140
482
146
(754)
(233)
(359)
608
176
(1,219)
-
(286)
(721)
(342)
(157)
79
30
(465)
(210)
(566)
471
70
1,219
-
75
1,835
–
–
-
157
157
–
–
–
-
–
-
-
47
-
-
-
47
-
-
-
(237)
-
(237)
Closing
Balance
$’000
(359)
608
176
(1,219)
(286)
(721)
1,079
246
–
(237)
(211)
877
2019
$’000
2018
$’000
1,141
(264)
877
203
(924)
(721)
62
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 17. 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).
CONSOLIDATED GROUP
CURRENT
Employee Benefits
NON CURRENT
Employee Benefits
Employee benefits – Current
Employee benefits – Non-Current
Employee benefits – Current
Employee benefits – Non-Current
Note 18. Deferred Contingent Consideration
CONSOLIDATED GROUP
CURRENT
Contingent consideration - DBITS acquisition
NON-CURRENT
Contingent consideration - DBITS acquisition
2019
$’000
2018
$’000
1,037
257
679
185
Opening
Balance
1 Jul 2017
$’000
Additional
Provision for
the Year
$’000
Utilisation
Of Provision
During
The Year
$’000
Closing
Balance
30 Jun2018
$’000
656
156
785
29
(762)
_
679
185
Opening
Balance
1 Jul 2018
$’000
Additional
Provision
for the Year
$’000
Utilisation
Of Provision
During
The Year
$’000
Closing
Balance
30 Jun2019
$’000
679
185
1,297
71
(939)
_
1,037
256
2019
$’000
2018
$’000
1,750
1,750
-
-
Contingent consideration of up to $3,500,000 will be paid in two equal instalments half in cash and half in shares.
First instalment payable upon completion 12 months from acquisition date up to a maximum of $1,750,000. The amount
of deferred consideration will be tied to the amount of adjusted EBITDA in the 12 months to 28 February 2020. Second
instalment payable upon completion 24 months from acquisition date up to a maximum of $1,750,000. The amount of deferred
consideration will be tied to the amount of adjusted EBITDA in the 12 months to 28 February 2021. As at 30 June 2019, the
key performance indicators of DBITS show that it is highly probable that the target will be achieved and therefore full amount of
deferred consideration has been booked.
63
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 19. Issued Capital
RHIPE LIMITED
138,982,996 (2018: 135,429,383) fully paid ordinary shares
RHIPE LIMITED
(a) Movement in ordinary shares on issue
rhipe Limited shares as at 30 June 2018
Shares issued upon exercise of options
Shares issued upon exercise of performance rights
Shares issued as part of consideration
Share buy back
Transfer from equity settled employee benefits reserve
Share issue costs, net tax
Closing balance at 30 June 2019
2019
$’000
43,320
43,320
No.
135,429,383
1,508,344
2,840,000
931,677
(1,726,408)
–
–
2018
$’000
39,287
39,287
Value
$’000
39,287
3,085
-
-
(2,056)
3,013
(8)
138,982,996
43,320
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. Until recently the
Group was subject to externally imposed capital requirements for the facilities detailed in note 22(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
2019
$’000
2018
$’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
6,924
5,269
64
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 19. 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 21.
(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. This only relates to FY18.
Note 20: Dividends
2018 Final dividend
2019 Interim dividend
2019 Final dividend
Note 21. Share-based Payments
Equity-settled compensation
Amount per
ordinary share
(cents)
Franked amount per
ordinary share
(cents)
Dividend Declared
Payment date
1.0
1.0
2.0
1.0
1.0
2.0
26 July 2018
24 October 2018
18 February 2019
24 May 2019
16 August 2019
24 October 2019
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–Black-Scholes pricing model. A Monte Carlo simulation approach was used to value
awards subject to the TSR performance conditions. For the awards with non-market vesting condition the number of options
and performance rights expected to vest is reviewed and adjusted at the end of each reporting period such that the amount
recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments
that eventually vest.
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.
65
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
(a) Options
(i) 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 is disclosed below.
As at 30 June 2019, there were 870,000 options under issue (30 June 2018: 3,673,334) exercisable on a 1:1 basis for 870,000
ordinary shares in the Company (2018: 3,673,334). These options are exercisable as follows:
DETAILS
Date Of Grant Number Of Options
Date Of Expiry
Exercise Price ($)
Management incentive options
27/07/2014
300,000
11/08/2021
27/02/2015
01/11/2016
01/11/2016
13/09/2017
13/09/2017
200,000
135,000
135,000
50,000
50,000
870,000
01/07/2021
01/11/2020
01/11/2023
12/09/2021
12/09/2022
The weighted average conversion price of the above options is $0.78 (2018: $0.745)
0.75
0.75
0.94
0.94
0.50
0.50
Balance at beginning of the year
Granted during the year
Exercised during the year
Expired during the year
Balance at end of year
2019
No. Of Options
2018
No. Of Options
3,673,334
-
(1,585,834)
(1,217,500)
870,000
4,349,584
200,000
(750,000)
(126,250)
3,673,334
1,585,834 options exercised during the year converted to 1,508,344 ordinary shares due to cashless exercise approved by
shareholders at Company’s 2018 AGM.
A summary of the movements of management incentive plan options issued is as follows:
CONSOLIDATED GROUP
Options outstanding as at 30 June 2017
Granted
Exercised
Expired
Options outstanding as at 30 June 2018
Granted
Exercised
Expired
Options outstanding as at 30 June 2019
Options exercisable as at 30 June 2019
Options exercisable as at 30 June 2018
No Of Options
Weighted Average
Exercise Price
4,349,584
200,000
(750,000)
(126,250)
3,673,334
-
(1,585,834)
(1,217,500)
870,000
820,000
2,238,334
$0.703
$0.500
$0.350
$1.250
$0.745
-
$0.384
$1.191
$0.780
$0.797
$0.508
As at the date of exercise, the weighted average share price of options exercised during the year was $0.384.
The weighted average remaining contractual life of options outstanding at year end was 2.38 years (2018: 1.41 years).
The exercise price of outstanding options at the end of the reporting period was $0.50 – $0.94.
There has been no alteration to the terms and conditions of any share-based payments arrangements since the grant date.
Options are forfeited after the holder ceases to be employed by the Group, unless the Board determines otherwise.
66
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
(b) Performance rights
As at 30 June 2019, there were 2,258,755 performance rights to acquire shares (30 June 2018: 3,440,000). These performance
rights are exercisable as follows:
Details
CEO performance rights
FY19 LTI
Date Of Grant
Number Of Rights
Date Of Expiry
Exercise Price ($)
29/07/2014
31/05/2019
500,000
1,758,755
11/08/2022
31/05/2034
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
2019 No. of Rights
2018 No. Of Rights
3,440,000
1,758,755
(2,840,000)
–
(100,000)
2,258,755
1,040,000
2,500,000
–
–
(100,000)
3,440,000
Fair value of performance rights granted in the year
On 31 May 2019, 1,758,755 performance rights were granted to executives as part of a management incentive plan.
The performance rights vest on the satisfaction vesting conditions and each right has a term of 15 years and if not exercised
within that team the rights will lapse. The company expensed $1,493,694 in relation to these performance rights in FY19.
The fair value of the performance rights which have been determined by a third party has been determined using the
following assumptions:
No. of performance rights
Grant date
Share price at grant date
Vesting conditions
Expected volatility
Risk free interest rate
Dividend yield
Value per performance right
1,758,755
31/05/2019
$2.30
(a) (b) (c) (d)
50%
1.11%
1.09%
(d)
(a) Total Shareholder Return (TSR) is a measure of investment return in percentage terms, adjusted for dividends and capital
movements, from the start to the end of the measurement period. The vesting of Performance Rights will be determined
by comparing the Company’s total shareholder return (TSR) over the Measurement Period with the movement in the Small
Industrials Total Return Index over the Measurement Period;
(b) Earning per share growth (EPSG) is a measure of the increase in the amount of profit generated by a company divided by the
number of shares on issue. It will be calculated by comparing the reported EPS for the final year of the Measurement Period
with the reported EPS for the year immediately prior to the commencement of the Measurement Period and determining the
implied CAGR (compound annual growth rate);
(c) Gross profit growth will be calculated by comparing the audited gross profit for the final year of the Measurement Period with
the audited gross profit for the year immediately prior to the commencement of the Measurement Period and determining the
implied CAGR;
(d)
Tranche
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
No. of Performance rights
Vesting condition
Fair value Vesting Date
202,933
405,868
EPS Hurdle
TSR Hurdle
$2.27
1 July 2020
$2.04
1 July 2020
270,577 Gross Profit Hurdle
$2.27
1 July 2020
202,933
405,868
EPS Hurdle
TSR Hurdle
$2.25
1 July 2021
$1.91
1 July 2021
270,577 Gross Profit Hurdle
$2.25
1 July 2021
67
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 22. 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 (gain)/ loss
Provision for expected credit losses
Changes in operating assets and liabilities:
2019
$’000
2018
$’000
6,214
3,066
2,623
1,288
497
_
(291)
232
1,020
833
368
(309)
287
100
Increase in trade and term receivables and unearned revenue
(9,657)
(2,853)
Increase in other current assets
Increase in trade payables and accruals
Income taxes payable
(Decrease)/Increase in deferred taxes payable
Increase in deferred taxes receivable
Increase in provisions
Net cash provided by operating activities
(a) Bank Guarantees
The group has the following bank guarantee in place:
Provider
Guarantee
Utilised Total
Security
(638)
11,644
1,313
(660)
(939)
430
12,055
(1,743)
5,680
894
802
(440)
51
7,756
CBA
AUD 3,00,000
AUD 2,778,381
General Security Interest by rhipe Australia Pty Ltd and rhipe Limited
comprising: First ranking charge over All Present & After Acquired Property
The guarantee requires compliance with certain conditions and the group was in compliance with the covenants governing this
guarantee during the year. Toward the end of FY19 the covenants associated with the guarantee was removed given the strong
trading performance and cash position of the group.
68
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 23. Related Party Transactions
Related Parties
(a) The Group’s main related parties are as follows
i. Key Management Personnel:
Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise) of that entity are considered key management personnel.
Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each
member of the Group’s Key Management Personnel (KMP) for the year ended 30 June 2019.
The totals of remuneration paid to KMP of the Company and the Group during the year are as follows:
CONSOLIDATED GROUP
Short-term employee benefits
Post-employment benefits
Other Long-Term benefits
Termination benefits
Total KMP compensation
2019 ($)
2018 ($)
3,884,440
3,675,462
105,898
2,411,311
45,838
136,689
799,214
66,260
6,447,487
4,677,625
Further information in relation to KMP remuneration can be found in the Remuneration Report.
ii. Other Related Parties
Other related parties include entities controlled by the ultimate parent entity, entities over which key management personnel have
joint control, and entities that directors are common directors of.
CONSOLIDATED GROUP
1. Other related parties
2019 ($)
2018 ($)
Marketing consulting services provided by Breakfast Epiphanies Consulting
30,199
8,250
2019 fees relate to one off marketing related project provided by an entity partially owned and operated by Inese Kingsmill, a NED
of rhipe Limited.
Note 24. Auditors’ Remuneration
CONSOLIDATED GROUP
Remuneration of the auditor for:
– auditing or reviewing the financial report
– taxation and due diligence
2019
($)
2018
($)
240,000
237,000
170,000
87,000
477,000
257,000
Remuneration of other auditors of subsidiaries for:
– auditing or reviewing the financial statements of subsidiaries *
-
51,000
* Audit fees for FY19 includes the audit for all rhipe subsidiaries of $55,000
** FY18 fees were paid to Shine Wing Australia and other audit firms in Asia
69
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 25. 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
2019
$’000
2018
$’000
1,500
2,398
-
3,898
1,128
2,926
–
4,054
The Group has leases in Sydney, Melbourne, Auckland, Singapore, Manila, Bangkok, Kuala Lumpur, Jakarta, Seoul and New York.
Note 26. 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.
As a result of a tax audit for FY16 which was initiated in March 2018, rhipe Philippines Inc. has received a Preliminary Assessment
Notice on 26 June 2019 from the Philippines tax office. The notice covers seven different tax types and requires rhipe to provide
detailed supporting documentation for all tax filings completed during FY16. Rhipe in is the process of compiling all required
information and documents to substantiate the original tax filings. Rhipe management believes that the Preliminary Assessment
Notice is incorrect and that there will be no material financial effect as a result of the tax audit.
Note 27. Financial Risk Management
The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies
to these financial statements, are as follows:
CONSOLIDATED GROUP
FINANCIAL ASSETS
Cash and cash equivalents
Receivables
Bonds & deposits
Total Financial Assets
FINANCIAL LIABILITIES
Trade and other payables
Deferred consideration payable in cash
Total Financial Liabilities
Net Financial Assets
70
Note
2019
$’000
Restated
2018
$’000
8
9
10
14
18
25,530
39,308
270
65,108
41,342
3,500
44,842
20,266
22,696
29,442
186
52,324
29,923
-
29,923
22,401
rhipe Annual Report 2019 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 credit-worthy, 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 9.
(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;
– 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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
CONSOLIDATED GROUP
Financial liabilities due for payment
Trade and other payables
Deferred consideration
Total expected outflows
Financial Assets – cash flows realisable
Cash and cash equivalents
Trade and other receivables
Bonds and deposits
Total anticipated inflows
41,342
29,923
1,750
43,092
29,923
–
1,750
1,750
25,530
22,696
39,308
29,442
270
186
65,108
52,324
–
–
–
–
Net inflow on financial instruments
22,016
22,401
(1,750)
–
_
–
–
–
–
–
–
–
_
–
–
–
–
–
–
–
_
–
–
–
–
–
–
41,342
29,923
3,500
_
44,842
29,923
25,530
22,696
39,308
29,442
270
186
65,108
52,324
20,266
22,401
71
rhipe Annual Report 2019 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
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s
operating activities (when revenue or expense is denominated in a foreign currency) and the Group’s net investments in foreign
subsidiaries
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 and 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
2019
$’000
2018
$’000
10,074
11,825
895
4,977
7,023
(65)
1,667
3,129
22,969
16,556
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.
Equity
(d) Fair Value
NZD
2019
$’000
8
2018
$’000
25
USD
2019
$’000
80
2018
$’000
(78)
The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial
statements approximate their fair values.
72
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 28. Fair Value Measurement
This note relates to AASB 139 and explains the fair value measurement for investment in LiveTiles Limited which was disposed of
in FY18. 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
2019
$’000
2018
$’000
-
-
-
–
940
(523)
(417)
–
2019
$’000
2018
$’000
-
-
–
29
(29)
–
73
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 29. 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
Principal Place
Of Business
2019
(%)
2018
(%)
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)
Australia
Australia
Australia
Australia
Australia
Dynamic Business IT Solutions Pty Limited (ii)(iv)
Australia
rhipe New Zealand Limited
rhipe Singapore Pte. Ltd
rhipe Technology (Thailand) Co., Ltd
rhipe Malaysia Sdn Bhd
NewLease Hong Kong Limited(iii)
rhipe Philippines, Inc
rhipe Philippines Technology, Inc
PT rhipe International Indonesia
rhipe Lanka (Private) Limited (v)
rhipe UK Pty Ltd
rhipe Licensing Technology Korea Ltd.
New Zealand
Singapore
Thailand
Malaysia
Hong Kong
Philippines
Philippines
Indonesia
Sri Lanka
United Kingdom
Republic of Korea
rhipe Solutions LLC (formerly Online SC LLC)
United States
100%
100%
63%
100%
100%
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%
100%
2019
(%)
–
–
2018
(%)
–
–
37%
37%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 company is a wholly-owned subsidiary which was acquired on 28 February 2019.
(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 March 2019.
(b) Significant Restrictions
There are no significant restrictions over the Group’s ability to access or use assets, and settle liabilities, of the Group.
74
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
Note 30. 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
Retained Earnings
Reserves
Total Equity
Contingent liabilities
2019
$’000
2018
$’000
(3,985)
(3,985)
1,283
1,283
17,156
27,909
45,065
3,760
–
3,760
17,299
27,978
45,277
880
–
880
105,625
101,621
(66,754)
(60,206)
2,435
41,305
2,981
44,397
At 30 June 2019, rhipe Limited had $3,500,000, contingent liabilities relating to deferred consideration for DBITS acquisition
(2018: $Nil).
Contractual commitments
At 30 June 2019, rhipe Limited had not entered into any contractual commitments for the acquisition of property, plant and
equipment (2018: $Nil).
75
rhipe Annual Report 2019
Notes to the Financial Statements (continued)
Note 31. Events After the Reporting Period
On 2 August 2019 rhipe acquired 100% of the share capital of Network2Share Pty Limited, an Australian based security software
company that has developed a user-friendly encryption product (‘SmartEncrypt’).
On 16 August 2019 the Board of Directors approved a fully franked final dividend of 2 cents per share with payment date of
24 October 2019.
On 16 August 2019 the Board announced the signing of a binding agreement with Japan Business Systems, Inc. (‘JBS’) to establish
a new Joint-Venture (‘JV’) company, rhipe Japan, headquartered in Tokyo. rhipe Japan will be owned 80% by rhipe and 20% by
JBS.
Note 32. 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
76
rhipe Annual Report 2019 Notes to the Financial Statements (continued)
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 36 to 76, 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 2019 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 19th day of August 2019
77
rhipe Annual Report 2019
Independent Auditor’s Report
To the members of rhipe limited and controlled entities (formerly rhype limited)
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent Auditor's Report to the Members of rhipe Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of rhipe Limited (the Company) and its subsidiaries (collectively the
Group), which comprises the consolidated statement of financial position as at 30 June 2019, the
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, notes to the financial statements, including
a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
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Independent Auditor’s Report (continued)
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Impairment of Goodwill and other intangible assets
Why significant
How our audit addressed the key audit matter
At 30 June 2019 the Group’s consolidated
statement of financial position included goodwill
and other intangible assets amounting to $32.4
million, representing 32.2% of total assets.
The directors have assessed goodwill and other
intangible assets for impairment at 30 June
2019. As disclosed within Note 13 to the
financial statements, the assessment of the
Group’s goodwill and other intangible assets for
impairment incorporate estimates, including
forecast cashflows, discount rates and terminal
growth rates.
These estimates and assumptions are impacted
by future performance, market and economic
conditions. Minor changes in certain assumptions
can lead to significant changes in the
recoverable amount of these assets.
Accordingly, we considered this to be a key audit
matter.
Our audit procedures included the following:
• Assessed the Group’s determination of the cash
generating units (CGUs) used in the impairment
model, based on our understanding of the
Group’s businesses and the economic
environment in which they operate. We also
considered internal reporting of the Group’s
results to assess how earnings and goodwill are
monitored and reported;
• Assessed the cash flow forecasts, assumptions
and estimates used by the Group, as outlined in
Note 13 to the financial statements, by
considering the accuracy of the Group’s
historical cash flow forecasts, our knowledge of
the business and corroborating data with
external information where possible;
• Evaluated the appropriateness of discount and
terminal growth rates applied;
• Tested the mathematical accuracy of the
impairment testing models including the
consistency of relevant data with latest Board
approved forecasts;
• Performed sensitivity analysis on key
assumptions including discount rates, terminal
growth rates and EBIT forecasts; and
• Assessed the adequacy of the financial report
disclosures contained in Note 13.
Revenue recognition
Why significant
How our audit addressed the key audit matter
For the year ended 30 June 2019, the Group
generated revenue of $48.3 million, from the
sale of vendor owned software products through
their partner network, rebates from those
vendors and concierge services.
Our audit procedures included the following:
• Used data analysis techniques to analyse the
relationship between revenue, accounts
receivable and cash collections.
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rhipe Annual Report 2019
Independent Auditor’s Report (continued)
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The Group’s process for recognising accrued
revenue, at year end, relies upon manual
processing of transactions which is susceptible
to error.
Rebates are a significant component of revenue.
Rebates are earned throughout the year and are
based upon a variety of factors including sales
volume and customer adds and are therefore
subject to estimation, particularly at year-end.
The implementation of AASB 15 from 1 July
2018 resulted in a significant change to the
presentation of Revenue.
Accordingly, we considered this to be a key audit
matter.
• Obtained confirmation from a sample of the
Group’s Partners to confirm the products
purchased, usage and amounts billed.
• Compared accrued revenue to amounts
invoiced subsequent to 30 June 2019.
• Confirmed a sample of rebates due from
suppliers to third party evidence and where
appropriate, cash received.
• Assessed the adequacy of the revenue
disclosures in Note 4 of the financial report.
Capitalisation of internally generated intangible assets
Why significant
How our audit addressed the key audit matter
At 30 June 2019 the Group’s consolidated
statement of financial position includes
capitalised development costs amounting to
$4.5 million, representing 4.5% of total assets.
This primarily relates to the Group’s core
technology platform, PRISM, which is utilised to
enable sales of cloud-based licences.
The costs are capitalised in accordance with
Australian Accounting Standards and are
amortised over 5 years.
Given the value of these balances, the significant
level of expenditure during the year and the
judgement required when determining the
qualifying cost, useful life and recoverability, this
was considered to be a key audit matter.
Our audit procedures included the following:
• Assessed the appropriateness of the Group’s
accounting policy for capitalisation of software
development costs in compliance with
Australian Accounting Standards;
• Selected a sample of capitalised costs and
determined whether they met the capitalisation
criteria set out in Australian Accounting
Standards.
• Agreed a sample of capitalised employee costs
to payroll records and capitalised contractor
costs to invoices and then considered the
related development activities that were
undertaken and whether the costs capitalised
were directly involved in developing software.
• Assessed the useful life and amortisation rate
allocated to capitalised development costs
taking into consideration the economic life of
the software.
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rhipe Annual Report 2019
Independent Auditor’s Report (continued)
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• Assessed the consistency of the capitalisation
methodology applied by the Company in
comparison to prior reporting periods.
• Evaluated the Group’s assessment for the
indicators of impairment of capitalised software
development.
• Assessed the adequacy of the disclosures
included in Note 13 of the financial statements.
Accounting for acquired business
Why significant
How our audit addressed the key audit matter
During the year ended 30 June 2019 the Group
acquired a business, Dynamic Business IT
Solutions, for a total consideration of $8 million,
as detailed in Note 3.
The provisional accounting for the acquired
business was considered a key audit matter as
there was judgement involved in the
determination of the transaction purchase price
and recognition of the fair value of the acquired
goodwill and intangible assets.
The critical accounting judgment in respect to
the identification of acquired intangible assets
and goodwill is disclosed in Note 3.
Our audit procedures included the following:
• Assessed the determination of the transaction
purchase price, including consideration of
future potential payments.
• With the involvement of our valuation
specialists we evaluated the recognition and
determination of fair value of separately
identifiable intangible assets and their useful
lives; and
• Assessed the adequacy of the related
disclosures within the financial report.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2019 Annual Report but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
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rhipe Annual Report 2019
Independent Auditor’s Report (continued)
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If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
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rhipe Annual Report 2019
Independent Auditor’s Report (continued)
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•
•
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 20 to 34 of the directors' report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of rhipe Limited for the year ended 30 June 2019, complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
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rhipe Annual Report 2019
Independent Auditor’s Report (continued)
84
Ernst & Young
Graham Leonard
Partner
Sydney
19 August 2019
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rhipe Annual Report 2019
Additional Information for Listed Public Companies
rhipe Limited and Controlled Entities
The following information is current as at 24 July 2019
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
118,179,963
13,094,927
3,615,293
2,737,903
423,233
85.61
9.49
2.62
1.98
0.31
138,051,319
100.00
66
570
463
985
1,392
3,476
b. The number of shareholdings held in less than marketable parcels is 752
c. The names of the substantial shareholders listed in the holding company’s register are:
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
TUTUS MCDONAGH PTY LTD
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
d. Voting Rights
Number of Ordinary
Fully Paid Shares Held
24,156,774
23,910,730
14,855,227
9,731,777
7,014,336
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
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rhipe Annual Report 2019 Additional Information for Listed Public Companies (continued)
Number of Ordinary
Fully Paid Shares Held
% Held of Issued
Ordinary Capital
24,156,774
23,910,730
14,855,227
9,731,777
7,014,336
6,343,102
4,105,978
2,401,747
2,000,000
2,000,000
1,940,380
1,857,840
1,500,000
1,003,690
779,225
743,822
709,475
702,294
700,000
700,000
700,000
634,844
518,064
17.50
17.32
10.76
7.05
5.08
4.59
2.97
1.74
1.45
1.45
1.41
1.35
1.09
0.73
0.56
0.54
0.51
0.51
0.51
0.51
0.51
0.46
0.38
109,009,305
78.96
e. 23 Largest Shareholders – Ordinary Shares
Name
1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2. TUTUS MCDONAGH PTY LTD
3. CITICORP NOMINEES PTY LIMITED
4. NATIONAL NOMINEES LIMITED
5.
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
6. UBS NOMINEES PTY LTD
7. WARBONT NOMINEES PTY LTD
8. BNP PARIBAS NOMS PTY LTD
9. MIRRABOOKA INVESTMENTS LIMITED
10. DAWN EDMONDS
11. PRM INVESTMENTS PTY LTD
12. MR DOMINIC O’HANLON & MRS KAREN O’HANLON
13. MR DOMINIC JOHN O’HANLON
14. BNP PARIBAS NOMINEES PTY LTD
15. CHRIS SHARP
16. CS FOURTH NOMINEES PTY LIMITED
17. MR WARREN NOLAN
18. EDMONDS WALLIS PTY LTD
19. ROBERT GOUDIE FINANCIAL ADVISERS PTY LTD
20. MARK MCLELLAN
21. JOHN LEON SAYERS
22. NEWECONOMY COM AU NOMINEES PTY LIMITED
23. PATARA YONGVANICH
2. The name of the company secretary is
Marika White
3. The address of the principal registered office in Australia is
Level 19, 100 Miller Street
North Sydney New South Wales, 2060.
Telephone: 1300 732 009
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
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rhipe Annual Report 2019 Additional Information for Listed Public Companies (continued)
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 870,000 options are on issue to 1 director and 2 employees.
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