1 A N N U A L R E P O R T 2 0 1 9 ASX:STG STR AKER TR ANSLATIONS GR OUP STRAKER TRANSLATIONS FY19 ANNUAL REPORT 2 ASX:STG STR AKER TR A NSLATIONS GR OUP 3 Straker is a world-leading Ai data-driven language translation platform powering the global growth of businesses Contents 4 -5 6 -7 8 9 10 11 What We Do Highlights Chairman’s Report CEO Report Powering The Global Growth of Business Advantage Through Proprietary RAY Ai Platform 12 -13 Board of Directors 14 -23 Management Commentary 24 - 69 Financial Statements 70 - 77 Corporate Governance Statement 78 - 85 Additional Disclosures 86 Company Directory STRAKER TRANSLATIONS FY19 ANNUAL REPORT 4 What we do STRAKER TRANSLATIONS FY19 ANNUAL REPORT 5 5 Straker helps leading technology companies streamline and scale their ability to communicate across regions Straker enables thousands of SME’s to cost-effectively cross- border trade without language as a barrier Straker helps major financial institutions deliver quarterly market reports in multiple languages Straker provides leading global manufacturers with the ability to easily launch new products into multiple markets Straker works with major e-commerce providers to localise their product websites into multiple languages Straker enables global media companies to provide content in multiple languages across multiple platforms We enable the translation of documents, websites, technical manuals and e-commerce platforms for both large and small businesses across a range of industries STRAKER TRANSLATIONS FY19 ANNUAL REPORT 6 Highlights Achieved Prospectus FY19 forecasts1 7 44% YOY revenue growth $ 25.8m Pro-forma revenues ($ 0.16m) Adjusted EBITDA2 12.6% Organic revenue growth 82% Repeat revenue $ 17.7m Cash at bank 52.4 m Words translated on RAY Ai Platform 1. Straker achieved Revenue, Adjusted EBITDA, EBITDA and EBIT forecasts on a Pro-forma basis. For details see pages 16 and 22 2. Adjusted EBITDA is a non-IFRS measure. Refer to pages 16 and 22 for reconciliation and explanation to IFRS financial information Powering the global growth of businesses STRAKER TRANSLATIONS FY19 ANNUAL REPORT 8 Chairman’s Report CEO Report 9 Dear Shareholders, It is my privilege as Straker’s Chairman to write to you on behalf of your Board in our first Annual Report for shareholders since listing on the Australian Securities Exchange (ASX) in October 2018. Straker offers a world leading Ai data-driven language translation platform that powers the global growth of businesses. We operate in an exciting industry, with the global market for language translations expected to reach US$66 billion in size by 2022 from US$47 billion today.1 Our listing on ASX provided Straker with a strong balance sheet to support the Company’s global growth strategy and deliver on the potential outlined in our Prospectus. Achieved Prospectus forecasts for the 12 months ended 31 March 2019 (FY19) On a Pro-forma basis: • Revenues of $25.8 million, up 10.2% on FY18 and ahead of forecast by 3.7% • Adjusted EBITDA loss improved year-on-year 69% to ($0.48 million) • EBIT loss improved 34% year-on-year to ($1.4 million), on an adjusted basis ($0.95 million) * • Operating cashflow up 31% in FY18. On a Statutory basis: • Operating loss before acquisition and IPO costs improved by 60% on FY18 to ($0.8 million) • Operating loss before net finance income was ($4.02 million), which included the impact of the IPO, acquisition costs, amortisation of acquired intangibles and re-structuring costs. Successfully executing the M&A growth strategy Underpinning our growth strategy is the opportunity to capture the identified growth potential in a fragmented global language service industry, where the top 100 service providers (including Straker) only account for 15% of the global market. Our strong performance in FY19 was driven both by a continuation of our organic growth and the continued successful execution of our M&A programme, having acquired MSS, Eule and COM Translations during the year. Not only have we successfully undertaken several strategic acquisitions, the management team has done a tremendous job in successfully integrating those acquisitions and lifting earnings in the businesses acquired. The previous acquisitions of Eurotext and Elanex have both experienced substantial uplifts in their EBITDA margins following their integration onto Straker’s Ai powered RAY technology platform, and we are excited by the potential for uplift in MSS, Eule and COM Translations. 1Source: nimdzi 2018 language services market analysis * Adjusted basis excludes non-recurring costs and amortisation on acquired intangibles Well-positioned for strong growth in FY20 We expect FY20 to be another year of strong growth for Straker as we continue to deliver on our five-point growth strategy: • Attracting new enterprise customers Increasing transactional revenue • Integration into content platforms • • Increasing penetration of existing customers • Further acquisitions. We operate in a global market with attractive underlying growth fundamentals, which will underpin continued organic growth in our business over FY20. At the same time, we will see a full year of earnings included for the businesses we acquired in FY19 – MSS, Eule and COM Translations. As we have delivered with Eurotext and Elanex, we expect to lift the EBITDA margins of our newly acquired businesses by successfully integrating them onto our RAY Ai powered technology platform. We do not plan on slowing down our M&A strategy given the potential acquisition opportunities we see in our industry and our ability to deliver improved services and value to customers. All of this will help us expand our customer base, grow top- line revenue, implement operational efficiencies through our RAY Ai powered technology platform, improve gross margins, and further strengthen our position in the global translations industry. A great team Our CEO and Co-founder, Grant Straker, has done a tremendous job in leading the business through a period of substantial change over the past 12 months. In addition, our highly talented employees across our 7 offices around the world are a key asset, and the results we have been able to achieve are testament to their dedication, commitment and passion. On behalf of the Board, I would like to thank all of our team for delivering on the opportunities we saw over FY19 and positioning the business for continued growth in FY20 and beyond. I would also like to thank my fellow Directors for their support over a very busy past 12 months as we listed on ASX and continued to grow organically and through acquisition. Lastly, I would like to thank you, our shareholders, for your support and vote of confidence in the business and its team. We look forward to delivering on the opportunities we see for the business moving forward and growing shareholder value. Yours sincerely, Phil Norman Chairman Dear Shareholders, I am very pleased to report that Straker’s strong historical growth continued in FY19, a year that also saw us: list on the ASX in October 2018 • • acquire three strategic bolt-on businesses • successfully integrate two previous acquisitions undertaken in FY18 • achieve our Prospectus forecasts for FY19. The successful year we had would not have been possible without a great team and supportive Board. I want to thank all the Straker team for the tremendous results we have been able to achieve in a milestone year for our business. Strong top-line revenue growth Revenue over FY19 was up 44% to $24.6 million, ahead of our Prospectus forecast. This strong revenue result was driven by organic growth in EMEA and APAC, as well as contributions from the three companies Straker acquired during the year. Improving earnings, moving closer to break-even Reflecting the strong growth in revenue and a focus by management on ensuring the cost base is managed effectively, Adjusted EBITDA* was ($0.16 million). Investing in our technology platform Over the past year we have enhanced our product offering and further invested in our unique “RAY Ai” data-driven artificial intelligence platform. RAY Ai provides Straker with a key competitive advantage in the global translations market, and further strengthens our technology capabilities, which will drive ongoing growth in market share. To give you a sense of the growing volume of work we manage, we translated a total of 52.4 million words during the last year, adding an additional 100 million data points to our Platform, up 18% from 31 March 2018. Our customers are receiving a premium service across multiple languages at an increased speed, which we believe to be crucial for them as global markets continue to expand, and technology plays a greater part in our industry. Successfully acquiring and integrating strategic businesses Our development of a structured process to identify, acquire and integrate businesses has been crucial for Straker’s overall growth strategy. With two successful acquisitions completed in FY18 and a further three in FY19, we are starting to see the benefits from economies of scale flow through to an improved margin. Each additional acquisition allows us to further leverage the capabilities of our RAY Ai Platform, improve customer experience, provide more accurate translations at a faster speed, and support greater repeat business from customers as seen by the high levels (82%) of repeat revenue we are now generating. Over FY19, we successfully completed the acquisitions of MSS, Eule and COM Translations, while also successfully completing the integrations of Eurotext and Elanex. Our focus for FY19 was to successfully integrate our three more recent acquisitions, while also identifying and acquiring other strategic translation businesses that add value to our customers and grow shareholder value. Positive outlook for FY20 Our main focus for FY20 is to not diverge from what we do well. We will continue to deliver what we believe is best in class technology for the global translations industry, attract larger customers, provide more services to our existing customers, and further enhance our technology platform. We expect revenue and earnings to grow strongly in FY20 reflecting: inclusion of a full year of earnings from the three businesses • ongoing organic growth within our business • we acquired in FY19 • benefits from the successful integration of these acquired businesses flowing through further potential acquisitions • Our balance sheet is strong, with $17.7 million cash and no debt, and supports the growth strategy we are delivering on. We look forward to delivering further growth for our customers, staff and shareholders over the coming year and beyond. Yours sincerely, Grant Straker CEO and Co-founder *Adjusted EBITDA is a non-IFRS measure. Refer to page 21 for reconciliation and explanation to IFRS financial information STRAKER TRANSLATIONS FY19 ANNUAL REPORT 10 Powering the global growth of business Advantage through proprietary RAY Ai Platform 11 Many of the big opportunities for business globally are in emerging markets. With the growth of e-commerce and the internet making it easier to launch products into new markets, the growth in global content continues to accelerate. There are now over 4 billion internet users in the world and more than 90% are in countries where English is not the native language. For companies looking to sell more internationally, streamlining, speeding up and simplifying the translation process are all critical decision criteria when selecting a vendor. Providers that can offer advanced technology along with a global service delivery capability are attractive to these companies and this is where Straker has strongly differentiated itself in the translation services eco-system. Existing providers with legacy systems and a lack of global service capacity will increasingly struggle to deliver the translation solutions customers are looking for, and this presents a very large opportunity for Straker. We have proven our ability to deliver advanced translation process automation cost-effectively and at scale for some of the world’s leading global companies. Our data-driven systems, made possible through our unique approach to solving and scaling the translation of documents, websites, technical manuals, videos and much more, has enabled our customers to grow their international operations faster. Looking forward, we see a growing need for both SMEs and large enterprises to use our technology and services to enable seamless growth without communication as a barrier. One of the keys to our success has been our focus on how technology impacts the translation industry, and how ultimately the mix of machines and humans speeds up the translation process, producing the same quality outputs as humans alone. Our RAY Ai Platform does all of this and more, making it one of the most comprehensive translation platforms available today, giving us the ability to offer our unique data-driven translation solutions. To reach this goal we needed to develop a world-class platform that would allow humans and machines to work together in the most effective way, allowing big data assets to be collected so they can be used to train machines further, and for the selection of the right vendors. Along with this, we needed to build a platform that could automate the process of getting content into and out of the system and make it extendable so that we could build custom on-ramps for enterprise customers. RAY allows us to have one global team all working on the same system, which drives operating efficiency and allows us to acquire companies and to have a “One Team, One Platform” approach across all our offices. PROJEC T MANAGER INTUITIVE LEARNING ENGINE TRANSLATOR WORKBENCH UI CUSTOMER DASHBOARD TRANSLATION ANALYTICS TRANSLATOR DATABASE MANAGER AP I INTEGRATED TRANSLATION STRAKER TRANSLATIONS FY19 ANNUAL REPORTVIEWCUSTOMISEMANAGECONNECTCOLLABORATEDEVELOPANALYSE 12 Board of Directors 13 Grant Straker CEO and Co-founder Prior to founding Straker in 1999, Grant served in the British Army as an elite paratrooper. As a co-founder of Straker, Grant has extensive experience in the language translation market. Grant was appointed to the board on 21 December 1999. Grant’s wide-ranging technical, sales and business skills, combined with his strong entrepreneurial drive, have placed him in an ideal position to help accelerate the growth of Straker. Grant is a member of the NZ Institute of Directors. Along with Merryn Straker, Grant was the winner of the 2018 master category for NZ Entrepreneur of the Year. Tim Williams Independent Non-Executive Director Tim was appointed a Non-Executive Director of Straker on 24 June 2015. He founded ValueCommerce Co. Ltd in 1996. Tim is one of the original pioneers in the Japanese internet and advertising industry. His vision and record of achievement are demonstrated by the success and growth of ValueCommerce Co. Ltd. Tim founded ValueCommerce, an internet affiliate marketing company, selling a 49% stake to Yahoo Japan in 2005. Subsequently in 2007, ValueCommerce was listed on the Tokyo Stock Exchange. Tim is also a Director of The Icehouse, The University of Auckland’s technology incubator, and is a General Partner in The Icehouse linked fund Tuhua Ventures, which invests in high- growth start-ups in New Zealand. Tim holds a Bachelor of Science (Hons) in molecular genetics from the University of Canterbury. Phil Norman Independent Non-Executive Chairman Phil was appointed the Non- Executive Chairman of Straker on 13 January 2014. He was the founding chairman of Xero Limited, one of New Zealand’s most successful listed technology companies, and retired from Xero’s Board in July 2012 after five years’ service. Phil’s other current director roles include the Independent Chairmanship of Loyalty New Zealand Limited (New Zealand’s largest loyalty company and operator of Fly Buys), Chair of NZX listed Plexure Group Limited (NZX:PLX) (a marketing services software company) and Chair of AUT Ventures Limited (the commercialisation arm of AUT University). Phil is a past Chairman of the New Zealand Private Equity and Venture Capital Association and was for six years a member of New Zealand Trade and Enterprise’s New Zealand Beachheads Advisory Board. Phil holds an MBA from the University of Auckland and is a Chartered Member of the New Zealand Institute of Directors. Katrina Johnson Independent Non-Executive Director Steve Donovan Non-Executive Director Paul Wilson Non-Executive Director Katrina was appointed a Non- Executive Director of Straker on 3 July 2018. Katrina has over 15 years of specialist in-house legal experience within technology companies, including executive leadership and board member roles. Katrina joined Uber in April 2015, after spending 12 years with the eBay group of companies in Australia and the United States. She now leads Uber’s Legal Team for Asia Pacific and is a member of Uber’s APAC Regional Leadership Team. Katrina was an Independent Non- Executive Director of publicly-listed Trade Me Group Limited from June 2016 until May 2019, when Trade Me was privatised. Katrina holds a Bachelor of Arts and Bachelor of Laws (Hons) from Macquarie University, and a Graduate Diploma of Legal Practice from the College of Law, New South Wales. Katrina is a member of the Australian Institute of Company Directors. Steve was appointed a Non- Executive Director of Straker on 1 December 2004. He is a former partner of Ernst & Young. He qualified as a Chartered Accountant in the UK and has operated within the IT and finance industry in New Zealand for a number of years. Steve has significant experience as a director and investor in the SME sector in New Zealand, including a Finance Director role at accounting software provider, Greentree Software Group, which was sold to MYOB in 2016. Other current directorships include, Buro Seating Limited (office chair wholesaler) and New Zealand Pure Dairy Products Limited (infant formula manufacturer). Steve is Straker’s former Chief Financial Officer and has been working with technology companies across a range of industries. Steve holds a Bachelor of Economics from the University of Lancaster and is a qualified Chartered Accountant and a current member of the Institute of Chartered Accountants in England and Wales. Paul was appointed a Non- Executive Director of Straker on 22 September 2015. He is a co-founder of ASX listed Bailador Technology Investments (which is a major shareholder of Straker). He has had extensive private equity investment experience as a director of CHAMP Private Equity in Sydney and New York, with MetLife in London, and as executive director at media focussed investment group, Illyria. Paul is a director of SiteMinder, Stackla, the Rajasthan Royals IPL cricket franchise and ASX listed Vita Group Limited. Paul holds a Bachelor of Business (Banking and Finance), from Queensland University of Technology and is a Fellow of the Financial Services Institute of Australia, a Member of the Institute of Chartered Accountants of Australia and a Member of the Australian Institute of Company Directors. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 14 Management Commentary 15 The following commentary should be read in conjunction with the consolidated financial statements and the related notes in this report. Some parts in this commentary include forward looking statements and information on strategy and plans for the business that involve risks and uncertainties. Actuals events and the timing of events may vary. All amounts are presented in NZD unless otherwise stated. Straker is a New Zealand incorporated company and has a 31 March year end balance date. References to FY19 refer to the year ended 31 March 2019 and FY18 year ended 31 March 2018. Non-IFRS measures To ensure that the presentation of results reflects the underlying performance of the business, Straker Translations Group publishes its key metrics on a non-IFRS basis as well as on an IFRS basis. For transparency purposes, Straker also publishes full reconciliations between IFRS and non-IFRS measures. IFRS refers to NZ IFRS. Refer to page 21 for reconciliation and explanation to IFRS financial information Repeat business is revenue from repeat customers (customers who have previously placed an order with Straker, many of whom are enterprise in nature). Non-operating costs include costs of re-structuring activities, IPO costs and other non-recurring consulting costs. The non-IFRS measures have not been independently audited or reviewed. The obligation to prepare a Directors’ Report in section 298 of the Australian Corporations Act 2001 (CA) does not apply to Straker as a NZ company. However the ASX Listing Rules include a separate requirement (ASX LR 4.10.17) requiring all listed entities to include an operational and financial review statement in their Annual Reports which is equivalent to the general information requirements set out in s 299 and 299A of the CA. This Management Commentary section is intended to meet this requirement. Company Background Based in New Zealand, Straker Translations has established itself as a world-leading Ai data-driven translation platform powering the global growth of businesses. • • the increasing level of globalisation, accompanied by the need for localisation of content; the rapid increase in content produced, both online and offline, providing an ever-increasing base of content which Straker has developed a hybrid translation platform that utilises a combination of Ai, machine-learning and a crowd- sourced pool of freelance translators. The Company’s cloud- based platform manages the end-to end translation process, leveraging Ai, machine-learning (both inhouse and third party owned engines) to create a first draft translation and subsequently matching the customer’s content with one or more of the approximately 13,000 crowd-sourced human freelance translators for refinement. This process is managed using Straker’s proprietary “RAY Ai Platform”, which has been developed over eight years and is an enterprise grade, end-to-end, cloud-based platform. By leveraging machine translations and its big data assets, the RAY Ai Platform enables the delivery of faster and more accurate translations, lowering the time and cost to deliver versus traditional translation services. The platform can be integrated directly into customers’ systems and consists of a customer dashboard, machine translation integration and modules for assisting and managing translators. Industry Straker operates in the language services industry, providing a platform for the translation of written content in both offline and online form. Typical content translated includes product brochures, operating manuals, legal documents and websites. In a report commissioned by Straker, industry research company Frost & Sullivan estimated that the global market size for all language services was US$43 billion in 2017, and is expected to grow to US$67 billion in 2022, representing an estimated CAGR of over 9%. The translations segment within language services is forecast by Frost & Sullivan to represent 69% of the total industry in 2018, representing a market in excess of US$30 billion in size. Key drivers behind the growth of the industry include: may require translation • the economic emergence of new markets with specific language requirements regulatory authorities mandating translation of content, particularly in the European Union. • Competitive Positioning The translation services market is highly fragmented with thousands of small companies across the globe offering personalised services to customers in local geographies. Such companies rarely utilise technology-driven translation platforms and are, therefore, relatively inefficient compared to Straker. These companies are ideal Straker acquisition targets as we can secure margin improvements from our sophisticated RAY AI Platform and synergy benefits from geographic consolidation. As Straker scales its business, its ability to enhance its offerings will improve, allowing it to compete more effectively for enterprise customers with larger competitors in areas such as video streaming, mobile apps and e-commerce. At this part of the translation market, there is a relatively small number of larger players and Straker is now well positioned to compete with these companies based on its world-class technology capability, its service strength and its global footprint. Significant changes in the year 1. The Company listed on the ASX on the 22nd of October 2018. 2. During the FY19 year the Company made three acquisitions, Managment Systems Solutions SL (MSS), Eule Lokalisierung GmbH (Eule) COM Translations Online SL, which contributed 22% of the Company’s revenue for the year. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 17 Straker’s Value Proposition The explosion and speed of content creation today means there is more content being created than all the human translators in the world can translate effectively. We could see this happening nearly a decade ago and knew that machines and humans together would be the future of the industry. That point has now arrived and, ultilising our world-class RAY Ai Platform and our global services capability, we are able to deliver solutions to customers that legacy providers in the industry have no ability to match. Our value proposition is based around: • How we can simplify the translation process - from rapid quoting to advanced customer dashboards and fully integrated API connectors • How we are able to deliver better value through our platform and our ability to offer differentiated delivery and pricing models • With offices in ten countries around the globe offering 24/7 delivery capability and services utilising more than 13,000 translators means we have scale on tap and can deliver large and urgent projects without issues • Speed is now a major consideration for customers so our ability to deliver projects within a short timeframe is of huge value. This includes our ability to automate and make the process frictionless as well as the way we can increase the speed of the actual translation. The combination of our world-class sales and support teams, advanced technology and our geographical reach is a compelling proposition for both large and small customers. With a growing development team, we are continuing to invest in R&D and continue to find more ways to increase the efficiency of the translation process and integration of acquired companies. Operating Revenues Straker generates revenue from its customers for translation services. Services are primarily charged on a rate per word basis with the rate varying depending upon the language pair. The Company operates globally across three main regions, Asia Pacific (APAC), Europe (EMEA), and North America (NAM) and categorises its revenue into two broad groups: 1. new business revenue; and 2. revenue from repeat customers (customers who have previously placed an order with Straker, many of whom are enterprise in nature). 16 Management Commentary continued Initial Public Offering The Company successfully completed an IPO and listing onto the ASX on 22 October 2018, issuing approximately 12.2 million net new shares at $A1.51 raising $A18.4m ($NZ20.1m) to fund organic growth and further acquisitions. The raising was well supported by Australian institutional and retail investors. Straker Achieved Prospectus Forecasts - Proforma Results Pro-forma1 Prospectus Pro-forma Change Translations revenue Gross Margin Gross Margin % Other Income Operating expenses Adjusted EBITDA Adjusted EBITDA % Depreciation & amortisation Adjusted EBIT Adjusted EBIT % Adjusted EBITDA Non-operating expenses EBITDA EBITDA margin % Depreciation & amortisation Amortisation on acquired intangibles** EBIT EBIT Margin % Amortisation on MSS & Eule EBIT (Including amortisation on MSS & Eule CRA) EBIT Margin % FY19 $’000 25,813 14,080 55% 58 (14,613) (475) -1.8% (473) (948) -3.7% (475) (54) (529) -2.0% (473) (379) (1,381) -5.4% (380) (1,761) -6.8% FY18 $’000 23,424 12,712 54% 5 (14,241) (1,524) -6.5% (372) (1,896) -8.1% (1,524) (294) (1,818) -7.8% (372) (376) (2,566) -11.0% (380) (2,946) -12.6% FY19 $’000 24,890 13,961 56% (23) (14,465) (527) -2.1% (442) (970) -3.9% (527) (60) (587) -2.4% (442) (392) (1,422) -5.7% (380) (1,802) -7.2% FY18 Prospectus 10.2% 10.8% 0.3% 2.6% 68.8% 4.7% 27.2% 50.0% 4.4% 68.8% -81.6% 70.9% 5.7% 27.2% 0.8% 46.2% 5.6% 0.0% 40.2% 5.8% 3.7% 0.8% -1.5% 1.0% 9.9% 0.3% 7.0% 2.2% 0.2% 9.9% -10.0% 9.9% 0.3% 7.0% -3.4% 2.4% 0.4% 0.0% 2.3% 0.4% Straker’s FY19 pro forma revenues grew 10.2% on FY18 to $25.8m and were ahead of prospectus forecast by 3.7%. Growth driven organically from enterprise customers in EMEA and APAC. Gross margin contributions were up 10.8% on FY18, with the gross margin percentage up 0.3%. On a constant currency basis, the gross margin percentage was up 0.7% due to leverage gains from processing additional work through the RAY Ai translations Platform. Pro-forma operating costs increased by 2.6% year on year, as Straker continued to invest in R&D, offset by production efficiencies achieved from managing additional work on the RAY Ai Platform. Operating cost growth was well below the revenue growth rate demonstrating leverage from operating at scale and from the RAY Ai Platform. The Adjusted EBITDA loss reduced by 69% and was up 9.9% on the prospectus forecast. The EBIT Loss for the year was ($1.4m), up 46% on FY18 and ahead of the Prospectus forecast. 1 Pro-forma results are used for comparison against the prospectus forecast because they reflect the business performance on a consistent basis for comparison, by ensuring acquired business results are presented on an annualised basis, the costs of becoming a listed company are included full year and one off IPO and acquisition costs are removed. The pro-forma results also exclude the COM Translations Online S.L. acquisition which was not included in the prospectus forecast. 2 The company engaged with an independent valuation expert to value customer relationship assets acquired from MSS and Eule. As a result, there is an additional amortisation on acquired intangibles charge of $303k included in the statutory results that was not originally forecast in the prospectus. The related amortisation has been excluded from the pro-forma results. See page 20 for the Statutory results to Pro-forma results reconciliation. EBITDA, Adjusted EBITDA and Adjusted EBIT are non-IFRS measures. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 18 Management Commentary continued Revenue Growth New Repeat Translation revenues FY19 $’000 4,415 20,179 24,594 FY18 $’000 3,866 13,160 17,027 Change 14% 53% 44% Revenues grew by 44% in FY19, driven both organically and from part- year contributions from acquired companies purchased during the period. Repeat revenues grew by 53% and made up 82% of the mix for the year. FY19 Revenue Growth FY19 Revenue Mix $24.6m 4.4 44% GROWTH 20.2 $17.1m 3.9 13.2 FY19 FY18 18% 82% New Repeat New Repeat Revenue by Region APAC EMEA NAM Translation revenues FY19 $’000 3,620 12,520 8,454 24,594 FY18 $’000 3,194 5,406 8,427 17,027 Change 13% 132% 0% 44% Organic growth in APAC came from our recently opened Hong Kong office. In EMEA, Straker’s organic growth was derived from penetrating a number of existing enterprise customers by processing translation work for additional customer departments. This was made possible from the use of the RAY Ai Platform. Contributions from acquisitions also contributed to EMEA’s revenue growth. Growth in North America was flat against a high Q1 comparative in Elanex (which included some sunset customers), off-set with some good underlying growth, where the Group won high value government contract work on the back of the RAY Ai Platform. 19 Change 44% 44% 0.0% - 27% -8% 60% 8.3% 82% 204% N/A -58% -151% 55% -184% -8.7% FY19 $’000 24,594 13,425 55% 81 (14,296) 58% (790) -3% (682) (594) (1,953) (4,018) (466) 155 (4,329) -18% FY18 $’000 17,027 9,291 55% 5 (11,263) 66% (1,967) -12% (376) (195) - (2,539) 915 100 (1,523) -9% Statutory Results Translations revenue Gross Margin Gross Margin % Other Income Selling, distribution and administrative expenses Percentage of operating revenue Operating loss before acquisition costs & IPO costs Percentage of operating revenue Amortisation of acquired intangibles Acquistion of subsidiaries costs IPO related costs Operating loss before net finance income Net Finance expense Income tax expense Net loss after tax Percentage of operating revenue The Company performed strongly during the 2019 financial year. Revenue was up 44% year-on-year to $24.6m, reflecting organic growth from enterprise customers in EMEA and APAC, and from partial year earnings from acquisitions completed in FY19. Gross margin was flat against the previous reporting period but on a constant currency basis, was up 0.4% to 55%, driven by the operating leverage gained through Straker’s world-class RAY Ai Translation Platform. On a dollar basis, gross margin was up 44% year- on-year to $13.4m from $9.3m. Total operating costs increased year on year by 27% due to additions from the MSS, Eule and COM acquisitions made during the year as well as investment in the R&D team to continue to develop and support the RAY Ai Platform and the incremental costs of becoming a listed company. Distribution costs were reduced as a result of integrating work through the RAY Ai Platform. The higher revenue and margin, combined with a continued focus on cost control, produced a loss from trading operations before amortisation of acquired intangibles, acquisition of subsidiaries costs and IPO related costs of ($0.8m), an improvement on the FY18 comparable loss of ($2.0m). The loss after income tax from continuing operations was ($4.3m), which was up by $2.8m on FY18, due to the impact of the IPO and increases in acquisition costs and amortisation charges of acquired intangibles. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 20 Management Commentary continued Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Cash flow Operating loss before net finance income (4,018) (2,538) -58% FY19 $’000 FY18 $’000 Change Add: Depreciation & amortisation Acquisition of acquired intangibles EBITDA EBITDA Margin Aquisition of subsidiaries costs Other non-operating costs IPO related costs Adjusted EBITDA Adjusted EBITDA Margin 459 682 (2,878) -11.7% 594 172 1,953 (159) -0.6% 305 376 (1,856) -10.9% 195 237 - (1,424) -8.4% 50% 81% -55% -0.8% -204% 27% N/A 89% 7.7% The company’s EBITDA loss for FY19 was impacted by one-off costs associated with listing the Company on the ASX, costs associated with acquiring three businesses and related restructuring costs. On an underlying basis, after adjusting for the impact of the items mentioned above, the Adjusted EBITDA was $159k, representing an improvement of 89% on FY18. EBITDA and Adjusted EBITDA are non-IFRS measures. Management believes Adjusted EBITDA reflects the underlying performance of the business. Receipts from customers Other operating cash flows Operating cash flow Capital Investment Free cash flow Investment in Acquistions Investing cash flow Net capital raise Deferred and contingent consideration payments Net Financing cash flow Net cash flow Bank balances 21 Change 40% 36% 14% -24% 1% -1308% -1308% 120% -56% 130% FY19 $’000 23,900 (24,965) (1,065) (839) (1,904) (2,748) (2,748) 16,828 (1,559) 15,269 FY18 $’000 17,068 (18,306) (1,238) (679) (1,917) (195) (195) 7,653 (1,001) 6,652 10,617 4,540 134% 17,669 7,824 126% Receipts from customers were up 40% to $23.9m which is closely aligned to revenue growth. Operating cash flows improved by 14% year on year, driven by strong cash collections and on the back of improved operating losses. Free cashflows were consistent with the company continuing to invest in the RAY Ai Platform and in computer hardware. Straker successfully executed an initial public offering onto the ASX and raised gross $20m to fund expansion. The net proceeds raised were $16.8m, after paying for IPO transaction costs. Straker continues to make deferred consideration payments to shareholders of acquired companies, demonstrating the success of the acquisition strategy for all parties involved. The Company continues to be in a strong position to deliver on its M&A strategy and support organic growth, with NZ$17.7 million cash at bank at year end and no debt other than deferred consideration in respect of acquisitions. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 22 Management Commentary continued Statutory revenue to pro-forma revenue reconciliation Statutory revenue Net impact of MSS acquisition Net impact of Eule acquisition Net impact of Com acquisition Pro-forma revenue Statutory EBIT to pro-forma EBIT reconciliation Statutory EBIT (Operating loss before net finance income) Net impact of MSS acquisition Net impact of Eule acquisition Net impact of COM acquisition Offer costs Incremental public company costs Acquisition expenses Restructuring expenses Net impact of MSS acquired intangibles on CRA Net impact of Eule acquired intangibles on CRA Pro-forma EBIT Actuals Prospectus FY19 $’000 24,594 491 917 (189) FY18 $’000 17,026 3,251 3,147 - FY19 $’000 23,482 491 917 - 25,813 23,424 24,890 Actuals Prospectus FY19 $’000 (4,018) 5 44 13 1,953 (391) 594 118 180 123 FY18 $’000 (2,539) 4631 12 - - (696) 195 - -- - FY19 $’000 (3,188) 5 44 - 1,808 (391) 300 - -- - (1,381) (2,565) (1,422) 23 Growth Strategy Straker raised funds at its October 2018 IPO listing to the ASX to continue its organic and acquisitions growth strategy. Five Point Growth Strategy Winning new enterprise customers Transactional Revenue Integration into content platforms Increased penetration with existing customers Acquisitions Organic Growth Strategy Straker has an enterprise sales force of 20 staff dedicated to expanding the existing customer base, winning new business and integrating with content platforms such as Adobe and Magento. A key priority is to use the RAY Ai Platform’s data-driven capacity to win new enterprise customers. Winning new enterprise customers Transactional Revenue Integration into content platforms Increased penetration with existing customers Secure large volume enterprise customers Straker invested in global enterprise sales team over the previous two years 20 enterprise salespeople across seven countries Using our data-driven unique platform benefits Provides cash flow benefits Drives smaller jobs that provide a range of ancillary benefits Driven by online advertising and content marketing Directly market to platforms’ broad customer bases Continue to invest in new integrations / refining the integrations Medium-term revenue targets Winning new divisions of existing customers Expanding our relationships into other geographies we have a presence Acquisition Growth Strategy The focus of Straker’s acquisition strategy on a geographic basis is in APAC, USA, Spain, DACH and the UK. In all these locations the Company has an existing well-functioning business making integrations easier and faster, which has the flow-on effect of getting operating leverage from our technology earlier. Straker estimates that the total revenue of all acquistion targets we have identified as being approximately $1.5bn. The majority of the targets are below $10m in revenue, with a focus on Straker acquiring targets that are focused on the Group’s core business of translation services. Impact of the acquisition strategy Straker has benefited from acquisitions that it is has undertaken over the past two and a half years. In this time, the Group has acquired five businesses across the USA, Spain, Germany, and Ireland. By securing new customers from these acquisitions, Straker has been able to add scale, expand geographical reach and in the case of COM Translations, added new capabilities in the audio visual space. From a financial perspective, the acquisitions have collectively contributed more than half of the FY19 revenues. They have enabled the Company to grow revenues organically, to gain operating leverage through the use of the RAY Ai Platform by yielding gross margin improvements and a reduction in production and administration overhead. As a result, the acquisitions have led to the reduction of the EBITDA loss. Management expects that the combination of continued organic growth and the acquisition strategy will continue to drive market expansion and profitability into the future. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 24 Straker Translations and Group Financial Statements FO R TH E YEAR ENDED 31 MAR CH 2 01 9 Financial Statements Contents 25 Directors Responsibility Audit Report Financial Statements Income Statement Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements General Information 1. Reporting entity and statutory base 2. Basis of Preparation Performance Segment Reporting 3. 4. Revenue 5. Operating Expenses 6. Net Finance Income Income Tax Expense 7. Earnings per shares 8. Operating Assets and Liabilities Intangible Assets Trade receivables 9. 10. Other assets and prepayments 11. 12. Plant & Equipment Trade Payables 13. Sundry Creditors and Accruals 14. Employee provisions 15. 16. Lease Liabilities Share capital Funding and risk 17. Contingent Consideration and deferred consideration liabilities 18. 19. Capital Management 20. 21. Events after balance date Financial risk management Group Structure 22. Business combinations completed in current period 23. Group Subsidiaries Other Information 24. Cashflow Reconciliation 25. Related party transactions 26. 27. Significant accounting policies Share options 27 28-31 32 33 34 35 36 36 36 37-38 39 39 40 41-42 42 43 43 44-48 49 50 50 51 51 51-52 53 54 54 54-58 59-61 62 63 64 65-66 66-69 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 26 27 Straker Translations Limited and Group Directors’ Responsibility Statement for the year ended 31 March 2019 The Directors are pleased to present the consolidated financial statements of Straker Translations Limited for the year ended 31 March 2019. The Directors are responsible for the preparation, in accordance with New Zealand law and generally accepted accounting practice, of financial statements which give a true and fair view of the financial position of the Straker Translations Limited Group as at 31 March 2019 and the results of their operations and cash flows for the year ended 31 March 2019. The Directors consider that the consolidated financial statements of the Group have been prepared using accounting policies appropriate to the Group’s circumstances, consistently applied and supported by reasonable and prudent judgements and estimates and that all applicable New Zealand equivalents to International Financial Reporting Standards have been followed. The Directors have responsibility for ensuring that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and enables them to ensure that the financial statements comply with the Financial Reporting Act 2013. The Directors have responsibility for the maintenance of a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The Directors consider that adequate steps have been taken to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Approved for and on behalf of the Board of Directors on 27 May 2019. D I R E C T O R D I R E C T O R STRAKER TRANSLATIONS FY19 ANNUAL REPORT 28 Independent Auditor’s Report to the shareholders of Straker Translations Limited Independent Auditor’s Report to the shareholders of Straker Translations Limited 29 BDO Auckland BDO Auckland INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF STRAKER TRANSLATIONS LIMITED Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Straker Translations Limited (“the Company”) and its subsidiaries (together, “the Group”), which comprise the consolidated statement of financial position as at 31 March 2019, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our firm carries out other assignments for the Group in the areas of taxation advice, professional services in relation to the Company’s listing on the ASX, and corporate finance services. The firm has no other relationship with, or interests in, the Company or any of its subsidiaries. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Business combinations completed in the current period The acquisitions of Eule Lokalisierung GmbH (“Eule”), Management System Solutions SL (“MSS”) and ComTranslations Online SL (“Com”) businesses have occurred in the year. Management has determined each acquisition represents a business combination. As a result, Management has applied NZ IFRS 3 Business Combinations. This assessment requires a significant level of judgement to identify and determine the fair value of assets and liabilities acquired, and to determine the fair value of contingent consideration. 4 Business combinations completed in the current period (continued) Intangibles acquired as part of a business combination Key Audit Matter How The Matter Was Addressed in Our Audit The Group is required to recognise at fair value any separately identifiable intangible assets acquired through a business combination. As a result of the acquisitions of Eule and MSS, the Group has recognised customer relationship intangible assets in the year of $1,535,000; at the reporting date, the acquisition accounting for Com remained provisional. There is a significant level of judgement required to determine the fair value of such intangible assets. Refer to note 11 (intangible assets) and note 25 (business combinations) of the consolidated financial statements. Contingent acquisition consideration Key Audit Matter As part of the consideration for the acquisitions, Management has recognised $2,186,000 of contingent consideration liabilities on the Eule, MSS and Com acquisitions at 31 March 2019. The liabilities are contingent on the future revenue performance of the acquired entities over a period of two years. We obtained Management’s assessment of identifiable intangible assets acquired in the acquisitions. We reviewed their assessment against our expectations of likely intangible assets, based on our review of the sale and purchase agreements and our understanding of similar acquisitions. We obtained Management’s fair value calculation for intangibles acquired in the business combinations, prepared in conjunction with an external valuation expert. We assessed the competence and independence of Management’s external valuation expert, and challenged the expert as to the scope, methodology, findings and conclusions of their work. We reviewed the key financial inputs to the fair value calculations to supporting documentation, including the existence of any contractual arrangements, historical financial data, cash flow forecasts and our understanding of the businesses. We engaged our internal valuation experts to review the valuation methodology used and the discount rate used. We reviewed the consolidated financial statement disclosures against the accounting standards. How The Matter Was Addressed in Our Audit We reviewed sale and purchase agreements to identify the contingent consideration clauses and relevant earn out targets. As the earn out clauses are based on achieving revenue targets for two years from the date of acquisition, we have performed the following procedures: Compared actual revenue performance since acquisition to the earn out target. Compared future forecast revenue to Management-prepared budgets. Challenged Management’s assumptions and inputs to the budgets, focussing on revenue by customer and historical financial information (including prior to acquisition). As recognition is dependent on forecast revenue levels when compared to the prescribed revenue targets, the liabilities are subject to significant judgement and estimation uncertainty around the assumptions and inputs to Management’s forecast calculations. The Group has recognised a gain on fair value of contingent consideration liability of $276,000 to profit or loss in the year as a result of earn out targets no longer being forecast to be met in relation to the Eule acquisition that occurred in the year. Refer to note 16 (contingent consideration liability), note 21 (financial risk management) and note 25 (business combinations) of the consolidated financial statements. We re-performed Management’s contingent consideration liability calculation based on actual and forecast revenue to the prescribed earn out target. We re-calculated the gain on fair value of contingent consideration liability of $276,000 in relation to the Eule acquisition that occurred in the year. We reviewed Management’s assertion that the factors that have led to their judgement that the achievement of the original forecast was not probable were not facts and circumstances that existed at acquisition date. 5 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 30 Independent Auditor’s Report to the shareholders of Straker Translations Limited Independent Auditor’s Report to the shareholders of Straker Translations Limited 31 Contingent acquisition consideration (continued) BDO Auckland We reviewed the consolidated financial statement disclosures against the accounting standards, including the fair value hierarchy of financial instruments measured at fair value. This includes sensitivity analysis for significant changes in forecast revenue inputs and its effect on the fair value of the contingent consideration liability. Goodwill impairment Key Audit Matter How The Matter Was Addressed in Our Audit The Group has recognised goodwill on historical acquisitions, as well as for Eule, MSS and Com, which were acquired in the year. The goodwill balance of $6,030,000 is subject to an annual impairment test in accordance with NZ IAS 36 Impairment of Assets. Management performed their impairment test by considering the recoverable amount of the Group’s goodwill using a value in use calculation. This calculation is complex and subject to key inputs and assumptions, such as discount rates and future cash flows, which inherently include a degree of estimation uncertainty. Refer to note 11 (intangible assets) of the consolidated financial statements. We have obtained Management’s value in use calculations prepared for each of the cash generating units and evaluated the key inputs and assumptions. The key inputs included revenue, growth rates, gross margin, and discount rate. We have engaged our internal valuation experts to review the mechanics of the value in use calculation against the valuation methodology, and the discount rate used. We have compared the carrying value of the CGUs’ assets to the recoverable amount determined by the impairment test to identify any impairment losses. We have reviewed disclosures in the consolidated financial statements, including sensitivity analysis, to the requirements of the accounting standard. Other Information The directors are responsible for the other information. The other information comprises the Appendix 4E Report (which we obtained prior to the date of this auditor’s report), but does not include the consolidated financial statements and our auditor’s report thereon, and the Annual Report, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors. 6 STRAKER TRANSLATIONS FY19 ANNUAL REPORT BDO Auckland 7 Directors’ Responsibilities for the Consolidated Financial Statements The directors are responsible on behalf of the Group for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible on behalf of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are 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 ISAs (NZ) 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 decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located on the External Reporting Board’s website at: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1. This description forms part of our auditor’s report. Who we Report to This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The engagement partner on the audit resulting in this independent auditor’s report is Chris Neves. BDO Auckland Auckland New Zealand 27 May 2019 32 33 Consolidated Statement of Profit or Loss and other Comprehensive Income For the year ended 31 March 2019 Consolidated Statement of Changes in Equity For the year ended 31 March 2019 Revenue Cost of sales (translator contractor costs) Gross margin Other income Selling and distribution expenses Administration expenses Loss from trading operations before amortisation of acquired intangibles, acquisition of subsidiaries costs, and IPO related costs Amortisation of acquired intangibles Acquisition of subsidiaries costs IPO related costs Operating loss before net finance income Finance income Finance expense Net finance (expense)/income Loss before income tax Income tax credit Loss for the year after tax Other Comprehensive Income Items that may be reclassified to profit or loss, net of tax Foreign currency translation differences Total Comprehensive Income for the year Earnings per share for the period attributable to the owners of the parent Basic earnings per share (cents) Diluted earnings per share (cents) Notes 4 11 22 5 6 7 8 8 2019 $’000 2018 $’000 24,594 (11,169) 13,425 81 13,506 (8,309) (5,987) (790) (682) (593) (1,953) (4,018) 716 (1,182) (466) (4,484) 155 (4,329) (147) (4,476) 17,027 (7,736) 9,291 4 9,295 (6,923) (4,340) (1,968) (376) (195) - (2,539) 1,133 (218) 915 (1,624) 100 (1,524) (71) (1,595) (10.95) (7.87) (59.43) (37.05) Group – 31 March 2019 Balance 1 April 2018 Loss for the year Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of share capital Cost of issue of share capital Share option cost expensed Balance 31 March 2019 Group – 31 March 2018 Balance 1 April 2017 Loss for the year Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of share capital Redemption of share capital Share option cost expensed Balance 31 March 2018 Notes Share Capital Accumulated Losses Share Option Reserve Foreign Currency Translation Reserve Total Equity $’000 $’000 $’000 $’000 $’000 21,402 - - - 20,263 (1,542) - (9,438) (4,329) - (4,329) - - - 40,123 (13,767) 13,705 - - - 10,779 (3,082) - (7,914) (1,524) - (1,524) - - - 21,402 (9,438) 121 - - - - - 111 232 60 - - - - - 61 121 (30) - (147) (147) - - 12,055 (4,329) (147) (4,476) 20,263 (1,542) 111 (177) 26,411 41 - (71) (71) - - 5,892 (1,524) (71) (1,595) 10,779 (3,082) 61 (30) 12,055 18 18 18 18 The above statement should be read in conjunction with the notes to and forming part of the financial statements The above statement should be read in conjunction with the notes to and forming part of the financial statements STRAKER TRANSLATIONS FY19 ANNUAL REPORT 34 Consolidated Statement of Financial Position as at 31 March 2019 Consolidated Statement of Cash Flows For the year ended 31 March 2019 Current Assets Cash and cash equivalents Trade receivables Other assets and prepayments Total Current Assets Non-current Assets Intangible assets Plant and equipment Total Non-current Assets Total Assets Current Liabilities Trade payables Sundry creditors and accruals Employee pro visions Contingent consideration Deferred consideration Total Current Liabilities Non-current Liabilities Deferred tax liability Contingent consideration Total Non-current Liabilities Total Liabilities NET ASSETS Equity Share capital Foreign currency translation reserve Share option reserve Accumulated losses TOTAL EQUITY Notes 9 10 11 12 13 14 15 17 17 7 17 18 26 2019 $’000 17,669 3,908 1,360 22,937 10,254 214 10,468 33,405 718 2,847 363 1,039 230 5,197 683 1,114 1,797 6,994 26,411 40,123 (177) 232 (13,767) 26,411 2018 $’000 7,824 1,994 1,216 11,034 5,120 110 5,230 16,264 511 1,801 223 481 287 3,303 444 462 906 4,209 12,055 21,402 (30) 121 (9,438) 12,055 Cash flows from operating activities Receipts from customers Interest received Payments to suppliers and employees Net cash used in operating activities Cash flows from investing activities Payments for capitalised software development Payments for plant & equipment Payments for acquisition of subsidiaries Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Ordinary shares redeemed Cost of share issue IPO related costs Repayment of deferred and contingent consideration Repayment of acquired entity’s term debt Net cash from financing activities Net increase in cash and cash equivalents Effect of exchange rate on foreign currency balances Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Notes 24 17 22 2019 $’000 23,900 104 (25,069) (1,065) (740) (99) (2,748) (3,587) 20,074 - (1,402) (1,844) (1,151) (408) 15,269 10,617 (772) 7,824 17,669 Approved for and on behalf of the Board of Directors on 27 May 2019 D I R E C T O R D I R E C T O R The above statement should be read in conjunction with the notes to and forming part of the financial statements The above statement should be read in conjunction with the notes to and forming part of the financial statements 35 2018 $’000 17,068 31 (18,337) (1,238) (627) (52) (195) (874) 11,272 (3,082) (492) (44) (1,001) - 6,653 4,541 (192) 3,475 7,824 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 36 37 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 1. REPORTING ENTITY AND STATUTORY BASE Straker Translations Limited (“the Company” or “parent”) is a company domiciled and registered under the New Zealand Companies Act 1993 and is listed on the Australian Securities Exchange (ASX). The audited consolidated financial statements of Straker Translations Limited and its subsidiaries (together, “the Group” or “Straker”) have been prepared in accordance with the Companies Act 1993. For the purposes of complying with generally accepted accounting practice in New Zealand (“NZ GAAP”), the Group is a for-profit entity. The principal activity of the Group is the provision of translation services. 2. BASIS OF PREPARATION The financial statements comply with NZ GAAP, New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”). The financial statements are presented in New Zealand dollars (NZD), which is also the functional currency of the parent company. Amounts are rounded to the nearest thousand dollars ($’000) in the financial statements. The preparation of financial statements in compliance with NZ IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group’s accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2(c). a) Basis of measurement The consolidated financial statements have been prepared on a historical cost basis, except as noted in the accounting policies. b) Change of accounting policies New standards, interpretations and amendments effective from 1 April 2018 Two new financial reporting standards are applied for the first time in these financial statements. • NZ IFRS 15 Revenues from Contracts with Customers is the new standard for the recognition of revenue. NZ IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a promised good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 ‘Revenue’ and NZ IAS 11 ‘Construction contracts’ and related interpretations. The Group worked through a representative sample of its translation service contracts in conjunction with a report commissioned from an external advisor with reference to this new standard. The impact of the new standard on the Group’s process of recognising revenue was confirmed. The steps considered in the analysis of the impact of NZ IFRS 15 on contract revenue recognition were: i) Identifying the contract; ii) Identifying separate performance obligations; iii) Determining the transaction price; iv) Allocating the transaction price to performance obligations; v) Recognising revenue as or when each performance obligation is satisfied. The key area that was identified from this analysis was the ability of the Group to continue recognising revenue on an over time basis based on the new criteria imposed by NZ IFRS 15. This required the Group to: i) ensure that contract termination clauses are reviewed and amended, as may be required, to ensure that the Group has an enforceable right to either demand revenue for the work completed to date at any point, or to finish the contracted work and charge the customer for the full contractual amount; and ii) ensure that the rule of law in specific jurisdictions permits, or does not negate, the contractual termination clause. Management sought legal advice and updated the wording of the relevant clauses in the Group’s standard terms and conditions, and in new Master Sales Agreements which have strengthened the Group’s rights under the termination clauses. The Group’s senior management team have reviewed the new clauses and are satisfied that the new termination clause meets the standards required to continue to recognise revenue under NZ IFRS 15 as it has previously. Accordingly, there has been no adjustment to the profile of revenue recognition by the Group and there is no cumulative impact adjustment in retained earnings required to be recognised on adoption of the standard. There is also no requirement to restate comparative information. The Group has applied the full retrospective method. • NZ IFRS 9 Financial Instruments (“NZ IFRS 9”) has replaced NZ IAS 39 Financial Instruments: Recognition and Measurement (NZ IAS 39). The new standard addresses: (i) The classification, measurement and de-recognition of financial assets and financial liabilities; (ii) Impairment of financial assets; and (iii) Hedge accounting. Financial assets such as trade and other receivables, cash and cash equivalents have previously been classified as ‘Loans and Receivables’ under NZ IAS 39. These financial assets have now been classified as ‘Amortised Cost’ under NZ IFRS 9 with nil effect of change on the financial statements. Financial liabilities such as trade and other payables continue to be classified as ‘Amortised Cost’ under NZ IFRS 9 as it was previously classified under NZ IAS 39. Based on the nature of the Company’s financial asset and liability balances and non-application of hedge accounting, there has not been any impact to the financial statements upon transition. The Group has applied the full retrospective method. New standards, interpretations and amendments not yet effective • NZ IFRS 16 Leases – the new standard will result in almost all leases being recognised on the balance sheet for lessees. Under the new standard, an asset (the right to use the lease item) and a financial liability to pay rentals are recognised. The only exemptions are short-term and low-value leases. The standard will affect the accounting for the Group’s operating leases. As at the reporting date, the Group has operating lease commitments of $546,340 (2018: $346,000). Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right-of-use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which was $517,000 for the year (2018: $335,000). Management is yet to determine the full impact of the standard on the recognition of an asset and a liability for future payments. Management has identified the following balances and transactions for which significant judgements, estimates and assumptions are made: i) Business combinations completed in the current period (note 22) and contingent consideration liabilities (note 16) The Directors have made significant judgements in respect of the accounting of business combinations by considering the fair value of the assets and liabilities acquired, in particular customer relationship intangible assets, and considering the likelihood of the subsidiaries achieving their earn out targets in determining the contingent consideration liabilities. ii) Goodwill (note 11) The Directors have used judgement in determining there is no impairment associated with goodwill by using a value-in-use calculation. iii) Capitalised software development (note 11) The Group has considered costs associated with software development and capitalised those that meet the criteria of their accounting policy. Judgement is required particularly in respect of meeting those criteria. iv) Revenue (note 4) and Contract asset (note 10) and Contract liability (note 14) recognition Translation income invoices for services not yet performed are deferred as a contract liability on the Statement of Financial Position until the percentage of completion of services is sufficient to ensure it is probable that economic benefits will flow to the Group. Translation income determined to be earned but not yet invoiced is accrued as a contract asset and recorded under current assets on the Statement of Financial Position when it is probable that economic benefits will flow to the Group. Translator costs related to each project are accrued as a current liability. 3. SEGMENT REPORTING c) Use of estimates and judgements The Group provides translation services to its customers. The preparation of the financial statements in conformity with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The Group’s operating segments are each of the Company and its subsidiaries, and these are grouped as territories by geographical region as reportable segments as there are regional managers responsible for the performance of the Group entities within their territories. The geographical regions are Asia Pacific (APAC), Europe, Middle East and Africa (EMEA) and North America (NAM). STRAKER TRANSLATIONS FY19 ANNUAL REPORT 38 39 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 3. SEGMENT REPORTING (continued) 4. REVENUE Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The chief operating decision maker has been identified as the management team including the Board of Directors, Chief Executive Officer, Chief Operating Officer and the Chief Financial Officer. Segment financial performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. Inter-segment sales are minimal. Reports provided to the chief operating decision maker do not identify assets and liabilities per segment. Assets and liabilities are instead presented on a consolidated basis as they are throughout the consolidated financial statements. Also, the Group’s financing (including finance costs and finance income), amortisation of intangible assets, acquisition of subsidiaries costs, IPO related costs and income taxes are managed on a Group basis and are not provided to the chief operating decision makers at the operating segment level. Year ended 31 March 2019 Revenue APAC $’000 EMEA $’000 NAM $’000 TOTAL $’000 Total revenue from external customers 3,620 12,520 8,454 24,594 Other income, Cost of sales, Selling and distribution and Administration expenses Segment contribution (3,939) (319) (12,527) (7) (8,918) (464) (25,384) (790) Year ended 31 March 2018 Revenue Total revenue from external customers 3,194 5,406 8,427 17,027 Other income, Cost of sales, Selling and distribution and Administration expenses Segment contribution (3,288) (94) (6,624) (1,218) (9,083) (18,995) (656) (1,968) Reconciliation from segment contribution to loss before tax Segment contribution Amortisation of acquired intangibles Acquisition of subsidiaries costs IPO related costs Net finance (expense)/income Loss before income tax 2019 $’000 (790) (682) (593) (1,953) (466) (4,484) 2018 $’000 (1,968) (376) (195) - 915 (1,624) Set out below is the disaggregation of the Group’s revenue from contracts with customers: Types of goods and services Translation services 2019 $’000 24,594 2018 $’000 17,027 The Group’s revenue is derived from translation services. The timing of the Group’s recognition is translation services transferred over time. Translation income invoices for services not yet performed are deferred as a contract liability on the Statement of Financial Position until the percentage of completion of services is sufficient to ensure it is probable that economic benefits will flow to the Group. Translation income determined to be earned but not yet invoiced is accrued as a contract asset and recorded under current assets on the Statement of Financial Position when it is probable that economic benefits will flow to the Group. 5. OPERATING LOSS BEFORE NET FINANCE (EXPENSE)/INCOME The following items of expenditure are included in operating loss before net finance (expense)/income: Selling and Distribution expenses Advertising and marketing Administrative expenses Remuneration to parent auditor: - - - - - fee relating to audit of the financialstatements fee relating to other assurance engagement (review of condensed interim financial statements) taxation services –compliance professional advisor in relation to the IPO process corporate finance services Other non-Group auditor’s remuneration for audit of subsidiary entity Amortisation of capitalised software development Amortisation of computer software Depreciation Bad debts written off Impairment provision recognised on receivables at amortised cost Notes 11 11 12 9 Rent Salaries and wages Kiwisaver contributions Share option expenses 2019 $’000 8,309 64 35 19 295 160 17 333 48 77 - 50 517 2,323 105 111 2018 $’000 6,923 32 - 14 - - 11 208 26 70 22 13 335 1,352 74 61 During the year, a fee of $382,000 was paid to BDO East Coast Partnership (Australia) in relation to their role as a professional advisor in relation to the IPO process. This includes $88,000 debited to equity as a cost of share issue. In addition, a fee of $160,000 was paid to BDO AG Wirtschaftsprüfungsgesellschaft (Hamburg) in relation to corporate finance services. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 40 41 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 6. NET FINANCE INCOME AND EXPENSE Notes Finance income Interest received on receivables at amortised cost Foreign exchange gain Gain on fair value adjustment to contingent consideration liability 17 Total finance income Finance expense Interest expense on liabilities stated at amortised cost Foreign exchange loss Impairment Imputed interest on deferred consideration liability 17 Net finance (expense)/income 2019 $’000 104 189 423 716 (3) (1,063) (9) (107) (1,182) (466) 2018 $’000 31 23 1,079 1,133 (3) (121) - (94) (218) 915 Interest income and expense Finance income includes interest income, which is recognised as it accrues in profit or loss, using the effective interest method, and fair value gain on adjustment to contingent consideration liability, which is measured at fair value through profit or loss. Finance expense includes interest expense on liabilities, and imputed interest on deferred consideration liability. Foreign currency translation gains and losses Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign cur- rencies are retranslated at the rate of exchange ruling at the reporting date, with any gain or loss being recognised in the profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 7. INCOME TAX EXPENSE a) Income tax recognised in profit or loss Current tax expense Deferred tax credit Total tax credit 2019 $’000 (37) 192 155 2018 $’000 (31) 131 100 The income tax expense comprises current and deferred tax. The income tax expense is recognised in profit and loss, except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on laws that have been enacted or substantively enacted by the reporting date. Deferred tax is provided on temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination that affects neither accounting nor taxable profit or loss. The total charge for the period can be reconciled to the accounting profit as follows: Loss before tax Income tax expense calculated at 28% (2018: 28%) Different tax rates applied in overseas jurisdictions Tax losses not recognised Income tax credit/(expense) recognised in profit or loss b) Deferred tax liability Deferred tax Deferred tax liabilities arising on business combinations Reversal of temporary differences At 31 March Recognised deferred tax liabilities Intangible assets – arising on business combinations At 31 March 2019 $’000 (4,484) (1,256) 37 1,374 155 875 (192) 683 (683) (683) 2018 $’000 (1,624) (455) 116 439 100 575 (131) 444 (444) (444) STRAKER TRANSLATIONS FY19 ANNUAL REPORT 42 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 7. INCOME TAX EXPENSE (continued) Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different entities, but they intend to settle current tax assets and liabilities on a net basis. A deferred tax asset is recognised to the extent that it is prob- able that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. A deferred tax asset has not been recognised by the Group because the Directors consider that it is not probable that the related tax benefit will be recognised, due to a recent history of losses The value of deferred tax asset not recognised as at 31 March 2019 was $2,314,074 (2018: $940,074). The deferred tax asset not recognised is comprised of the effect of the tax benefit of operating losses. c) Losses brought forward At 31 March 2019 the Group had accumulated tax losses to carry forward for tax purposes of $4,710,735 (2018: $3,357,408). 9. TRADE RECEIVABLES Gross trade receivables Impairment allowance Trade receivables Opening balance of impairment provision Additional expense Reversal of previously recognised impairment 2019 $’000 3,986 (78) 3,908 28 50 - 78 43 2018 $’000 2,022 (28) 1,994 15 23 (10) 28 8. EARNINGS PER SHARE Earnings per share has been calculated based on shares and share options issued at the respective measurement dates Numerator Loss for the year after tax (“N”) Denominator Weighted average number of ordinary shares used in basic EPS (“D1”) Period end number of ordinary shares Effects of: Employee share options Preferenceshares Period end number of shares used in diluted EPS(“D2”) Basic earnings per share (N/D1 x100) Diluted earnings per share (N/D2 x100) 2019 $’000 (4,329) ’000 34,882 42,181 2,436 10,417 55,034 Cents (10.95) (7.87) 2018 $’000 (1,524) ’000 2,565 2,905 84 1,124 4,113 Cents (59.42) (37.05) The Group applies the NZ IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets. To measure expected credit losses, trade receivables and contract assets are grouped based on similar credit risk and aging. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts. The expected loss rates are based on the Group’s historical credit losses experienced over the three year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers. The Group has identified the gross domestic product (GDP), unemployment rate and inflation rate as the key macroeconomic factors in the countries where the Group operates. 10. OTHER ASSETS AND PREPAYMENTS Contract asset Deferred IPO related costs Deposit Prepayments Tax receivables 2019 $’000 866 - 131 309 54 1,360 2018 $’000 588 290 111 194 33 1,216 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 44 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 11. INTANGIBLE ASSETS CAPITALISED SOFTWARE DEVELOPMENT Cost Opening Balance Additions in the year Impairment Closing Balance Amortisation Opening Balance Charge recognised in statement of comprehensive income Closing Balance Net book value 2019 $’000 1,521 740 (9) 2,252 (290) (333) (623) 1,629 2018 $’000 895 626 - 1,521 (82) (208) (290) 1,231 Research costs are expensed as incurred. Costs associated with maintaining computer software programs are also recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as capitalised software development intangible assets where the following criteria are met: it is technically feasible to complete the software so that it • will be available for use; • management intends to complete the software and use or • • sell it; there is an ability to use or sell the software; it can be demonstrated how the software will generate probable future economic benefits; • adequate technical, financial and other resources to complete the development and to use or sell the software are available; and the expenditure attributable to the software during its development can be reliably measured. • Other development expenditures that do not meet these criteria are expensed when incurred. Development costs previously recognised as expenses are not recognised as assets in a subsequent period. Development costs that have a finite useful life that have been capitalised, but not yet available for use, are not amortised but tested for impairment each year. When the asset has been completed it is referred to as a capitalised software development intangible asset, carried at cost, amortised over its useful life on a straight line basis over five years, and is assessed annually for indicators of impairment (with an impairment test taken if indicators are found). The amortisation expense is included within the administration expenses in profit or loss. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in profit or loss as incurred. Additions in the year include salaries and wages of $652,735 (2018: $626,420). 11. INTANGIBLE ASSETS (continued) CAPITALISED SOFTWARE DEVELOPMENT (continued) COMPUTER SOFTWARE Cost Opening Balance Acquired as part of a business combination (Refer to note 22) Additions in the year Closing Balance Amortisation Opening Balance Charge recognised in statement of comprehensive income Closing Balance Net book value Computer software is amortised over 2-4 years on a straight line basis . Assets arising as a result of acquisitions Goodwill and customer relationship assets (CRA) were recognised as a result of the acquisition of three subsidiaries (refer note 22) as follows: CUSTOMER RELATIONSHIP INTANGIBLE ASSETS Cost Opening Balance Acquired as part of a business combination (Refer to note 22) Closing Balance Amortisation Opening Balance Charge recognised in statement of comprehensive income Closing Balance Net book value 2019 $’000 162 108 11 281 (76) (48) (124) 157 2019 $’000 2,052 1,535 3,587 (467) (682) (1,149) 2,438 45 2018 $’000 162 - - 162 (49) (27) (76) 86 2018 $’000 2,052 - 2,052 (92) (375) (467) 1,585 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 46 47 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 11. INTANGIBLE ASSETS (continued) 11. INTANGIBLE ASSETS (continued) GOODWILL Cost Opening Balance Acquired as part of a business combination (Refer to note 22) Closing Balance Impairment Closing Balance Net book value Net book value 2019 $ 2,218 3,812 6,030 - 6,030 2018 $ 2,218 - 2,218 - 2,218 Capitalised Software Development Computer Software Customer Relationship Asset Goodwill Total At 31 March 2019 At 31 March 2018 1,629 1,231 157 86 2,438 1,585 6,030 2,218 10,254 5,120 Intangibles acquired in a business combination Intangibles are recognised on business combinations, if they are separately identifiable from the acquired entity or arise from other contractual/legal rights. Intangibles acquired through a business combination are recognised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied. The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows: Customer relationships Customer relationships acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, customer relationship intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. In the current year, management commissioned an independent valuation of the acquired companies’ customer relationships in relation to the business combinations where the business combination accounting has been finalised. The acquired companies are Eule Lokalisierung GmbH (“Eule”) and Management System Solutions SL (“MSS”). The fair value standards have been applied in accordance with NZ IFRS 3 and NZ IFRS 13. The fair value at the date of acquisition is determined by an estimated discounted cash flow valuation using the multi-period excess earnings technique. Key assumptions and inputs are as follows: Revenue was based on pre-acquisition historical financial information adjusted for known losses and customers at the end of contracts. Annual customer growth rates Gross margin Earnings before interest, tax, depreciation and amortisation rate Discount rate % Customer relationship useful economic life MSS 1% 55% - 56% 15% 8.8% 4 years Eule 2% 53% 15% 8.1% 4 years Goodwill Goodwill represents the excess of the cost of a business combination over the total fair value of the identifiable assets (including intangibles), liabilities and contingent liabilities acquired at acquisition date. Cost comprises the fair value of assets given, liabilities assumed, and equity instruments issued, plus the amount of any non- controlling interests in the acquiree. Contingent consideration is included in cost at its fair value at acquisition date and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. Direct costs of acquisition are recognised immediately as an expense. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the profit or loss. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to profit or loss on acquisition date. Intangible asset impairment The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss. Customer relationship intangible assets are amortised over 4-6 years on a straight line basis. Goodwill impairment The carrying amount of goodwill has been allocated to the cash generating units (CGUs) as follows: 31March2019 31March2018 Eurotext $’000 449 449 Elanex $’000 1,769 1,769 MSS $’000 1,797 - Eule $’000 930 - Com $’000 1,085 - Total $’000 6,030 2,218 The Group has allocated goodwill to each of its acquired subsidiaries, as the smallest identifiable asset or group of assets that each generate cash inflows that are largely independent of the cash inflows from other assets and subsidiaries in the Group. The CGUs have been defined in note 23. The Group is required to test, on an annual basis, whether goodwill has suffered any impairment, by comparing the carrying amount of each CGU to its recoverable amount. The recoverable amount of all CGUs have been determined based on value-in-use calculations, with the exception of Com, which has been derived from its fair value less cost to sell based on its recent transaction price. These calculations use pre-tax cash flow projections based on 2020 financial budgets approved by the Board, projected over a five-year period. Cash flows beyond the five-year period are extrapolated using the terminal growth rates stated below. The key assumptions and inputs to the value in use calculations are as follows. All values are NZD’000. Annual revenue growth rates Gross margin rate Discount rate % Terminal growth rate Eurotext -1 – 4% 47% - 53% 14.40% 2.50% Elanex -3% 46% 14.40% 2.84% MSS 3% - 9% Eule -2% - 5% 55% - 57% 55% - 56% 14.40% 0.98% 14.40% 0.32% STRAKER TRANSLATIONS FY19 ANNUAL REPORT 48 49 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 11. INTANGIBLE ASSETS (continued) 12. PLANT AND EQUIPMENT Gross margin is expected to increase over time from the level experienced in FY2019 to the amounts above, which are closer to the Group’s norms and are based on historic margins achieved. Based on the value in use calculations, there is no impairment of goodwill. If any one of the following reasonably possible changes were made to the above key assumptions for the Elanex CGU, the carrying value and recoverable amount would be equal. Decrease in revenue ($US 000) Gross margin rate Discount rate Elanex 311 42.8% 16% 2019 Cost Balance at 1 April 2018 From acquisitions (note 22) Additions Disposals Balance at 31 March 2019 Accumulated Depreciation Balance at 1 April 2018 Depreciation charge for the year Disposals Balance at 31 March 2019 2018 Cost Balance at 1 April 2017 Additions Disposals Balance at 31 March 2018 Accumulated Depreciation Balance at 1 April 2017 Depreciation charge for the year Balance at 31 March 2018 Net book value At 31 March 2019 At 31 March 2018 At 31 March 2017 Motor Vehicles $’000 Furniture and Fittings $’000 Leasehold Equipment $’000 Computer Equipment $’000 Total $’000 - 48 - - 48 - 7 - 7 60 6 12 - 78 32 12 - 44 19 - 4 - 23 4 2 - 6 297 44 68 (4) 405 230 56 (3) 283 376 98 84 (4) 554 266 77 (3) 340 Motor Vehicles $’000 Furniture and Fittings $’000 Leasehold Equipment $’000 Computer Equipment $’000 Total $’000 - - - - - - - 41 - - 59 1 - 60 23 9 32 34 28 36 19 - - 19 - 4 4 17 15 19 246 51 - 297 173 57 230 122 67 73 324 52 - 376 196 70 266 214 110 128 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 50 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 12. PLANT AND EQUIPMENT (continued) The following depreciation rates are used in both years: 15. EMPLOYEE PROVISIONS Owned assets All plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items bringing them to the condition and location intended by management. Where material parts of an item of plant and equipment have different useful lives, they are accounted for as separate items of plant and equipment. Subsequent costs Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are charged to profit or loss during the financial period in which they are incurred. Depreciation Depreciation is recognised in profit or loss over the estimated useful lives of each part of an item of plant and equipment. The gain or loss arising on the disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 13. TRADE PAYABLES Trade payables • Computer equipment • Furniture and fittings • Leasehold equipment 25% -50% Straight Line 25% -50% Straight Line 8% -10% Straight Line The residual value, depreciation method and estimated useful life of plant and equipment are reassessed at each reporting date. Leased Assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to profit or loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantively all of the risks and rewards incidental to ownership are not transferred to the Group (an ‘operating lease’), the total rentals payable under the lease are charged to profit or loss on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. 2019 $’000 718 2018 $’000 511 No interest is incurred on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 14. SUNDRY CREDITORS AND ACCRUALS Accruals Translator costs accrual Goods and services tax Contract liability 2019 $’000 809 1,686 207 145 2,847 2018 $’000 449 989 125 238 1,801 51 2018 $’000 223 2018 $’000 268 78 346 Provision for holiday pay 16. OPERATING LEASE ARRANGEMENTS - AS LESSEE Minimum lease payments - Non-cancellable operating lease commitments Minimum lease payments - Non-cancellable operating lease commitments No longer than one year Longer than one year and not longer than five years 2019 $’000 363 2019 $’000 301 245 546 The Group as lessee Operating leases relate to office premises with lease terms of between 1 to 2 years. All operating lease contracts contain market review clauses in the event that the Group exercises its option to renew. The Group does not have an option to purchase the leased asset at the expiry of the lease period. 17. CONTINGENT CONSIDERATION AND DEFERRED CONSIDERATION LIABILITIES Due within one year Contingent consideration Deferred consideration 1 Due after more than one year Contingent consideration Total Movement during the year Opening balance On acquisition 2 Paid in year 3 Gain on fair value of contingent consideration 4 Unwinding of imputed interest on deferred consideration Closing balance 2019 $’000 1,039 230 1,114 2,383 1,230 2,620 (1,151) (423) 107 2,383 2018 $’000 481 287 462 1,230 3,216 - (1,001) (1,079) 94 1,230 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 52 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 17. CONTINGENT CONSIDERATION AND DEFERRED CONSIDERATION LIABILITIES (continued) 18. SHARE CAPITAL 1 The Group previously reported the acquisition of Elanex Translations Inc. (“Elanex”) in the period ended 31 March 2017. In relation to the acquisition of Elanex, deferred consideration in the form of a promissory note amounting to $230,000 (USD 150,000) remains at 31 March 2019, and is payable on 1 December 2019. 2 Note 22 details the business combinations completed in the current period for MSS, Eule and Com. MSS In relation to the acquisition of MSS, a total earn out liability of EUR 372k is payable upon the successful achievement of revenue targets on 1 June 2019. A further earn out liability of EUR 348k is payable upon the expected successful achievement of revenue targets on 1 June 2020. A contingent consideration liability of EUR 720k has been recognised based on the successful achievement of revenue targets. The calculation is based on; the potential revenue forecast for the year to 31 May 2019 and 31 May 2020, is payable in EUR and has been discounted based on the Group’s incremental borrowing rate and the number of years remaining under the earn out period. Eule In relation to the acquisition of Eule, a total earn out liability of EUR 257k is payable upon the successful achievement of revenue targets on 1 July 2019. A further earn out liability of EUR 257k is payable upon the expected successful achievement of revenue targets on 1 July 2020. A contingent consideration liability of EUR 514k was recognised at 30 September 2018. The calculation was based on the potential revenue forecast for the year to 30 June 2019 and 30 June 2020, is payable in EUR and has been discounted based on the Group’s incremental borrowing rate and the number of years remaining under the earn out period. Since this date, actual revenue performance and forecast revenue to 30 June 2019 indicates that the full revenue earnout target may not be met. The contingent consideration liability has been fair valued at the year end to EUR 344k, with a gain on fair value of EUR 170k ($276,000) being recognised in profit or loss. The Group has an unrecognised contingent liability of an additional EUR170k should Eule achieves its full revenue targets and the earn out becomes payable. Refer to note 21 for sensitivity analysis to significant unobservable inputs to the earn out calculation (including forecast revenue) for the Eule contingent consideration liability. Com In relation to the acquisition of Com, a total earn out liability of EUR 300k is payable upon the successful achievement of revenue targets on 31 March 2020. A further earn out liability of EUR 182k is payable upon the expected successful achievement of revenue targets on 31 March 2021. A contingent consideration liability of EUR 176k and 89k, respectively, has been recognised based on the expected achievement of revenue targets. The calculation is based on the revenue forecast for the year to 31 March 2020 and to 31 March 2021, is payable in EUR and has been discounted based on the Group’s incremental borrowing rate and the number of years remaining under the earn out period. The Group has an unrecognised contingent liability of an additional EUR217k should Com achieve its full revenue targets and the earn out becomes payable. 3 During the 2019 financial year the Group paid out $1,151,000 of consideration liabilities. 4 Gain on fair value adjustment to contingent consideration liability of $423,000 has been released to profit and loss in the year. This includes the fair value Eule contingent consideration of $276,000 (explained above), as well as $147,000 relating to Elanex actual revenue being less than earn out targets at the end of the earn out period. All contingent consideration liabilities have been discounted to fair value based on the Group’s incremental borrowing rate and translated to NZD at the year-end exchange rate. Ordinary capital Balance at beginning of the year Proceeds from issue of ordinary shares during the year Ordinary shares issued during the year – consideration as part of business combination Converted redeemable preference capital Repayment of proceeds to existing shareholders Costs of share issue Balance at end of the year Redeemable preference capital Balance at beginning of the year Converted to ordinary shares during the year Balance at end of the year Total Share Capital Ordinary shares Share capital at the beginning of the year Converted redeemable preference capital Share split of 10:1 Ordinary shares issued during the year Ordinary shares issued during the year – consideration as part of business combination Ordinary shares redeemed during the year Balance at end of the year Preference shares Numbers of Shares at the beginning of the year Converted to ordinary shares during the year Balance at end of the year 53 2018 $’000 3,197 11,272 - - (3,082) (492) 10,895 10,507 - 10,507 21,402 2019 $’000 10,895 20,091 172 10,507 - (1,542) 40,123 10,507 (10,507) - 40,123 2019 2018 2,905,399 1,123,995 4,029,394 36,264,546 12,191,170 113,500 - 52,598,610 1,123,995 (1,123,995) - 2,366,255 - 2,366,255 - 742,060 - (202,916) 2,905,399 1,123,995 - 1,123,995 The company has issued 52,598,610 ordinary shares (2018: 2,905,399) at year end. These shares have no par value. Ordinary shares have equal voting rights and share equally in dividends and surplus on winding up. The Company has on issue nil convertible preference shares (2018: 1,123,995). The convertible preference shares had equal voting rights and shared equally in dividends as ordinary shares but ranked ahead of ordinary shares on wind up. During the year, 1,123,995 convertible preference shares were converted to ordinary shares prior to the IPO (2018: nil). STRAKER TRANSLATIONS FY19 ANNUAL REPORT 54 55 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 19. CAPITAL MANAGEMENT 21. FINANCIAL RISK MANAGEMENT (continued) The Group’s capital includes share capital and retained earnings. The Group’s policy is to maintain a strong share capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. i) Financial instruments by category While the Group is in growth mode, and is incurring operating losses, the Group issues new share capital from time to time to ensure that the Group has sufficient resources to enable the settlement of liabilities as they fall due. The Group has raised significant additional resources through an Initial Public Offering on the Australian Stock Exchange in the current year. The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors. There have been no material changes in the Group’s management of capital during the period. 20. EVENTS AFTER THE REPORTING PERIOD There were no reported significant events after balance sheet date as at 31 March 2019. 21. FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use of financial instruments: • Credit risk; • Liquidity risk; and • Foreign exchange risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: Cash and cash equivalents • • Trade receivables • Trade payables, accruals and translator costs accrual • Deferred and contingent consideration liability Financial risk management objectives, policies and processes The Group manages their exposure to key financial risks, including credit risk, liquidity risk and foreign exchange risk in accordance with the Group’s financial risk management policies. The objective of these policies is to support the delivery of the Group’s financial targets whilst protecting future financial security. The Board reviews and agrees policies for managing each of these risks as summarised below. 31 March 2019 Financial Assets Cash and cash equivalents Trade receivables Total Financial Liabilities Trade payables Accruals Translator costs accrual Contingent consideration Deferred consideration Total Maturity analysis – Contractual liabilities Trade payables Accruals Translator costs accrual Contingent consideration Deferred consideration Total Financial Assets at Amortised Cost $’000- Liabilities at Amortised Cost $’000- Fair value through Profit or Loss $’000 Total Carrying Amount $’000 17,669 3,908 21,577 - - - - - - - - - (718) (809) (1,686) - (230) (3,443) - - - - - - (2,153) - (2,153) Due Current Due 1-12m Due 13-24 m Due 25-36m 718 809 1,686 - - 3,213 - - - 1,039 230 1,269 - - - 1,114 - 1,114 - - - - - - 17,669 3,908 21,577 (718) (809) (1,686) (2,153) (230 (5,596) Total 718 809 1,686 2,153 230 5,596 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 56 57 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 21. FINANCIAL RISK MANAGEMENT (continued) 21. FINANCIAL RISK MANAGEMENT (continued) 31 March 2018 Financial Assets Cash and cash equivalents Trade receivables Total Financial Liabilities Trade payables Accruals Translator costs accrual Contingent consideration Deferred consideration Total Maturity analysis Trade payables Accruals Translator costs accrual Contingent consideration Deferred consideration Total Financial Assets at Amortised Cost $’000- Liabilities at Amortised Cost $’000- Fair value through Profit or Loss $’000 Total Carrying Amount $’000 7,824 1,994 9,818 - - - - - - - - - 511 449 989 - 287 2,263 - - - - - - 943 - 943 7,824 1,994 9,818 511 449 989 943 287 3,179 Due Current Due 1-12m Due 13-24 m Due 25-36m Total 511 449 989 - - 1,949 - - - 481 287 768 - - - 462 - 462 - - - - - - 511 449 989 943 287 3,179 Financial instruments not measured at fair value Financial instruments not measured at fair value include cash and cash equivalents, trade receivables, trade payables, accruals and deferred consideration. Due to their short term nature, the carrying value of each approximates their fair value. Financial instruments measured at fair value The fair value hierarchy of financial instruments measured at fair value is provided below. Level 3 Financial Liabilities 2019 $’000 2018 $’000 Contingent consideration liabilities 2,153 943 There are no Level 1 or Level 2 financial instruments. There were no transfers between levels during the year. Quantitative information on significant unobservable inputs – Level 3 The fair value of the Level 3 contingent consideration liability has been determined by discounted cash flow valuation technique. This has been determined with reference to unobservable inputs, including forecast revenue as explained in note 17, and cost of debt of 6.4%. There was no change to the valuation technique used during the year. Sensitivity analysis to significant changes in unobservable inputs – Level 3 A 1.35% decrease in the forecast revenue input has a EUR 87k effect on the gain on fair value of the contingent consideration liability recognised at fair value through profit or loss. This is in relation to the Eule current contingent consideration liability at year end. ii) Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments which potentially subject the Group to credit risk principally consist of cash and cash equivalents and trade receivables. In the normal course of business, the Group incurs credit risk from debtors and transactions with banking institutions. The Group manages its exposure to credit risk by: • holding bank balances with banking institutions with good credit ratings; and • maintaining credit control procedures over debtors. The Group performs credit evaluations on all customers requiring credit. The maximum exposure at reporting date is equal to the total carrying amount of cash and cash equivalents, and trade receivables as disclosed in the Statement of Financial Position. At each reporting date, trade receivables are reviewed for future expected credit losses in accordance with note 27 (e). The Group does not require any collateral or security to support these financial instruments and other debts it holds due to the low risk associated with the counterparties to these instruments. Trade receivables, as provided in note 9, remain current and no balances are past due or impaired. A significant amount of cash and cash equivalents is held with the following institutions: AIB ANZ Banco Sabadell Citibank N.A. Commerzbank La Caixa Rating BAA3 A1 BAA3 AA3 BAA2 BAA1 2019 $000 680 13,998 56 572 357 576 2018 $000 290 4,620 1,862 524 - - iii) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group closely monitors its cash inflows and cash requirements to manage the net position in order to maintain an appropriate liquidity position. The Directors consider that with the monies raised from the issue of share capital (Note 18) that liquidity is sufficient for the foreseeable future. Refer to financial instrument maturity analysis in Note 21 (i). STRAKER TRANSLATIONS FY19 ANNUAL REPORT 58 59 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 21. FINANCIAL RISK MANAGEMENT (continued) The Group’s operating expenses are incurred primarily in New Zealand Dollars. iv) Foreign currency risk The Group has exposure to foreign exchange risk as a result of transactions denominated in foreign currencies arising from normal trading activities. The foreign currencies in which the Group primarily transacts are Euros and US Dollars (USD). The Group’s sales are made primarily in USD and Euros and the Group’s cost of sales (translator costs) are also mainly in USD or Euros. The Group, therefore, manages its foreign currency risk through a natural hedge within its gross profit margin. Outside of the natural hedge with its gross profit margin, the Group has not historically hedged its foreign currency exposure and as a result the Group’s earnings are exposed to the net impact of movements in foreign exchange rates on sales, employee expenses and purchases in the foreign currencies in which the transactions occur, and realised and unrealised gains and losses on foreign currency movements. The following significant exchange rates applied during the year: EUR USD Monthly average rate Reporting date spot rate 2019 0.5881 0.6797 2018 0.6209 0.7114 2019 0.6065 0.6804 2018 0.5877 0.7243 The table below summarises the material foreign exchange exposure on the net monetary assets and liabilities of entity against the significant foreign currencies in which the Group primarily transacts, expressed in NZD: EUR USD 2019 NZD’000 7,325 7,600 2018 NZD’000 2,448 603 Sensitivity analysis Based on the net exposure above, the table below outlines the sensitivity of profit and equity to reasonably likely movements of that currency to the NZD. 10% weakening in NZD/EUR 5% strengthening in NZD/EUR 10% weakening in NZD/USD 5% strengthening in NZD/USD 2019 NZD’000 2018 NZD’000 403 (364) 410 (371) 138 (214) 43 (64) Eule Lokalisierung GmbH (“Eule”) On 1 July 2018 the Group obtained control of Eule by acquisition of 100% of the share capital of the company. As disclosed in the Condensed Interim Financial Report for the half-year ended 30 September 2018, the value of the identifiable net assets of the subsidiary companies was determined on a provisional basis as the Group were still obtaining historical information in respect of customers acquired in the acquisitions. Other than adjustments required to account for the fair value of customer list intangible assets and associated deferred tax liabilities, and the subsequent change to goodwill, changes to assets and liabilities acquired consist of allowable offsets and applying appropriate accrual accounting adjustments to the opening balances. Details of the final fair value of identifiable assets and liabilities, purchase consideration and goodwill are as follows. All amounts are NZD’000. Provisional fair value Adjustment Final fair value MSS Cash Debtors and other receivables Fixed assets Intangible assets Creditors and accruals Deferred tax liability Total net assets Cash paid (NZD) Fair value of contingent consideration liability on acquisition (note 17) Total consideration transferred Goodwill (note 11) $’000 1,660 852 21 37 (550) - 2,020 $’000 - (200) (6) 879 164 (246) 591 $’000 1,660 652 15 916 (386) (246) 2,611 3,259 1,149 4,408 1,797 STRAKER TRANSLATIONS FY19 ANNUAL REPORT22. BUSINESS COMBINATIONS COMPLETED IN CURRENT PERIODDuring the year, the Group acquired three subsidiary companies, Management System Solutions SL (“MSS”), effective from 1 June 2018, Eule Lokalisierung GmbH (“Eule”) effective from 1 July 2018 and ComTranslations Online Inc (“Com”) effective from 1 March 2019.These entities are providers of translation services and the acquisitions were made as part of the growth strategy of the Group. The goodwill for the acquisitions reflect intangibles assets which do not qualify for separate recognition and include synergies expected.Management System Solutions SL (“MSS”)On 1 June 2018 the Group obtained control of MSS by acquisition of 100% of the share capital of the company. 60 61 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 22. BUSINESS COMBINATIONS COMPLETED IN CURRENT PERIOD (continued) 22. BUSINESS COMBINATIONS COMPLETED IN CURRENT PERIOD (continued) Provisional fair value Adjustment Final fair value The revenue and profit included in profit and loss since acquisition for each subsidiary is shown below: Eule Cash Debtors and other receivables Fixed assets Intangible assets Creditors and accruals Deferred tax liability Total net assets Cash paid (NZD) Shares in Straker Translations Limited (note 18) Fair value of contingent consideration liability on acquisition (note 17) Total consideration transferred Goodwill (note 11) $’000 513 763 50 56 (482) - 900 $’000 - - - 656 (21) (184) 451 $’000 513 763 50 712 (503) (184) 1,351 1,072 172 1,037 2,281 930 ComTranslations Online SL (“Com”) On 1 March 2019 the Group obtained control of Com by acquisition of 100% of the share capital of the company. At the reporting date, the purchase price allocation to goodwill in respect of the acquisition of Com is provisional as the Group is still obtaining historical information in respect of customers acquired. The table below summarises the major classes of consideration transferred, and the recognised amounts of assets acquired, and liabili- ties assumed at the acquisition dates. All amounts are in NZD’000. Book value of assets and liabilities acquired Cash Debtors and other receivables Property, plant & equipment Intangible assets Creditors and accruals Term debt Total net assets Cash paid Fair value of contingent consideration liability (note 17) Com $’000 - 227 33 12 (483) (408) (619) 33 433 466 Total $’000 - 227 33 12 (483) (408) (619) 33 433 466 Provisional goodwill 1,085 1,085 Goodwill is not expected to be tax deductible. Revenue since date of acquisition Profit before tax since date of acquisition MSS $’000 2,951 230 Eule $’000 2,281 41 Com $’000 189 (7) Total $’000 5,421 264 If the acquisition date for these business combinations had been 1 April 2018, the pro forma revenue and profit for each would have been: Pro forma revenue for the year Profit before tax since date of acquisition 3,442 235 3,198 85 1,551 (310) 8,191 10 A liability is recognised for contingent future earn out payments. This is detailed in note 17. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group 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. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as: • The fair value of consideration transferred; plus • The recognised amount of any non-controlling interests in • the acquiree; plus If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire; less • The net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is rec- ognised immediately in profit or loss. Consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of contingent considerations are recognised in profit or loss. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 62 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 23. GROUP SUBSIDIARIES 24. RECONCILIATION OF NET PROFIT FOR THE YEAR WITH NET CASH FLOWS FROM OPERATING ACTIVITIES Subsidiary Country of Incorporation Ownership Interest 2019 Ownership Interest 2018 Straker Europe Limited STS Translations Inc. (USA) Straker Translations Pty Limited Straker Spain SL Straker UK Limited Eurotext Translations Limited (“Eurotext”) Ireland United States of America Australia Spain United Kingdom Ireland Elanex Translations Inc. (“Elanex”) United States of America Hong Kong Translations Limited Management System Solutions SL (“MSS”) Eule Lokalisierung GmbH (“Eule”) ComTranslations Online SL (“Com”) Hong Kong Spain Germany Spain 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - Management System Solutions SL and ComTranslations Online SL are 100% subsidiaries of Straker Spain SL. Straker Spain SL, Straker UK Limited and Eurotext Translations Limited are 100% subsidiaries of Straker Europe Limited. Elanex Translations Inc. is a 100% subsidiary of STS Translations Inc. (USA). All subsidiary companies have 31 March balance dates. Net loss after tax for the year Adjusted for: Non-cash items Amortisation of capitalised software development Amortisation of computer software Amortisation of acquired intangibles Impairment loss on trade receivables Depreciation Asset written off Imputed interest on deferred consideration liability Fair value of contingent consideration liability on acquisition Share options Taxation Unrealised foreign currency loss Non-operating expenses IPO related costs Acquisition costs Impact of changes in working capital items Movement in debtors, prepayments and other debtors Movement in creditors, accruals and other payables Movement in tax provisions Net cash flow from operating activities 2019 $’000 (4,329) 333 48 682 50 77 9 107 (423) 111 (155) 627 1,953 593 (920) 44 126 (1,065) 63 2018 $’000 (1,524) 208 27 376 35 70 2 95 (1,079) 61 (131) 121 - - 200 330 (29) (1,238) Changes in liabilities arising from financing activities The difference between the repayment cash outflow for deferred and contingent consideration of $1,151,000 presented in the statement of cash flows and the increase in the deferred and contingent consideration liabilities on the statement of financial position of $1,152,000 has been detailed in note 17. This includes non cash items. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 64 65 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 25. RELATED PARTY TRANSACTIONS 26. SHARE OPTIONS The Group’s related parties include its subsidiary companies as disclosed in note 23. All related party transactions within the Group are eliminated on consolidation. b) Transactions with directors and key management personnel a) Transactions with other related parties during the normal course of business As required by s(211)(f ) of the Companies Act 1993, the following director and key management personnel remuneration was paid out during the year. All amounts are NZD’000. No other related party transactions were noted during the year. Director Fees Consulting Fees Employee Benefits – Defined Contribution Plan Salary & Fees Total $’000 - 46 65 47 45 36 20 259 - 77 - - - - 77 11 290 - - - - - - - - - - 11 290 Director Fees Consulting Fees Employee Benefits – Defined Contribution Plan - 40 50 42 40 40 212 - 34 - - - - 34 10 - - - - - 10 Salary & Fees 268 - - - - - 268 2019 $’000 1,325 Key management personnel including the Chief Executive Officer Employee benefits Directors 2019 Grant Straker Stephen Donovan Philip Norman Tim Williams Paul Wilson Katrina Johnson James Johnstone 2018 Grant Straker Stephen Donovan Philip Norman Tim Williams Paul Wilson James Johnstone 301 123 65 47 45 36 20 637 Total $’000 278 74 50 42 40 40 524 2018 $’000 278 Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Key management personnel includes the Executive Team. In the previous year, the CEO was defined as the key management personnel. Options to subscribe for shares have been issued to certain Directors and employees of the Group. The purpose of this plan is to incentivise, attract, retain and reward certain staff for their service to the Group and to motivate them to contribute to the growth and profitability of the Group. The options vest at each financial year end. All options are fully exercisable by 26 February 2022. Reconciliation of outstanding options Number of Options Balance at 1 April 2017 Issued during the year Lapsed/Exercised during the year Balance at 31 March 2018 Issued during the year pre share split Balance pre share split Balance after share split at 10:1 Issued during the year post share split Lapsed/Exercised during the year Balance at 31 March 2018 88,829 36,079 (839) 124,069 2,633 126,702 1,267,020 1,122,790 (95,266) 2,294,544 Average Exercise Price $9.20 $15.19 $5.96 $10.90 $15.19 $10.99 $1.10 $1.64 $1.09 $1.36 The fair value of options granted was measured based upon the Black Scholes pricing model. Expected volatility is estimated by considering historic average share price and volatility. Fair Value on grant date Share Price at grant date (after share split 10:1) Exercise Price Expected Volatility Expected Life Risk Free rate Black out fact (until 30 September 2020) 2019 $ $1.64 $1.64 30% 3 years 3% 25% 2018 $ $1.52 $1.52 30% 3 years 3% - Directors The following directors hold the following number of options as at balance date: Name Stephen Donovan Katrina Johnson Philip Norman Grant Straker Tim Williams Paul Wilson 2019 2019 2018 2018 Exercise Price Number of Options Exercise Price Number of Options $1.32 $1.32 $1.32 $1.32 $1.32 $1.32 66,960 25,000 91,960 341,960 25,000 50,000 $5.96 - $5.96 $5.96 - - 4,196 - 4,196 4,196 - - STRAKER TRANSLATIONS FY19 ANNUAL REPORT 66 67 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 26. SHARE OPTIONS (continued) 27. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d) Financial instruments Non-derivative financial assets The Group classifies its financial assets as financial assets at amortised cost. Amortised cost These assets arise principally from the provision of services to customers (eg trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group’s financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short term highly liquid investments with original maturities of three months or less. Non-derivative financial liabilities Non-derivative financial liabilities comprise trade payables, accruals, translator costs accrual, deferred consideration liability and contingent consideration liability. Key management personnel including the Chief Executive Officer The key management personnel hold the following number of options as at balance date: 2019 Exercise Price 2019 Number of Options ‘000 2018 Exercise Price Key management personnel $1.40 1,417 $5.96 2018 Number of Options 4,196 27. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Consolidation The financial statements incorporate the financial statements of the Parent and entities controlled by the Company (its subsidiaries). Control exists when the Parent is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The results of subsidiaries acquired or disposed of during the period are included in the profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. b) Foreign currency translation Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the year end date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in other comprehensive income and accumulated in the foreign exchange reserve along with the exchange differences arising on the retranslation of the foreign operation. On consolidation, the results of overseas operations are translated into New Zealand dollars at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the year end date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve. Exchange differences recognised to profit or loss in the Group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation. c) Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except: • where the amount of GST incurred is not recovered from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive • of GST (the net amount of the GST recoverable from or payable to the taxation authority is included as part of receivables or payables). Cash flows are included in the statement of cash flows on a net basis. The GST component of cash flows arising from investing and financing which is recovered from or paid to, the taxation authority is classified as operating cash flow. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 68 69 Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued Notes to and forming part of the Financial Statements For the year ended 31 March 2019 continued 27. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f) Employee benefits Short Term Employee Benefits Liabilities for wages and salaries, including non-monetary benefits and annual leave settled within twelve months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled on an undiscounted basis. Liabilities for non- accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Defined contribution schemes Contributions to defined contribution schemes are charged to the profit or loss in the year to which they relate. Equity settled share option plan The Employee Share Option Plan allows Group employees to acquire shares in the Company. The fair value of options granted is recognised as an employee expense in profit and loss with a corresponding increase in the share option reserve. The fair value is measured at the grant date and spread over the vesting periods. The fair value of the options granted is measured using the Black-Scholes pricing model, taking into account terms and conditions upon which the options are granted. When options are exercised the amount in the share option reserve relating to those options, together with the exercise price paid by the employee, is transferred to share capital. The amounts that relate to vested options which lapse or pass maturity is transferred to retained earnings. 27. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial liabilities (including liabilities at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities into the following: • Other financial liabilities at amortised cost Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. The Group’s other financial liabilities comprise: trade payables, accruals, translator costs accrual, and deferred consideration liability. • Financial liabilities at fair value through profit or loss (“FVPL”) After initial measurement, the Group measures its financial instruments which are classified as at FVPL, at fair value. Subsequent changes in the fair value of those financial instruments are recorded in net gain or loss on financial assets and liabilities at FVPL in profit or loss. Interest and dividends earned or paid on these instruments are recorded separately in interest revenue or expense and dividend revenue or expense in profit or loss. Financial liabilities at fair value through profit or loss comprise contingent consideration liability. e) Impairment of assets Financial assets – trade receivables Impairment provisions for current trade receivables are recognised based on the simplified approach within NZ IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the consolidated statement of comprehensive income (operating profit). Non-financial assets The carrying amounts of the Group’s non-financial assets other than deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. If the estimated recoverable amount of an asset is less than its carrying amount, the asset is written down to its estimated recoverable amount and an impairment loss is recognised in profit or loss. Estimated recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. Value in use is determined by estimating future cash flows from the use and ultimate disposal of the asset and discounting these to present value using a pre-tax discount rate that reflects current market rates and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest group of assets that independently generates cash flow and whose cash flow is largely independent of the cash flows generated by other assets. Goodwill is tested for impairment annually. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 70 Straker Translations and Group Corporate Governance Statement FO R TH E YEAR ENDED 31 MAR CH 2 01 9 Corporate Governance Statement for the year ended 31 March 2019 71 The board of directors of Straker Translations Limited (Straker) is committed to upholding a high standard of corporate governance. Straker complies as far as possible with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition) which came into effect on 1 July 2014 (ASX Corporate Governance Principles and Recommendations) having regard to the nature and size of Straker’s operations. This corporate governance statement outlines Straker’s commitment to achieving compliance with the central principles of the recommendations set by the ASX Corporate Governance Council based on: • an overview of Straker’s implementation of the ASX Corporate Governance Principles and Recommendations during the year ended 31 March 2019; • an explanation of the ASX Corporate Governance Principles and Recommendations with which Straker does not currently comply and the reasons for any non- compliance; and • a statement of Straker’s intention to take certain actions and adopt certain policies and processes in order to achieve compliance with the ASX Corporate Governance Principles and Recommendations. Straker’s board charters, corporate governance principles and policies are available on Straker’s website at www. strakertranslations.com This Corporate Governance Statement was approved by the Board on 26 June 2019. Principle 1: Lay solid foundations for management and oversight A listed entity should establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated. In order to promote efficiency, Straker’s board of directors may from time to time delegate certain functions to its senior executive management team. Actions delegated to the senior executive management team typically involve management of Straker’s resources to deal with day-to-day operations of the business in a way that contributes to Straker’s overall strategic direction as set by the board of directors. Straker’s board has delegated to the Managing Director all the powers and authorities required to manage the day-to-day operations of Straker’s business. Straker’s Board Charter sets out the role and responsibilities of Straker’s board of directors and regulates internal board procedures. Straker’s Board Charter is available on Straker’s website. Selection and recommendation of director candidates Before appointing or putting forward to shareholders any candidate for election or re-election as a director of Straker, a formal process is undertaken to complete appropriate checks on that candidate, including checks as to that candidate’s character, experience, education, criminal record and bankruptcy history. If Straker is satisfied with the results of such checks and determines that the candidate be put forward to shareholders for election, Straker will provide shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect that director candidate. Terms of appointment of directors and senior executives All newly appointed directors of Straker are provided with a letter of appointment setting out the term of appointment, remuneration, the director’s roles and responsibilities and the entity’s expectations of that director (including with regard to time commitments, the requirement to disclose directors’ interests and matters affecting the director’s independence, the requirement to comply with key corporate policies, and ongoing confidentiality obligations). Existing non-executive directors of Straker also have their terms of appointment formalised in a written letter of appointment setting out the above items. The respective roles and responsibilities of Straker’s board and management Straker’s board of directors is the body responsible for the overall corporate governance and decision making within the company. While Straker’s senior executive management team (being employees of Straker who report directly to Straker’s Chief Executive Officer) deal with and supervise the day-to-day operational issues and processes experienced by Straker in carrying out its business, the role of the board is to direct and supervise the management of Straker’s business by its senior executive team, and to ensure that the longer term strategic objectives of the company continue to be met. All senior executive employees of Straker have their terms of employment (including a description of their position, duties and responsibilities, remuneration arrangements, the role to which they report, termination obligations and entitlements, and ongoing confidentiality obligations) contained in a written agreement with Straker. The company secretary role Straker’s board has appointed a Sydney-based company secretary following completion of the Company’s listing on the ASX. The company secretary performs the following functions for which she is accountable directly to Straker’s board: STRAKER TRANSLATIONS FY19 ANNUAL REPORT 72 Corporate Governance Statement for the year ended 31 March 2019 continued • advising the board and its committees on governance matters; • ensuring compliance with the Company’s continuous disclosure obligations; • monitoring that the board and committee policy and procedures are followed; • coordinating the timely completion and despatch of board and committee papers; • ensuring that the matters discussed at board and committee meetings are accurately captured in the minutes of those meetings; and • helping to organise and facilitate the induction and professional development of directors. Diversity The Company is committed to creating and ensuring a diverse work environment in which everyone is treated fairly, with respect and where everyone feels responsible for the reputation and performance of the Company. Straker understands that diversity and inclusivity in the workforce is a strategic asset, and that a workplace with a genuine balance of employees by gender, age and background will strengthen Straker’s business performance and create opportunities to access the best people for Straker’s business. Straker has developed a formal Diversity and Inclusion Policy, which was adopted upon the Company’s listing to the ASX in October 2018. A copy of the policy can be found on the Company’s website. As at the date of this statement measurable objectives have not yet been formally established and it is the Board’s intention to consider the establishment of measurable objectives in the forthcoming year. In order to demonstrate Straker’s commitment to compliance with the ASX Corporate Governance Principles and Recommendations, Straker’s Board of Directors intends that the Board will set appropriate and meaningful benchmarks that are able to be measured and monitored for effectiveness in addressing any gender imbalance issues that may be present in Straker’s business. After measurable objectives have been adopted for at least a 12-month period, Straker’s Board of Directors will conduct a review of Straker’s progress against the stated measurable objectives over the preceding 12 months and will disclose an overview of such progress in the Corporate Governance Statement for that year. As at the year ended 31 March 2019, the respective proportions of men and women within Straker were as follows: Board of directors Senior executive team All other employees (not includ- ing senior executive staff ) Female Male 1 2 65 5 4 53 Performance Management Straker undertakes formal evaluation processes on an annual basis to review the performance of Straker’s board, various board committees, individual directors and senior executive employees. These evaluation processes will be conducted as follows: • Board performance and board committee performance: Straker’s board conduct an annual self-review and evaluation of its own performance (with assistance from the Nominations and Remuneration Committee and the company secretary), including the board’s performance against the requirements of the Board Charter. • Individual director performance: Straker’s chairperson of the board will conduct performance reviews with individual directors on an annual basis. • Senior executive employee performance: The Nominations and Remuneration Committee will periodically evaluate the performance of Straker’s senior executives in accordance with the provisions of Straker’s Nominations and Remuneration Committee Charter, which is available on Straker’s website. Straker’s board of directors conducted formal performance review in accordance with the abovementioned processes prior to the date of Straker’s annual report for the year ended 31 March 2019, and will conduct a similar review at or around the end of each following year. The evaluation process noted strengths, recommended improvements and identified areas for increased focus. Principle 2: Structure the board to add value A listed entity should have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively. Straker understands the importance of a high performing and effective board of directors in ensuring proper governance of a listed entity. Straker has structured its board of directors in accordance with the recommendations set out in the ASX Corporate Governance Principles and Recommendations to ensure that the board is of a sufficient size, independence Corporate Governance Statement for the year ended 31 March 2019 continued 73 level, and skill set composition to enable it to manage the requirements of Straker’s business and the industry and market in which it operates. Nominations and Remuneration Committee Straker’s Nominations and Remuneration Committee is tasked with overseeing and making recommendations to Straker’s board of directors on the nomination, selection and appointment of directors to Straker’s board, the re-election of incumbent directors, and the remuneration strategies and policies of the company, including recommendations on the fees to be paid to directors. The Nominations and Remuneration Committee has three members, with current members being Tim Williams, Paul Wilson and Katrina Johnson (a majority of whom are independent non-executive directors) and is chaired by Tim Williams who is an independent director of Straker, in accordance with the requirements of the ASX Corporate Governance Principles and Recommendations. The Nominations and Remuneration Committee Charter sets out the board’s policies and practices regarding the nomination, selection and appointment of new directors and the re-election of incumbent directors, as well as the board’s policies regarding the remuneration of non-executive directors and other senior executives and is available on the Company’s website. Board composition and independence As at the year ended 31 March 2019, Straker’s board comprised the following five non-executive directors and one executive director: Name Position Phil Norman Chairperson and independent non-executive director Date appointed to Straker’s board 13 January 2014 Grant Straker Executive director 21 December 1999 Steve Donovan Non-executive director 1 December 2004 Paul Wilson Non-executive director 22 September 2015 Katrina Johnson Tim Williams Independent non-executive director Independent non-executive director 3 July 2018 24 June 2015 The board of directors’ notes that James Johnstone resigned from Straker’s board shortly prior to the date of Straker’s listing on the ASX. Katrina Johnson was appointed to the board as an independent non- executive director on 3 July 2018. The Board only considers a Director to be independent where they are independent of management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to interfere with, the exercise of their unfettered and independent judgement. On this basis, Mr Phil Norman, Ms Katrina Johnson and Mr Tim Williams have been determined as being independent as at 31 March 2019 and for the full financial year ending on that date. Mr Grant Straker, Mr Steve Donovan and Mr Paul Wilson are regarded as non-independent based on the ASX criteria in Principle 2 of the ASX Recommendations. The Board considers the composition of the Board to be appropriate and does not believe that it is detrimental to the Company or its Shareholders that the majority of the Board is not independent. The Nominations and Remuneration Committee will re-assess the independence of each non-executive director on an annual basis and in cases where a specific need for an independence assessment is identified due to a change in the interests, positions, associations or relationships of one or more non- executive directors. If Straker’s board of directors determines that a director’s status as an independent director has changed, the board will disclose and explain that determination to the market in a timely manner. Skills and experience of Straker’s board of directors Straker recognises that its board of directors should represent a diverse range of skills, experience and attributes in order to ensure effective decision-making and governance of the company. Straker’s board of directors is currently comprised of members with skills and experience in the following areas: information technology; • • investment banking; • mergers and acquisitions; • corporate governance; • • product development; • sales and marketing; and • finance. technology commercialisation; There are also a range of qualifications currently represented across Straker’s board of directors, including in the fields of finance and accounting, business management, sales and marketing, and software development. In addition, the appointment of non-executive director Katrina Johnson to Straker’s board has filled a gap previously identified by the board in the area of legal qualifications and experience. Straker’s board of directors’ review on an annual basis the skills, experience and attributes held by the directors and whether the board group as a whole possess the skills and experience required to fulfil their role on the board and relevant board committees. Where any gaps are identified, the board will consider what training or development could be undertaken to fill those gaps provide resources or access to resources to help develops and maintain the skills and knowledge of its directors. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 74 Corporate Governance Statement for the year ended 31 March 2019 continued Corporate Governance Statement for the year ended 31 March 2019 continued 75 Induction of new directors and ongoing professional development Where a new director is appointed to Straker’s board, Straker’s chairperson will arrange induction sessions with the new director in order to brief them on the background and growth story of the company and advise the new director on Straker’s board procedures, constitutional documents, corporate governance policies and procedures. Due to the current size and growth stage of Straker’s business, the director induction and professional development processes of the company are largely informal. However, as Straker grows in size and market significance, Straker will consider providing directors with appropriate formalised professional training and development opportunities to allow new and existing directors to develop and maintain the skills and knowledge needed to perform their roles effectively. Board and Committee Meeting Attendance The number of scheduled Board and Committee meetings held during the year ended 31 March 2019 and the number of meetings attended by each of the directors is set out in the table below: Board Meeting Audit & Risk Management Committee* Nominations & Remuneration Committee* Phil Norman Grant Straker Steve Donovan Katrina Johnson** Paul Wilson Tim Williams James Johnstone*** A 12 12 9 9 11 9 5 B 12 12 12 9 12 12 6 A 1 B 1 A B N/A N/A N/A N/A 1 1 N/A N/A 1 1 N/A N/A 1 N/A N/A 1 1 1 N/A N/A 1 1 * The committees were established upon the Company’s listing on the ASX in October 2018. Further committee meetings have been held following balance date. ** Appointed as a director on 3 July 2018 *** resigned as a director on 21 September 2018 A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of a committee during the year Principle 3: Act ethically and responsibly A listed entity should act ethically and responsibly. Straker is committed to complying with its legal obligations and to acting with honesty, integrity and in a manner consistent with the reasonable expectations of its investors and the wider community. Code of Conduct Straker expects that all of its directors, senior executives and employees will also act ethically and responsibly, in strict compliance with all applicable laws, regulations, and in accordance with accepted principles of good corporate citizenship. In order to demonstrate Straker’s commitment to acting ethically and responsibly, Straker’s board of directors has developed a Code of Conduct that clearly defines Straker’s core values, articulates what Straker regards as acceptable business practices, and sets out the standards and expectations required of Straker’s board of directors, senior executives and employees in performing their duties. Straker’s Code of Conduct is available on Straker’s website. Principle 4: Safeguard integrity in corporate reporting A listed entity should have formal and rigorous processes that independently verify and safeguard the integrity of its corporate reporting. Audit and Risk Management Committee Straker’s Audit and Risk Management Committee is tasked with reporting to Straker’s board of directors on the integrity of Straker’s financial reporting process, its internal and external audit functions, and its internal control and risk management process. In accordance with the requirements of the ASX Corporate Governance Principles and Recommendations, the Audit and Risk Management Committee comprises of at least three non-executive director members, being Steve Donovan, Katrina Johnson and Phil Norman (a majority of whom are independent directors). The ASX Corporate Governance Principles recommend that the Audit and Risk Management Committee will be chaired by an independent director. Straker’s board of directors have had regard to the skills and experience of the board and have determined that despite not being considered an independent director, Steve Donovan is the most appropriate member of the board to act as chair of the Audit and Risk Management Committee given his knowledge of Straker and its history of audit and risk issues, as well as his expertise and qualifications in the area of finance. The relevant qualifications and experience of the members of the Audit and Risk Management Committee are available in the Annual Report. The Audit and Risk Management Committee Charter sets out the policies and practices of Straker’s board of directors regarding the financial audit and risk management processes of Straker and is available on the Straker’s website. Declaration of Managing Director and CFO on financial statements As a New Zealand incorporated company, Straker is not subject to section 295A(4) of the Corporations Act 2001 (Cth) (which requires that the CEO/Managing Director and CFO of a listed entity to provide certain declarations regarding the financial statements for that entity in each financial year). However, in accordance with the ASX Corporate Governance Principles and Recommendations, Straker’s Managing Director and CFO provided to Straker’s board of directors (prior to the approval by the board of Straker’s financial statements for a financial period) a written opinion to the board of directors that, in their opinion: • Straker’s financial reports comply with the appropriate accounting standards; • Straker’s financial reports give a true and fair view of Straker’s financial position and performance; and • the opinion of the Managing Director and CFO has been formed on the basis of a sound system of risk management and internal control, which is operating effectively. Attendance of external auditor at Annual General Meeting In order to safeguard the integrity of Straker’s corporate reporting process and to maintain free and open communication between the board of directors, shareholders and auditors, Straker requests that its external auditor attend Straker’s Annual General Meeting so as to be available to answer any shareholder questions raised at or prior to the Annual Meeting about the conduct of the audit and the preparation and content of the audit report. Principle 5: Make timely and balanced disclosure A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Complying with Continuous Disclosure Obligations Straker complies with the continuous disclosure obligations contained in the ASX Listing Rules. As part of these continuous disclosure obligations, where Straker becomes aware of any information concerning the company that a reasonable person would expect to have a material effect on the price or value of the Straker’s securities, Straker must immediately disclose that information to the market (subject to limited exceptions available under the ASX Listing Rules). To encourage and assist compliance by Straker’s board of directors and its employees with these continuous disclosure obligations, Straker’s board of directors have developed a Continuous Disclosure Policy which is available on Straker’s website. The Continuous Disclosure Policy has been developed with regard to ASX Listing Rules 3.1-3.1B and relevant ASIC regulatory guidance with respect to disclosure for investors. The company secretary will have primary responsibility for all relevant regulatory filings to ensure Straker’s compliance with its continuous disclosure obligations. Principle 6: Respect the rights of security holders A listed entity should respect the rights of its security holders by providing them with appropriate information and facilities to allow them to exercise those rights effectively. Access to information about Straker and its governance In accordance with the ASX Corporate Governance Principles and Recommendations, Straker has a “Investors” section on its website, from which all relevant corporate governance information about Straker can be accessed by the general public. Such information includes: • • Straker’s constitution, board charter and board committee this corporate governance statement; charters; the Straker code of conduct; • • various corporate governance policies; and • names, photographs and summarised biographical information for each of Straker’s directors and senior executives. Other relevant information and documents about Straker, including but not limited to copies of Straker’s annual reports and financial statements, copies of Straker’s announcements to the ASX, and copies of notices of meetings of shareholders (and any accompanying documents) can be accessed on relevant areas of Straker’s website. Shareholder relations Straker has implemented a formal Shareholder Communications Policy to ensure that shareholders are provided with sufficient information to assess the performance of Straker at regular intervals and are informed of all major developments affecting the state of affairs of Straker, in accordance with applicable laws. A copy of Straker’s Shareholder Communications Policy has been adopted and is available on Straker’s website. Pursuant to Straker’s Shareholder Communications Policy, Straker regularly provides information to shareholders: • market releases to the ASX in accordance with Straker’s continuous disclosure obligations; the investor relations section of Straker’s website; • • Straker’s annual and half-yearly reports; and • Straker’s Annual Meeting. In addition to providing shareholders with information about the company, Straker also provides opportunities for two- way communication between shareholders and Straker by requesting that its external auditor and the relevant chairs of the various board committees attend Straker’s Annual Meeting to be available to answer any shareholder questions about the conduct of the audit and the preparation and content of the audit report, or about the activities of the various board STRAKER TRANSLATIONS FY19 ANNUAL REPORT 76 Corporate Governance Statement for the year ended 31 March 2019 continued committees. Shareholders are encouraged to express to the relevant Straker representatives present at the Annual Meeting any matters of concern or interest to shareholders, with the understanding that these views will be communicated to Straker’s board of directors for consideration. Shareholders who are not able to attend the Annual Meeting and exercise their right to ask questions about or make comments on the management of Straker will be given the opportunity to provide questions or comments ahead of the Annual Meeting. Where appropriate, these questions will be considered and answered at the Annual Meeting. Electronic communications Straker encourages its shareholders to receive information and communications from, and send communications to, Straker and its share registry electronically. Shareholders may elect to send and receive communications electronically by registering their email address online with Straker’s share registry. Principle 7: Recognise and manage risk improved through review by the Audit and Risk Management Committee, and by the board of directors of Straker. Where it considers necessary, Straker’s board of directors will consider the recommendations of the external auditors and other external advisers in relation to Straker’s financial reporting process and risk management framework, and appropriate action will be taken by the board of directors to ensure that key risks, as identified, are managed effectively. The recommendations made by Straker’s external auditors in their FY19 audit report in relation to systems and process improvements and risk management are being actioned by management and it is intended that progress will be evaluated by the Audit and Risk Management Committee in the second half of FY20. Material exposure to risk Straker’s board of directors ensures that any material exposure of Straker to economic, environmental and social sustainability risks will be disclosed in accordance with the requirements of ASX Listing Rule 3.1. A listed entity should establish a sound risk management framework and periodically review the effectiveness of that framework. The Board has considered the Company’s exposure specifically to economic, environmental and social sustainability risks and has determined the following: Straker is committed to the establishment and maintenance of a sound risk management framework encompassing oversight, management and internal control of risks within and facing Straker’s business. Audit and Risk Management Committee As outlined above (see Principle 4), Straker’s Audit and Risk Management Committee, oversees and reports to the board of directors on the integrity of Straker’s financial reporting process and risk management process. Please see Principle 4 for further information on the membership structure and committee charter of Straker’s Audit and Risk Management Committee. Annual review of Straker’s risk management framework The Audit and Risk Management Committee, regularly reviews and discusses the major risks affecting Straker’s business and develops strategies to mitigate these risks throughout the year, and reviews Straker’s overall risk management framework at least annually to ensure that the framework continues to be effective and suitable to the risks involved in Straker’s business. Evaluating and improving risk management and internal control processes While Straker does not have an internal audit function, Straker’s board of directors ensures that the risk management and internal control processes of Straker are regularly evaluated and the effectiveness of these processes will be continually • Economic Risks - the business is exposed to general economic conditions. Specifically, material risks exist in relation to; competition and new technologies; reliance on key personnel; data loss, theft or corruption; technology platform failure; the impact of privacy laws and regulations; country specific risks in new unfamiliar markets; • Environmental risks - there is no current material exposure to environmental risks; and • Social sustainability - there is a material risk associated with crowd and remote workers, however, the Company has practices and processes in place to mitigate these risks. Principle 8: Remunerate fairly and responsibly A listed entity should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders. Nominations and Remuneration Committee As outlined above (see Principle 2), Straker’s Nominations and Remuneration Committee’s principal function is the oversight of the remuneration strategies and policies of the company. Please see Principle 2 for further information on the membership structure and committee charter of Straker’s Nominations and Remuneration Committee. 77 In addition, Straker’s senior executives are entitled to participate in the Company’s Employee Share Options Schemes. Aligning remuneration and performance to the creation of value for shareholders As at the year ended 31 March 2019, Straker had in place an employee share option plan (ESOP) entitling certain directors, senior executive staff and other employees to the issue of options over ordinary shares in Straker, according to the terms of the plan. To ensure that Straker’s incentive strategies are appropriate for an ASX listed entity and continue to align the interests of directors and senior executives with the creation of value for shareholders, Straker’s board of directors has taken the following steps: • retained the existing ESOP scheme that was in place prior to the IPO with some minor amendments to ensure compliance with the relevant ASX listing rule requirements (this old ESOP scheme will be grandfathered); and • established a new ESOP scheme to provide long-term incentives for qualifying employees, senior executives and directors of Straker, under which options over the ordinary shares of Straker may be issued to such qualifying employees, senior executives and directors of Straker. The new ESOP scheme (which operates on substantially similar terms to the current ESOP scheme), was approved by Straker’s board and shareholders and adopted shortly prior to Straker’s listing on the ASX. Under Straker’s Securities Trading Policy, participants in either or both of Straker’s ESOP schemes are not permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risks of participating in the relevant scheme (or schemes, as the case may be). Any options offered to directors and/or senior executives after Straker is listed on the ASX will be subject to board and/or shareholder approval as required by applicable law, the ASX listing rules and Straker’s constitution. Corporate Governance Statement for the year ended 31 March 2019 continued Board review and determination of remuneration structures Straker’s board of directors reviews the overall remuneration structure and policies and will consider recommendations from the Nominations and Remuneration Committee. No individual director or senior executive is or will be involved in deciding his or her own remuneration. The board of directors of Straker may seek the advice of external advisers from time to time in order to develop remuneration packages to retain and attract high quality non-executive directors and senior executives and encourage these directors and executives to pursue the growth and success of the entity without taking undue risks. Straker’s non-executive directors are paid by way of fees for services up to a maximum aggregate sum of $A600,000 per annum as approved by shareholders at the Company’s Annual Meeting held on 25 September 2018. Only with prior shareholder approval in general meeting may fees be paid to non- executive directors in excess of this $A600,000 fee cap. As at 31 March 2019, non-executive directors were paid $A50,000 per annum with the Chair receiving $A80,000 per annum. Grant Straker, who is an executive director, is not paid director’s fees. In addition, Straker’s directors are entitled to participate in the Company’s Employee Share Options Schemes, which require approval by shareholders before further option issuances can be made to directors. As at 31 March 2019, the following directors held options in Straker’s legacy ESOP scheme: • Grant Straker: 41,960 options issued at $NZ0.596 • Steve Donovan: 41,960 options issued at $NZ0.596 • Phil Norman: 41,960 options issued at $NZ0.596 On 26 September 2018, additional options were issued to directors in Straker’s new, LTI ESOP scheme: • Grant Straker: 300,000 options issued at $A1.51 • Phil Norman: 50,000 options issued at $A1.51 • Paul Wilson: 50,000 options issued at $A1.51 • Steve Donovan: 25,000 options issued at $A1.51 • Tim Williams: 25,000 options issued at $A1.51 • Katrina Johnson: 25,000 options issued at $A1.51 Straker’s executive director and other senior executives are paid by way of cash salaries and in relation to the year ending 31 March 2019 and are entitled to participate in a bonus pool of $NZ210,250 to be paid at the discretion of the Board based on criteria related to the success of the IPO, the capital raising undertaken at the time of the IPO and the achievement of the pro-forma FY19 forecasts. The Company’s CEO and Managing Director is paid $NZ290,000 per annum. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 78 Straker Translations and Group Additional Disclosures FO R TH E YEAR ENDED 31 MAR CH 2 01 9 Additional Disclosures 79 As required under s(211) of the Companies Act 1993, the Company and Group disclose the following statutory information. Entries made into the Companies Interests Register Director Stephen Donovan Katrina Johnson Philip Norman Grant Straker Tim Williams Paul Wilson Relevant Interest % of Ordinary Shares Owned 31 March 2019 % of Ordinary Shares Owned 31 March 2018 Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares 4.37% 0.02% 0.10% 13.90% 0.22% 0.85% 4.44% - 0.28% 18.19% 0.28% 0.37% Number of Employees or ex-Employees, excluding Directors, who received benefits exceeding $100,000 during the year: $100,000 to $120,000 $120,001 to $140,000 $140,001 to $160,000 $160,001 to $200,000 $200,001 to $240,000 Donations made The Group made donations during the year of $nil (2018: nil). No# of Employees 4 3 2 4 3 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 80 Additional Disclosures continued Equity holdings of all Directors 24 May 2019 Non-executive Directors Stephen Donovan Katrina Johnson Philip Norman Timothy Williams Paul Wilson Executive Directors Grant Straker Notes Number of shares Number of options 1 2 3 2,423,760 10,000 50,000 114,760 250,000 66,960 25,000 91,960 25,000 50,000 7,329,380 341,960 1 - included in Steve Donovan’s shareholding, are 2,297,970 shares which are in escrow until the publication of Straker’s half-year results dated 30 September 2019. 2 - included in Timothy William’s shareholding, are 114,760 shares which are in escrow until the publication of Straker’s half-year results dated 30 September 2019. 3 - included in Grant Straker’s shareholding are 3,664,690 shares which are in escrow until the publication of Straker’s half-year results dated 30 September 2019. A further 3,664,690 shares are in escrow until the publication of Straker’s half-year results dated 30 September 2020. Entries recorded in the interests register Straker maintains an Interests Register in accordance with the requirements of the Companies Act 1993 (New Zealand). The following are particulars of entries made in the Interests Register during FY19. Additional Disclosures continued Directors’ Interests Directors disclosed the following relevant interests, or cessations of interest, in the following entities. Director / Entity Stephen Donovan Buro Seating Limited Dopast Holdings Limited Relationship Director and shareholder Director and shareholder Director / Entity Grant Straker Xero Limited Serko Limited New Zealand Pure Dairy Products Limited Director and shareholder SLI Systems Limited Canaveral Corner Limited Purelac Dairy Limited Purelac Brands Limited Sherwood Country Limited Aritech Innovations Limited Aritech Investments Limited Radius Group Limited Allright Group Limited Advanced Customs Service Limited Viranda Holdings Limited Katrina Johnson Uber Technologies, Inc eBay Inc Director and shareholder Bailador Technology Investments Limited Director and shareholder Ubco Limited Director and shareholder Trustee Trustee Trustee Trustee Trustee Trustee Timothy Williams 90 Seconds TV Pte Limited Donovan Group NZ Limited Donovan Group International Limited Donovan Group Properties Limited Donovan Group Modular Limited Director and shareholder Donovan Group Holdings Limited The Icehouse Limited Share options holder Shuttlerock Limited Shareholder Horizon Management Limited Technomancy Group Limited Director and shareholder The Allens Hub for Technology, Law and Innovation Advisory board member Remington Properties Limited Paypal Holdings, Inc Qbiotics Group Limited Trade Me Group Limited* Phil Norman Shareholder Shareholder Director Photowonder New Zealand Limited Design Station Limited Firstwood Limited Spoke Network Limited Managwhai Village Development Limited Plexure Group New Zealand Limited Director and shareholder Modern Building Product (2018) Limited Plexure Limited VMob IP Limited VMob Singapore Pte Ltd Activedocs Limited Xero Limited Loyalty New Zealand Limited UBNZ World Markets (NZ) Limited iSport Federation Holdings Limited Heyrex Limited AUT Ventures Limited Director Director Director Shareholder Shareholder Director Shareholder Shareholder Shareholder Director T Williams Trustees Limited Kiwispan 2017 Limited Coresteel New Zealand Limited President’s Bush Limited Global Crop Traders Co Limited Director TWG General Partner Limited Director and shareholder Circular Plastics General Partner Limited Director and shareholder Home Research Limited Picsos Limited Our Home Direct General Partner Limited Nortek Management Services Limited Director and shareholder MBP Company Limited TruScreen Limited MyWave Holdings Limited Touchpoint Group Limited Shareholder Shareholder Director Paul Wilson Vita Group Limited Atrax Group New Zealand Limited Advisory board member Royals Multisport Private Limited Bright Spark Innovations GP Limited Director Stackla Pty Limited Straker SaleCo Pty Ltd Parallo Limited Director and shareholder Online Ventures Pty Limited Director Bailador Technology Investments Limited Director and shareholder Bailador Investment Management Pty Limited Director and shareholder Peandel Pty Limited Director and shareholder * Resigned effective 8 May 2019, when Trade Me de-listed from ASX and NZX. 81 Relationship Shareholder Shareholder Shareholder Shareholder Shareholder Director and shareholder Director and shareholder Director Director Director Director Director Shareholder Director Shareholder Director Director Director Director Director Director Director Director Director Director and shareholder Director Director Director Director Director and shareholder Director Director Director STRAKER TRANSLATIONS FY19 ANNUAL REPORT 82 Additional Disclosures continued Share dealings of Directors Directors disclosed the following acquisitions or disposals of relevant interests in Straker shares during the year. All dollar figures in this table are in Australian dollars. Registered holder Date of acquisition/ disposal Consideration per share Number of shares acquired/(disposed) Katrina Johnson Philip Norman Paul Wilson 22 October 2018 22 October 2018 22 October 2018 AUD 1.51 AUD 1.51 AUD 1.51 10,000 50,000 250,000 Insurance In accordance with the Companies Act 1993 (New Zealand), Straker has continued to insure its directors and officers (through renewal of its D&O insurance policy) against potential liability or costs incurred in any proceeding, except to the extent prohibited by law. Deeds of Indemnity Straker has provided Deeds of Indemnity to all Directors and Officers of Straker and its subsidiaries for potential liabilities and costs the may incur for acts or omissions in their capacity as Directors or Officers of Straker or its subsidiaries. Remuneration disclosures Information about Non-executive and Executive Directors remuneration is provided on page 64 of this report. The total remuneration available to Non-Executive Directors is fixed by shareholders. Currently, the annual total aggregate non-executive directors’ remuneration is capped at AUD 600,000 as approved by shareholders at the Annual General Meeting in September 2018. Information regarding employee remuneration exceeding $100,000 per annum is presented on page 79 of the annual financial statements. Shareholder information The shareholder information set out below is current at 24 May 2019. Issued capital The total number of issued ordinary shares in Straker Translations Limited as at 24 May 2019 was 52,598,610, of which 17,901,833 are held in escrow at the date of this report. Additional Disclosures continued Distribution of shareholding Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 1,00,000 1,00,001 and over Total Number of holders 207 337 116 174 44 878 Un-marketable share parcels 83 % 23.58 38.38 13.21 19.82 5.01 100.00 Ordinary shares 138,668 840,860 878,629 5,187,311 45,553,142 52,598,610 % 0.26 1.60 1.67 9.86 86.61 100.00 Range < AUD$500 Number of holders 24 % 2.73 Ordinary shares 7,481 % 0.01 Distribution of Share Options Range 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Number of holders 6 24 6 36 % 16.67 66.67 17 100.00 Ordinary shares 47832 829,999 1,416,713 2,294,544 % 2.08 61.74 100.00 Options There were 36 individuals holding a total of 2,294,544 unlisted options. STRAKER TRANSLATIONS FY19 ANNUAL REPORT 84 Additional Disclosures continued Additional Disclosures continued 85 Substantial holdings and limitations on the acquisition of securities Straker is a New Zealand incorporated and domiciled company listed on the Australian Securities Exchange (ASX). From a regulatory perspective, this means that while the ASX Listing Rules apply to Straker, certain provisions of the Australian Corporations Act 2001 (Cth) do not. Straker is not subject to chapters 6, 6A, 6B, and 6C of the Australian Corporations Act 2001 (Cth) dealing with the acquisition of its shares (including substantial holdings and takeovers). The Companies Act 1993 (New Zealand) applies to Straker, while certain provisions of the Financial Markets Conduct Act 2013 (New Zealand) do not. There is no requirement on Straker’s substantial shareholders to provide substantial holder notices to Straker. Straker is aware of the following substantial shareholders with a holding of 5% or greater:. Voting rights Straker has a single class of ordinary shares on issue. Where voting at a meeting of shareholders is by voice or a show of hands, every shareholder present in person, or by representative, has one vote. On a poll, every shareholder present in person, or by representative, has one vote for each fully paid ordinary share. In practice, Straker ensures that all resolutions at shareholder meetings are decided by poll rather on a show of hands. Share options carry no voting rights until they are fully exercised and converted into actual shares. On market buy-back There is no on-market buy-back for Straker shares. Name Number of ordinary shares held % of total issued capital Securities subject to voluntary escrow Number of ordinary shares 9,780,288 14,237,143 3,664,690 Release date 28/05/2019 On release of HY2020 results to ASX On release of HY2021 results to ASX Use of cash assets During the period since admission to the ASX on 22 October 2018 to 31 March 2019, the Company has used its cash and assets readily convertible to cash that it had at the time of ASX admission in a way consistent with its business objectives as set out in the prospectus dated 26 September 2018. Matters of circumstance arisen since year-end On 14 June 2019 Straker acquired On-Global Language Marketing S.L. On-Global is a specialised language services company headquartered in Spain with revenues for the year ended 31 March 2019 of $3 million. Environmental issues The Group is not affected by any significant environmental regulation in respect of its operations. 1. BAILADOR TECHNOLOGY INVESTMENTS LIMITED 2. GRANT & MERRYN STRAKER 3. SCOBIE WARD 4. LEONARD DOUGLAS LIGHT Total substantial Shareholders 7,404,201 7,329,380 3,013,060 2,882,290 20,628,931 14.08 13.93 5.73 5.48 39.2 Key limitations on the acquisition of shares in Straker are imposed by the following legislation: Commerce Act 1986, Overseas Investment Act 2005 and Takeovers Act 1993, together with various regulations and codes promulgated under such legislation. Top 20 holders The names of the 20 largest holders of Straker’s ordinary shares are set out below. (as at 24 May 2019) Name Number of ordinary shares held % of total issued capital 1. BAILADOR TECHNOLOGY INVESTMENTS LIMITED 2. J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 3. ANGELINA I HUNTER & MERRYN J STRAKER & GRANT O STRAKER 4. ANGELINA I HUNTER & MERRYN J GOBLE & GRANT O STRAKER 5. FORSYTH BARR CUSTODIANS LIMITED 6. NATIONAL NOMINEES LIMITED 7. LEONARD DOUGLAS LIGHT 8. SANDRA DONOVAN & STEPHEN P DONOVAN & JULIE C ULLNESS 9. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 10. SOUL PATTINSON 11. SKYONE FUND MANAGEMENT PTY LTD 12. NIMMO INVESTMENTS LIMITED 13. GLENDA LAURAINE BAILEY & IAN HAROLD BAILEY 14. TEA CUSTODIANS (MILFORD) LIMITED 15. DAVID SOWERBY 16. DOPAST HOLDINGS LIMITED 17. 8IP EMERGING COMPANIES LIMITED 18. MSG HOLDINGS PTY LIMITED 19. MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 20. DONALD EDWIN STRAKER Top 20 holders of ordinary fully paid shares (total) Other shareholders (balance on register) Grand total 7,404,201 4,195,140 4,163,470 3,165,910 3,013,060 2,973,247 1,560,000 1,533,870 1,476,827 1,375,088 1,324,504 1,322,290 1,306,540 1,049,000 918,810 764,100 731,480 731,470 643,705 587,790 40,240,502 12,358,108 52,598,610 14.08 7.98 7.92 6.02 5.73 5.65 2.97 2.92 2.81 2.61 2.52 2.51 2.48 1.99 1.75 1.45 1.39 1.39 1.22 1.12 76.50 23.50 100.00 STRAKER TRANSLATIONS FY19 ANNUAL REPORT 87 86 Company Directory for the year ended 31 March 2019 Company Numbers 1008867 NZBN: 942 903 739 6718 ARBN: 628 707 399 Registered office New Zealand C/o BDO Auckland Level 4 4 Graham Street Auckland 1010 New Zealand Ph +64 9 379 2950 Australia C/o PwC Australia One International Towers Watermans Quay Barangaroo Sydney New South Wales 2000 Australia Ph +61 2 8266 0000 Level 2, Building 3 61 Constellation Drive Rosedale Auckland 0632 New Zealand Head Office Address and Principal Place of Business Website Directors www.strakertranslations.com Phil Norman (Chair) Grant Straker (Managing Director and Chief Executive Officer) Steve Donovan Katrina Johnson (appointed 3 July 2018) James Johnstone (resigned 21 September 2018) Tim Williams Paul Wilson Laura Newell Boardroom Pty Limited Level 12 Grosvenor Place 225 George Street Sydney, NSW 2000 Australia Phone: +61 2 9290 9600 www.boardroomlimited.com.au Company Secretary Auditor Lawyers Bankers Share Registrar Stock Exchange BDO Auckland Level 4 4 Graham Street Auckland 1010 New Zealand Phone: +64 9 379 2950 www.bdo.nz Bell Gully Level 21 ANZ Centre 171 Featherston Street Wellington 6140 New Zealand Phone: +64 4 915 6800 www.bellgully.com Talbot Sayer Level 27 Riverside Centre 123 Eagle Street Brisbane Queensland 4001 Australia Phone: +61 7 3160 2900 www.talbotsayer.com.au ANZ Bank Bank of New Zealand National Australia Bank Link Market Services Limited Level 12 680 George Street Sydney, NSW 2000 Australia Phone: +61 2 8280 7100 www.linkmarketservices.com.au Straker’s shares are listed on the Australian Securities Exchange (ASX code: STG) STRAKER TRANSLATIONS FY19 ANNUAL REPORT 88