Superloop
Annual Report 2016

Plain-text annual report

SUPERLOOP ANNUAL REPORT 2016 www.superloop.com Superloop Limited | ABN 96 169 263 094 CONTENTS 1. Report from Executive Chairman / Chief Executive Officer 2. Business Overview 3. Directors’ Report 4. Auditor’s Independence Declaration 5. Corporate Governance Statement 6. Financial Report 7. Notes to the Consolidated Financial Report 8. Directors' Declaration 9. Independent Auditor’s Report 10. Shareholder Information Report from Executive Chairman / Chief Executive Officer Dear Shareholders, On behalf of the Board of Directors of Superloop Limited, it is my pleasure to present our second Annual Report. Having worked in the telecommunications industry for many years and having built several successful telecommunications businesses, I am excited by the opportunities I see for Superloop. The industry within which we operate has strong structural growth drivers. We expect to benefit from the growth in transmission and storage of data including increased bandwidth requirements from the rise in cloud computing, video on demand and the increase in internet connected devices. The Asia Pacific region is predicted to overtake North America as the largest generator of cloud traffic in the world and Hong Kong and Singapore have become the established hubs for data centres and international submarine cable capacity in the region. The past financial year to 30 June 2016, our first full year as a listed entity, has seen significant growth and accelerating development in the organisation. We have expanded the Group through the acquisition of two strategic, profitable and growing businesses, APEXnetworks and CINENET Systems, launched fibre optic networks in Australia and Singapore, commenced the construction of our network in Hong Kong and achieved a number of sales and product milestones. For the year to 30 June 2016, we have achieved the following significant outcomes: • • • • • • • • Booked revenue and gains from customers of $7.0 million Achieved gross profit break-even in Australia and Singapore Increased customer base to 160 active customers Installed over 190 km of fibre, taking total installed fibre to 378 km Connected 15 additional data centres and cable landing stations, with 52 on-net at 30 June 2016 Connected 19 additional enterprise buildings, with 22 on-net at 30 June 2016 Signed additional contracted recurring revenue of over $10 million, taking the contracted revenue base to over $11.9 million Grown unweighted sales pipeline to over $41.0m of new client opportunities. With our Australian and Singapore networks live from October 2015, we have already started to generate initial returns on our investment. Pleasingly, we have seen exceptional optical performance on our Singapore network and to date have delivered network services that have exceeded International Telegraph Union Telecommunication Standardization Sector (ITU.T) specifications, enabling customers to leverage the advantages of our state of the art, low loss and low latency solutions. We continue to invest in the expansion of our networks where customer demand exists. In Singapore, we are adding strategic locations to the network including the Singapore Exchange, iO and NTT data centres, with pre-committed orders ensuring the expanded loop will be profitable and will generate high annual gross yield at very low utilisation levels. As utilisation increases, additional revenue translates directly to increased margin and yield. In addition, as the Company owns its duct network in Singapore which has significant spare capacity available, Superloop has the ability to substantially expand available capacity in the future by installing additional fibre cables, at significantly lower incremental cost than the initial investment. We are looking forward to the launch of our network in Hong Kong where Superloop is building a significant asset. Currently expected to be practically competed by December 2016, the initial network of 110 kilometres will connect the first 30 strategic data centre and enterprise buildings. Our network traverses the major business, financial and technology districts of Hong Kong and will be significantly enhanced when Superloop completes TKO Express, our new domestic submarine cable providing the most direct and lowest latency path between our core network in the data centre campuses of Chai Wan (on Hong Kong Island) and Tseung Kwan O (TKO) Industrial Estate tech hub on the mainland. TKO Industrial Estate is the new major hub for financial, media, technology and data centre companies in Hong Kong with 13 data centres existing or under construction, including the Hong Kong Stock Exchange data centre. TKO is also becoming a major hub for submarine cable landing stations providing direct access to international internet connectivity. Across the Asia Pacific region, we are building our own dedicated networks, offering customers the latest low-loss fibre technology designed for terabit network connectivity requirements. This technology combined with a network designed and installed in the most direct paths between strategic locations allows for ultra-low latency connectivity, a feature important for many enterprise and financial clients. With the development of two new layer 2 products (Wavelength and Ethernet Backhaul) Superloop now provides more flexible solutions to our customer base. Over the past 12 months the Group successfully completed and integrated two strategic acquisitions adding customers, revenue, intellectual property, network capability and talent. The acquisition of APEXnetworks has allowed Superloop to rapidly deploy a managed services capability for our wholesale and channel customers via APEXN’s IT and product platforms. APEXN’s platform incorporates service qualification tools as well as systems to manage ordering, provisioning, billing, support and network management. This platform becomes more valuable as Superloop expands its operations further across Singapore and Hong Kong. The acquisition of CINENET Systems has provided Superloop an opportunity to quickly extend our network capabilities into the fast-growing digital media vertical, bringing a specialised high-speed network that interconnects media businesses in Brisbane, Sydney, Melbourne, Adelaide and Los Angeles via dedicated international capacity. CINENET expands our customer base to include a broad portfolio of screen and broadcast media customers and provides a platform for further expansion into the vertical across the Asia Pacific region. 3 Superloop Limited and controlled entities After raising $17.5 million at IPO, we have raised further equity capital of $84.6 million (before costs) to fund strategic expansion opportunities. At 30 June 2016, we held cash and term deposits of $45.9 million, sufficient funds for upcoming planned projects. In February of this year, I was apointed as the Company's Interim Chief Executive Officer, allowing our previous CEO, Mr Daniel Abrahams, to focus on the execution of company critical infrastructure projects including the completion of our Hong Kong network, the construction of the TKO Express submarine cable and the expansion of our Singapore network to meet customer requirements. As Chief Executive, Daniel led the Group through the IPO process and oversaw the completion of the Singapore and Australian networks. He has recently stated that he will not be standing for re-election as a Director at our upcoming 2016 Annual General Meeting so I take this opportunity to thank him for his tremendous contribution in leading Superloop and for his stewardship as a fellow board member. I look forward to his continued involvement in his executive capacity as the Group’s Chief Infrastructure Officer. During the year we strengthened our executive team in order to support the rollout and continued rapid growth of Superloop, appointing: • Steve Bond as General Manager, Sales and Marketing. He is a former IBM executive with significant experience in building and leading technology businesses in the Asia Pacific region Paul Jobbins as General Manager, Corporate and Strategy. He has previously worked in senior executive roles withseveral ASX listed companies including NEXTDC Limited, Reverse Corp Limited and Sunshine Gas Limited Ryan Crouch (Co-founder of APEXN) as Chief Technology Officer Matthew Gregg (Co-founder of APEXN) as General Manager, Customer Experience • • • Through the acquisition of APEXnetworks in October 2015, Ryan and Matthew joined our executive team. Both have developed and grown a successful telecommunications business with a broad customer base and a sophisticated and robust technology platform. Looking ahead, Superloop is on track to complete the construction of its Hong Kong network by December 2016, and Hong Kong's TKO Express submarine cable by January 2017. Throughout the 2017 financial year and beyond, we will continue to invest in our networks in Singapore and Hong Kong by adding strategic sites to meet customer demand. With the integration of APEXnetworks and CINENET complete, each acquisition will bring further benefits across the Group in terms of revenue growth, product offering and systems capabilities. The management team is focussed on the execution of key strategic sales opportunities and the continued development of products, leveraging our established infrastructure to achieve EBITDA breakeven as quickly as possible. With expanding networks in place across Australia, Singapore and Hong Kong, the Group will have established a platform to leverage our core infrastructure assets and drive further growth and customer acquisition. Superloop continues to pursue its vision to become a leading independent owner and provider of connectivity services in the Asia Pacific region. The 2016 financial year has been challenging and rewarding for the Superloop Team. I would like to thank my fellow Board members and all of those on the Superloop team for their dedication and effort. Lastly, I would like to express my gratitude to our shareholders for your ongoing support of the Company. We hope that you are able to join us at the 2016 Annual General Meeting. Bevan Slattery Executive Chairman/Chief Executive Officer Superloop Limited 29 August 2016 4 Superloop Annual Report 2016 Business Overview Vision Statement “To become the leading independent provider of connectivity services across the Asia Pacific Region” Superloop’s Dark Fibre infrastructure is highly scalable and generates a high return on investment. High return on investment Highly scalable infrastructure Networks break-even at low utilisation Low risk of customer churn Strong management team Valuable infrastructure assets created 5 Superloop Limited and controlled entities Why Singapore Singapore is home to more than 80 of the top 100 software and services companies. Many of them, including the top 15 software companies, have regional or Asia Pacific headquarters in the region. As a major global data management hub it features 15 international submarine cable systems and >50% of commercial carrier & carrier neutral data centre space in South East Asia. 136 km of Superloop fibre is installed and 10 data centres and 14 strategic commercial enterprise buildings are now connected. International Trade #1 International Competitiveness #4 Why Hong Kong As one of the world’s leading international financial centres and densely populated, enterprise-rich regions, Hong Kong is an ideal target for high density fibre optic cable deployment. The Hong Kong Stock Exchange is the seventh largest in the world and manages approximately 22% of all global IPOs, making it the largest centre of IPOs in the world. Hong Kong has recently overtaken Singapore as number one for international competitiveness and ranked number five for ‘ease of doing business’ by World Bank Group in 2016. International Competitiveness #1 International Trade #2 Hong Kong will represent Superloop's largest deployment to date. The network is established in campuses to allow for short-paths and diversity between local clusters of facilities and buildings, connected together with a diverse ring backbone. Hong Kong is Superloop's newest network with construction expected to be completed by December 2016. 6 Superloop Annual Report 2016 Expansion Through Strategic Acquisitions Superloop completed the acquisition of two significant businesses, APEXnetworks and CINENET Systems, which have been completely integrated into current operations. The acquisitions of these profitable and growing businesses has expanded our capabilities, added customers, revenue, intellectual property and talent to the Superloop group. The acquisition of APEXnetworks has allowed Superloop to rapidly deploy a managed services capability for our wholesale and channel customers via APEXN’s IT and product platforms. The acquisition of CINENET expands our customer base to include a broad portfolio of screen and broadcast media customers and provides a platform for further expansion into the vertical across the Asia Pacific region. Superloop’s Competitive Advantage ● ● ● ● ● ● The most advanced fibre technology with the lowest latency offering a multi jurisdiction, single global MSA Market leading service level agreements Superloop’s own dedicated network with diversity Customer centric focus – flexibility to build customer dedicated solutions quickly Superior customer experience: “360” customer provisioning + network management portal An agile network with the shortest routes, designed specifically for our customers Products We have expanded our product set with the launch of two new layer 2 products over our fibre Wavelength and Ethernet Backhaul. These products offer customers different networking solutions that are tailored to their needs. The Superloop team are continuing the development of additional products including Metro Ethernet Access and Superloop 360 for network management. SINGAPORE HONG KONG AUSTRALIA Superloop owns a secure duct and fibre optic cable network in Singapore. When capacity on the initial cable approaches saturation, the incremental cost to increase capacity with an additional cable through Superloop’s duct network is significantly lower than the initial investment including the duct. Superloop is the only operator to connect the traditional carrier hotels located in Chai Wan (Hong Kong Island) and the data centre campus located at Hong Kong Science and Technology Park’s Tseung Kwan O Industrial Estate, providing much needed physical diversity and a lowest latency path between Hong Kong’s major finance and technology hubs. Superloop offers the most direct routes while connecting many strategic locations at competitive pricing. Customers select Superloop for the experienced team, path diversity and level of service. 7 Superloop Limited and controlled entities DIRECTORS’ Report The Directors present their report on the consolidated entity (referred to hereafter as ‘Superloop’ or ‘the Group’) consisting of Superloop Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. 8 Superloop Annual Report 2016 The Directors present their report on the consolidated entity (referred to hereafter as ‘Superloop’ or ‘the Group’) consisting of Superloop Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. Superloop Limited was incorporated on 28 April 2014 and gained admission to the ASX on 4 June 2015. This report covers the year ending 30 June 2016. The prior period in these financial statements covers the period 28 April 2014 to 30 June 2015 as it was the first reporting period for the Group. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: DIRECTORS The following persons were Directors of the Group during the year: • Bevan Slattery • Daniel Abrahams • Greg Baynton • Louise Bolger • Michael Malone • Richard Clark (appointed 23 December 2015) Directors have been in office since the start of the financial year to the date of this report unless stated otherwise. PRINCIPAL ACTIVITIES The Superloop Group is a leading independent provider of connectivity services in the Asia Pacific region. During the year, the principal activities of the Group consisted of the development and operation of independent dark fibre telecommunications infrastructure throughout the Asia Pacific region. Following the Group’s recent acquisitions, principal activities now extend to the provision of complete high-performance network solutions capability. REVIEW OF OPERATIONS During the year, Superloop continued to build upon the foundations established that will enable it to become a leading provider of connectivity services in the Asia Pacific region. Specific achievements over the past year include: • Completing the networks in Melbourne, Brisbane, Sydney and the construction of the initial 117km fibre optic network in Singapore; • Provisioning the first customer services on the Australian and Singapore networks; • Launching Project Red Lion, an initiative to extend the Singapore network to some of Singapore’s most strategic commercial buildings, with 14 buildings connected at year end and 21 buildings at the date of this report; • Completing the acquisition of APEXN Pty Ltd, which provides networking solutions and managed services focused on supporting wholesale and channel partners; • Completing the acquisition of CINENET Systems Pty Ltd, which operates a specialised high-speed international data network catering specifically for the needs of screen and broadcast media industries; Directors' Report • • • • • Integration of APEXN, CINENET and Superloop to realise the synergy benefits that were targeted by the Group; The continued expansion of the Singapore network, driven by both strategic opportunities as well as customer demand for services, with approximately 136km of fibre installed and 10 data centres and cable landing stations connected to the network at year end; Entered into an agreement to establish a 110km fibre optic network and operations in Hong Kong, with the Group holding a 25 year indefeasible right of use over the infrastructure, with two (2) further five (5) year options to extend the length of the agreement; Announced TKO Express, a new domestic submarine cable crossing project to provide a new low- latency and fully diverse route between Hong Kong Island and the TKO Industrial Estate; and Launched new product initiatives including Superloop Wavelength and Superloop Ethernet Backhaul. FINANCIAL PERFORMANCE AND POSITION As at 30 June 2016, the Group had net assets of $119.7m (FY15 $53.8m). The Group made an operating loss before tax of $7.2m for the year, consistent with the early stage of the Group’s development. Revenue and gains from transactions with customers for the year was $7.0m, including a gain on sale of a small number of fibre cores. Superloop’s core networks in Australia and Singapore went live during the first half of the year and commenced generating revenue from customers. The Group also completed the acquisitions of APEXN and CINENET Systems in the first half. Revenue in the second half grew by 160% compared to the first half of the year. Profit after direct network operating expenses for the year was $1.9m. Both the Australian and Singapore networks grew revenue over the year and as a result both networks are now operating on a positive basis with customer revenue exceeding direct network costs. The Group made an operating loss before tax of $7.2m, with an underlying EBITDA loss of $5.6m, which is consistent with the early stage of the Group’s development. Operating expenses for the year were $7.6m, largely made up employee expenses of $4.2m, office and administrative expenses of $1.8m, and professional fees of $1.3m. Depreciation and amortisation was $1.9m for the year, which increased over the year as network assets were completed and placed into operation, and includes the depreciation of the network assets $1.2m and amortisation of the Group’s IRU’s of $0.3m. The Company also realised foreign exchange gains of $0.4m during the year. 9 Superloop Limited and controlled entities Directors' Report At 30 June 2016, the Group had $45.9m in cash and cash equivalents. The primary assets of the Group are property, plant and equipment of $66.9m including network infrastructure assets of $39.6m. Also included in property, plant and equipment is capital work in progress of $27.0m, which includes the Group’s progress towards the completion of the Hong Kong Network, as well as other network expansion projects currently underway in Singapore. The Group had intangible assets of $12.4m which includes the value of the Group’s Australian IRU contracts of $4.2m, software assets obtained through the acquisition of APEXN Pty Ltd of $1.6m and goodwill arising from business combinations of $6.0m. FUNDING As at 30 June 2016, the Group was funded via equity contributions from shareholders (refer note 21), with no interest bearing debt. The Group undertook two capital raisings during the year. The first capital raising occurred during December 2015 via a share placement and share purchase plan, which raised $49.4m in additional shareholder capital to principally fund the investment in the Hong Kong network and the next phase of Project Red Lion in Singapore. The second capital raising was undertaken in June 2016 via an entitlement offer, raising $35.3m (with the retail component of $12.8m completed in July 2016), principally to provide funding for the TKO Express project in Hong Kong, expansion in Hong Kong to connect the network to additional buildings, Singapore network expansion including the IO/SGX loop, further expansion of project Red Lion in Singapore, other customer led expansion and general working capital. BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS Superloop intends to : • Complete the installation of the Hong Kong core network and TKO Express submarine cable (subject to final regulatory approval); • • • Expand access networks to major commercial buildings in Singapore and Hong Kong; Execute key strategic sales opportunities in each market to leverage the current strategic network assets; Increase product development that leverages existing infrastructure and relationships for a greater share of wallet; • Continue to evaluate new markets and potential acquisitions that the Company believes are of strategic value; • Focus on achieving EBITDA breakeven as quickly as possible; • Review alternate funding sources for future network expansion and possible M&A activity; and • Deliver further transaction synergies from APEXN and CINENET acquisitions. 10 BUSINESS RISKS The material business risks faced by the Group that are likely to have an effect on its financial prospects include: • CUSTOMER DEMAND – Superloop’s growth strategy incorporates commitment of substantial operational and financial resources to design, construct and maintain fibre optic telecommunications infrastructure and to expand existing infrastructure. Development or expansion of dark fibre networks does not necessarily require commitments from customers prior to commencement, and as such, sufficient demand may not exist post-completion. A lack of customer demand, or oversupply of fibre optic telecommunications infrastructure in the market, could have negative implications on the Group’s ability to achieve desired rates of return on investment, and have a material adverse effect on the growth prospects and/or financial position of the Group which may cause the Group to require further funding. • • • • • PLANNING, DEVELOPMENT AND CONSTRUCTION RISKS – Any delay or unexpected costs associated with planning, construction and development activities may harm growth prospects, future operating results and financial conditions. Superloop requires access to both public and non-public spaces to install and deliver services. Superloop must negotiate access to areas that it cannot rely on its carrier powers to access. The terms of access may be such that the build is not economically viable (in the opinion of the Board and management) or access may not be able to be negotiated. FUNDING - Superloop’s business is capital intensive in nature, and the continued growth of the Group relies on the acquisition and development of new fibre optic telecommunications infrastructure and ongoing maintenance of existing fibre optic telecommunications infrastructure. Superloop requires sufficient access to debt and equity capital to fund this expenditure. Failure to obtain capital on favourable terms may hinder Superloop’s ability to expand and pursue growth opportunities, which may reduce competitiveness and have an adverse effect on the financial performance, position and growth prospects of the Group. Superloop’s continued ability to implement its business plans effectively over time may depend in part on its ability to raise future funds. There is no assurance that additional funds will be available in the future and/or be secured on reasonable commercial terms. REGULATORY RISK – There is a risk that Government Policy could directly affect the product offerings and competitive landscape, particularly in markets where the Government have significant investment in telecommunications assets. Superloop also requires certain licences to operate in its various jurisdictions and any modifications or cancellation of any of these licences may impact its ability to operate in that jurisdiction. NETWORK DAMAGE – Any accidental damage from civil works (cable cuts), intentional damage from vandalism or terrorism and acts of God such as earthquakes or other natural disasters may result in outages and damage to Superloop’s network. FOREIGN EXCHANGE RISK – Superloop operates in foreign jurisdictions and as a result, fluctuations in applicable Superloop Annual Report 2016 exchange rates could have an impact on the financial position and performance of the Group. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Significant changes in the state of affairs that occurred during the year include: • The acquisition on 16 October 2015 of APEXN Pty Ltd which expanded the Group’s solutions in Australia through the pro- vision of networking solutions and managed services focused on supporting wholesale and channel partners; • The acquisition of CINENET Systems Pty Ltd on 30 Novem- ber 2015, which operates a specialised high-speed inter- national data network catering specifically for the needs of screen and broadcast media industries; • Expansion into Hong Kong via an agreement to establish a 110km fibre optic network and operations in Hong Kong, with the Group holding a 25 year indefeasible right of use over the infrastructure, with two (2) further five (5) year options to extend the length of the agreement; • The development and launching of new product initiatives including Superloop Wavelength and Superloop Ethernet Backhaul. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD After balance date, on 13 July 2016, 725,814 options were issued under the Group’s Executive Option Plan, consistent with the resolution approved by shareholders on 21 June 2016, and on 13 July 2016, 196,068 performance rights were issued under the Group’s Employee Rights plan. On 15 July 2016, the Group completed the retail component of the Entitlement Offer launched in June 2016, issuing an additional 6,109,637 shares for $12,830,238. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The continued growth in transmission and storage of data should underpin a likely demand for services provided by the Company, including the Hong Kong network which is scheduled to be operational during FY17. The Board continues to evaluate potential investment and network expansion opportunities in the Asia Pacific region, based on underlying market dynamics and customer demand for connectivity services. DIVIDENDS Dividends were neither paid nor declared during the year. ENVIRONMENTAL REGULATION The Group is not subject to any significant environmental laws. INDEMFICATION OF OFFICERS The Group has entered into standard deeds of indemnity and insurance with the Directors. Pursuant to those deeds, the Group Directors' Report has undertaken, consistent with the Corporations Act 2001, to indemnify each Director in certain circumstances and to maintain directors and officers insurance cover in favor of the Director for seven years after the Director has ceased to be a Director. During the year, the Group paid a premium of $37,381 (2015 $33,118) to insure the directors and officers of the Group against a liability incurred as a director or officer, to the extent permitted by the Corporations Act 2001. NON-AUDIT SERVICES The Group may decide to employ the auditor (Deloitte) on assign- ments additional to their statutory audit duties where the auditor's expertise and experience with the Group are important. Details of the amounts paid during the year to the Group’s external auditor, Deloitte Australia, for non-audit services are set out in note 26 to the financial statements. The Board of Directors has considered the position and, in accor- dance with advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.. PROCEEDINGS ON BEHALF OF THE GROUP No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. ROUNDING OF AMOUNTS The Group is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest dollar. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 29. 11 Superloop Limited and controlled entities Information on Directors BEVAN SLATTERY DANIEL ABRAHAMS Executive Chairman & Chief Executive Officer Executive Director & Chief Infrastructure Officer Appointed: 28 April 2014 Appointed Executive Director: 2 April 2015 EXPERIENCE AND EXPERTISE EXPERIENCE AND EXPERTISE Bevan Slattery is the Executive Chairman and CEO. Bevan has a background in building successful Australian IT and telecommunications companies and an earlier career in administration in local and state government. Prior to establishing Superloop, Bevan founded Megaport in 2013 with the aim of becoming a global leader in the fast growing elastic interconnection services market. The Company successfully listed on the ASX in December 2015. In 2010, Bevan founded NEXTDC, with a vision to become Australia’s largest independent datacentre provider. As the inaugural CEO of NEXTDC, Bevan oversaw its listing on the ASX, overall design of its initial facilities and its initial facility rollout. In 2002, Bevan co-founded PIPE Networks which grew to become Australia’s largest Internet Exchange and Australia’s third largest metropolitan fibre network provider with over 1,500km of fibre in 5 cities connecting 80 data centres, 250 Telstra exchanges and over 1000 buildings. In 2009, PIPE Networks completed construction of Pipe Pacific Cable 1 (PPC-1), a $200 million submarine cable system linking Sydney to Guam. PIPE Networks was sold to TPG for an enterprise value of $420m in May 2010. Bevan holds a Master of Business Administration (Hon.) from Central Queensland University OTHER CURRENT ASX DIRECTORSHIPS Bevan is a director on the Board of Swimming Australia Megaport Limited (ASX: MP1) – appointed 27 July 2015. FORMER ASX DIRECTORSHIPS NEXTDC Limited (ASX:NXT) - resigned 30 October 2013 Asia Pacific Data Centre Group Limited (ASX:AJD) - resigned 30 June 2014. SPECIAL RESPONSIBILITIES • Chairman • Member of the Remuneration and Nomination Committee INTERESTS IN SHARES AND OPTIONS 60,007,894 fully paid ordinary shares 725,814 share options Daniel Abrahams is the Chief Infrastructure Officer of Superloop and is also an Executive Director. Daniel was formerly the Vice President & Chief Risk Officer at Aurizon. Aurizon operates the world’s largest coal supply chain in Central Queensland in addition to haulage interests in iron ore, bulk commodities and freight across Australia. Daniel brings a strong commercial approach and expertise across strategy, finance, governance and risk management. Daniel was the former Group Financial Controller at Energex responsible for the preparation of the annual audited accounts and commercial and financial advice. His prior roles with Suncorp in audit, risk and capital management equipped him with a strong focus on risk taking to generate returns for shareholders. He also worked at Toyota (Tsusho) for 5 years in a variety of roles, including as the Group’s Business Review Manager and as part of the finance leadership team with APAC responsibilities. Daniel completed a Bachelor of Business degree (Central Queensland University) and has completed the CPA Program and Graduate Diploma in Applied Corporate Governance with the Governance Institute of Australia. He has been conferred with FCPA and FGIA in recognition of his strong governance experience. OTHER CURRENT ASX DIRECTORSHIPS Nil FORMER ASX DIRECTORSHIPS Nil SPECIAL RESPONSIBILITIES • Member of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 1,162,000 fully paid ordinary shares 12 Superloop Annual Report 2016 Information on Directors GREG BAYNTON Independent Non-Executive Director LOUISE BOLGER Independent Non-Executive Director Appointed: 28 April 2014 Appointed: 27 April 2015 EXPERIENCE AND EXPERTISE EXPERIENCE AND EXPERTISE Greg Baynton is the founder and Managing Director of Orbit Capital, an investment and advisory company and holder of an Australian Financial Services Licence. He has a background in investment banking, infrastructure investment, and new projects and has experience in IPOs and other capital raisings, mergers and acquisitions, investor relations and corporate governance. Louise Bolger is an experienced in-house telecommunications, media and technology lawyer and company secretary. Currently Louise is General Counsel and Company Secretary for the ASX listed pre-paid cards issuer Emerchants Limited, and prior to that was General Counsel and Company Secretary at Southern Cross Media Group Limited and PIPE Networks. He has considerable experience as a director of ASX-listed companies. Among those, Greg is a former Director of Asia Pacific Data Centre Limited, NEXTDC and of PIPE Networks. Greg holds a Master of Business Administration (QUT), a Master of Economic Studies (UQ), a Postgraduate Diploma in Applied Finance & Investment (SIA), and Bachelor of Business (Accountancy). OTHER CURRENT ASX DIRECTORSHIPS Graphitecorp Limited (ASX:GRA) – appointed 05 April 2012 Louise commenced her career in private legal practice before continuing on to in-house roles with Telstra, Logica and Bank of Queensland. Louise holds a Bachelor of Laws (Hons) and a Bachelor of Arts (Modern Asian Studies) from Griffith University. OTHER CURRENT ASX DIRECTORSHIPS Nil FORMER ASX DIRECTORSHIPS FORMER ASX DIRECTORSHIPS Nil COALBANK LIMITED (ASX:CBQ) – resigned 22 November 2013 Asia Pacific Data Centre Group Limited (ASX:AJD) – resigned 04 February 2015 NEXTDC Limited (ASX:NXT) – resigned 30 April 2014 Lamboo Resources Limited (ASX:LMB) – resigned 11 September 2014 SPECIAL RESPONSIBILITIES • Chair of the Audit and Risk Committee • Member of the Remuneration and Nomination Committee INTERESTS IN SHARES AND OPTIONS 812,331 fully paid ordinary shares SPECIAL RESPONSIBILITIES • Chair of the Remuneration and Nomination Committee INTERESTS IN SHARES AND OPTIONS 66,165 fully paid ordinary shares 13 Superloop Limited and controlled entities Information on Directors MICHAEL MALONE Independent Non-Executive Director Appointed: 27 April 2015 EXPERIENCE AND EXPERTISE Michael Malone is the former CEO of iiNet Limited, having founded the company in 1993. During his tenure, iiNet became the second largest broadband DSL ISP in Australia. Michael has been recognised with a raft of industry accolades. In 2009 Michael was CEO of the Year in the Australian Telecom Awards and National Customer Service CEO of the Year in the CSIA’s Australian Service Excellence Awards. Michael was named a finalist for WA Citizen of the Year and in 2011 he won the Ernst & Young Entrepreneur of the Year Award. In April 2016 Michael was appointed to the Board of NBN Co Limited. OTHER CURRENT ASX DIRECTORSHIPS NBN Co Limited – appointed 20 April 2016 Seven West Media Limited (ASX:SWM) - appointed 24 June 2015 SpeedCast International Limited (ASX:SDA) – appointed 14 July 2014 FORMER ASX DIRECTORSHIPS iiNet Limited (ASX:IIN) – resigned 21 March 2014 SPECIAL RESPONSIBILITIES • Member of the Audit and Risk Committee INTERESTS IN SHARES AND OPTIONS 632,894 fully paid ordinary shares RICHARD ANTHONY (TONY) CLARK Independent Non-Executive Director Appointed: 23 December 2015 EXPERIENCE AND EXPERTISE Tony is an Emmy Award-winning Cinematographer as well as co-founder and Director of Rising Sun Pictures (RSP) and Cospective, and co-founder of CINENET Systems Pty Ltd. Tony has a wealth of industry knowledge and experience in digital media. His credits as a VFX Supervisor for RSP include Alfonso Cuarón’s Gravity, Pirates of the Caribbean: On Stranger Tides, The Sorcerer’s Apprentice, The Last Mimzy, The Core and Harry Potter & the Goblet of Fire. Tony is a 2010 recipient of an Academy Award for Scientific & Technical Achievement as creator of the remote collaboration tool cineSync. His deep understanding of digital film became the foundation for the technology spin-off Rising Sun Research (now Cospective). Tony has served as a board member on the South Australian Film Corporation, is currently on the board of Ausfilm and is an active member of both AMPAS, the Academy of Motion Picture Arts, and Sciences and the Visual Effects Society. OTHER CURRENT ASX DIRECTORSHIPS Nil FORMER ASX DIRECTORSHIPS Nil SPECIAL RESPONSIBILITIES Nil INTERESTS IN SHARES AND OPTIONS 396,343 fully paid ordinary shares 14 Superloop Annual Report 2016 Information on Company Officers PAUL JOBBINS Joint Company Secretary GREGORY BRYANT Joint Company Secretary Paul Jobbins is the Group’s General Manager, Corporate and Strategy with responsibility for the Group’s corporate functions including Finance, Legal, Talent and Culture and Investor Relations as well as driving the Group’s corporate strategy. Paul has previously worked in senior executive roles with several ASX listed companies including NEXTDC Limited, Reverse Corp Limited and Sunshine Gas Limited. Paul holds a Bachelor of Business (Accountancy) from QUT, a Graduate Diploma in Applied Finance and Investments from Finsia, a Masters in Applied Finance from Macquarie University and is a Chartered Accountant. Gregory Bryant is the Chief Financial Officer of Superloop Limited. Gregory is a senior finance executive with over 20 years experience in the financial services industry where he held several executive management positions including Chief Financial Officer for Suncorp Bank. Gregory has also worked in senior finance roles for AMP Bank, the Australian National Credit Union, and with a leading consultancy firm specialising in Asset & Liability management. Gregory holds a Bachelor of Commerce (Accountancy Major) from the University of Wollongong, a Masters in Applied Finance from Macquarie University and is a CPA. 15 Superloop Limited and controlled entities Information on Directors MEETING OF DIRECTORS The number of meetings of the Group's Board of Directors and of each board committee held during the year, and the number of meetings attended by each Director are as follows: Meetings of committees Meetings of Directors Audit and Risk Management Remuneration and Nomination A 18 18 18 18 14(1) 8 B 18 18 18 18 18 8 A #N/A 5 5 B #N/A 5 5 #N/A #N/A 5 5 #N/A #N/A A 1 B 1 #N/A #N/A 1 1 #N/A #N/A 1 1 #N/A #N/A Bevan Slattery Daniel Abrahams Greg Baynton Louise Bolger Michael Malone Richard Clark A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year N/A = Not applicable. Not a member of the relevant committee (1) A number of special meetings of Directors were held for items requiring specific approvals at short notice during the year, and as a result Mr. Malone was unable to attend some of these meetings. 16 Superloop Annual Report 2016 Remuneration Report CONTENTS Message from the Chair of the Remuneration and Nomination Committee 1. Persons Covered by this Report 2. Overview of Remuneration Governance Framework 3. Director Remuneration 4. Executive Remuneration 5. Loans to Key Management Personnel 6. Employment terms for Key Management Personnel 7. Remuneration for FY16 8. Performance Outcomes for FY16 9. Summary of shares held by Key Management Personnel 10. Other transactions with Key Management Personnel PAGE 18 19 20 20 20 21 22 23 24 27 27 The Remuneration Report, which forms part of the Directors’ Report, sets out the remuneration arrangements for Directors and other Key Management Personnel (KMP) of Superloop for the year ended 30 June 2016 (FY16), and is prepared in accordance with section 300A of the Corporations Act 2001 (Corporations Act). The information in this report has been audited as required by section 308(3C) of the Corporations Act. 17 Superloop Limited and controlled entities Directors’ Report Remuneration Report MESSAGE FROM THE CHAIR OF THE REMUNERATION AND NOMINATION COMMITTEE Dear Shareholders, Welcome to the Superloop Group’s Remuneration Report for 2016, for which we seek your support. Superloop was listed on the Australian Securities Exchange in June 2015 with the 2016 year representing the Company’s first full financial year as a listed entity. Throughout the year a number of strategically important milestones have been achieved. Superloop’s vision, to be “a leading independent provider of connectivity services across the Asia Pacific region”, is designed to support the creation of long term shareholder value. Pivotal to Superloop’s success in the execution of this vision is the ability to attract and retain appropriate people to lead the Company as we progress to being fully operational, and to help set the foundation for sustainable and long term growth. The Company is in the process of establishing a comprehensive remuneration policy, including at-risk short term and long term incentives, to support the Group’s vision and strategy. The role of the Remuneration and Nomination Committee is to assist the Board and make recommendations on remuneration and related policies and practices including the remuneration of senior management and non-executive Directors. A key principle which the Committee operates by is to ensure that the remuneration framework is transparent, competitive and reasonable. The Committee is overseeing the development of an appropriate remuneration policy designed to ensure alignment between shareholder returns and performance related remuneration, including designing a remuneration structure that ensures there is a direct link between remuneration and performance, both Company and individual, that is ultimately aligned to shareholder interest. We welcome your feedback on the development of our remuneration practices and reporting. We thank you for your continued support and hope that you find this report useful. Louise Bolger Chair - Remuneration and Nomination Committee Superloop Limited 18 Superloop Annual Report 2016 Remuneration Report 1. THE PERSONS COVERED BY THIS REPORT Key Management Personnel (“KMP”) include Directors of the Group and Senior Executives. The term “Senior Executives” refer to the Executive Chairman, CEO and those executives with responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. NON-EXECUTIVE DIRECTORS Name Position Greg Baynton Louise Bolger Michael Malone Independent Non-Executive Director Chair of the Audit and Risk Committee Member of the Remuneration and Nomination Committee Independent Non-Executive Director Chair of the Remuneration and Nomination Committee Independent Non-Executive Director Member of the Audit and Risk Committee Richard Anthony Clark Independent Non-Executive Director SENIOR EXECUTIVES Name Position Bevan Slattery Daniel Abrahams Paul Jobbins Steve Bond Ryan Crouch Executive Chairman Chief Executive Officer (CEO) Member of the Remuneration and Nomination Committee Executive Director Cheif Infastructure Officer (CIO) Member of the Audit and Risk Committee General Manager, Corporate and Strategy Joint Company Secretary General Manager, Sales and Marketing Chief Technology Officer (CTO) Matthew Gregg General Manager, APEXNetworks and Customer Experience Except as noted elsewhere in this report the named persons held their position for the whole financial year. CHANGES SINCE THE END OF THE REPORTING PERIOD There have been no changes to Key Management Personnel since the end of the reporting period. 19 Superloop Limited and controlled entities Remuneration Report 2. OVERVIEW OF REMUNERATION GOVERNANCE FRAMEWORK 3. DIRECTOR REMUNERATION 3.1 DIRECTOR REMUNERATION POLICY 2.1 REMUNERATION AND NOMINATION COMMITTEE CHARTER The purpose of the Committee is to assist the Board in the development and implementation of policies and practices in relation to the appointment and remuneration of senior management and non-executive Directors. This includes making recommendations to the Board about the appointment of new Directors (both executive and non-executive) and senior management. The committee’s functions include: • development of criteria (including skills, qualifications and experience) for Board candidates; • • • • • • • • • identification and consideration of possible candidates and recommendation to the Board; ensuring appropriate induction and continuing professional development programs are implemented for Directors; review of processes for succession planning for the Board, CEO and other senior executives; establishment of procedures, and recommendations to the Chairman, for the proper oversight of the Board and management; ensuring the performance of each Director, and of review and evaluation of market practices and trends on remuneration matters; recommendations to the Board about the Group’s remuneration policies and procedures; oversight of the performance of senior management and non-executive Directors; recommendations to the Board about remuneration of senior management and non-executive Directors; reviewing the Group’s reporting and disclosure practices in relation to the remuneration of Directors and senior executives. Meetings are held at least once a year and more often as required. A copy of the Committee’s charter, which forms part of the Corporate Governance Charter, is available on Superloop’s website at www.superloop.com/investor. 2.2 SECURITIES TRADING POLICY A securities trading policy (Trading Policy) has been adopted by the Board to provide guidance to Directors, employees of Superloop, and other parties who may have access to price sensitive information, who may be contemplating dealing in Superloop’s securities or the securities of entities with whom Superloop may have dealings. The Trading Policy is designed to ensure that any trading in Superloop’s securities is in accordance with the law. Any non-compliance with the Trading Policy will be regarded as an act of serious misconduct. The Trading Policy is available on Superloop’s website at www.superloop.com/investor. 20 Superloop’s Director remuneration policy is to provide fair remuneration that is sufficient to attract and retain non-executive Directors with appropriate experience, knowledge, skills and judgment. The Directors decide the total amount paid to each Director as remuneration for their services. Under the Listing Rules, the total amount paid to all non-executive Directors must not exceed in any financial year the amount fixed in a general meeting of Superloop. This amount is currently $750,000. Non-executive Directors fees include base fees and fees for membership of board committees, and where relevant are inclusive of superannuation contributions. Non-executive Directors may be paid such additional or special remuneration where a Director performs extra work or services which are not conducted in their capacity as a Director of Superloop. Actual fees for non-executive Directors in FY16 were $251,129 (FY15 $24,583, paid from the Company’s ASX listing date of 04 June 2015). There are no retirement benefit schemes for Directors other than statutory superannuation contributions. 3.2 NON-EXECUTIVE DIRECTOR FEES The current director fees per annum, including statutory superannuation, are: Base Fees • • • Chairman Non-executive Director Committee member $75,000 $60,000 $10,000 To preserve independence, non-executive Directors do not receive incentive or performance based remuneration. Non-executive Directors are entitled to be reimbursed for travel and other expenses incurred while carrying out their duties as a director. 4. EXECUTIVE REMUNERATION 4.1 SENIOR EXECUTIVE REMUNERATION POLICY Superloop’s executive remuneration policy is under development, including the development of at-risk short term and long term incentives. As the policy is developed, Superloop will ensure that the remuneration framework will be transparent, competitive and reasonable. Development of an appropriate remuneration policy will strengthen the alignment between shareholder returns and performance related remuneration, ensuring that the final remuneration structure contains a direct link between remuneration and performance (both Company and individual) that is ultimately aligned to shareholder interest. The remuneration framework consists of three key components: • • • Short term incentives Long term incentives Fixed remuneration Superloop Annual Report 2016 Remuneration Report Executive Option Plan At a general meeting of shareholders held on 21 June 2016, shareholders approved an Executive Option Plan. The Executive Option Plan is open for participation by Directors, executives and senior management. The Directors of Superloop believe an Executive Option Plan is an important part of a comprehensive remuneration strategy. The grant of options to participants under the Executive Option Plan further aligns the interests of the Company’s senior management and shareholders and helps preserve the Company’s cash funds. The Directors are empowered to operate the Executive Option Plan and grant options to Eligible Participants in accordance with the Listing Rules and on the terms and conditions summarised in the Schedule. The Executive Option Plan is administered by the Board, which has an absolute discretion to determine appropriate procedures for its administration and resolve questions of fact or interpretation and formulate special terms and conditions in addition to those set out in the plan. All options are to be offered to Participants for no consideration. The offer must be in writing and specify, amongst other things, the number of options for which the Participants may accept, the year within which the options may be exercised and any conditions to be satisfied before exercise, the option expiry date (as determined by the Board) and the exercise year for the options. The options shall lapse upon the earlier of the date specified by the Board or events contained in the Executive Option Plan rules, including termination of employment or resignation, redundancy, death or disablement. At 30 June 2016, no options had been issued. After balance date, on 13 July 2016, 725,814 options were issued, consistent with the resolution approved by shareholders on 21 June 2016 5. LOANS TO KEY MANAGEMENT PERSONNEL Certain key management personnel were eligible to participate in a loan scheme provided by a related party to enable them to acquire shares as part of a private capital raising undertaken by the Group in FY15, prior to listing on the Australian Securities Exchange (“ASX”). The terms and conditions of the loan agreement are commercial in nature, including a market based interest rate. Under the terms and conditions of the loan agreement, if an employee resigns or leaves the Group before the end of the original loan term, the loan plus any accrued interest is repayable immediately. The loans are unsecured. The Group does not guarantee or have any obligations with respect to the loan agreement between the employee and the related party. As at 30 June 2016, Executive Director, Mr Daniel Abrahams, owed $400,000 to the related party. During the year, shareholders approved two longterm incentive plans, During the year, shareholders approved two long term incentive plans, being the Executive Option Plan and the Employee Rights Plan. being the Executive Option Plan and the Employee Rights Plan. 4.2 SHORT TERM INCENTIVE POLICY AND PROCEDURE The Group has not yet implemented a formal short term incentive policy or scheme. However, certain individuals have individual performance incentives linked to specific strategic objectives. 4.3 LONG TERM INCENTIVE POLICY AND PROCEDURE During the year, the shareholders approved two long term incentive plans. The objectives of the long term incentive plans are to: a. establish a method by which Eligible Participants can participate in the future growth and profitability of the Company; b. provide an incentive and reward for Eligible Participants for their contributions to the Company; and c. attract and retain a high standard of managerial and technical personnel for the benefit of the Company. The Company’s Securities Trading Policy prohibits executives from entering into transactions which limit the economic risk related to equity-based remuneration schemes without written clearance. Employee Rights Plan At the 2015 Annual General Meeting held on 24 November 2015, shareholders approved an Employee Rights Plan. The Directors are empowered to operate the Employee Rights Plan and grant Performance Rights to Eligible Participants in according with the Listing Rules and on the terms and conditions summarised in the plan. The Board may offer any number of Performance Rights to an Eligible Participant on the terms the Board decides, subject to the Employee Rights Plan rules and any applicable law or the Listing Rules. An Offer is required to set out details such as the total number of Performance Rights being offered, the vesting date and vesting conditions, any disposal restrictions, and other terms attaching to the Performance Rights. A Participant is not required to pay for the grant of any Performance Rights or the issue of Superloop Shares on vesting. Once the Performance Rights vest, the Participant will be issued Superloop Shares, unless Superloop decides to provide a cash payment in lieu of Superloop Shares. A Participant does not have the right to participate in dividends on Superloop Shares until Superloop Shares are issued after vesting of the Performance Rights. A Participant does not have the right to vote in respect of a Performance Right. At 30 June 2016, no performance rights had been issued. After balance date, on 13 July 2016, 196,068 performance rights were issued. 21 Superloop Limited and controlled entities Remuneration Report 6. EMPLOYMENT TERMS FOR KEY MANAGEMENT PERSONNEL 6.1 DIRECTORS On appointment to the Board, all non-executive Directors enter into agreements with the Company in the form of a letter of appointment. The agreements summarise the key terms of engagement including compensation relevant to the office of director. Each appointment has no initial term, has no notice period and is not subject to any termination benefits. Subject to ASX Listing Rules, directors must retire from office at the conclusion of the third annual general meeting after the Director was last elected and will be eligible for re-election at that annual general meeting. Upon cessation of a Director’s appointment, the Director will be paid his or her Director’s fees on a pro-rata basis, to the extent that they are unpaid, up to the date of cessation. 6.1 EXECUTIVE CHAIRMAN AND CEO REMUNERATION 6.2 SENIOR EXECUTIVES Remuneration and other terms of employment for other senior executives are formalised in employment agreements. Key terms of those employment agreements are as follows: Name Duration of Contract Notice Period Termination payments (1) Daniel Abrahams Paul Jobbins 3 years to March 2018 The shorter of 6 months, or the remaining term The shorter of 6 months, or the remaining term No fixed term 6 months 6 months Steve Bond No fixed term 3 months 3 months Ryan Crouch No fixed term 3 months 3 months Matthew Gregg No fixed term 3 months 3 months Mr Slattery is the Chairman of the Board and CEO of the Superloop Group. Mr Slattery commenced employment as CEO for the Group on 23 February 2016. (1) Base salary payable if the Company terminates the executive without notice or without cause. Mr Slattery’s remuneration package consists of: • Chairman of the Board fee of $75,000; • Committee membership fee of $10,000; • • an annual salary via a service agreement (including superannuation) of $120,000; incentive payments via an options package that was approved by shareholders at a general meeting held on 21 June 2016. The options package consists of two components: • CEO package: 395,898 options which vest and • are exercisable on 1st March 2017 representing part remuneration as CEO, which at the time of approval were valued at $180,000; Incentive arrangement: 329,916 options which vest and are exercisable on 1st March 2017 subject to the meeting of performance hurdles. At the time of approval, the options were valued at $150,000. The performance hurdles for the incentive arrangement are as follows: • EBITDA positive based on contracted recurring revenue including Hong Kong costs by 31 December 2016; • Secure a corporate debt facility on terms and parameters • • satisfactory to the Board by 31 August 2016; Initial net promoter system in place by 30 June 2016; and Following the recent acquisitions of APEXN and CINENET Systems, complete integration of companywide system for provisioning, billing and accounting by 30 June 2016. 22 Superloop Annual Report 2016 Remuneration Report 7. REMUNERATION FOR FY16 The tables below outline the remuneration received by Key Management Personnel (KMP) during the year. This information is disclosed in accordance with the Corporations Act 2001 and the Australian Accounting Standards. DIRECTORS Fees and remuneration received by the Directors: Short term employee benefits Salary/ Fees $ Other Benefits $ STI $ Total $ Post employ- ment benefits Super- annua- tion $ Long-term emplyee benefits Long Service Leave $ LTI $ Total Remuration package (TRP) $ % of TRP linked to perfor- mance % - - - - N/A N/A Executive Directors Bevan Slattery(1) Daniel Abrahams(2) 2016 178,082 2015 14,840 2016 273,978 2015 68,495 Non-Executive Directors - - - - - - 178,082 16,918 14,840 1,410 3,240 277,218 26,028 810 69,305 6,507 Michael Malone Louise Bolger Gregory Baynton Richard Anthony Clark(3) 2016 70,000 N/A 2015 5,833 N/A 2016 63,927 N/A 2015 5,327 N/A 2016 80,000 N/A 2015 6,667 N/A 2016 28,428 N/A 2015 N/A N/A - - - - - - - - 70,000 5,833 - - 63,927 6,073 N/A 5,327 506 N/A 80,000 6,667 - - N/A N/A 28,428 2,701 N/A N/A - N/A TOTAL 2016 694,415 TOTAL 2015 101,162 - - 3,240 697,655 51,720 810 101,972 8,423 - - (1) On 23 February 2016, Mr Slattery became the CEO (2) On 23 February 2016, Mr Abrahams' role changed from CEO to Chief Infrastructure Officer (3) Mr Clark commenced as a Director of Superloop on 23 December 2015 - - - - - - - - - - - - - - 195,000 16,250 303,246 75,812 70,000 5,833 70,000 5,833 80,000 6,667 31,129 N/A 749,375 110,395 - - - - - - - - - - - - - - 23 Superloop Limited and controlled entities Remuneration Report KEY MANAGEMENT PERSONNEL Fees and remuneration received by the Key Management Personnel: Short term employee benefits Long-term emplyee benefits Salary/ Fees $ Other Benefits $ STI $ 53,981 N/A 20,999 N/A - N/A - N/A - N/A - N/A Post employment benefits Super annuation $ 4,455 N/A 1,758 N/A Total $ 53,981 N/A 20,999 N/A Total Remur- ation package (TRP) $ % of TRP linked to perfor- mance % Long Service Leave $ - 58,436 N/A - N/A N/A 22,757 N/A - N/A - N/A LTI $ - N/A - N/A 114,158 100,000 - 214,158 10,845 - 30,708 255,711 39.1% N/A N/A N/A N/A N/A N/A N/A N/A N/A 114,158 100,000 - 214,158 10,845 - 30,708 255,711 39.1% N/A N/A N/A N/A N/A N/A N/A N/A N/A Senior Executives Paul Jobbins(1) Steven Bond(2) Ryan Crouch(3) Matthew Gregg(3) 2016 2015 2016 2015 2016 2015 2016 2015 Former Senior Executives Matthew Whitlock(4) Gregory Bryant(5) Michael Glynn(6) Murray Hankinson(7) TOTAL TOTAL 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 144,282 150,000 45,874 179,522 55,322 48,439 42,501 187,821 - - - - - - - - 294,282 45,874 2,548 182,070 810 56,132 48,439 42,501 - - - 13,707 4,358 17,055 5,256 4,602 4,038 - - - - - - - 307,989 48.7% - - - - - - 50,232 199,125 61,388 53,041 46,539 - - - - - - 187,821 17,843 - 205,664 N/A N/A N/A N/A N/A N/A N/A N/A N/A 863,360 350,000 2,548 1,215,908 143,697 - 810 144,507 81,110 13,652 - - 61,416 1,358,434 25.8% - 158,159 - 1) Mr Jobbins commenced employment with Superloop on 12 April 2016 (2) Mr Bond commenced employment with Superloop on 30 May 2016 (3) Mr Crouch & Mr Gregg commenced employment with Superloop on 16 October 2015, following the Group's acquisition of APEXN Pty Ltd (4) Mr Whitlock commenced employment with Superloop on 10 April 2015. Following an internal management re-organisation on 12 April 2016, Mr Whitlock as Chief Operating Officer, reports to Chief Infrastructure Officer, Mr Daniel Abrahams, and for the purpose of this report is no longer considered Key Management Personnel (5) Mr Bryant commenced employment with Superloop on 26 March 2015. Following an internal management re-organisation on 12 April 2016, Mr Bryant as Chief Financial Officer, reports to GM, Corporate & Strategy, Mr Paul Jobbins, and for the purpose of this report is no longer considered Key Management Personnel (6) Mr Glynn joined following the acquisition of Superloop (Australia) Pty Ltd on 27 March 2015, and ceased to be a Senior Executive on 12 October 2015 following the appointment of Mr Hankinson (7) Mr Hankinson was employed for the period 12 October 2015 to 23 June 2016 8. PERFORMANCE OUTCOMES FOR FY16 The following table outlines the performance of the Company over the 2016 financial year and the previous period since the company was incorporated. Since listing in June 2015, with an IPO share price of $1.00, Superloop Limited’s share price has risen to $2.35 at 30 June 2016. 24 Superloop Annual Report 2016 Year ended 30 June Net loss Dividends paid Share price at start of year Share price at end of year Remuneration Report 2015* ($1,193,442) - $1.00 $1.94 2016 ($7,164,110) - $1.94 $2.35 * 2015 includes the period from 28 April 2014 to 30 June 2015. Share price at start of the year refers to the issue price of shares in the Company’s Initial Public Offering in June 2015. The 2016 financial year was the Company’s first full financial year since listing. Consistent with the early stage of the Company’s development, key strategic objectives for the year included the establishment and provisioning of the Group’s dark fibre infrastructure networks in Australia and Singapore, the development of core operating systems and the recruitment of key personnel able to pursue these objectives. Superloop has invested in the establishment of administrative, customer service, sales, marketing, engineering and networking functions which will allow the Company to leverage the significant opportunities available in the Asia Pacific region. With the provisioning of the Australian and Singapore networks from September 2015, the Group has been able to generate revenue from its initial customers. The acquisitions of APEXN Pty Ltd in October 2015 and CINENET Systems Pty Ltd in November 2015 added significant earning capacity through those companies’ existing customer bases, infrastructure, intellectual property and talent. The Group also began the strategic expansion of Superloop’s network into Hong Kong, with an agreement entered into in December 2015 for the construction of and access to a 110km fibre optic network. A platform has now been established from which earnings will grow. Ongoing strategic objectives for the Group continue to relate to the construction and provisioning of core infrastructure assets in Singapore, Hong Kong and Australia. In addition, utilisation of the networks by generating sales to key industry segments of financial services, digital media and telecommunications providers, will deliver an increasing return on the Group’s investment. Future performance outcomes will depend on the achievement of these strategic objectives. The remuneration framework being developed will support that achievement for future financial years, leading to the continued creation of shareholder value. During the year, the following short-term incentives arrangements were in place: Name Grant date Performance Criteria Ryan Crouch 16 October 2015 Retention of employment post acquisition of APEXN Pty Ltd Matthew Gregg 16 October 2015 Matthew Whitlock 10 November 2015 Retention of employment post acquisition of APEXN Pty Ltd Seven key project milestones in relation to construction, installation, rollout and commissioning of the Group’s network assets Contribution to strategic objectives To ensure an orderly transition of ownership of APEXN Pty Ltd and successful integration into the Superloop Group To ensure an orderly transition of ownership of APEXN Pty Ltd and successful integration into the Superloop Group Development of the Group’s core infrastructure assets being the initial networks strategically positioned to capitalise on market demand dynamics Measurements Form of Incentive Amount Percentage of grant paid Executive to remain actively employed and in compliance with the Group’s policies and procedures Executive to remain actively employed and in compliance with the Group’s policies and procedures Development of the Group’s core infrastructure assets being the initial networks strategically positioned to capitalise on market demand dynamics Cash bonus $100,000 100% Cash bonus $100,000 100% Cash bonus $200,000 75% (25% subject to future dated performance milestones) Mr Whitlock is eligible for short term cash incentive payments of up to a further $50,000 during the 2017 financial year subject to achieving project milestones in relation to the on-net connection of enterprise buildings in Singapore and the construction of the Company’s Hong Kong fibre network. Following an internal management reorganisation on 12 April 2016, he is no longer considered Key Management Personnel. There have been no alterations to any of the terms or conditions of the grants since grant date. 25 Superloop Limited and controlled entities Remuneration Report In addition to the incentive arrangement described above for Mr Slattery, refer section 6.2, the following short term incentive arrangements are currently in place for the 2017 financial year: Name Grant date Performance Criteria Contribution to strategic objectives Measurements Form of Incentive Amount Percentage of grant paid Paul Jobbins 12 April 2016 Meeting group earnings targets and funding targets as well as completion of specific projects Meeting earnings and funding targets allows the Company to expand and pursue growth opportunities Executive to remain actively employed and in compliance with the Group’s policies and procedures Cash bonus Nil $35,000 Steven Bond 30 May 2016 Meeting specific sales targets, developing product and marketing plans and development of sales team Meeting sales targets and the successful development of product and marketing plans leads to the generation of earnings in line with budgets and market expectations Successful achievement of objectives Cash bonus Nil $100,000 After the reporting period, on 13 July 2016, Performance Rights were issued in accordance with the Employee Rights Plan to senior executives. The Performance Rights outlined in the table below are considered long term incentive arrangements provided as part of the senior executive’s remuneration for the 2017 financial year and beyond: Name Date of issue No. of Rights granted/ to be issued No. of Rights vested Issue price of shares Fair value of right at grant date ($) Vesting date Expiry date of rights 13 July 2016 4,150 13 July 2016 4,149 Paul Jobbins 13 July 2016 13,227 13 July 2016 13,228 13 July 2016 13,227 13 July 2016 13,228 Steven Bond Ryan Crouch Matthew Gregg 13 July 2016 4,150 13 July 2016 4,149 13 July 2016 4,150 13 July 2016 4,149 13 July 2016 4,150 13 July 2016 4,149 - - - - - - - - - - - - - - - - - - - - - - - - 2.41 2.41 2.41 2.41 2.41 2.41 2.41 2.41 2.41 2.41 2.41 2.41 15 September 2017 15 September 2017 15 September 2018 15 September 2018 15 April 2017 15 April 2017 15 April 2018 15 April 2018 15 April 2019 15 April 2019 15 April 2020 15 April 2020 15 September 2017 15 September 2017 15 September 2018 15 September 2018 15 September 2017 15 September 2017 15 September 2018 15 September 2018 15 September 2017 15 September 2017 15 September 2018 15 September 2018 26 Superloop Annual Report 2016 Remuneration Report 9. SUMMARY OF SHARES HELD BY KEY MANAGEMENT PERSONNEL The tables below outlines the movement in shareholdings by Key Management Personell during the year. Opening Balance 30 June 2015 Balance at date of appointment Received as part of Remuneration Additions Disposals Other Movements Closing Balance 30 June 2016 Directors Bevan Slattery 60,000,000 Daniel Abrahams 1,050,000 Gregory Baynton Louise Bolger Michael Malone Richard Anthony Clark(1) Executives Paul Jobbins Steven Bond Ryan Crouch Matthew Gregg 695,000 50,000 625,000 - - - - - Former Key Management Personnell Matt Whitlock (5) 120,000 Michael Glynn (5) 100,000 Gregory Bryant(5) 31,250 - - - - - 338,906 5,000 5,000 448,833 448,833 - - - TOTAL 62,671,250 1,246,572 - - - - - - - - - - - - - - 7,894 7,894 15,788 7,894 7,894 7,894 2,484 - 7,894 - - - 7,894 73,530 - - - - - - - - - - - - - - - - - - - - - - - - 60,007,894 1,057,894 710,788 57,894 632,894 346,800 7,484 5,000 456,727 448,833 (120,000) (100,000) (39,144) - - - (259,144) 63,732,208 (1) Mr Clark commenced as a Director of Superloop on 23 December 2015 (2) Mr Jobbins commenced employment with Superloop on 12 April 2016 (3) Mr Bond commenced employment with Superloop on 30 May 2016 (4) Mr Crouch & Mr Gregg commenced employment with Superloop on 16 October 2015, following the Group's acquisition of APEXN Pty Ltd (5) The other movements are not due to disposal of shares, but are as a result of these individuals no longer considered Key Management Personnel for the purpose of this report. 10. OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL There were no other transactions with key management personnel not otherwise disclosed in the report. 27 Superloop Limited and controlled entities Directors' Report SHARES UNDER OPTION OR PERFORMANCE RIGHTS Details of unissued shares or interest under option at the date of this report are: Date of Issue No. of shares under option Class of shares Exercise price of option Vesting date Expiry date of options 13 July 2016 13 July 2016 395,898 Ordinary $2.00 1 March 2017 1 March 2018 329,916 Ordinary $2.00 1 March 2017(1) 1 March 2018 (1) These share options can only be execerised once certain performance hurdles are met. The options are subject to the terms and conditions as set out in the Executive Option Plan. The holder of these options does not have the right, by virtue of the option, to participate in any share issue or interest issue of the company. Details of unissued shares or interest under performance rights at the date of this report are: Date of issue 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 Number of Rights granted / to be issued Class of shares Issue price of shares Vesting date Expiry date of rights 13,227 71,599 13,228 71,559 13,227 13,228 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary - - - - - - 15 April 2017 15 April 2017 15 September 2017 15 September 2017 15 April 2018 15 April 2018 15 September 2018 15 September 2018 15 April 2019 15 April 2019 15 April 2020 15 April 2020 Performance Rights are subject to the terms and conditions as set out in the Employee Rights Plan. The holders of the Rights are not entitled, by virtue of the Performance Right, to participate in any share issue or interest issue of the company. Each Performance Right entitles the holder, upon vesting, to be issued one Ordinary share. The participant must be an eligible employee on the vesting date to for the rights to vest. This report is made in accordance with a resolution of the Board of Directors, in accordance with section 298(2) of the Corporations Act 2001. On behalf of the Directors Bevan Slattery Executive Chairman & Chief Executive Officer 29 August 2016 28 Superloop Annual Report 2016 Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia Tel: +61 7 3308 7000 Fax: +61 (0) 3308 7004 www.deloitte.com.au The Board of Directors Superloop Limited Level 17 333 Ann Street Brisbane Queensland 4000 29 August 2016 Dear Board Members Superloop Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Superloop Limited. As lead audit partner for the audit of the financial statements of Superloop Limited for the financial year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU R G Saayman Partner Chartered Accountant Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 29 Corporate Governance Statement CORPORATE GOVERNANCE PRINCIPLES – OVERVIEW The following statement sets out the corporate governance framework adopted by the Board of Directors (“the Board”) of Superloop Limited. The Board is dedicated to ensuring its policies and procedures in the critical area of corporate governance meet high levels of disclosure and compliance. As a Company listed on the Australia Securities Exchange (“ASX”), Superloop is required either to apply the recommendations contained within the ASX Corporate Governance Council’s (“ASX CGC”) Corporate Governance Principles and Recommendations with 2010 Amendments (3rd Edition) (“ASX 3rd Edition Recommendations”) or disclose any differences to them. The Board has reported against ASX 3rd Edition Recommendations for the financial year ended 30 June 2016. Principle 1 - Lay solid foundations for managment and oversight Compiles Note 1.1 Companies should disclose the roles and responsibilities of its board and management, and those which are expressly reserved to the board and those delegated to senior management a The Board is responsible for the overall corporate governance of the Company. The role of the Board and delegation to management have been formalised in the Corporate Governance Charter (“Charter”) which outlines the main corporate governance practices in place for the Company and to which the Board and each Director are committed. The conduct of the Board is also governed by the Company’s constitution, and where there is inconsistency with that document, the constitution prevails to the extent of the inconsistency. The Charter will be reviewed and amended from time to time as appropriate taking into consideration practical experience gained in operating as a listed company. The Company completes police checks, insolvency and banned director searches in relation before appointing directors. Material information relevant to a decision to elect or re- elect a director, including biographical details and relevant qualifications and skills brought to the Board, is disclosed in the notice of meeting provided to shareholders for each Annual General Meeting. The Company has entered into written agreements with each director and senior executive. This is consistent with the Charter and corporate structure of the Company. The Company Secretary has a direct relationship with the Board in relation to these matters. The Company does not have a diversity policy. The Board is committed to fostering a corporate culture that embraces diversity, however the Board considers that because of the size and the nature of the Company it is not appropriate at this time to set measurable objectives to achieve gender diversity. At year end, the respective proportions of men and women across the organisation was as follows: Board: 5 men, 1 woman Senior executives: 5 men, 0 women Whole organisation: 36 men, 14 women The Board has adopted a charter establishing the requirements to undertake performance reviews at least annually. Board performance has been evaluated during the 2016 financial year. 1.2 Undertake appropriate checks before appointing a person as a director or putting forward a candidate for election, and provide shareholders with all material information relevant to a decision on whether or not to elect or re-elect a director. 1.3 Have a written agreement with each director and senior executive setting out the terms of their appointment 1.4 The company secretary should be accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the board. 1.5 Establish a diversity policy and disclose the policy or a summary of that policy. The policy should include requirements to establish measurable objectives for achieving gender diversity and to assess annually both the objectives and progress in achieving them, for reporting against in each reporting period. Disclose at the end of each reporting period the measurable objectives for achieving gender diversity and progress towards achieving them a a a Does not comply 1.6 Have a process for periodically evaluating the performance of the Board, its committees and individual directors, and disclose that process and, at the end of each reporting period, whether such performance evaluation was undertaken in that period. a 30 Superloop Annual Report 2016 Corporate Governance Statement 1.7 Have a process for periodically evaluating the performance of the company’s senior executives, and disclose that process and, at the end of each reporting period, whether such performance evaluation was undertaken in that period. a The Board’s broad function is to formulate strategy and set financial targets for the Company, monitor the implementation and execution of strategy and performance against financial targets, appoint and oversee the performance of executive management, and generally take an effective leadership role in relation to the Company. The Chairman, with assistance from the Remuneration and Nomination Committee, annually assesses the performance of Directors and senior executives, and the Chairman’s performance is assessed by at least 2 independent non- executive Directors. Principle 2 - Structure of the board to add value Compiles Note 2.1 The Board should have a nomination committee, which has at least three members, a majority of independent directors and is chaired by an independent director. The Company should disclose the charter of the committee, the members of the committee and the number of times the committee met throughout the period with the individual attendances of the members at those meetings. a A Remuneration and Nomination Committee has been established with its own Charter. A copy of the Committee’s charter, which forms part of the Corporate Governance Charter, is available on Superloop’s website at www. superloop.com/investor. 2.2 Have and disclose a board skills matrix, setting out what the board is looking to achieve in its membership. Partially 2.3 Disclose the names of the directors that the Board considers to be independent directors, and an explanation of why the Board is of that opinion if a factor that impacts on independence applies to a director, and disclose the length of service of each director. 2.4 A majority of the Board should be independent a a 2.5 The chair of the Board should be an independent director and should not be the CEO. Does not comply The committee consists of: - Ms Louise Bolger (committee Chair), Independent non- executive Director, - Mr Greg Baynton, Independent non-executive Director, and - Mr Bevan Slattery, Executive Chairman and CEO. Refer to the Directors’ Report for the number of meetings held during the year and the attendance of the members at those meetings. The Company has established a charter for the Remuneration and Nomination Committee which sets out the Committee’s responsibility with respect to the mix of skills, expertise and experience of current and proposed Board members. Together, the current Directors have a broad range of experience, expertise, skills, qualifications and contacts relevant to the Company and its business. However at this stage the Company has not disclosed a board skills matrix. Ms Louise Bolger (appointed 27 April 2015) Mr Michael Malone (appointed 27 April 2015) Mr Greg Baynton (appointed 28 April 2014) Mr Richard Clark (appointed 23 December 2015) While Mr Baynton has had a long business relationship with Mr Slattery, as co-directors and investors of PIPE Networks Limited and NEXTDC Limited, the Board does not believe that those relationships influence Mr Baynton to extent that he ought not be classified as independent. The Company currently has a six member Board, of whom four (Ms Louise Bolger, Mr Greg Baynton, Mr Michael Malone and Mr Richard Clark) are independent non- executive Directors. The Chairman and CEO, Mr Bevan Slattery, is an Executive Director, and is not independent. The Board believes that the non-independence of the Chairman and CEO does not impede proper oversight, particularly having regard to the fact that a majority of the Board are independent non-executive Directors. 2.6 There should be a program for inducting new directors and providing appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as a director effectively. a This is consistent with the Board Charter and processes implemented by Superloop. 31 Superloop Limited and controlled entities Corporate Governance Statement Principle 3 - Act ethical and responsibly 3.1 Have a code of conduct for the Board, senior executives and employees, and disclose that code or a summary of that code. Compiles a Note The Company has adopted a Code of Conduct, which sets out a framework to enable Directors to achieve the highest possible standards in the discharge of their duties and to give a clear understanding of best practice in corporate governance. The Code of Conduct forms part of the Corporate Governance Charter and is available at the Company’s website at www.superloop.com/investor Principle 4 - Safeguard integrity in corporate reporting Compilies Note Partially An Audit and Risk Committee has been established with its own Charter. A copy of the Committee’s charter, which forms part of the Corporate Governance Charter, is available on Superloop’s website at www.superloop.com/investor. 4.1 The Board should have an audit committee, which consists of only non-executive directors, a majority of independent directors, is chaired by an independent chairman who is not chairman of the Board, and has at least three members. The Company should disclose the charter of the committee, the relevant qualifications and experience of members of the committee and the number of times the committee met throughout the period with the individual attendances of the members at those meetings. The committee consists of: - Mr Greg Baynton, (committee Chair) Independent non- executive Director, - Mr Michael Malone, Independent non-executive Director, and - Mr Daniel Abrahams, Executive Director and CIO. The relevant qualifications and experience for each committee member are disclosed in the Directors’ Report. The Company notes that Mr Abrahams has significant experience in audit, governance and risk management. The number of meetings held during the year and the attendance of the members at those meetings is also disclosed in the Directors’ Report. This is consistent with the approach to be adopted by the Audit & Risk Management Committee and Board. Superloop’s auditor will be requested to attend the AGM and shareholders will be entitled to ask questions in accordance with the Corporations Act and these Guidelines. 4.2 The Board should, before approving financial statements for a financial period, receive a declaration from the CEO and CFO that, in their opinion, the financial records have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company, formed on the basis of a sound system of risk management and internal controls, operating effectively. 4.3 The Company’s auditor should attend the AGM and be available to answer questions from security holders relevant to the audit. a a Principle 5 - Make timely and balanced disclosure Complies Note 5.1 Have a written policy for complying with continuous disclosure obligations under the Listing Rules, and disclose that policy or a summary of it. a Superloop has a written Continuous Disclosure Policy that is designed to ensure that all material matters are appropriately disclosed in a balanced and timely manner and in accordance with the requirements of the ASX Listing Rules. The policy is available at the Company’s website at www. superloop.com/investor Principle 6 - Respect the rights of security holders Complies Note 6.1 Provide information about the Company and its governance to investors via its website. 6.2 Design and implement an investor relations program to facilitate effective two-way communication with investors. a a The Board Charter and other applicable policies are available on the Company’s website. All market releases and reports are also made available on the Company’s website. The Company aims to ensure that all Shareholders are well informed of all major developments affecting the Company. The Board Charter sets out the Company’s obligations with respect to investor relations and the Company has adopted a Continuous Disclosure Policy. 32 Superloop Annual Report 2016 Corporate Governance Statement 6.3 Disclose the policies and processes in place to facilitate and encourage participation at meetings of security holders. 6.4 Give security holders the option to receive communications from, and send communications to, the Company and its share registry electronically. a a The Company facilitates effective participation at general meetings, as well as the ability to submit written questions ahead of the meetings. The Company adopts appropriate technologies to facilitate the effective communication and conduct of general meetings. The Company, via its shareholder website and its share registry, provides security holders the option to receive and send electronic communications. Principle 7- Recognise and manage risk Complies Notes 7.1 The Board should have a risk committee which is structured so that it consists of a majority of independent directors, is chaired by an independent director, and has at least three members. The Company should disclose the charter of the committee, the members of the committee and the number of times the committee met throughout the period with the individual attendances of the members at those meetings. 7.2 The Board or a committee of the Board should review the entity’s risk management framework with management at least annually to satisfy itself that it continues to be sound, and disclose, in relation to each reporting period, whether such a review has taken place. 7.3 Disclose if the Company has an internal audit function, how the function is structured and what role it performs, or if it does not have an internal audit function, that fact and the processes the Company employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. 7.4 Disclose whether the Company has any material exposure to economic, environmental and social sustainability risks and, if so, how it manages those risks. a a a a The Company has a combined Audit and Risk Committee. The functions and operations of the Committee are established under the Charter. The Audit and Risk Management Committee consists of two non-executive Directors and one Executive Director. A non- executive Director chairs the committee. Refer principle 4.1 for additional disclosures. The Committee continues to develop and enhance its risk management framework. Reviews of the risk management framework and risk register are undertaken at least annually. In addition, the Board is provided and reviews detailed risk assessments of material projects on an ongoing basis. A review of the risk management framework was undertaken during the financial year. The Company does not have an internal audit function due to the Company’s limited number of employees and the relative nature and scale of its operations. The Company has an external auditor and the Audit and Risk Management Committee monitors and evaluates material or systemic risks. The Board believes it and the Audit and Risk Management Committee have appropriate oversight of existing operations and risks. The Board has disclosed what it believes are the material risks faced by the business in the Directors’ Report. Principle 8- Remunerate fairly and responsibly Complies Notes 8.1 The Board should have a remuneration committee which is structured so that it consists of a majority of independent directors, is chaired by an independent director, and has at least three members. The Company should disclose the charter of the committee, the members of the committee and the number of times the committee met throughout the period with the individual attendances of the members at those meetings. 8.2 The policies and practices regarding the remuneration of non-executive directors, and the remuneration of executive directors and other senior executives, should be separately disclosed 8.3 If the Company has an equity-based remuneration scheme, it should have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme, and disclose that policy or a summary of it. a a a The Board has established a Remuneration and Nomination Committee to assist the Board to discharge its responsibilities in relation to remuneration and issues relevant to remuneration policies and practices, including those for senior management and Directors. The remuneration committee consists of three Directors, a majority of whom are independent, non-executive Directors and is chaired by an independent, non-executive Director who is not the Chairman. The composition and role of the Remuneration and Nomination Committee is set out in the Remuneration and Nomination Committee Charter. Refer principle 2.1 for additional disclosures. The Company’s remuneration report within the Annual Report sets out the policies and practices for the remuneration of non-executive directors, executive directors and senior executives. No director or senior executive is involved directly in deciding their own remuneration. In accordance with the Company's Securities Trading Policy, participants are not permitted to enter into transactions which limit economic risk related to equity-based remuneration scheme without written clearance. 33 Superloop Limited and controlled entities Financial Report These financial statements are the consolidated financial statements of the consolidated entity consisting of Superloop Limited (ABN 96 169 263 094) and its controlled entities. Superloop Limited is a company limited by shares, incorporated and domiciled in Australia. The financial statements are presented in the Australian currency. Superloop’s registered office and principal place of business is Level 17, 333 Ann Street, Brisbane QLD 4000. A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ Report on page 9, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 29 August 2016. The Directors have the power to amend and reissue the financial statements. CONTENTS Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Report PAGE 35 36 37 38 39 34 Superloop Annual Report 2016 Consolidated Statement of Comprehensive Income RESULTS FROM CONTINUING OPERATIONS Revenue Other gains from transactions with customers Direct network costs PROFIT AFTER DIRECT NETWORK COSTS OPERATING EXPENSES Employee benefits expense Professional fees Marketing costs Office and administrative expenses Bad debt expense TOTAL OPERATING EXPENSES EARNINGS BEFORE INTEREST-PAID, TAX, DEPRECIATION, AMORTISATION AND FOREIGN EXCHANGE GAINS/LOSSES (EBITDA) Depreciation and amortisation expense Interest on loans Foreign exchange gains LOSS BEFORE INCOME TAX Income tax expense LOSS FOR THE YEAR AFTER TAX FROM CONTINUING OPERATIONS OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX Items that may be reclassified subsequently to profit or loss: Exchange differences arising from translation of foreign operations Net fair value loss on hedging transactions entered into the cash flow hedge reserve TOTAL OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX For the year ended 30 June 2016 Note 30 June 2016 28 April 2014 to 30 June 2015 $ $ 5 6 7 8 9 6,248,753 745,617 7,217 - (5,063,806) (290,048) 1,930,564 (282,831) (4,168,141) (1,135,390) (1,312,789) (1,730,000) (300,903) (1,764,748) (20,990) (70,207) (329,060) - (7,567,571) (3,264,657) (5,637,007) (3,547,488) (1,881,969) - (589,777) (475,874) 354,866 3,419,697 (7,164,110) (1,193,442) - - (7,164,110) (1,193,442) 457,999 (368,560) 145,592 - 89,439 145,592 TOTAL COMPREHENSIVE LOSS FOR THE YEAR (7,074,671) (1,047,850) LOSS FOR THE YEAR ATTRIBUTABLE TO: > Owners of Superloop Limited TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO: (7,164,110) (1,193,442) > Owners of Superloop Limited (7,074,671) (1,047,850) Loss per share for loss attributable to the ordinary equity holders of the Group: Basic loss per share Diluted loss per share The notes following the financial statements form part of the financial report Note 33 33 Cents Cents (6.81) (6.81) (3.55) (3.55) 35 Superloop Limited and controlled entities Consolidated Statement of Financial Position Note 30 June 2016 $ 30 June 2015 $ As at 30 June 2016 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Other non-current assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Provisions Deferred revenue TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions Deferred revenue Interest-bearing borrowings TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Other equity Accumulated losses TOTAL EQUITY 10 11 12 13 12 14 16 18 19 18 19 17 21 22 23 The notes following the financial statements form part of the financial report 36 45,854,135 1,397,290 471,550 47,722,975 66,850,737 17,180 12,363,209 79,231,126 126,954,101 6,579,093 342,124 204,314 7,125,531 69,303 22,458 - 91,761 7,217,292 18,011,900 190,867 360,201 18,562,968 33,576,396 - 4,300,000 37,876,396 56,439,364 2,585,677 83,777 - 2,669,454 - - - - 2,669,454 119,736,809 53,769,910 131,186,364 235,031 (3,327,034) (8,357,552) 119,736,809 58,144,794 145,592 (3,327,034) (1,193,442) 53,769,910 Superloop Annual Report 2016 Consolidated Statement of Changes in Equity For the year ended 30 June 2016 Note Contributed equity $ Reserves $ Other equity $ Accumulated losses $ Total eq- uity $ BALANCE AT 1 JULY 2015 58,144,794 145,592 (3,327,034) (1,193,442) 53,769,910 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Issue of ordinary share capital Share issue costs 23 21 21 - - - 75,306,005 (2,264,435) - 89,439 89,439 - - - - - - - (7,164,110) (7,164,110) - 89,439 (7,164,110) (7,074,671) - - 75,306,005 (2,264,435) BALANCE AT 30 JUNE 2016 131,186,364 235,031 (3,327,034) (8,357,552) 119,736,809 Note Contributed equity BALANCE AT 28 APRIL 2014 Loss for the period Other comprehensive income for the period Total comprehensive loss for the year Common control transactions Issue of ordinary share capital Share issue costs 23 34 21 21 $ 1 - - - - 58,800,141 (655,348) Reserves $ Other equity $ - - 145,592 145,592 - - - - Accumulated losses $ Total equity $ - 1 (1,193,442) (1,193,442) - 145,592 (1,193,442) (1,047,850) - - - (3,327,034) - - - - - (3,327,034) 58,800,141 (655,348) BALANCE AT 30 JUNE 2015 58,144,794 145,592 (3,327,034) (1,193,442) 53,769,910 The notes following the financial statements form part of the financial report 37 Superloop Limited and controlled entities Consolidated Statement of Cash Flows For the year ended 30 June 2016 Note 30 June 2016 $ 28 April 2014 to 30 June 2015 $ OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees NET CASH OUTFLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest Received Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for intangible assets Net cash outflow on acquisition of subsidiaries Transaction costs associated with the acquisition of subsidiaries Non-current deposits NET CASH INFLOW / (OUTFLOW) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from issues of shares Transaction costs paid in relation to issue of shares Payment of pre-acquisition financing Loan from related parties Loan repaid to related parties NET CASH (OUTFLOW) / INFLOW FROM FINANCING ACTIVITIES Net (decrease) / increase in cash and cash equivalents FX movement in cash Cash and cash equivalents at the beginning of the year CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 30 5 37 21 21 29 10 10 6,445,063 (12,775,358) (6,330,295) - (2,697,565) (2,697,565) 50,700 7,217 (30,645,996) (31,919,735) 755,719 (204,530) (4,648,685) (55,164) (17,180) - - - - - (34,765,136) (31,912,518) 71,806,005 (1,943,679) (518,134) - - 69,344,192 28,248,761 (406,526) 18,011,900 57,500,000 (655,348) - 4,277,331 (8,500,000) 52,621,983 18,011,900 - - 45,854,135 18,011,900 The notes following the financial statements form part of the financial report 38 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. Summary of significant accounting policies Application of new and revised accounting standards Critical accounting estimates and judgements Segment information Revenue Other gains and losses Interest on loans Foreign exchange gains Income tax expense Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets Deferred tax assets Trade and other payables Interest-bearing loans and borrowings Provisions Deferred revenue Deferred tax liabilities Contributed equity Reserves Accumulated losses Dividends Key management personnel disclosures Remuneration of auditors Operating lease arrangements Commitments and contingencies Related party transactions Reconciliation of loss after income tax to net cash flow from operating activities Non-cash transactions Financial risk management Earnings per share Subsidiaries and transactions with non-controlling interests Events occurring after the reporting period Parent entity financial information Controlled entities acquired or disposed 39 Superloop Limited and controlled entities Notes to the Consolidated Financial Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (C) PRINCIPLE OF CONSOLIDATION (i) Subsidiaries The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Superloop Limited and its subsidiaries. Superloop is a public company limited by shares, incorporated and domiciled in Australia. (A) REPORTING PERIOD AND COMPARATIVE INFORMATION Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the group. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence These financial statement cover the year 1 July 2015 to 30 June of an impairment of the transferred asset. Accounting policies 2016. As this is the second set of financial statements prepared by of subsidiaries have been changed where necessary to ensure the Company, the prior period covers 28 April 2014 to 30 June 2015. consistency with the policies adopted by the group. (ii) Business Combinations under Common Control. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that the control is not transitory. Please refer to note 34 for further information in relation to the common control transactions. Where an entity within the Superloop group acquires an entity under common control, the acquirer consolidates the carrying values of the acquired entity’s assets and liabilities from the date of acquisition. No fair value adjustments are made to the acquired entities assets and liabilities at the date of acquisition. The consolidated financial statements of the Superloop group include the acquired entity’s income and expenses from the date of acquisition onwards. Any difference between the fair value of the consideration paid / transferred by the acquirer and the net assets / (liabilities) of the acquired entity are taken to the common control reserve within other equity. (D) SEGMENT REPORTING Operating segments are reported in a manner consistent with the operations of the Company and the internal reporting provided to the chief operating decision maker. (B) BASIS OF PREPARATION These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Superloop Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Superloop Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the Group Superloop has adopted all of the new, revised or amending Accounting Standards and interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. None of the new, revised or amended standards had a material impact on in the current period or any prior period and are not likely to affect future periods. (iii) Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting year beginning 1 July 2015. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention. (v) Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. 40 Superloop Annual Report 2016 Notes to the Consolidated Financial Report (E) REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: (i) Customer Revenue Revenue on services is recognised when the service has been provided, the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group. Upfront discounts provided to customers are amortised over the life of the customer contract. Installation fees charged where there is no direct expenditure for the establishment of services are brought to account as revenue over the effective life of the customer contracts. Installation fees charged as a recovery of direct operational expenditure are brought to account as revenue at the time of the transaction. (ii) Other Revenue Interest income is recognised using the effective interest method. (F) CASH AND CASH EQUIVALENTS For the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts, if applicable, are shown within borrowings in current liabilities in the consolidated statement of financial position. (G) TRADE RECEIVABLES Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short- term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the Consolidated Statement of Comprehensive Income within operating expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. (H) CONSUMPTION TAXES Revenues, expenses and assets are recognised net of the amount of associated consumption tax per jurisdiction, unless the consumption based tax incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of consumption based tax receivable or payable. The net amount of the consumption based tax recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of financial position. Cash flows are presented on a gross basis. The consumption based tax components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (I) Income tax The income tax expense or revenue for the year is the tax payable on the current year's taxable income based on the applicable income tax rate in each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting year in each jurisdiction. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting year and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same 41 Superloop Limited and controlled entities Notes to the Consolidated Financial Report taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting year in which they are incurred. Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the lease term (if shorter) as follows: Category Network assets Fibre optic cable Useful life 25-40 years 15-25 years Network communications equipment 3-5 years Computer equipment Office furniture and equipment Leasehold improvements 3-5 years 3-10 years 3-10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Consolidated Statement of Comprehensive Income. (L) ASSETS IN THE COURSE OF CONSTRUCTION Assets in the course of construction are shown at historical cost. Historical cost includes directly attributable expenditure on dark fibre infrastructure which at reporting date, has not yet been finalised and/or ready for use. Assets in the course of construction are not depreciated. Assets in the course of construction are transferred to property, plant and equipment upon successful testing and commissioning. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (J) INVESTMENTS AND OTHER FINANCIAL ASSET Loans and receivables classification Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting period which are classified as non current assets. Loans and receivables are included in trade and other receivables (note 11) in the consolidated statement of financial position. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Impairment The Group assesses at the end of each reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Assets carried at amortised cost For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the Consolidate Statement of Comprehensive Income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the Consolidated Statement of Comprehensive Income. Impairment testing of trade receivables is described in note 1(G). (K) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 42 Superloop Annual Report 2016 Notes to the Consolidated Financial Report (M) INTANGIBLE ASSETS The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation year 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 by changing the amortisation year or method, as appropriate, which is a change in accounting estimate. Intangible assets with indefinite useful lives are tested for impairment annually, either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed each reporting year to determine whether the indefinite useful life assessment continues to be supportable. If not, the change in useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Indefeasible Rights to Use (‘IRUs’) IRUs of capacity are intangible assets amortised on a straight-line basis over the remaining life of the contracts. Goodwill Goodwill acquired in a business combination is initially measured at cost of the business combination being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and liabilities assumed. Goodwill has an indefinite useful life and as such, is not amortised. The carrying value is assessed at each reporting date against the value of the cash generating units to which it is assigned. Software On the acquisition of a company, internally developed software and systems are valued and brought to account as intangible assets. The software is valued at its amortised replacement cost. Software is amortised on a straight-line basis over the period of its expected benefit, being its finite life of between 3 to 5 years. Other intangibles Other intangibles are amortised on a straight-line basis over the period of their expected benefit. (N) LEASES Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term borrowings. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. (O) IMPAREMENT OF ASSETS Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (P) TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (Q) BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. (R) EMPLOYEE BENEFITS (i) Short-term obligations Liabilities for wages and salaries, including non monetary benefits and annual leave expected to be settled within 12 months after the end of each reporting period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in payables. 43 Superloop Limited and controlled entities Notes to the Consolidated Financial Report (ii) Other long term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the reporting year in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting year using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting year on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Retirement benefit obligations Except for the statutory superannuation guarantee charge, the Group does not have any other retirement benefit obligations. (V) EARNINGS PER SHARE (i) Basic earnings per share Basic earnings per share is calculated by dividing: • the profits/loss attributable to owners of the Group, excluding any costs of servicing equity other than ordinary shares • by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period (note 33). (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and • the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (iv) Share-based Payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. This fair value is expensed on a straight-line basis over the vesting period with a corresponding increase in equity. (W) ROUNDING OF AMOUNTS The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest dollar. (S) BORROWING COSTS Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. (T) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. (U) FOREIGN EXCHANGE The financial statements are presented in Australian dollars, which is the Group’s presentation currency. Foreign Currency Transactions Foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the date of the transactions. Foreign Operations The assets and liabilities of foreign operations are translated into the presentation currency (Australian dollars) using the exchange rates as at the reporting date. The revenues and expenses of the foreign operations are translated into the presentation currency using the average exchange rates, which approximate the rate at the date of the transaction. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. (X) HEDGING Hedging of risk exposure can be carried out using derivatives or physical instruments. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. (Y) HEDGE ACCOUNTING Superloop designates certain hedging instruments as either fair value hedges or cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. (i) Cash flow hedge The effective portion of changes in the fair value of financial instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. 44 Superloop Annual Report 2016 Notes to the Consolidated Financial Report (ii) Fair value hedge Changes in the fair value of financial instruments that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item. (Z) PARENT ENTITY FINANCIAL INFORMATION The financial information for the parent entity, Superloop Limited, disclosed in note 36 has been prepared on the same basis as the consolidated financial statements. 2. APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these STEP 4: Allocate the transaction price to the performance obligations in the contract STEP 5: Recognise revenue when (or as) the entity satisfies a performance obligation Under AASB 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. The assessment of the impact on the Company is still ongoing. AASB 16 Leases AASB 16 will replace AASB117 Leases, and provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. The new Standard introduces three main changes: • • • Enhanced guidance on identifying whether a contract contains a lease; A completely new leases accounting model for lessees that require lessees to recognise all leases on balance sheet, except for short-term leases and leases of low value assets; and Enhanced disclosures. new standards and interpretations is set out below. Lessor accounting will not significantly change. The assessment of the impact on the Company is still ongoing. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. AASB 9 Financial Instruments AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard was issued in December 2009 and introduced new requirements for the classification and measurement of financial assets. AASB 9 was subsequently amended in December 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in December 2013 to include new requirements for general hedge accounting. Another revised version of AASB 9 was issued in December 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income (FVTOCI) measurement category for certain simple debt instruments. The assessment of the impact on the Company is still ongoing. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: STEP 1: Identify the contract(s) with a customer STEP 2: Identify the performance obligations in the contract STEP 3: Determine the transaction price 45 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Deferred taxation Deferred tax assets are recognised where it is considered probable that they will be recovered in the future and, as such, are subjective. Superloop has not recognised any deferred tax assets in the statement of financial position as at 30 June 2016. A significant portion of the deferred tax assets relates to tax credits for tax losses (refer to note 15). Impairment of assets analysis The Group assesses whether its assets have suffered any impairment on an annual basis. This assessment includes forecasting growth in the various regions, and the use of cash flow projections. The cash flows include estimated growth rates and estimated discount rates. Management’s assessment is based on a reasonable estimate of growth plans as there is no significant historical trend to assess. The impairment assessment is directly related to the effectiveness of the strategy in each market. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Useful life of assets The economic life of property, plant and equipment, which includes network infrastructure is a critical accounting estimate, with the ranges outlined in note 1(K). The useful economic life is the Board’s and management’s best estimate based on historical experiences and industry knowledge. The Group will review the estimated useful lives of property, plant and equipment including network infrastructure at the end of each annual reporting period. Should the actual lives of these component parts be significantly different this would impact the depreciation charge arising. Intangible assets The Group has allocated portions of the costs of acquisitions to customer contracts, software and brand assets. These calculations require the use of assumptions including customer retention rates, revenue growth, cash flows and weighted-average cost of capital. The Company engaged a specialist firm to assist in the development of the methodology and assumptions used in determining these estimates. Goodwill and other indefinite life intangible assets Whether goodwill and other indefinite life intangible assets have suffered any impairment are tested annually, or more frequently if circumstances indicate impairment, in accordance with accounting policy. The recoverable amounts of cash-generating units have been determined based on a value in use calculation. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of estimated future cash flows. Income taxes The Group is subject to income taxes in each jurisdiction that it operates. Estimation is required in determining the provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such determination is made. 46 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 4. SEGMENT INFORMATION (A) Description of segments Superloop is focused on becoming a leading independent provider of connectivity services in the Asia Pacific region. During the period, the principal activities of the Group consisted of the development and operation of independent dark fibre infrastructure throughout the Asia Pacific region, and the Group’s recent acquisitions expanded its principle activities to include complete network services. Superloop operates in three strategic markets of Australia, Singapore and Hong Kong and the operations of the Group are reported in these segments to Superloop’s executive management team (chief operating decision maker). Items not specifically related to an individual segment are classified as Corporate, refer below for details of material items. The accounting policies of the segments are the same as the Group (refer to note 1). (B) Segment information provided to management The segment information provided to management for the reportable segments is as follows: Australia $ Singapore $ Hong Kong $ Total Segments $ Corporate $ 30 JUNE 2016 Revenue 5,463,378 738,006 Other gains and losses - 745,617 - - Direct network costs (3,950,895) (927,328) (185,583) (5,063,806) 6,201,384 47,369 745,617 - - Total $ 6,248,753 745,617 (5,063,806) PROFIT AFTER DIRECT NETWORK COSTS 1,512,483 556,295 (185,583) 1,883,195 47,369 1,930,564 Employee benefits expense (1,951,090) (685,307) (251,868) (2,888,265) (1,279,876) Other expenses Bad debt expense (890,118) (247,941) (285,232) (1,423,291) (1,955,149) (20,990) - - (20,990) - (4,168,141) (3,378,440) (20,990) EBITDA (1,349,715) (376,953) (722,683) (2,449,351) (3,187,656) (5,637,007) Depreciation and amorti- sation Foreign exchange gains / (losses) LOSS BEFORE INCOME TAX (526,770) (1,097,455) - (1,624,225) (257,744) (1,881,969) (7,844) (239,527) 11,316 (236,055) 590,921 354,866 (1,884,329) (1,713,935) (711,367) (4,309,631) (2,854,479) (7,164,110) Significant items excluded from segments, and classified as corporate are: • • Employee benefits expenses which relate to corporate head office staff. Other expenses which relate to office expenses and travel associated with corporate head office activities. Australia $ Singapore $ Hong Kong $ Total Segments $ Corporate $ Total $ 30 JUNE 2016 SEGMENT ASSETS Cash and cash equivalents 940,244 5,206,150 16,212,721 22,359,115 23,495,020 45,854,135 Other current assets 934,985 740,655 37,217 1,712,857 155,983 1,868,840 Property, plant & equipment 3,095,414 40,167,113 23,588,210 66,850,737 - 66,850,737 Intangible assets 11,762,570 576,818 Other non-current assets 7,180 - - - 12,339,388 23,821 12,363,209 7,180 10,000 17,180 TOTAL ASSETS 16,740,393 46,690,736 39,838,148 103,269,277 23,684,824 126,954,101 Significant items excluded from segments, and classified as corporate are: • • Cash and cash equivalents held by the parent entity, which are available for use by the segments as required. Current assets which include prepayments and other receivables associated with corporate head office activities. 47 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Australia $ Singapore $ Hong Kong $ Total Segments $ Corporate $ Total $ 30 JUNE 2015 Revenue - - Direct network costs (75,900) (214,148) PROFIT AFTER DIRECT NET- WORK COSTS (75,900) (214,148) - - - - 7,217 7,217 (290,048) - (290,048) (290,048) 7,217 (282,831) Employee benefits expense (296,426) (204,397) (221,485) (722,308) (413,082) (1,135,390) Other expenses Bad debt expense (364,192) (454,821) (8,348) (827,361) (1,301,906) (2,129,267) - - - - - - EBITDA (736,518) (873,366) (229,833) (1,839,717) (1,707,771) (3,457,488) Depreciation and amortisation (78,976) (510,801) - (589,777) Finance charge (13,821) (459,800) (2,251) (475,872) - (2) (589,777) (475,874) Foreign exchange gains / (losses) (718) 87,778 25,698 112,758 3,306,939 3,419,697 LOSS BEFORE INCOME TAX (830,033) (1,756,189) (206,386) (2,792,608) 1,599,166 (1,193,442) Significant items excluded from segments, and classified as corporate are: • • Employee benefits expenses which relate to corporate head office staff. Other expenses which relate to office expenses and travel associated with corporate head office activities. Australia $ Singapore $ Hong Kong $ Total Segments $ Corporate $ Total $ 30 JUNE 2015 SEGMENT ASSETS Cash and cash equivalents 411,583 8,076,434 - 8,488,017 9,523,883 18,011,900 Other current assets 73,731 354,566 22,348 450,645 100,423 551,068 Property, plant & equipment 621,286 32,947,308 7,802 33,576,396 Intangible assets TOTAL ASSETS 4,300,000 - - 4,300,000 5,406,600 41,378,308 30,150 46,815,058 9,624,306 56,439,364 - - 33,576,396 4,300,000 Significant items excluded from segments, and classified as corporate are: • • Cash and cash equivalents held by the parent entity, which are available for use by the segments as required. Current assets which include prepayments and other receivables associated with corporate head office activities. 48 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 5. REVENUE From continuing operations Customer revenue Other revenue Interest income Other income TOTAL REVENUE 30 June 2016 $ 30 June 2015 $ 6,197,637 - 50,700 416 6,248,753 7,217 - 7,217 6. OTHER GAINS FROM TRANSACTIONS WITH CUSTOMERS Gain on disposal of property, plant and equipment TOTAL OTHER GAINS FROM TRANSACTIONS WITH CUSTOMERS Note (A) 30 June 2016 $ 30 June 2015 $ 745,617 745,617 - - (A) During the year the Group sold a small number of fibre cores between two points of interconnection to a customer. The transaction has been accounted for as a disposal of an asset, and the revenue has been recognised as a gain on disposal of property, plant and equipment. In addition to the sale, the Group has entered into an operation and maintenance agreement with the customer. The fee payable under the operation and maintenance agreement is payable monthly and will be recognised on a monthly basis as the operations and maintenance services are provided. 7. INTEREST ON LOANS Interest on loans TOTAL INTEREST ON LOANS (A) INTEREST ON LOANS Note (A) 30 June 2016 $ 30 June 2015 $ - - (475,874) (475,874) The Company’s initial operations, including the acquisition of the Singapore duct network, were funded by loans from the Founding Shareholder. Interest on those loans was charged at the Reserve Bank of Australia cash rate (from time to time) plus 1%. Refer to Note 29 for related party transactions. 49 Superloop Limited and controlled entities Notes to the Consolidated Financial Report 8. FOREIGN EXCHANGE GAINS Foreign exchange gains TOTAL FOREIGN EXCHANGE GAINS (A) FOREIGN EXCHANGE GAINS Note (A) 30 June 2016 $ 30 June 2015 $ 354,866 354,866 3,419,697 3,419,697 Foreign exchange gains for the current year arose as a result of favourable exchange rate movements in the ordinary course of business. During the previous year the Group realised foreign exchange gains. This included a significant one-off gain associated with the acquisition of the duct network in Singapore, which was initially funded via a loan from the Company’s Founding Shareholder. The gain arose due to the time between the Group borrowing the funds and the settlement of the acquisition. 9. INCOME TAX EXPENSE (a) Current tax In respect of the current year in respect of prior years TOTAL Deferred income tax revenue included in income tax credit comprises: - Decrease / (increase) in deferred tax assets (Note 15) - (Decrease) / increase in deferred tax liabilities (Note 20) TOTAL 30 June 2016 $ 30 June 2015 $ - - - - - - - - - - - - (b) Numerical reconciliation of income tax credit to prima facie tax payable Loss from continuing operations before income tax expense (7,164,110) (1,193,442) Tax credit at the Australian tax rate of 30% Effect of income that is exempt from taxation @ 30% Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of current year tax losses for which no deferred tax asset has been recognised Effect of current year timing differences for which no deferred tax asset has been recognised INCOME TAX EXPENSE / (BENEFIT) (c) Deferred Tax Assets from Tax losses Deferred tax assets from current tax losses which have not been recognised Deferred tax assets from prior tax losses which have not been recognised Change in prior year loss estimate TOTAL DEFERRED TAX ASSETS FROM LOSSES NOT RECOGNISED 2,149,233 223,685 (389,234) (1,860,502) (123,182) - 1,860,502 915,934 (69,123) 2,707,313 358,033 991,633 (324,746) (827,768) (197,152) - 827,768 88,166 - 915,934 The tax rate used for the 2016 and 2015 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 50 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 10. CASH AND CASH EQUIVALENTS Cash at bank and in hand Note 30 June 2016 30 June 2015 $ $ 44,819,436 17,046,020 Deposits with a term of 3 months or shorter (A) 1,034,699 965,880 TOTAL CASH AND CASH EQUIVALENTS 45,854,135 18,011,900 (A) DEPOSITS WITH A TERM OF 3 MONTHS OR SHORTER At 30 June 2016, the Group held $1,034,699 of deposits which had a term of 3 months or shorter (30 June 2015: $965,880). The Group has pledged SGD1m (held as a term deposit) as security for a bank guarantee facility (refer note 17) 11. TRADE AND OTHER RECEIVABLES Trade receivables Provision for impairment Net trade receivables Consumption tax receivable Receivables– related parties TOTAL Note Current Non- Current (A) (B) (C) 1,263,033 (20,990) 1,242,043 155,071 176 1,397,290 Note Current Non- Current Trade receivables Provision for impairment Net trade receivables - - - Consumption tax receivable (C) 190,483 Other receivables Receivables– related parties TOTAL 355 29 190,867 - - - - - - - - - - - - - 30 June 2016 $ TOTAL 1,263,033 (20,990) 1,242,043 155,071 176 1,397,390 30 June 2015 $ TOTAL - - - 190,483 355 29 190,867 51 Superloop Limited and controlled entities Notes to the Consolidated Financial Report (A) PAST DUE BUT NOT IMPAIRED Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period for which the Group has not recognised an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable. Age of Trade Receivables that are past due but not impaired 60-90 days 90 days plus TOTAL DAYS DUE BUT NOT IMPAIRED 30 June 2016 30 June 2015 $ 61,661 20,661 82,322 $ - - - (B) IMPAIRED TRADE RECEIVABLES As at 30 June 2016, the Group had one impaired receivable in Australia, for which it has raised a provision of $20,990 through the consolidatied statement of comprehensive income representing the full outstanding amount. Age of Impaired Trade Receivables 0-60 days 60-90 days 90 days plus TOTAL DAYS DUE AND IMPAIRED Movement in Provision for Impairment Balance at beginning of the year Impairment losses recognised on receivables BALANCE AT THE END OF THE YEAR 30 June 2016 30 June 2015 $ $ 6,600 6,600 7,790 20,990 30 June 2016 30 June 2015 $ $ - 20,990 20,990 - - - - - - - (C) CONSUMPTION TAX RECEIVABLE These amounts generally arise from consumption tax paid by the Group in the respective tax jurisdictions in which the Group operates and where a consumption tax exists. Ordinarily these amounts are offset against the consumption tax collected by the Group as part of its sales and the net amount remitted to the local tax authorities, however where the amount of consumption tax paid by the Group per jurisdiction is greater than the amount collected from sales to customers in that jurisdiction, a receivable is raised. 12. OTHER ASSETS CURRENT Prepayments TOTAL OTHER ASSETS – CURRENT NON-CURRENT Other non-current assets TOTAL OTHER ASSETS – NON-CURRENT 52 30 June 2016 30 June 2015 $ $ 471,550 471,550 17,180 17,180 360,201 360,201 - - Superloop Annual Report 2016 Notes to the Consolidated Financial Report 13. PROPERTY, PLANT AND EQUIPMENT Carrying amounts of: Assets in the course of construction Network assets Fibre Optic Cable Computer equipment Office furniture and equipment Leasehold improvements TOTAL 30 June 2016 30 June 2015 $ $ 27,047,827 5,654,845 36,498,075 27,910,760 3,102,595 42,679 148,760 10,801 - 10,791 - - 66,850,737 33,576,396 Assets in the course of construction Network assets Fibre optic cable Computer equipment Office furniture and equipment Leasehold improve -ments Total $ $ $ $ $ $ $ Cost or Valuation OPENING BALANCE AS AT 28 APRIL 2014 Additions Transfers - - 5,856,150 28,222,788 (201,305) 201,305 BALANCE AT 30 JUNE 2015 5,654,845 28,424,093 Additions 33,201,161 31,184 Additions through business combinations (note 37) - 226,820 Movement in foreign exchange 181,037 964,988 - - - - - - - - (7,245) (5,524) Disposals Transfers - 14,499 - 14,499 13,186 - 497 - - - - - 6,396 - - - - - - 34,093,437 - - - 34,093,437 - 33,251,927 - - - 226,820 1,146,522 (12,769) (11,989,216) 8,524,364 3,190,838 32,373 230,840 10,801 - BALANCE AT 30 JUNE 2016 27,047,827 38,164,204 3,185,314 60,555 237,236 10,801 68,705,937 53 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Assets in the course of construction $ Network assets $ Fibre optic cable $ Computer equipment $ Office furniture and equipment $ Leasehold improvements $ Total $ Accumulated depreciation OPENING BALANCE AS AT 28 APRIL 2014 Depreciation charge (YTD) Movement in foreign exchange BALANCE AT 30 JUNE 2015 Depreciation charge (YTD) Disposals Movement in foreign exchange BALANCE AT 30 JUNE 2016 - - - - - - - - - (511,167) (2,166) (513,333) - - - - - (3,610) (98) (3,708) - - - - (1,126,635) (82,030) (13,962) (88,454) 81 (26,242) 74 (763) - (206) - (22) (1,666,129) (82,719) (17,876) (88,476) - - - - - - - - - (514,777) (2,264) (517,041) (1,311,081) 155 (27,233) (1,855,200) CARRYING VALUE 2016 27,047,827 36,498,075 3,102,595 CARRYING VALUE 2015 5,653,845 27,910,760 - 42,679 10,791 148,760 10,801 66,850,737 - - 33,576,396 Assets in the course of construction: Superloop has entered into an agreement with a leading corporation to establish a fibre optic telecommunications network in Hong Kong. The fibre optic telecommunications network will have a 14-month construction timeline and will comprise an initial network of approximately 110 kilometers across Hong Kong’s key data center campuses and enterprise buildings, when completed. Superloop will hold a 25 year indefeasible right of use over the infrastructure, with two (2) further five (5) year options to extend the length of the agreement. As at the date of this report, Superloop had made the first installment payments due under the agreement of $22.8m. These initial payments have been recognised as an asset in the course of construction within the Statement of Financial Position. The remaining payments of $21m are linked to performance milestones associated with the construction timeline and are included in Note 28 of this report. 14. INTANGIBLE ASSETS Carrying amounts of: Development costs Rights and licences Software Customer relationships, brands and trademarks Goodwill TOTAL 54 30 June 2016 30 June 2015 $ 23,820 4,185,744 1,576,957 551,246 6,025,442 $ - 4,300,000 - - - 12,363,209 4,300,000 Superloop Annual Report 2016 Notes to the Consolidated Financial Report Movements Development costs Rights and licences Software Customer, brand and trademarks Goodwill Total Cost or valuation OPENING BALANCE AS AT 28 APRIL 2014 Additions – externally acquired BALANCE AS AT 30 JUNE 2015 Additions through business combinations (refer note 36) $ - - - - $ - 4,375,000 4,375,000 $ $ $ - - - - - - $ - 4,375,000 4,375,000 - - - - 1,720,487 581,000 6,025,442 8,326,929 Other additions 23,820 185,784 91,289 Movements in foreign exchange - 6,365 - - - - - 300,893 6,365 BALANCE AS AT JUNE 2016 23,820 4,567,149 1,811,766 581,000 6,025,442 13,009,187 Accumulated amortisation OPENING BALANCE AS AT 28 APRIL 2014 Accumulated amortisation BALANCE AS AT 30 JUNE 2015 Accumulated amortisation Movements in foreign exchange BALANCE AS AT JUNE 2016 - - - - - - - (75,000) (75,000) - - - - - - (306,315) (234,819) (29,754) (90) - - (381,405) (234,819) (29,754) - - - - - - - (75,000) (75,000) (570,888) (90) (645,978) CARRYING VALUE 2016 23,820 4,185,744 1,576,957 551,246 6,025,442 12,363,209 CARRYING VALUE 2015 - 4,300,000 - - - 4,300,000 Goodwill has been allocated for impairment testing purposes to the following cash-generating units: APEXN Pty Ltd CINENET Systems Pty Ltd TOTAL INTANGIBLE ASSETS - GOODWILL 30 June 2016 30 June 2015 $ 3,197,845 2,827,597 6,025,442 $ - - - An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount for the cash-generating units is determined based on a value in use calculation which is based on the present value of future forecast cash earnings, as measured by earnings before interest expense, taxes, depreciation and amortisation (EBITDA). The forecast earnings are based on financial budgets approved by the Board covering a two-year period with the earnings beyond the two-year period being extrapolated using a per annum growth rate. A pre-tax discount rate of 12.5% has been assumed, representing the long term average and includes a risk-premium given the early nature of the Group’s business venture. For both cash-generating units, impairment testing has indicated that the carrying amount will not exceed the recoverable amount, therefore no impairment loss on goodwill has been identified. 55 Superloop Limited and controlled entities Notes to the Consolidated Financial Report 15. DEFERRED TAX ASSETS DEFERRED TAX ASSETS ATTRIBUTABLE TO: Employee benefits Expenses deductible in future years Tax credits from tax losses TOTAL DEFERRED TAX ASSETS Set-off of deferred tax liabilities pursuant to set-off provisions (Note 20) 30 June 2016 30 June 2015 $ $ 100,265 71,245 2,707,313 2,878,823 (48,329) 14,778 226,701 915,934 1,157,413 (44,328) Deferred tax assets not recognised (2,830,494) (1,113,085) DEFERRED TAX ASSETS NOT RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION - - 16. TRADE AND OTHER PAYABLES Trade payables Other payables Accrued expenses TOTAL TRADE AND OTHER PAYABLES 17. INTEREST-BEARING LOANS AND BORROWINGS The Company had no debt outstanding as at 30 June 2016. 30 June 2016 30 June 2015 $ 2,803,428 94,745 3,680,920 6,579,093 $ 903,041 16,859 1,665,777 2,585,677 The Company had a Bank Guarantee Facility at 30 June 2016 of $900,000, with $295,606 drawn as security against the Group’s lease commitments for its corporate office located at 333 Ann Street, Brisbane. In the prior year the Company had a Bank Guarantee drawn as a performance bond of SGD260,000 as security against the Company’s FBO licence obligation in Singapore to install at least 80kms of fibre optic cable by 30 June 2015. The Company met this obligation and the Bank Guarantee was released. Bank guarantee facility- available Bank guarantee facility- utilised 18. PROVISIONS Current - employee benefits Non-current - employee benefits TOTAL PROVISIONS 30 June 2016 30 June 2015 $ 604,394 295,606 $ 624,951 275,049 30 June 2016 30 June 2015 $ 342,124 69,303 411,427 $ 83,777 - 83,777 The provision for employee benefits represents annual leave and long service leave entitlements accrued. 56 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 19. DEFERRED REVENUE Deferred IRU revenue Deferred installation fees TOTAL DEFERRED REVENUE Current Non-current TOTAL DEFERRED REVENUE 20. DEFERRED TAX LIABILITIES Deferred tax liabilities attributable to: Prepayments Amortisation of intangible assets TOTAL DEFERRED TAX LIABILITIES Set-off of deferred tax liabilities pursuant to set-off provisions (Note 15) DEFERRED TAX LIABILITIES RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION 21. CONTRIBUTED EQUITY (A) SHARE CAPITAL 30 June 2016 30 June 2015 $ 195,432 31,340 226,772 204,314 22,458 226,772 $ - - - - - - 30 June 2016 30 June 2015 $ $ 3,803 44,526 48,329 (48,329) - 44,328 - 44,328 (44,328) - Note 30 June 2016 Number of Shares 30 June 2015 Number of Shares 30 June 2016 $ 30 June 2015 $ Fully paid ordinary shares (C) 128,243,301 90,000,000 134,106,147 58,800,142 TOTAL SHARE CAPITAL Less: issue costs CONTRIBUTED EQUITY 128,243,301 90,000,000 134,106,147 (2,919,783) 58,800,142 (655,348) 128,243,301 90,000,000 131,186,364 58,144,794 57 Superloop Limited and controlled entities Notes to the Consolidated Financial Report (B) Movements in ordinary share capital Date Details 28-Apr-14 Opening Balance 15-Sep-14 New share issue 27-MAR-15 SHARE SPLIT 27-Mar-15 Director loan conversion 27-Mar-15 Purchase of Superloop (Australia) Pty Ltd 02-Apr-15 Private placement 26-May-15 Initial public offering 30-JUN-15 BALANCE 16-Oct-15 Partial consideration for acquisition of APEXN Pty Ltd (i) 30-Nov-15 Partial consideration for acquisition of CINENET Systems Pty Ltd (i) 11-Dec-15 Share placement 30-Dec-15 Share purchase plan 29-Jun-16 Entitlement offer (institutional component) (ii) Number of Shares Issue Price $ 1 141 20,875,000 37,500,000 1,625,000 12,500,000 17,500,000 90,000,000 897,666 677,812 22,045,000 3,937,118 10,685,705 1.00 1.00 0.00 0.80 0.80 0.80 1.00 2.23 2.21 1.90 1.90 2.10 Value $ 1 141 142 30,000,000 1,300,000 10,000,000 17,500,000 58,800,142 2,000,000 1,500,000 41,885,500 7,480,524 22,439,981 30-JUN-16 BALANCE 128,243,301 134,106,147 (i) These share issues were non-cash transactions (refer to Note 31). (ii) The retail component of the Entitlement Offer was completed on 15 July 2016 with 6,109,637 shares issued on 21 July 2016 at $2.10 per share. (C) ORDINARY SHARES Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Group does not have a limited amount of authorised capital. (D) DIVIDEND REINVESTMENT PLAN The Group does not have a dividend reinvestment plan in place. (E) CAPITAL MANAGEMENT The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that is can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In future, the Directors may pursue other funding options such as debt, sale and leaseback of assets, additional equity and various other funding mechanisms as appropriate in order to undertake its projects and deliver optimum shareholders’ return. The Group intends to maintain a gear ratio appropriate for a company of its size and position of development. Total borrowings (as per note 17) Less: cash and cash equivalents NET DEBT / (SURPLUS CASH) TOTAL EQUITY GEARING RATIO 58 30 June 2016 30 June 2015 $ - $ - 45,854,135 18,011,900 (45,854,135) (18,011,900) 119,736,809 53,769,910 (38.3%) (33.5%) Superloop Annual Report 2016 Notes to the Consolidated Financial Report The Group plans to manage its capital structure by reviewing its gearing ratio to ensure it maintains an appropriate level of gearing within any potential facility covenants. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total interest bearing financial liabilities and derivatives financial instruments, less cash and cash equivalents. Total capital is calculated as equity, as shown in the statement of financial position, plus net debt. 22. RESERVES Opening balance Cash flow hedge reserve (1) Foreign currency translation reserves(2) TOTAL RESERVES 30 June 2016 30 June 2015 $ 145,592 (368,560) 457,999 235,031 $ - - 145,592 145,592 (1) The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising from changes in fair value of hedging instruments entered into as cash flow hedges. The cumulative gain or loss arising from changes in fair value of the hedging instruments that are recognised and accumulated in the cash flow hedge reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included in the carrying value of a fixed asset where the purpose of the hedge was to minimise the exposure on a contractual commitment to acquire or construct a fixed asset. (2) The assets and liabilities of foreign operations are translated into the presentation currency (Australian dollars) using the exchange rates as at the reporting date. The revenues and expenses of the foreign operations are translated into the presentation currency using the average exchange rates, which approximate the rate at the date of the transaction. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve. 23. ACCUMULATED LOSSES Movements Opening balance Loss for the year TOTAL ACCUMULATED LOSSES 30 June 2016 $ (1,193,442) 30 June 2015 $ - (7,164,110) (1,193,442) (8,357,552) (1,193,442) 24. DIVIDENDS No dividends were paid or were declared payable by the Group during the year ended 30 June 2016. 25. KEY MANAGEMENT PERSONNEL DISCLOSURES (A) KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee benefits Post-employment benefits Long-term employee benefits Share-based payments 30 June 2016 $ 30 June 2015 $ 1,913,563 132,830 61,416 - 246,479 22,075 - - TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION 2,107,809 268,554 Detailed remuneration disclosures are provided in the Remuneration Report. 59 Superloop Limited and controlled entities Notes to the Consolidated Financial Report (B) LOANS TO KEY MANAGEMENT PERSONNEL Certain key management personnel were eligible to participate in a loan scheme provided by a related party to enable them to acquire shares as part of the private place capital raising undertaken by the Group. Under the terms and conditions of the loan scheme the full principal and interest due at the end of the term. If the employee resigns or leaves the Group before the end of the original loan term, the loan plus any accrued interest is repayable immediately. The Group does not guarantee or have any obligations with respect to the loan agreement between the employee and the related party. Details of the loan terms and conditions are provided in the Remuneration Report. (C) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL There were no other transactions with key management personnel during the period not otherwise disclosed in the report. 26. REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: (A) DELOITTE TOUCHE TOHMATSU Parent Entity Auditor (i) Audit, review of financial statements (ii) Audit, review of subsidiary statutory reports Network Firm of the Parent Entity Auditor (iii) Audit, review of subsidiary statutory reports TOTAL REMUNERATION OF DELOITTE 30 June 2016 30 June 2015 $ $ 107,670 14,500 24,432 146,602 47,250 - - 47,250 The Group may decide to employ the auditor (Deloitte) on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out above. The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. (B) RELATED PRACTICES OF DELOITTE TOUCHE TOHMATSU The following fees were paid for services provided by Deloitte Corporate Finance Pty Ltd, a related practice of Deloitte Touche. 30 June 2016 30 June 2015 $ - - $ 47,820 47,820 Investigating accountant for the listing of Superloop on the ASX TOTAL REMUNERATION OF DELOITTE TOHMATSU RELATED PRACTICES (C) NON-DELOITTE AUDIT FIRMS Superloop Limited did not engage with any other non-Deloitte audit firms. 60 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 27. OPERATING LEASE ARRANGEMENTS Operating leases relate to the leasing of office premises and network communication equipment, which were existing leases acquired through the acquisition of APEXN Pty Ltd. The Group has entered lease terms for office space of up to four years in length. During the year the Group entered into a lease arrangement for office space in Singapore. Recently the Group entered into new arrangements for office space in Brisbane, Melbourne and Hong Kong that commence in the 2017 financial year. The office space in Singapore and Brisbane are longer term leases which both include options to renew the leases for further terms, and the Brisbane lease includes an annual fixed percentage increase in the lease payments. The Melbourne and Hong Kong leases are less than 12 months in initial duration and have been entered into to accommodate staff on a short-term basis as the business develops. For the year ended 30 June 2016, the Group made operating lease payments for its office premises in Singapore and the network communication equipment. Payments recognised as an expense under operating leases are as follows: Minimum lease payments TOTAL OPERATING LEASE ARRANGEMENTS Non-cancellable operating lease rentals are payable as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS 28. COMMITMENTS AND CONTINGENCIES (A) CAPITAL COMMITMENTS 30 June 2016 30 June 2015 $ 137,817 137,817 $ - - 30 June 2016 30 June 2015 $ 574,050 1,199,262 - 1,773,312 $ - - - - Capital expenditure contracted for at the end of each reporting year but not recognised as liabilities is as follows: Property, plant and equipment TOTAL CAPITAL COMMITMENTS 30 June 2016 30 June 2015 $ $ 24,953,584 2,123,575 24,953,584 2,123,575 Capital commitments disclosed above relate to contracted capital commitments associated with network expansion including a total of $21.4m to complete payment for the Hong Kong network, $3m committed to the Singapore network and $0.5m across other networks. Non-cancellable operating lease commitments are disclosed in note 27 to the financial statements. (B) CONTINGENT ASSETS The Group did not have any contingent assets during the year or as at the date of this report. (C) CONTINGENT LIABILITIES The Group did not have any contingent liabilities during the year or as at the date of this report. 61 Superloop Limited and controlled entities Notes to the Consolidated Financial Report 29. RELATED PARTY TRANSACTIONS The following is a summary of the transactions with related parties and/or companies under the control of the founding shareholder. Shared services agreement The Group has entered into a shared services agreement with Capital B Pty Ltd ACN 162 622 282 (Capital B), a company controlled by the Founder. Under the agreement, Capital B provides certain services to the Group (e.g. administrative and information technology services) and a right to use Capital B’s premises at 14-16 Church Street, Fortitude Valley, Queensland. The services are charged on the basis of the actual cost to Capital B, allocated on the time Capital B employees spend providing services to the Group. The right to use the premises is based on a proportion of the lease expenses (between Bevan Slattery as trustee for the Church Street Trust and Capital B), associated with the Group’s use of the premises. The head lease is on arm’s length terms. The obligations on Capital B under the agreement are typical for a services agreement, and require that Capital B provide the services with due care, skill and judgment, comply with the law in providing the services and effect appropriate insurance. Capital B may seek reimbursement for certain expenses incurred in connection with the provision of services under the agreement. Either party may terminate the agreement for convenience on 60 days’ written notice. Prior to the end of the financial year, the Group entered into a revision of the agreement with Capital B which provides for, in addition to certain services provided by Capital B to the Group, certain administrative services to be also provided by Superloop to Capital B as well as the right for Capital B to occupy a portion of the Group’s premises at Level 17, 333 Ann Street, Brisbane. The services, and the right to occupy the premises, are provided on arm’s length terms. Customer agreement with Megaport Superloop, via its operating subsidiaries, has entered into customer agreements for the provision of connectivity services with Megaport Limited ACN 607 301 969 and its operating subsidiaries (Megaport). The Founder and significant shareholder of Superloop is also the Founder and significant shareholder of Megaport. Under the agreements, the customer (Megaport) issues a service order form to the Superloop operating entity (as applicable) which sets out the nature of and the applicable monthly fees for the connectivity services. The master services agreements are on the same terms as other master services agreements between Superloop and unrelated customers (with some variance to the master services agreement with Megaport SG to reflect Singaporean law) and the fees in each current service order form are at competitive market rates. Common control business combinations Refer to note 34 for information on common control business combinations. Interest to the Founding Shareholder’s Loans The Company’s initial operations in the prior year, including the acquisition of the Singapore duct network, were funded by loans from the Founding Shareholder. In the prior year, the majority of the loans were converted to equity at $0.80 per share, with a portion repaid from the proceeds of a private placement capital raising (refer note 21). Interest on those loans was charged at the Reserve Bank of Australia cash rate (from time to time) plus 1%. Loans to key Management Personnel Certain key management personnel were eligible to participate in a loan scheme provided by a related party to enable them to acquire shares as part of the private placement capital raising undertaken by the Group in the prior year. PROVISION OF SERVICES TO/FROM RELATED PARTIES SALES OF GOODS / SERVICES Revenue earned from related parties PROVISION OF SERVICES TO SUPERLOOP 30 June 2016 30 June 2015 $ 260,143 $ - Payments to related parties for provision of shared services and rent 1,023,689 842,156 Balance outstanding at year end Receivables Trade and other payables 62 260,143 41,171 - 421,099 Superloop Annual Report 2016 Notes to the Consolidated Financial Report LOANS TO/FROM RELATED PARTIES Beginning of the year Interest charged Loans received from related parties Loans acquired as part of the purchase of subsidiaries Foreign exchange (gain) / loss Amounts converted to equity Amounts repaid to related parties END OF THE YEAR 30 June 2016 $ 30 June 2015 $ - - - - - - - - - 475,874 34,232,343 7,085,344 (3,293,561) (30,000,000) (8,500,000) - 30. RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH FLOW FROM OPERATING ACTIVITIES Loss for the year after income tax Adjust for: Interest income Depreciation and amortisation Interest expense Foreign exchange gain / (losses) Proceeds from the sale of property, plant and equipment Transaction costs associated with the acquisition of subsidiaries SUBTOTAL Change in operating assets and liabilities Increase in prepayments and other current assets (Increase) / decrease in consumption tax Decrease in trade creditors Increase in employee entitlements 30 June 2016 $ 30 June 2015 $ (7,164,110) (1,193,442) (50,700) 1,881,969 - (754,899) (755,719) 55,164 (7,217) 589,777 475,874 (3,300,490) - - (6,788,295) (3,435,498) (775,810) 82,250 927,935 223,625 50,424 303,752 316,678 67,079 NET CASH OUTFLOW USED IN OPERATING ACTIVITIES (6,330,295) (2,697,565) 31. NON-CASH TRANSACTIONS Current year, the group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows: Current year: • the Group acquired 100% of APEXN Pty Ltd (APEXnetworks) which included non-cash consideration of $2.0 million in Superloop Limited shares issued at $2.228; and the Group acquired 100% of CINENET Systems Pty Ltd which included non-cash consideration of $1.5 million in Superloop Limited shares issued at $2.213. • Refer to Note 37 for additional information on these transactions. Prior year: • the Group acquired 100% of Superloop (Australia) Pty Ltd which included consideration of $1.3 million in Superloop Limited shares issued at $0.80 (refer to note 34). 63 Superloop Limited and controlled entities Notes to the Consolidated Financial Report 32. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Term deposits Trade and other receivables Other non-current assets TOTAL FINANCIAL ASSETS Financial liabilities Trade and other payables Interest-bearing borrowings TOTAL FINANCIAL LIABILITIES 30 June 2016 $ 30 June 2015 $ 44,819,436 17,046,020 1,034,699 1,370,090 17,180 965,880 190,867 - 47,241,405 18,202,767 6,579,093 2,585,677 - - 6,579,093 2,585,677 (A) MARKET RISK Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign exchange risk, price risk and interest rate risk. (i) Foreign exchange risk Superloop is exposed to exchange rate movements, in particular movements in the A$/US$ rate, A$/S$ and S$/US$. Because a proportion of Superloop’s payments for inventory and construction work are made or are expected to be made in foreign currency, primarily US dollars, movements in exchange rates impact on the amount paid for assets, inventory and construction work. Also, because a proportion of Superloop’s revenues and profits are likely to be earned in Singapore, movements in exchange rates impact on the translation of account balances in Superloop’s Singapore operations. Therefore, movements in exchange rates, particularly the A$/US$ rate, the A$/S$ and the S$/US$ rate, may have an impact on Superloop’s financial position and performance. During the year the Group entered into a contract for the establishment of a Hong Kong network. The payment terms and conditions are expressed in USD, with the payment dates linked to performance milestones related to the completion of various stages of the network. The Group funded this commitment via an AUD equity raising completed in December 2015. The Group elected to mitigate a large portion of the AUD / USD exchange rate risk arising from the commitment by converting AUD to USD and holding it in a USD bank account. The Group has designated this transaction as a hedging transaction and accounted for it as per the Group’s accounting policy (refer note 1(y)). At 30 June 2016, the value of the hedging funds were USD12.5m. The hedge is expected to fully mature within the next financial year, when the performance milestones for the contractual payments for the establishment of the Hong Kong network are achieved. (ii) Price risk The Group is not exposed to any equity securities price risk or commodity price risk. (iii) Cash flow and fair value interest rate risk Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Group’s main interest rate risk arises from its cash at bank and term deposits (refer Note 10). (iv) Sensitivity At 30 June 2016, if interest rates had increased by 100 or decreased by 100 basis points from the year end rates, and the cash balances remain constant for the year along with all other variables, profit before tax for the year would be impacted $456,955 higher / $456,955 lower. 64 Superloop Annual Report 2016 Notes to the Consolidated Financial Report (B) CREDIT RISK Credit risk arises from cash and cash equivalents, trade receivables, other receivables and loans receivable. (i) Cash and cash equivalents Deposits are placed with Australian banks. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Cash at Bank and Short-Term Deposits AA rated A+ rated BBB+ rated TOTAL 30 June 2016 30 June 2015 $ $ 45,854,135 18,011,900 - - - - 45,854,135 18,011,900 In determining the credit quality of the financial assets, Superloop has used the long-term rating from Standard & Poor’s as of July 2016. (i) Trade receivables Customer credit risk is managed by performing a credit assessment of customers. The Group’s standard payment terms are 30 days, but the Group may agree to longer payment terms. The Group does not require collateral in respect of financial assets. Outstanding customer receivables are monitored regularly. The Group aims to minimise concentration of credit risk by undertaking transactions with a large number of customers. In addition, receivable balances are monitored on an ongoing basis with the intention that the Group’s exposure to bad debts is minimised. As at 30 June 2016, the Group had $1,263,033 customer trade receivables (refer note 11). (ii) Loans to related parties Loans to related parties are not provided within the Group’s normal operating activities. Loans to related parties are only provided on commercial terms after a risk assessment has been performed and only with approval from the Board of Directors. The Group’s maximum exposure to credit risk in respect of loans to related parties is its carrying value. The Group does not require collateral in respect of loans to related parties. (C) LIQUIDITY RISK Superloop’s business is capital intensive in nature, and the continued growth of the Company relies on the acquisition and development of new fibre optic telecommunications infrastructure and ongoing maintenance of existing fibre optic telecommunications infrastructure. Superloop requires sufficient access to debt and equity capital to fund this expenditure. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Failure to obtain capital on favorable terms may hinder Superloop’s ability to expand and pursue growth opportunities, which may reduce competitiveness and have an adverse effect on the financial performance, position and growth prospects of the Company. As at 30 June 2016, the Group had cash at bank of $44,819,436 and term deposits of $1,034,699, which the Group believes is sufficient working capital to complete the initial networks, operate and maintain those networks, hire additional sales professionals and evaluate new growth opportunities. As at 30 June 2016, the Group has no outstanding interest-bearing borrowings. Within 12 months $ Between 1 and 5 years $ Over 5 years $ Total contractual cash flows $ Carrying Amount $ Contractual Maturities of Financial Liabilities 2016 Trade payables Interest-bearing borrowings TOTAL NON-DERIVATIVES 6,579,093 6,579,093 - - - - - - - 6,579,093 6,579,093 - - 6,579,093 6,579,093 65 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Contractual Maturities of Financial Liabilities 2015 Trade payables Interest-bearing borrowings TOTAL NON-DERIVATIVES 2,585,677 (D) FAIR VALUE MEASUREMENTS Within 12 months $ Between 1 and 5 years $ Over 5 years $ Total contractual cash flows $ Carrying Amount $ 2,585,677 - - - - - - - 2,585,677 2,585,677 - - 2,585,677 2,585,677 (i) Trade and other receivables Due to the short-term nature of the trade and other receivables, their carrying amount is assumed to be the same as their fair value. (ii) Trade and other payables Due to the short-term nature of the trade and other payables, their carrying amount is assumed to be the same as their fair value. 33. EARNINGS PER SHARE (A) LOSSES PER SHARE Total basic losses per share attributable to the ordinary equity holders of the Group (6.81) (3.55) 30 June 2016 Cents 30 June 2015 Cents (B) DILUTED LOSSES PER SHARE Total diluted losses per share attributable to the ordinary equity holders of the Group (6.81) (3.55) (C) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE 30 June 2016 Cents 30 June 2015 Cents Basic Earnings Per Share Loss attributable to the ordinary equity holders of the Group used in calculating basic losses per share (7,164,110) (1,193,442) 30 June 2016 $ 30 June 2015 $ Diluted Earnings Per Share Loss from continuing operations attributable to the ordinary equity holders of the Group: (7,164,110) (1,193,442) (D) WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Plus potential ordinary shares Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 30 June 2016 Number of Shares 30 June 2015 Number of Shares 105,191,913 33,589,661 - - 105,191,913 33,589,661 66 Superloop Annual Report 2016 Notes to the Consolidated Financial Report 34. SUBSIDIARIES AND TRANSACTIONS WITH NON-CONTROLLING INTERESTS Name of entity Superloop (Australia) Pty Ltd(1)(2) Superloop (Singapore) Pte Ltd(2) Superloop (Hong Kong) Limited(2) APEXN Pty Ltd(1) CINENET Systems Pty Ltd(1) Country of incorporation Class of shares 30 June 2016 % 30 June 2015 % Australia Singapore Hong Kong Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% (1) These wholly-owned subsidiaries are members of the Australian tax-consolidated group. (2) These acquisitions completed in the prior year, were of commonly-controlled entities, which have been accounted for at their carrying amounts (refer note 1(c). Assets and liabilities at the time of the acquisition are measured at their book values. The net impact of the common control transactions are recognised in other equity. Details of prior year common control transactions Name of entity Superloop (Australia) Pty Ltd Superloop (Singapore) Pte Ltd Superloop (Hong Kong) Limited TOTAL NET LIABILITIES AT DATE OF ACQUISITION Consideration TOTAL COMMON CONTROL TRANSACTIONS Date Acquired Net Liabilities at date of Acquisition 27 March 2015 1 September 2014 7 October 2014 1,355,603 467,266 204,024 2,026,833 1,300,141 3,327,034 35. EVENTS OCCURRING AFTER THE REPORTING PERIOD After balance date, on 13 July 2016, 725,814 options were issued under the Group’s Executive Option Plan, consistent with the resolution approved by shareholders on 21 June 2016, and on 13 July 2016, 196,068 performance rights were issued under the Group’s Employee Rights plan. On 15 July 2016, the Group completed the retail component of the Entitlement Offer launched in June 2016, issuing an additional 6,109,637 shares for $12,830,238 on 21 July 2016. 36. PARENT ENTITY FINANCIAL INFORMATION The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements, except as set out below. Refer to note 1 for a summary of the significant accounting policies relating to the Group. Tax Consolidation During the year, the Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 23 March 2015 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Superloop Limited. The members of the tax-consolidated group are identified in note 34. The Company is in the process of implementing tax funding and tax sharing agreements. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax- consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Deferred tax assets are recognised where it is considered probable that they will be recovered in the future and, as such, are subjective. Superloop has not recognised any deferred tax assets in the statement of financial position as at 30 June 2016. 67 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Financial Position Total cash & cash equivalents Total current assets Total non-current assets TOTAL ASSETS Total current liabilities TOTAL LIABILITIES NET ASSETS Contributed equity Reserves Accumulated losses TOTAL EQUITY Financial Performance Loss for the year after tax Total comprehensive loss for the period 30 June 2016 30 June 2015 $ $ 39,696,183 46,449,062 43,944,847 9,523,883 46,752,782 1,300,141 130,090,092 57,576,806 638,016 638,016 56,491 56,491 129,452,076 57,520,315 131,186,364 58,144,794 (368,560) (1,365,728) - (624,478) 129,452,076 57,520,315 (483,505) (483,505) (624,478) (624,478) (A) GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES As at 30 June 2016, Superloop Limited did not have any guarantees in relation to the debts of subsidiaries (B) CONTINGENT LIABILITIES OF SUPERLOOP LIMITED (PARENT ENTITY) As a 30 June 2016, Superloop Limited did not have any contingent liabilities. 37. CONTROLLED ENTITIES ACQUIRED OR DISPOSED During the year Superloop Limited acquired the following entities: APEXN Pty Ltd 16 October 2015 CINENET Systems Pty Ltd 30 November 2015 If both entities had been acquired at 1 July 2015, the Group would have generated total revenue of $8,387,228 and a Net Loss after Tax (NPAT) of ($7,670,486) for the full financial year to 30 June 2016, based on unaudited financial information provided by each entity prior to the date of acquisition. Goodwill arose in the acquisitions of APEXN Pty Ltd and CINENET Systems Pty Ltd because the consideration paid for the respective subsidiaries included amounts in relation to the benefit of expected synergies, revenue growth, enhanced capability, future market development and the assembled workforce of APEXN Pty Ltd. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. APEXN Pty Ltd (trading as APEXnetworks) On 16th October 2015, Superloop Limited acquired 100% of APEXN Pty Ltd (APEXnetworks) for a total consideration of $5.8 million, paid as $3.8 million in cash and $2.0 million in Superloop Limited shares issued at $2.228, with the cash component funded from cash reserves. APEXnetworks allows Superloop to rapidly deploy a managed services capability for wholesale and channel customers via APEXnetworks’ IT and product platforms. The goodwill of $3,197,845 represents the residual value of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed shown below. The acquired business contributed revenues of $3,289,535 and Net Profit after Tax (NPAT) of $124,684 for the 8.5 months since acquisition to 30 June 2016. 68 Superloop Annual Report 2016 Notes to the Consolidated Financial Report Details of the acquisition are as follows: Identifiable assets acquired and liabilities assumed Fair Value $ Cash Customer receivables Network equipment: net cost Payables – accounts Payables – other Annual leave liability Tax liability Software Customer relationships Brand name and trademarks Net identifiable assets acquired Consideration transferred Cash paid Shares Total consideration Goodwill on acquisition Consideration transferred Less net identifiable assets acquired Goodwill on acquisition Net cash outflow on acquisition Consideration paid in cash Less cash and cash equivalent balances acquired Net cash outflow on acquisition 280,394 292,814 63,487 (99,156) (95,140) (104,025) (18,219) 1,701,000 481,000 100,000 2,602,155 3,800,000 2,000,000 5,800,000 5,800,000 2,602,155 3,197,845 3,800,000 280,394 3,519,606 Transaction costs of $37k related to the acquisition have been expensed during the year. CINENET Systems Pty Ltd On 30th November 2015, Superloop Limited acquired 100% of CINENET Systems Pty Ltd for a total consideration of $3 million, paid as $1.5 million in cash and $1.5 million in Superloop Limited shares issued at $2.213, with the cash component funded from cash reserves. CINENET Systems provides Superloop an opportunity for the Group to expand its network capabilities into the digital media vertical. The goodwill of $2,827,597 represents the residual value of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed shown below. The acquired business contributed revenues of $1,044,158 and NPAT of $240,743 for the seven months since acquisition to 30 June 2016. 69 Superloop Limited and controlled entities Notes to the Consolidated Financial Report Details of the acquisition are as follows: Identifiable assets acquired and liabilities assumed Fair Value $ Cash Customer receivables Network equipment: net cost Software Payables – accounts Payables – other GST liabilities Income tax liabilities & provision Net identifiable assets acquired Consideration transferred Cash paid Shares Total consideration Goodwill on acquisition Consideration transferred Less net identifiable assets acquired Goodwill on acquisition Net cash outflow on acquisition Consideration paid in cash Less cash and cash equivalent balances acquired Net cash outflow on acquisition 370,921 284,413 163,333 19,487 (72,360) (518,441) (22,476) (52,474) 172,403 1,500,000 1,500,000 3,000,000 3,000,000 172,403 2,827,597 1,500,000 370,921 1,129,079 Transaction costs of $13k related to the acquisition have been expensed during the year. The values identified in relation to the acquisition of CINENET Systems Pty Ltd are provisional as at the reporting date 30 June 2016. Total net cash outflow on acquisition of subsidiaries Net cash outflow on acquisitions Consideration paid in cash Less cash and cash equivalent balances acquired Net cash outflow on acquisitions (refer statement of cash flows) Total goodwill recognised on acquisition of subsidiaries Goodwill arising from the aquistion of APEXN Pty Ltd Goodwill arising from the aquistion of CINENET Systems Pty Ltd Total goodwill recognised on acquisition of subsidiaries (refer note 14) 70 5,300,000 651,315 4,648,685 3,197,845 2,827,597 6,025,442 Superloop Annual Report 2016 Directors’ Declaration In the Directors’ Opinion: The financial statements and notes set out on pages 34 to 70 are in accordance with the Corporations Act 2001, including: 1. 2. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the Group's financial position as at 30 June 2016 and of its performance for the year ended on that date, and At the date of this declaration, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors as per section 295(5) of the Corporations Act 2001. Bevan Slattery Executive Director and Chief Executive Officer Brisbane 29 August 2016 71 Superloop Limited and controlled entities Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia Tel: +61 7 3308 7000 Fax: +61 (0) 3308 7004 www.deloitte.com.au Independent Auditor’s Report to the Members of Superloop Limited Report on the Financial Report We have audited the accompanying financial report of Superloop Limited, which comprises the statement of financial position as at 30 June 2016, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year-end or from time to time during the financial year as set out on pages 34 to 71. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 72 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Superloop Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Superloop Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 27 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Superloop Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU R G Saayman Partner Chartered Accountants Brisbane, 29 August 2016 73 The names of the twenty largest holders of quoted equity securities are listed below: Name Number held Shareholder Information The following shareholder information was applicable as at 31 July 2016. (A) DISTRIBUTION OF EQUITY SECURITIES Holding 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 TOTAL Unmarketable parcels (B) EQUITY SECURITY HOLDERS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BEVAN ANDREW SLATTERY J P MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SCM CAPITAL PTY LTD UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO EDA HACKETT CP NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED BLUE STAMP COMPANY PTY LTD MR DANIEL ABRAHAMS ALLEGRO CAPITAL NOMINEES PTY LTD MJG APEXN PTY LTD INVESTRC PTY LTD ROCKET SCIENCE PTY LTD BNP PARIBAS NOMS PTY LTD HUME CLARK PTY LTD DANKIM ABRAHAMS DR DAVID JOHN RITCHIE & DR GILLIAN JOAN RITCHIE (C) SUBSTANTIAL HOLDERS Name 1 BEVAN ANDREW SLATTERY Number of investors Number of securities 66 1,114 947 1,228 338 3,693 75 60,007,894 10,872,029 4,031,326 2,389,723 1,437,594 1,075,213 1,128,571 999,999 840,743 644,025 593,416 603,500 565,788 547,909 506,727 489,911 458,651 396,343 370,350 362,858 97,759,903 25,773,534 6,930,735 3,722,903 165,863 134,352,938 1,340 Percentage of issued shares 44.66 8.09 3.00 1.78 1.07 0.80 0.84 0.74 0.63 0.48 0.44 0.45 0.42 0.41 0.38 0.36 0.34 0.30 0.28 0.27 Number held Percentage of issued shares 60,007,894 44.66 (D) VOTING RIGHTS The voting rights attaching to each class of equity securities are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. 74 Superloop Annual Report 2016 Corporate Directory DIRECTORS • Bevan Slattery Executive Chairman & CEO • Daniel Abrahams Executive Director & Chief Infrastructure Officer • Greg Baynton Non-executive Director • Louise Bolger Non-executive Director • Michael Malone Non-executive Director • Richard Anthony (Tony) Clark Non-executive Director COMPANY SECRETARIES • Paul Jobbins GM, Corporate & Strategy • Gregory Bryant Chief Financial Officer REGISTERED OFFICE Superloop Limited Level 17, 333 Ann Street Brisbane QLD 4000 Tel: +61 (7) 3088 5999 COMPANY WEBSITE www.superloop.com AUDITOR Deloitte Touche Tohmatsu Level 25, Riverside Centre 123 Eagle Street Brisbane QLD 4000 www.deloitte.com/au SOLICITORS McCullough Robertson Level 11, Central Plaza Two 66 Eagle Street Brisbane QLD 4000 www.mccullough.com.au SHARE REGISTER Link Market Services Limited Level 15, 324 Queen Street Brisbane QLD 4000 www.linkmarketservices.com.au STOCK EXCHANGE LISTING Superloop Limited shares are listed on the Australian Securities Exchange (ASX) under code SLC 76 Superloop Annual Report 2016 

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