Superloop
Annual Report 2017

Plain-text annual report

2017 SUPERLOOP ANNUAL REPORT www.superloop.com Superloop Limited | ABN 96 169 263 094 SUPERLOOP LIMITED AND CONTROLLED ENTITIES 2 2017 ANNUAL REPORT TABLE OF CONTENTS Letter from the Chairman Report from Chief Executive Officer Business Overview Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Financial Report Notes to the Consolidated Financial Report Directors’ Declaration Independent Auditor’s Report ASX Additional Information ANNUAL REPORT 2017 4 8 10 15 42 43 50 55 88 90 97 3 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Letter from the Chairman On behalf of the Board of Directors of Superloop Limited, it is my pleasure to present our Annual Report for the year ended 30 June 2017 (FY17). In June this year, your Board decided to appoint me as its Chairman, and I am honoured to have the opportunity of guiding the Group through its next growth phase alongside our CEO, Bevan Slattery, the diverse board, and the highly talented management team. This was the fortunate result of Bevan agreeing to stay on as CEO for at least the next three years, an endorsement of his genuine belief and enthusiasm in your company. Superloop is a young company, having been established in 2014, and listed in 2015. The Group has grown very quickly, and the past financial year saw several significant outcomes achieved: • Launch of the Hong Kong network and expansion of the Singapore network to strategic locations, with • • infrastructure now in place to underpin growth in the Asia-Pacific region; 15-year capacity agreement with Vocus providing significant additional coverage to the Australian network; Joined with our fellow team members in the BigAir Group in December 2016, and commenced integration and realisation of revenue and cost synergies; • Acquired SubPartners in April 2017; • Grew talent base from less than 50 to over 315, with key appointments made to further strengthen the Board and senior management; and • Achieved positive EBITDA and operating cashflow. During the year, we updated the Group’s vision to be: “The most trusted enabler of connectivity and managed services in Asia Pacific”. The milestones we have achieved in infrastructure and product development over FY17 are consistent with this vision and ensure we have a sustainable platform to accelerate growth. Across the Asia Pacific region, we have built 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, while ensuring that reliability and self-healing are core to every design decision. Over the past 12 months, we have added to our network footprint, successfully completing two strategic acquisitions that management are now fully integrating into the Group. The acquisition of BigAir Group in December 2016 fundamentally enhanced our ability to scale our Australian footprint by providing high speed data infrastructure into enterprise buildings at low cost. This network has been designed to provide speeds of up to 10 Gbps and will offer a compelling alternative for businesses and wholesale partners. We are now able to take advantage of the increasing appetite for point to point wireless connectivity solutions. The acquisition of SubPartners in April 2017 will provide strategic assets including ownership of international submarine cable capacity as a member of the INDIGO consortium, as well as a team with substantial experience and an ability to lead or participate in other future undersea cable investments. The completion of the INDIGO international cable systems in mid-2019 will further expand our network so we can offer customers a fully meshed pan-Asian network. During the year, Superloop enhanced its Board with three key appointments, two of which also joined our management team: Jason Ashton, previously the CEO of BigAir, was appointed an Executive Director; • • Vivian Stewart, previously the Chairman of BigAir, was appointed a Non-executive Director; and • Matt Hollis, previously the Director of Corporate & Wholesale at Vocus Communications, was appointed as an Executive Director. During the year, the Remuneration and Nomination Committee completed a review of best practice remuneration frameworks. The review’s objective was to ensure that the remuneration framework implemented by the Group is transparent, competitive and reasonable, and ultimately aligned to shareholder interest. As your Chairman, I am committed to ensuring that from time to time the framework is reassessed and, if necessary, realigned to the Group’s vision and strategy. 4 ANNUAL REPORT 2017 Looking ahead, Superloop is focussed on integrating the networks and systems of the acquired businesses and realising the inherent synergies. Throughout FY18 and beyond, we will continue to invest in our networks by adding strategic sites to meet customer demand. We will also continue to consider further earnings-accretive acquisitions that are strategically and culturally aligned to our business, accelerate our time to market and provide the Group with valuable assets or systems. With expanding networks in place across Australia, Singapore and Hong Kong, the Group has established a platform to leverage our core infrastructure assets and drive further growth and customer acquisition. Execution of key strategic sales opportunities and the continued development of products, leveraging our established infrastructure to achieve return on investment, remains a key focus. In closing, I would like to express my gratitude to our shareholders for their ongoing support of the Company. In recognition of this support, and reflecting the strength of the balance sheet, growing earnings, and confidence in management’s ability to deliver sustainable returns, your Board was pleased to declare Superloop’s maiden dividend of $0.005 per share fully franked, paid on 18 September 2017. I would also like to thank my fellow Directors for their professionalism, experienced counsel and input throughout the year. On behalf of the Board, thanks must also go to our experienced management team, led by CEO Bevan Slattery, for their passion and dedication to growing Superloop. Lastly, I would like to thank our talented employees, whose numbers have grown almost 7-fold to more than 315, for their tremendous commitment and effort in helping to deliver the excellent outcomes that have been achieved in FY17. Many of you have done it before, and once again, we’re going to change the rules of this game for the better. We hope you can join us for the Annual General Meeting. Michael Malone Chairman Superloop Limited 5 SUPERLOOP LIMITED AND CONTROLLED ENTITIES 6 ANNUAL REPORT 2017 Our vision is to be the most trusted enabler of connectivity and managed services in Asia Pacific 7 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Report from the Chief Executive Officer I am pleased to report that over the year ended 30 June 2017 (FY17) we have seen significant growth and accelerating development in the organisation. FY17 was a busy and constructive year, expanding the Group through the strategic acquisitions of BigAir Group and SubPartners, launching a fibre optic network in Hong Kong, and expanding our networks in Australia and Singapore. Over FY17, we achieved several major milestones: • Grew revenue from ordinary activities by 755% to $59.8 million • Generated underlying EBITDA of $9 million; a $14.6 million turnaround from FY16 • • • Completed construction and commissioning of the 110 kilometre backbone fibre cable network for the Increased our customer base from 160 to 2,300+ active customers Installed over 230 kilometres of fibre, taking total installed fibre to over 610 kilometres launch in Hong Kong • Completed construction of TKO Express domestic submarine fibre-optic cable and the data centre campus in Hong Kong • Completed the expansion of the Singapore network to strategic locations, including the Singapore Exchange, iO and NTT data centres. Superloop’s infrastructure footprint continued to grow over the 2017 financial year. We added significant network coverage across Asia Pacific through successful expansion in Australia and Singapore to another 150+ and 24 strategic sites respectively, and the launch of the network in Hong Kong initially connecting the first 17 strategic data centre and enterprise buildings. During this time Superloop completed two strategic acquisitions of BigAir Group and SubPartners. Superloop’s network coverage, combined with the assets acquired, has enabled the Company to offer customers a unique product and service offering both now and in the future. The acquisition of BigAir fundamentally enhances the opportunity for Superloop’s fibre business and extends the Group’s activities to the provision of connectivity and managed services through fixed wireless broadband networks, community broadband and cloud managed services. Since the acquisition in December 2016, more than $2.0 million of annualised corporate synergies and over $1.5 million in annualised network integration cost savings have been realised. The acquisition of SubPartners in April 2017 provides Superloop with an opportunity to expand international capacity through the INDIGO West cable (Singapore to Perth) and INDIGO Central cable (Perth to Sydney). The cable systems, expected to be completed by mid-2019, will provide the basis for connectivity between Superloop’s existing metropolitan networks, creating a broad fully meshed pan-Asian network. During the year we strengthened our team with the appointments of: • Jason Ashton (who was previously the CEO and co-founder of BigAir), Executive Director, and GM Cloud and Managed Services division. • Matt Hollis, Executive Director and Group GM Sales and Marketing • Alex West, Head of Integration and Transformation • • Dan Whitford, GM Wholesale • Daniel Lawrence, GM Enterprise Julian Breen, Head of Customer Experience With these additions, we have established a highly skilled management team that offers a strong competitive advantage, a fundamental driver to our success and unprecedented growth. In addition, a number of experienced senior sales executives joined the team in Australia, and the Group continues to recruit talented people, with particular emphasis on sales managers in Singapore and Hong Kong. I am excited about the opportunities that lie ahead for the Company as our strong network and product offering continues to be developed to support the ever-growing need for increased bandwidth requirements. 8 ANNUAL REPORT 2017 Having successfully acquired BigAir and SubPartners, we continue to consider acquisitions that meet our specific investment criteria: • Strategically aligned to our vision • Accelerate our time to market • Have teams that are culturally aligned and which are earnings accretive • Have technology, software and systems that are of value to the combined group. Consistent with these criteria, after year end, in September 2017 we announced the acquisition of NuSkope, a leading fixed wireless Internet Service Provider delivering advanced high-speed Internet access to homes, schools and businesses in South Australia. As a management team, we are focussed on achieving the Company’s vision of becoming “The most trusted enabler of connectivity and managed services in Asia Pacific”. With expanding networks in place across Australia, Singapore and Hong Kong, the Group has established a strong platform to leverage our core infrastructure assets and drive further growth and customer acquisition. FY17 has been an exciting year of transformation and development for Superloop with much of the year focused on the development and progression of Superloop’s strategy to achieve our vision. I would like to thank the Board, management team, and all of those on the expanded Superloop team for their continued dedication and drive. I would also like to thank our shareholders for their continued support. Superloop has come a long way in a short space of time. We are excited by the growth runway for our business and by the potential for it to become a truly great Asia Pacific connectivity and managed services company. Bevan Slattery Chief Executive Officer Superloop Limited 9 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Business Overview Customer satisfaction is at the core of what we do A fully integrated Pan Asian communications business operating on one common platform Successfully fused network ownership economics and software automation to deliver the most powerful on-demand gigabit+ network in Asia A high performance culture that attracts the best and brightest A no bull NPS of 70+ 10 ANNUAL REPORT 2017 Operating Segments The acquisition fundamentally enhances the opportunity for Superloop’s fibre business Benefits to the existing BigAir business from the acquisition by Superloop Cloud and Managed Services BigAir’s cloud & managed services business Superloop remains focused on its core fibre-based service and product offering across APAC, interconnecting major enterprise buildings and data centres. The acquisition provides the critical mass to scale Superloop’s Australian footprint into enterprise buildings, at low cost due to BigAir’s presence in high quality towers in close proximity to Superloop fibre. Superloop remains a leading provider of the “big pipes”. BigAir focuses on the wholesale “last mile” wireless access market. Leveraging Superloop’s fibre assets and BigAir’s existing wireless network and capabilities, we will deliver wholesale providers a high- speed alternative in outer metro and regional Australia. The BigAir cloud and managed services business unit will provide a fully integrated and focused managed service offering with a clear statement on market position and products. There is a significant opportunity for growth in the medium to large enterprise market. This business leverages Superloop’s and BigAir’s infrastructure advantage as a wholesale provider. Connectivity services Managed services 11 SUPERLOOP LIMITED AND CONTROLLED ENTITIES JAPAN HONG KONG GUAM SINGAPORE BRISBANE PERTH ADELAIDE MELBOURNE SYDNEY CANBERRA AUCKLAND Asia Pacific Fibre Network Current FY18 Hong Kong Singapore Australia 30 June 2017 30 June 2016 30 June 2017 30 June 2016 30 June 2017 30 June 2016 221km Fibre 17 Strategic sites 83km Fibre - Strategic sites 176km Fibre 48 Strategic sites 136km Fibre 24 Strategic sites 217km Fibre 200+ Strategic sites 159km Fibre 50 Strategic sites 12 ANNUAL REPORT 2017 FY17 Milestones Hong Kong Completed construction of initial Hong Kong backbone fibre cable network (110 km x 2,000 cores) Completed construction of TKO Express domestic submarine cable Singapore Achieved EBITDA break-even in Singapore, before corporate allocations Completed expansion of Singapore network to IO, NTT and Singapore Exchange data centres with diverse paths Australia Acquired BigAir Group in December 2016 and commenced integration and realisation of synergies Expanded coverage with 15 year access agreement for metro fibre, regional, and inter-capital capacity International expansion Expanded coverage with 15 year access agreement for international capacity Acquired SubPartners in April 2017 Integration synergies achieved Realised corporate overhead savings over $2.0m and network cost savings over $1.5m Strengthend management team Appointed key management team members to lead group through next phase of growth 13 SAN JOSE LOS ANGELES Performance 30 June 2017 30 June 2016 2300+ Customers $59.8m Revenue 159km Customers $7.0m Revenue SUPERLOOP LIMITED AND CONTROLLED ENTITIES 14 ANNUAL REPORT 2017 Directors’ Report 15 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 2017. DIRECTORS Specifically, during the year, Superloop: • Completed the acquisition of BigAir Group Limited via scheme of arrangement; • Commenced integration and realisation of synergies; The following persons were directors of the Group during the year: • Raised $65.0 million by way of institutional placement to partly fund the acquisition of BigAir; • Michael Malone (Chairman) • Bevan Slattery (Chief Executive Officer) • Greg Baynton • Louise Bolger • Richard (Tony) Clark • Vivian Stewart (appointed 21 December 2016) • Jason Ashton (appointed 21 December 2016) • Matthew Hollis (appointed 1 March 2017) • Daniel Abrahams (resigned 18 November 2016) PRINCIPAL ACTIVITIES Superloop’s vision is to be the most trusted enabler of connectivity and managed services in Asia Pacific. During the year, the principal activities of the Group consisted of the development and operation of independent telecommunications infrastructure throughout the Asia Pacific region, and the provision of complete high- performance network solutions. Following the Group’s acquisition of BigAir Group Limited (BigAir), the Group’s principal activities now extend to the provision of connectivity and managed services through fixed wireless broadband networks, community broadband and cloud and managed services. REVIEW OF OPERATIONS During the year, the Group experienced major transformation with the acquisition of BigAir. BigAir enhances Superloop’s network coverage at strategic Australian sites and locations nationally, including regional markets, greatly expands the product set and adds depth in technical and sales resources. It allows Superloop to expand its wholesale offering through microwave connectivity and offers compelling synergies. Superloop continued to expand its pan-Asian network with strategic sites added to its Singapore network while making significant investment in its Hong Kong network which was launched in December 2016. The acquisition of SubPartners Pty Ltd in April 2017 will deliver Superloop strategic ownership of international submarine cable capacity through the INDIGO West and INDIGO Central cable systems, which will become the basis of connectivity between existing metropolitan networks, once complete in mid-2019, creating a broad interconnected network. In addition, the Board and senior management team has been strengthened with key appointments during the year. Superloop has established the platform for the delivery of scalable services across the Asia Pacific region. 16 • Entered into a 3 year $80.0 million revolving debt facility; • Continued to develop Superloop 360 customer provisioning and network management portal; • Completed the expansion of the Singapore network to strategic locations including the IO, NTT and Singapore Exchange data centres; • Continued the rollout of Project Red Lion in Singapore, with 31 commercial buildings connected to the network; • Completed the 110 km backbone fibre cable network to launch the initial Hong Kong network; • Completed the construction and commissioning of Hong Kong’s TKO Express domestic submarine cable to connect Chai Wan to Tseung Kwan O Industrial Estate; • Entered into agreements for access to certain network infrastructure assets via a 15 year Indefeasible Right of Use agreements; and • Completed the acquisition of SubPartners Pty Ltd. FINANCIAL AND OPERATING PERFORMANCE The Group generated earnings before interest, tax, depreciation and amortisation (EBITDA) of $4.6 million. Adjusting for large one-off costs associated with the acquisitions of BigAir and SubPartners Pty Ltd results in underlying EBITDA of $9.0 million. Profit after direct costs for the year was $31.8 million, up from $1.9 million for the previous corresponding period, with revenue of $59.8 million offset by direct costs of $28.0 million. Revenue from continuing operations grew $52.8 million, compared to the previous corresponding period, including $40.6 million from BigAir for the period from 21 December 2016 and $2.9 million from SubPartners Pty Ltd which was acquired on 4 April 2017. The Group’s Connectivity segment, which includes the Superloop fibre infrastructure and high performance network solution businesses, as well as SubPartners and BigAir’s fixed wireless business, contributed revenue of $30.6 million. The Managed Services segment, which includes BigAir’s cloud and managed services business and community broadband campus wifi business, contributed revenue of $28.7 million. On a geographic basis, the Australian businesses, which includes Superloop (Australia), BigAir Group, SubPartners, CINENET Systems and APEXnetworks, contributed revenue of $54.8 million, an increase of $49.3 million over the previous corresponding period. Singapore contributed revenue of $3.9 million, an increase of $2.4 million over the previous corresponding period and Hong Kong commissioned its first service during the period to contribute $1.0 million in revenue. Operating expenses for the period were $27.2 million and include $4.4 million of one-off costs associated with the acquisitions of BigAir and SubPartners. Employee costs were $14.8 million reflecting the significant increase in staff through the BigAir acquisition. At 30 June 2017, the Group held $7.1 million in cash and cash equivalents. During the year, the Group entered into a three year revolving debt facility of $80.0 million, with $32.8 million of the facility utilised at balance date. The Group has sufficient funding flexibility for its upcoming planned projects. invested $52.6 million in network assets The Group (excluding acquisitions) in the year, and at 30 June 2017 held property, plant and equipment of $147.6 million. At 30 June 2017, the Group held intangible assets of $235.5 million including the Group’s right to access (via an Indefeasible Rights to Use (IRU)) Australian network capacity as well as intangible assets arising from business combinations. Cash flows from operations contributed $4.7 million. BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS Superloop’s networks are strategically positioned to capitalise on market dynamics, driven by strong data growth, growth in data centre demand and the need for connectivity services with a focus on the Asia Pacific region. The Group’s operating networks in Australia, Singapore and Hong Kong uniquely positions Superloop as a true Pan Asian telecommunications network owner and operator. This network coverage across the Asia Pacific region, combined with the recent acquisitions of BigAir and SubPartners will enable existing and new customers access to a greater range of products and services. Superloop intends to continue to invest in connectivity solutions and managed products and services in markets where the Board and management believe the demand for services will deliver an attractive return for Shareholders. BUSINESS RISKS The material business risks faced by the Group that are likely to have an effect on its financial prospects include: ANNUAL REPORT 2017 • Customer demand – Superloop’s growth strategy infrastructure telecommunications incorporates commitment of substantial operational and financial resources to design, construct and maintain and to expand existing infrastructure. Development or expansion of 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 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. • 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 where 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 – The continued growth of Superloop’s business relies on the acquisition and development of new telecommunications infrastructure and ongoing maintenance of existing 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 has significant investment in telecommunications assets. Superloop 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, 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. 17 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Directors’ Report • Foreign exchange risk – Superloop operates in foreign jurisdictions and as a result, fluctuations in applicable exchange rates could have an impact on the financial position and performance of the Group. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no other significant changes in the state of affairs of Superloop other than those listed in the Review of Operations above. MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR On 11 August 2017, the Group issued 1,161,495 shares to Mr Bevan Slattery as partial consideration for the acquisition of SubPartners Pty Ltd. Also, on 11 August 2017, 336,094 options were issued to Mr Matthew Hollis under the Group’s Executive Option Plan. 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 across the Asia Pacific region. The Board continues to evaluate further investment in expansion opportunities in the region, based on underlying market dynamics and demand for connectivity and managed services. 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 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; and • 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. DIVIDENDS ROUNDING OF AMOUNTS A final dividend of $0.005 per share, fully franked, was declared after the end of the year. ENVIRONMENTAL REGULATION The Group is not subject to any significant environmental laws. The Group is of a kind referred to in the Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016 and issued pursuant to section 341(1) of the Corporations Act 2001. In accordance with that Instrument, amounts in the Directors’ Report and the financial report have been rounded to the nearest dollar. INDEMNIFICATION OF OFFICERS 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 42. The Group has entered into standard deeds of indemnity and insurance with the Directors. Pursuant to those deeds, the Group 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 premiums of $156,956 (2016: $37,381) 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 assignments 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 18 ANNUAL REPORT 2017 19 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Information on Directors MICHAEL MALONE Independent Non-Executive Chairman BEVAN SLATTERY Chief Executive Officer (CEO) Appointed Non-executive Director: 27 April 2015 Appointed Chairman: 22 June 2017 Appointed CEO: 23 February 2016 (Executive Chairman until 22 June 2017) 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. 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. Michael holds a Bachelor of Science (Mathematics) and a Postgraduate Diploma in Education from UWA. He is a Fellow of the Australian Computing Society, a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Institute of Management. Other current directorships of listed entities Seven West Media Limited (ASX: SWM) - appointed 24 June 2015 SpeedCast Ltd (ASX: SDA) – appointed 14 July 2014 Dreamscape Networks Limited (ASX: DN8) - appointed 16 September 2016 Former Directorships of listed entities in last 3 years Nil Experience and expertise Bevan Slattery is founder and Chief Executive Officer of Superloop. 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 data centre 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 $420 million in May 2010. Bevan has been awarded an honorary Master of Business Administration from Central Queensland University. Other current directorships of listed entities Bevan is a director of Megaport Limited (ASX: MP1) - appointed 27 July 2015 Special responsibilities > Chairman > Member of the Audit and Risk Management Committee Former Directorships of listed entities in last 3 years Asia Pacific Data Centre Group Limited (ASX: AJD) - resigned 30 June 2014 Interests in shares and options 632,894 fully paid ordinary shares Special responsibilities > Chief Executive Officer Interests in shares and options 61,169,389 fully paid ordinary shares 395,898 share options 20 ANNUAL REPORT 2017 GREG BAYNTON Independent Non-Executive Director LOUISE BOLGER Independent Non-Executive Director Appointed: 28 April 2014 Appointed: 27 April 2015 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. 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 is also a director of State Gas Limited. Experience and expertise 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 Limited. Louise commenced her career in private legal practice before continuing on to in-house roles with Telstra, Logica and Bank of Queensland. Greg holds a Master of Business Administration (QUT), a Master of Economic Studies (UQ), a Postgraduate Diploma in Applied Finance & Investment (SIA), and a Bachelor of Business (Accountancy). He has completed a Certificate course in Risk Management and Corporate Governance and is a Fellow of the Governance Institute of Australia. Other current directorships of listed entities NOVONIX Limited (ASX: GRA) – appointed 05 April 2012 Former Directorships of listed entities in last 3 years Asia Pacific Data Centre Group Limited (ASX: AJD) – resigned 04 February 2015 Lamboo Resources Limited (ASX: LMB) – resigned 11 September 2014 Special responsibilities > Chairman of the Audit and Risk Management Committee > Member of the Remuneration and Nomination Committee Interests in shares and options 812,331 fully paid ordinary shares Louise holds a Bachelor of Laws (Hons), a Bachelor of Arts (Modern Asian Studies) from Griffith University and a Bachelor of Education Studies from the University of Queensland. She is a member of the Australian Institute of Company Directors. Other current directorships of listed entities Nil Former Directorships of listed entities in last 3 years Nil Special responsibilities > Chairman of the Remuneration and Nomination Committee Interests in shares and options 66,165 fully paid ordinary shares 21 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Information on Directors RICHARD ANTHONY (TONY) CLARK Independent Non-Executive Director VIVIAN STEWART Independent Non-Executive Director Appointed: 23 December 2015 Appointed: 21 December 2016 Experience and expertise Tony is an Emmy Award-winning Cinematographer as well as co-founder and Managing 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. He is a Graduate of the Australian Institute of Company Directors. Other current directorships of listed entities Nil Former Directorships of listed entities in last 3 years Nil Special responsibilities Nil Interests in shares and options 396,343 fully paid ordinary shares Experience and expertise Vivian Stewart served on the Board of BigAir Group Limited from June 2008 and was its Chairman at the time of BigAir’s acquisition by Superloop in December 2016. Vivian is the CEO of VentureCrowd – an alternative assets crowdfunding platform. He has extensive background in the IT&T industry, venture capital and corporate advisory services. He co-founded ISP Magna Data, venture firm Tinshed, corporate advisory firm Callafin and angel investment group Sydney Angels. He has spent 10 years as an independent corporate advisor specialising in sale, merger and acquisition transactions and related capital strategy for public and private companies. He serves on the management committee of Sydney Angels, the investment committee of the Sydney Angels Sidecar Fund and on the Board of Hey You. Vivian has a Bachelor of Arts (Honours) from the University of Sydney and an eMBA from the Australian Graduate School of Management. He is a Graduate of the Australian Institute of Company Directors. Other current directorships of listed entities Nil Former Directorships of listed entities in last 3 years BigAir Group Limited - appointed June 2008 Special responsibilities > Member of the Audit and Risk Management Committee > Member of the Remuneration and Nomination Committee Interests in shares and options 577,738 fully paid ordinary shares 22 ANNUAL REPORT 2017 JASON ASHTON Executive Director MATTHEW HOLLIS Executive Director Appointed: 21 December 2016 Appointed: 01 March 2017 Experience and expertise Jason Ashton is Superloop’s GM - Cloud and Managed Services. Experience and expertise Matthew Hollis is Superloop’s Group GM Sales and Marketing. has a background Jason in building Australian telecommunications companies. In 2002, Jason co-founded BigAir Group Limited and was its Chief Executive Officer from 2006 until its acquisition by Superloop in December 2016. Prior to joining Superloop, Matt was the Director of Corporate & Wholesale at Vocus Communications for over 6 years. Prior to joining Vocus, Matt served in various sales and corporate roles with Pipe Networks and other ISPs and System Integra- tors. Jason was previously Managing Director of business ISP Magna Data which he co-founded in 1993 and subsequently sold in 1999. Matt is a member of the Australian Institute of Company Di- rectors and has attended the Company Directors course. Jason has extensive experience with high speed microwave and fixed wireless access networks and is a regular speaker at industry conferences. Jason has a Bachelor of Science from the University of Sydney and a Master of Commerce from the University of NSW. Other current directorships of listed entities Nil Former Directorships of listed entities in last 3 years BigAir Group Limited - appointed 2002 Other current directorships of listed entities Nil Former Directorships of listed entities in last 3 years Nil Special responsibilities Nil Interests in shares and options 27,010 fully paid ordinary shares 336,094 share options Special responsibilities Nil Interests in shares and options 1,347,447 fully paid ordinary shares 23 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Company Secretary PAUL JOBBINS Company Secretary Paul is Superloop’s Group Chief Financial Officer and has responsibility for 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 Investment from Finsia, a Master of Applied Finance from Macquarie University, is a Chartered Accountant and a member of the Australian Institute of Company Directors. 24 ANNUAL REPORT 2017 MEETINGS 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: Bevan Slattery Greg Baynton Louise Bolger Michael Malone Tony Clark Vivian Stewart(1) Jason Ashton(1) Matthew Hollis(2) Former Directors Daniel Abrahams(3) Meeting of Committees Meetings of Directors Audit and Risk Management Remuneration and Nomination A 16 15 16 14 15 6 6 3 8 B 16 16 16 16 16 6 6 3 9 A N/A 5 N/A 5 N/A 3 N/A N/A B N/A 5 N/A 5 N/A 3 N/A N/A A 2 3 3 N/A N/A 1 N/A N/A B 2 3 3 N/A N/A 1 N/A N/A 2 2 N/A N/A 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) Mr Stewart and Mr Ashton were appointed to the Board on 21 December 2016 (2) Mr Hollis was appointed to the Board on 01 March 2017 (3) Mr Abrahams resigned from the Board on 18 November 2016 25 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Remuneration Report Message from the Chair of the Remuneration and Nomination Committee Persons Covered by this Report Overview of Remuneration Governance Framework Director Remuneration Executive Remuneration Loans to Key Management Personnel Employment Terms for Key Management Personnel Remuneration for FY17 Performance Outcomes for FY17 Summary of Shares Held by Key Management Personnel Summary of Options Held by Key Management Personnel Summary of Rights Held by Key Management Personnel Shares Under Option or Performance Rights Other Transactions with Key Management Personnel 26 28 29 30 30 30 32 32 34 36 39 40 40 40 41 ANNUAL REPORT 2017 27 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) MESSAGE FROM THE CHAIR OF THE REMUNERATION AND NOMINATION COMMITTEE Dear Shareholders, We are pleased to present Superloop’s Remuneration Report for 2017, for which we seek your support. Superloop’s updated vision, “to be the most trusted enabler of connectivity and managed services in Asia Pacific”, is designed to support the creation of long term shareholder value. Throughout the 2017 year, the Company underwent significant transformation in pursuit of this vision with growth in revenue, earnings and assets, number of customers and employees. The acquisitions of BigAir Group in December 2016 and SubPartners in April 2017 have seen the size of the team increase from under 50 employees at the start of the year to over 315 employees by 30 June 2017. During the year, key appointments were made to the Board and senior management team. While the Company has been able to recruit high calibre candidates across the wider organisation it is critical to the success of the organisation that it is able to continue to attract and retain appropriate people to lead the Company through its next phase of growth. The role of the Remuneration and Nomination Committee is to assist the Board, and make recommendations on remuneration, 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 oversees the development and implementation of a remuneration policy and remuneration structure that ensures there is a direct link between remuneration and performance, both Company and individual, that is ultimately aligned to shareholder interest. The Committee has undertaken a review of best practice remuneration frameworks and also considered structures implemented in organisations of a similar size and in similar industries. A comprehensive remuneration policy, including at-risk short term and long term incentives has been implemented which the Committee, and the Board, believes will continue to support the Group’s vision and strategy. 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 28 ANNUAL REPORT 2017 REMUNERATION REPORT - AUDITED 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 2017 (FY17), 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. 1. THE PERSONS COVERED IN THIS REPORT Key Management Personnel (“KMP”) include Directors of the Group and Senior Executives. The term “Senior Executives” refer to the Chief Executive Officer and those executives with responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. NON-EXECUTIVE DIRECTORS NAME Michael Malone Greg Baynton Louise Bolger Tony Clark Vivian Stewart SENIOR EXECUTIVES NAME Bevan Slattery Matthew Hollis Jason Ashton Paul Jobbins Ryan Crouch Matthew Whitlock Alex West FORMER EXECUTIVES Steven Bond Matthew Gregg POSITION Independent Non-Executive Chairman (appointed 22 June 2017) Member of the Audit and Risk Management Committee Independent Non-Executive Director Chair of the Audit and Risk Management Committee Member of the Remuneration and Nomination Committee Independent Non-Executive Director Chair of the Remuneration and Nomination Committee Independent Non-Executive Director Independent Non-Executive Director (appointed 21 December 2016) Member of the Audit and Risk Management Committee Member of the Remuneration and Nomination Committee POSITION Chief Executive Officer (CEO) (Executive Chairman to 22 June 2017) Executive Director (appointed 1 March 2017) Group GM Sales and Marketing Executive Director (appointed 21 December 2016) GM Cloud and Managed Services Group Chief Financial Officer Company Secretary Chief Operating Officer - Networks Chief Operating Officer - Infrastructure Head of Transformation and Integration (appointed 24 July 2017) General Manager, Sales and Marketing General Manager, Customer Experience Except as noted above or elsewhere in this report, the named persons held their position for the whole financial year. CHANGES SINCE THE END OF THE REPORTING PERIOD Since the end of the financial year, Alex West was appointed Head of Transformation and Integration on 24 July 2017. 29 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) 2. OVERVIEW OF REMUNERATION GOVERNANCE FRAMEWORK 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 senior management, is reviewed and assessed each year using procedures adopted by the Board; 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; and 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/investors 3. DIRECTOR REMUNERATION 3.1 DIRECTOR REMUNERATION POLICY 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. Fees paid to non-executive Directors in FY17 were $322,375 (FY16: $251,129). There are no retirement benefit schemes for Directors other than statutory superannuation contributions. 3.2 NON-EXECUTIVE DIRECTOR FEES The current base director fees per annum, including statutory superannuation, are: Chairman • $110,000 • Non-executive Director $60,000 • Committee member $10,000 (per committee) Michael Malone was appointed non-executive Chairman on 22 June 2017 and will receive fees of $110,000 including superannuation. 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 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. 4.1 SENIOR EXECUTIVE REMUNERATION POLICY Superloop’s executive remuneration policy is designed to be transparent, competitive and reasonable while the alignment between performance strengthening related remuneration and shareholder returns. Its goal is to ensure the Group can attract and retain key talent while being linked to the achievement of the Group’s strategic and business objectives. 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 policy includes at-risk short term and long term incentives with direct links between remuneration and performance (both Company and individual) that is ultimately aligned to shareholder interest. The Trading Policy is available on Superloop’s website at www.superloop.com/investors The remuneration framework consists of three key components: 30 • • • Fixed remuneration Short term incentives Long term incentives 4.2 SHORT TERM INCENTIVE (STI) POLICY AND PROCEDURE For the period from 1 July 2017, the short term incentive policy provides incentives for executives to achieve the Group’s strategic objectives by delivering or exceeding annual plans. Measurement period and award The initial measurement period for achieving objectives is the financial year to 30 June 2018, with assessment of performance conducted following the end of the measurement period upon finalisation of the full year audited results. Short term incentives will be paid in cash following assessment. The CEO can earn up to 50% of his annual fixed remuneration in short term incentives. Other executives have a target award of 20% but can earn up to 30% of their annual fixed remuneration for a superior outcome. Performance metrics and weightings The performance metrics for the CEO include: • • Operational performance (40%) Financial performance: Group EBITDA (60%) The performance metrics for other executives include: • Financial performance: Group EBITDA (40%) • Operational performance (30%) • Specific individual performance incentives linked to specific strategic projects or objectives (30%). The policy also allows for incentives to be paid for achieving specific strategic objectives or for specific outstanding performance. Cessation of employment If an executive’s employment terminates prior to the end of the measurement period, all entitlements will be forfeited, unless otherwise determined by the Board. 4.3 LONG TERM INCENTIVE (LTI) POLICY AND PROCEDURE The purpose of the Long Term Incentive policy is to align executive rewards with sustainable growth in shareholder value over time. It also acts as a retention mechanism for key executives. Further, the policy acts to establish a method by which eligible employees can participate in the future growth and profitability of the Company. Shareholders have approved two long term incentive plans being the Employee Rights Plan and the Executive Option Plan. 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. ANNUAL REPORT 2017 Measurement period and award The initial measurement period for long term incentives is three financial years from 1 July 2017, unless the Board determines otherwise. The policy intends for grants to be issued annually with overlapping cycles. Incentives will be issued in the form of options or performance rights, subject to shareholder approval for Executive Directors. Where shareholder approval is not received for the issue of options to Directors, incentives will be awarded in cash. The CEO can earn up to 50% of his annual fixed remuneration in long term incentives, paid in cash. Other executives can be awarded long term incentives of up to 20% of their annual fixed remuneration. Performance metrics and weightings The performance metrics for the CEO include: • Financial performance: Earning per share target (50%) • Operational performance (50%): including meeting short term objectives The performance metrics for other executives includes earnings per share targets. The achievement of long term objectives is subject to the satisfaction of the Board as assessed and declared on an annual basis. Cessation of employment If an executive’s employment terminates prior to the end of the measurement period, all entitlements will be forfeited, unless otherwise determined by the Board. 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. 31 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) The Company shall not grant Performance Rights if the number of shares to be issued on exercise of the Rights exceeds 5% of the issued shares at the time the offer is made. At 30 June 2017, 180,765 Performance Rights were on issue. After balance date, on 12 July 2017, a further 2,075 Performance Rights were issued. 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. The Company shall not grant options if the number of shares to be issued on exercise of the options exceeds 5% of the issued shares at the time the offer is made. During the year to 30 June 2017, 725,814 options were issued and at the date of this report there were 731,992 options on issue. • 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. 32 The Group does not guarantee or have any obligations with respect to the loan agreement between the employee and the related party. At 30 June 2017, Matthew Whitlock owed $80,000 to the related party. 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. 6.2 REMUNERATION OF EXECUTIVE DIRECTORS CHIEF EXECUTIVE OFFICER Bevan Slattery is the founder and Chief Executive Officer (CEO) of the Superloop Group and served as its Executive Chairman until 22 June 2017. He served as CEO for the Group on an interim basis from 23 February 2016 until signing a new Executive Employment Agreement on 22 June 2017 effective for three years from 1 July 2017. Effective 1 July 2017, Mr Slattery’s remuneration package consists of: • • fixed salary of $500,000 including superannuation; short term incentives of up to $250,000 per annum in the form of an annual cash bonus based on achieving yearly objectives including budgeted EBITDA targets and operational targets as approved by the Board from time to time; long term incentives of up to $250,000 per annum over 3 years based on achieving yearly objectives including annual budget and earnings per share targets and other long term strategic objectives determined by the Board to support the long term growth of the Company. The contract stipulates a notice period of six months, a restraint period of twelve months and payments on termination equal to one month’s salary including superannuation for each month during the restraint period. Mr Slattery holds 395,898 options which were issued as part of his package for the 2017 financial year, which vested on 1 March 2017. GROUP GM SALES & MARKETING Matthew Hollis was appointed as an Executive Director on 1 March 2017 and is the Group GM Sales and Marketing. Mr Hollis has an Executive Employment Agreement in place with a term of three years. His remuneration package consists of • • fixed salary of $350,000 including superannuation; short term incentives of up to $100,000 per annum in the form of an annual discretionary cash bonus; quarterly sales commissions based on meeting sales targets. • The contract stipulates a notice period of three months, a restraint period of six months and payments on termination equal to one month’s salary including superannuation for each month during the restraint period. After year end, on 11 August 2017, shareholders approved the issue of 336,094 options to Mr Hollis under the Executive Option Plan and in accordance with the Executive Employment Agreement with a value of $250,000. In March 2017, Mr Hollis received a sign on bonus of $250,000 including superannuation. GM CLOUD AND MANAGED SERVICES Jason Ashton was appointed as an Executive Director on 21 December 2016 and is the GM Cloud and Managed Services. Mr Ashton has a service agreement in place with no fixed term and a notice period of three months. His remuneration package includes a fixed salary of $330,747 including superannuation. During the year, Mr Ashton participated in a short term incentive scheme which was operated by BigAir Group Limited prior to its acquisition by Superloop. The scheme is no longer in operation. 6.3 REMUNERATION OF OTHER 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 Contract Duration Notice Period Termination Payments Paul Jobbins No fixed term 6 Months 6 Months Ryan Crouch No fixed term 3 Months 3 Months Matthew Whitlock No fixed term 1 Months 1 Months Alex West No fixed term 3 Months 3 Months (1) Base salary payable if the Company terminates the executive without notice or without cause. ANNUAL REPORT 2017 33 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) 7. REMUNERATION FOR FY17 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 Post employment benefits Long-term employee benefits Salary/ Fees STI Other benefits Total Super- annuation LTI $ EXECUTIVE DIRECTORS Bevan Slattery(1) 2017 178,082 2016 178,082 $ - 2017 160,321 30,984 Jason Ashton(2) Matthew Hollis(3) Daniel Abrahams(4) 2016 - 2017 106,547 2016 - 2017 202,470 2016 273,978 NON - EXECUTIVE DIRECTORS Michael Malone Louise Bolger Greg Baynton Tony Clark Vivian Stewart(5) 2017 70,000 2016 70,000 2017 63,927 2016 63,927 2017 80,000 2016 80,000 2017 54,975 2016 28,428 2017 38,699 2016 - $ $ $ $ 315,135 493,217 - - - 178,082 191,305 - 16,918 16,918 18,174 - 250,000 356,547 10,122 - - - - - - - - - 64,280 266,750 17,669 8,030 3,240 277,218 26,028 - - - - - - - - - - 70,000 70,000 63,927 63,927 80,000 80,000 54,975 28,428 38,699 - - - 6,073 6,073 - - 5,205 2,701 3,676 - - - - - - - - - - - - - - - - - - - - - - - - - Long Service Leave $ Total Remunera- tion Package $ % of TRP linked to performance % - - 510,135 195,000 - - 2,672 212,151 14.60% - - - - - - - - - - - - - - - - 366,669 - 292,449 303,246 70,000 70,000 70,000 70,000 80,000 80,000 60,000 31,129 42,375 - - - - 2.75% - - - - - - - - - - - TOTAL - 2017 2017 954,841 30,984 629,415 1,615,240 77,837 8,030 2,672 1,703,779 TOTAL - 2016 2016 694,415 - 3,240 697,655 51,720 - - 749,375 2.29% 0.00% Other benefits includes the value of options issued to Mr Slattery and which vested during the period. Mr Ashton was appointed on 21 December 2016. Mr Hollis was appointed on 1 March 2017. Mr Abrahams resigned as an Executive Director on 18 November 2016 but continued to serve as a senior executive as Chief Infrastructure Officer until 28 February 2017. The information above includes remuneration until cessation of employment on 28 February 2017. Mr Abrahams received termination benefits of $64,280, shown above in Other benefits. Mr Stewart was appointed on 21 December 2016. (1) (2) (3) (4) (5) 34 ANNUAL REPORT 2017 SENIOR EXECUTIVES Fees and remuneration received by the Senior Executives; Short-term employee benefits Post employment benefits Long-term employee benefits Salary/ Fees STI Other Total Super- annuation LTI $ $ $ $ $ $ Long Service Leave $ Total Remunera- tion Package $ % of TRP linked to performance % SENIOR EXECUTIVES Paul Jobbins(1) Ryan Crouch Matt Whitlock(2) 2017 245,420 75,000 2016 53,981 2017 182,650 - - 2016 114,158 100,000 2017 194,489 70,000 2016 144,282 150,000 FORMER SENIOR EXECUTIVES Steven Bond(3) Greg Bryant(4) Matthew Greg(5) 2017 153,774 2016 20,999 2017 - 2016 179,522 2017 167,431 - - - - - 2016 114,158 100,000 TOTAL - 2017 2017 943,764 145,000 320,420 19,580 82,153 4,455 - - - 422,153 58,436 17,350 12,749 3,044 215,793 10,845 - 3,044 228,047 43.85% 295,713 307,989 27.98% 48.70% 18,475 12,749 13,707 - 12,896 8,341 1,758 - - - - - - - - - - 175,011 22,757 - 199,125 37.23% 0.00% 5.91% 4.77% 0.00% - 0.00% 5.63% 2,548 182,070 17,055 15,906 11,110 2,790 197,237 10,845 - 3,044 228,047 43.85% 1,088,764 84,207 127,102 5,834 1,305,907 20.84% - - - - - - - - - - - - 53,981 182,650 214,158 264,489 294,282 153,774 20,999 - 167,431 214,158 TOTAL - 2016 2016 627,100 350,000 2,548 979,648 58,665 - 6,088 1,044,401 33.51% (1) (2) (3) (4) (5) Mr Jobbins commenced employment with Superloop on 12 April 2016. Mr Whitlock commenced employment with Superloop on 10 April 2015 as Chief Operating Officer. From 12 April 2016 until 28 February 2017 he reported to Chief Infrastructure Officer, Mr Daniel Abrahams and was not considered Key Management Personnel for that period. The information above includes remuneration for each financial year as if he was considered Key Management Personnel for the whole period. Mr Bond commenced employment as General Manager, Sales and Marketing on 30 May 2016 and was considered Key Management Personnel until 1 March 2017 when he reported to Matthew Hollis. Mr Bryant commenced employment with Superloop on 26 March 2015 as Chief Financial Officer. Following an internal management reorganisation on 12 April 2016, Mr Bryant reported to Paul Jobbins and for the purposes of this report was no longer considered Key Management Personnel. Following an internal management reorganisation on 16 May 2017, Mr Gregg, General Manager, Customer Experience, reported to Ryan Crouch and for the purposes of this report was no longer considered Key Management Personnel. 35 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) 8. PERFORMANCE OUTCOMES FOR FY17 The following table outlines the performance of the Company over the 2017 financial year and the previous periods 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 $2.56 at 30 June 2017. Year ended 30 June Net loss Dividends paid or declaired Share price at the start of the year Share price at the end of the year 2017 2016 2015* ($1,239,792) ($7,164,110) ($1,193,442) $0.005 $2.35 $2.56 - $1.94 $2.35 - $1.00 $1.94 *2015 includes the period from 28 April 2014 to 30 June 2015. The share price at the start of the 2015 period refers to the issue price of shares in the Company’s Initial Public Offering in June 2015. The 2017 financial year was the Company’s second full financial year since listing and a year when the Company underwent significant transformation. Throughout the year, the strategic objectives for the Group related to the expansion of core infrastructure assets, the continued development of operating systems and the recruitment of key personnel able to pursue these objectives. Key achievements included: • • • • • the completion of Superloop’s network in Hong Kong with the construction of a 110 km fibre optic network; the completion of the strategically important TKO Express domestic submarine in Hong Kong; the expansion of the Group’s Australian infrastructure, network capability, product set and customer base through the acquisition of BigAir Group Limited; the further expansion of the Group’s Australian infrastructure through a long term agreement with Vocus; and the acquisition of SubPartners Pty Ltd which will provide the basis for connectivity between Superloop’s metropolitan networks. The incentive arrangements in place throughout the year were aligned to the achievement of these strategic objectives. The future strategic objectives for the Group continue to relate to the expansion of core infrastructure assets in Singapore, Hong Kong and Australia and the utilisation of these networks by generating sales to key industry segments of financial services, digital media and telecommunications providers. The integration of networks and systems of acquired businesses is also considered strategically important. Achieving these objectives will deliver an increasing return on the Group’s investment. The Company’s remuneration framework will support these performance outcomes 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 Contribution to Strategic objectives Measurement Form of incentive Amount Percentage of grant paid Matthew Whitlock 10 November 2015 Seven key project milestones in relation to construction, installation, rollout and commissioning of the Group’s network assets Development of the Group’s core infrastructure assets being the initial networks strategically positioned to capitalise on market demand dynamics Successful provisioning of operational networks, meeting of regulatory requirements, on-net connection of enterprise buildings Cash bonus $50,000 100% 36 ANNUAL REPORT 2017 Matthew Whitlock 15 February 2017 Paul Jobbins 12 April 2016 Project milestones in relation to the construction of TKO Express submarine cable in Hong Kong Development of a strategic and unique network asset to attract important customers 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 Paul Jobbins 21 December 2016 Completion of the acquisition of BigAir Group including funding the acquisition Strategic acquisition to expand the Group’s network, products and customer base in Australia Completion of the project on time Cash bonus $20,000 100% Successful achievement of objectives Cash bonus $35,000 Deferred to FY18 Cash bonus $75,000 100% Successful completion of transaction including arranging debt facility, equity raising and scheme of arrangement Mr Whitlock was eligible for short term cash incentive payments of up to $200,000 over the 2016 and 2017 financial years 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. Key project milestones were successfully met by the target dates allowing the expansion of the Company’s business in important markets. Mr Whitlock received a further short term incentive payment in the form of a cash bonus of $20,000 during year for the achievement of specific project milestones in relation to the completion of the Company’s TKO Express submarine cable in Hong Kong. There have been no alterations to any of the terms or conditions of the grants since grant date. In addition to the incentive arrangements described above for Executive Directors Mr Slattery and Mr Hollis (refer section 6.2), and the short term incentive policy in place (refer section 4.2), the following specific short term incentive arrangements are currently in place for senior executives for the 2018 financial year: Name Grant date Performance criteria Contribution to Strategic objectives Measurement Form of incentive Minimum amount payable Maximum amount payable Paul Jobbins 12 April 2016 Alex West 24 July 2017 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 Completion of integration of BigAir wireless and backhaul network Integration of networks will optimise performance and drive operational cost savings Successful achievement of objectives Cash bonus Nil $35,000 Successful integration of networks Cash bonus Nil $100,000 37 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) During the year, Performance Rights were issued to senior executives in accordance with the Employee Rights Plan. 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 Number of rights granted / to be issued Number of rights vested Issue price of shares Fair value of right at grant date Vesting date Expiry date of rights Daniel Abrahams 21 February 2017 21 February 2017 Paul Jobbins Steven Bond Ryan Crouch Matthew Gregg Matt Whitlock 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 13 July 2016 4,150 4,149 4,150 4,149 13,227 13,228 13,227 13,228 4,150 4,149 4,150 4,149 4,150 4,149 4,150 4,149 - - - - - - - - 13,227 $2.30 - - - - - - - - - - - - - - - - - - - - - - 2.28 2.28 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 2.44 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 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 15 September 2017 15 September 2017 15 September 2018 15 September 2018 38 ANNUAL REPORT 2017 9. SUMMARY OF SHARES HELD BY KEY MANAGEMENT PERSONNEL The table below outlines the movement in shareholdings by Key Management Personnel during the year Opening balance 1 July 2016 Balance at date of appointment Received as part of remuneration Additions Disposals Other movements(1) Closing balance 30 June 2017 Directors Michael Malone 632,894 Bevan Slattery(2) 60,007,894 710,788 57,894 346,800 7,484 456,727 120,000 - Greg Baynton Louise Bolger Tony Clark Jason Ashton Vivian Stewart Matthew Hollis Executives Paul Jobbins Ryan Crouch Matt Whitlock Alex West Former Key Management Personnel Daniel Abrahams 1,057,894 Steven Bond 5,000 Matthew Gregg 448,833 - - - 1,347,447 577,738 27,010 - - - - - - - - - - - - - - - - - - - - - - 101,543 8,271 49,543 - - - 13,227 1,411 - - - - - - 50,000 - - - - 99,076 - - - - - - - - - - (9,470) - - - - - - - - - - - - - - - - (1,057,894) (5,000) (547,909) 632,894 60,007,894 812,331 66,165 396,343 1,347,447 577,738 27,010 22,122 506,727 110,530 - - - - TOTAL 63,852,208 1,952,195 13,227 309,844 (9,470) (1,610,803) 64,507,201 (1) (2) Other movements are not due to disposal of shares, but are as a result of these individuals either ceasing employment or no longer being considered Key Management Personnel for the purpose of this report. After year end, on 11 August 2017, 1,161,495 shares were issued to Mr Slattery as partial consideration for the acquisition of SubPartners Pty Ltd. 39 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Director’s Report (Remuneration Report) 10. SUMMARY OF OPTIONS HELD BY KEY MANAGEMENT PERSONNEL The table below outlines the movement in options held by Key Management Personnel during the year: Opening balance 1 July 2016 Received as part of remuneration Exercised Other movements Closing balance 30 June 2017 Vested and exercisable Vested during the year Directors Bevan Slattery Matthew Hollis(1) TOTAL - - - 725,814 - 725,814 - - - (329,916) 395,898 395,898 395,898 - - - - (329,916) 395,898 395,898 395,898 (1) After year end, Mr Hollis was issued 336,094 options on 11 August 2017. 11. SUMMARY OF RIGHTS HELD BY KEY MANAGEMENT PERSONNEL The table below outlines the movement in Performance Rights by Key Management Personnel during the year: Opening balance 1 July 2016 Received as part of remuneration Vested and converted to shares Other movements(1) Closing balance 30 June 2017 Vested during the year Executives Paul Jobbins Ryan Crouch Matthew Whitlock Alex West Former key management personnel Daniel Abrahams Steven Bond Matthew Gregg TOTAL - - - - - - - - 61,209 (13,277) 8,299 8,299 - 8,299 8,299 8,299 - - - - - - - - - - (8,299) (8,299) (8,299) 47,982 8,299 8,299 - - - - 13,227 - - - - - - 102,704 (13,277) (24,897) 64,580 13,227 (1) Other movements are not due to disposal of shares, but are as a result of these individuals either ceasing employment or no longer being considered Key Management Personnel for the purpose of this report. 12. SHARES UNDER OPTION OR PERFORMANCE RIGHTS Details of unissued shares or interest under Option at the date of this report are: Date of issue 13 July 2016 11 August 2017 11 August 2017 Number of shares under option Class of shares Exercise price of option Vesting date Expiry date of options 395,898 168,047 168,047 Ordinary Ordinary Ordinary $2.00 $2.50 $2.50 01 March 2017 01 March 2018 01 March 2018 01 March 2020 01 March 2019 01 March 2020 At the date of this report there were 731,992 Options on issue. 329,916 Options lapsed during the year. The Options are subject to the terms and conditions as set out in the Executive Option Plan. The holders of these Options do not have the right, by virtue of the Option, to participate in any share issue or interest issue of the company. 40 ANNUAL REPORT 2017 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 28 February 2017 28 February 2017 12 July 2017 12 July 2017 Number of rights granted / to be issued Class of shares Issue price of shares Vesting date Expiry date of options 66,409 13,228 66,374 13,227 13,228 4,150 4,149 1,038 1.037 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary - - - - - - - - - 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 15 September 2017 15 September 2017 15 September 2018 15 September 2018 15 September 2017 15 September 2017 15 September 2018 15 September 2018 15,302 Performance Rights vested and 8,300 lapsed during the year to 30 June 2017. At the date of this report there were 182,840 Performance Rights on issue. 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. 13. OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL There were no other transactions with key management personnel not otherwise disclosed in the report. Refer Note 29 Related Party Transactions. 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 Chief Executive Officer 28 August 2017 41 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Auditor’s Independence Declaration 42 ANNUAL REPORT 2017 Corporate Governance Statement 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 Australian 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 2017. 43 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement Principle Compliance Commentary Principle 1 – Lay solid foundations for management and oversight 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. Complies 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 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 completes police checks, insolvency and banned director searches 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. As set out in the Charter, the Company Secretary is accountable to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. Each Director is entitled to access the advice and services of the Company Secretary. Further, in accordance with the Company’s Constitution, the appointment or removal of a Company Secretary is a matter for the Board as a whole. The Company does not have a formal 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: 7 men, 1 woman Senior executives: 8 men, 1 woman Whole organisation: 273 men, 67 women 1.2 appropriate Undertake 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 reelect a director. Complies 1.3 Have a written agreement with each director and senior executive setting out the terms of their appointment. Complies Complies Does not comply 1.4 1.5 company secretary be The accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. should 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 towards gender diversity and progress achieving them 44 ANNUAL REPORT 2017 Principle Compliance Commentary 1.6 1.7 2.1 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. Complies 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. Complies Complies Principle 2 - Structure the board to add value 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. 2.2 Have and disclose a board skills matrix, setting out what the board is looking to achieve in its membership. Partially The Board has adopted a charter establishing the requirements to undertake performance reviews at least annually. Board performance has been evaluated during the 2017 financial year. 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. 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 is available on Superloop’s Governance Charter, website at www.superloop.com/investor. The committee consists of: • Ms Louise Bolger (Committee Chair), Independent non-executive Director, • Mr Greg Baynton, Independent non-executive Director, and • Mr Vivian Stewart, Independent non-executive Director. 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. The Board has prepared and considered a board skills matrix but has not disclosed it. 45 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement Principle Compliance Commentary 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 Complies • Mr Michael Malone (appointed 27 April 2015) • Ms Louise Bolger (appointed 27 April 2015) • Mr Greg Baynton (appointed 28 April 2014) • Mr Richard (Tony) Clark (appointed 23 December 2015) • Mr Vivian Stewart (appointed 21 December 2016) 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. 2.4 A majority of the Board should be independent Complies The Board currently has eight members of whom five are independent non-executive Directors. 2.5 The chair of the Board should be an independent director and should not be the CEO. Complies The Chairman is Mr Michael Malone, an independent non-executive director. The CEO is Mr Bevan Slattery, an Executive Director 2.5 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 Complies The Company has established an induction process and provides professional development opportunities for Directors. Principle 3 - Act ethically 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. Complies 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 46 ANNUAL REPORT 2017 4.1 4.2 Principle Compliance Commentary Principle 4 - Safeguard integrity in corporate reporting Complies 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. 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. The committee consists of: Mr Greg Baynton, (committee Chair) Independent non-executive Director, Mr Michael Malone, Director, and Mr Vivian Stewart, Independent non-executive Director. Independent non-executive The relevant qualifications and experience for each committee member are disclosed in the Directors’ Report. The number of meetings held during the year and the attendance of the members at those meetings is also disclosed in the Directors’ Report. Complies The Company has implemented this requirement and the declarations are provided to the Board. 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. Complies Superloop’s auditor attends the Company’s AGM and shareholders are entitled to ask questions in accordance with the Corporations Act and these Guidelines. Principle 5 - Make timely and balanced disclosure 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. Complies Principle 6 - Respect the rights of security holders 6.1 Provide information about the Company and its governance to investors via its website. Complies 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 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. 47 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement Principle Compliance Commentary 6.2 Design and implement an investor relations program to facilitate effective two-way communication with investors. Complies 6.3 Disclose the policies and processes in place to facilitate and encourage participation at meetings of security holders. Complies 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. 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. security holders Give to receive communications from, and send communications to, the Company and its share registry electronically. the option Complies 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 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. Complies 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 three non-executive Directors. non-executive Director chairs the committee. Refer principle 4.1 for additional disclosures. 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. Complies 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. Complies 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. The Company does not have an internal audit function due to the Company’s size, 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. 6.4 7.1 7.2 7.3 48 ANNUAL REPORT 2017 Principle Compliance Commentary 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. Complies The Board has disclosed what it believes are the material risks faced by the business in the Directors’ Report. 8.1 8.2 8.3 Complies Principle 8- Remunerate fairly and responsibly 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. 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, all 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 policies and practices regarding the remuneration of non-executive directors, and the remuneration of executive directors and other senior executives, should be separately disclosed Complies The Company’s Remuneration Report within the Directors’ 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. 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. Complies 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. 49 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 16, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 28 August 2017. The Directors have the power to amend and reissue the financial statements. 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 50 51 52 53 54 55 Financial Report Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2017 ANNUAL REPORT 2017 RESULTS FROM CONTINUING OPERATIONS Revenue Other gains from transactions with customers Direct costs Profit after direct costs OPERATING EXPENSES Employee benefits expense Professional fees Marketing costs Office and administrative expenses Total operating expenses Note 30 June 2017 $ 30 June 2016 $ 5 6 59,805,182 - (28,026,161) 31,779,021 (14,802,708) (6,301,485) (1,056,867) (5,045,361) (27,206,421) 6,248,753 754,617 (5,063,806) 1,903,564 (4,168,141) (1,312,789) (300,903) (1,785,738) (7,567,571) Earnings before interest-paid, tax, depreciation, amortisation and 4,572,600 (5,637,007) foreign exchange gains/losses (EBITDA) Depreciation and amortisation expense Interest expense Foreign exchange gains Loss before income tax Income tax expense Loss for the year after tax from contributing operations Other comprehensive income, net of income tax Items that may have been 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 7 8 9 (9,012,643) (1,235,735) 12,534 (5,663,244) 4,423,452 (1,239,792) (1,881,969) - 354,866 (7,164,110) - (7,164,110) (5,122,485) (820,329) 457,999 (368,560) Total other comprehensive income, net of income tax (5,942,814) 89,439 Total comprehensive loss for the year (7,182,606) (7,074,671) Loss for the year attributable to: > Owners of Superloop Limited Total comprehensive loss for the year attributable to: > Owners of Superloop Limited (1,239,792) (7,164,110) (7,182,606) (7,074,671) 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 Cents Cents (0.69) (0.69) (6.81) (6.81) 51 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Financial Report Consolidated Statement of Financial Position As at 30 June 2017 ASSESTS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Current tax asset Other current assets Total current assets NON-CURRENT ASSETS Property, plant and equipment Other non-current assets Intangible assets Deferred tax assets Total non-current assets TOTAL ASSETS LIABILITES CURRENT LIABILITES Trade and other payables Provisions Deferred revenue Interest-bearing borrowings Total current liabilities NON-CURRENT LIABILITES Provisions Deferred revenue Interest-bearing borrowings Deferred tax liabilites Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Other equity Accumulated losses TOTAL EQUITY The notes following the financial statements form part of the financial report. 52 Note 30 June 2017 $ 30 June 2016 $ 10 11 12 13 12 14 15 16 18 19 17 18 19 17 20 21 22 23 7,104,685 10,549,796 2,898,701 2,708,752 23,261,934 147,616,941 298,714 235,538,982 1,943,363 385,389,000 408,650,934 26,506,303 1,916,767 1,957,882 31,563 30,412,515 2,617,708 474,691 29,632,910 12,040,841 44,766,150 75,178,665 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) 333,472,269 119,736,809 351,290,163 (4,893,516) (3,327,034) (9,597,344) 333,472,269 131,186,364 235,031 (3,327,034) (8,357,552) 119,736,809 ANNUAL REPORT 2017 Consolidated Statement of Changes in Equity For the year ended 30 June 2017 Note Contributed equity $ 131,186,364 - - - - 222,301,981 (2,198,182) Balance at 1 July 2016 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Share based payments Issue of ordinary share capital Share issue costs Reserves Other equity $ $ Accumulated losses $ Total equity $ 235,031 - (5,942,814) (5,942,814) 814,267 - - (3,327,034) - (8,357,552) (1,239,792) 119,736,809 (1,239,792) (5,942,814) - - - - - - (1,239,792) (7,182,606) - - - 814,267 222,301,981 (2,198,182) Balance at 30June 2017 351,290,163 (4,893,516) (3,327,034) (9,597,344) 333,472,269 Note Contributed equity $ 58,144,794 - - - Balance at 1 July 2015 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Issue of ordinary share 75,306,005 capital Share issue costs Balance at 30June 2016 (2,264,435) 131,186,364 Reserves Other equity $ $ Accumulated losses $ Total equity $ 145,592 - 89,439 89,439 - - (3,327,034) - - - - - (1,193,442) (7,164,110) - 53,769,910 (7,164,110) 89,439 (7,164,110) (7,074,671) - - 75,306,005 (2,264,435) 235,031 (3,327,034) (8,357,552) 119,736,809 The notes following the financial statements form part of the financial report. 53 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Financial Report Consolidated Statement of Cash Flows For the year ended 30 June 2017 OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Income taxes received / (paid) 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 Note 30 June 2017 $ 30 June 2016 $ 57,875,152 (53,509,527) 302,149 4,667,774 6,445,063 (12,775,358) - (6,330,295) 30 514,669 50,700 (52,620,433) (30,654,996) - (16,240,413) (43,663,892) (4,376,289) - 755,719 (204,530) (4,648,685) (55,164) (17,180) Net cash inflow / (outflow) from investing activities (116,386,358) (34,765,136) FINANCING ACTIVITIES Proceeds from issues of shares Transaction costs paid in relation to issue of shares Payment of pre-acquisition financing Repayment of borrowings Proceeds from borrowings (net of fees) Interest paid Net cash inflow from financing activities Net increase in cash and cash equivalents held Cash and cash equivalents at the beginning of the year FX movement in cash Cash and cash equivalents at the end of the year 10 10 77,830,239 (2,154,647) - (30,055,019) 29,632,910 (1,235,735) 74,017,748 (37,700,836) 45,854,135 (1,048,614) 7,104,685 71,806,005 (1,943,679) (518,134) - - - 69,344,192 28,248,761 18,011,900 (406,526) 45,854,135 The notes following the financial statements form part of the financial report. 54 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 expense 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 Events occurring after the reporting period Parent entity financial information Controlled entities acquired or disposed ANNUAL REPORT 2017 56 61 62 63 66 6,445,063 66 (12,775,358) 66 (6,330,295) 66 67 50,700 67 (30,654,996) 68 755,719 69 (204,530) 69 (4,648,685) 70 (55,164) (17,180) 72 (34,765,136) 72 72 73 71,806,005 74 (1,943,679) 74 (518,134) - 74 - 76 69,344,192 76 76 28,248,761 77 18,011,900 77 (406,526) 45,854,135 78 78 79 80 80 80 83 84 85 85 86 55 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted 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 Limited is a public company limited by shares, incorporated and domiciled in Australia. in (A) REPORTING YEAR AND COMPARATIVE INFORMATION These financial statements cover the period 1 July 2016 to 30 June 2017. The prior year covers the period 1 July 2015 to 30 June 2016. (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 International issued by Accounting Standards Board (‘IASB’). the (ii) New and amended standards adopted by the Group The Superloop Group 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. (iii) Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the financial year beginning 1 July 2016. (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. (vi) Going concern The consolidated financial statements have been prepared on a going concern basis. At 30 June 2017, current liabilities exceeded current assets by $7.1 million principally due to one off liabilities associated with acquisitions made by Superloop of which $2.7 million was settled by the issue of Superloop shares as deferred consideration. 56 Based on forecast profitability, positive operating cash flows and the significant available funding capacity under the Group’s three year debt facility ($47.2 million unused facilities at 30 June 2017), the directors are of the opinion that no material uncertainties exist in relation to events or conditions which cast doubt on the Group’s ability to continue as a going concern. The financial statements have been prepared on the basis that the Group will continue as a going concern. (C) PRINCIPLE OF CONSOLIDATION (i) Subsidiaries 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. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure 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. Where an entity within the 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 entity’s 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. This reserve relates to transactions during the period ended 30 June 2015 to form the Group. (D) SEGMENT REPORTING Operating segments are reported in a manner consistent with the operations of the Group and the internal reporting provided to the chief operating decision maker. During the year, operating segments have been expanded to include the Connectivity and Managed Services divisions. (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. Notes to the Consolidated Financial Report 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. Revenue from is recognised in line with the delivery of the service, based on the stage of completion. long term capacity arrangements, Upfront discounts provided to customers are amortised over the life of the customer contract. is no direct Installation fees charged where there for the establishment of services are expenditure 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. Revenue from the sale of goods (hardware or software) is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership, generally when the customer has taken undisputed delivery of the goods. Revenue from the sale of goods with no significant service obligation is recognised on delivery. (ii) Other Revenue Interest income Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as Interest income on impaired loans is recognised using the original effective interest rate. income. interest Research & Development Tax Offset The Group applies AASB 120 Accounting for Government Grants and Disclosure of Government Assistance in accounting for the Research & Development (R&D) Tax Offset, whereby a credit is recognised in profit before tax over the periods necessary to match the benefit of the credit with the costs for which it is intended to compensate. Such periods will depend on whether the R&D costs are capitalised or expensed as incurred. Where R&D costs are capitalised, the government grant income is deferred and recognised over the same period that such costs are amortised. ANNUAL REPORT 2017 (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 administrative expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent year, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other administrative expenses in the Consolidated Statement of Comprehensive Income. (H) CONSUMPTION TAXES Revenues, expenses and assets are recognised net of the amount of associated consumption tax per jurisdiction, is not unless the consumption based tax 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. incurred 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 57 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report payable to the taxation authority, are presented as operating cash flows. assets. Loans and receivables are included in trade and other receivables (Note 11) in the Consolidated Statement of Financial Position. (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 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. Current and deferred tax is recognised in the Consolidated Statement of Comprehensive Income, 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 ASSETS 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 year which are classified as non-current 58 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 the Consolidated Statement of Comprehensive Income, 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 Consolidated 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 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 the Consolidated Statement of Comprehensive Income 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: Notes to the Consolidated Financial Report ANNUAL REPORT 2017 Category Network assets Fibre opric cable Communications assets Other assets Office furnature and equipment Leasehold improvements Useful Life 25-40 Years 15-25 Years 3-5 Years 3-10 Years 3-10 Years 3-10 Years Assets in the course of construction are transferred to property, plant and equipment upon successful testing and commissioning. (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 lives: Category Rights and licenses Software Customer, brand & trademarks Useful Life 3-15 Years 3-5 Years 4-10 Years Intangible assets with finite useful lives are 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 recognised as intangible assets and are 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. Spectrum Licenses Spectrum licence assets acquired as part of a business combination are measured at their fair value at the date of acquisition less accumulated amortisation and impairment charges. The amortisation of spectrum licence assets is calculated on a straight-line basis over the expected useful life of the asset based on the current renewal dates of each licence. Customer acquisition costs Direct customer acquisition costs in relation to customer contracts are recognised as an asset where it is probable that the future economic benefits arising as a result of the costs incurred will flow to the Group. Customer acquisition costs recognised as an asset are amortised from the inception of the contract over the lesser of the period of the contract and the period during which the future economic benefits are expected to be obtained, and reviewed for impairment at the end of the financial year. Customer acquisition costs not recognised as an asset are expensed as incurred. 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 payables. 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) IMPAIRMENT OF ASSETS Intangible assets that have an indefinite useful life are not 59 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 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). With the exception of goodwill, all assets are subsequently loss indications that an reassessed for previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. impairment (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 the Consolidated Statement of Comprehensive Income over the year 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 year 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 year in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting year and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in provision for employee benefits. (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 60 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. (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. (S) BORROWINGS COSTS Borrowing costs incurred for the construction of any qualifying asset are capitalised during the year 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 liabilities of foreign operations are The assets and 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. (V) EARNINGS PER SHARE (i) Basic earnings per share Basic earnings per share is calculated by dividing: • • the profit / (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 ANNUAL REPORT 2017 • bonus elements in ordinary shares issued during the year (Note 33). 2. APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS (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. (W) ROUNDING OF AMOUNTS The Company is of a kind referred to in the Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016 and issued pursuant to section 341(1) of the Corporations Act 2001. In accordance with that Instrument, amounts in the financial statements have been rounded to the nearest dollar. (X) HEDGING Hedging of risk exposure can be carried out using instruments. Derivatives are derivatives or physical 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. (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. Certain new accounting standards, amendments and interpretations to existing standards have been published but are not yet effective and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards, amendments and interpretations are provided below. AASB 9 FINANCIAL INSTRUMENTS This standard addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard replaces all previous versions of AASB 9 introduces new classification and measurement models for financial assets. New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of entities along with requirements for financial assets and amendments to the classification and measurement for certain debt instruments. In relation to the impairment of financial assets requirements under AASB 9, the new standard requires an ‘expected credit loss’ model as opposed to an incurred credit loss model. This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The assessment of the impact of this standard on the Group is 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 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. This standard is applicable to annual reporting periods beginning on or after 1 January 2018. This standard will apply to the Group from 1 July 2018 and may impact the timing of revenue recognition. The assessment of the impact of this standard on the Group is ongoing. AASB 16 LEASES This standard will replace AASB 117 Leases and is applicable This standard will replace AASB 117 Leases and is applicable to annual reporting periods beginning on or after 1 January 2019. This standard provides a comprehensive model for the identification of lease 61 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report arrangements and their treatment financial statements of both lessees and lessors. This standard introduces three main changes: in the • 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. • Leases currently classified as operating leases will be capitalised in the Consolidated Statement of Financial Position with a liability corresponding to future lease payments also recognised. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). This standard will apply to the Group from 1 July 2019 and impact the financial statements for the financial year ending 30 June 2020. The full assessment of the impact on the Group is ongoing. There are no other new standards and interpretations that are not yet effective and that are expected to have a material impact on the Group’s consolidated financial statements in the current or future reporting periods. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT The preparation of the Group’s consolidated financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompany disclosures. These estimates and judgements are continually evaluated against historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. In the process of applying the Group’s accounting policies, management has made the following estimates and judgements, which involved a higher degree of judgement or complexity, and which have the most significant effect on the amounts recognised in the consolidated financial statements. is for acquisitions Business combinations Accounting inherently complex, requiring a number of judgements and estimates to be made. In accounting for business combinations, the Group has made a number of judgements in relation to identification of fair values attributable to separately identifiable assets and including intangible assets such as customer relationships, software and brand name and trademarks identified, refer to Note 37. The determination of fair values requires the use of valuation techniques based on assumptions including revenue growth, cash flows, margins, customer attrition rates and weighted-average cost of capital. Additional judgement and estimates have been applied in estimating the useful lives of intangible assets and tangible assets acquired refer to Note 1(M). liabilities acquired For the acquisition of BigAir, the Group has commissioned 62 independent valuation expert to assist an in the determination of the methodology and calculation of the attributed fair values to identified intangible assets. The acquisition accounting for both BigAir and SubPartners remain provisional at the balance sheet date, with the excess purchase consideration over the fair value of identified assets and liabilities acquired in both acquisitions recognised as goodwill. Goodwill and other indefinite life intangible assets In assessing impairment on goodwill and other indefinite life intangible assets, in accordance with accounting policy outlined in Note 1(O), management estimates the recoverable amount of each asset, cash-generating or group of cash generating assets based on the greater of “Value in Use” or “Fair value in which such determination is made less costs to sell”. Value in use is assessed through a discounted cash flow analysis which includes significant estimates and the use of assumptions, including growth rates, estimated future cash flows and estimated discount rates based on the current cost of capital, refer to Note 14. Revenue recognition The Group undertakes long term capacity contracts which span a number of reporting periods. Revenue from these long term capacity arrangements, is recognised in line with the delivery of the service, based on the stage of completion. Determining the stage of completion in relation to the delivery of long term capacity arrangements requires the application of judgement due to the complexity and specific nature of the customer arrangements and estimation of future costs of completing the contract and the expected outcome of the contract. The assumptions made in the estimates are based on the information available to management at the reporting date, however future changes or additional information may mean that management revises estimates of the revenue recognition pattern in future years. A change in the estimated stage of completion could have a significant impact on the timing of the revenue recognition. Refer to Note 1(E) for further information on revenue recognition. 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 reviews 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 recognised. 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 as 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. Refer to Note 15, for judgement made in relation to deferred tax assets. ANNUAL REPORT 2017 4. SEGMENT INFORMATION 4. SEGMENT INFORMATION (A) DESCRIPTION OF SEGMENTS Superloop is a trusted enabler of connectivity and managed services in Asia Pacific. During the year, the principal activities of the Group consisted of the development and operation of independent connectivity infrastructure throughout the Asia Pacific region, and the Group’s recent acquisitions expanded its principal activities to include complete network managed services. The operations of the Group are reported in these segments to Superloop’s executive management team (chief operating decision makers). 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: 30 June 2017 Revenue Direct costs Profit after direct costs Employee benefits expense Other expenses EBITDA Connectivity $ Managed Services $ Total Segments $ Corporate $ Total $ 30,624,037 (8,674,146) 21,949,891 (7,408,734) (4,838,720) 9,702,437 28,679,435 59,303,472 (19,189,907) (27,864,053) 9,489,528 31,439,419 501,710 (162,108) 339,602 59,805,182 (28,026,161) 31,779,021 (4,320,820) (11,729,554) (3,073,154) (14,802,708) (1,792,841) 3,375,867 (6,631,561) (5,772,152) (12,403,713) 13,078,304 (8,505,704) 4,572,600 Depreciation and amortisation (5,576,639) (1,764,173) (7,340,812) Finance expenses Profit / (loss) before income tax (11,894) 4,113,904 21,918 1,633,612 10,024 (1,671,831) (1,233,225) (9,012,643) (1,223,201) 5,747,516 (11,410,760) (5,663,244) Employee benefits expenses which relate to corporate head office staff; Significant items excluded from segments, and classified as corporate are: • • Other expenses which relate to office and administrative expenses associated with corporate head office activities; • Finance income and costs are not allocated to individual segments as the underlying instruments are managed on a group basis. Inter-segment revenues are eliminated on consolidation. • Due to the Group’s recent acquisitions, the reportable segments results above are not for the full financial year. 30 June 2017 Non-current assets Property, plant and equipment Intangible assets Connectivity $ 130,581,926 160,649,569 291,231,495 Managed Services $ 17,035,015 74,889,413 91,924,428 Total Segments $ 147,616,941 235,538,982 383,155,923 The carrying amount of non-current assets excludes other non-current assets and deferred tax assets. 63 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report Connectivity $ Managed Services $ Total Segments $ Corporate $ Total $ 30 June 2016 Revenue Direct costs Profit after direct costs Employee benefits expense Other expenses EBITDA Depreciation and amortisation Finance expenses Profit / (loss) before income tax 6,947,001 (5,063,806) 1,883,195 (2,888,265) (1,444,281) (2,449,351) (1,624,225) (236,055) (4,309,631) - - - - - - - - - 6,947,001 (5,063,806) 1,883,195 (2,888,265) (1,444,281) (2,449,351) 47,369 6,994,370 - (5,063,806) 47,369 1,930,564 (1,279,876) (1,955,149) (4,168,141) (3,399,430) (3,187,656) (5,637,007) (1,624,225) (236,055) (257,744) 590,921 (1,881,969) 354,866 (4,309,631) (2,854,479) (7,164,110) 30 June 2016 Non-current assets Property, plant and equipment Intangible assets Connectivity $ 66,850,737 12,363,209 79,213,946 Managed Services $ - - - Total Segments $ 66,850,737 12,363,209 79,213,946 The carrying amount of non-current assets excludes other non-current assets and deferred tax assets. (C) GEOGRAPHIC INFORMATION Superloop operates in three strategic markets of Australia, Singapore and Hong Kong and the operations of the Group are also reported in these segments to Superloop’s executive management team (chief operating decision maker). 30 June 2017 Revenue Direct costs Profit after direct costs Employee benefits expense Other expenses EBITDA Depreciation and amortisation Finance expenses Profit / (loss) before income tax Australia $ Singapore $ Hong Kong $ Total $ 54,831,769 (25,689,503) 29,124,266 (13,074,654) (11,504,769) 4,562,843 (6,903,517) (1,126,361) (3,467,035) 3,927,094 (1,149,093) 2,778,001 (892,472) (413,118) 1,472,411 (1,550,328) (12,478) (90,395) 1,046,319 (1,187,565) (141,246) (835,582) (485,826) (1,462,654) (558,798) (84,362) (2,105,814) 59,805,182 (28,026,161) 31,779,021 (14,802,708) (12,403,713) 4,572,600 (9,012,643) (1,223,201) (5,663,244) Inter-segment revenues are eliminated on consolidation. 64 Notes to the Consolidated Financial Report ANNUAL REPORT 2017 30 June 2017 Non-current assets Property, plant and equipment Intangible assets Australia $ Singapore $ Hong Kong $ Total $ 49,579,278 235,381,296 284,960,574 42,724,899 157,686 42,882,585 55,312,764 - 55,312,764 147,616,941 235,538,982 383,155,923 The carrying amount of non-current assets excludes other non-current assets and deferred tax assets. 30 June 2016 Revenue Direct costs Profit after direct costs Employee benefits expense Other expenses EBITDA Depreciation and amortisation Finance expenses Profit / (loss) before income tax 30 June 2016 Non-current assets Property, plant and equipment Intangible assets Australia $ Singapore $ Hong Kong $ Total $ 5,510,747 (3,950,895) 1,559,852 (3,230,966) (2,866,257) (4,537,371) (784,514) 583,077 (4,783,808) 1,483,623 (927,328) 556,295 (685,307) (247,941) (376,953) (1,097,455) (239,527) (1,713,935) - (185,583) (185,583) (251,868) (285,232) (722,683) - 11,316 (711,367) 6,994,370 (5,063,806) 1,930,564 (4,168,141) (3,399,430) (5,637,007) (1,881,969) 354,866 (7,164,110) Australia $ Singapore $ Hong Kong $ Corporate $ 3,095,414 11,786,391 14,881,805 40,167,133 576,818 40,743,931 23,588,210 - 23,588,210 66,850,737 12,363,209 79,213,946 The carrying amount of non-current assets excludes other non-current assets and deferred tax assets. 65 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 5. REVENUE From continuing operations Customer revenue Other revenue Interest income Other income Total revenue 30 June 2017 $ 30 June 2016 $ 58,457,284 6,197,637 514,669 833,229 50,700 416 59,805,182 6,248,753 6. OTHER GAINS AND LOSSES Gain on disposal of property, plant and equipment Total other gains and losses Note (A) 30 June 2017 $ 30 June 2016 $ - - 745,617 745,617 (A) During the previous financial 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 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 recurring revenue as the services are provided. 7. INTEREST EXPENSE Interest on borrowings Total interest expense Note (A) 30 June 2017 $ 30 June 2016 $ (1,235,735) (1,235,735) - - (A) INTEREST ON BORROWINGS The Group incurs interest on the drawn amount of its debt facility (refer to Note 17). 8. FOREIGN EXCHANGE GAINS Foreign exchange gains Total foreign exchange gains Note (A) 30 June 2017 $ 30 June 2016 $ 12,534 12,534 354,866 354,866 (A) FOREIGN EXCHANGE GAINS Foreign exchange gains for the year arose as a result of favourable exchange rate movements in the ordinary course of business. 66 9. INCOME TAX EXPENSE (a) Income tax recognised in profit or loss Current tax Deferred tax In respect of the current year In respect of prior years Sub-total ANNUAL REPORT 2017 30 June 2017 $ 30 June 2016 $ - 1,311,441 3,112,011 4,423,452 - - - - (b) Numerical reconciliation of income tax credit to prima facie tax payable Loss from continuing operations before income tax expense (5,663,244) (7,164,110) Tax credit at the Australian tax rate of 30% Effect of income that is exempt from taxation @ 30% Non-deductible research and development expenditure Non-deductible entertainment expenses Non-deductible share based payments 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 (Note c) Effect of current year timing differences for which no deferred tax asset has been recognised 1,698,973 200,361 (112,814) (16,591) (255,481) (203,007) - - Deferred tax credits in respect of temporary differences and unused tax losses not 3,112,011 recognised in prior years Income tax expense / (benefit) 4,423,452 2,149,233 223,685 - - - (389,234) (1,860,502) (123,182) - - (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 tax loss estimates Total deferred tax asset from losses not recognised - - - - 1,860,502 915,934 (69,123) (2,707,313) The tax rate used for the 2017 and 2016 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 10. CASH AND CASH EQUIVALENTS Cash at bank and in hand Deposits Total cash and cash equivalents 30 June 2017 $ 30 June 2016 $ 6,523,424 581,261 7,104,685 44,819,463 1,034,699 45,854,135 67 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 11. TRADE AND OTHER RECEIVABLES 30 June 2017 Trade receivables Provision for doubtful debts Net trade receivables Consumption tax receivable Other receivables Total Note Current $ Non-Current $ Total $ (A) (B) (C) 10,542,024 (183,285) 10,358,739 106,486 84,571 10,549,796 - - - - - - 10,542,024 (183,285) 10,358,739 106,486 84,571 10,549,796 Note Current $ Non-Current $ Total $ 30 June 2016 Trade receivables Provision for doubtful debts Net trade receivables Consumption tax receivable (C) Other receivables Receivables - related parties Total 1,263,033 (20,990) 1,242,043 155,071 - 176 1,397,290 - - - - - - - 1,263,033 (20,990) 1,242,043 155,071 - 176 1,397,290 (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 past due but not impaired 30 June 2017 $ 30 June 2016 $ 2,046,804 591,239 2,638,043 61,661 20,661 82,322 (B) IMPAIRED TRADE RECEIVABLES As at 30 June 2017, the Group had trade receivables with an initial carrying value of $183,285 (2016: $20,990) which were impaired and fully provided for. 68 Age of Impaired Trade Receivables 0-60 days 60-90 days 90 days plus Total past due but not impaired Movement in Provision for Impairment Balance at beginning of the year Impairment losses recognised on receivables Balance from acquisition Balance at end of the year ANNUAL REPORT 2017 30 June 2017 $ 30 June 2016 $ 85,484 48,248 49,553 183,285 6,600 6,600 7,790 20,990 30 June 2017 $ 30 June 2016 $ 20,990 20,651 141,644 183,285 - 20,990 - 20,990 (C) CONSUMPTION TAX RECEIVABLES 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 Other current assets Other current financial assets Total other assets – current Non-current Other non-current assets Total other assets – non-current 13. PROPERTY, PLANT AND EQUIPMENT Carrying amounts of: Assets in the course of construction Network assets Communication assets Other assets Total 30 June 2017 $ 30 June 2016 $ 2,311,019 178,993 218,740 2,708,752 298,714 298,714 471,550 - - 471,550 17,180 17,180 30 June 2017 $ 30 June 2016 $ 6,596,821 100,435,100 39,472,761 1,112,259 147,616,941 27,047,827 39,600,670 - 202,240 66,850,737 69 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report Assets in the course of construction $ 5,654,845 33,201,161 - 181,037 - (11,989,216) 27,047,827 47,228,062 1,192,865 - - Network assets Communication assets $ 28,424,093 - - 964,988 (12,769) 10,808,984 40,185,296 - $ - 31,184 226,820 - - 906,218 1,164,222 4,537,080 521,840 35,706,556 Other assets $ 14,499 19,582 - 497 - 274,014 308,592 102,658 990,439 Total $ 34,093,437 33,251,927 226,820 1,146,522 (12,769) - 68,705,937 51,867,800 38,411,700 (3,405,173) (1,272,515) (2,456) (4,680,144) Cost or Valuation: Balance at 30 June 2015 Additions Additions through business combinations (Note 37) Movement in foreign exchange Disposals Transfer Balance at 30 June 2016 Additions Additions through business combinations (Note 37) Movement in foreign exchange Disposals Transfer (68,871,933) 66,714,507 2,091,524 - - - 65,902 - - Balance at 30 June 2017 6,596,821 104,016,470 42,226,867 1,465,135 154,305,293 Accumulated depreciation: Balance at 30 June 2015 Depreciation charge Disposals Movement in foreign exchange Balance at 30 June 2016 Depreciation charge Disposals Movement in foreign exchange Balance at 30 June 2017 - - - - - - - - - (513,333) (1,116,098) 155 (27,001) (1,656,277) (1,947,198) - 22,105 - (92,567) - (4) (92,571) (2,664,726) - 3,191 (3,708) (102,416) - (228) (106,352) (246,659) - 135 (517,041) (1,311,081) 155 (27,233) (1,855,200) (4,858,583) - 25,431 (3,581,370) (2,754,106) (352,876) (6,688,352) Carrying value – 2017 Carrying value – 2016 6,596,821 100,435,100 27,047,827 38,529,019 39,472,761 1,071,650 1,112,259 202,240 147,616,941 66,850,737 Assets in the course of construction: Included in property, plant and equipment at 30 June 2017 was an amount of $6,596,821 (2016: $27,047,827) relating to expenditure for network assets in the course of construction. 14. INTANGIBLE ASSETS Carrying amounts of: Development costs Rights and licences Software Customer relationships, brands and trademarks Goodwill Total intangible assets 70 30 June 2017 $ 30 June 2016 $ - 17,292,686 1,740,532 52,683,300 163,822,464 235,538,982 23,820 4,185,744 1,576,957 551,246 6,025,442 12,363,209 ANNUAL REPORT 2017 Development Rights and Software costs licenses Customer, brand and trademarks Goodwill Total $ - - $ $ $ $ $ 4,375,000 - - 1,720,487 - 581,000 - 6,025,442 4,375,000 8,326,929 23,820 - 185,784 6,365 23,820 4,567,149 - - 91,289 - 1,811,776 - - - - - 300,893 6,365 581,000 54,598,480 6,025,442 157,797,022 13,009,187 212,395,502 Cost or Valuation: Balance as at 30 June 2015 Additions through business combinations (refer Note 37) Other additions Movements in foreign exchange Balance as at 30 June 2016 Additions through business combinations (refer Note 37) Other additions (23,820) 13,610,000 660,608 697,271 - - - - 14,944,059 (10,184) 2,472,384 55,876,751 163,822,464 240,338,564 Movements in foreign exchange Balance as at 30 June 2017 Accumulated amortisation: Balance as at 30 June 2015 Amortisation charge Movements in foreign exchange Balance as at 30 June 2016 Amortisation charge Movements in foreign exchange Balance as at 30 June 2017 Carrying value – 2017 Carrying value – 2016 (10,184) 18,166,965 - (75,000) (306,315) (90) (381,405) (493,331) 457 - - - - - - - - - - - (234,819) - - (29,754) - (234,819) (497,033) (29,754) (3,163,696) - - (874,279) (731,852) (3,193,450) - - - - - - - (75,000) (570,888) (90) (645,978) (4,154,060) 457 (4,799,582) 17,292,686 23,820 4,185,744 1,740,532 1,576,957 52,683,301 163,822,464 235,538,982 551,246 6,025,442 12,363,209 Goodwill has been allocated for impairment testing purposes to the following cash-generating units: Connectivity Managed Services Total goodwill 30 June 2017 $ 104,362,876 59,459,588 163,822,464 An impairment loss is recognised for the amount by which the carrying amount of the cash-generating units exceeds their recoverable amount. The recoverable amount for the cash-generating units and groups of 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 year ending 30 June 2018 budget approved by the Board with the earnings beyond the budget period extrapolated using a growth rate per annum and a long term growth rate of 2.5%. A pre-tax discount rate of 12% has been assumed, representing the long term average and includes a risk-premium given the stage in the business cycle of the Group’s business. For the cash-generating units and groups of 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. Management has reviewed sensitivity on the key assumptions on which the recoverable amounts are based and believes that changes would not cause the cash-generating units or groups of cash-generating units carrying amounts to exceed the recoverable amounts. The sensitivity applied was to reduce the long term growth rate from 2.5% to 1.5% and an increase to the pre-tax discount rate from 12% to 13% for each cash-generating unit or groups of cash-generating units, which did not result in the cash-generating units or groups of cash-generating units carrying amounts exceeding the recoverable amounts. 71 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 15. DEFERRED TAX ASSETS Deferred tax assets attributable to: Employee benefits Exchange differences on foreign operations Cashflow hedges Expenses deductible in future periods Tax credits from tax losses Note 30 June 2017 $ 30 June 2016 $ 937,542 541,287 351,569 1,214,915 4,446,117 7,491,430 (5,548,067) 100,265 - - 71,245 2,707,314 2,878,823 (48,329) - (2,830,494) 1,943,363 - Total deferred tax assets Set-off of deferred tax liabilities pursuant to set-off provisions 20 Deferred tax assets not recognised Deferred tax assets recognised in the statement of financial position Deferred tax assets are recognised where it is considered probable that they will be recovered in the future, and, as such, are subjective. Superloop had previously not recognised any deferred tax assets in the statement of financial position as a significant portion relate to credits for tax losses. Following the acquisition of BigAir, combined with the progress in Singapore and Hong Kong, Superloop has elected to recognise the value of deferred tax assets at 30 June 2017, including tax credits for prior period tax losses. 16. TRADE AND OTHER PAYABLES Trade payables Other payables Accrued expenses Other current financial payables Deferred consideration Total trade and other payables 30 June 2017 $ 30 June 2016 $ 8,682,709 9,191,635 4,049,716 1,390,638 3,191,605 2,803,428 94,745 3,680,920 - - 26,506,303 6,579,093 17. INTEREST-BEARING LOANS AND BORROWINGS The Company had debt outstanding as at 30 June 2017 of $31,331,563 (30 June 2016: nil). During the year the Company entered into a $25 million three year revolving debt facility with the ANZ Bank. This facility was subsequently replaced with an $80 million three year revolving facility. The facility can be used for working capital, capital expenditure and permitted acquisitions and is available to be drawn in multiple currencies. Bank guarantees to the value of $1,515,398 have been issued under the facility. 72 Notes to the Consolidated Financial Report ANNUAL REPORT 2017 Note 30 June 2017 $ 30 June 2016 $ (A) (B) Note (C) (C) 31,563 - 31,563 29,632,910 29,632,910 29,664,473 80,000,000 (1,515,398) (31,300,000) 47,184,602 - - - - - - - - - - 30 June 2017 $ 30 June 2016 $ - - 604,394 295,606 Current Finance lease Revolving debt facility drawn Total current interest-bearing loans and borrowings Non-current Revolving debt facility drawn Total non-current interest-bearing loans and borrowings Total interest-bearing loans and borrowings Total revolving debt facility limit Less bank guarantees issued under the facility Less amounts drawn (before transaction costs) Revolving debt facility available Bank guarantee facilities – accessible Bank guarantee facilities – utilised (A) The finance lease was acquired through the acquisition of BigAir (refer Note 37). At the date of acquisition, BigAir Group Limited had debt outstanding of $30,055,019 which was repaid by Superloop from its existing cash reserves. (B) The drawn debt amount is recognised net of transaction costs which are amortised over the term of the facility using the effective interest rate method. (C) The bank guarantee facility available during 2016 was closed with guarantees now issued under the revolving facility. 18. PROVISIONS Current – employee benefits Non-current – employee benefits Total provisions 30 June 2017 $ 30 June 2016 $ 1,916,767 2,617,708 4,534,475 342,124 69,303 411,427 The provision for employee benefits represents annual leave and long service leave entitlements accrued. 73 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 19. DEFERRED REVENUE Deferred revenue Deferred installation fees Total deferred revenue Current Non-current Total deferred revenue 20. DEFERRED TAX LIABILITIES 30 June 2017 $ 30 June 2016 $ 2,302,986 129,587 2,432,573 1,957,882 474,691 2,432,573 195,432 31,340 226,772 204,314 22,458 226,772 Note 30 June 2017 $ 30 June 2016 $ Deferred tax liabilities attributable to: Prepayments Deferred revenue Recognition of intangible assets Total deferred tax liabilities Set-off of deferred tax liabilities pursuant to set-off provisions Deferred tax liabilities recognised in the statement of financial position (15) - 661,792 16,927,116 17,588,908 (5,548,067) 12,040,841 3,803 - 44,526 48,329 (48,329) - 21. CONTRIBUTED EQUITY (A) SHARE CAPITAL Note 30 June 2017 Number of Shares 30 June 2016 Number of Shares 30 June 2017 30 June 2016 $ $ Fully paid ordinary shares (C) 208,795,883 128,243,301 356,408,128 Total share capital Less: Issue costs Contributed equity 208,795,883 128,243,301 356,408,128 (5,117,965) 208,795,883 128,243,301 351,290,163 134,106,147 134,106,147 (2,919,783) 131,186,364 74 Notes to the Consolidated Financial Report ANNUAL REPORT 2017 (B) MOVEMENTS IN ORDINARY SHARE CAPITAL Date Details Number of Shares Issue Price $ Value $ 30-Jun-15 16-Oct-15 Balance Partial consideration for acquisition of APEXN Pty 90,000,000 897,666 2.23 58,800,142 2,000,000 Ltd (i) 30-Nov-15 Partial consideration for acquisition of CINENET 677,812 2.21 1,500,000 Systems Pty Ltd (i) 11-Dec-15 Share placement 30-Dec-15 Share purchase plan 29-Jun-16 Entitlement offer (institutional component) 30-Jun-16 19-Jul-16 Balance Entitlement offer (retail component) 19-Sep-16 Share placement 21-Dec-16 Partial consideration for acquisition of BIGAIR Group Limited (i) 21-Feb-17 Vesting of performance rights (i) 4-Apr-17 Partial consideration for acquisition of SubPartners Pty Ltd (i) 26-Apr-17 Vesting of performance rights (i) 30-Jun-17 Balance 22,045,000 3,937,118 10,685,705 128,243,301 6,109,637 21,666,667 52,470,602 2,075 290,374 13,227 208,795,883 1.90 1.90 2.10 2.10 3.00 2.74 2.44 2.29 2.44 41,885,500 7,480,524 22,439,981 134,106,147 12,830,238 65,000,001 143,769,449 5,063 664,956 32,274 356,408,128 (i) These share issues were non-cash transactions (refer to Note 31). (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 it 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 other 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 gearing ratio appropriate for a company of its size and position of development. 75 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report Total borrowings Less: cash and cash equivalents Net debt / (surplus cash) Total equity Gearing ratio Note 17 30 June 2017 $ 30 June 2016 $ 29,664,473 7,104,685 22,559,788 - 45,854,135 (45,854,135) 333,472,269 119,736,809 6.8% (38.3%) The Group manages its capital structure by reviewing its gearing ratio to ensure it maintains an appropriate level of gearing. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total interest bearing financial liabilities and derivative financial instruments, less cash and cash equivalents. Total capital is calculated as equity, as shown in the statement of financial position. 22. RESERVES Opening balance Cash flow hedge reserve(1) Share based payments Foreign currency translation reserves(2) Total reserves 30 June 2017 $ 30 June 2016 $ 235,031 (820,329) 814,267 (5,122,485) (4,893,516) 145,592 (368,560) - 457,999 235,031 (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 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 translation reserve. 23. ACCUMULATED LOSSES Opening balance Profit / (loss) for the year Total accumulated losses 24. DIVIDENDS A fully franked dividend of $0.005 per share was declared after the end of the year. 76 30 June 2017 $ 30 June 2016 $ (8,357,552) (1,239,792) (9,597,344) (1,193,442) (7,164,110) (8,357,552) 25. KEY MANAGEMENT PERSONNEL DISCLOSURES (A) KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee benefits Post-employment benefits Long-term employee benefits Share-based payments ANNUAL REPORT 2017 30 June 2017 $ 30 June 2016 $ 2,388,869 162,044 8,506 450,267 1,913,563 132,830 61,416 - Total key management personnel compensation 3,009,686 2,107,809 Detailed remuneration disclosures are provided in the Remuneration Report. (B) SHARE BASED PAYMENTS During the year, key management personnel and other employees of the Group participated in long term incentive schemes. Expense arising from equity-settled share based payments Total expense arising from share based payment transactions 851,604 851,604 - - There were no cancellations or modifications to the awards during the year. (C) LOANS TO KEY MANAGEMENT PERSONNEL 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 2015. The terms and conditions of the loan scheme are considered arm’s length. The Group does not guarantee or have any obligations with respect to the loan agreements between employees and the related party. Details of the loan terms and conditions are provided in the Remuneration Report. (D) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL There were no other transactions with key management personnel during the year not otherwise disclosed in the report in Note 29. 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 of subsidiary statutory reports and regulatory compliance Total Remuneration of Deloitte 30 June 2017 $ 30 June 2016 $ 170,000 20,000 40,800 230,800 107,670 14,500 24,432 146,602 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: 77 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report > 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. Investigating accountant’s report for the BigAir Group Limited Scheme booklet Total remuneration of Deloitte Tohmatsu related practices 85,000 85,000 - - 30 June 2017 $ 30 June 2016 $ (C) NON-DELOITTE AUDIT FIRMS Superloop Limited did not engage with any other non-Deloitte audit firms. 27. OPERATING LEASE ARRANGEMENTS Operating leases relate to the leasing of office premises. The Group has entered lease terms for office space of up to four years in length. The Group has the option, under some of its leases, to lease the assets for additional terms. For the year ended 30 June 2017, the Group made operating lease payments for its office premises in Brisbane, Maroochydore, Melbourne, Sydney, Perth, Singapore and Hong Kong. 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 CONTIGENCIES 30 June 2017 $ 30 June 2016 $ 2,916,748 2,916,748 137,817 137,817 30 June 2017 $ 30 June 2016 $ 2,570,795 4,633,609 194,997 7,399,401 574,050 1,199,262 - 1,773,312 (A) CAPITAL COMMITMENTS 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 2017 $ 30 June 2016 $ 41,385,683 41,385,683 24,953,584 24,953,584 Capital commitments disclosed above relate to contracted capital commitments associated with network expansion to the value of A$3.3 million and US$29.1 million in relation to submarine cable construction. Non-cancellable operating lease commitments are disclosed in Note 27 to the financial statements. 78 ANNUAL REPORT 2017 (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. 29. RELATED PARTY TRANSACTIONS The following is a summary of the transactions with related parties. ACQUISITION OF SUBPARTNERS PTY LTD On 4 April 2017, the Group completed the acquisition of SubPartners Pty Ltd (SubPartners). The Founder and significant shareholder of Superloop is also the Founder and was a significant shareholder of SubPartners. Refer to Note 37 Controlled entities acquired or disposed. SHARED SERVICES AGREEMENT The Group has entered into a shared services agreement with Capital B Pty Ltd (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 the Group provides 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. Either party may terminate the agreement for convenience on 60 days’ written notice. CUSTOMER AGREEMENT WITH MEGAPORT Superloop has entered into customer agreements for the provision of connectivity services with Megaport Limited 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 fees for the connectivity services provided. The agreements are on the same terms as other agreements between Superloop and unrelated customers and the fees in each service order form are at competitive market rates. CUSTOMER AGREEMENT WITH RISING SUN PICTURES Superloop has entered into a customer agreement for the provision of connectivity services to Rising Sun Pictures. Non- executive Director, Mr Tony Clark, is Managing Director of Rising Sun Pictures and has significant influence over the business. The agreement is on an arm’s length basis. APX PARTNERS PTY LTD The Founder and significant shareholder of Superloop is also the Founder and shareholder of APX Partners Pty Ltd. APX Partners are a party to the Joint Build Agreement with SubPartners Pty Ltd and other counterparties for the construction of the INDIGO West and INDIGO Central submarine cable systems. At reporting date, APX Partners had an amount outstanding to Subpartners Pty Ltd for fees in relation to the construction of Sydney landing facilities. 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 prior to listing on the Australian Securities Exchange in 2015. (A) PROVISION OF SERVICES TO / FROM RELATED PARTIES Sales of goods / services Revenue earned from related parties Provision of services to Superloop Payments to related parties for provision of shared services and rent Balance outstanding at year end Receivables Trade and other payables 30 June 2017 $ 30 June 2016 $ 3,847,606 260,143 625,413 1,023,689 2,234,805 6,341,951 260,143 41,171 79 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 30. RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH FLOW FROM OPERATING ACTIVITIES Loss for the year after income tax Adjustments for: Depreciation and amortisation Doubtful debts expense Share based payments expense Interest income Interest expense Foreign exchange gain / (losses) Proceeds from the sale of property, plant and equipment Transaction costs associated with the acquisition of subsidiaries Change in operating assets and liabilities (Increase) / decrease in trade debtors (Increase) / decrease in prepayments and other receivables (Decrease) / increase in trade creditors and other payables (Decrease) / increase in accruals (Decrease) / increase in deferred revenue (Decrease) / increase in provisions (Decrease) / increase in finance lease liabilities (Decrease) / increase in tax related balances Net cash from operating activities 31. NON-CASH TRANSACTIONS 30 June 2017 $ 30 June 2016 $ (1,239,792) (7,164,110) 9,012,643 183,285 851,604 (514,669) 1,235,735 (12,534) - 4,376,289 (1,880,667) (2,098,380) (2,482,140) 419,834 465,306 1,606,832 31,563 (5,287,135) 4,667,774 1,881,969 - - (50,700) - (754,899) (755,719) 55,164 - (775,810) 927,935 - - 223,625 - 82,250 (6,330,295) During the year, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows: On 21 December 2016, the Group acquired BigAir Group Limited. The acquisition included non-cash consideration of $143.8 million in Superloop Limited shares issued at $2.74 per share. On 4 April 2017, the Group acquired SubPartners Pty Ltd. The acquisition included non-cash consideration of $3.3 million in Superloop Limited shares issued at $2.255 per share. 290,374 shares were issued during the year and 1,161,495 shares were issued after the end of the year. Refer to Note 37 for additional information on these transactions. In the prior year, the Group acquired APEXN Pty Ltd (APEXnetworks) with the transaction including non-cash consideration of $2.0 million in Superloop Limited shares issued at $2.228 per share. The Group also acquired CINENET Systems Pty Ltd with the transaction including non-cash consideration of $1.5 million in Superloop Limited shares issued at $2.213 per share. 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. 80 Notes to the Consolidated Financial Report The Group holds the following financial instruments Financial assets Cash and cash equivalents Term deposits Trade and other receivables Other current financial assets Other non-current assets Total financial assets Financial liabilities Trade and other payables Finance lease Interest-bearing borrowings Total financial liabilities ANNUAL REPORT 2017 30 June 2017 $ 30 June 2016 $ 6,523,424 581,261 10,542,024 218,740 298,714 18,164,163 26,506,303 31,563 31,300,000 57,837,866 44,819,436 1,034,699 1,370,090 - 17,180 47,241,405 6,579,093 - - 6,579,093 (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 earned in Singapore and Hong Kong, movements in exchange rates impact on the translation of account balances in Superloop’s Singapore and Hong Kong 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. The Group has reduced the potential impact of exchange rate movements in contracted foreign currency obligations through the use of derivative foreign exchange contracts. The Group also has a multi-currency debt facility (refer (C)), which allows the Group to draw funds in a range of different currencies, providing the Group with another method to manage the potential adverse impacts of changes in exchange rate movements. (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, term deposits (refer Note 10), and the Group’s interest- bearing liabilities. The Group has reduced the level of potential exposure to a movement in interest rates via the use of a derivative interest rate swap. The interest rate swap has the economic effect of converting borrowings from floating rates to fixed rates. (iv) Sensitivity At 30 June 2017, if interest rates had increased by 100 basis points 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 $213,316 higher / $213,316 lower. (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: 81 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report Cash at Bank and Short Term Deposits AA rated A+ rated BBB+ rated Total 30 June 2017 $ 30 June 2016 $ 7,104,685 45,854,135 - - - - 7,104,685 45,854,135 In determining the credit quality of the financial assets, Superloop has used the long term rating from Standard & Poor’s in July 2017. (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 2017, the Group had $10,542,024 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 telecommunications infrastructure and ongoing maintenance of existing 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. During the year the Group entered into a $25 million three year revolving debt facility with the ANZ Bank. This facility was subsequently replaced with an $80 million three year revolving facility. The facility can be used for working capital, capital expenditure and permitted acquisitions and is available to be drawn in multiple currencies. During the year, the Group was in compliance with the debt covenant requirements of the facility. As at 30 June 2017, the Group had cash at bank and short term deposits of $7.1 million, and available funding of $47.2 million through its debt facility. The Group believes this is sufficient capital to complete its budgeted capital expenditure program, fund working capital requirements and potential growth opportunities. Contractual maturities of financial liabilities Within 12 months Between 1 and 5 years Over 5 years 2017 Trade payables Interest-bearing borrowings Total non-derivatives 2016 Trade payables Interest-bearing borrowings Total non-derivatives 82 $ 26,506,303 31,563 26,537,866 6,579,093 - 6,579,093 $ - 31,300,000 31,300,000 - - - $ - - - - - - Total contractual cash flows $ Carrying amount $ 26,506,303 26,506,303 31,331,563 57,837,866 31,331,563 57,837,866 6,579,093 6,579,093 - - 6,579,093 6,579,093 ANNUAL REPORT 2017 The Group has reduced the level of potential exposure to a movement in interest rates via the use of a derivative interest rate swap. The interest rate swap has the economic effect of converting borrowings from floating rates to fixed rates. The notional value of the derivative contract was $10.0 million at year end. After year end, the notional value of the contract was increased to $20.0 million. The Group has reduced the potential impact of exchange rate movements in contracted foreign currency obligations through the use of derivative foreign exchange contracts. A USD participating forward exchange contract consisting of forward exchange contracts and AUD/USD put options with a total notional value of US$20.0 million has been entered into to reduce the potential impact of exchange rate movements in contracted obligations in relation to submarine cable construction. (D) FAIR VALUE MEASUREMENT (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 30 June 2017 Cents 30 June 2016 Cents Total basic losses per share attributable to the ordinary equity holders of the Group (0.69) (6.81) (B) DILUTED LOSSES PER SHARE 30 June 2017 Cents 30 June 2016 Cents Total diluted losses per share attributable to the ordinary equity holders of the Group (0.69) (6.81) (C) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE 30 June 2017 Cents 30 June 2016 Cents Basic Earnings Per Share Loss attributable to the ordinary equity holders of the Group used in calculating (1,239,792) (7,164,110) basic losses per share Diluted Earnings Per Share Loss from continuing operations attributable to the ordinary equity holders of the (1,239,792) (7,164,110) Group 83 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report (D) WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR 30 June 2017 Number of Shares 30 June 2016 Number of Shares Weighted average number of ordinary shares used as the denominator in calculating 178,422,870 105,191,913 basic earnings per share Effects of dilution from: > Performance rights > Share options 190,092 612,405 - - Weighted average number of ordinary shares and potential ordinary shares used as 179,225,367 105,191,913 the denominator in calculating diluted earnings per share 34. SUBSIDIARIES Name of Entity Superloop (Australia) Pty Ltd(1) Superloop (Singapore) Pte Ltd Superloop (Hong Kong) Limited Superloop (Japan) K.K. APEXN Pty Ltd(1) CINENET Systems Pty Ltd(1) ACN 614 507 247 Pty Ltd(1) BigAir Group Pty Ltd(1) Clever Communications Pty Ltd(1) Clever Communications Operations Pty Ltd(1) Saise Pty Ltd(1) Access Providers Group Pty Ltd(1) Activ Australia Pty Ltd(1) BigAir Universe Broadband Pty Ltd(1) BigAir Community Broadband Pty Ltd(1) Allegro Networks Pty Ltd(1) Radiocorp Pty Ltd(1) Link Innovations Pty Ltd(1) Intelligent IP Communications Pty Ltd(1) BigAir Cloud Managed Services Pty Ltd(1) Unistar Enterprises Pty Ltd(1) Oriel Technologies Pty Ltd(1) Integrated Data Labs Pty Ltd(1) Applaud IT Pty Ltd(1) Everywhere Internet Holdings Pty Ltd(1) Everywhere Internet Systems Pty Ltd(1) CyberHound Pty Ltd(1) SubPartners Pty Ltd(1) SubPartners Pte Ltd APX West Limited Country of incorporation Class of shares 30 June 2017 % 30 June 2016 % Australia Singapore Hong Kong Japan Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Bermuda Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 100% - - - - - - - - - - - - - - - - - - - - - - - - (1) These wholly-owned subsidiaries are members of the Australian tax-consolidated group. 84 ANNUAL REPORT 2017 35. EVENTS OCCURRING AFTER THE REPORTING PERIOD On 11 August 2017, upon receiving shareholder approval, the Company issued 1,161,495 shares at fair value to Mr Bevan Slattery to satisfy the deferred consideration payable in conjunction with the acquisition of SubPartners Pty Ltd. Also, on 11 August 2017, 336,094 options were issued to Mr Matthew Hollis under the Group’s Executive Option Plan. 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. Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Contributed equity Reserves Accumulated losses Total equity Loss for the year Total comprehensive loss for the period 30 June 2017 $ 30 June 2016 $ 143,726,359 253,995,498 397,721,857 86,145,245 43,944,847 130,090,092 19,540,818 31,300,000 50,840,818 351,290,163 814,267 (5,223,392) 638,016 - 638,016 131,186,364 (368,560) (1,365,728) 346,881,038 129,452,076 (3,857,664) (2,674,837) (483,505) (483,505) (A) GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES As at 30 June 2017, Superloop Limited had issued a parent company guarantee in relation to the obligations of SubPartners Pty Ltd in accordance with a supply agreement for the construction of INDIGO West and INDIGO Central submarine cable systems. (B) CONTINGENT LIABILITIES OF SUPERLOOP LIMITED (PARENT ENTITY) As a 30 June 2017, Superloop Limited did not have any contingent liabilities. 85 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Notes to the Consolidated Financial Report 37. CONTROLLED ENTITIES ACQUIRED OR DISPOSED During the year Superloop Limited acquired the following entities: BigAir Group Limited SubPartners Pty Ltd 21 December 2016 4 April 2017 If both entities had been acquired at 1 July 2016, the Group would have generated total revenue of $97.2 million and a Net Loss before Tax of $7.6 million for the full financial year to 30 June 2017, based on unaudited financial information provided by each entity prior to the date of acquisition. Goodwill arose in the acquisitions of BigAir Group Limited and SubPartners 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 workforces of each group. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. BigAir Group Limited On 21 December 2016, Superloop Limited acquired 100% of BigAir Group Limited for a total consideration of $189.6 million, paid as $45.8 million in cash and $143.8 million in Superloop Limited shares issued at $2.74 per share. The acquisition of BigAir allows Superloop to leverage its fibre network plus provide the Group with new wireless capabilities to deliver low cost gigabit connectivity. Goodwill of $148.2 million represents the residual value of the purchase price over the fair value of the identifiable assets shown below. The acquired business contributed revenues of $40.6 million during the period from acquisition. At 30 June 2017, the Company is continuing to receive the information required to assess the fair values of assets and liabilities acquired. Accordingly the fair values identified below are provisional as at the reporting date. Details of the acquisition are as follows: Identifiable assets acquired and liabilities assumed Cash Provisional Fair Value ($) 2,134,644 Receivables Other assets Property, plant and equipment Payables Deferred revenue Provisions and other liabilities Deferred tax liabilities Term debt funding Customer relationships Brand name and trademarks Other identifiable intangible assets Net identifiable assets acquired Consideration transferred Cash paid Shares Total consideration Goodwill on acquisition Consideration 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 Transaction costs of $4.2 million related to the acquisition have been expensed during the year. 86 7,482,719 4,674,065 37,632,555 (9,978,605) (2,899,682) (6,578,202) (15,399,000) (30,055,019) 48,739,000 500,000 5,114,000 41,366,475 45,804,556 143,769,449 189,574,005 189,574,005 (41,366,475) 148,207,530 45,804,556 (2,134,644) 43,669,912 ANNUAL REPORT 2017 SubPartners Pty Ltd On 4 April 2017, Superloop Limited acquired 100% of SubPartners Pty Ltd for a total consideration of $3.3 million, to paid in Superloop Limited shares issued at $2.255 per share. The acquisition of SubPartners will provide the basis for connectivity between existing metropolitan networks to create a broad interconnected pan-Asian network, through the construction of the INDIGO West and INDIGO Central submarine cable systems. Goodwill of $9.9 million represents the residual value of the purchase price over the fair value of the identifiable net liabilities shown below. The acquired business contributed revenues of $2.9 million during the period. The fair values identified below are provisional as at the reporting date, 30 June 2017. Details of the acquisition are as follows: Identifiable assets acquired and liabilities assumed Cash Property, plant and equipment Other assets Payables – accounts Payables – related party Accruals and provisions Income tax liabilities & provision Net identifiable liabilities acquired Consideration transferred Cash paid Shares Deferred consideration Total consideration On 11 August 2017, upon receiving shareholder approval, the Company issued 1,161,495 shares to Mr Bevan Slattery to satisfy the deferred consideration payable. Goodwill on acquisition Consideration Add net identifiable liabilities acquired Goodwill on acquisition Net cash outflow on acquisition Consideration paid in cash Cash and cash equivalent balances acquired Net cash inflow on acquisition Transaction costs of $176,289 related to the acquisition have been expensed during the year. Total net cash outflow on acquisition of subsidiaries Net cash outflow on acquisition 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 acquisition of BigAir Group Limited Goodwill arising from acquisition of SubPartners Pty Ltd Total goodwill arising from acquisition of subsidiaries Provisional Fair Value $ 6,020 691,843 22,623 (84,290) (6,364,640) (797,128) - (6,525,572) - 664,956 2,659,824 3,324,780 3,324,780 6,525,572 9,850,352 - 6,020 6,020 45,804,556 (2,140,664) 43,663,892 148,207,530 9,850,352 158,057,882 87 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Directors’ Declaration In the directors’ opinion: (a) The financial statements and notes set out on pages 50 to 87 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the Group’s financial position as at 30 June 2017 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 Chief Executive Officer Brisbane 28 August 2017 88 ANNUAL REPORT 2017 89 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Independent Auditor’s Report 90 ANNUAL REPORT 2017 Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 25, Riverside Centre, 123 Eagle Street Brisbane QLD 4000 Australia Tel: +61 (0) 7 3308 7000 Fax: +61 (07) 3308 7004 www.deloitte.com.au Independent Auditor’s Report to the members of Superloop Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Superloop Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our in the Auditor’s responsibilities under those standards are Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. further described We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 91 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Independent Auditor’s Report 92 ANNUAL REPORT 2017 93 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Independent Auditor’s Report 94 Independent Auditor’s Report ANNUAL REPORT 2017 95 SUPERLOOP LIMITED AND CONTROLLED ENTITIES Independent Auditor’s Report 96 Independent Auditor’s Report ANNUAL REPORT 2017 ASX Additional Information The following shareholder information was applicable as at 15 September 2017. The Company has one class of shares on issue, fully paid ordinary shares. (A) DISTRIBUTION OF EQUITY SECURITES 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 Number of investors 108 Number of securities 145,292,032 1,709 1,631 3,256 1,767 8,471 290 42,227,986 12,100,157 9,480,073 857,130 209,957,378 13,251 97 SUPERLOOP LIMITED AND CONTROLLED ENTITIES (B) EQUITY SECURITY HOLDERS The names of the twenty largest holders of quoted equity securities are listed below: Percentage of Percentage of Name BEVAN ANDREW SLATTERY J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD AVANTEOS INVESTMENTS LIMITED BNP PARIBAS NOMS PTY LTD SCM CAPITAL PTY LTD AUST EXECUTOR TRUSTEES LTD MICROEQUITIES ASSET MANAGEMENT PTY LIMITED JMAS PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED BLUE STAMP COMPANY PTY LTD LEANNE CATELAN SUPERANNUATION FUND PTY LTD ALLEGRO CAPITAL NOMINEES PTY LTD HACKETT CP NOMINEES PTY LTD SYMMALL PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 issued shares 61,169,389 23,799,848 7,636,621 7,578,144 6,624,638 2,526,369 2,329,985 2,169,574 1,870,588 1,682,483 1,437,594 1,250,000 1,225,104 1,201,207 1,107,996 1,013,102 719,297 690,788 599,999 590,000 issued shares 29.13% 11.34% 3.64% 3.61% 3.16% 1.20% 1.11% 1.03% 0.89% 0.80% 0.68% 0.60% 0.58% 0.57% 0.53% 0.48% 0.34% 0.33% 0.29% 0.28% SUB-TOTAL BALANCE OF REGISTER TOTAL (C) SUBSTANTIAL HOLDERS Name BEVAN ANDREW SLATTERY 1 (D) UNQUOTED EQUITY SECURITIES 127,222,726 82,734,652 209,957,378 60.59% 39.41% 100.00% Percentage of Percentage of issued shares 61,169,389 issued shares 29.13% Options A total of 731,992 unlisted options are on issue. All unlisted options are held by current employees under the Company’s Executive Option Plan. Performance Rights A total of 182,840 unlisted performance rights are on issue. All unlisted performance rights are held by current and former employees under the Company’s Employee Rights Plan. (E) 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. Options Holders of options do not have voting rights. Performance Rights Holders of performance rights do not have voting rights. 98 ANNUAL REPORT 2017 Corporate Directory DIRECTORS AUDITOR Michael Malone Non-executive Chairman Bevan Slattery Chief Executive Officer Greg Baynton Non-executive Director Louise Bolger Non-executive Director Richard Anthony (Tony) Clark Non-executive Director Vivian Stewart Non-executive Director Jason Ashton Executive Director Matthew Hollis Executive Director 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 Telephone: (within Australia): 1300 554 474 Facsimile: (02) 9287 0303 COMPANY SECRETARY SECURITIES EXCHANGE LISTING Paul Jobbins Group Chief Financial Officer Superloop Limited shares are listed on the Australian Securities Exchange (ASX: SLC) REGISTERED OFFICE COMPANY WEBSITE Superloop Limited Level 17, 333 Ann Street Brisbane QLD 4000 Tel: +61 (7) 3088 5999 www.superloop.com 99 Superloop Limited Annual Report FY17 

Continue reading text version or see original annual report in PDF format above