Corum Group 2018 Annual Report For personal use only Corum Group Limited ABN 25 000 091 305 Contents Chairman’s letter to shareholders Chief Executive Officer’s report Directors’ report Auditor’s independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Corum Group Limited Shareholder Information Corporate directory Page 2 3 6 15 16 17 18 19 20 45 46 49 51 General information The financial statements cover Corum Group Limited as a Group consisting of Corum Group Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Corum Group Limited’s functional and presentation currency. Corum Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 20 347 Kent Street Sydney NSW 2000 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 26 September 2018. The directors have the power to amend and reissue the financial statements. Corum Group Limited Annual Report 2018 1 For personal use only Chairman’s letter to shareholders Dear Shareholders On behalf of the board, management and Corum staff, thank you for your continued support of the Company. Throughout the year Corum continued to build a platform for organic growth through new product development, industry engagement and existing product and process improvements. The keystone investment has been the three-year software modernisation project. As part of this project, Corum Clear Dispense is now in testing across pharmacies in Australia and is expected to be operational in late 2018. The Corum Clear Dispense product will benefit pharmacists through its enhanced contextual workflow, speed of dispensing, ease of use, modular design and flexibility. It is also designed to evolve to future industry demands and integrate easily with third party products. With this strong, innovative and class leading product in place, Corum will continue to focus on improving its retail products, most notably Corum’s corporate head office solutions used by pharmacy groups to manage and support their members. Corum has continued to be an active participant with industry and government to understand and shape initiatives in digital health including My Health Record, Real Time Prescription Monitoring and ePrescribing. This enables Corum to have input into the design and direction of the initiatives that affect community pharmacy and to contribute to resolving industry issues. On numerous occasions, Corum has mentioned the efficiency program underway. This program of work is a journey of milestones, an emphasis on constant improvement to make the business more efficient and more profitable. During the year the business continued to concentrate on re- engineering processes, improving productivity and streamlining the organisation to be more efficient. Follow-on benefits from this work will be reflected throughout the 2019 financial year, with a cost reduction of approximately 15% expected. While reducing its cost base over the past 12 months, Corum has at the same time, honed the performance of its products. Several revisions for the core LOTS programs with enhanced capabilities have been released over the year. These updates brought market best performance, greater reliability and new features to customers. Corum’s software engineers also automated many processes relating to installation and support. This resulted in quicker product installations and more effective product support. With work on product improvement and internal efficiency well progressed, the Company is focused on acquisition of new customers and a net increase in the customer base. Customer movement between pharmacy groups results in regular changes to Corum’s customer base. Corum is responding to this churn and is determined to grow revenue; the Company is targeting net new customers to increase by 10% in the coming financial year. Value added solutions to the core point-of-sale and dispense systems now create more than 25% of Corum’s recurring revenue. These include the business recovery Safeguard product, the cloud archiving tool ScriptARC, script exchange services and the cash-flow management tool Corum Bill Payment. Corum has also established a program which identifies, seeks out and reviews inorganic growth (merger, acquisition and partnering) opportunities. Numerous opportunities have been pursued and considered during the year. Although some were not a commercial proposition, a number remain live at this stage. These endeavours have and continue to require the extensive involvement of all Board members. Although Corum will pursue new inorganic growth opportunities, it will also continue to work with and monitor existing opportunities for the possibility that they may offer benefits to Corum’s shareholders and customers. Corum remains positioned to participate in any industry consolidation and for any partnership opportunities. The Board and management remain committed to Corum customers, shareholders and staff. Yours sincerely Bill Paterson Chairman 26 September 2018 2 2 Corum Group Limited Annual Report 2018 For personal use only Chief Executive Officer’s report Technology and innovation play significant roles in Profit transforming business and the way we live our lives. In health there are a myriad of applications competing to connect and support digitally, healthcare providers and individuals. Reference to the “healthcare industry” does not do justice to the complex and fragmented nature of the sector and the challenges facing the industry as it attempts to deliver on the promise of enhanced communication and digital technology. For the year ended 30 June 2018, the Group achieved a statutory after tax profit of $251,000 compared to a prior year loss of $5.9 million after goodwill impairment. During the year Corum has focused on addressing the underlying causes of revenue decline, automating and streamlining internal operations, investing in new products and capabilities, investigating growth opportunities and engaging more closely with industry and government. The Government’s focus on reducing the cost of the PBS has driven the pharmacy sector to seek revenue growth Revenue outside traditional sources, with emphasis on professional Revenue for the year of $12.6 million was down services and retail operations. To support this, banner $2.2 million on the previous period. The health business groups with strong clinical programs, buying and accounted for $1.8 million of the decrease. Most of the marketing power, and a disciplined approach to retailing current year revenue decline is attributable to banner are proving attractive to many independent pharmacies. group decisions in 2015 and 2016 to standardise on During such changes, Corum remains focused on putting our customers first to support their success and the care of their patients. Corum is at the centre of community pharmacy; providing the core software that helps pharmacists run their businesses successfully and connect seamlessly with other services, systems and data repositories. As a result of this positioning, Corum is well placed to introduce further solutions to pharmacies either directly or by way of partnerships. Pharmacy groups play a key role in the industry and Corum supports them through our integrated and sophisticated head office solutions that assist them to manage and have visibility of their network of members. Corum is continuing to focus on these groups and is further developing products that support them. other software products. Much of the revenue change occurred in the first half of the financial year. Increased market presence, branding, the delivery of new products, and the release of new features in existing products are delivering greater customer and revenue stabilisation and stimulating more interest from potential customers and banner groups. Other Revenue has been generated by the new Safeguard Plus and ScriptARC products, which are Corum proprietary and complementary products to our core dispense and point of sale solutions. Safeguard Plus has been taken up by nearly 30% of customers after a year in the market. eCommerce revenue reduced slightly to $2.5 million, $0.3 million less than the prior period. Improved sales in the second half raised customer numbers. This lift in numbers was driven primarily by strong service levels leading to referral business from existing customers. Corum Group Limited Annual Report 2018 3 For personal use only Product Development • ScriptARC enables pharmacies to digitise paper During the financial year the Company capitalised $3.3 million (FY17: $1.4 million) for the development of new applications, in particular the new Corum Clear dispensing system and head office products. The new dispense system is currently in trial at a number of pharmacies in preparation for government PBS certification and fully operational pilots are scheduled in October 2018. Corum Clear Dispense underpins Corum’s future commitment to the pharmacy sector. In addition to its immediate user benefits, Corum Clear Dispense has been designed with the long term in mind. While it is structured as a cloud based application, it will be deployed locally as Corum believes national telecommunication networks do not yet have the reliability to support it. The application has deep standardised third party integration capabilities so future products can be added easily. The framework simplifies future changes and decreases the effort required for upgrades. With its short development time Corum Clear Dispense has been able to utilise the latest in application technology, putting it well ahead of competitors. In the past two years, Corum has developed strong expertise in cloud services. The Safeguard Plus, ScriptARC, and Corum Clear Reports products all use cloud services and technology. Cloud introduces different security and data protection risks which Corum has addressed with external audits, secure by design development practices, and certification of its cloud infrastructure, internal systems and data security protocols. This approach has placed Corum at the forefront of health data security. prescriptions for easy, secure storage and retrieval in the cloud. It eliminates the need for boxes of scripts to be held in the store and the integration with dispense enables missing documents to be quickly identified. Investment in existing applications is expensed as it is incurred and in FY18 was $1.4 million (FY17: $1.6 million). The core LOTS programs had three major enhancements in the past 18 months, with a focus on performance, additional features and new partner integrations. Recent enhancements for installation, support and software updates were included, having been identified by Corum’s internal efficiency program. The products can be installed remotely, allowing shorter cycle times for new feature releases, and for improved ease of support. Hardware and related activity has been significantly modified during the year with range standardisation, factory imaged products, centralised deployment and remote support, all successfully rolled out. These changes are expected to better support our customers’ and streamline Corum’s operations. Cost The internal efficiency programs have addressed the necessary changes to reshape the cost base while minimising the impact on customer experience through strong organisational and product performance. The program has focused on re-engineering processes, improving productivity, and increasing automation. These programs have and will continue to positively impact the operating cost base of the business, which at $11.9 million was $1.2 million less than last year. The investment in ancillary products extends the solutions Cash Corum has for pharmacies: Operating cash flow was $0.3 million for the financial year. It was constrained by a delay in distributions receivable of • Safeguard Plus incorporates a device installed in the $1.2 million at year end. pharmacy to run their core systems while at the same time providing seamless, rapid, pro-active business recovery tools that perform well beyond the traditional daily backup. No other competing product offers such features. The cash balance at 30 June 2018 was $5.0 million. Cash at the end of the first quarter of FY19 is anticipated to be $6.7 million, including receipts of unpaid distributions and the research and development tax incentive. Net assets at 30 June 2018 of $14.2 million have increased by $0.3 million. 44 Corum Group Limited Annual Report 2018For personal use only Outlook Extensive work in improving the operational performance of the business and its products, has been substantially completed. Whilst the efficiencies effort will be ongoing, the emphasis is now switching to revenue growth across key customer segments, including banner groups and independent pharmacies. Corum Clear Dispense will be a key feature in a year in which the Company will also focus on further improving its head office and retail store solutions. Corum has increased its industry presence and will continue to pursue opportunities for industry partnerships, and revenue growth in the evolving digital health sector and related adjacencies. Corum appreciates the contribution of its strong and loyal team and their commitment to our future. David Clarke Chief Executive Officer 26 September 2018 5 Corum Group Limited Annual Report 2018For personal use only Directors’ report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Corum Group Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2018. Directors The following persons were directors of Corum Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Bill Paterson (Chairman) Gregor Aschoff Matthew Bottrell Information on directors Name: Bill Paterson Name: Gregor Aschoff Title: Executive Director Qualifications: BEc, MBA, GAICD Experience and expertise: From 2003 to 2016 Gregor served as a senior executive for a global consumer electronics and telecommunications company. He has extensive expertise in both retail and Information Technology (‘IT’), including software development and system optimisation. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Expertise in IT and strategy has been utilised to assist Corum develop and refine its strategy. Interests in shares: 1,546,881 ordinary shares Title: Chairman and Non-Executive Director Name: Matthew Bottrell Qualifications: BE (Civil) Hons Experience and expertise: A civil engineer by training, Bill has extensive experience in the planning, design and implementation of a wide range of civil infrastructure and building projects in the commercial, industrial and residential related sectors; and is one of the initial partners of engineering consultancy firm Worley Parsons. He is also an experienced investor and entrepreneur. Other current directorships: None Former directorships (last 3 years): Former non-executive director of Intra Energy Corporation Limited (ASX: IEC) (resigned 7 October 2015). Special responsibilities: Member of Remuneration and Nomination Committee. the Audit and Risk Committee and Interests in shares: 140,054,379 ordinary shares Title: Non-Executive Director Qualifications: BBus, MTL, ASA, GAICD Experience and expertise: Matthew has a background in strategy and investment management across Australia and Europe. He is currently a non-executive director of Future Capital Development Fund, an early stage technology fund, and the Chairman of MyGuestList Pty Ltd. Previously, Matthew was the non-executive Chairman of SMS Central. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of the Audit and Risk Committee and Remuneration and Nomination Committee. Interests in shares: 57,000 ordinary shares ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 6 6 Corum Group Limited Annual Report 2018 For personal use only Directors’ report continued Company Secretary David Clarke (BCom, DipGrad, CA, GAICD) is the Company Secretary and Chief Executive Officer. David has many years’ experience in executive financial and company secretarial roles in Australia and overseas, and has diverse industry experience including retail and healthcare. David was the Group’s Chief Financial Officer between 2013 and 2017. Dividends No dividends for the years ended 30 June 2018 or 30 June 2017 have been declared. Principal activities The Corum Group is a technology and software development company that operates two distinct business segments: • Corum Health which develops and distributes business software for the pharmacy industry with particular emphasis on point-of-sale and pharmaceutical dispensing software, support services and associated computer hardware; and • Corum eCommerce which develops and manages a financial gateway providing financial transactional processing for electronic bill payments and funds transfer services to the real estate industry and corporate and government clients. Operating and Financial Review Corum Health revenue flows from the sale of software, hardware and recurring related services, subscription and support fees and from an investment in an entity which provides other technology services to pharmacies. from The business has an extensive, self-developed, product catalogue that supports pharmacies dispensing and point-of-sale lines of businesses and associated activities. It also provides solutions for pharmacy groups by way of head office systems that assist with the management of stores in group networks. The business has a product development function creating and maintaining these products, providing a full service call centre for real time product support, and state-based technical, sales and business development teams. Corum eCommerce revenue is derived from recurring service charges and fees. The business includes an operations team and transactional systems development. transaction-based There was no significant change to the nature of operations in either business during the financial period. FY18 saw the application of the strategy which encompassed: • Improving internal productivity and adapting the organisation; • Investing in new and existing product; and • Seeking out opportunities to grow from organic and in-organic activity Each of these strategic pillars was pursued during the year. Details of Corum financial performance are provided in the FY18 Financial Statements appended to this Directors’ Report. Net profit after tax amounted to $251,000 compared to a loss of $5.9 million last year which included a goodwill impairment of $6.3 million. Revenue for the year was $12.6 million a decrease of 14.8% on the prior period. Health Services revenue of $10 million was impacted by previously foreshadowed customer group changes, including Chemist Warehouse whose adoption of an in-house solution impacted health revenues by 4.9%. The loss of tenders in 2015 and 2016 for several banner groups also impacted revenue as they transitioned their members, with varying degrees of success. Revenue decline has been partially mitigated by the introduction of new complementary products that leverage the core point-of-sale and dispense offering. Ecommerce revenue for FY18 was $2.5 million, a 10% decrease on the prior period. The eCommerce business markedly slowed its rate of decline in the last half of the year. There are signs of a tightening compliance regime as the banking royal commission puts the spotlight on the financial services. The business remains profitable, though compliance changes may impact its revenue stream and profitability. The Company’s previously announced transformational and efficiency program was advanced during FY18. The primary focus was on enhancing existing products, re-engineering processes, improving productivity, and reshaping and aligning the organisation to its revenue base. While work remains, the initial transformational project is substantially complete with ongoing benefits expected during FY19. During FY18 the Company’s major dispense and point of sale products were significantly enhanced with improvements and new features. These updates were deployed to all customers and also incorporated changes that improved the efficiency of product support. 7 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Review of operations continued Investment has been applied to the development of both existing and new products, including the new Corum Clear Dispense. This dispense system is nearing completion and remains on track for government approval and fully operational in pharmacies in the first half of FY19. The Company applied $4.7 million (FY17: $3.3 million) to research and development during FY18, of which $3.3 million was for new products which were capitalised as intangible assets. These products target specific needs within the pharmacy space and enable the Company to provide a broader base of solutions to the market. Major overhead expense categories were lower or flat compared to last year, with overall costs down by $1.2 million supported by the efficiency projects which are producing sustainable reductions in the cost base. Cash held by Corum at the end of the financial year was $5.0m, compared with $8.1m at the end of June 2017. The reduction in cash is mainly due to lower revenue, increased investment in new and enhanced products, and the timing of an amount receivable, as detailed in the notes to the financial statements. Both the research and development tax incentive and the receivable are expected to add $2.9m to the Company’s cash flow position in the first half of FY19. Outlook Corum completed a strategic business review in late FY17, the recommendation of which was adopted by management and the board to focus resources on the Health Services segment. With the business investing in Corum Health during FY18, the focus has been the ongoing transformation and a return to growth. Underpinning Corum’s investment is the new Dispense system, Corum Clear, which underwrites Corum’s future commitment to the pharmacy sector. Coupled with the dispense application, Corum is improving its retail solutions, in particular the corporate head office product which assists groups managing store networks. The results of the revised strategy and business transformation will provide Corum with greater opportunities assisted by consolidating its position in community pharmacy, leading industry consolidation, playing a significant role the evolving digital health landscape and the pursuit of other adjacent opportunities to leverage the Company’s strengths. in Significant changes in the state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Group that occurred during the financial year under review not otherwise disclosed in the Directors’ Report or the accompanying financial statements. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year On 17 September 2018 the Company received an income tax refund of $1,785,000 relating to the 2018 financial year. Other than disclosed above, no matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely developments and expected results of operations Information regarding likely developments, prospects or business strategies of the Group in future financial years is set out in the review of operations and elsewhere in the Annual Report, insofar as such information does not result in unreasonable prejudice to the Group. 8 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Meetings of Directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2018, and the number of meetings attended by each director were: Full Board Attended 10 12 11 Held 12 12 12 Audit and Risk Committee Remuneration and Nomination Committee Attended Held Attended Held 5 – 5 5 – 5 3 – 3 3 – 3 Bill Paterson Gregor Aschoff Matthew Bottrell Held: represents the number of meetings held during the time the director remained in office or was a member of the relevant committee. In addition to formal board meetings the directors were closely involved in numerous other meetings and discussions during FY18. Indemnity and insurance of officers The Company has indemnified the directors and some executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. The company was not a party to any such proceedings during the year. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 5 to the financial statements. The directors are satisfied that the provision of non- audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 5 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved by the Audit and Risk Committee to ensure they do not impact the integrity 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 issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. 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 immediately after this directors’ report. 9 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Auditor BDO East Coast Partnership continues in office in accordance with section 327 of the Corporations Act 2001. Corporate governance statement The Corum Group Limited Corporate Governance Statement discloses how the Company complies with the ASX Corporate Governance Council Corporate Governance Principles and Recommendations (3rd Edition), and sets out the Company’s main corporate governance practices. This statement has been approved by the Board and is current as of 26 September 2018. The Company’s Corporate Governance Statement can be the Company website at: www.corumgroup.com.au/investors. found on Rounding of amounts issued by The Company is of a kind referred to in Corporations the Australian Instrument 2016/191, Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. Following a review of the Key Management Personnel disclosed in the 30 June 2017 annual report, some of the roles and personnel included have been revised or are no longer relevant. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional information • Additional disclosures relating to key management personnel. Principles used to determine the nature and amount of remuneration The Company provides appropriate rewards to attract and retain high quality and committed employees. Base salaries and any incentives of executives are determined by management having regard to the nature of each role, the experience and performance of the individual and are reviewed by the Remuneration and Nomination Committee. The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. In considering this, the directors look to satisfy the following key criteria: • competitiveness and reasonableness; • acceptability to shareholders; and • transparency. The Remuneration and Nomination Committee consists of two non-executive directors who are responsible for determining and reviewing remuneration arrangements for the Group’s directors and executives, and oversight of hiring and the Company. The remuneration philosophy is to attract, motivate and retain high-performing employees. remuneration practices within Non-executive Directors remuneration Fees and payments to Non-executive Directors reflect the demands and responsibilities of their role. Non- executive Directors are paid an annual fee and additional fees where they act as a member of or chairman of a committee. Non-executive Directors fees and payments are reviewed periodically by the Remuneration and Nomination Committee. The Remuneration and Nomination Committee may, from time to time, receive advice from independent remuneration consultants to ensure Non-executive Directors fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of other Non-executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions to determine their remuneration. Non-executive Directors do not currently receive share options or other incentives. ASX listing rules require the aggregate Non-executive Directors remuneration be determined periodically by a general meeting. The shareholders have approved a maximum aggregate remuneration of $800,000 per annum. 10 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Remuneration report (audited) continued Executive remuneration The Company aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components where appropriate. Voting and comments made at the Group’s 2017 Annual General Meeting (‘AGM’) At the 2017 AGM, 76.3% of shares voted against the adoption of the remuneration report for the year ended 30 June 2017 while 23.7% voted in favour of the report. At this meeting a group of shareholders (in person and by proxy) expressed their dissatisfaction with the Company’s performance and the level of directors fees. Although the board sought to explain its performance and the level of directors fees, the shareholder group were not satisfied by these explanations. Directors considered the feedback from shareholders. Given the extensive involvement and time commitment of directors during the financial year it was judged that directors fees were appropriate. For future periods directors have instigated a review of the amount and structure of both director and executive remuneration, assisted with information provided by Egan Associates. involvement includes; working with Director’s management to strengthen the team; participation in strategy development, supporting inorganic growth activities and engaging closely with management to support delivery of the agreed strategic objectives. The executive remuneration and reward framework has three components: • base pay and non-monetary benefits; • performance incentives; and • other remuneration such as superannuation. The combination of these comprises the executive’s total remuneration. remuneration, consisting of base salary, Fixed is superannuation and non-monetary benefits, reviewed annually by the Remuneration and Nomination Committee based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. The short-term incentives (‘STI’) in the form of short- term bonuses may be paid either in cash or equity rights and are at the discretion of the Remuneration and Nomination Committee and are dependent on the performance of the individual, business unit performance, and the overall performance of the Group. The long-term incentives (‘LTI’) can be in the form of equity based instruments, though may not be awarded without Corum achieving progressive improvement in outcomes. The maximum number of equity instruments that may be issued by the directors pursuant to the respective plan shall not exceed 5% of the shares in issue. No short-term or long-term incentives incorporating performance rights or share options were granted during the financial year. 11 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Remuneration report (audited) continued Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. Short term benefits Salaries Annual Leave entitlement and fees $ $ Incentive $ Post- employment benefits Superannuation $ Share-based payments Equity settled $ Directors: Bill Paterson Non-executive Chairman Matthew Bottrell (i) Non-executive Director Gregor Aschoff Executive Director Other Key Management Personnel: David Clarke (ii) Chief Executive Officer 2018 2017 2018 2017 2018 2017 126,000 126,000 205,160 90,000 – – – – 200,000 198,461 8,462 (3,964) – – – – – – 2018 2017 282,000 258,469 21,692 9,103 10,000 – Chris Baveystock (iii) Interim Chief Financial Officer 2018 40,923 3,148 Andrea Tustin (iv) Interim Chief Financial Officer 2018 2017 164,139 80,249 (5,257) 5,257 – – – Anil Roychoudhry (v) Chief Technology Officer 2018 2017 210,000 209,192 6,058 9,630 10,000 – – – 8,550 8,550 19,000 18,854 20,049 21,473 3,888 15,340 7,624 19,950 19,873 Peter Wilton (vi) Former Chief Executive Officer 2017 228,647 – – 21,122 – – – – – – – 4,794 – – – – – – Total $ 126,000 126,000 213,710 98,550 227,462 213,351 333,741 293,839 47,959 174,222 93,130 246,008 238,695 249,769 (i) Matthew Bottrell’s fees for 2018 include $115,160 of consulting fees paid direct to a related entity for extensive merger and acquisition activities. (ii) David Clarke was appointed as Chief Executive Officer on 24 January 2017 and was previously Chief Financial Officer. Performance related remuneration in 2017 was 2%. (iii) Chris Baveystock was appointed as Chief Financial Officer on 30 April 2018 on an annual base salary of $240,000. (iv) Andrea Tustin resigned her position effective 14 March 2018. Salaries and fees for the year include $286 of accrued leave entitlements. (v) Anil Roychoudhry was appointed 4 July 2016. (vi) Peter Wilton resigned on 24 January 2017 and ceased employment 24 April 2017. Salaries and fees include accrued leave entitlements of $6,308. 1212 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Remuneration report (audited) continued Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: 24 January 2017 Term of agreement: Details: David Clarke Chief Executive Officer and Company Secretary Ongoing Annual base salary of $282,000, excluding statutory superannuation, reviewed annually. Either party may terminate employment with four months written notice; or immediately in the event of misconduct or other sufficient cause. Subject to certain restrictive covenants and restraints for a period of up to 24 months. Other senior executives are employed under contracts with termination periods between one and four months and are eligible for their statutory employee entitlements upon termination. Certain employees are subject to restraints and other activities for an agreed period following termination. The executives may also participate in the Group’s short-term incentive scheme as applicable from time to time and at discretion of the board. Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Ordinary shares: Bill Paterson Matthew Bottrell Gregor Aschoff David Clarke Balance at the start of the year Received as part of remuneration Additions 1 Disposals/ other 2 Balance at the end of the year 140,054,379 57,000 1,546,881 256,500 141,914,760 – – – – – – – – – – – – – – – 140,054,379 57,000 1,546,881 256,500 141,914,760 1 Additions may represent the acquisition of shares, or shareholding on commencement as a key management personnel. 2 Disposal/other may represent the disposal of shares, or cessation as key management personnel. None of the shares included in the table above are held by a nominee. 13 Corum Group Limited Annual Report 2018For personal use only Directors’ report continued Remuneration report (audited) continued Additional Information The results of the Group for the five years to 30 June 2018 are summarised below: Sales revenue Profit/(loss) after income tax Total equity Cash on hand Borrowings Capitalised development costs 2014 $’000 18,890 4,274 18,874 11,913 – – 2015 $’000 17,898 4,630 19,931 12,069 – – 2016 $’000 15,553 27 19,908 9,577 – – 2017 $’000 13,507 (5,877) 13,976 8,098 – 837 2018 $’000 11,176 251 14,227 4,971 – 1,851 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end (cents) Basic earnings per share (cents per share) 2014 14.0 1.70 2015 15.0 1.80 2016 11.0 0.01 2017 4.0 (2.30) 2018 2.5 0.10 This concludes the remuneration report, which has been audited. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Bill Paterson Chairman 26 September 2018 Sydney Matthew Bottrell Director 14 Corum Group Limited Annual Report 2018For personal use only 15 Corum Group Limited Annual Report 2018For personal use only Statement of profit or loss and other comprehensive income FOR THE YEAR ENDED 30 JUNE 2018 Revenue Expenses Materials and consumables used Employee benefits expenses Occupancy costs Marketing expenses Depreciation and amortisation expense Loss on disposal of fixed assets Share-based payments Research and development tax benefit Other expenses Note 3 4 4 4 6 Consolidated 2018 $’000 2017 $’000 12,566 14,756 (1,318) (8,336) (747) (529) (289) – – 617 (1,314) (1,419) (9,990) (1,045) (539) (409) (219) 55 2,252 (1,769) Profit before impairment and income tax expense 650 1,673 Impairment of goodwill 13 – (6,277) Profit/(loss) before income tax expense 650 (4,604) Income tax expense 6 (399) (1,273) Profit/(loss) after income tax expense for the year attributable to the owners of Corum Group Limited Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Corum Group Limited Basic earnings per share Diluted earnings per share 251 (5,877) – – 251 (5,877) Cents 0.1 0.1 Cents (2.3) (2.3) 7 7 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 1616 Corum Group Limited Annual Report 2018For personal use only Statement of financial position AS AT 30 JUNE 2018 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Other Non-current assets Other Financial assets Property, plant and equipment Intangibles Deferred tax assets Security deposits Total assets LIABILITIES Current liabilities Trade and other payables Provisions Deferred revenue Non-current liabilities Provisions Total liabilities Net assets EQUITY Issued capital Accumulated losses Total equity Note 9 10 6 11 12 13 6 14 15 16 Consolidated 2018 $’000 4,971 1,542 102 1,757 2,782 2017 $’000 8,098 393 149 1,416 2,359 11,154 12,415 30 863 7,232 447 – 8,572 30 981 5,381 563 387 7,342 19,726 19,757 3,956 1,086 188 5,230 269 269 4,280 1,072 202 5,554 227 227 5,499 5,781 14,227 13,976 17 86,283 (72,056) 86,283 (72,307) 14,227 13,976 The above statement of financial position should be read in conjunction with the accompanying notes. 17 Corum Group Limited Annual Report 2018For personal use only Statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Issued capital $’000 Share-based payment reserve $’000 Accumulated losses $’000 Total equity $’000 Balance at 30 June 2016 86,283 90 (66,465) 19,908 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Performance rights exercised Balance at 30 June 2017 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Balance at 30 June 2018 – – – – – 86,283 – – – 86,283 – – – (55) (35) – – – – – (5,877) – (5,877) (5,877) – (5,877) – 35 (55) – (72,307) 13,976 251 – 251 251 – 251 (72,056) 14,227 The above statement of changes in equity should be read in conjunction with the accompanying notes. 18 Corum Group Limited Annual Report 2018For personal use only Statement of cash flows FOR THE YEAR ENDED 30 JUNE 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Other revenue Distributions received Income tax paid Research and development incentive Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Proceeds from disposal of property, plant and equipment Proceeds from release of security deposits Net cash used in investing activities Cash flows from financing activities Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Note 19 12 Consolidated 2018 $’000 12,463 (13,728) 178 1 – (634) 2,052 2017 $’000 14,727 (16,272) 236 24 989 (1,156) 1,701 332 249 (277) (3,182) – – (692) (1,410) 292 82 (3,459) (1,728) – – (3,127) 8,098 (1,479) 9,577 Cash and cash equivalents at end of the financial year 9 4,971 8,098 The above statement of cash flows should be read in conjunction with the accompanying notes. 19 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 JUNE 2018 Note 1. Significant accounting policies Parent entity information The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted Interpretations The Group has adopted all of the new or amended Accounting Standards and issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have in accordance with Australian been prepared Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared on an accruals basis and are based on historical costs. Critical accounting estimates The preparation of the 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 2. In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 27. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Corum Group Limited (‘Company’ or ‘parent entity’) as at 30 June 2018 and the results of all subsidiaries for the year then ended. Corum Group Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. Subsidiaries are all those 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 de-consolidated from the date that control ceases. When the Group has less than a majority of the voting or similar rights of an entity, the Group considers all relevant facts and circumstances in assessing whether it has power over an entity. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. 20 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 1. Statement of significant accounting policies continued Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Impairment of non-financial assets Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Other non-financial assets are reviewed in impairment whenever events or changes for 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. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in- use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash- generating unit. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Comparative figures Comparatives have been realigned where necessary, to agree with current year presentation. There was no change in the profit or net assets. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding- off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2018. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. 21 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 1. Statement of significant accounting policies continued AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The Group will adopt this standard from 1 July 2018 and it is anticipated that the adoption of this standard in future periods will have no material financial impact on the financial statements of the Group. AASB 15 Revenue from Contracts with Customers This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. AASB 15 supersedes existing guidance in AASB 118 Revenue and AASB 11 Construction Contracts and is applicable to annual reporting periods beginning on or after 1 January, 2018. The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which an entity expects to be entitled to receive for those goods and/or services. Specifically, the standard introduces a 5-step revenue recognition and any associated costs: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligation 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 over time as) the entity satisfies performance obligations. In Corum’s case AASB 15 would recognise revenue when (or as) our performance obligations are satisfied, for example when “control” as in the case of hardware sales or the ability to access and utilise the software licences is granted. The group is still assessing the impact of implementing AASB 15 as such the impact is not currently reasonably estimable. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of- use’ asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. 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). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be higher as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019 and the actual impact will depend on the operating lease assets held by the Group as at 1 July 2019 and the transitional elections made at that time. 22 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 2. Critical accounting judgements, estimates and assumptions its to make The preparation of the financial statements requires management judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases judgements, estimates and assumptions on historical experience and on various other factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Goodwill and other intangibles assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other intangible assets have suffered any impairment, in accordance with the stated accounting policy. The recoverable amount of the cash-generating unit to which goodwill and other intangible assets have been allocated, has been determined based on value-in- use calculations using budgets and forward estimates. These budgets incorporate management’s best estimates of projected revenues adopting growth rates based on historical experience, anticipated market growth and the expected result of the cash generating unit‘s initiatives. Costs are calculated taking into account historical and planned gross margins, estimated inflation rates consistent with inflation rates applicable to the locations in which the cash generating unit operates, and other planned and expected changes to the cost base. Product Development Costs Recovery of deferred tax assets The group incurs significant costs associated with the development of products for which benefits accrue over many reporting periods. This requires management to critically review software product development (net of research and development incentives) costs to clearly delineate development and the relationship with future potential benefits that are likely to accrue. This assessment of what constitutes product development for capitalisation and the expected future benefits to derive the amortisation period, once the asset is available for use or being marketed, is a series of critical judgements management is required to make based upon historic product performance, market knowledge and analysis. The value of deferred tax assets is determined based on estimates as to the extent those assets are likely to be utilised or available to be utilised in future periods. Employee benefits provision The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Note 3. Revenue Sales revenue Rendering of services Sales of goods Other revenue Revenue from unlisted entity(i) Interest Other revenue Consolidated 2018 $’000 10,195 981 11,176 1,211 178 1 1,390 2017 $’000 12,373 1,134 13,507 989 236 24 1,249 Total Revenue 12,566 14,756 (i) The Group holds an investment in an unlisted entity which provides technology based services to the pharmacy industry. 23 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 3. Revenue continued Accounting policy for revenue recognition Revenue is recognised when it is probable the economic benefit will flow to the group and that revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of goods and services tax (GST). Rendering of services Revenue from rendering of services is recognised in proportion to the stage of contract completion. Maintenance and subscription revenue is recognised by amortising the payments received on a straight-line basis over the life of the contract as the performance obligations are satisfied. Sale of goods Sale of goods revenue is recognised when the risks and rewards are transferred to the customer. Amounts disclosed as revenue are net of sales returns and trade discounts. Revenue from unlisted entity Revenue is recognised when it is received or when the right to receive payment is established. Government grants Government grants are recognised at fair value where there is reasonable assurance the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis. Interest Interest revenue is recognised as it accrues, taking into account the effective yield of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Note 4. Expenses Profit/(loss) before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Total depreciation Rental expense relating to operating leases Minimum lease payments Employee benefits expense including superannuation Employee benefits expense including superannuation Accounting policy for operating leases Consolidated 2018 $’000 2017 $’000 5 284 289 727 4 405 409 805 8,336 9,990 Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. 24 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 5. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by BDO East Coast Partnership, the auditor of the Company: Audit or review of the financial statements Taxation and other non-audit services(i) Consolidated 2018 $ 79,500 50,400 2017 $ 82,554 31,154 129,900 113,708 (i) Non-audit services in 2018 included assistance with areas of tax compliance, due diligence and research and development claim. Note 6. Income tax Income tax expense Current income tax: Current year income tax charge Adjustment for current income tax of previous year Deferred tax: Origination and reversal of temporary differences Utilisation of tax losses Adjustment for change in tax rate Income tax expense Reconciliation of income tax expense and tax at the statuatory rate Profit/(loss) before income tax expense Tax at the statutory tax rate of 27.5% (FY17: 30%) Add/(deduct) tax effect of: Impairment of goodwill Non-deductible/non-assessable items Adjustment for current income tax of previous year Utilisation and other movement in deferred tax assets Research and development tax incentive current year Adjustment for research and development tax incentive of previous year Income tax expense Consolidated 2018 $’000 2017 $’000 285 (2) 69 – 47 399 650 179 – 1 (2) 1 220 – 399 718 444 3 108 – 1,273 (4,604) (1,381) 1,883 (12) (90) 15 324 534 1,273 Research and Development Tax Incentive Corum participates in the Australian Government’s Research and Development Tax Incentive (‘incentive’) assistance programme. The programme provides targeted tax offsets to encourage Companies to engage in Research and Development. The resulting tax offset has been included in the statement of profit or loss and other comprehensive Income as research and development tax benefit. The incentive has been accounted for as a government grant in accordance with AASB 120 Accounting for Government Grants and Disclosure of Government Assistance, resulting in the incentive being recognised in profit or loss on a systematic basis over the period(s) in which the entity recognises, as expenses, the costs for which the incentive was intended to compensate. For the costs that have been capitalised during the period, the respective incentive has been deferred by deducting from the carrying amount of the asset. 25 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 6. Income tax continued Tax losses not recognised Losses carried forward (i) Capital losses carried forward (i) Consolidated 2018 $’000 3,676 184 2017 $’000 4,049 201 (i) Losses carried forward have been adjusted to reflect current tax rate of 27.5% (FY17: 30%) The Group generated operating losses between 1997 and 2009 which resulted in the creation of substantial carried forward tax losses. These tax losses can be used as an offset against taxable income in accordance with the consolidated tax group rules. The potential future tax benefits arising from tax losses and temporary differences have been recognised as deferred tax assets only to the extent that: • the Group is likely to derive future assessable income of a nature and amount sufficient to enable the benefits to be realised; • no changes or proposed changes in legislation are likely to adversely affect the Group’s ability to realise these benefits; and • the Group is likely to continue to comply with conditions for deductibility of losses imposed by tax legislation. The Group has tax losses for which no deferred tax asset is recognised in the statement of profit or loss and other comprehensive income. Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Impairment of receivables Property, plant and equipment Employee benefits Leased premises Other provisions Deferred tax asset Movements: Opening balance Charged to profit or loss Closing balance Income tax receivable Current year income tax charge Current year research and development tax offset Current year instalments paid 26 Consolidated 2018 $’000 2017 $’000 17 – 376 25 29 447 563 (116) 447 (285) 2,042 – 1,757 45 (10) 383 90 55 563 674 (111) 563 (718) 2,052 82 1,416 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 6. Income tax continued Accounting policy for income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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, and where the availability of losses is reasonably certain. In particular, the potential future tax benefits arising from tax losses and temporary differences have been recognised as deferred tax assets only to the extent that the Group is likely to continue to comply with conditions for deductibility of losses imposed by tax legislation. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent it is probable there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Corum Group Limited (the ‘head entity’) and its wholly- owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime with effect from July 2004. The tax consolidated group has applied the ‘group allocation’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. tax funding liabilities arising under Assets or agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. 27 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 7. Earnings per share Profit/(loss) after income tax attributable to the owners of Corum Group Limited Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share Accounting policy for earnings per share Basic earnings per share Consolidated 2018 $’000 2017 $’000 251 (5,877) Number Number 256,167,592 256,065,537 256,167,592 256,065,537 Cents 0.1 0.1 Cents (2.30) (2.30) Basic earnings per share is calculated by dividing the profit attributable to the owners of Corum Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share amounts are calculated by dividing the profit attributable to members of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. 28 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 8. Operating segments Identification of reportable operating segments The Group is organised into two operating segments: Health Services and eCommerce. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. Consideration is given to the nature and distinctiveness of the products or services sold, the manner in which they are provided, and the organisational structure. The CODM reviews profit/(loss) before income tax (‘segment result’). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The Group operates predominantly in Australia. Types of services The principal services of each of these operating segments are as follows: Health Services – Provides dispense, point-of-sale and head office management software applications, along with hardware and support services to Australian pharmacies; and eCommerce – Provides individuals and businesses the opportunity to pay their rent, utilities, local government fees and commercial obligations via electronic methodologies. Intersegment transactions An internally determined transfer price is set for all inter- segment sales. This price is reset annually and is based on an external party at arm’s length pricing. All such transactions are eliminated on consolidation. to Corporate charges are allocated reporting segments based on the segments’ overall proportion of revenue generation within the Group, or estimates of the time individuals apply to each segment, which is representative of likely consumption of head office expenditure. For the purpose of segment reporting and the understanding of segment performance, the net benefit of research and development tax incentives are disclosed in the segment to which they relate. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration receivable or payable. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. Interest is not charged on intercompany balances. Segment assets and liabilities Where an asset is used across multiple segments, the asset is allocated to that segment that receives the majority of the economic benefit from that asset. In most instances, segment assets are clearly identifiable on the basis of their nature and physical location. Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the segment. Borrowings and tax liabilities are not allocated to specific segments. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: • Income tax expense • Deferred tax assets and liabilities, and current tax assets and liabilities • Cost associated with being listed on the Australian Securities Exchange • Inter-company balances • Other financial liabilities Major customers During the year ended 30 June 2018 the Group did not have any major customers that individually contributed more than 10% of total revenue (2017: none). 29 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 8. Operating segments continued Operating segment information Consolidated – 2018 Revenue Sales to external customers Other revenue Interest revenue Total revenue Health Services $’000 eCommerce $’000 8,720 1,211 – 9,931 2,446 – 22 2,468 Intersegment elimination/ unallocated $’000 10 1 156 167 Profit/(loss) before income tax expense 1,068 236 (654) Income tax expense Profit after income tax expense Depreciation expense (Decrease)/Increase in provisions 112 (31) – (13) 177 32 Total $’000 11,176 1,212 178 12,566 650 (399) 251 289 (12) Assets Segment assets Unallocated assets: Cash and cash equivalents Trade and other receivables Property, plant and equipment Deferred tax asset Other assets Total assets Total assets include (net of research and development incentive): Addition of intangible asset Addition of property, plant and equipment Liabilities Segment liabilities Unallocated liabilities: Trade and other payables Provisions and other liabilities Total liabilities 6,477 2,377 – 8,854 4,827 29 602 447 4,967 19,726 1,851 181 – – – 96 1,851 277 1,632 2,691 – 4,323 787 389 5,499 30 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 8. Operating segments continued Operating segment information continued Consolidated – 2017 Revenue Sales to external customers Other revenue Interest revenue Total revenue Profit/(loss) before impairment of goodwill and income tax expense Impairment of goodwill (Loss)/profit before income tax expense Income tax expense Loss after income tax expense Depreciation expense Increase in provisions Assets Segment assets Unallocated assets: Cash and cash equivalents Trade and other receivables Property, plant and equipment Deferred tax asset Other assets Total assets Health Services $’000 eCommerce $’000 Intersegment elimination/ unallocated $’000 10,768 989 – 11,757 1,990 (6,277) (4,287) 239 70 2,739 – 23 2,762 220 – 220 – 8 – 24 213 237 (537) – (537) 170 85 Total $’000 13,507 1,013 236 14,756 1,673 (6,277) (4,604) (1,273) (5,877) 409 163 6,227 2,348 – 8,575 7,903 20 778 563 1,918 19,757 Total assets include: Addition of intangible asset Addition of property, plant and equipment 837 101 – 1 – 561 837 663 Liabilities Segment liabilities Unallocated liabilities: Trade and other payables Provisions and other liabilities Total liabilities 2,110 2,608 – 4,718 815 248 5,781 31 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 9. Current assets – cash and cash equivalents Cash at bank Cash on deposit Consolidated 2018 $’000 145 4,826 4,971 2017 $’000 220 7,878 8,098 Accounting policy for cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held with financial institutions, other short-term highly liquid investments, 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. Note 10. Current assets – trade and other receivables Trade receivables Less: Provision for impairment of receivables Other receivables Other receivables Other receivables include $1,211,000 related to distributions receivable from the investment in an unlisted entity at 30 June 2018. Impairment of receivables The Group has recognised a loss of $0 (2017: $22,000) in respect of impairment of receivables for the year ended 30 June 2018. The ageing of the impaired receivables provided for above are as follows: Under 3 months overdue 3 to 6 months overdue Over 6 months overdue Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Closing balance The ageing of the past due but not impaired receivables are as follows: Under 30 days overdue 31 to 60 days overdue Over 60 days overdue Consolidated 2018 $’000 352 (60) 292 1,250 1,542 17 27 16 60 60 – 60 68 126 4 198 2017 $’000 392 (60) 332 61 393 21 21 18 60 38 22 60 60 207 – 267 32 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 10. Current assets – trade and other receivables continued The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties, and did not consider a significant credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. Accounting policy for trade and other receivables Trade receivables to be settled within normal trading terms are carried at amounts due, which is considered to be reflective of fair value given their short term nature. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised 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. 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. Other receivables are recognised at amortised cost, less any provision for impairment. Note 11: Current assets – other Prepayments and security deposits eCommerce payments awaiting clearance (i) Consolidated 2018 $’000 544 2,238 2,782 2017 $’000 199 2,160 2,359 (i) These amounts are controlled by the Group and are considered to be restricted in operation to the electronic receipt of payments on behalf of customers, whose monies, upon clearance in the normal course of the business banking system, are released from the bank accounts and paid to the benefit of third parties, on whose behalf the monies are received and for which an equivalent liability is recorded as shown in note 14: current liabilities – trade and other payables. 33 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 12: Non-current assets – property, plant and equipment Leasehold improvements – at cost Less: Accumulated depreciation Plant and equipment – at cost Less: Accumulated depreciation Total property, plant and equipment Reconciliations Consolidated 2018 $’000 69 (66) 3 2,608 (1,748) 860 863 2017 $’000 81 (73) 8 2,347 (1,374) 973 981 Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2016 Additions Disposals Depreciation expense Balance at 30 June 2017 Additions Disposals Depreciation capitalised Depreciation expense Balance at 30 June 2018 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 7 5 – (4) 8 – – – (5) 3 1,320 1,327 658 (600) (405) 973 277 (12) (94) (284) 860 663 (600) (409) 981 277 (12) (94) (289) 863 Accounting policy for property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure directly attributable to the acquisition of the items. Depreciation is calculated on the diminishing value method for assets acquired up to June 2010 and the straight-line basis thereafter to write off the net cost of each item of plant and equipment over their expected useful lives as follows: Leasehold improvements Plant and equipment 2-5 years 2-12 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. 34 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 13: Non–current assets – intangibles Goodwill – at cost Less: Impairment Software product development – at cost Less: Research and development incentives Consolidated 2018 $’000 15,363 (10,819) 4,544 4,686 (1,998) 2,688 7,232 2017 $’000 15,363 (10,819) 4,544 1,410 (573) 837 5,381 Reconciliations Reconciliations of the values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2016 Additions Research and development incentives Impairment of goodwill Balance at 30 June 2017 Additions Research and development incentives Balance at 30 June 2018 Goodwill $’000 10,821 – – (6,277) 4,544 – – 4,544 Software product development $’000 Total $’000 – 10,821 1,410 (573) – 837 3,276 (1,425) 2,688 1,410 (573) (6,277) 5,381 3,276 (1,425) 7,232 Goodwill relates to the acquisitions in 1991 of the Lockie from older dispense products to the new Corum Computer business by Pharmasol Pty Limited and the Clear Dispense. As this transition will be spread over a Amfac business by Amfac Pty Limited. Goodwill is number of years the full VIU will only be realised within allocated to the Health Services cash generating unit approximately seven years based on management’s formed by the products of these businesses. best estimates. Review of carrying values The recoverable value of the cash generating unit is determined on a value-in-use calculation (VIU). Value- in-use is calculated based on the present value of cash flow projections, approved by management, over a seven year period with a terminal value of 7.5 times discounted Year 7 EBITDA. Cash flows were based on both budgets and projections using historic and long term growth rates based upon past experience and in Research and development tax benefits are excluded for the purpose of EBITDA based calculations. Cash flows are discounted at 12% (2017: 12%) per annum which incorporates an appropriate equity risk premium. Costs are calculated taking into account historical and planned gross margins, estimated inflation rates for the year consistent with inflation rates applicable to the locations in which the cash generating unit operates, and other planned and expected changes to the cost base. particular expectations of external market performance considering substantively improved products in the The review of the carrying value, and subsequent the need for no impairment charge resulted from taking market. The CGU (Cash Generating Unit) combines into account the impact on the existing business of the existing Corum applications with newly-developed new products being introduced in FY19, the impact on programs and anticipates a substantial period of revenue and expenses of changes in business practices transition in the marketplace as customers migrate and changing industry conditions. 35 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 13: Non–current assets – intangibles continued Accounting policy for intangibles Software product development Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets and assets not yet available for use in the manner intended by management are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Note 14: Current liabilities – trade and other payables Trade payables Sundry creditors and accruals Deferred rent expense eCommerce payments awaiting clearance (net of Significant costs associated with software product development research and development incentives) are capitalised and amortised on a straight- line basis over the period of their expected benefit. Amortisation commences when the asset is available for use in the manner intended by management. Research and development costs Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. Impairment of non-financial assets An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value- in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash- generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Consolidated 2018 $’000 447 1,238 33 2,238 3,956 2017 $’000 382 1,638 100 2,160 4,280 Refer to note 20 for further information on financial instruments. Accounting policy for trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually settled within established terms, normally 30 days of recognition. 36 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 15: Current liabilities – provisions Employee benefits Lease make good Lease make good Consolidated 2018 $’000 1,046 40 1,086 2017 $’000 939 133 1,072 The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the respective lease terms. Movements in provisions Movements in each class of provision during the current financial year, other than employee benefits, are set out below: Consolidated – 2018 Carrying amount at the start of the year Provisions utilised Carrying amount at the end of the year Accounting policy for provisions Lease make good $’000 133 (93) 40 Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Accounting policy for short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Employee benefits relate to the Group’s liability for long service leave and annual leave. The entire amount of the provision for annual leave is presented as current since the Group does not have an unconditional right to defer settlement of any of this obligation. Based on past experience the Group expects that in aggregate employees will take or receive payment for the full amount of accrued leave within the next 12 months. Note 16: Non-current liabilities – provisions Employee benefits Lease make good Consolidated 2018 $’000 253 16 269 2017 $’000 219 8 227 37 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 16: Non–current liabilities - provisions continued Movements in provisions Movements in each class of provision during the current financial year, other than employee benefits, are set out below: Consolidated – 2018 Carrying amount at the start of the year Additional provisions recognised Carrying amount at the end of the year Lease make good $’000 8 8 16 Refer to note 15 for further details of the lease make good provision. Accounting policy for long-term employee benefits The liability for long service leave not expected to be settled within 12 months of the reporting date is measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. 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 reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Note 17: Equity – issued capital Ordinary shares – fully paid 256,167,592 256,167,592 86,283 86,283 2018 Shares 2017 Shares Consolidated 2018 $’000 2017 $’000 Movements in ordinary share capital Balance Performance rights exercised Balance Balance Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting shall have one vote and upon a poll each share shall have one vote. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. 38 Date 1 July 2016 26 November 2016 30 June 2017 30 June 2018 Shares 255,917,592 250,000 256,167,592 256,167,592 $’000 86,283 – 86,283 86,283 Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company’s share price at the time of the investment. Accounting policy for issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 18. Equity – dividends and franking credits Dividends There were no dividends paid, recommended or declared during the current or previous financial year or subsequent to the end of the financial year. Accounting policy for dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Franking credits Franking credits available for subsequent financial years (tax rate: 27.5% (FY17: 30%)) Consolidated 2018 $’000 2017 $’000 1,249 1,337 The deferred franking debit account has a balance of $1,831,000 (FY17: $501,000). The receipt by the company of the R&D refundable tax offsets does not immediately reduce the franking account balance. However, no franking credits will arise as a result of income tax payments until the company recovers these deferred franking debits. The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date, after recovery of all deferred franking debits. • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. Note 19. Reconciliation of profit/(loss) after income tax to net cash from operating activities Profit/(loss) after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of goodwill Net loss on disposal of non-current assets Share–based payments Research and development tax benefit on intangibles Change in operating assets and liabilities: (Increase) in trade and other receivables Decrease in inventories (Increase) in income tax refund due Decrease in deferred tax assets (Increase) in other operating assets (Decrease) in trade and other payables Increase in other provisions (Decrease) in deferred revenue Net cash from operating activities Consolidated 2018 $’000 2017 $’000 251 (5,877) 289 – – – 1,425 (1,149) 59 (341) 116 (36) (324) 56 (14) 332 409 6,277 219 (55) 573 (109) 34 (1,118) 111 (8) (329) 162 (40) 249 39 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 20. Financial instruments Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market 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. Different methods are used to measure different types of risk to which the Group is exposed, such as sensitivity analysis in the case of interest rate risk and ageing analysis for credit risk. Market risk Foreign currency risk The Group has no material exposure to foreign exchange risk. Interest rate risk The Group’s financial instrument exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and liabilities are: Consolidated Cash on deposit Net exposure to cash flow interest rate risk Weighted average interest rate % 2.57% 2018 2017 Weighted average interest rate % Balance $’000 4,826 4,826 2.26% Balance $’000 7,878 7,878 An official increase/(decrease) in interest rates of 26 (2017: 27) basis points would have a favourable/adverse effect on profit before tax of $12,550 (2017: $21,300) per annum. The percentage change is based on the expected volatility of interest rates of a 10% movement, using market data and analysts forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group mitigate credit risk by undertaking transactions with a large number of customers. The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Trade and other receivables that are neither past due nor impaired are considered to be high credit quality. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate financial resources are maintained on an ongoing basis. Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 40 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 20: Financial instruments continued Liquidity risk continued Consolidated 2018 Non-derivatives Non-interest bearing Trade and other payables Total non-derivatives 2017 Non-derivatives Non-interest bearing Trade and other payables Total non-derivatives 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual maturities $’000 1,685 1,685 2,020 2,020 – – – – – – – – – – – – 1,685 1,685 2,020 2,020 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. Note 21: Contingent liabilities The Group had no contingent liabilities at 30 June 2018 and at 30 June 2017. Note 22: Commitments Lease commitments – operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2018 $’000 2017 $’000 462 2 464 861 402 1,263 Operating lease commitments include contracted amounts for various offices under non-cancellable operating leases expiring within five years with, in some cases, options to extend. Lease payments comprise a base amount plus an incremental, which is either contingent or fixed. Contingent rentals are based on movements in the Consumer Price Index. On renewal, the terms of the leases are renegotiated. 41 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 23: Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Termination benefits Consolidated 2018 $’000 1,282 87 – – 1,369 2017 $’000 1,216 97 5 – 1,318 Included in the above are director’s fees which were paid to companies associated with the directors. Note 24. Related party transactions Parent entity Corum Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 25. Key management personnel Disclosures relating to key management personnel are set out in note 23 and the remuneration report included in the directors’ report. Transactions with related parties Director’s fees attributable to Bill Paterson of $126,000 (2017: $126,000) were paid or payable to his associate Paterson Wholohan Grill Pty Ltd. Amount payable at 30 June 2018 $10,356 (FY17: $21,058). Consultancy fees attributable to Matthew Bottrell of $115,160 (2017: NIL) were paid or payable to his associate Creideas Asset Management Pty Ltd. Consultancy fees relate to services provided to the Board in relation to merger and acquisition activity, in addition to those responsibilities of a director. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 25. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1: Amfac Pty Ltd Corum Health Pty Ltd (formally Pharmasol Pty Ltd) Corum eCommerce Pty Ltd Corum Systems Pty Ltd Corum Training Pty Ltd Principal place of business/ Country of incorporation Australia Australia Australia Australia Australia Ownership interest 2018 % 100% 100% 100% 100% 100% 2017 % 100% 100% 100% 100% 100% 42 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 26: Share-based payments The Group has a performance rights plan, an employee share scheme plan and a share option plan. Unless prior shareholder approval is obtained, the maximum number of performance rights, shares or share options that may be issued by the directors pursuant to the respective plan shall not exceed 5% of the number of shares on issue. There are no voting or dividend rights attached to performance rights or options prior to their exercise. There were no performance rights or share options granted during FY18 (2017: nil). Set out below are summaries of performance rights previously granted under the plan: Grant date 2017 27/11/2013 Balance at the start of the year Exercise price Expiry date Granted Vested Balance at the end of the year Lapsed 26/11/2016 $0.00 250,000 – (250,000) – – If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Accounting policy for share-based payments for employment services Equity-settled transactions are awards of performance rights, options over shares, or shares that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is determined using pricing models such as the Binomial or Black-Scholes option pricing model which incorporates all market vesting conditions, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions in determining fair value. The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met provided all other conditions are satisfied. 43 Corum Group Limited Annual Report 2018For personal use only Notes to the financial statements 30 June 2018 continued Note 27: Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income for the year Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Accumulated losses Total equity Contingent liabilities 2018 $’000 (827) (827) 7,134 16,135 1,073 12,702 86,283 (82,850) 3,433 Parent 2017 $’000 (1,115) (1,115) 9,593 17,375 1,100 13,115 86,283 (82,023) 4,260 The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and 30 June 2017. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 1. Note 28. Events after the reporting period On 17 September 2018 the Company received an income tax refund of $1,785,000 relating to the 2018 financial year. Other than disclosed above, no matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 44 Corum Group Limited Annual Report 2018For personal use only Directors’ declaration In the directors’ opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Bill Paterson Chairman 26 September 2018 Sydney Matthew Bottrell Director 45 Corum Group Limited Annual Report 2018For personal use only Independent Auditor’s Report 4646 Corum Group Limited Annual Report 2018For personal use only Independent Auditor’s Report continued 47 Corum Group Limited Annual Report 2018For personal use only Independent Auditor’s Report continued 48 Corum Group Limited Annual Report 2018For personal use only Shareholder information The shareholder information set out below was applicable as at 14 September 2018. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Range of shareholding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holding less than a marketplace parcel Equity security holders Twenty largest quoted equity security holders Number of holders of ordinary shares Number of ordinary shares held 676 393 206 287 110 1,672 1,326 234,333 1,063,451 1,577,252 9,964,443 243,328,113 256,167,592 3,491,582 The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares Lujeta Pty Ltd (The Margaret Account) Link Enterprises (International) Pty Ltd Ginga Pty Ltd (Thomas G Klinger Family A/C) Canceler Pty Ltd (Clarence Super Fund A/C) BNP Paribas Nominees Pty Ltd (IB AU Noms Retailclient DRP) Mr Robert Martin O’Shannassy Mr Michael John Farrelly Ginga Pty Ltd R M O’Shannassy Pty Ltd (R M O’Shannassy Family A/C) Atlas Holdings Pty Ltd (The Atlas A/C) Moore and Badgery Pty Ltd Mr Michael John Farrelly + Ms Madeline Zappia (Farrelly Retirement Fund A/C) Mr Malcolm John Badgery Navigator Australia Ltd (MLC Investment Sett A/C) Connaught Consultants (Finance) Pty Ltd (Super Fund A/C) Mr Geoffrey John Paul (G & J Super Fund A/C) Mr David Klinger Mrs Kerry Elizabeth Draffin Mr Gregor Aschoff Layuti Pty Ltd (The Mouatt Super Fund A/C) Number held 140,054,379 13,090,345 10,810,866 7,600,000 6,270,287 4,579,824 4,524,379 4,284,540 4,248,109 2,891,214 2,400,000 2,271,984 2,196,671 2,097,545 1,865,000 1,790,000 1,630,000 1,575,946 1,546,881 1,444,877 217,172,847 % of total shares issued 54.67 5.11 4.22 2.97 2.45 1.79 1.77 1.67 1.66 1.13 0.94 0.89 0.86 0.82 0.73 0.70 0.64 0.62 0.60 0.56 84.80 49 Corum Group Limited Annual Report 2018For personal use only Shareholder information continued Substantial holders as disclosed in substantial shareholder notices given to the Company: Lujeta Pty Ltd Ginga Pty Ltd Link Enterprises (International) Pty Ltd Voting Rights All ordinary shareholders carry one vote per share without restriction. There are no other classes of equity securities. Ordinary shares Number held 140,054,379 16,592,608 13,097,145 % of total shares issued 54.67 6.48 5.11 5050 Corum Group Limited Annual Report 2018For personal use only Corporate Directory Directors Bill Paterson (Chairman) Gregor Aschoff Matthew Bottrell Company Secretary David Clarke Registered Office Level 20 347 Kent Street Sydney NSW 2000 Head office telephone +61 2 9289 4699 Share Register Computershare Investor Services Pty Limited 60 Carrington Street Sydney NSW 2000 Share registry telephone or 1300 787 272 +61 3 9415 4000 Auditor BDO East Coast Partnership Level 11 1 Margaret Street Sydney NSW 2000 Stock Exchange Listing Corum Group Limited shares are listed on the Australian Securities Exchange (ASX code: COO) Website www.corumgroup.com.au 51 Corum Group Limited Annual Report 2018For personal use only Corum Group For personal use only