Table of contents Chief Executive Officer’s Year in Review Director’s Report Auditor’s Independent Declaration Statement of comprehensive Income Statement of financial position Statement of cash flow Statement of changes in equity Notes to the financial statement for the year ended 30 June 2015 Note 1 Statement of Accounting Policies Note 2 Revenue and Expense Note 3 Income Tax Note 4 Cash and Cash Equivalents Note 5 Trade and Other Receivables Note 6 Inventories Note 7 Available for Sale Investments Note 8 Property, Plant and Equipment Note 9 Share Based Payments Note 10 Trade Payables and Other Liabilities Note 11 Provisions Note 12 Long Term Liabilities Note 13 Contributed Equity and Reserves Note 14 Financial Risk Management Objectives, Policies and Processes Note 15 Commitments and Contingencies Note 16 Leases Note 17 Segment Reporting Note 18 Auditor’s Remuneration Note 19 Related Party Disclosures Note 20 Matters subsequent to the end of financial year Director’s declaration Independent Auditor’s Report Tyro Payments Limited ABN 49 103 575 042 3 7 13 14 15 16 17 18 26 27 28 28 29 29 29 30 33 33 33 34 36 41 42 42 42 43 45 46 47 Annual report for the year ended 30 June 2015 Page 2 Chief Executive Officer’s Year in Review Tyro Payments Limited ABN 49 103 575 042 Building a specialised banking institution for Australia’s small-to-medium enterprises Tyro Payments Limited (Tyro) was founded on February 3, 2003 by Peter Haig, Andrew Rothwell and Paul Wood. Two founders, Peter Haig and Andrew Rothwell, have maintained their active involvement with Tyro. In November 2004, Jost Stollmann became a major investor, then Director and CEO. Kerry Roxburgh joined as a non-executive Director on April 18, 2008. He was appointed Chairman of the Board on February 19, 2010. Tyro is Australia’s independent EFTPOS provider serving small-to-medium enterprises (SMEs) with payment solutions that are seamlessly integrated with their business software. Payment acceptance and reconciliation is fully automated. Tyro holds an authority under the Banking Act 1959 (Cth) to carry on a banking business and operates under the supervision of the Australian Prudential Regulation Authority (APRA). Tyro is a Principal Member of Visa, MasterCard, UnionPay, eftpos and a Tier 1 Member of the payment clearing streams BECS and CECS. Tyro operates an in-house developed platform authorising, clearing and settling electronic card payments and health rebate claims. Tyro accepts Visa, MasterCard, American Express/JCB, Diners, PIN-based eftpos, PayPal and gift card transactions. Tyro is an accredited provider for Medicare Australia Easyclaim and provides claiming services for Medicare Australia and Australia’s private health funds. Tyro vision: Smart, fair and transparent banking Tyro promotes the growth of Australia's SME community by providing banking services that increase SME competitiveness and improve people's quality of life. The opportunity is significant and because of this Tyro has reinvested the growing earnings of the fiscal year into product development. During 2015, Tyro doubled its engineering staff to 130 professionals working in software development, testing, operations, product management, and user experience design. Staff levels in all other departments also grew resulting in an increase of 74 percent to 221 professionals. To cater for the growth, Tyro moved to new premises at 155 Clarence Street, Sydney. The focus of the development effort over the year was on expanding the acquiring system into a core banking platform. Tyro is currently undergoing an authorisation process to remove the condition on its banking authority of not being allowed to take money on deposit. Subject to this outcome, Tyro will offer its merchants an account integrated with a cloud-based accounting solution. Tyro’s new deposit account will provide SMEs with automatic reconciliation between their accounting system and their bank account as well as other features to enable increased productivity. Tyro growth: Sustainably at 30 percent and above As at June 30, 2015, Tyro was serving 13,032 SMEs, with a credit and debit card transaction volume growth rate of 30 percent to $6.8 billion. Tyro’s revenue in 2015 grew 37 percent to $72.4 million. Over its nine years in business, Tyro has maintained a high-growth rate in revenue and a compound annual growth rate of 37 percent over the past five years. While the year finished with a profit, significant reinvestment into product development, premises and staff resulted in a drop in Tyro’s operating results. Financial year ended 30 June 2007 2008 2009 2010 2011 2012 2013 2014 2015 Transactions ($M) Revenue ($‘000) 6 116 511 1,310 1,983 2,951 4,074 5,250 6,800 502 1,510 6,283 14,298 19,913 28,440 39,091 52,644 72,358 Operating results ($’000) (7,124) (5,855) (5,113) (1,824) (1,816) (528) 3,293 3,852 691 Tyro Health Tyro was the first to launch an integrated Medicare Easyclaim solution into the primary health care market. Easyclaim is a real- time Medicare claiming and reimbursement service for patient-paid and bulk-billed claims. The solution uses an eftpos terminal and the eftpos network to enable rebates from the medical practice immediately after consultation. Tyro Easyclaim eliminates data entry errors and printing of paper vouchers. End-of-day banking is fast and accurate and immediate payments reduce the practice’s outstanding debt. Patients enjoy Medicare rebates by swiping their card and seeing their rebate in their account in 11 seconds. Tyro leads the market with more than half of all Medicare rebate transactions processed through the eftpos card system. The solution is certified with most of the practice automation software providers. Tyro’s HealthPoint is a new private health fund and Medicare claiming solution tailored to allied health providers and integrated directly with the practice management software. The major modalities that will benefit from this solution in the future are dentists, optometrists and physiotherapists. Annual report for the year ended 30 June 2015 Page 3 Chief Executive Officer’s Year in Review Tyro Payments Limited ABN 49 103 575 042 Tyro Retail Tyro continues to execute its overall strategy of accessing merchants via Point of Sale (POS) vendors. The Tyro terminal adapters enable the POS vendors to implement the EFTPOS integration protocol directly with Tyro. This means that integration no longer requires weeks of effort but merely days and integrations are far more robust. Tyro EFTPOS terminals process card payment transactions in an average of three seconds with most POS software and without performance degradation through busy peak trading times such as Christmas. Reconciliation has become simpler because the cash register and EFTPOS reports always match. There are no more time-consuming manual adjustments and printouts each evening. With a Dynamic Currency Conversion (DCC) feature, international customers can pay in more than 135 different currencies, eliminating surprises on their statements when returning home. For the merchant, DCC provides extra revenue from the generated foreign exchange margins. Tyro Hospitality Tyro was the first and is the only provider of a pay, split and tip-at-table function on its terminals that can be integrated with most of the leading restaurant automation software systems. In August 2014, Australia began phasing out the cardholder’s signature as an acceptable authentication method for face-to-face payment card transactions. Now the consumer is required to enter their four-digit PIN. The hospitality sector was particularly impacted by this change as table service restaurants had to arrange for the terminal to be brought to the table to complete the payment process and the PIN entry. Tyro's Pay@Table solution permits the payment terminal to communicate with a restaurant’s POS over a wireless network, thus permitting pay-at-table transactions to be conducted on an integrated basis. Tyro provides a comprehensive suite of features including tipping at table, splitting amounts and opening bar tabs. Tyro Mobile With its foundation partner PayPal, Tyro launched the first mobile integrated payment solution. Customers can search for stores or restaurants, check-in and pay from their smartphone. There is no card or PIN required. Instant face recognition on the point of sale system promotes personalised service and enables secure authentication. For the Tyro merchant, offering customers more payment choices such as PayPal is easy. Tyro Mobile provides the same seamless integration for mobile payments as it does for card payments. Tyro Fintech Hub Tyro opened up a floor of its new premises for other fintech startups and fast-growth companies who want to build new solutions that Australia’s SME businesses need. Entrepreneurs in the Tyro Fintech hub benefit from an inspiring work environment, the exchange of ideas and experiences with the Tyro team and – for qualifying projects – from sharing in-depth banking and payments knowledge, use of open APIs and co- development resources. By opening up the Tyro platform and encouraging the ecosystem to use it, Tyro will leverage the talent and engineering resources of its partners to provide better solutions for the SME community. Tyro does not take equity positions, and the hub is an extension of its original eftpos banking strategy. Annual report for the year ended 30 June 2015 Page 4 Information for shareholders We report to shareholders each year, in late August or September, with the Annual Report and then the Annual General Meeting. We also report half-yearly to shareholders via an email newsletter in January, following the end of the half-year. A hard copy of the Annual Report can be obtained by contacting the Company Secretary. Tyro Payments Limited ABN 49 103 575 042 Annual General Meeting The Tyro Annual General Meeting (AGM) will be held at the Hilton Sydney, 488 George Street Sydney NSW 2000 on Thursday, 22 October 2015 commencing at 4pm. Shareholder Information For information about your shareholding or to notify a change of address etc., you should contact the company via the Company Secretary Phone: (02) 8907 1714 Email: jmitchell@tyro.com Tyro Payments Limited Attn: Company Secretary Level 1 155 Clarence Street Sydney NSW 2000 Electronic Communications Shareholders can elect to receive the Annual Report and shareholder newsletters by email. Shareholders who wish to register or notify a change of their email address should contact the company via the Company Secretary Tyro Payments Limited Attn: Company Secretary Level 1 155 Clarence Street Sydney NSW 2000 Phone: (02) 8907 1714 Email: jmitchell@tyro.com Annual report for the year ended 30 June 2015 Page 6 Tyro Payments Limited ABN 49 103 575 042 Directors Report Year ended 30 June 2015 Annual report for the year ended 30 June 2015 Page 7 Directors Report Tyro Payments Limited ABN 49 103 575 042 Directors Report The Board of Directors of Tyro Payments Limited present their report together with the financial statements for the financial year ended 30 June 2015. Directors The names and details of the company’s directors in office during the financial year and until the date of this report are Kerry Chisholm Dart Roxburgh, Michael Alexander Cannon-Brookes, Robert Alexander Ferguson, Paul Gordon Rickard and Hans-Josef Jost Stollmann. Skills, qualifications, experience and special responsibilities for each director are set out below: Kerry Roxburgh, Chairman Non-executive Director since 18 April 2008 Kerry is currently the Lead Independent non-executive Director of Ramsay Health Care Ltd, and a non-executive director of the Medical Indemnity Protection Society and of MIPS Insurance Ltd. He is Chairman of the Eclipx Group and of Tasman Cargo Airlines Ltd. Kerry is Deputy Chairman of Marshall Investments Pty. Ltd. He is also a member of the Advisory Board of AON Risk Solutions Australia. In 2000 he completed a 3 year term as CEO of E*TRADE Australia (a business that he co-founded in 1997), continuing as its non-executive Chairman until June 2007, when it was acquired by the ANZ Bank. Prior to this appointment he was an Executive Director of Hong Kong Bank of Australia Group (now HSBC Bank Australia) where for 10 years from 1986, he held various positions including Head of Corporate Finance and Executive Chairman of the group’s stockbroker, James Capel Australia. Until 1986 Mr Roxburgh was in practice for more than 20 years as a Chartered Accountant. Kerry is Chairman of the Board of Tyro Payments Limited and a member of its Audit Committee, its Remuneration Committee and of its Risk Committee. Other directorships held in the last three years: • TEKTUM Limited – Chairman (ceased) • Charter Hall Group - Chairman (ceased) • Tyro Payments Limited Mike Cannon-Brookes Non-executive Director since 10 December 2009 Michael is Co-Founder, CEO and director of Atlassian, an innovative, award-winning enterprise software company based in Australia and established in 2002. Michael was named Australian IT Professional of the Year in 2004, awarded 'Australian Entrepreneur of the Year' by EY in 2006 and honoured by the World Economic Forum in 2009 as a Young Global Leader. Michael is an active investor and advisor to technology-focused ventures. Michael is Chairman of the Remuneration Committee and member of the Audit and Risk Committees. Directorships held during the past three years: • Atlassian Corporation Pty Limited & Subsidiaries • Tyro Payments Limited Rebecca Dee-Bradbury Non-executive Director since 5 February 2014 until 22 August 2014 Ms Dee-Bradbury was Chief Executive Officer/President Developed Markets Asia Pacific and ANZ for Kraft/Cadbury from 2010 to 2014, leading the business through significant transformational change. Before joining Kraft/Cadbury Ms Dee-Bradbury was Group CEO of the global Barbeques Galore group, and has held other senior executive roles in organisations including Maxxium, Burger King Corporation and Lion Nathan/Pepsi Cola Bottlers. Ms Dee-Bradbury has previously participated in public policy related areas including the Prime Ministers Manufacturing Leaders Group and was a member of the Australian Federal Government's Asian Century Strategic Advisory Board. Annual report for the year ended 30 June 2015 Page 8 Directors Report Tyro Payments Limited ABN 49 103 575 042 Directorships held during the past three years: • BlueScope Steel Limited • GrainCorp Limited • TOWER Limited • Tyro Payments Limited (ceased) Rob Ferguson Non-executive Director since 14 November 2005 Rob began his career as a research analyst for a Sydney stockbroker. He joined Bankers Trust Australia in 1972 and became managing director in 1985. By mid 1990s, BT had $50 billion under management. Rob became chairman of BT Funds Management in 1999 until he resigned the position in 2002. Rob is Chairman of the Risk Committee and a member of the Audit and Remuneration Committees. Directorships held during the past three years: Tyro Payments Limited • Chairman of GPT Management Holdings Limited • • Non-executive Chairman of Primary Health Care Limited • Chairman of SmartWard Holdings Pty Ltd (appointed Feb-12) • Non-executive Director of Watermark Market Neutral Fund Limited (appointed 28-May-13) Paul Rickard Non-executive Director since 28 August 2009. Paul is a company director, financial adviser and financial services consultant. He was previously the Executive General Manager, Payments & Business Technology for the Commonwealth Bank. During his 20 year career at the CBA, Paul was the founding Managing Director of CommSec, which he led from 1994 through to 2002. In 2005, Paul was named ‘Stockbroker of the Year’ and admitted to the Industry Hall of Fame. Paul is Chairman of the Audit Committee and member of the Risk Committee. Directorships held during the past three years: Tyro Payments Limited • • Property Exchange Australia Limited • Switzer Financial Group Pty Ltd • Halidon Asset Management Ltd • Lumus Financial Services Pty Ltd • Substancia Capital Limited (ceased) Jost Stollmann Director and CEO since 5 April 2005 Jost founded and grew the German system and network integrator CompuNet Computer AG into a US$1B company, sold it to GE Capital and led the integration and expansion of GE Capital IT Solutions across the continent as president of Europe. As Federal Shadow Minister of Economy and Technology, he ran and managed his own election campaign contributing significantly to the landslide victory of the first German government of Chancellor Gerhard Schröder. Directorships held during the past three years: • Tyro Payments Limited Annual report for the year ended 30 June 2015 Page 9 Directors Report Tyro Payments Limited ABN 49 103 575 042 Company Secretary Our Company Secretary as at 30 June 2015 is Justin Mitchell. Justin was appointed on 19 March 2007 to build and manage the compliance and risk frameworks and oversee regulatory obligations. Justin was appointed Company Secretary on 12 April 2007. The Company Secretary ensures all relevant business is put to the board and the decisions of the board are implemented. In the capacity of Chief Risk Officer he is accountable for enabling the efficient and effective governance of significant risks. A main priority for Justin is to ensure that the organisation is in full compliance with all applicable regulations. DIVIDENDS No dividends have been declared or paid since the date of incorporation. CORPORATE INFORMATION Corporate Structure Tyro Payments Limited (“Tyro”) is an unlisted public company. It is incorporated and domiciled in Australia. The registered office of Tyro is Level 1, 155 Clarence Street, Sydney, New South Wales, 2000. Interests in the shares and options of the company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Tyro Payments Limited were: Director Shares Options Kerry Roxburgh1 Michael Cannon-Brookes2 Rebecca Dee-Bradbury Rob Ferguson3 Paul Rickard Jost Stollmann4 1,090,182 6,247,980 - 30,352,950 328,911 1,867,031 2,788, 819 - 4,640,186 1,386,043 59,336,874 11,957,110 1 Includes ordinary shares and options jointly held with Alex Roxburgh as trustees for the Kerry & Alex Roxburgh Superannuation Fund being an associate of Kerry Roxburgh 2 Includes ordinary shares by Abyla Pty Ltd and Grokco Pty Ltd being associates of Michael Cannon- Brookes 3 Includes ordinary shares held by Torryburn Superannuation Fund and Simon Peter Price and Rachel Emma Ferguson being associates of Rob Ferguson 4 Includes options held by Fiona Stollmann being an associate of Jost Stollmann Nature of operations and principal activities Tyro is a financial institution providing payment solutions to Australian merchants. Tyro has implemented appropriate systems and controls to comply with the stringent prudential and regulatory requirements to perform transaction processing, clearing and settlement activities within the Australian Payments System. There have been no significant changes in the nature of those activities during the year. Annual report for the year ended 30 June 2015 Page 10 OPERATING AND FINANCIAL REVIEW Operating Results for the Year Tyro reported the following operating results for the year and the comparative period: (amounts in $’000s) Revenues Operating profit before tax expense Capital Structure Directors Report Tyro Payments Limited ABN 49 103 575 042 2015 2014 $72,358 $52,644 $691 $3,852 Tyro is fully compliant with prudential capital requirements prescribed by APRA and has sufficient capital to fund on- going operations. During the period, 450,858 ordinary shares were issued upon exercise of options raising a total of $100,657.29 additional capital. As at 30 June 2015 Tyro had trade payables of $6,519k. Cash from Operations Tyro has achieved a profit for the 2014/15 financial year. The result is in line with budget after having reached the milestone of sustained profitability since March 2012. Tyro is still in a phase of high growth and scaling up of the business. Tyro had interest income of $805k for the period. Funding Tyro had cash and cash equivalents of $12,673k at the end of the period. Tyro holds an authority under the Banking Act to carry on a banking business as an Australian Deposit-taking Institution (ADI) and is subject to prudential capital requirements set by the Australian Prudential Regulation Authority (APRA). The prudential capital requirements set by APRA is confidential and cannot be disclosed. APRA requires Tyro to always maintain a prudent buffer above the regulatory minima. Total Tier 1 capital held as at 30 June 2015 was $21.2m. Tyro has always held sufficient capital to meet its internal targets above APRA’s prudential capital requirements. Risk Management The Board is responsible for reviewing and approving the risk management strategy, including determining our appetite for risk. The Board has delegated to the Board Risk Committee responsibility for providing recommendations to the Board, setting risk appetite, approving frameworks, policies and processes for managing risk, and determining whether to accept risks beyond management’s delegated authorities. The Board Risk Committee monitors the alignment of our risk profile with our risk appetite, and with our current and future capital planning. The Board Risk Committee receives regular reports from management on the effectiveness of our management of business risks. The CEO and management team are responsible for implementing our risk management strategy and frameworks, and for developing policies, controls, processes and procedures for identifying and managing risk. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs. Significant events after balance date On the 19 August 2015 APRA approved Tyro’s application for reauthorisation to carry on a banking business, revoking the prior conditions which previously applied. Annual report for the year ended 30 June 2015 Page 11 Directors Report Tyro Payments Limited ABN 49 103 575 042 Likely developments and expected results The directors expect that in the 2015/16 financial year Tyro will continue to grow the business and continue to expand the features and products offered to merchants to facilitate payments. SHARE OPTIONS Unissued shares As at the date of this report, there were 80,021,864 un-issued ordinary shares under options. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (named above) and the company secretary against a liability incurred as an officer of the company to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The company has entered into deeds of access and indemnity with its directors and company secretary which will indemnify them against liability incurred as an officer of the company to a third party only to the extent permitted by the Corporations Act. The company has agreed to indemnify its auditor, EY, against a liability incurred as auditor only to the extent permitted by law. DIRECTORS’ MEETINGS The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director is as follows: Board Meetings Audit Committee Risk Committee Remuneration Committee Meetings held during the year Director Kerry Roxburgh Michael Cannon-Brookes Rebecca Dee-Bradbury* Rob Ferguson Paul Rickard Jost Stollmann 7 7 7 1 5 7 7 4 4 3 1 0 4 4 6 6 5 0 2 6 6 2 2 2 0 0 1 2 *Rebecca missed one Board Meeting before resigning during the period. Committee Membership As at the date of this report, Tyro had an Audit Committee, a Risk Committee and a Remuneration Committee of the Board of Directors. Members acting on the Committees of the Board during the year were: Audit Committee P. Rickard (Chairman) R. Ferguson K. Roxburgh Remuneration Committee M. Cannon-Brookes (Chairman) R. Ferguson K. Roxburgh Risk Committee K. Roxburgh (Chairman) M. Cannon-Brookes P. Rickard Annual report for the year ended 30 June 2015 Page 12 Ernst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Tyro Payments Limited In relation to our audit of the financial report of Tyro Payments Limited for the financial year ended 30 June 2015, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Clare Sporle Partner 20 August 2015 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 Continuing Operations Fees and commission income Fees and commission expense Net fees and commission income Terminal and accessories sale Terminals and accessories COGS Net terminal and accessories sale income Interest income Other income Total Operating income Less: Expenses Employee benefits expenses Administrative expenses Depreciation Impairment of inventories Interest expense Other expenses Total operating expenses Foreign currency gain/(loss) Operating profit before tax expense Income tax benefit/(expense) Net income for the year Other Comprehensive Income Net fair value gain on available for sale financial instrument Total comprehensive income for the period Tyro Payments Limited ABN 49 103 575 042 Note 2015 $000 70,850 (39,082) 31,768 573 (508) 65 805 130 2014 $000 51,327 (28,466) 22,861 554 (465) 89 750 13 32,768 23,713 21,429 8,348 2,436 8 30 59 32,310 233 691 120 811 150 961 13,736 4,428 1,276 214 64 107 19,825 (36) 3,852 (908) 2,944 32 2,976 2 2 2 2 2 3 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Annual report for the year ended 30 June 2015 Page 14 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Total Current Assets Non-current Assets Available-for-sale investments Property, plant and equipment Deferred Tax Assets Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade payables and other liabilities Provisions Total Current Liabilities Non - current Liabilities Provisions Total Non - current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY Tyro Payments Limited ABN 49 103 575 042 2015 $000 12,673 7,893 492 855 21,913 596 7,673 5,631 13,900 2014 $000 9,011 12,099 309 293 21,712 381 2,996 5,575 8,952 35,813 30,664 6,519 1,088 7,607 418 418 8,025 27,788 34,013 8,707 (14,932) 3,383 618 4,001 424 424 4,425 26,239 33,912 8,041 (15,714) 27,788 26,239 Note 4 5 6 7 8 3 10 11 12 13 13 13 The above Statement of Financial Position should be read in conjunction with the accompanying notes. Annual report for the year ended 30 June 2015 Page 15 Note 2 4 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2015 Cash flows from operating activities Interest and fee income received Payments to suppliers and employees Receipts from Terminals & accessories sale Dividend income received Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash flows from investing activities Cash flows from financing activities Proceeds from loan Loan repayment Interest paid on Loans Proceeds from exercise of share options Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at beginning of year Tyro Payments Limited ABN 49 103 575 042 2015 $000 71,970 (62,190) 573 2 10,355 (7,138) 112 (7,026) - - - 101 101 3,430 232 9,011 2014 $000 52,797 (65,369) 554 2 (12,016) (2,542) 18 (2,524) 6,100 (6,100) (63) 706 643 (13,897) (37) 22,945 Cash and cash equivalents at end of year 4 12,673 9,011 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Annual report for the year ended 30 June 2015 Page 16 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2015 Tyro Payments Limited ABN 49 103 575 042 Attributable to equity holders of Tyro Payments Limited Contributed Equity $000 33,206 Asset Revaluation Reserve $000 178 Note Employee Equity Benefits Reserve S000 6,311 Accumulated Losses $000 (18,575) Option Premium Reserve $000 480 General Reserve for Credit Losses $000 285 At 30 June 2013 Gain for the year Other comprehensive income Total comprehensive income Issue of share capital Share-based payments Transfer to general reserve for credit losses - - - 706 - - - 32 32 - - - - - - - 672 - 2,944 - 2,944 - - (83) - - - - - Total $000 21,885 2,944 32 2,976 706 672 - - - - - 83 - At 30 June 2014 33,912 210 6,983 (15,714) 480 368 26,239 Gain for the year Other Comprehensive income Total comprehensive income Issue of share capital Share-based payments Transfer to general reserve for credit losses - - - 101 - - - 150 150 - - - - - - - 487 - 811 - 811 - - (29) - - - - - - - - - - - 29 811 150 961 101 487 - At 30 June 2015 13 34,013 360 7,470 (14,932) 480 397 27,788 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Annual report for the year ended 30 June 2015 Page 17 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 1. STATEMENT OF ACCOUNTING POLICIES The significant policies which have been adopted in the preparation of this financial report are set out below: The financial report of Tyro Payments Limited (the Company) was authorised for issue in accordance with a resolution of the directors on 20 August 2015. Tyro Payments Limited is an unlisted public company, incorporated and domiciled in Australia. The nature of the operations and principal activities of the Group are described in the Directors’ report. (a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for available-for-sale investments, which have been measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars, under the option available to the Company under ASIC Class Order No. 98/100, unless otherwise stated. Management has reviewed the method of presentation of revenue and expenses within Note 2. Similar categories of income and expenses have been grouped together. Prior year comparative information for these amounts, and where necessary, has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. (b) Compliance with IFRS The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) Going concern The Company is in its eighth year of operation and has made an operating profit of $690,806 (2014: profit $3,851,678) The Directors consider the Company is able to pay its debts as and when they fall due, and therefore the Company is able to continue as a going concern. (d) Statement of compliance The financial report complies with Australian Accounting standards issued by the Australian Accounting Standards Board and complies with International Financial Reporting Standards issued by the International Financial Reporting Standards Board. (e) New Accounting standards and interpretations (i) Changes in accounting policies The accounting policies are consistent with those applied in the previous financial year and corresponding interim period. The Company has adopted the following new and amended Australian Accounting Standards and AASB Interpretations AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities AASB 2011-4 Amendments to Australian Accounting Standards – Remove individual KMP disclosure requirements AASB 2013-3 Recoverable amount disclosures for Non-Financial Assets AASB 1031 Materiality The adoption of the above Standards and Interpretations is deemed not to have an impact on the financial statements or performance of the Company. Annual report for the year ended 30 June 2015 Page 18 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) (ii) Accounting standards and interpretations issued but not yet effective The following Australian Accounting Standards and Interpretations, which have recently been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ended 30 June 2015: • AASB 15 Revenue from Contracts with Customers - establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with the core principles explained in a step by step approach in the standard. AASB 15 applies to annual reporting periods on or after 1 January 2018. The new requirements of AASB 15 will be assessed closer to the effective date. • AASB 9 Financial Instruments – simplifies the classifications of financial assets into those to be carried at amortised cost and those to be carried at fair value. The new standard also: - - - - simplifies requirements for embedded derivatives. removes the tainting rules associated with held-to-maturity assets. provides an opportunity to fair value investments in equity instruments to other comprehensive income, with no separate impairment test, whilst taking dividends to income. requires entities to reclassify their financial assets when there is a change in the entity's business model. AASB 9 applies to annual reporting periods on or after 1 January 2017. The new requirements of AASB 9 will be assessed closer to the effective date. (f) Significant accounting judgements, estimates and assumptions In applying the Company's accounting policies management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Company. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined as follows: Share-based payments transactions - The Company recognises the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. The fair value is determined using the Black-Scholes option valuation model, with the assumptions detailed in Note 9. Classification of and valuation of investments - The Company classifies its investments in listed securities as 'available -for-sale' investments and movements in fair values are recognised directly in equity. The fair value of listed shares has been determined by reference to published price quotations in an active market. Estimation of useful lives of assets - The estimation of the useful lives of assets has been based on historical experience. In addition, the condition of the assets is assessed at least once per year and considered against their remaining useful lives. Adjustments to useful lives are made when considered necessary. Depreciation charges are included in Note 8. Long Service Leave - Entitlements that arise in respect of long service leave which are expected to be settled more than 12 months after the reporting date have been measured at their present values of expected future payments. Long service leave is calculated based on assumptions and estimates of when employees will take leave and the prevailing wage rates at the time the leave will be taken. Long service leave liability also requires a prediction of the number of employees that will achieve entitlement to long service leave. Annual report for the year ended 30 June 2015 Page 19 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) (g) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. (i) Fee income The Company derives fee income from the following sources: - Merchant service fee income is generated from merchant customers for credit and debit card acquiring services. Fees are charged to merchants depending on the type of transaction being performed based on a percentage of transaction value or on a fixed amount per transaction. Fees related to the payment transactions are recognised at the time transactions are processed. Related interchange fee, which is collected from merchants and paid to credit institutions is recognised as an expense instead of netting-off against merchant service fee income in the Statement of Comprehensive Income. - Revenue from terminal rental income generated from merchants is based on a fixed rental from terminals. - Revenue from Debit Card Interchange generated from banks is based on a fixed fee per transaction and is recognised when transactions are processed. - Revenue from processing Medicare Easyclaim generated from merchants is based on a fixed fee per transaction and is recognised when transactions are processed. - Revenue from Dynamic Currency Conversion (DCC) transactions generated from merchants is calculated based on the individual value of the transactions and is recognised once the transaction has been processed. (ii) Interest income Interest income is recognised in the Statement of Comprehensive Income on an accruals basis, using a method that approximates the effective Interest method. The effective interest rate method measures the amortised cost of a financial asset and allocates the interest income over the relevant period using the effective interest which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (h) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the asset. Leases in which the Company retains substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as lease rental income. Operating lease payments are recognised as an income or expense in the Statement of Comprehensive Income on a straight-line basis over the lease term. Deferred income is recognised as a liability on the Statement of Financial Position on inception of the lease. The deferred lease incentive is then recognised in the Statement of Comprehensive Income on a straight line basis over the term of the lease, through rent expense. (i) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents are reported net of outstanding bank overdrafts. (j) Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for any uncollectible amounts. Term Deposits are included in Trade and other receivable. Annual report for the year ended 30 June 2015 Page 20 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Company will not be able to collect the debt. (k) Prepayments Prepayments are recognised for amounts paid whereby goods have not transferred ownership to the Company or where services have not yet been provided. Upon receipt of goods or the service the corresponding asset is recognised in the Statement of Financial Position or the expense is recognised in the Statement of Comprehensive Income. (l) Available-for-sale Investments Available-for-sale investments are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the investment. After initial recognition these investments are measured at fair value. Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is transferred to the Statement of Comprehensive Income. Purchase and sale of investments are recognised on settlement date - the date on which the Company receives or delivers the asset. (m) Inventories (i) Cost and Valuation The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the Company from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. Inventories are subsequently held at the lower of cost and their net realisable value. Impairment is assessed on an annual basis. Inventories are derecognised upon transfer to property, plant and equipment when leased out to merchants or rights to benefits are transferred to a third party. (ii) Impairment Management make assessments of the net realisable value of Inventory on an annual basis. The cost of inventory may not be recoverable where the inventory is damaged, wholly or partially obsolete, or if selling prices have declined. In accordance with AASB 102, where the cost of inventory exceeds the net realisable value, Inventory is written down to their net realisable value. Net realisable value is an estimate, based on the most reliable evidence at the time, of the amount the inventories are expected to realise. (n) Income Taxes Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the by the reporting date. (o) Deferred tax asset Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date (Note 3). 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) Annual report for the year ended 30 June 2015 Page 21 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (p) Other Taxes Goods and Services Tax (GST) Revenues, expenses, assets and liabilities are recognised net of the amount of GST except for the following: - - when the GST incurred on the purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and trade receivables and trade payables are stated with the amount of GST included. The net amount of GST recoverable from or payable to the taxation authority is included as part of other receivables or other payables in the Statement of Financial Position. Commitments and contingencies are disclosed net of the amount of GST. (q) Acquisition of assets All assets acquired including property, plant and equipment are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus any incidental costs directly attributable to the acquisition. Expenditure is recognised as an asset only when it is probable that future economic benefits associated with the asset will flow to the Company and the cost of the item can be measured reliably. All other expenditure is expensed as incurred. (r) Property, plant and equipment (i) Cost and Valuation Property, plant and equipment are measured at cost less accumulated depreciation and any impairment in value. The Company recognises in the carrying amount of an item of property, plant and equipment the cost of replacing parts when the cost is incurred and the recognition criteria are met. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant or equipment, as a replacement, provided that the recognition criteria are satisfied. (ii) Depreciation Depreciation is provided on a straight-line basis over the estimated useful life of each specific item of property, plant and equipment. Estimated useful lives are as follows: 2015 2014 Plant and equipment: - EFTPOS terminals - Furniture and office equipment - Computer equipment - Leasehold improvements 3 years 5 years 4 years 3 years 5 years 4 years Remaining term of lease - The assets' residual values, remaining useful lives and depreciation methods are reassessed and adjusted, if appropriate at each reporting date. (iii) Impairment Management has identified cash generating units and applicable impairment indicators in accordance with AASB 136 Impairment of Assets. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs of disposal and its value in use. 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) Annual report for the year ended 30 June 2015 Page 22 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (r) Property, plant and equipment (cont’d) (iv) De-recognition and disposal An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from continued use of the asset. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset's carrying amount and are included in the Statement of Comprehensive Income in the year the asset is derecognised. (s) Trade and other payables Merchant payables arise when the Company has received monies from the relevant schemes and financial institutions that have not yet been settled with the merchant. Payables to merchants are only recognised to the extent that a liability arises. This liability arises when the proceeds have been paid by the schemes and financial institutions and received by the Company. Liabilities for trade and other payables are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Company. (t) Interest-bearing loan and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and liabilities are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the cost of the loans and liabilities. The fair value of the options attached to the loan is also included in the cost of the loan. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for 12 months after the reporting date. Borrowing costs consists of interest and other costs incurred in the borrowing of funds. (u) Provisions and contingencies Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the impact of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Contingent liabilities are not recognised in the Statement of Financial Position, but are disclosed in the relevant notes to the financial statements. They may arise from uncertainty as to the existence of a liability or represent an existing liability in respect of which settlement is not probable or the amount cannot be reliably measured. Only when settlement becomes probable will a liability be recognised. The Company is contingently liable for processed credit card sales transactions in the event of a dispute between the cardholder and a merchant. If a dispute is resolved in the cardholder’s favour, the Company will credit or refund the amount to the cardholder and charge back the transaction to the merchant. If the Company is unable to collect the amount from the merchant, the Company will bear the loss for the amount credited or refunded to the cardholder. Management evaluates the risk of such transactions and estimates its potential loss for credit losses based primarily on historical experience and other relevant factors. A provision is recognised for merchant losses necessary to absorb chargebacks and other losses for merchant transactions that have been previously processed and on which revenues have been recorded. From the current financial year a specific provision for credit losses is maintained when there is objective evidence that the company will not be able to collect the debts. 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) Annual report for the year ended 30 June 2015 Page 23 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (v) General reserve for credit losses The Company provides for estimated future credit losses with a general reserve for chargebacks. The Company estimates the reserve by using a multiple of historical losses over a rolling 120 day period of transaction values. The general reserve for credit losses is then allocated as a separate reserve within equity. The methodology and assumptions used for estimating general reserve for credit losses required are reviewed regularly. (w) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave. Entitlements arising in respect of salaries and wages, annual leave and other employee benefits that are expected to be settled within one year have been measured at their nominal amounts. Employees are entitled to 20 days annual leave each year. The company classes as a current liability the portion that is expected will be taken by the employees in the next 12 months. Entitlements that arise in respect of long service leave which are expected to be settled more than 12 months after the reporting date have been measured at their present values of expected future payments. Long service leave is calculated based on assumptions and estimates of when employees will take leave and the prevailing wage rates at the time the leave will be taken. Long service leave liability also requires a prediction of the number of employees that will achieve entitlement to long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave to be taken in the future by all employees at reporting date is estimated to be less than the annual entitlement for sick leave. (x) Share-based payment transactions Share-based compensation benefits are provided to employees (including Key Management Personnel) via the Employee Share Option Plan, whereby employees render services in exchange for rights over the Company's shares. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined internally using the Black-Scholes option valuation model. The cost of equity-settled transactions is recognised, together with any corresponding increase in equity, over the period in which the employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors of the Company, will ultimately vest. This opinion is based on the best available information at the reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest. There were no modifications to the terms of the outstanding options during the financial year. Details of the types of share-based payments and their respective terms and vesting conditions are disclosed in Note 9. (y) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are accounted in contributed equity as a deduction, net of tax, from the proceeds of issue. 1. STATEMENT OF ACCOUNTING POLICIES (cont'd) (z) Foreign currency translation Annual report for the year ended 30 June 2015 Page 24 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the spot rate of exchange ruling at the reporting date. Non-monetary assets and liabilities are translated at their historic rates of exchange at their respective transaction dates. (aa) De-recognition of assets and liabilities Assets and liabilities are derecognised from the Statement of Financial Position upon sale, maturity or settlement. Gains and losses arising from de-recognition of these assets and liabilities are accounted in the Statement of Comprehensive Income. Annual report for the year ended 30 June 2015 Page 25 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 2. REVENUE AND EXPENSES The Operating profit before tax expense has been arrived at after accounting for the following items: Tyro Payments Limited ABN 49 103 575 042 Fees and commission income Merchant service fee Terminal rental income Other fee income Fees and commission expense Interchange and scheme fees Other settlement fees and expenses Commissions expense Other Income Gain on disposal of PPE Dividend income on financial instruments Other Income Employee benefits expense Wages, salaries and bonuses Superannuation Share based payments expense Other employee benefits expense Other expenses Other Write offs Bad debt and credit loss expense 2015 $000 60,596 5,246 5,008 70,850 33,411 1,024 4,647 39,082 88 2 40 130 18,690 1,790 487 462 21,429 16 43 59 2014 $000 43,353 3,382 4,592 51,327 23,832 956 3,678 28,466 11 2 - 13 11,475 1,063 672 526 13,736 (3) 110 107 Annual report for the year ended 30 June 2015 Page 26 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 3. INCOME TAX a) Income tax expense Major components of income tax recognised in statement of comprehensive income for the period ended 30 June 2015: Current Income Tax Current income tax charge Prior year under/(over) Deferred Income Tax Relating to origination and reversal of temporary differences and tax losses Derecognition of deferred income tax from temporary differences Income Tax expense/(benefit) in income statement: Amount reported directly in other comprehensive income Deferred tax on unrealised gain on available-for-sale investment Income tax expense reported in equity b) Reconciliation of income tax expense and prima facie tax: Operating Profit Before Tax At the statutory income tax rate of 30% Research and development incentive Share based payment remuneration Entertainment Adjustment in respect to previous year’s tax balances Other Total income tax (benefit)/expense c) Deferred income tax assets and liabilities 2015 $000 592 - - (712) (120) - 64 64 691 207 (600) 147 16 110 - (120) 2014 $000 1,033 - (125) - 908 - 14 14 3,852 1,156 (431) 201 15 - (33) 908 2015 2014 Balance Sheet Income Statement Other comprehensive Income Balance Sheet Income Statement Other comprehensive Income $000 $000 $000 $000 $000 $000 Deferred income tax assets Fixed Assets Provisions & Accruals Other (Section 40-880) Lease Break Fee Unrealised FX Loss Tax Losses Deferred income tax liabilities Available-for-sale investments Unrealised FX gain Total 545 1,235 - 84 - 4,010 5,874 (154) (89) (243) 5,631 10 (636) - (84) 24 (115) (801) - 89 89 (712) - - - - - - - - - - 555 599 - - 24 4,487 5,665 (90) - (90) 5,575 (13) (97) 1 - (24) 1,074 941 - (33) (33) 908 - - - - - - - 14 - 14 14 Annual report for the year ended 30 June 2015 Page 27 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 4. CASH AND CASH EQUIVALENTS Call deposits Exchange settlement balance Cash in hand Tyro Payments Limited ABN 49 103 575 042 2015 $000 4,168 8,504 1 12,673 2014 $000 2,030 6,980 1 9,011 Call deposits earn interest at floating rates based on daily bank deposit rates. The Reserve Bank of Australia (RBA) pays interest on balances held in exchange settlement accounts at a rate of 25 basis points below the cash rate. Refer to note 15 for details of cash and cash equivalents pledged as security. Term deposits earn interest based on an agreed rate and term. Reconciliation of operating loss after tax to net cash flows used in operations Operating profit/(loss) for the year Adjustments for: Depreciation of non-current assets Share-based payments expense Gain on disposal of property plant and equipment Deferred Tax Benefits Changes in assets and liabilities Decrease/(increase) in trade and other receivables Decrease/(increase) in prepayments Decrease/(increase) in inventory Increase in trade and other payables Net cash from operating activities 5. TRADE AND OTHER RECEIVABLES Scheme and other trade receivables Term deposits held as collateral Interest receivable Other receivables 2015 $000 811 2,436 487 (88) (120) 4,178 (184) (561) 3,396 10,355 3,688 4,111 85 9 7,893 2014 $000 2,944 1,276 672 (11) 908 (19,121) (124) 81 1,359 (12,016) 10,179 1,834 75 11 12,099 The Company's ageing of trade debtors and receivables (schemes and merchants) is as follows: Current $000 1-30 days $000 31-60 days $000 61-90 days $000 >90 days $000 Trade receivables before impairment. Carrying value 2015 (Total $3,696,850) Carrying value 2014 (Total $10,189,761) 3,543 9,831 127 359 13 - 9 - 5 - Refer to Note 14 for term deposit maturities and Note 15 for details of cash and cash equivalents pledged as security. Annual report for the year ended 30 June 2015 Page 28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 6. INVENTORIES Terminals and accessories 7. AVAILABLE-FOR-SALE INVESTMENTS Investment in VISA shares Tyro Payments Limited ABN 49 103 575 042 2015 $000 855 2015 $000 596 2014 $000 293 2014 $000 381 These investments were acquired following the demutualisation of VISA International, as a result of which listed VISA shares were issued to members of the VISA network. All VISA shares were listed on the New York Stock Exchange (NYSE) on 26th March 2008 with VISA’s certificate of incorporation providing for the mandatory buyback of up to 80% of the common stock allocated to VISA members out of IPO proceeds as soon as possible after listing. 8. PROPERTY, PLANT AND EQUIPMENT Reconciliation of net carrying amounts at the beginning and end of the year: Year ended 30 June 2015 At 1 July 2014 net of accumulated depreciation and impairment Additions/transfers Disposals/transfers* Depreciation for the year At 30 June 2015 net of accumulated depreciation and impairment At 1 July 2014 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2015 Cost or fair value Accumulated depreciation and impairment Net carrying amount EFTPOS Terminals $000 Furniture and Office Equipment $000 Computer Equipment $000 Leasehold Improvements $000 Total $000 2,505 4,545 (23) (1,996) 5,031 7,145 (4,640) 2,505 11,560 (6,529) 5,031 76 690 (1) (86) 679 254 (178) 76 919 (240) 679 415 807 - (265) - 1,096 - (90) 2,996 7,138 (24) (2,437) 957 1,006 7,673 2,133 (1,718) 415 2,390 (1,433) 957 - - - 1,096 (90) 1,006 9,532 (6,536) 2,996 15,965 (8,292) 7,673 Annual report for the year ended 30 June 2015 Page 29 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 8. PROPERTY, PLANT AND EQUIPMENT (cont’d) Reconciliation of net carrying amounts at the beginning and end of the year: EFTPOS Terminals $000 Furniture and Office Equipment $000 Computer Equipment $000 Leasehold Improvements $000 Total $000 1,409 2,191 (7) (1,088) 2,505 5,002 (3,593) 1,409 7,145 (4,640) 2,505 79 25 - (28) 76 230 (152) 78 254 (178) 76 249 327 - (161) 415 1,807 (1,557) 250 2,133 (1,718) 415 - - - - - - - - - - - 1,737 2,543 (7) (1,277) 2,996 7,039 (5,302) 1,737 9,532 (6,536) 2,996 Year ended 30 June 2014 At 1 July 2013 net of accumulated depreciation and impairment Additions/transfers Disposals/transfers* Depreciation for the year At 30 June 2014 net of accumulated depreciation and impairment At 1 July 2013 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2014 Cost or fair value Accumulated depreciation and impairment Net carrying amount 9. SHARE-BASED PAYMENTS The Company will provide benefits to employees and Directors from time to time including share-based payments as remuneration for service. (a) Employee Share Option Plan The Employee Share Option Plan was established to grant options over ordinary shares in the Company to employees or Directors who provide services to the Company. Options granted pursuant to the Employee Share Option Plan may be exercised, in whole or part, subject to vesting terms and conditions as indicated below: Type of Option Vesting Terms and Conditions Linear vesting schedule Options granted will vest in proportion to the time that passes linearly during the vesting schedule, subject to maintaining continuous status as an employee or consultant with the Company during the vesting schedule. Service vesting schedule The options vest according to a period of service may be exercised as to a set number of shares per agreed day of service, as defined in the specific option grant. Fully vested at time of grant Options may be exercised as to all shares from the vesting commencement date. All option grants must be held for a minimum period commencing on the date on which the options are granted and continuing until the earlier of: - - the date which is 3 years after the date on which options are granted; or the date on which the participant ceases employment with the Company. Annual report for the year ended 30 June 2015 Page 30 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 9. SHARE BASED PAYMENTS (cont'd) Other relevant terms and conditions applicable to options granted under the Employee Share Option Plan include: - - - the term of each option grant shall be 7 years from the date of grant or such shorter term as provided in the Employee Share Option Plan agreement. Each option entitles the holder to one ordinary share. All awards granted under the Employee Share Option Plan are equity-settled. (b) Fair value of options The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model. The table below lists the assumptions used in determining the fair value of the options granted during the year ended 30 June 2015: Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Share price ($) 2015 0% 62% 2.84% $0.30 A zero dividend policy assumption is used for valuing all option grants. This is in line with the Company's capital management policy and growth strategy. Expected volatility used is the historical volatility of the peer group. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The average expected life for 7 year options is assumed to be 5 - 6 years from the grant date. The expected life for 10 year option is assumed to be 5 - 8 years. For all other options with a contractual life of 5 year or less, the expected life is assumed to be the total contractual life from the date of grant to the expiry date. There were 450,858 options exercised during the year ended 30 June 2015 (2014:10,194,219). The weighted average remaining contractual life for share options outstanding as at 30 June 2015 was 3 years (2014:4 years). The following table summarises further details of the share options outstanding at 30 June 2015: Range of Exercise Prices Contractual life Vesting conditions No of Outstanding Options 6 cents to 55 cents 6 cents to 45 cents 6 cents to 55 cents 10 years or less 5 years and 10 years 3, 5 and 10 years 6 cents to 55 cents 10 years or less 5 year linear vesting 12 months service 12 months linear vesting Fully vested at time of grant Total 2015 2014 30,193,725 1,043,478 25,272,457 1,043,478 11,454,189 11,460,798 23,314,679 66,006,071 23,314,679 61,091,412 Annual report for the year ended 30 June 2015 Page 31 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 9. SHARE BASED PAYMENTS (cont'd) The following table illustrates the number and weighted average exercise prices (WAEP) in cents and movements of share options during the year: 2015 No 2015 WAEP (cents) 2014 No 2014 WAEP (cents) Linear vesting schedule Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/expired during the year Outstanding at the end of the year Exercisable at the end of the year Fully vested at time of grant Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/expired during the year Outstanding at the end of the year Exercisable at the end of the year Service Vesting Schedule Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/expired during the year Outstanding at the end of the year Exercisable at the end of the year Total outstanding at the end of the year Total exercisable at the end of the year 36,733,255 6,554,981 (450,858) (1,189,464) 41,647,914 32,076,185 23,314,679 - - - 23,314,679 23,314,679 1,043,478 - - 1,043,478 1,043,478 66,006,071 56,434,342 12 45 22 37 21 21 7 - - - 7 7 6 - - 6 6 34,326,124 7,618,284 (3,802,915) (1,408,238) 36,733,255 36,733,255 29,235,501 - (5,869,565) (51,257) 23,314,679 23,314,679 1,565,217 - (521,739) 1,043,478 1,043,478 61,091,412 61,091,412 12 14 8 21 12 12 7 - 6 34 7 7 6 - 6 6 6 The expense recognised in the Statement of Comprehensive Income in relation to share-based payments is disclosed in Note 2. Annual report for the year ended 30 June 2015 Page 32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 10. TRADE PAYABLES AND OTHER LIABILITIES Tyro Payments Limited ABN 49 103 575 042 Accounts payable Rent payable Accruals Other liabilities 11. PROVISIONS Annual leave provision Balance at the beginning of the year Provision during the year Leave taken during the year Balance at the end of the year Long Service Leave Liability Balance at the beginning of the year (Released)/Provided for during the year Balance at the end of the year Provision for Credit Losses Balance at the beginning of the year Provided for during the year Balance at the end of the year 12. LONG TERM LIABILITIES Long Service Leave Liability Balance at the beginning of the year Provided for during the year Balance at the end of the year Annual Leave Liability Balance at the beginning of the year Provided for during the year Leave taken during the year Balance at the end of the year Make Good Provision Balance at the beginning of the year Provided for during the year Balance at the end of the year 2015 $000 1,963 1,265 2,119 1,172 6,519 2015 $000 504 417 (71) 850 85 146 231 30 (23) 7 2015 $000 319 (29) 290 105 7 (9) 103 - 25 25 2014 $000 796 36 1,857 694 3,383 2014 $000 431 168 (95) 504 45 39 84 - 30 30 2014 $000 243 76 319 90 35 (20) 105 - - - Annual report for the year ended 30 June 2015 Page 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 13. CONTRIBUTED EQUITY AND RESERVES (i) Ordinary Shares Issued and fully paid Ordinary shares paid at 5 cents each Ordinary shares paid at 6 cents each Ordinary shares paid at 8 cents each Ordinary shares paid at 10 cents each Ordinary shares paid at 12 cents each Ordinary shares paid at 15 cents each Ordinary shares paid at 30 cents each Ordinary shares paid at 37.5 cents each Ordinary shares paid at 45 cents each Ordinary shares paid at 55 cents each Number of Shares 54,618,733 156,320,233 1,273,227 5,166,595 21,311 10,475,433 32,767,214 53,924 8,120,589 11,282,322 Tyro Payments Limited ABN 49 103 575 042 2015 $000 2,732 9,379 102 517 3 1,571 9,830 20 3,654 6,205 34,013 2014 $000 2,732 9,379 94 510 - 1,571 9,771 - 3,650 6,205 33,912 Terms and conditions of contributed equity Ordinary shares have the right to receive dividends when declared and, in the event of winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on ordinary shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Movement in ordinary shares on issue At 1 July 2013 Shares issued during the year: - 1 August 2013 shares issued at 30c each - 20 November 2013 shares issued at 6c each - 31 December 2013 shares issued at 6c each - 31 December 2013 shares issued at 6c each - 31 December 2013 shares issued at 6c each - 28 February 2014 shares issued at 6c each - 1 April 2014 shares issued at 10c each - 1 April 2014 shares issued at 10c each - 2 April 2014 shares issued at 10c each No: Shares $000 269,454,504 33,206 50,725 146,739 5,869,565 521,739 1,000,001 1,043,478 450,000 600,000 511,972 15 9 352 31 80 63 45 60 51 At 1 July 2014 279,648,723 33,912 Shares issued during the year: - 29 July 2014 shares issued at 37.5c each - 5 January 2015 shares issued at 30c each - 5 January 2015 shares issued at 8c each - 5 January 2015 shares issued at 10c each - 5 January 2015 shares issued at 12c each - 5 March 2015 shares issued at 45c each - 30 June 2015 shares issued at 45c each At 30 June 2015 53,924 195,652 106,559 63,935 21,311 7,477 2,000 20 59 9 6 3 3 1 280,099,581 34,013 Annual report for the year ended 30 June 2015 Page 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 13. CONTRIBUTED EQUITY AND RESERVES (cont’d) (ii) Share-based payments reserve Balance at the beginning of the year Share-based payments expensed during the year Balance at the end of the year Tyro Payments Limited ABN 49 103 575 042 2015 $000 6,983 487 7,470 2014 $000 6,311 672 6,983 Nature and purpose of reserve The share-based payments reserve is used to record the value of share-based payments / benefits provided to any Directors, employees and consultants as part of their remuneration or compensation. (iii) General reserve for credit losses: Balance at the beginning of the year Transfer from accumulated losses Balance at the end of the year 2015 $000 368 29 397 2014 $000 285 83 368 The general reserve for credit losses has been created to satisfy Australian Prudential and Regulation Authority (APRA) prudential standards for Authorised Deposit-Taking Institutions (ADI) to maintain a general reserve for credit losses. The Company applies an internal methodology to estimate the credit risk of its merchant customers and the maximum expected losses based upon a number of assumptions concerning the performance of merchants in relation to the Company's credit risk grading system and actual experience. (iv) Available for Sale Revaluation Reserve Balance at the beginning of the year Total revaluations for the year Balance at the end of the year (v) Option Premium Reserve Balance at the beginning of the year Total premium received Balance at the end of the year 2015 $000 210 150 360 480 - 480 2014 $000 178 32 210 480 - 480 In 2012 consideration of $313,600 was received by the Company to extend the life of some options. In 2011, the option premium reserve revaluation corresponds to the fair value of the equity instruments issued in consideration for the $2.5 million loan taken out by Tyro. The fair value of these options has been determined using the Black-Scholes option valuation model. Total reserves at the end of the year 8,707 8,041 (vi) Accumulated losses Movements in accumulated losses were as follows: Retained losses at the beginning of the financial year Net Profit attributable to shareholders of the Company Transfer to general reserve for credit losses Accumulated losses at the end of the financial year (15,714) 811 (29) (14,932) (18,575) 2,944 (83) (15,714) Annual report for the year ended 30 June 2015 Page 35 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 14. FINANCIAL RISK MANAGEMENT OBJECTIVES, POLICIES AND PROCESSES The Company's principal financial instruments include cash and cash equivalents, trade and other receivables, available-for- sale financial assets and trade and other payables. (i) Risk management The Board is responsible for approving and reviewing the risk management strategy and risk framework and all risk management policies. The Board has installed a Board Risk Committee to assist the Board in fulfilling its responsibilities in the management of risk. The Board Risk Management Committee provides non-executive oversight of the implementation and on- going operation of Tyro’s risk management framework. The Board Risk Committee provides recommendations to the Board on risk appetite; reviews and approves the frameworks for managing risk; monitors the risk profile, exposures against limits and the management and control of our risks. Various management committees, including the management risk committee, the ALCO and the credit committee ensure appropriate execution of the Board’s risk appetite in day to day operations and regularly report to the Board risk committee (ii) Risk controls Risks are controlled through a system that identifies key risks, establishes controls to manage those risks (with an emphasis on preventive control), and maintains a regular review process to monitor the effectiveness of controls. Business risks are controlled within tolerance levels approved by the Board Risk Committee and Board. (iii) Internal audit Tyro has an independent and adequately resourced internal audit function. The internal audit function provides independent assurance to the Board on the adequacy and effectiveness of the control environment and risk framework. Internal Audit also reviews the controls implemented by management to ensure compliance with APRA's prudential requirements. This program of internal control and audit is reviewed and approved on a regular basis by the Audit Committee. The internal auditor has unfettered access to Tyro’s business lines and support functions. (iv) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Tyro is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and held to maturity investments. The maximum exposure to credit risk is represented by the carrying amounts of the financial assets at reporting date. Tyro's credit risk management principles define the framework and core values which govern its credit risk taking activities and reflect the priorities established by the Board. From these principles flow the development of target market strategies, underwriting standards and credit procedures which define the operating processes. The operation of a credit risk grading system coupled with ongoing monitoring, reporting and review allows Tyro to identify changes in credit quality at client and portfolio levels and to take corrective actions in a timely manner. In addition, Tyro is subject to the risk of credit card chargebacks (credit losses). The maximum period Tyro is potentially liable for such chargebacks is 120 days after the date of the transaction. Tyro prudently manages credit risk associated with its merchant portfolio both at an individual and a portfolio level, by monitoring the concentration of risk by industry and type of counterparty. It is Tyro's policy that all merchants are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. As part of equity, a general reserve for credit losses is raised to cover losses due to uncollectible chargebacks that have not been specifically identified. The reserve is calculated based on expected future credit losses as described in Note 1(v). Tyro does not hold any credit derivatives or collateral to offset its credit exposure. Tyro trades only with recognised, creditworthy third parties and as such no collaterals are requested. Credit exposures are monitored on an ongoing basis with the result that Tyro's exposure to bad debts is not significant at reporting date. 14. FINANCIAL RISK MANAGEMENT OBJECTIVES, POLICIES AND PROCESSES (cont’d) Annual report for the year ended 30 June 2015 Page 36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 Tyro Payments Limited ABN 49 103 575 042 (iv) Credit risk (cont’d) 30 June 2015 Standard & Poor’s Credit Rating* AAA AA- unrated 30 June 2014 Standard & Poor’s Credit Rating* AAA AA- unrated *Long-term credit rating (v) Operational risk Cash and balances with financial institutions ($000) Trade receivables ($000) 8,504 2,927 1,240 - 4,046 3,847 Cash and balances with financial institutions ($000) Trade receivables ($000) 6,980 2,031 - - 1,380 10,719 Operational risk is the risk that arises from inadequate or failed internal processes and systems, human error or misconduct, or from external events. It also includes, among other things, technology risk, model risk and outsourcing risk. The Board Risk Committee is responsible for monitoring the operational risk profile, the performance of operational risk management and controls, and the development and ongoing review of operational risk policies. (vi) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Tyro does not engage in financial market trading activities nor assume any foreign exchange, interest rate or other derivative positions and does not have a trading book. The Company does not undertake any hedging around the values of its financial instruments as any risk of loss is considered insignificant to the operations of the Company. Any government securities, bank bills or other marketable instruments that the Company holds are for investment or liquidity purposes and held in the normal course of business in line with investment and liquidity guidelines. Each component of market risk is detailed below as follows: 1) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has exposure to interest rate risk on its variable interest-bearing cash and cash equivalent balances. Other interest bearing assets are held to maturity and carried at amortised cost. The following table demonstrates the sensitivity to a reasonably possible change in interest. With all other variables held constant, Tyro’s profit before tax is affected as follows: (amounts in $’000s) Cash and cash equivalents Other Term Deposits USD Term Deposit Variable Interest Rate 8,750 Fixed Interest Rate < 3 Months 3 to 12 Months > 1 Year 3,923 2,353 1,758 Total 12,673 2,353 1,758 Annual report for the year ended 30 June 2015 Page 37 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) 1) Interest rate risk (cont’d) Sensitivity Analysis: An increase of 100 basis points for 12 months in the general cash rate (assuming every other factors being constant) will increase the Company's profit after tax and increase equity by $167,839, (2014:$90,106). A decrease of 100 basis points in the general cash rate will have an equal and opposite effect. 2) Foreign Currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Tyro is not exposed to foreign currency risk in the settlement of merchant transactions as all monies received and paid are in Australian Dollars. The Company's settlement of fees with card schemes and the purchases of inventory from foreign suppliers are transacted in foreign currencies at the exchange rate prevailing the balance sheet date. At reporting date the Company has some US Dollar and Euro exposure. FX Sensitivity analysis: An appreciation of 15% of the US Dollar and EUR compared to the Australian Dollar (assuming every other factors being constant) will increase the Company's profit after tax and increase equity by $291,866 (2014: $186,134). A depreciation of 15% of the US Dollar and EUR compared to the Australian Dollar will reduce the company's profit after tax and reduce equity by $215,727 (2014:$137,578). Foreign currency sensitivity The following tables demonstrate the sensitivity to a reasonably possible change in the US dollar, Euro and AUD exchange rates, with all other variables held constant Available-for-sale investments-VISA shares Trade Payables Trade Payables Trade Payables USD Term Deposit Union Pay Deposit 3) Other Price Risk AUD 2015 ($000) AUD 2014($000) USD EUR NZD USD USD USD 596 692 5 3 1,693 65 381 325 - - 1,380 - The Company's investment in available-for-sale financial assets is valued by way of reference to an underlying listed equity on the New York Stock Exchange (NYSE) and as such its fair value will fluctuate in direct proportion with the quoted market price indicated. (vii) Capital Management Tyro Payments Limited capital management objectives are to: - Maintain a sufficient level of capital above the regulatory minimum to provide a buffer against loss arising from unanticipated events, and allow Tyro to continue as a going concern; and Ensure that capital management is closely aligned with Tyro’s business and strategic objectives. - Tyro manages capital adequacy according to the framework set out by APRA Prudential Standards. APRA determines minimum prudential capital ratios (eligible capital as a percentage of total risk-weighted assets) that must be held by all authorised deposit-taking institutions. Accordingly, Tyro is required to maintain a minimum prudential capital ratio (eligible capital as a percentage of total risk-weighted assets) on a Level 1 basis as determined by APRA. Annual report for the year ended 30 June 2015 Page 38 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) (vii) Capital Management (cont’d) The board considers Tyro’s strategy, financial performance objectives, and other factors relating to the efficient management of capital in setting target ratios of capital above the regulatory required levels. These processes are formalised within Tyro’s internal capital adequacy assessment process (ICAAP). Tyro operates under the specific capital requirements set by APRA. Tyro has satisfied its minimum capital requirements throughout the 2015 financial year in the form of Tier 1 capital which is the highest quality components of capital. Capital Adequacy Risk weighted capital ratios Tier 1 Tier 2 Total capital ratio Qualifying capital Tier 1 Contributed capital Accumulated Losses & reserves Innovative Tier 1 capital Less Intangible assets Net deferred tax assets 50/50 deductions Other adjustments Total Tier 1 capital Tier 2 General reserve for credit losses Subordinated debt Asset revaluation reserves Less 50/50 deductions Total Tier 2 capital Total qualifying capital Total risk weighted assets (viii) Liquidity risk 2015 ($000) 2014 ($000) 21,165 174 137% 34,013 (6,621) 27,392 19,915 124 174% 33,912 (8,040) 25,872 (6,227) 21,165 (5,956) 19,916 174 124 174 21,339 15,584 124 20,040 11,509 Tyro's liquidity risk is the risk that the Company will have insufficient liquidity to meet its obligations as they fall due. This could potentially arise as a result of mismatched cash flows. Tyro manages this risk by the Board Risk Committee approved liquidity framework. Responsibility for liquidity management is delegated to the CFO and CEO. The CFO manages liquidity on a daily basis and submits weekly reports to the CEO and to CRO, and bi-monthly reports to ALCO and the Board Risk Committee. The CFO is also responsible for monitoring and managing capital planning. The capital plan outlines triggers for additional funding should liquidity be required. Liquidity risk management framework models the ability to fund under both normal conditions and periods of stress. The capital plan and liquidity management is reviewed at least annually. At balance sheet date, the board of directors determined that there was sufficient cash available to meet its anticipated expenditure and other financial liabilities. Annual report for the year ended 30 June 2015 Page 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) Tyro Payments Limited ABN 49 103 575 042 (viii) Liquidity risk (cont’d) As at 30 June 2015 Cash and cash equivalents Trade and other receivables Financial Liabilities Trade payables and other liabilities Net inflow Year ended 30 June 2014 Cash and cash equivalents Trade and other receivables Financial Liabilities Trade payables and other liabilities Net inflow (ix) Fair values < 6 months($000) 6-12 months($000) Total($000) 12,673 3,847 16,520 (6,519) (6,519) 10,001 - 4,046 4,046 - - 4,046 12,673 7,893 20,566 (6,519) (6,519) 14,047 < 6 months($000) 6-12 months($000) Total($000) 9,011 10,719 19,730 (3,383) (3,383) 16,347 - 1,380 1,380 - - 1,380 9,011 12,099 21,110 (3,383) (3,383) 17,727 The Company uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below. Financial Asset Available for sale assets Financial Asset Available for sale assets Year ended 30 June 2015 ($000) Level 1 Level 2 Level 3 596 - - Year ended 30 June 2014 ($000) Level 1 Level 2 Level 3 381 - - Total 596 Total 381 Annual report for the year ended 30 June 2015 Page 40 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) (ix) Fair values (cont’d) Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. Tyro does not own any financial instruments not quoted in active markets. Transfer between categories There were no transfers between Level 1, Level 2 or Level 3 during the current year. 15. COMMITMENTS AND CONTINGENCIES Commitments relating to BECS Tyro pays merchants through the BECS system (Bulk Electronic Clearing System). As a result of BECS Intra-day settlements which went live in November 2013 all merchant settlements committed are processed on the same day. On each settlement day, Tyro would have received a portion of the funds committed, thus the actual contingent asset and corresponding liability would be less than the total amount committed. Contingent liabilities - secured (I) Irrevocable standby letters of credit in favour of: - MasterCard International - Visa International - UnionPay International (ii) Bank Guarantee in favour of: - St Hilliers Pty Ltd, the lessor of 155 Clarence Street, Sydney - Dukeville Pty Ltd, the lessor of 125 York Street, Sydney 2015 $000 3,093 60 65 3,576 - 6,794 2014 $000 2,780 140 - - 454 3,374 The Company has provided an irrevocable standby letter of credit of $3,217,813 (in 2014: $2,920,042) secure through fixed charges over term deposits with the Commonwealth Bank of Australia and Westpac Banking Corporation, to MasterCard International, Visa International and Union Pay International. These are one-year arrangements that are subject to automatic renewal on a yearly basis. MasterCard International and Visa International, at their discretion, may increase the required amounts of the standby letters of credit upon written request to the Company. The required amounts of the standby letters of credit are dependent on MasterCard International's and Visa International's view of their risk exposure to the Company. A bank guarantee is held with the Westpac Banking Corporation in relation to the lease arrangement for the office premises. The amount represents 9 month’s rent and is refundable on expiry of the lease agreement, subject to satisfactory vacation of the leased premises. Annual report for the year ended 30 June 2015 Page 41 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 16. LEASES (a) Operating lease commitments - Company as lessor Prior to April 2010, Tyro operated a "rent to own" model whereby ownership of the terminal would transfer to the merchant once they had made 36 consecutive rental payments. However Tyro bears the risk of repairing or replacing the terminal over the 3 year period. The merchant would then continue to pay a service and maintenance fee after this period. There is no minimum rental period for merchants and they are able to terminate with Tyro at any time with no penalty or buy out fees. From April 2010, the company has moved to a perpetual rental model whereby there will be no transfer of ownership of the asset and the merchant will pay terminal rental for the duration that they are with Tyro. Type of Terminals Xenta & Xentissimo Yomani, Yomani XR and Yoximo 3G Accessories Cost ($000) 5,071 6,274 215 11,560 Depreciation Expense ($000) 4,703 1,611 215 6,529 Net Carrying Value ($000) 368 4,663 - 5,031 (b) Operating lease commitments - Company as lessee Future minimum rentals payable under the non-cancellable operating leases as at 30 June 2015 are as follows: - Within one year - After one year but not more than five years - More than five years 2015 $000 2,191 9,990 4,403 16,584 2014 $000 605 361 - 966 The operating lease commitments relate to the lease of the Company's registered office located at 155 Clarence Street, Sydney NSW. It is a non-cancellable lease with a term of 7 years ending 22 January 2021. The lease agreement provides the Company with the option to extend the lease for another 3 years. Lease payments are subject to annual increases of 4%. 17. SEGMENT REPORTING The Company operates in one geographical segment being Australia and within one business segment being the provision of credit and debit card acquiring services to merchants. 18. AUDITOR'S REMUNERATION Amounts received or due and receivable by Ernst & Young: - an audit of the financial report of the Company - other services in relation to the Company 2015 $000 208 149 357 2014 $000 194 61 255 The Directors are satisfied that the provision of non-audit services, during the 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. 18. AUDITOR'S REMUNERATION (cont’d) Annual report for the year ended 30 June 2015 Page 42 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 The Directors are of the opinion that the services as disclosed in note 18 to the financial statements do not compromise the external auditor’s independence for the following reasons: - - all non-audit services have been reviewed and approved to ensure that 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 Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & 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 jointly sharing economic risks and rewards. 19. RELATED PARTY DISCLOSURES (a) Key Management Personnel The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. Details of Key Management Personnel Appointed Resigned Directors Kerry Roxburgh Mike Cannon-Brookes Rebecca Dee-Bradbury Rob Ferguson Paul Rickard Jost Stollmann Executives Peter Haig Justin Mitchell Andrew Rothwell Praveenesh Pala Non-executive Chairman Non-executive Non-executive Non-executive Non-executive Chief Executive Officer Title Chief Information Officer Chief Risk Officer VP Product & Channel Management Chief Financial Officer Compensation of Key Management Personnel Short-term benefits Termination benefits Post-employment benefits (superannuation) Share-based payments Total 18-Apr-08 10-Dec-09 05-Feb-14 17-Nov-05 28-Aug-09 05-Apr-05 03-Feb-03 19-Mar-07 01-Jul-13 20-Oct-14 2015 $000 2,042 7 150 159 2,358 22-Aug-14 2014 $000 1749 254 115 236 2,354 Annual report for the year ended 30 June 2015 Page 43 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 19. RELATED PARTY DISCLOSURES (cont’d) (a) Key Management Personnel (cont’d) Interests held by Key Management Personnel Share options held by Key Management Personnel to purchase ordinary shares have the following expiry dates and exercise prices. Issue Date Expiry Date FY06/07 FY07/08 FY07/08 FY08/09 FY09/10 FY09/10 FY09/10 FY10/11 FY10/11 FY10/11 FY13/14 FY14/15 FY16/17 FY17/18 FY17/18 FY18/19 FY16/17 FY16/17 FY16/17 FY17/18 FY17/18 FY20/21 FY20/21 FY21/22 Exercise Price($) $0.550 $0.300 $0.550 $0.060 $0.060 $0.080 $0.100 $0.060 $0.080 $0.080 $0.375 $0.450 2015 Number Outstanding 2014 Number Outstanding 466,641 958,735 244,002 5,608,695 9,070,528 3,446,821 669,044 6,231,891 4,621,301 4,875,000 2,624,744 1,235,212 466,641 958,735 244,002 5,608,695 9,070,528 3,446,821 669,044 6,231,891 4,621,301 4,875,000 2,624,744 - (b) Transactions with related parties The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year. These transactions were on commercial terms & conditions. Related Party Health Communications Network Commissions Paid 2015 $000 1,894 2014 $000 1,928 Rob Ferguson, a director of Tyro Payments is also the Non-Executive Chairman of Primary Health Care Ltd. Health Communications Network is a subsidiary of Primary Health Care Ltd. (c) Loans with related parties In November 2013 the company entered into a loan facility for 14 months of $8.55m with 8 lenders, 5 of whom are Directors or related parties, for the purpose of funding operational liquidity requirements. Consideration paid consisted of the remaining apportioned Line Fee of 1% of the maximum loan amount, for the period the agreement was in place in the current year. The loan was not drawn upon in the current year. Paul Rickard (Director) Jost Stollmann (Director) Abyla Pty Ltd ABN 92 119 827 593 related party of Michael Cannon-Brookes (Director) Rachel Ferguson related party of Robert Ferguson Robert Alexander Ferguson (Director) Euclid Capital Partners ABN 79 937 786 536 related party of David Fite (Shareholder) Dominique Hess related party of Sascha Hess Cosmetic Cubed ABN 11 077 859 931 related party of Peter Wetenhall (Shareholder) Maximum Loan Amount $250,000 $3,600,000 $2,000,000 $500,000 $1,000,000 $700,000 $250,000 $250,000 Line Fee $878 $12,632 $7,018 $1,754 $3,509 $2,456 $878 $2,456 Annual report for the year ended 30 June 2015 Page 44 Tyro Payments Limited ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 20. MATTERS SUBSEQUENT TO END OF THE FINANCIAL YEAR No matter or circumstance has arisen subsequent to 30 June 2015 that has affected or may significantly affect: (a) the Company's operations in future financial years; or (b) the results of those operations in future financial years; or (c) the Company's state of affairs in future financial years. Annual report for the year ended 30 June 2015 Page 45 Ernst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor's Report to the Members of Tyro Payments Limited Report on the financial report We have audited the accompanying financial report of Tyro Payments Limited, which comprises the statement of financial position as at 30 June 2015, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2 Opinion In our opinion: a. the financial report of Tyro Payments Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the company's financial position as at 30 June 2015 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Ernst & Young Clare Sporle Partner Sydney 20 August 2015 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Corporate Information Directors Kerry Roxburgh (Chairman) Mike Cannon-Crookes Rob Ferguson Paul Rickard Jost Stollmann Company Secretary Justin Mitchell Registered Office Level 1 155 Clarence Street Sydney NSW 2000 (02) 8907 1700 Solicitors Cowell Clarke Level 5, 63 Pirie Street Adelaide SA 5000 (08) 8228 1111 Auditors EY 680 George Street Sydney NSW 2000 (02) 9248 5555 Website www.tyro.com Tyro Payments Limited ABN 49 103 575 042 Annual report for the year ended 30 June 2015 Page 49
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