Vista Group International Limited
Annual Report 2015

Plain-text annual report

VISTA GROUP INTERNATIONAL LIMITED ANNUAL REPORT 2015VISTA GROUP INTERNATIONAL LIMITEDANNUAL REPORT 2015TABLE OF CONTENTS 2 Chairman and CEO’s Letter 3 Vista Group Companies 5 Consolidated Financial Statements 6 Corporate Information 8 Directors’ Report 9 Independent Auditor’s Report 55 Corporate Governance This report is dated 18 March 2016 and is signed on behalf of the Board of Vista Group International Limited by Kirk Senior, Chairman, and Murray Holdaway, Chief Executive. K Senior CHAIRMAN 18 March 2016 M Holdaway CHIEF EXECUTIVE 18 March 2016 01 Annual Report 2015 02Vista Group International Limited CHAIRMAN AND CEO’S LETTERDear Shareholder, We are delighted to present you with the second annual report of Vista Group International Limited (Vista Group).Vista Group delivered strong growth in 2015, exceeding the revenue and EBITDA of 2014 as well as the Prospective Financial Information (PFI) forecasts set out as part of our initial public offering in August 2014. Vista Group revenue of $65.4m was $3.9m or 6% up on the PFI forecast and 39% up on 2014. EBITDA of $15.1m was ahead of PFI forecast by 14% and ahead of the prior year by 60%.We expect to maintain annual revenue growth in the 20-30% range per year.We achieved another very strong performance by Vista Entertainment, installing Vista Cinema, our enterprise management software in 461 new cinema sites and significantly growing our recurring annual maintenance revenue. Regal Entertainment Group, the world’s largest cinema operator, strengthened their product and financial commitment to the Vista Group and we also acquired a strong competitor, Ticketsoft, in the USA. We continue to grow our market share in existing major markets as well as establish key partners in new major markets where we had no presence, including France, Japan, and Russia.Veezi exceeded PFI targets for installed sites and revenue, reaching 350 installed sites by the end of the financial year and with very strong momentum coming into 2016. Sales in the key markets of USA and UK continue to build. We are continuing to add new functionality to the Veezi product and are pleased that our monthly average revenue per site has increased to $443, from $260 in the prior year. The appointment of a distributor in France (one of the world’s largest independent cinema markets), recent certification in China and opportunities in India, provide us with great expectations for Veezi.Movio’s performance in FY15 has been strategically impressive for both its Movio Cinema and Movio Media products. 17 new circuits signed to the Movio Cinema platform, including AMC in the USA, and member profiles in the Movio database increased 212% to 81m (from 26m in May 2014). It is likely that this database is now the largest database of cinema going habits in the world. The Movio Media product has been fully released to the market and the signing of NCM to the full platform was an early success. Major US based studios have continued to contract for use of the product on a campaign basis, and Sony Pictures has now signed for a 6 month, 5 film deployment. The future growth prospects of Movio Media are very positive and should have a significant impact on future Vista Group revenue.MACCS achieved its major goal for 2015 and signed Warner Bros. in the USA in July. Warner Bros. have used the software internationally in 22 territories, and the addition of the USA business was an important milestone for MACCS. It will also provide a platform for growth in to the epicentre of the film industry, Hollywood. MACCS international business continues to grow, now operating in 45 countries around the world, an increase of 12 countries in the last 18 months.Numero Limited’s technology is leading edge and continues to receive great reviews from both distributors and exhibitors, in a tightly competitive niche business. 2015 was a milestone year, with revenue commencing for this start-up company as the first major studios signed for the product. The technology has great application within its defined business, but potentially also across our other Vista Group businesses. The Board has reviewed its dividend policy and intends to commence paying dividends from the FY16 year based on 30% to 50% of net profit after tax; of course, this is subject to immediate and future growth opportunities and identified capital expenditure requirements. The dividends will be provided with the maximum value of imputation (franking) credits available to the company to apply to the dividend.We continue to recruit, retain and incentivise people of the highest calibre, right across Vista Group. Staff numbers across the group grew by more than 100 staff and Vista Group now employs over 350 staff in 7 countries. The continued efforts and innovation of our management and staff is of the highest order and coming to work each day is exciting and rewarding. We have commenced 2016 very strongly and with great confidence in the outlook. We have a terrific group of businesses, all with tremendous growth to come. Our absolute focus is on maximising the potential of each business, individually and collectively. That will come from organic growth as well as select acquisitions where appropriate. Thank you, our investors, for your continued support – our story still has many exciting chapters to go.Yours sincerely,Murray Holdaway CEO AND FOUNDERKirk Senior CHAIRMANVISTA GROUP COMPANIES 03 Annual Report 2015 VISTA ENTERTAINMENT SOLUTIONS (VES) 100% MOVIO 100% MACCS INTERNATIONAL B.V. 50.1% NUMERO 50% SHARE DIMENSION 50% 04 Vista Group International Limited VISTA GROUP INTERNATIONAL LIMITED (PREVIOUSLY VISTA GROUP LIMITED AND VSOURCE INVESTMENTS LIMITED) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 05 Annual Report 2015 CORPORATE INFORMATION DIRECTORS Kirk Senior Murray Holdaway Brian Cadzow Susan Peterson James Ogden REGISTERED OFFICE Level 3, Fujitsu House 60 Khyber Pass Road Newton Auckland, 1023 +64 9 984 4570 NATURE OF BUSINESS Provision of management solutions for the film industry COMPANY NUMBER 1353402 ARBN 600 417 203 AUDITOR PricewaterhouseCoopers, 188 Quay Street, Auckland, 1142 SOLICITORS New Zealand UK DLA Piper New Zealand King & Wood Mallesons 50-64 Customhouse Quay 10 Queen Street Place PO Box 2791 Wellington, 6140 London, EC4R 1BE United Kingdom USA Canada Hernandez Shaedel & Assoc Davies Ward Phillips & Vineberg 2 North Lake Ave, Suite 930 1 First Canadian Place, 44th Floor Pasadena, CA 91101 USA Toronto, Ontario Canada, M5X 1B1 SHARE REGISTRY New Zealand Australia Link Market Services Ltd Link Market Services Ltd Level 7, Zurich House Level 12, 680 George St Auckland, 1142 Sydney NSW 2000 06 Vista Group International Limited BANKERS New Zealand ASB Bank Limited PO Box 35 Shortland Street Auckland, 1140 UK Bank of New Zealand Deloitte Centre 80 Queen Street Auckland, 1142 Barclays Bank PLC HSBC Bank PLC 1 Churchill Place London, E14 5HP United Kingdom USA 2nd Floor, 62-76 Park Street London, SE1 9DZ United Kingdom HSBC Bank USA, NA Bank of America 660 South Figueroa Street San Francisco Los Angeles California 90017 P O Box 37000 California 94137 United States of America United States of America Union Bank of California Beverly Hills Priority 560 P O Box 512380 Los Angeles California 90051 United States of America China HSBC Bank (China) Coy. Ltd. China Merchant Bank Level 30, HSBC Building 18F, Bus Plaza Shanghai ifc No.398 Huaihai Zhong Road 8 Century Avenue, Pudong Shanghai 200020 Shanghai 200120 People’s Republic of China People’s Republic of China Australia Commonwealth Bank of Australia Level 10, 101 George Street Parramatta NSW 2150 Australia 07 Annual Report 2015 08Vista Group International LimitedDIRECTORS’ REPORTThe Board of Directors present the financial statements of the Group for the year ended 31 December 2015 and the independent auditor’s report thereon.For and on behalf of the Board of Directors who approved these financial statements for issue on 26 February 2016. Kirk Senior M Holdaway CHAIRMAN DIRECTOR 26 February 2016 26 February 2016Independent Auditors’ Report to the shareholders of Vista Group International Limited Report on the Financial Statements We have audited the Group financial statements of Vista Group International Limited (“the Company”) on pages 11 to 53, which comprise the statement of financial position as at 31 December 2015, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for the Group. The Group comprises the Company and the entities it controlled at 31 December 2015 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We are independent of the Group. Our firm carries out other services for the Group in the areas of related assurance services and executive remuneration advice. The provision of these other services has not impaired our independence. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz 09 Annual Report 2015 10Vista Group International LimitedIndependent Auditors’ ReportVista Group International Limited OpinionIn our opinion, the financial statements on pages 11 to 53 present fairly, in all material respects, the financial position of the Group as at 31 December 2015, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.Restriction on Use of our ReportThis report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1993. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.Chartered Accountants Auckland, New Zealand 26 February 2016STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015 Revenue Total revenue Sales and marketing expenses Operating expenses Administration expenses Acquisition expenses Foreign currency (gains) / losses Total expenses Operating profit Finance costs Finance income Share of profit / (loss) from associate Gain resulting on revaluing the previously held equity accounted 57% share of VCL when it became a subsidiary Impairment of VCL goodwill Profit before tax Tax expense Profit for the year Profit for the year is attributable to: Owners of the parent Non-controlling interests Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations, net of tax Total comprehensive income for the year Total comprehensive income for the year is attributable to: Owners of the parent Non-controlling interests 2015 2014 RESTATED NOTES NZ$’000 NZ$’000 10 65,431 47,158 11 11 7 25 7 7 11 65,431 47,158 4,567 3,374 31,727 22,552 17,995 14,638 2,722 (1,742) 933 81 55,269 41,578 10,162 5,580 (503) 462 – – – (150) 706 (537) 8,500 (3,554) 10,121 10,545 (3,981) (2,599) 6,140 7,946 5,753 387 8,122 (176) 6,140 7,946 510 81 6,650 8,027 6,346 8,203 304 (176) 6,650 8,027 Earnings per share for profit attributable to the equity holders of the parent Basic (cents per share) Diluted (cents per share) The accompanying notes form part of these financial statements. 23 23 $0.07 $0.07 $0.12 $0.12 11 Annual Report 2015 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015 ATTRIBUTABLE TO THE OWNERS OF THE PARENT CONTRIBUTED EQUITY RETAINED EARNINGS FOREIGN CURRENCY RESERVE SHARE-BASED PAYMENT RESERVE NON- CONTROLLING INTERESTS TOTAL EQUITY TOTAL NOTES NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 Balance at 1 January 2015 (RESTATED) Profit for the year Other comprehensive income Total comprehensive income Share-based payments 2014 Employee share-based payment transactions – closed in 2015 12 12 45,952 15,895 (429) 1,666 63,084 7,675 70,759 – – – – 5,753 – – 593 5,753 593 – – – 5,753 593 387 6,140 (83) 510 6,346 304 6,650 – – 1,643 1,643 – 1,643 – 1,013 – (1,013) – – – Balance at 31 December 2015 45,952 22,661 164 2,296 71,073 7,979 79,052 Balance at 1 January 2014 Profit/(loss) for the period Other comprehensive income Total comprehensive income for the year Issue of share capital Share-based payments Dividends Acquisition of non-controlling interests Balance at 31 December 2014 (RESTATED) 1,100 11,273 (40) – – 8,122 – – 81 – – – 12,333 8,122 81 – 12,333 (176) 7,946 – 81 – 8,122 81 – 8,203 (176) 8,027 12 23 44,852 – – – – – (3,500) – – – – 44,852 7,851 52,703 1,666 1,666 – (3,500) – – 1,666 (3,500) – (470) – (470) – (470) 45,952 15,895 (429) 1,666 63,084 7,675 70,759 The accompanying notes form part of these financial statements. 12 Vista Group International Limited 13Annual Report 2015STATEMENT OF FINANCIAL POSITIONAS AT DECEMBER 201520152014 RESTATED NOTES NZ$'000NZ$'000CURRENT ASSETS Cash14 16,863 10,519 Short term deposits14 10,437 20,227 Trade and other receivables15 30,069 21,898 Income tax receivable 517 155 Total current assets 57,886 52,799 NON-CURRENT ASSETS Property, plant and equipment16 2,380 2,047 Goodwill18 41,109 33,716 Intangible assets17 9,152 6,345 Deferred tax asset22 220 – Total non-current assets 52,861 42,108 Total assets 110,747 94,907 CURRENT LIABILITIES Trade and other payables19 6,637 4,725 Deferred revenue 14,476 12,210 Contingent consideration 1,253 – Income tax payable 1,788 735 Total current liabilities 24,154 17,670 NON-CURRENT LIABILITIES Borrowings20 4,792 4,671 Employee benefits – VCL acquisition 468 280 Deferred tax liability22 2,281 1,527 Total non-current liabilities 7,541 6,478 Total liabilities 31,695 24,148 Net assets 79,052 70,759 EQUITY Contributed equity24 45,952 45,952 Retained earnings22,661 15,895 Foreign currency revaluation reserve 164 (429) Share based payment reserve2,296 1,666 Total equity attributable to owners of the parent 71,073 63,084 Non-controlling interests9 7,979 7,675 Total equity 79,052 70,759 The accompanying notes form part of these financial statements.For and on behalf of the Board who authorised these financial statements for issue on 26 February 2016.Kirk Senior Chairman Susan Peterson Chair Audit and Risk Committee STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015 CASHFLOWS FROM OPERATING ACTIVITIES Receipts from customers Interest received Operating expenses Taxes paid Interest paid 2015 2014 NOTES NZ$'000 NZ$'000 60,113 47,694 462 459 (50,527) (39,265) (3,114) (339) (2,028) (177) Net cash inflow from operating activities 27 6,595 6,683 CASHFLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of intangible assets Acquisition of a business, net of cash acquired Purchase of investments Net cash (applied to) investing activities CASHFLOWS FROM FINANCING ACTIVITIES Issue of ordinary shares Drawdown of bank loans Repayment of bank loans Dividends paid to owners of the parent Listing costs Net cash inflow from financing activities Net increase in cash and short term deposits Cash and short term deposits at the beginning of the year Foreign exchange differences (1,059) (2,672) (6,680) – (903) (184) (1,500) (12,408) (10,411) (14,995) – – – – – – (3,816) 30,746 370 37,978 4,839 (1,869) (3,500) (1,826) 35,622 27,310 3,436 – Cash and short term deposits at end of year 14 27,300 30,746 The accompanying notes form part of these financial statements. 14 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION Vista Group International Limited (the ‘Company’ and its subsidiaries, collectively the Group) is a company incorporated and domiciled in New Zealand, and whose shares are publicly traded on the New Zealand Stock Exchange (NZX) and the Australian Securities Exchange (ASX). Vista Group International Limited completed an IPO in August 2014. The principal activity of the Group is the sale, support and associated development of software for the film industry. 2. STATEMENT OF COMPLIANCE Vista Group International Limited is a company registered under the Companies Act 1993 and is an FMC reporting entity under Part 7 of the Financial Markets Conduct Act 2013. The financial statements of the Group have been prepared in accordance with the requirements of Part 7 of the Financial Markets Conduct Act 2013 and the NZX Main Board Listing Rules. In accordance with the Financial Markets Conduct Act 2013 because group financial statements are prepared and presented for Vista Group International Limited and its subsidiaries, separate financial statements for Vista Group International Limited are no longer required to be prepared and presented. The consolidated financial statements of the Group have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). The Group is a for-profit entity for the purposes of complying with NZ GAAP. The consolidated financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), other New Zealand financial reporting standards and authoritative notices that are applicable to entities that apply NZ IFRS. The consolidated financial statements also comply with International Financial Reporting Standards (IFRS). 3. ADOPTION OF NEW ACCOUNTING STANDARDS Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2015 reporting period and have not been early adopted by the Group. The key items applicable to the Group are: NZ IFRS 15: Revenue from contracts with customers (effective date: annual periods beginning on or after 1 January 2018) NZ IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 ‘Revenue’ and NZ IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018. The Group intends to adopt NZ IFRS 15 on its effective date and has yet to assess its full impact. NZ IFRS 9: Financial Instruments (effective date: annual periods beginning on or after 1 January 2018) IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments now complete the new financial instruments standard. The standard is effective for accounting periods beginning on or after 1 January 2018. The Group intends to adopt NZ IFRS 9 on its effective date and has yet to assess its full impact. IFRS 16: Leases (Effective date: periods beginning on or after 1 January 2019) IFRS 16, ‘Leases’, which replaces the current guidance in IAS 17, was published by the International Accounting Standards Board (IASB) in January 2016. The standard is yet to be issued by the External Reporting Board in New Zealand. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under IAS 17, a lessee was required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires a lessee to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. The standard is effective for accounting periods beginning on or after 1 January 2019. Early adoption is permitted but only in conjunction with NZ IFRS 15, ‘Revenue from Contracts with Customers. The Group intends to adopt IFRS 16 on its effective date and has yet to assess its full impact. There are no other standards that are not yet effective and that would be expected to have a material impact on the Group. 15 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements have been prepared on the basis of historical cost. The statement of comprehensive income and the statement of changes in equity for the year ended 31 December 2014 and the statement of financial position as at 31 December 2014 have been restated, refer to Note 7. 4.2 BASIS OF CONSOLIDATION The Group’s financial statements consolidate those of the company, Vista Group International Limited, and its subsidiaries as at 31 December 2015. A subsidiary is an entity over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power to direct the activities of the investee. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included within the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. All subsidiaries have a reporting date of 31 December. In preparing the consolidated financial statements, all inter entity balances and transactions and unrealised profits and losses arising within the consolidated entity have been eliminated in full. A change in the ownership interest of a subsidiary without a loss of control is accounted for as an equity transaction. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries to the amounts of the company and the non-controlling interests based on their ownership interests. The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to the owners of the Company. 4.3 INVESTMENT IN ASSOCIATE Associates are those entities over which the Group is able to exert significant influence but which are not subsidiaries. The Group’s investment in its associate is accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment in associates is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate after the acquisition date. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The carrying amount of equity-accounted investment is tested for impairment in accordance with the policy described in Note 4.10. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. 16 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4.4 FOREIGN CURRENCY Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in New Zealand Dollars (NZD), which is the Group’s presentation currency. All financial information has been presented rounded to the nearest thousand dollars ($000). Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Group companies The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows (a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet (b) income and expenses for each income statement and statement of other comprehensive income, are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) all resulting exchange differences are recognised in other comprehensive income (d) Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income. Foreign exchange gains and losses that relate to borrowings are presented in the statement of comprehensive income, within finance costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income on a net basis within other income or other expenses. 4.5 BUSINESS COMBINATIONS The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • • fair values of the assets transferred liabilities incurred to the former owners of the acquired business • equity interests issued by the group • • fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. 17 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED The excess of the: • consideration transferred, • amount of any non-controlling interest in the acquired entity, and • acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes recognised in the statement of comprehensive income. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in the statement of comprehensive income. 4.6 REVENUE Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Products Product revenue comprises the sale of computer software licenses and is recognised when the significant risks and rewards of ownership have been transferred by making the software usable to the licensee. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible non implementation and return of the software. Maintenance Maintenance services are billed in advance for a fixed term. Revenue is recorded within deferred revenue on the statement of financial position and recognised on a straight line basis over the term of the contract billing period, as services are provided. Services Services comprise of service and development fees which are one-off charges. Revenue is recognised when the service is complete or on a stage of completion basis. Interest income Interest income is recognised using the effective interest method. 4.7 GOVERNMENT GRANTS Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item it is recognised as a deduction against that cost on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. 18 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4.8 FINANCIAL INSTRUMENTS The classification of financial assets and liabilities depends on the purpose for which the financial assets were acquired. Management determines the classification of the Group’s financial assets and liabilities at initial recognition. The Group has only had loans and receivables in the periods covered by these financial statements. The Group has only financial liabilities measured at amortised cost in the periods covered by these financial statements. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for loans and receivables with maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ in the statement of financial position. (b) Financial liabilities measured at amortised cost Financial liabilities measured at amortised cost are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. Trade and other payables, loans and borrowings are classified as financial liabilities measured at amortised cost. Recognition and derecognition Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Measurement At initial recognition, the Group measures a financial asset and liability at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. After initial recognition, loans and receivables are subsequently carried at amortised cost using the effective interest method. After initial recognition, financial liabilities are measured at amortised cost using the effective interest method. Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measureable decrease in the estimated future cashflows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income. 4.9 INTANGIBLE ASSETS Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite life are reviewed at least at the end of each reporting period. The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income in the expense category that is consistent with the function of the intangible assets. 19 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Development costs Costs associated with maintaining computer software programmes are recognised as an expense within the statement of comprehensive income as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets only when all of the following criteria are met: • it is technically feasible to complete the software product so that it will be available for use; • management intends to complete the software product and use or sell it; • • • there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and • the expenditure attributable to the software product during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred within operating expenses. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Intellectual property has been acquired through business combination. Customer relationships include the purchase of existing customer bases via an existing license agreement or business combination. Software licenses include the purchase of third party software in the normal course of business. Internally generated software is recognised on the basis as described above. Intangible assets are amortised on a straight line basis over the following useful economic lives: • Intellectual property 10 to 15 years; • Customer relationships • Software licenses 10 years; 2.5 years; • Internally generated software 3 to 5 years based on their estimated useful life Refer to Notes 4.5 and 4.10 for policies on goodwill measurement and impairment testing. 4.10 IMPAIRMENT TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT The carrying amounts of the Group’s definite life, intangible assets and property plant and equipment are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and other indefinite life intangible assets are not amortised and are tested for impairment annually irrespective of whether there is any indication of impairment. After initial recognition goodwill is measured at cost less any accumulated impairment losses An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the statement of comprehensive income. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash- generating units). The allocation is made to those cash generating units that are expected to benefit from the business combination in which goodwill arose. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (see Note 6 for key assumptions). 4.11 PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. 20 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised within the statement of comprehensive income as incurred. Depreciation is provided on fixtures, fittings and computers. Depreciation is recognised in the profit or loss to write off the cost of an item of property, plant and equipment, less any residual value, over its expected useful life: • Fixtures and fittings 6 to 14 years straight line • Computer equipment 2.5 to 6 years straight line 4.12 LEASED ASSETS All leases are operating leases. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as a lessee are classified as an operating lease. Payments made under operating leases (net of any incentives received from the lessor) are charged to statement of comprehensive income on a straight line basis over the period of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred in the statement of comprehensive income. 4.13 CASH Cash comprises cash at bank and on hand. 4.14 SHORT-TERM DEPOSITS Short term deposits with a maturity of more than three months, which are subject to an insignificant risk of changes in value are presented on the statement of financial position. Short term deposits are highly liquid and available on demand. 4.15 SHORT-TERM EMPLOYEE BENEFITS Accruals for wages, salaries, including non-monetary benefits, commissions and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid using the remuneration rate expected to apply at the time of settlement, on an undiscounted basis. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. The Group has pension obligations in respect of various defined contribution plans. The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory or contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee entitlement expense when they are due. 4.16 SHARE BASED PAYMENTS Gift, offer and reward plans 2014 – now closed and all options exercised In 2014 there were three share-based payment plans which comprised of gifted shares and shares that had been sold to eligible employees for consideration less than fair value. No service or performance conditions were attached to these plans. That cost was recognised within the statement of comprehensive income, together with a corresponding increase in the share based payment reserve within equity. The amount recognised within share based payment reserve in 2014 has been reclassified to retained earnings. Virtual Concepts Limited (VCL) Incentive scheme Certain employees of VCL receive remuneration in the form of share based payments contingent upon achieving certain annual milestones. The cost is recognised within acquisition expenses, refer to Note 6.2 for more details of the scheme. The amount recognised within share based payment reserve in 2014 has been reclassified to retained earnings. Equity settled long-term incentive scheme During the year the Directors approved and implemented an equity settled long-term incentive scheme for selected key management personnel. This plan is intended to focus performance on achievement of key long term performance metrics, refer to Note 12.2 for more details of the scheme. 21 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4.17 INCOME TAXES The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss in the statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 4.18 EQUITY, RESERVES AND DIVIDEND PAYMENTS Share capital represents the nominal value of shares that have been issued. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Retained earnings include all current and prior period retained profits. Dividend distributions payable to equity shareholders are included in Trade and other payables when the dividends have been approved by the Board on or before the end of the reporting period but not yet distributed. All transactions with owners of the parent are recorded separately within equity. Foreign Currency Translation Reserve (FCTR) The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries for consolidation purposes. Share Based Payment Reserve The share based payment reserve is used to record any equity share based incentives. The reserve value represents the difference between the value at the time of allocation and the cash received incentives plus the equity component of contingent consideration payable. 4.19 EARNINGS PER SHARE The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares in issue during the year. Diluted EPS reflects any commitments the Group has to issue shares in the future that would decrease EPS. In 2015, these are in the form of share based payments and performance rights. To calculate the impact it is assumed that share based payments related to FY15 earning targets are achieved and all the performance rights are taken, therefore adjusting the weighted average number of shares. 22 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. COMPARISON TO PROSPECTIVE FINANCIAL INFORMATION (PFI) On 3 July 2014 the Group issued a prospectus and investment statement which included PFI. The tables below show the Groups performance against PFI. The result reflects positive trading and on a like for like comparison with the PFI for revenue and a solid improvement in EBITDA. 5.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015 2015 ACTUAL AUDITED[1] PFI UNAUDITED VARIANCE VARIANCE Revenue Total revenue Sales and marketing expenses Operating expenses Administration expenses Acquisition expenses Foreign currency (gains) / losses Total expenses EBITDA* Depreciation and amortisation EBIT* Acquisition costs LTI costs – previously in administration expenses Finance costs Finance income Share of profit / (loss) from associate Profit before tax Tax expense Profit for the year Profit for the year attributable to: Owners of the parent Non-controlling interests NZ$'000 NZ$'000 NZ$'000 65,431 61,547 65,431 61,547 4,567 31,727 15,790 – (1,742) 3,786 29,163 15,402 – – 3,884 3,884 781 2,564 388 – (1,742) 50,342 48,351 1,991 15,089 13,196 1,893 1,997 1,355 642 13,092 11,841 1,251 (2,722) (208) (503) 462 – – – (682) 1,269 18 (2,722) (208) 179 (807) % 6% 6% 21% 9% 3% n/a n/a 4% 14% 47% 11% n/a n/a -26% -64% (18) -100% 10,121 12,446 (2,325) (3,981) (3,309) (672) -19% 20% 6,140 9,137 (2,997) -33% 5,753 387 6,140 8,106 1,031 9,137 (2,353) (644) (2,997) -29% -62% -33% Other comprehensive income Items that may be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations 510 – 510 n/a Total comprehensive income for the year 6,650 9,137 (2,487) -27% Total comprehensive income for the year attributable to: Owners of the parent Non-controlling interests 6,346 304 6,650 8,106 1,031 9,137 (1,760) (727) (2,487) -22% -71% -27% [1] Actual results have been reclassified to be consistent with the statement of comprehensive income reporting format used in the PFI within the prospectus and investment statement. Directors believe this is more relevant to the readers of the statutory accounts and prospectus and investment statement in making a like for like comparison. The table below provides a reconciliation from the statutory statement of comprehensive income to the format used in the PFI as shown in the comparison above. * EBITDA and EBIT are non-GAAP measures. These were defined for the PFI on page 55 of the prospectus and investment statement. See Note 5.2 for a reconciliation between actual statutory results and the comparatives used in the PFI presentation. 23 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED • • • • • Revenue was boosted by a strong finish to the year, in particular from VESL along with an improvement in the foreign currency profile over the year. The FX gain was partly offset by the year end lift in the NZD/USD cross in particular. Increases in operating expenses were below the rate of revenue increase against PFI and as a result EBITDA, a key measure of operating performance, showed an increase against PFI. Depreciation and amortisation includes $530k of intangible amortisation on 2015 acquisitions not included in PFI. Acquisition costs (VCL deferred consideration and transactional costs associated with acquisitions) and LTI costs not in the PFI, result in a reduction in reported NPBT. These expenses and the amortisation of intangibles are not deductible for tax, resulting in a higher tax expense against PFI. The lower return from MACCS in the 2015 year due to delays in the invoicing and subsequent recognition of US project revenues, resulted in the lower non-controlling interest adjustment. 5.2 RECONCILIATION OF 2015 ACTUAL INCOME STATEMENT FORMAT TO PFI FORMAT Revenue Total revenue Sales and marketing expenses Operating expenses Administration expenses Acquisition expenses Foreign currency (gains) / losses Total expenses EBITDA* Depreciation and amortisation EBIT* Acquisition costs LTI costs – previously in administration expenses Finance costs Finance income Share of profit / (loss) from associate Profit before tax Tax expense Profit for the year The key changes are: 2015 ACTUAL STATUTORY FORMAT 2015 ACTUAL RECLASSIFICATION PFI FORMAT NZ$'000 NZ$'000 NZ$'000 65,431 65,431 4,567 31,727 17,995 2,722 (1,742) 55,269 10,162 – – – – 65,431 65,431 4,567 31,727 (2,205) 15,790 (2,722) – – (1,742) (4,927) 50,342 4,927 15,089 – 1,997 1,997 10,162 2,930 13,092 – – (503) 462 – 10,121 (3,981) 6,140 (2,722) (2,722) (208) – – – – – – (208) (503) 462 – 10,121 (3,981) 6,140 [1] [2] [1] [2] [1] [1] Administrative costs in the statement of comprehensive income contains depreciation, amortisation and employee benefits costs related to the long-term incentive scheme implemented in 2015. These costs were not included within the PFI assumptions and are removed for comparison purposes. [2] Acquisition costs include contingent consideration expenses related to the restated acquisition of VCL ($2,050k). Also included in this category are other expenses directly attributable to acquisition activity during 2015 ($672k). These costs were not included within the PFI assumptions and are removed for comparison purposes. *EBITDA and EBIT are non-GAAP measures. These were defined for the PFI on page 55 of the prospectus and investment statement. 24 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5.3 STATEMENT OF FINANCIAL POSITION 2015 ACTUAL AUDITED PFI UNAUDITED VARIANCE VARIANCE NZ$’000 NZ$’000 NZ$’000 % AS AT DECEMBER 2015 CURRENT ASSETS Cash Short term deposits Trade and other receivables Income tax receivable Total current assets NON-CURRENT ASSETS Property, plant and equipment Investment in associate Goodwill Intangible assets Deferred tax asset Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables (incl. deferred revenue) Contingent consideration Income tax payable Total current liabilities NON-CURRENT LIABILITIES Borrowings Employee benefits – VCL acquisition Deferred tax liability Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Retained earnings Foreign currency revaluation reserve Share based payment reserve 16,863 25,068 10,437 30,069 517 18,462 19,534 (8,205) (8,025) 10,535 – 517 57,886 63,064 (5,178) 2,380 – 3,091 216 41,109 33,972 9,152 220 6,050 – (711) (216) 7,137 3,102 220 52,861 43,329 9,532 110,747 106,393 4,354 21,113 1,253 1,788 20,106 5,647 1,007 (4,394) 481 1,307 24,154 26,234 (2,080) 4,792 4,823 468 2,281 – 1,694 (31) 468 587 7,541 6,517 1,024 31,695 32,751 (1,056) 79,052 73,642 5,410 45,952 22,661 164 2,296 45,985 18,551 – – (33) 4,110 164 2,296 6,537 -33% -43% 54% n/a -8% -23% -100% 21% 51% n/a 22% 4% 5% -78% 272% -8% -1% n/a 35% 16% -3% 7% 0% 22% n/a n/a 10% -12% 7% Total equity attributable to owners of the parent 71,073 64,536 Non-controlling interests Total equity 7,979 9,106 (1,127) 79,052 73,642 5,410 • • • Trade and other receivables have increased due to the strong finish to the sales year by VESL and the higher level of December maintenance renewals. This is seen as a timing difference. Cash and short term deposits are lower due to the investment activity (see cash flow statement) and the timing effect of the higher receivables balance at balance date. Goodwill and intangibles reflect the increases from the acquisition of Ticketsoft ($7,933k refer Note 7) and CCG ($1,929k refer Note 17) less amortisation in the 2015 year. 25 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED • The restated acquisition accounting method for VCL, as first disclosed in the FY15 half year results (refer Note 7) accounts for the majority of the differences in the contingent consideration, retained earnings and share based payment reserve. 5.4 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Interest received Operating expenses Taxes paid Interest paid 2015 ACTUAL AUDITED PFI UNAUDITED VARIANCE VARIANCE NZ$’000 NZ$’000 NZ$’000 % 60,113 59,275 838 1% 462 1,269 (807) -64% (50,527) (44,032) (6,495) (3,114) (2,912) (339) (207) (202) (132) 15% 7% 64% Net cash inflow from operating activities 6,595 13,393 (6,798) -51% CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of intangible assets Acquisition of a business, net of cash acquired Purchase of investments (1,059) (2,672) (6,680) – (1,127) 68 – – – (2,672) (6,680) – -6% n/a n/a n/a Net cash (applied to) investing activities (10,411) (1,127) (9,284) 824% CASH FLOWS FROM FINANCING ACTIVITIES Issue of ordinary shares Drawdown of bank loans Repayment of bank loans Dividends paid to owners of the parent Net cash inflow from financing activities – – – – – – – (584) (250) – – 584 250 n/a n/a -100% -100% (834) 834 -100% Net increase in cash (3,816) 11,432 (15,248) -133% Cash and short term deposits at the beginning of the year 30,746 32,098 (1,352) Foreign exchange differences 370 – 370 -4% n/a Cash and short term deposits at end of year 27,300 43,530 (16,230) -37% • • • Cash receipts have not grown at the same rate as revenue due to the increase in trade receivables. We see this as a timing difference to PFI. The cash applied to the acquisitions of Ticketsoft (refer Note 7) and CCG (refer Note 17) explain the variance in investment activities. The cash balance at balance date reflects the investment activity and the lower operating cash flow due to the timing differences described above, but still reflects a strong cash position for the Group. 26 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5.5 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015 2015 ACTUAL PFI VARIANCE VARIANCE NZ$’000 NZ$’000 NZ$’000 % Balance at 1 January Profit for the period Other comprehensive income 70,759 64,662 6,097 6,140 510 9,137 (2,997) 34 476 1399% 9% -33% Total comprehensive income for the year 6,650 9,171 (2,521) -27% Share-based payments 1,643 - 1,643 n/a Equity attributable to non-controlling interests – (191) 191 -100% Balance at 31 December 79,052 73,642 5,410 7% • • The increase in share based payments in the 2015 year represents the accrual for the VCL deferred consideration that is estimated will be settled by way of equity in VGIL. The other significant change between PFI and actual is due to the FY15 half year restatement of the 2014 VCL acquisition methodology (refer Note 7) which resulted in an additional profit being reported in the 2014 year and a subsequent increase in retained earnings. 6. CRITICAL JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES AND ESTIMATION UNCERTAINTY Information about estimates and judgements that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses are provided below. Actual results may be substantially different. 6.1 GOODWILL AND OTHER INTANGIBLE ASSETS The amount of goodwill initially recognised is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities, particularly intangible assets is based, to a considerable extent, on management’s judgement. Goodwill is subject to annual impairment testing. Judgement is applied specifically to the following: 1. Assumptions in the Value in Use calculation for impairment testing purposes. 2. Assumptions in fair value calculation on acquisition. Goodwill has been allocated to the following Cash Generating Units (CGU): • Virtual Concepts Limited • MACCS International BV • Vista Entertainment Solutions Limited This is the lowest level at which goodwill is monitored for internal management reporting purposes. In determining the recoverable amount of each CGU the value in use calculation is based on cash flows for subsequent years which are extrapolated using estimated growth rates. Management has projected the cash flows for each CGU over a four year period based on approved budgets for the first year. Determination of appropriate cash flows and discount rates for the calculation of value in use is subjective and requires a number of assumptions and estimates to be made, including growth in net profit, timing and quantum of future capital expenditure, long term growth rates and the selection of discount rates to reflect the risks involved. Changing the assumptions selected by management, in particular the discount rate and growth rate used in the cash flow projections, could significantly affect the Group’s impairment evaluation and, hence, results. 27 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED The key assumptions used for the value in use calculation are as follows: Terminal growth rate CGU post-tax WACC rate – MACCS and Vista CGU post-tax WACC rate – VCL 2015 2014 2.5% 12.0% 16.0% 2.5% 12.0% 16.0% Other factors taken into account when testing goodwill for impairment include: • actual financial performance against budgeted financial performance; • any material unfavourable operational factors and regulatory factors; and • any material unfavourable economic outlook and market competitive factors. The calculations confirmed that there was no impairment of goodwill during the year (2014: $3.6m refer Note 7 and 18). The Board believes that any reasonably possible change in the key assumptions used in the calculations would not cause the carrying amount to exceed the recoverable amount. The Group acquired the Ticketsoft business during the year. As part of the acquisition accounting for the new business the Group was required to determine the fair value of the assets and liabilities acquired. The fair value of intellectual property and customer relationships acquired were determined using net present value calculations similar to those described above, which require the use of judgement (refer to Note 7). 6.2 FAIR VALUE OF THE CONTINGENT CONSIDERATION ON THE ACQUISITION OF VIRTUAL CONCEPTS LIMITED (VCL) AND TICKETSOFT Virtual Concepts Limited (VCL) Part of the consideration payable to acquire the remaining 43% of the share capital of VCL was deferred contingent consideration payable based on a several performance based criteria of Virtual Concepts for subsequent financial periods. Consideration payable is also contingent upon the recipients remaining employees of the company during the specified performance periods and therefore is recorded as an employee benefit. The fair value of the contingent consideration on acquisition was assessed by using a probability weighted average of all possible outcomes. To reflect the time value of money the consideration has been discounted at a discount rate of 8%. At the date of acquisition the fair value of the contingent consideration was determined to be $5.9m, discounted to $5.0m. Further details of the deferred contingent consideration are disclosed in Note 7. Ticketsoft Part of the consideration payable to acquire Ticketsoft included $1.76m contingent upon certain performance obligations being met (see Note 7). During the year the first tranche of contingent consideration of $508,000 was paid subsequent to performance of the first set of agreed migration milestones. The Group’s current assessment is that subsequent milestones will be achieved and targets will be met in full. 6.3 ASSESSMENT OF THE DOUBTFUL DEBT PROVISION The assessment of providing for doubtful debts involves judgement. The collectability of trade receivables is reviewed on an on-going basis. A provision for impairment is established when there is objective evidence that the Group will not be able to collect an amount due according to the original terms of the receivable (see Note 15 and Note 29.3). 28 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 7. BUSINESS COMBINATIONS RESTATEMENT RELATING TO ACQUISITION OF REMAINING 43% OF SHARE CAPITAL OF VIRTUAL CONCEPTS LIMITED (VCL) IN 2014: Following the appointment of PwC as auditors, a review of the accounting treatment adopted in relation to the acquisition of VCL during the year ended 31 December 2014 was undertaken. This review indicated that the accounting treatment of contingent consideration payable under the sale and purchase agreement was not in accordance with NZ IFRS 2, Share Based Payments and NZ IFRS 3, Business Combinations. The most significant impact of this is that the liability for contingent consideration previously recognised on acquisition has been derecognised resulting in an equivalent reduction in the goodwill arising from the acquisition and the associated impairment charge recognised for the year ended 31 December 2014. As the contingent consideration is conditional on the vendors remaining employed by the Group, the contingent consideration under NZ IFRS 3 needs to be recognised as an employee cost over the earn out period with a liability recognised for the cash component and an amount recognised in the share based payment reserve for the share based payment component. The impact of the above restatement is as follows: STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Acquisition expenses – employee costs Finance costs Impairment of goodwill Profit before tax Less tax expense Profit for the year AS PREVIOUSLY STATED ADJUSTMENT AS RESTATED NZ$’000 NZ$’000 NZ$’000 – (422) (8,500) 6,260 (2,523) (933) 272 4,946 4,285 (933) (150) (3,554) 10,545 (76) (2,599) 3,737 4,209 7,946 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 AS PREVIOUSLY STATED ADJUSTMENT AS RESTATED NZ$’000 NZ$’000 NZ$’000 Contingent consideration Employee benefits – VCL acquisition Tax receivable Net assets Share based payment reserve Retained earnings Total equity Earnings per share Basic and diluted (cents per share) 5,218 (5,218) – 231 280 (76) – 280 155 65,897 4,862 70,759 1,013 11,686 653 4,209 1,666 15,895 65,897 4,862 70,759 $0.06 $0.06 $0.12 The restatement has no impact on periods prior to the year ended 31 December 2014 and no impact on the statement of cashflows. 29 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED The value of contingent consideration recognised as an employee cost for the year ended 31 December 2015, is as follows: Share based payment (Note 12) Payable in cash Total included within acquisition expenses CONTINGENT CONSIDERATION VCL 2014 31 DECEMBER 2015 31 DECEMBER 2014 NZ$’000 NZ$’000 1,435 615 2,050 653 280 933 Part of the consideration payable to acquire the remaining 43% of the share capital of VCL was deferred contingent consideration, originally payable in two tranches for the performance periods ended 1 April 2016 and 1 April 2017. The value of contingent consideration payable was based upon several performance based criteria being achieved for VCL for the financial years ended 31 December 2015 and 2016. Contingent consideration is payable as a minimum 30% in cash with the remainder in Group shares for each tranche. The fair value of the consideration on acquisition was assessed by using a probability weighted average of all possible outcomes. To reflect the time value of money the consideration has been discounted at a discount rate of 8%. At the date of acquisition the fair value of the contingent consideration was determined to be $5.9m, discounted to $5.0m. 2015 During the year the contingent consideration arrangement was renegotiated. The performance period was extended by a year to cover the financial period ended 31 December 2017. The total fair value of contingent consideration remains the same as previous, however it is now payable over 3 tranches on 1 April 2016, 1 April 2017 and 1 April 2018. New operating performance criteria have been established upon which the contingent consideration will be paid. The consideration payable is contingent upon the recipients remaining employees of the company during the performance period. At the current reporting date the fair value of the contingent consideration related to the specified performance criteria was reassessed and a portion of the discounting relating only to the cash component reversed. The gross amount of the contingent consideration related to operating performance criteria at 31 December 2015 was $5.9m. Also as part of the renegotiation a specific strategic goal achievement was identified to be achieved within the 2016 financial year. The achievement of this goal has the potential to increase the contingent consideration to $6.7m. Costs related to contingent consideration are recognised under Acquisition costs in the statement of comprehensive income for the discounted amounts of contingent consideration, with a finance charge recognised under finance costs for the interest unwind component. In the statement of financial position, the cash component is recognised under employee benefits – VCL contingent consideration, with this amount split into current and non-current liabilities based on the expected timing of payments. Share based components are recognised under the share based payment reserve. 30 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED TICKETSOFT ACQUISITION On 1 April 2015 Vista Group International acquired the assets of US-based cinema software company, TicketSoft Inc, including customer licenses, an existing customer revenue stream, intellectual property and employees. Consideration was paid in cash of $6.2m with additional contingent consideration payable, up to a maximum of $1.76m, based on certain performance obligations being met, primarily being the number of sites transitioned to Vista software over defined periods. Management expect these performance obligations to be met. The following table summarises the consideration transferred to acquire the assets of TicketSoft Inc and the carrying values of the assets acquired: Cash Contingent consideration Total consideration Intangible assets – intellectual property (Note 17) Intangible assets – customer relationships (Note 17) Goodwill (Note 18) Deferred tax liability Net assets acquired 1 APRIL 2015 NZ$’000 6,174 1,759 7,933 193 1,083 7,015 (358) 7,933 Revenue included in the statement of comprehensive income from 1 April 2015 to 31 December 2015 contributed by Ticketsoft was $1,567,000. Ticketsoft also contributed profit before tax of $803,000 over the same period. Had Ticketsoft been consolidated from 1 January 2015, the impact on the statement of comprehensive income for the year ended 31 December 2015 would be a further increase in revenue of $525,000 and an increase in pro-forma profit before tax of $220,000. Goodwill is attributable to both synergies with Vista, together with growth opportunities available in the US market, being the primary reasons for the acquisition. 31 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHARE DIMENSION ACQUISITION – SUBSEQUENT EVENT On 4 January 2016 the Group acquired 50% of Share Dimension, a Dutch software development company specialising in predictive analytics business intelligence solutions for cinema exhibitors. This investment continues Vista’s strategy of investing in high quality and high growth global film industry software solutions since listing on the New Zealand and Australian stock exchanges in August 2014. The Group elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquiree’s identifiable assets. The fair value of assets and liabilities of Share Dimension as at the date of acquisition were estimated to be as follows: Assets Total non-current assets Inventory Cash in hand and bank accounts Trade and other receivables Total current assets Total assets Trade and other payables Total liabilities Total identifiable net assets at fair value Non-controlling interest (50% of net assets) Goodwill arising on acquisition Purchase consideration transferred 4 JANUARY 2016 PROVISIONAL NZ$’000 50 4 55 654 713 763 (325) (325) 438 219 2,016 2,235 The net assets acquired as at settlement date of 4 January 2016 were based upon a provisional assessment of their fair value from consolidated financials dated 30 September 2015. These financials were independently reviewed by PwC Netherlands. Purchase consideration was $2,235k. The sale and purchase agreement includes an earn out which will potentially increase the total consideration, this has yet to be estimated. The final positions will be reassessed once completion accounts are received. At balance date of 31 December 2015, Share Dimension was not part of the Vista Group and hence was not consolidated. PREVIOUS ACQUISITIONS Details of acquisitions during the year ended 31 December 2014 are included in the 2014 Annual Report. 32 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 8. SEGMENT REPORTING The Group operates in a single vertical film/cinema market and is structured through operating subsidiaries that report monthly to the Chief Executive. The Chief Executive and the Board are considered to be the chief operating decision maker in terms of NZ IFRS 8 Operating Segments. Revenue is reported via three main sources – Product, Maintenance and Services and there is no material indirect revenue source. No allocation of costs or assets is made against these revenue groups that would enable disclosure of segmented information in this way. Revenue is allocated to geographical segments on the basis of where the sale is recorded by each operating entity within the Group. Independent resellers are used to promote the Vista products in multiple jurisdictions. The revenues recognised via these independent resellers are not allocated geographically rather they are shown within the Oceania Segment. GEOGRAPHIC INFORMATION REVENUE Oceania Asia Americas Europe/Africa Total external revenue (Note 10) No individual customer exceeded 10% of revenue in 2015 or 2014. Non-current operating assets by location are presented in the following table: GEOGRAPHIC INFORMATION NON-CURRENT OPERATING ASSETS Oceania Asia Americas Europe/Africa Total non-current operating assets 2015 2014 NZ$’000 NZ$’000 18,653 4,174 22,832 19,772 15,540 5,117 11,800 14,701 65,431 47,158 2015 2014 RESTATED NZ$’000 NZ$’000 26,981 24,886 127 9,028 16,725 64 259 16,899 52,861 42,108 33 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 9. GROUP INFORMATION INVESTMENT IN SUBSIDIARIES The financial statements of the group include the following significant subsidiaries: NAME PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION SHAREHOLDING 2015 SHAREHOLDING 2014 Vista Entertainment Solutions Limited Software development and licensing New Zealand 100% 100% Virtual Concepts Limited Provision of online loyalty data analytics and marketing New Zealand 100% 100% Movio Limited Provision of online loyalty data analytics and marketing New Zealand 100% 100% Movio (USA) Inc Provision of online loyalty data analytics and marketing USA 100% 100% MACCS International BV Software development and licensing Netherlands 50.1% 50.1% Vista Entertainment Solutions (UK) Limited Vista Entertainment Solutions (USA) Inc Vista Entertainment Solutions Shanghai Limited Software licensing England 100.0% 100.0% Software licensing USA 100.0% 100.0% Software licensing China 100.0% 100.0% Book My Show Limited Online cinema ticketing website New Zealand 74.0% 74.0% Book My Show (NZ) Limited Online cinema ticketing website New Zealand 74.0% 74.0% Vista Group Limited Dormant New Zealand 100.0% 100.0% 34 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED NON-CONTROLLING INTERESTS (NCI) The Group’s ownership in MACCS International BV is 50.1%, however this only comes with two out of four Board directorships. Effective control is achieved via the shareholder agreement. The shareholder’s agreement permits the Company to make certain operating and strategic decisions, where there is a deadlock, for fixed consideration to the remaining shareholders. The MACCS International BV figures are consolidated with the inclusion of the subsidiary VpF Hub GmbH, a German registered company, in which it has a 90% investment. MACCS had no contingent liabilities or capital commitments at 31 December 2015 and 31 December 2014. Set out below is summarised financial information of subsidiaries that have non-controlling interests that are material to the Group. SUMMARISED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 Current assets Current liabilities Current net assets Non-current assets Non-current liabilities Non-current net assets Net assets Attributable to: Equity holders of the parent Non-controlling interest SUMMARISED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Revenue Cost of sales Administrative expenses Finance costs Profit / (loss) before tax Income tax Other comprehensive income Total comprehensive income Profit / (loss) allocated to NCI Dividends paid to NCI SUMMARISED CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase / (decrease) in cash 35 Annual Report 2015 MACCS INTERNATIONAL BV 2015 2014 NZ$’000 NZ$’000 3,833 2,106 1,727 280 – 280 2,026 1,137 889 365 – 365 2,007 1,254 1,715 292 1,320 (66) MACCS INTERNATIONAL BV 2015 2014 NZ$’000 NZ$’000 6,752 4,234 (4,049) (3,305) (1,850) (1,079) – (5) 853 (155) (141) – 712 355 – 23 4 (128) (66) – MACCS INTERNATIONAL BV 2015 2014 NZ$’000 NZ$’000 1,168 (133) – – – – 1,168 (133) NOTES TO THE FINANCIAL STATEMENTS CONTINUED 10. REVENUE Product Maintenance Services Other Total revenue 11. EXPENSES 11.1 AUDITOR’S REMUNERATION INCLUDED IN ADMINISTRATION EXPENSES Audit of financial statements Audit and review of financial statements – PwC Audit and review of financial statements – Grant Thornton Other services Performed by PwC: IFRS accounting advice Advice on the long term employee incentive scheme Performed by Grant Thornton: Tax advisory services IFRS accounting and compliance advice Total other services Total fees paid to auditor(s) 2015 2014 NZ$’000 NZ$’000 21,750 16,790 31,427 21,085 12,070 9,283 184 – 65,431 47,158 2015 2014 NZ$’000 NZ$’000 157 40 51 137 98 2 288 485 – 137 – – 35 130 165 302 11.2 EMPLOYEE BENEFITS EXPENSE INCLUDED IN OPERATING, ADMINISTRATION AND ACQUISITION EXPENSES Wages and salaries Share-based payment expense Defined contribution plans Total employee benefits 2015 2014 NZ$’000 NZ$’000 29,679 24,860 208 2,815 1,013 326 32,702 26,199 36 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 11.3 OTHER EXPENSES Included in administration expenses: Depreciation (Note 16) Amortisation of intangible assets (Note 17) Lease payments recognised as an operating lease expense 2015 2014 NZ$’000 NZ$’000 781 1,216 537 469 1,854 1,040 The Group has expensed $7,075,000 of aggregated research and development expenditure associated with software research and development for 2015 (2014: $4,649,000) within operating expenses in the statement of comprehensive income. 11.4 INCOME TAX INCOME TAX EXPENSE Income tax expense comprises: Current tax expense Deferred tax expense (Note 22) Tax expense 2015 2014 NZ$’000 NZ$’000 4,001 2,584 (20) 15 3,981 2,599 RECONCILIATION OF INCOME TAX EXPENSE The relationship between the expected tax expense based on the domestic effective tax rate of Vista Group International Limited at 28% (2014: 28%) and the reported tax expense in the statement of comprehensive Income can be reconciled as follows: Profit before tax Impairment of VCL goodwill and acquisition expense Taxable income Domestic tax rate for Vista Group International Limited Expected tax expense / (benefit) Foreign subsidiary company tax Non-assessable income/non-deductible expenses Prior period adjustment Deferred taxation not previously recognised Impairment of foreign tax credits Other Actual tax expense / (benefit) 2015 2014 NZ$’000 NZ$’000 10,121 10,545 – (4,013) 10,121 28% 6,532 28% 2,834 1,829 (110) 1,179 (103) 10 133 38 47 878 (54) (101) – – 3,981 2,599 As at 31 December 2015, the group has $3,680,502 (2014: $1,030,170) of imputation credits available for use in subsequent reporting periods. 37 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 12. SHARE BASED PAYMENTS 12.1 EXPENSES ARISING FROM SHARE BASED PAYMENT TRANSACTIONS The expense recognised for employee services received during the year is shown in the following table and are included within operating expenses: Expenses arising from employee share based payment transactions Expenses arising from VCL acquisition Equity settled LTI scheme Total expense 2015 2014 AUDITED / RESTATED NOTES NZ$’000 NZ$’000 4.16 7 – 1,435 208 1,013 653 – 1,643 1,666 The amount of $1,013,000 relates to the gift, offer and reward plans 2014, refer to Note 4.16. 12.2 EQUITY SETTLED LONG-TERM INCENTIVE SCHEME During the year the Directors approved an equity settled long-term incentive scheme for selected key management personnel (“Participants”). The plan is intended to focus performance on achievement of key long term performance metrics. The allocation of performance rights is based on a percentage of annual base salary, adjusted by a risk factor calculated using the Monte Carlo valuation model. Performance rights are granted under the plan for no consideration and carry no dividend or voting rights. Participation in the scheme is at the board’s discretion and participants in the scheme are not guaranteed a place from year to year. The amount of performance rights that will vest depends on Vista’s relative Total Shareholder Return (“TSR”) to shareholders. Vesting of performance rights is dependent upon the Group achieving relative TSR targets over a two and three year performance period, against all other NZX50 companies (excluding Vista), with 50% of the value of rights allocated under each target. Vesting of the performance rights is defined by the following table: PERCENTILE PERFORMANCE AGAINST NZX50 COMPANIES VESTING PERFORMANCE RIGHTS Less than 50th percentile zero 50th – 75th percentile 50% to 75% pro-rata on a straight line basis Greater than 75th percentile 100% TSR is measured by the change in TSR from the start date of the grant period until the end of the performance period (two years and three years). The scheme allows the carry forward of any performance rights that do not vest in the first vesting period to be eligible to vest in the vesting period for the second tranche of performance rights. The scale at which carried over rights may vest at the end of the tranche two vesting period shall commence at the TSR percentile achieved in respect of the tranche one vesting period. The fair value of rights granted is recognised as an employee expense in the statement of comprehensive income with a corresponding increase in the employee share based payments reserve. The fair value is measured at grant date and amortised over the vesting periods. The Group has recognised $208,000 of employee expenses during the year ended 31 December 2015. 38 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED The fair value of the rights granted is measured using the Vista Group International Limited share price as at the grant date less the present value of the dividends forecast to be paid prior to the each vesting date. When performance rights vest, the amount in the share based payments reserve relating to those rights are transferred to share capital. When any vested performance rights lapse upon employee termination, the amount in the share based payments reserve relating to those rights is transferred to retained earnings. Set out below are summaries of performance rights granted under the plan: GRANT DATE 1 January 2015 1 January 2015 EXPIRY DATE 1 April 2017 1 April 2018 TOTAL VALUE OF VESTED PEFORMANCE RIGHTS PERFORMANCE RIGHTS AT 31 DECEMBER 2015 NZ$’000 NZ$’000 251 251 502 125 83 208 13. GOVERNMENT GRANTS During the year the Group recognised $1,997,000 (2014: $1,087,000) of grants from the New Zealand Government to assist with Research and Development and new market entry. At balance date there is a 10% retention amount related to 2015 grants of $136,000 yet to be paid and subject to independent auditor review. Government grants are recognised within the statement of comprehensive income as a reduction to administrative expenses. 14. CASH AND SHORT TERM DEPOSITS Cash Short term deposits (more than 3 months) Total cash and short term deposits 15. TRADE AND OTHER RECEIVABLES Trade receivables Sundry receivables Prepayments Related party receivables – trading (see Note 25) Total trade and other receivables 2015 2014 NZ$’000 NZ$’000 16,863 10,519 10,437 20,227 27,300 30,746 2015 2014 NZ$’000 NZ$’000 23,653 18,778 2,163 843 3,410 819 696 1,605 30,069 21,898 The Group has recognised a loss of $36,000 (2014: $261,000) in respect of bad and doubtful trade receivables during the year ended 31 December 2015. The loss has been included in administration expenses. The impairment allowance included in trade receivables as at 31 December 2015 was $160,000 (2014: $444,000). 39 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 16. PROPERTY, PLANT AND EQUIPMENT 2015 Gross carrying amount Balance 1 January 2015 Additions Exchange differences Balance 31 December 2015 Accumulated depreciation Balance 1 January 2015 Current year depreciation Exchange differences Balance 31 December 2015 Carrying amount 31 December 2015 2014 Gross carrying amount Balance 1 January 2014 Additions Acquisition through business combinations Exchange differences Balance 31 December 2014 Accumulated depreciation Balance 1 January 2014 Current year depreciation Exchange differences Balance 31 December 2014 Carrying amount 31 December 2014 FIXTURES & FITTINGS COMPUTER EQUIPMENT TOTAL NZ$’000 NZ$’000 NZ$’000 1,927 2,095 453 61 606 60 4,022 1,059 121 2,441 2,761 5,202 (584) (222) (18) (1,391) (1,975) (559) (48) (781) (66) (824) (1,998) (2,822) 1,617 763 2,380 FIXTURES & FITTINGS COMPUTER EQUIPMENT TOTAL NZ$’000 NZ$’000 NZ$’000 1,098 473 363 1,451 430 225 2,549 903 588 (7) (11) (18) 1,927 2,095 4,022 (447) (1,000) (1,447) (142) (395) (537) 5 4 9 (584) (1,391) (1,975) 1,343 704 2,047 40 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 17. INTANGIBLE ASSETS 2015 Gross carrying amount Balance 1 January 2015 (restated) Additions – acquired Internally generated software Acquisition through business combinations (see Note 7) Exchange differences INTERNALLY GENERATED SOFTWARE SOFTWARE LICENCES INTELLECTUAL PROPERTY CUSTOMER RELATIONSHIPS TOTAL NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 – – 643 – – 2,136 100 – – 24 1,408 – – 193 7 3,413 1,929 – 6,957 2,029 643 1,083 1,276 44 75 Balance 31 December 2015 643 2,260 1,608 6,469 10,980 Accumulated amortisation Balance 1 January 2015 (restated) Amortisation Balance 31 December 2015 – – – (281) (242) (523) (63) (148) (268) (826) (612) (1,216) (211) (1,094) (1,828) Carrying amount 31 December 2015 643 1,737 1,397 5,375 9,152 2014 Gross carrying amount Balance 1 January 2014 Additions – internally developed Acquisition through business combinations Exchange differences INTERNALLY GENERATED SOFTWARE SOFTWARE LICENCES INTELLECTUAL PROPERTY CUSTOMER RELATIONSHIPS TOTAL NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 – – – – 229 184 1,803 (80) – – 1,461 (53) – – 229 184 3,543 6,807 (130) (263) Balance 31 December 2014 (RESTATED) – 2,136 1,408 3,413 6,957 Accumulated amortisation Balance 1 January 2014 Amortisation Balance 31 December 2014 (RESTATED) Carrying amount 31 December 2014 (RESTATED) – – – – (143) (138) (281) – (63) (63) – (268) (143) (469) (268) (612) 1,855 1,345 3,145 6,345 In May 2015 Vista Entertainment Systems Ltd entered into an agreement with Cote Cine Group (CCG) to distribute Vista and Veezi software. The consideration paid to CCG for this arrangement was 1.35m Euros and this is included in the additions noted above under additions to customer relationships. The distribution agreement includes an on-going revenue stream with a duration of 4 years. Internally generated software relates to capitalisation of development costs in line with the policy stated in Note 4.9. 41 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 18. GOODWILL 2015 Gross carrying amount Balance 1 January Acquisition through business combinations (see Note 7) Disposals Exchange differences Balance 31 December Accumulated impairment Balance 1 January Impairment loss recognised on VCL (see Note 7) Balance 31 December Carrying amount 31 December Goodwill can be analysed at a divisional level as follows: ENTITY Vista Entertainment Solutions Limited (VESL) Virtual Concepts Limited (VCL) MACCS International BV (MACCS) Goodwill allocation at 31 December 2015 2014 RESTATED NZ$’000 NZ$’000 37,270 5,446 7,015 32,430 – 378 – (606) 44,663 37,270 (3,554) – (3,554) (3,554) (3,554) 41,109 33,716 2015 2014 NZ$’000 NZ$’000 12,461 5,446 16,965 16,965 11,683 11,305 41,109 33,716 The Directors have carried out an annual impairment review of goodwill allocated to the CGU’s, in order to ensure that recoverable amounts exceed aggregate carrying amounts (see Note 6 for key assumptions and sensitivity analysis). 19. TRADE AND OTHER PAYABLES Trade payables Sundry accruals Constructive obligations – associates Employee benefits Employee benefits – VCL contingent consideration Total trade and other payables 2015 2014 RESTATED NOTES NZ$’000 NZ$’000 25 762 3,325 50 912 2,218 50 1,909 1,545 591 – 6,637 4,725 42 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 20. BORROWINGS In November 2013, the Group established a $2.0m commercial credit facility with ASB Bank Limited to fund working capital requirements. The interest rate is floating at 6.4% per annum with no set expiry date. At balance date there was no drawdown against this facility. In March 2014, the Group established a EUR 3.0 million facility with ASB Bank Limited to acquire 25.1% of the share capital of MACCS International BV. The loan matures on 12 March 2017 and the current interest rate is 2.66% per annum. Security for both the commercial credit facility and the Euro loan with ASB Bank Limited is secured by a general security agreement under which the Bank has a security interest in all the Group’s tangible assets. Current Non-current Total borrowings 2015 NZ$’000 – 4,792 4,792 2014 NZ$’000 – 4,671 4,671 The facility is subject to a number of external bank covenants. These covenants are calculated and reported quarterly and annually. The Group has complied with all tested covenants during the current and prior years. 21. OPERATING LEASE COMMITMENTS The Group has operating lease commitments in respect of property and equipment. The total future minimum payments under non-cancellable operating leases were payable as follows: Less than one year Between one and five years More than five years 2015 2014 TOTAL FUTURE MINIMUM PAYMENTS TOTAL FUTURE MINIMUM PAYMENTS NZ$’000 NZ$’000 1,937 4,039 – 5,976 1,073 3,901 70 5,044 43 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 22. DEFERRED TAX ASSETS AND LIABILITIES Deferred taxes arising from temporary differences and unused tax losses can be summarised as follows: 2015 Trade and sundry receivables Employee benefits Property, plant and equipment Other Intangible assets Unused tax losses Deferred tax temporary asset / (liability) 2014 Trade and sundry receivables Employee benefits Other Intangible assets Unused tax losses Deferred tax temporary asset / (liability) The analysis of deferred tax assets and liabilities is as follows: OPENING BALANCE ACQUIRED AS PART OF A BUSINESS COMBINATION RECOGNISED IN INCOME STATEMENT CLOSING BALANCE NZ$’000 NZ$’000 NZ$’000 NZ$’000 33 160 – (371) (1,553) 204 (1,527) – – – – (554) – (554) (18) 164 (185) (142) 223 (22) 15 324 (185) (513) (1,884) 182 20 (2,061) OPENING BALANCE ACQUIRED AS PART OF A BUSINESS COMBINATION RECOGNISED IN INCOME STATEMENT CLOSING BALANCE NZ$’000 NZ$’000 NZ$’000 NZ$’000 17 87 (2) – 43 145 – – – (1,657) – (1,657) 16 73 (369) 104 161 33 160 (371) (1,553) 204 (15) (1,527) Deferred tax assets: Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months Deferred tax liabilities: Deferred tax liability to be recovered after more than 12 months Deferred tax liability to be recovered within 12 months 2015 2014 NZ$'000 NZ$'000 220 – – – (1,948) (333) (1,349) (178) 44 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23. EARNINGS PER SHARE AND DIVIDENDS The following reflects the income and share data used in the basic and diluted EPS computations: Profit attributable to ordinary shareholders of the Parent for basic earnings Profit attributable to ordinary shareholders of the Parent adjusted for the effect of dilution Weighted average number of shares in basic earnings per share 2015 2014 RESTATED 000’S 000’S $5,753 $5,753 $8,122 $8,122 79,973 68,123 Shares deemed to be issued for no consideration in respect of share-based payments 490 – Weighted average number of shares used in diluted earnings per share 80,463 68,123 EPS Diluted EPS $0.07 $0.07 $0.12 $0.12 No shares were issued during the 2015 financial year. Shares deemed to be issued for no consideration in respect to share-based payments relate to VCL contingent consideration (refer Note 7) and equity settled long-term incentive scheme (refer Note 12.2). DIVIDENDS Total dividends of $3,500,000 were declared and paid by the Company, prior to the IPO in August 2014, in the year ended 31 December 2014. Dividend per share at the time of payment was $350 per share. No dividend was payable in 2015. 24. CONTRIBUTED EQUITY Shares issued and fully paid: Beginning of the year Ordinary shares issued during the year 2015 2014 2015 2014 NO. OF SHARES 000’S NO. OF SHARES 000’S NZ$’000 NZ$’000 79,973 10 45,952 1,100 – 79,963 – 44,852 Total shares authorised at 31 December 79,973 79,973 45,952 45,952 All shares are ordinary authorised, issued and fully paid shares. They all have equal voting rights and share equally in dividends and any surplus on winding up. The shares have no par value. Refer to the 2014 Annual Report for details of the 2014 shares issued as part of the IPO. 45 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 25. RELATED PARTIES INDIVIDUALLY IMMATERIAL ASSOCIATES The Group has a 50% interest in Numero Limited, an individually immaterial associate that is accounted for using the equity method in the consolidated financial statements. The Group has ceased to recognise further losses during the year related to Numero as accumulated losses would exceed the Group's equity interest. The carrying amount of the investment in associate is set out below: Opening carrying value Investment in associate Share of loss from associate Losses not recognised Constructive obligation 2015 2014 NZ$'000 NZ$'000 (50) – (747) 747 (50) – 440 (490) – (50) The Group’s related parties include its associate company, Numero Limited. All of the related party transactions during the period were made on normal commercial terms and no amounts owed by related parties have been provided for, written off or forgiven during the period (2014: $Nil). The types of related party transactions undertaken during the period relate to recharges for development work undertaken and advances. ENTITY NATURE OF TRANSACTIONS NZ$’000 NZ$’000 Numero Limited Numero Limited Numero Limited Related party loan Constructive obligation Related party receivable 1,500 (50) 1,910 1,500 (50) 105 The related party transactions incurred during the year include: 2015 2014 RECEIVABLE / (PAYABLE) RECEIVABLE / (PAYABLE) Recharges - license fees Recharges - development fees Recharges - other advances NZ$'000 390 515 900 1,805 The amounts receivable are unsecured and no guarantees are in place. The Group can call the debt recognised as an intercompany receivable at any time. Interest of 10% is charged against the intercompany loan per the loan agreement. The Company has not recorded any impairment of the balance receivable as at 31 December 2015 (2014: $Nil) due to the Board’s confidence in future performance of Numero, based on the budget for the coming year and forecasts beyond 2016. During the year the Group ceased to recognise further losses related to the associate company Numero. Losses were previously recognised to the extent of the value held in equity for Numero, however this has now been offset by the Group’s share of losses. During the year Numero made a loss of $1.5m, the Group’s share being $747,000 (2014: $490,000). At balance date the Group has continued to recognise a constructive obligation of $50,000 that was carried over from 2014. 46 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED COMPENSATION OF KEY MANAGEMENT PERSONNEL Key management personnel include the Group’s board of directors and senior management. Key management personnel remuneration includes the following expenses: Salaries including bonuses Share based payments Directors fees 26. CAPITAL COMMITMENTS There were no capital commitments for the Group at 31 December 2015 (2014: $Nil). 27. RECONCILIATION OF NET SURPLUS TO CASH FLOWS 2015 2014 NZ$’000 NZ$’000 1,762 36 305 1,787 586 363 Net profit / (loss) after tax Non-cash items: Amortisation Depreciation Share based payment expense Unwinding of discount on contingent consideration Share of loss from associate Fair value gain on VCL acquisition Impairment of goodwill Foreign exchange movements Allowance for bad debts Movements in working capital Increase / (decrease) in trade and other payables (Increase) / decrease in trade and other receivables, net of deferred revenue Increase / (decrease) in taxation receivable and payable Net change in working capital Net cash flows from operating activities 2015 2014 RESTATED NOTES NZ$’000 NZ$’000 6,140 7,946 17 16 1,216 781 2,259 164 – – – (872) 36 469 537 1,013 209 537 (8,500) 3,554 – 261 3,584 (1,920) 1,322 7,719 (5,318) (7,822) 867 (3,129) 760 657 6,595 6,683 47 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 28. CAPITAL MANAGEMENT POLICIES AND PROCEDURES The Group’s capital management objective is to provide an adequate return to its shareholders. This is achieved by pricing products and services commensurately within the level of risk. The Group monitors capital requirements to ensure that it meets its lending covenant obligations and to maintain an efficient overall financing structure. At balance date the Group maintains high cash balances as a result of IPO proceeds and low levels of debt. Return on surplus cash is maximised via term deposits across a diversified banking portfolio. The amounts managed as capital by the Group for the reporting periods under review are summarised as follows: Consolidated shareholders’ funds Consolidated assets Capital ratio 2015 2014 RESTATED NZ$’000 NZ$’000 79,052 110,747 70,759 94,907 71% 75% 29. FINANCIAL INSTRUMENTS 29.1 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The Group’s financial assets and liabilities by category are summarised as follows: Cash and short term deposits These are short term in nature and carrying value is equivalent to their fair value. Trade, related party and other receivables These assets are short term in nature and are reviewed for impairment; the carrying value approximates their fair value. Trade, related party and other payables These liabilities are mainly short term in nature; the carrying value approximates their fair value. Loan and advances Fair value is estimated based on current market interest rates available for receivables of similar maturity and risk. The interest rate is used to discount future cash flows. Borrowings Borrowings have fixed and floating interest rates. Fair value is estimated using the discounted cash flow model based on a current market interest rate for similar products; the carrying value approximates their fair value. Fair values The Group’s financial instruments that are measured subsequent to initial recognition at fair values and are grouped into levels based on the degree to which the fair value is observable: Level 1 – fair value measurements derived from quoted prices in active markets for identical assets. Level 2 – fair value measurements derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – fair value measurements derived from valuation techniques that include inputs for the asset or liability which are not based on observable market data. The fair value of the contingent consideration on Ticketsoft was assessed as level 3, using a discount rate of 8% to reflect the time value of money. There have been no transfers between levels or changes in the valuation methods used to determine the fair value of the Group’s financial instruments during the period. Sensitivities to reasonably possible changes in non-market observable valuation inputs would not have a material impact on the Group’s financial results. 48 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED 29.2 FINANCIAL INSTRUMENTS BY CATEGORY Loans and receivables Cash Short term deposits Trade receivables Sundry receivables Related party receivables – trading Financial liabilities measured at amortised cost Trade payables Sundry accruals Borrowings Financial liabilities measured at fair value Contingent consideration 2015 2014 NOTES NZ$’000 NZ$’000 14 14 15 15 15 19 20 16,863 10,519 10,437 23,653 2,163 3,410 20,227 18,778 819 1,605 56,526 51,948 762 2,918 4,792 912 – 4,671 1,253 – 9,725 5,583 29.3 FINANCIAL RISK MANAGEMENT The Group is exposed to three main types of risks in relation to financial instruments, which are market (foreign currency risk and interest rate risk), credit and liquidity. The Group’s risk management is coordinated at its headquarters, in close cooperation with the board of directors, and focuses on actively monitoring and securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets. The most significant financial risks to which the Group is exposed are described below. Foreign currency risk Most of the Group’s transactions carry a component that is ultimately repatriated back to NZD. Exposures to currency exchange rates arise from the Group’s overseas sales, which are primarily denominated in US dollars (USD), Pounds Sterling (GBP), Australian dollars (AUD) and Euros (EUR). To mitigate the Group’s exposure to foreign currency risk, non-NZD cash flows are monitored in accordance with the Group’s risk management policies. The Group’s risk management policies include Treasury management and Foreign exchange policies the implementation of which is reviewed regularly by the Board. The Group’s risk management procedures distinguish short-term foreign currency cash flows (due within 6 months) from longer- term cash flows (due after 6 months). Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken. The Foreign exchange policy does allow for the use of hedging activity, however to date these instruments have not been utilised. 49 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into NZD at the closing rate: 31 DECEMBER 2015 Financial assets Cash Short term deposits Trade receivables Sundry receivables Related party receivables Financial liabilities Trade payables Sundry accruals Borrowings Contingent consideration Total exposure 31 DECEMBER 2014 Financial assets (restated) Cash Short term deposits Trade receivables Sundry receivables Related party receivables Financial liabilities (restated) Trade payables Sundry accruals Borrowings Contingent consideration Total exposure USD GBP EUR AUD NZ$’000 NZ$’000 NZ$’000 NZ$’000 5,050 – 7,460 – – (62) – – (1,253) 11,195 2,745 – 7,164 – – – – – – 8 – 77 – – – – – – 324 – 1,437 – – (30) – (4,792) – 137 – 942 – – (2) – – – 85 (3,061) 1,077 294 – – – – (7) – – – 244 – 2,225 – – (12) – (4,671) – 399 – 578 – – – – – – 9,909 287 (2,214) 977 50 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED The following table illustrates the sensitivity of profit or loss and equity in regards to the Group’s financial assets and financial liabilities affected by USD/NZD exchange rate the GBP/NZD exchange rate, the EUR/NZD exchange rate and AUD/NZD exchange rate ‘all other things being equal’. It assumes a +/– 10% change of the NZD/USD exchange rate for the year ended at 31 December 2015 (2014: 10%). A +/– 10% change is considered for the NZD/GBP exchange rate (2014: 10%). A +/– 10% change is considered for the NZD/AUD exchange rate (2014: 10%). A +/– 10% change is considered for the NZD/EUR exchange rate (2014: 10%). These percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the Group’s foreign currency financial instruments held at each reporting date. 31 DECEMBER 2015 10% strengthening in NZD 10% weakening in NZD 31 DECEMBER 2014 (RESTATED) 10% strengthening in NZD 10% weakening in NZD PROFIT / EQUITY USD GBP EUR AUD NZ$’000 NZ$’000 NZ$’000 NZ$’000 (1,018) 1,244 (901) 1,101 (8) 9 (26) 32 278 (340) 201 (246) (98) 120 (89) 109 Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s exposure to market risk. Interest rate risk The Group’s interest rate risk primarily arises from long-term borrowing, cash, short term deposits and advances to associates. Borrowings and deposits at variable rates expose the Group to cash flow interest rate risk. Borrowings and deposits at fixed rates expose the Group to fair value interest rate risk. The following tables set out the interest rate repricing profile and current interest rate of the interest bearing financial assets and liabilities. AS AT 31 DECEMBER 2015 Assets Advance to Numero Short term deposits Cash Liabilities Bank borrowings Total exposure EFFECTIVE INTEREST RATE 10% 3.54% FLOATING FIXED UP TO 3 MONTHS FIXED UP TO 6 MONTHS FIXED UP TO 5 YEARS TOTAL NZ$'000 NZ$'000 NZ$'000 NZ$'000 NZ$'000 – – 16,863 16,863 – – – – – 1,500 1,500 10,437 – – – 10,437 16,863 10,437 1,500 28,800 2.66% – (4,792) – – (4,792) 16,863 (4,792) 10,437 1,500 24,008 Profit or loss is sensitive to higher / lower interest income / expense from cash, short term deposits and bank borrowings as a result of changes in interest rates. 51 Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS CONTINUED AS AT 31 DECEMBER 2015 Assets Advance to Numero Short term deposits Cash Liabilities Bank borrowings Total exposure Credit risk EFFECTIVE INTEREST RATE +1% EFFECTIVE INTEREST RATE -1% NZ$'000 NZ$'000 15 104 169 288 (48) 240 (15) (104) (169) (288) 48 (240) Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to this risk for various financial instruments, for example trade and sundry receivables and deposits with financial institutions. The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at 31 December, as summarised below. The Group continuously monitors defaults of customers and other counterparties, identified either individually or by the Group, and incorporates this information into its credit risk controls. The Group’s policy is to deal only with creditworthy counterparties. At 31 December the Group has certain trade receivables that have not been settled by the contractual due date but are not considered to be impaired because of the nature of contracts and longevity of ongoing customer relationships. The amounts at 31 December, analysed by the length of time past due, are: Not more than 3 months Between 3 months and 4 months Over 4 months 2015 2014 NZ$’000 NZ$’000 8,450 1,267 3,988 6,571 720 1,843 13,705 9,134 In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various industries and geographical areas. Based on historical information about customer default rates management considers the credit quality of trade receivables that are not past due or impaired to be good. The credit risk for cash and short term deposits is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Liquidity risk Liquidity risk is the risk that the Group might be unable to meet its obligations. The Group’s objective is to maintain a balance between continuity of funding and flexibility through monitoring of cash and term deposits and the use of bank overdrafts and bank loans (see Note 20). The Group’s policy is that not more than 25% of borrowings should mature in the next 12-month period. None of the Group’s debt will mature in less than one year at 31 December 2015 (2014: 10%) based on the carrying value of borrowings reflected in the financial statements. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. 52 Vista Group International Limited NOTES TO THE FINANCIAL STATEMENTS CONTINUED The Group has significant cash balances held as cash on hand and in short term deposits of $27.3m (refer Note 14). During the PFI period the Group stated that it did not intend to pay a dividend. The dividend policy will be reviewed by the Board in the coming financial year. At balance date the Group has a $2m on call credit facility with the ASB, against which there has been no draw down. The table below summarises the maturity profile of the Group’s non-derivative financial liabilities based on contractual undiscounted payments. ON DEMAND LESS THAN 3 MONTHS 3 TO 12 MONTHS 1 TO 5 YEARS > 5 YEARS TOTAL NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 2015 Trade payables Sundry accruals Borrowings Contingent consideration 2014 Trade payables Sundry accruals Borrowings Contingent consideration – – – – – – – – – – 762 2,918 – – 3,680 912 – – – 912 – – – 1,253 1,253 – – – – – – – 4,941 – 4,941 – – 4,981 – 4,981 – – – – – – – – – – 762 2,918 4,941 1,253 9,874 912 – 4,981 – 5,893 30. CONTINGENT LIABILITIES There were no contingent liabilities for the Group at 31 December 2015 (2014: $Nil). 31. SUBSEQUENT EVENTS On 4 January 2016 the Group acquired 50% of Share Dimension, a Dutch software development company specialising in predictive analytics business intelligence solutions for cinema exhibitors. This investment continues Vista’s strategy of investing in high quality and high growth global film industry software solutions since listing on the New Zealand and Australian stock exchanges in August 2014. Refer to Note 7 for more information. The Directors are not aware of any other matters or circumstances since the end of the reporting period not otherwise dealt with in the financial statements that have significantly or may significantly affect the operations of the Group. 53 Annual Report 2015 54 Vista Group International Limited CORPORATE GOVERNANCE 55 Annual Report 2015 CORPORATE GOVERNANCE INFORMATION The Investor Centre section of the Company’s website (vistagroup.co.nz.) includes copies of the following corporate governance documents referred to in this section: • Constitution • Corporate Governance Code and Appendices (the Code), including: – Code of Ethics – Securities Trading Policy & Guidelines – Shareholder Participation – Audit & Risk Management Committee Charter – Nominations & Remuneration Committee Charter • Diversity Policy • Continuous Disclosure Policy • Risk and Compliance Framework Summary The Board recognises the importance of good corporate governance, particularly its role in delivering improved corporate performance and protecting the interests of all stakeholders. The Board is responsible for establishing and implementing the Company’s corporate governance frameworks, and is committed to fulfilling this role in accordance with best practice while observing applicable laws, the NZX Corporate Governance Best Practice Code (NZX Code), the New Zealand Financial Markets Authority Corporate Governance in New Zealand – Principles and Guidelines handbook and the Corporate Governance Principles and Recommendations (3rd Edition) issued by the ASX Corporate Governance Council (ASX Recommendations). For the reporting period to 31 December 2015, the Company believes that it has complied in all material respects with the NZX Code. The Company changed its listing category on the ASX to that of an ASX Foreign Exempt Listing on 27 October 2015 and, as a result, it is exempt from complying with the majority of the listing rules of the ASX. Instead the Company is required to primarily comply with the listing rules of the NZX as its home exchange, including in relation to corporate governance. The Company has, however continued to report its approach to governance against the 8 fundamental principles of the ASX Recommendations as set out in this section. PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Companies should establish and disclose the respective roles and responsibilities of the Board and management and how their performance is monitored and evaluated. Recommendation 1.1 – Companies should disclose (a) the respective roles and responsibilities of the Board and management and (b) those matters expressly reserved to the Board and those delegated to management. The Board is the overall and final body responsible for all decision making within the Company, having a core objective to effectively represent and promote the interests of shareholders with a view to adding long-term value to the Company. The Code describes the Board’s role and responsibilities and regulates internal Board procedures. The Board has the responsibility to work to enhance the value of the Company in the interests of the Company and the shareholders. The Board The Board is responsible for directing the Company and enhancing shareholder value in accordance with good corporate governance principles. Further, the Board has statutory responsibilities for the affairs and activities of the Company, with delegation to the Chief Executive Officer (the CEO) and other management of the Company. The main functions of the Board, the CEO and senior executive team are set out in the Code. There is a clear delineation between the Board’s responsibility for the Company’s strategy and activities, and the day-to-day management of operations conferred upon other officers of the Company. The Board reserves certain functions to itself. These include: • approving, and from time to time reviewing, the Company’s corporate mission statement; • selecting and (if necessary) replacing the CEO; • ensuring that the Company has adequate management to achieve its objectives and to support the CEO so that a satisfactory plan for management succession is in place; • reviewing and approving the strategic, business and financial plans prepared by management; • reviewing and approving certain material transactions, and making certain investment and divestment decisions; • approving and overseeing the administration of the Company’s technology development strategy; 56 Vista Group International Limited • monitoring the Company’s performance against its Delegation approved strategic, business and financial plans and overseeing the Company’s operating results; • ensuring ethical behaviour by the Company, the Board and management, including compliance with the Company’s constitution, the relevant laws, listing rules and regulations and the relevant auditing and accounting principles; • implementing and from time to time reviewing the Company’s Code of Ethics, to foster high standards of ethical conduct and personal behaviour and hold accountable those Directors, managers or other employees who engage in unethical behaviours; To enhance efficiency, the Board has delegated some of its powers to Board Committees and other powers to the CEO. The CEO’s employment contract is not for a specific term. The day-to-day leadership and management of the Company is undertaken by the CEO and senior management. The CEO is responsible for: • formulating the vision for the Company; • recommending policy and the strategic direction of the Company for approval by the Board; • providing management of the day to day operations • ensuring the quality and independence of the of the Company; and Company’s external audit process; and • acting as the spokesperson of the Company. • assessing from time to time its own effectiveness in carrying out these functions and the other responsibilities of the Board. Indemnities and insurance In accordance with Section 162 of the Companies Act 1993 and the Company’s Constitution, the Company indemnifies the Directors in relation to potential liabilities and costs they may incur for acts or omissions in their capacity as Directors. The Directors’ and Officers’ Liability insurance covers risks normally covered by such policies arising out of acts or omissions of Directors and employees in their capacity as such. In addition, the Company acquired prospectus insurance for its initial public offering. Details are recorded in the interests register as required by the Companies Act 1993. Board meetings In the period from 1 January 2015 until 31 December 2015 the Board has met formally 9 times. At each scheduled meeting the Board considers key financial and operational information as well as matters of strategic importance. Directors who are not members of the Committees may attend the Committee meetings. Company subsidiaries The Company has two wholly owned subsidiaries, Vista Entertainment Solutions Limited (VESL) and Virtual Concepts Limited (VCL). VESL has four wholly owned subsidiaries consisting of Vista Entertainment Solutions (Shanghai), Vista Entertainment Solutions (USA) Inc., Vista Entertainment Solutions (UK) Limited and Vista Entertainment Solutions (Canada) Limited. VCL has two wholly owned subsidiaries consisting of Movio Ltd and Movio Inc. Board meetings were held for each of these subsidiaries during the year ended 31 December 2015, with material matters raised in these meetings reported to the Company’s Board, as appropriate. The terms of the delegation by the Board to the CEO are documented in the Code and more clearly set out in the Company’s Delegated Authority Manual. This manual also establishes the authority levels for decision-making within the Company’s management team. The CEO has also formally delegated decision making to senior management within their areas of responsibility and subject to quantitative limits to ensure consistent and efficient decision making across the Company. Board Committees The Board has established and adopted Charters for two Committees: the Audit and Risk Management Committee and the Nominations and Remuneration Committee. The membership of each Committee at 31 December 2015 was: • Audit and Risk Management – Susan Peterson (Chair), Kirk Senior and James Ogden • Nominations and Remuneration Committee – Kirk Senior (Chair), Susan Peterson and James Ogden Other Committees may be established from time to time. The Nominations and Remuneration Committee held two formal meetings during the financial year ended 31 December 2015 with other matters, particularly the establishment and approval of a Long Term Incentive scheme for employees dealt with by the full Board in this period. The Audit and Risk Committee met 6 times during the year. The newly appointed auditors, PricewaterhouseCoopers, attended the meeting in May to review the engagement and the matters required by the Audit and Risk Committee Charter. The meetings of both committees were attended by all members. 57 Annual Report 2015 Recommendation 1.2 – Companies should undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election as a director and provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. Nomination and appointment The procedures for the appointment and removal of Directors are ultimately governed by the Company’s Constitution. The Company has established a Nominations and Remuneration Committee governed by the Nomination and Remuneration Committee Charter, a copy of which is available on the Company’s website. The primary objectives of the Nominations and Remuneration Committee are to ensure that a formal and transparent method for the nomination and appointment of Directors exists; to recommend Director appointments to the Board; and to regularly review the composition of the Board to ensure the right composition of Directors is maintained. The Nominations and Remuneration Committee does this by: • making recommendations to the Board as to its size; • reviewing the composition of the Board to ensure the most appropriate balance of skills, qualifications and experience; • reviewing Board succession plans to maintain an appropriate balance of skills, experience and expertise on the Board; • reviewing criteria for determining suitability of potential Directors in terms of balance of the Board; • identifying and maintaining a list of suitably qualified people who could be approached for future Board positions; • ensuring there is an appropriate induction programme in place for all new Directors; and • making recommendations to the Board about the appointment and re-election of Directors. When recommending to the Board suitable candidates for appointment as Directors, the Committee will consider, among other things: • the candidate’s experience as a Director; • their skills, expertise and competencies; and • the extent to which those skills complement the skills of existing Directors. Kirk Senior (Chair), Susan Peterson and James Ogden are the current members of the Nominations and Remuneration Committee. The majority of this Committee are independent Directors. The Nomination and Remuneration Committee is chaired by Kirk Senior who is not an independent Director. The Board is confident that Mr Senior is capable of exercising independent views and judgement in exercising his role as chair of the Nominations and Remuneration Committee. Retirement and re-election The Board acknowledges and observes the relevant Director rotation/retirement rules under the NZX Main Board Listing Rules. Two Directors (Brian Cadzow and James Ogden) retired by rotation and were re-elected at the Annual Shareholders Meeting in May 2015. Recommendation 1.3 – Companies should have a written agreement with each Director and senior executive setting out the terms of their appointment. New Directors are required to consent to act as a Director and receive a formal letter of appointment which sets out duties and responsibilities, rights and remuneration entitlements. Each senior executive is employed under an individual employment agreement which sets out the terms on which the senior executive is employed including details of the executive’s duties and responsibilities, rights and remuneration entitlements. The employment agreement also sets out the circumstances in which employment may be terminated by either the Company or the executive. Recommendation 1.4 – The company secretary should be accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. The Company is not required to have and has not appointed a company secretary. Recommendation 1.5 – Companies should have a policy concerning diversity and disclose that policy together with measurable objectives for achieving gender diversity and its progress towards achieving those objectives. Diversity Policy The Company has adopted a formal Diversity Policy, a copy of which is available on the Company’s website. The Diversity Policy sets out the Company’s commitment to achieving diversity in the attributes and experiences of the Board, management and staff across a broad range of criteria including gender, background, and education (amongst others). In compliance with the Diversity Policy the Board has reviewed the Company’s performance against the previous year’s objectives. The Company’s recruitment policies continue to support recruitment across a range of backgrounds, ethnicities and gender. The shortage in skilled staff in the technology industry in general makes recruitment difficult, and as a result this can have an effect on 58 Vista Group International Limited diversity statistics when you are looking to hire significant numbers of people. Due to a structural change in the management of the company and a change in those people that report direct to the Vista Group CEO the Senior Executive group did reduce its gender diversity from 2014. Gender Diversity Statistics AS AT 31 DECEMBER 2014 Board Senior Executive* MALE FEMALE NO. % NO. % TOTAL 4 8 80.0% 88.9% 1 1 20.0% 11.1% 5 9 Total Staff 233 75.2% 77 24.8% 310 AS AT 31 DECEMBER 2015 MALE FEMALE NO. % NO. % TOTAL Board 4 80.0% 1 20.0% Senior Executive* 5 100.0% 0 0.0% 5 5 Total Staff 280 75.7% 90 24.3% 370 * For the purposes of this annual report, “Senior Executive” means the senior executive team constituted in accordance with the Code, and who report directly to the CEO. The senior executive team are “officers” for the purposes of the NZX Main Board Listing Rules. Recommendation 1.6 – Companies should have and disclose the process for evaluating the performance of the Board, its committees and individual directors and disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Performance evaluation of the Board, its Committees and individual Directors The Chair of the Board must ensure that rigorous, formal processes for evaluating the performance of the Board, Board Committees and individual Directors are in place and the Chair must lead such processes. Further, as part of that evaluation process the Board must establish performance criteria for itself and review its performance against those criteria (at least) annually. The Board must also review its relationship with management annually. As part of the review process, the Board will use, evaluate, and where necessary action, the results of a board performance questionnaire. Further, the Committee undertakes an annual self-review of its objectives and responsibilities. In addition, those objectives and responsibilities are also reviewed (as against the Nominations and Remuneration Committee Charter) by the Board and CEO. A review was undertaken during September 2015 and the results reported to the Board at a November strategy and review meeting. Recommendations from the results of the review have been considered and will be implemented by the Board in the future. Recommendation 1.7 – Companies should have and disclose a process for periodically evaluating the performance of its senior executives and disclose, in relation to each reporting period, whether a performance evaluation was undertaken in accordance with that process. Performance evaluation of senior executives The Board is responsible for constantly monitoring the performance of the CEO against the Board’s requirements. The Nominations and Remuneration Committee is responsible for evaluating the performance of the CEO and oversees the CEO’s evaluation of senior management that report directly to the CEO. The functions of the Committee are set out in the Nominations & Remuneration Committee Charter, a copy of which is available on the Company’s website. For the financial year ended 31 December 2015, a formal performance evaluation of senior management was not undertaken. The Company proposes to undertake the first of these evaluations referred to below in the third quarter of 2016, to enable a full year of performance to be reviewed. The performance evaluation of the CEO and senior management will be based on criteria set by the Nominations and Remuneration Committee which will include the performance of the business, the accomplishment of long-term strategic objectives and other non-quantitative objectives agreed at the beginning of each financial year. Performance evaluations of the CEO and senior management team will be completed in accordance with the process established by the Company’s Nominations and Remuneration Committee and the terms of the Code (as applicable). PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE Companies should have a Board of an appropriate size, composition, skills and commitment to adequately discharge its duties effectively. Composition of the Board At 31 December 2015, the Board comprised five Directors, as follows: – Kirk Senior – James Ogden – Susan Peterson – Murray Holdaway – Brian Cadzow 59 Annual Report 2015 The Board has a broad range of IT, film industry, financial, sales, business and other skills and expertise necessary to meet its objectives. The roles of the Board members has not changed in 2015, as a result, Kirk Senior is non-executive Chairman, and James Ogden and Susan Peterson are non-executive independent Directors. The Company’s Constitution currently requires a minimum of three Directors and a maximum of eight. Recommendation 2.1 – The Board should have an appropriately structured nomination committee. The Company has established a Nominations and Remuneration Committee governed by the Nomination and Remuneration Committee Charter, a copy of which is available on the Company’s website. Further information as to the primary objectives, processes and composition of the Nomination and Remuneration Committee are contained on page 58 in relation to Recommendation 1.2. Recommendation 2.2 – Companies should have and disclose a board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. In determining the composition of the Board, the Nominations and Remuneration Committee ensures that the Board has an optimal size and mix of skills to facilitate efficient and appropriate decision making. The Board has considered the composition of the Board and is satisfied that it has an appropriate mix of skills and diversity for strategic decision-making and effective oversight in relation to the Company’s affairs as at the date of this report. The skills and experience of each Director are set out on page 66 in the ‘Disclosures’ section. Recommendation 2.3 – Companies should disclose whether its directors are independent. Director independence The Board Charter requires that a minimum of two Directors be “independent”. The Board takes into account the guidance provided under the NZX Main Board Listing Rules and the ASX Recommendations, in determining the independence of Directors. Under those rules and recommendations, Directors are considered to be independent if they are non-executive and do not have an interest or relationship that could or could be perceived to unreasonably influence their decisions relating to the Company or interfere with their ability to act in the Company’s best interests. The Board will review any determination it makes as to a Director’s independence on becoming aware of any information that may have an impact on the independence of the Director. For this purpose, Directors are required to ensure that they immediately advise the Board of any relevant new or changed relationships to enable the Board to consider and determine the materiality of the relationships. As at 31 December 2015, the Board considered that James Ogden and Susan Peterson are Independent Directors. As at 31 December 2015, the Board has determined that Murray Holdaway and Brian Cadzow are not Independent Directors because of their executive responsibilities and substantial shareholding. Kirk Senior provides consulting services to the Company, in addition to his role as Chairman, and therefore the Board does not consider that he is an Independent Director. Length of service of Directors DIRECTOR APPOINTED LENGTH OF SERVICE TO 31 DEC 2015 Murray Holdaway 6 August 2003 12 years, 5 months Brian Cadzow 6 August 2003 12 years, 5 months Kirk Senior 3 June 2014 1 year, 7 months Susan Peterson 3 June 2014 1 year, 7 months James Ogden 3 June 2014 1 year, 7 months Conflicts of interest The Code outlines the Board’s policy on conflicts of interest. Where conflicts of interest do exist, Directors excuse themselves from discussions and do not exercise their right to vote in respect of such matters. Recommendation 2.4 – A majority of the Board should be independent directors. Whilst, the Board does not comply with the ASX Recommendation that a majority of the Board should be independent Directors, the Board considers that it has an appropriate mix of skills, experience and independence to ensure the Company is governed in a manner that ensures that the interests of all shareholders are represented and protected. The Board is also confident that proper processes are in place to address the needs and expectations of stakeholders with respect to independence in decision-making and the management of any conflicts of interest. Recommendation 2.5 – The Chairman should be an independent director and, in particular, should not be the same person as the CEO. The ASX Recommendations require that the Chairman should be an independent Director. Whilst, Mr Senior is not considered an independent Director, he is considered to be the most appropriate Director to act as Chairman because of the depth of his leadership and operational experience and considerable professional network across the international film industry. The Board is confident 60 Vista Group International Limited that Mr Senior is capable of exercising independent views and judgement in exercising his role as Chairman. The Chairman of the Board is elected by the Directors. The Board supports the separation of the role of Chairman (Kirk Senior) and CEO (Murray Holdaway) in accordance with the requirements of the NZX Code and the ASX Recommendations. The Chairman’s role is set out in the Code and includes to manage the Board effectively, to provide leadership to the Board, and to facilitate the Board’s interface with the CEO. Recommendation 2.6 – Companies should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. All Directors are responsible for ensuring they remain current in understanding their duties as Directors. To ensure ongoing education, Directors are regularly informed of developments that affect the Company’s industry and business environment, as well as company and legal issues that impact the Directors themselves. Directors have access to management and any additional information they consider necessary for informed decision making. Board access to information and advice The Director – Commercial and Legal in conjunction with the Chief Financial Officer is responsible for supporting the effectiveness of the Board by ensuring that policies and procedures are followed and co-ordinating the completion and dispatch of the Board agendas and papers. All Directors have access to the senior management team, including the Director – Commercial and Legal and the Chief Financial Officer, to discuss issues or obtain information on specific areas in relation to items to be considered at Board meetings or other areas as they consider appropriate. Further, Directors have unrestricted access to Group records and information. The Board, the Board Committees and each Director have the right, subject to the approval of the Chairman, to seek independent professional advice at the Company’s expense to assist them to carry out their responsibilities as a Director or Committee member. Further, the Board and Board Committee members have the authority to secure the attendance at meetings of external parties with relevant experience and expertise. PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY Companies should act ethically and responsibly. Recommendation 3.1 – Companies should have a code of conduct for its directors, senior executives and employees and disclose that code or a summary of it. The Board maintains high standards of ethical conduct and the CEO is responsible for ensuring that high standards of conduct are maintained by all staff. Code of Ethics The Company has adopted a Code of Ethics which plays a key role in establishing the framework by which the Company’s employees are expected to conduct themselves. A copy of the Code of Ethics is available on the Company’s website. The Code of Ethics is intended to facilitate decisions that are consistent with the Company’s values, business goals and legal and policy obligations. The Code of Ethics covers, among other things, conflicts of interest, gifts and behaviours. The Code of Ethics will guide the Company and its employees to: • the practices necessary to maintain confidence in the Company’s integrity; • the practices necessary to take into account the Company’s legal obligations and the reasonable expectations of their stakeholders; and • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Any person who becomes aware of a breach or suspected breach of the Code of Ethics is required to report it immediately in accordance with the policy. PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING Companies should have formal and rigorous processes that independently verify and safeguard the integrity of their corporate reporting. Recommendation 4.1 – The Board should establish an appropriately structured audit committee. Audit and Risk Management Committee The Board has an Audit and Risk Management Committee whose primary objective is to assist the Board in fulfilling its responsibilities by: • ensuring the quality and independence of the Company’s external audit process; • overseeing (among other things): • the integrity of external financial reporting, • application of accounting policies, • financial management, and • the risk management framework and monitoring compliance with that framework; • providing a formal forum for communication between the Board and senior financial management; • regularly reviewing the Company’s internal controls and systems; 61 Annual Report 2015 • undertaking an annual self-review of the Committee’s objectives; • regularly reporting to the Board on the operation of the Company’s risk management and internal control processes; and • provide sufficient information to the Board to allow the Board to report annually to shareholders and stakeholders on risk identification and management procedures and relevant internal controls of the Company. The current members of the Audit and Risk Management Committee are Susan Peterson (Chair), Kirk Senior, and James Ogden. All three Committee members are non-executive Directors, a majority of whom are independent Directors. The Audit and Risk Management Committee is chaired by Susan Peterson who is an independent Director and not Chair of the Board. Directors who are not members of the Audit and Risk Management Committee and employees of the Company will only attend Audit and Risk Management Committee meetings at the invitation of the Committee. A copy of the Audit and Risk Management Committee Charter is available on the Company’s website. Recommendation 4.2 – CEO and CFO certification of financial statements. The provisions of Chapter 2M of the Corporations Act do not apply to the Company. Accordingly, the Company will not seek or obtain the assurance from management ordinarily required by section 295A of the Corporations Act and will not be complying with Recommendation 4.2 (or any other related recommendations) on an ongoing basis. Recommendation 4.3 – External auditor’s attendance and availability at the AGM. The external auditor attends the AGM. Shareholders are given a reasonable opportunity at the meeting to ask the auditor questions relevant to the conduct of the audit, the audit report, the Company’s accounting policies and the independence of the auditor. PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE Companies should make timely and balanced disclosure of all matters concerning the company that a reasonable person would expect to have a material effect on the price or value of its securities. Recommendation 5.1 – The Company should have a written policy for complying with its continuous disclosure obligations and disclose that policy or a summary of it. The Company is subject to the disclosure requirements of securities and other laws in New Zealand and Australia and is required to comply with the NZX Main Board Listing Rules. The Company changed its ASX listing category from a Standard Listing to an ASX Foreign Exempt Listing effective from the commencement of trading on 27 October 2015. As an ASX Foreign Exempt Listing, the Company is required to immediately provide ASX with all of the information that it provides to NZX that is, or is to be, made public. The Company is committed to notifying the market through full and fair disclosure to the NZX Main Board and ASX of any material information related to its business that is required to be disclosed by the NZX Main Board listing rules. The Company is mindful of the need to keep stakeholders informed through a timely, clear and balanced approach which communicates both positive and negative news. These notifications are available on the Company’s website. The Company is also required to comply with the periodic disclosure requirements under the NZX Main Board. The Company has adopted a Continuous Disclosure Policy which establishes procedures that are aimed at ensuring that the Directors and all employees of the Company are aware of and fulfil their disclosure obligations under the NZX Main Board Listing Rules. A copy of the Company’s Continuous Disclosure Policy is available on the Company’s website. The Continuous Disclosure Policy creates a Disclosure Committee which will determine whether information is material and whether it should be released. The Disclosure Committee is made up of the Board Chair, Audit and Risk Management Committee Chair and the remaining independent Director. The Policy has been communicated internally to ensure that it is strictly adhered to by the Board and the Company’s employees. PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS Companies should respect the rights of its shareholders by providing them with appropriate information and facilities to allow them to exercise those rights effectively. Recommendation 6.1 – The Company should provide information about itself and its governance to shareholders on its website. A copy of the Code is available on the Company’s website. The Company’s website, www.vistagroup. co.nz, provides information to shareholders and investors about the Company. The website includes copies of past annual reports, results announcements, media releases and general company information. Recommendation 6.2 – The Company should design and implement an investor relations program to facilitate effective two-way communication with investors. 62 Vista Group International Limited Although the Company does not have a formal shareholder communications policy, it does take appropriate steps to keep shareholders informed about its activities and to listen to issues or concerns raised by shareholders. Fundamental to the Company’s provision of information to shareholders is the management of its continuous disclosure obligations which facilitates all shareholders having access to important company information. In addition to lodging this information with the NZX and the ASX, the Company uses its website to make available to shareholders information about the Company and its activities. Recommendation 6.3 – The Company should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of shareholders. The Code addresses Shareholder Participation. This section of the Code is designed to highlight the Board’s accountability to shareholders. Further, this section encourages shareholders to use the annual general meeting to ask questions and make comments on the performance of the Company. This section of the Code highlights that the Board welcomes input from shareholders and encourages shareholders to submit questions in writing prior to the annual general meeting so that an informed answer can be given at that meeting, and also indicates that the Board will ensure that the Company’s external auditors are available for questioning by shareholders at the annual general meeting. Recommendation 6.4 – The Company should give shareholders the option to receive communications from, and send communications to, the Company and its security registry electronically. Shareholders have the option of electing to receive all shareholder communications, including dividend statements, by e-mail. The Company provides a printed copy of the Annual Report to only those shareholders who have specifically elected to receive a printed copy. Other shareholders are advised that the Annual Report is available on the Company’s website. All announcements made to the NZX and the ASX are available to shareholders by email notification when a shareholder provides the Company’s Share Registry with an email address and elects to be notified of all such announcements. The Company’s Share Register is managed and maintained by Link Market Services Limited. Shareholders can access their shareholding details or make enquiries about their current shareholding electronically. PRINCIPLE 7 – RECOGNISE AND MANAGE RISK Companies should establish a sound risk management framework and periodically review the effectiveness of that framework. Recommendation 7.1 – The Company should establish an appropriately structured risk management committee for the oversight of material business risks. The identification and effective management of the Company’s risks are a priority of the Board. The CEO is accountable for all operational and compliance risk across all of the Company’s operations and businesses. The Director – Commercial and Legal has management accountability for the effective implementation of the Risk Framework (as defined below) across all of the Company’s businesses. The Company has in place an overarching Operating Risk and Compliance Framework (the Risk Framework), supported by operating risk and compliance policies that aim to ensure that Vista Group, its Directors and employees will comply with relevant regulatory requirements such as New Zealand laws, NZX listing rules, ASX listing rules applicable to an ASX Foreign Exempt Listing and relevant codes of practice. The purpose of the Risk Framework is to ensure a consistent approach to operating and compliance risk across all the Company’s businesses in all geographies where the Company operates. The Risk Framework sets out the specific areas for which the CEO and Director – Commercial and Legal are accountable. As discussed above, the Board has established an Audit and Risk Management Committee whose primary objective is to assist the Board in fulfilling its responsibilities by, amongst other things: • overseeing (among other things) the risk management framework and monitoring compliance with that framework; • providing a formal forum for communication between the Board and senior financial management; • regularly reviewing the Company’s internal controls and systems; • undertaking an annual self-review of the Committee’s objectives; • regularly reporting to the Board on the operation of the Company’s risk management and internal control processes; and • providing sufficient information to the Board to allow the Board to report annually to shareholders and stakeholders on risk identification and management procedures and relevant internal controls of the Company. 63 Annual Report 2015 Recommendation 7.2 – The Board or a committee of the Board should review the Company’s risk framework at least annually to satisfy itself that it continues to be sound. In addition to the Risk Framework, the Code provides that the Audit and Risk Management Committee will regularly report to the Board on the operation of the Company’s risk management and internal control processes and provide sufficient information to the Board to allow the Board to report annually to shareholders and stakeholders on risk identification and management procedures and relevant internal controls of the company. During the financial year ended 31 December 2015, the Board received and considered a report on the Company’s management of material security risks. In addition, the Company’s senior management reports at each meeting on the established Risk Register for the Company. Recommendation 7.3 – The Company should disclose the structure and role of its internal audit function. While the Company does not have an internal audit function, the Company fosters a culture of excellence in all areas of risk management and takes all operating and compliance risk obligations seriously. The Chief Executive is accountable for all operational and compliance risks across all of the Company’s operations and businesses. The Chief Financial Officer has management accountability for the effective implementation of the Risk Framework across all of the Company’s businesses. All individual employees of the Company are accountable for their personal compliance with the Risk Framework and supporting policies. At the time of employment, all new staff are required to confirm that they have read and are aware of the Company’s policies. On an annual basis, all staff are required to re-confirm awareness of and adherence to policies. Recommendation 7.4 – The Company should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. The Board considers that a number of risks across various risk categories have the potential to impact on the economic, environmental and social sustainability of the Company in one way or another. Details of these types of risks and the way in which they are managed are set out in the Company’s prospectus at pages 44 to 48, a copy of which is available on the Company’s website. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY Companies should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders. Recommendation 8.1 – The Board should establish an appropriately structured remuneration committee. Nominations and Remuneration Committee The Company has established a Nominations and Remuneration Committee, which is governed by the Nominations and Remuneration Committee Charter. In addition to the objectives mentioned above, further primary objectives of the Committee are to ensure that a formal and transparent method to recommend Director remuneration packages exists and to assist the Board in the establishment of remuneration policies and practices, including setting and reviewing the CEO’s remuneration and that of other senior executives and Directors (both non-executive and executive). The Committee is also required to regularly review and recommend changes to Director remuneration to ensure that it is at an appropriate level and effectively managed. As stated above, the Nominations and Remuneration Committee has three members, consists of a majority of independent Directors and, is not chaired by an independent director. As stated above, the Board is confident that Mr Senior is capable of exercising independent views and judgement in exercising his role as chair of the Nominations and Remuneration Committee. Recommendation 8.2 – The Company should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. Director remuneration Directors’ fees are currently set at a maximum of $500,000 per annum for the non-executive Directors. The actual amount of fees paid in the past year was $305,000. Full disclosure of Directors’ remuneration is set out at page 68. The Chairman receives $150,000 per annum. The independent Directors receive $75,000 per annum each. The CEO and other executive Directors receive remuneration from the Company and its subsidiaries (the Vista Group) and do not receive Directors’ fees. Shareholders have approved the Directors’ fees in aggregate for all Directors at $500,000 per annum. 64 Vista Group International Limited This fee pool includes headroom for a possible additional Director, should an appropriate candidate be identified in the future. Directors are also entitled to be paid for reasonable travel, accommodation and other expenses incurred by them in connection with their attendance at Board or shareholder meetings, or otherwise in connection with Vista Group’s business. Following the adoption of a long term incentive plan in 2015, Executive and senior management remuneration currently comprises three components: fixed remuneration, short term performance incentives and a long term incentive plan. This is to ensure appropriate weighting of incentives between short and longer-term performance and to align executive packages with longer-term shareholder value. Fixed remuneration Fixed remuneration consists of base salary and benefits. Short term performance incentives The short term performance incentive will be an annual risk performance bonus which is either a specific percentage of each executive’s base salary or a set value. The executives’ and senior managers’ right to short term performance incentives will be conditional on the performance of the individual and the company and will be assessed annually by the Board. Executive Long-Term Incentive Plan Vista Group has established a long term incentive plan (the LTI Plan) for executives, senior managers and staff. The LTI Plan aims to align executives’, senior managers’ and staff interests with those of shareholders, by providing a proportion of remuneration on an “at-risk” basis aligned to the achievement of defined performance targets. The structure of the LTI Plan was finalised in August 2015 and the first grants made with a commencement date of 1 January 2015. Recommendation 8.3 – If the Company has an equity- based remuneration scheme, it should have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme and disclose that policy or a summary of it. All Directors and employees are required to comply with the Company’s Securities Trading Policy and Guidelines in undertaking any trading in the Company’s shares. The table of Directors’ shareholdings is included in the Disclosures section of this Annual Report. 65 Annual Report 2015 DISCLOSURES DIRECTORS The names of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. K Senior, BCom, CA (Chairman) M Holdaway, BSc, BCom (Executive Director) B Cadzow, BCom, (Executive Director), re-elected May 2015 S Peterson, BCom, LLB (Independent Director) J Ogden, BCA Hons, FCA, CFInstD (Independent Director), re-elected May 2015. Stock exchange listings The Company’s ordinary shares are listed and quoted on the NZX and on the ASX. On 27 October 2015, the Company changed its listing category on the ASX to that of an ASX Foreign Exempt Listing. Entries recorded in the interests register The Company maintains an Interests Register in accordance with the Companies Act 1993 and the Financial Markets Conduct Act 2013. The following are particulars of entries made in the Interests Register for the period 1 January 2015 to 31 December 2015. Directors’ interests, Directors’ disclosed interests, or cessations of interest, in the following entities pursuant to section 140 of the Companies Act 1993 during the year ended 31 December 2015. NAME OF DIRECTOR ENTITY NATURE OF GENERAL DISCLOSURE Murray Holdaway Invista Share Nominee Limited Director and shareholder Holdaway and Geary Trust Trustee Brian Cadzow B&J Associates Consulting Limited Director and shareholder Invista Share Nominee Limited Director and shareholder B&J Cadzow Family Trust Johnson Trust Titirangi Golf Club Inc. Close Kohu Road Limited Kirk Senior Kirk Senior Pty Limited Trustee Trustee Board member Director and shareholder Director and shareholder Senior Family Super Fund Pty Limited Director and shareholder Kirk Senior Family Trust Trustee James Ogden1 The Warehouse Group Limited and group companies Director Summerset Group Holdings Limited MTA Group Investments Limited Dekra NZ Limited Pencarrow Private Equity Fund Crown Forest Rental Trust Director Director Director Independent member of the Investment Committee Member of the Audit and Risk Committee NZ Markets Disciplinary Tribunal Alliance Group Limited Member Director 1 James Ogden ceased to be a director of each of MTA Group Investments Limited and Dekra NZ Limited on 31 August 2015. 66 Vista Group International Limited NAME OF DIRECTOR ENTITY NATURE OF GENERAL DISCLOSURE Petone Investments Limited Ogden Consulting Limited Susan Peterson2 IHC The New Zealand Merino Company Limited Scribe NZ Limited Wynyard Group Limited Director and shareholder Director and shareholder Board member Director and Chairman of Audit and Risk Committee Director Shareholder, Director and Chairman of Audit and Risk Committee Wynyard Trustee Limited Director National Advisory Council for the Employment of Women Ministerial Appointee NZ Markets Disciplinary Tribunal Member Peterson Mellsop Family Trust Trustee and beneficiary Compac Holdings Limited Trustpower Limited Organic Initiative Limited Fantail Network Trust Director Director Director and shareholder Trustee Share dealings of Directors Directors disclosed, pursuant to section 148 of the Companies Act 1993, acquisitions and disposals of relevant interests in the Company shares during the year ended 31 December 2015. DATE OF ACQUISITION OR DISPOSAL NAME OF DIRECTOR NO & CLASS OF SHARES ACQUIRED OR (DISPOSED) NATURE OF RELEVANT INTEREST CONSIDERATION PAID OR RECEIVED There were no acquisitions or disposals in the period to 31 December 2015 Shareholdings of Directors at 31 December 2015 NAME OF DIRECTOR Murray Holdaway Brian Cadzow Kirk Senior James Ogden Susan Peterson DIRECTLY HELD HELD BY ASSOCIATED PERSONS 9,353,862 6,482,875 1,844,841 130,000 42,553 2 Susan Peterson ceased to be a director of Scribe NZ Limited on 11 November 2015 and ceased to be a board member of IHC on 23 February 2016. 67 Annual Report 2015 Remuneration of Directors SALARY RANGE Details of the total remuneration of, and the value of other benefits received by, each Director of the Company during the financial year ended 31 December 2015 are as follows: DIRECTOR FEES REMUNERATION Murray Holdaway Brian Cadzow Kirk Senior James Ogden Susan Peterson – – 291,830 242,000 228,369 75,000 75,000 Employee remuneration The following table shows the number of employees (including employees holding office as Directors of subsidiaries) whose remuneration and benefits for the year ended 31 December 2015 were within the specified bands above $100,000. The remuneration figures shown in the table include all monetary payments actually paid during the course of the year ended 31 December 2015. The table does not include amounts paid post 31 December 2015 that related to the year ended 31 December 2015, such as short-term incentive scheme bonuses. The table below includes the remuneration of Murray Holdaway and Brian Cadzow. No Director of a subsidiary receives or retains any remuneration or other benefits from the Company for acting as such. FROM TO STAFF NUMBERS 100,000 – 110,000 110,001 – 120,000 120,001 – 130,000 130,001 – 140,000 140,001 – 150,000 150,001 – 160,000 160,001 – 170,000 170,001 – 180,000 180,001 – 190,000 190,001 – 200,000 230,001 – 240,000 240,001 – 250,000 250,001 – 260,000 270,001 – 280,000 280,001 – 290,000 360,001 – 370,000 Total 13 13 10 8 9 5 1 4 2 3 1 1 1 3 2 2 78 Analysis of shareholding at 29 February 2015 CAPITAL IN RANGE NUMBER OF HOLDERS NUMBER OF SHARES % OF SHARES ISSUED 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 50,000 50,001 – 100,000 202 344 103 88 4 121,993 0.15% 977,209 1.22% 791,136 0.99% 1,892,978 2.37% 250,868 0.31% Greater than 100,000 35 75,938,905 94.96% 776 79,973,089 100% 68 Vista Group International Limited Twenty largest shareholders at 29 February 2016 INVESTOR NAME 1 New Zealand Central Securities Depository Limited NUMBER OF SHARES PERCENTAGE HOLDING 18,311,934 22.90% 2 Murray Lawrence Holdaway & Helen Rachel Geary & Stephen John Mcdonald 9,353,862 11.70% 3 J P Morgan Nominees Australia Limited 7,471,780 9.34% 4 Brian John Cadzow & Julie Ann Cadzow & Peter Allen Lewis 6,482,875 8.11% 5 Bruce Alexander Wighton & Marianne Bachler & Peter John Clark 5,415,979 6.77% 6 Gregory James Trounson & Donald Mackenzie Gibson & Kathryn Mary Lee Trounson 4,352,787 5.44% 7 Bnp Paribas Nominees Pty Ltd 8 Citi corp Nominees Pty Limited 9 Kirk Senior Pty Limited 10 Bruce Alan Forbes 11 Peter Joseph Beguely & Samuel James Beguely 12 David Smith & Lara Smith 13 Smallco Investment Manager Ltd 14 National Nominees Limited 15 HSBC Custody Nominees (Australia) Limited 16 Waspp Corporation Ltd 17 John Trevor Hanson & Bruce Trevor Hanson 18 Smith Family Holdings Ltd 2,594,530 3.24% 2,062,143 2.58% 1,844,841 2.31% 1,600,000 2.00% 1,438,120 1.80% 1,329,915 1.66% 1,260,405 1.58% 1,196,774 1.50% 1,163,524 1.45% 1,154,707 1.44% 1,096,532 1.37% 1,081,714 1.35% 18 Mark E Pattie & Kelly M Pattie & Northern Trustee Services (No. 74) Limited 1,081,714 1.35% 19 Philip Meredith & Hornbuckle Mitchell Trusteees Limited 1,078,009 1.35% 20 Matthew Preen & Richard Galbraith 585,311 0.73% 71,957,456 89.98% 69 Annual Report 2015 Substantial Product Holders According to notices given under the Financial Markets Conduct Act 2013, the following persons were Substantial Product Holders in the Company at 31 December 2015 in respect of the number of voting securities set opposite their names: NAME OF SUBSTANTIAL PRODUCT HOLDER Murray Lawrence Holdaway, Helen Rachel Geary and Stephen John McDonald as Trustees of the Holdaway and Geary Trust Brian John Cadzow, Julie Ann Cadzow and Peter Allen Lewis as Trustees of the B&J Cadzow Family Trust Bruce Alexander Wighton, Marianne Bachler and Peter John Clarke as Trustees of the Wighton Bachler Holdings Trust Gregory James Trounson, Donald Mackenzie Gibson and Kathryn Mary Lee Trounson as Trustees of The Trounson Family Trust. NUMBER AND CLASS OF SHARES 9,353,862 6,482,875 5,415,979 4,352,787 7,580,589 4,113,558 5,881,075 Fidelity Harbour Asset Management Devon Funds Management Limited Options Nil Performance rights The Company issued a total of 205,930 performance rights under the LTI scheme in the 2015 grant to a number of employees and these will vest in two tranches. Tranche one comprises 102,965 performance rights and has a vesting period of two years and three months. Tranche two comprises 102,965 performance rights and has a vesting period of three years and two months. The vesting of each tranche is subject to Vista Group achieving certain performance hurdles contained within the LTI scheme. Upon vesting each performance right will entitle the holder to one ordinary share. If the 2015 grant vested in full on the date of the issue of those performance rights it would equate to 0.25% of issued capital as at that date and increase the number of securities on issue at that time to 80,179,019 Auditor remuneration The Company appointed PwC as its new auditor on 17 April 2015, replacing Grant Thornton who resigned from the role. The amount payable to PwC by the Company and its subsidiaries for audit and non-audit services work for the financial year ended 31 December 2015 is disclosed in note 11.1 to the financial statements. The Board considers that due to the nature of the non-audit services work the auditors independence is not compromised and appropriate safeguards were in place. Waivers The Company had no NZX waivers granted or published by NZX within or relied upon in the 12 months ending 31 December 2015. Subsidiary company Directors The following people held office as Directors of subsidiary companies at 31 December 2015: • Kirk Senior: VESL, Vista Entertainment Solutions (USA) Ltd, Virtual Concepts Ltd, Movio Ltd and Movio Inc. • Murray Lawrence Holdaway: VESL, MACCS International B.V., Vista Entertainment Solutions (UK) Ltd, Vista Entertainment Solutions (Shanghai), Vista Entertainment Solutions (Canada) Ltd, Book My Show Ltd, Book My Show (NZ) Ltd, Numero Ltd, Numero (Aus) Pty Ltd. • Brian John Cadzow: VESL, Virtual Concepts Ltd, MACCS International B.V., Vista Entertainment Solutions (UK) Ltd, Vista Entertainment Solutions (USA) Ltd, Vista Entertainment Solutions (Canada) Ltd, Book My Show Ltd, Book My Show (NZ) Ltd, Numero Ltd, Numero (Aus) Pty Ltd, Movio Limited. • William Stanley Palmer: Movio Inc. 70 Vista Group International Limited • L.H. Huls: MACCS International B.V. • Mathieu H.W. Van As: MACCS International B.V. • Rajesh Chandrakant Balpande: Book My Show Ltd & Book My Show (NZ) Ltd • Simon John Burton: Numero Ltd & Numero (Aus) Pty Ltd • Sven Andresen: VPF Hub Annual meeting The Company’s Annual Meeting of shareholders will be held in Auckland on 24 May 2016 at 9:30 am. A notice of Annual Meeting and Proxy Form will be circulated to shareholders in April 2016. Donations The Vista Group made donations of $18,333 (2014 – $20,036) during the 2015 financial year. Exercise of NZX disciplinary powers NZX did not exercise any of its powers under NZX Listing Rule 5.4.2 in relation to the Company during the 2015 financial year. Credit rating The Company has no credit rating. 71 Annual Report 2015 NOTES 72 Vista Group International Limited y n a p m o c & n e l l e f o y s e t r u o c n g i s e d VISTA GROUP INTERNATIONAL LIMITED Level 3, 60 Khyber Pass Road Newton, Auckland 1023 Phone: +64 9 984 4570 Fax: +64 9 379 0685 Email: info@vistagroup.co.nz Website: www.vistagroup.co.nz 

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