Gentrack Annual Report 2016 Released

Transcription

1 15 December 2016 Gentrack Annual Report 2016 Released The full 2016 Annual Report for Gentrack Group Limited (NZX/ASX: GTK) is attached to this notice and is also available to view and download from the Investor Centre at: For the purposes of ASX Listing Rule , Gentrack Group Limited confirms that it continues to comply with the NZX Listing Rules. ENDS Contact details: Jon Kershaw Company Secretary About Gentrack Auckland-based Gentrack is a developer of specialist software for energy utilities, water companies and airports around the world. It employs over 250 people in offices in New Zealand, Australia and the UK and services utility and airport sites across four continents. Gentrack is comprised of two leading software products - Gentrack Velocity and Airport 20/20. Gentrack Velocity is a specialist billing and CRM product designed for energy utilities and water companies in competitive and regulated utilities markets. Airport 20/20 is a comprehensive Airport Operational System engineered to optimise an airport s operations through intelligent collaboration, streamlining airport information flows and transforming the passenger experience. Gentrack Group Ltd info@gentrack.com ARBN

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3 GENTRACK GROUP LIMITED ANNUAL REPORT 2016

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5 CONTENTS Financial Highlights 4 Chairman and Chief Executive s Report 6 Our Expertise, Your Future 8 Fostering Innovation and Agility 10 Delivering Real Outcomes 12 Innovation is Nothing without People 14 Focus on Learning and Development 16 Focus on Customers: Utilities 18 Focus on Customers: Airports 20 Financial Statements 22 Corporate Governance 52 Disclosures 56 Corporate Directory 61 GENTRACK ANNUAL REPORT / 3

6 FINANCIAL HIGHLIGHTS $52.7m $16.7m Revenue, 25% growth 1 EBITDA, 16% growth 1 $11.1m $18.8m NPATA, 2% growth 2 Cash Balance, 52% growth Final Dividend (cps) Annual Dividend All growth based on FY15. 2 NPATA is Gentrack s preferred measure of bottomline profit, being Net Profit After Tax adjusted for the Amortisation of acquisition related intangibles and its associated tax effect. 4 / FINANCIAL HIGHLIGHTS

7 REVENUE AND EBITDA (NZ$m) REVENUE EBITDA 7 YEAR CAGR ( ) 12.2% 11.6% Revenue EBITDA FINANCIAL HIGHLIGHTS / 5

8 CHAIRMAN AND CHIEF EXECUTIVE S REPORT DEAR SHAREHOLDER, It s been a record year for both our utilities and airport divisions and we enter FY17 with a solid pipeline of opportunities in our core markets. John Clifford, Chairman Our focus has been on creating an environment to support the continued growth of the Gentrack business. Investment in learning and development as well as supporting systems has given us more flexibility, expert resources and delivery capability as we head into FY17. Ian Black, CEO We are pleased to report that Gentrack performed strongly in the year to 30 September Revenue was up 25% on last year to NZ$52.7m and EBITDA was up 16% to $16.7m. This 32% operating margin reflects the strength of our product and market position, despite a headwind from the strong New Zealand dollar, which also resulted in a $1.4m foreign exchange loss on the translation of offshore assets. NPATA, our preferred measure of bottom line profit before amortisation of intangibles, was $11.1m, up 2% on FY15. A full year dividend of 11.9c represents a total payout of $8.7m. This is 78% of NPATA, reflecting the strong ongoing cash generation of the business which finished the year with $18.8m net cash. Gentrack s objective is to be the leader in our target markets in Australia, New Zealand and the UK for mission critical enterprise application software for electricity, gas and water utilities, and for airports worldwide. In FY16 our focus was on delivering some of our largest projects to date, with ten systems going live, four new customers won and five existing customers starting upgrades. Both the utilities and airports divisions grew strongly with revenues up 26% and 24% respectively. UK revenue also grew strongly, up 75% on FY15. Gentrack s strategy is to focus on mid-market utilities where we deliver market leading billing and customer information functionality, to enable our customers to offer outstanding customer service and to reduce their cost to serve. During FY16 we made solid progress to position the business for ongoing growth building on our 7 year track record of c.12% cumulative average revenue and EBITDA growth. We have streamlined our project implementation organisation and refocussed our product development, with a new CTO, Jan Behrens, joining in July. During the year we invested substantially in new staff, training and systems, with headcount increasing 28% over last year to / CHAIRMAN AND CHIEF EXECUTIVE S REPORT

9 Outlook: We enter FY2017 with a solid pipeline of opportunities and expect to continue to deliver long term revenue and EBITDA growth of 10%+pa, albeit that our results may be impacted by the timing of projects. Continued deregulation of energy and water markets and the growth of smart metering in the UK and Australia, with evolving utility business models to accommodate the growth in distributed generation and consumer expectations for online engagement, provide us with a growing market opportunity. Gentrack continues to review acquisition opportunities and is well placed to pursue a strategic acquisition in our existing markets when the opportunity arises on attractive terms. Our employees in New Zealand, Australia and the UK are the heart of the business and we take this opportunity to thank them again for their hard work, passion and commitment to Gentrack. 79 staff and directors hold c.30% of the equity in Gentrack and we thank them, and all our shareholders and partners for their ongoing support. Yours sincerely, HIGHLIGHTS Organic EBITDA growth of 11.6% CAGR Approximately 60% of FY16 revenue is recurring. >90% of total FY16 revenue is from existing customers. 32% EBITDA margin. Strong cash generation with 78% of FY16 NPATA paid as dividends. Debt free balance sheet with capacity for acquisitions. 28% staff growth over the year to 277. John Clifford Chairman Ian Black Chief Executive CHAIRMAN AND CHIEF EXECUTIVE S REPORT / 7

10 OUR EXPERTISE, YOUR FUTURE INNOVATION PEOPLE DELIVERY 8 / OUR EXPERTISE, YOUR FUTURE

11 Mission critical software for energy utilities, water companies and airports. We deliver the essential software, thought leadership and market expertise our customers need to adapt to changing customer expectations, ongoing structural reform and the impact of disruptive technologies. Along with the industry s growing obsession with customer experience there is significant change taking place for utilities and airports alike. Now more than ever, organisations want to work with providers they trust, who bring insight, innovation and who help deliver measurable business value. That has always been the Gentrack difference. Ian Black, CEO OUR EXPERTISE, YOUR FUTURE / 9

12 FOSTERING INNOVATION AND AGILITY We can now react far more quickly to emergent customer, market and consumer demands, solve problems and continually innovate. Jan Behrens, CTO, Gentrack 10 / FOSTERING INNOVATION AND AGILITY

13 The pace of change in Gentrack s markets is accelerating. The drive towards renewables, the growing adoption of electric vehicles, developments in energy battery storage along with the digitisation of customer experience are reshaping the way our customers do business. Gentrack has always stood out from other market players with our culture of collaboration. New CTO Jan Behrens goal is to nurture an even stronger ethos of innovation, agility and customer collaboration to ensure we deliver incremental and regular value to our customers around the world. Long term roadmaps can no longer be set in stone. By working in empowered, smaller, cross functional teams, we can now be more proactive in our R&D efforts, and react far more quickly to emergent customer, market and consumer demands. We can also solve problems and continually innovate within the context of our overall product vision. Our teams have embraced this more nimble approach and our customers are already reaping the benefits. In the UK for example, we were able to develop and launch a critical new market interface for our water customers well ahead of the regulator deadline. We are currently one of the only suppliers in the market to have this capability integrated directly within our billing platform. FOSTERING INNVOVATION AND AGILITY / 11

14 DELIVERING REAL OUTCOMES Our new delivery structure aligns our growth mindset with our passion for service. Robert Shelwell, GM Service Delivery, Gentrack 12 / DELIVERING REAL OUTCOMES

15 In the last year, Gentrack has re-organised its teams and management structure to ensure that the depth of industry and product knowledge within the organisation is more widely accessible to all of our customers. Gentrack aims to leverage its experience in high growth, high change markets to help customers to better navigate the changing regulatory and business environments. Our consultants also support customers in extracting even greater value from their investment in the Velocity and Airport 20/20 software. This division deepens and strengthens our client relationships, and drives further growth and value within each of our utility and airports accounts. We ve also restructured our Service Delivery team around a model for scalability, growth and customer service excellence. Our key point of difference is our complete accountability and commitment to a successful project delivery. The new structure will ensure consistency and round the clock support for each customer as we continue to expand. DELIVERING REAL OUTCOMES / 13

16 INNOVATION IS NOTHING WITHOUT PEOPLE On a daily basis, we are actively engaged with utilities and airports in our core markets solving their complex problems with our Velocity and Airport 20/20 software solutions. However, software innovation is not the whole story. Gentrack s ability to compete against some of the largest software companies in the world can also be attributed to the expertise, talent and collaborative approach of the people across our business. Take a moment to meet a couple of our team who live and breathe our winning attributes AGILITY, ABILITY and ATTITUDE. SUJITH RAMACHANDRA Getting through a university degree and finding that first job to jump start your career is a challenge for every graduate. Sujith began his career at Gentrack almost immediately following graduation from Auckland University with a BE in Computer Systems Engineering, and has progressed to a System Delivery Manager and Project Manager playing a key part on some of our largest and most complex software projects. And like many of the graduates working in our business, Sujith s winning values are characteristic of the great people at Gentrack, underpinning our commitment to success and shaping our ability to delivery complex software projects ahead of many competitors. 14 / GENTRACK PEOPLE

17 HENTIE HICKS Hentie brings a world of technical expertise to Gentrack through her knowledge of the software development lifecycle as well as real life experiences in supporting enterprise software solutions. As a Gentrack Product Specialist, Hentie looks after our software user interface. This is the window into our Velocity software and gives the thousands of agents in call centres around the world direct and fast access to the information they need to do their job. Hentie s passion is good design and she strives to make sure our software not only looks great but is easy to use. Emigrating from South Africa with her family, Hentie has quickly become an integral part of the Gentrack Development team and is truly representative of the diverse and energised culture fostered at Gentrack. GENTRACK PEOPLE / 15

18 FOCUS ON LEARNING AND DEVELOPMENT Tailored development programs not only enable our people to do their jobs better, but also offer professional growth opportunities. 16 / FOCUS ON LEARNING AND DEVELOPMENT

19 The knowledge and experience of our people is a huge asset and sets us apart. This year we have invested significantly in new learning systems that will develop our staff and improve collaboration and knowledge sharing across teams and geographies. This is critical as we continue to grow and push into new markets globally. Our immediate goal is to have new employees contributing faster and so we have rolled out access to new tools and resources designed for rapid and meaningful knowledge transfer. We have also launched Gentrack University, where we are building an online repository of hundreds of technical and professional learning experiences. Access to these courses will enable employees to not only do their jobs better and deliver exceptional value to our customers, but will provide access to a rich source of growth opportunities. These learning and development initiatives are expected to further strengthen staff retention in FY17 as our people work towards their professional goals and progress their career aspirations within the Gentrack business. FOCUS ON LEARNING AND DEVELOPMENT / 17

20 FOCUS ON CUSTOMERS: UTILITIES Our partnership with Gentrack has been a long term one and we appreciate Gentrack s capability, can do attitude and willingness to work with us collaboratively to achieve our business aspirations. Simon Clarke, GM Business Solutions & Technology, Trustpower 18 / FOCUS ON PARTNERSHIPS: UTILITIES

21 TRUSTPOWER Gentrack has partnered with leading utilities for over 25 years providing them with a core platform for innovation, market compliance and customer service excellence. New Zealand s Trustpower signed on for our billing and customer care software in 1999 just as competition was introduced into the energy market, enabling households and businesses to choose their energy supplier for the first time. Several software upgrades and enhancement projects later, Gentrack s software remains at the core of the Trustpower business, supporting the retailers growth and commitment to deliver a quality service to its customers in both the energy and telco markets. With our billing and new customer relationship management capabilities, Trustpower can now offer tailored bundled services such as gas, electricity, phone and broadband. As a result, the utility is delivering real value and connectivity to its customers and nurturing long term relationships. FOCUS ON PARTNERSHIPS: UTILITIES / 19

22 FOCUS ON CUSTOMERS: AIRPORTS The 20/20 solution from Gentrack enables us to implement our growth and development strategies including the sharing of real-time flight, resource and passenger information across the entire airport community. We are thrilled to be using a modern and leading solution that has continued to evolve and support our ability to deliver an enhanced passenger experience and new levels of operational excellence. Wayne Smith, Head of IT Services, Birmingham Airport 20 / FOCUS ON PARTNERSHIPS: AIRPORTS

23 BIRMINGHAM AIRPORT With customers across Europe, Australasia, North America, South America and Asia, Gentrack continues to build its community of leading airports and civil aviation authorities using the 20/20 solution. Birmingham Airport in the UK, with over 11 million passengers per annum through its terminals, celebrated its 75 th Anniversary in Selecting Gentrack s 20/20 Airport Operational Software in 2012, Birmingham Airport has now deployed a fully integrated suite of 20/20 capabilities covering Airport Operational Database (AODB), Flight Information Display (FIDS), Resource Management (RMS), and Reporting as well as Gentrack s flagship 20/20 Aeronautical Billing solution. In recent years Birmingham Airport has experienced significant growth in aircraft movements and passengers traveling through the airport and is now the 7 th busiest airport in the UK. Airport 20/20 plays a crucial role in the airport s business, delivering improved operational efficiencies and cash flow which in turn enables the airport to focus resources on its strategic development goals. FOCUS ON PARTNERSHIPS: AIRPORTS / 21

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25 FINANCIAL STATEMENTS FINANCIAL STATEMENTS / 23

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27 AUDITOR S REPORT / 25

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29 AUDITOR S REPORT / 27

30 DIRECTORS RESPONSIBILITY STATEMENT The Directors are required to prepare financial statements for each financial year that present fairly the financial position of the Group and its operations and cash flows for that period. The Directors consider these financial statements have been prepared using accounting policies suitable to the Group s circumstances, which have been consistently applied and supported by reasonable judgements and estimates, and that all relevant financial reporting and accounting standards have been followed. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy, at any time, the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board of Directors of the Company authorised these financial statements for issue on 23 November For and on behalf of the Board of Directors: John Clifford Graham Shaw Chairman Director Date: 23 November 2016 Date: 23 November / DIRECTORS RESPONSIBILITY STATEMENT

31 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2016 ($000) NOTES Revenue 3 52,734 42,069 Expenditure 4 (36,007) (27,605) Profit before depreciation, amortisation, financing and tax 16,727 14,464 Depreciation and amortisation 5 (2,377) (2,302) Profit before financing and tax 14,350 12,162 Finance income Finance expense (1,395) (14) Net finance (expense)/income 6 (1,208) 808 Profit before tax 13,142 12,970 Income tax expense 7 (3,534) (3,605) Profit attributable to the shareholders of the company 9,608 9,365 OTHER COMPREHENSIVE INCOME Translation of international subsidiaries Total comprehensive income for the year 9,686 9,406 EARNINGS PER SHARE FROM PROFIT ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT (EXPRESSED IN DOLLARS PER SHARE) Basic and diluted earnings per share 9 $0.13 $0.13 The accompanying notes form part of these financial statements. STATEMENT OF COMPREHENSIVE INCOME / 29

32 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2016 ($000) NOTES CURRENT ASSETS Cash and cash equivalents 13 18,818 12,372 Trade and other receivables 14 9,791 10,522 Total current assets 28,609 22,894 NON-CURRENT ASSETS Property, plant and equipment 15 1, Goodwill 16 40,277 40,277 Intangibles 17 16,366 18,216 Deferred tax asset 8 1, Total non-current assets 59,581 60,147 Total assets 88,190 83,041 CURRENT LIABILITIES Trade payables and accruals 18 1,570 1,556 Deferred revenues 8,479 5,592 GST payable Employee entitlements 19 3,299 1,709 Income tax payable 972 1,345 Total current liabilities 14,821 10,450 NON-CURRENT LIABILITIES Employee entitlements Deferred tax liabilities 8 2,072 2,805 Total non-current liabilities 2,406 3,087 Total liabilities 17,227 13,537 Net assets 70,963 69,504 EQUITY Share capital 10 60,396 60,396 Share based payment reserve Foreign currency translation reserve Retained earnings 12 10,266 8,946 Total shareholders equity 70,963 69,504 The accompanying notes form part of these financial statements. 30 / STATEMENT OF FINANCIAL POSITION

33 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2016 SHARE BASED SHARE PAYMENT RETAINED TRANSLATION TOTAL ($000) NOTES CAPITAL RESERVE EARNINGS RESERVE EQUITY Balance as at 1 October , , ,696 Profit attributable to the shareholders of the company , ,365 Other comprehensive income Total comprehensive income for the year, net of tax , ,406 TRANSACTIONS WITH OWNERS: Dividends paid (5,598) -. (5,598) Balance as at 30 September , , ,504 Balance as at 1 October , , ,504 Profit attributable to the shareholders of the company , ,608 Other comprehensive income Total comprehensive income for the year, net of tax -. 9, ,686 TRANSACTIONS WITH OWNERS: Share based payments Dividends paid (8,288) -. (8,288) Balance at 30 September , , ,963 The accompanying notes form part of these financial statements. STATEMENT OF CHANGES IN EQUITY / 31

34 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2016 ($000) NOTES CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 55,242 44,753 Payments to suppliers and employees (33,832) (27,716) Income tax paid (5,651) (3,813) Net cash inflow from operating activities 27(a) 15,759 13,224 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (745) (391) Purchase of intangibles (165) -. Net cash outflow from investing activities (910) (391) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of borrowings -. (6) Net interest received Dividends paid (8,288) (5,598) Net cash (outflow) from financing activities (8,101) (5,466) Net increase in cash held 6,748 7,367 Foreign currency translation adjustment (302) (244) Cash at beginning of the financial year 12,372 5,249 Closing cash and cash equivalents 18,818 12,372 The accompanying notes form part of these financial statements. 32 / STATEMENT OF CASH FLOWS

35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Gentrack Group Limited is a limited liability company, domiciled and incorporated in New Zealand and registered under the New Zealand Companies Act The registered office of the Company is 25 College Hill, Auckland 1011, New Zealand. The financial statements presented are for Gentrack Group Limited and its subsidiaries (together the Group ) for the year ended 30 September Last year comparatives are for the year ended 30 September The consolidated financial statements of the Group for the year ended 30 September 2016 were authorised for issue in accordance with a resolution of the directors on 23 November The Group s principal activity is the development, integration, and support of enterprise billing and customer management software solutions for the utility (energy and water) and airport industries. (a) CHANGES IN ACCOUNTING POLICY The accounting policies adopted are consistent with those of the previous year. Certain comparatives have been updated to ensure consistency with current year presentation. (b) BASIS OF PREPARATION The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ( NZ GAAP ). They comply with the New Zealand Equivalents to International Financial Reporting Standards ( NZ IFRS ) and other applicable Financial Reporting Standards as appropriate to profit-oriented entities. The financial statements comply with International Financial Reporting Standards ( IFRS ). The Company is an FMC entity for the purposes of the Financial Reporting Act 2013 and Financial Markets Conduct Act 2013 and is listed on the New Zealand Stock Exchange (NZX) and the Australian Securities Exchange (ASX). Both these acts became effective for financial years beginning on or after 1 April 2014, and the Financial Reporting Act 1993 was repealed with effect from this date. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 2013, Financial Markets Conduct Act 2013 and the Companies Act Presentation currency The financial statements are presented in New Zealand dollars unless otherwise stated and all values are rounded to the nearest $1,000 (where rounding is applicable). The functional currency is New Zealand dollars ( NZD ). Use of estimate and judgements In preparing the financial statements, management has to make certain judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. The actual outcome may differ from these judgements, estimates and assumptions. Judgements, estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors, including expectations about future events, which are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below. (i) Impairment of goodwill and other assets The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(f). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to note 16 for details of these assumptions and the potential impact of changes to the assumptions. All other assets are reviewed for indicators or object evidence of impairment. If indicators or objective evidence exists, the recoverable amount is reviewed. (ii) Revenue recognition Revenue recognition involves certain revenue streams being recognised based on the stage of completion. This is discussed in more detail in note 3. (iii) Doubtful debts In providing for doubtful debts, management have used assumptions and estimates. The actual outcome may differ from the reported position. (c) BASIS OF CONSOLIDATION Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the exposure or right to variable returns from involvement with the entity and the ability to affect those returns through power over the entity. The Group recognises the fair value of all identifiable assets, liabilities and contingent liabilities of the acquired business. Goodwill is measured as the excess cost of the acquisition over the recognised assets and liabilities. When the excess is negative (negative goodwill), the amount is recognised immediately in the Statement of Comprehensive Income. NOTES TO THE FINANCIAL STATEMENTS / 33

36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued... Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Transactions eliminated on consolidation Intra-group balances and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (d) SALES TAX The Statement of Comprehensive Income and the Statement of Cash Flows have been prepared so that all components are stated exclusive of sales tax, except where sales tax is not recoverable. All items in the Statement of Financial Position are stated net of sales tax with the exception of receivables and payables, which include sales tax invoiced. Commitments and contingencies are disclosed net of the amount of sales tax recoverable from, or payable to, the taxation authority. Sales tax includes Goods and Services Tax (GST) and Value Added Tax (VAT) where applicable. (e) FOREIGN CURRENCY TRANSLATIONS 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 ($) (the presentation currency ), which is the Company s functional currency. 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. Foreign exchange gains and losses are presented in the Statement of Comprehensive Income within net finance costs. The Group translates the results of its foreign operations from their functional currencies to the presentation currency of the Group using the closing exchange rate at balance date for assets and liabilities and the average monthly exchange rates for income and expenses. The difference arising from the translation of the Statement of Financial Position at the closing rates and the Statement of Comprehensive Income at the average rates is recorded within the foreign currency translation reserve. (f) IMPAIRMENT At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell or the asset s value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (g) LOANS AND RECEIVABLES The Group classifies its financial assets as loans and receivables. Management determines the classifications of its financial assets at initial recognition. The Group s loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date. These are classified as non-current assets. The Group s loans and receivables comprise trade and other receivables and cash and cash equivalents in the Statement of Financial Position. Loans and receivables are carried at amortised cost using the effective interest method. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of trade receivables is described in Note 14. (h) PROVISIONS The Group recognises a provision when it has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense in the Statement of Comprehensive Income. 34 / NOTES TO THE FINANCIAL STATEMENTS

37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued... (i) STANDARDS OR INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE AND RELEVANT TO THE GROUP The International Accounting Standards Board has issued a number of standards, amendments and interpretations which are not yet effective and which may have an impact on the Group s financial statements. These are detailed below. The Group has not applied these in preparing these financial statements and will apply each standard in the period in which it becomes mandatory: (a) NZ IFRS 9 Financial Instruments Classification and Measurement This standard addresses the classification, measurement and de-recognition of financial assets, financial liabilities, impairment of financial assets and hedge accounting, and will be effective for the year ended 30 September (b) NZ IFRS 15 Revenue from Contracts with Customers This standard establishes the framework for revenue recognition, and will be effective for the year ended 30 September (c) NZ IFRS 16 Leases This standard requires a lessee to recognise a lease liability reflecting the future lease payments and a right-of-use asset for substantively all lease contracts, and will be effective for the year ended 30 September The Group has not yet assessed the potential impact of the above standards. NOTES TO THE FINANCIAL STATEMENTS / 35

38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER OPERATING SEGMENTS An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the entity s Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Operating segments, are aggregated for disclosure purposes where they have similar products and services, production processes, customers, distribution methods and regulatory environments. The Group currently operates in two business segments, utility billing software and airport management software, as at 30 September These segments have been determined based on the reports reviewed by the Board (Chief Operating Decision Maker) to make strategic decisions. The assets and liabilities of the Group are reported to and reviewed by the Chief Operating Decision Maker in total and are not allocated by business segment. Therefore, operating segment assets and liabilities are not disclosed. ($000) UTILITY AIRPORT TOTAL GROUP FOR THE YEAR ENDED 30 SEPTEMBER 2016 External revenue 44,770 7,964 52,734 Total expenditure (30,771) (5,236) (36,007) Segment contribution before depreciation, amortisation, financing and tax 13,999 2,728 16,727 Depreciation and amortisation (2,377) Finance income 187 Finance expense (1,395) Income tax expense (3,534) Profit attributable to the shareholders of the company 9,608 GROUP FOR THE YEAR ENDED 30 SEPTEMBER 2015 External revenue 35,621 6,448 42,069 Total expenditure (23,159) (4,446) (27,605) Segment contribution before depreciation, amortisation, financing and tax 12,462 2,002 14,464 Depreciation and amortisation (2,302) Finance income 822 Finance expense (14) Income tax expense (3,605) Profit attributable to the shareholders of the company 9,365 ($000) REVENUE BY DOMICILE OF ENTITY Australia 25,436 19,849 New Zealand 27,298 22,220 52,734 42,069 REVENUE BY DOMICILE OF CUSTOMER Australia 26,618 21,891 New Zealand 9,939 10,133 United Kingdom 12,543 7,152 Rest of World 3,634 2,893 52,734 42,069 Revenues of approximately $14,395,000 (2015: $4,987,000) are derived from single customers and their subsidiaries from which revenue is 10% or more of the Group s revenue. These revenues are attributable to the utilities business segment. 36 / NOTES TO THE FINANCIAL STATEMENTS

39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER REVENUE Revenues are recognised at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on the historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: SOFTWARE LICENCE FEE REVENUE Revenue from licence fees due to software sales is recognised on the transferring of significant risks and rewards of control of the licensed software under agreement between the Company and the customer. IMPLEMENTATION AND CONSULTING SERVICES REVENUE FOR LICENSED SOFTWARE Revenue from implementation and consulting services attributable to licensed software is recognised based on the stage of completion, typically in accordance with the achievement of contract milestones and/or hours expended, and forecast. POST SALES CUSTOMER SUPPORT REVENUE FOR LICENSED SOFTWARE Post sales customer support ( PSCS ) revenue for licensed software comprises fees for ongoing upgrades, minor software revisions and helpline support. PSCS revenue is allocated between annual fees for helpline support and fees for rights of access to ongoing upgrades and minor software patches. At each reporting date, the unearned portion of the revenue is assessed and deferred to be recognised over the period of service. PROJECT SERVICES REVENUE Revenue from project services agreements is based on the stage of completion, typically in accordance with the achievement of contract milestones and/or hours expended, and forecast. DEFERRED REVENUES Consideration received prior to the goods or service being rendered is recognised in the Statement of Financial Position as deferred revenues. ACCRUED INCOME Revenue for which goods or services have been rendered but invoices have not been issued is recognised within the Statement of Financial Position as accrued income and included within trade and other receivables. GOVERNMENT GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. When a grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. ($000) OPERATING REVENUE: Recurring 14,424 12,993 Non-recurring 3,626 3,467 Professional services 34,172 25,240 52,222 41,700 OTHER INCOME: Government grants Total revenue 52,734 42,069 Government grants revenue relates to a 3 year agreement for Technology Development Grant Funding with Callaghan Innovations. This is effective from 1 January 2014 to 31 December NOTES TO THE FINANCIAL STATEMENTS / 37

40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER EXPENDITURE ($000) Profit before income tax includes the following specific expenses: Employee entitlements 24,813 19,156 Superannuation costs Staff recruitment Third party customer-related costs 1,882 1,984 Occupancy costs 1,659 1,706 Travel related 1, Advertising and marketing Consulting and subcontracting 1, Communication and office administration Doubtful debts 299 (36) Directors fees Auditors remuneration (1) Other operating expenses Total expenditure 36,007 27,605 RESEARCH AND DEVELOPMENT EXPENSES Expenditure on research and development 2,567 1,887 Research and development expenses include payroll overhead, employee benefits and other employee-related costs associated with product development. Technological feasibility for software products is generally reached shortly before products are released for commercial sale to customers. Costs incurred after technological feasibility is established are not material, and accordingly, all research and development costs are expensed when incurred. Research and development expenses include a portion of employee costs shown above, directly attributable to research and development activities. This excludes expenses relating to customer paid development. ($000) (1) AUDITORS REMUNERATION KPMG audit fees KPMG review fees KPMG taxation KPMG other services Total fees paid to auditors In 2016, other services of $15,000 included work undertaken in relation to transfer pricing matters and other advisory work (2015: $35,000). 5 DEPRECIATION AND AMORTISATION ($000) Depreciation Amortisation 2,015 2,017 2,377 2, / NOTES TO THE FINANCIAL STATEMENTS

41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER NET FINANCE COST Finance income comprises interest income, changes in the fair value of financial assets at fair value through the Statement of Comprehensive Income, foreign currency gains, and gains on hedging instruments that are recognised in the Statement of Comprehensive Income. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, foreign currency losses, changes in the fair value of the financial assets at fair value through the Statement of Comprehensive Income, impairment losses recognised on the financial assets (except for trade receivables), and losses on hedging instruments that are recognised in the Statement of Comprehensive Income. All borrowing costs are recognised in the Statement of Comprehensive Income using the effective interest method. ($000) FINANCE INCOME Interest income Foreign exchange gains realised FINANCE EXPENSES Interest expense -. (14) Foreign exchange losses realised (348) -. Foreign exchange losses unrealised 1 (1,047) (172) (1,395) (186) Net finance (expense)/income (1,208) Foreign exchange losses included a $623,000 (2015: $130,000) unrealised loss on intercompany loans. 7 INCOME TAX EXPENSES In the Statement of Comprehensive Income the income tax expense comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related benefits will be realised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax liabilities 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 tax assets and liabilities relate to income tax levied by the same taxation authority on either the same taxable entity or different entities where there is an intention to settle the balance on a net basis. Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay the related dividend is recognised. The Group does not distribute non-cash assets as dividends to its shareholders. NOTES TO THE FINANCIAL STATEMENTS / 39

42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER INCOME TAX EXPENSES (CONTINUED) ($000) (a) RECONCILIATION OF EFFECTIVE TAX RATE Profit before tax for the year 13,142 12,970 Income tax using the Company s domestic tax rate of 28% 3,680 3,632 Non-deductible expense Difference in tax rates of overseas subsidiaries (Over) provided in prior periods (195) (73) Income tax expense 3,534 3,605 ($000) (b) INCOME TAX CHARGE IS REPRESENTED AS FOLLOWS: Tax payable in respect of current year 5,393 4,665 Deferred tax benefit (1,664) (987) (Over) provided in prior periods (195) (73) 3,534 3,605 8 DEFERRED TAX ASSET/(LIABILITY) ($000) RECOGNISED DEFERRED TAX ASSETS Deferred tax assets are attributable to the following: Trade and other receivables (99) (219) Deferred revenue Provisions including employee entitlements and doubtful trade debtors 1, Other Total deferred tax asset 1, RECOGNISED DEFERRED TAX LIABILITIES Deferred tax liabilities are attributable to the following: Intangible assets (2,072) (2,805) Total deferred tax liabilities (2,072) (2,805) The movement in temporary differences has been recognised in the Statement of Comprehensive Income. Deferred tax has been recognised at a rate at which they are expected to be realised; 28% for New Zealand entities and 30% for Australian entities. 40 / NOTES TO THE FINANCIAL STATEMENTS

43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER DEFERRED TAX ASSET/(LIABILITY) (CONTINUED) Movement in temporary timing differences during the year: TEMPORARY TEMPORARY BALANCE MOVEMENTS BALANCE MOVEMENTS BALANCE ($000) 1 OCT 2014 RECOGNISED 30 SEP 2015 RECOGNISED 30 SEP 2016 Trade and other receivables (332) 113 (219) 120 (99) Intangible assets (3,284) 479 (2,805) 734 (2,071) Deferred revenue Provisions including employee entitlements and doubtful trade debtors ,024 Other (72) (20) -. Total (2,809) 987 (1,822) 1,664 (158) IMPUTATION CREDITS ($000) NZ Imputation credits available for use in subsequent reporting periods 3,384 1,781 9 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 net profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares on issue during the year, excluding shares purchased and held as treasury shares. Diluted EPS is determined by adjusting the net profit attributable to ordinary shareholders and the weighted average number of ordinary shares on issue for the effects of all dilutive potential ordinary shares, which comprise performance share rights grnted to employees. Potential ordinary share are treated as dilutive when, and only when, their conversion to ordinary shares would decrease EPS or increase the profit per share. ($000) Profit attributable to the shareholders of the company ($000) 9,608 9,365 Basic weighted average number of ordinary shares issued (000) 72,699 72,699 Basic and diluted earnings per share (dollars) CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Where any Group company purchases the Company s equity share capital (treasury shares), the consideration paid is deducted from equity attributable to the Company s equity holders until the shares are cancelled or transferred outside the Group. SHARES ISSUED SHARE CAPITAL (000) Ordinary Shares 72,699 72,699 60,396 60,396 Ordinary shares are fully paid and have no par value. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company, and rank equally with regard to the Company s residual assets. NOTES TO THE FINANCIAL STATEMENTS / 41

44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER EMPLOYEE SHARE PLAN The Group operates an equity based share rights scheme for selected senior employees. If the unlisted performance share rights vest, ordinary shares will be issued to the employees at or around the vesting date. The issue price of the shares was determined by reference to the 10 trading day volume weighted average price of shares traded on the NZX immediately following the announcement of the annual financial results to which the commencement date of the share rights performance period relates. Vesting is conditional on the completion of the necessary years service to the vesting date and performance goals over the vesting period. The share rights scheme is an equity settled scheme and is measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share based payments is expensed over the vesting period, based on the Group s estimate that the shares will vest. These options were valued using the Black Scholes valuation model and the option cost for the year ending 31 March 2016 of $61,000 has been recognised in the Group s Statement of Comprehensive Income for that period (2015: Nil). Details of the unlisted performance share rights scheme are: Commencement date 2 May 2016 Issue price Vesting date 31 January 2019 Granted 152,400 % of shares vested 0% The share rights scheme commenced in May 2016, so there is no prior year comparative information. 12 RETAINED EARNINGS ($000) Opening balance 8,946 5,179 Profit for the year 9,608 9,365 Dividend paid (8,288) (5,598) Balance at 30 September 10,266 8, CASH AND CASH EQUIVALENTS Comprise cash in hand, deposits held at call with banks, other short-term and highly liquid investments with original maturities of three months or less. ($000) Bank balances 18,813 12,367 Cash on hand TRADE AND OTHER RECEIVABLES 18,818 12,372 The Group recognises trade and other receivables initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The carrying amount of an asset is reduced through the use of a provision account, and the amount of the loss is recognised in the Statement of Comprehensive Income. When a receivable is uncollectible, it is written off against the provision account for receivables. Subsequent recoveries of amounts previously written off are credited against the Statement of Comprehensive Income. ($000) Trade debtors 5,921 6,401 Provision for doubtful debts (115) (395) Provision for warranty claims (15) (15) Work in progress/accrued debtors 3,235 3,276 Sundry receivables and prepayments 765 1,255 9,791 10, / NOTES TO THE FINANCIAL STATEMENTS