Contents. Directors Report 3 5. Statement of Financial Position 6 7. Statement of Comprehensive Income 8 9. Statement of Cash Flows 10

Transcription

1 FINANCIAL STATEMENTS MARCH 2018

2 Contents Directors Report 3 5 Statement of Financial Position 6 7 Statement of Comprehensive Income 8 9 Statement of Cash Flows 10 Statement of Changes in Equity 11 Notes to the Financial Statements Corporate Information 47 Auditor s Report

3 Directors Report The Directors are pleased to submit to shareholders their report and financial statements for the year ended 31 March Principal Activities Enprise Group Limited (Enprise) currently has one operating division, Enprise Solutions, which is a solution provider for MYOB Enterprise software in Australia and New Zealand. Enprise has a joint venture, Datagate Innovation Limited (Datagate), an early stage business that provides online reporting and billing portals under a Software-as-a-Service (SaaS) model for resellers of Telco/Utility services and hosted service providers. Enprise invested in another joint venture, Kilimanjaro Consulting Pty Limited (Kilimanjaro) in September Kilimanjaro is the largest MYOB enterprise partner in Australia. Significant Changes in the State of Affairs Enprise invested $1 million in cash and issued $2.1 million worth of shares in exchange for a 47.09% ownership of Kilimanjaro Consulting Pty Limited (Kilimanjaro) on 29 September The Enprise shares were issues at $1.39 per share. Kilimanjaro s principal activities are similar to Enprise in that it is a solution provider for MYOB Enterprise software in Australia. Directors Mr Lindsay Phillips (appointed 1 December 2013) Mr George Cooper (appointed 10 April 2012) Mr Nicholas Paul (appointed 1 December 2015) Mr Ronald Baskind (appointed 31 January 2018) Remuneration of Directors The remuneration of the Directors for the year ended 31 March 2018 is set out below: Group $000 $000 Salaries, bonuses and commissions Other benefits Directors fees Total compensation George Cooper Lindsay Phillips Nicholas Paul

4 Rounding of Amounts Amounts in the directors report and financial statements have been rounded off to the nearest thousand dollars. Review of Operations and Outlook Enprise is leveraging its position as the only MYOB EXO and MYOB Advanced reseller with offices in both New Zealand and Australia, to target trans-tasman businesses. Enprise is well positioned to take advantage of the trend towards cloud while still having a stable, well supported, secure and continually developed on-premises offering. The Australian sales increased by 8.6% to $2.0 million, whilst New Zealand sales increased by 7.7% to $7.0 million. Profitability from operations before income tax decreased by 0.2% to $814,000. Net tangible assets per share increased 42% to 21 cents per share. The company paid dividends during the year of 3.5 cents per share in July 2017 and 1 cent per share in January The total dividend for the year was $339,284 of which $46,326 was reinvested through the dividend reinvestment plan. Datagate had twenty seven paying customers at 31 March 2018 representing annualised recurring revenue of $344,856, a 55% increase from 31 March The Datagate rights issue in November 2017 was over-subscribed. The total cash raised by Datagate was $685,959 made up entirely of external investors. Enprise chose not to subscribe and consequently Enprise stake in Datagate reduced to 39.29%. If Enprise 1,708,333 shares in Datagate were valued at the rights issue price of $1.50 per share, the value of Enprise Datagate investment would be $2,562,500. The actual carrying value of Datagate is $827,995 after a charge for the year of $408,611. The difference between the carrying value and the value at the last investment round is $1,734,505. Enprise obtained a 47.09% share of Kilimanjaro in September Kilimanjaro is the largest reseller of MYOB Exo and Advanced in Australia. This was a strategic addition to the portfolio to gain synergies due to the similarities in the business models and to expand Enprise reach in Australia. To date synergies have already been gained by merging the Finance functions and Kilimanjaro utilising the cloud infrastructure resources that Enprise already possesses. Future synergies are in progress for the consulting and sales divisions of the business. The initial value of the investment was $3,168,400. The carrying value of Kilimanjaro at year end was $2,871,339 after a charge for the year of $297,061. At the time of purchase the Company also granted a put option for the remaining 52.71% for $3,967,964 (2,854,650 ENS shares). The option can be exercised between 1 September 2019 and 30 August In December 2017 Enprise obtained a 14.6% holding in isell, which sells a cloud-based quoting system used by the IT reseller market in Australia, New Zealand and the UK. isell shares the same Managed Service Provider market as Datagate and the two entities could gain synergies in their sales and marketing functions. The initial value of the investment was $736,833. In November 2017 Enprise paid $223,737 for a 6.49% holding in Vadacom, a cloud based VOIP phone and virtual PABX provider. Enprise has a similar target market as Vadacom and both entities have and will continue to leverage off this. Enprise is actively exploring other opportunities in the SME software market. Donations Enprise made donations during the year of nil (2017: $870). 4

5 Directors Interests Number of Shares Lindsay Phillips* 1,629,682 George Cooper 414,974 Nicholas Paul 39,600 Ronald Baskind 717,978 Top 10 Shareholdings Holding % New Zealand Central Securities Depository Ltd 1,961, Nightingale Partners Pty Ltd* 1,189, Red Cow Investments Pty Ltd~ 717, Net Power Solutions Limited 611, Awatea Trust 422, Cooper Trust 320, Amely Zaininger 301, Ironwood Investments Pty Ltd* 237, Anjelco Investments Pty 210, Bernard Israel Fridman 181, *Related parties to Lindsay Phillips ~Related party to Ronald Baskind The directors report is signed for and on behalf of the Board, and was authorised for issue on the date below. Nicholas Paul George Cooper Director Director 31 July July

6 Statement of Financial Position As at 31 March 2018 Note $000 $000 ASSETS Current Assets Cash and cash equivalents 1, Trade and other receivables 11 1,191 1,226 Related party receivables Lock Finance 3 57 Term deposit Staff receivables 51 8 Total Current Assets 2,810 2,049 Non-Current Assets Investments in equity accounted joint venture 12(a),(b) 3,699 1,237 Investments in equity accounted associate 12(c) Investments Property, plant and equipment Staff receivables 86 9 Deferred tax asset Intangible assets 14 1,760 1,825 Total Non-Current Assets 7,033 3,500 TOTAL ASSETS 9,843 5,549 LIABILITIES Current Liabilities Trade and other payables 15 1,135 1,139 Provisions Term loan Other liabilities Total Current Liabilities 1,647 1,347 Non-Current Liabilities Other liabilities Term loan Deferred tax liability Total Non-Current Liabilities TOTAL LIABILITIES 2,339 1,437 The above statement of financial position should be read in conjunction with the accompanying notes. 6

7 Statement of Financial Position (cont) As at 31 March 2018 Note $000 $000 EQUITY Equity attributable to equity holders of the parent Contributed equity 17 6,566 2,936 Retained earnings 938 1,176 TOTAL EQUITY 7,504 4,112 TOTAL EQUITY AND LIABILITIES 9,843 5,549 Contributed equity 17 2,936 2,936 For and on behalf of the Board, who authorise the issue of these financial statements on 31 July 2018: Nicholas Paul George Cooper Director Director 31 July July 2018 The above statement of financial position should be read in conjunction with the accompanying notes. 7

8 Statement of Comprehensive Income For the year ended 31 March 2017 Note $000 $000 Continuing operations Revenue Software and licences 4,394 4,262 Services and support 4,513 3,998 Other revenue ,950 8,345 Cost of Goods Sold (3,402) (3,222) Advertising and marketing expense (72) (90) Employee benefits expense 7(d) (3,352) (3,100) Professional fees 7(b) (241) (183) Travel expenses (192) (165) Other operating expenses 7(a) (664) (631) Finance expense (90) (41) Net gain/(loss) on foreign exchange (8) 3 Depreciation & amortisation 7(c) (115) (100) Profit from operations before income tax Share of loss from equity accounted investment, net of tax 12 (707) (411) Other non-operating expenses (25) - Profit before tax Income (tax)/benefit Net profit from continuing operations Profit for the period Other comprehensive income - - Total comprehensive income for the period The above statement of comprehensive income should be read in conjunction with the accompanying notes. 8

9 Statement of Comprehensive Income (cont) Note $000 $000 Profit (Loss) attributable to: Owners of the Parent Profit for the period Total comprehensive income (loss) attributable to: Owners of the Parent Total comprehensive income for the year Earnings per share attributable to the ordinary equity holders of the company: 10 Basic earnings per share Diluted earnings per share Basic earnings per share from continuing operations * Diluted earnings per share from continuing operations * The above statement of comprehensive income should be read in conjunction with the accompanying notes. 9

10 Statement of Cash Flows For the year ended 31 March 2018 Note $000 $000 Cash flows from operating activities Receipts from customers (inclusive of GST) 8,658 9,249 Payments to suppliers and employees (inclusive of GST) (8,024) (8,293) Interest paid (33) (2) Interest received Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment (65) (15) Purchase of intangibles - - Loans given to staff (127) (25) Loans repaid by staff 8 15 Purchase of Kilimanjaro (1,000) - Purchase of Zhik (97) - Purchase of Vadacom (224) - Purchase of isell (738) - Proceeds for sale of Enprise Software - 51 Investments in joint venture - (250) Net cash outflow on disposal of subsidiary following loss of control - - Net cash flows used in investing activities (2,243) (224) Cash flows from financing activities Dividends paid (340) (335) Proceeds from issue of shares 1, Share buyback - (80) ASB loan 1,000 - ASB loan repayments (51) Lock Finance 54 1 Insurance loan - (35) Term deposit Net cash flows used in financing activities 2,278 (256) Net increase/(decrease) in cash and cash equivalents Net foreign exchange differences (10) (6) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 1, The above statement of cash flows should be read in conjunction with the accompanying notes. 10

11 Statement of Changes in Equity Noncontro 2017 lling Share Retained intere Total capital earnings st equity Group $000 $000 $000 $000 Balance at 1 April , ,677 Net profit / (loss) for the period: Other comprehensive income Total comprehensive income for the period Transactions with owners, recorded directly in equity 113 (335) - (222) Balance at 31 March ,936 1,176-4,112 Noncontro 2018 lling Share Retained intere Total capital earnings st equity Group $000 $000 $000 $000 Balance at 1 April ,936 1,176-4,112 New shares issued 3, ,630 Net profit / (loss) for the period: Other comprehensive income Total comprehensive income for the period Dividends paid - (339) - (339) Balance at 31 March , ,504 The above statement of changes in equity should be read in conjunction with the accompany notes. 11

12 Notes to the Financial Statements For the year ended 31 March Corporate information The financial statements represented are those for the Enprise Group Limited. Enprise Group Limited is a company limited by shares incorporated and domiciled in New Zealand whose shares are publicly traded on the New Zealand Alternative Market (NZAX). The nature of the operations and principal activities of the Group are described in the Directors Report section of this annual report. 2 Summary of significant accounting policies Table of Contents (a) Basis of preparation (b) Changes in accounting policies (c) Statement of compliance (d) New accounting standards and interpretations (e) Basis of consolidation (f) Investment in subsidiaries (g) Investment in equity accounted associates refer note (h) Segment reporting refer note (i) Foreign currency translation (j) Cash and cash equivalents (K) Trade and other receivables refer note (l) Property, plant and equipment refer note (m) Leases refer note (n) Intangibles refer note (o) Trade and other payables refer note (p) Provisions and employee benefits refer note (q) Revenue recognition refer note (r) Income tax and other taxes refer note (s) Earnings per share refer note (t) Impairment of non-financial assets (u) Contributed equity refer note (v) Discontinued operation (w) Classification of investment (x) Available for sale investment carried at fair value - refer note

13 (a) Basis of preparation The financial statements have been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets as described in the accounting policies. The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated. (b) Changes in accounting policies All policies have been applied on a basis consistent with the previous year. (c) Statement of compliance Enprise Group Limited is a FMC Reporting Entity under the Financial Markets Conduct Act 2013 and the Financial Reporting Act 2013 and its financial statements comply with these acts. The company is listed on the New Zealand Stock Exchange Alternate Market. The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ( NZ GAAP ). The financial statements comply with New Zealand equivalents to International Financial Reporting Standards ( NZ IFRS ), as appropriate for profit-oriented entities. They also comply with International Financial Reporting Standards ( IFRS ). (d) New accounting standards and interpretations Standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 31 March These are outlined in the table below. Reference Title Summary of requirements Effective date periods beginning on or after NZ IFRS 9 NZ IFRS 15 Financial Instruments: Classification and Measurement This standard includes a new framework for classification and measurement of financial instruments and a forward-looking expected-loss impairment model. It requires all financial assets to be: (a) Classified on the basis of the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. (b) Initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs (c) Subsequently measured at amortised cost or fair value. Revenue from The core principle of the Standard is Contracts with to recognise revenue for the amount Customers of consideration due to an entity in exchange for goods and services provided to the customer. This is done following a 5 step process: (1) Identify the contract with the customer (2) Identify the performance obligations in the contract (3) Determine the transaction price (4) Allocate the transaction price to the performance obligations in 13 1 January January 2018 Impact on Group financial report Due to the nature of the Group's financial assets and liabilities the introduction of a new classification (and associated measurement) framework is not expected to have a material impact on the financial instruments of the Group. The forward-looking impairment requirements are also unlikely to materially impact the financial statements as extended credit terms are rarely provided and the Group has not had a significant history of bad debts in the past. The Group also has extensive credit control policies and procedures in place that ensure that credit is only provided to good quality customers. The Group has commenced a NZ IFRS 15 implementation project by reviewing existing and planned sales contracts. Software revenue will change to becoming recognised net of cost of goods sold. This will have a significant impact on Sales but no impact on Gross Profit and Total Comprehensive Income. The effect on consulting revenue recognition is immaterial as revenue recognition occurs in Application date for Group* 1 April April 2018

14 the contract and (5) Recognise revenue when (or as) the entity satisfies a performance obligation by transferring control of an asset to a customer. This may be at a point in time or over time. The standard is expected to have a significant impact on the timing of revenue recognition for the software industry. NZ IFRS 16 Leases NZ IFRS 16 removes the classification of leases as either operating or finance leases for the lessee effectively treating all leases as finance leases. Lessor accounting remains similar to current practice i.e. lessors continue to classify leases as finance and operating leases. Measures such as reported EBITDA will improve because what are currently accounted for as operating lease expenses will become depreciation and interest charges. 1 January 2019 accordance with the defined deliverables in the contract and there are typically few implementation projects that are unfinished at year end. Unfinished implementation projects at year end will be reviewed to assess whether revenue recognition is in accordance with the defined deliverables in the contract. The Group has a number of 1 April 2019 lease commitments which will be required to be capitalised on the statement of financial position when the new standard is introduced. If NZ IFRS 16 were introduced at the current reporting date the leasing asset and associated liability would be a maximum of the net present value of the commitments disclosed in note 21. The rent expense will be replaced by interest expense and depreciation relating to the lease liability and asset. The net impact on Total Comprehensive Income will be positive but immaterial. (e) Basis of consolidation The consolidated financial statements of Enprise Group Limited ( the Group ) comprise the financial statements of the parent and its subsidiaries (as outlined in note 19) as at 31 March each year. Subsidiaries are all entities over which the parent has control. Control is obtained when the parent has power over the investee, is exposed to or has rights to variable returns from its investment and has the ability to use its power to affect returns. Subsidiaries are fully consolidated from the date on which control is obtained by the Group. The acquisition of subsidiaries is accounted for using the acquisition method. The acquisition method involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquirer. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values. The difference between the above items and the fair value of the consideration is goodwill. (f) Investment in subsidiaries Subsidiary 31 March March 2017 Enprise Australia Pty Limited 100% 100% Enprise Solutions Limited 100% 100% Enprise Limited 100% 100% GlobalBizpro Limited 100% 100% 14

15 (g) Investment in equity accounted investments refer note 12 Joint Venture Percentage Held Balance Date Datagate Innovation Limited 39.25% 31 March Kilimanjaro Consulting Pty Limited 47.09% 30 June Associate Percentage Held Balance Date isell Pty Limited 14.06% 30 June A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results and assets and liabilities of the joint venture are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the joint venture. An investment in a joint venture is accounted for using the equity method from the date on which the investee becomes a joint venture. On acquisition of the investment in a joint venture, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of NZ IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with NZ IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with NZ IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When the Group reduces its ownership interest in a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with a joint venture of the Group, profits and losses resulting from the transactions with the joint venture are recognised in the Group's consolidated financial statements only to the extent of interests in the joint venture that are not related to the Group. Enprise reduced its equity stake in Datagate on 5 November 2015 to 69.75%. Datagate became a joint venture on 11 December 2015 when a further 569,000 shares were issued in conjunction with a Datagate shareholders agreement resulting in the Company losing control but maintaining joint control. This triggered a fair value adjustment to the carrying value of Enprise s investment in Datagate. The capital raising took place at $1.00 per share, valuing the Company s equity interest at $1,500,000. On 4 th February 2016 a further 242,000 shares were issued in Datagate reducing the Enprise share to 50.65%. The company later reduced its equity stake in Datagate on 1 December 2016 when a capital raising took place at $1.20 per share, valuing Enprise s Datagate shares at $2,050,000. On 23 December 2016 the capital raising was completed, the total cash raised in December 2016 was $1,042,794, reducing Enprise s share to 44.19%. Enprise reduced its equity stake in Datagate in November 2017 when a capital raising took place at $1.50 per share, valuing Enprise s Datagate shares at $2,562,500. On 22 November 2017 when the capital raising was completed, Enprise reduced its equity stake in Datagate to 39.25%. The Company obtained a 47.09% share of Kilimanjaro in September The carrying value of Kilimanjaro at year end was $2,871,339 after a charge for the year of $297,061. At the time of purchase the Company also granted a put option for the remaining 52.71% for $3,967,964 (2,854,650 ENS shares). The option can be exercised between 1 15

16 September 2019 and 30 August Kilimanjaro is the largest reseller of MYOB Exo and Advanced in Australia. This was a strategic addition to the portfolio to gain synergies due to the similarities in the business models and to expand Enprise reach in Australia. The Company obtained a 14.6% holding in isell in December The carrying value of isell at year end was $738,471 after a charge for the year of $739. isell is a software company that sells a cloud-based quoting system used by the IT reseller market in Australia, New Zealand and the UK. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of equity accounted associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. (h) Segment reporting refer note 5 A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different to those of other operating business segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. (i) Foreign currency translation (i) Functional and presentation currency Both the functional and presentation currency of Enprise Group Limited is New Zealand dollars ($). The subsidiaries and joint venture s functional currency is the local currency which is translated to presentation currency (see below). (ii) Transactions & balances Subsidiary/Joint Venture Functional Currency Presentation Currency Enprise Australia Pty Limited Australian dollars ($) New Zealand dollars ($) Enprise Solutions Limited New Zealand dollars ($) New Zealand dollars ($) Enprise Limited New Zealand dollars ($) New Zealand dollars ($) GlobalBizpro Limited New Zealand dollars ($) New Zealand dollars ($) Datagate Innovation Limited New Zealand dollars ($) New Zealand dollars ($) Kilimanjaro Consulting Pty Limited Australian dollars ($) New Zealand dollars ($) Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. (iii) Translation of Group Companies functional currency to presentation currency The results of the subsidiaries are translated into New Zealand dollars as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. (j) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise of cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. 16

17 (k) Trade and other receivables refer note 11 Trade receivables, which generally have day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Company will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 90 days overdue are considered objective evidence of impairment. (l) Property, plant and equipment refer note 13 Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. The cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in the statement of comprehensive income as incurred. Depreciation is calculated on a diminishing value basis over the estimated useful life of the specific assets: Computer equipment 20% to 50% Office furniture and equipment 10% to 50% The assets residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use. (m) Leases refer note 21 Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. (n) Intangibles refer note 14 Goodwill Goodwill that arises on the acquisition of subsidiaries are initially measured at cost of the business combination, being the excess of the consideration transferred over the fair value of the Subsidiaries net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at the amount recognised at acquisition date less any accumulated impairment losses. Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. See note 14. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated intangible assets, is recognised in the statement of comprehensive income as incurred. Except for goodwill, intangible assets are amortised on a straight-line basis in the statement of comprehensive income over their estimated useful lives, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: Software licenses 3-5 years Customer relationships 5 years Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 17

18 Research and development costs Research costs are expensed as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. Capitalised development expenditure is measured at cost less accumulated depreciation and accumulated impairment losses. (o) Trade and other payables refer note 15 Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these services. The amounts are unsecured and are usually paid within 30 days of recognition. (p) Provisions and employee benefits refer note 16 Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management s best estimate of the expenditure required to settle the present obligation at the reporting date. Employee leave benefits Wages, salaries, annual leave Liabilities for wages and salaries, including non-monetary benefits, and annual leave are recognised in respect of employees services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. (q) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. 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: (i) Rendering of services Revenue includes software implementation and support services. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: The amount of revenue can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the Group; The stage of completion of the transaction at the balance date can be measured reliably; and The cost incurred for the transaction and the costs to complete the transaction can be measured reliably Contract revenue is also recognised under the percentage of completion method. A percentage of the revenue is recognised in the accounting period in which the services are rendered. The stage of completion is assessed by reference to surveys of work performed and delivered. When the outcome of an implementation and provisioning contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss. When the contract outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. 18

19 Contract income, which includes license fees, hosting fees and transaction fees, is recognised in the statement of comprehensive income in the accounting period in which the service is rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided. (ii) Sale of goods Revenue includes sales of software licenses. The revenue from the sale of third party software is recognised at the time of sale. Revenue from in-house developed software is recognised on acceptance by the client. The revenue from the maintenance on software developed by the Group is recognised over the period that the maintenance applies. (iii) Interest revenue Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. (iv) Rental income Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the rental income, over the term of the lease. (r) Income tax and other taxes refer note 8 Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and unutilised tax losses to the extent that it is probable that taxable profits will be available against which those deductible temporary differences and unutilised tax losses can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Temporary differences that can reasonably be foreseen in the next accounting period have been recognised as a deferred tax asset. Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: i. when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and ii. receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and including the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. 19

20 (s) Earnings per share refer note 10 Basic earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares. Diluted earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted number of ordinary shares and dilutive potential ordinary shares. (t) Impairment of non-financial assets The carrying amounts of the Group s non-financial assets 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. Goodwill is tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit ( CGU ) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. For the purposes of impairment testing, goodwill is allocated to each of the Group s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities are assigned to those units. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. The Group performs its impairment testing as at 31 March each year using the value in use method based on expected future revenue. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Key assumptions used in determining the future cash flows from each segment over the next 5 years with a terminal value. The terminal value is based on a 2% perpetual growth rate after 5 years. These assumptions are based on continued growth in new products and services being delivered by Enprise to both new and existing customers. The Australian growth rate is higher than New Zealand as Enprise has assumed increased customer acquisition off a smaller base, therefore a higher rate as a percentage. The discount rate was estimated based on the weighted average cost of capital of similar public listed companies. 31 March 2018 Growth Rate Discount Rate Enprise Services New Zealand 5% 20% Enprise Services Australia 10% 20% 31 March 2017 Growth Rate Discount Rate Enprise Services New Zealand 5% 20% Enprise Services Australia 10% 20% Management has performed sensitivity analysis on the key assumptions and believes that no reasonably possible changes in any of the above key assumptions would cause the carrying value of goodwill to be materially lower than its recoverable amount (u) Contributed equity refer note 17 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (v) Discontinued operation refer to note 5 and 25 A discontinued operation is a component of the Group s business, the operation and cash flows of which can be clearly distinguished from the rest of the Group and which: represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to re-sale. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale. 20

21 (w) Classification of investments Financial assets The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at the initial recognition and re-evaluates this designation at every reporting date. Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at fair value through the profit and loss. Financial instruments Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. Financial assets at fair value through profit or loss are financial assets representing investments in units or convertible notes. Financial assets are designated in this category if they are managed and performance is evaluated on a fair value basis, in accordance with the Group s investment strategy. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise they are classified as noncurrent. No financial assets were impaired in profit and loss account for the year ended 31 March 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 arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. The Group s loans and receivables comprise receivables and cash and cash equivalents. Interest income is recognised by applying the effective interest rate. Financial assets measurement Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the profit or loss in the period in which they arise. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. (x) Available for sale investments held at fair value Investment Percentage Held Balance Date Zhik Pty Limited 0.60% 30 June Vadacom Limited 6.49% 31 March Available for sale investments are recognised at fair value at year end. 21

22 3 Financial risk management objectives and policies The Group s principal financial instruments comprise receivables, payables and cash and short-term deposits. The Group manages its exposure to key financial risks, including interest rate, liquidity risk and currency risk in accordance with the Group s financial risk management policy. The objective of the policy is to support the delivery of the Group s financial targets whilst protecting future financial security. The Board reviews and agrees policies for managing each of the risks identified below, foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections. Risk exposures and responses Interest rate risk The Group s exposure to market interest rates relates primarily to the Group s cash deposited in interest-bearing call accounts. Interest rates are monitored although there is generally no significant variation in interest rates offered by the different major banks. The local operational bank accounts do not earn interest. At 31 March 2018, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity would have been affected as follows: Judgements of reasonably possible movements: Post Tax Profit Higher/(Lower) Equity Higher/(Lower) $000 $000 $000 $000 Group +1% (100 basis points) % (100 basis points) (1) (8) (1) (8) Credit risk Credit risk arises from the financial assets of the Group, being trade and other receivables. The Group s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: $000 $000 Loans and receivables 1,661 1,307 Cash and cash equivalents 1, Term deposits Total 2,896 2,059 The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties and as such collateral is not requested nor is it the Group s policy to securitize its trade and other receivables. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored. In addition, receivable balances are monitored on an ongoing basis with the result that the Group s exposure to bad debts is not significant. 22

23 3 Financial risk management objectives and policies (cont) The only significant concentration of credit risk within the Group exists in relation to cash and cash equivalents, the majority being held with two major trading banks. Foreign currency risk Each entity in the Group conducts the majority of its transactions in its functional currency. The currency exposure of the Group arises from the effect of any substantial movements in currency rates on the transfer of funds (the large proportion being in Australian dollars) to the local currency of the subsidiary to fund operations. The net exposure is not significant due to the size of the foreign operations and is mitigated by the regular transfer of small advances to spread the currency risk over time. Although each subsidiary or geographic segment is subject to variations in foreign currency rates, each segment is not material. Refer to note 5 on segment reporting. The Group s exposure to foreign currency risk was as follows based on notional amounts: In thousands translated from Australian NZD $000 NZD $000 Dollars Cash and cash equivalents Trade and other receivables Trade and other payables (408) (379) Net statement of financial position exposure 31 (91) The following significant exchange rates applied during the year: Average rate Reporting date spot rate Australian Dollars At 31 March 2018, if exchange rates had moved with all other variables held constant, the impact to the post tax profit and equity would not be material. Liquidity risk Liquidity risk represents the Group s ability to meet its financial obligations on time. The Group s cash flow enables it to make timely payments. The Management evaluates the Group s liquidity requirements on an ongoing basis. The following tables set out the contractual cash flows for all financial liabilities: Group 2018 In thousands on New Zealand Dollars Carrying amount Contractual cash flow 6 months or less 6 12 months 1 2 years 2 5 years Trade and other payables 1,135 1,135 1, Related party payables Other liabilities Total 2,118 2,118 1, Group 2017 In thousands on New Zealand Dollars Carrying amount Contractual cash flow 6 months or less 6 12 months 1 2 years 2 5 years Trade and other payables 1,139 1,139 1, Related party payables Other liabilities Total 1,188 1,188 1,