Results for announcement to the Market Appendix 4D Half Year Report Period APPENDIX 4D HALF YEAR REPORT FOR THE Period Ended Reporting Periods Current period: Period ended Previous corresponding period: Period ended 2017 Percentage Change '000s 2017 '000s Revenue Up 34% to 9,288 6,952 Other Income Up Significant to 400 38 Profit/(Loss) before tax Down (18%) to (1,580) (1,339) Profit/(Loss) after tax Down (43%) to (1,580) (1,102) EBITDA Up Significant to 660 (253) Dividends Current period: Amount per security Franked amount Interim Dividend Nil N/A Date the Dividend is Payable: N/A N/A Record Date for determining entitlements to the Dividend: N/A N/A Previous corresponding period: Interim Dividend Nil N/A Net Tangible Assets (NTA) per Security Dividends NTA backing per ordinary share on a post consolidation basis Commentary on Results 30 June Up 8% to (20.36) (22.22) Full commentary on the results for the reporting period can be found in the Director's Report and the consolidated financial statements for the half year ended. Page i
for the half year ended The information contained in this condensed report is to be read in conjunction with Threat Protect Australia Limited's annual report and announcements to the market by Threat Protect Australia Limited during the half year period ending
AND CONTROLLED ENTITIES Corporate directory Current Directors Derek La Ferla Demetrios Pynes Paolo (Paul) Ferrara Dimitri Bacopanos Non Executive Chairman Managing Director Executive Director Non executive Director Company Secretary Simon Whybrow Registered Office Principal Place of Business Street: Level 1, 672 Murray Street Street: Level 1, 672 Murray Street West Perth WA 6005 West Perth WA 6005 Postal: PO Box 1920 Postal: PO Box 1920 West Perth WA 6872 West Perth WA 6872 Telephone: 1300 THREAT (1300 847 328) Telephone: 1300 THREAT (1300 847 328) Facsimile: +61 (0)8 9322 9711 Facsimile: +61 (0)8 9322 9711 Email: info@threatprotect.com.au Website: www.threatprotect.com.au Securities Exchange Share Registry Australian Securities Exchange Link Market Services Limited Level 40, Central Park, 152 158 St Georges Terrace Level 4, 152 St Georges Terrace Perth WA 6000 PERTH WA 6000 Telephone: 131 ASX (131 279) (within Australia) Telephone: 1300 554 474 (investors within Australia) Telephone: +61 (0)2 9338 0000 Telephone: +61 1300 554 474 (international) Facsimile: +61 (0)2 9227 0885 Website: www.linkmarketservices.com.au Website: www.asx.com.au ASX Code: TPS Legal Advisors Auditors Lavan Legal BDO Audit (WA) Pty Ltd The Quadrant, 1 William Street 38 Station Street Perth WA 6000 Subiaco WA 6008 Telephone: +61 (0)8 9288 6000 Telephone: +61 (0)8 6382 4600 Facsimile: +61 (0)8 9288 6001 Facsimile: +61 (0)8 6382 4601 Website: www.lavanlegal.com.au Website: www.bdo.com.au Page i
AND CONTROLLED ENTITIES Contents Directors' report... 1 Auditor's independence declaration... 3 Condensed consolidated statement of profit or loss and other comprehensive income... 4 Condensed consolidated statement of financial position... 5 Condensed consolidated statement of changes in equity... 6 Condensed consolidated statement of cash flows... 7 Notes to the consolidated financial statements... 8 Directors' declaration... 21 Independent auditor's review report... 22 Page ii
AND CONTROLLED ENTITIES Directors' report Your directors present their report on the consolidated entity, consisting of Threat Protect Australia Limited (Threat Protect or the Company) and its controlled entities (collectively the Group), for the half year ended. 1. Directors The names of Directors in office at any time during or since the end of the half year are: Derek La Ferla Demetrios Pynes Paolo (Paul) Ferrara Non executive Chairman Managing Director Executive Director Dimitri Bacopanos Non executive Director Directors have been in office since the start of the half year to the date of this report unless otherwise stated. 2. Operating and financial review 2.1. Operations Review Total revenue for the half year of 9.28 million (December 2017: 6.99 million) is in line with expectations and the growth strategy continues to increase the Group s scale of operations with revenue tracking at a 33% increase on the December 2017 half year result. The group is in line with budget expectations for the half year. Monitoring revenue for the half year totals 6.3 million compared to 3.9 million as at half year December 2017 largely due to the March acquisition of Security Alarm Monitoring Service Pty ( SAMS ) in South Australia. Ongoing organic growth of the Company s current monitoring base, both directly and through the development of our reseller base continues to improve the existing revenue stream. Guarding and security revenue for the half year remained consistent with the company focusing on consolidating the existing service contracts during the period. The sources of revenue for the period reflect the continued focus of the business unit towards contracts with a greater component of recurring work and security consultancy. The Group s growth strategy is focused on leveraging the largely fixed cost infrastructure and significant capacity of the existing monitored security business through the acquisition of monitored security client bases across Australia. Security Monitoring is a readily scalable business model whereby new monitoring revenue can generate increased margin and significant earnings uplift. Threat Protect announced in August that it had completed the acquisition of the monitored security client base of Monitored Security Systems Pty Ltd ( MSS ). MSS is a West Australian security business that was established in 2003 and had been a Threat Protect reseller client since 2012. The acquisition was fully funded by the Company s acquisition funding facility with Macquarie Bank Limited. The Company has identified several other significant acquisition opportunities both externally and within its reseller network with a view to further increasing scale and margin uplift further and is actively conducting due diligence on these prospective acquisition targets. Financial position The Group incurred a loss before tax for the half year of 1,580,120 (December 2017: 1,338,686 loss). The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. Details of the Company's assessment in this regard can be found in note 1, Statement of Significant Accounting Policies: Going Concern. The net assets of the Group have increased from 30 June by 671,561 to 2,353,048 at (June : 1,681,487). As at, the Group's cash and cash equivalents decreased from 30 June by 928,341 to 210,957 at (June : 1,139,298) and had a working capital deficit of 13,968,688 (June : 5,129,136 working capital deficit). Page 1
AND CONTROLLED ENTITIES Directors' report 2.2. Events Subsequent to Reporting Date On 14 January 2019, the Group raised 1,000,000 through the placement of 4,761,905 fully paid ordinary shares at an issue price of 21 cents per share which are placed in voluntary escrow for 12 months from the date of issue. The full details of this are provided at note 14, Events Subsequent to Reporting Date. On 12 February 2019, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to the breaches of banking covenants for the quarter ended subject to full and final repayment of all Macquarie Bank Limited facilities by 31 March 2019. On 12 February 2019, the Company s securities were placed in trading halt pending the release of an announcement relating to proposed funding and acquisition transactions. The Company s securities were later placed into voluntary suspension on 12 February 2019, which was extended on 19 February 2019 and again on 26 February 2019 pending the finalisation of the proposed transactions. There were no significant after balance date events that are not covered in this Directors' Report or within the financial statements at note 14. 2.3. Future Developments, Prospects and Business Strategies Likely developments, prospects and business strategies of the operations of the Group and the expected results of those operations have not been included in this report as the Directors believe that the inclusion of such information would be likely to result in unreasonable prejudice to the Group. 3. Auditor's independence declaration The lead auditor's independence declaration under section 307C of the Corporations Act 2001 (Cth) for the half year ended 31 December has been received and can be found on the following page. This report is signed in accordance with a resolution of the Board of Directors. DEMETRIOS PYNES Managing Director Dated this Thursday, 28 February 2019 Page 2
Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY DEAN JUST TO THE DIRECTORS OF As lead auditor for the review of Threat Protect Australia Limited for the half-year ended, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and 2. No contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Threat Protect Australia Limited and the entities it controlled during the period. Dean Just Director BDO Audit (WA) Pty Ltd Perth, 28 February 2019 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
AND CONTROLLED ENTITIES Condensed consolidated statement of profit or loss and other comprehensive income for half-year ended Continuing operations Note 2017 Revenue 3 9,288,002 6,952,151 Other income 3 399,671 38,011 9,687,674 6,990,163 Costs of sales (7,809,911) (5,441,428) 1,877,763 1,548,734 Administrative expenses 4 (1,159,874) (1,605,173) Business acquisition and integration costs (735,852) (400,430) Compliance and regulatory costs (325,259) (130,564) Finance costs (821,668) (366,928) Legal and consulting fees (36,155) (13,448) Marketing and business development (354,657) (228,083) Occupancy costs (98,730) (142,794) Fair value gains/(losses) recognised on financial instruments 33,245 Share in profit/(loss) of associate using the equity method 41,067 Profit / (loss) before tax (1,580,120) (1,338,686) Income tax benefit / (expense) 236,606 Net profit / (loss) for the half-year 4 (1,580,120) (1,102,080) Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Items that may be reclassified subsequently to profit or loss: Other comprehensive income for the half-year, net of tax Total comprehensive income attributable to members of the parent entity (1,580,120) (1,102,080) Earnings per share: Basic and diluted earnings / (loss) per share (cents per share) (1.32) (0.99) The condensed consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. Page 4
AND CONTROLLED ENTITIES Condensed consolidated statement of financial position as at Current assets Note 30 June Cash and cash equivalents 210,958 1,139,298 Trade and other receivables 2,855,012 3,217,180 Financial assets 952,767 952,563 Other current assets 420,921 430,179 Inventories 85,854 35,227 Total current assets 4,525,511 5,774,448 Non-current assets Plant and equipment 902,139 1,017,686 Intangible assets 5 27,993,084 26,485,655 Investment in Associate 502,186 461,119 Financial assets 164,438 118,414 Total non-current assets 29,561,847 28,082,874 Total assets 34,087,358 33,857,322 Current liabilities Trade and other payables 6 5,997,695 6,738,943 Provisions 819,903 821,595 Borrowings 7 11,676,601 3,343,046 Total current liabilities 18,494,199 10,903,584 Non-current liabilities Provisions 80,015 130,155 Borrowings 7 8,960,622 16,942,623 Deferred tax liability 4,199,473 4,199,473 Total non-current liabilities 13,240,110 21,272,251 Total liabilities 31,734,310 32,175,835 Net assets 2,353,048 1,681,487 Equity Issued capital 8 17,104,712 14,731,476 Reserves 1,647,135 1,647,135 Accumulated losses (16,398,798) (14,697,124) Total equity 2,353,048 1,681,487 The condensed consolidated statement of financial position is to be read in conjunction with the accompanying notes. Page 5
AND CONTROLLED ENTITIES Condensed consolidated statement of changes in equity for the half-year ended Note Issued Accumulated Option Total Capital Losses Reserve Balance at 1 July 2017 14,710,087 (11,451,186) 1,147,135 4,406,032 Profit for the half year attributable owners of the parent (1,102,080) (1,102,080) Other comprehensive income for the half year attributable owners of the parent Total comprehensive income for the half-year attributable owners of the parent (1,102,080) (1,102,080) Transaction with owners, directly in equity Share based payments issued during the period 50,000 500,000 550,000 Balance at 2017 14,760,087 (12,553,266) 1,647,135 3,853,952 Balance at 1 July 14,731,476 (14,697,124) 1,647,135 1,681,487 Impact of changes in accounting policies 1(b)i (121,554) (121,554) Restated equity balance at 1 July 14,731,476 (14,818,678) 1,647,135 1,559,933 Profit for the half year attributable owners of the parent (1,580,120) (1,580,120) Other comprehensive income for the half year attributable owners of the parent Total comprehensive income for the half-year attributable owners of the parent (1,580,120) (1,580,120) Transaction with owners, directly in equity Shares issued during the period 9 2,499,998 2,499,998 Transaction costs 9 (126,763) (126,763) Balance at 17,104,712 (16,398,798) 1,647,135 2,353,049 The condensed consolidated statement of changes in equity is to be read in conjunction with the accompanying notes Page 6
AND CONTROLLED ENTITIES Condensed consolidated statement of cash flows for the half-year ended Cash flows from operating activities 2017 Receipts from customers 9,632,623 7,405,900 Interest received 2,821 1,003 Interest and borrowing costs paid (739,193) (314,677) Operating cash flows from government grants 772,370 Payments to suppliers and employees (10,109,921) (7,127,991) Net cash provided by / (used in) operating activities (1,213,670) 736,605 Cash flows from investing activities Purchase of intangible assets (2,751,878) (1,606,585) Purchase of subsidiaries, net of cash acquired (491,500) (2,358,355) Investing cash flows from government grants 926,003 Proceeds from sale of intangible assets 28,364 Purchase of financial assets (12,983) (900) Purchase of plant, plant and equipment (17,624) (367,625) Net cash provided by / (used in) investing activities (2,347,982) (4,305,101) Cash flows from financing activities Proceeds from issue of shares (net of transaction costs) 2,373,235 Proceeds from borrowings 10,679,300 3,598,900 Repayment of borrowings (10,419,224) (507,708) Net cash provided by financing activities 2,633,311 3,091,192 Net increase / (decrease) in cash held (928,341) (477,304) Cash and cash equivalents at the beginning of the half year 1,139,298 1,163,364 Cash and cash equivalents at the end of the half-year 210,957 686,060 The condensed consolidated statement of cash flows is to be read in conjunction with the accompanying notes. Page 7
AND CONTROLLED ENTITIES Notes to the consolidated financial statements for the half-year ended ` Note 1 Statement of significant accounting policies These are the condensed consolidated financial statements and notes of Threat Protect Australia Limited (Threat Protect or the Company) and controlled entities (collectively the Group). Threat Protect is a company limited by shares, domiciled and incorporated in Australia. The financial statements were authorised for issue on 28 February 2019 by the directors of the Company. a. Basis of preparation This interim financial report is intended to provide users with an update on the latest annual financial statements of Threat Protect and its controlled entities. As such, it does not contain information that represents relatively insignificant changes occurring during the half year within the Group. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim period. It is therefore recommended that this financial report be read in combination with the annual financial statements of the Group for the year ended 30 June, together with any public announcements made during the half year. i. Statement of compliance The half year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The half year report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report. ii. Going Concern The consolidated half year financial statements have been prepared on an accruals basis and are based on historical costs modified, where applicable, by the measurement at fair value of selected non current assets, financial assets and financial liabilities. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. The Group recorded a loss for the half year of 1,580,120 (Dec 2017: 1,102,080 loss) and had a working capital deficiency of 13,968,688 (30 June : 5,129,137). On 12 February 2019, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to the breaches of banking covenants for the quarter ended subject to full and final repayment of all Macquarie Bank Limited facilities by 31 March 2019. These conditions indicate a material uncertainty that may cast a significant doubt about the entity s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. Management believe that there are sufficient available funds to meet the entity s working capital requirements as at the date of this report. Subsequent to the date of this report the group expects to receive additional funding for the acquisition of cash generating businesses. The consolidated financial statements have been prepared on the basis that the entity is a going concern, which contemplates the continuity of normal business activity, realisation of assets and settlement of liabilities in the normal course of business for the following reasons: It is believed that positive cash flows from ongoing achievement of targeted performance are attainable. There is an expectation that refinancing of the group s facilities with Macquarie Bank Limited prior to the prescribed refinance date of 31 March 2019 will be successful. The successful financing and acquisition of additional cash generating businesses will contribute to the group s working capital position in the near term. The group expects to continue to receive the full support of its financiers and creditors and be able to raise additional finance from debt or equity if and when required. Should the entity not be able to continue as a going concern, it may be required to realise its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements and that the financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or liabilities that might be necessary should the entity not continue as a going concern. Page 8
AND CONTROLLED ENTITIES Notes to the consolidated financial statements for the half-year ended ` b. New and amended standards adopted by the group A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies as well as make retrospective adjustments as a result of adopting the following standards: AASB 9: Financial Instruments; and; AASB 15: Revenue from Contracts with Customers. The impact of the adoption of these standards and the new accounting policies are disclosed in note 1(b)i and note 1(b)ii below. The other standards did not have any impact on the group s accounting policies and did not require retrospective adjustments. i. AASB 9 Financial Instruments The Group has adopted AASB 9: Financial Instruments with a date of initial application of 1 July. AASB 9: Financial Instruments replaces AASB 139:Financial Instruments: Recognition and Measurement requirements. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an expected credit loss model for impairment of financial assets. When adopting AASB 9, the Group has elected not to restate prior periods. Rather, differences arising from the adoption of AASB 9 in relation to classification, measurement and impairment are recognised in opening retained earnings as at 1 July. As a result of the adoption of AASB 9, the impairment of financial assets using the expected credit loss model applies now to the Group s trade receivables. For trade receivables, the Group applies a simplified model of recognising lifetime expected credit loss as these items do not have a significant financing component. Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all of the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Financial assets are classified according to their business model and the characteristics of their contractual cash flows and are initially measured at fair value adjusted for transaction costs (where applicable). Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified into the following four categories: Financial assets at amortised cost Financial assets at fair value through profit or loss ( FVTPL ) Debt instruments at fair value through other comprehensive income ( FVTOCI ) Equity instruments at FVTOCI All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial assets at amortised cost Financial assets with contractual cash flows representing solely payments of principal and interest and held within a business model of hold to collect contractual cash flows are accounted for at amortised cost using the effective interest method. The Group s trade and most other receivables fall into this category of financial instruments. Impairment of financial assets AASB 9 s new forward looking impairment model applies to the Group s investments at amortised cost and debt instruments at FVTOCI. The application of the new impairment model depends on whether there has been a significant increase in credit risk. Page 9
AND CONTROLLED ENTITIES Notes to the consolidated financial statements for the half-year ended ` Trade and other receivables and contract assets The Group makes use of a simplified approach in accounting to trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward looking information to calculate the expected credit losses using a provision matrix. For assets in the scope of the AASB 9 impairment model, impairment losses are generally expected to increase. The Group has determined that the application of AASB 9 s impairment requirements at 1 July results in the following additional impairment allowance: Not yet due Up to 90 days past due 90 to 180 days past due 180 to 365 days past due Over 365 days past due Total Expected credit loss rate 0.5% 1% 10.9% 52.9% 100% Gross carrying amount 901,370 625,899 163,952 135,904 148,018 1,975,143 Loss allowance 4,507 5,996 17,935 71,877 148,018 248,333 Existing loss allowance at 30 June under AASB 139 126,779 Additional allowance recognised through opening retained earnings due to adoption of AASB 9 121,554 ii. AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 Revenue from Contracts with Customers with a date of initial application of 1 July. As a result, the Group has changed its accounting policy for revenue recognition as detailed below. The Group has reviewed its contracts for revenue in detail and has not identified any significant impacts from the adoption of AASB 15. The Group has applied AASB 15 using the cumulative effect method and therefore the comparative information has not been restated and continues to be reported under AASB 118. The details of accounting policies under AASB 118 are disclosed separately if they are different from those under AASB 15. Significant accounting policy Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. In the comparative period 2017, revenue was recognised at fair value of the consideration received net of the amount of GST payable to taxation authorities. Sales of products were recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards were considered passed to the buyer at the time of delivery of the goods to the customer or at the point where billing threshold has been met. Service revenue was recognised when the fees in respect of services rendered were earned, usually when services had been provided to customers or as per terms and conditions of service contracts. Nature of goods and services The following is a description of the nature and timing of the satisfaction of performance obligations and significant payment terms of the principle activities from which the Group generates revenue: i. Ongoing services Revenue for ongoing services, such as those provided by the Group for alarm monitoring or static guarding are contracted under either fixed term or ongoing service agreements. No other products or services are bundled in such contracts. Invoices are usually payable within 30 days and no element of financing is deemed present as the services are charged within standard credit terms which is consistent with industry practice. As such, revenue is recognised over time in line with the AASB 15 principle with regard to the customer simultaneously receiving and consuming all of the benefits. ii. One-off services Revenue for ad hoc, one off services, such as those provided by the Group for alarm system service and maintenance are contracted under short term, low value service agreements which do not contain multiple deliverables or performance obligations. No other products or services are bundled in such contracts. Invoices are usually payable within 30 days and no element of financing is deemed present as the services are charged within standard credit terms which is consistent with industry practice. As such, revenue is recognised at a point in time when the service agreement is complete. Page 10
AND CONTROLLED ENTITIES Notes to the consolidated financial statements for the half-year ended ` iii. Equipment sales Revenue for equipment sales, is recognised when the customers obtain control of the goods. This usually occurs when the goods are delivered. No other products or services are bundled in such contracts. Invoices are usually payable within 30 days and no element of financing is deemed present as the services are charged within standard credit terms which is consistent with industry practice. Disaggregation of Revenue In the following table, revenue is disaggregated by nature of goods and service and by revenue recognition criteria. Disaggregation by geographical location has not been included as all revenue is generated in one geographical location, being Australia. Revenue by nature: Ongoing services 7,936,303 One off services 961,842 Equipment sales 389,857 Total Revenue 9,288,002 Revenue by revenue recognition criteria: Over time 7,936,303 At a point in time 1,351,699 Total Revenue 9,288,002 c. Impact of standards issued but not yet applied by the entity AASB 16: Leases AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, as asset (the right to the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short term and low value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the group s operating leases. However, the group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the group s profit and classification of cash flows. The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The group does not intend to adopt the standard before its effective date. d. Critical Accounting Estimates and Judgments The following critical estimates and judgements have been employed in the preparation of the financial report: i. Key estimate: Collectability of trade receivables Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An impairment is recorded when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Examples of such evidence includes but is not limited to evidence of default in payment arrangements, evidence of significant financial difficulty or bankruptcy or advice from debt collection agents suggesting that receivables are no longer collectible. Please refer to note 1(b)i for further details regarding the treatment of expected credit losses under the provisions of the new accounting standard, AASB 9: Financial Instruments. ii. Key estimate: Revenue from contracts with customers Please refer to note 1(b)ii for further details regarding the treatment of revenue under the provisions of the new accounting standard, AASB 15: Revenue from contracts with customers. Page 11
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 2 Business Combinations Alpha Alarms Pty Ltd During the prior financial period, on 5 December 2017, the Group acquired 100% of the ordinary share capital and voting rights of Alpha Alarms Pty Ltd ( Alpha Alarms ) a New South Wales based business whose principal activities are the provision of security monitoring services in New South Wales. The business combination was accounted for provisionally in line with AASB 3 during the period ended 30 June and as such the Group was able to adjust the fair value of assets and liabilities acquired during the following reporting period. Accordingly, there were no adjustments made to any of the fair values of assets or liabilities during the period ended 31 December. Deferred consideration relating to this business combination was settled during the period ended and as such 300,000 of deferred consideration was written back as other income. Note 3 Revenue and Other Income a. Revenue 2017 Revenue from the provision of goods and services 9,285,181 6,950,766 Interest income 2,821 1,385 b. Other Income 9,288,002 6,952,151 Recovery of bad debts 48,100 Gains on settlement or recalculation of deferred consideration 335,820 Other income 15,751 9,647 Gain on disposal of intangible assets 28,364 399,671 38,011 Note 4 Profit / (Loss) Before Income Tax Note The following significant revenue and expense items are relevant in explaining the financial performance: 2017 Depreciation property, plant and equipment (133,595) (107,236) Amortisation of intangible assets (1,285,787) (611,300) Impairment (49,493) (82,331) Share based payments (Included in administrative expenses) (550,000) Employee benefits (2,665,051) (2,698,154) Occupancy expense (258,496) (131,688) Page 12
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 5 Intangible Assets Development assets Customer related intangible assets Intellectual property Goodwill Total Half-year ended Intangible asset 4,057,472 21,686,669 21,887 7,517,439 33,283,467 Accumulated amortisation (85,305) (3,730,828) (3,939) (3,820,072) Accumulated impairment (1,470,310) (1,470,310) Carrying amount at the end of the year 3,972,167 17,955,840 17,948 6,047,129 27,993,084 Carrying amount at the beginning of the year 2,272,362 18,152,122 14,042 6,047,129 26,485,655 Additions during the period 1,738,522 1,064,596 4,800 2,807,918 Government grant income not recognisable (14,702) (14,702) Amortisation expense (24,015) (1,260,878) (894) (1,285,787) Carrying amount at the end of the year 3,972,167 17,955,840 17,948 6,047,129 27,993,085 Year ended 30 June Development assets Customer related intangible assets Intellectual property Goodwill Total Intangible asset 2,333,701 21,450,335 17,087 6,689,436 30,490,562 Accumulated amortisation (61,339) (2,470,213) (3,045) (2,534,597) Accumulated impairment (828,000) (642,310) (1,470,310) Carrying amount at the end of the year 2,272,362 18,152,122 14,042 6,047,129 26,485,655 Carrying amount at the beginning of the year 1,042,415 8,342,275 15,751 4,201,441 13,601,882 Additions during the period 2,142,852 11,391,459 2,487,998 16,022,309 Government grant income not recognisable (884,808) (884,808) Adjustments during the period (28,097) (1,581,611) (1,709) (1,611,417) Amortisation expense (642,310) (642,310) Carrying amount at the end of the year 2,272,362 18,152,122 14,042 6,047,129 26,485,655 Page 13
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 6 Trade and other payables Note 30 June Unsecured Trade payables 6a 1,409,319 1,199,835 Deferred consideration payable, comprising: Alpha Alarms business combination 300,000 Security Alarm Monitoring Service business combination 1,520,000 1,621,160 Monitored Security Systems (MSS) customer base 99,789 Apollo business combination (2017) 485,318 Other minor retail monitoring acquisitions 42,421 42,000 Accrued expenses 1,478,423 1,618,034 Interest payable 413,504 422,508 ATO liabilities 276,498 445,765 Payroll tax liabilities 28,704 54,198 Superannuation payable 176,276 139,193 Revenue in advance 471,402 381,447 Other payables 81,359 29,485 5,997,695 6,738,943 a. Trade payables are non interest bearing and arise from the usual operating activities of the Group. Trade payables and other payables and accruals, except directors' fees, are usually settled within the lower of terms of trade or 30 days. Page 14
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 7 Borrowings Note 30 June Current Bank borrowings 7d 11,754,159 3,476,656 Less: capitalised borrowing costs (367,394) (364,025) Hire purchase and finance leases 7d 96,067 142,339 Less: unexpired interest 7d (2,102) (4,759) Short term borrowings 7d 195,871 92,837 11,676,601 3,343,046 Non current Convertible notes First Samuel Limited 7b 9,000,000 9,000,000 Less: capitalised borrowing costs 7b (39,378) (57,377) Debenture First Samuel Limited 7c 8,000,000 a. Bank borrowings comprise these facilities on the following terms and conditions: As at Lender Facility Type Interest Rate (% pa) Facility balance Current Facility balance Non-Current Facility balance Total 8,960,622 16,942,623 Facility Limit Facility Available Macquarie Bank Revolving Line of Credit 5.71% 10,955,155 10,955,155 14,000,000 3,044,845 Macquarie Bank Overdraft Facility 7.05% 799,003 799,003 800,000 997 Macquarie Bank Bank Guarantee Facility 7.05% 200,000 200,000 11,754,159 11,754,159 15,000,000 3,245,842 On 20 December, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to anticipated breaches of banking covenants for the quarter ended subject to a 4,000,000 equity cure repayment which was to be repaid by 13 February. Subsequent to year end, on 12 February 2019, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to the breaches of banking covenants for the quarter ended subject to full and final repayment of all Macquarie Bank Limited facilities by 31 March 2019. As a result of the above conditions, all Macquarie Bank Limited facilities have been classified as current as at. b. Terms of the convertible notes are consistent with those disclosed in annual financial statements of the Group for the year ended 30 June. c. On 10 August, the First Samuel debenture of 8,000,000 was repaid in full through the utilisation of the Macquarie Bank revolving line of credit facility. d. Short term borrowings and hire purchase and finance leases include premium funding for insurance policies and equipment finance respectively, repayable within 12 months. Page 15
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 8 Issued Capital Note 6 months to No. Ordinary shares 12 months to 30 June No. 6 months to 12 months to 30 June Fully paid ordinary shares at no par value 125,917,337 111,631,634 17,104,712 14,731,476 At the beginning of the period 111,631,634 779,423,331 14,731,476 14,710,082 28 August 2017 share based payment 2,000,000 50,000 29 November 2017 consolidation of share capital (669,791,697) 17 September options exercised 14,285,703 2,499,998 Movement in tax balances (24,744) Transaction costs relating to share issues (126,763) (3,862) At reporting date 125,917,337 111,631,634 17,104,712 14,731,476 Note No. 30 June No. Options Unlisted share options on issue as at balance date 13,571,422 27,857,125 At the beginning of the period 27,857,125 145,900,000 29 November 2017 options expired (900,000) 29 November 2017 consolidation of options (124,285,731) 12 February options issued to directors 7,142,856 17 September options exercised (14,285,703) Unlisted share options on issue as at reporting date 13,571,422 27,857,125 Share options outstanding as at the end of each period have the following expiry dates and exercise prices: Grant Date Expiry Date Exercise Price (cents per share) Number of Options Exercise Price (cents per share) 30 June Number of Options 30 June 4 Sept 2015 4 Sept 17.50 14,285,703 26 Nov 2015 31 Oct 2020 33.95 2,142,856 33.95 2,142,856 23 Nov 2017 31 Oct 2020 33.95 7,142,856 33.95 7,142,856 26 Nov 2015 31 Oct 2020 26.60 1,428,570 26.60 1,428,570 26 Nov 2015 31 Oct 2020 32.69 1,428,570 32.69 1,428,570 26 Nov 2015 31 Oct 2020 35.77 1,428,570 35.77 1,428,570 13,571,422 27,857,125 Page 16
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 9 Operating Segments 2014 a. Segment Performance Revenue Half-year ended Monitoring Guarding Services Revenue 6,285,795 2,297,429 701,957 9,285,181 Total segment revenue 6,285,795 2,297,429 701,957 9,285,181 Reconciliation of segment to group revenue Interest 2,821 Other income 399,671 Total group revenue and other income 9,687,674 Segment net profit / (loss) from continuing operations before tax 1,414,344 65,397 (4,470) 1,475,271 (i) Amounts not included in segment results but reviewed by Board: Interest 2,821 Other income 399,671 Administrative expenses 2013 Total (1,159,874) Business acquisition and integration costs (735,852) Compliance and regulatory costs (325,259) Finance costs Legal costs (821,668) (36,155) Marketing and business development (354,657) Occupancy expenses (98,730) Fair value gains/(losses) recognised on financial instruments 33,245 Share in profit/(loss) of associate using the equity method 41,067 Profit before income tax (1,580,120) Page 17
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 9 Operating Segments (Continued) Revenue Half-year ended 2017 Monitoring Guarding Services Revenue 3,784,158 2,625,630 540,978 6,950,766 Total segment revenue 3,784,158 2,625,630 540,978 6,950,766 Reconciliation of segment to group revenue Interest 1,385 Other income 38,011 Total group revenue and other income 6,990,163 Segment net profit / (loss) from continuing operations before tax 1,376,885 87,619 44,834 1,509,338 (ii) Amounts not included in segment results but reviewed by Board: Interest 1,385 Other income 38,011 Administrative expenses Total (1,605,173) Business acquisition and integration costs (400,430) Compliance and regulatory costs (130,564) Finance costs Legal costs (366,928) (13,448) Marketing and business development (228,083) Occupancy costs Profit before income tax (142,794) (1,338,686) b. Segment Assets and Liabilities As at Monitoring Guarding Services Total Segment Assets 30,412,237 776,380 85,854 31,274,471 Reconciliation of segment to group assets Unallocated assets 2,812,887 Total assets 34,087,358 Segment Liabilities 4,881,323 621,421 5,502,565 Reconciliation of segment to group liabilities Unallocated liabilities 26,231,745 Total liabilities 31,734,310 As at 30 June Monitoring Guarding Services Total Segment Assets 29,726,042 587,676 35,227 30,348,945 Reconciliation of segment to group assets Unallocated assets 3,508,377 Total assets 33,857,322 Segment Liabilities 5,468,511 419,327 5,887,837 Reconciliation of segment to group liabilities Unallocated liabilities 26,287,998 Total liabilities 32,175,835 Page 18
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 10 Financial Risk Management i. Recurring fair value measurements AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1 the instrument has quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2 a valuation technique is used, using inputs other than quoted prices within Level 1 that are observable for the financial instrument, either directly (i.e. as prices) or indirectly (i.e. derived from prices); or Level 3 a valuation technique is used, using inputs that are not based on observable market data (i.e. the technique is based on unobservable inputs). The following financial instruments are subject to recurring fair value measurement: 30 June Level 3 Convertible notes (equity component) Level 3 Deferred consideration 1,662,210 2,448,478 Level 3 Financial Asset Equity investment held at FVTPL 164,438 118,414 ii. Valuation techniques used to derive level 3 fair values Convertible notes at fair value through profit or loss The fair value of the convertible notes are determined based on the accretion of their carrying amount recognised at inception up to the value of the shares on conversion. The value of the notes are mainly impacted by changes in the share price of the entity. The ratchet feature has no value until a capital raising of below 0.21 (post consolidation) takes place. Deferred consideration Security Alarm Monitoring Service Pty Ltd Business Combination Deferred Consideration Consideration relating to actual revenues achieved relating to the Security Alarm Monitoring Service Pty Ltd business combination within 12 months of acquisition date is calculated as two times the actual revenue achieved in the first twelve months following the acquisition date, 27 March, less those amounts already paid, contractually capped to a maximum of 1,600,000. Consideration calculated in this way totalled 1,600,000 as at (30 June : 1,600,000). Consideration relating to interest costs on financial assets in relation to the acquisition has been calculated as 10% of the 800,000 placed into escrow by Threat Protect Australia Limited as part of the sale. This resulted in an 80,000 reduction in deferred consideration relating to the transaction (30 June : also 80,000 reduction in deferred consideration relating to the transaction). Other Deferred Consideration Deferred consideration relating to actual revenues achieved by minor acquisition of retail monitoring contracts, less consideration already transferred totalled 142,210 as at (30 June : 48,000). Financial Asset Equity investment held at FVTPL The fair value of equity investments held at fair value through profit or loss (FVTPL) are determined at reporting dates based on a proportionate assessment of the value in use of the underlying business. Such value in use is calculated using expected future cash inflows discounted using an appropriate discount rate. Page 19
AND CONTROLLED ENTITIES Notes to the condensed consolidated financial statements for the half-year ended Note 11 Related Party Transactions There have been no significant changes to related party transactions since 30 June. Note 12 Commitments There have been no significant changes in the Group's commitments since the year ended 30 June. Note 13 Contingent Liabilities There have been no changes in the Company's contingent liabilities since the year ended 30 June. Note 14 Events Subsequent to Reporting Date On 14 January 2019, the Group raised 1,000,000 through the placement of 4,761,905 fully paid ordinary shares at an issue price of 21 cents per share which are placed in voluntary escrow for 12 months from the date of issue. On 12 February 2019, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to the breaches of banking covenants for the quarter ended subject to full and final repayment of all Macquarie Bank Limited facilities by 31 March 2019. On 12 February 2019, the Company s securities were placed in trading halt pending the release of an announcement relating to proposed funding and acquisition transactions. The Company s securities were later placed into voluntary suspension on 12 February 2019, which was extended on 19 February 2019 and again on 26 February 2019 pending the finalisation of the proposed transactions. There were no other significant after balance date events. Page 20
AND CONTROLLED ENTITIES Directors' declaration The Directors of the Company declare that: (a) in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (b) in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group. Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001. On behalf of the Directors DEMETRIOS PYNES Managing Director Dated this Thursday, 28 February 2019 Page 21
Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR S REVIEW REPORT To the members of Threat Protect Australia Limited Report on the Half-Year Financial Report Conclusion We have reviewed the half-year financial report of Threat Protect Australia Limited (the Company) and its subsidiaries (the Group), which comprises the condensed consolidated statement of financial position as at, the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the half-year then ended, notes comprising a statement of accounting policies and other explanatory information, and the directors declaration. Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001 including: (i) Giving a true and fair view of the Group s financial position as at and of its financial performance for the half-year ended on that date; and (ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001. Emphasis of matter Material uncertainty relating to going concern We draw attention to Note 1(a)ii in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the Group s ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our conclusion is not modified in respect of this matter. Directors responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group s financial position as at and its financial performance for the half-year ended on that date and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor s review report. BDO Audit (WA) Pty Ltd Dean Just Director Perth, 28 February 2019