APPEN LIMITED - Interim / Quarterly Report 2018

Appen Limited Appendix 4D Half-year report

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1. Company details

Name of entity: Appen Limited ABN: 60 138 878 298 Reporting period: For the half-year ended 30 June 2018 Previous period: For the half-year ended 30 June 2017

2. Results for announcement to the market

			$'000
Revenues from ordinary activities	up	106.3% to	152,755
Profit from ordinary activities after tax attributable to the owners of Appen
Limited	up	73.0% to	14,036
Profit for the half-year attributable to the owners of Appen Limited	up	73.0% to	14,036
Dividends

Final dividend for the year ended 31 December 2017

	Franked
Amount per	amount per
security	security
Cents	Cents
3.0	3.0

On 28 August 2018, the Company declared an interim dividend for the year ending 31 December 2018 of 4.0 cents per share, fully franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend is 4 September 2018. The financial effect of these dividends has not been brought to account in the financial statements for the half-year ended 30 June 2018 and will be recognised in subsequent financial periods.

Comments

The profit for the Group after providing for income tax amounted to $14,036,000 (30 June 2017: $8,115,000).

Refer to the 'Review of Operations' section in the Directors' report attached for further explanation of the results.

3. Net tangible assets

30 Jun 2018 30 Jun 2017 Cents Cents Net tangible assets per ordinary security at period end (7.72) 25.28

4. Control gained over entities

Not applicable.

5. Loss of control over entities

Not applicable.

Appen Limited Appendix 4D Half-year report

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6. Dividends

Current period

Current period
					Franked
				Amount per	amount per
				security	security
				Cents	Cents
Final dividend for the year ended	31	December	2017	3.0	3.0

Previous period
		Franked
	Amount per	amount per
	security	security
	Cents	Cents
Final dividend for the year ended 31 December 2016	3.0	3.0

7. Dividend reinvestment plans

Not applicable.

8. Details of associates and joint venture entities

Not applicable.

9. Foreign entities

Details of origin of accounting standards used in compiling the report:

Not applicable.

10. Audit qualification or review

Details of audit/review dispute or qualification (if any):

The financial statements were subject to a review by the auditors and the review report is attached as part of the Interim Report.

11. Attachments

Details of attachments (if any):

The Interim Report of Appen Limited for the half-year ended 30 June 2018 is attached.

Appen Limited Appendix 4D Half-year report

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12. Signed

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Signed _________

Date: 28 August 2018

Mark Brayan Managing Director Sydney

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Appen Limited ABN 60 138 878 298

Interim Report - 30 June 2018

Appen Limited
Contents
30 June 2018
Corporate directory	2
Directors' report	3
Auditor's independence declaration	6
Consolidated statement of profit or loss and other comprehensive income	7
Consolidated statement of financial position	8
Consolidated statement of changes in equity	9
Consolidated statement of cash flows	10
Notes to the consolidated financial statements	11
Directors' declaration	21
Independent auditor's review report to the members of Appen Limited	22

Appen Limited Corporate directory 30 June 2018

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Directors	Christopher Charles Vonwiller - Chairman
	Mark Ronald Brayan – Managing Director and Chief Executive Officer
	Stephen John Hasker
	Robin Jane Low
	William Robert Pulver
	Deena Robyn Shiff
Company secretary	Leanne Ralph
Registered office and principal
place of business	Level 6
	9 Help Street
	Chatswood NSW 2067
	Tel: 02 9468 6300
Share register	Link Market Services Limited
	Level 12
	680 George Street
	Sydney NSW 2000
	Telephone: 1300 554 474
	Facsimile: (02) 9287 0303
Auditor	KPMG
	Tower Three
	International Towers Sydney
	300 Barangaroo Avenue
	Sydney NSW 2000
Solicitors	Norton Rose Fulbright Australia
	Level 18, Grosvenor Place
	225 George Street
	Sydney NSW 2000
Stock exchange listing	Appen Limited shares are listed on the Australian Securities Exchange (ASX code:
	APX)
Website	www.appen.com

Appen Limited Directors' report 30 June 2018

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The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group' or 'Appen') consisting of Appen Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the half-year ended 30 June 2018.

Directors

The following persons were directors of Appen Limited during the whole of the financial half-year and up to the date of this report, unless otherwise stated:

Christopher Charles Vonwiller - Chairman Mark Ronald Brayan Stephen John Hasker Robin Jane Low William Robert Pulver Deena Robyn Shiff

Principal activities

During the financial half-year the principal continuing activities of the Group consisted of the provision of quality data solutions and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers and government agencies.

Appen operates through two operating divisions:

Content Relevance which provides annotated data used in search technology (embedded in web, e-commerce and social engagement) for improving relevance and accuracy of search engines, social media applications and e- commerce; and
Language Resources which provides annotated speech and image data used in speech recognisers, machine translation, speech synthesisers and other machine-learning technologies resulting in more engaging and fluent devices including internet-connected devices, in-car automotive systems and speech-enabled consumer electronics.

Supporting both divisions is a global on-demand crowd workforce providing customers with very flexible in-country linguistic and cultural expertise in support of 140 global markets.

Appen was founded in 1996 and listed on the Australian Securities Exchange on 7 January 2015.

Dividends

Dividends paid during the financial half-year were as follows:

Final dividend paid out of the profits reserve for the year ended 31 December 2017 of 3.0 cents per ordinary share (2017: 3.0 cents)	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 3,174 2,928

Review of operations

The half-year statutory net profit after tax for the Group increased 73% to $14,036,000 (30 June 2017: $8,115,000). After adding back underlying adjustments (net of tax), underlying profit was up 119% to $17,782,000 (30 June 2017: $8,115,000).

Appen Limited Directors' report 30 June 2018

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HY2018 $'000 131,167 21,510 78	HY2017 $'000 53,305 20,747 6	Change % 146% 4%	Percentage change constant currency % 151% 5%
152,755	74,058	106%	110%
17,782 (2,302) (833) (611)	8,115 - - -	119%	125%
14,036 3,765 1,561	8,115 3,532 3	73%	76%
19,362 4,520	11,650 1,119	66%	69%
23,882 873 833	12,769 - -	87%	91%
25,588	12,769	100%	104%
16.8% 16.0% 21.7% 16.47	17.2% 36.0% 16.8% 8.21

EBIT is defined as earnings before interest and tax
** EBITDA is EBIT before depreciation and amortisation

Total revenue for the period ended 30 June 2018 was up 106% to $152,755,000 compared to prior period revenue of $74,058,000. Excluding Leapforce revenue for the period of $43,778,500, revenue was $108,975,500, representing organic revenue growth of 47%.

The drivers behind the growth in revenue were:

The Language Resources division recorded a 4% increase in revenue over the prior year, driven mainly by increased demand for data collection and speech and image annotation services for technology customers. On a constant currency basis, the revenue growth was 5%.
The Content Relevance division delivered a 146% increase in revenue over the prior year of $77,862,000. This was driven by the Leapforce acquisition as well as organic growth in demand for human annotated data for a variety of machine learning applications. Excluding Leapforce, revenue was $87,388,500, representing organic revenue growth of 64% for the half year ended 30 June 2018. On a constant currency basis, the revenue growth for the division was 151%.

Appen Limited Directors' report 30 June 2018

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The Company reported statutory EBITDA of $23,883,000 for the half year period to 30 June 2018, representing an 87% increase over the prior corresponding period. The prior year EBITDA result included realised and unrealised foreign exchange gains of $558,000, while the realised and unrealised foreign exchange gains for the current half only amounted to a loss of $1,000.

After adding back underlying adjustments for transaction costs and share based payments in respect of Leapforce vendor shares, underlying EBITDA was $25,588,000 representing a 100% increase over the prior year. This resulted from strong revenue increase in Content Relevance and the acquisition of Leapforce. Leapforce contributed EBITDA of $11,612,000, while Content Relevance (excluding Leapforce) reported a significant organic increase in EBITDA of 88% for the period.

EBITDA in the Language Resources division was significantly impacted by the customer mix, which resulted in a significant reduction in complex, value added government work, impacted by budget approval delays, and an increase in volumes from the technology sector at lower margins. Going forward, there will be a strategic, increased focus on expanding the sales pipeline in the technology sector, with a view to increasing efficiency down the track. The reduction in the operating margin is seen as a timing issue, not structural. This is further validated by the fact that expenses as a percentage of revenue for the full year forecast ended 31 December 2018 are exactly in line with the expense percentage in the prior year for the same period. As a result, no significant cost reduction activities are planned, however efficiency gains will continue to be targeted.

Notwithstanding, the margin impact from Language Resources, operating expenses (expenses excluding services purchased, share based payment expense, depreciation, transaction costs, finance costs and foreign exchange) for the first half period comprised 18.9% of revenue as compared to 24.4% for the prior corresponding period due to continued operational improvements in delivery of services at scale, via a streamlined operating model, delivering cost efficiency and economies of scale.

The Language Resources division reported return on sales of 16.0% down from 36.0%, due to movements in customer mix, resulting in a lower gross margin percentage, as explained above. The Content Relevance division reported return on sales of 21.7% up from 16.8%, impacted positively by the Leapforce acquisition and by continued improvements in operational scale and efficiency.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the Group during the financial half-year.

Rounding of amounts

The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 (Rounding Instrument), issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report.

This report is made in accordance with a resolution of directors, pursuant to section 306(3)(a) of the Corporations Act 2001.

On behalf of the directors

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_________ Christopher Vonwiller Director

28 August 2018 Sydney

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Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Appen Limited

I declare that, to the best of my knowledge and belief, in relation to the review of Appen Limited for the half-year ended 30 June 2018 there have been:

i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
ii. no contraventions of any applicable code of professional conduct in relation to the review.

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KPMG

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Tony Nimac

Partner

Sydney

28 August 2018

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Appen Limited Consolidated statement of profit or loss and other comprehensive income For the half-year ended 30 June 2018

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Note Revenue 4 Interest income calculated using the effective interest method Net foreign exchange gain Expenses Services purchased - data collection Employee benefits expense Share-based payments expense 5 Depreciation and amortisation expense 5 Travel expense Professional fees Rental expense Communication expense Transaction costs 5 Net foreign exchange loss Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the half-year attributable to the owners of Appen Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the half-year, net of tax Total comprehensive income for the half-year attributable to the owners of Appen Limited Basic earnings per share 12 Diluted earnings per share 12	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 152,743 74,057 12 1 - 558 (97,417) (43,618) (20,446) (13,393) (1,755) (141) (4,520) (1,119) (711) (437) (1,514) (899) (883) (388) (417) (132) (873) - (1) - (4,844) (2,839) (1,573) (3) 17,801 11,647 (3,765) (3,532) 14,036 8,115 (201) (1,928) (201) (1,928) 13,835 6,187 Cents Cents 13.22 8.32 13.00 8.21
	17,801 (3,765)
	14,036 (201)
	(201)
	13,835
	Cents 13.22 13.00

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

Appen Limited Consolidated statement of financial position As at 30 June 2018

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Note Assets Current assets Cash and cash equivalents Trade and other receivables 6 Derivative financial instruments Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles 7 Deferred tax Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities 8 Derivative financial instruments Income tax Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital 9 Reserves Accumulated losses Total equity	Group 30 Jun 2018 31 Dec 2017 $'000 $'000 23,589 24,015 55,652 42,908 - 123 1,219 1,121 80,460 68,167 4,883 1,762 114,061 116,253 2,233 - 40 1,866 121,217 119,881 201,677 188,048 24,111 21,173 1,672 1,237 109 46 460 1,303 1,552 1,151 27,904 24,910 64,896 67,885 2,613 1,369 417 473 67,926 69,727 95,830 94,637 105,847 93,411 69,589 69,569 40,128 27,712 (3,870) (3,870) 105,847 93,411
	80,460
	4,883 114,061 2,233 40
	121,217
	201,677
	24,111 1,672 109 460 1,552
	27,904
	64,896 2,613 417
	67,926
	95,830
	105,847
	69,589 40,128 (3,870)
	105,847

The above consolidated statement of financial position should be read in conjunction with the accompanying notes

Appen Limited Consolidated statement of changes in equity For the half-year ended 30 June 2018

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Issued capital $'000 19,510 - -	Reserves $'000 19,763 - (1,928)	Accumulated losses $'000 (3,870) 8,115 -
- 285 - - -	(1,928) - 8,115 141 (2,928)	8,115 - (8,115) - -
19,795	23,163	(3,870)
Issued capital $'000 69,569 - -	Reserves $'000 27,712 - (201)	Accumulated losses $'000 (3,870) 14,036 -
- 20 - - -	(201) - 14,036 1,755 (3,174)	14,036 - (14,036) - -
69,589	40,128	(3,870)

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes

Appen Limited Consolidated statement of cash flows For the half-year ended 30 June 2018

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Note Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Transaction costs paid for prior year acquisition Payments for property, plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares 9 Repayment of borrowings Dividends paid 10 Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial half-year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial half-year	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 142,647 71,891 (121,072) (59,244) 21,575 12,647 12 1 (1,417) (3) (5,639) (3,493) 14,531 9,152 (3,513) - (1,946) (581) (377) (1,568) (5,836) (2,149) 20 285 (6,804) - (3,174) (2,928) (9,958) (2,643) (1,263) 4,360 24,015 16,471 837 (845) 23,589 19,986
	21,575 12 (1,417) (5,639)
	14,531
	(3,513) (1,946) (377)
	(5,836)
	20 (6,804) (3,174)
	(9,958)
	(1,263) 24,015 837
	23,589

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 1. General information

The financial statements cover Appen Limited as a Group consisting of Appen Limited (the 'Company') and the entities it controlled at the end of, or during, the half-year (collectively referred to as the 'Group'). The financial statements are presented in Australian dollars, which is Appen Limited's functional and presentation currency.

Appen Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Level 6 9 Help Street Chatswood NSW 2067

A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements.

The financial statements were authorised for issue, in accordance with a resolution of directors, on 28 August 2018.

Note 2. Significant accounting policies

These financial statements for the interim half-year reporting period ended 30 June 2018 have been prepared in accordance with Australian Accounting Standard AASB 134 'Interim Financial Reporting' and the Corporations Act 2001, as appropriate for for-profit oriented entities. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'.

These financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the prior year annual report and any public announcements made by the Company during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The principal accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the policies stated below.

New or amended Accounting Standards and Interpretations adopted

The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period.

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group’s various services are set out below.

Initial adoption of AASB 15 'Revenue from contracts with customers'

Under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement.

Type of service Nature of service Content Relevance Content Relevance provides annotated data used in search technology (embedded in web, e-commerce and social engagement) for improving relevance and accuracy of search engines, social media applications and e-commerce. Language Resources Language Resources provides annotated speech and image data used in speech recognisers, machine translation, speech synthesisers and other machine-learning technologies resulting in more engaging and fluent devices including internetconnected devices, in-car automotive systems and speech-enabled consumer electronics.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 2. Significant accounting policies (continued)

Timing of satisfaction of performance obligations and significant payment terms

The Group has determined that for both Content Relevance and Language Resources services, the customer obtains control of the data as the services are being performed. This is because under those contracts, the services are provided to a customer's specification and if a contract is terminated by a customer, then the Group is entitled to the payment for services performed to date. Therefore, revenue from these contracts and the associated costs are recognised over time i.e. before the date of delivery to the customer.

Under AASB 15, the total consideration in the contract is allocated to each service based on the stand alone selling prices. Invoices are issued according to contractual terms and are payable with varying payment terms. Uninvoiced amounts are presented as contract assets. Amounts invoiced in advance of the service are presented as contract liabilities.

Nature of change in accounting policy

AASB 15 did not have a significant impact on the Group’s accounting policy. Under AASB 118, uninvoiced amounts were presented as work in progress. Under AASB 15, as control passes to the customer over time, uninvoiced amounts are presented as contract assets. On transition to AASB 15, other liabilities were reclassified as contract liabilities.

There was no material impact of transition to AASB 15 on the opening balance of retained earnings.

Initial adoption of AASB 9 'Financial Instruments'

The Group has adopted AASB 9 from 1 January 2018. The adoption of AASB 9 has resulted in changes to the Group's accounting policies as follows:

AASB 9 sets out the requirements to recognise and measure financial assets and financial liabilities. This standard replaces AASB 139 'Financial Instruments: Recognition and Measurement'. There was no material impact of transition to AASB 9 on the opening balance of retained earnings. The details of this new significant accounting policy is set out below.

Financial assets

Under AASB 9, on initial recognition, a financial asset is classified at amortised cost or fair value through profit or loss ('FVTPL'). The classification under AASB 9 is based on the Group's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A financial asset is measured at amortised cost only if: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest, and is not designated as at FVTPL.

All financial assets not measured at amortised cost as described above are measured at FVTPL. This includes all derivative assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost as at FVTPL if doing so eliminates or significantly reduces an accouting misstatement that would otherwise arise.

The following accounting policies apply to the subsequent measurement of financial assets.

Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains or losses, including interest or dividend income are recognised in profit or loss.

Financial assets at amortised cost These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see impairment of financial assets).

Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

The following table and accompanying notes below explain the original measurement categories under AASB 139 and the new measurement categories under AASB 9 for each class of the Group's financial assets as at 1 January 2018.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 2. Significant accounting policies (continued)

Financial assets Original classification New classification Change in carrying amount Trade and other receivables Loans and receivables Amortised cost There was no impact on the carrying amount from the transition to AASB 9 Cash and cash equivalents Loans and receivables Amortised cost Forward foreign exchange Held-for-trading FVTPL contract (derivative financial instruments)

Impairment of financial assets

The AASB 9 impairment model is based on an expected credit loss ('ECL') methodology instead of the incurred loss methodology of AASB 139.

Impairment of receivables

The Group has elected to measure loss allowances on trade receivables using a life-time expected loss model. The Group has also used the practical expedient of a provisions matrix using a single loss rate approach to approximate the expected credit losses. These provisions are considered representative across all business and geographic segments of the Group based on historical credit loss experience over the past five years.

The Group has determined that the application of AASB 9's impairment requirement at 1 January 2018 did not result in a material change to the impairment allowance.

Note 3. Operating segments

Identification of reportable operating segments

The Group is organised into two operating segments based on differences in products and services provided: Content Relevance and Language Resources. These operating segments are based on the internal reports that are reviewed and used by the Group's Chief Executive Officer ('CEO'), who is identified as the Chief Operating Decision Maker, in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments.

The CEO reviews a set of financial reports which covers EBITDA (earnings before interest, tax, depreciation and amortisation), revenue and operating segment reports on a monthly basis. The accounting policies adopted for internal reporting to the CEO are consistent with those adopted in the financial statements.

Types of products and services

The principal products and services of each of these operating segments are as follows:

Content Relevance Content Relevance provides annotated data used in search technology (embedded in web, e-commerce and social engagement) for improving relevance and accuracy of search engines, social media applications and e-commerce. Language Resources Language Resources provides annotated speech and image data used in speech recognisers, machine translation, speech synthesisers and other machine-learning technologies resulting in more engaging and fluent devices including internet-connected devices, in-car automotive systems and speech-enabled consumer electronics.

Intersegment transactions

Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation.

Intersegment receivables, payables and loans

Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 3. Operating segments (continued)

Major customers

During the financial half-year ended 30 June 2018 approximately 88% (30 June 2017: 88%) of the Group's external revenue was derived from sales to five major customers.

Operating segment information

Content Relevance $'000 131,167 - -	Language Resources $'000 21,510 - -	Other segments $'000 - 12 66	Total $'000 152,677 12 66
131,167	21,510	78	152,755
28,513	3,441	66	32,020 (4,783) (714) (1) (922) (833) (873) (4,520) (1,573)
Content Relevance $'000 53,305 - -	Language Resources $'000 20,747 - -	Other segments $'000 - 1 5
			17,801 (3,765)
			14,036
			Total $'000 74,052 1 5
53,305	20,747	6	74,058
8,982	7,472	(693)	15,761 (3,023) (374) 558 (141) (12) (1,119) (3)

			11,647 (3,532)
			8,115

Amortisation expense includes AUD$572,719 for the disposal of ERP system purchased in March 2014, since there is no probable future economic benefits.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 3. Operating segments (continued)

Geographical information

Australia US Other countries	Services revenue 30 Jun 2018 30 Jun 2017 $'000 $'000 17,007 18,286 134,918 54,989 752 777	Services revenue 30 Jun 2018 30 Jun 2017 $'000 $'000 17,007 18,286 134,918 54,989 752 777	Geographical non-current assets 30 Jun 2018 31 Dec 2017 $'000 $'000 1,080 1,106 111,964 114,035 5,940 4,740	Geographical non-current assets 30 Jun 2018 31 Dec 2017 $'000 $'000 1,080 1,106 111,964 114,035 5,940 4,740
	152,677	74,052	118,984	119,881

Note 4. Revenue

Revenue from contracts with customers Services revenue Other income Other income Revenue	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 152,677 74,052	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 152,677 74,052
	66	5
	152,743	74,057

Disaggregation of services revenue

Services revenue is disaggregated by type of service and primary geographical country as follows:

Content Relevance $'000 - 131,167 -	Language Resources $'000 17,007 3,751 752	Total $'000 17,007 134,918 752
131,167	21,510	152,677
Content Relevance $'000 - 53,305 -	Language Resources $'000 18,286 1,684 777	Total $'000 18,286 54,989 777
53,305	20,747	74,052

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 4. Revenue (continued)

	30 Jun 2018	1 Jan 2018
	$'000	$'000
Receivables which are included in 'Trade and other receivables'	44,150	31,638
Contract assets	11,502	11,270
Contract liabilities	(1,672)	(1,237)

On transition to AASB 15, ‘Work in progress’ balances were reclassified as ‘Contract assets’. ‘Unearned revenue’ was reclassified as ‘Contract liabilities’.

There were no other impacts from the application of AASB 15.

The contract assets primarily relate to the Group's right to consideration for work completed but not billed at the reporting date. The contract assets are transferred to receivables when the right becomes unconditional. This usually occurs when the Group issues an invoice to the customer. The contract consideration received from customer is recognised over time.

The amount of revenue recognised in contract liabilities at the beginning of the period has been disclosed in note 8.

Note 5. Expenses

Profit before income tax includes the following specific expenses: Depreciation and amortisation Depreciation expense Amortisation expense Total depreciation and amortisation Transaction costs Transaction costs Post-acquisition integration cost Total transaction costs Share-based payments expense Share-based payment in respect of Leapforce vendor shares (contingent on employment) Share-based payment in respect of Appen performance rights Total share-based payments expense	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 688 135 3,832 984	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 688 135 3,832 984
	4,520	1,119
	68 805	- -
	873	-
	833 922	- 141
	1,755	141

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 6. Current assets - trade and other receivables

Trade receivables Less: Allowance for expected credit losses Other receivables Contract assets GST receivable Note 7. Non-current assets - intangibles Goodwill - at cost Systems implementation - at cost Less: Accumulated amortisation Platform development - at cost Less: Accumulated amortisation Customer relationships - at cost Less: Accumulated amortisation Crowd database - at cost Less: Accumulated amortisation Customer contracts - at cost Less: Accumulated amortisation Other intangibles - at cost Less: Accumulated amortisation	Group 30 Jun 2018 31 Dec 2017 $'000 $'000 43,250 30,923 (80) (75) 43,170 30,848 980 498 11,502 11,270 - 292 55,652 42,908 Group 30 Jun 2018 31 Dec 2017 $'000 $'000 75,738 111,869 5,022 4,732 (2,159) (1,802) 2,863 2,930 4,317 2,036 (1,424) (968) 2,893 1,068 34,320 - (2,537) - 31,783 - 1,052 - (653) - 399 - 3,213 3,035 (2,970) (2,765) 243 270 513 467 (371) (351) 142 116 114,061 116,253
	5,022 (2,159)
	2,863
	4,317 (1,424)
	2,893
	34,320 (2,537)
	31,783
	1,052 (653)
	399
	3,213 (2,970)
	243
	513 (371)
	142
	114,061

Note 7. Non-current assets - intangibles

Goodwill has been adjusted to recognise the separately identifiable intangible assets associated with the Leapforce acquisition.

Valuations

These identifiable intangible assets have been valued according to the following valuation methodologies:

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 7. Non-current assets - intangibles (continued)

Customer relationships Customer relationships were valued on an excess earnings basis. The excess earnings method is predicated on the basis that the value of an intangible asset is the present value of the earnings it generates, net of a reasonable return on other assets also contributing to that stream of earnings. Crowd database Crowd database was valued on a replacement cost basis. Under the replacement cost-based methodology, the value of an intangible asset is estimated by reference to the costs that would have to be expended in order to recreate the asset or the cost historically incurred to create the asset. Platform development Platform development was valued on a replacement cost basis. Under the replacement cost-based methodology, the value of an intangible asset is estimated by reference to the costs that would have to be expended in order to recreate the asset or the cost historically incurred to create the asset. This was cross checked to the relief from royalty methodology. The relief from royalty methodology involves estimating the amount of hypothetical royalty that would be paid if the identifiable intangible asset was licensed from an independent third party owner. The fair value of the identifiable intangible asset is the net present value of the prospective stream of hypothetical royalty savings that would be generated over the expected useful life of the intangible asset.

Note 8. Current liabilities - contract liabilities

Deposits received in advance Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous financial half-year are set out below: Opening balance Payments received in advance Transfer to revenue Revaluation Closing balance	Group 30 Jun 2018 31 Dec 2017 $'000 $'000 1,672 1,237	Group 30 Jun 2018 31 Dec 2017 $'000 $'000 1,672 1,237
	1,237 1,739 (1,345) 41	716 990 (443) (26)
	1,672	1,237

Unsatisfied performance obligations

The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period was $1,672,000 as at 30 June 2018 ($1,237,000 as at 31 December 2017) and is expected to be recognised as revenue in future periods as follows:

				Group	Group
			30	Jun 2018	31	Dec 2017
				$'000		$'000
Within	6	months		1,672		1,237

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 9. Equity - issued capital

30 Jun 2018 Shares Ordinary shares - fully paid 106,449,181 Movements in ordinary share capital Details Date Balance 1 January 2018 Issue of shares on exercise of performance rights 1 March 2018 Shares issued under Share Purchase plan 4 June 2018 Issue of shares on exercise of options 28 June 2018 Balance 30 June 2018 Note 10. Equity - dividends Dividends paid during the financial half-year were as follows:	Group 31 Dec 2017 30 Jun 2018 Shares $'000 105,804,907 69,589	Group 31 Dec 2017 30 Jun 2018 Shares $'000 105,804,907 69,589	31 Dec 2017 $'000 69,569
	Shares 105,804,907 520,040 83,334 40,900	Issue price $10.600 $10.210 $0.494	$'000 69,569 - - 20 69,589
	106,449,181

Final dividend paid out of the profits reserve for the year ended 31 December 2017 of 3.0 cents per ordinary share (2017: 3.0 cents)		Group 30 Jun 2018 30 Jun 2017 $'000 $'000 3,174 2,928

	Group	Group
	30 Jun 2018	30	Jun 2017
	$'000		$'000
Final dividend paid out of the profits reserve for the year ended 31 December 2017 of 3.0
cents per ordinary share (2017: 3.0 cents)	3,174		2,928

Note 11. Contingent liabilities

The Group has given bank guarantees as at 30 June 2018 of $133,000 (31 December 2017: $133,000) to various landlords.

Appen Limited Notes to the consolidated financial statements 30 June 2018

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Note 12. Earnings per share

Profit after income tax attributable to the owners of Appen Limited Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options and rights over ordinary shares Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 14,036 8,115	Group 30 Jun 2018 30 Jun 2017 $'000 $'000 14,036 8,115
	Number 106,167,208 1,811,928	Number 97,532,356 1,293,324
	107,979,136	98,825,680
	Cents 13.22 13.00	Cents 8.32 8.21

Note 13. Events after the reporting period

Apart from the dividend declared as disclosed in note 10, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.

Appen Limited Directors' declaration 30 June 2018

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In the directors' opinion:

the attached financial statements and notes comply with the Corporations Act 2001, Australian Accounting Standard AASB 134 'Interim Financial Reporting', the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2018 and of its performance for the financial half-year ended on that date; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of directors made pursuant to section 303(5)(a) of the Corporations Act 2001.

On behalf of the directors

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_________ Christopher Vonwiller Director 28 August 2018 Sydney

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Independent Auditor’s Review Report

To the members of Appen Limited

Report on the Half-year Financial Report

Conclusion

We have reviewed the accompanying Half-year Financial Report of Appen Limited.

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 Appen Limited is not in accordance with the Corporations Act 2001 , including:

giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the Half-year ended on that date; and
complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

The Half-year Financial Report comprises:

Consolidated statement of financial position as at 30 June 2018
Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity and Consolidated statement of cash flows for the Half-year ended on that date
Notes 1 to 13 comprising a summary of significant accounting policies and other explanatory information
The Directors’ Declaration.

The Group comprises Appen Limited (the Company) and the entities it controlled at the Half year’s end or from time to time during the Half-year.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

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Responsibilities of the Directors 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
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 for the review of the Half-year Financial Report

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 30 June 2018 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As auditor of Appen Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

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.

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 .

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KPMG

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Tony Nimac

Partner

Sydney

28 August 2018 Sydney

AI assistant

APPEN LIMITED — Interim / Quarterly Report 2018

64403_rns_2018-08-27_c8967d95-9fee-4ba7-ba6a-d42f8a5cab20.pdf

1. Company details

2. Results for announcement to the market

Comments

3. Net tangible assets

4. Control gained over entities

5. Loss of control over entities

6. Dividends

7. Dividend reinvestment plans

8. Details of associates and joint venture entities

9. Foreign entities

10. Audit qualification or review

11. Attachments

12. Signed

Appen Limited ABN 60 138 878 298

Directors

Principal activities

Dividends

Review of operations

Significant changes in the state of affairs

Rounding of amounts

Auditor's independence declaration

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Appen Limited

Appen Limited Consolidated statement of profit or loss and other comprehensive income For the half-year ended 30 June 2018

Appen Limited Consolidated statement of changes in equity For the half-year ended 30 June 2018

Appen Limited Consolidated statement of cash flows For the half-year ended 30 June 2018

Note 1. General information

Note 2. Significant accounting policies

New or amended Accounting Standards and Interpretations adopted

Initial adoption of AASB 15 'Revenue from contracts with customers'

Note 2. Significant accounting policies (continued)

Timing of satisfaction of performance obligations and significant payment terms

Nature of change in accounting policy

Initial adoption of AASB 9 'Financial Instruments'

Financial assets

Note 2. Significant accounting policies (continued)

Impairment of financial assets

Impairment of receivables

Note 3. Operating segments

Identification of reportable operating segments

Types of products and services

Intersegment transactions

Intersegment receivables, payables and loans

Note 3. Operating segments (continued)

Major customers

Operating segment information

Note 3. Operating segments (continued)

Geographical information

Note 4. Revenue

Disaggregation of services revenue

Contract balances

Note 4. Revenue (continued)

Note 5. Expenses

Note 6. Current assets - trade and other receivables

Note 7. Non-current assets - intangibles

Valuations

Note 7. Non-current assets - intangibles (continued)

Note 8. Current liabilities - contract liabilities

Unsatisfied performance obligations

Note 9. Equity - issued capital

Note 11. Contingent liabilities

Note 12. Earnings per share

Note 13. Events after the reporting period

Independent Auditor’s Review Report

Report on the Half-year Financial Report

Conclusion

The Half-year Financial Report comprises:

Responsibilities of the Directors for the Half-year Financial Report

Auditor’s responsibility for the review of the Half-year Financial Report

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APPEN LIMITED Interim / Quarterly Report 2018