COMMS GROUP LTD — Annual Report 2018

Aug 29, 2018

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APPENDIX 4E

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2018

The following sets out the requirements of Appendix 4E with the stipulated information provided here.

1. COMPANY DETAILS

CommsChoice Group Limited and its controlled entities (“the Group”) ACN 619 196 539 Reporting period: 30 June 2018 Previous corresponding reporting period: First reporting period

2. RESULTS FOR ANNOUNCEMENT TO THE MARKET

	Increase/Decrease	Change %	To $'000
First reporting period – no comparable period available
Revenue from continuing operations	n/a	n/a	11,170
Loss from ordinary activities after tax attributable to members	n/a	n/a	(3,712)
Net loss for the period attributable to members	n/a	n/a	(3,712)

Dividend

No dividend has been declared.

Operating and Financial Review

CommsChoice listed on the ASX on 21 December 2017 and reports its trading results for the six months and sixteen days since formation of the operational trading Group on 15 December 2017.

The Group’s statutory loss after tax of $3.7m has been influenced by the IPO related transaction costs of $4.1m, together with the amortisation of the acquired intangible assets of $0.9m.

The Group therefore also presents supplementary financial information (Pro forma) to cover a full financial year that comprises the operational forecasts of the acquired businesses for the first half of the financial year together with the actual results for the second half. CommsChoice Group’s pro forma result for the twelve months to 30 June 2018 is in line with the trading update on 31 May 2018, delivering pro forma revenues from operations of $20.7m. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations were $1.8m, in line with May 2018 guidance.

Group Result

The Group result in the first period of trading is comprised as follows:

	Statutory FY18	Pro forma FY18
First reporting period
5 trading companies acquired 15 December 2017	6 months + 16 days	6 months forecast
	actual results	+ 6 months actual
		results
Parent company	Fully year results	Fullyear results

The 6 month forecast period for the Pro forma FY18 is from 1 July 2017 to 31 December 2017. The 6 month actual period is from 1 January 2018 to 30 June 2018.

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A reconciliation of underlying EBITDA from continuing operations to the reported profit before tax from continuing operations in the consolidated statement of comprehensive income is tabled below:

		Statutory FY18	Statutory FY18
		$M
First reporting period
Revenue		11.1
Loss before tax		(4.7)
Add: IPO / Business integration costs		4.1
Add: net finance costs		-
Add: depreciation and amortisation		0.9
EBITDA forperiod		0.3
	Pro forma FY18 $M	Trading Update FY18
			$M
Revenue	20.7		20.4
Grossprofit	9.0		9.3
Operating costs	(7.2)		(7.5)
EBITDA forperiod	1.8		1.8

Earnings per share

Earnings per share for the period is as follows:

	Statutory FY18	Pro forma FY18
Netprofit after tax($m)	(3.71)	0.63
Earningsper share(cents)	(6.71)	1.13
Diluted earningsper share(cents)	(6.71)	0.90
Netprofit after tax(ex-amortisation) ($m)	(3.07)	1.27
Earningsper share(cents)	(5.54)	2.30
Diluted earningsper share(cents)	(5.54)	1.83

Period in review

CommsChoice’s full year results demonstrate a solid start underpinned by recurring revenues and underlying profitability.

Voice Networks $8.5m (six months and sixteen days) $15.7m annualised

We primarily generate voice revenues and unified communications from our cloud-based PBX service. We focus on acquiring and retaining our customers and increasing their spending with us through adding additional users, increasing bandwidth connectivity and moving into the WAN with managed services. Through strategic global channels we are able to deliver unified communications into global locations with a number of projects bringing the multi-disciplinary capabilities of the business together. For one client, we have built a dedicated voice switching server capable of extremely high call volumes (tested to 10,000 channels). This purpose-built voice server allowed our client to leverage our international carrier relationships to provide multiple tier-1 carrier call termination pathways.

Data Networks $1.5m (six months and sixteen days) $2.8m annualised

We target clients with costly and complex carrier MPLS/IPWAN/PDNs with software defined networking (SD-WAN) to use bandwidth more efficiently and improve application performance across the WAN. SD-WAN leverages a range of access networks, such as the IPVPN, Internet, and LTE, and uses software defined networking (SDN) to intelligently route traffic

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along the best available path. We generate revenue by providing data links and licence fees for SD-WAN connectivity.

Software Defined Wide Area Networking (SD-WAN) is a new way for businesses to use bandwidth more efficiently and improve application performance in the WAN. It leverages a range of access networks, such as the IPVPN, Internet, and LTE, and uses software defined networking (SDN) to intelligently route traffic along the best available path. Being carrier neutral means we can select the best available connectivity in a client’s service area and run the software defined network on top of the underlying infrastructure.

Managed Services $1.1m (six months and sixteen days) 2.0m annualised

We help our clients get the most from their networks by partnering to understand their requirements and integrate SD-WAN solutions as part of a broader technology mix, that includes hosted unified communications and cloud connectivity within a flexible delivery framework. We generate revenue through a mix of professional services upfront in the design, procurement and installation of networks and through ongoing monthly fees for management including monitoring and maintenance, help desk and technical support, service delivery and account management.

Business Integration

Integration of the business is delivering tangible benefits for our clients and employees. We successfully rebranded the business with our promise of making our clients journey to the cloud simpler. Our employees now work under a single organisational structure and management team which provides focus around the markets we operate in and our clients in those markets. We are well progressed with the integration of our key business systems. We have kicked-off the implementation of the NetSuite project which will provide the core financial system as well as our broader ERP solutions. We have consolidated our billing systems substantially as well as our wholesale carrier feeds, which provides line of sight between revenue and gross margin. We are using Sales Force as our CRM and NetSuite as our project delivery system which connects our back-office client support functions (delivery and assurance) across Australia and Philippines with our sales team and clients.

Deferred consideration

Under the terms of the individual sale and purchase agreements, 10% of the consideration equity was unissued (deferred) pending the preparation of the completion accounts and the subsequent working capital adjustment. The last set of completion accounts have now been prepared and 120,302 of the deferred equity consideration shares are to be issued on Monday 3 September 2018.

Of the total 9.2m deferred shares entitled to be issued under the sale and purchase agreements (subject to finalisation of the completion accounts) 3.6m deferred shares will not be issued and are forfeited as consideration by the vendors.

3. INCOME STATEMENT WITH NOTES TO THE STATEMENT

Revenue Other income Cost of sales Employee benefits expense Share based payments IPO Discount on note conversion IPO Administration Expenses Sales & Marketing expenses Professional fees Bad debts expense Rent expenses Depreciation & Amortisation Finance expenses Other Expenses Income tax benefit Profit/(Loss) for the period	30 June 2018 $ 11,134,983 35,588 (6,368,146) (2,964,565) (2,200,000) (250,000) (850,229) (344,446) (1,604,519) 17,115 (176,354) (906,616) (24,446) (197,154)
	(4,698,789) 987,018
	(3,711,771)

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The above loss before tax of $4.7m has been impacted by $4.1m of IPO and transaction related costs and $0.9m of amortisation of intangible assets arising from the acquisitions.

4. BALANCE SHEET WITH NOTES TO THE STATEMENT

Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current Assets Investments Property, Plant & Equipment Intangible Assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Deferred revenue Provisions Income tax payable Total current liabilities Non-current liabilities Provisions Deferred tax liability Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Other reserve - shares to be issued Retained Earnings Total Equity	30 June 2018 $ 1,705,251 1,316,466 837,229
	3,858,946
	1,991 203,043 29,759,063 1,072,575
	31,036,672
	34,895,618
	2,774,868 269,679 270,212 361,138
	3,675,899
	116,903 2,556,892 28,806
	2,702,601
	6,378,500
	28,517,118
	26,205,888 6,214,974 (3,903,744)
	28,517,118

Intangible assets primarily arise on the acquisitions during the period and include goodwill of $18.2m and identifiable intangible assets of $11.6m.

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5. CASH FLOWS STATEMENT WITH NOTES TO THE STATEMENT

Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest paid Income tax (paid)/refund Net cash inflow (outflow) from operating activities Cash flows from investing activities Software purchase and IT systems Payments for property, plant & equipment Payment for acquisition of subsidiaries, net of cash acquired Payment to suppliers for IPO and transaction related costs Net cash inflow (outflow) from investing activities Cash flows from financing activities Proceeds from issue of convertible notes net of fees Other IPO share raising costs Payments for IPO net of fees Net proceeds / (repayment) of borrowings Net cash inflow (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at end of period	30 June 2018
	$
	10,712,047 (11,689,938) (18,136) 28,370
	(967,657)
	(764,720) (56,325) (1,978,957) (1,572,305)
	(4,372,307)
	957,000 (1,246,707) 7,500,000 (303,314)
	6,906,979
	1,567,015 138,236
	1,705,251

6. DIVIDENDS

No dividend has been declared.

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7. STATEMENT OF CHANGES IN EQUITY

	Contributed equity	Share-based payments reserves	Retained earnings	Total
	$	$	$	$
Balance at 1 July 2017	-	-	(191,974)	(191,974)
				-
Profit/(loss) for the period			(3,711,770)	(3,711,770)
Other comprehensive income				-
Total comprehensive income/(loss) for the year	-	-	(3,903,744)	(3,903,744)
Transactions with owners in their capacity as owners:
Contributions to equity net of transaction costs	26,205,888	-	-	26,205,888
Warrants issued	-	340,291	-	340,291
Deferred consideration	-	4,624,683	-	4,624,683
Director remuneration	-	1,250,000	-	1,250,000
Balance at 30 June 2018	26,205,888	6,214,974	(3,903,744)	28,517,118

8. NET TANGIBLE ASSET PER SECURITY

Net tangible assets per ordinary share: (1.14) cents per share (2017: n/a). The Group has negative tangible assets as at 30 June 2018.

9. ENTITIES OVER WHICH CONTROL HAS BEEN GAINED DURING THE PERIOD

None

10. ANY OTHER SIGNIFICANT INFORMATION NEEDED BY AN INVESTOR TO MAKE AN INFORMED ASSESSMENT OF THE GROUP’S FINANCIAL PERFORMANCE AND FINANCIAL POSITION

Note to the financial statements

This note provides a list of the significant accounting policies that are adopted in the preparation of the consolidated financial statements.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Accounting Standards and Interpretations issued by the Australian Standards Board (AASB) and the Corporations Act 2001. CommsChoice Group is a for-profit entity for the purpose of preparing the financial statements.

(i) Compliance with IFRS

The financial statements of CommsChoice Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

(ii) Historical cost convention

The financial statements have been prepared under the historical cost convention unless otherwise indicated.

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(iii) New standards and interpretations not yet adopted

Accounting Standards and Interpretations issued by AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below:

AASB 15: Revenue from contracts with customers

The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards.

The new standard is effective for all reporting periods commencing 1 January 2018 and therefore applicable from 1 July 2018 for CommsChoice Group. Management therefore expect to fully implement the standard in the financial year 2019 reporting period, accompanied with a reconciliation from the old standard to the new standard for financial year 2019 in line with the requirements of the standard.

Revenue arises from the sale of goods and the rendering of services. It is measured by reference to the fair value of the consideration received or receivable net of discounts.

The Group recognises revenue when the amount can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The consideration received from multiple-component transactions is allocated to the separately identifiable components in proportion to its relative fair value. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

The Group has chosen not to early adopt and apply AASB 15 Revenue from Contracts with Customers.

Revenue is recognised for the major business activities as follows:

• Voice network income

• Data network income

• Managed services income

Revenue is recognised to depict the transfer of promised goods or services to customers with an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services.

This is affected by the following framework:

• identifying customer contracts

• identifying contractual performance obligations

• determining the transaction price

• allocation of the transaction price to the contractual performance obligations

• recognising revenue as the Group satisfies a performance obligation.

When goods or services are sold together, the consideration receivable is allocated between the sale of hardware, installation activity and sale of communication services based on their fair values.

The Directors have completed their assessment of the impact of the effect of AASB 15 Revenue and have determined that there is unlikely to be a material impact in regard to when revenue is recognised or in regard to the expensing of contract costs. From following the above framework it is anticipated that the allocation of the transaction price on one contract between the contractual performance obligations will be impacted by AASB15. The net impact will be to recognise additional revenue for the delivery of services that had previously been recognised for the delivery of consulting activities. The net impact is anticipated to be approximately $0.2m in the year to 30 June 2019.

AASB 16 - Leases

In February 2016, the AASB issued AASB 16 Leases. The standard provides a single lessee accounting model, lessees to recognise an asset (the right to use the leased item) and a financial liability to pay rentals. The only exemptions are where the lease term is 12 months or less, or the underlying asset has a low value. Lessor accounting is substantially unchanged under AASB 16.

In principle it requires lessees to recognise operating leases on their balance sheets as lease liabilities with corresponding right-ofuse assets. The Group is in the process of assessing the impact of the new standard on its leasing contracts and it is possible that the introduction of this new standard will have a material impact due to bringing the existing off balance sheet property leases on to the balance sheet when AASB 16 is first adopted. The standard must be adopted for financial years commencing on or after 1 January 2019. The Group has not yet decided when to adopt AASB 16.

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AASB 9: Financial Instruments

The standard addresses the classification, measurement and derecognition of financial instruments. For financial liabilities that are measured under the fair value option, entities will need to recognise the part of the fair value change that is due to changes in their own credit risk in other comprehensive income rather than profit or loss. New hedge accounting rules align hedge accounting more closely with common risk management processes. As a general rule, it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. In December 2014, the AASB introduced a new impairment model. The new impairment model is an expected credit loss (ECL) model which may result in the earlier recognition of credit losses.

The new standard is effective for all reporting periods commencing 1 January 2018 and therefore applicable from 1 July 2018 for CommsChoice Group.

(b) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2018 and the results of all subsidiaries for the year then ended. The Company and its subsidiaries together are referred to in these financial statements as the “consolidated entity”.

Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns form its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is gained by the consolidated entity. They are de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity, are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changes where necessary to ensure consistency with the policies adopted by the consolidated entity.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.

(c) Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, liabilities incurred to the former owners of the acquired business, equity interests issued by the group, fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(d) Critical accounting estimates and judgements

Accounting estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of trade and other receivables

Where there is objective evidence of impairment of receivables, management makes judgements as to whether an impairment loss

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should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

(ii) Estimation of useful lives of assets

The Group reviews the estimated useful lives of property plant and equipment at the end of each financial year. The Group adjusts the remaining effective useful life of its assets to better reflect their actual usage and future economic benefit.

(iii) Goodwill and other indefinite life intangible assets

The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy.The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows.

(iv) Recoverable amount of internally generated intangible assets

The major sources of estimation uncertainty in assessing the recoverable amount of internally generated intangible assets are judgements relating to future sales order growth and pricing and the customer utilisation, the group’s ability to manage operating and capital expenditure and the cost of capital. Should the future performance of the group differ from these estimations the assessment of the recoverable amount of internally generated intangible assets would be different and may impact the impairment testing result.

(v) Recognition of deferred tax assets

The Group is expected to join as members of a tax consolidated group under Australian taxation law subsequent to the publication of the financial statements. At this time, historical losses accumulated by the operating subsidiaries in the group prior to acquisition by the Company have not been recognised as a deferred tax asset.

(vi) Business combinations

As discussed in (c) above, business combinations are initially accounted for at fair value on acquisition . The assessment of fair value can be provisional depending upon the date of the acquisition and the reporting end date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported.

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised for the major business activities using the methods outlined below:

(i) Voice network income

Revenue from voice contracts is recognised in the accounting period in which the services are rendered.

(ii) Data network income

Revenue from data contracts is recognised in the accounting period in which the services are rendered.

(iii) Managed services income

Revenue from managed services contracts is recognised in the accounting period in which the services are rendered.

(iv) Interest income

Bank interest is recognised when received.

(f) Income tax

The income tax expense or credit for the year is the tax payable on the current year's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences

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and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting year and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(i) Investment allowances and similar tax incentives

Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure (eg Research and Development Tax Incentive regime in Australia or other investment allowances). The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that are carried forward as deferred tax assets.

(g) Leases

(i) Finance leases

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables.

Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each year. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term.

(ii) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

(h) Intangible assets

(i) Goodwill

Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units (CGU) for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

(ii) Customer contracts and brand Customer contracts and brand acquired in a business combination are recognised as fair value at the acquisition date. They have a finite useful life and are subsequently carried at cost less accumulated amortisation and impairment losses.

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(iii) Internally generated software

All assets reported as internally generated software are held at cost less accumulated amortisation and impairment losses. Intangibles include costs in relation to the development of software systems and products where future benefits are expected to exceed these costs. Costs capitalised include external direct costs of materials and service and direct payroll and payroll-related costs of employees’ time spent on the project during the development phase.

Software and product development costs are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset.

Amortisation is calculated on a straight-line basis on all internally generated software products commencing from the time the asset is ready for use.

The useful lives of these intangible assets are assessed to be either finite or indefinite.

Where amortisation is charged on assets with finite lives, this expense is taken to the consolidated statement of comprehensive income in the expense category 'depreciation and amortisation'.

Intangible assets with a finite life are tested for impairment where an indicator of impairment exists and in the case of indefinite life intangibles annually, either individually at the CGU level or groups of CGU’s. This requires an estimation of the recoverable amount of the CGU’s to which the intangible with finite life is allocated. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the profit and loss.

(iv) Amortisation

Amortisation is calculated on a straight-line basis on all intangibles commencing from the time the asset is ready for use. The estimated useful life of intangibles is as follows:

•	Customer contracts and brands 7-10 years
•	Internally generated software 5 years

(i) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

(j) Provisions

Provisions for legal claims, service warranties and other obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting year. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

(k) Contributed equity

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities

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Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(l) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the net profit/(loss) attributable to members of the Group, excluding any costs of servicing equity other than ordinary shares, divided by the weighted average number of ordinary shares outstanding during the financial year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

Segment reporting

The Group has a number of operating segments which have characteristics that are either so similar in nature that they can reasonably be expected to have the same prospects, or where different, are not material.

The Group's operating segments have therefore been aggregated into one reportable segment under AASB 8 operating segments. The Group's revenues from external customers are all domiciled in Australia.

11. FOR FOREIGN ENTITIES, WHICH SET OF ACCOUNTING STANDARDS IS USED IN COMPILING THE REPORT

Not applicable.

12. COMMENTARY ON THE RESULTS

See above

13. STATUS OF AUDIT

The financial statements are in the process of being audited.

16. DISPUTE OR QUALIFICATION IF NOT YET AUDITED

Not applicable.

17. DISPUTE OR QUALIFICATION IF AUDITED

Not applicable.