Freelancer Limited Directors’ Report `Freelancer Limited ACN 141 959 042

Financial Report and Directors’ Report

For the year ended 31 December 2015

Lodged with the ASX under Listing Rule 4.5

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Directors’ Report

Page Directors’ Report ............................................................................................................................................................. 3 Review of operations ....................................................................................................................................................... 4 Remuneration Report .................................................................................................................................................... 11 Auditor’s Independence Declaration ............................................................................................................................. 15 Consolidated Statement of Profit or Loss and Other Comprehensive Income .............................................................. 16 Consolidated Statement of Financial Position ............................................................................................................... 17 Consolidated Statement of Changes in Equity .............................................................................................................. 18 Consolidated Statement of Cash Flows ........................................................................................................................ 19 Notes to the financial statements .................................................................................................................................. 20 Directors’ Declaration .................................................................................................................................................... 52 Independent Auditor’s Report ........................................................................................................................................ 53 Corporate Directory ....................................................................................................................................................... 58

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Directors’ Report

Your Directors submit the financial report of Freelancer Limited (the Company) for the year ended 31 December 2016. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows.

Directors

The names and particulars of the directors of the Company during or since the end of the financial year (Directors) are:

Matt Barrie	•	Founder and Executive Chairman of the Company.
Executive Chairman (appointed	•	Serial entrepreneur with extensive experience and knowledge in the technology
10 April 2010)		sector. Previously co-founded and was CEO of Sensory Networks Inc., a vendor
		of high performance network security processors, which was acquired by Intel
BE (Hons I) BSc (Hons I)		Corporation Inc. in 2013.
GDipAppFin MAppFin MSEE	•	Formerly Adjunct Associate Professor at the Department of Electrical and
(Stanford) GAICD SEP FIEAust		Information Engineering at the University of Sydney. Co-author of over 20 US
		patent applications.
	•	Qualifications include first class honours degrees in Electrical Engineering and
		Computer Science from the University of Sydney, Masters in Applied Finance
		from Macquarie University, Masters in Electrical Engineering from Stanford,
		California, Graduate of the Stanford Executive Program at the Graduate School
		of Business, Fellow of the Institute of Engineers Australia and Councillor of the
		Electrical and Information Engineering Foundation at the University of Sydney.
	•	Relevant interest in 201,435,285 fully paid ordinary shares, including a relevant
		interest in 9,471,826 fully paid ordinary shares by virtue of having a voting power
		of over 20% in the Company, which has a relevant interest as a result of trading
		restrictions over shares issued under the Employee Share Plan.
	•	Beneficial interest in 191,963,459 fully paid ordinary shares (representing 42.0%
		of issued capital).
	•	Member of the Nomination and Remuneration Committee and Audit Committee.
Darren Williams	•	Non-Executive Director of Company. Was the Chief Technology Officer and
Non-Executive Director from 1		Executive Director of the Company until 31 October 2015.
November 2015. Executive	•	Extensive experience in computer security, protocols, networking and software.
Director until 31 October 2015		Previously co-founded and was CTO (and subsequently CEO) of Sensory
(appointed 10 April 2010)		Networks Inc., a vendor of high performance network security processors, which
		was acquired by Intel Corporation Inc. in 2013.
	•	Previously lectured Computer Science at the University of Sydney. Author of
		numerous articles, patents and papers relating to security technology, software
BSc (Hons I) PhD (Computer		and networking
Science)	•	Qualifications include first class honours degree in Computer Science and a
		Ph.D. in Computer Science specialising in computer networking from the
		University of Sydney.
	•	Beneficial and relevant interest in 11,127,165 fully paid ordinary shares
		(representing 2.4% of issued capital).
	•	Member of the Nomination and Remuneration Committee and Audit Committee.
Simon Clausen	•	Founding investor and Non-Executive Director of the Company.
Non-Executive Director	•	Extensive experience in operating and investing in high growth technology
(appointed 10 April 2010)		businesses in both Australia and the United States. Previously founded and was
		CEO of WinGuides, which later became PC Tools and was acquired by Symantec
		Corporation in October 2008.
	•	Currently the sole director of Startive Ventures, a specialised technology venture
		fund that actively maintains investments in a number of companies globally. Other
		directorships include LatAm Autos Limited since 2014.
	•	Relevant interest in 166,538,289 fully paid ordinary shares, including a relevant
		interest in 9,871,826 fully paid ordinary shares by virtue of having a voting power
		of over 20% in the Company, which has a relevant interest as a result of trading
		restrictions over shares issued under the Employee Share Plan.
	•	Beneficial interest in 156,666,463 fully paid ordinary shares (representing 34.1%
		of issued capital).
	•	Member of the Nomination and Remuneration Committee and Audit Committee.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Company Secretary

Mr Neil Katz held the position of Company Secretary during and at the end of the financial year (appointed 9 March 2012). He has been with the Group since 2009 and is also the Chief Financial Officer.

Principal activities

The principal activity of the consolidated entity (the Group) during the financial year was the provision of an online outsourcing marketplace and escrow payment services.

There were no other significant changes in the nature of the principal activities during the financial year.

Review of operations

The Group’s loss attributable to equity holders of the Company, after providing for income tax, improved to $1,173,000 (2015 loss: $2,805,000).

Key Performance Highlights

Key Performance Highlights
	FY16	FY15	% Change
Year ended 31 December	$m	$m
Financial metrics:
Gross Payment Volume1	666	229	190%
Net Revenue2	52.7	38.6	37%
Gross Profit	45.6	33.5	36%
Gross margin (%)	86.4%	86.7%	nm
Operating EBITDA3	0.5	(2.0)	nm
Operating EBIT3	(0.3)	(2.5)	nm
Operating NPAT3	0.1	(1.6)	nm
Operating Cash Flow	4.5	1.5	207%

Operational metrics:
New Jobs4(millions)	2.6	1.7	53%
Total Jobs Posted (millions)	10.6	8.0	33%

New Registered Users (excluding Escrow, millions)	4.6	3.5	31%
Total Registered Users5 (millions)	23.3	18.5	26%

Notes:

1. Gross Payment Volume (GPV) is calculated as the total payments to Freelancer and Escrow users for products and services transacted through the Freelancer and Escrow websites plus total Freelancer and Escrow revenue. GPV is an unaudited metric. Marketplace segment FY16 GPV A$160.3 million, Payments segment GPV A$505.6 million. GPV excluding Escrow.com for FY16 was $160.3m (up 16% on prior corresponding period “pcp” of $138.2m excluding Escrow.com), Escrow contributed US$376m of GPV, A$506m.

2. Escrow.com contributed to the Company’s results from 1 November 2015. Net Revenue excluding Escrow.com for FY16 was $45.2m (up 23% on pcp).

3. Excludes non-cash share based payments expense of $1,252k in FY16 and $1,164k in FY15.

4. Total Projects and Contests Posted was redefined in January 2016 to Total Jobs Posted (filtered). Jobs Posted (Filtered) is defined as the sum of Total Posted Projects and Total Posted Contests, filtered for spam, advertising, test projects, unawardable or otherwise projects that are deemed bad and unable to be fulfilled.

5. User and project/contest data includes all users and projects/contests from acquired marketplaces. Prior to May 2009, all data is from acquired marketplaces. Includes Escrow.com unique users.

The Company experienced outstanding growth in its online businesses in the 12 months ended 31 December 2016 (FY16), resulting in a revenue increase of 37% year on year, 23% excluding the contribution from Escrow.com. In USD constant currency terms (the main operating currency in which 75% of revenue is generated) the group revenue grew at 36% year on year, the fastest since IPO. In FY16 the Freelancer marketplace had 71%, and Escrow 97% of revenue denominated in USD.

The Company delivered a positive operating EBITDA of $0.5 million (improved from $(2.0) million in FY15) and despite the increase in expenditure on talent, generated positive operating cash flow of $4.5 million in FY16. In the second half of FY16, significant efficiency gains were achieved in marketing, contributing to the positive result.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Marketplace Growth

The Company’s revenue is primarily generated from new and existing users posting and fulfilling projects and contests in the Freelancer marketplace. In FY16, jobs posted (filtered) grew at the fastest rate since 2010, at 53% year on year.

Freelancer’s registered user base (including both employers and freelancers) grew exceptionally well, increasing by 4.6 million new users in FY16, up 31% from FY15 (excluding Escrow.com). Users are acquired from a variety of sources including search engine optimisation (SEO), search engine marketing (SEM), media and public relations work, events, user referrals, competitions, traditional advertising, email marketing and business combinations.

The Company’s main user acquisition focus is on attracting new employers, being those users who post projects and contests, and, therefore create demand in the online marketplace. However, the Company also seeks to ensure that there is a sufficient supply of freelancers across regional, language and skill specific segments of the marketplace in order to maximise marketplace liquidity and network effects. Growth was complemented by some small acquisitions during the year, including the Nubelo and Prolancer businesses in Latin America.

Employers accomplish work by posting projects or contests into the Freelancer marketplace, or hiring directly via the Company’s freelancer directory. The total number of projects and contests posted on Freelancer.com increased by 2.6 million in FY16 (up 53% from FY15), showing significant growth in the critical element of capturing the intent to have work completed, growing at the fastest rate since 2010.

Payments Growth

In its Escrow.com business, the company generated user growth of 8.6% in 2016, with an increase in users initiating transactions of 6%. Despite the user growth in 2016, transactions paid decreased 5% which had a negative impact on revenue. Most of this drop is attributed to the high value Chinese domain name market retracting at the start of 2016, which has led to malaise in the general domain name market in the year. The Escrow team’s core focus for the year was to overhaul the processes and systems to prepare the business for scalable growth as detailed below in Key Product & Operational Highlights.

Escrow.com also introduced a concierge service to help buyers and sellers of domain names transfer their assets more easily. The fee for providing this service is double the regular escrow fee. In 2016, 5% of domain transactions now use the concierge service.

Review of Financial Performance

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FREELANCER LIMITED 2016 FINANCIAL REPORT

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Notes:

1. Gross Payment Volume (GPV) is calculated as the total payments to Freelancer or Escrow users for products and services transacted through the Freelancer or Escrow websites plus total Revenue. Based on Freelancer’s unaudited management accounts which have not been subject to an auditor’s review.

2. Take rate for the Marketplace segment is 3% employer commission and 10% freelancer commission, which has not changed since 2010.

3. Escrow FY16 GPV of US$376m, core Freelancer GPV of A$160.3m, average AUDUSD FX of 0.7434= A$666.2m

4. Pro-forma FY15 GPV of A$709.7m / (core Freelancer Net Revenue of A$36.8m + Escrow.com full year 2015 revenue of US$8.1m, average AUDUSD FX of 0.7522) = A$44.8m, = 6.3%

The Company achieved Net Revenue of $52.7 million in FY16 (up 37% on the previous corresponding period), and Gross Payment Volume of $666.2 million (up 190% on the previous corresponding period). Revenue excluding Escrow.com amounts to $45.2 million and a 23% growth rate on the previous corresponding period, GPV excluding Escrow.com amounts to $160.3 million and a 16% growth rate on the previous corresponding period.

Contributing factors to the growth in Net Revenue for FY16 included both overall growth in marketplace volumes, increased efficiency and quality of the marketplace and increased sales of value added services (non-commission based revenues) which have further boosted the take rate in the core business (with commissions remaining flat on a core basis at 13%).

The Company’s gross margin of 86.4% in FY16 remained in line with the previous corresponding period (FY15: 86.7%). The Company’s cost of sales predominantly consists of transaction costs that are incurred from the various gateways relied upon to process user payments, as well as various provisions taken for credit card chargebacks and fraud risks. The cost of sales in the Escrow.com business is higher than in the core Freelancer marketplace business.

Operating Performance

Expansion of International Offices and Staffing

In line with its strategy of reinvesting for top line growth, the Company expanded its international footprint and increased its investment in talent in FY16.

In FY16 the Company grew its staff across offices in Sydney, Manila, Vancouver, San Francisco, Buenos Aires and London. During FY16 the Escrow.com office was moved from Southern California to San Francisco.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Hiring growth was focused on engineering, data science and product management teams. The support function, based in Manila, grew at a slower rate than total headcount, as this team has reached operational scale to support the Company’s operations.

NPAT and EBITDA

The Company reported an operating net profit after tax of $0.1 million (FY15 Operating NPAT loss: ($1.6) million) and Operating EBITDA of $0.5 million (FY15 Operating EBITDA loss: ($2.0) million).

Reported Net Loss After Tax of $1.2 million in FY16 included a tax benefit of $0.3 million (FY15 NPAT: ($2.8) million).

Cash Flow and Balance Sheet Strength

Despite the increased investment in staff and its international expansion to increase future growth, the Company posted a positive operating cash flow of $4.5 million in FY16 (FY15: $1.5 million). This balances the Company’s aim to maximise re-investment in product development and top-line growth with maintaining a secure and stable balance sheet and P&L.

As at 31 December 2016, the Company held cash and equivalents of $34.8 million, providing the Company with sufficient flexibility to pursue further growth via both organic and inorganic channels.

Key Product & Operational Highlights

In 2016, the Company embarked on a number of key initiatives:

Escrow.com

Escrow.com released a new mobile responsive and multilingual front end, added new payment methods for international users, and added chat technical support with an average response time of 20 seconds for support queries.

Addition of support teams in three more locations (Vancouver, Sydney, Manila). Addition of a processing support team in Sydney. Extension of support hours and new offering of multilingual support. Rollout of support quality assurance globally.

Infrastructure and engineering technical work included migration of the technical stack away from legacy infrastructure to AWS (Amazon Web Services)., and deployment of a new public facing website.

Escrow.com also deployed a new KYC (know your client) and enhanced AML (anti money-laundering) systems. Escrow.com built a new verification product into the platform which allows users to upload documents and have their identity verified. The majority of applications submitted are processed in under 2 hours.

Escrow.com also improved payment processing times to the fastest ever in the company’s history during 2016.

Contests

Instant chat was released within contest entries, and the user interface overhauled in terms of rating entries and giving feedback. The instant chat function enables faster turnaround time of revisions and comments on contest entries, and increases usability and satisfaction for both employers and freelancers.

Increased monetisation has been driven by upsells in the Contest channel – in particular, confidentiality agreements were added as an option.

NASA completed several contests related to component, logo and engineering design. The NASA Tournament Lab and Freelancer have teamed up to help crowdsource solutions to the most complex problems being faced by astronauts on the cutting edge of space exploration. The latest set of challenges involves designing a robotic arm for the Astrobee, the next generation of free flying robots on the International Space Station.

Mobile

Payments were added into the apps, and a separate Local Jobs app was released across both iOS and Android. 79% of projects now touch mobile, memberships have been fully deployed into both Android and iOS, and credit card support has been added to Mobile Web. The Android version of the mobile app has now seen more than one million downloads.

Memberships

The entire memberships system was completely overhauled and re-deployed. New top tier Professional and Premier plans were launched, designed to help Freelancers win more jobs.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Payments

Payment methods and support was added for more markets, including Chinese Yuan as a supported currency, as well as Chinese payment gateways Alipay and UnionPay, and a range of new gateways across Europe and Canada which included iDEAL (Netherlands), SOFORT Banking (Germany, Austria, Belgium), Giropay (Germany), Interac (Canada), Bancontact / Mister Cash (Belgium), and Dotpay (Poland).

A total of eight new currencies were added to bring the total to 28 supported currencies: Chinese Yuan along with Danish Krone, Vietnamese Dong, UAE Dirham, Argentine Peso, Bangladeshi Taka, Colombian Peso and Pakistani Rupee.

Also, introduced daily express withdrawals for outbound payments in two new currencies, Vietnamese Dong and the Canadian Dollar.

Local jobs

Local jobs has seen exceptional performance in key metrics on a global basis. Average number of bids has increased from 2 to 7 globally. The median time to first bid is now 15 minutes globally. Over 60% of local jobs receive a bid within one hour globally.

Local jobs also now has a 24/7 customer support team based in our network of offices including Sydney and Manila.

International

Now across 34 languages on 52 international sites (14 added in FY16), and a significant increase and focus on nonEnglish community content.

Messaging

Has seen a 48% year-on-year increase in active threads, and launched native audio and video calls.

The messaging product adds significant liquidity to the overall website experience. Now 61% of freelancers respond to an employer’s chat message within one hour, globally.

Nubelo and Prolancer acquisitions successfully completed

Freelancer.com expanded its leadership in the Latin American, Spanish and Portuguese markets by acquiring the Nubelo and Prolancer freelancing marketplaces. This acquisition places Freelancer.com as the dominant leader in the Latin American, Spanish and Portuguese markets, adding 750,000 registered users and 122,000 posted projects to the 1.8 million users and 502,000 projects in these markets already on Freelancer in these markets.

StartCon

Freelancer successfully hosted Australia's largest start-up and growth conference in Sydney, which is in its seventh year. The conference held in Q4 of 2016, saw huge increases in numbers from 2015 across all aspects of the event, including over 3000 (up 50%) attendees, 102 (up 100%) exhibitors including 52 (up 30%) start-ups in Start-up Alley, 86 (up 30%) start-ups in the pitch competition, and 58 (up 16%) speakers of which 15 (up 50%) were international.

Dividends paid or recommended

There have been no dividends paid or provided for the financial year ended 31 December 2016 (2015: nil).

The Company has established a Dividend Reinvestment Plan (DRP). The full terms and conditions of the DRP are available on the Company’s website, www.freelancer.com.

Significant changes in state of affairs

There have been no significant changes in the state of affairs for the current financial year.

Subsequent Events

As at the date of this report, the Directors are not aware of any circumstance that has arisen since 31 December 2016 that has significantly affected, or may significantly affect the Group’s operations in future financial years, the results of those operations in future financial years, or the Group’s state of affairs in future financial years.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Future developments

In future financial years, the Group expects to further its growth through expansions to other territories organically and by acquisition, and forming strategic alliances and partnerships.

Environmental regulations

The operations of the Group do not involve any activities that have a marked influence on the environment. As such, the Directors are not aware of any material issues affecting the Group or its compliance with the relevant environment agencies or regulatory authorities.

Indemnification of officers and auditors

During the financial year, the Group paid premiums based on normal commercial terms and conditions to insure all directors, officers and employees of the Group against the costs and expenses in defending claims brought against the individual while performing services for the Group. The premium paid has not been disclosed as it is subject to the confidentiality provisions of the insurance policy. The Company has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor.

The Company has previously entered into a Deed of Indemnity, Insurance and Access with each of its current Directors: R.M. Barrie, S.A. Clausen and D.N.J. Williams. The purpose of the Deed is to:

confirm and supplement, to the extent permitted by section 199A of the Corporations Act 2001, the indemnity provided by the Company in favour of Directors under the Company’s Constitution;
include an obligation, to the extent permitted by section 199B of the Corporations Act 2001, upon the Company to maintain adequate directors’ and officers’ liability insurance; and
confirm and supplement the right of access to certain documents under the Corporations Act.

Rounding off of amounts

The Company is an entity to which ASIC Corporations Instrument 2016/191 applies. Accordingly amounts in the financial report have been rounded off to the nearest thousand dollars, unless otherwise stated.

Meetings of Directors

During the financial year five meetings of Directors were held. Other matters arising during the year were resolved by circular resolutions.

The following persons acted as Directors of the Company during the financial year, with attendances to meetings of Directors as follows:

	Director meetings	Director meetings	Audit Committee meetings	Audit Committee meetings	Nomination and	Nomination and
					Remuneration meetings
	Eligible to	Attended	Eligible to	Attended	Eligible to	Attended
	attend		attend		attend
R.M. Barrie	5	5	2	2	1	1
S.A. Clausen	5	5	2	2	1	1
D.N.J. Williams	5	5	2	2	1	1

Non-audit services

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor and its related parties amounted to $47,000 (2015: $24,000).

The Directors are satisfied that the provision of non-audit services in the form of tax compliance services during the year by the auditor (or another person or firm on the auditors’ behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act.

The Directors are of the opinion that the services as disclosed in Note 18 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons:

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditors own work, acting in a management or decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

Officers of the Company who are former audit partners of the auditor

There are no officers of the Company who are former audit partners of Hall Chadwick.

Auditor’s independence declaration

The auditor’s independence declaration is included on page 15 and forms part of the Directors’ Report for the year ended 31 December 2016.

Shares issued under Employee Share Plan (ESP)

No ESP shares have been granted to Directors during the financial year. No ESP shares have been granted to Directors since the end of the financial year.

Proceedings on behalf of Company

No proceedings have been brought or intervened in on behalf of the Company, nor have any applications for leave to do so been made in respect of the Company, under section 237 of the Corporations Act 2001.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Remuneration Report

This audited Remuneration Report for the Group which forms part of the Directors’ Report for the financial year ended 31 December 2016, details the nature and amount of remuneration for each Director and the Executives.

Key management personnel (KMP) comprise:
R.M. Barrie – Executive Chairman
S.A. Clausen – Non-Executive Director
D.N.J. Williams – Non-Executive Director from 1 November 2015 (Executive director until 31 October 2015)
N.L. Katz – Chief Financial Officer and Company Secretary

Remuneration policy

The performance of the Group depends upon the quality of its directors and executives. The Group recognises the need to attract, motivate and retain highly skilled directors and executives.

The Board of Directors, through its Nomination and Remuneration Committee, accepts responsibility for determining and reviewing remuneration arrangements for the Directors and Executives. The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of Directors and Executives on a periodic basis by reference to relevant employment market conditions, giving due consideration to the overall profitability and financial resources of the Group, with the objective of ensuring maximum stakeholder benefit from the retention of a high-quality Board and executive team.

Non-Executive Director remuneration

Fees and payments to Non-Executive Directors reflect the demands which are made of the Directors in fulfilling their responsibilities. Non-Executive Director fees are reviewed annually by the Board. The Constitution of the Company provides that the Non-Executive Directors of the Company are entitled to such remuneration, as determined by the Board, which must not exceed in aggregate the maximum amount determined by the Company in general meeting. The most recent determination was at a General Meeting held on 9 October 2013 where the shareholders approved an aggregate remuneration of $300,000. Annual Non-Executive Directors’ fees currently agreed to be paid by the Company are $25,000 to S.A. Clausen and D.N.J. Williams inclusive of superannuation.

Executive and Executive Director remuneration

Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any fringe benefits tax charges related to employee benefits, including motor vehicles), as well as employer contributions to superannuation funds.

Executive and Executive Director remuneration levels are reviewed annually by the Nomination and Remuneration Committee through a process that considers the overall performance of the Group. The Executive Directors are not paid any director fees in addition to their fixed remuneration as Executives.

Performance based remuneration

Performance based remuneration is at the discretion of the Nomination and Remuneration Committee. These can take the form of cash bonuses or invitations to participate in the Company’s Employee Share Plan (ESP).

Remuneration of Directors and Executives

Remuneration shown below relates to the period in which the Director or Executive was a member of key management personnel. Amounts below have either been paid out or accrued in the period.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

				Post-	Share	Total
	Short-term benefits			employment	based
				benefits	payments
	Directors’	Cash	Other	Super-	Shares
	fees	salary and		annuation
		fees
	$	$	$	$	$	$
Non-Executive Directors
S.A. Clausen
2016	23,060	-	-	1,991	-	25,051
2015	22,884	-	-	2,172	-	25,056
D.N.J. Williams~~1~~
2016	22,884	-	-	2,174	20,047	45,105
2015	3,814	231,650	12,450	22,102	20,047	290,063
Executive Directors
R.M. Barrie
2016	-	569,096	22,866	25,904	16,038	633,904
2015	-	486,139	26,466	25,904	16,038	554,547
Other KMP
N.L. Katz
2016	-	310,200	5,941	34,800	66,304	417,245
2015	-	292,610	15,182	25,575	33,260	366,627

[1] Darren Williams was an executive director until 31 October 2015.

The remuneration of key management personnel in the years ended 31 December 2016 and 2015 were 100% fixed, and there is no link between remuneration and the market price of the Company’s shares.

ESP shares

Details of ESP shares in the Company held directly, indirectly or beneficially, by KMP, including their related parties, is as follows:

	Balance at the start of the year Granted / issued Released from restrictions Forfeited / cancelled Balance at the end of theyear Balance of unvested ESP shares Balance of vested ESP shares	Balance at the start of the year Granted / issued Released from restrictions Forfeited / cancelled Balance at the end of theyear Balance of unvested ESP shares Balance of vested ESP shares	Balance at the start of the year Granted / issued Released from restrictions Forfeited / cancelled Balance at the end of theyear Balance of unvested ESP shares Balance of vested ESP shares
2016 Directors R.M. Barrie D.N.J. Williams Other KMP N.L. Katz	400,000 - - 500,000 - - 559,461 440,539 -		400,000 83,334 316,666 500,000 104,167 395,833 1,000,000 631,250 368,750
		- - -
2015 Directors R.M. Barrie D.N.J. Williams Other KMP N.L. Katz	1,459,461 440,539 - 400,000 - - 500,000 - - 459,461 200,000 -	- 1,900,000 818,751 1,081,249 - 400,000 183,334 216,666 - 500,000 229,167 270,833 (100,000) 559,461 372,242 187,219
	1,359,461 200,000 -	(100,000) 1,459,461 784,743 674,718

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Ordinary share capital

Details of ordinary shares in the Company held directly, indirectly or beneficially, by KMP, including their related parties, is as follows:

	Balance at the start of the year	Received as part of remuneration	Purchase of shares	Sale of shares	Balance at the end of the year
2016
Directors
R.M. Barrie1	192,842,959	-	-	-	192,842,959
S.A. Clausen	156,071,429	-	595,034	-	156,666,463
D.N.J. Williams2	10,758,165	-	-	-	10,758,165
Other KMP
N.L. Katz3	420,000	-	-	(130,000)	290,000
	360,092,553	-	595,034	(130,000)	360,557,587
2015
Directors
R.M. Barrie1	201,414,387	-	-	(8,571,428)	192,842,959
S.A. Clausen	171,422,413	-	1,077,587	(16,428,571)	156,071,429
D.N.J. Williams2	12,258,165	-	-	(1,500,000)	10,758,165
Other KMP
N.L. Katz3	440,000	-	-	(20,000)	420,000
	385,534,965	-	1,077,587	(26,519,999)	360,092,553

Loans to directors and key management personnel

The following loan balances are outstanding at the reporting date in relation to remuneration arrangements with Executive Directors and KMP in respect of shares issued under the Employee Share Plan (ESP).

As the ESP is considered in substance a share option, the ESP shares issued and corresponding loan receivable are not recognised by the Group in its financial statements. The ESP shares will not be considered issued to participants until the corresponding loan has been repaid, at which time there will be an increase in the issued capital and increase in cash. Further information relating to the ESP is set out in the Note 21 to the financial statements.

	2016	2015
	$000	$000
Directors:
R.M. Barrie	200	200
S.A. Clausen	-	-
D.N.J. Williams	250	250
Other KMP:
N.L. Katz	1,012	311
Total loans to Directors and KMP	1,462	761

Executive service agreements

The employment terms and conditions of Group Executives and KMP are formalised in service agreements.

Position Key terms of service agreements Chief • Term: unspecified. Executive • Base remuneration: Reviewed annually by the Nomination and Remuneration Committee. Officer • Bonus entitlements: Determined annually by the Nomination and Remuneration Committee (capped at 50% of the base remuneration).
Termination notice period: 6 months’ notice or alternatively in Freelancer’s case, payment in lieu of notice.
Restraint of trade period: 12 months.

1 1,279,500 shares as at 31 December 2016 (2015: 1,279,500) are held directly or indirectly by related parties.

2 131,000 shares as at 31 December 2016 (2015: 131,000) are held directly or indirectly by related parties.

3 140,000 shares as at 31 December 2016 (2015: 270,000) are held directly or indirectly by related parties.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Other Other Executives are employed under individual executive services agreements. These establish, Executives amongst other things:
total compensation;
eligibility to participate in the ESP;
variable notice and termination provisions of up to 3 months, or by the Group without notice in the event of serious misconduct; and
restraint and confidentiality provisions.

Other transactions with KMP or their related parties

There were no other transactions conducted between the Group and KMP or their related parties, other than those disclosed above relating to equity, compensation and loans, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons, apart from related party transactions disclosed in Note 22 to the financial statements.

This concludes the Remuneration Report.

Additional information

The following table shows the net revenue, profits/(losses) and dividends for the last six years of the Company, as well as the share prices at the end of the respective financial years.

	2011	2012	2013	2014	2015	2016
Revenue ($000s)	6,460	10,627	18,761	26,087	38,604	52,749
Net profit / (loss) ($000s)	(476)	728	753	(1,847)	(2,805)	(1,173)
Share price at year end ($)	n/a	n/a	$1.38	$0.65	$1.80	$1.00
Dividends paid (cps)	Nil	Nil	Nil	Nil	Nil	Nil

The Directors’ Report, incorporating the Remuneration Report, is signed in accordance with a resolution of the directors made pursuant to s298(2) of the Corporations Act 2001.

On behalf of the Directors

==> picture [109 x 35] intentionally omitted <==

Matt Barrie Chairman

23 February 2017

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Directors’ Report

Auditor’s Independence Declaration

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FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2016

		2016	2015
	Note	$000	$000
Revenue	5	52,749	38,604
Cost of sales		(7,198)	(5,125)
Gross profit		45,551	33,479
Employee expenses	6	(21,772)	(17,857)
Administrative expenses		(9,984)	(7,908)
Marketing related expenses		(9,432)	(6,919)
Occupancy expenses	6	(2,922)	(2,660)
Foreign exchange losses	6	(918)	(126)
Depreciation and amortisation expenses	6	(769)	(511)
Share based payments expense	21	(1,252)	(1,164)
Finance costs	6	(5)	-
Loss before income tax		(1,503)	(3,666)
Income tax benefit	7	330	861
Loss after tax		(1,173)	(2,805)
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations	16	(38)	(54)
Total comprehensive loss for theyear		(1,211)	(2,859)
Earnings per share		Cents	Cents
Basic earnings per share	28	(0.26)	(0.64)
Diluted earnings per share	28	(0.25)	(0.62)

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

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Consolidated Statement of Financial Position As at 31 December 2016

		2016	2015
	Note	$000	$000
Assets
Current assets
Cash and cash equivalents	8	34,779	32,246
Trade and other receivables	9	4,166	3,359
Current tax assets	7	155	3
Other assets	10	966	823
Total current assets		40,066	36,431
Non-current assets
Trade and other receivables	9	216	214
Plant and equipment	11	1,311	1,652
Intangible assets	12	25,701	23,850
Other assets	10	502	601
Deferred tax assets	7	3,278	2,865
Total non-current assets		31,008	29,182
Total assets		71,074	65,613
Liabilities
Current liabilities
Trade and other payables	13	32,728	28,423
Current tax liabilities	7	81	51
Provisions	14	1,325	1,173
Deferred revenue		1,174	808
Total current liabilities		35,308	30,455
Non-current liabilities
Deferred tax liabilities	7	3	3
Provisions	14	374	248
Total non-current liabilities		377	251
Total liabilities		35,685	30,706
Net assets		35,389	34,907
Equity
Contributed equity	15	37,750	37,310
Reserves	16	2,433	1,218
Accumulated losses		(4,794)	(3,621)
Total equity		35,389	34,907

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

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

		Contributed Equity	Share based payments	Foreign currency translation reserve	(Accumulated losses)	Total Equity
	Note	$000	$000	$000	$000	$000
Balance at 1 January 2015		17,520	421	(313)	(816)	16,812
Loss for the year		-	-	-	(2,805)	(2,805)
Exchange differences on translation of foreign operations	16	-	-	(54)	-	(54)
Total comprehensive loss for the year		-	-	(54)	(2,805)	(2,859)
Transactions with owners in their
capacity as owners:
Contributions of equity arising from repayment of ESP loans	15	118	-	-	-	118
Issue of ordinary shares	15	20,000	-	-	-	20,000
Equity raising costs (net of tax)		(328)	-	-	-	(328)
Share basedpayments	21	-	1,164	-	-	1,164
Balance at 31 December 2015		37,310	1,585	(367)	(3,621)	34,907

		Contributed Equity	Share based payments	Foreign currency translation reserve	(Accumulated losses)	Total Equity
	Note	$000	$000	$000	$000	$000
Balance at 1 January 2016		37,310	1,585	(367)	(3,621)	34,907
Loss for the year		-	-	-	(1,173)	(1,173)
Exchange differences on translation of foreign operations	16	-	-	(38)	-	(38)
Total comprehensive loss for the year		-	-	(38)	(1,173)	(1,211)
Transactions with owners in their capacity as		owners:
Contributions of equity arising from repayment of ESP loans	15	440	-	-	-	440
Share basedpayments	21	-	1,252	-	-	1,252
Balance at 31 December 2016		37,750	2,838	(405)	(4,794)	35,389

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

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Consolidated Statement of Cash Flows

For the year ended 31 December 2016

		2016	2015
	Note	$000	$000
Cash flows from operating activities
Receipts from customers (inclusive of GST and VAT)		51,968	38,511
Payments to suppliers and employees (inclusive of GST and VAT)		(47,434)	(37,228)
Interest received		140	170
Income taxes(paid)/ refunded		(198)	5
Net cash inflow from operating activities	27	4,476	1,458
Cash flows from investing activities
Payments for plant and equipment		(428)	(967)
Payments for intangible assets		(1,851)	(8)
Payments for acquisition of subsidiary, net of cash acquired	24	-	(10,258)
Net cash (outflow) from investing activities		(2,279)	(11,233)
Cash flows from financing activities
Proceeds from issue of shares	15	-	20,000
Contributions of equity arising from repayment of ESP loans	15	440	118
Equityraisingcosts		-	(468)
Net cash inflow from financing activities		440	19,650
Net increase in cash and cash equivalents		2,637	9,875
Cash and cash equivalents at beginning of the financial year		32,246	20,210
Effects of exchange rate changes on cash and cash equivalents		(104)	2,161
Cash and cash equivalents at end ofyear	8	34,779	32,246

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

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Contents of the notes to the consolidated financial statements

Note	Contents
1.	Reporting entity ............................................................................................................................................... 21
2.	Basis of preparation ........................................................................................................................................ 21
3.	Financial risk management ............................................................................................................................. 22
4.	Operating segments ........................................................................................................................................ 25
5.	Revenue .......................................................................................................................................................... 27
6.	Expenses ......................................................................................................................................................... 28
7.	Income tax ....................................................................................................................................................... 28
8.	Cash and cash equivalents ............................................................................................................................. 31
9.	Trade and other receivables ............................................................................................................................ 31
10.	Other assets .................................................................................................................................................... 32
11.	Plant and equipment ....................................................................................................................................... 32
12.	Intangible assets ............................................................................................................................................. 34
13.	Trade and other payables ............................................................................................................................... 35
14.	Provisions ........................................................................................................................................................ 35
15.	Contributed equity ........................................................................................................................................... 36
16.	Equity – reserves ............................................................................................................................................. 37
17.	Key management personnel disclosures ........................................................................................................ 37
18.	Remuneration of auditors ................................................................................................................................ 38
19.	Contingent liabilities ........................................................................................................................................ 39
20.	Commitments for expenditure ......................................................................................................................... 39
21.	Share based payments ................................................................................................................................... 39
22.	Related party transactions ............................................................................................................................... 43
23.	Parent entity information ................................................................................................................................. 43
24.	Business combinations .................................................................................................................................... 44
25.	Interests in controlled entities .......................................................................................................................... 45
26.	Events occurring after the reporting date ........................................................................................................ 46
27.	Reconciliation of loss after tax to net cash flow from operating activities ....................................................... 46
28.	Earnings per share (EPS) ............................................................................................................................... 47
29.	Other significant accounting policies ............................................................................................................... 48

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

1. Reporting entity

Freelancer Limited (the Company) is a company domiciled in Australia. The address of the Company’s registered office is Level 20, 680 George Street, Sydney, NSW, 2000. The consolidated financial statements of the Company as at and for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities). The Group is a for-profit entity and primarily is involved in operating an online marketplace for services and providing escrow payment services. The separate financial statements of the parent entity, Freelancer Limited, have not been presented within this financial report as permitted by the Corporations Act 2001.

The consolidated financial statements were authorised for issue by the Board on 23 February 2017.

2. Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001.

(a) Compliance with International Financial Reporting Standards

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

(b) Historical cost convention

The consolidated financial statements have been prepared on the historical cost basis unless otherwise stated in the notes. Except for the cash flow information, the financial statements have been prepared on an accrual basis, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

(c) Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency.

(d) Critical accounting estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 29(g).

(e) Significant accounting policies

The principal accounting policies adopted in the presentation of these consolidated financial statements are set out in the relevant notes. The policies have been consistently applied to all the years presented, unless otherwise stated.

(f) Rounding of amounts

The Company has applied the relief available to it under ASIC Corporations Instrument 2016/191. Accordingly, amounts in the financial statements and Directors’ Report have been rounded off to the nearest $1,000.

(g) Materiality

These consolidated financial statements have included information that is deemed to be material and relevant to the understanding of the financial statements. Disclosure may be considered material and relevant if the dollar amount is significant due to size or nature, or the information is important to understand the:

Group’s current year results;
impact of significant changes in the Group’s business; or
aspects of the Group’s operations that are important to future performance.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

3. Financial risk management

Financial risk management policies

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks and ageing analysis for credit risk.

Risk management is carried out by senior finance executives (Finance) under policies approved by the Board of Directors (Board). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units.

The Group holds the following financial instruments:

		2016	2015
	Note	$000	$000
Financial Assets
Cash and cash equivalents	8	34,779	32,246
Trade and other receivables	9	4,382	3,573
Total financial assets		39,161	35,819
Financial Liabilities
Trade and otherpayables	13	32,728	28,423
Total financial liabilities		32,728	28,423

The carrying value of the assets and liabilities disclosed in the table above closely approximates or equals their fair value. The carrying amounts of trade receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature.

Initial recognition and measurement

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately.

Classification and subsequent measurement

Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss.

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised.

Financial liabilities

Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised.

Impairment

At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s).

When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Company recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered.

(a) Market risk

Foreign currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currencies.

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.

The Group has not entered into forward foreign exchange contracts to protect against exchange rate movements. The Directors are of the view that the cost of hedging the Group’s short-term foreign exchange exposure outweighs the risk of adverse currency movements.

The Group’s exposure to foreign currency exchange risk at the reporting date, expressed in each currency, was as follows:

2016
Currency exposure:	AUD	USD	NZD	GBP	HKD	SGD	PHP	EUR	CAD	INR	Other
Denominated in:	AUD 000’s	USD 000’s	NZD 000’s	GBP 000’s	HKD 000’s	SGD 000’s	PHP 000’s	EUR 000’s	CAD 000’s	INR 000’s	AUD 000's
Cash	4,357	15,762	178	1,043	845	296	45,693	1,640	839	69,969	207
Trade receivables	470	1,697	16	215	512	71	6,468	222	118	9,172	208
Other financial assets	25	32		8	-	5	14,506		9	-	-
Payables	(393)	(2,235)		(45)	-	(6)	(13,477)		(8)	(297)	(13)
User obligations	(1,993)	(15,135)	(117)	(707)	(521)	(252)	(2,006)	(1,632)	(674)	(26,051)	(445)
Net exposure	2,466	121	77	514	836	114	51,184	230	284	52,793	(43)

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

2015
Currency exposure:	AUD	USD	NZD	GBP	HKD	SGD	PHP	EUR	CAD	INR	Other
Denominated in:	AUD 000’s	USD 000’s	NZD 000’s	GBP 000’s	HKD 000’s	SGD 000’s	PHP 000’s	EUR 000’s	CAD 000’s	INR 000’s	AUD 000's
Cash	9,722	11,785	148	926	1235	340	18,667	1,115	619	38,678	148
Trade receivables	363	1,572	18	133	301	61	4,897	187	92	6,890	88
Other financial assets	99	40	-	6	-	5	14,441		9	-	-
Payables	(220)	(1,852)	-	(10)	-	(7)	(5,951)		(3)	(227)	(6)
User obligations	(1,692)	(13,802)	(114)	(593)	(470)	(214)	(903)	(1,234)	(529)	(25,599)	(276)
Net exposure	8,272	(2,257)	52	462	1,066	185	31,151	68	188	19,742	(46)

The Group had net assets of $4,470,000 denominated in foreign currencies as at 31 December 2016 (comprising assets of $34,782,000 less liabilities of $30,312,000). The Group had net liabilities of $185,000 denominated in foreign currencies as at 31 December 2015 (comprising assets of $26,310,000 less liabilities of $26,495,000).

The analysis below reflects management’s view of possible movements in relevant foreign currencies against the Australian dollar in the short term subsequent to 31 December 2016. The table summarises the range of possible outcomes that would affect the Group’s net profit and equity as a result of foreign currency movements on year end foreign denominated assets and liabilities.

The impact of potential movements in exchange rates on the profit or loss is as follows:

		2016	$000	2015	$000
		High	Low	High	Low
AUD to USD	(Range +5% to -5%)	(8)	9	147	(163)
AUD to NZD	(Range +5% to -5%)	(4)	4	(2)	3
AUD to GBP	(Range +5% to -5%)	(42)	46	(44)	49
AUD to HKD	(Range +5% to -5%)	(7)	8	(9)	10
AUD to SGD	(Range +5% to -5%)	(5)	6	(9)	9
AUD to PHP	(Range +5% to -5%)	(68)	75	(43)	48
AUD to EUR	(Range +5% to -5%)	(16)	18	(5)	5
AUD to CAD	(Range +5% to -5%)	(14)	15	(9)	10
AUD to INR	(Range +5% to -5%)	(51)	57	(19)	22
Net movement		(215)	238	7	(7)

Price risk

The Group is not exposed to significant equities price risk.

Interest rate risk

The Group is not exposed to any significant interest rate risk.

Cash balances

As at 31 December 2016 the Group had $34,779,000 (2015: $32,246,000) held in bank accounts and online wallets. The Group’s cash balances are predominantly held in interest bearing bank accounts. Funds that are excess to short term liquidity requirements are generally invested in short term deposits.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral.

Credit risk is managed by a risk assessment process for all customers, which takes into account past experience.

(c) Liquidity risk

Liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) to be able to pay debts as and when they become due and payable.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

The Group manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.

Financing arrangements

The Group does not have any borrowing facilities in place at the reporting date.

Maturities of financial liabilities

The following table details the Group’s remaining contractual maturity for its financial instrument liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

financial position.
		1 year or less	Between 1 and 2 years	Between 2 and 5 years	Over 5 years	Remaining contractual maturities
	Note	$000	$000	$000	$000	$000
2016
Non-derivatives
Non-interest bearing
Trade and otherpayables	13	32,728	-	-	-	-
		32,728	-	-	-	-
		1 year or less	Between 1 and 2 years	Between 2 and 5 years	Over 5 years	Remaining contractual maturities
	Note	$000	$000	$000	$000	$000
2015
Non-derivatives
Non-interest bearing
Trade and otherpayables	13	28,423	-	-	-	-
		28,423	-	-	-	-

Trade and other payables are payable as and when they are due. The cash flows in the maturity analysis above are not expected to occur significantly earlier than disclosed.

4. Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. These include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities. The Board of Directors are identified as the chief operating decision makers (CODM).

Identification of reportable operating segments

Until 31 October 2015, the Group was organised into one operating segment, namely an online marketplace. From 1 November 2015, on the completion of the acquisition of the business of Escrow.com, the Group is organised into two operating segments: namely an online marketplace and online payment services. These segments are based on the internal reports that are reviewed and used by the CODM in assessing performance and in determining the allocation of resources (AASB 8 para. 5(b)).

The CODM assess the performance of the operating segments based on a measure of revenue and operating EBITDA (earnings before share based payments, interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements.

The Group operates predominantly in Australia, where the majority of online revenues and expenses are incurred. Although the Group has staff and operations in Philippines, United Kingdom, Argentina, the United States and Canada in addition to Australia, these geographic operations are considered, based on internal management reporting and the allocation of resources by the Group's CODM, as one geographic segment.

The information reported to the CODM is at least on a monthly basis.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Year end 31 December 2016	Online	Online	Total
	Marketplace	Payments
Segment revenue
Segment revenue	45,168	7,581	52,749
Total segment revenue	45,168	7,581	52,749
Segment result
Segment profit	56	462	518
Share based payments			(1,252)
Depreciation and amortisation expenses			(769)
Loss before income tax			(1,503)
Income tax benefit			330
Loss for year			(1,173)
Segment Assets	Online	Online	Total
At 31 December 2016	Marketplace	Payments
Segment assets	41,641	3,342	44,983
Intergroup eliminations	(1,488)		(1,488)
Deferred tax assets			3,278
Intangibles			24,301
Total assets	40,153	3,342	71,074
Segment liabilities
At 31 December 2016
Segment liabilities	(34,901)	(2,269)	(37,170)
Intergroup eliminations		1,488	1,488
Deferred tax liabilities			(3)
Total liabilities	(34,901)	(781)	(35,685)
Year end 31 December 2015	Online	Online	Total
	Marketplace	Payments
Segment revenue
Segment revenue	36,769	1,835	38,604
Total segment revenue	36,769	1,835	38,604
Segment result
Segment loss	(1,886)	(106)	(1,992)
Share based payments			(1,164)
Depreciation and amortisation expenses			(510)
Loss before income tax			(3,666)
Income tax benefit			861
Loss for year			(2,805)

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Segment Assets	Online	Online	Total
At 31 December 2015	Marketplace	Payments
Segment assets	38,632	3,098	41,730
Intergroup eliminations	(1,432)		(1,432)
Deferred tax assets			2,865
Intangibles			22,450
Total assets	37,200	3,098	65,613
Segment liabilities
At 31 December 2015
Segment liabilities	(29,943)	(2,192)	(32,135)
Intergroup eliminations		1,432	1,432
Deferred tax liabilities			(3)
Total liabilities	(29,943)	(760)	(30,706)

5. Revenue

The Company’s net revenues result from transaction and other fees generated in its online marketplaces and in providing online escrow services. Revenues are recognised when evidence of an arrangement exists, the fee is fixed and determinable, no significant obligation remains and collection of the receivable is reasonably assured. Amounts disclosed as revenue are net of refunds and amounts collected on behalf of third parties. Where services have not been provided but the Company is obligated to provide the services in the future, revenue recognition is deferred. Provision for doubtful accounts and transaction losses are made at the time of revenue recognition based on the Company’s historical experience. The provision for doubtful accounts and transaction losses are recorded as charges to cost of sales.

Revenue is recognised for the major business activities as follows:

Marketplace and payment services

Marketplace and escrow fees are recognised once the services have been completed and no significant obligation remains .

Interest income

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument.

Government grants

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met.

All revenue is stated net of the amount of goods and services tax (GST) and Valued Added Tax (VAT).

	2016	2015
	$000	$000
Sales revenue
Marketplace and payment services	52,508	38,222
Other revenue
Interest income	130	181
Government grants	80	159
Other	31	42
Total revenue	52,749	38,604

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

6. Expenses

Loss before income tax benefit includes the following specific net losses and expenses:

	2016	2015
	$000	$000
Employee expenses
Wages and salaries (including superannuation)	18,633	15,527
Other employment costs	3,139	2,330
Total employee expenses	21,772	17,857
Depreciation and amortisation
Plant and equipment	531	361
Leasehold improvements	238	150
Total depreciation and amortisation expenses	769	511
Rental expense relating to operating leases
Minimum lease payments	2,922	2,924
Rent recoveryfrom sub-lease agreement	-	(264)
Net rental expense relating to operating leases	2,922	2,660
Net foreign exchange losses	918	126
Finance costs
Interest expense	5	-

Total employee benefits expenses are inclusive of:

Short-term obligations

Employee benefits that are expected to be settled within 12 months have been measured at the amounts expected to be paid when the liabilities are settled, plus related on-costs. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables.

Other long–term employee benefit obligations

Employee benefits payable later than 12 months have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows attributable to employee benefits.

Short term incentive plans

The Group recognises a liability and an expense for bonuses payable under short term incentive plans. Short term incentive plans are based on the achievement of targeted performance levels that may be set at the beginning of each financial year. The Group recognises a liability to pay out short term incentives when contractually obliged based on the achievement of the stated performance levels, or where there is a past practice that has created a constructive obligation.

7. Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences 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 Company’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.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss
temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future
taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made.

The Company and its wholly-owned Australian resident entities are part of a tax consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Freelancer Limited.

is Freelancer Limited.
	2016	2015
	$000	$000
(a) Income tax
Current tax	80	40
Deferred tax	(410)	(901)
Income tax (benefit)	(330)	(861)
Deferred income tax expense included in income tax benefit
comprises:
(Increase) in deferred tax assets	(410)	(902)
Increase in deferred tax liability	-	1
Total deferred income tax	(410)	(901)
(b) Numerical reconciliation of income tax benefit to prima facie
income taxpayable
Loss from ordinary activities before income tax expense	(1,503)	(3,666)
Tax at the Australian rate of 30%	(451)	(1,100)
Tax effect amounts which are not deductible / (taxable) in
calculating taxable income:
R&D tax incentive	(213)	(259)
Difference in tax rate	(196)	(163)
Share based payments	376	349

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

	2016	2015
	$000	$000
Over provision in prior years	(56)	49
Future benefit of foreign losses	(8)	16
Other non-allowable items	218	247
Income tax (benefit)	(330)	(861)
(c) Amounts recognised directly in equity
Deferred tax associated with capital raising	122	183
(d) Deferred tax assets
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Employee benefits	272	221
Provision for user disputes & refunds	104	152
Legal fees	24	24
Capital raising costs	24	47
Foreign exchange losses / (gains)	337	(15)
Intangible assets	150	129
Provision for impairment of receivables	803	464
Audit fees	73	67
Future benefit of tax losses	1,333	1,540
Future benefit of foreign tax losses	36	53
Total amounts recognised in profit or loss	3,156	2,682
Amounts recognised directly in equity:
Capital raisingcosts	122	183
Total amounts recognised in equity	122	183
Net deferred tax assets	3,278	2,865
Movements:
Opening balance at beginning of year	2,865	1,822
Credited to the profit or loss statement	413	964
Credited to equity	-	79
Closing balance at end of year	3,278	2,865
(e) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Fixed assets	3	3
Net deferred tax liabilities	3	3
Movements:
Opening balance at beginning of year	3	1
Credited to theprofit or loss statement	-	2
Closing balance at end of year	3	3

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

(f) Current tax assets

(f) Current tax assets
Current tax assets	155	3
(g) Current tax liabilities
Current tax liabilities	81	51
(h)Franking credits
Franking credits available at the reporting date based on a tax rate of 30%	87	121

Freelancer Limited and its wholly-owned Australian entities elected to form an income tax consolidated group as of 12 April 2010.

8. Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.

overdrafts.
	2016	2015
	$000	$000
Current
Cash at bank and on hand	31,323	24,883
Term deposits	3,456	7,363
Total cash and cash equivalents	34,779	32,246

9. Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. This provision includes amounts that are not considered to be recoverable from debtors and amounts that are expected to be credited to debtors. Trade receivables are generally due for settlement no more than 30 days from the date of recognition. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date.

Collectability of trade receivables is reviewed on an ongoing basis. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. In addition, the trade receivables balances are considered for credit notes that are expected to be raised against individual and collective balances.

	2016	2015
	$000	$000
Current
Trade receivables	3,332	1,900
Less:provisions for impairment of trade receivables	(2,679)	(1,545)
Current trade receivables net of provisions for impairment	653	355
Payment gateway receivables	3,461	2,981
Other receivables	52	23
Total current trade and other receivables	4,166	3,359
Non-Current
Payment gateway receivables	216	214
Total trade and other receivables	4,382	3,573

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

	2016	2015
	$000	$000
(a) Provision for impaired trade receivables
Opening balance	1,545	1,205
Increase / (Decrease) in provisions for impairment during the year	1,090	(79)
Exchange differences	44	419
Closing balance	2,679	1,545
(b) Ageing of current trade receivables
1 – 30 days	630	273
31 – 60 days	565	168
61 – 90 days	584	175
90+ days	1,553	1,284
Provision for impairment	(2,679)	(1,545)
Total trade receivables net of provision for impairment	653	355
10. Other assets
	2016	2015
	$000	$000
Current
Prepayments	861	720
Other	105	103
Total current other assets	966	823
Non-current
Securitydeposits	502	601
Total non-current other assets	502	601
Total other assets	1,468	1,424

11. Plant and equipment

Plant and equipment is stated at historical cost less depreciation, amortisation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have not been discounted in determining recoverable amounts.

Depreciation of all fixed assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows:

Fixtures and fittings 4 - 5 years
• Motor vehicles 4 years • Office and computer equipment 4 - 5 years • Software 3 years • Leasehold improvements shorter of either the unexpired period of the lease or the estimated useful lives of the improvements

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are recognised in the profit and loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings.

	2016	2015
	$000	$000
Non-current
Office and computer equipment – at cost	1,992	1,632
Accumulated depreciation	(1,150)	(736)
Carrying value of office and computer equipment	842	896
Fixtures and fittings – at cost	497	439
Accumulated depreciation	(345)	(233)
Carrying value of fixtures and fittings	152	206
Motor vehicles – at cost	42	42
Accumulated depreciation	(42)	(42)
Carrying value of motor vehicles	-	-
Software – at cost	19	19
Accumulated depreciation	(12)	(7)
Carrying value of software	7	12
Leasehold improvements – at cost	864	876
Accumulated amortisation	(554)	(338)
Carrying value of leasehold improvements	310	538
Total carrying value of plant and equipment	1,311	1,652

Reconciliations

Reconciliations of the carrying amount of plant and equipment and leasehold improvements at the beginning and end of the current financial year are set out below:

	Office and computer equipment	Fixtures and fittings	Motor Vehicles	Software	Leasehold improvements	Total
	$000	$000	$000	$000	$000	$000
Balance at 1 January 2015	564	222	-	-	328	1,113
Additions	600	91	-	14	360	1,065
Disposals	(15)	-	-	-	-	(15)
Depreciation and amortisation	(253)	(107)	-	(2)	(150)	(511)
Balance at 31 December 2015	896	206	-	12	538	1,652
Additions	385	34	-	-	9	428
Disposals
Depreciation and amortisation	(439)	(88)	-	(4)	(239)	(769)
Balance at 31 December 2016	842	152		7	310	1,311

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

12. Intangible assets

Goodwill

Goodwill is initially recorded at the amount by which the purchase price for a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities and contingent liabilities acquired at date of acquisition. Goodwill is not amortised. Instead goodwill 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.

Domain Names

Domain names are valued at cost of acquisition. Domain names are tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Intellectual Property

Intellectual property is valued at cost of acquisition. Intellectual property is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Trademarks

Trademarks are valued at cost of acquisition and are amortised on a straight-line basis over the period in which the benefits are expected to be realised. Trademarks are tested for impairment where an indicator of impairment exists, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

	2016	2015
	$000	$000
Non Current
Domain names – at cost	4,136	3,083
Accumulated impairment	(28)	(28)
Carrying value of domain names	4,108	3,055
Intellectual property – at cost	2,198	1,400
Accumulated impairment	-	-
Carrying value of domain names	2,198	1,400
Goodwill	19,395	19,395
Accumulated impairment	-	-
Carrying value of goodwill	19,395	19,395
Total carrying value of intangible assets	25,701	23,850

Reconciliations

Reconciliations of the carrying amount of intangible assets at the beginning and end of the current and previous financial year are set out below:

	Domain	Intellectual	Goodwill	Total
	names	property
	$000	$000	$000	$000
Balance at 1 January 2015	3,047	-	9,906	12,953
Additions	8	-	9,489	9,497
Acquisitions through business combinations	-	1,400	-	1,400
Impairment	-	-	-	-
Amortisation	-	-	-	-
Balance at 31 December 2015	3,055	1,400	19,395	23,850

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Notes to the financial statements

For the financial year ended 31 December 2016

	Domain	Intellectual	Goodwill	Total
	names	property
	$000	$000	$000	$000
Additions	1,053	798	-	1,851
Acquisitions through business combinations
Impairment	-	-	-	-
Amortisation	-	-	-	-
Balance at 31 December 2016	4,108	2,198	19,395	25,701

The Directors have determined the useful life of domain names is indefinite and subject to an annual test for impairment of the fair value of the domain names. The Directors have assessed the recoverability of domain names, intellectual property and goodwill based on value in use calculations.

The recoverable amount of the Group’s intangible assets has been determined by a value-in-use calculation using a discounted cash flow model, based on a 12 month projection period for the Group approved by management and extrapolated for a further 5 years with a discounted terminal value.

Key assumptions used in the discounted cash flow model in relation to the intangibles included a 30% pre-tax discount rate and 2% terminal growth rate. The discount rate of 30% pre-tax reflects management’s estimate of the time value of money and the Group’s weighted average cost of capital adjusted for the risk free rate and the volatility of the share price relative to market movements.

Based on the above, management is satisfied that there are no indicators of impairment to the current carrying value of intangible assets.

13. Trade and other payables

These amounts represent liabilities for goods and services provided to the Group and amounts outstanding to users of the Company’s websites at the end of financial year which are unpaid. The amounts are unsecured and are payable as and when they are due. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date.

12 months from the reporting date.
	2016	2015
	$000	$000
Current
Trade payables	3,067	2,375
Sundry payables and accrued expenses	939	617
User obligations	28,722	25,431
Total trade and other payables	32,728	28,423

14. Provisions

Provisions are recognised when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions recognised represent the best estimate of the amounts required to settle the obligation at reporting date.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract.

	2016	2015
	$000	$000
Current
Provision for user disputes and refunds	346	508
Employee benefits	979	665
Total current provisions	1,325	1,173

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Non-current
Make-good provisions	237	140
Employee benefits	137	108
Total non-current provisions	374	248
Total provisions	1,699	1,421

15. Contributed equity

(a) Share capital
		2016	2015	2016	2015
	Note	Number	Number	$000	$000
Ordinary shares
Fully paid	15(b)	458,728,081	457,294,618	37,750	37,310
Total share capital				37,750	37,310
(b) Movements in ordinary share capital
Reconciliation to 31 December 2015			Number	Average	$000
			of shares	price
Balance at 1 January 2015			436,330,004		17,520
Capitalised equity raising costs (net of	tax)		-	-	(328)
Issue / (cancellation) of ordinary shares:
Issue of ordinary shares - placement			10,000,000	$1.00	10,000
Issue of ordinary shares - placement			7,142,857	$1.40	10,000
Issue of ordinary shares under incentive plan			325,000	$0.00	-
Issue of ESP shares1			5,855,000	$1.03	-
Buy-back and cancellation of ESP shares			(2,358,243)	$0.82	-
Contributed equity arising from repayment of ESP loans			-	-	118
Balance at 31 December 2015			457,294,618		37,310
Reconciliation to 31 December 2016			Number	Average	$000
			of shares	price
Balance at 31 December 2015			457,294,618		37,310
Issue / (cancellation) of ordinary shares:
Issue of ordinary shares under incentive plan			333,333	$0.00	-
Issue of ESP shares1			3,665,539	$1.49	-
Buy-back and cancellation of ESP shares			(2,565,409)	$1.15	-
Contributed equity arising from repayment of ESP loans			-	-	440
Balance at 31 December 2016			458,728,081		37,750

1 As the ESP is considered in substance a share option, the ESP shares issued and corresponding loan receivables are not recognised by the Group in its financial statements. The loan receivable does not satisfy the “probable future benefits following to the entity” criteria on the basis that the loan is non-recourse. The ESP shares will not be considered issued to participants until the corresponding loan has been repaid, at which time there will be an increase in the issued capital and increase in cash.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

(c) Ordinary shares

Ordinary shares have the right to receive dividends as declared, and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

(d) Employee Share Plan (ESP)

Information relating to the ESP, including details of shares issued under the plan, is set out in Note 21.

(e) Capital risk management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns to shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current parent entity’s share price at the time of the investment. The Group actively pursues additional investments as part of its growth strategy.

The capital risk management policy remains unchanged from the 2015 Annual Report.

16. Equity – reserves

a) Movements	2016	2015
	$000	$000
Share based payment reserve movements
Balance at the beginning of the period	1,585	421
Share basedpayment expense	1,252	1,164
Balance at the end of the period	2,838	1,585
Foreign currency translation reserve movements
Balance at the beginning of the period	(367)	(313)
Currencytranslation differences arisingduringtheperiod	(38)	(54)
Balance at the end of the period	(405)	(367)

Total reserves	2,433	1,218

(b) Nature and purpose of reserves

Share-based payments reserve

This amount represents the value of the ESP share grants to employees under the Freelancer Employee Share Plan and other compensation granted in the form of equity.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of its overseas subsidiaries.

17. Key management personnel disclosures

(a) Directors

The following persons were Directors of Freelancer Limited during the financial year:

Mr Robert Matthew Barrie – Executive Chairman

Mr Darren Nicholas John Williams – Non-Executive Director (Executive Director until 31 October 2015) Mr Simon Alvin Clausen – Non-Executive Director

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

(b) Other key management personnel

The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, during the financial year:

Mr Neil Leonard Katz – Chief Financial Officer and Company Secretary

(c) Key management personnel compensation

	2016	2015
	$000	$000
Short-term employee benefits	954	1,091
Share based employee benefits	102	69
Other longterm benefits	65	76
Total benefits	1,121	1,236

Short-term employee benefits

These amounts include fees and benefits paid to the Non-Executive Directors as well as all salary, paid leave benefits, fringe benefits and cash bonuses awarded to Executive Directors and other KMP.

Other long-term benefits

These amounts represent long service leave benefits accruing during the year, long-term disability benefits and deferred bonus payments.

Share based payments

These amounts represent the expense related to the participation of KMP in equity-settled schemes as measured by the fair value of the options rights and shares granted on grant date.

Further information in relation to KMP remuneration can be found in the Remuneration Report, which is included in the Director’s Report.

18. Remuneration of auditors

During the year the following fees were paid for services provided by the auditor of the parent entity, its related practices and non-related audit firms:

	2016	2015
	$000	$000
(a) Hall Chadwick
Audit and other assurance services
Audit and review of financial reports	104	104
Taxation services
Tax compliance services, including review of Company income tax returns	47	24
Total remuneration of Hall Chadwick	151	128
(b) Audit firms other than Hall Chadwick
Audit and other assurance services
Audit and review of financial reports	75	44
Taxation services
Tax compliance services, including review of subsidiary income tax returns	18	22
Total remuneration of audit firms other than Hall Chadwick	93	66

Total auditors’ remuneration	244	194

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

19. Contingent liabilities

Except for the items listed below, there are no other contingent liabilities as at 31 December 2016:

a collateral amount of USD100,000 (2015: USD100,000) is in place in one of the Group’s PayPal accounts in favour of PayPal Australia Pty Ltd;
term deposits of $77,482 (2015: $47,488) are secured for corporate credit card facilities in place;
deposits of $730,000 (2015: $756,000) are held by various credit card processing providers, as security for any contractual compensation arising under these agreements;
included in cash is an amount of $724,000 on term deposit, which is secured against a bank guarantee that has been provided to the lessor in respect of premises occupied by the Company at Level 20, 680 George Street Sydney.
included in cash is an amount of USD455,000, which is secured in connection with surety bonds in place with certain regulators in the US.
Included in cash is an amount of USD180,000, which is held as a reserve to satisfy escrow regulatory requirements in respect of credit card transactions.

20. Commitments for expenditure

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. Leases are made up of operating leases of property. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated profit or loss statement on a straight-line basis over the period of the lease. Benefits that are provided to the Group as an incentive to enter into a lease arrangement are recognised as a liability and amortised on a straight-line basis over the life of the lease.

Where the Group acts as lessor in an operating lease arrangement, rental income from operating leases is accounted for on a straight-line basis over the period of the lease. Lease incentives provided are recognised over the lease term on a straight-line basis.

(a) Non-cancellable operating leases

The Group has entered into commercial leases for office property. As at 31 December 2016 these leases had remaining lives ranging from 2 months up to 40 months. Rentals paid under operating leases are charged to the income statement on a straight line basis over the period of the lease. Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

	2016	2015
	$000	$000
Less than one year	2,306	2,216
Between one and five years	3,784	5,725
More than fiveyears	-	-
Total operating lease commitments	6,090	7,941

(b) Other capital commitments

There were no capital commitments as at 31 December 2016

21. Share based payments

The Group operates an employee share plan. The fair value of the effective option over the shares granted under the Company’s Employee Share Plan (ESP) is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the ESP shares.

The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the ESP shares, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the ESP share, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the ESP share.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

The fair value of share grants issued outside of the ESP is independently determined based on the value of the shares at grant date less the present value of dividends expected to be distributed between the grant date and the vesting dates.

During the year ended 31 December 2013, the Company established a share based payment plan, the Employee Share Plan (ESP) to assist the Company in retaining and attracting current and future employees by providing them with the opportunity to own shares in the Company. Resolutions to amend and approve the ESP were passed at the AGM held on 17 May 2016.

The key terms of the ESP are as follows:

the Board may invite a person who is employed or engaged by or holds an office with the Group (whether on a full or part-time basis) and who is declared by the Board to be eligible to participate in the ESP from time to time (Eligible Employee) to apply for fully paid ordinary shares under the plan from time to time (ESP shares);
invitations to apply for ESP shares offered to Eligible Employees subsequent to the Company’s initial public offering are to be made on the basis of the market price per share defined as the volume weighted average price at which the Company’s shares have traded during the 30 days immediately preceding the date of the invitation;
invitations to apply for ESP shares under the ESP will be made on a basis determined by the Board (including as to the conditionality on the achievement of any key performance indicators) and notified to Eligible Employees in the invitation, or if no such determination is made by the Board, on the basis that ESP shares will be subject to a 4 year vesting period, with:
10% of ESP shares applied for vesting on the date that is the first anniversary of the issue date of the ESP shares;
20% of ESP shares applied for vesting on the date that is the second anniversary of the issue date of the ESP shares;
30% of ESP shares applied for vesting on the date that is the third anniversary of the issue date of the ESP shares; and
40% of ESP shares applied for vesting on the date that is the fourth anniversary of the issue date of the ESP shares.
Eligible Employees who accept an invitation (ESP Participants) may be offered an interest free loan from the Company to finance the whole of the purchase of the ESP shares they are invited to apply for (ESP Loan). ESP Loans will have a term of 4 years and become repayable in full on the earlier of:
the fourth anniversary of the issue date of the Employee Offer Shares; and
if the ESP Participant ceases to be an Eligible Employee, either:
- the date 30 days after the date of cessation, if the Eligible Employee is a good leaver (as defined in the ESP); or
- that date of cessation, if the Eligible Employee is a bad leaver (as defined in the ESP).
if the ESP Participant does not repay the outstanding ESP Loan, or it notifies the Company that it cannot, then such number of ESP shares that equal by value (using the price at which the ESP shares were issued) the outstanding amount of the ESP Loan will become the subject of a buy-back notice from the Company which the ESP Participant must accept. The buy-back of such number of ESP shares will be considered full and final satisfaction of the ESP Loan and the Company will not have any further recourse against the ESP Participant;
any dividends received by the ESP Participant whilst the whole or part of the ESP Loan remains outstanding must be applied to the repayment of the ESP Loan. In addition, an ESP Participant may make pre-payments at any time;
the maximum number of ESP shares for which invitations may be issued under the ESP together with the number of ESP shares still to be issued in respect of already accepted invitations and that have already been issued in response to invitations in the previous 5 years (but disregarding ESP shares that are or were issued following invitations to non-residents, that did not require a disclosure document under the Corporations Act, or that were issued under a disclosure document under the Corporations Act) must not exceed 5% of the total number of ordinary shares on issue in the Company at the time the invitations are made;
in the event of a corporate reconstruction, the Board will adjust, subject to the Listing Rules (if applicable), any one or more of the maximum number of Shares that may be issued under the ESP (if applicable), the subscription price, the buy-back price and the number of ESP shares to be vested at any future vesting date (if applicable), as it deems appropriate so that the benefits conferred on ESP Participants after a corporate reconstruction are the same as the benefits enjoyed by the ESP Participants before the corporate reconstruction. On conferring the benefit of any corporate reconstruction, any fractional entitlements to shares will be rounded down to the nearest whole share;
ESP Participants will continue to have the right to participate in dividends paid by the Company despite some or all of their ESP shares not having vested yet or being subject to an ESP Loan. If an ESP Loan has been made to the

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

ESP Participant, then any dividend due must first be applied to reducing any outstanding ESP Loan amount applicable to the ESP shares on which the dividend is paid;

ESP shares which have not vested and/or are subject to repayment of the ESP Loan will be restricted (escrowed) from trading;
the Company may buy-back at the issue price any ESP shares which:
have not vested, or are incapable of vesting at any time (including as a result of the ESP Participant failing to meet any key performance indicators on which vesting of ESP shares is conditional); or
remain in escrow and/or are the subject of an ESP Loan, on the occurrence of:
- the ESP Participant ceasing to be an Eligible Employee (unless the Board, in its sole and absolute discretion determines otherwise, subject to any conditions that it may apply, including the repayment of any outstanding ESP Loan); or
the expiration of the term of the ESP Loan.
any bonus securities issued in relation to ESP shares which remain unvested or are subject to an ESP Loan which becomes repayable in full will be the subject of a buy-back by the Company at the issue price for no consideration;
on the death or permanent disability of an ESP Participant, all ESP shares held by the ESP Participant or their estate will immediately vest subject to the repayment of any outstanding ESP Loan by the curator, executor or nominated beneficiary(ies) (as the case may be) within 30 days of their appointment (or such longer period as the Company in its discretion may allow). Failing such repayment, the Company will buy-back all ESP shares in respect of which there is an outstanding ESP Loan;
the rules of the ESP and any amendment to the rules of the ESP must be in accordance with the Listing Rules and the Corporations Act;
if, while the Company’s shares are traded on the ASX or any other stock exchange, there is any inconsistency between the terms of the ESP and the Listing Rules, the Listing Rules will prevail; and
the ESP is governed by the laws of the State of New South Wales, Australia.
The full terms of the ESP are available on the Company’s website, www.freelancer.com.

(a) ESP share grants

Set out below are summaries of ESP shares granted and issued under the plan:

								Balance
		Balance at		Released		Balance at	Balance of	of vested
	Issue	the start of	Granted /	from	Forfeited /	the end of the	unvested	ESP
Grant date	price	theyear	issued	restrictions	cancelled	year	ESP shares	shares
2016
14 October 2013	$0.50	900,000	-	-	-	900,000	187,501	712,499
13 November 2013	$0.50	2,807,238		(660,336)	(645,615)	1,501,287	351,794	1,149,493
28 February 2014	$1.54	-	-	-	-	-	-	-
22 May 2014	$1.14	-	-	-	-	-	-	-
3 November 2014	$0.70	-	-	-	-	-	-	-
20 February 2015	$0.66	1,200,000	-	(62,499)	(137,501)	1,000,000	541,671	458,329
10 March 2015	$0.77	1,500,000	-	-	-	1,500,000	843,750	656,250
10 April 2015	$1.01	950,000	-	(67,707)	(282,293)	600,000	370,837	229.163
3 June 2015	$1.08	400,000	-	-	(100,000)	300,000	270,000	30,000
12 August 2015	$1.40	1,065,000	-	-	(240,000)	825,000	746,500	78,500
15 October 2015	$1.45	375,000	-	-	-	375,000	337,500	37,500
24 November 2015	$1.76	125,000	-	-	-	125,000	112,500	12,500
21 December 2015	$1.76	240,000	-	-	(140,000)	100,000	90,000	10,000
7 March 2016	$1.53	-	1,000,000		(970,000)	30,000	30,000	-
24 March 2016	$1.32	-	400,000		-	400,000	400,000	-
26 April 2016	$1.38	-	320,000		-	320,000	320,000	-
22 June 2016	$1.55	-	350,000		(50,000)	300,000	300,000	-
27 July 2016	$1.59	-	1,065,539		-	1,065,539	1,065,539	-
4 November 2016	$1.34	-	530,000		-	530,000	530,000	-
Total		9,562,238	3,665,539	(790,542)	(2,565,409)	9,871,826	6,497,592	3,374,234

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

2015
14 October 2013	$0.50	900,000	-	-	-	900,000	412,501	487,499
13 November 2013	$0.50	3,926,317	-	(235,836)	(883,243)	2,807,238	1,427,749	1,379,489
28 February 2014	$1.54	-	-	-	-	-	-	-
22 May 2014	$1.14	1,050,000		-	(1,050,000)	-	-	-
3 November 2014	$0.70	425,000		-	(425,000)	-	-	-
20 February 2015	$0.66	-	1,200,000	-	-	1,200,000	1,200,000	-
10 March 2015	$0.77	-	1,500,000	-	-	1,500,000	1,500,000	-
10 April 2015	$1.01	-	950,000	-	-	950,000	950,000	-
3 June 2015	$1.08	-	400,000	-	-	400,000	400,000	-
12 August 2015	$1.40	-	1,065,000	-	-	1,065,000	1,065,000	-
15 October 2015	$1.45	-	375,000	-	-	375,000	375,000	-
24 November 2015	$1.76	-	125,000	-	-	125,000	125,000	-
21 December 2015	$1.76	-	240,000	-	-	240,000	240,000	-
Total		6,301,317	5,855,000	(235,836)	(2,358,243)	9,562,238	7,695,250	1,866,988

All Eligible Employees who accepted an offer of ESP shares were given an interest free loan from the Company to finance the whole of the purchase of the ESP shares they were invited to apply for (ESP Loan).

The ESP Loans are provided to participants on a non-recourse basis and upon vesting must be repaid in order to remove trading restrictions on vested ESP shares. The term of the ESP Loan is four years; however, participants may forfeit their ESP shares if they do not repay the ESP Loan or leave the Company. As the ESP removes the risk to participants from decreases in the share price by limiting the maximum loan amount repayable to the value of the ESP shares disposed and waiving the ESP Loan should the participant forfeit their ESP shares, whilst still allowing participants the rewards of any increase in share price, the Company has effectively granted the participants an option to the ESP shares due to the ESP Loans being non-recourse. As such, this arrangement is accounted for under AASB 2.

The assessed weighted average fair value at grant date of the effective share options granted during the financial year is $0.62 per option (2015: $0.51). Options were priced using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The expected price volatility of the Company’s shares is based on the historical volatility of ASX listed companies considered to be comparable to Freelancer Limited.

(b) Share grants

On 29 October 2014, the Company agreed to issue a maximum of 1,733,333 fully paid ordinary shares to certain employees. The agreement to issue shares was made outside of the ESP. The issue of the incentive shares was to occur in several tranches, with each tranche conditional only upon the respective personnel being in on-going employment on the respective issue dates. At 31 December 2016, the Company has issued 658,333 of these shares. The remaining 1,075,000 shares will not be issued as the respective personnel are no longer employed with the Company.

The 658,333 incentive shares issued ranked equally with existing ordinary shares in the Company and the issue price of each tranche was the 5 day volume weighted average price of the Company’s shares on the date of issue of the incentive shares.

The assessed weighted average fair value at grant date of the share grants issued is $0.705 per share (2015: $0.705). The fair value of the share grants is determined based on the value of the shares at grant date less the present value of dividends expected to be distributed between the grant date and the issue dates.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

22. Related party transactions

(a) Parent entity

Freelancer Limited is the parent entity and ultimate controlling entity.

(b) Interests in controlled entities

Interests in subsidiaries are set out in Note 25.

(c) Transactions with key management personnel

Disclosures relating to key management personnel are set out in Note 17 and the Remuneration Report.

(d) Transactions with related parties

Receivable from and payable to related parties

There were no receivables from or payable to related parties at reporting date in relation to transactions with related parties detailed above.

Loans to / from related parties

There were no loans to or from related parties at the reporting date.

Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

23. Parent entity information

The financial information for the parent entity, Freelancer Limited has been prepared on the same basis as the consolidated financial statements, except as set out below.

Investments in subsidiaries

Investments in subsidiaries are accounted for at cost in the financial statements of Freelancer Limited. Investments in subsidiaries are tested for impairment whenever changes in events or circumstances indicate that the carrying amount may not be recoverable.

Income tax consolidation legislation

Freelancer Limited and its wholly-owned Australian entities have elected to form an income tax consolidated group.

Freelancer Limited (as the head entity) and its wholly-owned Australian entities (as members of the Freelancer income tax consolidated group) account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the income tax consolidated group continues to be a standalone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Freelancer Limited also recognises the current tax liabilities (or assets) assumed from its wholly-owned entities in the income tax consolidated group.

Set out below is the supplementary information about the parent entity.

	2016	2015
	$000	$000
Statement of comprehensive income
Loss after tax	(1,606)	(572)
Total comprehensive loss	(1,606)	(572)
Statement of financial position
Current assets	3,984	9,977
Non-current assets	33,833	27,729
Total assets	37,817	37,706

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Notes to the financial statements

For the financial year ended 31 December 2016

Current liabilities	40	16
Total liabilities	40	16
Net assets	37,777	37,690
Contributed equity	37,750	37,310
Reserves	2,838	1,585
Accumulated losses	(2,811)	(1,205)
Total equity	37,777	37,690

Contingent liabilities

The parent entity had no contingent liabilities at 31 December 2016 and 31 December 2015.

Capital commitments – plant and equipment

The parent entity had no capital commitments for plant and equipment as at 31 December 2016 and 31 December 2015.

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the Group, except for investments in subsidiaries which are accounted for at cost, less any impairment.

24. Business combinations

Business combinations occur where an acquirer obtains control over one or more businesses.

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions).

When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date.

All transaction costs incurred in relation to the business combination are expensed to the statement of profit or loss and comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase.

(a) Acquisition of Escrow.com group

On 24 April 2015, the Group entered into a stock and asset purchase agreement to acquire:

100% of the shares in Westmor Management, Inc. a California corporation, which owns and operates the business of Escrow.com and
certain intellectual property assets owned by the Westmor group.

The total purchase price was US$7.5 million and the acquisition was subject to US regulatory approvals, which were completed on 31 October 2015, at which date the Group assumed control of the business. Escrow.com is a provider of secure online payments. Escrow.com contributed revenues of $1.8 million for the period 1 November 2015 to 31 December 2015.

The Group has determined it impracticable to disclose the revenue and net profit/loss included in the consolidated statement of profit or loss and other comprehensive income had the acquisition of the shares of Westmor Management, Inc. occurred at the beginning of the reporting period. The Group has assessed that an objective determination of the revenue and net profit since the beginning of the reporting period was not able to be made due to the integrated nature of the Group’s website operations and as such disclosure has not been made.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

	A$000
Purchase consideration:
Cash	10,501
Fair value of net identifiable assets acquired:
Cash	243
Deposits	56
Other assets	78
Fixed assets	82
Intellectual property	1,400
Payables	(341)
Deferred revenue	(337)
Provisions	(169)
Fair value of net assets acquired	1,012
Goodwill on acquisition	9,489
Total purchase consideration	10,501

In addition to the net identifiable assets acquired, Escrow.com held cash balance in trust amounting to A$28,270,000 at 31 October 2015, which had a corresponding liability of the same amount owing to its users. The Group has determined that trust cash is not a resource controlled by the Group, nor does the Group derive any economic benefit from these user funds, and therefore the Group does not have the risks and rewards of ownership of the funds. Consequently, trust assets are not recognised as an asset in the Group’s financial statements, and neither is the corresponding trust liability recognised as a liability in the Group’s financial statements.

25. Interests in controlled entities

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 29:

		Percentage	Owned (%)
	Country of	2016	2015
Name of entity	Incorporation
Subsidiaries of Freelancer Limited:
Freelancer International Pty Ltd	Australia	100	100
Freelancer Technology Pty Ltd	Australia	100	100
Freelancer India Pty Ltd	Australia	100	100
Warrior Forum Pty Ltd	Australia	100	100
Warrior Technology Pty Ltd	Australia	100	100
Payments Pty Ltd	Australia	100	100
Payments International Pty Ltd	Australia	100	100
Payments Australia Pty Ltd	Australia	100	100
Payments IP Pty Ltd	Australia	100	100
StartCon Pty Ltd	Australia	100	-
Freelancer Networks (Canada) Inc.	Canada	100	100
Freelancer Outsourcing Inc	Canada	100	100
Freelancer.com Pte Limited	Singapore	100	100
Freelancer Belize Limited#	Belize	-	100

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Freelancer International GmbH	Switzerland	100	100
Freemarket (Switzerland) GmbH	Switzerland	100	100
Freelancer Online India Private Limited	India	100	100
Freelancer.com Philippines, Inc.	Philippines	100	100
Freelancer Outsourcing UK Limited	United Kingdom	100	100
Payments Europe Limited1	United Kingdom	100	-
Freelancer (Shanghai) Information Technology Co., Ltd.	China	100	100
Westmor Management, Inc.*	United States	100	100
Escrow.com, Inc.*	United States	100	100
EC Services Corporation*	United States	100	100
IES International, Inc.*	United States	100	100
Internet Escrow Services, Inc.*	United States	100	100

1 This entity was acquired on incorporation

Escrow.com group

Entity wound up during 2016

26. Events occurring after the reporting date

There are no other matters or circumstances that have arisen since 31 December 2016 that have significantly affected, or may significantly affect:

the aggregated entity’s operations in the future financial years, or
the results of those operations in future financial years, or
the aggregated entity’s state of affairs in the future financial affairs.

27. Reconciliation of loss after tax to net cash flow from operating activities

	2016	2015
	$000	$000
Loss for the year	(1,173)	(2,805)
Non-cash items in operating loss:
Depreciation and amortisation	769	511
Share based payments expense	1,252	1,164
Net exchange differences	(292)	(399)
Changes in operating assets and liabilities:
(Increase) in trade and other receivables	(1,147)	(482)
(Increase) in deferred tax assets	(413)	(902)
(Increase) in other assets	(44)	(142)
Increase in trade and other creditors	5,369	4,440
(Decrease) / Increase in provision for income tax	(121)	43
Increase in deferred tax liabilities	-	2
Increase / (Decrease) in provisions for employee benefits	342	(176)
(Decrease)/ Increase in otherprovisions	(66)	204
Net cash inflow from operating activities	4,476	1,458

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

28. Earnings per share (EPS)

Basic earnings per share

Basic earnings per share is calculated by dividing:

the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares
• by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

	2016	2015
	Cents	Cents
(a) Basic earnings per share
From operations attributable to the ordinary equity of the Company	(0.26)	(0.64)
Total basic earnings per share attributable to the ordinary equity holders of the Company	(0.26)	(0.64)
(b) Diluted earnings per share
From operations attributable to the ordinary equity of the Company	(0.25)	(0.62)
Total basic earnings per share attributable to the ordinary equity holders of the Company	(0.25)	(0.62)
(c) Reconciliation of earnings used in calculating earnings per share	$000	$000
Basic earnings per share:
Loss from continuing operations	(1,173)	(2,805)
Diluted earnings per share:
Loss attributable to the ordinary equity holders of the Company	(1,173)	(2,805)
	2016	2015
	Shares	Shares
(d) Weighted average number of shares used as the
denominator
Weighted average number of ordinary shares used in calculating basic earnings per share	449,549,387	439,834,541
Adjustments for calculation of ordinary shares used in
calculating diluted earnings per share:
ESP shares	10,582,610	8,282,006
Share grants	166,210	1,569,497
Weighted average number of ordinary shares used in calculating diluted earnings per share	460,298,207	449,686,044

(e) Information on the classification of securities

ESP shares and share grants

ESP shares granted to employees under the ESP and shares granted to employees outside of the ESP are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The ESP shares and share grants have not been included in the determination of basic earnings per share. Details relating to the ESP shares are set out in Note 21.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

29. Other significant accounting policies

(a) Principles of consolidation

The consolidated financial statements incorporate all of the assets, liabilities and results of Freelancer Limited and all subsidiaries. Subsidiaries are all entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. A list of the subsidiaries is provided in Note 25.

The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group.

Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the noncontrolling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income.

(b) Goods and Services Tax (GST) and Valued Added Tax (VAT)

Revenues, expenses and assets are recognised net of the amount of associated GST and VAT, except where the amount of GST and VAT incurred is not recoverable from the relevant taxation authority. In these circumstances, the GST and VAT is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated inclusive of the amount of GST and VAT receivable or payable. The net amount of GST and VAT recoverable from, or payable to, the relevant taxation authority is included with other receivables or payables in the statement of financial position.

Cash flows are presented in the cash flow statement on a gross basis. The GST and VAT components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows included in receipts from customers or payments to suppliers.

Commitments and contingencies are disclosed net of the amount of GST and VAT recoverable from, or payable to, the relevant taxation authority.

(c) Research & development

Costs relating to research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established. At such time costs may be capitalised, subject to recoverability. Software development costs incurred subsequent to the establishment of technological feasibility have not been significant, and the Group has not capitalised any software development costs to date.

(d) Foreign currency transactions and balances

Functional and presentation currency

The functional currency of each of the Group entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Group companies

The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency is translated as follows:

Assets and liabilities are translated at period end exchange rates prevailing at that reporting date.
Income and expenses are translated at average exchange rates for the period.
Retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of.

(e) Impairment of assets

At the end of each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset's carrying value over its recoverable amount is recognised immediately in the profit or loss.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

(f) Comparative figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

Where the Group has retrospectively applied an accounting policy, made a retrospective restatement or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed.

(g) Critical accounting estimates and judgments

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements 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.

Business Combinations

Following the guidance in AASB 3: Business Combinations, the Group has made assumptions and estimates to determine the purchase price of businesses acquired as well as its allocation to acquired assets and liabilities. To do so, the Group is required to determine at the acquisition date fair value of the identifiable net assets acquired, including intangible assets such as brand, customer relationships and liabilities assumed. Goodwill is measured as the excess of the fair value of the consideration transferred including the recognised amount of any non-controlling interest over the net recognised amount of the identifiable assets and liabilities.

The assumptions and estimates made by the Group have an impact on the asset and liability amounts recorded in the financial statements. In addition, the estimated useful lives of the acquired amortisable assets, the identification of intangible assets and the determination of the indefinite or finite useful lives of intangible assets acquired will have an impact on the Group’s future profit or loss.

Impairment of intangible assets

The Group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-inuse calculations performed in assessing recoverable amounts incorporate a number of key estimates. During the year ended 31 December 2016, no impairment has been recognised in respect of intangible assets. The Group assessed recoverability of goodwill based on the present value of cash flow projections over a 6 year period. Should any of the intangible assets fail to perform, an impairment loss would be recognised up to the maximum carrying value of intangible assets at 31 December 2016 of $25,701,000 (2015: $23,850,000).

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

Provisions for doubtful accounts and transaction losses

Provision is made in respect of the Group’s best estimate of doubtful accounts and transaction losses based on historical experience.

Share based payments

The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined with the assistance of an external valuation with the assumptions detailed in Note 21. The accounting estimates and assumptions relating to equity settled share based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgment is required in determining the worldwide provision for income taxes. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Deferred tax assets

Deferred tax assets are recognised for deductible temporary differences and unused tax losses as management considers that it is probable that future taxable profits will be available to utilise those temporary differences and unused tax losses. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits.

Trust assets and liabilities

The Group’s Online Payments segment, namely the business of Escrow.com, is a regulated entity that holds funds on behalf of its users in trust bank accounts. At 31 December 2016 the cash balance in trust amounted to A$26,104,000 (2015: A$26,952,000), which has a corresponding liability of the same amount owing to its users.

The Group has determined that trust cash is not a resource controlled by the Group, nor does the Group derive any economic benefit from these user funds, and therefore the Group does not have the risks and rewards of ownership of the funds. Consequently, trust assets are not recognised as an asset in the Group’s financial statements, and neither is the corresponding trust liability recognised as a liability in the Group’s financial statements.

(h) Changes in accounting policies

The accounting policies applied by the Group in this consolidated financial report are the same as those applied by the Group in its consolidated financial report for the year ended 31 December 2015.

(i) New Accounting Standards for application in future periods

Accounting Standards and Interpretations issued by the 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 9: Financial Instruments and associated Amending Standards (applicable for annual reporting periods commencing on or after 1 January 2018).

The Standard will be applicable retrospectively (subject to the comment on hedge accounting below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting.

The key changes made to the Standard that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of AASB 9, the application of such accounting would be largely prospective.

The directors do not anticipate that the adoption of AASB 9 will have any significant impact on the Group’s financial instruments.

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited Notes to the financial statements

For the financial year ended 31 December 2016

AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 January 2018).

When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers.

The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following fivestep process:

identify the contract(s) with a customer;
identify the performance obligations in the contract(s);
determine the transaction price;
allocate the transaction price to the performance obligations in the contract(s); and
recognise revenue when (or as) the performance obligations are satisfied.

The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented as per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue.

The directors do not anticipate that the adoption of AASB 15 will have any significant impact on the Group’s financial statements.

AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019).

When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases.

The main changes introduced by the new Standard are as follows:

recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets);
depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components;
inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date;
application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and
additional disclosure requirements.

The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application.

Although the directors anticipate that the adoption of AASB 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Directors’ Declaration

In the Directors’ opinion:

(a) the Financial Statements and notes of the consolidated entity set out on pages 16 to 51 are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its performance for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
(b) Note 2(a) confirms that the Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board;
(c) 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
(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 for the financial year ending 31 December 2016.

This declaration is made in accordance with a resolution of the Directors.

On behalf of the directors

==> picture [109 x 36] intentionally omitted <==

Matt Barrie

Chairman

23 February 2017

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Independent Auditor’s Report

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

Corporate Directory

Company Directors

Mr Robert Matthew Barrie Mr Darren Nicholas John Williams Mr Simon Alvin Clausen

Chairman and Chief Executive Officer Non-Executive Director (Executive Director to 31 October 2015) Non-Executive Director

Company Secretary

Mr Neil Leonard Katz

Registered Office

Level 20 680 George Street Sydney NSW 2000 Telephone: +61 (02) 8599 2700

Share Registry

Boardroom Limited Level 7 207 Kent Street Sydney NSW 2000

External Auditors

Hall Chadwick Level 40 2 Park Street Sydney NSW 2000

Securities exchange listing

Freelancer Limited shares are listed on the Australian Securities Exchange (Listing code: FLN)

FREELANCER LIMITED 2016 FINANCIAL REPORT

Freelancer Limited

FREELANCER LIMITED 2016 FINANCIAL REPORT

AI assistant

FREELANCER LIMITED — Annual Report 2016

64924_rns_2017-02-22_ea0712cd-1860-4b1e-a32a-b9a51c919f81.pdf

Financial Report and Directors’ Report

Freelancer Limited

Contents

Directors’ Report

Directors

Company Secretary

Principal activities

Review of operations

Key Performance Highlights

Notes:

Marketplace Growth

Payments Growth

Review of Financial Performance

Notes:

Operating Performance

Expansion of International Offices and Staffing

Freelancer Limited Directors’ Report

NPAT and EBITDA

Cash Flow and Balance Sheet Strength

Key Product & Operational Highlights

Escrow.com

Contests

Mobile

Memberships

Payments

Local jobs

International

Messaging

Nubelo and Prolancer acquisitions successfully completed

StartCon

Dividends paid or recommended

Significant changes in state of affairs

Subsequent Events

Future developments

Environmental regulations

Indemnification of officers and auditors

Rounding off of amounts

Meetings of Directors

Non-audit services

Officers of the Company who are former audit partners of the auditor

Auditor’s independence declaration

Shares issued under Employee Share Plan (ESP)

Proceedings on behalf of Company

Remuneration Report

Remuneration policy

Non-Executive Director remuneration

Executive and Executive Director remuneration

Performance based remuneration

Remuneration of Directors and Executives

ESP shares

Ordinary share capital

Loans to directors and key management personnel

Executive service agreements

Other transactions with KMP or their related parties

Additional information

Auditor’s Independence Declaration

Freelancer Limited

Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2016

Freelancer Limited Consolidated Statement of Financial Position As at 31 December 2016

Freelancer Limited

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

Freelancer Limited Consolidated Statement of Cash Flows

For the year ended 31 December 2016

Freelancer Limited Notes to the financial statements

Contents of the notes to the consolidated financial statements

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

1. Reporting entity

2. Basis of preparation

(a) Compliance with International Financial Reporting Standards

(b) Historical cost convention

(c) Functional and presentation currency

(d) Critical accounting estimates

(e) Significant accounting policies

(f) Rounding of amounts

(g) Materiality

Freelancer Limited Notes to the financial statements For the financial year ended 31 December 2016

FREELANCER LIMITED Annual Report 2016