FREELANCER LIMITED — Interim / Quarterly Report 2016

Jul 27, 2016

Freelancer Limited ACN 141 959 042

Financial Report and Directors’ Report

For the year ended 31 December 2015

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Lodged with the ASX under Listing Rule 4.5

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Contents

Page Directors’ Report ............................................................................................................................................................. 5 Auditor’s Independence Declaration ............................................................................................................................... 6 Consolidated Statement of Profit or Loss and Other Comprehensive Income ................................................................ 7 Consolidated Statement of Financial Position ................................................................................................................. 8 Consolidated Statement of Changes in Equity ................................................................................................................ 9 Consolidated Statement of Cash Flows ........................................................................................................................ 10 Notes to the financial statements .................................................................................................................................. 11 Directors’ Declaration .................................................................................................................................................... 16 Independent Auditor’s Report ........................................................................................................................................ 17 Corporate Directory ....................................................................................................................................................... 19

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Freelancer Limited Directors’ Report

The Directors present their report together with the financial statements of the consolidated entity (the Group), consisting of Freelancer Limited (the Company) and its controlled entities for the half-year ended 30 June 2016 and the Independent Auditor’s Review Report thereon.

Directors

The names of the Directors of Freelancer Limited during the half-year and up to the date of this report are as follows:

Matt Barrie Chairman and Chief Executive Officer Darren Williams Non-Executive Director Simon Clausen Non-Executive Director

Review of operations

During the half-year ended 30 June 2016, the Group generated record net revenue of $26.2 million, up 56% on the prior corresponding period (1H15: $16.8 million). This period is the first with a full contribution from the Escrow.com payments business.

This result was driven by:

• Gross Payment Volume[1] (unaudited) growth of 453% on 1H15, driven by a full period contribution from Escrow.com, along with growth in projects and contests in the core marketplace segment, with approximately 1.4 million projects and contests posted during the period, up 40% on 1H15;

• continued growth in the user base, adding 2.1 million users during the period to a total of nearly 20 million users;

• • increased user, project and contest acquisition, increased marketplace efficiency and conversion rate optimisation, product development, increased take up of value-added services including product upgrades, and increased take-up and optimisation of memberships and certifications.

Gross profit for the half-year ended 30 June 2016 was $22.7 million, up 54% (1H15: $14.7 million), with a gross margin of 86.7% - in line with prior corresponding periods. Total operating expenses were $23.0 million (1H14: $15.9 million) reflecting a 45% increase, driven primarily by employment costs as the business grows headcount in engineering, support and functional areas to support its rapid growth, along with consolidation of the Escrow.com business and investment into its near term growth. As a result of this investment, the Group reported an operating net loss after tax of $(0.1) million (1H15: $(1.1) million) and an operating EBITDA[2] gain of $0.1 million (1H15: $(1.0) million). Operating cash flow was positive $4.5 million (1H15: $1.1 million).

Dividends paid or recommended

In respect of the half-year ended 30 June 2016, there have been no dividends paid or provided for (1H15: nil).

Auditor’s independence declaration

A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 6.

Rounding off of amounts

The Company is a company of the kind referred to in Australian Securities and Investments Commission class order 98/100 (as amended). Amounts in the Directors' Report and the accompanying financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, unless otherwise stated.

This report is made in accordance with a resolution of Directors.

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Matt Barrie Chairman 28 July 2016

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. Escrow.com contributed to the Company’s results from 1 November 2015 (no contribution in 1H15).

2 Operating earnings are exclusive of non-cash share based payments expense of $665k in the half-year period ended 30 June 2016.

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Auditor’s Independence Declaration

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Freelancer Limited

Consolidated Statement of Profit or Loss and Other Comprehensive Income For the half-year ended 30 June 2016

		30 Jun 2016	30 Jun 2015
	Note	$000	$000
Revenue	3	26,180	16,757
Cost of sales		(3,484)	(2,043)
Gross profit		22,696	14,714
Employee expenses		(11,053)	(8,269)
Administrative expenses		(4,457)	(3,662)
Marketing related expenses		(5,196)	(2,442)
Occupancy expenses		(1,457)	(1,263)
Foreign exchange losses		(439)	(93)
Depreciation and amortisation expenses		(354)	(205)
Share based payments expense		(665)	(466)
Finance costs		(2)	-
Loss before income tax		(927)	(1,686)
Income tax benefit		149	423
Loss after tax		(778)	(1,263)
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations		10	(21)
Total comprehensive loss for theyear		(768)	(1,284)
Earnings per share		Cents	Cents
Basic earnings per share	6	(0.17)	(0.29)
Diluted earnings per share	6	(0.17)	(0.28)

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

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Freelancer Limited Consolidated Statement of Financial Position As at 30 June 2016

		30 Jun 2016	31 Dec 2015
	Note	$000	$000
Assets
Current assets
Cash and cash equivalents		35,180	32,246
Trade and other receivables		3,768	3,359
Current tax assets		3	3
Other assets		717	823
Total current assets		39,668	36,431
Non-current assets
Trade and other receivables		209	214
Plant and equipment		1,564	1,652
Intangible assets		24,883	23,850
Other assets		511	601
Deferred tax assets		3,183	2,865
Total non-current assets		30,350	29,182
Total assets		70,018	65,613
Liabilities
Current liabilities
Trade and other payables		32,053	28,423
Current tax liabilities		175	51
Provisions		1,265	1,173
Deferred revenue		1,110	808
Total current liabilities		34,603	30,455
Non-current liabilities
Deferred tax liabilities		3	3
Provisions		323	248
Total non-current liabilities		326	251
Total liabilities		34,929	30,706
Net assets		35,089	34,907
Equity
Contributed equity	4	37,595	37,310
Reserves	5	1,893	1,218
Accumulated losses		(4,399)	(3,621)
Total equity		35,089	34,907

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

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Freelancer Limited

Consolidated Statement of Changes in Equity For the half-year ended 30 June 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 half-year		-	-	-	(1,263)	(1,263)
Exchange differences on translation of foreign operations	5	-	-	(21)	-	(21)
Total comprehensive loss for the half-year				(21)	(1,263)	(1,284)
Transactions with owners in their
capacity as owners:
Contributions of equity	4	10,000	-	-	-	10,000
Capitalised equity raising costs (net of tax)		(139)	-	-	-	(139)
Contributions of equity arising from repayment of ESP loans	4	61	-	-	-	61
Share basedpayments		-	466	-	-	466
Balance at 30 June 2015		27,442	888	(334)	(2,079)	25,917

	Contributed Equity	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 half-year		-	-	-	(778)	(778)
Exchange differences on translation of foreign operations	5	-	-	10	-	10
Total comprehensive loss for the half-year				10	(778)	(768)
Transactions with owners in their capacity	as owners:
Contributions of equity arising from repayment of ESP loans	4	285	-	-	-	285
Share basedpayments		-	665	-	-	665
Balance at 30 June 2016	37,595		2,250	(357)	(4,399)	35,089

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

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Freelancer Limited Consolidated Statement of Cash Flows

For the half year ended 30 June 2016

		30 Jun 2016	30 Jun 2015
	Note	$000	$000
Cash flows from operating activities
Receipts from customers (inclusive of GST and VAT)		26,174	16,856
Payments to suppliers and employees (inclusive of GST and VAT)		(21,716)	(15,745)
Interest received		89	23
Income taxespaid		(37)	(33)
Net cash inflow from operating activities		4,510	1,101
Cash flows from investing activities
Payments for plant and equipment		(266)	(333)
Payments for intangible assets		(1,033)	(6)
Payments for other assets		-	(648)
Net cash (outflow) from investing activities		(1,299)	(987)
Cash flows from financing activities
Proceeds from issue of shares	4	-	10,000
Contributions of equity arising from repayment of ESP loans	4	285	61
Equityraisingcosts		-	(199)
Net cash inflow from financing activities		285	9,862
Net increase in cash and cash equivalents		3,496	9,976
Cash and cash equivalents at beginning of the financial year		32,246	20,210
Effects of exchange rate changes on cash and cash equivalents		(562)	948
Cash and cash equivalents at end of the half-year		35,180	31,134

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

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Freelancer Limited Notes to the financial statements For the half year ended 30 June 2016

Contents of the notes to the consolidated financial statements

Note	Contents
1.	Basis of preparation ........................................................................................................................................ 12
2.	Segment information ....................................................................................................................................... 12
3.	Revenue .......................................................................................................................................................... 13
4.	Contributed equity ........................................................................................................................................... 13
5.	Equity – reserves ............................................................................................................................................. 14
6.	Earnings per share (EPS) ............................................................................................................................... 14
7.	Contingent liabilities ........................................................................................................................................ 15
8.	Commitments for expenditure ......................................................................................................................... 15
9.	Events occurring after the reporting date ........................................................................................................ 15

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Freelancer Limited Notes to the financial statements For the half year ended 30 June 2016

1. Basis of preparation

This interim report for the half-year reporting period ended 30 June 2016 has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. Freelancer Limited is a for-profit entity for the purpose of preparing the interim financial statements. The financial statements are for the consolidated entity consisting of Freelancer Limited and its subsidiaries.

This consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2015 and any public announcements made by Freelancer Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. These interim financial statements were authorised for issue on 28 July 2016.

(a) Accounting policies

The accounting policies adopted in the preparation of the consolidated interim financial statements are consistent with those adopted in the Group’s annual financial report for the year ended 31 December 2015.

(b) Rounding of amounts

The Company has applied the relief available to it under ASIC Class Order 98/100. Accordingly, amounts in the financial statements and Directors’ Report have been rounded off to the nearest $1,000.

2. Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The Board of Directors are identified as the 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 in Australia and has staff and operations in Philippines, United Kingdom, 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.

at least on a monthly basis.
Half-year end 30 June 2016	Online	Online	Total
	Marketplace	payment
		services
Segment revenue
Segment revenue	21,840	4,340	26,180
Total segment revenue	21,840	4,340	26,180
Segment result
Segment (loss) / profit	(484)	575	91
Share based payments			(665)
Depreciation and amortisation expenses			(354)
Loss before income tax			(928)
Income tax benefit			150
Loss for half-year			(778)

No segment reporting is provided for 2015 as the Group was organised into one operating segment, namely an online marketplace.

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Freelancer Limited Notes to the financial statements

For the half year ended 30 June 2016

3. Revenue

3. Revenue
	30 Jun 2016	30 Jun 2015
	$000	$000
Sales revenue
Marketplace and payment services	25,997	16,548
Other revenue
Interest income	82	61
Government grants	80	119
Other	21	29
Total revenue	26,180	16,757

4. Contributed equity

(a) Share capital

		30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015
	Note	Number	Number	$000	$000
Ordinary shares
Fully paid	4(b)	458,477,030	457,294,618	37,595	37,310
Total share capital				37,595	37,310

(b) Movements in ordinary share capital

Reconciliation to 31 December 2015	Number	Average	$000
	of shares	price
Balance at 1 July 2015	448,021,761		27,442
Capitalised equity raising costs (net of tax)			(189)
Issue of ordinary shares:
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	1,805,000	$1.48
Contributed equity arising from repayment of ESP loans			57
Balance at 31 December 2015	457,294,618		37,310
Reconciliation to 30 June 2016	Number	Average	$000
	of shares	price
Balance at 31 December 2015	457,294,618		37,310
Issue / (cancellation) of ordinary shares:
Issue of ESP shares1	2,070,000	$1.47	-
Buy-back and cancellation of ESP shares	(887,588)	$0.78	-
Contributed equity arising from repayment of ESP loans			285
Balance at 30 June 2016	458,477,030		37,595

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.

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Freelancer Limited Notes to the financial statements For the half year ended 30 June 2016

5. Equity – reserves

a) Movements	30 Jun 2016	31 Dec 2015
	$000	$000
Share based payment reserve movements
Balance at the beginning of the half-year	1,585	421
Share basedpayment expense	665	1,164
Balance at the end of the half-year	2,250	1,585
Foreign currency translation reserve movements
Balance at the beginning of the half-year	(367)	(313)
Currencytranslation differences arisingduringthe half-year	10	(54)
Balance at the end of the half-year	(357)	(367)
Total reserves	1,893	1,218
6. Earnings per share (EPS)
	30 Jun 2016	30 Jun 2015
	Cents	Cents
(a) Basic earnings per share
From operations attributable to the ordinary equity of the Company	(0.17)	(0.29)
Total basic earnings per share attributable to the ordinary equity holders of the Company	(0.17)	(0.29)
(b) Diluted earnings per share
From operations attributable to the ordinary equity of the Company	(0.17)	(0.28)
Total basic earnings per share attributable to the ordinary equity holders of the Company	(0.17)	(0.28)
(c) Reconciliation of earnings used in calculating earnings per share	$000	$000
Basic earnings per share:
Loss from continuing operations	(778)	(1,263)
Diluted earnings per share:
Loss attributable to the ordinary equity holders of the Company	(778)	(1,263)
	30 Jun 2016	30 Jun 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	447,906,981	433,460,256
Adjustments for calculation of ordinary shares used in
calculating diluted earnings per share:
ESP shares	10,145,198	7,701,590
Share grants	333,333	1,733,333
Weighted average number of ordinary shares used in calculating diluted earnings per share	458,385,512	442,895,180

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Freelancer Limited Notes to the financial statements

For the half year ended 30 June 2016

7. Contingent liabilities

Except for the items listed below, there are no other material contingent liabilities as at 30 June 2016:

• a collateral amount of USD100,000 (31 December 2015: USD100,000) is in place in one of the Group’s PayPal accounts in favour of PayPal Australia Pty Ltd;

• term deposits of $46,835 (31 December 2015: $47,488) are secured for corporate credit card facilities in place;

• • deposits of $802,000 (31 December 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 (31 December 2015: $724,000), 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 (31 December 2015: 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 (31 December 2015: USD180,000), which is held as a reserve to satisfy escrow regulatory requirements in respect of credit card transactions.

8. Commitments for expenditure

(a) Non-cancellable operating leases

The Group has entered into commercial leases for office property. As at 30 June 2016 these leases had remaining lives ranging from 3 months up to 46 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 30 June 2016 are as follows:

	30 Jun 2016	31 Dec 2015
	$000	$000
Less than one year	2,114	2,216
Between one and five years	4,675	5,725
More than fiveyears	-	-
Total operating lease commitments	6,789	7,941

(b) Other capital commitments

There were no capital commitments as at 30 June 2016.

9. Events occurring after the reporting date

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 will occur in several tranches, with each tranche conditional only upon the respective personnel being in on-going employment on the respective issue dates. On 1 July 2016 the second tranche of 333,333 shares were issued.

The Group has entered into a lease agreement in respect of premises at Suite 680, 180 Montgomery Street, San Francisco, California. This lease commenced on 11 July 2016 and is for a period of 26 months (terminating 31 August 2018). The future minimum rental payables will be $184,000 (for ‘Less than one year’) and $222,000 (for ‘Between one and five years’).

There are no other matters or circumstances that have arisen since 30 June 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.

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Freelancer Limited

Directors’ Declaration

In the Directors’ opinion:

• (a) the Financial Statements and notes of the consolidated entity set out on pages 6 to 14 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 30 June 2016 and of its performance for the half-year period ended on that date; and

• (ii) comply with Accounting Standard 134 "Interim Financial Reporting";

• (b) 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

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

On behalf of the directors

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Matt Barrie Chairman

28 July 2016

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Freelancer Limited

Independent Auditor’s Report

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Freelancer Limited

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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 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)

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Freelancer Limited

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