Straker Translations Limited FY19 Financial Statements 28.5.19
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STRAKER TRANSLATIONS LIMITED AND GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2019 STRAKER TRANSLATIONS LIMITED AND GROUP TABLE OF CONTENTS FOR THE YEAR ENDED 31 MARCH 2019 Directors’ Responsibility Statement 3 Independent Auditor’s Report 4 - 7 Consolidated Statement of Profit or Loss and Other Comprehensive Income 8 Consolidated Statement of Changes in Equity 9 Consolidated Statement of Financial Position 10 Consolidated Statement of Cash Flows 11 Notes to and forming part of the financial statements 12 – 45 Company Directory 46 New Zealand Statutory Information 47 Page 2 BDO Auckland INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF STRAKER TRANSLATIONS LIMITED Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Straker Translations Limited (“the Company”) and its subsidiaries (together, “the Group”), which comprise the consolidated statement of financial position as at 31 March 2019, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our firm carries out other assignments for the Group in the areas of taxation advice, professional services in relation to the Company’s listing on the ASX, and corporate finance services. The firm has no other relationship with, or interests in, the Company or any of its subsidiaries. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Business combinations completed in the current period The acquisitions of Eule Lokalisierung GmbH (“Eule”), Management System Solutions SL (“MSS”) and ComTranslations Online SL (“Com”) businesses have occurred in the year. Management has determined each acquisition represents a business combination. As a result, Management has applied NZ IFRS 3 Business Combinations. This assessment requires a significant level of judgement to identify and determine the fair value of assets and liabilities acquired, and to determine the fair value of contingent consideration. 4 BDO Auckland Business combinations completed in the current period (continued) Intangibles acquired as part of a business combination Key Audit Matter How The Matter Was Addressed in Our Audit The Group is required to recognise at fair value any We obtained Management’s assessment of separately identifiable intangible assets acquired identifiable intangible assets acquired in the through a business combination. acquisitions. We reviewed their assessment against our As a result of the acquisitions of Eule and MSS, the expectations of likely intangible assets, based Group has recognised customer relationship on our review of the sale and purchase intangible assets in the year of $1,535,000; at the agreements and our understanding of similar reporting date, the acquisition accounting for Com acquisitions. remained provisional. We obtained Management’s fair value calculation for intangibles acquired in the There is a significant level of judgement required to business combinations, prepared in conjunction determine the fair value of such intangible assets. with an external valuation expert. We assessed the competence and independence Refer to note 11 (intangible assets) and note 25 of Management’s external valuation expert, and (business combinations) of the consolidated financial challenged the expert as to the scope, statements. methodology, findings and conclusions of their work. We reviewed the key financial inputs to the fair value calculations to supporting documentation, including the existence of any contractual arrangements, historical financial data, cash flow forecasts and our understanding of the businesses. We engaged our internal valuation experts to review the valuation methodology used and the discount rate used. We reviewed the consolidated financial statement disclosures against the accounting standards. Contingent acquisition consideration Key Audit Matter How The Matter Was Addressed in Our Audit As part of the consideration for the acquisitions, We reviewed sale and purchase agreements to Management has recognised $2,186,000 of identify the contingent consideration clauses contingent consideration liabilities on the Eule, MSS and relevant earn out targets. and Com acquisitions at 31 March 2019. As the earn out clauses are based on achieving revenue targets for two years from the date of The liabilities are contingent on the future revenue acquisition, we have performed the following performance of the acquired entities over a period procedures: of two years. Compared actual revenue performance since acquisition to the earn out target. As recognition is dependent on forecast revenue Compared future forecast revenue to levels when compared to the prescribed revenue Management-prepared budgets. targets, the liabilities are subject to significant Challenged Management’s assumptions and judgement and estimation uncertainty around the inputs to the budgets, focussing on revenue assumptions and inputs to Management’s forecast by customer and historical financial calculations. information (including prior to acquisition). We re-performed Management’s contingent The Group has recognised a gain on fair value of consideration liability calculation based on contingent consideration liability of $276,000 to actual and forecast revenue to the prescribed profit or loss in the year as a result of earn out earn out target. targets no longer being forecast to be met in We re-calculated the gain on fair value of relation to the Eule acquisition that occurred in the contingent consideration liability of $276,000 in year. relation to the Eule acquisition that occurred in the year. We reviewed Management’s assertion Refer to note 16 (contingent consideration liability), that the factors that have led to their note 21 (financial risk management) and note 25 judgement that the achievement of the original (business combinations) of the consolidated financial forecast was not probable were not facts and statements. circumstances that existed at acquisition date. 5 BDO Auckland Contingent acquisition consideration (continued) We reviewed the consolidated financial statement disclosures against the accounting standards, including the fair value hierarchy of financial instruments measured at fair value. This includes sensitivity analysis for significant changes in forecast revenue inputs and its effect on the fair value of the contingent consideration liability. Goodwill impairment Key Audit Matter How The Matter Was Addressed in Our Audit The Group has recognised goodwill on historical We have obtained Management’s value in use acquisitions, as well as for Eule, MSS and Com, calculations prepared for each of the cash which were acquired in the year. generating units and evaluated the key inputs and assumptions. The key inputs included The goodwill balance of $6,030,000 is subject to an revenue, growth rates, gross margin, and annual impairment test in accordance with NZ IAS 36 discount rate. Impairment of Assets. We have engaged our internal valuation experts to review the mechanics of the value in use Management performed their impairment test by calculation against the valuation methodology, considering the recoverable amount of the Group’s and the discount rate used. goodwill using a value in use calculation. This We have compared the carrying value of the calculation is complex and subject to key inputs and CGUs’ assets to the recoverable amount assumptions, such as discount rates and future cash determined by the impairment test to identify flows, which inherently include a degree of any impairment losses. estimation uncertainty. We have reviewed disclosures in the consolidated financial statements, including Refer to note 11 (intangible assets) of the sensitivity analysis, to the requirements of the consolidated financial statements. accounting standard. Other Information The directors are responsible for the other information. The