Real
world
AI
2020 Annual Report
Contents
2 What we do
3 Why we do it
4 Making AI work in the real world
10 Capturing the market opportunity
12 2020 highlights
14 Chairman’s message
16 CEO’s message
18 Our competitive advantage
19 Our strategic priorities
20 How we create value
22 Global crowd
24 Appen employees
26 Technology, processes, systems
28 Customer and brand
30 Financial
32 Social and environment
36
Identifying and managing risk
44 Our approach to governance
46 Board of Directors
48 Executive Team
50 Directors’ report
58 Remuneration report
72 Lead auditor’s independence declaration
73 Financial report
128 Directors’ declaration
129 Independent auditor’s report
133 Additional information
136 Corporate directory
About this report
We have used the International Integrated
Reporting Council (IIRC) Framework and
the Sustainability Accounting Standards Board
(SASB) Standards to guide our disclosures on
how Appen creates value and which topics are
financially material to our business.
Appen Limited
ABN 60 138 878 298
Artificial
Artificial
intelligence...
intelligence...
Appen makes AI work in the real world by
delivering high-quality training data at scale.
Training data is used to build and continuously
improve the world’s most innovative AI
enhanced systems and services.
Our clients include the world’s largest
technology companies, global leaders in
automotive, financial services, retail and
healthcare, and government agencies.
...informed by Appen.
Appen 2020 Annual Report
1
Contents
2 What we do
3 Why we do it
4 Making AI work in the real world
10 Capturing the market opportunity
12 2020 highlights
14 Chairman’s message
16 CEO’s message
18 Our competitive advantage
19 Our strategic priorities
20 How we create value
22 Global crowd
24 Appen employees
26 Technology, processes, systems
28 Customer and brand
30 Financial
32 Social and environment
36
Identifying and managing risk
44 Our approach to governance
46 Board of Directors
48 Executive Team
50 Directors’ report
58 Remuneration report
72 Lead auditor’s independence declaration
73 Financial report
128 Directors’ declaration
129 Independent auditor’s report
133 Additional information
136 Corporate directory
About this report
We have used the International Integrated
Reporting Council (IIRC) Framework and
the Sustainability Accounting Standards Board
(SASB) Standards to guide our disclosures on
how Appen creates value and which topics are
financially material to our business.
Appen Limited
ABN 60 138 878 298
Artificial
Artificial
intelligence...
intelligence...
Appen makes AI work in the real world by
delivering high-quality training data at scale.
Training data is used to build and continuously
improve the world’s most innovative AI
enhanced systems and services.
Our clients include the world’s largest
technology companies, global leaders in
automotive, financial services, retail and
healthcare, and government agencies.
...informed by Appen.
Appen 2020 Annual Report
1
What
we do
?Appen is the global leader in
the development of high-quality,
human annotated datasets for
machine learning and artificial
intelligence.
We collect, classify, translate, review
and label large volumes of image, text,
speech, audio, video and other data
used to build and train AI systems.
The data is annotated by our global
crowd of over 1 million skilled contractors
who speak 235 languages and work
in over 170 countries.
We also have the industry’s most advanced
AI-assisted annotation platform.
2
Appen 2020 Annual Report
3
Why
we do it ...
When creating AI in
the real world, the data
used to train the AI is
more important than
the model itself.
AI models learn by observing large
volumes and diverse sets of examples.
These examples are called training
data. For data to be understood by
an AI model, it requires associated
meaning. We provide this meaning
by annotating the data.
AI performance is correlated with
the volume, quality and diversity
of data used for training. AI training
data needs to be refreshed regularly.
What
we do
Why
we do it ...
When creating AI in
the real world, the data
used to train the AI is
more important than
the model itself.
AI models learn by observing large
volumes and diverse sets of examples.
These examples are called training
data. For data to be understood by
an AI model, it requires associated
meaning. We provide this meaning
by annotating the data.
AI performance is correlated with
the volume, quality and diversity
of data used for training. AI training
data needs to be refreshed regularly.
?Appen is the global leader in
the development of high-quality,
human annotated datasets for
machine learning and artificial
intelligence.
We collect, classify, translate, review
and label large volumes of image, text,
speech, audio, video and other data
used to build and train AI systems.
The data is annotated by our global
crowd of over 1 million skilled contractors
who speak 235 languages and work
in over 170 countries.
We also have the industry’s most advanced
AI-assisted annotation platform.
2
Appen 2020 Annual Report
3
Search
Drive
3.5bn+
searches per day 1
Search engines
and social media
Online search powers the internet,
connecting users with appropriate
and relevant information.
Appen supports the world’s leading
search engines and social media
networks by providing large scale
model evaluation. Our global crowd
ensures that results are tailored to users’
specific locations and demographics.
1
Internet Live Stats 2020.
Autonomous
driving
40
terabytes
of data for every
eight hours of
driving 1
Autonomous vehicles have the ability
to identify and interpret the immediate
environment and operate with minimal
or no human intervention.
Appen provides the vision and sensor
annotations that are used to develop
the perception models that underpin
autonomous driving.
1 Auto Tech Review 2020.
4
Appen 2020 Annual Report
5
Search
Drive
3.5bn+
searches per day 1
Search engines
and social media
Online search powers the internet,
connecting users with appropriate
and relevant information.
Appen supports the world’s leading
search engines and social media
networks by providing large scale
model evaluation. Our global crowd
ensures that results are tailored to users’
specific locations and demographics.
1
Internet Live Stats 2020.
Autonomous
driving
40
terabytes
of data for every
eight hours of
driving 1
Autonomous vehicles have the ability
to identify and interpret the immediate
environment and operate with minimal
or no human intervention.
Appen provides the vision and sensor
annotations that are used to develop
the perception models that underpin
autonomous driving.
1 Auto Tech Review 2020.
4
Appen 2020 Annual Report
5
Immerse
Chat
1 in 5
US consumers used
VR in 2020 1
Augmented and
virtual reality
Augmented and virtual reality (AR/VR)
create immersive experiences and
present new ways for companies to
engage with customers.
Appen provides the training data that
is used to power the leading AR/VR
engines, including eye and hand tracking.
1 ARtillery Intelligence 2020.
30%
annual growth in the
chatbot market 1
AI-enabled chatbots
Chatbots simulate human interactions,
mainly for customer service and support.
Understanding customer intent (natural
language understanding (NLU)) and
responding with human-level accuracy
(natural language generation (NLG))
are only possible because of AI.
Appen’s deep expertise in data collection
and annotation specific to NLU and NLG,
combined with our global crowd, power
some of the world’s leading chatbots.
1 Markets and Markets 2019.
6
Appen 2020 Annual Report
7
Immerse
Chat
1 in 5
US consumers used
VR in 2020 1
Augmented and
virtual reality
Augmented and virtual reality (AR/VR)
create immersive experiences and
present new ways for companies to
engage with customers.
Appen provides the training data that
is used to power the leading AR/VR
engines, including eye and hand tracking.
1 ARtillery Intelligence 2020.
30%
annual growth in the
chatbot market 1
AI-enabled chatbots
Chatbots simulate human interactions,
mainly for customer service and support.
Understanding customer intent (natural
language understanding (NLU)) and
responding with human-level accuracy
(natural language generation (NLG))
are only possible because of AI.
Appen’s deep expertise in data collection
and annotation specific to NLU and NLG,
combined with our global crowd, power
some of the world’s leading chatbots.
1 Markets and Markets 2019.
6
Appen 2020 Annual Report
7
Interact
Shop
128m
people in the US will
use a voice assistant
at least monthly 1
Voice interactions
Home assistants, smart speakers and
voice activated devices have quickly
become commonplace. Automatic
speech recognition and natural language
processing are critical to their success.
Appen has been powering the world’s
leading voice user interfaces for 20+ years.
The combination of our linguistic expertise,
global crowd supporting 235 languages
and leading annotation software enables
us to deliver high-quality training data
for voice interface systems.
1 eMarketer 2020.
21%+
of total retail sales
in the US are online 1
E-commerce
E-commerce has created a broad
online marketplace that connects
shoppers with retailers. COVID-19
has accelerated adoption and
e-commerce is now an indispensable
part of everyday life for many people.
Appen supports the leading
e-commerce sites and platforms to
ensure that information is accurately
categorised and searchable to
deliver the best customer experience.
1 Digital Commerce 360 2021.
8
Appen 2020 Annual Report
9
Interact
Shop
128m
people in the US will
use a voice assistant
at least monthly 1
Voice interactions
Home assistants, smart speakers and
voice activated devices have quickly
become commonplace. Automatic
speech recognition and natural language
processing are critical to their success.
Appen has been powering the world’s
leading voice user interfaces for 20+ years.
The combination of our linguistic expertise,
global crowd supporting 235 languages
and leading annotation software enables
us to deliver high-quality training data
for voice interface systems.
1 eMarketer 2020.
21%+
of total retail sales
in the US are online 1
E-commerce
E-commerce has created a broad
online marketplace that connects
shoppers with retailers. COVID-19
has accelerated adoption and
e-commerce is now an indispensable
part of everyday life for many people.
Appen supports the leading
e-commerce sites and platforms to
ensure that information is accurately
categorised and searchable to
deliver the best customer experience.
1 Digital Commerce 360 2021.
8
Appen 2020 Annual Report
9
Capturing
the market
opportunity
US digital
advertising spend
21%
growth in 2021
Global AR/VR
spend
US$73bn
by 2024
The growth in AI-enabled products
and services highlights the growing
demand for quality training data.
AI training
dataset market
22.5%
annual growth
AI in
computer vision
40-51%
annual growth
Speech and
voice recognition
19%
annual growth
LiDAR
market size
US$10bn
by 2025
Digital advertising spend (2021 v 2020) - eMarketer 2020. AR/VR - IDC Worldwide Augmented and Virtual Reality Spending Guide November 2020.
Voice and speech recognition (compound annual growth 2018–2025) - Markets and Markets 2019. AI training dataset market (compound annual growth
2020–2027) - A2Z Market Research 2021. Computer vision (compound annual growth 2017–2026) - Report Consultant 2018, Maximize Market Research
2019. LiDAR market size - Global Market Insights 2019. Global spend on AI - IDC Worldwide Artificial Intelligence Spending Guide 2019 and 2020.
10
Global spend on AI
$110bn
by 2024
24% annual growth
s
r
o
t
a
r
e
l
e
c
c
A
Growth in online
advertising
E-commerce
acceleration
Uptake of voice
interface systems
New AI use
case adoption
Autonomous driving
2019
US$37.5bn
2024
US$110bn
Automated machine
learning (AutoML)
for model building
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
Appen 2020 Annual Report
11
Capturing
the market
opportunity
US digital
advertising spend
21%
growth in 2021
Global AR/VR
spend
US$73bn
by 2024
The growth in AI-enabled products
and services highlights the growing
demand for quality training data.
AI training
dataset market
22.5%
annual growth
AI in
computer vision
40-51%
annual growth
Speech and
voice recognition
19%
annual growth
LiDAR
market size
US$10bn
by 2025
Global spend on AI
$110bn
by 2024
24% annual growth
s
r
o
t
a
r
e
e
c
c
A
l
Growth in online
advertising
E-commerce
acceleration
Uptake of voice
interface systems
New AI use
case adoption
Autonomous driving
Digital advertising spend (2021 v 2020) - eMarketer 2020. AR/VR - IDC Worldwide Augmented and Virtual Reality Spending Guide November 2020.
Voice and speech recognition (compound annual growth 2018–2025) - Markets and Markets 2019. AI training dataset market (compound annual growth
2020–2027) - A2Z Market Research 2021. Computer vision (compound annual growth 2017–2026) - Report Consultant 2018, Maximize Market Research
2019. LiDAR market size - Global Market Insights 2019. Global spend on AI - IDC Worldwide Artificial Intelligence Spending Guide 2019 and 2020.
10
2019
US$37.5bn
2024
US$110bn
Automated machine
learning (AutoML)
for model building
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
Appen 2020 Annual Report
11
2020
highlights
l
i
a
c
n
a
n
F
i
s
r
e
m
o
t
s
u
C
d
w
o
r
c
l
a
b
o
G
l
20+ years
working with leading
technology companies
931m
relevance judgements
in 2020
136
new customers
Crowd contractors
1m+
Living in
170+
countries
Expertise in
235
languages
US$124m
annual contract value
(as at 1 February 2021)
See page 28.
Crowd NPS
48
1 percentage point
y
g
o
l
o
n
h
c
e
T
s
e
e
y
o
l
p
m
E
Employees
1,125
44%
Employee engagement
82%
6 percentage points
Female representation
58%
of employees
43%
of Board Directors
29,380
hours of training
See page 24.
Major technology
customers
4 of 5
use our industry-leading
data annotation platform
Automation of LiDAR
and OCR annotation
3–6x
faster
ISO certified
5 secure
facilities
Launched new
Mobile app
for crowd sign up, projects
See page 26.
t
n
e
m
n
o
r
i
v
n
e
d
n
a
l
a
i
c
o
S
Crowd Code of Ethics
Fair pay
Inclusion
Crowd voice
Privacy and
confidentiality
Communication
Wellbeing
World Economic
Forum partnership on
Responsible AI
COVID-19
translation initiative
datasets for
70,000
key COVID-19 terms and
phrases for 38 languages
New
Environment Position
Statement
Net profit after tax
A$50.5m
statutory 21%
A$64.4m
underlying 1%
Revenue
A$599.9m
12%
EBITDA
A$107.9m
statutory 23%
A$108.6m
underlying 8%
Dividend per share (A¢)
See page 32.
10.0¢
full year dividend 11%
Financials as at 31 December 2020, all comparisons are to the year ended 31 December 2019. Underlying net profit after tax (NPAT)
and earnings before interest, tax, depreciation, and amortisation (EBITDA) exclude the impact of items relating to business acquisitions,
including amortisation of acquired assets, share-based payments, transaction costs and fair-value adjustments. Underlying NPAT also
12
Appen 2020 Annual Report
13
See page 22.
See page 30.
excludes deemed interest on acquisition related earn-out payments.
2020
highlights
d
w
o
r
c
l
a
b
o
l
G
s
r
e
m
o
t
s
u
C
20+ years
working with leading
technology companies
931m
relevance judgements
in 2020
136
new customers
Crowd contractors
1m+
Living in
170+
countries
Expertise in
235
languages
US$124m
annual contract value
(as at 1 February 2021)
See page 28.
Crowd NPS
48
1 percentage point
l
a
i
c
n
a
n
i
F
Net profit after tax
A$50.5m
statutory 21%
A$64.4m
underlying 1%
Revenue
A$599.9m
12%
EBITDA
A$107.9m
statutory 23%
A$108.6m
underlying 8%
10.0¢
full year dividend 11%
l
y
g
o
o
n
h
c
e
T
s
e
e
y
o
p
m
E
l
Employees
1,125
44%
Employee engagement
82%
6 percentage points
Female representation
58%
of employees
43%
of Board Directors
29,380
hours of training
See page 24.
Major technology
customers
4 of 5
use our industry-leading
data annotation platform
Automation of LiDAR
and OCR annotation
3–6x
faster
ISO certified
5 secure
facilities
Launched new
Mobile app
for crowd sign up, projects
See page 26.
t
n
e
m
n
o
r
i
v
n
e
d
n
a
l
i
a
c
o
S
Crowd Code of Ethics
Fair pay
Inclusion
Crowd voice
Privacy and
confidentiality
Communication
Wellbeing
World Economic
Forum partnership on
Responsible AI
COVID-19
translation initiative
datasets for
70,000
key COVID-19 terms and
phrases for 38 languages
New
Environment Position
Statement
Dividend per share (A¢)
See page 32.
12
See page 22.
See page 30.
Financials as at 31 December 2020, all comparisons are to the year ended 31 December 2019. Underlying net profit after tax (NPAT)
and earnings before interest, tax, depreciation, and amortisation (EBITDA) exclude the impact of items relating to business acquisitions,
including amortisation of acquired assets, share-based payments, transaction costs and fair-value adjustments. Underlying NPAT also
excludes deemed interest on acquisition related earn-out payments.
Appen 2020 Annual Report
13
Chairman’s message
Shaping
the future
We have built global scale, breadth of
services and technology depth. We are
investing in our people and technology
to achieve ongoing growth.
The applications of AI are expanding
rapidly. Through our role in providing
algorithm training data, Appen seeks
to make AI work in the real world and
transform the way organisations and
companies do business.
Financial performance
The financial results for 2020
demonstrated the underlying
resilience of the business. In summary:
•
Total revenue grew 12% to
$599.9 million.
• Statutory EBITDA increased by 23%
to $107.9 million. Underlying EBITDA
increased 8% to $108.6 million.
This includes growth investments of
$12.7 million in sales and marketing,
technology and our China business.
• We maintained healthy profitability
on sales and achieved an underlying
EBITDA margin of 18.1%.
• Statutory NPAT was $50.5 million, an
increase of 21%. Underlying NPAT was
$64.4 million, a small decrease of 1%
from 2019 due to the impact of growth
investments and higher amortisation.
Appen continued its growth in 2020 in both
revenue and earnings while navigating some
headwinds arising from the global pandemic.
Over the past 24 years, we have established
a strong and unique role at the centre of
one of the world’s most exciting industries
– Artificial Intelligence and Machine Learning.
Our balance sheet continues to
be very healthy, with cash and cash
equivalents at 31 December 2020
of $78.4 million. The Board declared
a final dividend of 5.5 cents per share,
50% franked. Combined with the 4.5 cent
interim dividend paid in September
2020, the total dividend for the year
is 10.0 cents per share.
Priorities in 2020
The Board maintained its focus on the
company’s growth initiatives, including the
drive to broaden our base of customers,
leverage technology for scale and
automation, and increase the proportion
of our revenue which is repeatable.
There was a major focus on supporting
and growing our two new business
divisions – China and Government.
Technology is central to delivering
productivity improvements and
responsiveness to new customer
requirements. Throughout 2020, we
maintained our investments in software
development initiatives in this area.
In such a dynamic growth sector,
management of risk is a critical factor.
Under the oversight of the Board Audit
and Risk Management Committee,
we strengthened the company’s risk
management framework to ensure that
our culture of growth and innovation is
“
Our mission is to help build
better AI by creating large
volumes of high-quality training
data faster. Our vision is to
make AI work in the real world.
We believe AI can transform
the way organisations and
companies do business.”
Recommendations (4th edition), the
Our 1 million+ crowd continues to be
Sustainability Accounting Standards
one of Appen’s most valuable assets.
Board (SASB) Standards, the Integrated
Our ability to support remote working
Reporting Framework, and the Task Force
in a secure environment has been
on Climate-related Financial Disclosures.
a success factor in the new work
Board
The Appen Board was strengthened by the
appointment of Vanessa Liu on 27 March
2020. Vanessa is based in New York and
brings a deep understanding of digital
technologies and AI. Her familiarity with,
and understanding of, the US market and
customers is particularly valuable.
environment. We have implemented
policies to manage the risks of modern
slavery and human rights abuses, and
we work with our customers to ensure
ethical sourcing. Our crowd operations
are rigorously governed by our Crowd
Code of Ethics.
Shareholders
The directors greatly appreciate the
continuing support of our shareholders.
Your loyalty and engagement are
valued, and you have our commitment
to deliver strong results. In 2021, the
Board will be seeking to ensure that
the investments we have made yield
growth in our customer base and returns
on your investment.
Christopher Vonwiller
Chairman
supported by identification and mitigation
Our rapidly developing industry and
of risk at all levels in the company.
competitive environment have required
Social and environment
AI opens attractive opportunities but must
be implemented ethically. This is an issue
of focus for the Board. Appen seeks to
full engagement of Board members.
I have valued their commitment and
contributions through the year.
Our people
assist customers to implement AI solutions
Our employees have responded
which are fair and unbiased. We are
impressively to the challenges arising
helping develop responsible AI standards
from the coronavirus pandemic. To keep
through our multi-year partnership with
them safe and informed, we established
the World Economic Forum.
The nature of Appen’s business results
in a relatively low environmental footprint.
a COVID-19 Response Team to define
safety protocols for all our offices
globally and update them frequently.
Nevertheless, we are committed to
The Executive Team has also shown
reducing the impact of our operations,
great leadership through their quick
including buildings, power consumption,
and effective response to the pandemic.
travel, and water usage and to achieving
They have continued to deliver on our
net zero emissions by 2050.
strategic growth objectives, and we are
In strengthening our governance
framework, we have been sensitive
to feedback from our stakeholders
including our crowd, employees,
indebted to them.
We value the cultural and linguistic
diversity of our workforce, and we
seek to maintain Appen as a great
customers, and shareholders. Our policies
place to work with a high-performing
and practices have been guided by
culture. To underpin this, we established
external frameworks including the ASX
a Diversity and Inclusion Committee
Corporate Governance Principles and
composed of Appen employees.
14
Appen 2020 Annual Report
15
Chairman’s message
Shaping
the future
We have built global scale, breadth of
services and technology depth. We are
investing in our people and technology
to achieve ongoing growth.
The applications of AI are expanding
rapidly. Through our role in providing
algorithm training data, Appen seeks
to make AI work in the real world and
transform the way organisations and
companies do business.
Financial performance
The financial results for 2020
demonstrated the underlying
resilience of the business. In summary:
•
Total revenue grew 12% to
$599.9 million.
• Statutory EBITDA increased by 23%
to $107.9 million. Underlying EBITDA
increased 8% to $108.6 million.
This includes growth investments of
$12.7 million in sales and marketing,
technology and our China business.
• We maintained healthy profitability
on sales and achieved an underlying
EBITDA margin of 18.1%.
• Statutory NPAT was $50.5 million, an
increase of 21%. Underlying NPAT was
$64.4 million, a small decrease of 1%
from 2019 due to the impact of growth
investments and higher amortisation.
Appen continued its growth in 2020 in both
revenue and earnings while navigating some
headwinds arising from the global pandemic.
Over the past 24 years, we have established
a strong and unique role at the centre of
one of the world’s most exciting industries
– Artificial Intelligence and Machine Learning.
Our balance sheet continues to
be very healthy, with cash and cash
equivalents at 31 December 2020
of $78.4 million. The Board declared
a final dividend of 5.5 cents per share,
50% franked. Combined with the 4.5 cent
interim dividend paid in September
2020, the total dividend for the year
is 10.0 cents per share.
Priorities in 2020
The Board maintained its focus on the
company’s growth initiatives, including the
drive to broaden our base of customers,
leverage technology for scale and
automation, and increase the proportion
of our revenue which is repeatable.
There was a major focus on supporting
and growing our two new business
divisions – China and Government.
Technology is central to delivering
productivity improvements and
responsiveness to new customer
requirements. Throughout 2020, we
maintained our investments in software
development initiatives in this area.
In such a dynamic growth sector,
management of risk is a critical factor.
Under the oversight of the Board Audit
and Risk Management Committee,
we strengthened the company’s risk
management framework to ensure that
our culture of growth and innovation is
supported by identification and mitigation
of risk at all levels in the company.
Social and environment
AI opens attractive opportunities but must
be implemented ethically. This is an issue
of focus for the Board. Appen seeks to
assist customers to implement AI solutions
which are fair and unbiased. We are
helping develop responsible AI standards
through our multi-year partnership with
the World Economic Forum.
The nature of Appen’s business results
in a relatively low environmental footprint.
Nevertheless, we are committed to
reducing the impact of our operations,
including buildings, power consumption,
travel, and water usage and to achieving
net zero emissions by 2050.
In strengthening our governance
framework, we have been sensitive
to feedback from our stakeholders
including our crowd, employees,
customers, and shareholders. Our policies
and practices have been guided by
external frameworks including the ASX
Corporate Governance Principles and
“
Our mission is to help build
better AI by creating large
volumes of high-quality training
data faster. Our vision is to
make AI work in the real world.
We believe AI can transform
the way organisations and
companies do business.”
Our 1 million+ crowd continues to be
one of Appen’s most valuable assets.
Our ability to support remote working
in a secure environment has been
a success factor in the new work
environment. We have implemented
policies to manage the risks of modern
slavery and human rights abuses, and
we work with our customers to ensure
ethical sourcing. Our crowd operations
are rigorously governed by our Crowd
Code of Ethics.
Shareholders
The directors greatly appreciate the
continuing support of our shareholders.
Your loyalty and engagement are
valued, and you have our commitment
to deliver strong results. In 2021, the
Board will be seeking to ensure that
the investments we have made yield
growth in our customer base and returns
on your investment.
Christopher Vonwiller
Chairman
Recommendations (4th edition), the
Sustainability Accounting Standards
Board (SASB) Standards, the Integrated
Reporting Framework, and the Task Force
on Climate-related Financial Disclosures.
Board
The Appen Board was strengthened by the
appointment of Vanessa Liu on 27 March
2020. Vanessa is based in New York and
brings a deep understanding of digital
technologies and AI. Her familiarity with,
and understanding of, the US market and
customers is particularly valuable.
Our rapidly developing industry and
competitive environment have required
full engagement of Board members.
I have valued their commitment and
contributions through the year.
Our people
Our employees have responded
impressively to the challenges arising
from the coronavirus pandemic. To keep
them safe and informed, we established
a COVID-19 Response Team to define
safety protocols for all our offices
globally and update them frequently.
The Executive Team has also shown
great leadership through their quick
and effective response to the pandemic.
They have continued to deliver on our
strategic growth objectives, and we are
indebted to them.
We value the cultural and linguistic
diversity of our workforce, and we
seek to maintain Appen as a great
place to work with a high-performing
culture. To underpin this, we established
a Diversity and Inclusion Committee
composed of Appen employees.
14
Appen 2020 Annual Report
15
CEO’s message
Driving
Driving
growth
growth
We’re pleased
to report another
year of solid growth
despite the many
challenges of 2020.
Our record full year revenue and
underlying EBITDA, as reported by
our Chairman, maintained our run of
constant growth since our IPO in 2015.
Revenue has grown 49% CAGR from
2015 to 2020, and underlying EBITDA
has increased 51% CAGR. Our growth
has been underpinned by the ongoing
demand for high-quality training data for
AI, principally from our major customers,
the world’s largest technology companies,
but also from many new customers.
2020 was a breakout year for new
customer wins. Our investments in
sales and marketing yielded 136 new
customers last year across a variety
of sectors, including technology,
autonomous vehicles, financial services
and education, and multiple data types,
such as image, video, LiDAR, text and
speech. Many of these customers are
small, but they increase Appen’s market
penetration and lay a strong foundation
for growth in coming years.
We also expanded the number of
projects across our top five customers
by 34%, increasing the value we deliver
to our largest customers, cementing our
relationships with them, and supporting
their many new product developments.
Customer and project growth was
enabled by our annotation platform,
acquired with Figure Eight in 2019.
The platform delivers utility to
companies without data labelling
or crowd management technology,
provides additional functionality to our
largest customers, and supports multiple
data types and use cases that allow
all of our customers to deliver on their
expanding AI roadmaps. The platform
also provides us with a pathway to
valuable committed revenue, which was
31% of total revenue in the second half
of the year, up from 12% in the first half.
The pandemic’s effect on some business
sectors, such as tourism, reduced online
advertising mid-2020 and thus lowered
our major customers’ main source of
revenue. Despite advertising bouncing
back later in the year, we saw less
spending on our advertising-related
AI programs as well as a re-prioritisation
of spend to new product development
as our customers build less reliance on
advertising. Fortunately, we’re involved
in many of these new projects, but they
are earlier in their life cycle than the ad
programs and hence our 2020 revenue
was impacted overall. We expect the
new projects to grow and complement
our major programs through 2021.
A few of our customers deferred
programs amidst the uncertainty of
the pandemic, including some major
projects late in the year, which also
“
Our growth has been
underpinned by the
ongoing demand
for high-quality
training data for
AI, principally from
our major customers,
the world’s largest
technology companies,
but also from many
new customers.”
impacted our 2020 revenue. We have
Our customers highly value our
seen the majority of these programs
deep expertise in the AI training data
return in 2021.
Our market is dynamic and we, along
with our customers, are responding
to important issues that include trust,
safety and data privacy. This may
impact us as well, but it could also
market. We are the largest provider
of high-quality data at scale, and in
2021 we will reach our 25th year in
operation. Our team of training data
experts continues to deliver huge value
to our customers.
give us opportunities to support our
We have new challenges to navigate in
customers in this changing environment.
2021, including a strong Australian dollar,
We’re pleased to report very high
growth in China, with revenue
increasing 60% each quarter in 2020.
We’re coming off a low base, but we have
a solid foundation for growth. We count
China’s largest technology companies
amongst our customers, as well as
a number of autonomous vehicle
Our focus in 2021 remains firmly on our
customers. Providing high-quality data
companies, and health and education
and services for our existing and recently
technology providers.
won customers sets us up for expansion
the pace of the economic recovery
post-COVID, the evolving regulatory
environment facing our major customers
and their transition into new products.
Our government team is in place,
having navigated the turbulence of
last year, and is focused on building
our brand and pipeline.
opportunities. Our more experienced
We remain very optimistic however,
sales teams and healthy pipeline will
due to the strong tailwinds of the AI
enable further new customer acquisition.
market, our position as the largest in our
The pace of AI adoption and use case
market, the strength of our capabilities
proliferation will also drive continuing
and technology and our proven ability
Combined, our new customers and
demand for high-quality training data.
to evolve with our customers’ needs.
projects, higher committed revenue and
growth in China, along with our existing
customers and programs, improves our
market position and provides a strong
foundation for further growth in 2021.
Our technology is at the forefront of
I’d like to recognise all of my
our work in 2021. The growing feature
colleagues at Appen. Despite the
set, scalability and security of our
many challenges of 2020, they were
platform will help us to win more
unwavering in their hard work and
customers, and our annotation tools,
support of our customers, our mission
2020 was not without its challenges
including AI-enabled automatic labelling,
and each other. They deserve our
however. We had a strong first half
will improve the speed and quality
heartfelt thanks.
but a number of factors conspired
of data provision and yield greater
to dampen our second half result.
productivity of our crowd.
Thank you for your ongoing support.
We look forward to a strong and
The global shift to working from home
We will continue to support and grow our
successful 2021.
due to the pandemic limited our B2B
crowd. They are essential and valuable
selling, resulting in fewer customer wins in
contributors to our business, and we
Q2 and Q3, but sales bounced back in Q4
strive to lead the way on the ethical
as we established new ways of working.
and fair treatment of crowd workers.
Our customers’ operations were similarly
affected but the passage of time has and
should continue to see more consistency.
Mark Brayan
CEO
16
Appen 2020 Annual Report
17
CEO’s message
Driving
Driving
growth
growth
We’re pleased
to report another
year of solid growth
despite the many
challenges of 2020.
Our record full year revenue and
We also expanded the number of
underlying EBITDA, as reported by
projects across our top five customers
our Chairman, maintained our run of
by 34%, increasing the value we deliver
constant growth since our IPO in 2015.
to our largest customers, cementing our
Revenue has grown 49% CAGR from
relationships with them, and supporting
2015 to 2020, and underlying EBITDA
their many new product developments.
has increased 51% CAGR. Our growth
has been underpinned by the ongoing
demand for high-quality training data for
AI, principally from our major customers,
the world’s largest technology companies,
but also from many new customers.
Customer and project growth was
enabled by our annotation platform,
acquired with Figure Eight in 2019.
The platform delivers utility to
companies without data labelling
or crowd management technology,
2020 was a breakout year for new
provides additional functionality to our
customer wins. Our investments in
largest customers, and supports multiple
sales and marketing yielded 136 new
data types and use cases that allow
customers last year across a variety
all of our customers to deliver on their
of sectors, including technology,
expanding AI roadmaps. The platform
autonomous vehicles, financial services
also provides us with a pathway to
and education, and multiple data types,
valuable committed revenue, which was
such as image, video, LiDAR, text and
31% of total revenue in the second half
speech. Many of these customers are
of the year, up from 12% in the first half.
small, but they increase Appen’s market
penetration and lay a strong foundation
for growth in coming years.
The pandemic’s effect on some business
sectors, such as tourism, reduced online
advertising mid-2020 and thus lowered
our major customers’ main source of
revenue. Despite advertising bouncing
back later in the year, we saw less
spending on our advertising-related
AI programs as well as a re-prioritisation
of spend to new product development
as our customers build less reliance on
advertising. Fortunately, we’re involved
in many of these new projects, but they
are earlier in their life cycle than the ad
programs and hence our 2020 revenue
was impacted overall. We expect the
new projects to grow and complement
our major programs through 2021.
A few of our customers deferred
programs amidst the uncertainty of
the pandemic, including some major
projects late in the year, which also
impacted our 2020 revenue. We have
seen the majority of these programs
return in 2021.
Our market is dynamic and we, along
with our customers, are responding
to important issues that include trust,
safety and data privacy. This may
impact us as well, but it could also
give us opportunities to support our
customers in this changing environment.
Our focus in 2021 remains firmly on our
customers. Providing high-quality data
and services for our existing and recently
won customers sets us up for expansion
opportunities. Our more experienced
sales teams and healthy pipeline will
enable further new customer acquisition.
The pace of AI adoption and use case
proliferation will also drive continuing
demand for high-quality training data.
Our technology is at the forefront of
our work in 2021. The growing feature
set, scalability and security of our
platform will help us to win more
customers, and our annotation tools,
including AI-enabled automatic labelling,
will improve the speed and quality
of data provision and yield greater
productivity of our crowd.
We will continue to support and grow our
crowd. They are essential and valuable
contributors to our business, and we
strive to lead the way on the ethical
and fair treatment of crowd workers.
“
Our growth has been
underpinned by the
ongoing demand
for high-quality
training data for
AI, principally from
our major customers,
the world’s largest
technology companies,
but also from many
new customers.”
Our customers highly value our
deep expertise in the AI training data
market. We are the largest provider
of high-quality data at scale, and in
2021 we will reach our 25th year in
operation. Our team of training data
experts continues to deliver huge value
to our customers.
We have new challenges to navigate in
2021, including a strong Australian dollar,
the pace of the economic recovery
post-COVID, the evolving regulatory
environment facing our major customers
and their transition into new products.
We remain very optimistic however,
due to the strong tailwinds of the AI
market, our position as the largest in our
market, the strength of our capabilities
and technology and our proven ability
to evolve with our customers’ needs.
I’d like to recognise all of my
colleagues at Appen. Despite the
many challenges of 2020, they were
unwavering in their hard work and
support of our customers, our mission
and each other. They deserve our
heartfelt thanks.
Thank you for your ongoing support.
We look forward to a strong and
successful 2021.
Mark Brayan
CEO
We’re pleased to report very high
growth in China, with revenue
increasing 60% each quarter in 2020.
We’re coming off a low base, but we have
a solid foundation for growth. We count
China’s largest technology companies
amongst our customers, as well as
a number of autonomous vehicle
companies, and health and education
technology providers.
Our government team is in place,
having navigated the turbulence of
last year, and is focused on building
our brand and pipeline.
Combined, our new customers and
projects, higher committed revenue and
growth in China, along with our existing
customers and programs, improves our
market position and provides a strong
foundation for further growth in 2021.
2020 was not without its challenges
however. We had a strong first half
but a number of factors conspired
to dampen our second half result.
The global shift to working from home
due to the pandemic limited our B2B
selling, resulting in fewer customer wins in
Q2 and Q3, but sales bounced back in Q4
as we established new ways of working.
Our customers’ operations were similarly
affected but the passage of time has and
should continue to see more consistency.
16
Appen 2020 Annual Report
17
Our competitive
advantage
Industry-leading technology
– Our platform and tools support data collection, annotation and testing, and cover all the main data modalities.
–
AI-driven automation is used in the annotation process to increase speed, scale and productivity.
– Quality controls are built-in.
– Multiple security options are provided to protect customers’ data, including secure work-from-home
annotation technology.
Crowd scale and flexibility
– On-demand access to scalable and responsive crowd of 1 million+ crowd contractors.
–
Diversity of crowd across 170+ countries and supporting 235 languages enables high-quality
outcomes and edge-case projects, and reduces bias.
–
Ability to recruit contributors with specialist expertise.
– On-site annotation in secure facilities for confidential data handling.
Customer focused
–
–
–
–
Highly flexible offering – tailored to meet customer and project requirements.
Pre-labelled datasets to jumpstart models and to supplement customers’ data.
Self-service options for customers with experience in data labelling.
Fully managed services where our experts manage the annotation process.
Deep expertise
–
–
–
–
20+ years of experience as a pure-play training data provider.
Dedicated teams of subject matter experts including linguists, quality experts, project managers
and machine learning specialists.
Broad and deep practical experience across data types and use cases.
Involved in each stage of the training data process.
Quality and reliability
–
–
–
Long-standing trusted relationships with the world’s largest technology companies.
Proven ability to scale to meet production needs and to achieve very high benchmarks for data quality.
Strong track record of enabling successful AI deployment.
Our strategic
priorities
Our goals are to delight customers, have
happy crowd contractors, make Appen a great
place to work, be a responsible citizen and
deliver strong performance for shareholders.
Our focus areas
Tech-enabled
Delivering
operations
growth
Annotation technology
New customers
We are investing in engineering
We support the world’s largest technology
to ensure that our annotation
companies to build industry-leading
platform and tools evolve to support
AI applications. The AI market is also
a growing range of use cases
growing outside of this base and we
and customers. A product-centric
are evolving our products, services,
offering also enables us to increase
and commercial presence to support
our committed revenue.
new customers on their AI journeys.
Increased productivity
New markets
We continue to invest in technology
We have built dedicated operations
that improves crowd productivity,
and products to serve the high growth
training data quality and our unit
markets of China and Government.
economics. This includes machine
Our commercial teams are focused
learning assisted annotation and
on other high-priority areas including
AI-driven predictive matching of skilled
autonomous vehicles, financial
annotators to relevant projects.
services, Europe and Asia-Pacific.
18
Appen 2020 Annual Report
19
Our competitive
advantage
Industry-leading technology
– Our platform and tools support data collection, annotation and testing, and cover all the main data modalities.
–
AI-driven automation is used in the annotation process to increase speed, scale and productivity.
– Quality controls are built-in.
annotation technology.
– Multiple security options are provided to protect customers’ data, including secure work-from-home
Crowd scale and flexibility
– On-demand access to scalable and responsive crowd of 1 million+ crowd contractors.
–
Diversity of crowd across 170+ countries and supporting 235 languages enables high-quality
outcomes and edge-case projects, and reduces bias.
–
Ability to recruit contributors with specialist expertise.
– On-site annotation in secure facilities for confidential data handling.
Customer focused
Highly flexible offering – tailored to meet customer and project requirements.
Pre-labelled datasets to jumpstart models and to supplement customers’ data.
Self-service options for customers with experience in data labelling.
Fully managed services where our experts manage the annotation process.
Deep expertise
20+ years of experience as a pure-play training data provider.
Dedicated teams of subject matter experts including linguists, quality experts, project managers
and machine learning specialists.
Broad and deep practical experience across data types and use cases.
Involved in each stage of the training data process.
Quality and reliability
Long-standing trusted relationships with the world’s largest technology companies.
Proven ability to scale to meet production needs and to achieve very high benchmarks for data quality.
Strong track record of enabling successful AI deployment.
–
–
–
–
–
–
–
–
–
–
–
Our strategic
priorities
Our goals are to delight customers, have
happy crowd contractors, make Appen a great
place to work, be a responsible citizen and
deliver strong performance for shareholders.
Our focus areas
Tech-enabled
operations
Delivering
growth
Annotation technology
New customers
We are investing in engineering
to ensure that our annotation
platform and tools evolve to support
a growing range of use cases
and customers. A product-centric
offering also enables us to increase
our committed revenue.
We support the world’s largest technology
companies to build industry-leading
AI applications. The AI market is also
growing outside of this base and we
are evolving our products, services,
and commercial presence to support
new customers on their AI journeys.
Increased productivity
New markets
We continue to invest in technology
that improves crowd productivity,
training data quality and our unit
economics. This includes machine
learning assisted annotation and
AI-driven predictive matching of skilled
annotators to relevant projects.
We have built dedicated operations
and products to serve the high growth
markets of China and Government.
Our commercial teams are focused
on other high-priority areas including
autonomous vehicles, financial
services, Europe and Asia-Pacific.
18
Appen 2020 Annual Report
19
How we
create value
Value drivers
Global crowd
Our skilled and flexible crowd of 1 million+ contractors lives
in 170+ countries and speaks 235 languages.
See page 22.
Appen employees
We have 1,125 experienced employees with deep industry
expertise based in 14 locations globally.
See page 24.
Technology, processes, systems
Market drivers,
societal trends
Growth in AI investment
and applications
Digital disruption,
new digital business models
Growth in the freelance economy
and remote work
Our industry-leading technology, processes and
systems deliver high-quality outcomes for customers
and drive business productivity.
See page 26.
Responsible labour practices
Supply chain management
Ethical AI
Data privacy and security
See pages 38-43.
Customer and brand
Over 20+ years we have built trusted relationships and
a reputation for quality and service excellence. See page 28.
Crowd
management
Financial
Our financial performance supports strategic execution,
shareholder returns and investment in growth.
See page 30.
Social and environment
We manage our social and environmental impacts and
look for ways to make a positive contribution.
See page 32.
Business
activities
Value created
Crowd and employees
The United Nations Sustainable
Development Goals (SDGs) we contribute to:
We provide flexible, work-from-home opportunities
to our global crowd of 1 million+ contractors. We are
committed to treating our crowd fairly in accordance with
our Crowd Code of Ethics. We make Appen a great place
to work for our 1,125 employees by providing opportunities
for development and an inclusive environment.
Customers
By providing high-quality training data at scale we help
our customers to create and launch innovative products
and services, accelerate their time to market, improve
the user experience for their customers, and increase
their productivity and efficiency.
Shareholders
We continue to grow the business and to deliver increased
revenue and earnings to support returns for shareholders.
We are investing in new markets and technology to deliver
additional growth and productivity. Our focus on our
strategy and business value drivers underpins our strong
financial performance and creates sustainable long-term
value for shareholders.
Society
By providing training data that is responsibly sourced
from a diverse crowd of human annotators, we help
to make AI ethical and fair to ensure that it delivers
appropriate and equitable results for end users. We also
play a role in enabling AI that delivers benefits to society,
through innovative products and services and more
efficient allocation of natural resources.
Data collection,
annotation and
testing at scale
Technology
and tools for
data annotation
Managed services
for customers
20
Appen 2020 Annual Report
21
How we
create value
Value drivers
Global crowd
Our skilled and flexible crowd of 1 million+ contractors lives
in 170+ countries and speaks 235 languages.
See page 22.
Appen employees
We have 1,125 experienced employees with deep industry
expertise based in 14 locations globally.
See page 24.
Growth in the freelance economy
and remote work
Our industry-leading technology, processes and
systems deliver high-quality outcomes for customers
and drive business productivity.
See page 26.
Technology, processes, systems
Market drivers,
societal trends
Growth in AI investment
and applications
Digital disruption,
new digital business models
Responsible labour practices
Supply chain management
Ethical AI
Data privacy and security
See pages 38-43.
The United Nations Sustainable
Development Goals (SDGs) we contribute to:
Business
activities
Value created
Crowd and employees
Data collection,
annotation and
testing at scale
Technology
and tools for
data annotation
Customer and brand
Over 20+ years we have built trusted relationships and
a reputation for quality and service excellence. See page 28.
Crowd
management
Financial
Our financial performance supports strategic execution,
shareholder returns and investment in growth.
See page 30.
Social and environment
We manage our social and environmental impacts and
look for ways to make a positive contribution.
See page 32.
Managed services
for customers
We provide flexible, work-from-home opportunities
to our global crowd of 1 million+ contractors. We are
committed to treating our crowd fairly in accordance with
our Crowd Code of Ethics. We make Appen a great place
to work for our 1,125 employees by providing opportunities
for development and an inclusive environment.
Customers
By providing high-quality training data at scale we help
our customers to create and launch innovative products
and services, accelerate their time to market, improve
the user experience for their customers, and increase
their productivity and efficiency.
Shareholders
We continue to grow the business and to deliver increased
revenue and earnings to support returns for shareholders.
We are investing in new markets and technology to deliver
additional growth and productivity. Our focus on our
strategy and business value drivers underpins our strong
financial performance and creates sustainable long-term
value for shareholders.
Society
By providing training data that is responsibly sourced
from a diverse crowd of human annotators, we help
to make AI ethical and fair to ensure that it delivers
appropriate and equitable results for end users. We also
play a role in enabling AI that delivers benefits to society,
through innovative products and services and more
efficient allocation of natural resources.
20
Appen 2020 Annual Report
21
Value drivers
Value drivers
1m+
crowd contractors
70k+
crowd contractors
paid each month
Priority SDGs
Global
crowd
Our skilled and diverse
crowd of over 1 million+
contractors lives in more
than 170 countries and
speaks 235 languages.
Our recruitment and
retention of an engaged
and productive crowd
is key to our ability to
serve our customers.
Attracting a skilled crowd
Our flexible work-from-home model
attracts a wide range of people who
value the benefits of being able to work
independently, when, where and as much
as they choose. This year, we received
a record number of new contractor
applications as people sought to earn an
income from home during COVID-related
lockdowns. This has further added to
the diversity of our crowd, and to the
depth and breadth of our contractor
skill base. To improve the onboarding
experience we have been investing
in our Appen Connect technology
platform which enables recruitment
and contractor management at scale.
Engagement and productivity
Our crowd is most engaged and
productive when doing interesting work
that aligns with their skills. We have
invested in AI-driven smart matching
technology that connects crowd
contractors with projects aligned with
their personal attributes and with tasks
they’ve completed successfully in the
past. This supports higher satisfaction
and productivity and better data quality.
The improvements we have made to
improve our crowd workers’ experience
are reflected in our Crowd Net Promoter
Score (NPS) which has increased over
the last two years.
Crowd NPS 1
2020
2019
2018
43
48
47
Crowd diversity and inclusion
Our remote work model provides
opportunities for people of all abilities
and backgrounds. We are proud of
our hugely diverse crowd which spans
many cultures, ethnicities, age groups,
life stages and occupations.
Our customers also value this diversity
and consider it critical to the quality
and real-world applicability of the
training data we provide.
Crowd care
We are committed to the fair and ethical
treatment of our contractors, and to their
wellbeing. In addition to it being the right
thing to do, we believe it is an important
strategic differentiator for our business
as our customers seek to ensure that
their partners stand for responsible
and sustainable labour and supply
chain practices.
Our position is stated in our Crowd Code
of Ethics. This includes our goal of fair
pay and having our hourly rates exceed
the minimum wage in markets where our
managed services are used by customers.
Our Global Ethical Sourcing and Modern
Slavery Policy outlines what we expect
of our suppliers, and our contractors are
also covered by our Whistleblower and
Speak Up Policy.
This year, we established a new
Crowd Care Team to improve the
experience for our contributors. We listened
to their feedback and analysed key crowd
support performance metrics. In response,
we have developed new crowd-focused
policies and processes and improved
our communication.
Protecting privacy
and confidentiality
Our crowd contractors expect that we
safeguard their personal information and
our customers also insist on the highest
levels of information security. We protect
our crowd’s personally identifiable
information (PII) by using a combination
of people, processes and technology.
Every Appen employee who interacts
with the crowd’s PII is trained on the
proper handling of this information
and the critical importance of adhering
to our data protection processes.
Outlook
In 2021, we will remain focused
on our commitments in our
Crowd Code of Ethics. We will also
continue to invest in technology
that makes our processes better
for both new applicants and
existing contractors. Together with
the work our Crowd Care team is
doing to improve communications,
we believe this will deliver increased
productivity, engagement and
satisfaction for our crowd.
Image courtesy of cLabs, Toca.
Creating opportunities
Appen has partnered with cLabs, Kotani Pay, Mercy Corps and NairoBits
to pilot a project that extends the economic benefits of digital microwork
to low-income and unemployed young people in Kenya.
Over 200 participants are being trained to access digital microwork via
the Toca mobile app. The project leverages digital stablecoins, mobile wallets,
and the ubiquity of mobile phones.
Our Crowd Code of Ethics
X Fair pay - Our goal is to pay our crowd above minimum wage
in every market around the world where we operate.
X Inclusion - A diverse, inclusive culture is vital to our mission
of helping build better AI. We offer opportunities for individuals
of all abilities and backgrounds.
X Crowd voice - Our crowd has a valued voice at Appen,
and their feedback helps us to continuously improve.
X Privacy and confidentiality – Any information collected about
the crowd is requested solely for the purposes of the project.
We take precautions to protect that information and do not release
private data on individuals to third parties without consent.
X Communication - We believe in helpful, transparent,
and responsive lines of communication with our crowd.
X Wellbeing - We promote wellness, community, and connections
through online forums and best practices.
Crowd Code of Ethics Statement
The Code of Ethics shows our dedication to the
wellbeing of our crowd. The Statement is available at:
appen.com/crowd-wellness/
22
1 Measures the likelihood of crowd contractors to recommend Appen to a friend or colleague,
according to a scale of 1–10 where 10 means extremely likely (0–6 Detractor, 7–8 Passive,
9–10 Promoter). NPS is calculated by subtracting the % of total detractors from the % of total
promoters. Scores can range from -100 to +100. Source: Cascade Insights, November 2020.
Appen 2020 Annual Report
23
Value drivers
Value drivers
1m+
crowd contractors
70k+
crowd contractors
paid each month
Priority SDGs
Global
crowd
Our skilled and diverse
crowd of over 1 million+
contractors lives in more
than 170 countries and
speaks 235 languages.
Our recruitment and
retention of an engaged
and productive crowd
is key to our ability to
serve our customers.
Attracting a skilled crowd
Our flexible work-from-home model
attracts a wide range of people who
value the benefits of being able to work
as they choose. This year, we received
a record number of new contractor
applications as people sought to earn an
income from home during COVID-related
lockdowns. This has further added to
the diversity of our crowd, and to the
depth and breadth of our contractor
skill base. To improve the onboarding
experience we have been investing
in our Appen Connect technology
platform which enables recruitment
and contractor management at scale.
Engagement and productivity
Our crowd is most engaged and
productive when doing interesting work
that aligns with their skills. We have
invested in AI-driven smart matching
technology that connects crowd
contractors with projects aligned with
their personal attributes and with tasks
they’ve completed successfully in the
past. This supports higher satisfaction
and productivity and better data quality.
The improvements we have made to
improve our crowd workers’ experience
are reflected in our Crowd Net Promoter
Score (NPS) which has increased over
the last two years.
Crowd NPS 1
2020
2019
2018
43
48
47
Our remote work model provides
opportunities for people of all abilities
and backgrounds. We are proud of
our hugely diverse crowd which spans
many cultures, ethnicities, age groups,
life stages and occupations.
Our customers also value this diversity
and consider it critical to the quality
and real-world applicability of the
training data we provide.
independently, when, where and as much
Crowd diversity and inclusion
Crowd care
We are committed to the fair and ethical
treatment of our contractors, and to their
wellbeing. In addition to it being the right
thing to do, we believe it is an important
strategic differentiator for our business
as our customers seek to ensure that
their partners stand for responsible
and sustainable labour and supply
chain practices.
Our position is stated in our Crowd Code
of Ethics. This includes our goal of fair
pay and having our hourly rates exceed
the minimum wage in markets where our
managed services are used by customers.
Our Global Ethical Sourcing and Modern
Slavery Policy outlines what we expect
of our suppliers, and our contractors are
also covered by our Whistleblower and
Speak Up Policy.
This year, we established a new
Crowd Care Team to improve the
experience for our contributors. We listened
to their feedback and analysed key crowd
support performance metrics. In response,
we have developed new crowd-focused
policies and processes and improved
our communication.
Protecting privacy
and confidentiality
Our crowd contractors expect that we
safeguard their personal information and
our customers also insist on the highest
levels of information security. We protect
our crowd’s personally identifiable
information (PII) by using a combination
of people, processes and technology.
Every Appen employee who interacts
with the crowd’s PII is trained on the
proper handling of this information
and the critical importance of adhering
to our data protection processes.
Outlook
In 2021, we will remain focused
on our commitments in our
Crowd Code of Ethics. We will also
continue to invest in technology
that makes our processes better
for both new applicants and
existing contractors. Together with
the work our Crowd Care team is
doing to improve communications,
we believe this will deliver increased
productivity, engagement and
satisfaction for our crowd.
Image courtesy of cLabs, Toca.
Creating opportunities
Appen has partnered with cLabs, Kotani Pay, Mercy Corps and NairoBits
to pilot a project that extends the economic benefits of digital microwork
to low-income and unemployed young people in Kenya.
Over 200 participants are being trained to access digital microwork via
the Toca mobile app. The project leverages digital stablecoins, mobile wallets,
and the ubiquity of mobile phones.
Our Crowd Code of Ethics
X Fair pay - Our goal is to pay our crowd above minimum wage
in every market around the world where we operate.
X Inclusion - A diverse, inclusive culture is vital to our mission
of helping build better AI. We offer opportunities for individuals
of all abilities and backgrounds.
X Crowd voice - Our crowd has a valued voice at Appen,
and their feedback helps us to continuously improve.
X Privacy and confidentiality – Any information collected about
the crowd is requested solely for the purposes of the project.
We take precautions to protect that information and do not release
private data on individuals to third parties without consent.
X Communication - We believe in helpful, transparent,
and responsive lines of communication with our crowd.
X Wellbeing - We promote wellness, community, and connections
through online forums and best practices.
Crowd Code of Ethics Statement
The Code of Ethics shows our dedication to the
wellbeing of our crowd. The Statement is available at:
appen.com/crowd-wellness/
22
1 Measures the likelihood of crowd contractors to recommend Appen to a friend or colleague,
according to a scale of 1–10 where 10 means extremely likely (0–6 Detractor, 7–8 Passive,
9–10 Promoter). NPS is calculated by subtracting the % of total detractors from the % of total
promoters. Scores can range from -100 to +100. Source: Cascade Insights, November 2020.
Appen 2020 Annual Report
23
Value drivers
1,125 employees
(+44% on 2019)
Permanent
Fixed term
Casual
938
180
7
Part time
47
Full time
1,078
Priority SDGs
24
Appen
employees
We have 1,125 employees
with deep industry
expertise based in
14 locations globally.
Their experience
and commitment
to our customers,
crowd, colleagues
and values make
Appen a great team.
Making Appen a great
place to work
We operate in a high growth and
competitive market and we work with
companies that are at the leading edge
of AI innovation. This gives our people
opportunities for challenging work
in an environment that is conducive to
professional and personal development.
Our goal is to make Appen a great
place to work. We were therefore
pleased to see a notable increase
in employee engagement in 2020,
despite the disruption caused by the
pandemic. The overall engagement
score was 82%, an increase of six
percentage points on 2019.
81% of respondents also said they would
recommend Appen as a great place
to work, an increase of nine percentage
points on 2019, and significantly higher
than the industry benchmark of 70%. 1
Employee engagement 2
2020
2019
2018
82%
76%
78%
8%10%
14% 9%
14% 8%
Positive
Neutral
Negative
Values and culture
As the company has grown significantly in
recent years, both organically and through
acquisitions, we have been focused
on ensuring that all our employees
understand our values. The feedback
from our employee engagement survey
indicates that our people feel that
we live our mission, vision and values.
Respect for management
93%
Respect for employees
Teamwork
Communication
Mission, vision and values
Ethics and social responsibility
Work-life balance
70%
88%
88%
87%
86%
85%
Our employees have, however, reported
finding it difficult to achieve work-life
balance when working from home due
to COVID-19. To help alleviate these
pressures we are adding resources
in areas facing high workloads and
investing in technology to improve
internal processes and efficiency.
We are also working on initiatives that
will help our people thrive as we move
to a hybrid home-office environment.
1 Aon Hewitt 2019.
2 Appen Employee Engagement Survey, November–December 2020.
Diversity and inclusion
We employ a hugely diverse group
of people across our global operations.
Our inclusive practices are guided
by our Diversity Policy which focuses
on increasing gender and ethnic
diversity amongst employees, in senior
management and on the Board.
The Board has set a target of 30%
female representation at all senior
leadership levels. Management has
implemented a range of initiatives
to achieve this goal including adding
a new Senior Director level to the career
ladder to create opportunities for the
development of executive-level skills.
% female
2020
2019
Total workforce
Board Director
Executive Team/SVP
Vice President
Senior Director
Director
Manager
58
43
13
25
50
60
61
58
33
13
30
–
66
68
This year, a Diversity and Inclusion
Committee was established to foster
an inclusive work culture and practices
for the benefit of under-represented
groups and the workforce overall.
Training and development
We provide our employees with extensive
training and opportunities for career
development, including through Appen
University. We provide job specific
training for specialty roles and have
a High Potential Leadership Program.
This is in addition to our annual training
requirements in critical areas such
as data privacy, security awareness
and sexual harassment. We also have
annual refresher training for our Code
of Conduct which sets out employees’
obligations to act honestly and ethically.
Outlook
In 2021, we will be implementing
action plans based on the areas
of focus identified through our
employee engagement survey.
This includes creating more
opportunities for growth and
helping our people to achieve
work-life balance. Our Employee
Ambassadors are also developing
business unit specific plans.
Our values
Performance is having the focus
Humility is being part of a team;
and agility to achieve quality
giving credit and showing gratitude
outcomes and exceed expectations.
to others for their contributions;
We never stop learning, and push
seeking diverse perspectives; and,
and challenge ourselves every day.
not being afraid to ask for help when
Honesty is being a truth-teller in
we don’t know something.
a respectful way; taking accountability
Grit is about taking ownership; not
for our actions; giving and receiving
giving up; and, finding the courage
direct feedback; and, being honest
to succeed. Grit and resilience give
with each other, our customers,
us the confidence and determination
our crowd and ourselves.
to achieve our goals.
29,380
total training hours
(1 February–31 December 2020)
A safe place to work
This year, our top priority was to ensure that our employees
were safe and well. We established a COVID-19 Response Team
to put appropriate safety protocols and policies in place for
all our workplaces and set up an online COVID-19 information
and resource hub.
We also have a range of policies and processes in place to protect
our employees’ health and safety and to promote respectful conduct.
These include our Work Health and Safety Policy, our Workplace
Anti-Discrimination and Harassment Policy, our Code of Conduct
and our Whistleblower and Speak Up Policy.
In 2020, we had 105 whistleblower and speak up cases from reporters
including our crowd and employees. Four people had their employment
terminated on the grounds of serious misconduct.
The lost time injury frequency rate for our Australian operations was zero.
Appen 2020 Annual Report
25
Value drivers
Appen
employees
We have 1,125 employees
Employee engagement 2
with deep industry
expertise based in
14 locations globally.
Their experience
and commitment
to our customers,
crowd, colleagues
and values make
Appen a great team.
2020
2019
2018
82%
76%
78%
8%10%
14% 9%
14% 8%
Positive
Neutral
Negative
Values and culture
As the company has grown significantly in
recent years, both organically and through
acquisitions, we have been focused
on ensuring that all our employees
understand our values. The feedback
from our employee engagement survey
indicates that our people feel that
we live our mission, vision and values.
Respect for management
93%
Respect for employees
Teamwork
88%
88%
87%
86%
85%
1,125 employees
(+44% on 2019)
Making Appen a great
place to work
We operate in a high growth and
competitive market and we work with
Communication
companies that are at the leading edge
of AI innovation. This gives our people
Mission, vision and values
opportunities for challenging work
Ethics and social responsibility
in an environment that is conducive to
professional and personal development.
Work-life balance
70%
Our goal is to make Appen a great
place to work. We were therefore
pleased to see a notable increase
in employee engagement in 2020,
despite the disruption caused by the
pandemic. The overall engagement
score was 82%, an increase of six
percentage points on 2019.
81% of respondents also said they would
recommend Appen as a great place
to work, an increase of nine percentage
points on 2019, and significantly higher
than the industry benchmark of 70%. 1
Our employees have, however, reported
finding it difficult to achieve work-life
balance when working from home due
to COVID-19. To help alleviate these
pressures we are adding resources
in areas facing high workloads and
investing in technology to improve
internal processes and efficiency.
We are also working on initiatives that
will help our people thrive as we move
to a hybrid home-office environment.
1 Aon Hewitt 2019.
2 Appen Employee Engagement Survey, November–December 2020.
Permanent
Fixed term
Casual
938
180
7
Part time
47
Full time
1,078
Priority SDGs
24
Diversity and inclusion
We employ a hugely diverse group
of people across our global operations.
Our inclusive practices are guided
by our Diversity Policy which focuses
on increasing gender and ethnic
diversity amongst employees, in senior
management and on the Board.
The Board has set a target of 30%
female representation at all senior
leadership levels. Management has
implemented a range of initiatives
to achieve this goal including adding
a new Senior Director level to the career
ladder to create opportunities for the
development of executive-level skills.
% female
2020
2019
Total workforce
Board Director
Executive Team/SVP
Vice President
Senior Director
Director
Manager
58
43
13
25
50
60
61
58
33
13
30
–
66
68
This year, a Diversity and Inclusion
Committee was established to foster
an inclusive work culture and practices
for the benefit of under-represented
groups and the workforce overall.
Training and development
We provide our employees with extensive
training and opportunities for career
development, including through Appen
University. We provide job specific
training for specialty roles and have
a High Potential Leadership Program.
This is in addition to our annual training
requirements in critical areas such
as data privacy, security awareness
and sexual harassment. We also have
annual refresher training for our Code
of Conduct which sets out employees’
obligations to act honestly and ethically.
Outlook
In 2021, we will be implementing
action plans based on the areas
of focus identified through our
employee engagement survey.
This includes creating more
opportunities for growth and
helping our people to achieve
work-life balance. Our Employee
Ambassadors are also developing
business unit specific plans.
Our values
Performance is having the focus
and agility to achieve quality
outcomes and exceed expectations.
We never stop learning, and push
and challenge ourselves every day.
Honesty is being a truth-teller in
a respectful way; taking accountability
for our actions; giving and receiving
direct feedback; and, being honest
with each other, our customers,
our crowd and ourselves.
Humility is being part of a team;
giving credit and showing gratitude
to others for their contributions;
seeking diverse perspectives; and,
not being afraid to ask for help when
we don’t know something.
Grit is about taking ownership; not
giving up; and, finding the courage
to succeed. Grit and resilience give
us the confidence and determination
to achieve our goals.
29,380
total training hours
(1 February–31 December 2020)
A safe place to work
This year, our top priority was to ensure that our employees
were safe and well. We established a COVID-19 Response Team
to put appropriate safety protocols and policies in place for
all our workplaces and set up an online COVID-19 information
and resource hub.
We also have a range of policies and processes in place to protect
our employees’ health and safety and to promote respectful conduct.
These include our Work Health and Safety Policy, our Workplace
Anti-Discrimination and Harassment Policy, our Code of Conduct
and our Whistleblower and Speak Up Policy.
In 2020, we had 105 whistleblower and speak up cases from reporters
including our crowd and employees. Four people had their employment
terminated on the grounds of serious misconduct.
The lost time injury frequency rate for our Australian operations was zero.
Appen 2020 Annual Report
25
Value drivers
99.98%
Annotation platform system
availability in 2020
4 of 5
major global technology
customers use our
annotation platform
Priority SDG
26
Technology,
Technology,
processes,
processes,
systems
systems
Our technology, processes
and systems enable us
to deliver high-quality
outcomes for customers.
Technology also supports
crowd and employee
satisfaction, product and
revenue growth, as well
as productivity and
margin expansion.
Annotation platform and tools
Our platform and tools support at-scale
data collection and annotation across
data types including text, audio, image
and video. They also support a broad
range of use cases, from content
relevance to computer vision and
speech and language. Quality control
and monitoring are built-in. In 2020,
we added three-dimensional point cloud
functionality to support light detection
and ranging (LiDAR) annotation.
We also added AI-assisted annotation
for specific project types that greatly
improves crowd productivity.
Client workspace
Our self-service workspace is used by
our customers’ data scientists to design
tasks and workflows. It allows them to
interact with our crowd and manage data
preparation and labelled training data.
Our workspace connects with
customers’ systems through
application programming interfaces
(APIs) and allows integration with
their real-time data pipelines. In 2020,
we released ‘AI Workflow’ which
removes manual handling of data
and enables sequencing of human
and machine learning operations
for complex use cases.
Crowd management
We manage large scale, complex
annotation and data collection programs
for our customers, typically involving
thousands of crowd contractors.
Our crowd management platform, Appen
Connect, enables us to recruit, onboard
and pay our crowd. It is also used by our
internal recruiters and project managers
to match contractors to jobs, and to track
quality. In 2020, we added AI-driven
predictive matching functionality that
connects contractors to tasks according
to their skills and expertise.
Tech-led productivity
By applying machine learning
based automation to our systems
and processes, we can increase data
output, achieve productivity gains
for our customers and our business,
and improve customer and crowd
satisfaction. Our experience to-date
shows that use of automation
translates to efficiency gains of 88%
in automatic speech recognition and
92% in semantic image segmentation.
It can also result in 3–6x faster
completion of LiDAR annotation and
optical character recognition (OCR)
for document transcription.
System and data security
Security is an essential and core
competency of our business model. Our
approach is comprehensive and involves
people, processes and technology.
We implement global best practices
and adhere to industry recognised
standards, such as the International
Organization for Standardization (ISO)
and National Institute of Standards and
Technology (NIST).
Mandatory security awareness training
is provided to employees and regular
synthetic phishing tests are conducted
to ensure they are aware of the threats
and their responsibilities. The training
is also being rolled out to independent
contractors based on requirements.
We provide customers with a range of
secure technology solutions. Our SaaS
customers can keep their data in their
storage and do not need to physically
move it to our environment. For maximum
data security, our software can be
deployed in customers’ air-gapped
environment or private cloud.
Where customers have elevated data
security requirements, they can use one
of our five ISO 27001 certified secure
facilities in the Philippines, the UK and
China. Our Secure Workspace solution
which provides facility level security
for people working from home is also
ISO 27001 certified.
Cyber security
Our cyber security risk management
framework is based on internationally
recognised standards and is structured
to detect, protect against and respond
to cyber security threats. Security
penetration testing is conducted
annually by a third-party specialist and
we are ISO 27001 and SOC 2 certified.
Reliability
Our engineering teams also focus
on system reliability and resilience.
This includes working to strict system
availability targets and ensuring that
Mobile app for anytime, anywhere
We have launched a new mobile app that enables crowd
contractors to sign up, search for projects, and work on data
collection tasks anytime, anywhere.
It allows tasks such as video data collection to be completed on a contractor’s
smartphone and uploaded seamlessly. The app greatly improves the user
experience for our crowd and means that we can attract more people
in markets where the use of personal computers is not common.
Data privacy
We manage large amounts of data, including commercially sensitive
and personally identifiable information. Our engineering and privacy teams
work together closely to ensure that data protection is integrated into our
systems. We also work to comply with specific data privacy requirements in
the markets in which we operate, including the California Consumer Privacy
Act, the Philippines and Australian Privacy Acts, and the EU/UK General Data
Protection Regulation. Mandatory data privacy training is provided to all
employees on an annual basis.
In 2020, there was one data privacy incident relating to unauthorised access
to Appen’s systems. Appropriate measures were taken to quickly contain and
report the incident and remedial actions have been taken to remove the root
cause. 1 There was one privacy complaint that has been resolved. 2
Outlook
In 2021, we will continue to invest in machine learning and
engineering to bring automation into our production environment.
In addition to pursuing increased data output speeds and quality,
we will be investing to enhance user experience, tool and platform
functionality and project management productivity. We will also
our systems can safely scale in response
continue to improve our security profile and processes to ensure
to growing demand.
we maintain a robust security environment.
1
‘Incident’ means a known, material, and publicly reported privacy incident involving unauthorised access,
disclosure, or loss of personal data in Appen’s custody or control. See ASX Announcement, Appen
Advises of IT Security Incident, 30 July 2020.
2 ‘Complaint’ means a known formal complaint submitted to an applicable authority specifying Appen’s
alleged failure to comply with applicable data privacy laws.
Appen 2020 Annual Report
27
Value drivers
99.98%
Annotation platform system
availability in 2020
4 of 5
major global technology
customers use our
annotation platform
Priority SDG
26
Technology,
Technology,
processes,
processes,
systems
systems
Our technology, processes
and systems enable us
to deliver high-quality
outcomes for customers.
Technology also supports
crowd and employee
satisfaction, product and
revenue growth, as well
as productivity and
margin expansion.
Annotation platform and tools
Our platform and tools support at-scale
data collection and annotation across
data types including text, audio, image
and video. They also support a broad
range of use cases, from content
relevance to computer vision and
speech and language. Quality control
and monitoring are built-in. In 2020,
we added three-dimensional point cloud
functionality to support light detection
and ranging (LiDAR) annotation.
We also added AI-assisted annotation
for specific project types that greatly
improves crowd productivity.
Client workspace
Our self-service workspace is used by
our customers’ data scientists to design
tasks and workflows. It allows them to
interact with our crowd and manage data
preparation and labelled training data.
Our workspace connects with
customers’ systems through
application programming interfaces
(APIs) and allows integration with
their real-time data pipelines. In 2020,
we released ‘AI Workflow’ which
removes manual handling of data
and enables sequencing of human
and machine learning operations
for complex use cases.
Crowd management
We manage large scale, complex
annotation and data collection programs
for our customers, typically involving
thousands of crowd contractors.
Our crowd management platform, Appen
Connect, enables us to recruit, onboard
and pay our crowd. It is also used by our
internal recruiters and project managers
to match contractors to jobs, and to track
quality. In 2020, we added AI-driven
predictive matching functionality that
connects contractors to tasks according
to their skills and expertise.
Tech-led productivity
By applying machine learning
based automation to our systems
and processes, we can increase data
output, achieve productivity gains
for our customers and our business,
and improve customer and crowd
satisfaction. Our experience to-date
shows that use of automation
translates to efficiency gains of 88%
in automatic speech recognition and
92% in semantic image segmentation.
It can also result in 3–6x faster
completion of LiDAR annotation and
optical character recognition (OCR)
for document transcription.
System and data security
Security is an essential and core
competency of our business model. Our
approach is comprehensive and involves
people, processes and technology.
We implement global best practices
and adhere to industry recognised
standards, such as the International
Organization for Standardization (ISO)
and National Institute of Standards and
Technology (NIST).
Mandatory security awareness training
is provided to employees and regular
synthetic phishing tests are conducted
to ensure they are aware of the threats
and their responsibilities. The training
is also being rolled out to independent
contractors based on requirements.
We provide customers with a range of
secure technology solutions. Our SaaS
customers can keep their data in their
storage and do not need to physically
move it to our environment. For maximum
data security, our software can be
deployed in customers’ air-gapped
environment or private cloud.
Where customers have elevated data
security requirements, they can use one
of our five ISO 27001 certified secure
facilities in the Philippines, the UK and
China. Our Secure Workspace solution
which provides facility level security
for people working from home is also
ISO 27001 certified.
Cyber security
Our cyber security risk management
framework is based on internationally
recognised standards and is structured
to detect, protect against and respond
to cyber security threats. Security
penetration testing is conducted
annually by a third-party specialist and
we are ISO 27001 and SOC 2 certified.
Reliability
Our engineering teams also focus
on system reliability and resilience.
This includes working to strict system
availability targets and ensuring that
our systems can safely scale in response
to growing demand.
Mobile app for anytime, anywhere
We have launched a new mobile app that enables crowd
contractors to sign up, search for projects, and work on data
collection tasks anytime, anywhere.
It allows tasks such as video data collection to be completed on a contractor’s
smartphone and uploaded seamlessly. The app greatly improves the user
experience for our crowd and means that we can attract more people
in markets where the use of personal computers is not common.
Data privacy
We manage large amounts of data, including commercially sensitive
and personally identifiable information. Our engineering and privacy teams
work together closely to ensure that data protection is integrated into our
systems. We also work to comply with specific data privacy requirements in
the markets in which we operate, including the California Consumer Privacy
Act, the Philippines and Australian Privacy Acts, and the EU/UK General Data
Protection Regulation. Mandatory data privacy training is provided to all
employees on an annual basis.
In 2020, there was one data privacy incident relating to unauthorised access
to Appen’s systems. Appropriate measures were taken to quickly contain and
report the incident and remedial actions have been taken to remove the root
cause. 1 There was one privacy complaint that has been resolved. 2
Outlook
In 2021, we will continue to invest in machine learning and
engineering to bring automation into our production environment.
In addition to pursuing increased data output speeds and quality,
we will be investing to enhance user experience, tool and platform
functionality and project management productivity. We will also
continue to improve our security profile and processes to ensure
we maintain a robust security environment.
1
‘Incident’ means a known, material, and publicly reported privacy incident involving unauthorised access,
disclosure, or loss of personal data in Appen’s custody or control. See ASX Announcement, Appen
Advises of IT Security Incident, 30 July 2020.
2 ‘Complaint’ means a known formal complaint submitted to an applicable authority specifying Appen’s
alleged failure to comply with applicable data privacy laws.
Appen 2020 Annual Report
27
Value drivers
Value drivers
136
new customers in 2020
931m
relevance judgements
2.9m
images and videos collected
Priority SDG
Customer
and brand
Growing our customer base
Our customers include the world’s
leading technology companies and
organisations that are at the forefront of AI.
Outside of this base, an increasing
number of organisations are investing
in AI. Some are integrating AI as a core
component of their business while others
are running pilots or working to scale
their initial programs. To meet the needs
of these organisations we are evolving
our products, services and commercial
presence to support different levels
of AI awareness, adoption and maturity.
Through our China and Government
business units we have established
bespoke capabilities and are building
our customer relationships in these two
high-potential markets. We also have many
commercial and enterprise customers
around the world whom we serve through
dedicated sales teams in the US, UK,
mainland Europe, Japan and Australia.
In 2020, we worked with 136 new
organisations from industries including
financial services, automotive,
e-commerce, healthcare, logistics,
shipping, food and retail. This was
driven by our investment in sales
and marketing and demonstrates the
applicability of our technology and crowd
capabilities to a wide range of use cases.
We also now create and curate open
source datasets and provide more than
250 licensable off-the-shelf datasets
across 80 languages to support a wide
variety of common AI use cases.
Over 20+ years, we have
built trusted relationships
with our customers and
a reputation for service
excellence that we work
hard to uphold. These
relationships are founded
on our ability to deliver
high-quality training
data at scale.
Customers value our expertise
We have the leading position in AI
training data due to the breadth of our
services and the depth of our expertise.
We provide customers with access to
our 1 million+ crowd and our annotation
platform. We support all data modalities
and serve customers’ data collection,
annotation and relevance needs.
We also have a long track record
of helping our customers deploy
AI in the real world.
We provide flexible services and
cater to customers with different
levels of requirements and experience.
Where customers want end-to-end
training data services we can
manage the project and the crowd.
Other customers with training data
expertise can choose to administer jobs
on our platform directly. As customers
increasingly use our annotation platform
we become an integral part of their
workflow and increase our annual
contract revenue.
Helping to grow the market
We are the leader in a fast-moving
market and are at the forefront of how
to deliver high-quality AI training data.
We support new customers in their AI
journey by sharing best practices and
the specialist knowledge we have built
over decades of experience.
In addition to supporting customers
directly, we provide information and
resources that address the practical
challenges of building a successful AI
program. In 2020, we held a ‘Launching
AI in the Real World’ virtual roundtable
series, featuring our internal subject
matter experts together with customers
and partners.
We also recently published the
‘Embracing Responsible AI from Pilot to
Production’ e-book to help organisations
understand the importance of
high-quality and unbiased training data
to the delivery of high-performing and
responsible AI.
To access our AI
Resource Centre see:
appen.com/resources
Brand and reputation
In 2020, we completed the integration
of Figure Eight and relaunched
a refreshed Appen brand that builds
on the brand equity in both businesses.
In our recent survey of 200+ training
data decision makers, we found
that 90% of those who know us had
a ‘very favourable’ opinion of Appen.
They also strongly agreed with the
following statements:
• Appen provides reliable training data
• Appen provides quality training data
Three-quarters of those who know
Appen also said that the Crowd Code
of Ethics is an important factor in
considering our services and products.
Contactless fast food with AI
As a result of the pandemic, fast food restaurants have been
looking for new ways to serve food in a way that is hygienic and
safe for their customers and employees. This has accelerated
demand for voice-enabled services that eliminate touchscreens
and enable social distancing.
To ensure their customers continue to receive great service, a global
fast-food company has partnered with Appen to improve the Automatic
Speech Recognition (ASR) technology used in their drive-through kiosks.
By providing large volumes of high-quality transcribed audio data, we have
helped to train their ASR models to ignore the ambient noise associated
with drive-throughs and to respond to customer requests in multiple
languages. This has resulted in safe and streamlined ordering, faster
delivery and improved service for customers.
Outlook
We will continue to leverage our sales and marketing
capabilities to strengthen our relationships with existing
customers and to grow our presence in new industries and
markets. The importance of deep expertise to high-quality
training data will be a major part of our 2021 go-to-market,
highlighting our clear competitive advantage in this area.
28
Appen 2020 Annual Report
29
Value drivers
Value drivers
136
new customers in 2020
931m
relevance judgements
images and videos collected
2.9m
Priority SDG
Customer
and brand
Over 20+ years, we have
Growing our customer base
Our customers include the world’s
leading technology companies and
organisations that are at the forefront of AI.
Outside of this base, an increasing
number of organisations are investing
in AI. Some are integrating AI as a core
component of their business while others
are running pilots or working to scale
their initial programs. To meet the needs
of these organisations we are evolving
our products, services and commercial
presence to support different levels
of AI awareness, adoption and maturity.
Through our China and Government
business units we have established
bespoke capabilities and are building
our customer relationships in these two
high-potential markets. We also have many
commercial and enterprise customers
around the world whom we serve through
dedicated sales teams in the US, UK,
mainland Europe, Japan and Australia.
In 2020, we worked with 136 new
organisations from industries including
financial services, automotive,
e-commerce, healthcare, logistics,
shipping, food and retail. This was
driven by our investment in sales
and marketing and demonstrates the
applicability of our technology and crowd
capabilities to a wide range of use cases.
We also now create and curate open
source datasets and provide more than
250 licensable off-the-shelf datasets
across 80 languages to support a wide
variety of common AI use cases.
built trusted relationships
with our customers and
a reputation for service
excellence that we work
hard to uphold. These
relationships are founded
on our ability to deliver
high-quality training
data at scale.
Customers value our expertise
We have the leading position in AI
training data due to the breadth of our
services and the depth of our expertise.
We provide customers with access to
our 1 million+ crowd and our annotation
platform. We support all data modalities
and serve customers’ data collection,
annotation and relevance needs.
We also have a long track record
of helping our customers deploy
AI in the real world.
We provide flexible services and
cater to customers with different
levels of requirements and experience.
Where customers want end-to-end
training data services we can
manage the project and the crowd.
Other customers with training data
expertise can choose to administer jobs
on our platform directly. As customers
increasingly use our annotation platform
we become an integral part of their
workflow and increase our annual
contract revenue.
Helping to grow the market
We are the leader in a fast-moving
market and are at the forefront of how
to deliver high-quality AI training data.
We support new customers in their AI
journey by sharing best practices and
the specialist knowledge we have built
over decades of experience.
In addition to supporting customers
directly, we provide information and
resources that address the practical
challenges of building a successful AI
program. In 2020, we held a ‘Launching
AI in the Real World’ virtual roundtable
series, featuring our internal subject
matter experts together with customers
and partners.
We also recently published the
‘Embracing Responsible AI from Pilot to
Production’ e-book to help organisations
understand the importance of
high-quality and unbiased training data
to the delivery of high-performing and
responsible AI.
To access our AI
Resource Centre see:
appen.com/resources
Brand and reputation
In 2020, we completed the integration
of Figure Eight and relaunched
a refreshed Appen brand that builds
on the brand equity in both businesses.
In our recent survey of 200+ training
data decision makers, we found
that 90% of those who know us had
a ‘very favourable’ opinion of Appen.
They also strongly agreed with the
following statements:
• Appen provides reliable training data
• Appen provides quality training data
Three-quarters of those who know
Appen also said that the Crowd Code
of Ethics is an important factor in
considering our services and products.
Contactless fast food with AI
As a result of the pandemic, fast food restaurants have been
looking for new ways to serve food in a way that is hygienic and
safe for their customers and employees. This has accelerated
demand for voice-enabled services that eliminate touchscreens
and enable social distancing.
To ensure their customers continue to receive great service, a global
fast-food company has partnered with Appen to improve the Automatic
Speech Recognition (ASR) technology used in their drive-through kiosks.
By providing large volumes of high-quality transcribed audio data, we have
helped to train their ASR models to ignore the ambient noise associated
with drive-throughs and to respond to customer requests in multiple
languages. This has resulted in safe and streamlined ordering, faster
delivery and improved service for customers.
Outlook
We will continue to leverage our sales and marketing
capabilities to strengthen our relationships with existing
customers and to grow our presence in new industries and
markets. The importance of deep expertise to high-quality
training data will be a major part of our 2021 go-to-market,
highlighting our clear competitive advantage in this area.
28
Appen 2020 Annual Report
29
Value drivers
Value drivers
Financial
Revenue
Underlying EBITDA 1
Underlying basic EPS 1
Financial performance highlights
$599.9m
(A$’000)
49 % C A G R
5
9
9
8
5
5
,
,
5
3
5
9
9
9
3
6
4
2
8
9
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6
5
7
1
,
1
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,
0
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3
,
8
2
7
1
6
(A$’000)
$108.6m
51 % C A G R
1
0
8
5
5
0
1
0
0
9
6
1
,
,
7
1
,
2
5
3
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8
,
1
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8
,
1
7
3
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5
,
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0
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52.93¢
(A¢)
44 % C A G R
4
6
.
1
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5
4
8
7
.
.
5
2
9
3
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0
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0
1
9
2
0
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Underlying NPAT 1
Underlying EBITDA margin 1
Dividend (full year)
(A$’000)
$64.4m
51 % C A G R
6
4
3
7
9
6
4
7
1
0
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1 Underlying NPAT, EBITDA and EPS exclude the impact of items relating to business acquisitions, including amortisation of acquired
assets, share-based payments, transaction costs and fair-value adjustments. Underlying NPAT and EPS also exclude deemed interest
on acquisition related earn-out payments.
30
Share price appreciation
since listing 1
4,838%
Appen
21%
ASX 100
23%
ASX 200
1 7 January 2015 to
31 December 2020.
Our financial results reflect our continued growth
and the strength and resilience of our customer
relationships, crowd model and service delivery
capabilities. Our balance sheet also continued to
strengthen, and we ended the year well-positioned
to pursue further growth and opportunities.
Revenue and other income increased
12% to $599.9 million. Strong growth
in the first half of the year was primarily
driven by an increase in existing and
new Relevance projects with existing
customers. In the second half, revenue
growth was impacted by changes in our
major customers’ activities and priorities
in response to COVID-19. As most of
our sales are in US dollars, the stronger
Australian dollar in the second half
impacted our AUD reported revenue.
Increasing annual contract value (ACV)
is a key focus as we seek to increase
revenue from our data annotation
platform services for new and existing
customers. Four of our five major
customers use the platform for a variety
of projects, and we believe the number
and scope of projects will increase
in sales and marketing, technology, and
our China and Government businesses.
Expenses were tightly managed, but
margins ended slightly lower at 18.1%,
down from 18.8%, as a result of the
growth investments.
Underlying NPAT was 1% lower at
$64.4 million. Profit was impacted by the
strategic growth investments and higher
amortisation which reflects our continued
investment in engineering and technology
to drive growth and efficiency and
to enhance our competitive positioning.
The balance sheet continued to grow.
Net assets increased to $485.9 million
despite the strong exchange rate that
applied at 31 December 2020. Cash on
hand increased to $78.4 million after the
full repayment of debt, growth investments
and increased dividend and tax payments.
as the platform becomes integrated
The full year dividend was 10 cents,
into customers’ workflow. ACV as at
up 11%. Both the interim dividend of
1 February 2021 was US$124 million, up
4.5 cents per share and the final dividend
from US$25 million at the end of 2019.
of 5.5 cents were 50% franked.
Cash flow remained strong. Cash flow
from operations increased 39% and cash
conversion from EBITDA was 104%.
Revenue by operating division:
Relevance revenue was $538.2 million,
up 15%, as our customers continued to
require high-quality annotated data to
build, train and maintain the performance
of their search engines, social media and
e-commerce applications.
Speech & Image revenue was
$61.2 million, down 10%, as these activities
are more dependent on customer
timing and investment and product life
cycles. The pandemic resulted in some
projects being delayed or cancelled and
it also impacted our ability to win new
customers. Speech & Image includes
products and services for AI-based
voice interface, translation, text analysis,
AR/VR, and image perception systems
including LiDAR for autonomous vehicles.
Underlying EBITDA increased 8%
to $108.6 million. This reflected the
significant investments made during the
year to drive future growth – including
Outlook
Our financial performance continues to support execution
of our strategy, investment in growth and shareholder returns.
We are well-positioned to take advantage of the growing demand for
high-quality training data as organisations globally increase their adoption of AI.
As economic recovery remains uncertain and uneven in 2021 we expect
that customers will closely scrutinise their spending and investment plans.
Changes to the regulatory environment may also see customers shift
priorities into new product development areas that will take time to grow.
In 2021, we will leverage our investments in sales and marketing, technology,
China and Government, as well as our customer relationships and deep
expertise, to deliver more customer and project wins, higher ACV and
greater productivity.
X For more detailed information on our financial performance see the
Directors’ report pages 51–54 and the Financial report pages 73–127.
Appen 2020 Annual Report
31
Value drivers
Value drivers
Financial
Revenue
Underlying EBITDA 1
Underlying basic EPS 1
$599.9m
$108.6m
(A$’000)
49 % C A G R
5
9
9
,
8
5
5
5
3
5
,
9
9
9
3
6
4
,
2
8
9
1
6
6
,
5
7
1
1
1
1
,
0
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3
8
2
,
7
1
6
(A$’000)
51 % C A G R
1
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8
,
5
5
0
1
0
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,
9
6
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1
,
2
5
3
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,
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4
,
0
3
4
$64.4m
6
4
,
7
1
0
6
4
,
3
7
9
(A$’000)
51 % C A G R
4
9
,
0
2
8
18.1%
(%)
1
9
.
6
1
8
.
8
1
8
.
1
1
7
.
0
1
6
.
9
1
5
.
6
1
9
,
7
4
9
1
0
,
6
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,
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0
8
52.93¢
(A¢)
44 % C A G R
4
6
.
1
1
5
4
.
8
7
5
2
.
9
3
2
0
.
1
2
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10.0¢
(A¢)
1
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0
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0
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Underlying NPAT 1
Underlying EBITDA margin 1
Dividend (full year)
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
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0
1 Underlying NPAT, EBITDA and EPS exclude the impact of items relating to business acquisitions, including amortisation of acquired
assets, share-based payments, transaction costs and fair-value adjustments. Underlying NPAT and EPS also exclude deemed interest
30
on acquisition related earn-out payments.
Our financial results reflect our continued growth
and the strength and resilience of our customer
relationships, crowd model and service delivery
capabilities. Our balance sheet also continued to
strengthen, and we ended the year well-positioned
to pursue further growth and opportunities.
Financial performance highlights
Revenue and other income increased
12% to $599.9 million. Strong growth
in the first half of the year was primarily
driven by an increase in existing and
new Relevance projects with existing
customers. In the second half, revenue
growth was impacted by changes in our
major customers’ activities and priorities
in response to COVID-19. As most of
our sales are in US dollars, the stronger
Australian dollar in the second half
impacted our AUD reported revenue.
Increasing annual contract value (ACV)
is a key focus as we seek to increase
revenue from our data annotation
platform services for new and existing
customers. Four of our five major
customers use the platform for a variety
of projects, and we believe the number
and scope of projects will increase
as the platform becomes integrated
into customers’ workflow. ACV as at
1 February 2021 was US$124 million, up
from US$25 million at the end of 2019.
Revenue by operating division:
Relevance revenue was $538.2 million,
up 15%, as our customers continued to
require high-quality annotated data to
build, train and maintain the performance
of their search engines, social media and
e-commerce applications.
Speech & Image revenue was
$61.2 million, down 10%, as these activities
are more dependent on customer
timing and investment and product life
cycles. The pandemic resulted in some
projects being delayed or cancelled and
it also impacted our ability to win new
customers. Speech & Image includes
products and services for AI-based
voice interface, translation, text analysis,
AR/VR, and image perception systems
including LiDAR for autonomous vehicles.
Underlying EBITDA increased 8%
to $108.6 million. This reflected the
significant investments made during the
year to drive future growth – including
Share price appreciation
since listing 1
4,838%
Appen
21%
ASX 100
23%
ASX 200
1 7 January 2015 to
31 December 2020.
in sales and marketing, technology, and
our China and Government businesses.
Expenses were tightly managed, but
margins ended slightly lower at 18.1%,
down from 18.8%, as a result of the
growth investments.
Underlying NPAT was 1% lower at
$64.4 million. Profit was impacted by the
strategic growth investments and higher
amortisation which reflects our continued
investment in engineering and technology
to drive growth and efficiency and
to enhance our competitive positioning.
The balance sheet continued to grow.
Net assets increased to $485.9 million
despite the strong exchange rate that
applied at 31 December 2020. Cash on
hand increased to $78.4 million after the
full repayment of debt, growth investments
and increased dividend and tax payments.
The full year dividend was 10 cents,
up 11%. Both the interim dividend of
4.5 cents per share and the final dividend
of 5.5 cents were 50% franked.
Cash flow remained strong. Cash flow
from operations increased 39% and cash
conversion from EBITDA was 104%.
Outlook
Our financial performance continues to support execution
of our strategy, investment in growth and shareholder returns.
We are well-positioned to take advantage of the growing demand for
high-quality training data as organisations globally increase their adoption of AI.
As economic recovery remains uncertain and uneven in 2021 we expect
that customers will closely scrutinise their spending and investment plans.
Changes to the regulatory environment may also see customers shift
priorities into new product development areas that will take time to grow.
In 2021, we will leverage our investments in sales and marketing, technology,
China and Government, as well as our customer relationships and deep
expertise, to deliver more customer and project wins, higher ACV and
greater productivity.
X For more detailed information on our financial performance see the
Directors’ report pages 51–54 and the Financial report pages 73–127.
Appen 2020 Annual Report
31
Value drivers
Value drivers
Priority SDGs
32
Social and
Social and
environment
environment
As a global company
with an important role
in the development
of AI technology,
we have a responsibility
to manage our impacts
on society and the
environment. We also
look for ways to make
a positive contribution.
Modern slavery and
human rights
We consider the salient human rights
and labour risks associated with our
business and work to understand and
manage the risks of modern slavery
and human rights abuses in our supply
chain. Our Global Ethical Sourcing and
Modern Slavery Policy sets out our
expectations of our suppliers including:
no forced labour; fair employment,
working hours and conditions;
freedom of association; freedom from
discrimination and harassment; and
whistleblower protections.
Achieving fair AI
When an AI product is deployed in the
real world it must be effective and safe
and deliver equitable results for all users.
It requires that fairness and risks of
bias are considered at all points of the
development life cycle. This starts with
having high-quality comprehensive AI
training data. We help our customers
to incorporate fairness and minimise
bias by providing responsibly sourced
training data from our diverse and
skilled global crowd of data annotators.
Creating responsible AI
standards with the World
Economic Forum
In August 2020, we announced
our multi-year partnership with the
World Economic Forum (WEF) to
design standards and best practices
for responsible training data when
building machine learning and
artificial intelligence applications.
The aim is to improve quality, efficiency,
transparency and responsibility for
AI projects while promoting inclusivity
and collaboration. Adoption of these
standards by the technology community
will help to increase the community’s trust
in AI and the value of AI for businesses.
We are also working with WEF to increase
awareness of the importance of fair AI
throughout the supply chain.
To learn more about
our partnership with the
World Economic Forum
see: appen.com/wef
Good business practice
Doing business responsibly and
sustainably is key to our ability
to create value for our stakeholders
over the long term.
Our Code of Conduct prescribes the
standards of professionalism, integrity,
honesty and ethical behaviour we expect
in our business, of our people and in
our interactions with all stakeholders.
We have zero tolerance for bribery and
corruption and our Anti-Corruption and
Anti-Bribery Policy details our approach.
We also do not use corporate funds for
political advocacy and we do not make
political donations.
Inclusive hiring practices
We are an active supporter of
people with disabilities. During the
year, we had 78 people with partial
and hearing impairment supporting
image annotation work in our facility
in the Philippines. We have been
recognised by The Philippine Council
of Organizations on Disability and
Empowerment for hiring and promoting
diversity and inclusion in the workplace.
Removing traditional
barriers to work
Removing traditional barriers to work is
a key differentiator of our business model.
This has guided our membership of the
Global Impact Sourcing Coalition which
works to provide career development
opportunities to people who otherwise
have limited employment prospects.
By hiring crowd contractors from
communities that lack employment
options, our goal is to help them achieve
self-sufficiency through income growth,
skill development and professional
advancement. This approach helps lift
families and communities out of poverty
and enables us to access more diverse
pools of talent.
Machine translation to help fight COVID-19
In 2020, health organisations around the world needed to deliver
urgent COVID-19 related health and safety guidelines to diverse
populations in their native languages. To do that, they needed
access to accurate and high-quality translations of COVID-19
related terminology.
To make this information globally accessible and equitable, Appen joined with
other large data companies like Amazon, Facebook, Google and Microsoft
to work with Translators without Borders on sourcing and annotating relevant
data for 38 languages. The focus was on under-resourced languages spoken
in communities that are considered most susceptible to the spread of the virus.
As a result of the initiative, translated datasets of 70,000 key COVID-19 terms
and phrases are being made publicly accessible for translation professionals
and for training state-of-the-art machine translation models.
To learn more about the Translation Initiative for COVID-19 see: tico-19.github.io
Recognition
Appen has received a Business
Intelligence Group Innovation Award
for our global crowd expertise and
2020 partnership with Translators
without Borders on TICO-19
Outlook
In 2021, we are scaling up our impact sourcing activities and will
continue our work with the World Economic Forum on responsible AI.
The steps we are taking to identify, manage and mitigate modern
slavery risks and human rights abuses in our operations and supply
chain will be included in our Modern Slavery Statement which will
be released by June 2021 as required under the Modern Slavery
Act 2018 (Cth).
Appen 2020 Annual Report
33
Value drivers
Value drivers
Priority SDGs
32
Social and
Social and
environment
environment
As a global company
Achieving fair AI
with an important role
in the development
of AI technology,
we have a responsibility
to manage our impacts
on society and the
environment. We also
look for ways to make
a positive contribution.
Modern slavery and
human rights
We consider the salient human rights
and labour risks associated with our
business and work to understand and
manage the risks of modern slavery
and human rights abuses in our supply
chain. Our Global Ethical Sourcing and
Modern Slavery Policy sets out our
expectations of our suppliers including:
no forced labour; fair employment,
working hours and conditions;
freedom of association; freedom from
discrimination and harassment; and
whistleblower protections.
When an AI product is deployed in the
real world it must be effective and safe
and deliver equitable results for all users.
It requires that fairness and risks of
bias are considered at all points of the
development life cycle. This starts with
having high-quality comprehensive AI
training data. We help our customers
to incorporate fairness and minimise
bias by providing responsibly sourced
training data from our diverse and
skilled global crowd of data annotators.
Creating responsible AI
standards with the World
Economic Forum
In August 2020, we announced
our multi-year partnership with the
World Economic Forum (WEF) to
design standards and best practices
for responsible training data when
building machine learning and
artificial intelligence applications.
The aim is to improve quality, efficiency,
transparency and responsibility for
AI projects while promoting inclusivity
and collaboration. Adoption of these
standards by the technology community
will help to increase the community’s trust
in AI and the value of AI for businesses.
We are also working with WEF to increase
awareness of the importance of fair AI
throughout the supply chain.
To learn more about
our partnership with the
World Economic Forum
see: appen.com/wef
Good business practice
Doing business responsibly and
sustainably is key to our ability
to create value for our stakeholders
over the long term.
Our Code of Conduct prescribes the
standards of professionalism, integrity,
honesty and ethical behaviour we expect
in our business, of our people and in
our interactions with all stakeholders.
We have zero tolerance for bribery and
corruption and our Anti-Corruption and
Anti-Bribery Policy details our approach.
We also do not use corporate funds for
political advocacy and we do not make
political donations.
Inclusive hiring practices
We are an active supporter of
people with disabilities. During the
year, we had 78 people with partial
and hearing impairment supporting
image annotation work in our facility
in the Philippines. We have been
recognised by The Philippine Council
of Organizations on Disability and
Empowerment for hiring and promoting
diversity and inclusion in the workplace.
Removing traditional
barriers to work
Removing traditional barriers to work is
a key differentiator of our business model.
This has guided our membership of the
Global Impact Sourcing Coalition which
works to provide career development
opportunities to people who otherwise
have limited employment prospects.
By hiring crowd contractors from
communities that lack employment
options, our goal is to help them achieve
self-sufficiency through income growth,
skill development and professional
advancement. This approach helps lift
families and communities out of poverty
and enables us to access more diverse
pools of talent.
Machine translation to help fight COVID-19
In 2020, health organisations around the world needed to deliver
urgent COVID-19 related health and safety guidelines to diverse
populations in their native languages. To do that, they needed
access to accurate and high-quality translations of COVID-19
related terminology.
To make this information globally accessible and equitable, Appen joined with
other large data companies like Amazon, Facebook, Google and Microsoft
to work with Translators without Borders on sourcing and annotating relevant
data for 38 languages. The focus was on under-resourced languages spoken
in communities that are considered most susceptible to the spread of the virus.
As a result of the initiative, translated datasets of 70,000 key COVID-19 terms
and phrases are being made publicly accessible for translation professionals
and for training state-of-the-art machine translation models.
To learn more about the Translation Initiative for COVID-19 see: tico-19.github.io
Recognition
Appen has received a Business
Intelligence Group Innovation Award
for our global crowd expertise and
2020 partnership with Translators
without Borders on TICO-19
Outlook
In 2021, we are scaling up our impact sourcing activities and will
continue our work with the World Economic Forum on responsible AI.
The steps we are taking to identify, manage and mitigate modern
slavery risks and human rights abuses in our operations and supply
chain will be included in our Modern Slavery Statement which will
be released by June 2021 as required under the Modern Slavery
Act 2018 (Cth).
Appen 2020 Annual Report
33
Social and environment
Climate change poses major risks to our environment,
society and economy. We are therefore committed to
playing our part in limiting climate change in line with
the goals of the Paris Agreement and supporting the
transition to net zero emissions by 2050.
Priority SDGs
We disclose our approach and plans
in line with the recommendations of
the Task Force on Climate-related
Financial Disclosures.
Governance
Our environmental and climate
change commitments are outlined in
our Environment Position Statement.
The Board of Directors is responsible
for considering the environmental
impacts of our activities, setting
standards, and monitoring compliance
with our sustainability policies and
practices. The Board also oversees the
management of climate change related
risks and opportunities and approves
climate change related disclosures.
The Audit and Risk Management
Committee is responsible for
considering environmental and climate
change risk, making recommendations
to Board, and ensuring that management
is effectively managing the risks.
Strategy
In determining our strategic response to
climate change, we have considered our
environmental footprint and the physical
and transition risks posed to our business,
as well as the opportunities that the
transition to a low carbon economy creates.
As our major global technology
customers have committed to net zero
emissions in their supply chains, taking
a proactive and responsible approach
on climate change is also strategically
important to our business.
See our Environment
Position Statement at:
appen.com/environment-
social-and-governance/
The Board and Audit
and Risk Management
Committee Charters are
available at: appen.com/
corporate-governance/
Environmental footprint
As our core business is data annotation,
we have a relatively small environmental
impact within our own operations. We are
committed to reducing the impact of our
operations, including our offices, facilities,
travel and data centre usage by:
•
•
•
•
•
leasing energy efficient buildings and
adopting energy efficient practices
reducing electricity consumption and
increasing our use of renewable energy
optimising our data centre
requirements and working with
a cloud supplier that has committed
to using 100% renewable energy
reducing waste generation and
water use and increasing recycling
evaluating and reducing our
greenhouse gas emissions
• minimising travel by using digital
conferencing and collaboration tools
•
buying carbon offsets
for unavoidable travel
• working with our partners
and suppliers on sustainable
procurement solutions
Physical and transition risks
Our analysis indicates that we do not face
material risks from the physical impacts
of climate change, given the dispersed
nature of our data annotation activities
and operations. Where we have offices
or facilities in areas that are subject to
extreme weather events, such as the
Philippines, we manage and will keep
under review the potential risks in the
context of our business continuity and
disaster recovery plans. We also do not
have material indirect exposure to physical
risk through potential impacts to our
customers or suppliers, due to the nature
and diversity of their core businesses
and their wide geographic distribution.
As a technology company, our primary
transition risks relate to our reliance
on electricity to power our operations
and our customers’ requirements for
environmentally responsible suppliers
as part of their commitment to net zero
emissions in their supply chains. We are
addressing these risks by driving more
energy-efficient operations and our
commitment to reducing and reporting
our carbon footprint.
Opportunities
We believe that AI will be applied
in the development of new technologies
that reduce reliance on fossil fuels,
cut greenhouse gas emissions,
improve efficiency and optimise
resource allocation. As the provider of
training data for AI model development,
we anticipate that the demand for our
products and services will continue to
grow as new technologies are developed.
Risk management
We assess and manage climate risk
through our risk management framework.
Climate risk is incorporated into our Risk
Appetite Statement which sets out our
key risk types, the thresholds for each,
and how we monitor and mitigate these
risks. Management, the Audit and Risk
Management Committee and the Board
of Directors all have responsibilities
with respect to overseeing, assessing
and managing climate change risk
(see Governance above).
Metrics and targets
To more accurately measure and assess
how we manage our environmental
footprint, we are developing an
environment management system (EMS)
that formalises our processes and
practices. We intend to use the EMS to
further increase our operational efficiency
by enabling us to measure our impact,
set targets and report our progress.
Keeping energy flowing
Early detection of solar panel defects keeps solar farms
running efficiently. By applying computer vision to drone
aerial imagery and by providing training data that enables
machine learning models to identify defects, we help to
maintain the supply of renewable energy.
34
Appen 2020 Annual Report
35
Social and environment
Climate change poses major risks to our environment,
Priority SDGs
society and economy. We are therefore committed to
playing our part in limiting climate change in line with
the goals of the Paris Agreement and supporting the
transition to net zero emissions by 2050.
considering environmental and climate
• minimising travel by using digital
conferencing and collaboration tools
We disclose our approach and plans
Environmental footprint
in line with the recommendations of
the Task Force on Climate-related
Financial Disclosures.
Governance
As our core business is data annotation,
we have a relatively small environmental
impact within our own operations. We are
committed to reducing the impact of our
operations, including our offices, facilities,
Our environmental and climate
travel and data centre usage by:
As a technology company, our primary
transition risks relate to our reliance
on electricity to power our operations
and our customers’ requirements for
environmentally responsible suppliers
as part of their commitment to net zero
emissions in their supply chains. We are
addressing these risks by driving more
energy-efficient operations and our
commitment to reducing and reporting
our carbon footprint.
leasing energy efficient buildings and
adopting energy efficient practices
reducing electricity consumption and
increasing our use of renewable energy
optimising our data centre
Opportunities
requirements and working with
We believe that AI will be applied
a cloud supplier that has committed
in the development of new technologies
to using 100% renewable energy
that reduce reliance on fossil fuels,
reducing waste generation and
water use and increasing recycling
evaluating and reducing our
greenhouse gas emissions
•
buying carbon offsets
for unavoidable travel
• working with our partners
and suppliers on sustainable
procurement solutions
Physical and transition risks
cut greenhouse gas emissions,
improve efficiency and optimise
resource allocation. As the provider of
training data for AI model development,
we anticipate that the demand for our
products and services will continue to
grow as new technologies are developed.
Risk management
We assess and manage climate risk
through our risk management framework.
Climate risk is incorporated into our Risk
Appetite Statement which sets out our
key risk types, the thresholds for each,
Our analysis indicates that we do not face
and how we monitor and mitigate these
material risks from the physical impacts
of climate change, given the dispersed
nature of our data annotation activities
and operations. Where we have offices
or facilities in areas that are subject to
extreme weather events, such as the
Philippines, we manage and will keep
under review the potential risks in the
context of our business continuity and
disaster recovery plans. We also do not
risks. Management, the Audit and Risk
Management Committee and the Board
of Directors all have responsibilities
with respect to overseeing, assessing
and managing climate change risk
(see Governance above).
Metrics and targets
To more accurately measure and assess
how we manage our environmental
have material indirect exposure to physical
footprint, we are developing an
risk through potential impacts to our
environment management system (EMS)
customers or suppliers, due to the nature
that formalises our processes and
and diversity of their core businesses
and their wide geographic distribution.
practices. We intend to use the EMS to
further increase our operational efficiency
by enabling us to measure our impact,
set targets and report our progress.
change commitments are outlined in
our Environment Position Statement.
The Board of Directors is responsible
for considering the environmental
impacts of our activities, setting
standards, and monitoring compliance
with our sustainability policies and
practices. The Board also oversees the
management of climate change related
risks and opportunities and approves
climate change related disclosures.
The Audit and Risk Management
Committee is responsible for
•
•
•
•
•
change risk, making recommendations
to Board, and ensuring that management
is effectively managing the risks.
Strategy
In determining our strategic response to
climate change, we have considered our
environmental footprint and the physical
and transition risks posed to our business,
as well as the opportunities that the
transition to a low carbon economy creates.
As our major global technology
customers have committed to net zero
emissions in their supply chains, taking
a proactive and responsible approach
on climate change is also strategically
important to our business.
See our Environment
Position Statement at:
appen.com/environment-
social-and-governance/
The Board and Audit
and Risk Management
Committee Charters are
available at: appen.com/
corporate-governance/
34
Appen 2020 Annual Report
35
Keeping energy flowing
Early detection of solar panel defects keeps solar farms
running efficiently. By applying computer vision to drone
aerial imagery and by providing training data that enables
machine learning models to identify defects, we help to
maintain the supply of renewable energy.
Identifying and
managing risk
Comprehensive risk
management is necessary
for Appen to meet its
strategic objectives.
The main objective
of our risk management
framework is to provide
a ‘decision support’
approach to ensure
equal consideration
of risk and opportunity.
We continue to engage with our teams
to ensure their ongoing health and safety
and we have plans in place for phased
returns to the office in a COVID-safe
manner, once the risk to our employees
is determined as sufficiently low.
Emerging risks
We define emerging risks as
uncertainties which might not be
clearly understood, or possible to fully
assess. These risks are considered
in conjunction with our principal
risks, and once they are more clearly
understood, are incorporated into our
existing risk reporting structure.
ESG and climate change risks
Environmental, social and governance
(ESG) risks, including climate change,
are not reported as a separate principal
risk. Rather, specific ESG risks are
considered within the operational risks
that impact our reported principal risks.
Climate change risk is included in our
risk analysis both from the perspective
of the risks to our business and to our
customers. We consider physical risks
in the context of business continuity and
disaster recovery risks where we have
operations in areas that are subject
to extreme weather events. We also
consider the transition risks, including for
our customers. Our approach is detailed
in our Task Force on Climate-related
Financial Disclosures on page 34.
In addition, ESG risks are considered
as part of our emerging risk analysis
to ensure new ESG risks are captured.
Risk appetite
Our risk appetite, in conjunction with our
embedded risk management framework,
provides direction on the type and level
of risk we are willing to take in line with
our overall business strategy. Our risk
appetite has been defined at a category
level and approved by the Board.
Key changes in
our principal risks
In the year, we regrouped our principal
risks to better reflect changes in
our risk priorities and focus areas
– see pages 38–43 for our key risks.
Specifically, data management has
now become a standalone category.
Within these principal risks, the majority
have increased during the year,
primarily as a result of external factors
such as the coronavirus pandemic
and geopolitical instability in the
markets Appen operates in.
COVID-19 related risks
COVID-19 has had an impact across
a number of our principal risks in
the year, even though the resilience
and flexibility of our work-from-home
crowd model meant that our delivery
of high-quality outcomes for our
customers was not interrupted.
The ongoing uncertainty and threat to
our employees required that we quickly
develop new workplace practices.
This included forming a COVID-19
Response Team with responsibility for
overseeing our global response to the
pandemic, monitoring the landscape
and ensuring the safety of our staff.
Response plans were put into place
quickly and our business model and
technology investments, such as the
Secure Workspace, facilitated a smooth
transition to at-home work for employees.
Risk management framework
Our risk management approach ensures innovation and new possibilities are embraced together with a comprehensive
analysis of the potential risks and identification of risk mitigation strategies. Risk management is the responsibility of all
employees and risk and control processes are integrated into day-to-day responsibilities.
Board
Oversight
Executive
and senior
management
Risk and audit
function
Management and
day-to-day control
operators
Ultimate responsibility
Ultimate responsibility lies with the Board and is executed
through the Audit and Risk Management Committee.
Specific responsibilities include:
• Approval of the risk management framework.
• Approval of the risk appetite statement and subsequent
addressing of escalated risk appetite triggers.
• Oversight of strategic risk.
The Executive Team and senior management have primary
ownership and responsibility for implementing sound risk
management practices and controls in line with the risk
appetite statement. This includes being responsible for:
• Assessing, managing and monitoring risk profiles for
identified strategic risks.
•
Identifying where risk appetite statement triggers
may be met and further escalation is required.
• Promoting a positive and appropriate attitude towards
risk management and ensuring employees are aware
of their responsibilities.
Monitoring
The risk and audit function:
• Defines the risk management process to be followed
by the business (including risk appetite).
• Reviews and challenges the strategic and operational
risks ensuring controls identified are operating, and
tracks closure of items.
• Facilitates risk process, collating risk registers
and consolidating the strategic risk register.
• Aligns assurance activity.
Ownership
All employees are responsible for:
•
Identifying, prioritising, assessing and monitoring of risk
which may arise in the business operations.
•
Implementing and complying with all controls, policies
and procedures within their area of responsibility,
including devising and implementing controls to address
identified operational risks.
36
Appen 2020 Annual Report
37
Identifying and
managing risk
Comprehensive risk
Risk appetite
management is necessary
for Appen to meet its
strategic objectives.
The main objective
Our risk appetite, in conjunction with our
embedded risk management framework,
provides direction on the type and level
of risk we are willing to take in line with
our overall business strategy. Our risk
appetite has been defined at a category
level and approved by the Board.
of our risk management
framework is to provide
Key changes in
our principal risks
a ‘decision support’
approach to ensure
equal consideration
of risk and opportunity.
In the year, we regrouped our principal
risks to better reflect changes in
our risk priorities and focus areas
– see pages 38–43 for our key risks.
Specifically, data management has
now become a standalone category.
Within these principal risks, the majority
have increased during the year,
primarily as a result of external factors
such as the coronavirus pandemic
and geopolitical instability in the
markets Appen operates in.
We continue to engage with our teams
to ensure their ongoing health and safety
and we have plans in place for phased
returns to the office in a COVID-safe
manner, once the risk to our employees
is determined as sufficiently low.
Emerging risks
We define emerging risks as
uncertainties which might not be
clearly understood, or possible to fully
assess. These risks are considered
in conjunction with our principal
risks, and once they are more clearly
understood, are incorporated into our
existing risk reporting structure.
ESG and climate change risks
Environmental, social and governance
(ESG) risks, including climate change,
are not reported as a separate principal
risk. Rather, specific ESG risks are
considered within the operational risks
that impact our reported principal risks.
COVID-19 related risks
Climate change risk is included in our
COVID-19 has had an impact across
risk analysis both from the perspective
a number of our principal risks in
of the risks to our business and to our
the year, even though the resilience
customers. We consider physical risks
and flexibility of our work-from-home
in the context of business continuity and
crowd model meant that our delivery
disaster recovery risks where we have
of high-quality outcomes for our
customers was not interrupted.
The ongoing uncertainty and threat to
our employees required that we quickly
develop new workplace practices.
This included forming a COVID-19
operations in areas that are subject
to extreme weather events. We also
consider the transition risks, including for
our customers. Our approach is detailed
in our Task Force on Climate-related
Financial Disclosures on page 34.
Response Team with responsibility for
In addition, ESG risks are considered
overseeing our global response to the
as part of our emerging risk analysis
pandemic, monitoring the landscape
to ensure new ESG risks are captured.
and ensuring the safety of our staff.
Response plans were put into place
quickly and our business model and
technology investments, such as the
Secure Workspace, facilitated a smooth
transition to at-home work for employees.
Risk management framework
Our risk management approach ensures innovation and new possibilities are embraced together with a comprehensive
analysis of the potential risks and identification of risk mitigation strategies. Risk management is the responsibility of all
employees and risk and control processes are integrated into day-to-day responsibilities.
Ultimate responsibility
Ultimate responsibility lies with the Board and is executed
through the Audit and Risk Management Committee.
Specific responsibilities include:
• Approval of the risk management framework.
• Approval of the risk appetite statement and subsequent
addressing of escalated risk appetite triggers.
• Oversight of strategic risk.
Board
Oversight
Executive
and senior
management
Risk and audit
function
Management and
day-to-day control
operators
The Executive Team and senior management have primary
ownership and responsibility for implementing sound risk
management practices and controls in line with the risk
appetite statement. This includes being responsible for:
• Assessing, managing and monitoring risk profiles for
identified strategic risks.
•
Identifying where risk appetite statement triggers
may be met and further escalation is required.
• Promoting a positive and appropriate attitude towards
risk management and ensuring employees are aware
of their responsibilities.
Monitoring
The risk and audit function:
• Defines the risk management process to be followed
by the business (including risk appetite).
• Reviews and challenges the strategic and operational
risks ensuring controls identified are operating, and
tracks closure of items.
• Facilitates risk process, collating risk registers
and consolidating the strategic risk register.
• Aligns assurance activity.
Ownership
All employees are responsible for:
•
•
Identifying, prioritising, assessing and monitoring of risk
which may arise in the business operations.
Implementing and complying with all controls, policies
and procedures within their area of responsibility,
including devising and implementing controls to address
identified operational risks.
36
Appen 2020 Annual Report
37
Identifying and managing risk
A summary of our principal risks, changes in the year, mitigation strategies and related trends are detailed in the tables below.
This reflects the risks identified by the Board for the year ended 31 December 2020. The risk landscape is continually evolving
and we regularly monitor and identify risks on a proactive basis. This means the risk register and associated strategies are not
exhaustive and are reflective of efforts at a set point in time.
Business model
Principal risk
Change
Mitigation
Value driver
Strategic positioning
of global operations
Changes to global economic
and political conditions can
impact the group, including
whether we continue to
operate in each of our
geographical areas.
This risk has
increased as a
result of ongoing
uncertainty in the
wider geopolitical
environment,
particularly in the
US and China.
This risk has trended
upwards due to the
impact of changes
in the competitive,
economic and
regulatory
environment for our
larger customers.
Alignment of customers,
products and services
to strategic objectives
Currently a few large
global technology
companies are the major
buyers of AI training data.
The revenue from these
clients can be lumpy, and is
significantly larger than the
revenue from other clients.
Clients can also reprioritise
their AI projects and training
data spend.
Market competition
changes
==
In some parts of
our business there is
competition from niche
and low-cost providers.
Customers may also choose
to do some data annotation
tasks in-house and/or use
their scale to seek better
terms on pricing.
This risk has
remained stable
over the past year
as there has been
no material change
in the competitive
environment.
• Macroeconomic and geopolitical risks,
including consideration of potential
political uncertainty in certain markets
and geographies, are actively factored
into our strategic planning processes
and investment activity.
• We undertake ongoing horizon
scanning to monitor potential policy,
legal and regulatory developments
that may impact our ability to operate
in particular jurisdictions.
• We monitor relevant market and
customer trends and regulatory
changes to identify potential
headwinds for our clients which
may impact our future revenue.
• We continually improve our
products and services to meet
evolving customer needs.
• We identify and pursue new
opportunities in fast-growing sectors
and markets to diversify our customer
and revenue base.
• We continue to focus on increasing
committed revenue and bundled
services to reduce our reliance on
project-based work. The acquisition
of Figure Eight has increased our
annual contract value which was
US$124 million as at 1 February 2021,
up from $0 at the end of 2018.
• We monitor new investments in
the data annotation sector closely.
• We have invested in new sales and
marketing capabilities to deepen and
expand our relationships with existing
and new customers.
• We continue to invest in technology
to increase the quality of our services
and to deploy new capabilities.
• Our core Relevance activities are less
amenable to replication by machines
or insourcing as they require a
large-scale diverse crowd performing
subjective human judgements.
Customer
and brand
Social and
environment
Customer
and brand
Global
crowd
Technology,
processes,
systems
Financial
Customer
and brand
Technology,
processes,
systems
Financial
Principal risk
Change
Mitigation
Value driver
Resilience following
disaster, crisis or events
impacting business
continuity
The loss of data, a physical
site or critical employees
could result in a major
impact to our customers,
revenues and reputation.
This risk has
increased in the
past year due to
the increasing
frequency of cyber
attacks, extreme
weather events,
and potential impact
on key individuals
as a result of
the coronavirus
pandemic.
• We store data in enterprise grade,
cloud-based servers which are
duplicated to minimise disruption.
• Our engineering team focuses
on resilience to mitigate the risks
of material or sustained disruption.
• We have business continuity plans
for facilities that require a physical
presence on-site.
• We conduct scenario testing
for our disaster recovery plans.
• Our work-from-home model for
data annotators makes our business
model extremely flexible and resilient.
• We have implemented robust
COVID-safe work practices for
our employees.
Principal risk
Change
Mitigation
Value driver
People
Variations in workforce
strategy affecting key
employee capability
and capacity
Our business is reliant on
specialised skills. Our ability
to grow is dependent on
attracting, developing
and motivating our talent.
The transition to
a work-from-home
model for our
employees was
made quickly and
easily. However,
fatigue related
to the ongoing
work-from-home
requirements, as
well as uncertainty
in some locations
due to social
unrest, has been
challenging for our
staff, resulting in an
increase in this risk.
• Our HR department works closely with
the business to understand the skills
and capabilities required to deliver
our business objectives and to ensure
those needs are met.
• We provide learning and development
programs to strengthen our existing
capabilities and to retain talent
through progression pathways.
• We have implemented a range
of initiatives to support employees
during the pandemic including
additional Employee Assistance
Program services and wellness events;
increased communications and
company town halls; as well as clearly
articulating our COVID-safe return
to office plans.
Customer
and brand
Technology,
processes,
systems
Social and
environment
Appen
employees
Social and
environment
Key: Increase Decrease
== Stable
38
Appen 2020 Annual Report
39
Identifying and managing risk
A summary of our principal risks, changes in the year, mitigation strategies and related trends are detailed in the tables below.
This reflects the risks identified by the Board for the year ended 31 December 2020. The risk landscape is continually evolving
and we regularly monitor and identify risks on a proactive basis. This means the risk register and associated strategies are not
exhaustive and are reflective of efforts at a set point in time.
Business model
Principal risk
Change
Mitigation
Value driver
particularly in the
• We undertake ongoing horizon
Strategic positioning
of global operations
Changes to global economic
and political conditions can
impact the group, including
whether we continue to
operate in each of our
geographical areas.
This risk has
increased as a
result of ongoing
uncertainty in the
wider geopolitical
environment,
US and China.
This risk has trended
upwards due to the
impact of changes
in the competitive,
economic and
regulatory
environment for our
larger customers.
Alignment of customers,
products and services
to strategic objectives
Currently a few large
global technology
companies are the major
buyers of AI training data.
The revenue from these
clients can be lumpy, and is
significantly larger than the
revenue from other clients.
Clients can also reprioritise
their AI projects and training
data spend.
==
This risk has
remained stable
over the past year
as there has been
no material change
in the competitive
environment.
Market competition
changes
In some parts of
our business there is
competition from niche
and low-cost providers.
Customers may also choose
to do some data annotation
tasks in-house and/or use
their scale to seek better
terms on pricing.
• Macroeconomic and geopolitical risks,
including consideration of potential
political uncertainty in certain markets
and geographies, are actively factored
into our strategic planning processes
and investment activity.
scanning to monitor potential policy,
legal and regulatory developments
that may impact our ability to operate
in particular jurisdictions.
• We monitor relevant market and
customer trends and regulatory
changes to identify potential
headwinds for our clients which
may impact our future revenue.
• We continually improve our
products and services to meet
evolving customer needs.
• We identify and pursue new
opportunities in fast-growing sectors
and markets to diversify our customer
and revenue base.
• We continue to focus on increasing
committed revenue and bundled
services to reduce our reliance on
project-based work. The acquisition
of Figure Eight has increased our
annual contract value which was
US$124 million as at 1 February 2021,
up from $0 at the end of 2018.
• We monitor new investments in
the data annotation sector closely.
• We have invested in new sales and
marketing capabilities to deepen and
expand our relationships with existing
and new customers.
• We continue to invest in technology
to increase the quality of our services
and to deploy new capabilities.
• Our core Relevance activities are less
amenable to replication by machines
or insourcing as they require a
large-scale diverse crowd performing
subjective human judgements.
Customer
and brand
Social and
environment
Customer
and brand
Global
crowd
Technology,
processes,
systems
Financial
Customer
and brand
Technology,
processes,
systems
Financial
Principal risk
Change
Mitigation
Value driver
Resilience following
disaster, crisis or events
impacting business
continuity
The loss of data, a physical
site or critical employees
could result in a major
impact to our customers,
revenues and reputation.
This risk has
increased in the
past year due to
the increasing
frequency of cyber
attacks, extreme
weather events,
and potential impact
on key individuals
as a result of
the coronavirus
pandemic.
• We store data in enterprise grade,
cloud-based servers which are
duplicated to minimise disruption.
• Our engineering team focuses
on resilience to mitigate the risks
of material or sustained disruption.
• We have business continuity plans
for facilities that require a physical
presence on-site.
• We conduct scenario testing
for our disaster recovery plans.
• Our work-from-home model for
data annotators makes our business
model extremely flexible and resilient.
• We have implemented robust
COVID-safe work practices for
our employees.
Customer
and brand
Technology,
processes,
systems
Social and
environment
People
Principal risk
Change
Mitigation
Value driver
Variations in workforce
strategy affecting key
employee capability
and capacity
Our business is reliant on
specialised skills. Our ability
to grow is dependent on
attracting, developing
and motivating our talent.
The transition to
a work-from-home
model for our
employees was
made quickly and
easily. However,
fatigue related
to the ongoing
work-from-home
requirements, as
well as uncertainty
in some locations
due to social
unrest, has been
challenging for our
staff, resulting in an
increase in this risk.
• Our HR department works closely with
the business to understand the skills
and capabilities required to deliver
our business objectives and to ensure
those needs are met.
• We provide learning and development
programs to strengthen our existing
capabilities and to retain talent
through progression pathways.
• We have implemented a range
of initiatives to support employees
during the pandemic including
additional Employee Assistance
Program services and wellness events;
increased communications and
company town halls; as well as clearly
articulating our COVID-safe return
to office plans.
Appen
employees
Social and
environment
38
Appen 2020 Annual Report
39
Key: Increase Decrease
== Stable
Identifying and managing risk
Principal risk
Change
Mitigation
Value driver
This risk has
decreased in the
year due to the
finalisation of the
integration of
Figure Eight.
Managing organisation
culture and leadership
through change
We have undertaken a series
of global acquisitions and
expansions which are reliant
on key individuals to ensure
successful integration
and change.
• We positively reinforce our values,
desired behaviours and attributes
through direct links to reward
and recognition.
• Our integration team is responsible
for planning, executing, co-ordinating
and controlling activities related
to acquisitions.
• Where change is dependent on talent,
we implement programs to ensure key
employees receive tailored incentives.
• We conduct post-integration
assessments to understand what
could have been done better to ensure
appropriate cultural integration.
Appen
employees
Technology,
processes,
systems
Technology and innovation
Principal risk
Change
Mitigation
Value driver
==
==
Investment in
technology innovation
and transformation
Technology innovation
is key to improving our
capabilities, increasing
efficiency and automation,
keeping pace with customer
expectations and staying
ahead of our competition.
Market disruption
The AI market is very
dynamic and client needs
and end-user expectations
change rapidly. Changes in
the AI market and regulatory
environment could impact
our business model, our
required product offering
and our strategic decisions
across markets.
This risk has
remained stable
in the current year
as we continued to
invest and expand
our engineering and
innovation teams.
• We are investing in our transformation
program to improve both customer
and crowd experiences, and to deliver
automation benefits and efficiencies
and new offerings.
• We utilise agile methods in our project
delivery to ensure investment in
engineering projects is appropriately
prioritised and oversight is in place.
This risk has
remained stable
in the current year
but we continue
to monitor closely
as we anticipate that
this risk will increase
over subsequent
periods.
• We have a team that is dedicated
to monitoring AI and technology
markets, customer trends and
regulatory changes.
• We use these insights to inform our
strategy and technology roadmap,
and to evolve our offering.
• We scan for additional opportunities
to expand into other markets
and/or technology to support
our existing offering.
• We have partnered with the
World Economic Forum to create
responsible AI standards to increase
the value of, and trust in AI, for
businesses and the community.
Technology,
processes,
systems
Customer
and brand
Technology,
processes,
systems
Customer
and brand
Principal risk
Change
Mitigation
Value driver
Crowd
==
Crowd conditions
Independent contractors
are critical to our business.
The attraction and retention
of skilled contractors
enables our competitive
advantage and customer
value proposition.
This risk remained
stable in the current
year. We are seeing
customers begin
to scrutinise and
enforce minimum
standards within
their supply chains,
including regarding
minimum wage
and wellness.
This additional
visibility has opened
up conversations
with customers to
meet our minimum
standards in line
with our Crowd
Code of Ethics.
• Our Crowd Code of Ethics
establishes the conditions that we
will adhere to, above the minimum
legal requirements.
• We continue to conduct risk
assessments on the locations
where there may be issues with
contractor conditions as well
as changes in employment trends
and upcoming legislation.
• We are developing programs for
high performing contractors to
expand their skills.
• We are members of the Global Impact
Sourcing Coalition to provide career
development opportunities for people
who otherwise have limited prospects
for formal employment.
Crowd supply meets
customer demand
Our business model
relies on our ability to
provide customers with
access to a broad range
of skills provided by our
global crowd.
==
This risk remains
stable. While there is
increasing demand
from customers
for diverse crowd
members, the
increasing breadth
of our crowd has
continued to be
to our advantage.
• We have improved our crowd
management platform to increase
the efficiency of our contractor
recruitment processes and to
reduce the time taken to fill projects.
We continue to invest in projects
that further enhance the contractor
experience and subsequent retention.
• We have partnerships with sourcing
agencies to increase our reach into
difficult markets and to stimulate
applicant interest.
•
Flexjobs ranked Appen as the number
one remote work provider for 2020.
Global
crowd
Customer
and brand
Global
crowd
Customer
and brand
40
Appen 2020 Annual Report
41
Key: Increase Decrease
== Stable
Identifying and managing risk
Principal risk
Change
Mitigation
Value driver
Crowd
This risk has
decreased in the
year due to the
finalisation of the
integration of
Figure Eight.
Managing organisation
culture and leadership
through change
We have undertaken a series
of global acquisitions and
expansions which are reliant
on key individuals to ensure
successful integration
and change.
• We positively reinforce our values,
desired behaviours and attributes
through direct links to reward
and recognition.
• Our integration team is responsible
for planning, executing, co-ordinating
and controlling activities related
to acquisitions.
• Where change is dependent on talent,
we implement programs to ensure key
employees receive tailored incentives.
• We conduct post-integration
assessments to understand what
could have been done better to ensure
appropriate cultural integration.
Appen
employees
Technology,
processes,
systems
Technology and innovation
Principal risk
Change
Mitigation
Value driver
Investment in
technology innovation
and transformation
Technology innovation
is key to improving our
capabilities, increasing
efficiency and automation,
keeping pace with customer
expectations and staying
ahead of our competition.
Market disruption
The AI market is very
dynamic and client needs
and end-user expectations
change rapidly. Changes in
the AI market and regulatory
environment could impact
our business model, our
required product offering
and our strategic decisions
across markets.
==
This risk has
remained stable
in the current year
as we continued to
invest and expand
• We are investing in our transformation
program to improve both customer
and crowd experiences, and to deliver
automation benefits and efficiencies
and new offerings.
our engineering and
• We utilise agile methods in our project
innovation teams.
delivery to ensure investment in
Technology,
processes,
systems
engineering projects is appropriately
prioritised and oversight is in place.
Customer
and brand
==
This risk has
remained stable
in the current year
but we continue
to monitor closely
as we anticipate that
this risk will increase
over subsequent
periods.
• We have a team that is dedicated
to monitoring AI and technology
markets, customer trends and
regulatory changes.
• We use these insights to inform our
strategy and technology roadmap,
and to evolve our offering.
• We scan for additional opportunities
to expand into other markets
and/or technology to support
our existing offering.
• We have partnered with the
World Economic Forum to create
responsible AI standards to increase
the value of, and trust in AI, for
businesses and the community.
Technology,
processes,
systems
Customer
and brand
Principal risk
Change
Mitigation
Value driver
==
Crowd conditions
Independent contractors
are critical to our business.
The attraction and retention
of skilled contractors
enables our competitive
advantage and customer
value proposition.
This risk remained
stable in the current
year. We are seeing
customers begin
to scrutinise and
enforce minimum
standards within
their supply chains,
including regarding
minimum wage
and wellness.
This additional
visibility has opened
up conversations
with customers to
meet our minimum
standards in line
with our Crowd
Code of Ethics.
• Our Crowd Code of Ethics
establishes the conditions that we
will adhere to, above the minimum
legal requirements.
• We continue to conduct risk
assessments on the locations
where there may be issues with
contractor conditions as well
as changes in employment trends
and upcoming legislation.
• We are developing programs for
high performing contractors to
expand their skills.
• We are members of the Global Impact
Sourcing Coalition to provide career
development opportunities for people
who otherwise have limited prospects
for formal employment.
Crowd supply meets
customer demand
Our business model
relies on our ability to
provide customers with
access to a broad range
of skills provided by our
global crowd.
==
This risk remains
stable. While there is
increasing demand
from customers
for diverse crowd
members, the
increasing breadth
of our crowd has
continued to be
to our advantage.
• We have improved our crowd
management platform to increase
the efficiency of our contractor
recruitment processes and to
reduce the time taken to fill projects.
We continue to invest in projects
that further enhance the contractor
experience and subsequent retention.
• We have partnerships with sourcing
agencies to increase our reach into
difficult markets and to stimulate
applicant interest.
•
Flexjobs ranked Appen as the number
one remote work provider for 2020.
Global
crowd
Customer
and brand
Global
crowd
Customer
and brand
40
Appen 2020 Annual Report
41
Key: Increase Decrease
== Stable
Identifying and managing risk
Data management
Support
Principal risk
Change
Mitigation
Value driver
Principal risk
Change
Mitigation
Value driver
Compliance with
security, privacy and
other data regulations
We manage a large
amount of data as part
of our operations including
a significant amount of
personal information
which requires increased
security requirements.
This risk continues to
trend higher due to
increasing regulation
globally as well as
an increase in the
amount of sensitive
information we are
being requested
to process.
Emerging cyber
security issues
We manage sensitive
customer information,
increasing our exposure
and susceptibility to cyber
attacks. Cyber threats
could lead to a loss of
data or service interruption
impacting customers and
our reputation.
As we continue to
grow, we become
an increasingly
large target for
cyber crime.
This, combined
with the overall
increase in cyber
attacks and growing
sophistication
in these attacks,
has resulted in an
increase in this risk
during the year.
Technology,
processes,
systems
Customer
and brand
Technology,
processes,
systems
Customer
and brand
• We continue to integrate security and
privacy requirements into our systems
and offerings by increasing the
collaboration between our engineering
and privacy teams.
• We have a team that is responsible for
understanding emerging information
security risks. They consult with
external advisors.
•
Information security risk assessments
are conducted on a regular basis
and the IT team undergoes training
in risk management.
• We are ISO 27001 and SOC 2
certified as well as HIPAA compliant.
• We have policies, procedures
and training to ensure employees
are aware of their privacy and
security obligations.
• Privacy and data security are
a standing agenda item for our
IT Governance Steering Group which
reports quarterly to our Audit and Risk
Management Committee.
• We have implemented a cyber
security risk management framework
across the organisation. It includes
the deployment of physical and
technological security measures to
identify, protect, detect and respond
to information and cyber security
risks. We have ISO 27001 and
SOC 2 certification.
• We conduct audits of our cyber
security practices, including scenario
planning and penetration testing, for
cyber security incident management.
•
The strength of our control
environment is tested on an ongoing
basis by independent security
experts. Their recommendations are
implemented in a prioritised manner.
• We have policies, procedures and
annual training to ensure employees
are aware of the threat and their
responsibilities, and we conduct
regular synthetic phishing tests.
Financial sustainability
We operate globally and
our business can be affected
by foreign exchange,
changes in debt markets
and tax obligations. As a
listed entity we also have
an obligation to protect
shareholders’ capital.
Economic
uncertainty due
to COVID-19,
a strengthening
of the Australian
dollar and changes
in the US political
landscape have
resulted in an
increase in this risk
in the year.
Compliance with legal,
statutory and ethical
obligations
We are a global business
and have a responsibility
to deliver against our
legal, statutory and ethical
obligations across a number
of jurisdictions.
This risk has
increased due
to increasing
governance
and compliance
expectations from
stakeholders as an
ASX 100 company.
• We naturally hedge foreign exchange
risk by paying for associated
services in the same currency
we receive revenue.
• We have a formal hedging policy
to provide protection where we make
payments in Australian dollars with
US funds.
• We have expanded our specialised
financial and tax team. We also retain
external tax experts who monitor
developments in international tax
and assess the impact of changes.
• We continue to monitor the
external landscape and conduct
scenario planning to ensure we can
appropriately respond to changes,
such as tax rates, in a timely manner.
• We maintain appropriate controls,
governance and oversight.
• We understand the local labour
and human rights landscapes in
the jurisdictions we operate in, and
ensure we comply with modern
slavery requirements.
• Our compliance framework includes
policies, procedures and a suite
of mandatory compliance training
which helps drive positive attitudes
to compliance across the business.
• We have added relevant subject
matter expertise across the
business and are increasing
our training program for all staff
to extend our compliance and
reporting capabilities.
Financial
Appen
employees
Social and
environment
Financial
Appen
employees
42
Appen 2020 Annual Report
43
Key: Increase Decrease
== Stable
Identifying and managing risk
Data management
Support
Principal risk
Change
Mitigation
Value driver
Principal risk
Change
Mitigation
Value driver
This risk continues to
trend higher due to
increasing regulation
• We continue to integrate security and
privacy requirements into our systems
and offerings by increasing the
collaboration between our engineering
Compliance with
security, privacy and
other data regulations
We manage a large
amount of data as part
of our operations including
a significant amount of
personal information
which requires increased
security requirements.
globally as well as
an increase in the
amount of sensitive
information we are
being requested
to process.
Technology,
processes,
systems
Customer
and brand
Financial sustainability
We operate globally and
our business can be affected
by foreign exchange,
changes in debt markets
and tax obligations. As a
listed entity we also have
an obligation to protect
shareholders’ capital.
Economic
uncertainty due
to COVID-19,
a strengthening
of the Australian
dollar and changes
in the US political
landscape have
resulted in an
increase in this risk
in the year.
Compliance with legal,
statutory and ethical
obligations
We are a global business
and have a responsibility
to deliver against our
legal, statutory and ethical
obligations across a number
of jurisdictions.
This risk has
increased due
to increasing
governance
and compliance
expectations from
stakeholders as an
ASX 100 company.
and privacy teams.
• We have a team that is responsible for
understanding emerging information
security risks. They consult with
external advisors.
•
Information security risk assessments
are conducted on a regular basis
and the IT team undergoes training
in risk management.
• We are ISO 27001 and SOC 2
certified as well as HIPAA compliant.
• We have policies, procedures
and training to ensure employees
are aware of their privacy and
security obligations.
• Privacy and data security are
a standing agenda item for our
IT Governance Steering Group which
reports quarterly to our Audit and Risk
Management Committee.
• We have implemented a cyber
security risk management framework
across the organisation. It includes
the deployment of physical and
technological security measures to
identify, protect, detect and respond
to information and cyber security
risks. We have ISO 27001 and
SOC 2 certification.
• We conduct audits of our cyber
security practices, including scenario
planning and penetration testing, for
cyber security incident management.
•
The strength of our control
environment is tested on an ongoing
basis by independent security
experts. Their recommendations are
implemented in a prioritised manner.
• We have policies, procedures and
annual training to ensure employees
are aware of the threat and their
responsibilities, and we conduct
regular synthetic phishing tests.
Technology,
processes,
systems
Customer
and brand
Emerging cyber
security issues
We manage sensitive
customer information,
increasing our exposure
and susceptibility to cyber
attacks. Cyber threats
could lead to a loss of
data or service interruption
impacting customers and
our reputation.
As we continue to
grow, we become
an increasingly
large target for
cyber crime.
This, combined
with the overall
increase in cyber
attacks and growing
sophistication
in these attacks,
has resulted in an
increase in this risk
during the year.
• We naturally hedge foreign exchange
risk by paying for associated
services in the same currency
we receive revenue.
• We have a formal hedging policy
to provide protection where we make
payments in Australian dollars with
US funds.
• We have expanded our specialised
financial and tax team. We also retain
external tax experts who monitor
developments in international tax
and assess the impact of changes.
• We continue to monitor the
external landscape and conduct
scenario planning to ensure we can
appropriately respond to changes,
such as tax rates, in a timely manner.
• We maintain appropriate controls,
governance and oversight.
• We understand the local labour
and human rights landscapes in
the jurisdictions we operate in, and
ensure we comply with modern
slavery requirements.
• Our compliance framework includes
policies, procedures and a suite
of mandatory compliance training
which helps drive positive attitudes
to compliance across the business.
• We have added relevant subject
matter expertise across the
business and are increasing
our training program for all staff
to extend our compliance and
reporting capabilities.
Financial
Appen
employees
Social and
environment
Financial
Appen
employees
42
Appen 2020 Annual Report
43
Key: Increase Decrease
== Stable
Our approach
to governance
Board skills and experience
The Board maintains a Board Skills Matrix that outlines the skills and experience that directors need to collectively possess
for the Board to effectively discharge its duties. It is reviewed annually to ensure the core competencies listed remain relevant
to the Company. The Board also regularly monitors and reviews its performance and the performance of its Committees.
Skill
Description
Skill level
Board diversity
The Board and
management team
maintain high standards
of corporate governance
as part of our commitment
to create value for our
stakeholders through
effective strategic
planning, risk management,
transparency and
corporate responsibility.
Our governance policies and practices
have been consistent with the 4th edition
of the ASX Corporate Governance
Council’s Corporate Governance
Principles and Recommendations
(ASX Corporate Governance Principles)
throughout the year.
We regularly review our governance
practices in light of the Company’s
growth and emerging corporate
governance developments.
Governance framework
Our governance framework ensures
accountability, both of the Board
and senior management.
To clarify the roles and
responsibilities of directors and
management and to assist the Board
in discharging its responsibilities,
the Board operates under a formal
Charter which sets out the functions
reserved to the Board and provides for
the delegation of functions to Board
Committees and to senior management.
The Board is responsible for
demonstrating leadership, defining the
Company’s purpose, establishing strategic
objectives, approving our values and the
Code of Conduct, and oversight of the
management of the Company.
The Board has established two standing
Committees which assist with the
execution of its responsibilities – the Audit
and Risk Management Committee and the
Nomination and Remuneration Committee.
2020 Board and
Committee priorities
Key areas of governance focus and
key activities undertaken by the Board,
its Committees and management during
2020 included:
Strategic and financial
performance
•
The Board and management
held a deep dive strategy session
focused on existing and new market
growth and internal and contributor
productivity.
• Key customer metrics were
reviewed regularly.
Appen employees
•
Established a COVID-19 Response
Team to define safety protocols for
all offices and established an online
internal portal to provide continuous
updates on impacts to colleagues,
the status of each office, and policies
related to the situation.
•
Established a Diversity
and Inclusion Committee
comprising Appen employees.
Global crowd
• Reinforced our Crowd Code of Ethics
and its role in building our reputation
as a company of fairness and integrity
in how we partner with our crowd.
Social and environment
• Continued to focus on material
non-financial risks including
those relating to our crowd
and remote workforce.
• Updated our Diversity Policy
and approved a new Environment
Position Statement.
• Made further progress on integrated
reporting and increased disclosure
and transparency on key ESG issues.
Governance
• Reviewed and updated relevant
governance policies, Charters
and practices to reflect the
4th edition of the ASX Corporate
Governance Principles.
• Key internal audit program focus
areas included: reviewing and
assessing processes across key
operational areas; baselining
Global Cyber Security practices;
and reviewing process and controls
around payroll, including a review
of pay to relevant awards.
Board renewal
• Appointed Vanessa Liu as a
non-executive director based in the US.
Corporate Governance Statement
Our Corporate Governance Statement provides detailed information
on our corporate governance framework. The Statement and the
Board and Board Committee Charters are available at:
appen.com/investors/corporate-governance/
44
High competency and experience
Medium competency and experience
Appen 2020 Annual Report
45
Strategy
Experience in defining strategic objectives,
assessing business plans and driving execution.
Ability to think strategically and identify and
critically assess opportunities and threats and
develop effective strategies in the context
of changing market conditions.
Finance
Understanding the financial drivers of the business,
experience in financial accounting and reporting,
corporate finance and internal financial controls.
Risk
Experience in identification and monitoring of
material financial and non-financial risks, oversight
of compliance frameworks and controls, mitigation
strategies and compliance issues.
Industry
experience
Experience and understanding of language
technology, machine learning and artificial intelligence
including applications, market drivers and trends.
Customer/
client
Experience developing customer/client strategy
and delivering customer/client outcomes.
Capital
markets
Expertise in considering and implementing efficient
capital management including alternative capital
sources and distribution, yields and markets.
Corporate
transactions
Experience in assessing and completing
complex business transactions, including
mergers, acquisitions, divestments, major projects
and business integration.
People
and culture
management
Board Committee or senior executive equivalent
experience relating to people management
and human resources, corporate culture and
remuneration issues of a global organisation.
Governance
Knowledge and experience in best practice
governance structures, policies and processes.
Technology
and innovation
Experience and expertise in identifying, assessing,
implementing and leveraging digital technologies
and other innovations.
Data and
security
Understanding the use of data and requirements
relating to data security, cyber risk and privacy.
International
Experience in international business, trade and/or
business
experience
investment at a senior executive level and exposure
to global markets and a range of different political,
regulatory and business environments.
Environment,
social and
governance
Expertise in the areas of environment, social
and governance (ESG), and the ability to advise
the Company of required policies, actions and
disclosures on these matters.
43%
of directors
are female
Male
Female
57%
43%
Director tenure
6.5 years
average tenure
of NEDs
0–1 year
1–3 years
3–5 years
5+ years
14%
0%
0%
86%
International
business experience
7
directors
High competency
and experience
Medium competency
and experience
6
1
Director independence
71%
of directors are
independent
Independent
CEO
Chairman
5
1
1
Our approach
to governance
The Board is responsible for
•
Established a Diversity
demonstrating leadership, defining the
and Inclusion Committee
Company’s purpose, establishing strategic
comprising Appen employees.
objectives, approving our values and the
Code of Conduct, and oversight of the
Global crowd
management of the Company.
• Reinforced our Crowd Code of Ethics
The Board has established two standing
Committees which assist with the
execution of its responsibilities – the Audit
and Risk Management Committee and the
Nomination and Remuneration Committee.
2020 Board and
Committee priorities
Key areas of governance focus and
key activities undertaken by the Board,
its Committees and management during
Strategic and financial
performance
•
The Board and management
held a deep dive strategy session
focused on existing and new market
growth and internal and contributor
• Key customer metrics were
reviewed regularly.
Appen employees
•
Established a COVID-19 Response
Team to define safety protocols for
all offices and established an online
internal portal to provide continuous
updates on impacts to colleagues,
the status of each office, and policies
related to the situation.
and its role in building our reputation
as a company of fairness and integrity
in how we partner with our crowd.
Social and environment
• Continued to focus on material
non-financial risks including
those relating to our crowd
and remote workforce.
• Updated our Diversity Policy
and approved a new Environment
Position Statement.
• Made further progress on integrated
reporting and increased disclosure
and transparency on key ESG issues.
Governance
• Reviewed and updated relevant
governance policies, Charters
and practices to reflect the
4th edition of the ASX Corporate
Governance Principles.
• Key internal audit program focus
areas included: reviewing and
assessing processes across key
operational areas; baselining
Global Cyber Security practices;
and reviewing process and controls
around payroll, including a review
of pay to relevant awards.
Board renewal
• Appointed Vanessa Liu as a
non-executive director based in the US.
corporate responsibility.
2020 included:
(ASX Corporate Governance Principles)
productivity.
The Board and
management team
maintain high standards
of corporate governance
as part of our commitment
to create value for our
stakeholders through
effective strategic
planning, risk management,
transparency and
Our governance policies and practices
have been consistent with the 4th edition
of the ASX Corporate Governance
Council’s Corporate Governance
Principles and Recommendations
throughout the year.
We regularly review our governance
practices in light of the Company’s
growth and emerging corporate
governance developments.
Governance framework
Our governance framework ensures
accountability, both of the Board
and senior management.
To clarify the roles and
responsibilities of directors and
management and to assist the Board
in discharging its responsibilities,
the Board operates under a formal
Charter which sets out the functions
reserved to the Board and provides for
the delegation of functions to Board
Committees and to senior management.
Corporate Governance Statement
Our Corporate Governance Statement provides detailed information
on our corporate governance framework. The Statement and the
Board and Board Committee Charters are available at:
appen.com/investors/corporate-governance/
Board skills and experience
The Board maintains a Board Skills Matrix that outlines the skills and experience that directors need to collectively possess
for the Board to effectively discharge its duties. It is reviewed annually to ensure the core competencies listed remain relevant
to the Company. The Board also regularly monitors and reviews its performance and the performance of its Committees.
Skill
Description
Skill level
Board diversity
Strategy
Finance
Risk
Experience in defining strategic objectives,
assessing business plans and driving execution.
Ability to think strategically and identify and
critically assess opportunities and threats and
develop effective strategies in the context
of changing market conditions.
Understanding the financial drivers of the business,
experience in financial accounting and reporting,
corporate finance and internal financial controls.
Experience in identification and monitoring of
material financial and non-financial risks, oversight
of compliance frameworks and controls, mitigation
strategies and compliance issues.
Industry
experience
Experience and understanding of language
technology, machine learning and artificial intelligence
including applications, market drivers and trends.
Customer/
client
Experience developing customer/client strategy
and delivering customer/client outcomes.
Capital
markets
Expertise in considering and implementing efficient
capital management including alternative capital
sources and distribution, yields and markets.
Corporate
transactions
Experience in assessing and completing
complex business transactions, including
mergers, acquisitions, divestments, major projects
and business integration.
People
and culture
management
Board Committee or senior executive equivalent
experience relating to people management
and human resources, corporate culture and
remuneration issues of a global organisation.
Governance
Knowledge and experience in best practice
governance structures, policies and processes.
Technology
and innovation
Experience and expertise in identifying, assessing,
implementing and leveraging digital technologies
and other innovations.
Data and
security
Understanding the use of data and requirements
relating to data security, cyber risk and privacy.
International
business
experience
Experience in international business, trade and/or
investment at a senior executive level and exposure
to global markets and a range of different political,
regulatory and business environments.
Environment,
social and
governance
Expertise in the areas of environment, social
and governance (ESG), and the ability to advise
the Company of required policies, actions and
disclosures on these matters.
43%
of directors
are female
Male
Female
57%
43%
Director tenure
6.5 years
average tenure
of NEDs
0–1 year
1–3 years
3–5 years
5+ years
14%
0%
0%
86%
International
business experience
7
directors
High competency
and experience
Medium competency
and experience
6
1
Director independence
71%
of directors are
independent
Independent
CEO
Chairman
5
1
1
44
High competency and experience
Medium competency and experience
Appen 2020 Annual Report
45
Board of
Directors
Chris Vonwiller
BSc, BE (Hons), MBA, FIE (Aust.),
FTSE
Non-Executive
Chairman
Appointed: 14 August 2009
Board Committees: Member
of the Audit and Risk
Management Committee
Experience and expertise
Chris is the Non-Executive Chairman of Appen having formerly
served as Appen CEO from 1999–2010. Prior to joining Appen,
Chris served for 20 years in senior executive positions with the
Australian telecommunications carrier Telstra Corporation Limited,
playing a leading role in the development and deployment of
innovative internet services, multimedia, and pay television. Chris is a
former Chairman of the Warren Centre for Advanced Engineering at
The University of Sydney. He was elected a Fellow of the Australian
Academy of Technological Sciences and Engineering in 2007.
Directorships of other listed entities
in the last three years
Nil
Mark Brayan
MBA, BSurv (Hons)
Managing Director
and Chief Executive
Officer
Appointed: 13 July 2015
Board Committees: Nil
Experience and expertise
Mark is responsible for the company’s leadership, strategy
and culture. He has over thirty years’ experience in technology
and services. Prior to joining Appen, Mark was CEO of MST
Global, a provider of technology solutions to the resources
sector. Before that, he was the CEO of Integrated Research
Limited (ASX:IRI), an international software company listed
on the Australian Securities Exchange. Mark was also COO
of the HR outsourcing company Talent2 (ASX:TWO) and CEO
of Concept Systems (ASX:CSI) before its merger with Talent2.
Directorships of other listed entities
in the last three years
Nil
Steve Hasker
BCom, MBA, MIA, ACAA
Independent
Non-Executive
Director
Appointed: 7 April 2015
Board Committees: Member
of the Nomination and
Remuneration Committee
Experience and expertise
Steve is currently President and CEO of Thomson Reuters, based
in Toronto, Canada. Most recently, Steve was a Senior Advisor to
TPG Capital and CEO of Creative Artists Agency Global, based
in Los Angeles, where he oversaw CAA’s commercial activities.
Previously, Steve was Global President and COO of Nielsen, based
in New York, responsible for Nielsen’s commercial and product
activities across all of its media and consumer businesses. Prior to
joining Nielsen in 2009, he was a partner at McKinsey & Company’s
Global Media, Entertainment and Information practice in New York.
Before joining McKinsey, Steve spent five years in several financial
roles in the U.S., Russia and Australia. Steve is a member of the
Institute of Chartered Accountants Australia and New Zealand.
Directorships of other listed entities
in the last three years
Global Eagle Entertainment Inc. (7 April 2015–4 March 2020).
Board Committees: Chair
Directorships of other listed entities
Robin Low
BCom, FCA, GAICD
Independent
Non-Executive
Director
Appointed: 30 October 2014
of the Audit and Risk
Management Committee,
Member of the Nomination
and Remuneration Committee
Vanessa Liu
AB Psychology (magna cum
laude with highest honors);
JD (cum laude)
Independent
Non-Executive
Director
Appointed: 27 March 2020
Board Committees: Nil
Experience and expertise
Robin has extensive finance, risk and business experience from
her 28 year career at PricewaterhouseCoopers where she was
a partner specialising in assurance and risk. Robin is a past
Deputy Chairman of the Auditing and Assurance Standards
Board and is a Fellow of the Institute of Chartered Accountants
Australia and New Zealand.
in the last three years
CSG Limited (20 August 2014–19 February 2020), AUB Group Limited
(3 February 2014–present), IPH Limited (23 September 2014–present),
Marley Spoon AG (29 January 2020–present).
Experience and expertise
Vanessa has a deep understanding of emerging technology trends
and enterprise uptake of artificial intelligence, especially in the US
market. She is the Vice President of SAP.iO, the early stage venture
arm of SAP which invests in start-ups in enterprise technology.
Before SAP, Vanessa was the Chief Operating Officer at Trigger
Media Group, a digital media incubator. Previously, Vanessa
was an Associate Partner at McKinsey & Company’s Media
and Entertainment Practice, based in Amsterdam, London and
New York. She was responsible for serving clients in a variety of
media and high-tech sectors on issues of digital strategy, emerging
market strategy, growth and innovation.
Directorships of other listed entities
in the last three years
Nil
William Pulver
BCom (Marketing)
Independent
Non-Executive
Director
Appointed: 19 April 2010
Board Committees: Chair
of the Nomination and
Remuneration Committee
Experience and expertise
William (Bill) served as Appen CEO from 2010–2013 and
was the CEO of the Australian Rugby Union from 2013–2018.
Previously, he was the President and CEO of NetRatings, Inc.,
a NASDAQ-listed company (NTRT), specialising in Internet media
and market research. Prior to this, Bill held leadership roles
at ACNielsen with eRatings.com, Pacific region and Australia.
Directorships of other listed entities
in the last three years
Smartpay Holdings Limited (11 December 2018–present).
Deena Shiff
BSc (Econ), BA (Law)
Independent
Non-Executive
Director
Appointed: 15 May 2015
Board Committees: Member
of the Audit and Risk
Management Committee
Experience and expertise
Deena has enjoyed a distinguished business career covering
senior roles in corporate positions and the legal profession.
She was the founding CEO of Telstra’s corporate venture capital
arm, Telstra Ventures, and Group Managing Director, Telstra
Business. Previously, Deena was a partner in the leading law firm,
Mallesons Stephen Jaques. She is currently Chair of the Advisory
Board for the ARC Centre of Excellence for Automated Decisions
and Society, Chair of the Advisory Board of the Australian
Centre for China in the World, Chair of the Australian Broadband
Advisory Council, and a Director of Infrastructure Australia.
Directorships of other listed entities
in the last three years
Citadel Group (18 September 2014–31 January 2018),
Chair of Marley Spoon AG (5 June 2018–present), Pro Medicus
(1 August 2020–present).
46
Appen 2020 Annual Report
47
Board of
Directors
Chris Vonwiller
BSc, BE (Hons), MBA, FIE (Aust.),
FTSE
Non-Executive
Chairman
Appointed: 14 August 2009
Board Committees: Member
of the Audit and Risk
Management Committee
Experience and expertise
Chris is the Non-Executive Chairman of Appen having formerly
served as Appen CEO from 1999–2010. Prior to joining Appen,
Chris served for 20 years in senior executive positions with the
Australian telecommunications carrier Telstra Corporation Limited,
playing a leading role in the development and deployment of
innovative internet services, multimedia, and pay television. Chris is a
former Chairman of the Warren Centre for Advanced Engineering at
The University of Sydney. He was elected a Fellow of the Australian
Academy of Technological Sciences and Engineering in 2007.
Directorships of other listed entities
in the last three years
Mark Brayan
MBA, BSurv (Hons)
Managing Director
and Chief Executive
Officer
Appointed: 13 July 2015
Board Committees: Nil
Experience and expertise
Mark is responsible for the company’s leadership, strategy
and culture. He has over thirty years’ experience in technology
and services. Prior to joining Appen, Mark was CEO of MST
Global, a provider of technology solutions to the resources
sector. Before that, he was the CEO of Integrated Research
Limited (ASX:IRI), an international software company listed
on the Australian Securities Exchange. Mark was also COO
of the HR outsourcing company Talent2 (ASX:TWO) and CEO
of Concept Systems (ASX:CSI) before its merger with Talent2.
Directorships of other listed entities
in the last three years
Nil
Nil
Steve Hasker
BCom, MBA, MIA, ACAA
Independent
Non-Executive
Director
Appointed: 7 April 2015
Experience and expertise
Steve is currently President and CEO of Thomson Reuters, based
in Toronto, Canada. Most recently, Steve was a Senior Advisor to
TPG Capital and CEO of Creative Artists Agency Global, based
in Los Angeles, where he oversaw CAA’s commercial activities.
Previously, Steve was Global President and COO of Nielsen, based
in New York, responsible for Nielsen’s commercial and product
activities across all of its media and consumer businesses. Prior to
Board Committees: Member
joining Nielsen in 2009, he was a partner at McKinsey & Company’s
of the Nomination and
Global Media, Entertainment and Information practice in New York.
Remuneration Committee
Before joining McKinsey, Steve spent five years in several financial
roles in the U.S., Russia and Australia. Steve is a member of the
Institute of Chartered Accountants Australia and New Zealand.
Directorships of other listed entities
in the last three years
Global Eagle Entertainment Inc. (7 April 2015–4 March 2020).
Robin Low
BCom, FCA, GAICD
Independent
Non-Executive
Director
Appointed: 30 October 2014
Board Committees: Chair
of the Audit and Risk
Management Committee,
Member of the Nomination
and Remuneration Committee
Experience and expertise
Robin has extensive finance, risk and business experience from
her 28 year career at PricewaterhouseCoopers where she was
a partner specialising in assurance and risk. Robin is a past
Deputy Chairman of the Auditing and Assurance Standards
Board and is a Fellow of the Institute of Chartered Accountants
Australia and New Zealand.
Directorships of other listed entities
in the last three years
CSG Limited (20 August 2014–19 February 2020), AUB Group Limited
(3 February 2014–present), IPH Limited (23 September 2014–present),
Marley Spoon AG (29 January 2020–present).
Vanessa Liu
AB Psychology (magna cum
laude with highest honors);
JD (cum laude)
Independent
Non-Executive
Director
Appointed: 27 March 2020
Board Committees: Nil
Experience and expertise
Vanessa has a deep understanding of emerging technology trends
and enterprise uptake of artificial intelligence, especially in the US
market. She is the Vice President of SAP.iO, the early stage venture
arm of SAP which invests in start-ups in enterprise technology.
Before SAP, Vanessa was the Chief Operating Officer at Trigger
Media Group, a digital media incubator. Previously, Vanessa
was an Associate Partner at McKinsey & Company’s Media
and Entertainment Practice, based in Amsterdam, London and
New York. She was responsible for serving clients in a variety of
media and high-tech sectors on issues of digital strategy, emerging
market strategy, growth and innovation.
Directorships of other listed entities
in the last three years
Nil
William Pulver
BCom (Marketing)
Independent
Non-Executive
Director
Appointed: 19 April 2010
Board Committees: Chair
of the Nomination and
Remuneration Committee
Experience and expertise
William (Bill) served as Appen CEO from 2010–2013 and
was the CEO of the Australian Rugby Union from 2013–2018.
Previously, he was the President and CEO of NetRatings, Inc.,
a NASDAQ-listed company (NTRT), specialising in Internet media
and market research. Prior to this, Bill held leadership roles
at ACNielsen with eRatings.com, Pacific region and Australia.
Directorships of other listed entities
in the last three years
Smartpay Holdings Limited (11 December 2018–present).
Deena Shiff
BSc (Econ), BA (Law)
Independent
Non-Executive
Director
Appointed: 15 May 2015
Board Committees: Member
of the Audit and Risk
Management Committee
Experience and expertise
Deena has enjoyed a distinguished business career covering
senior roles in corporate positions and the legal profession.
She was the founding CEO of Telstra’s corporate venture capital
arm, Telstra Ventures, and Group Managing Director, Telstra
Business. Previously, Deena was a partner in the leading law firm,
Mallesons Stephen Jaques. She is currently Chair of the Advisory
Board for the ARC Centre of Excellence for Automated Decisions
and Society, Chair of the Advisory Board of the Australian
Centre for China in the World, Chair of the Australian Broadband
Advisory Council, and a Director of Infrastructure Australia.
Directorships of other listed entities
in the last three years
Citadel Group (18 September 2014–31 January 2018),
Chair of Marley Spoon AG (5 June 2018–present), Pro Medicus
(1 August 2020–present).
46
Appen 2020 Annual Report
47
Executive Team
n
a
y
a
r
B
k
r
a
M
i
e
n
v
e
L
n
v
e
K
i
o
d
n
o
K
n
o
J
g
n
a
P
n
o
s
l
i
W
s
d
l
o
n
y
e
R
i
r
r
e
K
y
e
k
r
a
h
S
m
o
T
n
a
i
T
c
o
R
MBA, BSurv (Hons)
BComm, BAcc
MBA, BA
MEng (ElecEng), BEng (ElecEng)
MBA, BA
BSc (AeroEng)
PhD (Computer Software),
MA Computer Applications
Managing Director &
Chief Executive Officer
Chief Financial
Officer
SVP, Sales and
Marketing
Chief Technology
SVP, Crowd Sourcing
SVP,
Officer
Operations & HR
Client Services
SVP, China
Appointed: July 2015
Appointed: January 2016
Appointed: July 2019
Appointed: November 2018
Appointed: March 2017
Appointed: July 2018
Appointed: August 2019
Experience
and expertise
Refer to Board of Directors
page 46 for Mark’s
experience and expertise.
Kevin is responsible for the
finance, IT and corporate
functions including legal,
investor relations and
corporate development.
He is a Chartered
Accountant with more than
25 years’ experience in
executive operations and
financial roles in listed
and unlisted companies,
with particular exposure
to start-up, high growth
companies in the services
and technology sectors.
Prior to joining Appen, Kevin
was the CEO and CFO
of Rubicor Group Limited,
one of the largest networks
of specialist recruitment
businesses in Australasia.
Before that, Kevin was
the CFO of Trade Wind
Communications Limited, an
Australian public technology
company previously listed
in Canada and the US.
Jon’s responsibilities include
leading the global sales
and marketing teams and
ensuring strong alignment
to deliver continued
customer value and revenue
performance. He has
a strong background
in data, technology,
and customer-focused
leadership and has over
30 years of sales and
marketing experience with
global big data companies
and SaaS-based start-ups.
Before joining Appen,
Jon was co-founder
and CEO of OpsPanda,
a leading application for
sales resource management
that was acquired by Xactly.
Additional leadership roles
include Chief Revenue
Officer at Replicon, CEO of
Host Analytics, Group Vice
President at Oracle and SVP
& GM, Americas at Hyperion.
Wilson is responsible for
Kerri is responsible for
products and technology.
attracting and building
Tom is responsible
for the global client
Roc is responsible
for business strategy,
our global crowd of
services and operations
sales, marketing,
He has over 20 years’
experience in software
engineering and data
professionals and for the
and facilities teams.
Human Resources function.
He has over 30 years’
science. Prior to joining
She has over 20 years of
experience in: technology
Appen, Wilson was Chief
experience in global talent
services, outsourcing and
Data Officer of CTrip in
acquisition and across
capabilities expansion;
China, the world’s second
several human resource
largest online travel
functions. Before joining
sales and account
management; and
agency, where he led data
Appen, Kerri was the
industrialised, efficient
engineers, analysts, data
Senior Director of Staffing
delivery models. Before
delivery, operations,
and government
relationships in China.
He has over 20 years
of sales, consulting, and
management experience
with Fortune 100
companies and has a track
record of success in scaling
product managers, and
Strategy at Microsoft
joining Appen, Tom was
technology organisations.
scientists to improve user
where she developed and
SVP at Arvato, where he
experience and increase
implemented global talent
was responsible for a
Most recently, Roc was
senior partner of IBM
operational efficiency.
acquisition strategies for
major global technology
Global Business Services in
Before that, he was senior
the 50,000+ person Sales,
client and its worldwide
China. Before that, he led
director of engineering at
Marketing & Services
service delivery, business
the growth of IBM’s global
eBay in California and held
Groups. Prior to that,
transformation and
leadership roles in data
Kerri spent her career with
automation objectives.
services and solutions,
MasterCard Worldwide,
He also was a Managing
delivery centre in China.
Prior to IBM, Roc was a
business quality director
search science, marketing
The Gap, and Citibank.
Director at Accenture for
at HP. He was also the
technology, and billing
systems. Previously he
worked as a systems
architect at IBM.
over nine years supporting
founder and CTO of a
technology start-up that
grew to over 100 people.
a broad portfolio of
fortune 500 companies
in technology services,
outsourcing and M&A.
Appen 2020 Annual Report
49
48
Executive Team
n
a
y
a
r
B
k
r
a
M
e
n
i
v
e
L
n
i
v
e
K
o
d
n
o
K
n
o
J
g
n
a
P
n
o
s
l
i
W
l
s
d
o
n
y
e
R
i
r
r
e
K
y
e
k
r
a
h
S
m
o
T
i
n
a
T
c
o
R
MBA, BSurv (Hons)
BComm, BAcc
MBA, BA
MEng (ElecEng), BEng (ElecEng)
MBA, BA
BSc (AeroEng)
Managing Director &
Chief Financial
Chief Executive Officer
Officer
SVP, Sales and
Marketing
Chief Technology
Officer
SVP, Crowd Sourcing
Operations & HR
SVP,
Client Services
PhD (Computer Software),
MA Computer Applications
SVP, China
Appointed: July 2015
Appointed: January 2016
Appointed: July 2019
Appointed: November 2018
Appointed: March 2017
Appointed: July 2018
Appointed: August 2019
Experience
and expertise
Refer to Board of Directors
Kevin is responsible for the
Jon’s responsibilities include
page 46 for Mark’s
finance, IT and corporate
leading the global sales
experience and expertise.
functions including legal,
and marketing teams and
investor relations and
ensuring strong alignment
corporate development.
to deliver continued
He is a Chartered
customer value and revenue
Accountant with more than
performance. He has
25 years’ experience in
a strong background
executive operations and
in data, technology,
financial roles in listed
and customer-focused
and unlisted companies,
leadership and has over
with particular exposure
30 years of sales and
to start-up, high growth
marketing experience with
companies in the services
global big data companies
and technology sectors.
and SaaS-based start-ups.
Prior to joining Appen, Kevin
Before joining Appen,
was the CEO and CFO
Jon was co-founder
of Rubicor Group Limited,
and CEO of OpsPanda,
one of the largest networks
a leading application for
of specialist recruitment
sales resource management
businesses in Australasia.
that was acquired by Xactly.
Before that, Kevin was
the CFO of Trade Wind
Additional leadership roles
include Chief Revenue
Communications Limited, an
Officer at Replicon, CEO of
Australian public technology
Host Analytics, Group Vice
company previously listed
President at Oracle and SVP
in Canada and the US.
& GM, Americas at Hyperion.
Kerri is responsible for
attracting and building
our global crowd of
professionals and for the
Human Resources function.
She has over 20 years of
experience in global talent
acquisition and across
several human resource
functions. Before joining
Appen, Kerri was the
Senior Director of Staffing
Strategy at Microsoft
where she developed and
implemented global talent
acquisition strategies for
the 50,000+ person Sales,
Marketing & Services
Groups. Prior to that,
Kerri spent her career with
MasterCard Worldwide,
The Gap, and Citibank.
Wilson is responsible for
products and technology.
He has over 20 years’
experience in software
engineering and data
science. Prior to joining
Appen, Wilson was Chief
Data Officer of CTrip in
China, the world’s second
largest online travel
agency, where he led data
engineers, analysts, data
product managers, and
scientists to improve user
experience and increase
operational efficiency.
Before that, he was senior
director of engineering at
eBay in California and held
leadership roles in data
services and solutions,
search science, marketing
technology, and billing
systems. Previously he
worked as a systems
architect at IBM.
Tom is responsible
for the global client
services and operations
and facilities teams.
He has over 30 years’
experience in: technology
services, outsourcing and
capabilities expansion;
sales and account
management; and
industrialised, efficient
delivery models. Before
joining Appen, Tom was
SVP at Arvato, where he
was responsible for a
major global technology
client and its worldwide
service delivery, business
transformation and
automation objectives.
He also was a Managing
Director at Accenture for
over nine years supporting
a broad portfolio of
fortune 500 companies
in technology services,
outsourcing and M&A.
Roc is responsible
for business strategy,
sales, marketing,
delivery, operations,
and government
relationships in China.
He has over 20 years
of sales, consulting, and
management experience
with Fortune 100
companies and has a track
record of success in scaling
technology organisations.
Most recently, Roc was
senior partner of IBM
Global Business Services in
China. Before that, he led
the growth of IBM’s global
delivery centre in China.
Prior to IBM, Roc was a
business quality director
at HP. He was also the
founder and CTO of a
technology start-up that
grew to over 100 people.
48
Appen 2020 Annual Report
49
Directors’
report
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter
as the ‘Group’) consisting of Appen Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled
at the end of, or during, the year ended 31 December 2020.
Directors
The following persons were directors of Appen Limited during the whole of the financial year and up to the date of this report,
unless otherwise stated. The Directors’ biographies are provided on pages 46-47.
Christopher Charles Vonwiller – Chairman
Mark Ronald Brayan – Managing Director and Chief Executive Officer
Stephen John Hasker
Vanessa Liu (appointed 27 March 2020)
Robin Jane Low
William Robert Pulver
Deena Robyn Shiff
Principal activities
During the financial year the principal continuing activities of the Group consisted of the provision of quality data solutions
and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers
and government agencies.
Appen provides the following products and services:
• Relevance products and services provide annotated training data that is directly used as an input to improve the
performance of the world’s leading search engines, social media and e-commerce applications. Relevance training data
relies heavily on our large-scale global crowd to deliver a workforce that is representative of our customers’ global user
base with the speed and volume of data to meet our customers’ requirements.
• Speech & Image products and services provide training data that is used to build the world’s leading AI-based voice
interface, translation, text analysis, AR/VR and image perception systems (including LiDAR for autonomous vehicles).
The combination of our leading data annotation platform, global crowd and deep functional expertise delivers high-quality
training data at scale across a wide variety of industries and applications.
Supporting both products and services is a global on-demand crowd workforce providing customers with very flexible in-country
linguistic and cultural expertise in support of 170+ global markets.
Appen was founded in 1996 and listed on the Australian Securities Exchange on 7 January 2015.
Dividends
Dividends paid during the financial year to the shareholders of Appen Limited were as follows:
2019 final dividend of 5.0 cents per ordinary share (2019: 2018 final dividend of 4.0 cents)
2020 interim dividend of 4.5 cents per ordinary share (2019: 2019 interim dividend of 4.0 cents)
Group
2020
$’000
6,082
5,475
2019
$’000
4,264
4,839
11,557
9,103
Operating and financial review
Summary
2020 was another year of growth. Our financial performance,
crowd model, major customers and service delivery
capabilities remained resilient, despite the impacts of the
COVID-19 pandemic and the strong Australian Dollar (AUD).
Total revenue and other income increased 12% to
$599,855,000 (2019: $535,999,000). This comprised
Relevance revenue of $538,184,000, up 15% (2019:
$467,831,000) and Speech and Image revenue
of $61,193,000, down 10% (2019: $67,683,000).
Revenue was impacted by the strong AUD in the second half
of the financial year (H2 FY20) and by changes in our major
customers’ activities and priorities as a result of COVID-19
– covered below under ‘Impact of the COVID-19 pandemic’.
Converting H2 FY20 revenues at our forecast AUD/USD
rate of 0.70 and the H1 FY20 actual rate of 0.6576, resulted
in annual revenue growth of 14% and 17% respectively.
We are focused on growing the revenue we earn from our data
annotation platform – acquired as part of the Figure Eight
transaction in 2019 – as it enables us to increase annual contract
value (ACV). Four of our five major customers use the platform
for a variety of projects. Over time, we expect this will translate
into new and expanded project wins across all data types,
due to the platform’s ability to streamline and automate the
data collection and labelling process, whilst delivering scale and
margin expansion. In 2020, we signed an enterprise-wide platform
deal with one of our major customers for US$80,000,000 which
increased ACV to US$98,700,000 as at 31 December 2020,
up from US$25,000,000 as at 31 December 2019. Due to the
impact of COVID-19 on our smaller customers, ACV declined
from the 30 June 2020 value of US$103,000,000. However,
we continue to gain good traction with larger customers and have
renewed and expanded our major customer 2020 ACV contract,
resulting in ACV of US$124,400,000 as at 1 February 2021.
Underlying earnings before interest, tax, depreciation
and amortisation (EBITDA) (refer to the next page for the
reconciliation of EBITDA to statutory profit) increased by 8%
to $108,550,000 (2019: $100,961,000), which translated
to a net margin of 18.1% (2019: 18.8%). Converting H2 FY20
underlying EBITDA at our forecast rate of AUD/USD of 0.70
and the H1 FY20 actual rate of 0.6576, resulted in annual
growth of 10% and 15% respectively.
Our reduced margins were attributable to the significant
incremental expenditure and resources deployed into key
investment areas to drive future growth including:
•
a 50% increase in sales and marketing investment in 2020
to expand our customer and project base beyond existing
global technology customers into new industry verticals
•
a 117% increase in China investment to support growth
and regions; and
in that market.
Our incremental investment in technology is normalising
and was up 3% in 2020.
Underlying EBITDA included a foreign exchange (FX) gain
of $6,800,000, compared with a loss of $100,000 in the prior
year. The FX gain comprised a realised gain of $4,700,000
on restatement of US dollar (US$) denominated debt drawn
to fund the Figure Eight earn-out payment (this accounted for
most of the H1 FY20 FX gain of $3,600,000), and a $2,100,000
unrealised gain on restatement of the hedge book.
Excluding the impact of these incremental investments
of $12,700,000 and the FX gain, the core underlying EBITDA
of $114,500,000 was up 13% on the prior year.
Underlying net profit after tax (NPAT) was $64,379,000 down
1% on the prior year, impacted by increased amortisation,
as a result of continued investment in engineering and related
developments to drive future growth and efficiency and
to enhance competitive positioning.
Cost of sales, composed mainly of payments to our crowd
contractors, reduced as a percentage of revenue, as a result
of customer and project mix, as well as efficiency benefits.
The effective tax rate for FY20 was 20.5% mainly due to
the tax effect relating to share based payments and the
overseas tax rate differential.
Underlying EBITDA (A$m)
6.8
+13%
13.5
114.5
-9.9
0.4
108.6
-2.9
-0.3
Dividend declared
On 24 February 2021, the Company declared a final dividend for the year ended 31 December 2020 of 5.5 cents per share,
partially franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the
dividend is 2 March 2021 and the payment date is 19 March 2021. The financial effect of these dividends has not been brought
to account in the financial statements for the year ended 31 December 2020 and will be recognised in subsequent financial periods.
101.0
FY19
50
50
Increase
FY20
on FY19
FY20
ex. FX gain
and growth
investments
FX gain
Sales and
marketing
China
Engineering
Government
FY20 incl. FX
gain and growth
investments
Incremental growth investment in 2020
Appen 2020 Annual Report
Appen 2020 Annual Report
51
51
Directors’
report
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter
as the ‘Group’) consisting of Appen Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled
at the end of, or during, the year ended 31 December 2020.
Directors
The following persons were directors of Appen Limited during the whole of the financial year and up to the date of this report,
unless otherwise stated. The Directors’ biographies are provided on pages 46-47.
Christopher Charles Vonwiller – Chairman
Mark Ronald Brayan – Managing Director and Chief Executive Officer
Stephen John Hasker
Vanessa Liu (appointed 27 March 2020)
Robin Jane Low
William Robert Pulver
Deena Robyn Shiff
Principal activities
During the financial year the principal continuing activities of the Group consisted of the provision of quality data solutions
and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers
and government agencies.
Appen provides the following products and services:
• Relevance products and services provide annotated training data that is directly used as an input to improve the
performance of the world’s leading search engines, social media and e-commerce applications. Relevance training data
relies heavily on our large-scale global crowd to deliver a workforce that is representative of our customers’ global user
base with the speed and volume of data to meet our customers’ requirements.
• Speech & Image products and services provide training data that is used to build the world’s leading AI-based voice
interface, translation, text analysis, AR/VR and image perception systems (including LiDAR for autonomous vehicles).
The combination of our leading data annotation platform, global crowd and deep functional expertise delivers high-quality
training data at scale across a wide variety of industries and applications.
Supporting both products and services is a global on-demand crowd workforce providing customers with very flexible in-country
linguistic and cultural expertise in support of 170+ global markets.
Appen was founded in 1996 and listed on the Australian Securities Exchange on 7 January 2015.
Dividends
Dividends paid during the financial year to the shareholders of Appen Limited were as follows:
2019 final dividend of 5.0 cents per ordinary share (2019: 2018 final dividend of 4.0 cents)
2020 interim dividend of 4.5 cents per ordinary share (2019: 2019 interim dividend of 4.0 cents)
Group
2020
$’000
6,082
5,475
2019
$’000
4,264
4,839
11,557
9,103
Operating and financial review
Summary
2020 was another year of growth. Our financial performance,
crowd model, major customers and service delivery
capabilities remained resilient, despite the impacts of the
COVID-19 pandemic and the strong Australian Dollar (AUD).
Total revenue and other income increased 12% to
$599,855,000 (2019: $535,999,000). This comprised
Relevance revenue of $538,184,000, up 15% (2019:
$467,831,000) and Speech and Image revenue
of $61,193,000, down 10% (2019: $67,683,000).
Revenue was impacted by the strong AUD in the second half
of the financial year (H2 FY20) and by changes in our major
customers’ activities and priorities as a result of COVID-19
– covered below under ‘Impact of the COVID-19 pandemic’.
Converting H2 FY20 revenues at our forecast AUD/USD
rate of 0.70 and the H1 FY20 actual rate of 0.6576, resulted
in annual revenue growth of 14% and 17% respectively.
We are focused on growing the revenue we earn from our data
annotation platform – acquired as part of the Figure Eight
transaction in 2019 – as it enables us to increase annual contract
value (ACV). Four of our five major customers use the platform
for a variety of projects. Over time, we expect this will translate
into new and expanded project wins across all data types,
due to the platform’s ability to streamline and automate the
data collection and labelling process, whilst delivering scale and
margin expansion. In 2020, we signed an enterprise-wide platform
deal with one of our major customers for US$80,000,000 which
increased ACV to US$98,700,000 as at 31 December 2020,
up from US$25,000,000 as at 31 December 2019. Due to the
impact of COVID-19 on our smaller customers, ACV declined
from the 30 June 2020 value of US$103,000,000. However,
we continue to gain good traction with larger customers and have
renewed and expanded our major customer 2020 ACV contract,
resulting in ACV of US$124,400,000 as at 1 February 2021.
Underlying earnings before interest, tax, depreciation
and amortisation (EBITDA) (refer to the next page for the
reconciliation of EBITDA to statutory profit) increased by 8%
to $108,550,000 (2019: $100,961,000), which translated
to a net margin of 18.1% (2019: 18.8%). Converting H2 FY20
underlying EBITDA at our forecast rate of AUD/USD of 0.70
and the H1 FY20 actual rate of 0.6576, resulted in annual
growth of 10% and 15% respectively.
Our reduced margins were attributable to the significant
incremental expenditure and resources deployed into key
investment areas to drive future growth including:
•
•
a 50% increase in sales and marketing investment in 2020
to expand our customer and project base beyond existing
global technology customers into new industry verticals
and regions; and
a 117% increase in China investment to support growth
in that market.
Our incremental investment in technology is normalising
and was up 3% in 2020.
Underlying EBITDA included a foreign exchange (FX) gain
of $6,800,000, compared with a loss of $100,000 in the prior
year. The FX gain comprised a realised gain of $4,700,000
on restatement of US dollar (US$) denominated debt drawn
to fund the Figure Eight earn-out payment (this accounted for
most of the H1 FY20 FX gain of $3,600,000), and a $2,100,000
unrealised gain on restatement of the hedge book.
Excluding the impact of these incremental investments
of $12,700,000 and the FX gain, the core underlying EBITDA
of $114,500,000 was up 13% on the prior year.
Underlying net profit after tax (NPAT) was $64,379,000 down
1% on the prior year, impacted by increased amortisation,
as a result of continued investment in engineering and related
developments to drive future growth and efficiency and
to enhance competitive positioning.
Cost of sales, composed mainly of payments to our crowd
contractors, reduced as a percentage of revenue, as a result
of customer and project mix, as well as efficiency benefits.
The effective tax rate for FY20 was 20.5% mainly due to
the tax effect relating to share based payments and the
overseas tax rate differential.
Underlying EBITDA (A$m)
6.8
+13%
13.5
114.5
-9.9
0.4
108.6
-2.9
-0.3
Dividend declared
On 24 February 2021, the Company declared a final dividend for the year ended 31 December 2020 of 5.5 cents per share,
partially franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the
dividend is 2 March 2021 and the payment date is 19 March 2021. The financial effect of these dividends has not been brought
to account in the financial statements for the year ended 31 December 2020 and will be recognised in subsequent financial periods.
101.0
FY19
50
50
Increase
FY20
on FY19
FY20
ex. FX gain
and growth
investments
FX gain
Sales and
marketing
China
Engineering
Government
FY20 incl. FX
gain and growth
investments
Incremental growth investment in 2020
Appen 2020 Annual Report
Appen 2020 Annual Report
51
51
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Financial performance
The table below summarises the financial performance of the Group for the year.
Relevance
Speech & Image
Other
Total revenue and other income
Underlying net profit after tax (NPAT) 1
Add/(Less): underlying adjustments (net of tax)
Amortisation of acquisition related identifiable intangible assets
Acquisition related share-based payments
Deemed interest on earn out liability 2
Transaction costs
Figure Eight earn out adjustment
Statutory NPAT
Add: tax
Add: deemed interest on earn out liability 2
Add: net interest expense
2020
$’000
538,184
61,193
478
2019
$’000
467,831
67,683
485
Change
%
15%
(10%)
599,855
535,999
64,379
64,710
12%
(1%)
Percentage
change
constant
currency
%
14%
(11%)
11%
1%
(11,449)
(3,546)
(975)
(818)
2,923
50,514
13,016
1,353
2,120
(10,174)
(6,886)
(2,426)
(5,453)
1,840
41,611
13,444
3,368
3,625
21%
23%
EBIT 3
67,003
62,048
8%
9%
at 31 December 2020 and at the date of this report.
Add: depreciation and amortisation
40,908
25,864
Cash on hand at the end of the year increased by $3,163,000 to $78,437,000. The cash balance was impacted by the year end
conversion of cash held in USD at strong AUD levels, full repayment of debt, substantial investments in sales and marketing and
Statutory EBITDA 4
107,911
87,912
23%
23%
China, and increased dividend and tax payments.
Add/(less): underlying adjustments
Acquisition related share-based payments
Figure Eight earn-out adjustment
Transaction costs
Underlying EBITDA 1
Statutory diluted earnings per share (cents)
Underlying diluted earnings per share (cents)
% Statutory EBITDA/Sales
% Underlying EBITDA/Sales
% Segment Profit/Sales:
Relevance
Speech & Image
3,546
(4,059)
1,152
8,156
(2,557)
7,450
108,550
100,961
8%
8%
40.85
52.06
18.0%
18.1%
20.9%
20.3%
34.60
53.80
16.4%
18.8%
22.3%
31.6%
1 Underlying results are a non-IFRS measure used by management to assess the performance of the business and have been calculated
from statutory measures. Non-IFRS measures have not been subject to audit.
2 Liability was settled during the year.
3 EBIT is defined as earnings before interest and tax.
4 EBITDA is EBIT before depreciation and amortisation.
Total revenue was up 12% to $599,855,000 relative to the prior year. The Relevance division was the key driver, delivering revenue
of $538,184,000, up 15% on 2019, as Relevance benefited from increased demand for data annotation in existing and new projects.
Our customers use annotated data to train, update and refresh their AI models, to ensure that their models remain relevant and
free from bias. Normal historical revenue growth patterns were impacted by our major customers’ response to COVID-19 and the
changes to their activities and priorities (as covered on the next page).
Speech & Image (S&I) revenue of $61,193,000 was down 10% on the prior year. This was due to projects undertaken in FY19 not
yet returning to the investment phase of their life cycles, and due to project cancellations and project delays, primarily related
to COVID-19. The pandemic also impacted our ability to win new customers and grow our project pipeline. This was partly offset
by growth in our China business and continued growth in a large transcription project that started in 2019 and continued to ramp
up in 2020. S&I projects are heavily dependent on customer timing, investment and product life cycles and, unlike Relevance
projects, do not require as much ongoing data refresh.
The Relevance division reported EBITDA of $112,662,000, up 8% (2019: $104,195,000). This was driven by higher
revenue, partly offset by the incremental investment in sales and marketing and China, and the impact of the strong AUD.
Operating margins reduced from 22.3% to 20.9%.
EBITDA in the S&I division decreased by 42% to $12,445,000 (2019: $21,421,000). This was driven by lower revenue, the impact
of incremental investment in sales and marketing and China, and no significant reduction in the core delivery structure. We continue
to support the underlying operating structure, with appropriate adjustments, as the revenue impact has arisen from cyclical timing
issues, COVID-19 related impacts and the strong AUD, rather than structural issues. Operating margins reduced from 31.6% to 20.3%.
Operating expenses (excluding services purchased, share-based payment expense, depreciation and amortisation, finance
costs, transaction costs, deemed interest, Figure Eight purchase price adjustment and foreign exchange) comprised 22.6%
of revenue compared with 20.9% for the previous year, because of the incremental investment in sales and marketing and China.
Other expenses were 13.7% lower than 2019 and expenses were tightly managed and controlled, particularly in the second half
of the year. Employee expenses increased 6.9% half-on-half compared with 37.9% growth for the full year. Management remains
committed to prudent management of the cost-base and the prioritisation of investments that drive future growth and efficiency.
The balance sheet continues to grow with net assets increasing by $4,090,000 to $485,872,000. This was despite the fact
that the balance sheet was converted at strong AUD rates at 31 December 2020. During the year, the Group fully repaid the
Facility C debt (US$24 million) relating to the Figure Eight earn-out payment, as disclosed in note 16. The Group was debt-free
The decrease in trade receivables of $51,670,000 should be viewed in conjunction with the increase in contract assets
of $32,994,000 as the relevant invoices in respect of completed work are pending satisfaction of the customer’s billing
milestones or billing period. The majority of contract assets were subsequently invoiced on 1 January 2021 and as at 16 February
2021, 80% of these invoices had been paid. Receivables also reduced due to delays experienced with customer receipts around
the end of 2019 and subsequently received in early 2020.
Contract liabilities decreased $12,447,000 as a result of the reduction in unearned revenue due to lower contract values and the
reduction in customer deposits, due to more work being done by Appen (no deposit required) as opposed to Figure Eight legacy
third party providers.
52
52
Appen 2020 Annual Report
Appen 2020 Annual Report
53
53
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Financial performance
The table below summarises the financial performance of the Group for the year.
2020
$’000
538,184
61,193
478
2019
$’000
467,831
67,683
485
Change
%
15%
(10%)
599,855
535,999
64,379
64,710
12%
(1%)
Percentage
change
constant
currency
%
14%
(11%)
11%
1%
21%
23%
(11,449)
(3,546)
(975)
(818)
2,923
50,514
13,016
1,353
2,120
3,546
(4,059)
1,152
40.85
52.06
18.0%
18.1%
20.9%
20.3%
(10,174)
(6,886)
(2,426)
(5,453)
1,840
41,611
13,444
3,368
3,625
8,156
(2,557)
7,450
34.60
53.80
16.4%
18.8%
22.3%
31.6%
108,550
100,961
8%
8%
Add/(Less): underlying adjustments (net of tax)
Amortisation of acquisition related identifiable intangible assets
Relevance
Speech & Image
Other
Total revenue and other income
Underlying net profit after tax (NPAT) 1
Acquisition related share-based payments
Deemed interest on earn out liability 2
Transaction costs
Figure Eight earn out adjustment
Statutory NPAT
Add: tax
Add: deemed interest on earn out liability 2
Add: net interest expense
Add/(less): underlying adjustments
Acquisition related share-based payments
Figure Eight earn-out adjustment
Transaction costs
Underlying EBITDA 1
Statutory diluted earnings per share (cents)
Underlying diluted earnings per share (cents)
% Statutory EBITDA/Sales
% Underlying EBITDA/Sales
% Segment Profit/Sales:
Relevance
Speech & Image
2 Liability was settled during the year.
3 EBIT is defined as earnings before interest and tax.
4 EBITDA is EBIT before depreciation and amortisation.
EBIT 3
67,003
62,048
8%
9%
Add: depreciation and amortisation
40,908
25,864
Statutory EBITDA 4
107,911
87,912
23%
23%
1 Underlying results are a non-IFRS measure used by management to assess the performance of the business and have been calculated
from statutory measures. Non-IFRS measures have not been subject to audit.
Total revenue was up 12% to $599,855,000 relative to the prior year. The Relevance division was the key driver, delivering revenue
of $538,184,000, up 15% on 2019, as Relevance benefited from increased demand for data annotation in existing and new projects.
Our customers use annotated data to train, update and refresh their AI models, to ensure that their models remain relevant and
free from bias. Normal historical revenue growth patterns were impacted by our major customers’ response to COVID-19 and the
changes to their activities and priorities (as covered on the next page).
Speech & Image (S&I) revenue of $61,193,000 was down 10% on the prior year. This was due to projects undertaken in FY19 not
yet returning to the investment phase of their life cycles, and due to project cancellations and project delays, primarily related
to COVID-19. The pandemic also impacted our ability to win new customers and grow our project pipeline. This was partly offset
by growth in our China business and continued growth in a large transcription project that started in 2019 and continued to ramp
up in 2020. S&I projects are heavily dependent on customer timing, investment and product life cycles and, unlike Relevance
projects, do not require as much ongoing data refresh.
The Relevance division reported EBITDA of $112,662,000, up 8% (2019: $104,195,000). This was driven by higher
revenue, partly offset by the incremental investment in sales and marketing and China, and the impact of the strong AUD.
Operating margins reduced from 22.3% to 20.9%.
EBITDA in the S&I division decreased by 42% to $12,445,000 (2019: $21,421,000). This was driven by lower revenue, the impact
of incremental investment in sales and marketing and China, and no significant reduction in the core delivery structure. We continue
to support the underlying operating structure, with appropriate adjustments, as the revenue impact has arisen from cyclical timing
issues, COVID-19 related impacts and the strong AUD, rather than structural issues. Operating margins reduced from 31.6% to 20.3%.
Operating expenses (excluding services purchased, share-based payment expense, depreciation and amortisation, finance
costs, transaction costs, deemed interest, Figure Eight purchase price adjustment and foreign exchange) comprised 22.6%
of revenue compared with 20.9% for the previous year, because of the incremental investment in sales and marketing and China.
Other expenses were 13.7% lower than 2019 and expenses were tightly managed and controlled, particularly in the second half
of the year. Employee expenses increased 6.9% half-on-half compared with 37.9% growth for the full year. Management remains
committed to prudent management of the cost-base and the prioritisation of investments that drive future growth and efficiency.
The balance sheet continues to grow with net assets increasing by $4,090,000 to $485,872,000. This was despite the fact
that the balance sheet was converted at strong AUD rates at 31 December 2020. During the year, the Group fully repaid the
Facility C debt (US$24 million) relating to the Figure Eight earn-out payment, as disclosed in note 16. The Group was debt-free
at 31 December 2020 and at the date of this report.
Cash on hand at the end of the year increased by $3,163,000 to $78,437,000. The cash balance was impacted by the year end
conversion of cash held in USD at strong AUD levels, full repayment of debt, substantial investments in sales and marketing and
China, and increased dividend and tax payments.
The decrease in trade receivables of $51,670,000 should be viewed in conjunction with the increase in contract assets
of $32,994,000 as the relevant invoices in respect of completed work are pending satisfaction of the customer’s billing
milestones or billing period. The majority of contract assets were subsequently invoiced on 1 January 2021 and as at 16 February
2021, 80% of these invoices had been paid. Receivables also reduced due to delays experienced with customer receipts around
the end of 2019 and subsequently received in early 2020.
Contract liabilities decreased $12,447,000 as a result of the reduction in unearned revenue due to lower contract values and the
reduction in customer deposits, due to more work being done by Appen (no deposit required) as opposed to Figure Eight legacy
third party providers.
52
52
Appen 2020 Annual Report
Appen 2020 Annual Report
53
53
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Impact of the COVID-19 pandemic
In April 2020, we advised the market via an ASX announcement that COVID-19 may impact our earnings via a slowdown in digital
advertising spending, a reduction in IT/digital spending, a reduction or cancellation of services from our smallest customers,
interruptions to global hardware supply chains and the suspension of face-to-face projects such as audio data collection.
Significant changes in the state of affairs
As mentioned in the Operating and Financial Review, during 2020, the Group made the earn-out payment with respect to the
Figure Eight Technologies, Inc. (Figure Eight) of $39 million. The total acquisition cost was $286.5 million. The full integration
of the business is now complete.
Subsequently, we experienced additional impacts, as COVID-19 disrupted and reshaped the priorities and activities of our
customers, especially in California, the home of our biggest customers, where pandemic lockdowns had intensified.
Matters subsequent to the end of the financial year
The impact of our customers’ re-allocation of resources in the second half of the year was exacerbated by the decline in both
face-to-face sales and the level of customer engagement which impacted our work volumes and overall revenue for the fourth
quarter of 2020 – a quarter where we typically see a surge in customer demand. This particularly impacted revenue that we
expected to generate from our larger Relevance projects.
The pandemic did not, however, have a material impact on our operations. The resilience of our secure work-from-home delivery
model meant that we continued to deliver high quality outcomes for customers without interruption. We were also able to move
quickly to a remote working model for our staff as a result of consistent investment in our IT systems.
The Group did not access any COVID-related Government grants during the year or to the date of signing this report.
Outlook
Our financial and operational performance in 2020 has laid a strong foundation for continued growth. Our investments in sales
and marketing, technology and new markets have strengthened our competitive position and resulted in new customer wins.
They have also positioned us well to take advantage of the growing demand for high-quality training data as organisations
globally increase their adoption of AI and as the use cases for AI expand. Our priority in 2021 will be to ensure that the
investments we have made continue to yield growth in our customer base, revenues and returns.
Uncertainties remain regarding the duration of the health crisis and the ongoing impact on economic and business activity.
While online advertising – a key source of income for our major customers – has bounced back, and the shift to e-commerce has
accelerated during the pandemic, our customers have called out the uncertainties that persist regarding the economic rebound.
The evolving regulatory and product landscape will also likely see our customers reallocate resources into new product areas as
they seek to diversify their revenue base.
In 2020, we saw a 34% increase in the number of new projects won with our major customers. While most of these projects are
small and will take time to generate a significant revenue stream, this endorses our belief that we are well-positioned to support
and benefit from our customers’ reprioritisation and investment in new projects.
In 2021, our focus will remain firmly on our customers and continuing to leverage our leading position in Relevance to support
their high-volume programs. We will also support our major customers and our enterprise and commercial customers with their
new AI-programs, and we look forward to these products growing and complementing our major programs.
The Group has a strong balance sheet with cash, receivables and contract assets of $185.0 million and no debt as at
31 December 2020. The business has minimal ongoing capital requirements and is therefore well-positioned to weather
the continuing economic impact of the pandemic and to take advantage of future opportunities and industry growth trends.
The impact of the COVID-19 pandemic is ongoing, and there remains uncertainty regarding exactly when the global economy
will recover.
Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 31 December 2020 that
has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state
of affairs in future financial years.
Likely developments and expected results of operations
The Group will continue to pursue its strategy to grow the business across a wider customer base.
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State Law. The Board
believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware
of any breach of those environmental requirements as they may apply to the Group during the period covered by this report.
Our voluntary environmental reporting in line with the Task Force on Climate-related Financial Disclosures is provided on page 34.
Carl Middlehurst was appointed as Company Secretary on 8 February 2019. Carl was admitted to practice as a solicitor in NSW
in 1988. He is also a member of the California bar. He was an adjunct professor at Santa Clara University Law School where he
taught internet, e-commerce and privacy law in the late nineties. He has worked in Australia and the United States and has held
the position of General Counsel for various companies and was Company Secretary for an unlisted public company and private
Company secretary
companies in Australia.
Meetings of directors
The number of meetings of the Company’s Board of Directors (the Board) and of each Board Committee held during the year
ended 31 December 2020, and the number of meetings attended by each director were:
Scheduled Board
meetings
Special Board
meeting 2
Audit and Risk
Management
Committee
Nomination and
Remuneration
Committee
Eligible
to attend
Attended
Attended
Attended
Attended
Eligible
to attend
Eligible
to attend
Eligible
to attend
Chris Vonwiller
Mark Brayan
Steve Hasker
Vanessa Liu 1
Robin Low
Bill Pulver
Deena Shiff
12
12
12
10
12
12
12
12
12
11
10
12
12
12
1
1
1
1
1
1
1
1
1
–
1
1
1
1
4
–
–
–
4
–
4
4
–
–
–
4
–
4
–
–
2
–
2
2
–
–
–
2
–
2
2
–
X Further information and analysis on the strategic and financial performance of the Company is available on pages 18–35.
How we identify and manage risk is detailed on pages 36–43.
1 Appointed 27 March 2020.
2 Out of cycle Board meeting called at short notice.
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55
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Impact of the COVID-19 pandemic
In April 2020, we advised the market via an ASX announcement that COVID-19 may impact our earnings via a slowdown in digital
advertising spending, a reduction in IT/digital spending, a reduction or cancellation of services from our smallest customers,
interruptions to global hardware supply chains and the suspension of face-to-face projects such as audio data collection.
Subsequently, we experienced additional impacts, as COVID-19 disrupted and reshaped the priorities and activities of our
customers, especially in California, the home of our biggest customers, where pandemic lockdowns had intensified.
The impact of our customers’ re-allocation of resources in the second half of the year was exacerbated by the decline in both
face-to-face sales and the level of customer engagement which impacted our work volumes and overall revenue for the fourth
quarter of 2020 – a quarter where we typically see a surge in customer demand. This particularly impacted revenue that we
expected to generate from our larger Relevance projects.
The pandemic did not, however, have a material impact on our operations. The resilience of our secure work-from-home delivery
model meant that we continued to deliver high quality outcomes for customers without interruption. We were also able to move
quickly to a remote working model for our staff as a result of consistent investment in our IT systems.
The Group did not access any COVID-related Government grants during the year or to the date of signing this report.
Outlook
Our financial and operational performance in 2020 has laid a strong foundation for continued growth. Our investments in sales
and marketing, technology and new markets have strengthened our competitive position and resulted in new customer wins.
They have also positioned us well to take advantage of the growing demand for high-quality training data as organisations
globally increase their adoption of AI and as the use cases for AI expand. Our priority in 2021 will be to ensure that the
investments we have made continue to yield growth in our customer base, revenues and returns.
Uncertainties remain regarding the duration of the health crisis and the ongoing impact on economic and business activity.
While online advertising – a key source of income for our major customers – has bounced back, and the shift to e-commerce has
accelerated during the pandemic, our customers have called out the uncertainties that persist regarding the economic rebound.
The evolving regulatory and product landscape will also likely see our customers reallocate resources into new product areas as
they seek to diversify their revenue base.
In 2020, we saw a 34% increase in the number of new projects won with our major customers. While most of these projects are
small and will take time to generate a significant revenue stream, this endorses our belief that we are well-positioned to support
and benefit from our customers’ reprioritisation and investment in new projects.
In 2021, our focus will remain firmly on our customers and continuing to leverage our leading position in Relevance to support
their high-volume programs. We will also support our major customers and our enterprise and commercial customers with their
new AI-programs, and we look forward to these products growing and complementing our major programs.
The Group has a strong balance sheet with cash, receivables and contract assets of $185.0 million and no debt as at
31 December 2020. The business has minimal ongoing capital requirements and is therefore well-positioned to weather
the continuing economic impact of the pandemic and to take advantage of future opportunities and industry growth trends.
Significant changes in the state of affairs
As mentioned in the Operating and Financial Review, during 2020, the Group made the earn-out payment with respect to the
Figure Eight Technologies, Inc. (Figure Eight) of $39 million. The total acquisition cost was $286.5 million. The full integration
of the business is now complete.
Matters subsequent to the end of the financial year
The impact of the COVID-19 pandemic is ongoing, and there remains uncertainty regarding exactly when the global economy
will recover.
Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 31 December 2020 that
has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state
of affairs in future financial years.
Likely developments and expected results of operations
The Group will continue to pursue its strategy to grow the business across a wider customer base.
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State Law. The Board
believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware
of any breach of those environmental requirements as they may apply to the Group during the period covered by this report.
Our voluntary environmental reporting in line with the Task Force on Climate-related Financial Disclosures is provided on page 34.
Company secretary
Carl Middlehurst was appointed as Company Secretary on 8 February 2019. Carl was admitted to practice as a solicitor in NSW
in 1988. He is also a member of the California bar. He was an adjunct professor at Santa Clara University Law School where he
taught internet, e-commerce and privacy law in the late nineties. He has worked in Australia and the United States and has held
the position of General Counsel for various companies and was Company Secretary for an unlisted public company and private
companies in Australia.
Meetings of directors
The number of meetings of the Company’s Board of Directors (the Board) and of each Board Committee held during the year
ended 31 December 2020, and the number of meetings attended by each director were:
Scheduled Board
meetings
Special Board
meeting 2
Audit and Risk
Management
Committee
Nomination and
Remuneration
Committee
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Chris Vonwiller
Mark Brayan
Steve Hasker
Vanessa Liu 1
Robin Low
Bill Pulver
Deena Shiff
12
12
12
10
12
12
12
12
12
11
10
12
12
12
1
1
1
1
1
1
1
1
1
–
1
1
1
1
4
–
–
–
4
–
4
4
–
–
–
4
–
4
–
–
2
–
2
2
–
–
–
2
–
2
2
–
X Further information and analysis on the strategic and financial performance of the Company is available on pages 18–35.
How we identify and manage risk is detailed on pages 36–43.
1 Appointed 27 March 2020.
2 Out of cycle Board meeting called at short notice.
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Auditor independence and non-audit services
The directors received an independence declaration from KPMG as required under section 307C of the Corporations Act 2001.
It is set out immediately after the Directors’ report.
During the year, KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the
financial statements. These relate to transfer pricing and other advisory services. Details of the amounts paid or payable to the
auditor for non-audit services provided during the financial year by the auditor are outlined in note 27 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another
person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191
(Rounding Instrument), issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases,
the nearest dollar.
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Shares under performance rights
Unissued ordinary shares of Appen Limited under performance rights at the date of this report are as follows:
Plan
2018
2018 Special
2019
2020
Number
of rights
128,881
257,034
892,927
1,040,894
2,319,736
The performance rights relate to the grant of rights under the Group’s Long-Term Incentive (LTI) Plan and vesting is dependent
on the fulfilment of the performance conditions and service-based conditions specific to each grant.
Shares issued on the exercise of performance rights
556,382 ordinary shares of the Company were issued on the exercise of performance rights during the year ended 31 December
2020 and up to the date of this report.
Shares issued as a result of prior period acquisitions
681,468 ordinary shares of the Company were issued as contingent consideration for the acquisition of Leapforce, Inc. (Leapforce)
and RaterLabs, Inc. (RaterLabs). This issue represented the third and final tranche of shares to be issued for these prior
period acquisitions.
Indemnity and insurance of officers
The Company has indemnified the current and former directors and executives of the Company and its controlled entities for
costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there
is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the current and former directors and
executives of the Company and its controlled entities against a liability to the extent permitted by the Corporations Act 2001.
The contract of insurance prohibits disclosure of the nature of liability covered and the amount of the premium.
Executives include all the key management personnel as defined in the remuneration report as well as their direct reports.
Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company
or any related entity.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf
of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility
on behalf of the Company for all or part of those proceedings.
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57
Directors' report
for the year ended 31 December 2020
Directors' report
for the year ended 31 December 2020
Number
of rights
128,881
257,034
892,927
1,040,894
2,319,736
Auditor independence and non-audit services
The directors received an independence declaration from KPMG as required under section 307C of the Corporations Act 2001.
It is set out immediately after the Directors’ report.
During the year, KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the
financial statements. These relate to transfer pricing and other advisory services. Details of the amounts paid or payable to the
auditor for non-audit services provided during the financial year by the auditor are outlined in note 27 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another
person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191
(Rounding Instrument), issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases,
the nearest dollar.
Shares under performance rights
Unissued ordinary shares of Appen Limited under performance rights at the date of this report are as follows:
2018 Special
Plan
2018
2019
2020
The performance rights relate to the grant of rights under the Group’s Long-Term Incentive (LTI) Plan and vesting is dependent
on the fulfilment of the performance conditions and service-based conditions specific to each grant.
Shares issued on the exercise of performance rights
556,382 ordinary shares of the Company were issued on the exercise of performance rights during the year ended 31 December
2020 and up to the date of this report.
Shares issued as a result of prior period acquisitions
681,468 ordinary shares of the Company were issued as contingent consideration for the acquisition of Leapforce, Inc. (Leapforce)
and RaterLabs, Inc. (RaterLabs). This issue represented the third and final tranche of shares to be issued for these prior
period acquisitions.
Indemnity and insurance of officers
The Company has indemnified the current and former directors and executives of the Company and its controlled entities for
costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there
is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the current and former directors and
executives of the Company and its controlled entities against a liability to the extent permitted by the Corporations Act 2001.
The contract of insurance prohibits disclosure of the nature of liability covered and the amount of the premium.
Executives include all the key management personnel as defined in the remuneration report as well as their direct reports.
Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company
or any related entity.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf
of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility
on behalf of the Company for all or part of those proceedings.
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57
57
Remuneration
report
Dear Shareholder
On behalf of Appen’s
Nomination and
Remuneration Committee,
I am pleased to present
our audited Remuneration
Report for the year ended
31 December 2020.
Over the past year,
we have listened to and
valued shareholders’
feedback on our
remuneration framework
and disclosures. In this
report, we have provided
additional transparency
and sought to demonstrate
how our remuneration
framework and outcomes
align with shareholders’
long-term interests.
2020 business outcomes
2020 will be remembered as a uniquely
challenging year for many companies.
In Appen’s case, our executive team
continued to drive performance for
shareholders with revenue up 11.9%
and underlying EBITDA up 7.5%
compared to 2019. The team also
made progress on our long-term
strategy, including expanding into
new markets and delivering technology
improvements to maintain and grow
our competitive advantage.
Although our resilient work-from-home
model ensured that we continued
to deliver high quality outcomes for
customers, we were not entirely immune
from the impact of the COVID-19
pandemic. We did not see the surge
in work volumes normally experienced
at the end of our financial year, and late
changes in customer priorities resulted
in a reduction to our full year underlying
EBITDA expectations. However, we won
many new customers and projects and
laid the foundations for further growth.
2020 remuneration outcomes
At Appen, executive compensation
is heavily weighted towards
performance and equity based pay.
In 2019, the Board set challenging
short-term incentive (STI) targets
for executives, with 2020 revenue,
underlying EBITDA and gross margin
targets set approximately 30% higher
than the 2019 actuals. Stretch targets
were also applied to the equity-based
long-term incentive (LTI) plan, with the
hurdle set at 20% growth in underlying
basic earnings per share (UBEPS) each
year for three consecutive years.
The Board decided to maintain these
targets, despite the impact of the
pandemic on business development
which impacted growth.
In relation to STI, executives achieved
86% of the revenue target, 83% of the
underlying EBITDA target and 79% of the
gross margin target. When adjusted for
the sliding scale that applies to these
targets, the STI payment for executives
will be between 68% and 71% of target
– approximately $542,000 lower in total
than if the targets had been reached.
With respect to LTI, the 20% UBEPS
growth hurdle was not achieved in 2020.
Executives are now incentivised to work
harder and must achieve cumulative
UBEPS growth of 44% over two years
or 73% over three years. This is because
rights for which the performance
conditions are not met can be carried
over for a maximum of two years.
They will only vest, however, if the
equivalent compound annual growth
rate is achieved and the executive meets
the continuous employment condition.
Looking ahead
We are delighted with the excellent
returns that we have delivered for
shareholders over the last six years.
Since listing in January 2015, we have
delivered share price growth of 4,838%
for our shareholders, compared to
a 21% increase in the ASX100. We also
believe that the progress made by the
executive team on our strategic growth
priorities this year supports long-term
sustainable performance. We will keep
our remuneration approach under review
to ensure that it continues to deliver
value for shareholders as the Company
grows and evolves over time.
I look forward to receiving your feedback.
Yours sincerely
William Pulver
Chair of the Nomination and
Remuneration Committee
Our remuneration principles
Our goal is to ensure that the level and composition of remuneration aligns with the
interests of shareholders and allows us to attract and retain high performing talent.
The key objectives that underpin Appen’s remuneration framework are as follows:
Heavy
weighting to
performance-
based pay
Drive long-term
Fair and
sustainable
competitive
outperformance
to attract and
Reinforce
responsible
business
practice
Simple
and clear
performance-based
challenging targets.
peers to ensure
value by setting
industry and
employment.
outcomes.
annually against
subject to continuing
assessment and
Board discretion
Transparency on
on malus and award
metrics, targets,
Ensure employees
Incentivise the
creation of
shareholder
think and act
like long-term
owners through
pay and equity
awards.
retain top
talent
Independently
benchmarked
that remuneration
is competitively
positioned in each
of the global markets
that Appen operates.
Remuneration governance
Who is covered by this Report?
The role of the Nomination and Remuneration Committee
Key Management Personnel (KMP) are defined as persons
is to provide advice, recommendations and assistance to the
having authority and responsibility for planning, directing
Board in relation to compensation arrangements for Directors
and controlling the activities of the Company and the Group.
and executives. The members of the Nomination and
KMP comprise the Directors of the Company and executives
Remuneration Committee during the reporting period were:
of the Company and the Group.
William Pulver, Committee Chair
Robin Low
Stephen Hasker
The number of Committee meetings and attendance
by members during the reporting period is set out in the
‘Meetings of directors’ section of the Directors’ report.
Board oversight of remuneration
The Board ensures variable rewards are only paid when
a senior executive has met or exceeded their agreed
individual work plan objectives, financial targets have been
achieved, and value has been created for shareholders.
The Board reviews the financial targets on an annual basis
to ensure they are sufficiently challenging. The Board
may also forfeit any entitlement to any shares on vesting
of performance rights, if in the opinion of the Board,
Non-Executive KMP:
Chris Vonwiller
Non-Executive Chairman
Stephen Hasker
Independent Non-Executive Director
Vanessa Liu 1
Independent Non-Executive Director
Robin Low
Independent Non-Executive Director
William Pulver
Independent Non-Executive Director
Deena Shiff
Independent Non-Executive Director
Executive KMP:
Mark Brayan
Managing Director and
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)
Kevin Levine
Jon Kondo 2
Tom Sharkey 2
Senior Vice-President, Client Services
Senior Vice-President, Sales and Marketing
1 Vanessa Liu was appointed 27 March 2020.
the employee acts fraudulently or dishonestly, or is in
2 US-based executive KMP.
breach of their obligations to the Company (‘malus’).
Corporate Governance Statement
Further information about the Nomination and Remuneration Committee is set out in the Corporate Governance Statement.
The Statement is available at: appen.com/investors/corporate-governance/
58
58
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59
59
Remuneration
report
Dear Shareholder
On behalf of Appen’s
Nomination and
Remuneration Committee,
I am pleased to present
our audited Remuneration
Report for the year ended
31 December 2020.
Over the past year,
we have listened to and
valued shareholders’
feedback on our
remuneration framework
and disclosures. In this
report, we have provided
additional transparency
and sought to demonstrate
how our remuneration
framework and outcomes
align with shareholders’
long-term interests.
2020 business outcomes
2020 will be remembered as a uniquely
challenging year for many companies.
In Appen’s case, our executive team
continued to drive performance for
shareholders with revenue up 11.9%
and underlying EBITDA up 7.5%
compared to 2019. The team also
made progress on our long-term
strategy, including expanding into
new markets and delivering technology
improvements to maintain and grow
our competitive advantage.
Although our resilient work-from-home
model ensured that we continued
to deliver high quality outcomes for
customers, we were not entirely immune
from the impact of the COVID-19
pandemic. We did not see the surge
in work volumes normally experienced
at the end of our financial year, and late
changes in customer priorities resulted
in a reduction to our full year underlying
EBITDA expectations. However, we won
In relation to STI, executives achieved
86% of the revenue target, 83% of the
underlying EBITDA target and 79% of the
gross margin target. When adjusted for
the sliding scale that applies to these
targets, the STI payment for executives
will be between 68% and 71% of target
– approximately $542,000 lower in total
than if the targets had been reached.
With respect to LTI, the 20% UBEPS
growth hurdle was not achieved in 2020.
Executives are now incentivised to work
harder and must achieve cumulative
UBEPS growth of 44% over two years
or 73% over three years. This is because
rights for which the performance
conditions are not met can be carried
over for a maximum of two years.
They will only vest, however, if the
equivalent compound annual growth
rate is achieved and the executive meets
the continuous employment condition.
Looking ahead
many new customers and projects and
We are delighted with the excellent
laid the foundations for further growth.
returns that we have delivered for
shareholders over the last six years.
Since listing in January 2015, we have
delivered share price growth of 4,838%
for our shareholders, compared to
a 21% increase in the ASX100. We also
believe that the progress made by the
executive team on our strategic growth
priorities this year supports long-term
sustainable performance. We will keep
our remuneration approach under review
to ensure that it continues to deliver
value for shareholders as the Company
grows and evolves over time.
I look forward to receiving your feedback.
2020 remuneration outcomes
At Appen, executive compensation
is heavily weighted towards
performance and equity based pay.
In 2019, the Board set challenging
short-term incentive (STI) targets
for executives, with 2020 revenue,
underlying EBITDA and gross margin
targets set approximately 30% higher
than the 2019 actuals. Stretch targets
were also applied to the equity-based
long-term incentive (LTI) plan, with the
hurdle set at 20% growth in underlying
The Board decided to maintain these
targets, despite the impact of the
pandemic on business development
which impacted growth.
basic earnings per share (UBEPS) each
Yours sincerely
year for three consecutive years.
Our remuneration principles
Our goal is to ensure that the level and composition of remuneration aligns with the
interests of shareholders and allows us to attract and retain high performing talent.
The key objectives that underpin Appen’s remuneration framework are as follows:
Heavy
weighting to
performance-
based pay
Ensure employees
think and act
like long-term
owners through
performance-based
pay and equity
awards.
Drive long-term
sustainable
outperformance
Incentivise the
creation of
shareholder
value by setting
challenging targets.
Fair and
competitive
to attract and
retain top
talent
Independently
benchmarked
annually against
industry and
peers to ensure
that remuneration
is competitively
positioned in each
of the global markets
that Appen operates.
Reinforce
responsible
business
practice
Simple
and clear
Board discretion
on malus and award
subject to continuing
employment.
Transparency on
metrics, targets,
assessment and
outcomes.
Remuneration governance
The role of the Nomination and Remuneration Committee
is to provide advice, recommendations and assistance to the
Board in relation to compensation arrangements for Directors
and executives. The members of the Nomination and
Remuneration Committee during the reporting period were:
Who is covered by this Report?
Key Management Personnel (KMP) are defined as persons
having authority and responsibility for planning, directing
and controlling the activities of the Company and the Group.
KMP comprise the Directors of the Company and executives
of the Company and the Group.
William Pulver, Committee Chair
Robin Low
Stephen Hasker
The number of Committee meetings and attendance
by members during the reporting period is set out in the
‘Meetings of directors’ section of the Directors’ report.
Board oversight of remuneration
The Board ensures variable rewards are only paid when
a senior executive has met or exceeded their agreed
individual work plan objectives, financial targets have been
achieved, and value has been created for shareholders.
The Board reviews the financial targets on an annual basis
to ensure they are sufficiently challenging. The Board
may also forfeit any entitlement to any shares on vesting
of performance rights, if in the opinion of the Board,
the employee acts fraudulently or dishonestly, or is in
breach of their obligations to the Company (‘malus’).
Non-Executive KMP:
Chris Vonwiller
Stephen Hasker
Vanessa Liu 1
Robin Low
William Pulver
Deena Shiff
Non-Executive Chairman
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Executive KMP:
Mark Brayan
Kevin Levine
Jon Kondo 2
Tom Sharkey 2
Managing Director and
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)
Senior Vice-President, Sales and Marketing
Senior Vice-President, Client Services
1 Vanessa Liu was appointed 27 March 2020.
2 US-based executive KMP.
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58
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59
59
William Pulver
Chair of the Nomination and
Remuneration Committee
Corporate Governance Statement
Further information about the Nomination and Remuneration Committee is set out in the Corporate Governance Statement.
The Statement is available at: appen.com/investors/corporate-governance/
2020
Remuneration overview
How reward is linked to performance
Incentives are linked to our key financial metrics to maintain alignment
with pay-for-performance and shareholder value creation.
Our remuneration framework
In 2020, executive remuneration comprised a mix of fixed and variable at-risk
remuneration components through the STI and LTI plans.
Short-term incentive measures
Long-term incentive measures
Shareholder returns
Revenue
(A$’000)
Underlying
EBITDA 1 (A$’000)
Underlying
NPAT 1 (A$’000)
5
9
9
8
5
5
,
,
5
3
5
9
9
9
49 % C A G R
3
6
4
2
8
9
,
,
1
0
8
5
5
0
1
0
0
9
6
1
,
51 % C A G R
7
1
,
2
5
3
,
6
4
7
1
0
,
6
4
3
7
9
51 % C A G R
,
4
9
0
2
8
Underlying
basic EPS 1
(A¢ per share)
Share price
at 31 Dec (A$)
Dividends
declared
(A¢ per share)
5
4
8
7
.
.
5
2
9
3
44 % C A G R
4
6
.
1
1
72 % C A G R
.
2
4
6
9
.
2
2
4
6
1
0
0
.
19 % C A G R
.
9
0
.
8
0
1
6
6
5
7
1
,
1
1
1
,
0
0
3
,
8
2
7
1
6
2
8
,
1
1
8
,
1
7
3
1
5
,
1
4
0
3
4
,
1
9
7
4
9
,
1
0
6
2
0
,
8
3
0
8
2
0
.
1
2
.
1
0
9
5
.
8
6
7
.
6
0
.
5
0
4
2
.
.
1
2
8
3
.
8
3
1
.
2
8
4
1
.
6
5
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
Short-term incentive payments are
linked to revenue and underlying EBITDA
for our Australian executives, and to
revenue, underlying EBITDA and gross
margin for our US-based executives.
Long-term incentive awards are linked
to underlying basic earnings per share
(UBEPS) growth.
Value has been created for
shareholders through share price
appreciation and dividends.
How is Appen’s remuneration structure benchmarked?
Appen is a global business in a highly competitive sector. Our remuneration has to be structured
in a way that helps us to attract and retain high performing and experienced global executives with
technology expertise. Compensation practices in US technology and Australian public company
markets vary substantially and need to be benchmarked against different reference and data points.
The following sources were relied upon for the review of executive pay in 2020.
US technology market data 2
Derived from a leading external specialist technology and
life sciences compensation firm based in San Francisco
using a peer group of ~60 public technology companies
with median revenue of US$400 million and median market
capitalisation of US$3 billion.
Australian data 3
Derived from an independent global executive compensation
consultant using remuneration data for ASX listed companies
with market capitalisation of between 50% and 200% of
Appen’s market capitalisation.
1 Underlying NPAT, EBITDA and EPS excludes the impact of items relating to business acquisitions, including amortisation of acquired assets,
share-based payments, transaction costs and fair-value adjustments. Underlying NPAT and EPS also exclude deemed interest on acquisition
related earn-out payments.
2 Market data was compiled in October 2020.
3 Market data was compiled in November 2020.
60
60
Total fixed
remuneration
Objective:
Short-term incentive
Long-term incentive
(STI)
Objective:
(LTI)
Objective:
Provide market competitive base
Deliver value creation for
Incentivise the achievement of
salary and benefits commensurate
shareholders through the achievement
long-term sustainable growth in
with skills to attract high calibre talent.
of specific performance-related key
earnings and shareholder value and
Structure:
Cash salary, superannuation and
Structure:
financial metrics.
support the attraction and retention
of high performing executives.
additional benefits. Additional benefits
Performance is measured over
Structure:
are in the form of 401(k) retirement
a 12 month period and awards are
Equity-based compensation
plan and insurance benefits provided
made on an annual basis in cash.
through the granting and vesting
of performance rights.
Fixed remuneration reflects:
challenging revenue and underlying
Australia-based executives:
CEO and CFO – performance against
Approach:
Approach:
EBITDA targets.
to US-based executives.
Approach:
• the scope of the executive’s role;
• the executive’s skills, experience
and qualifications; and
• individual performance.
Reference is made to industry
benchmarks to ensure that
base pay is aligned with market
remuneration levels.
Sales and client service executives
– performance against challenging
revenue, underlying EBITDA and
gross margin targets.
In 2020, the revenue, underlying EBITDA
and gross margin targets were set
approximately 30% above 2019 actuals.
Target opportunity of 0% to 150%
of a fixed percentage of fixed
remuneration (excluding retirement
and insurance benefits for US-based
executives). No payment is made if the
combined result of all the performance
measures is less than 80% of the target.
Performance rights have a dual vesting
requirement of (i) hurdle rate of 20%
underlying basic EPS (UBEPS) growth
each year for three consecutive
years which is tested annually;
and (ii) continuous employment
for the three-year vesting period.
US-based executives:
Performance rights have a hurdle
rate of 20% UBEPS over three years,
however the rights may vest annually,
in line with industry practice in the US.
For both Australian and US executives,
no payment is made if the performance
outcome is less than 90% of the target.
Malus applies.
Executive KMP remuneration mix
Executive remuneration is heavily weighted towards performance-based pay, including equity-based awards.
The diagram below illustrates the remuneration mix at maximum potential for each executive.
Mark Brayan
CEO
CFO
Kevin Levine
Jon Kondo
SVP Sales and Marketing
Tom Sharkey
SVP Client Services
Fixed remuneration
STI
Equity-based LTI
Variable remuneration
21%
25%
28%
34%
21%
13%
28%
17%
58%
62%
44%
49%
Appen 2020 Annual Report
Appen 2020 Annual Report
61
61
2020
Remuneration overview
How reward is linked to performance
Incentives are linked to our key financial metrics to maintain alignment
with pay-for-performance and shareholder value creation.
Our remuneration framework
In 2020, executive remuneration comprised a mix of fixed and variable at-risk
remuneration components through the STI and LTI plans.
Short-term incentive measures
Long-term incentive measures
Shareholder returns
Revenue
(A$’000)
Underlying
EBITDA 1 (A$’000)
Underlying
NPAT 1 (A$’000)
Underlying
basic EPS 1
(A¢ per share)
Share price
at 31 Dec (A$)
Dividends
declared
(A¢ per share)
5
9
9
,
8
5
5
5
3
5
,
9
9
9
49 % C A G R
3
6
4
,
2
8
9
1
0
8
,
5
5
0
1
0
0
,
9
6
1
51 % C A G R
7
1
,
2
5
3
6
4
,
7
1
0
6
4
,
3
7
9
51 % C A G R
4
9
,
0
2
8
5
4
.
8
7
5
2
.
9
3
44 % C A G R
4
6
.
1
1
72 % C A G R
2
4
.
6
9
2
2
.
4
6
1
0
.
0
19 % C A G R
9
.
0
8
.
0
1
6
6
,
5
7
1
1
1
1
,
0
0
3
8
2
,
7
1
6
2
8
,
1
1
8
1
7
,
3
1
5
1
4
,
0
3
4
1
9
,
7
4
9
1
0
,
6
2
0
8
,
3
0
8
2
0
.
1
2
1
0
.
9
5
8
.
6
7
6
.
0
5
.
0
4
.
2
1
2
.
8
3
8
.
3
1
2
.
8
4
1
.
6
5
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
Short-term incentive payments are
Long-term incentive awards are linked
Value has been created for
linked to revenue and underlying EBITDA
to underlying basic earnings per share
shareholders through share price
for our Australian executives, and to
(UBEPS) growth.
appreciation and dividends.
revenue, underlying EBITDA and gross
margin for our US-based executives.
How is Appen’s remuneration structure benchmarked?
Appen is a global business in a highly competitive sector. Our remuneration has to be structured
in a way that helps us to attract and retain high performing and experienced global executives with
technology expertise. Compensation practices in US technology and Australian public company
markets vary substantially and need to be benchmarked against different reference and data points.
The following sources were relied upon for the review of executive pay in 2020.
US technology market data 2
Australian data 3
Derived from a leading external specialist technology and
Derived from an independent global executive compensation
life sciences compensation firm based in San Francisco
consultant using remuneration data for ASX listed companies
using a peer group of ~60 public technology companies
with market capitalisation of between 50% and 200% of
with median revenue of US$400 million and median market
Appen’s market capitalisation.
capitalisation of US$3 billion.
1 Underlying NPAT, EBITDA and EPS excludes the impact of items relating to business acquisitions, including amortisation of acquired assets,
share-based payments, transaction costs and fair-value adjustments. Underlying NPAT and EPS also exclude deemed interest on acquisition
related earn-out payments.
2 Market data was compiled in October 2020.
3 Market data was compiled in November 2020.
60
60
Total fixed
remuneration
Short-term incentive
(STI)
Long-term incentive
(LTI)
Objective:
Provide market competitive base
salary and benefits commensurate
with skills to attract high calibre talent.
Structure:
Cash salary, superannuation and
additional benefits. Additional benefits
are in the form of 401(k) retirement
plan and insurance benefits provided
to US-based executives.
Approach:
Fixed remuneration reflects:
• the scope of the executive’s role;
• the executive’s skills, experience
and qualifications; and
• individual performance.
Reference is made to industry
benchmarks to ensure that
base pay is aligned with market
remuneration levels.
Objective:
Deliver value creation for
shareholders through the achievement
of specific performance-related key
financial metrics.
Structure:
Performance is measured over
a 12 month period and awards are
made on an annual basis in cash.
Approach:
CEO and CFO – performance against
challenging revenue and underlying
EBITDA targets.
Sales and client service executives
– performance against challenging
revenue, underlying EBITDA and
gross margin targets.
In 2020, the revenue, underlying EBITDA
and gross margin targets were set
approximately 30% above 2019 actuals.
Target opportunity of 0% to 150%
of a fixed percentage of fixed
remuneration (excluding retirement
and insurance benefits for US-based
executives). No payment is made if the
combined result of all the performance
measures is less than 80% of the target.
Objective:
Incentivise the achievement of
long-term sustainable growth in
earnings and shareholder value and
support the attraction and retention
of high performing executives.
Structure:
Equity-based compensation
through the granting and vesting
of performance rights.
Approach:
Australia-based executives:
Performance rights have a dual vesting
requirement of (i) hurdle rate of 20%
underlying basic EPS (UBEPS) growth
each year for three consecutive
years which is tested annually;
and (ii) continuous employment
for the three-year vesting period.
US-based executives:
Performance rights have a hurdle
rate of 20% UBEPS over three years,
however the rights may vest annually,
in line with industry practice in the US.
For both Australian and US executives,
no payment is made if the performance
outcome is less than 90% of the target.
Malus applies.
Executive KMP remuneration mix
Executive remuneration is heavily weighted towards performance-based pay, including equity-based awards.
The diagram below illustrates the remuneration mix at maximum potential for each executive.
Mark Brayan
CEO
Kevin Levine
CFO
Jon Kondo
SVP Sales and Marketing
Tom Sharkey
SVP Client Services
Fixed remuneration
STI
Equity-based LTI
Variable remuneration
21%
25%
28%
34%
21%
13%
28%
17%
58%
62%
44%
49%
Appen 2020 Annual Report
Appen 2020 Annual Report
61
61
Executive KMP remuneration overview
CEO remuneration overview
Statutory remuneration for executive KMP
The table below details the statutory accounting expense of all remuneration-related items for the executive KMP.
Cash
salary
$
728,652
479,233
478,652
379,233
557,656
218,770
Mark Brayan
2020
2019
Kevin Levine
2020
2019
Jon Kondo 4
2020
2019
Tom Sharkey
2020
615,594
2019
584,080
Fixed
Variable
Super-
annuation 1
$
Leave
entitlements
$
Termination
payments
$
STI
$
LTI 2, 3
$
Total
$
21,348
20,767
21,348
20,767
37,660
6,739
37,660
35,943
80,279
37,229
36,836
20,436
20,910
17,276
5,771
21,170
–
–
–
–
–
–
–
–
531,760
1,751,721
3,113,760
709,613
1,584,277
2,831,119
177,253
1,001,488
1,715,577
283,845
917,710
1,621,991
349,507
1,372,161
2,337,894
339,500
750,708
1,332,993
192,910
988,215
1,840,150
378,964
773,092
1,793,249
Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
1
2 The values for equity-settled remuneration were measured at grant date in accordance with AASB 2 Share-based Payments and represent
the current year amortisation of the fair value of the rights over the vesting period.
3 Refer to page 66 for the differences in LTI approach for Australia and US based executives.
4 Cash salary and superannuation increased in 2020 relative to 2019 because Jon Kondo commenced employment on 22 July 2019.
Remuneration received by executive KMP
The table below details the actual remuneration that was received by current executive KMPs during the 2020 and 2019 years.
This differs to the statutory remuneration table above which is prepared in accordance with accounting standards.
The STI amount is the payment made in recognition of performance for that year. The LTI value at vesting date is the value
of shares issued during the year as a result of the vesting of performance rights issued in prior years. The high value of the LTI
at vesting date is attributable to the strong growth in Appen’s share price between when the rights were granted (up to three
years prior) and the vesting date. The growth in Appen’s share price is shown on page 60.
•
•
•
•
•
•
•
•
•
•
Approach to CEO remuneration
In determining the remuneration to be granted to Mr Brayan, the Board considered the following:
The Company’s remuneration strategy.
The Company’s performance, which has delivered share price growth of 4,838% since listing in 2015 to 31 December 2020.
The role and contribution of Mr Brayan in achieving the Company’s objectives.
The current market rate for CEOs in the IT sector with the experience and responsibilities of Mr Brayan.
Importantly, the CEO’s compensation is heavily weighted towards performance-based pay and equity-based compensation
to ensure that the CEO thinks and acts like a long-term owner of the Company. In 2020, the CEO’s target variable STI
remuneration represented 21% of his total remuneration and his target LTI represented 58%, resulting in 79% of the CEO’s total
target remuneration being at risk.
Why did the CEO’s remuneration increase in 2020?
An independent market review of ASX listed companies with market capitalisation of between 50% and 200% of Appen’s market
capitalisation undertaken in 2019 identified the following:
The CEO’s fixed remuneration was well below market (7th percentile).
The fixed remuneration plus STI was also well below market (18th percentile).
Total remuneration (fixed remuneration, STI and LTI) was at the 82nd percentile, due to the high growth in Appen’s share
price. LTI represented 74% of total remuneration.
This review was supplemented by an independent analysis of the pay positioning for high growth specialist US technology
firms. Taking these reviews into consideration, in 2019 the Board reassessed Mr Brayan’s pay. The Board also took into account
the growth in complexity of the business as a result of the acquisition of Figure Eight and the expansion into China and the
Government sector. For these reasons, and as detailed in the Notice of Meeting for the 2019 financial year, the CEO’s pay was
revised for the 2020 year, as follows:
Fixed remuneration increased to $750,000 from $500,000. This places total fixed remuneration in the 14th percentile
of the peer group and remains well under market according to an updated Australian market review done in November 2020.
The potential STI increased to $750,000 (100% of fixed remuneration). Fixed remuneration plus STI received as cash
in 2020 is in the 37th percentile. The actual STI payout for 2020, which will be received in the 2021 year, is $531,760.
An LTI grant of 78,125 performance rights was made in 2020 and will vest in 2023, subject to the achievement of annual
performance targets for 2020, 2021 and 2022 and the CEO remaining employed. The value of the LTI was $25.60 per
share (grant date of 19 November 2019) which equates to $2 million. The LTI grant of performance rights made in 2020
was approved by shareholders at the 2019 AGM.
When assessed against an updated independent analysis of high growth US specialist technology firms completed in October 2020,
Mr Brayan’s fixed remuneration and target total cash remuneration were both at the 50th percentile and the total target
remuneration (including LTI granted) was at the 25th percentile.
A summary of Mr Brayan’s remuneration and how this compares to the Australian market is shown in the table below.
2019 pay
2019
$
Benchmarked against
Australian market data
(percentile position)
2020 pay
2020
$
Benchmarked against
Australian market data
(percentile position)
- Cash salary plus superannuation
500,000
7th
750,000
14th
Remuneration component
Fixed remuneration
Cash remuneration received
– Fixed plus STI (2018 STI received in
Fixed
STI
Cash
salary
$
Super-
annuation
$
LTI value
at vesting
date 1, 2
$
$
Total
value
$
21,348
20,767
21,348
20,767
531,760
2,779,522
4,061,282
709,613
3,581,188
4,790,801
177,253
1,736,217
2,413,470
283,845
2,364,451
3,048,296
LTI value at
grant date
$
784,132
542,204
355,717
361,467
37,660
349,507
381,000
1,325,823
446,993
6,739
339,500
–
565,009
–
2019 and 2019 STI received in 2020)
875,000
18th
1,459,613
37,660
35,943
192,910
762,000
1,608,164
633,202
Total remuneration
378,964
–
998,987
–
– Fixed plus STI received and LTI granted 1
3,355,000
82nd
3,459,613
37th
69th
Mark Brayan
Kevin Levine
Jon Kondo 3
Tom Sharkey
2020
2019
2020
2019
2020
2019
2020
2019
728,652
479,233
478,652
379,233
557,656
218,770
615,594
584,080
1 Value of LTI at vesting date is based on the market price of shares at the date that the LTIs vest. For Mark Brayan and Kevin Levine, the value of
LTI was lower in 2020 relative to 2019 because more rights vested in 2019. For Jon Kondo and Tom Sharkey, no performance rights vested in 2019.
2 Refer to page 66 for the differences in LTI approach for Australia and US based executives.
3 Cash salary and superannuation increased in 2020 relative to 2019 because Jon Kondo commenced employment on 22 July 2019.
Source: Independent global executive compensation consultant (2019 and 2020).
1 LTI has been calculated based on LTIs awarded. In 2020, the CEO’s pay included an LTI award of 78,125 performance rights at a grant date
value of $25.60 per share, equivalent to an LTI award value of $2,000,000. In 2019, the LTI award was 160,000 performance rights at a grant
date value of $15.50 per share, equivalent to $2,480,000.
62
62
Appen 2020 Annual Report
Appen 2020 Annual Report
63
63
Executive KMP remuneration overview
CEO remuneration overview
Statutory remuneration for executive KMP
The table below details the statutory accounting expense of all remuneration-related items for the executive KMP.
Approach to CEO remuneration
In determining the remuneration to be granted to Mr Brayan, the Board considered the following:
•
•
•
•
The Company’s remuneration strategy.
The Company’s performance, which has delivered share price growth of 4,838% since listing in 2015 to 31 December 2020.
The role and contribution of Mr Brayan in achieving the Company’s objectives.
The current market rate for CEOs in the IT sector with the experience and responsibilities of Mr Brayan.
Importantly, the CEO’s compensation is heavily weighted towards performance-based pay and equity-based compensation
to ensure that the CEO thinks and acts like a long-term owner of the Company. In 2020, the CEO’s target variable STI
remuneration represented 21% of his total remuneration and his target LTI represented 58%, resulting in 79% of the CEO’s total
target remuneration being at risk.
Why did the CEO’s remuneration increase in 2020?
An independent market review of ASX listed companies with market capitalisation of between 50% and 200% of Appen’s market
capitalisation undertaken in 2019 identified the following:
•
•
•
The CEO’s fixed remuneration was well below market (7th percentile).
The fixed remuneration plus STI was also well below market (18th percentile).
Total remuneration (fixed remuneration, STI and LTI) was at the 82nd percentile, due to the high growth in Appen’s share
price. LTI represented 74% of total remuneration.
This review was supplemented by an independent analysis of the pay positioning for high growth specialist US technology
firms. Taking these reviews into consideration, in 2019 the Board reassessed Mr Brayan’s pay. The Board also took into account
the growth in complexity of the business as a result of the acquisition of Figure Eight and the expansion into China and the
Government sector. For these reasons, and as detailed in the Notice of Meeting for the 2019 financial year, the CEO’s pay was
revised for the 2020 year, as follows:
•
•
•
Fixed remuneration increased to $750,000 from $500,000. This places total fixed remuneration in the 14th percentile
of the peer group and remains well under market according to an updated Australian market review done in November 2020.
The potential STI increased to $750,000 (100% of fixed remuneration). Fixed remuneration plus STI received as cash
in 2020 is in the 37th percentile. The actual STI payout for 2020, which will be received in the 2021 year, is $531,760.
An LTI grant of 78,125 performance rights was made in 2020 and will vest in 2023, subject to the achievement of annual
performance targets for 2020, 2021 and 2022 and the CEO remaining employed. The value of the LTI was $25.60 per
share (grant date of 19 November 2019) which equates to $2 million. The LTI grant of performance rights made in 2020
was approved by shareholders at the 2019 AGM.
When assessed against an updated independent analysis of high growth US specialist technology firms completed in October 2020,
Mr Brayan’s fixed remuneration and target total cash remuneration were both at the 50th percentile and the total target
remuneration (including LTI granted) was at the 25th percentile.
A summary of Mr Brayan’s remuneration and how this compares to the Australian market is shown in the table below.
Remuneration component
Fixed remuneration
- Cash salary plus superannuation
Cash remuneration received
– Fixed plus STI (2018 STI received in
2019 pay
2019
$
Benchmarked against
Australian market data
(percentile position)
2020 pay
2020
$
Benchmarked against
Australian market data
(percentile position)
500,000
7th
750,000
14th
6,739
339,500
565,009
2019 and 2019 STI received in 2020)
875,000
18th
1,459,613
192,910
762,000
1,608,164
633,202
378,964
998,987
Total remuneration
– Fixed plus STI received and LTI granted 1
3,355,000
82nd
3,459,613
37th
69th
1 Value of LTI at vesting date is based on the market price of shares at the date that the LTIs vest. For Mark Brayan and Kevin Levine, the value of
LTI was lower in 2020 relative to 2019 because more rights vested in 2019. For Jon Kondo and Tom Sharkey, no performance rights vested in 2019.
2 Refer to page 66 for the differences in LTI approach for Australia and US based executives.
3 Cash salary and superannuation increased in 2020 relative to 2019 because Jon Kondo commenced employment on 22 July 2019.
Source: Independent global executive compensation consultant (2019 and 2020).
1 LTI has been calculated based on LTIs awarded. In 2020, the CEO’s pay included an LTI award of 78,125 performance rights at a grant date
value of $25.60 per share, equivalent to an LTI award value of $2,000,000. In 2019, the LTI award was 160,000 performance rights at a grant
date value of $15.50 per share, equivalent to $2,480,000.
62
62
Appen 2020 Annual Report
Appen 2020 Annual Report
63
63
Fixed
Variable
Super-
Leave
Termination
annuation 1
entitlements
payments
$
$
STI
$
LTI 2, 3
$
Total
$
Cash
salary
$
728,652
479,233
478,652
379,233
557,656
218,770
Mark Brayan
2020
Kevin Levine
2020
Jon Kondo 4
2020
2019
2019
2019
Tom Sharkey
2020
615,594
2019
584,080
21,348
20,767
21,348
20,767
37,660
6,739
37,660
35,943
80,279
37,229
36,836
20,436
20,910
17,276
5,771
21,170
$
–
–
–
–
–
–
–
–
531,760
1,751,721
3,113,760
709,613
1,584,277
2,831,119
177,253
1,001,488
1,715,577
283,845
917,710
1,621,991
349,507
1,372,161
2,337,894
339,500
750,708
1,332,993
192,910
988,215
1,840,150
378,964
773,092
1,793,249
1
Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
2 The values for equity-settled remuneration were measured at grant date in accordance with AASB 2 Share-based Payments and represent
the current year amortisation of the fair value of the rights over the vesting period.
3 Refer to page 66 for the differences in LTI approach for Australia and US based executives.
4 Cash salary and superannuation increased in 2020 relative to 2019 because Jon Kondo commenced employment on 22 July 2019.
Remuneration received by executive KMP
The table below details the actual remuneration that was received by current executive KMPs during the 2020 and 2019 years.
This differs to the statutory remuneration table above which is prepared in accordance with accounting standards.
The STI amount is the payment made in recognition of performance for that year. The LTI value at vesting date is the value
of shares issued during the year as a result of the vesting of performance rights issued in prior years. The high value of the LTI
at vesting date is attributable to the strong growth in Appen’s share price between when the rights were granted (up to three
years prior) and the vesting date. The growth in Appen’s share price is shown on page 60.
LTI value
at vesting
date 1, 2
LTI value at
grant date
Fixed
STI
Cash
salary
$
Super-
annuation
$
$
$
Total
value
$
Mark Brayan
Kevin Levine
Jon Kondo 3
Tom Sharkey
2020
2019
2020
2019
2020
2019
2020
2019
728,652
479,233
478,652
379,233
557,656
218,770
615,594
584,080
21,348
20,767
21,348
20,767
37,660
35,943
531,760
2,779,522
4,061,282
709,613
3,581,188
4,790,801
177,253
1,736,217
2,413,470
283,845
2,364,451
3,048,296
–
–
37,660
349,507
381,000
1,325,823
446,993
784,132
542,204
355,717
361,467
$
–
–
Short-term incentives (STI)
Approach to STI
STI are a performance-based incentive delivered in the form of an annual cash bonus payment. Performance is measured over
a 12-month period. The performance measures for STI and the percentage weighting for each measure are as follows:
STI performance measures
Revenue (Mr Brayan, Mr Levine, Mr Kondo, Mr Sharkey)
Underlying EBITDA (Mr Brayan, Mr Levine)
Underlying EBITDA (Mr Kondo, Mr Sharkey)
Gross margin (Mr Kondo, Mr Sharkey)
2020
Weighting
2019
Weighting
33%
67%
33%
33%
33%
67%
33%
33%
Mr Kondo and Mr Sharkey are US-based executives with responsibility for sales and client services, respectively. They have
an additional gross margin metric which is used as a measure of performance and success for the sales and client services teams.
The non-deferred STI cash payment ranges from 0% to 150% of a target percentage of the relevant executive’s fixed remuneration
(excluding retirement and insurance benefits for US-based executives). The actual STI payout percentage is capped at 150%
for all executives and employees. No payment is made if the performance percentage achieved is less than 80% of the target.
The STI award is calculated based on the combined result of all the performance measures (‘financial metric’). For example,
if the Company achieves 70% of the revenue target and 100% of the EBITDA target, the overall score for the purposes of the
calculation of any award that may be awarded would be 90% of Mr Brayan and Mr Levine’s on-target award.
Actual awards are calculated on a sliding scale between 0% and 150% – for example:
% achievement against financial metric target
Potential payout – % of target payout
Below 80%
80%
90%
122.25% or more
Nil
64%
81%
150%
Performance and 2020 STI outcomes
In 2019, the Board set challenging STI hurdles for the executive team, with 2020 revenue, underlying EBITDA and gross margin
targets set approximately 30% higher than the 2019 actuals. In 2020, revenue was 86% of target, underlying EBITDA was 83%
of target and gross margin was 79% of target.
The Nomination and Remuneration Committee reviewed this performance to determine the recommended STI payments.
The recommendations were reviewed and approved by the Board.
The tables below detail performance against the STI financial targets and the STI payouts for each executive KMP.
Target
Actual 1 % Actual/Target
% Applied
% Payout 2
Revenue
2020
$699,891,845
$599,376,860
2019
$443,738,011
$497,635,668
Underlying EBITDA
2020
$130,037,886
$108,550,224
2019
$84,445,022
$107,310,300
86%
112%
83%
127%
73%
126%
70%
161%
73%
126%
70%
150%
1 Revenue comprises services revenue only – see note 3 in the financial report. 2019 excludes Figure Eight.
2 Payout capped at 150%.
In 2020, the weighted average STI payout was 71% for the Australia-based executives and 68% for the US-based executives,
compared to 142% for all executives in 2019.
Executive
Currency
STI target 2
(max 150%) 3
Mark Brayan
Kevin Levine
Jon Kondo 4
Tom Sharkey 5
2020
2019
2020
2019
2020
2019
2020
2019
Fixed
remuner-
ation 1
$
750,000
500,000
500,000
400,000
385,000
167,788
425,000
406,250
AUD
AUD
AUD
AUD
USD
USD
USD
USD
Performance
payout %
Total STI
Total STI
payout
payout (AUD)
%
%
$
$
100%
100%
50%
50%
100%
100%
50%
50%
71%
142%
71%
142%
68%
142%
68%
142%
531,760
709,613
177,253
283,845
531,760
709,613
177,253
283,845
263,351
349,507
238,131
339,500
145,356
265,811
192,910
378,964
1
Includes superannuation contributions for Australia-based executives.
2 Percentage of fixed remuneration (excluding retirement and insurance benefits for US-based executives).
3 Performance payout % varies because US-based executives have an additional financial metric of gross margin growth.
4 Jon Kondo commenced 22 July 2019.
5 Tom Sharkey’s STI target increased from 40% to 50% effective 1 June 2019.
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Short-term incentives (STI)
Approach to STI
STI are a performance-based incentive delivered in the form of an annual cash bonus payment. Performance is measured over
a 12-month period. The performance measures for STI and the percentage weighting for each measure are as follows:
STI performance measures
Revenue (Mr Brayan, Mr Levine, Mr Kondo, Mr Sharkey)
Underlying EBITDA (Mr Brayan, Mr Levine)
Underlying EBITDA (Mr Kondo, Mr Sharkey)
Gross margin (Mr Kondo, Mr Sharkey)
2020
2019
Weighting
Weighting
33%
67%
33%
33%
33%
67%
33%
33%
Mr Kondo and Mr Sharkey are US-based executives with responsibility for sales and client services, respectively. They have
an additional gross margin metric which is used as a measure of performance and success for the sales and client services teams.
(excluding retirement and insurance benefits for US-based executives). The actual STI payout percentage is capped at 150%
for all executives and employees. No payment is made if the performance percentage achieved is less than 80% of the target.
The STI award is calculated based on the combined result of all the performance measures (‘financial metric’). For example,
if the Company achieves 70% of the revenue target and 100% of the EBITDA target, the overall score for the purposes of the
calculation of any award that may be awarded would be 90% of Mr Brayan and Mr Levine’s on-target award.
Actual awards are calculated on a sliding scale between 0% and 150% – for example:
% achievement against financial metric target
Potential payout – % of target payout
Below 80%
80%
90%
122.25% or more
Nil
64%
81%
150%
Performance and 2020 STI outcomes
In 2019, the Board set challenging STI hurdles for the executive team, with 2020 revenue, underlying EBITDA and gross margin
targets set approximately 30% higher than the 2019 actuals. In 2020, revenue was 86% of target, underlying EBITDA was 83%
of target and gross margin was 79% of target.
The Nomination and Remuneration Committee reviewed this performance to determine the recommended STI payments.
The recommendations were reviewed and approved by the Board.
The tables below detail performance against the STI financial targets and the STI payouts for each executive KMP.
Target
Actual 1 % Actual/Target
% Applied
% Payout 2
The non-deferred STI cash payment ranges from 0% to 150% of a target percentage of the relevant executive’s fixed remuneration
Underlying EBITDA
2020
$130,037,886
$108,550,224
2019
$84,445,022
$107,310,300
Revenue
2020
$699,891,845
$599,376,860
2019
$443,738,011
$497,635,668
86%
112%
83%
127%
73%
126%
70%
161%
73%
126%
70%
150%
1 Revenue comprises services revenue only – see note 3 in the financial report. 2019 excludes Figure Eight.
2 Payout capped at 150%.
In 2020, the weighted average STI payout was 71% for the Australia-based executives and 68% for the US-based executives,
compared to 142% for all executives in 2019.
Executive
Currency
Mark Brayan
Kevin Levine
Jon Kondo 4
Tom Sharkey 5
2020
2019
2020
2019
2020
2019
2020
2019
AUD
AUD
AUD
AUD
USD
USD
USD
USD
Fixed
remuner-
ation 1
$
750,000
500,000
500,000
400,000
385,000
167,788
425,000
406,250
Performance
payout %
(max 150%) 3
%
STI target 2
%
Total STI
payout
$
Total STI
payout (AUD)
$
100%
100%
50%
50%
100%
100%
50%
50%
71%
142%
71%
142%
68%
142%
68%
142%
531,760
709,613
177,253
283,845
531,760
709,613
177,253
283,845
263,351
349,507
238,131
339,500
145,356
265,811
192,910
378,964
Includes superannuation contributions for Australia-based executives.
1
2 Percentage of fixed remuneration (excluding retirement and insurance benefits for US-based executives).
3 Performance payout % varies because US-based executives have an additional financial metric of gross margin growth.
4 Jon Kondo commenced 22 July 2019.
5 Tom Sharkey’s STI target increased from 40% to 50% effective 1 June 2019.
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Long-term incentives (LTI)
Approach to LTI
LTI are a form of equity-based compensation that is awarded via the granting and vesting of performance rights. The LTI
plan is designed to incentivise and challenge senior management to achieve long-term sustainable growth in earnings
and shareholder value. It also supports the retention of high performing executives by prescribing performance period
and continuous employment requirements.
LTI benchmarking
Appen is a fast growing global business in an extremely competitive industry, with executives operating primarily in the
United States and Australia. To ensure that the LTI scheme is relevant and appropriate in the hiring, motivation and retention
of key staff, the Nomination and Remuneration Committee undertakes regular reviews of the LTI practices in both these markets.
Key differences are summarised in the table below.
The most significant differences are that performance hurdles are less commonly used and annual vesting is industry practice
in the US. Our LTI scheme incorporates performance hurdles, but the performance rights for US-based executives may vest
annually. This is critical to our ability to recruit and retain executives in the US where the market for talent with technology
expertise is highly competitive.
Key differences between Australian and United States LTI practices
Australia 1
United States 2
• Performance rights used by 70% of sample companies.
Options used by 18%.
•
•
82% of companies operate one LTI plan, most commonly
with two performance measures.
Total Shareholder Return (TSR) used by 35% of
companies, Earnings per Share (EPS) by 25%.
•
•
•
Time-based restricted stock units (RSUs) are used by
more than 95% of companies.
50% of companies use performance-based RSUs (PSUs)
and 40% use a mix of RSUs and PSUs.
40% of companies use stock options.
• Performance period is typically four years.
• Performance period is 3 years for 74% of companies,
• Vesting includes 12 month ‘cliff’ followed by annual,
22% use four years.
quarterly or monthly vesting.
• No vesting before the end of the performance period.
Independent analysis of ASX-listed companies with a market capitalisation of between 50% and 200% of Appen’s market capitalisation.
1
2 Independent remuneration advisor analysis of US non-founder market data including ~60 public technology companies with median revenue
of ~US$400 million and median market capitalisation of ~US$3 billion.
LTI performance measures
The key components of the LTI scheme are:
•
•
annual grants of performance rights (with quantum determined at Board discretion based on market remuneration analysis).
vesting conditions of:
1. underlying basic EPS (UBEPS) growth tested over three consecutive years, tested annually with 100% vesting where the
UBEPS target is achieved, 50-80% vesting for 90-99% achievement (at Board discretion) and nil vesting below 90%
achievement; and
2. continuation of employment until the beginning of the calendar year in which the performance rights are subject to vesting.
• Performance rights lapse on cessation of employment before vesting. This means that no performance rights will be provided
if an executive resigns, despite meeting the relevant performance hurdles.
•
Three-year performance periods, with grants consisting of three equal tranches each tested over a single 12-month period.
– Australia-based executives: performance rights vest at the end of the three-year period subject to the achievement
of the performance and continuous employment hurdles.
– US-based executives: performance rights may vest annually, which is typical for US remuneration practices, subject
to the achievement of the performance and continuous employment hurdles. A partial tranche may vest subject to the
achievement of the performance and employment hurdles for grants issued during the year.
• Rights for which the performance condition is not satisfied in the annual testing can be carried over for a maximum of two
years and may vest if the equivalent compound annual growth rate (CAGR) is achieved. This ensures that management is
focused on delivering financial returns for shareholders over the long-term, but also acknowledges that investments may
need to be made in certain years to achieve those returns. It also incentivises management to outperform in subsequent
years if an annual target is not met.
•
The number of performance rights granted is based on face value (actual share price) rather than a discounted fair value.
• No dividends are paid or accrue between the grant and vesting dates of the performance rights.
• Malus applies and the Board may forfeit any entitlement to any shares on vesting of the performance rights, if in the opinion
of the Board, the employee acts fraudulently or dishonestly, is in breach of their obligations to the Company or if their
contract of employment is terminated.
Performance and 2020 LTI outcomes
The following awards were granted to executive KMP for the 2020 year. The grant of performance rights to Mr Brayan was
approved at the 2019 Annual General Meeting on 29 May 2020, in accordance with ASX Listing Rule 10.14. The current LTI
performance target is set at 20% growth in underlying basic earnings per share (UBEPS) each year for three consecutive years.
This hurdle was not met in 2020.
The performance rights for 2020 can now only vest if executives achieve 44% UBEPS growth over a two-year period or 73%
over three years (i.e. the equivalent CAGR growth rate); and if they meet the continuous employment requirement.
Plan
Grant date
date
price
Tranche
measurement
target
date
achieved
condition
Vesting date
Expiry
Exercise
Performance
Performance
measurement
Target
Vesting
Value per
right at
grant date
Performance
target
2020 1
19 Dec 2019 N/A
N/A
UBEPS
20.0%
End 2020
Pending
1 Jan 2023
1 Jan 2023
$23.37
2020 1
19 Dec 2019 N/A
N/A
UBEPS
20.0%
End 2021
Pending
1 Jan 2023
1 Jan 2023
$23.37
2020 1
19 Dec 2019 N/A
N/A
UBEPS
20.0%
End 2022
Pending
1 Jan 2023
Annual results
$23.37
Employed at
Employed at
Employed at
Release of 2022
1
2
3
1 At the Board’s discretion.
Target achievement table:
Rights are convertible to shares on the vesting dates, assuming all the performance conditions of the plan and the employment
condition are met. If rights are not converted, they expire after 8 years from the grant date.
UBEPS target achieved
100% or more of UBEPS target
90-99% of UBEPS target 1
Less than 90%
% performance rights allocated
100%
50-80%
Nil
1 At the Board’s discretion.
The number of unvested performance rights held by executive KMP are:
2018 Special 1
Plan
2018
2019
2020
Total
1 Rights issued in 2018 with higher performance hurdles than the 2018 LTI plan.
Mark
Brayan
23,153
Kevin
Levine
12,155
150,000
100,000
160,000
80,000
78,125
48,828
Jon
Kondo
Tom
Sharkey
–
–
75,000
35,000
25,118
–
60,000
35,000
120,118
411,278
240,983
110,000
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Long-term incentives (LTI)
Approach to LTI
LTI are a form of equity-based compensation that is awarded via the granting and vesting of performance rights. The LTI
plan is designed to incentivise and challenge senior management to achieve long-term sustainable growth in earnings
and shareholder value. It also supports the retention of high performing executives by prescribing performance period
and continuous employment requirements.
LTI benchmarking
•
•
•
•
Appen is a fast growing global business in an extremely competitive industry, with executives operating primarily in the
United States and Australia. To ensure that the LTI scheme is relevant and appropriate in the hiring, motivation and retention
of key staff, the Nomination and Remuneration Committee undertakes regular reviews of the LTI practices in both these markets.
Key differences are summarised in the table below.
The most significant differences are that performance hurdles are less commonly used and annual vesting is industry practice
in the US. Our LTI scheme incorporates performance hurdles, but the performance rights for US-based executives may vest
annually. This is critical to our ability to recruit and retain executives in the US where the market for talent with technology
expertise is highly competitive.
Key differences between Australian and United States LTI practices
Australia 1
United States 2
• Performance rights used by 70% of sample companies.
Time-based restricted stock units (RSUs) are used by
Options used by 18%.
more than 95% of companies.
82% of companies operate one LTI plan, most commonly
50% of companies use performance-based RSUs (PSUs)
with two performance measures.
Total Shareholder Return (TSR) used by 35% of
companies, Earnings per Share (EPS) by 25%.
and 40% use a mix of RSUs and PSUs.
40% of companies use stock options.
• Performance period is typically four years.
• Performance period is 3 years for 74% of companies,
• Vesting includes 12 month ‘cliff’ followed by annual,
22% use four years.
quarterly or monthly vesting.
•
•
•
• No vesting before the end of the performance period.
1
Independent analysis of ASX-listed companies with a market capitalisation of between 50% and 200% of Appen’s market capitalisation.
2 Independent remuneration advisor analysis of US non-founder market data including ~60 public technology companies with median revenue
of ~US$400 million and median market capitalisation of ~US$3 billion.
LTI performance measures
The key components of the LTI scheme are:
vesting conditions of:
achievement; and
annual grants of performance rights (with quantum determined at Board discretion based on market remuneration analysis).
1. underlying basic EPS (UBEPS) growth tested over three consecutive years, tested annually with 100% vesting where the
UBEPS target is achieved, 50-80% vesting for 90-99% achievement (at Board discretion) and nil vesting below 90%
2. continuation of employment until the beginning of the calendar year in which the performance rights are subject to vesting.
• Performance rights lapse on cessation of employment before vesting. This means that no performance rights will be provided
if an executive resigns, despite meeting the relevant performance hurdles.
•
Three-year performance periods, with grants consisting of three equal tranches each tested over a single 12-month period.
– Australia-based executives: performance rights vest at the end of the three-year period subject to the achievement
of the performance and continuous employment hurdles.
– US-based executives: performance rights may vest annually, which is typical for US remuneration practices, subject
to the achievement of the performance and continuous employment hurdles. A partial tranche may vest subject to the
achievement of the performance and employment hurdles for grants issued during the year.
• Rights for which the performance condition is not satisfied in the annual testing can be carried over for a maximum of two
years and may vest if the equivalent compound annual growth rate (CAGR) is achieved. This ensures that management is
focused on delivering financial returns for shareholders over the long-term, but also acknowledges that investments may
need to be made in certain years to achieve those returns. It also incentivises management to outperform in subsequent
years if an annual target is not met.
•
The number of performance rights granted is based on face value (actual share price) rather than a discounted fair value.
• No dividends are paid or accrue between the grant and vesting dates of the performance rights.
• Malus applies and the Board may forfeit any entitlement to any shares on vesting of the performance rights, if in the opinion
of the Board, the employee acts fraudulently or dishonestly, is in breach of their obligations to the Company or if their
contract of employment is terminated.
Performance and 2020 LTI outcomes
The following awards were granted to executive KMP for the 2020 year. The grant of performance rights to Mr Brayan was
approved at the 2019 Annual General Meeting on 29 May 2020, in accordance with ASX Listing Rule 10.14. The current LTI
performance target is set at 20% growth in underlying basic earnings per share (UBEPS) each year for three consecutive years.
This hurdle was not met in 2020.
The performance rights for 2020 can now only vest if executives achieve 44% UBEPS growth over a two-year period or 73%
over three years (i.e. the equivalent CAGR growth rate); and if they meet the continuous employment requirement.
Plan
Grant date
Expiry
date
Exercise
price
Tranche
Performance
measurement
Performance
target
Performance
target
measurement
date
Target
achieved
Vesting
condition
Vesting date
Value per
right at
grant date
2020 1
19 Dec 2019 N/A
N/A
2020 1
19 Dec 2019 N/A
N/A
2020 1
19 Dec 2019 N/A
N/A
1 At the Board’s discretion.
1
2
3
UBEPS
20.0%
End 2020
Pending
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2022
Pending
Employed at
1 Jan 2023
Employed at
1 Jan 2023
1 Jan 2023
$23.37
1 Jan 2023
$23.37
Employed at
1 Jan 2023
Release of 2022
Annual results
$23.37
Rights are convertible to shares on the vesting dates, assuming all the performance conditions of the plan and the employment
condition are met. If rights are not converted, they expire after 8 years from the grant date.
Target achievement table:
UBEPS target achieved
100% or more of UBEPS target
90-99% of UBEPS target 1
Less than 90%
1 At the Board’s discretion.
The number of unvested performance rights held by executive KMP are:
% performance rights allocated
100%
50-80%
Nil
Plan
2018
2018 Special 1
2019
2020
Total
1 Rights issued in 2018 with higher performance hurdles than the 2018 LTI plan.
Mark
Brayan
23,153
Kevin
Levine
12,155
150,000
100,000
160,000
80,000
78,125
48,828
Jon
Kondo
Tom
Sharkey
–
–
75,000
35,000
25,118
–
60,000
35,000
120,118
411,278
240,983
110,000
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Long-term incentives (LTI) continued
Executive KMP remuneration arrangements
Performance rights holdings of executive KMP
The movement during the reporting period of performance rights held by executive KMP is outlined in the table below:
Held at
1 January
2020
Granted
during the
year
Exercised
during the
year 1
Forfeited
during the
year
Held at
31 December
2020
Vested
during the
year
Executive KMP share ownership requirements
An Executive Share Ownership Policy applies to the CEO and executive KMP. Under the policy, the total number of shares held
by the CEO and executive KMP must be equivalent to at least 50% of the shares issued in respect of the performance rights
granted in 2019, net of any necessary sales to cover tax obligations, while employed by the Company. This post vesting holding
requirement ensures that executives continue to think and act like owners of the business. Share transfers to affiliate or related
entities or persons are permitted.
Executive
Mark Brayan
Kevin Levine
Jon Kondo
Tom Sharkey
Number of
Number of ordinary
performance rights
shares currently held
currently held
(direct and indirect)
411,278
240,983
110,000
120,118
418,309
139,863
15,000
30,000
Directors and KMP must not enter into transactions in associated products that operate to limit the economic risk
of security holdings in the Company. A copy of the Company’s Securities Dealing Policy is available at appen.com/
investors/corporate-governance/.
Remuneration and other terms of employment for KMP are formalised in service contracts. All executive KMP service contracts
provide for immediate termination in the event of serious misconduct. There are no guaranteed base pay increases in any
Service contracts
executive service contracts.
Details of the other key terms are as follows:
Executive
Role
Mark Brayan
Managing Director and CEO
Kevin Levine
CFO
Jon Kondo
SVP, Sales and Marketing
Tom Sharkey
SVP, Client Services
Contract term
review
Annual salary
Notice period
by either party
No fixed term
No fixed term
No fixed term
No fixed term
1 March
1 March
1 March
1 March
6 months
3 months
90 days
90 days
Mark Brayan
Kevin Levine
2017
2018
59,430
23,153
2018 STI
50,000
2018 Special
150,000
2019 AU
160,000
–
–
–
–
–
2020 AU
–
78,125
(59,430)
–
(50,000)
–
–
–
442,583
78,125
(109,430)
2017
2018
35,022
12,155
2018 STI
33,333
2018 Special
100,000
2019 AU
80,000
–
–
–
–
–
2020 AU
–
48,828
(35,022)
–
(33,333)
–
–
–
260,510
48,828
(68,355)
Jon Kondo
2019 US
90,000
–
(15,000)
2020 US
35,000
–
90,000
35,000
(15,000)
Tom Sharkey
2018
8,518
16,600
–
2019 US
90,000
–
(30,000)
2020 US
–
35,000
–
98,518
51,600
(30,000)
1 Details of the performance rights exercised are provided in the table below.
Performance rights exercised
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59,430
23,153
–
–
50,000
150,000
160,000
78,125
–
–
–
411,278
109,430
–
35,022
12,155
–
–
33,333
100,000
80,000
48,828
–
–
–
240,983
68,355
75,000
15,000
35,000
–
110,000
15,000
25,118
–
60,000
30,000
35,000
–
120,118
30,000
Executive
Mark Brayan
Kevin Levine
Jon Kondo
Tom Sharkey
Number
of rights
exercised
Value of rights
at grant
date
Value of rights
at exercisable
date
109,430
68,355
15,000
30,000
$784,132
$2,779,522
$355,717
$1,736,217
$446,993
$663,202
$381,000
$762,000
The high value attributable to the value of rights at exercisable date reflects the strong growth in Appen’s share price between
grant and exercise date, as shown in the graph on page 60. The rights exercised during the year relate to vesting of the relevant
plans as detailed above, upon the successful achievement of the relevant performance and employment hurdles.
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Long-term incentives (LTI) continued
Executive KMP remuneration arrangements
Performance rights holdings of executive KMP
The movement during the reporting period of performance rights held by executive KMP is outlined in the table below:
Held at
Granted
1 January
during the
Exercised
during the
Forfeited
Held at
Vested
during the
31 December
during the
2020
year
year 1
year
2020
year
Executive KMP share ownership requirements
An Executive Share Ownership Policy applies to the CEO and executive KMP. Under the policy, the total number of shares held
by the CEO and executive KMP must be equivalent to at least 50% of the shares issued in respect of the performance rights
granted in 2019, net of any necessary sales to cover tax obligations, while employed by the Company. This post vesting holding
requirement ensures that executives continue to think and act like owners of the business. Share transfers to affiliate or related
entities or persons are permitted.
Executive
Mark Brayan
Kevin Levine
Jon Kondo
Tom Sharkey
Number of
performance rights
currently held
Number of ordinary
shares currently held
(direct and indirect)
411,278
240,983
110,000
120,118
418,309
139,863
15,000
30,000
Directors and KMP must not enter into transactions in associated products that operate to limit the economic risk
of security holdings in the Company. A copy of the Company’s Securities Dealing Policy is available at appen.com/
investors/corporate-governance/.
Service contracts
Remuneration and other terms of employment for KMP are formalised in service contracts. All executive KMP service contracts
provide for immediate termination in the event of serious misconduct. There are no guaranteed base pay increases in any
executive service contracts.
Details of the other key terms are as follows:
2020 US
35,000
Executive
Role
90,000
35,000
(15,000)
110,000
15,000
Mark Brayan
Managing Director and CEO
Kevin Levine
CFO
Jon Kondo
SVP, Sales and Marketing
Tom Sharkey
SVP, Client Services
Contract term
No fixed term
No fixed term
No fixed term
No fixed term
Annual salary
review
Notice period
by either party
1 March
1 March
1 March
1 March
6 months
3 months
90 days
90 days
Mark Brayan
(59,430)
2017
2018
59,430
23,153
2018 STI
50,000
(50,000)
2018 Special
150,000
2019 AU
160,000
2020 AU
–
78,125
Kevin Levine
(35,022)
2017
2018
35,022
12,155
2018 STI
33,333
(33,333)
2018 Special
100,000
2019 AU
80,000
2020 AU
–
48,828
–
–
–
–
–
–
–
–
–
–
442,583
78,125
(109,430)
411,278
109,430
Jon Kondo
2019 US
90,000
–
(15,000)
75,000
15,000
260,510
48,828
(68,355)
240,983
68,355
Tom Sharkey
2018
8,518
16,600
2019 US
90,000
–
(30,000)
60,000
30,000
2020 US
–
35,000
98,518
51,600
(30,000)
120,118
30,000
1 Details of the performance rights exercised are provided in the table below.
Performance rights exercised
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23,153
150,000
160,000
78,125
12,155
100,000
80,000
48,828
35,000
25,118
35,000
59,430
50,000
35,022
33,333
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Number
of rights
exercised
Value of rights
at grant
date
Value of rights
at exercisable
date
109,430
68,355
15,000
30,000
$784,132
$2,779,522
$355,717
$1,736,217
$446,993
$663,202
$381,000
$762,000
Executive
Mark Brayan
Kevin Levine
Jon Kondo
Tom Sharkey
The high value attributable to the value of rights at exercisable date reflects the strong growth in Appen’s share price between
grant and exercise date, as shown in the graph on page 60. The rights exercised during the year relate to vesting of the relevant
plans as detailed above, upon the successful achievement of the relevant performance and employment hurdles.
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Non-executive director remuneration arrangements
Non-executive director remuneration framework
Non-executive director remuneration reflects the Company’s desire to attract, motivate and retain experienced directors
and to ensure their active participation in advocating for the interests of shareholders, in areas such as corporate governance,
remuneration, compliance, risk and strategy.
The Company aims to provide a level of remuneration for non-executive directors comparable with its general industry peer
group. The most recent benchmarking from October 2019 considered the practices of ASX 200 companies (minus ASX 100
companies) as the ‘primary peer group’; and incorporated a review against a ‘secondary peer group’ of ASX-listed technology
companies with revenues between approximately 50% and 200% of Appen’s revenue.
The results of this benchmarking showed that Appen’s non-executive director remuneration was within the 25th percentile
of the primary peer group and within the median of the secondary peer group.
Non-executive director minimum shareholding requirement
Non-executive directors are required to hold Appen shares to the value of at least 100% of the annual non-executive director
pre-tax base fee within three years of their appointment, using the base fee at the time of appointment (excluding Committee fees).
The value of such shares is based on their price at the time of acquisition. Once the requirement has been met, directors are
considered compliant even if there are subsequent changes in the share price.
Directors are compliant where Appen securities are held either by them personally or by a related party.
As at the date of this report, all non-executive directors that have served on the Board for at least three years, have met the
minimum holding requirement.
Role
Board Chair
Non-Executive Director
Fee 1
$200,000
$105,000
Non-executive director fee structure and components
Non-executive directors are remunerated from the maximum
aggregate amount approved by shareholders. The current
aggregate fee pool limit that can be paid in any one year
is $900,000.
Non-executive directors are remunerated by way of Board
and Committee fees. These fees reflect the workload
associated with a global business and the governance and
oversight required of the Company’s strategic growth areas
including Government, China and M&A. The current fee
structure for non-executive directors is as follows:
Audit and Risk Management Committee Chair
$15,000
Nomination and Remuneration Committee Chair
$15,000
1 All fees are inclusive of statutory superannuation.
Amounts paid to non-executive directors
Details of fees paid to directors in 2020 and 2019 are outlined below:
Director
Chris Vonwiller
William Pulver
Robin Low
Deena Shiff
Stephen Hasker
Vanessa Liu 1
1 Vanessa Liu was appointed 27 March 2020.
2020
Super-
annuation
$
Total
$
Fees
$
2019
Super-
annuation
$
Total
$
17,352
10,411
200,000
182,648
120,000
109,589
17,352
10,411
200,000
120,000
–
120,000
120,000
–
120,000
9,110
105,000
95,890
9,110
105,000
–
–
105,000
105,000
79,962
–
–
–
105,000
–
Fees
$
182,648
109,589
120,000
95,890
105,000
79,962
693,089
36,873
729,962
613,127
36,873
650,000
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71
Number of shares
Purchased/
exercised
during the
Sold during
December
year
the year 1
2020
31
(2,000,000)
9,060,286
(275,000)
332,384
404,414
109,430
(95,535)
418,309
1 January
2020
11,060,286
607,384
172,946
50,432
50,000
–
–
–
–
–
–
–
–
–
172,946
50,432
50,000
1,000
12,345,462
110,430
(2,370,535)
10,085,357
Vanessa Liu (appointed 27 March 2020)
–
1,000
1 The share sales were announced to the ASX on 4 June 2020 (appen.com/investors/announcements/). Non-Executive Chairman, Chris
Vonwiller, sold a proportion of his holding for a number of personal reasons, including philanthropic endeavours. Mr Vonwiller intends to remain
a long-term shareholder of Appen. William Pulver, Non-Executive Director, sold shares to diversify personal investments. Mark Brayan, CEO and
Managing Director of Appen, sold shares to satisfy tax obligations and diversify personal investments.
Independent remuneration advisors
Where appropriate, the Board and the Nomination and Remuneration Committee engage external and independent remuneration
advisors to provide industry benchmarks, peer comparison information and specific local knowledge of country-specific
remuneration practices. In 2020, an independent global compensation consultant provided benchmarks for Australia-based
executives and a US-based leading specialist technology and life sciences compensation firm provided benchmarks for
US-based executives.
External advice is used as a guide only and is not a substitute for the Board and Nomination and Remuneration Committee’s
thorough consideration of the relevant remuneration matter.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
Director
Chris Vonwiller
William Pulver
Mark Brayan
Robin Low
Deena Shiff
Stephen Hasker
On behalf of the directors
Christopher Vonwiller
Director
24 February 2021
Sydney
Non-executive director remuneration arrangements
Non-executive director remuneration framework
Non-executive director remuneration reflects the Company’s desire to attract, motivate and retain experienced directors
and to ensure their active participation in advocating for the interests of shareholders, in areas such as corporate governance,
remuneration, compliance, risk and strategy.
The Company aims to provide a level of remuneration for non-executive directors comparable with its general industry peer
group. The most recent benchmarking from October 2019 considered the practices of ASX 200 companies (minus ASX 100
companies) as the ‘primary peer group’; and incorporated a review against a ‘secondary peer group’ of ASX-listed technology
companies with revenues between approximately 50% and 200% of Appen’s revenue.
The results of this benchmarking showed that Appen’s non-executive director remuneration was within the 25th percentile
of the primary peer group and within the median of the secondary peer group.
Non-executive director fee structure and components
Non-executive directors are remunerated from the maximum
aggregate amount approved by shareholders. The current
aggregate fee pool limit that can be paid in any one year
Role
Board Chair
is $900,000.
Non-Executive Director
Fee 1
$200,000
$105,000
Non-executive directors are remunerated by way of Board
Audit and Risk Management Committee Chair
$15,000
and Committee fees. These fees reflect the workload
Nomination and Remuneration Committee Chair
$15,000
associated with a global business and the governance and
oversight required of the Company’s strategic growth areas
including Government, China and M&A. The current fee
structure for non-executive directors is as follows:
1 All fees are inclusive of statutory superannuation.
Amounts paid to non-executive directors
Details of fees paid to directors in 2020 and 2019 are outlined below:
Director
Chris Vonwiller
William Pulver
Robin Low
Deena Shiff
Stephen Hasker
Vanessa Liu 1
1 Vanessa Liu was appointed 27 March 2020.
Total
$
Fees
annuation
$
2020
Super-
Fees
annuation
$
182,648
109,589
120,000
95,890
105,000
79,962
$
–
–
–
17,352
10,411
200,000
182,648
120,000
109,589
120,000
120,000
105,000
105,000
79,962
–
2019
Super-
17,352
10,411
$
–
–
–
Total
$
200,000
120,000
120,000
105,000
–
693,089
36,873
729,962
613,127
36,873
650,000
Non-executive director minimum shareholding requirement
Non-executive directors are required to hold Appen shares to the value of at least 100% of the annual non-executive director
pre-tax base fee within three years of their appointment, using the base fee at the time of appointment (excluding Committee fees).
The value of such shares is based on their price at the time of acquisition. Once the requirement has been met, directors are
considered compliant even if there are subsequent changes in the share price.
Directors are compliant where Appen securities are held either by them personally or by a related party.
As at the date of this report, all non-executive directors that have served on the Board for at least three years, have met the
minimum holding requirement.
Director
Chris Vonwiller
William Pulver
Mark Brayan
Robin Low
Deena Shiff
Stephen Hasker
Number of shares
Purchased/
exercised
during the
year
Sold during
the year 1
31
December
2020
–
–
(2,000,000)
9,060,286
(275,000)
332,384
1 January
2020
11,060,286
607,384
404,414
109,430
(95,535)
418,309
172,946
50,432
50,000
–
–
–
–
–
–
–
172,946
50,432
50,000
1,000
Vanessa Liu (appointed 27 March 2020)
–
1,000
1 The share sales were announced to the ASX on 4 June 2020 (appen.com/investors/announcements/). Non-Executive Chairman, Chris
Vonwiller, sold a proportion of his holding for a number of personal reasons, including philanthropic endeavours. Mr Vonwiller intends to remain
a long-term shareholder of Appen. William Pulver, Non-Executive Director, sold shares to diversify personal investments. Mark Brayan, CEO and
Managing Director of Appen, sold shares to satisfy tax obligations and diversify personal investments.
12,345,462
110,430
(2,370,535)
10,085,357
Independent remuneration advisors
Where appropriate, the Board and the Nomination and Remuneration Committee engage external and independent remuneration
advisors to provide industry benchmarks, peer comparison information and specific local knowledge of country-specific
remuneration practices. In 2020, an independent global compensation consultant provided benchmarks for Australia-based
executives and a US-based leading specialist technology and life sciences compensation firm provided benchmarks for
US-based executives.
External advice is used as a guide only and is not a substitute for the Board and Nomination and Remuneration Committee’s
thorough consideration of the relevant remuneration matter.
9,110
105,000
95,890
9,110
105,000
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the directors
Christopher Vonwiller
Director
24 February 2021
Sydney
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Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
to the directors of Appen Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Appen Limited for the year ended
31 December 2020 there have been:
i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001
Notes to the consolidated financial statements
in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Cameron Slapp
Partner
Sydney
24 February 2021
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.
PB
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Contents
Consolidated statement of profit or loss
and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Note 1. General information
Note 2. Basis of preparation
Note 3. Operating segments
Note 4. Services revenue
Note 5. Expenses
Note 6.
Income tax
Note 7. Cash and cash equivalents
Note 8.
Trade and other receivables
Note 9. Contract assets
Note 10. Derivative financial instruments
Note 11. Property, plant and equipment
Note 12. Right‑of‑use assets
Note 13.
Intangibles
Note 14. Trade and other payables
Note 15. Contract liabilities
Note 16. Borrowings
Note 17. Lease liabilities
Note 18. Employee benefits
Note 19. Other liabilities
Note 20. Issued capital
Note 21. Reserves
Note 22. Accumulated losses
Note 23. Dividends
Note 24. Financial instruments
Note 25. Fair value measurement
Note 27. Remuneration of auditors
Note 28. Contingent liabilities
Note 29. Related party transactions
Note 30. Parent entity information
Note 31.
Interests in subsidiaries
Note 32. Deed of cross guarantee
Note 33. Cash flow information
Note 34. Earnings per share
Note 35. Share‑based payments
Note 36. Other information
Note 37. Events after the reporting period
Directors’ declaration
Independent auditor’s report
Note 26. Key management personnel disclosures
74
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78
78
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82
84
86
90
90
92
93
93
95
96
100
100
101
103
104
104
105
106
108
108
109
113
114
115
115
115
116
117
118
120
121
122
127
127
128
129
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
to the directors of Appen Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Appen Limited for the year ended
31 December 2020 there have been:
in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Cameron Slapp
Partner
Sydney
24 February 2021
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.
i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001
Notes to the consolidated financial statements
Contents
Consolidated statement of profit or loss
and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Note 1. General information
Note 2. Basis of preparation
Note 3. Operating segments
Note 4. Services revenue
Note 5. Expenses
Note 6.
Income tax
Note 7. Cash and cash equivalents
Note 8.
Trade and other receivables
Note 9. Contract assets
Note 10. Derivative financial instruments
Note 11. Property, plant and equipment
Note 12. Right‑of‑use assets
Note 13.
Intangibles
Note 14. Trade and other payables
Note 15. Contract liabilities
Note 16. Borrowings
Note 17. Lease liabilities
Note 18. Employee benefits
Note 19. Other liabilities
Note 20. Issued capital
Note 21. Reserves
Note 22. Accumulated losses
Note 23. Dividends
Note 24. Financial instruments
Note 25. Fair value measurement
Note 26. Key management personnel disclosures
Note 27. Remuneration of auditors
Note 28. Contingent liabilities
Note 29. Related party transactions
Note 30. Parent entity information
Note 31.
Interests in subsidiaries
Note 32. Deed of cross guarantee
Note 33. Cash flow information
Note 34. Earnings per share
Note 35. Share‑based payments
Note 36. Other information
Note 37. Events after the reporting period
Directors’ declaration
Independent auditor’s report
74
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77
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78
78
79
82
84
86
90
90
92
93
93
95
96
100
100
101
103
104
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Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2020
Consolidated statement of financial position
as at 31 December 2020
Services revenue
Other income
Interest income calculated using the effective interest method
Recovery of impairment of receivables
Net foreign exchange gain
Expenses
Services purchased – data collection
Employee expenses
Share‑based payments expense
Depreciation and amortisation expense
Impairment of receivables
Travel expense
Professional fees
Rent and occupancy expense
Communication expense
Transaction costs
Figure Eight earn‑out adjustment
Deemed interest on earn‑out liability
Net foreign exchange loss
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year attributable to the owners of Appen Limited
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year attributable to the owners
of Appen Limited
Note
4
8
5
5
5
8
19
19
5
6
22
Group
2020
$’000
2019
$’000
599,377
535,493
153
325
47
6,804
8
498
–
–
(347,370)
(310,644)
(104,091)
(18,147)
(40,908)
–
(1,019)
(11,996)
(98)
(1,210)
(1,152)
4,059
(1,353)
–
(17,446)
(2,445)
(75,474)
(19,204)
(25,864)
(791)
(2,973)
(11,511)
(698)
(1,074)
(7,450)
2,557
(3,368)
(101)
(20,226)
(4,123)
63,530
55,055
(13,016)
(13,444)
50,514
41,611
(52,729)
(52,729)
2,681
2,681
(2,215)
44,292
Basic earnings per share
Diluted earnings per share
Cents
41.53
40.85
Cents
35.28
34.60
34
34
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
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Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivative financial instruments
Income tax refund due
Prepayments
Total current assets
Non‑current assets
Property, plant and equipment
Right‑of‑use assets
Intangibles
Deferred tax
Sundry receivables
Total non‑current assets
Trade and other payables
Total assets
Liabilities
Current liabilities
Contract liabilities
Lease liabilities
Income tax
Employee benefits
Other liabilities
Total current liabilities
Non‑current liabilities
Borrowings
Lease liabilities
Deferred tax
Employee benefits
Other liabilities
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Group
Note
2020
$’000
2019
$’000
7
8
9
10
6
11
12
13
6
14
15
17
6
18
19
16
17
6
18
19
20
21
22
78,437
65,650
40,880
1,918
10,752
3,142
75,274
116,336
7,886
314
–
2,829
200,779
202,639
5,149
23,326
5,577
21,922
359,388
398,576
10,686
1,038
399,587
600,366
57,292
9,675
6,532
–
4,230
100
77,829
–
18,705
17,395
565
–
36,665
114,494
485,872
362,138
127,604
(3,870)
485,872
3,979
1,444
431,498
634,137
60,414
22,122
4,648
1,424
2,050
38,143
128,801
–
18,043
4,011
431
1,069
23,554
152,355
481,782
362,138
123,514
(3,870)
481,782
Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2020
Consolidated statement of financial position
as at 31 December 2020
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivative financial instruments
Income tax refund due
Prepayments
Total current assets
Non‑current assets
Property, plant and equipment
Right‑of‑use assets
Intangibles
Deferred tax
Sundry receivables
Total non‑current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Income tax
Employee benefits
Other liabilities
Total current liabilities
Non‑current liabilities
Borrowings
Lease liabilities
Deferred tax
Employee benefits
Other liabilities
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Group
Note
2020
$’000
2019
$’000
7
8
9
10
6
11
12
13
6
14
15
17
6
18
19
16
17
6
18
19
20
21
22
78,437
65,650
40,880
1,918
10,752
3,142
75,274
116,336
7,886
314
–
2,829
200,779
202,639
5,149
23,326
5,577
21,922
359,388
398,576
10,686
1,038
399,587
600,366
57,292
9,675
6,532
–
4,230
100
77,829
–
18,705
17,395
565
–
36,665
114,494
485,872
362,138
127,604
(3,870)
485,872
3,979
1,444
431,498
634,137
60,414
22,122
4,648
1,424
2,050
38,143
128,801
–
18,043
4,011
431
1,069
23,554
152,355
481,782
362,138
123,514
(3,870)
481,782
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
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75
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Interest income calculated using the effective interest method
Services revenue
Other income
Recovery of impairment of receivables
Net foreign exchange gain
Expenses
Services purchased – data collection
Employee expenses
Share‑based payments expense
Depreciation and amortisation expense
Impairment of receivables
Travel expense
Professional fees
Rent and occupancy expense
Communication expense
Transaction costs
Figure Eight earn‑out adjustment
Deemed interest on earn‑out liability
Net foreign exchange loss
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year attributable to the owners
of Appen Limited
Basic earnings per share
Diluted earnings per share
accompanying notes.
Note
Group
2020
$’000
2019
$’000
599,377
535,493
4
8
5
5
5
8
19
19
5
6
22
153
325
47
6,804
498
8
–
–
(347,370)
(310,644)
(104,091)
(18,147)
(40,908)
–
(1,019)
(11,996)
(98)
(1,210)
(1,152)
4,059
(1,353)
–
(17,446)
(2,445)
(75,474)
(19,204)
(25,864)
(791)
(2,973)
(11,511)
(698)
(1,074)
(7,450)
2,557
(3,368)
(101)
(20,226)
(4,123)
63,530
55,055
(13,016)
(13,444)
(52,729)
(52,729)
2,681
2,681
(2,215)
44,292
Cents
41.53
40.85
Cents
35.28
34.60
34
34
Profit after income tax expense for the year attributable to the owners of Appen Limited
50,514
41,611
Consolidated statement of changes in equity
for the year ended 31 December 2020
Consolidated statement of cash flows
for the year ended 31 December 2020
Group
Balance at 1 January 2020
Profit after income tax expense for the year
Other comprehensive loss for the year, net of tax
Total comprehensive income/(loss) for the year
Transfer between reserves
Transactions with owners in their capacity as owners:
Share‑based payments
Dividends paid (note 23)
Issued
capital
$’000
Reserves
$’000
Accumulated
losses
$’000
Total
equity
$’000
362,138
123,514
(3,870)
481,782
–
–
–
–
–
–
–
50,514
50,514
(52,729)
–
(52,729)
(52,729)
50,514
(2,215)
50,514
(50,514)
–
17,862
(11,557)
–
–
17,862
(11,557)
Balance at 31 December 2020
362,138
127,604
(3,870)
485,872
Group
Balance at 1 January 2019
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transfer between reserves
Issued
capital
$’000
69,602
Reserves
$’000
Accumulated
losses
$’000
Total
equity
$’000
73,668
(3,870)
139,400
–
–
–
–
–
2,681
2,681
41,611
–
41,611
2,681
41,611
44,292
41,611
(41,611)
–
Transactions with owners in their capacity as owners:
Issue of ordinary shares, net of transaction costs (note 20)
292,536
Share‑based payments
Dividends paid (note 23)
–
–
–
14,657
(9,103)
–
–
–
292,536
14,657
(9,103)
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payment for purchase of subsidiary, net of cash acquired
Transaction cost paid for acquisitions
Payments for property, plant and equipment
Payments for intangibles
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Repayment of borrowings
Payments for lease liabilities
Dividends paid
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Balance at 31 December 2019
362,138
123,514
(3,870)
481,782
Cash and cash equivalents at the beginning of the financial year
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
7
78,437
75,274
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Group
Note
2020
$’000
2019
$’000
597,784
488,584
(485,108)
(405,831)
112,676
82,753
325
(1,912)
(17,516)
468
(2,413)
(13,506)
33
93,573
67,302
16
11
13
20
16
23
(39,040)
(233,835)
(1,152)
(2,433)
(6,687)
(3,113)
(24,818)
(12,400)
(67,443)
(256,035)
–
292,536
39,040
(34,129)
(6,184)
(11,557)
–
(57,028)
(4,467)
(9,103)
(12,830)
221,938
13,300
75,274
(10,137)
33,205
40,045
2,024
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Consolidated statement of changes in equity
for the year ended 31 December 2020
Consolidated statement of cash flows
for the year ended 31 December 2020
Group
Balance at 1 January 2020
Issued
capital
$’000
Reserves
$’000
Accumulated
losses
$’000
Total
equity
$’000
362,138
123,514
(3,870)
481,782
Profit after income tax expense for the year
Other comprehensive loss for the year, net of tax
–
50,514
50,514
(52,729)
–
(52,729)
Total comprehensive income/(loss) for the year
(52,729)
50,514
(2,215)
Transfer between reserves
50,514
(50,514)
–
Transactions with owners in their capacity as owners:
Share‑based payments
Dividends paid (note 23)
17,862
(11,557)
–
–
17,862
(11,557)
Balance at 31 December 2020
362,138
127,604
(3,870)
485,872
Group
Balance at 1 January 2019
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transfer between reserves
Transactions with owners in their capacity as owners:
Issue of ordinary shares, net of transaction costs (note 20)
292,536
Share‑based payments
Dividends paid (note 23)
Issued
capital
$’000
69,602
Reserves
$’000
Accumulated
losses
$’000
Total
equity
$’000
73,668
(3,870)
139,400
–
2,681
2,681
41,611
–
41,611
2,681
41,611
44,292
41,611
(41,611)
–
–
14,657
(9,103)
–
–
–
292,536
14,657
(9,103)
–
–
–
–
–
–
–
–
–
–
–
–
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payment for purchase of subsidiary, net of cash acquired
Transaction cost paid for acquisitions
Payments for property, plant and equipment
Payments for intangibles
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Repayment of borrowings
Payments for lease liabilities
Dividends paid
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Balance at 31 December 2019
362,138
123,514
(3,870)
481,782
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Group
Note
2020
$’000
2019
$’000
597,784
488,584
(485,108)
(405,831)
112,676
82,753
325
(1,912)
(17,516)
468
(2,413)
(13,506)
33
93,573
67,302
16
11
13
20
16
23
(39,040)
(233,835)
(1,152)
(2,433)
(6,687)
(3,113)
(24,818)
(12,400)
(67,443)
(256,035)
–
292,536
39,040
(34,129)
(6,184)
(11,557)
–
(57,028)
(4,467)
(9,103)
(12,830)
221,938
13,300
75,274
(10,137)
33,205
40,045
2,024
Cash and cash equivalents at the end of the financial year
7
78,437
75,274
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 1. General information
Note 2. Basis of preparation (continued)
The financial statements cover Appen Limited as a Group consisting of Appen Limited and the entities it controlled at the end
of, or during, the year. The financial statements are presented in Australian dollars, which is Appen Limited’s functional and
presentation currency.
Appen Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 6
9 Help Street
Chatswood NSW 2067
The financial statements were authorised for issue, in accordance with a resolution of directors, on 24 February 2021.
Note 2. Basis of preparation
Statement of compliance
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001, as appropriate
for for‑profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board (IASB).
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of
financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, certain classes
of property, plant and equipment, derivative financial instruments and share‑based payments, which are measured at fair value.
Critical accounting estimates
The preparation of the 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
as relevant as part of the relevant note.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary
information about the parent entity is disclosed in note 30.
New, revised or amended accounting standards
The Group has adopted any new, revised or amending Accounting Standards and Interpretations issued by the AASB that are
mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not
yet mandatory have not been early adopted. Below are the new standards adopted by the Group.
AASB 2020‑4 Amendment to Australian Accounting Standards – COVID‑19‑Related Rent Concessions
The Group adopted the amendment to AASB 16 from 1 January 2019. During the year, only one landlord granted a COVID‑19 rent
concession for a limited period.
Definition of a Business (Amendments to IFRS 3) and Interest Rate Benchmark Reform (Amendments
to IFRS 9, IAS 39 and IFRS 7)
The Group initially adopted these amendments from 1 January 2020. The Group applied Definition of a Business (Amendments
to IFRS 3) to business combinations whose acquisition dates are on or after 1 January 2020 in assessing whether it had acquired
a business or a group of assets.
A number of other new accounting standards and interpretations are effective from 1 January 2020, but these do not have any
impact on the Group’s financial statements.
Current and non‑current classification
Assets and liabilities are presented in the statement of financial position based on current and non‑current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s
normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the
reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least 12 months after the reporting period. All other assets are classified as non‑current.
A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily
for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional
right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified
as non‑current.
Rounding of amounts
Note 3. Operating segments
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued
by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off
in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Identification of reportable operating segments
The Group is organised into two operating segments based on differences in products and services provided: Relevance and
Speech & Image. These operating segments are based on the internal reports that are reviewed and used by the Group’s Chief
Executive Officer (CEO), who is identified as the Chief Operating Decision Maker, in assessing performance and in determining
the allocation of resources. There is no aggregation of operating segments.
The CEO reviews a set of financial reports which covers EBITDA (earnings before interest, tax, depreciation and amortisation),
revenue and operating segment reports on a monthly basis. The accounting policies adopted for internal reporting to the CEO
are consistent with those adopted in the financial statements.
Types of products and services
The principal products and services of each of these operating segments are as follows:
Relevance
Relevance products and services provide annotated training data that is directly used as an input
to improve performance of the world’s leading search engines, social media and e‑commerce
applications. Relevance training data relies heavily on our large‑scale global crowd to deliver
a workforce that is representative of our customers’ global user base with the speed and volume
of data to meet our customers’ requirements.
Speech & Image
Speech & Image products and services which provides training data that is used to build the world’s
leading AI‑based voice interface, translation, text analysis, AR/VR and image perception systems
(including LiDAR for autonomous vehicles). The combination of our leading data annotation platform,
global crowd and deep functional expertise delivers high‑quality training data at scale across a wide
variety of industries and applications.
Major customers
sales to five major customers.
During the year ended 31 December 2020 approximately 88.9% (2019: 88.2%) of the Group’s external revenue was derived from
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 1. General information
Note 2. Basis of preparation (continued)
The financial statements cover Appen Limited as a Group consisting of Appen Limited and the entities it controlled at the end
of, or during, the year. The financial statements are presented in Australian dollars, which is Appen Limited’s functional and
Appen Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and
The financial statements were authorised for issue, in accordance with a resolution of directors, on 24 February 2021.
presentation currency.
principal place of business is:
Level 6
9 Help Street
Chatswood NSW 2067
Note 2. Basis of preparation
Statement of compliance
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001, as appropriate
for for‑profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board (IASB).
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of
financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, certain classes
of property, plant and equipment, derivative financial instruments and share‑based payments, which are measured at fair value.
Critical accounting estimates
The preparation of the 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
as relevant as part of the relevant note.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary
information about the parent entity is disclosed in note 30.
New, revised or amended accounting standards
The Group has adopted any new, revised or amending Accounting Standards and Interpretations issued by the AASB that are
mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not
yet mandatory have not been early adopted. Below are the new standards adopted by the Group.
AASB 2020‑4 Amendment to Australian Accounting Standards – COVID‑19‑Related Rent Concessions
The Group adopted the amendment to AASB 16 from 1 January 2019. During the year, only one landlord granted a COVID‑19 rent
concession for a limited period.
to IFRS 9, IAS 39 and IFRS 7)
a business or a group of assets.
impact on the Group’s financial statements.
Definition of a Business (Amendments to IFRS 3) and Interest Rate Benchmark Reform (Amendments
The Group initially adopted these amendments from 1 January 2020. The Group applied Definition of a Business (Amendments
to IFRS 3) to business combinations whose acquisition dates are on or after 1 January 2020 in assessing whether it had acquired
A number of other new accounting standards and interpretations are effective from 1 January 2020, but these do not have any
Current and non‑current classification
Assets and liabilities are presented in the statement of financial position based on current and non‑current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s
normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the
reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least 12 months after the reporting period. All other assets are classified as non‑current.
A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily
for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional
right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified
as non‑current.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued
by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off
in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Note 3. Operating segments
Identification of reportable operating segments
The Group is organised into two operating segments based on differences in products and services provided: Relevance and
Speech & Image. These operating segments are based on the internal reports that are reviewed and used by the Group’s Chief
Executive Officer (CEO), who is identified as the Chief Operating Decision Maker, in assessing performance and in determining
the allocation of resources. There is no aggregation of operating segments.
The CEO reviews a set of financial reports which covers EBITDA (earnings before interest, tax, depreciation and amortisation),
revenue and operating segment reports on a monthly basis. The accounting policies adopted for internal reporting to the CEO
are consistent with those adopted in the financial statements.
Types of products and services
The principal products and services of each of these operating segments are as follows:
Relevance
Speech & Image
Relevance products and services provide annotated training data that is directly used as an input
to improve performance of the world’s leading search engines, social media and e‑commerce
applications. Relevance training data relies heavily on our large‑scale global crowd to deliver
a workforce that is representative of our customers’ global user base with the speed and volume
of data to meet our customers’ requirements.
Speech & Image products and services which provides training data that is used to build the world’s
leading AI‑based voice interface, translation, text analysis, AR/VR and image perception systems
(including LiDAR for autonomous vehicles). The combination of our leading data annotation platform,
global crowd and deep functional expertise delivers high‑quality training data at scale across a wide
variety of industries and applications.
Major customers
During the year ended 31 December 2020 approximately 88.9% (2019: 88.2%) of the Group’s external revenue was derived from
sales to five major customers.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 3. Operating segments (continued)
Note 3. Operating segments (continued)
Operating segment information
Group – 2020
Revenue
Services revenue
Interest
Other income
Total revenue and other income
Segment result
Corporate overhead
Marketing expenses
Share‑based payment – employees
Share‑based payment – acquisition related
Transaction costs
Depreciation and amortisation
Foreign exchange gain 1
Figure Eight earn out adjustment
Deemed interest on earn‑out liability
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
1 Mainly on repayment of borrowings (refer note 16).
Relevance
$’000
Speech
& Image
$’000
Other
segments
$’000
538,184
61,193
–
–
–
–
538,184
61,193
112,662
12,445
–
325
153
478
386
Total
$’000
599,377
325
153
599,855
125,493
(6,796)
(2,025)
(14,601)
(3,546)
(1,152)
(40,908)
6,804
4,059
(1,353)
(2,445)
63,530
(13,016)
50,514
Total revenue and other income
467,831
67,683
485
535,999
Relevance
$’000
Speech
& Image
$’000
Other
segments
$’000
467,810
67,683
21
–
–
–
104,195
21,421
477
–
8
8
Group – 2019
Revenue
Services revenue
Interest
Other income
Segment result
Corporate overhead
Marketing expenses
Share‑based payment – employees
Share‑based payment – acquisition related
Transaction costs
Depreciation and amortisation
Foreign exchange loss
Figure Eight earn‑out adjustment
Deemed interest on earn‑out liability
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Geographical information
Australia
US
Other countries
Total
$’000
535,493
498
8
125,624
(10,816)
(2,200)
(11,048)
(8,156)
(7,450)
(25,864)
(101)
2,557
(3,368)
(4,123)
55,055
(13,444)
41,611
Services revenue
Geographical
non‑current assets
2020
$’000
46,361
2019
$’000
59,568
2020
$’000
1,808
2019
$’000
1,421
544,709
468,420
372,599
406,007
8,307
7,505
599,377
535,493
13,705
388,112
15,052
422,480
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81
81
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 3. Operating segments (continued)
Note 3. Operating segments (continued)
Operating segment information
Group – 2020
Revenue
Services revenue
Interest
Other income
Segment result
Corporate overhead
Marketing expenses
Total revenue and other income
Share‑based payment – employees
Share‑based payment – acquisition related
Transaction costs
Depreciation and amortisation
Foreign exchange gain 1
Figure Eight earn out adjustment
Deemed interest on earn‑out liability
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
1 Mainly on repayment of borrowings (refer note 16).
Relevance
$’000
Speech
& Image
$’000
Other
segments
$’000
538,184
61,193
–
–
–
–
538,184
61,193
112,662
12,445
–
325
153
478
386
Total
$’000
599,377
325
153
599,855
125,493
(6,796)
(2,025)
(14,601)
(3,546)
(1,152)
(40,908)
6,804
4,059
(1,353)
(2,445)
63,530
(13,016)
50,514
Group – 2019
Revenue
Services revenue
Interest
Other income
Total revenue and other income
Segment result
Corporate overhead
Marketing expenses
Share‑based payment – employees
Share‑based payment – acquisition related
Transaction costs
Depreciation and amortisation
Foreign exchange loss
Figure Eight earn‑out adjustment
Deemed interest on earn‑out liability
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Geographical information
Australia
US
Other countries
Relevance
$’000
Speech
& Image
$’000
Other
segments
$’000
467,810
67,683
21
–
–
–
467,831
67,683
–
477
8
485
Total
$’000
535,493
498
8
535,999
104,195
21,421
8
125,624
(10,816)
(2,200)
(11,048)
(8,156)
(7,450)
(25,864)
(101)
2,557
(3,368)
(4,123)
55,055
(13,444)
41,611
Services revenue
Geographical
non‑current assets
2020
$’000
46,361
2019
$’000
59,568
2020
$’000
1,808
2019
$’000
1,421
544,709
468,420
372,599
406,007
8,307
7,505
599,377
535,493
13,705
388,112
15,052
422,480
80
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81
81
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 4. Services revenue
Note 4. Services revenue (continued)
Services revenue
Disaggregation of services revenue
Services revenue is disaggregated by type of service and primary geographical country as follows:
Group
2020
$’000
2019
$’000
599,377
535,493
Group – 2020
Geographical regions
Australia
US
Other countries
Group – 2019
Geographical regions
Australia
US
Other countries
Relevance
$’000
Speech
& Image
$’000
Total
$’000
–
46,361
46,361
538,184
–
538,184
6,525
8,307
61,193
544,709
8,307
599,377
Relevance
$’000
Speech
& Image
$’000
Total
$’000
–
59,568
59,568
467,810
610
468,420
–
467,810
7,505
67,683
7,505
535,493
Accounting policy
The Group recognises revenue as follows:
Revenue from contracts with customers
Appen derives most of its revenue from two distinct performance obligations, being:
•
•
revenue from subscription to a platform for a specified period of time; and
revenue from sourcing a crowd for customers through multiple vendors.
Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled
in exchange for transferring annotated and/or collected data as per customer requirements, when or as each
performance obligation is satisfied in a manner that depicts the transfer to the customer of the data required.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such
as discounts, rebates and refunds. Such estimates are determined using either the ‘expected value’ or ‘most likely
amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue
will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative
revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the
variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are
recognised as a liability.
Revenue from services represents the sale of contract services or licence products and database. Revenue is recognised
in profit or loss progressively as the annotated and/or collected data is completed and validated or approved by the
customer. Stage of completion of transactions involving the rendering of services is determined by reference to the
services performed to date as a percentage of total services to be performed.
Interest revenue is recognised on a time proportion basis, by reference to the principal outstanding and the effective
interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the
Interest
financial asset to the assets net carrying value.
Other revenue
Foreign exchange gains and losses
Other revenue is recognised when it is received or when the right to receive payment is established.
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the date
of the transactions. Foreign exchange gains (and losses) resulting from the settlement of such transactions and from
the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
82
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83
83
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 4. Services revenue
Note 4. Services revenue (continued)
Disaggregation of services revenue
Services revenue is disaggregated by type of service and primary geographical country as follows:
Services revenue
Group – 2020
Geographical regions
Australia
US
Other countries
Group – 2019
Geographical regions
Australia
US
Other countries
Group
2020
$’000
2019
$’000
599,377
535,493
Relevance
$’000
Speech
& Image
$’000
Total
$’000
538,184
538,184
46,361
46,361
6,525
8,307
61,193
544,709
8,307
599,377
Relevance
$’000
Speech
& Image
$’000
Total
$’000
467,810
610
468,420
467,810
7,505
67,683
7,505
535,493
–
–
–
–
Accounting policy
The Group recognises revenue as follows:
Revenue from contracts with customers
Appen derives most of its revenue from two distinct performance obligations, being:
•
•
revenue from subscription to a platform for a specified period of time; and
revenue from sourcing a crowd for customers through multiple vendors.
Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled
in exchange for transferring annotated and/or collected data as per customer requirements, when or as each
performance obligation is satisfied in a manner that depicts the transfer to the customer of the data required.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such
as discounts, rebates and refunds. Such estimates are determined using either the ‘expected value’ or ‘most likely
amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue
will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative
revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the
variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are
recognised as a liability.
Revenue from services represents the sale of contract services or licence products and database. Revenue is recognised
in profit or loss progressively as the annotated and/or collected data is completed and validated or approved by the
customer. Stage of completion of transactions involving the rendering of services is determined by reference to the
services performed to date as a percentage of total services to be performed.
59,568
59,568
Interest
Interest revenue is recognised on a time proportion basis, by reference to the principal outstanding and the effective
interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the
financial asset to the assets net carrying value.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Foreign exchange gains and losses
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the date
of the transactions. Foreign exchange gains (and losses) resulting from the settlement of such transactions and from
the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
82
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83
83
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 5. Expenses
Profit before income tax includes the following specific expenses:
Depreciation and amortisation
Depreciation:
Leasehold improvements
Fixtures and fittings
Computer equipment
Audio equipment
Land and buildings – right‑of‑use assets
Total depreciation
Amortisation:
Systems implementation
Platform development
Other intangibles
Amortisation sub‑total
Amortisation – acquisition related:
Platform development 1
Customer relationships
Brand
Customer contracts
Amortisation – acquisition related sub‑total
Total depreciation and amortisation
Note 5. Expenses (continued)
Share‑based payments expense
Share‑based payment in respect of Appen performance rights
Share‑based payment in respect of Leapforce
Share‑based payment in respect of Figure Eight
Total share‑based payments expense
Employee expenses
Defined contribution superannuation expense
Employee expenses
Total employee expenses
Accounting policy
Depreciation expense
Amortisation expense
Group
2020
$’000
2019
$’000
913
172
1,662
35
6,784
9,566
543
13,682
44
14,269
10,360
6,204
436
73
647
353
1,136
20
3,947
6,103
543
5,299
33
5,875
7,536
5,951
327
72
17,073
13,886
40,908
25,864
1 The benefits associated with acquisition related platform development new feature enhancements are now fully integrated into the Group.
Finance costs
Interest and finance charges paid/payable on borrowings
Interest and finance charges paid/payable on lease liabilities
Finance costs expensed
Group
2020
$’000
2019
$’000
1,169
1,276
3,103
1,020
2,445
4,123
Depreciation is calculated on a straight‑line basis to write‑off the net cost of each item of property, plant and
equipment (excluding land) over their expected useful lives.
Amortisation is calculated to write‑off the cost of intangible assets less their estimated residual values using the
straight‑line method over their estimated useful lives and is recognised in profit or loss. Goodwill is not amortised.
Finance costs
All finance costs are expensed in the period in which they are incurred.
Share‑based payments expense
All share‑based payments are expensed over the relevant vesting period.
Employee expenses
Includes all short‑term employee benefits (wages, paid annual leave and sick leave and any non‑monetary benefits),
post‑employment benefits and other long‑term or termination employee benefits.
Group
2020
$’000
2019
$’000
14,601
1,668
1,878
11,048
1,668
6,488
18,147
19,204
Group
2020
$’000
2019
$’000
5,702
98,389
3,285
72,189
104,091
75,474
84
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85
85
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 5. Expenses
Profit before income tax includes the following specific expenses:
Land and buildings – right‑of‑use assets
Depreciation and amortisation
Depreciation:
Leasehold improvements
Fixtures and fittings
Computer equipment
Audio equipment
Total depreciation
Amortisation:
Systems implementation
Platform development
Other intangibles
Amortisation sub‑total
Platform development 1
Customer relationships
Brand
Customer contracts
Amortisation – acquisition related:
Amortisation – acquisition related sub‑total
Total depreciation and amortisation
Finance costs
Interest and finance charges paid/payable on borrowings
Interest and finance charges paid/payable on lease liabilities
Finance costs expensed
Note 5. Expenses (continued)
Share‑based payments expense
Share‑based payment in respect of Appen performance rights
Share‑based payment in respect of Leapforce
Share‑based payment in respect of Figure Eight
Total share‑based payments expense
Employee expenses
Defined contribution superannuation expense
Employee expenses
Total employee expenses
Accounting policy
Depreciation expense
Group
2020
$’000
2019
$’000
14,601
1,668
1,878
11,048
1,668
6,488
18,147
19,204
Group
2020
$’000
2019
$’000
5,702
98,389
3,285
72,189
104,091
75,474
Depreciation is calculated on a straight‑line basis to write‑off the net cost of each item of property, plant and
equipment (excluding land) over their expected useful lives.
Amortisation expense
Amortisation is calculated to write‑off the cost of intangible assets less their estimated residual values using the
straight‑line method over their estimated useful lives and is recognised in profit or loss. Goodwill is not amortised.
Finance costs
All finance costs are expensed in the period in which they are incurred.
Share‑based payments expense
All share‑based payments are expensed over the relevant vesting period.
Employee expenses
Includes all short‑term employee benefits (wages, paid annual leave and sick leave and any non‑monetary benefits),
post‑employment benefits and other long‑term or termination employee benefits.
Group
2020
$’000
2019
$’000
913
172
1,662
35
6,784
9,566
543
13,682
44
14,269
10,360
6,204
436
73
647
353
1,136
20
3,947
6,103
543
5,299
33
5,875
7,536
5,951
327
72
17,073
13,886
40,908
25,864
Group
2020
$’000
2019
$’000
1,169
1,276
3,103
1,020
2,445
4,123
1 The benefits associated with acquisition related platform development new feature enhancements are now fully integrated into the Group.
84
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85
85
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 6. Income tax
Note 6. Income tax (continued)
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Adjustment recognised for prior periods – current tax
Adjustment recognised for prior periods – deferred tax
Income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
Deferred tax – origination and reversal of temporary differences
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Entertainment expenses
Share‑based payments
Figure Eight earn‑out payments adjustment
Non‑deductible transaction cost related to acquisition
Exchange differences
Sundry items
Adjustment recognised for prior periods
Difference in overseas tax rates
Income tax expense
Group
2020
$’000
2019
$’000
(80)
15,211
5,766
(7,881)
15,377
(2,452)
519
–
13,016
13,444
(7,374)
14,733
(2,914)
462
7,359
(2,452)
63,530
55,055
19,059
16,517
–
(1,006)
(662)
–
(920)
(60)
16,411
(2,115)
(1,280)
38
(1,734)
–
802
–
–
15,623
519
(2,698)
13,016
13,444
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Allowance for expected credit losses
Property, plant and equipment
Foreign currency revaluation and other expense
Employee benefits
Leases
Accrued expenses
Work‑in‑progress
Transaction costs
Deferred tax asset
Movements:
Opening balance
Credited to profit or loss
Additions through business combinations
Exchange differences
Closing balance
Group
2020
$’000
2019
$’000
–
334
7,095
309
–
–
2,921
27
3,979
7,374
–
(667)
1
(258)
1,093
303
1,463
(656)
–
2,033
1,584
2,914
(519)
–
10,686
3,979
10,686
3,979
86
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Appen 2020 Annual Report
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87
87
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 6. Income tax
Note 6. Income tax (continued)
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Adjustment recognised for prior periods – current tax
Adjustment recognised for prior periods – deferred tax
Income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
Deferred tax – origination and reversal of temporary differences
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Entertainment expenses
Share‑based payments
Exchange differences
Sundry items
Figure Eight earn‑out payments adjustment
Non‑deductible transaction cost related to acquisition
Adjustment recognised for prior periods
Difference in overseas tax rates
Income tax expense
Group
2020
$’000
2019
$’000
(80)
15,211
5,766
(7,881)
15,377
(2,452)
519
–
13,016
13,444
(7,374)
14,733
(2,914)
462
7,359
(2,452)
63,530
55,055
19,059
16,517
(1,006)
(662)
–
–
(920)
(60)
16,411
(2,115)
(1,280)
38
(1,734)
802
–
–
–
15,623
519
(2,698)
13,016
13,444
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Allowance for expected credit losses
Property, plant and equipment
Employee benefits
Leases
Accrued expenses
Work‑in‑progress
Transaction costs
Foreign currency revaluation and other expense
Deferred tax asset
Movements:
Opening balance
Credited to profit or loss
Additions through business combinations
Exchange differences
Closing balance
Group
2020
$’000
2019
$’000
–
334
7,095
–
309
–
2,921
27
1
(258)
1,093
303
1,463
(656)
–
2,033
10,686
3,979
3,979
7,374
–
(667)
1,584
2,914
(519)
–
10,686
3,979
86
86
Appen 2020 Annual Report
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87
87
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 6. Income tax (continued)
Note 6. Income tax (continued)
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax loss from Figure Eight acquisition 1
Property, plant and equipment
Right‑of‑use office lease
Intangible assets
Employee benefits
Revenue received in advance
Platform development costs
Figure Eight earn‑out liability adjustment
Initial Public Offering related transaction cost
Figure Eight identifiable intangibles
Foreign currency revaluation and other expense
Deferred tax liability
Movements:
Opening balance
Charged to profit or loss
Exchange differences
Closing balance
Group
2020
$’000
2019
$’000
(9,253)
(16,624)
–
–
23,775
–
2,383
–
–
–
–
490
134
(94)
3,210
(676)
666
2,331
(1,066)
(570)
18,732
(2,032)
17,395
4,011
4,011
14,733
(1,349)
3,549
462
–
17,395
4,011
1 Estimated tax losses relating to Figure Eight to be applied to future periods amounts to US$43.5 million of which US$28.5 million has been
recognised as a deferred tax asset. This is subject to estimated maximum annual limitations as follows:
2021: US$16.5 million
2022–2040: US$0.7 million
Income tax refund due
Provision for income tax
Group
2020
$’000
10,752
Group
2020
$’000
–
2019
$’000
–
2019
$’000
1,424
Critical accounting judgements, estimates and assumptions
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required
in determining the provision for income tax. There are certain transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for
any anticipated tax audit issues based on the Group’s current understanding of the application of the tax law. Where
the final tax outcome of these matters is different from the carrying amounts, such differences will impact on the current
and deferred tax positions in the period that such a determination is made.
Recoverability of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences and net losses only if the Group considers
it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Accounting policy
Current tax
or substantively enacted at the reporting date.
Deferred tax
Current tax comprises the expected payable or receivable on the taxable income or loss for the year and any adjustment
to tax payable or receivable in respect of previous years. It is measured using tax rates for each jurisdiction enacted
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 joint arrangements 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; and
•
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
Appen Limited (the ‘head entity’) and its wholly‑owned Australian subsidiaries have formed an income tax consolidated
group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue
to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate
taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax
consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the
tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities
are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding
arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated
group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
88
88
Appen 2020 Annual Report
Appen 2020 Annual Report
89
89
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 6. Income tax (continued)
Note 6. Income tax (continued)
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax loss from Figure Eight acquisition 1
Property, plant and equipment
Right‑of‑use office lease
Intangible assets
Employee benefits
Revenue received in advance
Platform development costs
Figure Eight earn‑out liability adjustment
Initial Public Offering related transaction cost
Figure Eight identifiable intangibles
Foreign currency revaluation and other expense
Deferred tax liability
Movements:
Opening balance
Charged to profit or loss
Exchange differences
Closing balance
2021: US$16.5 million
2022–2040: US$0.7 million
Income tax refund due
Provision for income tax
Group
2020
$’000
2019
$’000
(9,253)
(16,624)
23,775
2,383
–
–
–
–
–
–
–
490
134
(94)
3,210
(676)
666
2,331
(1,066)
(570)
18,732
(2,032)
17,395
4,011
4,011
14,733
(1,349)
3,549
462
–
17,395
4,011
Group
2020
$’000
10,752
2020
$’000
–
Group
2019
$’000
–
2019
$’000
1,424
Critical accounting judgements, estimates and assumptions
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required
in determining the provision for income tax. There are certain transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for
any anticipated tax audit issues based on the Group’s current understanding of the application of the tax law. Where
the final tax outcome of these matters is different from the carrying amounts, such differences will impact on the current
and deferred tax positions in the period that such a determination is made.
Recoverability of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences and net losses only if the Group considers
it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Accounting policy
Current tax
Current tax comprises the expected payable or receivable on the taxable income or loss for the year and any adjustment
to tax payable or receivable in respect of previous years. It is measured using tax rates for each jurisdiction enacted
or substantively enacted at the reporting date.
Deferred tax
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 joint arrangements 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; and
•
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
Appen Limited (the ‘head entity’) and its wholly‑owned Australian subsidiaries have formed an income tax consolidated
group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue
to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate
taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax
consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the
tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities
are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding
arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated
group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
1 Estimated tax losses relating to Figure Eight to be applied to future periods amounts to US$43.5 million of which US$28.5 million has been
recognised as a deferred tax asset. This is subject to estimated maximum annual limitations as follows:
88
88
Appen 2020 Annual Report
Appen 2020 Annual Report
89
89
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 7. Cash and cash equivalents
Note 8. Trade and other receivables (continued)
Current assets
Cash on hand
Cash at bank
Group
2020
$’000
2019
$’000
1
6
78,436
75,268
78,437
75,274
Accounting policy
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, 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.
Note 8. Trade and other receivables
Impairment and allowance for expected credit losses
At 31 December 2020, the Group has recognised a provision of $807,211 (2019: $1,027,000) in respect of the impairment
of receivables.
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Group
Not overdue
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
Expected credit loss rate
Carrying amount
credit losses
2020
%
–
–
13%
100%
2019
%
–
–
–
83%
2020
$’000
43,918
15,865
4,002
282
2019
$’000
64,458
50,040
–
1,239
64,067
115,737
Allowance for expected
2020
$’000
2019
$’000
–
–
525
282
807
–
–
–
1,027
1,027
Movements in the allowance for expected credit losses are as follows:
Current assets
Trade receivables
Less: Allowance for expected credit losses
Other receivables
GST receivable
Group
2020
$’000
2019
$’000
64,067
(807)
63,260
1,949
441
115,737
(1,027)
114,710
1,294
332
65,650
116,336
Opening balance
Additional provisions recognised
Foreign currency revaluation on opening balance
Amounts written off during the year as uncollectable
Unused amounts reversed
Closing balance
The reduction in trade receivables relates to amounts, at 31 December 2020, being classed as ‘contract assets’ (refer note 9).
The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short‑term nature
of the balances.
Critical accounting judgements, estimates and assumptions
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based
on the lifetime expected credit loss, grouped based on days overdue and makes assumptions to allocate an overall
expected credit loss for each group. The assumptions include recent sales experience and historical collection rates
and forward‑looking information that is available.
Group
2020
$’000
1,027
–
(97)
(76)
(47)
2019
$’000
184
791
48
4
–
807
1,027
90
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Accounting policy
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, 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.
Note 8. Trade and other receivables
Current assets
Cash on hand
Cash at bank
Less: Allowance for expected credit losses
Current assets
Trade receivables
Other receivables
GST receivable
of the balances.
Group
2020
$’000
2019
$’000
1
6
78,436
75,268
78,437
75,274
Group
2020
$’000
2019
$’000
64,067
(807)
63,260
1,949
441
115,737
(1,027)
114,710
1,294
332
65,650
116,336
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 7. Cash and cash equivalents
Note 8. Trade and other receivables (continued)
Impairment and allowance for expected credit losses
At 31 December 2020, the Group has recognised a provision of $807,211 (2019: $1,027,000) in respect of the impairment
of receivables.
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Group
Not overdue
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
Expected credit loss rate
Carrying amount
2020
%
–
–
13%
100%
2019
%
–
–
–
83%
2020
$’000
43,918
15,865
4,002
282
2019
$’000
64,458
50,040
–
1,239
64,067
115,737
Allowance for expected
credit losses
2020
$’000
2019
$’000
–
–
525
282
807
–
–
1,027
–
1,027
Movements in the allowance for expected credit losses are as follows:
Opening balance
Additional provisions recognised
Foreign currency revaluation on opening balance
Amounts written off during the year as uncollectable
Unused amounts reversed
Closing balance
Group
2020
$’000
1,027
–
(97)
(76)
(47)
2019
$’000
184
791
48
4
–
807
1,027
The reduction in trade receivables relates to amounts, at 31 December 2020, being classed as ‘contract assets’ (refer note 9).
The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short‑term nature
Critical accounting judgements, estimates and assumptions
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based
on the lifetime expected credit loss, grouped based on days overdue and makes assumptions to allocate an overall
expected credit loss for each group. The assumptions include recent sales experience and historical collection rates
and forward‑looking information that is available.
90
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91
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 8. Trade and other receivables (continued)
Note 10. Derivative financial instruments
Accounting policy
Trade receivables are initially recognised at fair value. Trade receivables are generally due for settlement within 30–60
days. 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.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement
of financial position.
Other receivables are recognised at amortised cost, less any provision for impairment.
Note 9. Contract assets
Current assets
Contract assets
Reconciliation
Reconciliation of the written down values at the beginning and end of the current and previous
financial year are set out below:
Balance at 1 January
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – origination 1
Balance at 30 June
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – origination 1
Revaluation
Balance at 31 December
Group
2020
$’000
2019
$’000
40,880
7,886
7,886
(7,886)
30,716
30,716
10,354
(10,354)
10,395
10,395
(30,716)
(10,395)
41,561
(681)
8,053
(167)
40,880
7,886
1 Relates to services completed that the Group is yet to receive an unconditional right to the amount due, as the relevant invoices in respect
of the completed work are pending satisfaction of the customer’s billing milestones or billing period. The majority of contract assets were
subsequently invoiced on 1 January 2021 and as at 16 February 2021, 80% of these invoices had been paid.
92
92
Group
2020
$’000
2019
$’000
Current assets
Forward foreign exchange contracts – cash flow hedges
1,918
314
Refer to note 25 for further information on fair value measurement.
Accounting policy
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends
on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Derivatives are classified as current or non‑current depending on the expected period of realisation.
Cash flow hedges
Cash flow hedges are used to cover the Group’s exposure to variability in cash flows that is attributable to particular
risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. Under
AASB 139, all gains and losses arising from the Group’s cash flow hedging relationships were eligible to be subsequently
reclassified to profit or loss. However, under AASB 9, gains and losses arising on cash flow hedges of forecast purchases
of non‑financial assets need to be incorporated into initial carrying amounts of the non‑financial assets.
Note 11. Property, plant and equipment
Non–current assets
Leasehold improvements – at cost
Less: Accumulated depreciation
Fixtures and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
Audio equipment – at cost
Less: Accumulated depreciation
Group
2020
$’000
2019
$’000
4,989
(2,923)
2,066
1,553
(985)
568
6,905
(4,467)
2,438
244
(167)
77
4,510
(2,164)
2,346
1,571
(887)
684
5,592
(3,110)
2,482
198
(133)
65
5,149
5,577
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93
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 8. Trade and other receivables (continued)
Note 10. Derivative financial instruments
Group
2020
$’000
2019
$’000
Current assets
Forward foreign exchange contracts – cash flow hedges
1,918
314
Refer to note 25 for further information on fair value measurement.
Accounting policy
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends
on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Derivatives are classified as current or non‑current depending on the expected period of realisation.
Cash flow hedges
Cash flow hedges are used to cover the Group’s exposure to variability in cash flows that is attributable to particular
risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. Under
AASB 139, all gains and losses arising from the Group’s cash flow hedging relationships were eligible to be subsequently
reclassified to profit or loss. However, under AASB 9, gains and losses arising on cash flow hedges of forecast purchases
of non‑financial assets need to be incorporated into initial carrying amounts of the non‑financial assets.
Reconciliation of the written down values at the beginning and end of the current and previous
Note 11. Property, plant and equipment
Non–current assets
Leasehold improvements – at cost
Less: Accumulated depreciation
Fixtures and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
Audio equipment – at cost
Less: Accumulated depreciation
Group
2020
$’000
2019
$’000
4,989
(2,923)
2,066
1,553
(985)
568
6,905
(4,467)
2,438
244
(167)
77
4,510
(2,164)
2,346
1,571
(887)
684
5,592
(3,110)
2,482
198
(133)
65
5,149
5,577
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93
Accounting policy
Trade receivables are initially recognised at fair value. Trade receivables are generally due for settlement within 30–60
days. 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.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement
of financial position.
Other receivables are recognised at amortised cost, less any provision for impairment.
Note 9. Contract assets
Current assets
Contract assets
Reconciliation
financial year are set out below:
Balance at 1 January
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – origination 1
Balance at 30 June
Accrued revenue recognised – origination 1
Revaluation
Balance at 31 December
Subsequently invoiced and transferred to receivables – reversal
(30,716)
(10,395)
1 Relates to services completed that the Group is yet to receive an unconditional right to the amount due, as the relevant invoices in respect
of the completed work are pending satisfaction of the customer’s billing milestones or billing period. The majority of contract assets were
subsequently invoiced on 1 January 2021 and as at 16 February 2021, 80% of these invoices had been paid.
Group
2020
$’000
2019
$’000
40,880
7,886
7,886
(7,886)
30,716
30,716
41,561
(681)
10,354
(10,354)
10,395
10,395
8,053
(167)
40,880
7,886
92
92
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 11. Property, plant and equipment (continued)
Note 12. Right‑of‑use assets
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Fixtures
and fittings
$’000
Computer
equipment
$’000
Audio
equipment
$’000
Group
Balance at 1 January 2019
Additions
Additions through business combinations – Figure Eight
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2019
Additions
Disposals
Exchange differences
Depreciation expense
Leasehold
improve‑
ments
$’000
2,368
754
371
(21)
(479)
(647)
2,346
675
–
(42)
(913)
324
529
248
(41)
(23)
(353)
684
94
–
(38)
(172)
2,164
1,795
234
(56)
(519)
(1,136)
2,482
1,616
(2)
4
(1,662)
Balance at 31 December 2020
2,066
568
2,438
Total
$’000
4,906
3,113
853
(118)
(1,021)
(2,156)
5,577
2,433
(2)
(77)
(2,782)
5,149
50
35
–
–
–
(20)
65
48
–
(1)
(35)
77
Critical accounting judgements, estimates and assumptions
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortisation charges for its property,
plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical
innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less
than previously estimated lives, or technically obsolete or assets that have been abandoned or sold will be written off
or written down.
Accounting policy
Each class of property, plant and equipment is carried at cost or fair value, less any accumulated depreciation
or impairment losses. The assets’ depreciation methods, residual values and useful lives are reviewed, and adjusted
if appropriate, at the end of each reporting period. The depreciation rates used for each class of depreciable assets are:
Leasehold improvements
Over the lease term
Fixtures and fittings
Computer equipment
Audio equipment
3–13 years
1–4 years
1–4 years
Any gain or loss on disposal of an item of plant and equipment is recognised in the consolidated statement of profit
or loss.
For other AASB 16 and lease related disclosures refer to the following:
• Refer to note 5 for interest on lease liabilities and other lease payments;
• Refer to note 17 for lease liabilities at 31 December 2020;
• Refer to note 24 for maturity analysis of lease liabilities; and
• Refer to the consolidated statement of cash flows for repayment of lease liabilities.
Accounting policy
A right‑of‑use asset is recognised at the commencement date of a lease. The right‑of‑use asset is measured at cost,
which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before
the commencement date net of any lease incentives received. Right‑of‑use assets are subject to impairment or adjusted
for any remeasurement of lease liabilities. The leases have varying terms, escalation clauses and renewal rights.
On renewal, the lease terms are re‑negotiated.
Depreciation is charged on a straight‑line basis over the term of the lease. The Group leases land and buildings for its
offices under lease agreements of between three and 11 years. Options to extend are assessed for reasonable certainty
in assessing the term of the lease to charge the depreciation expense.
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Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Non‑current assets
Land and buildings – right‑of‑use
Less: Accumulated depreciation
Reconciliations
Group
Balance at 1 January 2019
Additions on adoption of AASB 16
Exchange differences
Depreciation expense
Balance at 31 December 2019
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2020
Group
2020
$’000
2019
$’000
32,963
(9,637)
25,838
(3,916)
23,326
21,922
Land and
buildings
$’000
11,820
14,018
31
(3,947)
21,922
9,255
(361)
(706)
(6,784)
23,326
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 11. Property, plant and equipment (continued)
Note 12. Right‑of‑use assets
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Fixtures
and fittings
Computer
equipment
Audio
equipment
$’000
$’000
$’000
Non‑current assets
Land and buildings – right‑of‑use
Less: Accumulated depreciation
Additions through business combinations – Figure Eight
Group
2020
$’000
2019
$’000
32,963
(9,637)
25,838
(3,916)
23,326
21,922
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Group
Balance at 1 January 2019
Additions on adoption of AASB 16
Exchange differences
Depreciation expense
Balance at 31 December 2019
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2020
Land and
buildings
$’000
11,820
14,018
31
(3,947)
21,922
9,255
(361)
(706)
(6,784)
23,326
For other AASB 16 and lease related disclosures refer to the following:
• Refer to note 5 for interest on lease liabilities and other lease payments;
• Refer to note 17 for lease liabilities at 31 December 2020;
• Refer to note 24 for maturity analysis of lease liabilities; and
• Refer to the consolidated statement of cash flows for repayment of lease liabilities.
Accounting policy
A right‑of‑use asset is recognised at the commencement date of a lease. The right‑of‑use asset is measured at cost,
which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before
the commencement date net of any lease incentives received. Right‑of‑use assets are subject to impairment or adjusted
for any remeasurement of lease liabilities. The leases have varying terms, escalation clauses and renewal rights.
On renewal, the lease terms are re‑negotiated.
Depreciation is charged on a straight‑line basis over the term of the lease. The Group leases land and buildings for its
offices under lease agreements of between three and 11 years. Options to extend are assessed for reasonable certainty
in assessing the term of the lease to charge the depreciation expense.
Reconciliations
Balance at 1 January 2019
Group
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2019
Additions
Disposals
Exchange differences
Depreciation expense
or written down.
Accounting policy
Leasehold
improve‑
ments
$’000
2,368
754
371
(21)
(479)
(647)
2,346
675
–
(42)
(913)
324
529
248
(41)
(23)
(353)
684
94
–
(38)
(172)
2,164
1,795
234
(56)
(519)
(1,136)
2,482
1,616
(2)
4
(1,662)
Total
$’000
4,906
3,113
853
(118)
(1,021)
(2,156)
5,577
2,433
(2)
(77)
(2,782)
5,149
50
35
–
–
–
(20)
65
48
–
(1)
(35)
77
Balance at 31 December 2020
2,066
568
2,438
Critical accounting judgements, estimates and assumptions
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortisation charges for its property,
plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical
innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less
than previously estimated lives, or technically obsolete or assets that have been abandoned or sold will be written off
Each class of property, plant and equipment is carried at cost or fair value, less any accumulated depreciation
or impairment losses. The assets’ depreciation methods, residual values and useful lives are reviewed, and adjusted
if appropriate, at the end of each reporting period. The depreciation rates used for each class of depreciable assets are:
Leasehold improvements
Over the lease term
Fixtures and fittings
Computer equipment
Audio equipment
or loss.
3–13 years
1–4 years
1–4 years
Any gain or loss on disposal of an item of plant and equipment is recognised in the consolidated statement of profit
94
94
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 13. Intangibles
Non‑current assets
Goodwill – at cost
Systems implementation – at cost
Less: Accumulated amortisation
Platform development – at cost
Less: Accumulated amortisation
Customer relationships – at cost
Less: Accumulated amortisation
Brand – at cost
Less: Accumulated amortisation
Customer contracts – at cost
Less: Accumulated amortisation
Other intangibles – at cost
Less: Accumulated amortisation
Group
2020
$’000
2019
$’000
262,802
288,772
4,979
(3,260)
1,719
104,163
(35,314)
68,849
40,861
(15,736)
25,125
778
(681)
97
3,077
(3,008)
69
1,180
(453)
727
5,419
(3,050)
2,369
87,772
(15,007)
72,765
44,909
(11,209)
33,700
855
(321)
534
3,369
(3,223)
146
716
(426)
290
359,388
398,576
exchange currency movements only.
Note 13. Intangibles (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Systems
implemen‑
Platform
develop‑
Customer
relation‑
Goodwill
$’000
tation
$’000
ment
$’000
Brand
$’000
Customer
contracts
Other
intangibles
$’000
$’000
81,055
–
2,786
104
3,245
12,109
ships
$’000
31,709
–
Total
$’000
119,144
12,400
138
187
Group
Balance at
1 January 2019
Additions
Additions
through business
Exchange
differences
Amortisation
expense
Balance at
Additions
Exchange
differences
Amortisation
expense
Balance at
–
–
6
–
(1)
211
–
–
7
146
–
(4)
(73)
combinations
203,452
–
70,485
7,699
855
–
282,491
4,265
22
(239)
243
(2)
4,302
(543)
(12,835)
(5,951)
(327)
(72)
(33)
(19,761)
31 December 2019
288,772
2,369
33,700
534
72,765
24,274
49
–
290
495
398,576
24,818
(25,970)
(156)
(4,148)
(2,371)
(14)
(32,664)
(543)
(24,042)
(6,204)
(436)
(44)
(31,342)
–
–
–
31 December 2020
262,802
1,719
68,849
25,125
97
69
727
359,388
The at cost movement in goodwill, customer relationships, brand and customer contracts during the year relates to foreign
The additions for systems implementation, platform development and other intangibles in 2020 relates to costs incurred
in relation to development of the Group’s platforms and databases. These strategic investments were made to enhance our
comparative advantage and market leading position in product development, and were capitalised in accordance with the
recognition criteria outlined in the Group’s accounting policy (see next page).
Impairment testing of intangible assets
At 31 December 2020, the recoverable amount, being the net amount of discounted future cash flows, materially exceeds the
carrying value of assets in the Relevance and Speech & Image cash generating unit(s).
Goodwill relates to the acquisition of Butler Hill, Inc. (Butler Hill), Leapforce, RaterLabs and Figure Eight in the United States,
and Mendip Media Group Limited (MMG) in the United Kingdom. The recoverable amount of this business, at balance date,
was estimated based on its value in use.
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Non‑current assets
Goodwill – at cost
Systems implementation – at cost
Less: Accumulated amortisation
Platform development – at cost
Less: Accumulated amortisation
Customer relationships – at cost
Less: Accumulated amortisation
Brand – at cost
Less: Accumulated amortisation
Customer contracts – at cost
Less: Accumulated amortisation
Other intangibles – at cost
Less: Accumulated amortisation
Group
2020
$’000
2019
$’000
262,802
288,772
4,979
(3,260)
1,719
104,163
(35,314)
68,849
40,861
(15,736)
25,125
778
(681)
97
3,077
(3,008)
69
1,180
(453)
727
5,419
(3,050)
2,369
87,772
(15,007)
72,765
44,909
(11,209)
33,700
855
(321)
534
3,369
(3,223)
146
716
(426)
290
359,388
398,576
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 13. Intangibles
Note 13. Intangibles (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Systems
implemen‑
tation
$’000
Platform
develop‑
ment
$’000
Customer
relation‑
ships
$’000
Goodwill
$’000
Brand
$’000
Customer
contracts
$’000
Other
intangibles
$’000
81,055
–
2,786
104
3,245
12,109
31,709
–
–
–
203,452
–
70,485
7,699
855
4,265
22
(239)
243
6
211
–
–
7
Total
$’000
119,144
12,400
138
187
–
282,491
(2)
4,302
–
(543)
(12,835)
(5,951)
(327)
(72)
(33)
(19,761)
288,772
2,369
–
49
72,765
24,274
33,700
534
–
(25,970)
(156)
(4,148)
(2,371)
–
(543)
(24,042)
(6,204)
(436)
–
(1)
146
–
(4)
(73)
290
495
398,576
24,818
(14)
(32,664)
(44)
(31,342)
262,802
1,719
68,849
25,125
97
69
727
359,388
Group
Balance at
1 January 2019
Additions
Additions
through business
combinations
Exchange
differences
Amortisation
expense
Balance at
31 December 2019
Additions
Exchange
differences
Amortisation
expense
Balance at
31 December 2020
The at cost movement in goodwill, customer relationships, brand and customer contracts during the year relates to foreign
exchange currency movements only.
The additions for systems implementation, platform development and other intangibles in 2020 relates to costs incurred
in relation to development of the Group’s platforms and databases. These strategic investments were made to enhance our
comparative advantage and market leading position in product development, and were capitalised in accordance with the
recognition criteria outlined in the Group’s accounting policy (see next page).
Impairment testing of intangible assets
At 31 December 2020, the recoverable amount, being the net amount of discounted future cash flows, materially exceeds the
carrying value of assets in the Relevance and Speech & Image cash generating unit(s).
Goodwill relates to the acquisition of Butler Hill, Inc. (Butler Hill), Leapforce, RaterLabs and Figure Eight in the United States,
and Mendip Media Group Limited (MMG) in the United Kingdom. The recoverable amount of this business, at balance date,
was estimated based on its value in use.
96
96
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97
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 13. Intangibles (continued)
Butler Hill, Leapforce, RaterLabs and Figure Eight
Value in use for the Relevance cash‑generating unit (CGU) was determined by discounting the future cash flows to be generated
from the Relevance division and is based on the following key assumptions:
• Cash flows were projected based on forecast operating results over a five‑year period;
• Average annual revenue growth rates of 6.8% for 2021 to 2025 were used for revenue projections. This growth was referenced
against the average annual historical growth rates over the past five years and the long‑term growth rate of the industry.
We have considered the impact of the COVID‑19 pandemic in determining this projected revenue growth rate. All future years
of the model use a constant rate of 3%; and
• A pre‑tax discount of 14.2% based on the weighted average cost of capital.
The Goodwill carrying value of $261,072,000 (2019: $282,959,000) has been allocated to the Relevance CGU.
Significant costs on systems implementation are deferred and amortised on a straight‑line basis over the period of their
Mendip Media Group Limited
Value in use for the Speech & Image CGU was determined by discounting the future cash flows to be generated from
Speech & Image division and is based on the following key assumptions:
• Cash flows were projected based on forecast operating results over a five year period;
• Average annual revenue growth rates of 5% for 2021 to 2025 were used for revenue projections. This growth was referenced
against average annual historical growth rates over the past five years and the long‑term growth rate of the industry.
We have considered the impact of the COVID‑19 pandemic in determining this projected revenue growth rate. All future years
of the model use a constant rate of 3%; and
• A pre‑tax discount rate of 17.1% based on weighted average cost of capital.
The Goodwill carrying value of $1,730,000 (2019: $1,837,000) has been allocated to the Speech & Image CGU.
For both the Relevance and Speech & Image CGU, no reasonable possible change in key assumptions would result in impairment.
Brand names acquired in a business combination are amortised on a straight‑line basis over the period of their expected
Critical accounting judgements, estimates and assumptions
Capitalisation of platform development costs
The Group uses a degree of judgement in order to determine if platform development costs satisfy the recognition and
measurement criteria to be capitalised as an asset in accordance with AASB 138 Intangible Assets. This includes a review
of project‑plan related documentation and timesheets for engineering personnel.
Goodwill and other indefinite life intangible assets
The Group tests annually for impairment, or more frequently if events or changes in circumstances indicate that it might
be impaired and is carried at cost less accumulated impairment losses. The recoverable amounts of cash‑generating
units have been determined based on value‑in‑use calculations. These calculations require the use of assumptions,
including estimated discounted rates based on the current cost of capital and growth rates of the estimated future
cash flows.
Accounting policy
General
Expenditure on research activities is recognised as an expense when incurred.
Development costs (for example, platform development costs) are capitalised when the Group can demonstrate all of the
following: the technical feasibility of completing the asset so that it is available for use or sale; the intention to complete
the asset and use or sell it; the ability to use or sell it; how the asset will generate probable future economic benefits; the
availability of adequate technical, financial and other resources to complete the development and to use or sell the asset;
and the ability to measure reliably the expenditure attributable to the asset during its development.
Note 13. Intangibles (continued)
Accounting treatment
Goodwill
subsequently reversed.
Systems implementation
expected benefit, being the finite life of seven years.
Platform development
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and it is carried
at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not
Platform development costs are capitalised at the direct costs incurred and amortised on a straight‑line basis over the
period of their expected benefit being their finite life from three to seven years. Amortisation starts at the time that the
new feature or enhancement is activated and is used by both internal and external customers. The capitalised costs of
platform enhancements include the direct costs of internal staff and any supporting software acquired from a third party.
Customer relationships
Customer relationships acquired in a business combination are amortised on a straight‑line basis over the period of their
expected benefit, being their finite life of seven to 10 years.
Brand
benefit, being their finite life of two years.
Customer contracts
expected benefit, being their finite life of five years.
Other intangibles
of their expected benefit being three to five years.
Customer contracts acquired in a business combination are amortised on a straight‑line basis over the period of their
Costs in relation to other intangibles are capitalised as an asset and amortised on a straight‑line basis over the period
Off‑the‑shelf databases are internally generated intangibles and are capitalised only if they meet all of the criteria
stated above with respect to development costs. Costs are capitalised at the direct costs incurred and amortised
on a straight‑line basis over the period of their expected benefit being their finite life of seven years. Amortisation
starts at the time that the database is available for use or sale to external customers.
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99
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 13. Intangibles (continued)
Butler Hill, Leapforce, RaterLabs and Figure Eight
Value in use for the Relevance cash‑generating unit (CGU) was determined by discounting the future cash flows to be generated
from the Relevance division and is based on the following key assumptions:
• Cash flows were projected based on forecast operating results over a five‑year period;
• Average annual revenue growth rates of 6.8% for 2021 to 2025 were used for revenue projections. This growth was referenced
against the average annual historical growth rates over the past five years and the long‑term growth rate of the industry.
We have considered the impact of the COVID‑19 pandemic in determining this projected revenue growth rate. All future years
of the model use a constant rate of 3%; and
• A pre‑tax discount of 14.2% based on the weighted average cost of capital.
The Goodwill carrying value of $261,072,000 (2019: $282,959,000) has been allocated to the Relevance CGU.
Mendip Media Group Limited
Value in use for the Speech & Image CGU was determined by discounting the future cash flows to be generated from
Speech & Image division and is based on the following key assumptions:
• Cash flows were projected based on forecast operating results over a five year period;
• Average annual revenue growth rates of 5% for 2021 to 2025 were used for revenue projections. This growth was referenced
against average annual historical growth rates over the past five years and the long‑term growth rate of the industry.
We have considered the impact of the COVID‑19 pandemic in determining this projected revenue growth rate. All future years
of the model use a constant rate of 3%; and
• A pre‑tax discount rate of 17.1% based on weighted average cost of capital.
The Goodwill carrying value of $1,730,000 (2019: $1,837,000) has been allocated to the Speech & Image CGU.
For both the Relevance and Speech & Image CGU, no reasonable possible change in key assumptions would result in impairment.
Note 13. Intangibles (continued)
Accounting treatment
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and it is carried
at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not
subsequently reversed.
Systems implementation
Significant costs on systems implementation are deferred and amortised on a straight‑line basis over the period of their
expected benefit, being the finite life of seven years.
Platform development
Platform development costs are capitalised at the direct costs incurred and amortised on a straight‑line basis over the
period of their expected benefit being their finite life from three to seven years. Amortisation starts at the time that the
new feature or enhancement is activated and is used by both internal and external customers. The capitalised costs of
platform enhancements include the direct costs of internal staff and any supporting software acquired from a third party.
Customer relationships
Customer relationships acquired in a business combination are amortised on a straight‑line basis over the period of their
expected benefit, being their finite life of seven to 10 years.
Brand
Brand names acquired in a business combination are amortised on a straight‑line basis over the period of their expected
benefit, being their finite life of two years.
Critical accounting judgements, estimates and assumptions
Customer contracts
Capitalisation of platform development costs
The Group uses a degree of judgement in order to determine if platform development costs satisfy the recognition and
measurement criteria to be capitalised as an asset in accordance with AASB 138 Intangible Assets. This includes a review
of project‑plan related documentation and timesheets for engineering personnel.
Goodwill and other indefinite life intangible assets
The Group tests annually for impairment, or more frequently if events or changes in circumstances indicate that it might
be impaired and is carried at cost less accumulated impairment losses. The recoverable amounts of cash‑generating
units have been determined based on value‑in‑use calculations. These calculations require the use of assumptions,
including estimated discounted rates based on the current cost of capital and growth rates of the estimated future
Customer contracts acquired in a business combination are amortised on a straight‑line basis over the period of their
expected benefit, being their finite life of five years.
Other intangibles
Costs in relation to other intangibles are capitalised as an asset and amortised on a straight‑line basis over the period
of their expected benefit being three to five years.
Off‑the‑shelf databases are internally generated intangibles and are capitalised only if they meet all of the criteria
stated above with respect to development costs. Costs are capitalised at the direct costs incurred and amortised
on a straight‑line basis over the period of their expected benefit being their finite life of seven years. Amortisation
starts at the time that the database is available for use or sale to external customers.
cash flows.
Accounting policy
General
Expenditure on research activities is recognised as an expense when incurred.
Development costs (for example, platform development costs) are capitalised when the Group can demonstrate all of the
following: the technical feasibility of completing the asset so that it is available for use or sale; the intention to complete
the asset and use or sell it; the ability to use or sell it; how the asset will generate probable future economic benefits; the
availability of adequate technical, financial and other resources to complete the development and to use or sell the asset;
and the ability to measure reliably the expenditure attributable to the asset during its development.
98
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99
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 14. Trade and other payables
Note 15. Contract liabilities (continued)
Current liabilities
Trade payables
Other payables and accrued expenses
Group
2020
$’000
2019
$’000
28,284
29,008
24,974
35,440
57,292
60,414
Accounting policy
Contract liabilities represent the Group’s obligations to render services to a customer and reflects the value of advance
payments made by customers who have been invoiced for services that will be provided in the future, and are recognised
when the customer pays consideration or when the Group recognises a receivable to reflect its unconditional right
to consideration (whichever is earlier) before the Group has transferred the goods or services to a customer.
The Group does not disclose further qualitative information related to remaining performance obligations, as they
are either part of a contract that has an original expected duration of one year or less; or the associated revenue
is recognised in the amount of which the Group has a right to invoice.
Refer to note 24 for further information on financial instruments.
Accounting policy
Trade and other payables are measured at amortised cost and are not discounted, due to their short‑term nature.
The amounts are unsecured and usually paid within agreed payment terms.
Note 15. Contract liabilities
Current liabilities
Invoices issued/deposits received in advance
Reconciliation
Reconciliation of the written down values at the beginning and end of the current and previous
financial year are set out below:
Opening balance
Payments received in advance
Transfer from/(to) revenue
Revaluation
Closing balance
Group
2020
$’000
2019
$’000
9,675
22,122
22,122
18,760
(28,876)
(2,331)
1,535
21,870
(1,234)
(49)
9,675
22,122
Unsatisfied performance obligations
The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end
of the reporting period was $9,675,000 as at 31 December 2020 ($22,122,000 as at 31 December 2019) and is expected
to be recognised as revenue in future periods as follows:
Note 16. Borrowings
Non‑current liabilities
Facility A (Senior debt)
Facility C (Acquisition funding)
Movements in borrowings
are set out below:
Facility A (Senior debt)
Amount borrowed
Less: amount repaid
Carrying amount at the start of the year
Carrying amount at the end of the year
Facility C (Acquisition funding)
Carrying amount at the start of the year
Amount borrowed
Revaluation
Less: amortised borrowing costs
Less: amount repaid
Carrying amount at the end of the year
Movements in each class of borrowings during the current and previous financial year,
Group
2020
$’000
2019
$’000
–
–
–
–
–
–
–
–
39,040
(3,945)
(966)
(34,129)
–
56,330
698
(57,028)
–
–
–
–
–
–
–
–
–
–
Less than 3 months
Over 3 months
100
100
Group
2020
$’000
2,211
7,464
2019
$’000
314
21,808
9,675
22,122
Refer to note 24 for further information on financial instruments.
Facility A
The facility was established in December 2017 and varied in April 2019, with a limit of US$20 million. This facility has a four
year term with a bullet repayment at the end of the term and is not subject to annual review. The facility was used to fund
the Leapforce acquisition. This facility attracts interest at a margin over bank reference rates, based on the net leverage ratio.
Appen 2020 Annual Report
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101
101
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 14. Trade and other payables
Note 15. Contract liabilities (continued)
Refer to note 24 for further information on financial instruments.
Accounting policy
Trade and other payables are measured at amortised cost and are not discounted, due to their short‑term nature.
The amounts are unsecured and usually paid within agreed payment terms.
Reconciliation of the written down values at the beginning and end of the current and previous
Unsatisfied performance obligations
The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end
of the reporting period was $9,675,000 as at 31 December 2020 ($22,122,000 as at 31 December 2019) and is expected
to be recognised as revenue in future periods as follows:
Current liabilities
Trade payables
Other payables and accrued expenses
Note 15. Contract liabilities
Current liabilities
Invoices issued/deposits received in advance
Reconciliation
financial year are set out below:
Opening balance
Payments received in advance
Transfer from/(to) revenue
Revaluation
Closing balance
Less than 3 months
Over 3 months
100
100
Group
2020
$’000
2019
$’000
28,284
29,008
24,974
35,440
57,292
60,414
Group
2020
$’000
2019
$’000
9,675
22,122
22,122
18,760
(28,876)
(2,331)
1,535
21,870
(1,234)
(49)
9,675
22,122
Group
2020
$’000
2,211
7,464
2019
$’000
314
21,808
9,675
22,122
Accounting policy
Contract liabilities represent the Group’s obligations to render services to a customer and reflects the value of advance
payments made by customers who have been invoiced for services that will be provided in the future, and are recognised
when the customer pays consideration or when the Group recognises a receivable to reflect its unconditional right
to consideration (whichever is earlier) before the Group has transferred the goods or services to a customer.
The Group does not disclose further qualitative information related to remaining performance obligations, as they
are either part of a contract that has an original expected duration of one year or less; or the associated revenue
is recognised in the amount of which the Group has a right to invoice.
Note 16. Borrowings
Non‑current liabilities
Facility A (Senior debt)
Facility C (Acquisition funding)
Movements in borrowings
Movements in each class of borrowings during the current and previous financial year,
are set out below:
Facility A (Senior debt)
Carrying amount at the start of the year
Amount borrowed
Less: amount repaid
Carrying amount at the end of the year
Facility C (Acquisition funding)
Carrying amount at the start of the year
Amount borrowed
Revaluation
Less: amortised borrowing costs
Less: amount repaid
Carrying amount at the end of the year
Group
2020
$’000
2019
$’000
–
–
–
–
–
–
–
–
39,040
(3,945)
(966)
(34,129)
–
–
–
–
56,330
698
(57,028)
–
–
–
–
–
–
–
Refer to note 24 for further information on financial instruments.
Facility A
The facility was established in December 2017 and varied in April 2019, with a limit of US$20 million. This facility has a four
year term with a bullet repayment at the end of the term and is not subject to annual review. The facility was used to fund
the Leapforce acquisition. This facility attracts interest at a margin over bank reference rates, based on the net leverage ratio.
Appen 2020 Annual Report
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101
101
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 16. Borrowings (continued)
Note 17. Lease liabilities
Facility C
The facility was established in April 2019 with a limit of US$90 million. The facility has a four‑year term with a bullet repayment
at the end of the term and is not subject to annual review.
During the year, the facility was used to fund the earn out payment for the Figure Eight acquisition. The facility is available for
general corporate needs of the Group, limited to the amount drawn down for the earn out payment. Post the drawdown, the
facility limit has been reduced to the amount drawn down for the earn out payment and can be re‑drawn for other purposes.
The facility attracts interest at a margin over bank reference rates, based on the net leverage ratio.
On 4 August 2020, the Group repaid the full debt. There is no amount owing under Facility C as at 31 December 2020.
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Current liabilities
Lease liability
Non‑current liabilities
Lease liability
the lease contract terms.
Group
2020
$’000
2019
$’000
6,532
4,648
18,705
18,043
Total facilities
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Used at the reporting date
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Unused at the reporting date
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2020
$’000
2019
$’000
25,944
28,514
20,000
20,000
31,310
77,254
128,312
176,826
–
–
–
–
–
–
–
–
25,944
28,514
20,000
20,000
31,310
77,254
128,312
176,826
Accounting policy
Loans and other borrowings are initially recognised at fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.
Per AASB 16, the Group has recognised the financial liabilities representing the obligation to make future lease payments across
Accounting policy
or less or the underlying asset is of low value.
as an expense in the profit or loss.
The Group recognises lease liabilities for contracts identified as containing a lease, except when the lease is for 12 months
Payments associated with short‑term leases and leases of low value assets are recognised on a straight‑line basis
Lease liabilities are initially measured at the present value of the remaining lease payments, discounted at the Group’s
incremental borrowing rate or borrowing rate relevant for the jurisdiction of the lease. Subsequently, the carrying value
of the liability is adjusted to reflect interest and lease payments made. If the borrowing rate for the jurisdiction of the
lease cannot be determined, then the Group’s incremental borrowing rate is used. Lease liabilities may be measured when
there is a change in future lease payments arising from a change in an index or market rate, or if there is a change in the
Group’s estimate of the amount expected to be payable.
The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are
incurred. Variable lease payments may include rent concessions in the form of rent forgiveness or a waiver as a direct
consequence of the COVID‑19 pandemic and which relate to payments originally due on or before 30 June 2021.
102
102
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103
103
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 16. Borrowings (continued)
Note 17. Lease liabilities
Facility C
The facility was established in April 2019 with a limit of US$90 million. The facility has a four‑year term with a bullet repayment
at the end of the term and is not subject to annual review.
During the year, the facility was used to fund the earn out payment for the Figure Eight acquisition. The facility is available for
general corporate needs of the Group, limited to the amount drawn down for the earn out payment. Post the drawdown, the
facility limit has been reduced to the amount drawn down for the earn out payment and can be re‑drawn for other purposes.
The facility attracts interest at a margin over bank reference rates, based on the net leverage ratio.
On 4 August 2020, the Group repaid the full debt. There is no amount owing under Facility C as at 31 December 2020.
Current liabilities
Lease liability
Non‑current liabilities
Lease liability
Group
2020
$’000
2019
$’000
6,532
4,648
18,705
18,043
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Per AASB 16, the Group has recognised the financial liabilities representing the obligation to make future lease payments across
the lease contract terms.
Total facilities
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Used at the reporting date
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Unused at the reporting date
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Accounting policy
Loans and other borrowings are initially recognised at fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.
Group
2020
$’000
2019
$’000
25,944
28,514
20,000
20,000
31,310
77,254
128,312
176,826
–
–
–
–
–
–
–
–
25,944
28,514
20,000
20,000
31,310
77,254
128,312
176,826
Accounting policy
The Group recognises lease liabilities for contracts identified as containing a lease, except when the lease is for 12 months
or less or the underlying asset is of low value.
Payments associated with short‑term leases and leases of low value assets are recognised on a straight‑line basis
as an expense in the profit or loss.
Lease liabilities are initially measured at the present value of the remaining lease payments, discounted at the Group’s
incremental borrowing rate or borrowing rate relevant for the jurisdiction of the lease. Subsequently, the carrying value
of the liability is adjusted to reflect interest and lease payments made. If the borrowing rate for the jurisdiction of the
lease cannot be determined, then the Group’s incremental borrowing rate is used. Lease liabilities may be measured when
there is a change in future lease payments arising from a change in an index or market rate, or if there is a change in the
Group’s estimate of the amount expected to be payable.
The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are
incurred. Variable lease payments may include rent concessions in the form of rent forgiveness or a waiver as a direct
consequence of the COVID‑19 pandemic and which relate to payments originally due on or before 30 June 2021.
102
102
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103
103
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 18. Employee benefits
Note 20. Issued capital
Current liabilities
Annual leave
Non‑current liabilities
Long service leave
Accounting policy
Short‑term employee benefits
Group
2020
$’000
2019
$’000
4,230
2,050
565
431
These are expected to be settled wholly within 12 months after the employees render the related service and include
wages, salaries and sick leave. These are measured at the undiscounted amounts expected to be paid when the
obligation is settled.
Other long‑term employee benefits
Provision is made for long service leave not expected to be settled within 12 months after balance date in which the
employees render the related service. Long‑term employee benefits are measured at the present value of the expected
future payments to be made to employees.
Expected future payments incorporate anticipated future wage and salary levels, duration of service and employee
departures and are discounted at rates determined by reference to market yields at the end of the reporting period on high
quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any re‑measurements for
changes in assumptions of obligations for long‑term employee benefits are recognised in profit or loss in the periods for
which the changes occur.
Note 19. Other liabilities
Current liabilities
Earn‑out liability in respect of Figure Eight acquisition
Earn‑out adjustment in respect of Figure Eight employees
Other current liabilities
Non‑current liabilities
Other non‑current liabilities
Group
2020
$’000
2019
$’000
–
–
100
100
32,368
4,477
1,298
38,143
–
1,069
During the year, $39,040,000 was paid to settle the Figure Eight earn‑out liability (refer note 16), with $4,059,000 being released
as a gain to the statement of profit or loss as Figure Eight earn‑out adjustment and $1,353,000 recognised as an expense in the
statement of profit or loss as deemed interest on earn‑out liability. See note 16 for further details.
Ordinary shares – fully paid
122,345,605
121,107,755
362,138
362,138
Group
2020
Shares
2019
Shares
2020
$’000
2019
$’000
Issue of shares to fund acquisition of Figure Eight Technologies, Inc.
18 March 2019
13,255,814
285,000
Share issue transaction costs – Figure Eight acquisition
2 April 2019
–
(7,486)
Movements in ordinary share capital
Details
Balance
Issue of shares on exercise of options
Issue of shares on exercise of performance rights
Issue of shares under Share Purchase Plan to fund acquisition
of Figure Eight Technologies, Inc.
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
Issue of shares as contingent consideration on acquisition
1 January 2019
106,599,647
Date
11 March 2019
11 March 2019
10 April 2019
4 June 2019
29 August 2019
Shares
40,900
332,697
697,761
50,000
7,033
541,215
7,033
681,468
8,134
$’000
69,602
20
–
15,002
–
–
–
–
–
–
–
of Leapforce, Inc and RaterLabs, Inc.
9 December 2019
123,903
Balance
31 December 2019
121,107,755
362,138
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
Issue of shares as contingent consideration on acquisition
of Leapforce, Inc and RaterLabs, Inc.
Issue of shares on exercise of performance rights
25 February 2020
29 June 2020
7 December 2020
7 December 2020
Balance
31 December 2020
122,345,605
362,138
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion
to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
Ordinary shares
not have a limited amount of authorised capital.
shall have one vote.
Share buy‑back
There is no current on‑market share buy‑back.
104
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105
105
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 18. Employee benefits
Note 20. Issued capital
Group
2020
Shares
2019
Shares
2020
$’000
2019
$’000
Ordinary shares – fully paid
122,345,605
121,107,755
362,138
362,138
Movements in ordinary share capital
Details
Balance
Issue of shares on exercise of options
Issue of shares on exercise of performance rights
Date
Shares
1 January 2019
106,599,647
11 March 2019
11 March 2019
40,900
332,697
$’000
69,602
20
–
Issue of shares to fund acquisition of Figure Eight Technologies, Inc.
18 March 2019
13,255,814
285,000
Share issue transaction costs – Figure Eight acquisition
2 April 2019
–
(7,486)
Provision is made for long service leave not expected to be settled within 12 months after balance date in which the
Issue of shares on exercise of performance rights
Issue of shares as contingent consideration on acquisition
of Leapforce, Inc and RaterLabs, Inc.
Issue of shares under Share Purchase Plan to fund acquisition
of Figure Eight Technologies, Inc.
Issue of shares on exercise of performance rights
10 April 2019
4 June 2019
29 August 2019
697,761
50,000
7,033
9 December 2019
123,903
15,002
–
–
–
Balance
31 December 2019
121,107,755
362,138
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
Issue of shares as contingent consideration on acquisition
of Leapforce, Inc and RaterLabs, Inc.
Issue of shares on exercise of performance rights
25 February 2020
29 June 2020
7 December 2020
7 December 2020
541,215
7,033
681,468
8,134
–
–
–
–
Balance
31 December 2020
122,345,605
362,138
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion
to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does
not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
shall have one vote.
Share buy‑back
There is no current on‑market share buy‑back.
Current liabilities
Annual leave
Non‑current liabilities
Long service leave
Accounting policy
Short‑term employee benefits
obligation is settled.
Other long‑term employee benefits
These are expected to be settled wholly within 12 months after the employees render the related service and include
wages, salaries and sick leave. These are measured at the undiscounted amounts expected to be paid when the
employees render the related service. Long‑term employee benefits are measured at the present value of the expected
future payments to be made to employees.
Expected future payments incorporate anticipated future wage and salary levels, duration of service and employee
departures and are discounted at rates determined by reference to market yields at the end of the reporting period on high
quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any re‑measurements for
changes in assumptions of obligations for long‑term employee benefits are recognised in profit or loss in the periods for
which the changes occur.
Note 19. Other liabilities
Current liabilities
Earn‑out liability in respect of Figure Eight acquisition
Earn‑out adjustment in respect of Figure Eight employees
Other current liabilities
Non‑current liabilities
Other non‑current liabilities
During the year, $39,040,000 was paid to settle the Figure Eight earn‑out liability (refer note 16), with $4,059,000 being released
as a gain to the statement of profit or loss as Figure Eight earn‑out adjustment and $1,353,000 recognised as an expense in the
statement of profit or loss as deemed interest on earn‑out liability. See note 16 for further details.
Group
2020
$’000
2019
$’000
4,230
2,050
565
431
Group
2020
$’000
2019
$’000
–
–
100
100
32,368
4,477
1,298
38,143
–
1,069
104
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105
105
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 20. Issued capital (continued)
Capital risk management
The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost
of capital.
Note 21. Reserves (continued)
Profits reserve
The Profits reserve represents current year profits transferred to a reserve to preserve the characteristic as a profit so as
to quarantine from being appropriated against prior year accumulated losses. Such profits are available to enable payment
of franked dividends in the future should the directors declare so by resolution.
Capital is regarded as total equity, as recognised in the statement of financial position. Net debt is calculated as total borrowings
less cash and cash equivalents.
Other reserves
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.
This reserve represents the equity settled portion of contingent consideration together with any capital raising expenses that
are allocated to equity, in connection with the acquisition of Butler Hill.
The Group would raise capital when an opportunity to invest in a business or company was seen as value adding relative to the
current Company’s share price at the time of the investment.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
The capital risk management policy remains unchanged from the 31 December 2019 Annual Report.
Accounting policy
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,
from the proceeds.
Note 21. Reserves
Common control reserve
Foreign currency translation reserve
Share‑based payments reserve
Profits reserve
Other reserves
Group
2020
$’000
(1,416)
(39,615)
38,515
128,261
1,859
2019
$’000
(1,416)
13,114
20,653
89,304
1,859
127,604
123,514
Common control reserve
The reserve represents the difference between the consideration transferred by the Company for the acquisition of commonly
controlled entities and the existing book value of those entities immediately prior to the acquisition.
Foreign currency translation reserve
The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations
to Australian dollars. The movement during the 2020 year is mainly comprised of the exchange rate translation impact of US
Dollar balances into Australian Dollars for US denominated intangibles (refer note 13) and intercompany balances (refer note 29
and note 32).
Share‑based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration.
Group
Balance at 1 January 2019
Foreign currency translation
Share‑based payments
Transfer from accumulated losses
Dividends paid
Foreign currency translation
Share‑based payments
Transfer from accumulated losses
Dividends paid
Common
control
$’000
(1,416)
Foreign
currency
Share‑based
translation
payments
$’000
10,433
2,681
$’000
5,996
14,657
Profits
$’000
56,796
Other
$’000
1,859
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(52,729)
17,862
–
–
–
–
–
–
41,611
(9,103)
–
–
–
–
50,514
(11,557)
Total
$’000
73,668
2,681
14,657
41,611
(9,103)
123,514
(52,729)
17,862
50,514
(11,557)
–
–
–
–
–
–
–
–
Balance at 31 December 2019
(1,416)
13,114
20,653
89,304
1,859
Balance at 31 December 2020
(1,416)
(39,615)
38,515
128,261
1,859
127,604
Accounting policy
Foreign currency translation reserve
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at reporting
date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange
rates, which approximate the rates at the transaction dates for the year. All resulting foreign exchange differences are
recognised in other comprehensive income through the foreign currency translation reserve. The Group’s intangible
assets and inter‑company receivables held by the Australian entities, are both denominated in US Dollars and the
AUD/USD exchange rate increased from 70 cents at 31 December 2019 to 77 cents at 31 December 2020. Refer note 24
for further information.
Share‑based payments reserve
share price at grant date.
Profits reserve
The Group had a number of share‑based payment arrangements that were granted to employees during FY20 and
earlier years. The fair value of these arrangements was deemed to be a function of the number of rights granted and the
Profits after income tax expense for the year are transferred to the profits reserve to facilitate the payment of dividends
in the future. Refer note 22 for further information.
106
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107
107
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 20. Issued capital (continued)
Note 21. Reserves (continued)
Capital risk management
of capital.
less cash and cash equivalents.
The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost
Capital is regarded as total equity, as recognised in the statement of financial position. Net debt is calculated as total borrowings
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 raise capital when an opportunity to invest in a business or company was seen as value adding relative to the
current Company’s share price at the time of the investment.
The capital risk management policy remains unchanged from the 31 December 2019 Annual Report.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,
Accounting policy
Ordinary shares are classified as equity.
from the proceeds.
Note 21. Reserves
Common control reserve
Foreign currency translation reserve
Share‑based payments reserve
Profits reserve
Other reserves
Group
2020
$’000
(1,416)
(39,615)
38,515
128,261
1,859
2019
$’000
(1,416)
13,114
20,653
89,304
1,859
127,604
123,514
Common control reserve
The reserve represents the difference between the consideration transferred by the Company for the acquisition of commonly
controlled entities and the existing book value of those entities immediately prior to the acquisition.
Foreign currency translation reserve
The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations
to Australian dollars. The movement during the 2020 year is mainly comprised of the exchange rate translation impact of US
Dollar balances into Australian Dollars for US denominated intangibles (refer note 13) and intercompany balances (refer note 29
and note 32).
Share‑based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration.
Profits reserve
The Profits reserve represents current year profits transferred to a reserve to preserve the characteristic as a profit so as
to quarantine from being appropriated against prior year accumulated losses. Such profits are available to enable payment
of franked dividends in the future should the directors declare so by resolution.
Other reserves
This reserve represents the equity settled portion of contingent consideration together with any capital raising expenses that
are allocated to equity, in connection with the acquisition of Butler Hill.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Group
Balance at 1 January 2019
Foreign currency translation
Share‑based payments
Transfer from accumulated losses
Dividends paid
Common
control
$’000
(1,416)
–
–
–
–
Foreign
currency
translation
$’000
Share‑based
payments
$’000
10,433
2,681
–
–
–
5,996
–
14,657
–
–
Profits
$’000
56,796
–
–
41,611
(9,103)
Other
$’000
1,859
–
–
–
–
Balance at 31 December 2019
(1,416)
13,114
20,653
89,304
1,859
Foreign currency translation
Share‑based payments
Transfer from accumulated losses
Dividends paid
–
–
–
–
(52,729)
–
–
–
–
17,862
–
–
–
–
50,514
(11,557)
–
–
–
–
Total
$’000
73,668
2,681
14,657
41,611
(9,103)
123,514
(52,729)
17,862
50,514
(11,557)
Balance at 31 December 2020
(1,416)
(39,615)
38,515
128,261
1,859
127,604
Accounting policy
Foreign currency translation reserve
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at reporting
date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange
rates, which approximate the rates at the transaction dates for the year. All resulting foreign exchange differences are
recognised in other comprehensive income through the foreign currency translation reserve. The Group’s intangible
assets and inter‑company receivables held by the Australian entities, are both denominated in US Dollars and the
AUD/USD exchange rate increased from 70 cents at 31 December 2019 to 77 cents at 31 December 2020. Refer note 24
for further information.
Share‑based payments reserve
The Group had a number of share‑based payment arrangements that were granted to employees during FY20 and
earlier years. The fair value of these arrangements was deemed to be a function of the number of rights granted and the
share price at grant date.
Profits reserve
Profits after income tax expense for the year are transferred to the profits reserve to facilitate the payment of dividends
in the future. Refer note 22 for further information.
106
106
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107
107
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 22. Accumulated losses
Note 24. Financial instruments
Accumulated losses at the beginning of the financial year
Profit after income tax expense for the year
Transfer to profits reserve
Accumulated losses at the end of the financial year
Note 23. Dividends
Dividends
Dividends paid during the financial year were as follows:
2019 final dividend of 5.0 cents per ordinary share (2019: 2018 final dividend of 4.0 cents)
2020 interim dividend of 4.5 cents per ordinary share (2019: 2019 interim dividend of 4.0 cents)
Group
2020
$’000
(3,870)
50,514
(50,514)
2019
$’000
(3,870)
41,611
(41,611)
(3,870)
(3,870)
Group
2020
$’000
6,082
5,475
2019
$’000
4,264
4,839
11,557
9,103
Dividend declared
On 24 February 2021, the Company declared a final dividend for the year ended 31 December 2020 of 5.5 cents per share,
partially franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend
is 2 March 2021 and the payment date is 19 March 2021. The financial effect of these dividends has not been brought to account
in the financial statements for the year ended 31 December 2020 and will be recognised in subsequent financial periods.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
Group
2020
$’000
1,313
2019
$’000
2,386
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
•
•
•
franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
Accounting policy
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
Financial risk management objectives
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest
rate 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 derivative
financial instruments such as forward foreign exchange contracts to hedge certain foreign currency risk exposures. Derivatives
are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. 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,
foreign exchange 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
(the 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. Finance reports
to the Board on a monthly basis.
Market risk
Foreign currency risk
foreign exchange rate fluctuations.
flow forecasting.
The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash
In order to protect against exchange rate movements, the Group has entered into forward foreign exchange contracts. These
contracts are hedging highly probable forecast cash flows for the ensuing financial year. Appen’s policy is to hedge at least 80%
of its US denominated revenues generated by its Speech & Image division for the subsequent 12 months.
The maturity, settlement amounts and the average contractual exchange rates of the Group’s outstanding forward foreign
exchange contracts and foreign exchange – collars at the reporting date were as follows:
FX Forward Contract
Sell United States dollars
Foreign exchange forward contract maturity:
FX Option Contract
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
0–3 months
3–6 months
6–12 months
Sell Australian dollars
Forward exchange rates
2020
$’000
2019
$’000
2020
2019
–
–
973
13,140
13,140
13,140
5,841
5,412
–
–
0.6848
0.6842
–
–
–
–
0.6952
0.6849
0.6849
0.6849
–
–
–
–
108
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Appen 2020 Annual Report
109
109
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 22. Accumulated losses
Note 24. Financial instruments
Group
2020
$’000
(3,870)
50,514
(50,514)
2019
$’000
(3,870)
41,611
(41,611)
(3,870)
(3,870)
Group
2020
$’000
6,082
5,475
2019
$’000
4,264
4,839
11,557
9,103
Group
2020
$’000
1,313
2019
$’000
2,386
Accumulated losses at the beginning of the financial year
Profit after income tax expense for the year
Transfer to profits reserve
Accumulated losses at the end of the financial year
Note 23. Dividends
Dividends
Dividends paid during the financial year were as follows:
2019 final dividend of 5.0 cents per ordinary share (2019: 2018 final dividend of 4.0 cents)
2020 interim dividend of 4.5 cents per ordinary share (2019: 2019 interim dividend of 4.0 cents)
On 24 February 2021, the Company declared a final dividend for the year ended 31 December 2020 of 5.5 cents per share,
partially franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend
is 2 March 2021 and the payment date is 19 March 2021. The financial effect of these dividends has not been brought to account
in the financial statements for the year ended 31 December 2020 and will be recognised in subsequent financial periods.
Dividend declared
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
•
•
•
Accounting policy
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
Financial risk management objectives
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest
rate 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 derivative
financial instruments such as forward foreign exchange contracts to hedge certain foreign currency risk exposures. Derivatives
are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. 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,
foreign exchange 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
(the 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. Finance reports
to the Board on a monthly basis.
Market risk
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through
foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash
flow forecasting.
In order to protect against exchange rate movements, the Group has entered into forward foreign exchange contracts. These
contracts are hedging highly probable forecast cash flows for the ensuing financial year. Appen’s policy is to hedge at least 80%
of its US denominated revenues generated by its Speech & Image division for the subsequent 12 months.
The maturity, settlement amounts and the average contractual exchange rates of the Group’s outstanding forward foreign
exchange contracts and foreign exchange – collars at the reporting date were as follows:
FX Forward Contract
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
FX Option Contract
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
Sell Australian dollars
Forward exchange rates
2020
$’000
2019
$’000
2020
2019
–
–
973
13,140
13,140
13,140
5,841
5,412
–
–
0.6848
0.6842
–
–
–
–
0.6952
0.6849
0.6849
0.6849
–
–
–
–
108
108
Appen 2020 Annual Report
Appen 2020 Annual Report
109
109
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 24. Financial instruments (continued)
Note 24. Financial instruments (continued)
The average month end exchange rates and reporting date exchange rates applied were as follows:
Australian dollars
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
Average
exchange rates
Reporting date
exchange rates
2020
2019
2020
2019
0.6944
0.5380
0.6053
5.3835
0.6960
0.5450
0.6220
5.4505
0.7709
0.5648
0.6286
5.9752
0.7014
0.5320
0.6254
5.4610
34.3651
35.9756
37.0645
35.5986
4.7816
4.7993
5.0399
4.8856
Group – 2019
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
AUD strengthened
AUD weakened
% change
$’000
% change
Effect
on profit
before tax
$’000
Effect
on equity
(1,224)
(15,308)
(10)
(98)
(392)
–
–
–
(324)
30
10%
10%
10%
10%
10%
Effect
on profit
before tax
$’000
1,224
10
392
–
–
Effect
on equity
$’000
15,308
98
–
324
(30)
10%
10%
10%
10%
10%
(1,626)
(15,700)
1,626
15,700
The carrying amount of the Group’s foreign currency denominated financial assets and financial liabilities at the reporting date
were as follows:
The percentage change is the expected overall volatility of the significant currencies, which is based on management’s
assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year
Assets
Liabilities
and the spot rate at each reporting date.
Group
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
2020
$’000
2019
$’000
135,297
182,652
736
1,810
1
1,676
2,292
1,194
3,922
–
3,567
242
2020
$’000
32,967
353
–
–
284
72
2019
$’000
27,226
116
–
–
325
534
141,812
191,577
33,676
28,201
The Group had financial net assets denominated in foreign currencies of $108,136,000 (2019: net assets of $163,376,000).
Financial net assets exclude intangibles and intercompany balances.
Based on this exposure, had the Australian dollar weakened by 10% or strengthened by 10% (2019: weakened by 10% or
strengthened by 10%) against these foreign currencies with all other variables held constant, the Group’s profit before tax for
the year based on the assets denominated in foreign currency, excluding the translation difference for consolidated reporting
purposes, and the Group’s equity would have been lower or higher by the following:
AUD strengthened
AUD weakened
is available.
Group – 2020
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
% change
10%
10%
10%
10%
10%
Effect
on profit
before tax
$’000
Effect
on equity
$’000
(1,844)
(10,092)
(22)
(24)
(180)
–
–
(8)
(156)
(218)
Effect
on profit
before tax
$’000
% change
10%
10%
10%
10%
10%
1,844
22
180
–
–
Effect
on equity
$’000
10,092
24
8
156
218
(2,046)
(10,498)
2,046
10,498
The Group’s main interest rate risk arises from long‑term borrowings. Borrowings issued at variable rates expose the Group
The Group is not exposed to any significant price risk.
As at the reporting date, the Group had no borrowings.
Price risk
Interest rate risk
to interest rate risk.
Credit risk
hold any collateral.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting
appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. 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
The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through
the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across
all customers of the Group based on recent sales experience, historical collection rates and forward‑looking information that
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the
failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments
for a period greater than one year.
Liquidity risk
Liquidity risk requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing
facilities to be able to pay debts as and when they become due and payable.
The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously
monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 24. Financial instruments (continued)
Note 24. Financial instruments (continued)
The average month end exchange rates and reporting date exchange rates applied were as follows:
AUD strengthened
AUD weakened
The carrying amount of the Group’s foreign currency denominated financial assets and financial liabilities at the reporting date
Australian dollars
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
were as follows:
Group
United States Dollars
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Average
exchange rates
Reporting date
exchange rates
2020
2019
2020
2019
0.6944
0.5380
0.6053
5.3835
0.6960
0.5450
0.6220
5.4505
0.7709
0.5648
0.6286
5.9752
0.7014
0.5320
0.6254
5.4610
34.3651
35.9756
37.0645
35.5986
4.7816
4.7993
5.0399
4.8856
Assets
Liabilities
2020
$’000
2019
$’000
135,297
182,652
736
1,810
1
1,676
2,292
1,194
3,922
–
3,567
242
2020
$’000
32,967
353
–
–
284
72
2019
$’000
27,226
116
–
–
325
534
141,812
191,577
33,676
28,201
The Group had financial net assets denominated in foreign currencies of $108,136,000 (2019: net assets of $163,376,000).
Financial net assets exclude intangibles and intercompany balances.
Based on this exposure, had the Australian dollar weakened by 10% or strengthened by 10% (2019: weakened by 10% or
strengthened by 10%) against these foreign currencies with all other variables held constant, the Group’s profit before tax for
the year based on the assets denominated in foreign currency, excluding the translation difference for consolidated reporting
purposes, and the Group’s equity would have been lower or higher by the following:
Group – 2020
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
AUD strengthened
AUD weakened
% change
$’000
% change
Effect
on profit
before tax
$’000
Effect
on equity
(1,844)
(10,092)
(22)
(24)
(180)
–
–
(8)
(156)
(218)
10%
10%
10%
10%
10%
Effect
on profit
before tax
$’000
1,844
Effect
on equity
$’000
10,092
22
180
–
–
24
8
156
218
10%
10%
10%
10%
10%
(2,046)
(10,498)
2,046
10,498
Group – 2019
United States Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
% change
10%
10%
10%
10%
10%
Effect
on profit
before tax
$’000
Effect
on equity
$’000
(1,224)
(15,308)
(10)
(98)
(392)
–
–
–
(324)
30
Effect
on profit
before tax
$’000
% change
10%
10%
10%
10%
10%
1,224
10
392
–
–
Effect
on equity
$’000
15,308
98
–
324
(30)
(1,626)
(15,700)
1,626
15,700
The percentage change is the expected overall volatility of the significant currencies, which is based on management’s
assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year
and the spot rate at each reporting date.
Price risk
The Group is not exposed to any significant price risk.
Interest rate risk
The Group’s main interest rate risk arises from long‑term borrowings. Borrowings issued at variable rates expose the Group
to interest rate risk.
As at the reporting date, the Group had no borrowings.
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 Group has a strict code of credit, including obtaining agency credit information, confirming references and setting
appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. 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.
The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through
the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across
all customers of the Group based on recent sales experience, historical collection rates and forward‑looking information that
is available.
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the
failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments
for a period greater than one year.
Liquidity risk
Liquidity risk requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing
facilities to be able to pay debts as and when they become due and payable.
The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously
monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 24. Financial instruments (continued)
Note 25. Fair value measurement
Financing arrangements
Unused borrowing facilities at the reporting date:
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2020
$’000
25,944
2019
$’000
28,514
20,000
20,000
31,310
77,254
128,312
176,826
Fair value hierarchy
The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
measurement date.
or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Remaining contractual maturities
The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have 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.
Group – 2020
Non‑derivatives
Non‑interest bearing
Trade payables
Other payables
Interest‑bearing – fixed rate
Lease liability
Total non‑derivatives
Group – 2019
Non‑derivatives
Non‑interest bearing
Trade payables
Other payables
Interest‑bearing – fixed rate
Lease liability
Total non‑derivatives
Weighted
average
interest rate
%
1 year
or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
–
–
28,284
5,836
–
–
–
–
–
–
28,284
5,836
Forward foreign exchange contracts
4.30%
6,532
40,652
5,996
5,996
8,878
8,878
3,831
3,831
25,237
59,357
Earn‑out liability in respect of Figure Eight acquisition
36,845
36,845
36,845
36,845
Weighted
average
interest rate
%
1 year
or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values
due to their short‑term nature.
–
–
24,974
3,586
–
–
–
–
–
–
4.90%
4,648
33,208
5,065
5,065
7,690
7,690
5,288
5,288
24,974
3,586
22,691
51,251
Forward foreign exchange contracts
Earn‑out liability in respect of Figure Eight acquisition
Group – 2020
Assets
Total assets
Liabilities
Total liabilities
Group – 2019
Assets
Total assets
Liabilities
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
1,918
1,918
–
–
314
314
–
–
–
–
–
–
–
–
1,918
1,918
–
–
–
–
314
314
Valuation techniques for fair value measurements categorised within level 2
Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use
of observable market data where it is available and relies as little as possible on entity specific estimates.
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
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113
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 24. Financial instruments (continued)
Note 25. Fair value measurement
Fair value hierarchy
The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Group – 2020
Assets
Forward foreign exchange contracts
Total assets
Liabilities
Earn‑out liability in respect of Figure Eight acquisition
Total liabilities
Group – 2019
Assets
Forward foreign exchange contracts
Total assets
Liabilities
4.30%
6,532
40,652
5,996
5,996
8,878
8,878
3,831
3,831
25,237
59,357
Earn‑out liability in respect of Figure Eight acquisition
Total liabilities
Remaining
There were no transfers between levels during the financial year.
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
1,918
1,918
–
–
–
–
–
–
1,918
1,918
–
–
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
314
314
–
–
–
–
314
314
36,845
36,845
36,845
36,845
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values
due to their short‑term nature.
Valuation techniques for fair value measurements categorised within level 2
Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use
of observable market data where it is available and relies as little as possible on entity specific estimates.
Financing arrangements
Unused borrowing facilities at the reporting date:
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2020
$’000
25,944
2019
$’000
28,514
20,000
20,000
31,310
77,254
128,312
176,826
–
–
–
–
28,284
5,836
24,974
3,586
22,691
51,251
Remaining contractual maturities
The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have 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.
Weighted
average
interest rate
1 year
Between 1
Between 2
Over
contractual
or less
$’000
and 2 years
and 5 years
$’000
$’000
5 years
$’000
maturities
$’000
Remaining
%
–
–
%
–
–
28,284
5,836
24,974
3,586
–
–
–
–
–
–
–
–
Weighted
average
interest rate
1 year
Between 1
Between 2
Over
contractual
or less
$’000
and 2 years
and 5 years
$’000
$’000
5 years
$’000
maturities
$’000
Group – 2020
Non‑derivatives
Non‑interest bearing
Trade payables
Other payables
Interest‑bearing – fixed rate
Lease liability
Total non‑derivatives
Group – 2019
Non‑derivatives
Non‑interest bearing
Trade payables
Other payables
Interest‑bearing – fixed rate
Lease liability
Total non‑derivatives
4.90%
4,648
33,208
5,065
5,065
7,690
7,690
5,288
5,288
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
112
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113
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 25. Fair value measurement (continued)
Note 27. Remuneration of auditors
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
During the financial year, the following fees were paid or payable for services provided by KPMG, the auditor of the Company,
and its network firms.
Group
Balance at 1 January 2019
Additions
Balance at 31 December 2019
Additional interest
Figure Eight purchase price adjustment
Figure Eight earn‑out liabilities paid out
Realised foreign exchange movement
Balance at 31 December 2020
Earn‑out
$’000
–
36,845
36,845
1,217
(4,059)
(39,040)
5,037
–
Accounting policy
When an asset or liability is measured at fair value, the fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
and assumes the transaction will take place either in a principal or advantageous market.
Assets and liabilities measured at fair value are classified into the three levels discussed above. External valuers may
be used for recurring and non‑recurring fair value measurements when internal expertise is not available or the amount
is material.
Nature of service
Auditors of the Group – KPMG
Audit and review of the financial statements – Group
Audit of the financial statements – controlled entities
Total audit services
Other services – KPMG
Transfer pricing services
Tax compliance services
Other compliance and assurance services
Total other services
Total audit and other services
Note 28. Contingent liabilities
Note 26. Key management personnel disclosures
Note 29. Related party transactions
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Group is set out below:
Short‑term employee benefits
Post‑employment benefits
Long‑term benefits
Share‑based payments
Group
2020
$
2019
$
4,325,073
3,986,365
154,889
143,796
121,089
96,111
5,113,585
4,025,787
9,737,343
8,229,352
Detailed remuneration disclosures are contained in the remuneration report section of the director’s report.
The Group has given bank guarantees as at 31 December 2020 of $613,000 (2019: $613,000) in satisfaction of its performance
obligations with respect to rental premises.
Parent entity
Appen Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 31.
Key management personnel
directors’ report.
Loans to/from related parties
Disclosures relating to key management personnel are set out in note 26 and the remuneration report included in the
There were no formal loans to or from related parties at the current and previous reporting date, however there were
intercompany receivables and payables, in prior years, associated with the raising of equity and associated movement of funds
between the Australian and US entities in the Group in relation to the acquisition of Leapforce, RaterLabs and Figure Eight.
Group
2020
$
2019
$
339,066
349,552
28,146
22,958
367,212
372,510
122,474
–
148,070
148,825
52,002
91,790
270,544
292,617
637,756
665,127
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115
115
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 25. Fair value measurement (continued)
Note 27. Remuneration of auditors
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
During the financial year, the following fees were paid or payable for services provided by KPMG, the auditor of the Company,
and its network firms.
Balance at 1 January 2019
Group
Additions
Balance at 31 December 2019
Additional interest
Figure Eight purchase price adjustment
Figure Eight earn‑out liabilities paid out
Realised foreign exchange movement
Balance at 31 December 2020
Accounting policy
When an asset or liability is measured at fair value, the fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
and assumes the transaction will take place either in a principal or advantageous market.
Assets and liabilities measured at fair value are classified into the three levels discussed above. External valuers may
be used for recurring and non‑recurring fair value measurements when internal expertise is not available or the amount
is material.
Earn‑out
$’000
–
36,845
36,845
1,217
(4,059)
(39,040)
5,037
–
Nature of service
Auditors of the Group – KPMG
Audit and review of the financial statements – Group
Audit of the financial statements – controlled entities
Total audit services
Other services – KPMG
Transfer pricing services
Tax compliance services
Other compliance and assurance services
Total other services
Total audit and other services
Note 28. Contingent liabilities
Group
2020
$
2019
$
339,066
349,552
28,146
22,958
367,212
372,510
122,474
–
148,070
148,825
52,002
91,790
270,544
292,617
637,756
665,127
The Group has given bank guarantees as at 31 December 2020 of $613,000 (2019: $613,000) in satisfaction of its performance
obligations with respect to rental premises.
Note 26. Key management personnel disclosures
Note 29. Related party transactions
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Group is set out below:
Short‑term employee benefits
Post‑employment benefits
Long‑term benefits
Share‑based payments
Detailed remuneration disclosures are contained in the remuneration report section of the director’s report.
Group
2020
$
2019
$
4,325,073
3,986,365
154,889
143,796
121,089
96,111
5,113,585
4,025,787
9,737,343
8,229,352
Parent entity
Appen Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 31.
Key management personnel
Disclosures relating to key management personnel are set out in note 26 and the remuneration report included in the
directors’ report.
Loans to/from related parties
There were no formal loans to or from related parties at the current and previous reporting date, however there were
intercompany receivables and payables, in prior years, associated with the raising of equity and associated movement of funds
between the Australian and US entities in the Group in relation to the acquisition of Leapforce, RaterLabs and Figure Eight.
114
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115
115
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 30. Parent entity information
Note 31. Interests in subsidiaries
Set out below is the supplementary information about the parent entity.
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share‑based payments reserve
Profits reserve
Other reserves
Accumulated losses
Total equity
Company
2020
$’000
18,272
2019
$’000
11,840
18,272
11,840
Company
2020
$’000
3,342
2019
$’000
86
416,198
393,729
1,452
4,713
1,452
3,572
414,746
390,157
362,138
38,515
17,839
1,859
(5,605)
362,138
20,654
11,111
1,859
(5,605)
414,746
390,157
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had a deed of cross guarantee in relation to the debts of its subsidiaries as at 31 December 2020 and
31 December 2019.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2020 and 31 December 2019.
Capital commitments – Property, plant and equipment
The parent entity had no material capital commitments for property, plant and equipment as at 31 December 2020 and
31 December 2019.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group except for the following:
•
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Dividends received from subsidiaries are recognised as other income by the parent entity.
with the accounting policy below:
Name
Appen Butler Hill Pty Limited
Appen Financial Services Pty Ltd
Australia
Australia
Principal place of business/
Country of incorporation
Appen Butler Hill Inc. 1
Leapforce Inc.
RaterLabs Inc.
United States of America
United States of America
United States of America
Figure Eight Technologies Inc.
United States of America
Figure Eight Federal LLC
United States of America
Name
Appen (Europe) Limited 1
Mendip Media Group Limited
Appen Butler Hill Limited 1
Beijing Appen Technology Co., Ltd 1
Appen Technology (WuXi) Co.Ltd
Appen Data Technology (Shanghai) Co. Ltd
1 Wholly‑owned subsidiaries of Appen Butler Hill Pty Limited.
Principal place of business/
Country of incorporation
United Kingdom
United Kingdom
Hong Kong
China
China
China
Ownership interest
2020
%
100%
100%
100%
100%
100%
100%
100%
2020
%
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
100%
100%
100%
100%
Ownership interest
Accounting policy
over the entity.
The consolidated financial report incorporates all of the assets, liabilities and results of Appen Limited and all of the
subsidiaries. Subsidiaries are entities controlled by the Group. 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
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. Acquisition of subsidiaries are accounted for using the acquisition
method of accounting. A change in ownership interest without the loss of control, is accounted for as an equity transaction,
where the difference between the consideration transferred and the book value of the share of the non‑controlling interest
acquired is recognised as directly attributable to the parent.
The consolidation of a subsidiary is discontinued from the date control ceases. When the Group loses control over
a subsidiary, it de‑recognises the assets and liabilities of the subsidiary, and any related non‑controlling interest and
other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost. Intercompany transactions, balances and unrealised gains
or losses on transactions between Group members/subsidiaries 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.
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117
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 30. Parent entity information
Note 31. Interests in subsidiaries
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Profits reserve
Other reserves
Accumulated losses
Total equity
Share‑based payments reserve
31 December 2019.
Contingent liabilities
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had a deed of cross guarantee in relation to the debts of its subsidiaries as at 31 December 2020 and
The parent entity had no contingent liabilities as at 31 December 2020 and 31 December 2019.
Capital commitments – Property, plant and equipment
The parent entity had no material capital commitments for property, plant and equipment as at 31 December 2020 and
31 December 2019.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group except for the following:
•
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Dividends received from subsidiaries are recognised as other income by the parent entity.
Company
2020
$’000
18,272
2019
$’000
11,840
18,272
11,840
Company
2020
$’000
3,342
2019
$’000
86
416,198
393,729
1,452
4,713
1,452
3,572
414,746
390,157
362,138
38,515
17,839
1,859
(5,605)
362,138
20,654
11,111
1,859
(5,605)
414,746
390,157
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy below:
Name
Principal place of business/
Country of incorporation
Appen Butler Hill Pty Limited
Appen Financial Services Pty Ltd
Australia
Australia
Appen Butler Hill Inc. 1
Leapforce Inc.
RaterLabs Inc.
United States of America
United States of America
United States of America
Figure Eight Technologies Inc.
United States of America
Figure Eight Federal LLC
United States of America
Name
Appen (Europe) Limited 1
Mendip Media Group Limited
Appen Butler Hill Limited 1
Beijing Appen Technology Co., Ltd 1
Appen Technology (WuXi) Co.Ltd
Appen Data Technology (Shanghai) Co. Ltd
Principal place of business/
Country of incorporation
United Kingdom
United Kingdom
Hong Kong
China
China
China
1 Wholly‑owned subsidiaries of Appen Butler Hill Pty Limited.
Ownership interest
2020
%
100%
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
100%
100%
100%
100%
100%
Ownership interest
2020
%
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
100%
100%
100%
100%
Accounting policy
The consolidated financial report incorporates all of the assets, liabilities and results of Appen Limited and all of the
subsidiaries. Subsidiaries are entities controlled by the Group. 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
over the entity.
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. Acquisition of subsidiaries are accounted for using the acquisition
method of accounting. A change in ownership interest without the loss of control, is accounted for as an equity transaction,
where the difference between the consideration transferred and the book value of the share of the non‑controlling interest
acquired is recognised as directly attributable to the parent.
The consolidation of a subsidiary is discontinued from the date control ceases. When the Group loses control over
a subsidiary, it de‑recognises the assets and liabilities of the subsidiary, and any related non‑controlling interest and
other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost. Intercompany transactions, balances and unrealised gains
or losses on transactions between Group members/subsidiaries 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.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 32. Deed of cross guarantee
Note 32. Deed of cross guarantee (continued)
The following entities are party to a deed of cross guarantee under which each Company guarantees the debts of the others:
Appen Limited
Appen Butler Hill Pty Limited
By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare financial statements
and directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission.
The above Companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other
parties to the deed of cross guarantee that are controlled by Appen Limited, they also represent the ‘Extended Closed Group’.
Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position
of the ‘Closed Group’.
Statement of profit or loss and other comprehensive income
Revenue
Services purchased – data collection
Employee expenses
Depreciation and amortisation expense
Travel expense
Professional fees
Rent and occupancy expense
Communication expense
Transaction costs
Net foreign exchange loss 1
Other expenses
Finance costs
Profit/(loss) before income tax (expense)/benefit
Income tax (expense)/benefit
2020
$’000
58,752
(2,599)
(32,080)
(3,502)
(264)
(2,358)
(808)
(2,985)
(36)
(23,051)
(4,766)
(1,622)
(15,319)
7,078
2019
$’000
70,244
(6,308)
(27,762)
(2,770)
(1,153)
(2,893)
(1,428)
(3,366)
(3,210)
–
(3,519)
(3,548)
14,287
(3,150)
Profit/(loss) after income tax (expense)/benefit
(8,241)
11,137
Other comprehensive income/(loss)
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year
(1,964)
(1,964)
5,476
5,476
(10,205)
16,613
1 Per AASB 121, at an individual entity level, foreign exchange gains and losses on foreign denominated intercompany investment balances are
recognised through profit or loss,but are reflected through other comprehensive income/foreign currency translation reserve on consolidation.
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivative financial instruments
Income tax refund due
Prepayments
Non‑current assets
Investments accounted for using the equity method
Property, plant and equipment
Right‑of‑use assets
Intangibles
Deferred tax
Intercompany loan
Prepayments
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Income tax
Provisions
Non‑current liabilities
Lease liabilities
Provisions
Total liabilities
Net assets
Equity
Issued capital
Reserves
Total equity
2020
$’000
2019
$’000
34,950
24,178
342,322
366,610
371
255
370,302
388,593
405,252
412,771
20,551
5,193
2,132
1,917
4,645
512
7,629
2,241
7,200
1,821
8,718
5,995
2,175
–
1,621
9,791
7,834
565
8,399
18,616
2,142
2,594
314
124
388
7,630
3,351
8,168
168
2,411
8,583
1,173
1,584
998
12,338
8,546
431
8,977
18,190
21,315
387,062
391,456
362,375
362,375
24,687
29,081
387,062
391,456
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119
119
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 32. Deed of cross guarantee
Note 32. Deed of cross guarantee (continued)
The following entities are party to a deed of cross guarantee under which each Company guarantees the debts of the others:
Appen Limited
Appen Butler Hill Pty Limited
By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare financial statements
and directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission.
The above Companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other
parties to the deed of cross guarantee that are controlled by Appen Limited, they also represent the ‘Extended Closed Group’.
Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position
of the ‘Closed Group’.
Statement of profit or loss and other comprehensive income
Revenue
Services purchased – data collection
Employee expenses
Depreciation and amortisation expense
Travel expense
Professional fees
Rent and occupancy expense
Communication expense
Transaction costs
Net foreign exchange loss 1
Other expenses
Finance costs
Profit/(loss) before income tax (expense)/benefit
Income tax (expense)/benefit
Other comprehensive income/(loss)
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year
Profit/(loss) after income tax (expense)/benefit
(8,241)
11,137
1 Per AASB 121, at an individual entity level, foreign exchange gains and losses on foreign denominated intercompany investment balances are
recognised through profit or loss,but are reflected through other comprehensive income/foreign currency translation reserve on consolidation.
2020
$’000
58,752
(2,599)
(32,080)
(3,502)
(264)
(2,358)
(808)
(2,985)
(36)
(23,051)
(4,766)
(1,622)
(15,319)
7,078
2019
$’000
70,244
(6,308)
(27,762)
(2,770)
(1,153)
(2,893)
(1,428)
(3,366)
(3,210)
–
(3,519)
(3,548)
14,287
(3,150)
(1,964)
(1,964)
5,476
5,476
(10,205)
16,613
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivative financial instruments
Income tax refund due
Prepayments
Non‑current assets
Investments accounted for using the equity method
Property, plant and equipment
Right‑of‑use assets
Intangibles
Deferred tax
Intercompany loan
Prepayments
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Income tax
Provisions
Non‑current liabilities
Lease liabilities
Provisions
Total liabilities
Net assets
Equity
Issued capital
Reserves
Total equity
2020
$’000
2019
$’000
20,551
5,193
2,132
1,917
4,645
512
18,616
2,142
2,594
314
124
388
34,950
24,178
7,629
2,241
7,200
1,821
8,718
7,630
3,351
8,168
168
2,411
342,322
366,610
371
255
370,302
388,593
405,252
412,771
5,995
2,175
–
1,621
9,791
7,834
565
8,399
8,583
1,173
1,584
998
12,338
8,546
431
8,977
18,190
21,315
387,062
391,456
362,375
362,375
24,687
29,081
387,062
391,456
118
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119
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 33. Cash flow information
Note 34. Earnings per share
Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Net loss/(gain) on disposal of property, plant and equipment
Share‑based payments
Foreign exchange differences
Impairment movement on trade receivables
Interest expense – deemed interest on earn‑out
Interest expense – right‑of‑use assets
Transaction costs paid for acquisition
Figure Eight earn‑out adjustment
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in employee benefits and provisions
Increase/(decrease) in contract liabilities
Increase/(decrease) in provision for income tax
Increase/(decrease) in deferred tax liabilities
Net cash from operating activities
Group
2020
$’000
50,514
2019
$’000
41,611
Profit after income tax attributable to the owners of Appen Limited
40,908
25,865
Adjustments for calculation of diluted earnings per share:
Weighted average number of ordinary shares used in calculating basic earnings per share
121,618,318
117,937,257
(23)
18,147
(10,137)
220
1,353
1,276
1,152
30
19,204
3,796
–
3,368
1,020
6,687
(4,059)
(2,557)
15,010
(48,508)
(5,156)
2,314
(12,447)
(12,176)
6,677
4,803
8,494
1,171
4,251
(1,933)
93,573
67,302
Rights over ordinary shares
2,039,642
2,333,771
Weighted average number of ordinary shares used in calculating diluted earnings per share
123,657,960
120,271,028
Basic earnings per share
Diluted earnings per share
Accounting policy
Basic earnings per share
during the financial year.
Diluted earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Appen Limited excluding any
costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding
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 positive ordinary shares and
the weighted average number of shares assumed to have been issued for consideration in relation to dilutive potential
ordinary shares.
Group
2020
$’000
50,514
2019
$’000
41,611
Number
Number
Cents
41.53
40.85
Cents
35.28
34.60
Accounting policy
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
120
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121
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 33. Cash flow information
Note 34. Earnings per share
Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax attributable to the owners of Appen Limited
Group
2020
$’000
50,514
2019
$’000
41,611
Number
Number
Net loss/(gain) on disposal of property, plant and equipment
Rights over ordinary shares
2,039,642
2,333,771
40,908
25,865
Adjustments for calculation of diluted earnings per share:
Weighted average number of ordinary shares used in calculating basic earnings per share
121,618,318
117,937,257
Weighted average number of ordinary shares used in calculating diluted earnings per share
123,657,960
120,271,028
Basic earnings per share
Diluted earnings per share
Accounting policy
Basic earnings per share
Cents
41.53
40.85
Cents
35.28
34.60
Basic earnings per share is calculated by dividing the profit attributable to the owners of Appen Limited excluding any
costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding
during the financial year.
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 positive ordinary shares and
the weighted average number of shares assumed to have been issued for consideration in relation to dilutive potential
ordinary shares.
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Share‑based payments
Foreign exchange differences
Impairment movement on trade receivables
Interest expense – deemed interest on earn‑out
Interest expense – right‑of‑use assets
Transaction costs paid for acquisition
Figure Eight earn‑out adjustment
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in employee benefits and provisions
Increase/(decrease) in contract liabilities
Increase/(decrease) in provision for income tax
Increase/(decrease) in deferred tax liabilities
Group
2020
$’000
50,514
2019
$’000
41,611
(23)
18,147
(10,137)
220
1,353
1,276
1,152
(5,156)
2,314
(12,447)
(12,176)
6,677
30
19,204
3,796
–
3,368
1,020
6,687
4,803
8,494
1,171
4,251
(1,933)
(4,059)
(2,557)
15,010
(48,508)
Net cash from operating activities
93,573
67,302
Accounting policy
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
120
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121
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments
Note 35. Share‑based payments (continued)
Performance rights
Long‑term incentive plan
The Company has developed a long term incentive plan (LTIP) which was effective from 1 January 2015.
With respect to its Executives, the Board has taken a blended approach to the Australian and US practices. The key components
of the LTI scheme are:
•
•
annual grants of performance rights (with quantum determined at Board discretion).
vesting conditions of:
1. underlying basic EPS (UBEPS) growth tested over three consecutive years, tested annually with 100% vesting where
the UBEPS target is achieved, 50–80% vesting for 90–99% achievement (at Board discretion) and nil vesting below 90%
achievement; and
2. continuation of employment until the beginning of the calendar year in which the performance rights are subject
2018
1 Jan 2018
N/A
N/A
N/A
No
N/A
Yes
Employed
1 Jan 2021
$17.60
to vesting.
• Performance rights lapse on cessation of employment before vesting. This means that no performance rights will be provided
if an executive resigns, despite meeting the relevant performance hurdles.
•
Three‑year performance periods, with grants consisting of three equal tranches each tested over a single 12‑month period.
• Australia‑based executives: performance rights vest at the end of the three‑year period subject to the achievement of the
performance and continuous employment hurdles.
• US‑based executives: performance rights may vest annually, which is typical for US remuneration practices, subject to the
achievement of the performance and continuous employment hurdles. A partial tranche may vest subject to achievement
of performance and employment hurdles for grants issued during the year.
• Rights for which the performance condition is not satisfied in the annual testing are carried over for a maximum of two years
and may vest if the equivalent compound annual growth rate (CAGR) is achieved. This ensures that management is focused
on delivering financial returns for shareholders over the long‑term, but also acknowledges that investments may need
to be made in certain years to achieve those returns.
The fair value of the performance rights has been measured based on the share price at the date of the grant less the
present value of the future dividend stream. The dividend stream has been based on a payout ratio of 30%–46%, discounted
at a discount rate of 0.75%.
An overview of all current performance rights plans and conditions in place for all employees, including executives, is disclosed
in the following table.
Overview of Current Performance Rights and Conditions
Plan
2017
Grant
date
Expiry
Exercise
measure‑
Performance
measure‑
Target
Vesting
date 1
price
Tranche
ment
target
ment date
achieved
condition
Vesting
date 2
1 Mar 2017
N/A
N/A
UBEPS
10.0%
End 2017
Yes
Employed
1 Jan 2020
$2.58
Value per
right at
grant date
Perfor‑
mance
Perfor‑
mance
target
2017
1 Mar 2017
N/A
N/A
UBEPS
10.0%
End 2018
Yes
Employed
1 Jan 2020
$2.58
2017
1 Mar 2017
N/A
N/A
UBEPS
10.0%
End 2019
Yes
Employed
25 Feb 2020
$2.58
Relevance
EBITDA and
EBITDA
margin
Relevance
EBITDA and
EBITDA
margin
2018
20 Feb 2018
N/A
N/A
UBEPS
10.0%
End 2019
Yes
Employed
1 Jan 2021
$7.77
performance
condition
2018
20 Feb 2018
N/A
N/A
UBEPS
10.0%
End 2019
Yes
Employed
1 Jan 2021
$7.77
2018
20 Feb 2018
N/A
N/A
UBEPS
10.0%
End 2020
Yes
Employed
Release of
$7.77
at 1 Jan
2020 results
2018 STI
30 Aug 2018
N/A
N/A
N/A
End 2018
Yes
25 Feb 2019
$7.87
2018 STI
20 Dec 2018
N/A
N/A
N/A
End 2019
Yes
N/A
25 Feb 2020
$12.83
2018
Special
2018
Special
2018
Special
20 Feb 2018
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
1 Jan 2021
$7.81
20 Feb 2018
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
1 Jan 2021
$7.81
20 Feb 2018
N/A
N/A
UBEPS
20.0%
End 2020
Yes
Employed
Release of
$7.81
at 1 Jan
2020 results
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
1 Jan 2022
$15.50
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2020
Yes
Employed
1 Jan 2022
$15.50
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2021
Pending
Employed
Release of
$15.50
at 1 Jan
2021 results
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
25 Feb 2020
$15.50
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2020
Yes
Employed
Release of
$15.50
2019
31 Jan 2019
N/A
N/A
UBEPS
20.0%
End 2021
Pending
Employed
Release of
$15.50
at 1 Jan
2020 results
at 1 Jan
2021 results
2019
21 May 2019
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
25 Feb 2020
$23.91
at 1 Jan
2020
at 1 Jan
2020
at 1 Jan
2020
at 1 Jan
2021
at 1 Jan
2021
at 1 Jan
2021
2021
N/A
at 1 Jan
2021
at 1 Jan
2021
2021
at 1 Jan
2022
at 1 Jan
2022
2022
at 1 Jan
2020
2021
2022
at 1 Jan
2020
1
2
3
1
1
2
3
2
3
1
2
3
1
2
3
1
2
3
1
122
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123
123
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments
Note 35. Share‑based payments (continued)
Overview of Current Performance Rights and Conditions
Grant
date
Expiry
date 1
Exercise
price
Tranche
Perfor‑
mance
measure‑
ment
Performance
target
Perfor‑
mance
target
measure‑
ment date
Target
achieved
Vesting
condition
Vesting
date 2
Value per
right at
grant date
1 Mar 2017
N/A
N/A
The Company has developed a long term incentive plan (LTIP) which was effective from 1 January 2015.
With respect to its Executives, the Board has taken a blended approach to the Australian and US practices. The key components
Plan
2017
Performance rights
Long‑term incentive plan
of the LTI scheme are:
•
•
vesting conditions of:
achievement; and
to vesting.
•
Three‑year performance periods, with grants consisting of three equal tranches each tested over a single 12‑month period.
• Australia‑based executives: performance rights vest at the end of the three‑year period subject to the achievement of the
performance and continuous employment hurdles.
• US‑based executives: performance rights may vest annually, which is typical for US remuneration practices, subject to the
achievement of the performance and continuous employment hurdles. A partial tranche may vest subject to achievement
of performance and employment hurdles for grants issued during the year.
• Rights for which the performance condition is not satisfied in the annual testing are carried over for a maximum of two years
and may vest if the equivalent compound annual growth rate (CAGR) is achieved. This ensures that management is focused
on delivering financial returns for shareholders over the long‑term, but also acknowledges that investments may need
to be made in certain years to achieve those returns.
The fair value of the performance rights has been measured based on the share price at the date of the grant less the
present value of the future dividend stream. The dividend stream has been based on a payout ratio of 30%–46%, discounted
at a discount rate of 0.75%.
in the following table.
An overview of all current performance rights plans and conditions in place for all employees, including executives, is disclosed
annual grants of performance rights (with quantum determined at Board discretion).
1. underlying basic EPS (UBEPS) growth tested over three consecutive years, tested annually with 100% vesting where
the UBEPS target is achieved, 50–80% vesting for 90–99% achievement (at Board discretion) and nil vesting below 90%
2017
1 Mar 2017
N/A
N/A
2017
1 Mar 2017
N/A
N/A
2. continuation of employment until the beginning of the calendar year in which the performance rights are subject
2018
1 Jan 2018
N/A
N/A
• Performance rights lapse on cessation of employment before vesting. This means that no performance rights will be provided
2018
20 Feb 2018
N/A
N/A
if an executive resigns, despite meeting the relevant performance hurdles.
2018
20 Feb 2018
N/A
N/A
2018
20 Feb 2018
N/A
N/A
2018 STI
30 Aug 2018
N/A
N/A
2018 STI
20 Dec 2018
N/A
N/A
2018
Special
2018
Special
2018
Special
20 Feb 2018
N/A
N/A
20 Feb 2018
N/A
N/A
20 Feb 2018
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
31 Jan 2019
N/A
N/A
2019
21 May 2019
N/A
N/A
1
2
3
1
1
2
3
2
3
1
2
3
1
2
3
1
2
3
1
UBEPS
10.0%
End 2017
Yes
UBEPS
10.0%
End 2018
Yes
UBEPS
10.0%
End 2019
Yes
N/A
No
performance
condition
N/A
Yes
UBEPS
10.0%
End 2019
Yes
UBEPS
10.0%
End 2019
Yes
UBEPS
10.0%
End 2020
Yes
Employed
at 1 Jan
2020
Employed
at 1 Jan
2020
Employed
at 1 Jan
2020
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
1 Jan 2020
$2.58
1 Jan 2020
$2.58
25 Feb 2020
$2.58
1 Jan 2021
$17.60
1 Jan 2021
$7.77
1 Jan 2021
$7.77
Release of
2020 results
$7.77
N/A
End 2018
Yes
N/A
25 Feb 2019
$7.87
N/A
End 2019
Yes
N/A
25 Feb 2020
$12.83
Relevance
EBITDA and
EBITDA
margin
Relevance
EBITDA and
EBITDA
margin
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2019
Yes
1 Jan 2021
$7.81
1 Jan 2021
$7.81
Release of
2020 results
$7.81
1 Jan 2022
$15.50
1 Jan 2022
$15.50
Release of
2021 results
$15.50
25 Feb 2020
$15.50
Release of
2020 results
$15.50
Release of
2021 results
$15.50
25 Feb 2020
$23.91
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2022
Employed
at 1 Jan
2022
Employed
at 1 Jan
2020
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2020
122
122
Appen 2020 Annual Report
Appen 2020 Annual Report
123
123
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments (continued)
Note 35. Share‑based payments (continued)
Grant
date
Expiry
date 1
Exercise
price
Tranche
Perfor‑
mance
measure‑
ment
Performance
target
Perfor‑
mance
target
measure‑
ment date
Target
achieved
Vesting
condition
Vesting
date 2
Value per
right at
grant date
$23.91
Grant
date
Expiry
Exercise
measure‑
Performance
measure‑
Target
Vesting
date 1
price
Tranche
ment
target
ment date
achieved
condition
Vesting
date 2
Value per
right at
grant date
30 Apr 2020
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$18.28
Plan
2020
Perfor‑
mance
target
Plan
2019
21 May 2019
N/A
N/A
2019
21 May 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
Jan to Mar
2020
N/A
N/A
2020
2020
Jan to Mar
2020
Jan to Mar
2020
N/A
N/A
N/A
N/A
2019
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2
3
1
2
3
4
1
2
3
1
2
3
1
1
2
3
1
2
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2022
Pending
UBEPS
20.0%
End 2020 Pending
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2022 Pending
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022 Pending
No
performance
condition
N/A
Pending
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022 Pending
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2020
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2022
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Release of
2020 results
Release of
2021 results
$23.91
25 Feb 2020 $29.80
Release of
2020 results
$29.80
Release of
2021 results
$29.80
Release of
2022 results
$29.80
1 Jan 23
$23.37
1 Jan 23
$23.37
Release of
2022 results
$23.37
Release of
2020 results
$19.59
Release of
2021 results
$19.59
Release of
2022 results
$19.59
1 Jan 2022
$19.59
Release of
2020 results
$18.28
Release of
2021 results
$18.28
Release of
2022 results
$18.28
1 Jan 23
$18.28
1 Jan 23
$18.28
Perfor‑
mance
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
3
1
2
3
4
1
2
3
4
1
2
3
4
1
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
Apr to Jun
N/A
N/A
0% to 20% End 2020
Yes for
Employed
Release of
$25.43
2020
Apr to Jun
N/A
N/A
0% to 20% End 2021
Pending
Employed
Release of
$25.43
2020
Apr to Jun
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$25.43
2020
Apr to Jun
N/A
N/A
0% to 20% End 2023 Pending
Employed
Release of
$25.43
2020
Jul to Sep
N/A
N/A
0% to 20% End 2020
Yes for
Employed
Release of
$34.99
2020
Jul to Sep
N/A
N/A
0% to 20% End 2021
Pending
Employed
Release of
$34.99
2020
Jul to Sep
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$34.99
2020
Jul to Sep
N/A
N/A
0% to 20% End 2023 Pending
Employed
Release of
$34.99
2020
Oct to Dec
N/A
N/A
0% to 20% End 2020
Yes for
Employed
Release of
$29.73
at 1 Jan
2022 results
rights with
at 1 Jan
2020 results
no per‑
formance
condition
at 1 Jan
2021 results
at 1 Jan
2022 results
at 1 Jan
2023 results
rights with
at 1 Jan
2020 results
no per‑
formance
condition
at 1 Jan
2021 results
at 1 Jan
2022 results
at 1 Jan
2023 results
rights with
at 1 Jan
2020 results
no per‑
formance
condition
at 1 Jan
2021 results
at 1 Jan
2022 results
at 1 Jan
2023 results
2023
2021
2022
2023
2024
2021
2022
2023
2024
2021
2022
2023
2024
2020
Oct to Dec
N/A
N/A
0% to 20% End 2021
Pending
Employed
Release of
$29.73
2020
Oct to Dec
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$29.73
2020
Oct to Dec
N/A
N/A
0% to 20% End 2023 Pending
Employed
Release of
$29.73
2020
25 Dec 2020
N/A
N/A
N/A
No
N/A
Pending
Employed
1 Jan 2023
$24.42
performance
condition
at 1 Jan
2023
1 Rights are convertible to shares on the vesting dates, assuming all the performance conditions of the plan and the employment condition are
met. If rights are not converted, they expire after eight years from the grant date.
2 Target achievement table:
UBEPS Target Achieved
% Performance Rights Allocated
100% or more of UBEPS Target
90–99% of UBEPS Target 3
Less than 90%
100%
50–80%
Nil
3 At the board’s discretion.
124
124
Appen 2020 Annual Report
Appen 2020 Annual Report
125
125
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments (continued)
Note 35. Share‑based payments (continued)
Grant
date
Expiry
date 1
Exercise
price
Tranche
Plan
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
30 Apr 2020
N/A
N/A
Apr to Jun
2020
N/A
N/A
Apr to Jun
2020
Apr to Jun
2020
Apr to Jun
2020
Jul to Sep
2020
Jul to Sep
2020
Jul to Sep
2020
Jul to Sep
2020
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Oct to Dec
2020
N/A
N/A
Oct to Dec
2020
Oct to Dec
2020
Oct to Dec
2020
N/A
N/A
N/A
N/A
N/A
N/A
Perfor‑
mance
measure‑
ment
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A
Value per
right at
grant date
$18.28
Perfor‑
mance
target
measure‑
ment date
Performance
target
Target
achieved
Vesting
condition
Vesting
date 2
0% to 20% End 2022 Pending
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022 Pending
0% to 20% End 2023 Pending
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022 Pending
0% to 20% End 2023 Pending
0% to 20% End 2020
Yes for
rights with
no per‑
formance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022 Pending
0% to 20% End 2023 Pending
No
performance
condition
N/A
Pending
Employed
at 1 Jan
2023
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2023
Release of
2022 results
Release of
2020 results
$25.43
Release of
2021 results
$25.43
Release of
2022 results
$25.43
Release of
2023 results
$25.43
Release of
2020 results
$34.99
Release of
2021 results
$34.99
Release of
2022 results
$34.99
Release of
2023 results
$34.99
Release of
2020 results
$29.73
Release of
2021 results
$29.73
Release of
2022 results
$29.73
Release of
2023 results
$29.73
1 Jan 2023
$24.42
3
1
2
3
4
1
2
3
4
1
2
3
4
1
2020
30 Apr 2020
N/A
N/A
0% to 20% End 2021
Pending
Employed
Release of
$18.28
2020
25 Dec 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$18.28
1 Rights are convertible to shares on the vesting dates, assuming all the performance conditions of the plan and the employment condition are
at 1 Jan
2022 results
met. If rights are not converted, they expire after eight years from the grant date.
2 Target achievement table:
UBEPS Target Achieved
% Performance Rights Allocated
100% or more of UBEPS Target
90–99% of UBEPS Target 3
Less than 90%
100%
50–80%
Nil
3 At the board’s discretion.
124
124
Appen 2020 Annual Report
Appen 2020 Annual Report
125
125
Grant
date
Expiry
Exercise
measure‑
Performance
measure‑
Target
Vesting
date 1
price
Tranche
ment
target
ment date
achieved
condition
Vesting
date 2
Value per
right at
grant date
21 May 2019
N/A
N/A
UBEPS
20.0%
End 2020
Yes
Employed
Release of
$23.91
Plan
2019
Perfor‑
mance
Perfor‑
mance
target
2019
21 May 2019
N/A
N/A
UBEPS
20.0%
End 2021
Pending
Employed
Release of
$23.91
2019
22 July 2019
N/A
N/A
UBEPS
20.0%
End 2019
Yes
Employed
25 Feb 2020 $29.80
2019
22 July 2019
N/A
N/A
UBEPS
20.0%
End 2020
Yes
Employed
Release of
$29.80
2019
22 July 2019
N/A
N/A
UBEPS
20.0%
End 2021
Pending
Employed
Release of
$29.80
2019
22 July 2019
N/A
N/A
UBEPS
20.0%
End 2022
Pending
Employed
Release of
$29.80
2020
19 Dec 2019
N/A
N/A
UBEPS
20.0%
End 2020 Pending
Employed
1 Jan 23
$23.37
2020
19 Dec 2019
N/A
N/A
UBEPS
20.0%
End 2021
Pending
Employed
1 Jan 23
$23.37
2020
19 Dec 2019
N/A
N/A
UBEPS
20.0%
End 2022 Pending
Employed
Release of
$23.37
2020
Jan to Mar
N/A
N/A
0% to 20% End 2020
Yes for
Employed
Release of
$19.59
2020
2020
2020
2020
Jan to Mar
N/A
N/A
0% to 20% End 2021
Pending
Employed
Release of
$19.59
2020
Jan to Mar
N/A
N/A
0% to 20% End 2022 Pending
Employed
Release of
$19.59
2019
30 Apr 2020
N/A
N/A
N/A
No
N/A
Pending
Employed
1 Jan 2022
$19.59
performance
condition
at 1 Jan
2022
2020
30 Apr 2020
N/A
N/A
0% to 20% End 2020
Yes for
Employed
Release of
$18.28
at 1 Jan
2020 results
at 1 Jan
2021 results
at 1 Jan
2020 results
at 1 Jan
2021 results
at 1 Jan
2022 results
2021
2022
at 1 Jan
2020
2021
2022
2023
at 1 Jan
2023
at 1 Jan
2023
2023
2021
2022
2023
at 1 Jan
2022 results
rights with
at 1 Jan
2020 results
no per‑
formance
condition
at 1 Jan
2021 results
at 1 Jan
2022 results
rights with
at 1 Jan
2020 results
2021
no per‑
formance
condition
at 1 Jan
2021 results
2022
2023
2021
at 1 Jan
2022
rights with
at 1 Jan
no per‑
formance
condition
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
2020
30 Apr 2020
N/A
N/A
0% to 20% End 2020
Yes for
Employed
1 Jan 23
$18.28
2020
30 Apr 2020
N/A
N/A
0% to 20% End 2021
Pending
Employed
1 Jan 23
$18.28
2
3
1
2
3
4
1
2
3
1
2
3
1
1
2
3
1
2
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments (continued)
Note 36. Other information
Set out below are summaries of performance rights granted under the plan:
31 Dec 2020
Plan
2017
2018
2018 Special
2018 STI
2019
2020
31 Dec 2019
Plan
2016
2017
2018
2018 Special
2018 STI
2019
Balance at
the start of
the year
231,516
129,392
264,067
83,333
Granted
Exercised
–
–
–
–
(231,516)
(2,445)
(7,033)
(83,333)
Expired/
forfeited/
other
Balance at
the end of
the year
–
–
1,934
128,881
–
–
257,034
–
1,169,107
91,623
(227,300)
(140,503)
892,927
The Group did not access any Government related grants during the year or to the date of signing this report.
–
1,063,932
(4,755)
(18,283)
1,040,894
1,877,415
1,155,555
(556,382)
(156,852)
2,319,736
state of affairs in future financial years.
Balance at
the start of
the year
303,273
252,327
134,840
443,792
–
–
Granted
Exercised
–
–
–
–
(299,364)
–
–
–
Expired/
forfeited/
other
Balance at
the end of
the year
(3,909)
(20,811)
–
231,516
(5,448)
129,392
(179,725)
264,067
166,666
(83,333)
–
83,333
1,200,256
–
(31,149)
1,169,107
1,134,232
1,366,922
(382,697)
(241,042)
1,877,415
COVID‑19 pandemic
Judgement has been exercised in considering the impacts that the COVID‑19 pandemic has had, or may have, on the Group
based on known information. This consideration extends to the nature of the products and services offered, customers, supply
chain, staffing and geographic regions in which the Group operates. The impact of the COVID‑19 pandemic is addressed in the
‘Operating and Financial Review’ section of the Directors’ report.
Note 37. Events after the reporting period
The impact of the COVID‑19 pandemic is ongoing, and there remains uncertainty as to when the global economy will recover.
Apart from the dividend declared as disclosed in note 23, no other matter or circumstance has arisen since 31 December 2020
that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s
The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 1.17 years
(2019: 1.17 years).
Accounting policy
The cost of equity‑settled transactions is measured at fair value on grant date. Fair value is determined using the vesting
period, 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 right.
The cost of equity‑settled transactions is recognised as an expense with a corresponding increase in equity over the
vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the
best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount
recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts
already recognised in previous periods.
If equity‑settled awards are modified, an additional expense is recognised, over the remaining vesting period, for any
modification that increases the total fair value of the share‑based compensation benefit as at the date of modification.
If the non‑vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated
as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting
period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
If equity‑settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled
and new award is treated as if they were a modification.
126
126
Appen 2020 Annual Report
Appen 2020 Annual Report
127
127
Notes to the consolidated financial statements
for the year ended 31 December 2020
Notes to the consolidated financial statements
for the year ended 31 December 2020
Note 35. Share‑based payments (continued)
Note 36. Other information
COVID‑19 pandemic
Judgement has been exercised in considering the impacts that the COVID‑19 pandemic has had, or may have, on the Group
based on known information. This consideration extends to the nature of the products and services offered, customers, supply
chain, staffing and geographic regions in which the Group operates. The impact of the COVID‑19 pandemic is addressed in the
‘Operating and Financial Review’ section of the Directors’ report.
Note 37. Events after the reporting period
The impact of the COVID‑19 pandemic is ongoing, and there remains uncertainty as to when the global economy will recover.
The Group did not access any Government related grants during the year or to the date of signing this report.
Apart from the dividend declared as disclosed in note 23, no other matter or circumstance has arisen since 31 December 2020
that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s
state of affairs in future financial years.
Set out below are summaries of performance rights granted under the plan:
31 Dec 2020
Plan
2017
2018
2019
2020
2018 Special
2018 STI
31 Dec 2019
Plan
2016
2017
2018
2018 Special
2018 STI
2019
Balance at
the start of
231,516
129,392
264,067
83,333
Balance at
the start of
the year
303,273
252,327
134,840
443,792
–
–
the year
Granted
Exercised
other
the year
Expired/
Balance at
forfeited/
the end of
(231,516)
(2,445)
(7,033)
(83,333)
1,934
128,881
257,034
–
–
–
–
–
1,169,107
91,623
(227,300)
(140,503)
892,927
–
1,063,932
(4,755)
(18,283)
1,040,894
1,877,415
1,155,555
(556,382)
(156,852)
2,319,736
Granted
Exercised
other
the year
Expired/
Balance at
forfeited/
the end of
(3,909)
(20,811)
–
231,516
(5,448)
129,392
(179,725)
264,067
(299,364)
–
–
–
–
166,666
(83,333)
–
83,333
1,200,256
(31,149)
1,169,107
1,134,232
1,366,922
(382,697)
(241,042)
1,877,415
–
–
–
–
–
–
–
–
The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 1.17 years
(2019: 1.17 years).
Accounting policy
The cost of equity‑settled transactions is measured at fair value on grant date. Fair value is determined using the vesting
period, 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 right.
The cost of equity‑settled transactions is recognised as an expense with a corresponding increase in equity over the
vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the
best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount
recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts
already recognised in previous periods.
If equity‑settled awards are modified, an additional expense is recognised, over the remaining vesting period, for any
modification that increases the total fair value of the share‑based compensation benefit as at the date of modification.
If the non‑vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated
as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting
period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
If equity‑settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled
and new award is treated as if they were a modification.
126
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127
127
Directors' declaration
Independent auditor's report
to the shareholders of Appen Limited
In the directors’ opinion:
•
•
•
•
•
the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in the financial statements;
the attached financial statements and notes give a true and fair view of the Group’s financial position as at 31 December 2020
and of its performance for the financial year ended on that date;
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
at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group
will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross
guarantee described in note 32 to the financial statements.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
Christopher Vonwiller
Director
24 February 2021
Sydney
Report on the audit of the Financial Report
Opinion
(the Company).
including:
We have audited the Financial Report of Appen Limited
The Financial Report comprises
In our opinion, the accompanying Financial Report of the
as at 31 December 2020
Company is in accordance with the Corporations Act 2001,
• Consolidated Statement of financial position
• Consolidated Statement of profit or loss and other
comprehensive income, Consolidated Statement
•
giving a true and fair view of the Group’s financial
of changes in equity, and Consolidated Statement
position as at 31 December 2020 and of its financial
of cash flows for the year then ended
performance for the year ended on that date; and
• Notes including a summary of significant accounting
•
complying with Australian Accounting Standards and
policies
the Corporations Regulations 2001.
• Directors’ Declaration.
The Group consists of the Company and the entities
it controlled at the year‑end or from time to time during
the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including
Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled
our other ethical responsibilities in accordance with the Code.
128
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129
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.
In the directors’ opinion:
•
•
•
•
•
the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in the financial statements;
the attached financial statements and notes give a true and fair view of the Group’s financial position as at 31 December 2020
and of its performance for the financial year ended on that date;
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
at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group
will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross
guarantee described in note 32 to the financial statements.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
Christopher Vonwiller
Director
24 February 2021
Sydney
Directors' declaration
Independent auditor's report
to the shareholders of Appen Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of Appen Limited
(the Company).
In our opinion, the accompanying Financial Report of the
Company is in accordance with the Corporations Act 2001,
including:
giving a true and fair view of the Group’s financial
position as at 31 December 2020 and of its financial
performance for the year ended on that date; and
•
•
The Financial Report comprises
• Consolidated Statement of financial position
as at 31 December 2020
• 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
• Notes including a summary of significant accounting
complying with Australian Accounting Standards and
the Corporations Regulations 2001.
policies
• Directors’ Declaration.
The Group consists of the Company and the entities
it controlled at the year‑end or from time to time during
the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including
Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled
our other ethical responsibilities in accordance with the Code.
128
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129
129
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.
Independent auditor's report
to the shareholders of Appen Limited
Independent auditor's report
to the shareholders of Appen Limited
Key Audit Matter
The Key Audit Matter we
identified was:
• Revenue recognition
Key Audit Matters are those matters that, in our professional judgement, were of most
significance in our audit of the Financial Report of the current period.
These matters were addressed in the context of our audit of the Financial Report as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
Revenue recognition ($599.4m)
Refer to Note 4 of the Financial Report
The key audit matter
How the matter was addressed in our audit
A substantial amount of the Group’s revenue relates
to revenue from the rendering of services.
We focused on revenue recognition as a key audit matter
due to the significant audit effort required to test the varied
service revenue streams in the Group.
Our audit attention focused on revenue recognition from
the two largest service revenue streams:
• Revenue from the rendering of speech and image
services; and
• Revenue from the rendering of relevance services.
It is the Group’s policy to account for revenue generated
from speech and image using contract accounting which
is based on:
•
•
The expected total time and costs to complete
a customer project; and
The percentage completion of the project, which
is typically a count of the number of lines, utterances
or images completed compared to the total number
of lines, utterances or images for the project as a whole.
These contracts are mainly short term in nature and similar
amongst customers.
A significant amount of contract assets related to revenue
generated from speech and image and relevance are
recognised on the balance sheet due to a high volume
of projects spanning across year end where work has been
performed but not yet invoiced to customer. Determining
work completed required estimation, increasing the risk
of revenue recognised in the incorrect period.
Revenue generated from relevance segment involves
a high volume of transactions with customers. It is the
Group’s policy to account for this revenue as services are
completed and approved by the customer. We focused
on transactions, throughout the year and spanning across
year end, which have a higher risk of revenue being
recognised in the incorrect period.
Our audit effort reflects the volume of projects and
transactions for these revenue streams.
Our procedures included:
• We tested key controls in the Group’s revenue process
including, management review and approval of sales
invoices and monthly project reporting; and
• We selected a statistical sample of speech and image
projects in progress at year end. For the sample
selected, we:
–
–
compared the total time and costs budgeted
to complete a customer project against the
customer contract and project details provided
by project managers;
recalculated the percentage completion by
checking the number of lines, utterances or images
translated at year end to underlying project records
and compared this to the total number of lines,
utterances or images to be recognised as revenue
for the project as a whole; and
–
checked the logged performance date of the
above project work for allocation of work across
financial years.
• We assessed the accuracy of contract assets and
receivables related to revenue from speech and image
and relevance recognised on the balance sheet. We did
this by matching underlying documentation of a sample
of transaction activity subsequent to year end, such as
records of completion, customer acknowledgement and
invoices raised, to relevant projects in contract assets
and receivables at year end.
• We tested a statistical sample of transactions
throughout the year and spanning across year end from
both service revenue streams to underlying records
such as sales invoices raised, records of completion and
customer acknowledgements or cash receipts in the
bank statement, to check revenue was recognised in the
period the service was provided.
Other Information
Other Information is financial and non‑financial information in Appen Limited’s annual reporting which is provided
in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related
assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so,
we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained
in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on
the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have
nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
the Corporations Act 2001
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view
and is free from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern
basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement,
Our objective is:
whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance
Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms
part of our Auditor’s Report.
•
•
•
•
•
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131
131
Independent auditor's report
to the shareholders of Appen Limited
Independent auditor's report
to the shareholders of Appen Limited
Key Audit Matter
The Key Audit Matter we
identified was:
• Revenue recognition
significance in our audit of the Financial Report of the current period.
Key Audit Matters are those matters that, in our professional judgement, were of most
These matters were addressed in the context of our audit of the Financial Report as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
Revenue recognition ($599.4m)
Refer to Note 4 of the Financial Report
The key audit matter
How the matter was addressed in our audit
A substantial amount of the Group’s revenue relates
Our procedures included:
to revenue from the rendering of services.
We focused on revenue recognition as a key audit matter
due to the significant audit effort required to test the varied
service revenue streams in the Group.
Our audit attention focused on revenue recognition from
the two largest service revenue streams:
selected, we:
• We tested key controls in the Group’s revenue process
including, management review and approval of sales
invoices and monthly project reporting; and
• We selected a statistical sample of speech and image
projects in progress at year end. For the sample
• Revenue from the rendering of speech and image
services; and
• Revenue from the rendering of relevance services.
It is the Group’s policy to account for revenue generated
from speech and image using contract accounting which
is based on:
•
•
The expected total time and costs to complete
a customer project; and
The percentage completion of the project, which
–
compared the total time and costs budgeted
to complete a customer project against the
customer contract and project details provided
by project managers;
–
recalculated the percentage completion by
checking the number of lines, utterances or images
translated at year end to underlying project records
and compared this to the total number of lines,
utterances or images to be recognised as revenue
for the project as a whole; and
is typically a count of the number of lines, utterances
–
checked the logged performance date of the
or images completed compared to the total number
above project work for allocation of work across
of lines, utterances or images for the project as a whole.
financial years.
These contracts are mainly short term in nature and similar
• We assessed the accuracy of contract assets and
amongst customers.
A significant amount of contract assets related to revenue
generated from speech and image and relevance are
recognised on the balance sheet due to a high volume
of projects spanning across year end where work has been
performed but not yet invoiced to customer. Determining
work completed required estimation, increasing the risk
of revenue recognised in the incorrect period.
Revenue generated from relevance segment involves
a high volume of transactions with customers. It is the
Group’s policy to account for this revenue as services are
completed and approved by the customer. We focused
on transactions, throughout the year and spanning across
year end, which have a higher risk of revenue being
recognised in the incorrect period.
Our audit effort reflects the volume of projects and
transactions for these revenue streams.
receivables related to revenue from speech and image
and relevance recognised on the balance sheet. We did
this by matching underlying documentation of a sample
of transaction activity subsequent to year end, such as
records of completion, customer acknowledgement and
invoices raised, to relevant projects in contract assets
and receivables at year end.
• We tested a statistical sample of transactions
throughout the year and spanning across year end from
both service revenue streams to underlying records
such as sales invoices raised, records of completion and
customer acknowledgements or cash receipts in the
bank statement, to check revenue was recognised in the
period the service was provided.
Other Information
Other Information is financial and non‑financial information in Appen Limited’s annual reporting which is provided
in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related
assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so,
we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained
in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on
the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have
nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and
the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view
and is free from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern
basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement,
whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance
Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms
part of our Auditor’s Report.
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131
Independent auditor's report
to the shareholders of Appen Limited
Additional information
Report on the Remuneration Report
Opinion
In our opinion, the Remuneration Report of Appen Limited
for the year ended 31 December 2020, complies with
Section 300A of the Corporations Act 2001.
Directors’ responsibilities
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration
Report in accordance with Section 300A of the
Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included
in pages 58 to 71 of the Directors’ report for the year
ended 31 December 2020.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPMG
Cameron Slapp
Partner
Sydney
24 February 2021
Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows.
This information is current as at 29 January 2021.
Distribution of shareholders
The distribution of issued capital is as follows:
Size of holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Size of holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Distribution of performance rights holders
The distribution of unquoted performance rights on issue is as follows:
Number of
shareholders
% of issued
capital
Ordinary
shares
84,593,229
6,857,081
4,598,033
15,158,340
11,138,922
41
323
649
7,100
40,175
48,288
122,345,605
100.00
Number of
performance
rights holders
Unlisted
% of total
performance
performance
rights
1,019,879
650,068
269,434
336,613
43,742
5
29
39
130
89
292
2,319,736
100.00
69.14
5.60
3.76
12.39
9.10
rights
43.97
28.02
11.61
14.51
1.89
The performance rights on issue are unquoted and have been issued under our employee incentive scheme.
Less than marketable parcels of ordinary shares
There are no shareholders with unmarketable parcels.
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133
Independent auditor's report
to the shareholders of Appen Limited
Additional information
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Appen Limited
The Directors of the Company are responsible for the
for the year ended 31 December 2020, complies with
preparation and presentation of the Remuneration
Section 300A of the Corporations Act 2001.
Report in accordance with Section 300A of the
Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included
in pages 58 to 71 of the Directors’ report for the year
ended 31 December 2020.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPMG
Cameron Slapp
Partner
Sydney
24 February 2021
Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows.
This information is current as at 29 January 2021.
Distribution of shareholders
The distribution of issued capital is as follows:
Size of holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Distribution of performance rights holders
The distribution of unquoted performance rights on issue is as follows:
Number of
shareholders
41
323
649
7,100
40,175
Ordinary
shares
84,593,229
6,857,081
4,598,033
15,158,340
11,138,922
% of issued
capital
69.14
5.60
3.76
12.39
9.10
48,288
122,345,605
100.00
Size of holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number of
performance
rights holders
Unlisted
performance
rights
% of total
performance
rights
5
29
39
130
89
292
1,019,879
650,068
269,434
336,613
43,742
43.97
28.02
11.61
14.51
1.89
2,319,736
100.00
The performance rights on issue are unquoted and have been issued under our employee incentive scheme.
Less than marketable parcels of ordinary shares
There are no shareholders with unmarketable parcels.
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133
Additional information
Additional information
Twenty largest shareholders
Substantial shareholders
The names of the twenty largest shareholders of quoted equity securities as at 29 January 2021 are as follows:
The names of the Substantial Shareholders as disclosed in notices submitted to the ASX as at 29 January 2021 are:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
C & J VONWILLER PTY LTD
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED‑GSCO ECA
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
BNP PARIBAS NOMINEES PTY LTD
PACIFIC CUSTODIANS PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
GINGA PTY LTD
NEW GREENWICH PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR WILLIAM JOHN LAUKKA & MRS ELIZABETH ANNE LAUKKA
AMP LIFE LIMITED
SANDHURST TRUSTEES LTD
Remaining quoted equity securities
Total number of ordinary shares on issue
Unquoted equity securities
Ordinary shares
Number held
33,122,566
14,830,040
10,251,109
9,060,286
3,217,709
2,668,890
1,797,647
1,451,737
1,442,390
634,109
402,378
385,350
364,881
356,013
340,000
332,384
243,983
240,229
232,196
223,779
% of issued
capital
27.07
12.12
8.38
7.41
2.63
2.18
1.47
1.19
1.18
0.52
0.33
0.31
0.30
0.29
0.28
0.27
0.20
0.20
0.19
0.18
81,597,676
40,747,929
66.69
33.31
122,345,605
100.00
The Company had the following unquoted securities on issue as at 29 January 2021:
Performance rights over ordinary shares
Number
on issue
2,319,736
Number
of holders
292
Shareholder
C & J Vonwiller Pty Limited
Vanguard Group
Restricted securities
Ordinary shares
Number held
9,060,083
6,156,908
% of issued
capital
7.45
5.06
The Company had the following restricted securities on issue as at 29 January 2021:
Class
Ordinary shares, in respect of the Figure Eight acquisition
Expiry
date
Number
of shares
2 April 2021
27,919
In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney,
or a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for
Voting rights
each fully paid ordinary share, on a poll.
Holders of performance rights have no voting rights.
On‑market buy‑backs
There is no current on‑market buy‑back in relation to the Company’s securities.
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135
Additional information
Additional information
Twenty largest shareholders
Substantial shareholders
The names of the twenty largest shareholders of quoted equity securities as at 29 January 2021 are as follows:
The names of the Substantial Shareholders as disclosed in notices submitted to the ASX as at 29 January 2021 are:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
C & J VONWILLER PTY LTD
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED‑GSCO ECA
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
BNP PARIBAS NOMINEES PTY LTD
PACIFIC CUSTODIANS PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
GINGA PTY LTD
NEW GREENWICH PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR WILLIAM JOHN LAUKKA & MRS ELIZABETH ANNE LAUKKA
AMP LIFE LIMITED
SANDHURST TRUSTEES LTD
Remaining quoted equity securities
Total number of ordinary shares on issue
Unquoted equity securities
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
The Company had the following unquoted securities on issue as at 29 January 2021:
Performance rights over ordinary shares
Ordinary shares
Number held
33,122,566
14,830,040
% of issued
capital
27.07
10,251,109
9,060,286
3,217,709
2,668,890
1,797,647
1,451,737
1,442,390
634,109
402,378
385,350
364,881
356,013
340,000
332,384
243,983
240,229
232,196
223,779
12.12
8.38
7.41
2.63
2.18
1.47
1.19
1.18
0.52
0.33
0.31
0.30
0.29
0.28
0.27
0.20
0.20
0.19
0.18
81,597,676
40,747,929
66.69
33.31
122,345,605
100.00
Number
on issue
2,319,736
Number
of holders
292
Shareholder
C & J Vonwiller Pty Limited
Vanguard Group
Restricted securities
Ordinary shares
Number held
9,060,083
6,156,908
% of issued
capital
7.45
5.06
The Company had the following restricted securities on issue as at 29 January 2021:
Class
Ordinary shares, in respect of the Figure Eight acquisition
Expiry
date
Number
of shares
2 April 2021
27,919
Voting rights
In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney,
or a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for
each fully paid ordinary share, on a poll.
Holders of performance rights have no voting rights.
On‑market buy‑backs
There is no current on‑market buy‑back in relation to the Company’s securities.
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Appen 2020 Annual Report
Appen 2020 Annual Report
135
135
Corporate directory
Registered office
Level 6, 9 Help Street
Chatswood NSW 2067
+61 2 9468 6300
www.appen.com
Company secretary
Carl Middlehurst
Investor relations
+61 2 9468 6300
investorrelations@appen.com
www.appen.com/investors
Shareholder enquiries
Link Market Services
Locked Bag A14
Sydney South NSW 1235
+61 1300 554 474
registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
Auditor
KPMG
Tower Three
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW 2000
Stock exchange listing
Appen Limited shares are listed on the
Australian Securities Exchange (ASX code: APX)
Corporate Governance Statement
www.appen.com/corporate‑governance
136
Designed and produced by ArmstrongQ
Corporate directory
Registered office
Level 6, 9 Help Street
Chatswood NSW 2067
+61 2 9468 6300
www.appen.com
Company secretary
Carl Middlehurst
Investor relations
+61 2 9468 6300
investorrelations@appen.com
www.appen.com/investors
Shareholder enquiries
Link Market Services
Locked Bag A14
Sydney South NSW 1235
+61 1300 554 474
registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
Auditor
KPMG
Tower Three
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW 2000
Stock exchange listing
Appen Limited shares are listed on the
Australian Securities Exchange (ASX code: APX)
Corporate Governance Statement
www.appen.com/corporate‑governance
136
Designed and produced by ArmstrongQ
appen.com
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