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Powering the
life
cycle
2021 Annual Report
Contents
2 Mission, vision and values
16 Global crowd
48 Executive Team
3 Our strategy
4 Global reach
6 2021 highlights
18 Our people
50 Directors’ report
22 Customer and brand
54 Remuneration report
24 Financial
81 Financial report
8 Chairman’s message
30 Social and environment
141 Directors’ declaration
10 CEO’s message
34
Identifying and managing risk
142 Independent auditor’s report
12 How we create value
44 Our approach to governance
146 Additional information
14 Technology, processes,
46 Board of Directors
149 Corporate directory
systems
About
this report
This Annual Report combines
our financial and non-financial
performance, linking environmental,
social and governance matters to our
strategy and business performance.
In preparing our Annual Report, we
have used the International Integrated
Reporting Council (IIRC) Framework
and the Sustainability Accounting
Standards Board (SASB) to guide our
disclosures on how Appen creates value
for shareholders and which topics are
most material to our business.
Underlying results are alternative
measures to those recommended
under International Financial Reporting
Standards (IFRS) and are used by
management to assess the underlying
performance of the business. Underlying
results have been derived from statutory
measures contained in the financial
statements but have not been subject
to audit. A reconciliation between
statutory and underlying results is
detailed on page 29 of this report.
This year Appen changed its reporting
currency from Australian dollars to United
States (US) dollars. The change was
driven by the fact that more than 90%
of Appen’s revenue and assets are in
US dollars. Unless otherwise stated, all
amounts are in United States (US) dollars.
During the year, Appen also announced
a corporate restructure. Details of our
five business units, our two operating
and reporting segments can be found
on page 51 in the Directors' report.
Forward-looking statements
This report contains forward-looking
statements. These statements involve
subjective judgement and analysis and
are subject to significant uncertainties,
risks, and contingencies, many of which
are outside the control of Appen.
In particular, they speak only as of
the date of this report, they are based
on particular events, conditions or
circumstances stated in the materials,
they assume the success of Appen’s
business strategies, and they are subject
to significant regulatory, business,
competitive, currency and economic
uncertainties and risks. Except as
required by applicable regulations or
by law, Appen does not undertake to
publicly update or review any forward-
looking statements, whether as a result
of new information or future events.
Past performance cannot be relied
on as a guide to future performance.
Material issues
A matter is considered material if senior
management and the board believe
it could significantly impact the value
created and delivered in the short,
medium and long term. We identify
and capture material matters through
stakeholder engagement and our annual
risk and materiality assessment.
Operating and
Financial Review
The sections of this report from pages
8 to 45 titled the Chairman’s message,
CEO’s message, How we create value,
Identifying and managing risk and Our
approach to governance comprise our
Operating and financial review (OFR)
and form part of the Directors' report.
Verification and assurance
The Directors' report, including
information about How we create value,
Identifying and managing risk and Our
approach to governance is prepared
by management in consultation with the
board. The content in the Directors' report
is guided by regulatory requirements and
our interactions with investors and other
stakeholders throughout the year.
The information in the Directors' report
is derived from Appen's internal records
and has been through our internal
verification process. An independent
audit of our consolidated financial
accounts has been conducted by KPMG.
Appen Limited
ABN 60 138 878 298
All amounts in this report are in US dollars unless otherwise stated.
Appen provides data
for the AI lifecycle
1.
Data
sourcing
4.
Model
evaluation
by humans 1
2.
Data
preparation
We are the leading provider in three out of the
four essential steps of the AI lifecycle, including:
1. Data sourcing, 2. Data preparation, and
4. Real-world model evaluation
Where we don't provide native experience,
we integrate with clients and partner with
leading model management companies
1
Includes relevance.
Appen 2021 Annual Report
1
3.Model training and deployment Mission,
vision and values
At Appen, we collect and label images, text, speech, audio, video,
and other data used to build and continuously improve the world’s
most innovative artificial intelligence systems.
Our training data gives leaders in technology, automotive, financial services, retail, healthcare,
and government the confidence to deploy world-class AI products.
Our mission
Enable our customers to build better AI by creating large
volumes of high-quality unbiased training data faster
Our vision
To be the leading global provider of data for the AI lifecycle
At Appen, our team seeks to live our
values in everything we do.
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.
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.
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.
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.
2
Our
strategy
Objective
Leading global provider of
data for the AI lifecycle
Delivering financial
outcomes in FY26
More than
1/3
of revenue from
non-global
customers
At least double
2021
revenue
EBITDA
margin target
20%
Four strategic
pillars
1. Grow revenue
and diversify
Drive growth in target
customer segments
2. Automate crowd
and labelling
processes
Leverage AI and ML in our
labelling operations to improve
the productivity of our crowd
3. Expand our
product offering
Expand our TAM by adding new
products and capabilities - e.g.
Quadrant and synthetic data
Enablers
• New customer-aligned organisation structure
•
Increased investment in Product and Engineering
(up to 10% of revenue)
• Dedicated team of data scientists to build and deploy Machine
Learning models to pre-label training data
• Quadrant acquisition unlocks broader Point of Interest market
•
~$5m annual investment for transformation team starting in FY22
4. Evolve how
we do business
Improve the scalability and
productivity of our GTM and
project delivery
Appen 2021 Annual Report
3
Global
reach …
Appen is a truly global business
Appen offices
Seattle
San Fransisco
Exeter
Washington DC
Dallas
25
years world-class
expertise
24/7
support
available
AI
enabled
platform
4
Global demand
for training data
$22bn
1
22.0
by 2027
16.6
12.5
32% annual growth
7.2
9.5
5.5
4.2
1
2
0
2
2
2
0
2
3
2
0
2
4
2
0
2
5
2
0
2
6
2
0
2
7
2
0
2
Beijing
Dalian
Shanghai and Wuxi
Cavite
Singapore
Sydney
1m+
crowd
contractors
Our crowd has
expertise in
235
Living in
170+
languages
countries
1 Cognilytica Research Snapshot: Data Labelling Markets (December 2021).
Appen 2021 Annual Report
5
2021
highlights
See page 22–23.
Our customers include:
Customers
25
years
working with leading
technology companies
11
of the leading autonomous
vehicle companies are
our customers
Financial
See page 24–29.
Crowd
See page 16–17.
Revenue
US million
Dividend per share
(A¢)
Crowd Code of Ethics
$447.3m 10.0¢
8%
full year
EBITDA
US million
$72.9m
statutory 2%
Net profit after tax
US million
$28.5m
statutory 20%
$77.7m
underlying 3%
$40.6m
underlying 10%
Fair pay
Inclusion
Crowd voice
Privacy and
confidentiality
Communication
Wellbeing
Financials as at 31 December 2021, all comparisons are to the year ended 31 December 2020. 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, restructure costs, transaction costs and fair-value adjustments. Underlying NPAT also
excludes deemed interest on acquisition-related earn-out payments.
6
Employees
See page 18–21.
Technology
38%
Female representation
amongst senior leadership
from 30% in 2020
50%
Female representation
amongst our board
from 43% in 2020
Employee distribution
USA
330
Asia Pacific 711
UK/Europe
80
Australia
144
Social and environment
See page 30–33.
Impact sourcing
Creating opportunities for
people in developing countries
17%
were long-term unemployed
(>1 year) before joining Appen
16%
were living under the global
poverty line before joining Appen
Net zero
emissions
by 2030
Scope
1 and 2
GHG emissions
inventory completed
63%
100%
use their Appen earnings to support
their household or to pay for education
renewable Cloud
supplier partner
Major technology
customers use our
industry
leading
data annotation
platform
See page 14.
Acquisition
of Quadrant
delivers high accuracy
location data
See page 14 and 52.
Mobile
App
improves the user
experience for
our crowd
See page 14.
ISO certified
5
secure
facilities
See page 15.
Appen 2021 Annual Report
7
Chairman’s message
Delivering
long-term value
Financial performance
Appen maintained its track record
of profitable growth in 2021. The result
featured a record second half revenue
performance, breakout growth in China
and an increased contribution from
New Markets.
Group revenue increased by 8% over
last year to $447.3 million and underlying
EBITDA, also increased. Our performance
is underpinned by the strength of our
customer relationships, crowd model
and ability to deliver high quality data.
The full year dividend of 10 cents per
share was in line with FY20. Both the
interim dividend of 4.5 cents per share
and the final dividend of 5.5 cents are
50% franked.
Strategy and future growth
Appen’s mission is to help our customers
build better AI by creating large volumes
of high-quality training data faster.
In delivering on our mission, the Board
is firmly focused on capturing growth
opportunities. During the year, we
completed a strategic review that
confirmed the substantial opportunities
ahead of us and our privileged leadership
position and laid out recommendations
to maximise our ability to grow and
deliver value for shareholders. The
Board has an active interest in the
strategy implementation and has created
an internal advisory board committee
to advise management throughout the
next phase.
In 2021 Appen celebrated 25 years of
operations. The company’s transition
from a language data provider to
become a leading AI data annotation
provider is remarkable. As we continue
our journey and prepare for our next
growth phase, we are committed to
supporting our customers, looking after
our employees and crowd, and delivering
long-term value for shareholders.
8
Board renewal
I was very pleased to be invited to join the
Board of Appen, commencing in August
2020 and thank Chris Vonwiller for his
warm welcome and smooth handover
before his retirement in October last
year. Chris, along with his wife Julie,
have created and grown an Australian
success story and I am honoured to chair
the company through its next phase.
Chris has left Appen in a strong position
and we wish Chris and Julie a long and
happy retirement.
Bill Pulver also retired from the Board
in 2021. Bill was CEO from 2010 to 2013
and then a non-executive director for
eight years. I also thank Bill for his valuable
contribution to the company and wish him
well in the future.
Steve Hasker, an independent director
since April 2015, was appointed as chair
of the People and Culture Committee
upon Bill’s retirement. The committee
has been renamed and its remit
broadened to reflect the importance of
people and culture to Appen’s success.
Steve is the President and CEO of
Thomson Reuters and provides us with
extensive experience in global talent and
remuneration management.
With the retirements of Chris and Bill,
we are actively recruiting for two new
independent non-executive directors to
join the Board. This will ensure we have the
right mix of skills, experience and Board
tenure to govern and guide the company.
Remuneration practices
The Board has listened to shareholders’
feedback in response to the first strike
on the 2020 Remuneration Report.
We have also taken feedback from proxy
advisors and engaged remuneration
experts to revise our short and long-term
incentive programs.
The new incentive schemes, outlined in this
year’s remuneration report, are designed
to attract, motivate and retain employees,
and better align their interests with those
of our shareholders. Our 2022 programs
seek to balance shareholder expectations
against remuneration practices in the
US and Australia, and enable Appen
to compete for talent in these highly
competitive labour markets.
AI requires diverse datasets representative
of the real world to perform ethically and
correctly, and we are obliged to ensure
that our crowd is suitably diverse to deliver
on this promise. We are actively involved in
Impact Sourcing partnerships that support
diversity and opportunity, and our Crowd
Code of Ethics includes a commitment to
offering work opportunities to individuals
of all abilities and backgrounds.”
Caring for our stakeholders
We remain committed to the ethical
treatment of our crowd and have set
out our standards in our Global Ethical
Sourcing and Modern Slavery Policy.
We issued our first modern slavery
statement in 2021 that summarises our
ongoing commitments and efforts to
address human rights and labour risks
associated with our business.
As a company entrusted with the data
of our customers, crowd, employees and
shareholders, we have implemented
rigorous security systems and processes
based on international standards. This
is a dynamic and important area, and our
in-house experts are at the forefront of
it to ensure we protect stakeholder data
and privacy.
This year, we also partnered with the World
Economic Forum to create responsible
AI standards.
Promoting diversity
and inclusion
The Board has a strong interest in diversity
and inclusion. AI requires diverse datasets
representative of the real world to perform
ethically and correctly, and we are obliged
to ensure that our crowd is suitably
diverse to deliver on this promise. We are
actively involved in Impact Sourcing
partnerships that support diversity and
opportunity, and our Crowd Code of Ethics
includes a commitment to offering work
opportunities to individuals of all abilities
and backgrounds.
We are also focused on gender and
ethnic diversity amongst our full-time
workforce. Appen has maintained 58%
female representation amongst employees
in 2020 and 2021 and increased female
representation to 50% and 30% amongst
our Board and Executive team respectively.
Our employee-led Diversity and Inclusion
committee maintains an active agenda of
events and communications that celebrate
diversity and promote awareness across
the company.
Committed to climate action
This year, we completed our first GHG
emissions inventory for Scope 1 and 2.
While Appen’s business has a relatively
small environmental footprint, we are
committed to supporting international
initiatives to transition to net zero
emissions. As part of our commitment
this year we will focus on determining
our Scope 3 emissions and setting our
pathway to achieve net zero by 2030.
Outlook
Appen is a global leader in a dynamic
and high-growth market. The Board has
every confidence that Appen’s strong
foundations and reshaped strategy will
deliver long-term value for shareholders.
I thank my fellow board members for their
welcome, congratulate management and
their teams for their tireless efforts and
resilience through the pandemic.
On behalf of the Board, I sincerely thank
shareholders for your ongoing support
and commitment to our company.
Appen is a truly global company, and I am
excited about its future.
Richard Freudenstein
Non-executive Chairman
Appen 2021 Annual Report
9
CEO’s message
Driving
growth
I am very pleased to
share our results for
2021 and provide an
update on the year and
our growth strategy.
This year, we reported a record full
year revenue performance that was
underpinned by a strong second half
year revenue and EBITDA performance.
Revenue in the second half of $250.7
million was an all-time high for the
company. It included the expected second
half skew to our Global customers, and
breakout growth in China:
On a full year basis:
• Group revenue was up 8% on
2020 to $447.3 million.
• Underlying EBITDA, before the
impact of foreign exchange (FX)
of $78.9 million, was 11.6% higher
than last year. Including FX, EBITDA
grew 3% to $77.7 million.
• China revenue was up 422%
on 2020 to $24.7 million.
The result benefitted from a 32%
increase in Global Services revenue
from first half to the second half of FY21.
Global Services revenue is derived from
projects done on the platforms of the
world’s largest technology companies. It
included a higher proportion of revenue
from non-ad-related projects in the
second half, reinforcing our customers’
shift to new product developments and
future sources of revenue for them, such
as ecommerce, maps and the metaverse.
We had a breakout year in China.
China continues to grow at a rapid pace
with quarterly compound revenue growth
of 56% (1Q20-4Q21). We count China’s
technology and internet giants amongst
our customers, along with leading
mobile phone and autonomous vehicle
companies. AI models for autonomous
vehicles require vast volumes of data
and we’re establishing ourselves as
a key provider in that market in China.
Our Enterprise team, who serve
commercial businesses outside of the
Global technology companies, had
a good year but has yet to achieve its
potential. We’ve rebuilt the team under
Jen Cole, who brings more than twenty
years of experience in high growth
ad-tech, ecommerce and marketing
solutions. We’re pleased to have Jen
and her team on board and have strong
confidence in them.
The market for training data and AI in the
government markets is steadily evolving.
We continue to deliver into existing
programs while adding new pilot projects
that will bear fruit in time.
Managing COVID
During the year, we experienced
negligible COVID-related impacts, and
continued to deliver quality outcomes
for our customers, with our seamless,
flexible remote crowd delivery capability.
Our 2026 Strategy
Ours is a dynamic and fast-paced
market. We completed a strategic
review with external experts in 2021 to
ensure that we remain at the forefront
of technology and market trends.
The review confirmed that AI will
continue to grow at a rapid rate and that
high volumes of high-quality training
data are essential to develop AI products
that work in the real world. It found that
our expertise and track record in three
of the four essential stages of the AI
lifecycle: data sourcing, data preparation
and real-world model evaluation, along
with our range of data types and scale,
make us the clear market leader.
The market is evolving. New data types
are emerging, such as spatial and
geo-locational data, and technology
is playing a bigger role in the creation
and preparation of training data.
There are four pillars to Appen’s
strategy: Grow revenue and diversify
our customers, automate our crowd
and labelling processes, expand our
10
Our expertise and track record in three
of the four essential stages of the AI
lifecycle: data sourcing, data preparation
and real-world model evaluation, along
with our range of data types and scale,
make us the clear market leader."
Outlook
Our strategy positions us to maximise
long-term growth and shareholder
returns. Our plans include a set of targets
for 2026 that include revenue, customer
mix and profitability.
Our strong second half result, the new
members of our leadership team and our
growth strategy give us great confidence
in our future.
On behalf of my team, I would like
to thank everyone in Appen and the
members of our global crowd for
everything they do for our customers
and for each other.
Thank you for your ongoing support.
We are looking forward to a successful
and rewarding 2022.
Mark Brayan
Managing Director
& Chief Executive Officer
The acquisition of Quadrant supports
our strategy to expand our addressable
market and product offerings with new
data types and capabilities. Quadrant’s
Geolancer product efficiently collects
real world location data ‘in the field’
that supports the creation and update
of geo-locational applications used
in maps, ecommerce and marketing.
We welcome Quadrant’s founder Mike
Davie and his team to Appen and we are
already seeing interest and uptake of
Geolancer across our customer base.
Our high growth rate of recent years
has seen some of our internal systems
lag customer demands. We’ve invested
in a transformation office so that we
can continue to evolve the way we do
business. Eric de Cavaignac joined
Appen in November 2021 and will
lead internal processes to digitise our
business to improve productivity and
scale, and to make the work of our expert
staff more meaningful and fulfilling.
Culture and leadership
The success of our strategy depends on
its implementation and that relies on the
expertise and engagement of our team.
We are investing in culture and
leadership development to bind and
support our global team, help us
navigate the challenges of virtual work
and improve employee engagement and
productivity. We’re pleased to welcome
Andrea Clayton who joins Appen in
late February as our new Chief People
Officer. She will support these and
other initiatives to make Appen a great
place to work.
product offerings and evolve how we
do business. Growth is a key strategic
priority. Our focused business units:
Global, Enterprise, China, Government
and Quadrant, are targeted primarily on
revenue growth and customer acquisition
to diversify and grow our customer base.
Our non-global customers represented 14%
of our revenue this year, up from 9% in 2020.
We will increase our investment in
product and engineering to streamline
and automate crowd and labelling
processes. Sujatha Sagiraju joins us
as Chief Product Officer, from Microsoft,
and brings many years of product
and engineering experience in search
technologies and machine learning.
She will work alongside our CTO, Wilson
Pang, to create and evolve market
leading products.
We’ve also expanded our data science
team and they are adding to our suite
of machine learning models. We’re using
the models to pre-label training data
to high levels of accuracy before they
are checked and completed by our
experts and crowd. This data is created
far cheaper and quicker than fully
human-labelled data and with higher
quality, improving the value we provide
to customers as well as our scalability,
productivity and margins.
Appen 2021 Annual Report
11
How we
create value
Our mission is to enable our customers to build
better AI by creating large volumes of high-quality
training data faster. We measure our success by the
outcomes we deliver through our six value drivers.
Value driver Material issue
How we deliver value
Maintaining investment in
technology, processes and
systems so that we can provide
essential components of AI
– including data sourcing and
data preparation.
•
Through our technology and innovative solutions, we can
deliver large volumes of high-quality data to our customers.
• Our Engineers, privacy, and cyber security teams work
to ensure that data availability targets are met, and data
is protected and secure.
Attracting and retaining diverse
set of skilled contractors. We
need the right crowd to meet
the needs of our customers.
• We are committed to treating our crowd fairly in accordance
with our Crowd Code of Ethics.
• Our Impact Sourcing strategy also provides jobs to people
who have limited prospects for employment.
Attracting, developing
and retaining talent. We require
people with the right skills
to deliver value for customers
and our Crowd.
• We invest in our people, creating an environment that
is conducive to professional and personal development.
• Diversity principles are also embedded in our business via
our Diversity and Inclusion policy.
• We recognise the importance of diversity to achieving fair
AI and creating responsible AI standards.
Delivering innovative
solutions and responding
to customer needs.
• We monitor relevant market and customer trends. Our
product-led strategy helps to meet the evolving needs
of customers.
Delivering shareholder returns.
Maintaining a sound balance
sheet to support investment
in future growth.
Reducing our impact on
the environment. Creating
social value and meeting the
increasing expectations of
stakeholders more broadly.
• We continue to grow the business and to deliver increased
revenue and earnings to support returns for shareholders.
• We take steps to comply with modern slavery requirements
across the jurisdictions in which we operate and participate
in programs to remove traditional barriers to work.
Technology,
processes
systems
Global Crowd
Our People
Customer
and brand
Financial
Social and
environment
12
To deliver on our mission we draw on our industry leading technology, scale and flexibility of our Crowd and deep
expertise. We offer our customers highly flexible offerings – from fully tailored solutions to pre-labelled datasets and
self-service options. We have a strong track record of AI deployment across many data types and a proven ability
to meet production needs that achieve high benchmarks for data quality.
The outcomes delivered for each value driver determines our ability to create value for our stakeholders
– including Our Crowd, Our customers, Our people, shareholders, and the community more broadly. By its very
nature – AI is experimental. Even though we conduct our work with an innovative mindset and embrace new ways
of doing things, our decisions are always supported by a disciplined approach to governance and risk management.
We support the United Nations' Sustainable Development Goals (SDGs) which is a framework of 17 Goals and 169
targets to tackle the world’s most pressing social, economic, and environmental challenges in the lead-up to 2030.
By doing our part to contribute to the success of the SDGs we contribute to not only a more sustainable future
but additional potential business value. We have identified the following six SDGs as core priority SDGs where
we believe we are able to best contribute within the value we create.
Creating and measuring value
SDGs
• We launched our product-led strategy, with a focus on continuing to build scalable and
repeatable products and services. We appointed a new Chief Product Officer and a new
Chief Transformation Officer to support our product-led focus.
• We also added to our technology with the acquisition of Quadrant and invested $30 million
in technology and systems, including new functionality to our Appen Data Annotation Platform.
Pages 14–15
• No material privacy breaches in FY21.
• We provide flexible, work-from-home opportunities to our global crowd of 1 million+ contractors.
• We help make AI ethical and fair through our Crowd Code of Ethics.
•
•
in response to crowd NPS we are embarking on several projects to improve their experience
on our platform.
Pages 16–17
To address employee satisfaction rates, we completed a culture survey and developed a five-point
plan to build a more constructive and empowering culture.
• By targeting 30% female representation of women in senior management positions and on the
board, we demonstrate our ongoing commitment to diversity and to increase female participation
across our business.
Pages 18–21
• By providing high-quality training data at scale, we help our customers to create and launch
innovative products and services. We aim to improve customer experience and satisfaction.
• We demonstrate leadership in making AI ethical and fair through our Crowd Code of Ethics
which also helps to enhance our brand.
•
This year, we moved to a new organisational structure that is aligned to our product-led and
customer-centric strategy.
• We have set a series of revenue targets, profitability, and business mix metrics to be
delivered by FY26.
Pages 22–23
Pages 24–29
• Completed our Scope 1 and 2 GHG emissions inventory.
• Published our first modern slavery statement.
• Piloted a Tech-for-Food initiative as part of the World Food program.
•
Expanded our impact sourcing activities to bring digital work to underprivileged communities.
• Conducted research programs to understand representation across the Crowd and address gaps.
• Partnered with the World Economic Forum to create responsible AI standards.
Pages 30–33
Appen 2021 Annual Report
13
Value drivers
Technology
processes,
systems
Our technology, processes and systems, combined with our expertise and
crowd, enable us to provide data sourcing, data preparation and model
evaluation which are essential components of the AI lifecycle.
Annotation platform
Appen’s Annotation Platform is the
platform that both customers and internal
teams use to design, run and manage
data annotation tasks. Our annotation
platform supports a broad range of use
cases, from content relevance to computer
vision and speech and language.
AI-assisted annotation (Appen Intelligence)
is an important feature of the platform,
where we use AI models to greatly improve
crowd productivity and quality.
In 2021 we launched In-Platform Audit,
a feature that enables customers to review
and audit annotations on their data.
Our tools connect with customer systems
through application programming
interfaces (APIs) and allows integration
with their real-time data pipelines.
Product-led strategy
In 2021, we launched our product-led
strategy, with a focus on continuing
to build scalable and repeatable
products and services.
The product is what we deliver to
the customer using our expertise,
technology and crowd.
Priority SDG
Being product-led is about how we
combine our expertise, technology
and crowd in a repeatable and scalable
fashion to drive great customer
experience and efficient delivery.
To further drive our product strategy
and roadmap, Sujatha Sagiraju joined
Appen as Chief Product Officer.
She is supported by Eric de Cavaignac,
our new Chief Transformation Officer,
who is responsible for managing
our transformation program against
our strategy.
Appen Connect
We manage large scale, complex
annotation and data collection programs
for our customers. This typically involves
tens of 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 the right contractors to the
right jobs, and to track quality. We utilise
AI-driven predictive matching functionality
that connects crowd workers to tasks
according to their skills and expertise.
Appen Mobile
Appen Mobile 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. In addition, we can provide more
opportunities for contractors to increase
their income.
Quadrant
We added to our technology in 2021
with the acquisition of Quadrant.
Quadrant has three core platforms
that are used to deliver high accuracy
location data for our customers including,
Geolancer, Hydra and QCMP.
Geolancer is a point of interest (POI) data
collection mobile app. Crowd workers
are notified of POI opportunities in their
local areas that are completed in the app.
This data is compiled into ready to use
datasets for last-mile delivery, real-estate,
retail search and mapping.
Quadrant also has a location data
intelligence platform, Hydra. Location
data is gathered from a variety of mobile
software development kits (SDK’s)
across the world, allowing customers
to perform location analytics and derive
location-based intelligence used in
location-based advertising, transport
optimisation and urban planning.
QCMP is a blockchain enabled data
consent management platform embedded
in the applications. This enables tracking
and management of user consent and
data privacy compliance.
14
Cyber security
Our cyber security risk management
framework is based on internationally
recognised NIST 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 have ISO 27001:
2013 certified facilities and SOC 2
attested data annotation platform.
Additionally, our UK facility is ISO 9001
and Cyber Essential Plus certified.
Our IT Security policies and standards
are adhering to ISO 27001 requirements
and the incident response procedure is
based on the NIST CSF (Cyber Security
Framework). We conduct an incident
response tabletop exercise annually.
Data encryption is in place when data
is at rest and in transit for critical
systems as per SAL (Secure Algorithm
list). We have centralised access
controls via SSO (Single Sign On) and
MFA (Multi Factor Authentication)
for additional layers of protection.
Security logs from our critical systems
are captured and monitored in
a SIEM (Security Information and
Event Management) tool.
We also have top tier network, perimeter
and end point security tools protecting
the assets and monitoring inbound
and outbound network traffic. Privilege
access and vendor security reviews are
conducted as per our standards.
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.
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.
There were no reported material breaches in 2021.
System and data security
Data security is an essential and core competency of our business model.
Our approach is comprehensive and involves people, processes and technology.
As a minimum we adhere to industry recognised standards, such as the
International Organization for Standardization (ISO) and National Institute
of Standards and Technology (NIST) and implement global best practices.
Mandatory security awareness and privacy training is provided to employees.
We also conduct regular synthetic phishing tests to determine how well our training
programs are working and to promote employee awareness of the threats and their
responsibilities in managing data security. We also provide training to independent
contractors based on project requirements.
We provide customers with a range of secure technology solutions. Our SaaS
customers can maintain 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.
Customers with higher data security requirements 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.
Outlook
In 2022, we will increase our investment in product, engineering and machine
learning to enable our product-led strategy. We are also investing in
a transformation team to design and implement new processes across our
business that maximise the benefit of our new technology. In addition we will
continue to focus on our system and data security, cyber security and data
privacy systems and processes.
Appen 2021 Annual Report
15
Value drivers
Global
crowd
Our skilled and diverse
crowd of over 1 million+
contractors live in more
than 170 countries and
speak 235 languages.
Sourcing 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 and choose when,
where and as much as they choose.
Given the ongoing impacts of COVID-19
we continued to receive high numbers
of new contractor applications as people
sought to earn an income from home.
The diversity of our crowd continues
to expand, supporting the evolving
requirements from our customers
for unbiased and representative AI
training data.
To improve the crowd experience we
continue to invest in our Appen Connect
technology platform and other systems
that enable recruitment and crowd
support at scale.
Priority SDGs
Engagement and productivity
Our crowd NPS declined during the
year with responders identifying project
availability as their key concern.
To address this we are embarking
on several projects to improve the user
experience on our platform, including
refining our registration process to be
more intuitive and ensure users are
matched and on-boarded to available
projects with minimal friction.
Crowd NPS 1
2021
2020
2019
Crowd care
40
47
43
The fair and ethical treatment of
our contractors, and our ongoing
commitment to their wellbeing is
an important strategic differentiator
for our business. As a company, we
recognise that is the right thing to do
and our customers also expect that
their partners uphold responsible
and sustainable labour and supply
chain practices.
Our Crowd Code of Ethics is central
to how we care for our contractors.
It 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.
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.
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.
16
This year, we undertook a detailed
hourly rate review of our crowd to
ensure that any pay gaps were identified
and resolved.
We hold the same high standards of our
suppliers. Our Global Ethical Sourcing
and Modern Slavery Policy outlines what
we expect of our suppliers. Our policy
is published on our website at https://
appen.com/global-ethical-sourcing-
and-modern-slavery-policy/.
We also support our contractors
under our Whistleblower and Speak
Up Policy. This policy is also published
on our website at https://appen.com/
whistleblower-speak-up-policy/.
In 2021 we implemented new processes
and systems to enable more efficient and
timely communication with our crowd.
This includes a ticketing system to better
support the crowd experience.
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 personal data
belonging to our crowd members
is trained on the proper handling
of this information and the critical
importance of adhering to our data
protection processes.
Outlook
In 2022, 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.
Image courtesy of cLabs, Toca.
Creating opportunities
One of the six pillars of our crowd code of ethics is inclusion and we are
dedicated to offering opportunities to individuals of all ability and backgrounds.
Our Impact Sourcing Partnerships between our customers and community
partners continue to grow, bringing in people in who would not otherwise have
opportunities for meaningful employment. Our initiatives target communities
which may currently be underrepresented in digital work including youth
in developing countries, people with disabilities and refugee communities.
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 lawful basis.
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/
Appen 2021 Annual Report
17
Value drivers
Value drivers
Our
people
Global and diverse work force
1,265 employees
Permanent
Fixed term
Casual
966
244
55
Part time
Full time
95
1,170
2021 Employee Distribution
USA
330
Asia Pacific
UK/Europe
80
Australia
711
144
Priority SDGs
18
We recognise that our people are critical to
our success. Their expertise and commitment
to our customers and crowd is a key differentiator
of our business.
Expertise
Our people have deep industry expertise,
particularly in the areas of project delivery,
crowd management and engineering.
Through our 25 years of operating,
we have developed specialised industry
capabilities which we embed into our
products and processes. We also
rely on deep domain expertise in the
areas of linguistics, knowledge graphs,
computational aptitude, machine learning
and computer science.
Customer aligned organisation
In 2021 we moved to a new organisational
structure that is aligned to our product-
led and customer-centric strategy.
The changes reflect our evolution from
providing AI data annotation services
to the provision of a broad range of AI
data annotation products – including
proprietary technology and software
– that unlock growth in new markets.
The organisational restructure announced
in May is complete and all our teams are
now aligned to our customer centric and
product-led strategy.
New executive leadership
In 2021 our executive team was
strengthened by the addition of four
new members.
• Sujatha Sagiraju joined Appen in
September 2021 as Chief Product
Officer and is responsible for product
and go to market strategy.
•
Jen Cole joined Appen in November
2021 as SVP and GM of Enterprise.
She is responsible for growing our
Enterprise division.
• Eric de Cavaignac joined Appen
in November 2021 as Chief
Transformation Officer. He is
responsible for delivering our
product-led roadmap.
• Mike Davie joined as SVP and
GM Quadrant. He is the founder
of Quadrant, and will continue
to lead the Quadrant team and
grow the business.
Values and culture
As we transition to a product-led and
customer-centric strategy, this requires
us to change the way we operate, and
realign our values and culture. This year
we engaged external experts to work with
our teams to conduct a study to identify
the ideal cultural pillars that will provide
the foundation of our product-led and
customer-centric strategy.
The survey found that our people want
a constructive and empowering culture.
Our people seek a clear vision and want
to understand how they can contribute
to our objectives, so they can focus on
outcomes and work as a team to make
decisions and move forward.
Our people also seek a sense of
achievement and success. They value
communication and want to know how
we’re going against our objectives and
what’s going on in the business. Having
a clearer understanding of our objectives
will help our people celebrate when we
achieve them.
Making Appen a great
place to work
We remain committed to our goal
of making Appen a great place to work.
The past year has been challenging
for our employees with the continued
COVID-19 disruption combined with
uncertainty as we navigated through
our organisation restructure.
Consequently, we experienced
a decrease in our employee engagement.
Our engagement score was 76% 1,
a decrease of 6 percentage points
on 2020. In response we have developed
a five-point action plan to build a more
constructive and empowering culture.
Employee engagement
2021
2020
2019
2018
76%
82%
76%
78%
Our five-point plan builds a more constructive
and empowering culture:
X Clear Embraced Vision and Direction – We will roll out
a thorough, cascading and interactive communication plan
on our vision, direction and objectives.
X High Levels of Achievement – We will define clear targets and
objectives aligned with the vision, and workshop how we all
contribute to set individual and team goals. We will celebrate
success at every turn.
X Strong Accountability and Empowerment – Workshops will
ensure understanding and acceptance of our accountabilities.
We will be empowered to deliver them, and we will applaud things
that demonstrate a constructive culture.
X Sense of Belonging, Collaboration and Support – We will
encourage teamwork, within and beyond our teams, for
collaboration and inclusion across the company, and support
each other to do our best.
X Growth and Development – We will continue our investments in
training and development, aligned with our vision and future needs
of the business, and provide opportunities for all of us to grow.
1 Appen Employee Engagement Survey December 2021.
Appen 2021 Annual Report
19
Value drivers
Diversity and inclusion
Training and development
We provide our employees with
extensive training and opportunities for
career development, including through
our internal training portal, 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.
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.
At Appen, we employ a diverse group
of people across our global operations.
Our inclusive practices are guided
by our Diversity Policy which focuses
on increasing gender diversity and
under-represented minorities amongst
employees, in senior management and
on the Board.
The work undertaken by the Diversity
and Inclusion Committee looks at ways
to promote an inclusive work culture
and practices for the benefit of under-
represented groups and the workforce
overall. This year, we started our journey
to understand our employees’ perception
of diversity and inclusion in the workplace.
Our overall score was 83% and we will
continue to monitor this score to measure
the performance of our ongoing diversity
and inclusion initiatives.
The Board has set a target of 30% female
representation at all senior leadership
levels. This year we exceeded our target
as female representation at senior levels
increased to 38%, up from 30% in 2020.
Management continues to implement
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
2021
2020
58
50
30
28
53
41
60
58
43
13
25
50
60
61
Total workforce
Board Director
Executive Team/SVP
Vice President
Senior Director
Director
Manager
The work undertaken by the Diversity
and Inclusion Committee looks at
ways to promote an inclusive work
culture and practices for the benefit
of under-represented groups and the
workforce overall.
20
A safe place to work
The continuance of the COVID-19 Pandemic required us to continue our
flexible response to the changing environment. Our COVID-19 Response
Team continued to implement strategies to keep our people safe.
This included reviewing and amending processes to provide safe frameworks
for the return to office and resumption of some of our in-person work.
The pandemic also encouraged us to rethink the way we work, and to
add further resilience into our business model, we launched our Multi-Flex
Secure offering.
We also rallied together and supported members of staff and their families
who were negatively impacted through internal fundraisers throughout
the year. This was on top of our continued flexible work strategies as
well as a series of wellbeing initiatives such as resilience workshops.
Outlook
In 2022, 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. Through the adoption of Peakon
Voice, our Employee Engagement Platform, we’ve enabled our leaders
to take a steady lead on improving issues in real-time while also
celebrating successes more than ever before. They will spearhead
actions around improvements through this feedback loop.
Appen 2021 Annual Report
21
Value drivers
Customer
and brand
Over 25 years, we have built trusted relationships
with our customers and a reputation for service.
These relationships are founded on trust, quality,
usability, scale, speed and expertise.
Customer relationships
Growing our customer base
We have long-standing and deep
working relationships with our
customers. Many of our customers
seek collaboration with us to develop
solutions for their most complex and
innovate products.
Value for our customers
We are the leading data provider for
the AI lifecycle, providing training data
to support the creation of AI products.
Our customers value the product
we provide along six dimensions.
• Trust: Data privacy compliant, with
option for secure, onsite data labelling.
• Quality: Unbiased, high-quality and
globally representative data.
• Usability: Easy to use, with simple
UX and API integrations.
• Scale: Breadth and depth of tools
to enrich all data types and use cases.
• Speed: In-built automation that
minimises latency of results.
• Expertise: Our people bring critical
expertise across a wide variety
of domains.
Priority SDGs
Our customers are at the forefront of Al
and include some of the world’s leading
technology companies.
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 customers we are developing
products, services and our 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
high-potential markets. We also have
dedicated sales teams in US, UK and
in mainland Europe, that serve many
of our commercial and enterprise
customers. We are also in the process
of hiring new sales representatives
in Japan and Korea.
In 2021, we worked with 136 new
organisations from industries including
financial services, automotive,
ecommerce, healthcare, logistics,
shipping, food and retail.
22
Brand and reputation
The Appen brand is synonymous
with high quality training data
for our customers, and a reliable
source of income and flexible
work from home model for our
crowd workers.
In 2021 we acquired Quadrant,
a leading location data
collection company based
in Singapore. We are retaining
the Quadrant brand for the
immediate term.
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
lifecycle 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 2021, we held a ‘A Practical
Guide for Responsible Machine Learning’
virtual series, featuring our internal
subject matter experts.
By the year end, the virtual series had
become a part of the AI Curriculum at
the University of Arkansas Walton school.
Customer focused
organisation alignment
In 2021 we completed a restructure that
is more aligned to our customer base.
This will enable greater focus on the
specific needs to four of our major
segments: Global, Enterprise, China
and Government.
Appen helps Realeyes
label large volumes of data
Realeyes uses front-facing cameras and the latest in computer vision and machine
learning technologies, to measure attention and emotion of opt-in participants as
they watch video content online. This empowers brands, publishers and technology
platforms to inform and optimise their content as well as target the right videos to
the right audiences. Realeyes’ technology applies facial coding to predictive, big-
data analytics, driving bottom-line business outcomes for brands and publishers.
One of the biggest challenges that Realeyes encountered was their ability to
annotate and label data quickly to deliver their product to their customers. With
Appen, Realeyes enhanced their ability to scale by collecting, analysing, and labeling
more data efficiently, without losing quality. What previously took three months
to complete in-house, took just two weeks using Appen tools and contributors.
Outlook
We will continue to leverage our position and value proposition in the AI
lifecycle to strengthen our relationships with existing customers as they
continue to invest in AI and expand their AI-enabled products, and to grow
our presence in new industries and markets.
Appen 2021 Annual Report
23
Value drivers
Financial
Revenue
Underlying EBITDA 1
Underlying basic EPS 1
(US$’000)
$447.3m
4 0 % C A G R
,
4
4
7
2
7
4
,
4
1
2
9
9
6
3
7
2
,
1
8
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,
2
7
0
3
2
0
,
1
2
7
8
1
9
(US$’000)
$77.7m
43 % C A G R
,
,
7
7
6
8
4
7
5
4
3
9
7
0
,
1
7
6
(US¢ per share)
33.0¢
32 % C A G R
.
.
3
8
0
7
3
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2
3
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8
5
.
.
3
3
0
2
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5
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4
2
3
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1
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5
7
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1
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0
7
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1
7
2
0
1
8
2
0
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9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
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8
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2
0
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0
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7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
Underlying NPAT 1
Underlying EBITDA margin 1
Dividend (full year)
(US$’000)
$40.6m
38 % C A G R
,
,
4
4
9
0
2
4
5
2
7
6
,
4
0
5
9
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17.4%
(%)
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(A¢ per share)
10.0¢
15 % C A G R
1
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.
9
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8
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1
CAGR % represents five-year Compound Annual Growth Rate from FY17 to FY21 with FY16 as the base year.
Priority
SDG
24
1 Underlying NPAT, EBITDA and EPS exclude the impact of items relating to business
acquisitions, including amortisation of acquired assets, share-based payments,
restructure costs, transaction costs and fair-value adjustments. Underlying NPAT
and EPS also exclude deemed interest on acquisition related earn-out payments.
Our financial results reflect a record full year revenue performance
due to a strong second half performance for Global Services and
a higher contribution from New Markets. This reflects the strength
of our customer relationships, crowd model and ability to deliver
high quality data. The company’s balance sheet remains resilient
with a significant cash balance and no debt. We have also reshaped
our strategy to maximise our ability to capture growth and deliver
value for shareholders.
Financial performance highlights 1
Revenue and other income increased 8%
to $447.3 million (FY20: $412.9 million).
This reflects a strong second half
performance for Global Services and
breakout growth in China. The record
FY21 revenue performance reinforces
the strength and market position
of the business, which has delivered
a compound annual revenue growth rate
(CAGR) of 40%, over the last five years.
It also highlights the value that our
customers place in our ability to deliver
high quality data, at scale, across all
data modalities.
Revenue diversification improved with
New Market revenue contributing 23%
of revenue in FY21, up from 20% in FY20.
Revenue by operating division:
Global Services revenue (which
represents the provision of data
annotation services to our global
customers) grew 5% to $344.7 million
(FY20: $328.1 million). This reflects
a significant turnaround from the first half
revenue reduction of 9%, with 19% growth
in the second half compared to the prior
corresponding period and second half
revenue growth of 32% on the first half
of FY21. The record second half year
revenue performance was driven by an
increase in non-ads as well as ad-related
projects, as forecast.
Second half non-ad related project
revenue grew 28% to $165.3 million
on the first half, as we continue to
support new products and applications.
Ad-related project revenue rebounded
28% in the second half to $49.9 million.
Second half ad-related project revenue
grew 18% on the first half and was in line
with the prior corresponding period.
Our Global customers require high
volumes of quality data to grow
their revenue base outside of digital
advertising and we continued to
support this growth. This has driven
horizontal demand for data into areas
such as AR/VR, e-commerce, image
and mobile video collection, maps and
geo-location- based services and
services to improve translation and
voice assistants.
New projects (projects that commenced
in the first and second halves of the
year) also made a strong contribution,
as growth in the second half was similar
to the annual contribution in the first half.
FY21 global revenue of $386.3 million
comprised of $299.7 million revenue
from existing projects (originating
prior to FY21), while projects
commencing in the first and second
half added $44.4 million and $42.2
million respectively.
This demonstrates that our global
customers continue to value our ability
to deliver quality data for existing core
programs and for new programs.
Global ad-related revenue represented
24% of FY21 global revenue (global
services plus global product), while
global non-ad revenue increased
to represent 76% of FY21 global revenue,
up from 71% in FY20.
New Markets revenue grew 21%
to $102.5 million (FY20: $84.5 million)
and was driven by growth in China
and Enterprise divisions. Revenue from
Enterprise, China, Government and
Quadrant grew 55% to $60.8 million.
Global product revenue declined
8% to $41.7 million due to the ending
of a large project.
The product-led growth of the New
Markets division together with its
expanding customer base, continues
to drive revenue diversification. New
Markets revenue accounted for 23%
of total revenue in FY21, up from 20%
in FY20. FY21 revenue from non-global
customers comprised 14% of total
revenue, up from 9% in FY20.
1 Unless otherwise stated all amounts are in US dollars.
Appen 2021 Annual Report
25
Value drivers
Investment in product development 1 US$M
3.6%
FY19
13.2
9.9
3.3
FY19 2
7.0%
FY20
29.0
18.7
10.3
FY20 3
6.8%
FY21
30.2
Product
development
(ex amortisation)
as a % of revenue
20.6
68% capitalised
9.6
FY21
32% expensed
1 Product development relates to investment in engineering to ensure that the annotation platform and tools support
our customers and their use cases, and drive efficiencies and scale. These amounts exclude amortisation expense.
2 FY19 includes amounts capitalised related to the acquisition of Figure Eight.
3 FY20 spend includes annualisation of Figure Eight engineering spend (acquisition completed April 2019).
The New Markets division won a total
of 133 new customers in the 12-month
period to 31 December 2021 (FY20: 136
new customers). Appen has a diverse
customer base, across multiple industries
and geographies, which provides a strong
foundation for future growth.
We are focused on improving the
company’s revenue diversification by
investing in New Markets. Towards the
end of FY21, we completed the process
of hiring a leader and senior management
team for the Enterprise division, to focus
on accelerating growth.
New Markets will continue to leverage
off the strong foundation implemented
in FY21, and Appen’s customer base will
continue to diversify beyond the leading
technology customers in the world.
This will be underpinned by deploying
key resources into sales and marketing
and investing in – and showcasing
our innovative products and tools to
support customer’s AI data for life-cycle
needs, in a diverse range of industries
across a variety of data modalities and
use cases.
increasing gross margins, which continue
to improve.
China continues to grow at a rapid pace
with quarterly compound revenue growth
of 56% (1Q20-4Q21).
FY21 revenue grew 422% to $24.8 million
on FY20.
In China, second half revenue was up 4.9x
on the prior corresponding period and
up 2.3x on the first half of FY21. This was
driven by engagement with and delivery
of project data for leading Chinese
technology companies as well as new
logo wins.
Revenue growth in China has been
underpinned by our ability to increase
market share with new project wins and
growing customer share. China also
achieved horizontal expansion across
data modalities, particularly autonomous
vehicles (AV), with 11 of the leading auto
AV companies as customers. Capturing
further market and customer share
remains a key focus, in conjunction with
Government remains an important growth
opportunity for Appen in the future.
However, in FY21 we saw revenue decline
17% to $4.2 million due to the non-
renewal of a large contract.
New partnerships with leading
government contractors and integrators
as well as new engagements with
government research labs, position this
division for future growth.
We were recently selected in a partnership
for the Joint Artificial Intelligence Center
(JAIC) blanket purchase agreement (BPA)
to support the acceleration of technology
capabilities. The BPA of up to $249 million
is to be allocated across multiple vendors
over multiple years.
However, we do continue to experience
longer sales and budget cycles, impacted
by early-stage market dynamics
and immaturity.
26
Investment in product
development
Our products are critical to our future
success. We are investing heavily into our
product-first roadmap as we ‘productise’
what we do today, by designing, building
and selling our pre-labelled data sets
and data labelling products that can
be applied to a broad range of AI
applications’ data types and use cases.
Data-centric AI also requires large
volumes of data and our investment
in product development will deliver
higher quality data faster and more
cost effectively to support the growing
needs of our customers. We are using
our products to digitise, automate and
improve the productivity of our crowd
operations and we are developing
more products to add more value to
our customers, which will drive broad
adoption of existing and new use cases.
In FY21, product development investment
(excluding amortisation) represented 6.8%
of revenue or $30.2 million. Continued
product investment is strategically
important to leverage AI and machine
learning in our labelling operations
to improve the productivity of our crowd
and to add new products and capabilities.
Quadrant
During 2021, we acquired Quadrant,
a global leader in mobile location and
Point-of-Interest data (POI), further
expanding our addressable market and
related product offering to include POI/
geolocation data.
Quadrant’s highly-scalable approach
to data capture and processing aligns
closely to Appen’s product-led strategy.
Quadrant’s ability to utilise Appen’s
crowd will provide Quadrant with the
scale and depth to grow its revenue by
showcasing its capabilities to a broader
range of customers. Similarly, the
acquisition provides Quadrant access
to Appen’s customers to help accelerate
Quadrant’s growth and data footprint.
Early discussions with our global and
enterprise customers are ongoing.
Underlying EBITDA increased 3%
to $77.7 million, which represents a net
margin of 17.4% (2020: 18.3%). Margins
were impacted by higher cost of sales.
Cost of sales, which primarily comprised
of payments to our crowd workers
for labelling services, increased as
a percentage of revenue from 57%
in FY20 to 60% in FY21. This reflected
a change in the mix of customers and
projects within each operating division,
as well the overall mix at the group
level, with China contributing a higher
proportion of the group revenue and
at lower margins, in line with the strategy
to prioritise market share.
The Global Services division reported
EBITDA of $91.2 million, up 3% from
the prior year. Second half volumes
translated into a healthy EBITDA
performance with a 23% increase over
the prior corresponding period and
reversed a 19% decline in the first half
over the prior corresponding period.
The EBITDA loss in the New Markets
segment was $11.5 million. This increased
54% over the prior year, driven by
continued investment to drive future
growth. However, the second half
performance improved with the EBITDA
loss down 48% on the first half loss.
Highlights
8%
Group revenue
3%
Underlying EBITDA
10%
Underlying NPAT
Appen 2021 Annual Report
27
Value drivers
Operating expenses 1 for FY21 increased
4% or $3.5 million over the prior year,
driven mainly by an increase in IT and
insurance expenses.
The restructuring charge of $2.3 million
comprised of restructuring costs incurred
in respect of the re-organisation
announced in May 2021.
Restructuring benefits of
approximately $15.0 million are
expected in FY22 and will be
largely reinvested to drive product
development and growth. The purpose
of the restructure was to ensure
that spend is directed in a strategic,
prioritised manner to support future
growth. We are investing the cost
savings in those areas of the business
that will deliver growth – product
development, efficient use of our
tooling and growth in our non-global
customer base.
Following an assessment of the
probability of achieving specific
(non-market) hurdles for the 2020
and 2021 Long-term incentive plans,
a share-based payment true up
adjustment was processed in FY21.
Underlying NPAT declined 10%
to $40.6 million primarily due to
increased amortisation relating to our
investment in product development,
which commenced in FY19.
A reconciliation between our statutory
and underlying results are detailed
on page 29.
The balance sheet continues to
be resilient with no debt and net
assets at year end increasing by
$18.2 million to $391.9 million relative
to the prior year. Our year end cash
balance reduced by $12.6 million to
$47.9 million relative to the prior year,
as we used cash reserves to pay the
upfront consideration of $25.3 million
to acquire Quadrant.
The trade receivables balance
increased by $38.6 million to $89.2
million due to the increase in trading
volumes approaching year end.
Contract assets decreased due to
time-based billing milestones being
satisfied as at 31 December 2021.
Intangibles increased to $314.8 million
mainly due to $45.4 million being
recognised as Goodwill relating to the
Quadrant acquisition. Total liabilities
increased by $19.1 million to $107.0
million mainly due to the earn-out
liability of $18.4 million associated with
the Quadrant acquisition.
The full year dividend is AU 10 cents,
in line with FY20. Both the interim
dividend of AU 4.5 cents per share
and the final dividend of AU 5.5 cents
per share are 50% franked.
Cash flow from operations reduced
$17.9 million to $60.1 million. This is
primarily due to the working capital
cycle and increase in project work
at the end of the period.
Strategy and outlook
In FY21, Appen made significant progress to reshape its strategy to capture market growth, with a particular focus on
achieving growth outside our global customers where we are targeting >35% compound annual revenue growth rate from
non-Global customers 2.
The four pillars of Appen’s strategy are to GROW and diversify revenue, AUTOMATE our crowd and labelling processes,
EXPAND our product offering and EVOLVE how we do business.
As part of Appen’s strategy, we’ve set the following revenue, profitability, and business mix targets for FY26.
1. At least double FY21 revenue
2. Improve customer mix with one-third revenue from non-Global customers
3. EBITDA margin of 20%
We are highly focused on these targets and will invest for growth in new products, sales and marketing, partnerships and
explore M&A opportunities with a focus on long-term revenue growth. Our long-term revenue focus may impact EBITDA
margins in the near term and future dividend payouts.
Our long-term focus means we will no longer provide short-term quantitative EBITDA guidance.
Our revenue order book including year-to-date revenue plus orders in hand stands at ~$190 million in February 2022 3.
FY22 half on half revenue skew is expected to be similar to prior years (excluding FY20).
We expect costs to be higher in 1H 22 due to new transformation office costs, investment in product and technology,
and share-based payment expenses. This will result in a larger earnings skew to 2H 22 when compared to FY21.
1 Expenses excluding crowd labelling services, share-based payments, depreciation and amortisation, transaction costs, restructure costs, finance
costs, foreign exchange loss and deemed interest on earn-out related to the Quadrant acquisition and for the prior year, the Figure Eight earn-out.
2 Non-Global includes customers from China, Enterprise, Government and Quadrant.
3 Consistent with prior year methodology. FY21 order book of ~$165.7 million (~A$240 million).
28
The following table summarises the Group’s financial results for the current and prior year and provides a reconciliation between
our statutory and underlying results.
Global Services revenue
New Markets revenue
Other income
Total sales revenue and other income from principal activities
Underlying net profit after tax (NPAT) 1
(Less)/add underlying adjustments (net of tax)
Amortisation of acquisition-related identifiable intangible assets
Restructure costs 2
Transaction costs
Deemed interest on earn-out liability 3
Cloud computing costs
Acquisition-related share-based payments 4
Figure Eight earn-out adjustment
Statutory NPAT
Add: tax
Add: net interest expense
Add: deemed interest on earn-out liability 3
EBIT 5
Add: depreciation and amortisation
Statutory EBITDA 6
Add/(less): underlying adjustments
Restructure costs 2
Transaction costs
Acquisition-related share-based payments 4
Cloud computing costs
Figure Eight earn-out adjustment
Underlying EBITDA 1
Statutory diluted earnings per share (cents)
Underlying diluted earnings per share (cents)
% Statutory EBITDA/sales revenue
% Underlying EBITDA/sales revenue
Year ended
31 December
2021
US
$000
344,679
102,475
120
447,274
Restated
Year ended
31 December
2020
US
$000
328,143
84,495
358
412,996
Change
5%
21%
8%
40,597
45,276
(10%)
(8,303)
(1,625)
(1,929)
(461)
(17)
257
–
28,519
7,356
1,362
657
37,894
35,038
72,932
2,256
2,729
(257)
24
–
77,684
22.85
32.53
16.3%
17.4%
(7,859)
–
(573)
(615)
–
(2,441)
1,844
35,632
8,907
1,435
853
46,827
27,923
74,750
–
807
2,441
–
(2,559)
75,439
28.81
36.61
18.1%
18.3%
(20%)
(19%)
(2%)
3%
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. Underlying EBITDA excludes restructure costs, transaction costs,
acquisition-related share-based payments expenses, cloud computing costs and the earn-out (consideration) adjustment relating to the Figure
Eight acquisition. Underlying NPAT for the year ended 31 December 2020 has been restated for a change in accounting policy associated with
cloud computing implementation costs (refer to note 2(ii) of the financial report for further information).
2 Includes costs incurred in FY21 associated with the organisational restructure.
3 Contingent liability with respect to the Quadrant acquisition which will settle no later than 29 February 2024, subject to Quadrant attaining
revenue milestones. The prior year comparative relates to Figure Eight.
4 Includes a true-up adjustment reducing the share-based payments expense in relation to specific (non market) hurdles of the 2020 and 2021
Long-term incentive plans, based on management’s assessment of achieving these hurdles.
5 EBIT is defined as earnings before interest and tax.
6 EBITDA is EBIT before depreciation and amortisation.
Appen 2021 Annual Report
29
Value drivers
Social
and environment
Innovation in AI technology can have a positive contribution to the society
and the environment. To achieve these outcomes, it is important to ensure
responsible business practices are upheld to have a positive impact not
only on the end user, but those involved in the development process.
Good business practice
Doing the right thing by our customers,
employees and stakeholders is key to
maintaining relationships and our ability
to continue operating.
We hold ourselves to the highest ethical
standards and conduct our business
with integrity, respect and fairness.
Our Code of Conduct sets out the
standards to which we hold our business,
our people and our interactions with
stakeholders to. 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.
As representatives of the company,
we ensure our people are aware of their
obligations through mandatory code
of conduct training. As at 31 December
2021, 91% of eligible employees had
completed the mandatory code of
conduct training. We consider a range
of potential consequences for those who
fail to complete the training including
Priority SDGs
considering conduct or performance
impacts in line with our disciplinary
processes where appropriate.
with our suppliers and customers to
manage the risks of modern slavery and
human rights abuses in our supply chain.
Modern Slavery and respect
for Human Rights
We consider any form of modern
slavery and human rights abuse as
unacceptable and acknowledge our
role in eradicating it. We have set
out expectations for our suppliers
and ourselves in Our Global Ethical
Sourcing and Modern Slavery Policy.
The policy reflects our commitment
to respect human rights and address
modern slavery by confirming
our opposition to forced labour.
Our policy also outlines our support
for fair employment, working hours and
conditions, freedom of association,
discrimination and harassment, and
offers whistleblower protections.
Our first modern slavery statement was
issued in June 2021 and summarises
our ongoing commitment and efforts
to address human rights and labour
risks associated with our business.
We developed and piloted responsible
business training which included specific
information on human rights and
managing modern slavery risks.
We also commenced the integration of
our supplier requirements from our Global
Ethical Sourcing and Modern Slavery
Policy into our ongoing supplier due
diligence processes and continue to work
Any breaches of our commitments
to good business practices are taken
seriously, where necessary any concerns
raised, either through grievance
processes or under the whistleblower
process are investigated and reported
back to the board. In 2021, no breaches
were recorded.
Importance of diversity to
achieving fair AI
Ensuring equitable results for users
of AI products requires developers to
consider the impact of bias across the
AI lifecycle. Bias in AI training needs
to be addressed in the sourcing of data,
but also in the preparation, evaluation
and quality management stages.
Our skilled global crowd spanning
a range of diverse backgrounds, help
our customers incorporate fairness
and minimise bias, by ensuring not
only diversity in the data itself, but
within those that are involved in the
data lifecycle and development of the
product. As part of our ongoing efforts
to ensure diverse representation across
our crowd, we are conducting research
programs globally to understand what
diversity means in various locations,
understand how that is reflected in our
current crowd, and develop initiatives
to address representation gaps.
30
Creating responsible
AI standards
For an AI solution to work, and work
well, it must work for everyone. A biased
model that works for some users, and not
others, is a failed model. At the beginning
of the year, we launched our publication
Embracing Responsible AI from Pilot to
Production. We also continue to expand
our key AI ethics considerations:
• Bias
• Security
•
•
Explainability, and
Impact.
The aim is to improve quality, efficiency,
transparency and responsibility for AI
projects while promoting inclusivity
and collaboration.
Digital work to combat
world hunger
The World Food Program awarded Appen
and our partners, the Celo Foundation
and Corsali, a US$100k grant to try
to test and deploy digital gig work
to support the graduates of their Tech-
for-Food Program, EMPACT, in Kenya.
EMPACT is a training program funded
by the World Food Program to help
some of the most vulnerable and food
insecure communities avoid hunger
by training and connecting their youth
to digital work.
Bringing technology to
underprivileged communities
We also continue to work with in-country
fieldwork partners to bring digital
work to underprivileged communities.
Benn, from our team in Exeter, had the
opportunity to experience the program
first-hand.
“I visited Kenya in late November to
train some fieldwork partners (market
research companies) to use some
of Appen’s recording software and
hardware to collect speech data
generated by native speakers of
some of East Africa’s lower-resource
languages. While there were a number
of challenges, including the ongoing
pandemic, being able to physically
support the team with the set-up of
the specialised equipment and be part
of their learning journey was invaluable.
This project is a great example
of the diversity of product offerings
Appen delivers.”
Making a difference by removing
traditional barriers to work
People who collect and label data are a critical part of the AI industry.
Their work makes machine learning-empowered solutions possible
and effective.
For many communities, digital work has unlocked a new world of possibilities
for economic development, skills training, and the ability to participate in the
digital economy.
Removing traditional barriers to work is a key differentiator of our business
model. To gauge how our ‘work-from-anywhere’ model is helping to support
individuals whose personal circumstances make it difficult for them to access
traditional employment we launched the Impact Pulse Survey 1 to understand
the ways that we provide support to our most vulnerable contributors.
Impacting Sourcing and Appen’s 1M+ Crowd
17%
long-term
unemployed
before joining
Appen
16%
77%
living under the
global poverty line
lifted above the
global poverty line
before joining
Appen
after joining
Appen
Context of our Contributors
67%
identify Appen
as their primary
source of
income
20%
struggle to access
full-time employment
due to family,
health or culture
63%
use Appen
earnings to support
their household
or education
1
Internal survey of our crowd workers conducted in November 2021 with ~7,000 responses.
Appen 2021 Annual Report
31
Value drivers
Climate change
We acknowledge the risk associated
with climate change and are committed
to playing our part in supporting the
transition to net zero emissions. In 2022
we are focused on setting our pathway
to achieve net zero emissions by
2030 and working towards achieving
certification from Climate Active.
Environmental footprint
Our environmental and climate change
commitments are outlined in our
Environment Position Statement.
•
•
considering the environmental impacts
of our activities.
setting standards.
• monitoring compliance with our
sustainability policies and practices.
•
•
overseeing the management of climate
change related risks and opportunities.
approving climate change
related disclosures.
• monitoring progress against goals and
targets set for climate related issues.
The Audit and Risk Management
Committee is responsible for:
us to better measure our impact, set
targets and establish initiatives that
will make a difference. Our current
assessment of Scope 1 and 2 emissions
is in the following table.
Our reporting boundary includes all
offices globally occupied by Appen
employees. Office spaces leased
exclusively for the delivery of specific
projects on a short-term basis and
offices that were operational for less
than six months in the reporting period
have been excluded from this boundary.
We have a relatively small environmental
footprint within our own operations and
have committed to further reducing the
impact of our operations, including our
offices, facilities, travel and data centre
usage by:
•
•
considering environmental and climate
change risk as part of the quarterly risk
reporting process.
Source
Scope 1
reviewing relevant reporting from
management to ensure management
is effectively managing the risks.
•
•
•
•
•
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.
We disclose our approach and plans
in line with the recommendations
of the Task Force on Climate-related
Financial Disclosures.
Governance
Our social and environmental
frameworks are underpinned by
our commitment to a high standard
of corporate governance. The Board
of Directors is responsible for:
• making recommendations to the Board.
Strategy
We have commenced our journey to
move to net zero emissions by 2030.
Climate change presents both a number
of risks and opportunities to our business,
as well as our customers and suppliers.
We have already started reviewing our
internal processes and have partnered
with a number of our customers to ensure
we are developing mutual resilience.
Risk management
We assess the potential size and
scope of 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
We completed our first GHG emissions
inventory during the year, covering
Scope 1 and 2. This assessment enables
Natural gas
Scope 2
(Location based)
Purchased electricity
Total Scope 1
& 2 Emissions
2021 tCO2e
226
1,052
1,278
Outlook
Over the next year we are further
refining our inventory process to
include additional Scope 3 categories,
develop a partnership program with
our suppliers to assist in education
and reduction of their emissions, and
increase our utilisation of renewable
energy across our operation.
We are also focused on setting our
pathway to achieve net zero emissions
by 2030 and working towards achieving
certification from Climate Active.
We will outline these measures in our
2022 Annual Report.
We are expanding our impact sourcing
activities with key objectives of assisting
people out of poverty and providing
a pathway to meaningful employment
by increasing digital skills. We are
also expanding our efforts to manage
modern slavery risks through enhanced
vendor engagement and assessment.
1 Scope 1 emissions include all fuel consumption at a facility to produce electricity, steam, heat or power. This also includes heating, ventilation
and air-conditioning (HVAC) for offices with boilers. Scope 1 emissions are calculated using actual usage data (where available) or estimated
based on published average emissions factors by floor space. Refrigerants have been excluded as responsibility for management and
maintenance of HVAC systems of all offices is the responsibility of building management.
2 Scope 2 emissions includes indirect emissions from purchased electricity, heat or steam. Scope 2 emissions are calculated using actual usage data
(where available) or estimated based on published average emissions factors by floor space. The location-based figures reflect the average emissions
intensity of the relevant grids on which our energy consumption occurs. The market-based figures reflect our procurement choices, or lack of choice, and
are calculated using supplier-specific emission rates where available and applying residual mix emission factors to the remaining untracked energy use.
32
Analysis of risks and opportunities
Our analysis depicted below indicates that there are significant opportunities and a number of small risks associated with the
physical impacts of climate change. This is due to the dispersed nature of our activities and operations and those of our key
suppliers and customers.
Transition risks
Policy and legal
Potential Impact
Response
Our customers’ expect
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. We are also working with
our customers to leverage their initiatives
into our own programs.
Physical risks
Acute
We have offices in
locations that are subject
to increased severity of
extreme weather events
due to climate change.
Opportunities
Resource
efficiency
Energy source
Products and
services
Moving to more resource
efficient processes may
result in reduced longer term
operating costs through
efficiency gains but brings
benefits through employee
and customer satisfaction.
Using lower-emission
sources of energy can result
in lower costs as a result of
reduced exposure to future
fossil fuel price increases,
potential changes to carbon
pricing and reputational
benefits with customers.
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.
For short-term disruptions, remote working
is a viable option for the majority of our
operations with little business disruption.
We also have business continuity plans
and disaster recovery plans where
adverse weather events are considered
and continue to review and update these
plans as necessary. Business continuity
and disaster recovery are included and
monitored as a key strategic objective,
which also includes considerations due
to the impact of climate change.
We are committed to more energy-efficient
operations including reviewing where
additional efficiencies can be introduced
throughout our operations.
We are committed to increasing our
utilisation of renewable energy across our
operations particularly across our physical
office locations.
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.
Appen 2021 Annual Report
33
Identifying
and managing risk
In increasingly uncertain
environments, embedding
risk management
in everything we do
is critical to ensuring
we achieve our
strategic objectives.
Risk appetite
COVID-19 related risks
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 revised our principal
risks to ensure environment, social
and governance related risks were
appropriately captured at the strategic
level. Within these principal risks,
the majority have seen a temporary
increase in the year as we refocus to
our product-led strategy combined with
external factors such as the increasing
pressure for talent in the US.
COVID-19 continues to have an impact
across a number of our principal risks
in the year, particularly for our workforce.
The ongoing uncertainty has had
an impact on our workforce, despite
the implementation of new workplace
practices including initiatives from our
COVID-19 Response Team and additional
initiatives focused on mental wellbeing.
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.
Emerging risks have been highlighted
within our risk categories below.
34
Governance
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.
Monitoring and
partnering
Risk management function
• Defines the risk management
process to be followed by
the business (including
risk appetite).
• Reviews and challenges the
strategic and operational
risk ensuring controls
identified are operating,
and tracks closure of items.
•
Facilitates risk process,
collating risk registers and
consolidating the strategic
risk register.
Ultimate responsibility
Board through the Audit & Risk Management Committee
• Approve the risk management framework.
• Approve the risk appetite statement and subsequent
addressing of escalated risk appetite triggers.
• Have oversight of strategic and related ESG risks
(including climate related risks and impacts).
Oversight
Executive and Senior Leadership Team
• Assess, manage and monitor risk profiles for identified
strategic risks.
•
Identify where risk appetite statement triggers may
be met and further escalation is required.
• Promote a positive and appropriate attitude towards
risk management and ensure employees are aware
of their responsibilities.
Ownership
Operational management
•
•
Identify, prioritise, assess and monitor risks which may
arise in the business operations.
Implement and comply with all controls, policies and
procedures within their area of responsibility, including
devising and implementing controls to address identified
operational risks.
Appen 2021 Annual Report
35
Identifying and managing risk
Key: Increase
Decrease
== Stable
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 2021. 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
Mitigation
Value driver
Strategic positioning of global operations
• Macroeconomic and geopolitical risks, including
Changes to global economic and political conditions can
impact the group, including whether we continue to operate
in each of our geographical areas.
Emerging risk
== Change
This risk remains steady as a result of ongoing
uncertainty in the wider geopolitical environment,
particularly between the US and China.
consideration of potential political uncertainty
in certain markets and geographies, are 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 operations
in particular jurisdictions and ensure we have
plans and processes in place to react in an agile
manner with minimal business disruption to any
changes that may occur.
Customer
and brand
Social and
environment
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 is significantly larger than the revenue from other
clients and the volumes can fluctuate. Clients can also
• We monitor relevant market and customer trends
and regulatory changes to identify potential
headwinds for our clients which may impact our
future revenue or costs.
• We have reprioritised to a product-led focus
to meet evolving customer needs.
Customer
and brand
reprioritise their spend away from areas of innovation or
• We identify and pursue new opportunities
have ongoing needs for training data impacted by strategic
in fast-growing sectors and markets to diversify
Global
crowd
changes of other players in the sector.
Change
This risk has trended upwards due to the impact
of regulatory pressure for our larger customers.
our customer and revenue base. This includes our
acquisition of Quadrant in the year.
• We continue to focus on increasing revenue in our
New Markets division to reduce our reliance on
our global customers.
Technology,
processes,
systems
Financial
36
Principal risk
Mitigation
Value driver
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.
Change
This risk has trended upwards due to the
increasing pressure from competitors
in the year.
• We monitor new investments in the data
annotation sector closely.
• We have transitioned to a product led focus and
reorganised the business accordingly.
• 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.
Customer
and brand
Technology,
processes,
systems
• Our core Relevance activities (comprising 80%
of total Global revenue) are less amenable
Financial
to replication by machines or insourcing as they
require a large‑scale diverse crowd performing
subjective human judgements.
Agility in meeting changing customer expectations
• We are specifically investing in a quick response
The sector we operate in is fast moving, and we need to be
agile to meet these expectations. Knowledge and skills need
team for our major clients to ensure we can keep
pace with their expanding needs.
to be developed at the same rate as our clients to continue
• We continue to build relationships with key clients
to meet their expectations.
to ensure we can anticipate strategy changes and
react accordingly.
Change
This risk has increased in the past year due to
the increasing visibility of the sector which can
result in fast moving projects and a requirement
to react quickly to our clients’ needs.
Customer
and brand
Technology,
processes,
systems
Appen 2021 Annual Report
37
Identifying and managing risk
Key: Increase
Decrease
== Stable
Principal risk
Mitigation
Value driver
Resilience following disaster, crisis or events
impacting business continuity
• We store data in enterprise grade,
cloud-based servers which are duplicated
The loss of data, a physical site or critical employees
to minimise disruption.
could result in a major impact to our customers, revenues
• Our engineering team focuses on resilience
and reputation.
Change
This risk has increased in the past year due
to the increasing frequency of cyber-attacks,
extreme weather events, and potential impact
from the coronavirus pandemic.
to mitigate the risks of material or
sustained disruption.
• We have business continuity plans for facilities
that require a physical presence on-site and
critical systems.
• We have embarked on a process to embed
business continuity considerations into our
client project plans beyond our critical projects.
• 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 continue to have robust COVID-safe work
practices for our employees.
Customer
and brand
Technology,
processes,
systems
Social and
environment
People
Principal risk
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
retaining our talent.
Change
The impact of employment market related
pressure, combined with fatigue related
to ongoing COVID lockdowns has resulted
in an increase in this risk.
Appen
employees
Social and
environment
• Our People and Culture team 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.
• We have conducted benchmarking across the sector
to ensure our offerings are comparable and introduced
additional employee benefits programs to retain and
attract talent.
38
Technology and innovation
Principal risk
Mitigation
Value driver
Managing organisation culture and
leadership through change
• We positively reinforce our values, desired behaviours
and attributes through direct links to reward
We have undertaken a significant restructure and
refocus which is reliant on key individuals to ensure
successful change.
Change
This risk has increased in the year due
to uncertainty in the employment market
and recognition.
• We have introduced a dedicated transformation
team that is responsible for planning, executing,
co‑ordinating and controlling activities related
to change.
• Where change is dependent on talent, we implement
programs to ensure key employees receive
tailored incentives.
Appen
employees
Technology,
processes,
systems
as well as the restructure earlier in the year.
• We have conducted focus groups and used the
findings to revise our employee value proposition,
ensuring it is robust and attractive to current and
prospective talent.
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.
• We are investing in our transformation program
to improve both customer and crowd experiences,
further solidify our core foundations and 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.
Technology,
processes,
systems
Customer
and brand
Change
This risk has increased in the current year as
our digital transformation program progresses
and we continue to invest in our engineering
and innovation teams.
Appen 2021 Annual Report
39
Identifying and managing risk
Key: Increase
Decrease
== Stable
Principal risk
Mitigation
Value driver
Market disruption
• We have a team that is dedicated to monitoring
AI and technology markets, customer trends and
The AI market is very dynamic and client needs and
end‑user expectations change rapidly. Changes in the
regulatory changes.
AI market and regulatory environment could impact our
• We use these insights to inform our strategy and
business model, our required product offering and our
technology roadmap, and to evolve our offering.
strategic decisions across markets.
Emerging risk
== Change
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 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
Protection of intellectual property
• We have an IP Committee that looks at new
With an increasingly product‑led strategy the need for
solid intellectual property protection strategies are key
to delivering outcomes for our customers.
technologies through invention disclosures, develops
appropriate protection strategies for that technology
and ensures alignment with product directions
(including patenting, copyright, trade secret,
defensive publication etc).
Technology,
processes,
systems
== Change
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 training to ensure employees are aware
of the need to protect confidential information.
•
Access to core technologies is geographically
segmented to improve IP protection.
•
Brands are protected in relevant markets.
40
Crowd
Principal risk
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.
== Change
This risk remained stable in the current year.
We continue to see customers requesting
information on crowd conditions, particularly
in areas related to content moderation.
• 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 have programs for high performing contractors
to expand their skills.
• Our Impact Sourcing strategy provides jobs and
career development to people who otherwise have
limited prospects for formal employment.
Crowd supply meets customer demand
• We continue to invest in our contractor experience
Our business model relies on our ability to provide
customers with access to a broad range of skills
provided by our global crowd.
== Change
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.
and have completed a number of projects
to enhance communications and reduce friction
in the onboarding process.
• We have commenced new strategies to combat
contractor integrity to further guarantee that our
clients have access to the best quality contractors.
• We have partnerships with sourcing agencies
to increase our reach into difficult markets and
to stimulate applicant interest.
Global
crowd
Customer
and brand
Global
crowd
Customer
and brand
Appen 2021 Annual Report
41
Identifying and managing risk
Key: Increase
Decrease
== Stable
Data management
Principal risk
Mitigation
Value driver
Compliance with security, privacy and
other data regulations
•
Security and privacy are core foundational elements
in our new product-led strategy.
We manage a large amount of data as part of our
operations including a significant amount of
personal information which requires increased
security requirements.
• We continue to integrate security and privacy
requirements into our systems and offerings by
increasing the collaboration between our product,
engineering and privacy teams.
Technology,
processes,
systems
• We have a team that is responsible for understanding
emerging information security risks. They consult with
Customer
and brand
Change
external advisors.
This risk continues to trend higher due to
increasing regulation globally as well as an
•
Information security risk assessments are conducted
on a regular basis and the IT team undergoes training
increase in the amount of sensitive information
in risk management.
we are being requested to collect or process.
• We are ISO 27001 and SOC 2 certified.
• We have policies, procedures and training
to ensure employees are aware of their privacy
and security obligations.
•
Privacy and data security are standing agenda items
for our IT Governance Steering Group and Privacy
Steering Group which report quarterly to our Audit
and Risk Management Committee.
Emerging cyber security issues
• We have implemented a cyber security risk
We manage sensitive 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.
Change
management framework across the organisation.
This adheres to industry recognised standards, such
as the International Organization for Standardization
(ISO) and National Institute of Standards and
Technology (NIST). It includes the deployment
of physical and technological security measures
to identify, protect, detect and respond to information
and cyber security risks.
Technology,
processes,
systems
Customer
and brand
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
• 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.
in this risk during the year.
•
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.
42
Financial
Principal risk
Mitigation
Value driver
Financial sustainability
We operate globally and our business can be affected
by foreign exchange rates, changes in debt markets
and tax obligations. As a listed entity we also have
an obligation to protect shareholders’ capital.
== Change
Moving to a reporting currency of USD has reduced
the impact of foreign exchange fluctuations.
This risk has remained steady in the year.
• We moved to US dollars as our primary reporting
currency to reduce foreign exchange translation risk.
We engage in hedging arrangement to further mitigate
Financial
this risk.
• We have a 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 continue to apply our hedging policy to Australian
expenses that are settled with US dollar funds.
Appen
employees
Support
Principal risk
Mitigation
Value driver
Compliance with legal, statutory and
ethical obligations
• We maintain appropriate controls, governance
and oversight.
We are a global business and have a responsibility
to deliver consistent with our legal, statutory and
ethical obligations across a number of jurisdictions.
• We undertake ongoing horizon scanning to
monitor potential policy, legal and regulatory
developments that may impact our operations
== Change
This risk has remained steady in the year.
in particular jurisdictions. 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.
Environmental, social and governance
(ESG) risks and performance
As a growing company with a global workforce, we have
a responsibility to consider the environmental, social and
economic impacts and influences of our activities and to
look for ways to make a positive contribution and reduce risk.
• We understand the local labour and human rights
landscapes in the jurisdictions we operate in, and take
steps to comply with modern slavery requirements.
• We have commenced our journey to net zero emissions
by 2030 and have completed our Scope 1 and 2 GHG
emissions inventory.
Social and
environment
Financial
Appen
employees
Social and
environment
•
Further information can also be found on page 32
as part of our TCFD reporting.
Emerging risk
Change
This risk has increased due to heightened scrutiny
from stakeholders and customers wanting to see
the adoption of ESG factors into business strategy.
Appen 2021 Annual Report
43
Our approach
to governance
The Board and management team maintain
high standards of corporate governance as
part of our commitment to create value for
all 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.
2021 Board and Committee
priorities
Key areas of governance focus and
key activities undertaken by the Board,
its Committees and management during
2021 included:
Strategic and financial
performance
•
a Board and executive strategy
session was held with a focus on
existing and new market growth and
internal and contributor productivity.
We regularly review our governance
practices considering 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 People and Culture Committee.
Appen employees
•
•
The COVID-19 Response Team
continued to define safety protocols
for all offices and provide updates
on impacts to colleagues, the status
of each office, and related policies.
The Diversity and Inclusion
Committee continued to focus on
initiatives to promote gender diversity
and implement practices for the
benefit of under-represented groups.
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
• Completed our Scope 1 and 2 GHG
emissions inventory.
• Submitted our initial Modern
Slavery Statement.
Governance and
Board renewal
•
a key focus for the Board was our
response to the first strike against the
remuneration report received at the
AGM. A review was conducted on
executive pay following consultation
with proxy advisors on issues
perceived in the current remuneration
structure. As a result, changes were
made to the executive remuneration
framework, effective from 1 January
2022, which have been outlined in
our Remuneration report.
•
appointed Richard Freudenstein
as the independent non-executive
Chair of the Board.
Oversight of financial and
capital management
•
adopted US dollars as our primary
currency to reduce foreign exchange
translation risk.
Ethics and responsible
decision-making
•
•
•
commenced progress in reducing
our GHG emissions by completing
the first GHG inventory and reporting
in line with the CDP Framework.
partnered with key customers
to establish projects to identify
and monitor our impact on social
impact activities.
issued our first Modern
Slavery Statement.
Compliance and
risk management
•
•
internal audit program – reviewing
and assessing processes across key
operational areas; including a review
of our crowd pay processes.
reviewed the risk management
framework, revised risk appetite
statement and updated our
strategic risks to incorporate
material ESG risks.
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
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.
High competency and experience
Medium competency and experience
50%
of directors
are female
Male
Female
50%
50%
Non-executive
director tenure
4.5 years
average tenure
of NEDs
0–1 year
1–3 years
3–5 years
5+ years
17%
17%
0%
67%
International
business experience
83%
high international
experience
High
Medium
83%
17%
Director independence
83%
of directors are
independent
Independent
CEO
5
1
Appen 2021 Annual Report
45
Board
of Directors
Richard
Freudenstein
BA (Law) (Hons), BA (Economics)
Non-Executive
Chairman
Appointed: 12 August 2021
Board Committees:
Member of the People and
Culture Committee
Experience and expertise
Richard was appointed as Chair in October 2021 and has been
a non-executive director since August 2021. Richard is a director of Coles
Group Limited, REA Group Ltd and Cricket Australia. Previously, he was
Chairman of REA Group Ltd and a director of Ten Network Holdings Ltd,
Foxtel and Astro Malaysia Holdings Berhad. Richard has held the roles
of Chief Executive Officer (CE0) at Foxtel, News Digital Media and The
Australian, and was Chief Operating Officer at British Sky Broadcasting.
He is currently Deputy Chancellor and Fellow of the Senate at the
University of Sydney.
Directorships of other listed entities
in the last three years
Coles Group Limited (November 2018 to present) and REA Group Limited
(October 2006 to present).
Mark Brayan
MBA, BSurv (Hons)
Managing Director
& 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 more than 30 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 Chief Operating
Officer (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: Chair of the
People and Culture Committee
Experience and expertise
Steve is currently President and CEO of Thomson Reuters. He has been
in this role since March 2020. Prior to this he 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 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) and Thomson
Reuters (March 2020 to present).
46
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
People and Culture Committee
Experience and expertise
Robin is a non-executive director who also serves on the boards
of ASX listed companies AUB Group, IPH and Marley Spoon. She 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 to present), IPH Limited (23 September 2014 to present),
Marley Spoon AG (29 January 2020 to present).
Vanessa Liu
AB Psychology (magna cum
laude with highest honors);
JD (cum laude)
Independent
Non-Executive Director
Appointed: 27 March 2020
Board Committees:
Member of the Audit and Risk
Management Committee
Experience and expertise
Vanessa has a deep understanding of emerging technology trends and
enterprise uptake of artificial intelligence, especially in the US market.
She was most recently 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
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, and Chair of the Australian Broadband Advisory Council.
Directorships of other listed entities
in the last three years
Chair of Marley Spoon AG (5 June 2018 to present), Pro Medicus (1 August
2020 to present), Electro Optic Systems Holdings Limited (December 2021
to present).
Chris Vonwiller
BSc, BE (Hons), MBA, FIE (Aust.), FTSE
Former Non-Executive Chairman
Appointed: 14 August 2009. Resigned: 28 October 2021
Chris was the Non-Executive Chairman of Appen from August 2009 until October 2021, having formerly served as Appen CEO from 1999–2010.
Prior to joining Appen, 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.
William Pulver
BCom (Marketing)
Former Independent Non-Executive Director
Appointed: 19 April 2010. Resigned: 25 August 2021
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.
Appen 2021 Annual Report
47
Executive
Team
Mark Brayan
MBA, BSurv (Hons)
Managing Director
& Chief Executive
Officer
Appointed: July 2015
Kevin Levine
BComm, BAcc
Chief Financial Officer
Appointed: January 2016
Eric de
Cavaignac
MBA, BA
Chief Transformation
Officer
Appointed: November 2021
Jen Cole
MA, BA
SVP & GM, Enterprise
Appointed: November 2021
Experience and expertise
Refer to Board of Directors page 46 for Mark’s experience and expertise
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.
Experience and expertise
Eric de Cavaignac joined Appen in November 2021 and is responsible for
driving programs to scale operations and delivery, and support revenue
growth. He brings over 25 years of experience in partnering with investors
and management to transform businesses, and to deliver lasting growth
and profit improvement.
Before joining Appen, Eric worked across a number of industries, including
TMT, ecommerce, health, financial services, and luxury, where he helped
drive digital transformation, international expansion, strategic M&A, and
business restructuring. Eric has worked in New York, London, and Sydney
including, 10 years as an advisor with McKinsey and running a strategy
and capital advisory business, and a number of executive positions
reporting to the CEO of multinational companies executing a turnaround
or transformation.
Eric has a BA (Hons) in International Affairs from Trinity College, and
an MBA (Beta Gamma Sigma, Dean’s List) from Columbia Business School.
Experience and expertise
Jen Cole joined Appen in November 2021 and comes to Appen with over
22 years of experience building enterprise marketing and data platforms,
leading go to market teams, and scaling the delivery of technology
enabled services. As SVP & GM, Enterprise Jen is responsible for the
success of Appen’s Enterprise business including go-to-market strategy,
sales, delivery, and operations to ensure continued growth and sustained
client success.
Prior to joining Appen Jen was the President at Sincro, an Ansira company,
where she led a 1000 person global team building advertising technology,
ecommerce platforms, and marketing solutions for distributed ecosystem
business environments. Prior to that Jen was the SVP Digital at CDK Global
focused on growing digital capabilities within CDK’s end to end technology
solutions for the automotive retail sector.
Jen has an MA in Psychology from the University of California, Berkeley
and a BA in Psychology from Colgate University.
48
Mike Davie
BBA, MSc
SVP & GM, Quadrant
Appointed: September 2021
Experience and expertise
Michael (Mike) Davie is the founder of Quadrant and joined Appen in September
2021 following the acquisition of Quadrant by Appen. Mike has been leading
the commercialisation of disruptive mobile technology and Information and
Communications Technology infrastructure for more than a decade with leading
global technology firms in Asia, Middle East and North America. Prior to founding
Quadrant, Mike was a member of the Advanced Mobile Product Strategy Division
at Samsung where he developed go-to-market strategies for cutting edge
technologies created in the Samsung R&D Labs. He also provided guidance
to Asia and Middle East telcos on their 4G/LTE infrastructure data needs and
worked closely with them to monetise their M2M and telco analytics data.
Wilson Pang
MEng (ElecEng), BEng (ElecEng)
Chief Technology
Officer
Appointed: November 2018
Experience and expertise
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.
Kerri Reynolds
MBA, BA
SVP, Crowd Sourcing
Operations & HR
Appointed: March 2017
Experience and expertise
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.
Sujatha
Sagiraju
MBA, MSc, B.Tech
Chief Product Officer
Appointed: September 2021
Tom Sharkey
BSc (AeroEng)
SVP, Client Services
Appointed: July 2018
Experience and expertise
Sujatha Sagiraju joined Appen in September 2021 as SVP of Product and
she is responsible for the product strategy. She is a technology pioneer
with over 20 years of broad experience in building disruptive large-scale
online services and Al/ML and data platforms. She joined Appen from
Microsoft where she held leadership roles in several groups including
Bing and Azure Al Platform
Sujatha has an MBA in Technology Management from University of
Washington, Seattle, MS in Petroleum Engineering from University of Texas,
Austin and BS in Chemical Engineering from Indian Institute of Technology,
Chennai, India.
Experience and expertise
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 Tian
PhD (Computer Software),
MA Computer Applications
SVP, China
Appointed: August 2019
Experience and expertise
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.
Appen 2021 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” or “Appen”) 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 2021.
Directors
The following persons were Directors of Appen Limited during the whole of the year and up to the date of this report, unless
otherwise stated. The Directors’ biographies are provided on pages 46-47 of the Annual Report.
Richard Freudenstein (appointed as a Director on 12 August 2021 and appointed as Chairman on 28 October 2021)
Mark Ronald Brayan – Managing Director and Chief Executive Officer
Stephen John Hasker
Vanessa Liu
Robin Jane Low
Deena Robyn Shiff
Christopher Charles Vonwiller (Director and Chairman to 28 October 2021)
William Robert Pulver (Director to 25 August 2021)
Principal activities
Appen is a leading data for AI lifecycle company that collects and labels image, text, speech, audio, video and other data used
to build and continuously improve the world’s most innovative artificial intelligence systems. Appen’s expertise includes having
a global crowd of over 1 million skilled contractors who speak over 235 languages in over 70,000 locations and 170 countries,
and the industry’s most advanced AI-assisted data annotation platform. Appen enables our customers, who are leaders
in technology, automotive, financial services, retail, healthcare and government, to build world-class AI products, by creating
large volumes of high-quality, unbiased training data faster.
Appen was founded in 1996 and listed on the Australian Securities Exchange on 7 January 2015.
Appen has evolved significantly since 1996 and particularly in the last five years, from being a language data service provider
to become a leading AI data annotation provider. The evolution of the business is outlined in the table below.
Data type
Delivery model
Revenue
Customer
From
Language data
Service led
Project based
Major US tech
Organisational structure
Functional alignment
Reporting
Data modality, AU$
To
AI data
Product-led
Committed
All industries, geographies
Customer alignment
Strategy led, US$
Change in reporting currency
During the year, Appen changed its reporting currency from Australian dollars to United States (US) dollars. The change was
driven by the fact that more than 90% of Appen’s revenue and assets are in US dollars.
Reporting in US dollars removes the volatility that occurs when US earnings and assets are translated into Australian dollars,
which will enable simpler comparison of financial performance over time.
50
Corporate restructure
During the year, Appen announced a corporate restructure. As a result, Appen now has five customer-facing business units,
each with financial and customer responsibility, as follows:
• Global: responsible for delivery of high-quality data annotation services and products to our five largest US global
technology customers;
• Enterprise: responsible for leveraging our product suite and AI-driven automation to efficiently grow revenue outside
of Global customers to serve new customers and use cases as AI is adopted throughout the economy;
• Government: responsible for serving the emerging AI needs of Government;
• China: responsible for capturing market share in the high growth market in China; and
• Quadrant: during the year, Appen acquired Quadrant Global Pte Ltd (“Quadrant”), a global leader in mobile location and
Point-of-Interest (POI) data, thus expanding our addressable market, product offering and data annotation capabilities.
Refer to page 14 or more information.
The two operating and reporting segments reflect Appen’s growth strategy:
• Global Services: represents the services that Appen provides to its five major US technology customers (Global customers)
using the customer’s data annotation platforms and tools. The majority of projects comprise large, at-scale relevance
programs, and rely on Appen’s crowd workforce to complete the work, thus reducing the need for Appen’s Global customers
to employ a large and diverse ongoing workforce; and
• New Markets: represents Appen’s high growth markets and product led growth strategy. It comprises Global customer
revenue through Appen’s data annotation platform and tools (Global Product), and the Enterprise, Government and China
business units. New Markets also includes revenue derived using Quadrant’s geolocation and POI data capabilities. New
Markets customers benefit from our high-quality data annotation capabilities originating from Appen and now Quadrant’s
AI-augmented product suite, coupled with the provision of at-scale crowd management with Appen Connect. This enables
Appen to deliver high-quality outcomes for customers, and deliver revenue growth, scale and margin expansion.
Dividends
Dividend declared
On 24 February 2022, the Company declared a final dividend for the year ended 31 December 2021 of AU 5.5 cents per share,
50% franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend
is 1 March 2022 and the payment date will be 18 March 2022. The financial effect of these dividends has not been brought
to account in the financial statements for the year ended 31 December 2021, and will be recognised in the subsequent financial year.
Dividends paid
During the year, on 19 March 2021, the Company paid the 2020 final dividend of AU 5.5 cents per share, 50% franked, and
on 24 September 2021, the Company paid the 2021 interim dividend of AU 4.5 cents per share, 50% franked.
Impact of the COVID-19 pandemic
During the year, our global operations remained resilient, and we continued to deliver high quality outcomes for our customers
without interruption, despite lockdowns in many of the regions that we operate.
Our products and tools enable a work-from-anywhere delivery model for our crowd workers and our staff. To provide certainty
to our employees, we extended the option to work from home until 31 March 2022. When we deem it safe to do so, we expect
to return to the hybrid model where staff can work from home while at the same time enjoying the benefits of collaboration and
teamwork that come from interacting and exchanging ideas in the office.
The Group did not access any COVID-related Government grants since the commencement of the pandemic, during the current
year or to the date of signing this report.
Board renewal
As part of the Company’s Board renewal program, on 12 August 2021, Richard Freudenstein joined the Board as a non-executive
director and succeeded Chris Vonwiller as Chair, when Mr Vonwiller retired on 28 October 2021. Mr Vonwiller was Chair of the
Company for 12 years and CEO from 1999 to 2010.
William Pulver retired on 25 August 2021, after 8 years as a non-executive director and having served as CEO of Appen from
2010 to 2013. He was succeeded as Chair of the People and Culture (formerly Nomination and Remuneration) Committee by the
independent non-executive director, Stephen Hasker.
In accordance with good governance, the Board will continue to review and monitor the skills it requires, as it seeks to take
advantage of growth opportunities and industry trends.
Appen 2021 Annual Report
51
Directors' report
for the year ended 31 December 2021
Acquisition of leading data location provider
On 13 September 2021, Appen acquired Quadrant Global Pte Ltd (“Quadrant”), a global leader in mobile location and
Point-of-Interest (POI) data, thereby expanding Appen’s data capabilities and product offering for its existing customers and
opening new growth opportunities for the delivery of high-quality data to organisations that rely on geolocation for their business.
Appen made an upfront cash payment of $25,268,000, which was fully funded from existing cash reserves, and a potential
additional payment of up to $20,000,000 in Appen shares to be issued upon achieving revenue milestones in 2022 and 2023.
At acquisition date, the fair value of this contingent consideration was $17,702,000.
Significant changes in the state of affairs
During the year, the Group announced a new organisational structure, aligned to its product-led and customer centric strategies,
designed to focus on growing our products and delivering data for our customers at scale and lower cost, together with the
announcement of a change in reporting currency from Australian Dollars to United States Dollars.
In addition, the Company announced the acquisition of Quadrant, as discussed above.
There were no other significant changes in the state of affairs of the Group during the financial year.
Matters subsequent to the end of the year
The impact of the COVID-19 pandemic is ongoing and there remains significant uncertainty regarding exactly when the global
economy will recover. Apart from the dividend declared, no other matter or circumstance has arisen since 31 December 2021,
that in the opinion of the Directors, 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 by being product-led across all industries and geographic locations.
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.
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. In addition, he is also a member of the California bar. He was an adjunct professor at Santa Clara University Law School
where he taught internet, ecommerce and privacy law in the late nineties. He has worked in Australia and United States and has
held the position of General Counsel for various companies and been 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 2021, and the number of meetings attended by each director were:
Board
Audit and Risk Management
Committee
People and Culture Committee
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Chris Vonwiller 1
Richard
Freudenstein 2
Bill Pulver 3
Robin Low
Steve Hasker
Deena Shiff
Mark Brayan
Vanessa Liu
13
7
11
16
16
16
16
16
13
7
11
16
16
16
16
16
3
–
–
4
–
4
–
1
3
–
–
4
–
4
–
1
–
–
2
4
4
–
–
-
–
–
2
4
4
–
–
-
1 resigned 28 October 2021
2 appointed 12 August 2021
3 resigned 25 August 2021
52
Directors' report
for the year ended 31 December 2021
Shares under performance rights
Unissued ordinary shares of Appen Limited under performance rights at the date of this report are as follows:
Plan
2019
2020
2021
Number
of rights
518,733
720,824
787,775
2,027,332
The performance rights relate to the grant of rights under the Group’s Long-term incentive (LTI) Plan and vesting is dependent
on the fulfillment of the performance conditions and service-based conditions specific to each grant.
Shares issued on the exercise of performance rights
729,311 ordinary shares of the Company were issued on the exercise of performance rights during the year ended 31 December 2021.
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.
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, performed certain other services in addition to the audit and review of the financial
statements. These relate to transfer pricing and assurance 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
(Corporations 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
US dollars, or in certain cases, the nearest US dollar.
Appen 2021 Annual Report
53
Remuneration
report
Dear Shareholder
On behalf of Appen’s People and Culture Committee, I am pleased to present our
audited Remuneration Report for the year ended 31 December 2021. We have
listened to valued shareholders’ feedback in response to the first strike on the
2020 Remuneration Report and reviewed our executive remuneration framework.
• Only one KMP received an STI for
FY21, being Mr Sharkey, Senior
Vice-President Global Division,
and the amount received was
67% of target, driven mainly by
exceeding the threshold of divisional
performance targets.
• All tranches of the 2018 Executive
and 2018 Special LTI awards and (for
US executives) tranche 2 of the 2019
Executive LTI award were tested
following the end of FY20 and vested
in full, as the performance and
service conditions were met.
For the FY20 LTI (tranche 1 and 2)
and FY21 (tranche 1) awards, the
relevant performance condition
of 20% UBEPS growth has not
been met and in order for these
to vest in future years, significantly
more challenging UBEPS targets
will need to be met in the future
– UBEPS growth of 44% over two
years or UBEPS growth of 73% over
three years.
• Non-executive director fees were
increased following a review in late
2020, which showed Chair and
Board fees were significantly below
market compared to Appen’s ASX
listed peers.
Remuneration Changes for 2022
Since the 2021 Annual General Meeting
(AGM) and the first strike on the
2020 Remuneration Report, Appen
has consulted with proxy advisors,
shareholders and other stakeholders
to understand their concerns.
We have taken this feedback seriously
and have made changes to the executive
remuneration structure for FY22.
We have focused on balancing
shareholder expectations against
Australian and US remuneration
market practice where we compete for
talent in the highly competitive global
technology market. The table on pages
56-58 summarises the issues raised by
proxy advisors, shareholders and other
stakeholders in connection with the 2020
Remuneration Report, our response,
and changes implemented by the Board
with effect from 1 January 2022. This
year we have also worked to improve
the transparency and readability of our
remuneration report disclosures.
Looking ahead
Appen remains focused on delivering
its product-led future in a globally
competitive market and we believe
our current remuneration structure will
deliver long-term value creation for
shareholders. The Board will continue to
engage with proxy advisors, shareholders
and their representatives on matters
related to remuneration. We look forward
to your comments and value your
feedback on our remuneration framework
and policies. We remain committed
to remuneration practices that consider
stakeholder expectations and align with
good practice in Australia and the US.
Yours sincerely
Stephen Hasker
Chair of the People and Culture
Committee
Strategic focus
During the year, we expanded the
remit of the Committee beyond
recommendations associated with
Board appointments and executive
remuneration, to also focus on strategic
human resources objectives, including
the well-being of our employees and
culture. As a result, the Committee
has been re-named the People and
Culture Committee.
2021 business performance
Over the last five years, Appen’s
revenue has grown at a compound rate
of 40%. FY21 revenue was up 8.3%
and underlying EBITDA was up 3.0%,
compared to FY20.
•
2021 remuneration outcomes
At Appen, executive remuneration
continues to be heavily weighted
towards performance and at-risk
equity-based pay. In addition, the Board
sets challenging STI and LTI targets.
For the 2021 STI, revenue and underlying
EBITDA targets, were set at 25% and
31% respectively above 2020 actuals.
Stretch Underlying Basic Earnings per
share (UBEPS) targets also applied to
the equity-based LTI plan. These targets
are designed to incentivise the executive
team to perform for shareholders and
only reward significant out-performance.
A summary of remuneration outcomes
for 2021 was as follows:
•
•
There was no increase in the CEO’s
fixed remuneration (or the fixed
remuneration of any Executive KMP).
The CEO and CFO did not receive
any STI in relation to FY21.
54
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.
Non-Executive KMP:
Richard Freudenstein
Independent Director 1 and Non-Executive Chairman 1
Stephen Hasker
Independent Non-Executive Director
Vanessa Liu
Independent Non-Executive Director
Robin Low
Independent Non-Executive Director
Deena Shiff
Independent Non-Executive Director
Chris Vonwiller
Former Non-Executive Chairman 2
William Pulver
Former Independent Non-Executive Director 3
Executive KMP:
Mark Brayan
Managing Director and Chief Executive Officer (CEO)
Kevin Levine
Chief Financial Officer (CFO)
Tom Sharkey 5
Senior Vice-President, Global Division
Jon Kondo 5
Former Acting Senior Vice-President, Enterprise Division 4
1 Director since 12 August 2021 and Chairman since 28 October 2021.
2 To 28 October 2021.
3 To 25 August 2021.
4 To 25 June 2021.
5 US-based executive.
Appen 2021 Annual Report
55
Our response to the strike
During 2021, members of the Board and People and Culture (formerly known as the Nomination and
Remuneration) Committee met with its largest shareholders, proxy advisors and other stakeholders
to understand their concerns which led to a first strike. The following table summarises the issues raised
by those groups in connection with the 2020 Remuneration Report and how the Board has sought
to address them. Appen has made changes to the executive remuneration framework that will apply
from 2022, balancing shareholder feedback with an approach that attracts and retains talent in the
highly competitive global technology market.
Issue raised or
concern
2021 approach
What has changed
or will change from
1 January 2022?
Rationale
Short-term incentive (STI)
There are no
non-financial
measures in the STI
scorecard.
• Executive KMP have
a combination of the
following financial
measures that form
the STI scorecard:
– Revenue;
– Underlying
EBITDA; and
• Non-financial
measures will form
30% of the STI
scorecard. These
measures will be:
– Crowd NP;
– Customer NPS; and
– Employee
– Divisional targets.
engagement.
Appen’s core belief has always been that
financial success is reflective of strong
financial and non-financial performance.
We have also reflected our key strategic
initiatives in the scorecard to always focus
executives on achieving sustainable growth.
The financial measures will encompass
divisional and group targets, with
appropriate weightings.
A large portion
of STI could be
awarded for below
target performance.
• No payment below
• At 90% of target,
80% of target.
50% payout.
• At 80% of target,
• At target, 100%
64% payout.
payout.
Vesting schedules for the STI are intended
to provide a fair level of reward for
commensurate effort and align more
closely to Australian market practice.
• At 90% of target,
• At 120% of target,
81% payout.
150% payout.
• At target, 100%
payout.
• At 122.25% of target,
150% payout.
There is no deferral
of STI.
No deferral of STI.
From 2022, 25% of
the CEO’s STI will be
deferred into equity
for one year.
STI deferral will be introduced for the CEO to
align with the Australian market and provide
for shareholder alignment.
STI deferral will not apply to other Australian
Executive KMP so as not to create a disconnect
with US Executive KMP who will receive their
STI in cash, in line with US market practice.
The Board will continue to monitor the
appropriate quantum and application
of STI deferral.
56
Issue raised or
concern
2021 approach
What has changed
or will change from
1 January 2022?
Rationale
Long-term incentive (LTI)
The LTI only has
one measure.
UBEPS measure
weighted 100%.
UBEPS measure
(50% weighting).
Group revenue
(50% weighting).
LTI is tested
annually and allows
for re-testing.
The LTI hurdle is
measured annually
from year 1, and the
annual testing may be
carried forward for a
maximum of two years
and may vest if the
equivalent compound
annual growth rate
(CAGR) is achieved.
The LTI performance
and vesting period
will now be at the end
of three years for all
participants.
The annual testing has
been removed, and as
a result, no re-testing
can occur.
US executives will also have a time-based
equity component introduced for FY22. This will
be subject to service only.
UBEPS remains a relevant long-term
measure as it aligns executives to shareholder
experience.
Revenue growth and quality of revenue
are key to our business strategy. Group
revenue is a key metric and the most
appropriate indicator of both short and
long-term performance.
Time-based equity aligns with US market
practice, where equity awards are granted
with no performance hurdles.
The three year LTI performance period aligns
with Australian market practice and Appen’s
long-term outlook.
The time-based equity component for US
executives will vest over a three-year period,
vesting in three equal tranches annually.
The annual vesting of the time-based equity
ensures that Appen remains competitive
in the US market, where equity vests
annually, quarterly or in some cases monthly
in technology companies.
LTI quantum is
high compared to
Australian market
practice.
The LTI opportunity for
the CEO is 200% of
fixed remuneration. For
other Executive KMP
the LTI opportunity
ranges between 165%
and 275% of fixed
remuneration.
LTI quantum will
continue to be
benchmarked against
relevant peers and
will be expressed as
a percentage of fixed
remuneration.
Compared to our US competitors, the LTI
is set at quite modest levels.
Appen must remain competitive within
the global technology market. Our
remuneration philosophy is to skew towards
pay-for-performance, resulting in relatively
lower fixed and higher at-risk components.
Appen 2021 Annual Report
57
Our response to the strike (continued)
Issue raised or
concern
2021 approach
What has changed
or will change from
1 January 2022?
Rationale
Other
Malus and
clawback do not
apply to the STI
and LTI.
There is no
minimum
shareholding
requirement.
Total quantum
is high. In 2020,
although target
remuneration did
not change for the
CEO, maximum
remuneration
increased.
There was no
discount when
shifting a portion
of LTI to STI for
the CEO.
No formal malus or
clawback applied to
the STI.
Malus and clawback
will apply to STI
and LTI.
A formalised policy will be implemented in the
interests of good governance and to address
shareholder expectations.
LTI subject to
malus only.
Appen has a policy
that requires Executive
KMP to hold shares
equivalent to 50% of
the performance rights
granted in 2019.
Appen reviews and
benchmarks executive
pay annually against
comparable ASX-listed
and US technology
companies.
A formal minimum shareholding requirement (MSR) will be implemented
of 100% of fixed remuneration (FR) for the CEO and 50% of fixed
remuneration for other Executive KMP over a five year period.
A formal MSR is intended to promote strong ongoing executive and
shareholder alignment.
To remain competitive, Appen benchmarks:
• Australian Executive KMP against companies from 50%–200%
of Appen’s market capitalisation, ASX-listed technology companies
and US public internet/software companies.
• US Executive KMP against US non-founder public internet/software
companies against which it competes for talent.
The heavy skew in our executives’ remuneration packages towards
‘at-risk’ pay is designed to support a pay-for performance culture.
Actual outcomes will flex up and down in line with our annual
performance via the STI and shareholder experience via the LTI.
To address the change in pay mix for the CEO in 2021 and concerns
regarding quantum, a portion of the CEO’s STI from 2022 will be deferred
to improve shareholder alignment.
Appen remains firm that the LTI (and the newly introduced time-based
equity for US executives) component is important to remain competitive
in the global technology market while helping executives to build
a shareholding in the Company. There is no proposed discount for
time-based equity for US executives, especially given that the LTI
is low relative to our peers in the US market.
58
Our 2022 remuneration framework
Appen has made changes to the executive remuneration framework that will apply from 2022, and these changes are explained
below. These changes should be read in conjunction with the “Our response to the strike” section above.
Approach to 2022 Executive KMP remuneration
Our 2022 remuneration framework is intended to:
•
Enhance executive remuneration alignment to Appen’s strategic objectives set out on page 60;
• Strengthen alignment of executives with shareholders; and
• Differentiate remuneration structures that reflect local market practices.
In this context:
•
•
The FY22 Group STI scorecard will comprise: revenue (50%) split 30% total revenue and 20% revenue from non-global customers
to motivate customer diversification, EBITDA (20%), customer NPS (10%), crowd NPS (10%) and employee engagement (10%).
The measures directly align to our five-year objectives by focusing on revenue growth, diversified customers and happy customers
and workers. This targeted STI scorecard provides synergies between the five-year objectives and key annual focus areas.
The LTI structure will differ based on the location of each executive. The performance component will be tested in two equal
tranches against UBEPS (50%) and revenue (50%). Revenue growth and quality of revenue are key underpins to our business
strategy, in both the short-term and long-term, therefore revenue is an appropriate metric to have in both the STI and LTI.
UBEPS is intended to ensure revenue targets are achieved in a sustainable manner, balanced against profitability. In making its
assessment of performance, the Board maintains overarching discretion. It will look to the quality of the revenue and earnings
results individually and collectively, including consideration of EBITDA margin and the impact of any acquisitions to ensure LTI
targets have been achieved in the right way.
The diagrams below outline the framework for Executive KMP remuneration in 2022.
Australian Executive KMP approach
•
For Australian Executive KMP, including the CEO and CFO, the LTI will be delivered in performance rights, vesting at the end
of a three-year performance period, measured against UBEPS and revenue targets in two equal tranches.
•
For the CEO, 25% of any STI paid will be deferred for one-year.
Vesting timeline
Year 0
2022
FR: Cash
Year 1
2023
Year 2
2024
Year 3
2025
Year 4
2026
Year 5
2027
STI: Cash + Deferred equity
STI: Cash + Deferred equity Deferred equity
Deferred equity
LTI: Performance rights (subject to performance metrics)
MSR: 100% of FR for CEO, 50% of FR for KMP to be achieved over 5 years
Cash awarded
Equity granted
Equity vests/unrestricted
US Executive KMP approach
• Half of the LTI will be delivered in performance rights, vesting over the same three-year period as Australian Executive KMP.
• Half of the LTI will be delivered in time-based equity, vesting annually over three years. This portion of the award will not
be subject to performance hurdles, but will be subject to continued service.
US executives:
Vesting timeline
Year 1
2023
Year 2
2024
Year 3
2025
Year 4
2026
Year 5
2027
Year 0
2022
FR: Cash
STI: Cash
LTI: Time-based equity
LTI: Time-based equity
LTI: Time-based equity
LTI: Performance rights (subject to performance metrics)
MSR: 50% of FR for KMP to be achieved over 5 years
Cash awarded
Equity granted
Equity vests/unrestricted
Appen 2021 Annual Report
59
Our 2022 Remuneration framework (continued)
Executive remuneration framework
The executive remuneration framework has been designed to motivate our people to deliver on the Company’s growth strategy:
Step 1
‘Productise’ what
we do today
Step 2
Add new training data
products and capabilities
Step 3
Expand into the
broader AI market
Strengthen our people foundation
Our five year objectives and key results
The framework also aligns with the Company’s long-term (five-year) objectives.
Objective
#1 Data for the AI Lifecycle Company
Grow
revenue and
diversify
Automate
crowd and labelling
processes
Expand
our product
offering
Evolve
how we do
business
Drive growth in target
customer segments
Leverage AI and ML in
our labelling operations
to improve the
productivity of our crowd
Expand our TAM by
adding new products
and capabilities
– e.g. Quadrant
and synthetic data
Improve the scalability
and productivity of our
GTM and project delivery
At least double FY21 revenue
More than one third of revenue
from non-global customers
EBITDA margin target 20%
Core
strategic
pillars
Delivering
financial
outcomes
in FY26
60
2021 remuneration principles
Our goal is to ensure that the level and composition of remuneration aligns with the shareholder
interests’ and allows Appen to compete in some of the tightest talent markets in the world and attract
and retain high-performing global executives in the highly-bid technology sector. The key objectives
that underpin Appen’s 2021 remuneration framework are as follows:
Linked to
Company
strategy
via heavy
weighting to
performance-
based pay
Alignment
to creation
of long-term
shareholder
value
Fair and
competitive
to attract and
retain top
talent globally
Reinforce
responsible
business
practice
Simple
and clear
Our focus is on
rewarding KMP
based on key metrics
that truly impact
the growth of the
business both in the
short and long-term:
revenue and EBITDA.
Ensure employees
think and act
like long-term
owners through
performance-based
pay, challenging
targets and equity.
Independently
benchmarked
annually against
industry peers
to ensure that
remuneration is
appropriate in each
of the global markets
Appen operates
and competes with
for talent.
Board discretion on
malus and awards
subject to continuing
employment.
Transparency on
metrics, targets,
assessment and
outcomes.
Appen 2021 Annual Report
61
Overview of our 2021 remuneration framework
Total fixed
remuneration (FR)
Short-term incentive
(STI)
Long-term incentive
(LTI)
Objective:
Provide market competitive base salary
and benefits commensurate with skills
and experience to attract the best
people both in Australia and around
the world to design and lead the
delivery of our product-led strategy.
Objective:
Linked to challenging performance-
related key annual financial metrics,
that are consistent with the execution
of our long-term strategy and the key
to delivering sustainable and superior
returns for shareholders.
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.
Current year approach
Fixed remuneration reflects:
•
•
•
the scope of the executive’s role;
the executive’s skills, experience,
and qualifications; and
individual performance.
Fixed remuneration is benchmarked
against US technology companies and
similarly sized ASX-listed companies.
Fixed remuneration is intended to be
positioned below the median of peers,
with greater emphasis on at-risk
pay-for-performance.
Structure:
Performance is measured over
a 12-month period and awards are
made on an annual basis in cash.
Current year approach:
CEO and CFO – performance against
challenging revenue and underlying
EBITDA targets.
Global and enterprise division
executives – performance against
challenging revenue, underlying EBITDA
and divisional targets.
In 2021, the revenue, underlying EBITDA
and divisional targets were set well
above 2020 actuals. (For example,
revenue: 25% higher, underlying EBITDA
31% higher).
Target opportunity is a 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, designed to strongly align
with long-term shareholder
wealth creation, and support the
attraction and retention of high
performing executives.
Structure:
Equity-based compensation through
the granting of performance rights.
Australian Executive KMP:
For grants of performance rights up
to 1 January 2022, 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 Executive KMP:
For grants of performance rights up
to 1 January 2022, performance rights
have a hurdle rate of 20% UBEPS
growth over three years. 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.
62
2021 executive remuneration structure
In 2021, executive remuneration comprised a mix of fixed and variable at-risk remuneration components
through the STI and LTI plans.
Vesting timeline
Year 1
2022
Year 2
2023
Year 3
2024
Year 0
2021
FR: Cash
STI: Cash
LTI Australian Executives: Performance rights (subject to specific performance
metrics tested annually) and 3 year service condition
LTI US Executives:
Performance rights
Subject to
performance metrics
Subject to
performance metrics
Cash awarded
Equity granted
Equity vests/unrestricted
Executive KMP remuneration mix (percentage of total remuneration)
Executive remuneration is heavily weighted towards performance-based pay, including equity-based awards.
The diagram below illustrates the target 2021 remuneration mix (including the target STI opportunity and LTI
grant value), for each Executive KMP that was set at the start of FY21.
Mark Brayan
CEO
Kevin Levine
CFO
Tom Sharkey
SVP, Global Division
Jon Kondo
Acting SVP, Enterprise Division
Fixed remuneration
STI
Equity-based LTI
Variable remuneration
21%
36%
43%
23%
12%
65%
32%
16%
28%
28%
52%
44%
Appen 2021 Annual Report
63
CEO remuneration overview
Approach to CEO target remuneration
In determining the remuneration to be granted to Mr Brayan in FY21, the Board considered the following:
•
The key contribution that Mr Brayan plays in increasing short and long-term revenue and EBITDA.
• Mr Brayan’s leadership in driving the Company’s growth including the new product-led strategy and business transformation.
•
•
•
The Company’s performance, which has delivered share price growth of 2,232% since listing in 2015 to 31 December 2021.
However, we acknowledge the recent downturn in the Company’s share price by maintaining overall target remuneration
levels for 2021.
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 at-risk performance-based pay and equity-based
compensation to ensure that the CEO thinks and acts like a long-term owner of the Company and drives sustainable and
superior results in line with shareholder expectations.
2021 remuneration opportunity
An independent market review of ASX listed and US technology companies with market capitalisation of between 50% and
200% of Appen’s market capitalisation undertaken in late 2020 identified the following:
•
•
•
Fixed remuneration (cash salary plus superannuation) of A$750,000, was well below market, and in the bottom quartile
of the peer group.
Total cash remuneration was below market. This review was supplemented by an independent analysis of the pay positioning
for high growth specialist US technology firms.
Total remuneration was above median as a result of the still relatively large LTI opportunity.
Following the benchmarking exercise, the Board determined (based on advice and recommendation from the People and Culture
Committee) that the CEO’s fixed remuneration and total target quantum was appropriate, and made no change to the quantum
of Mr Brayan’s fixed and total remuneration for 2021. However, the Board decided to change the pay-mix to be closer to the
Australian market.
Specifically, Mr Brayan’s target STI was increased and his LTI was decreased. The total target remuneration which was at-risk
(79% of total remuneration) did not change between 2021 and 2020. Specifically, 2021 remuneration, which was presented to,
and approved by, shareholders at the AGM held on 28 May 2021, prior to the Remuneration Report strike, was as follows:
•
Fixed remuneration to remain unchanged at A$750,000.
• At-target STI increased from A$750,000 to A$1,250,000 (per annum) by allocating A$500,000 from LTI to bring
the balance between STI and LTI closer to the Australian market, and to drive key STI objectives including the delivery
of challenging targets associated with revenue and underlying EBITDA growth.
•
Total target remuneration of $3.5 million remained unchanged from 2020.
An LTI grant of 55,908 performance rights was made in 2021 and will vest in 2024, subject to the achievement of annual
performance targets of 20% UBEPS growth for three consecutive years and for Mr Brayan to remain employed at the end of the
three-year period. The value of the LTI was A$26.83 per share (the volume-weighted average price in December 2020) which
equates to A$1.5 million. This compares to an LTI grant equivalent of A$2 million in 2020. We note that for Mr Brayan to receive
this LTI, the Company must deliver at least 20% UBEPS growth for three consecutive years tested annually.
For FY21, Mr Brayan did not meet his STI performance targets, and hence no STI was awarded. Mr Brayan’s fixed remuneration
is below the Australian market median and was the only form of cash remuneration that Mr Brayan received with respect to FY21.
Considering shareholder feedback, there is no proposed change in FY22 to the CEO’s target remuneration.
64
How the 2021 rewards are linked to performance
One of the key principles of the Company’s remuneration framework is to align Executive KMP
remuneration outcomes with the Company’s performance and shareholder returns.
Short-term incentive measures
Long-term incentive measures Shareholder returns
Revenue
(US$’000)
Underlying
EBITDA 1 (US$’000)
Underlying
NPAT 1 (US$’000)
Underlying
basic EPS 1
(US¢ per share)
Share price
at 31 Dec (A$)
Dividends
declared
(A¢ per share)
4
4
7
2
7
4
,
,
4
1
2
9
9
6
4 0 % C A G R
3
7
2
,
1
8
1
,
2
7
0
3
2
0
,
1
2
7
8
1
9
43 % C A G R
7
0
,
1
7
6
,
5
2
4
2
3
,
7
7
6
8
4
,
7
5
4
3
9
2
1
,
5
7
8
,
4
4
9
0
2
,
4
5
2
7
6
,
4
0
5
9
7
38 % C A G R
,
3
5
9
8
9
,
1
4
7
8
9
31 % C A G R
.
2
2
4
6
.
2
4
6
9
15 % C A G R
.
9
0
1
0
0
.
1
0
0
.
.
3
7
2
3
.
3
3
0
2
.
1
2
8
3
.
8
3
1
1
1
.
1
6
.
8
0
.
6
0
32 % C A G R
.
3
8
0
7
3
3
8
5
.
.
1
5
0
7
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
CAGR % represents the 5 year Compound Annual Growth Rate from FY17 to FY21, with FY16 as the base year.
Short-term incentive payments are
linked to revenue and underlying
EBITDA for our Australian Executive
KMP, and to revenue, underlying
EBITDA and divisional targets for our
US Executive KMP. No STI was paid to
our Australian Executive KMP for FY21.
Long-term incentive awards are linked
to underlying basic earnings per share
(UBEPS) growth, which ensures that
executive remuneration outcomes are
aligned with a metric that executives
have direct influence over and aligns
with shareholders’ experience.
Value has been created for
shareholders through share
price appreciation and dividends.
1 Underlying NPAT, EBITDA and EPS excludes the impact of items relating to business acquisitions, including amortisation of acquired assets,
share-based payments, restructure costs, transaction costs and fair-value adjustments. Underlying NPAT and EPS also exclude deemed interest
on acquisition related earn-out payments.
Appen 2021 Annual Report
65
Executive KMP remuneration outcomes
Short-term incentives (STI)
Performance and 2021 STI outcomes
In 2021, revenue targets set were approximately 25% higher than 2020 actuals and underlying EBITDA targets set were
approximately 31% higher than 2020 actuals. Actual revenue was 87% of target and underlying EBITDA was 77% of target.
The blended weighted average revenue and underlying EBITDA achievement percentage was 79.9%, which was below the 80%
minimum threshold for the CEO and CFO. Hence, the CEO and CFO did not receive any STI with respect to FY21. The Board
has chosen not to exercise any discretion in relation to the STI for the CEO and CFO, in order to align their experience with
shareholder outcomes.
The SVP of the Global Division, Mr Sharkey, did receive an STI for FY21, as he has an additional performance metric directly
tied to divisional performance and therefore his STI scorecard differs to the CEO and CFO. Mr Sharkey’s blended achievement
percentage was 82.1% and above the 80% threshold, and hence he received an STI payout that was 67.4% of target.
The tables below detail performance against the STI financial targets and the STI payouts for each Executive KMP.
Revenue
Underlying EBITDA
2021
2020
2021
2020
Target
Actual 1
% Actual/Target
$514,417,496
$481,837,332
$98,776,253
$90,371,921
$446,025,640
$412,638,255
$76,039,124
$75,438,725
87%
86%
77%
83%
1 Revenue comprises services revenue only – see note 4 in the financial report. 2021 excludes Quadrant.
Underlying EBITDA excludes Quadrant and the resulting adjustment from the final STI calculation.
The weighted average achievement and payout percentages for FY21 and FY20 for each KMP was as follows:
Executive KMP
Mark Brayan
Kevin Levine
Tom Sharkey
Jon Kondo 1
Revenue
weighting
Underlying
EBITDA
weighting
Divisional
target
weighting
Weighted
average
achievement %
Weighted
average payout
%
2021
2020
2021
2020
2021
2020
2020
28.6%
28%
28.6%
28%
28.9%
26%
26%
51.3%
56%
51.3%
56%
25.6%
28%
28%
n/a
n/a
n/a
n/a
27.6%
26%
26%
79.9%
84%
79.9%
84%
82.1%
80%
80%
0%
71%
0%
71%
67%
68%
68%
1 Mr Kondo resigned on 25 June 2021.
66
The weighted average payout percentages translated into actual STI payouts as follows:
Executive KMP
Currency
Fixed
remuneration 2
$
STI target
% of fixed
remuneration 3
%
Weighted
average
payout 4
%
Total STI
payout
$
Total STI
payout
(USD)
$
Mark Brayan 1
Kevin Levine 1
Tom Sharkey
Jon Kondo 5
2021
2020
2021
2020
2021
2020
2021
2020
AUD
AUD
AUD
AUD
USD
USD
USD
USD
750,000
750,000
500,000
500,000
425,000
425,000
385,000
385,000
167%
100%
50%
50%
50%
50%
100%
100%
0%
71%
0%
71%
67%
68%
0%
68%
–
–
531,760
409,936
–
–
177,253
136,645
143,147
145,356
–
143,147
145,356
–
263,351
263,351
1 Mr Brayan and Mr Levine did not receive an STI with respect to FY21. Their weighted average achievement % was 79.9%, which was below the
80% minimum threshold, and hence their weighted average payout % was 0%.
2 Includes superannuation contributions for Australian Executive KMP.
3 Percentage of fixed remuneration (excluding retirement and insurance benefits for US Executive KMP).
4 Weighted average payout % varies because US Executive KMP have an additional metric of growth in divisional targets.
5 Mr Kondo resigned on 25 June 2021.
Appen 2021 Annual Report
67
Executive KMP remuneration outcomes (continued)
Long-term incentives (LTI)
Performance and 2021 LTI outcomes
In order for performance rights to vest, participants must remain employed by the time the final tranche is tested. During the year,
performance rights vested in full for Executive KMP with respect to the following three plans:
•
•
•
2018 Executive Award Plan (tranches 1, 2 and 3) with a UBEPS performance hurdle of 10%.
2018 Special Award Plan (tranches 1, 2 and 3) with a higher UBEPS performance hurdle of 20%.
2019 Executive Award Plan (tranche 2) for US executives with a UBEPS performance hurdle of 20%.
The table below summarises the tranches that were either performance tested or had previously met performance conditions
and vested due to meeting service conditions in FY21. See the table on page 78 for a detailed summary on the performance
rights that vested in FY21.
Was there
a performance
condition
required to
be met in FY21
for the rights
to vest?
Award
Tranche
2018 Executive Award
1
n/a
2018 Executive Award
2
n/a
2018 Executive Award
2018 Special Award
2018 Special Award
2018 Special Award
3
1
2
3
2019 Executive Award
2 ¹
Yes
n/a
n/a
Yes
Yes
Performance
hurdle applied
Performance condition of 10%
annual UBEPS growth met at end
of 2018.
Performance condition of 10%
annual UBEPS growth met at end
of 2019.
Performance
period
Performance
achieved
2018 vs 2017
125% UBEPS
CAGR
2019 vs 2018
12% UBEPS
CAGR
Performance condition of 10%
UBEPS CAGR met at end of 2020.
3 year CAGR
(2017–2020)
35% UBEPS
CAGR
Performance condition of 20%
annual UBEPS growth met at end
of 2018.
2018 vs 2017
125% UBEPS
CAGR
Performance condition of 20%
UBEPS CAGR met at end of 2019.
2 year CAGR
(2017–2019)
59% UBEPS
CAGR
Performance condition of 20%
UBEPS CAGR met at end of 2020.
3 year CAGR
(2017–2020)
35% UBEPS
CAGR
Performance condition of 20%
annual UBEPS growth met at end
of 2020 ².
2020 vs 2019
32% UBEPS
CAGR FY19
to FY20
1 Tranche 1 of the 2019 Executive Award vested in the prior year for US executives.
2 2019 base UBEPS restated in April 2019 to adjust for the loss-making Figure Eight on acquisition, but prior to full integration into Appen.
In relation to the 2020 Executive Award (tranches 1 and 2) and the 2021 Executive Award (tranche 1) the relevant performance
condition of 20% UBEPS growth has not been met in FY21 and in order for these to vest in future years, significantly more
challenging UBEPS targets will need to be met in the future i.e. UBEPS growth of 44% over two years or UBEPS growth of 73%
over three years.
68
2021 Executive KMP awards granted
The following awards were granted to Executive KMP for the 2021 year. The grant of performance rights to Mr Brayan was
approved by shareholders at the Annual General Meeting on 28 May 2021. The LTI performance target were set at 20% growth
in underlying basic earnings per share (UBEPS) each year for three consecutive years.
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
2021 1
25 Dec 2020 N/A
N/A
2021 1
25 Dec 2020 N/A
N/A
2021 1
25 Dec 2020 N/A
N/A
1
2
3
UBEPS
20.0%
End 2021
Pending 2
UBEPS
20.0%
End 2022
Pending 2
UBEPS
20.0%
End 2023
Pending 2
Employed at
1 Jan 2024
Employed at
1 Jan 2024
1 Jan 2024
A$26.83
1 Jan 2024
A$26.83
Employed at
1 Jan 2024
Release of 2023
annual results
A$26.83
1 At the Board’s discretion.
2 Can now only vest if the Company achieves 44% UBEPS growth over a two year period or 73% growth over a three year period.
Remuneration received
Actual remuneration received by Executive KMP
The table below details the actual remuneration that was received by current Executive KMP for FY21 and FY20. The remuneration
for Mr Brayan and Mr Levine are both disclosed in Australian Dollars, as both receive their remuneration in Australian Dollars. This
table differs to the statutory remuneration table on page 70 which is prepared in accordance with accounting standards. The STI
amount (if any) 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
for Mr Brayan, Mr Levine and Mr Sharkey 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 65.
Fixed
STI 2
LTI value
at vesting
date 4
Executive KMP
Currency
Cash
salary 1
$
Super-
annuation 1,3
$
Termination
payments
$
Total
value
$
$
Mark Brayan 2
2021
AUD 727,369
2020
728,652
Kevin Levine 2 2021
AUD 477,369
2020
478,652
Tom Sharkey
2021
USD 425,000
2020
425,000
Jon Kondo 5
2021
USD 188,304
2020
385,000
22,631
21,348
22,631
21,348
26,000
26,000
26,000
26,000
-
-
-
-
-
-
2,735,817
3,485,817
1,351,399
531,760
2,779,522
4,061,282
784,132
-
1,772,049
2,272,049
875,444
177,253
1,736,217
2,413,470
355,717
143,147
492,686
1,086,833
308,507
145,356
503,347
1,099,703
441,593
135,463
–
368,428
718,195
894,000
-
263,351
251,674
926,025
315,099
$
-
LTI value
at grant
date
$
1 Annualised fixed remuneration in the form of cash salary plus superannuation did not change for any of the Executive KMP.
2 Mr Brayan and Mr Levine did not receive an STI with respect to FY21, as the weighted average achievement % was 79.9%, which was below
the 80% minimum threshold.
3 Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
4 Value of LTI at vesting date is based on the market price of shares at the date that the LTI vests.
5 Remuneration was lower for Mr Kondo in 2021, because Mr Kondo resigned on 25 June 2021.
Appen 2021 Annual Report
69
Executive KMP remuneration outcomes (continued)
Statutory remuneration for Executive KMP
The table below details the statutory accounting expense of all remuneration-related items for the Executive KMP. All figures are
presented in US Dollars, which is Appen’s presentational currency. This includes translating the remuneration of Mr Brayan and
Mr Levine to US Dollars, even though they are both paid in Australian Dollars. The average AUD/USD exchange rate used were
0.7515 for 2021 and 0.6904 for 2020. The 31 December closing AUD/USD exchange rates used were 0.7261 for 2021 and 0.7709
for 2020.
Fixed
Variable
Executive
KMP
Cash
salary 1
$
Super-
annuation 1,3
$
Leave
entitlements
$
Termination
payments
$
Mark Brayan 2 2021
546,640
2020
503,054
Kevin Levine 2 2021
358,757
2020
330,456
Tom Sharkey
2021
425,000
2020
425,000
Jon Kondo 5
2021
188,304
2020
385,000
17,008
14,739
17,008
14,739
26,000
26,000
26,000
26,000
40,265
55,424
33,903
25,432
2,348
3,984
–
–
–
–
–
–
STI
$
–
LTI 4
$
Total
$
167,133
771,046
409,936
1,209,371
2,192,524
–
29,913
439,581
136,645
691,418
1,198,690
143,147
(26,612)
569,883
145,356
682,254
1,282,594
–
135,463
–
(674,353)
(324,586)
14,437
–
263,351
947,327
1,636,115
1 Annualised fixed remuneration in the form of cash salary plus superannuation did not change for any of the Executive KMP. The fixed
remuneration differences presented above for 2021 versus 2020 for Mr Brayan and Mr Levine relate to the impact of exchange rate translation,
as the table is presented in US dollars.
2 Mr Brayan and Mr Levine did not receive an STI with respect to FY21, as the weighted average achievement percentage was 79.9%, which was
below the 80% minimum threshold.
3 Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
4 The values for equity-settled remuneration were measured at grant date in accordance with AASB2 Share-based Payments and represent
the current year amortisation of the fair value of the rights over the vesting period. All statutory LTI figures are lower in 2021 relative to 2020,
due to the true-up adjustment of the share-based payments accounting expense, in relation to the 2020 and 2021 Long-term incentive plans,
based on management’s assessment of the likelihood of achieving the performance hurdles.
5 Statutory remuneration was negative for Mr Kondo in 2021, because he resigned on 25 June 2021. The LTI figure reflects the true-up of the
accounting expense associated with the forfeiture of his performance rights, associated with his resignation.
70
Executive KMP 2021 remuneration in detail
Short-term incentives (STI)
Approach to STI
STI are performance-based incentives designed for executives to deliver and outperform key financial metrics that will lead
to sustainable, superior returns for shareholders. STI is 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 Sharkey)
Underlying EBITDA (Mr Brayan, Mr Levine)
Underlying EBITDA (Mr Sharkey)
Divisional target (Mr Sharkey)
2021
Weighting
33%
67%
33%
33%
The STI cash payment ranges from 0% to 167% of the relevant executive’s fixed remuneration (excluding retirement and insurance
benefits for US-based executives). The maximum weighted-average STI payout percentage is capped at 150% of target for
all employees. No payment is made if the weighted-average achievement percentage is less than 80% of the target. For FY21,
Mr Brayan and Mr Levine’s weighted average achievement percentage was 79.9% of target, and did not meet the threshold for
an entitlement to an STI.
The STI award is calculated based on the weighted-average achievement result of the performance measures.
Actual awards are calculated on a sliding scale between 0% and 150%, as follows:
Weighted average achievement
– % against target
Weighted-average payout
– % of target payout
Below 80%
80%
90%
122.25% or more
Nil
64%
81%
150%
The Board has discretion to adjust the level of STI to prevent any inappropriate shareholder outcomes. This includes reducing the
level of STI down to zero.
Appen 2021 Annual Report
71
Executive KMP 2021 remuneration in detail (continued)
Long-term incentives (LTI)
Approach to LTI
LTI is a form of equity-based compensation that is awarded in the form 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.
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 People and Culture Committee undertakes regular reviews of the LTI practices in both these markets.
The table below outlines key features of the LTI plan.
Feature
Description
Opportunity
Annual grants of performance rights (with quantum determined at Board discretion based on market
remuneration analysis).
Performance rights cannot be traded on the ASX and do not have any dividend or voting rights until
they vest and are exercised.
Rights are convertible to shares on the vesting date, assuming all the performance conditions and the
employment conditions are met.
The number of performance rights granted is based on face value (actual share price) rather than
a discounted fair value.
Vesting conditions
1. UBEPS growth tested over three consecutive years.
2. Continuation of employment until beginning of the calendar year in which the performance rights
are subject to vesting.
Performance period Three-year performance period with grants consisting of three equal tranches each tested over a single
12-month period.
Performance
assessment
Australian Executive KMP: performance rights vest at the end of the three-year period subject to the
achievement of the performance and continuous employment hurdles.
US Executive KMP: 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,
however this would require 44% UBEPS growth over a two-year period or 73% growth over a three-year
period. 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. Rights granted in 2021 will only vest in 2024, if the Company achieves 44% UBEPS growth
over a two-year period or 73% growth over a three-year period.
Target achievement table:
UBEPS target achieved
% performance rights allocated
100% of more of UBEPS target
90–99% of UBEPS target 1
Less than 90%
1 At the Board’s discretion.
100%
50–80%
Nil
Malus
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.
72
Executive KMP service contracts
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:
Executive KMP
Role
Contract term
Annual salary review
Notice period by either party
Mark Brayan
Managing Director and CEO
No fixed term
Kevin Levine
CFO
Tom Sharkey
SVP, Global Division
No fixed term
No fixed term
1 March
1 March
1 March
6 months
3 months
90 days
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 Company strategy. The size of the remuneration pool that can be paid to Non-executive
directors is governed by resolutions passed at a General Meeting of shareholders.
At the AGM held on 28 May 2021, shareholders approved an increase in the total Non-executive director remuneration pool from
A$900,000 to A$1,400,000 per annum. This change was made due to changes made to the Company’s Constitution, in which
the maximum number of directors permitted to sit on the Board increased from seven to 10, associated with the Board renewing
its composition in 2021, in which long-standing directors retired. The increase in the number of directors was to ensure a smooth
transition, so that the Company would have the flexibility to have more than seven directors on the Board at any one time.
The Company aims to provide a level of remuneration for Non-executive directors comparable with its general industry peer
group. A formal independent review of Non-executive director fees took place in late 2020, taking into consideration the
market rates for similar positions at relevant ASX listed companies with a market capitalisation of 50% to 200% of Appen’s
market capitalisation. The review found that the Board Chair’s fees and the other Non-executive directors fees were in the
bottom quartile. Based on this review, and as disclosed in the 2021 Notice of AGM, effective 1 January 2021, it was determined
to increase the level of remuneration paid to the Non-executive directors as follows:
Role
Board Chair
Non-executive director
Audit and Risk Management Committee Chair
People and Culture Committee Chair
Fee
2020 A$
Fee
2021 A$
$200,000
$250,000
$105,000
$120,000
$15,000
$15,000
$20,000
$20,000
All fees presented above include statutory superannuation.
All Non-executive directors are remunerated by way of Board and Committee fees. These fees reflect the workload associated
with a fast growing global business and the governance oversight required of the Company’s strategic growth areas including
Enterprise, Government and China. Non-executive directors do not receive any short-term or long-term incentive.
There are no changes to the level of Non-executive director fees proposed for 2022.
Appen 2021 Annual Report
73
Non-executive KMP remuneration arrangements (continued)
Amounts paid to Non-executive directors in USD
Details of fees paid to Non-executive directors for FY21 and FY20 in US Dollars are outlined below.
Director
Richard Freudenstein 1
Chris Vonwiller 2
William Pulver 3
Robin Low
Deena Shiff
Stephen Hasker
Vanessa Liu 4
Fees
US$
44,026
136,950
63,561
105,214
86,178
90,184
90,184
2021
Super-
annuation
US$
4,403
13,487
6,234
Total
US$
48,429
Fees
US$
–
150,437
126,099
69,795
–
105,214
4,006
–
–
90,184
90,184
90,184
75,659
82,847
66,202
72,491
55,205
2020
Super-
annuation
US$
–
11,979
7,188
–
6,289
–
–
Total
US$
–
138,078
82,847
82,847
72,491
72,491
55,205
616,297
28,130
644,427
478,503
25,456
503,959
In accordance with the Board’s renewal policy:
1 Richard Freudenstein was appointed to the Board on 12 August 2021 and commenced as Chair from 28 October 2021.
2 Chris Vonwiller resigned as Chair on 28 October 2021.
3 William Pulver resigned on 25 August 2021.
4 Vanessa Liu was appointed on 27 March 2020.
Amounts paid to Non-executive directors in AUD
Details of fees paid to Non-executive directors for FY21 and FY20 in Australian Dollars are outlined below. The total amount paid
in FY21 is less than the A$1,400,000 limit approved by shareholders at the 2021 AGM.
Director
Richard Freudenstein 1
Chris Vonwiller 2
William Pulver 3
Robin Low
Deena Shiff
Stephen Hasker
Vanessa Liu 4
2021
Super-
annuation
A$
6,042
17,793
8,160
Total
A$
66,461
Fees
A$
–
198,459
182,648
91,358
109,589
2020
Super-
annuation
A$
–
17,352
10,411
Total
A$
–
200,000
120,000
–
140,000
120,000
–
120,000
5,330
120,000
95,890
9,110
105,000
–
–
120,000
105,000
120,000
79,962
–
–
105,000
79,962
37,325
856,278
693,089
36,873
729,962
Fees
A$
60,419
180,666
83,198
140,000
114,670
120,000
120,000
818,953
In accordance with the Board’s renewal policy:
1 Richard Freudenstein was appointed to the Board on 12 August 2021 and commenced as Chair from 28 October 2021.
2 Chris Vonwiller resigned as Chair on 28 October 2021.
3 William Pulver resigned on 25 August 2021.
4 Vanessa Liu was appointed on 27 March 2020.
74
Remuneration governance
The role of the People and Culture (formerly Nomination and Remuneration) Committee is to focus on our strategic human
resources objectives, including the well-being of our employees and culture, as well as provide advice, recommendations and
assistance to the Board in relation to compensation arrangements for Directors and executives. The members of the People and
Culture Committee during the reporting period were:
Stephen Hasker, Member for the whole financial year and Committee Chair from 25 August 2021
Richard Freudenstein, Member from 12 August 2021
Robin Low, Member for the whole financial year
William Pulver, Former Member and Committee Chair to 25 August 2021
The below shows the relationship between the People and Culture Committee and the Board, Executive team and Audit and
Risk Committee.
Board
Approves and has oversight of Appen’s
remuneration policy including Executive
and Non-executive KMP remuneration.
Independent external advisors
To ensure the Committee is appropriately
informed, advice and information is sought from
independent external advisors, as required.
People
and Culture
Committee
Members:
Stephen Hasker
Richard Freudenstein
Robin Low
Audit and Risk Committee
Advises the People and Culture
Committee of material risk issues,
behaviours and/or compliance breaches.
Executive team
Proposes executive appointments,
succession plans, policies,
remuneration structures and
outcomes to the People and Culture
Committee for review and approval
or recommendation to the Board.
The number of Committee meetings and attendance by members during the reporting period is set out in the ‘Meetings
of directors’ section on page 52.
Board oversight of remuneration
The Board ensures variable rewards are only paid when a senior executive creates value for shareholders-through meeting their
financial targets and exceeding their agreed work plan objectives. The Board reviews the financial targets on an annual basis
to ensure that they are sufficiently challenging and are consistent with the Company’s long-term business strategy. 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’).
Corporate Governance Statement
Further information about the People and Culture Committee is set out in the Corporate Governance Statement.
The Statement is available at: appen.com/investors/corporate-governance/
Appen 2021 Annual Report
75
Remuneration governance (continued)
Independent remuneration advisors
Where appropriate, the Board and the People and Culture Committee engage external and independent remuneration advisors
to provide industry benchmarks, peer comparison information and specific local knowledge of country-specific remuneration
practices. The Board and the People and Culture Committee engaged EY as its independent remuneration advisor in FY21
to provide market practice insights and advice in responding to Appen’s first strike and benchmarking for executives.
External advice is used as a guide only and is not a substitute for the Board and People and Culture Committee’s thorough
consideration of the relevant remuneration matter. No remuneration recommendations were provided.
Securities trading policy
KMP (both executive and non-executive directors) 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/
Executive KMP share ownership requirement
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. Share transfers to affiliate
or related entities or persons are permitted. From 1 January 2022, a formal minimum shareholding requirement (MSR) has been
implemented of 100% of fixed remuneration for the CEO and 50% of fixed remuneration for other Executive KMP over a five
year period.
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.
76
Other remuneration tables
Securities holdings of Executive KMP
Executive KMP at 31 December 2021
Mark Brayan
Kevin Levine
Tom Sharkey
Number of
performance rights
held
Number of ordinary
shares currently held
(direct and indirect)
294,033
180,077
114,626
482,032
192,846
70.118
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
2021
Granted
during the
year
Exercised
during the
year
Held at
31 December
2021
Vested
during the
year
Forfeited
Mark Brayan
2018
23,153
2018 Special
150,000
2019
160,000
2020
2021
78,125
–
55,908
411,278
55,908
(173,153)
–
–
–
–
–
–
–
–
(23,153)
(150,000)
–
–
–
(12,155)
(100,000)
–
–
–
48,828
–
51,249
240,983
51,249
(112,155)
25,118
60,000
35,000
–
–
–
–
34,626
(25,118)
(15,000)
–
–
120,118
34,626
(40,118)
Kevin Levine
2018
12,155
2018 Special
100,000
2019
80,000
Tom Sharkey
Jon Kondo
2020
2021
2018
2019
2020
2021
2019
2020
2021
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23,153)
(150,000)
160,000
78,125
55,908
–
–
–
294,033
(173,153)
–
–
(12,155)
(100,000)
80,000
48,828
51,249
–
–
–
180,077
(112,155)
–
(25,118)
45,000
(15,000)
35,000
34,626
–
–
114,626
(40,118)
75,000
35,000
–
–
–
30,124
(30,000)
(45,000)
–
–
(35,000)
(30,124)
110,000
30,124
(30,000)
(110,124)
–
–
–
–
(30,000)
–
–
(30,000)
Appen 2021 Annual Report
77
Other remuneration tables (continued)
Performance rights vesting table
The performance details relating to the rights exercised during the year, are shown in the table below:
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
b
e
F
-
4
2
1
2
-
b
e
F
-
4
2
1
2
-
b
e
F
-
4
2
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
n
a
J
-
1
1
2
-
b
e
F
-
4
2
1
2
-
b
e
F
-
4
2
1
2
-
b
e
F
-
4
2
1
2
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n
a
J
-
1
1
2
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-
1
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a
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y
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1
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0
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0
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0
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0
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1
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1
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0
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1
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:
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78
Performance rights exercised during the year by Executive KMP
Executive
Mark Brayan
Kevin Levine
Tom Sharkey
Jon Kondo
Number
of rights
exercised
Value of rights
at grant
date (US$)
Value of rights
at exercisable
date (US$)
173,153
112,155
40,118
$1,067,605
$2,126,480
$691,601
$1,377,368
$308,507
30,000
$894,000
$492,686
$368,428
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 65. 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.
Unvested performance rights held by Executive KMP
The number of unvested performance rights held by Executive KMP at 31 December 2021 are:
Plan
2019
2020
2021
Total
Mark
Brayan
Kevin
Levine
Tom
Sharkey
160,000
80,000
78,125
55,908
48,828
51,249
294,033
180,077
45,000
35,000
34,626
114,626
Executive and Non-executive Director shareholdings
Number of shares
Director
Richard Freudenstein 3
Chris Vonwiller 4
William Pulver 5
Mark Brayan
Robin Low
Deena Shiff
Stephen Hasker
Vanessa Liu
Purchased/
exercised
during the
year
1 January
2021
–
30,000
9,060,286
332,384
418,309
172,946
50,432
50,000
1,000
10,085,357
–
–
–
–
–
3,000
206,153
173,153
(109,430)1
Sold during
the year
Ceased
to be KMP
31 December
2021
–
30,000
–
–
–
–
–
–
–
(9,060,286)2
(332,384)2
–
–
–
–
–
(109,430)
(9,392,670)
–
–
482,032
172,946
50,432
50,000
4,000
789,410
1 Mr Brayan sold 109,430 shares during the year to fund personal tax obligations The share sale was announced to the ASX on 4 June 2021
(appen.com/investors/announcements/).
2 Mr Vonwiller and Mr Pulver both ceased to be KMP during the year.
3 Appointed 12 August 2021.
4 Retired 28 October 2021.
5 Retired 25 August 2021.
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.
Richard Freudenstein
Director
24 February 2022
Sydney
Appen 2021 Annual Report
79
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 financial year ended
31 December 2021 there have been:
(i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 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 2022
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.
80
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
Notes to the consolidated financial statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
General information
Basis of preparation
Operating segments
Revenue
Expenses
Income tax
Cash and cash equivalents
Trade and other receivables
Contract assets
Note 10.
Property, plant and equipment
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Note 16.
Note 17.
Note 18.
Note 19.
Right-of-use assets
Intangibles
Trade and other payables
Derivative financial instruments
Contract liabilities
Borrowings
Lease liabilities
Employee benefits
Earn-out liability
Note 20.
Issued capital
Note 21.
Note 22.
Note 23.
Note 24.
Note 25.
Note 26.
Note 27.
Note 28.
Note 29.
Reserves
Accumulated losses
Dividends
Financial instruments
Fair value measurement
Key management personnel disclosures
Remuneration of auditors
Contingent liabilities
Related party transactions
Note 30.
Parent entity information
Note 31.
Note 32.
Note 33.
Note 34.
Note 35.
Note 36.
Note 37.
Note 38.
Business combinations
Interests in subsidiaries
Deed of cross guarantee
Cash flow information
Earnings per share
Share-based payments
Other information
Events after the reporting period
Directors’ declaration
Independent auditor’s report
82
83
84
85
86
86
86
88
90
92
95
98
98
100
100
102
103
108
108
109
110
112
112
113
114
115
117
117
118
122
124
124
125
125
125
126
129
130
132
133
134
140
140
141
142
l
i
a
c
n
a
n
F
i
t
r
o
p
e
r
Appen 2021 Annual Report
81
Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2021
Services revenue
Other income
Interest income calculated using the effective interest method
Recovery of impairment of receivables
Net foreign exchange gain
Expenses
Crowd labelling services
Employee expenses
Share-based payments expense
Depreciation and amortisation expense
Travel expense
Professional fees
Restructure costs
Communication expense
Transaction costs
Deemed interest on earn-out liability
Figure Eight earn-out adjustment
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 (loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive loss for the year, net of tax
Group
Note
2021
US$000
Restated
2020
US$000
4
8
5
5
5
5
19
447,154
412,638
110
10
–
–
106
212
40
4,660
(268,378)
(236,091)
(71,015)
(516)
(35,038)
(271)
(7,088)
(2,256)
(1,068)
(2,729)
(657)
–
(1,176)
(71,659)
(12,537)
(27,923)
(689)
(8,241)
–
(837)
(807)
(853)
2,559
–
(19,835)
(14,392)
5
(1,372)
(1,647)
35,875
44,539
6
21
(7,356)
(8,907)
28,519
35,632
(1,579)
(3,609)
(1,579)
(3,609)
Total comprehensive income for the year attributable to the owners of Appen Limited
26,940
32,023
Basic earnings per share
Diluted earnings per share
Cents
23.19
22.85
Cents
29.30
28.81
35
35
The above should be read in conjunction with the accompanying notes. The restated numbers should be read in conjunction with the “Change
in accounting policies” outlined in note 2.
82
Consolidated statement of financial position
as at 31 December 2021
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivative financial instruments
Income tax refund due
Prepayment
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangibles
Deferred tax
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Derivative financial instruments
Contract liabilities
Lease liabilities
Employee benefits
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Deferred tax
Employee benefits
Earn-out liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Group
Note
2021
US$000
Restated
2020
US$000
7
8
9
14
6
31
10
11
12
6
13
14
15
17
18
16
17
6
18
19
20
21
22
47,878
89,243
10,471
–
8,963
3,729
2,481
60,488
50,611
31,516
1,479
8,289
2.423
–
162,765
154,806
3,118
13,557
314,788
4,060
629
336,152
498,917
41,609
816
16,076
5,004
3,030
73
3,973
17,993
275,796
8,240
801
306,803
461,609
44,168
–
7,458
5,036
3,261
77
66,608
60,000
–
10,056
11,602
420
18,359
40,437
107,045
391,872
262,917
132,972
(4,017)
391,872
–
14,432
13,057
436
–
27,925
87,925
373,684
262,917
114,784
(4,017)
373,684
The above should be read in conjunction with the accompanying notes. The restated numbers should be read in conjunction with the “Change
in accounting policies” outlined in note 2.
Appen 2021 Annual Report
83
Consolidated statement of changes in equity
for the year ended 31 December 2021
Group
Issued
Capital
US$000
Reserves
US$000
Accumulated
Losses
US$000
Total equity
US$000
Balance at 1 January 2021 (restated)
262,917
114,784
(4,017)
373,684
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive (loss)/income for the year
Transfer between reserves
Transactions with owners in their capacity as owners:
Share-based payments
Dividends paid (note 23)
–
–
–
–
–
–
–
28,519
(1,579)
–
28,519
(1,579)
(1,579)
28,519
26,940
28,519
(28,519)
–
516
(9,268)
–
–
516
(9,268)
Balance at 31 December 2021
262,917
132,972
(4,017)
391,872
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 (loss)/income for the year
Transfer between reserves
Transactions with owners in their capacity as owners:
Share-based payments
Dividends paid (note 23)
Issued
Capital
(Restated)
US$000
Reserves
(Restated)
US$000
Accumulated
Losses
(Restated)
US$000
Total equity
(Restated)
US$000
262,917
77,764
(4,017)
336,664
–
–
–
–
–
–
–
35,632
(3,609)
–
35,632
(3,609)
(3,609)
35,632
32,023
35,632
(35,632)
–
12,416
(7,419)
–
–
12,416
(7,419)
Balance at 31 December 2020
262,917
114,784
(4,017)
373,684
The above should be read in conjunction with the accompanying notes. The restated numbers should be read in conjunction with the “Change
in accounting policies” outlined in note 2.
84
Consolidated statement of cash flows
for the year ended 31 December 2021
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 strategic acquisitions, net of cash acquired
Transaction costs
Payments for property, plant and equipment
Payments for intangibles
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payments for lease liabilities
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Group
Note
2021
US$000
Restated
2020
US$000
434,261
413,589
(374,170)
(335,632)
60,091
10
(629)
(5,549)
77,957
212
(1,323)
(12,119)
34
53,923
64,727
31
10
12
16
16
23
(24,999)
(2,729)
(1,301)
(21,794)
(27,011)
(807)
(1,877)
(19,130)
(50,823)
(48,825)
10,000
27,011
(10,000)
(23,473)
(4,877)
(9,268)
(4,279)
(7,419)
(14,145)
(8,160)
(11,045)
60,488
(1,565)
7,742
52,799
(53)
Cash and cash equivalents at the end of the financial year
7
47,878
60,488
The above should be read in conjunction with the accompanying notes. The restated numbers should be read in conjunction with the “Change
in accounting policies” outlined in note 2.
Appen 2021 Annual Report
85
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 1. General information
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 United States (US) dollars, which is Appen Limited’s
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 2022.
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 on a accruals basis and are based on the historical cost convention, except for,
derivative financial instruments, earn-out contingent consideration 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 the assumptions and estimates are significant to the financial statements are disclosed
in 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.
Change in accounting policies
Material accounting policies adopted in the preparation of these financial statements are presented alongside the relevant
notes. The accounting policies adopted are consistent with those of the previous years, except for the following:
(i) Change in reporting currency
The Directors have elected to change the Group’s presentation currency from Australian dollars to US dollars effective from
1 January 2021. The change in presentation currency is a voluntary change which is accounted for retrospectively. The financial
report has been presented or restated in US dollars, using the procedures outlined below. The financial information presented
in this report, including comparative financial information, are reported in US dollars, using the following methodology:
•
The consolidated statement of profit or loss and consolidated statement of cash flows have been translated into US dollars
using average foreign currency rates for the year.
• Assets and liabilities in the consolidated statement of financial position have been translated into US dollars at the closing
foreign currency rates on the relevant balance sheet date, being an AUS/USD exchange rate of 0.7261 at 31 December 2021
and 0.7709 at 31 December 2020.
The equity section of the consolidated statement of financial position has been translated into US dollars using historical
rates at transaction date.
Earnings per share (EPS) and dividend disclosures have also been restated to US dollars to reflect the change in
presentation currency.
•
•
86
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 2. Basis of preparation (continued)
(ii) Change in accounting treatment for configuration costs incurred associated with the
implementation of Appen’s primary cloud-based ERP system
During the year, IFRIC (International Financial Reporting Interpretations Committee) issued a final agenda decision titled
Configuration or customisation costs in a cloud computing arrangement (IAS 38 Intangible Assets) 1, which, in most cases,
requires customers to expense implementation costs (including configuration, data conversion, migration, testing and training
costs) associated with the configuration and customisation of cloud-based systems, when the services are received, so long
as those services are distinct from the Software as a Service (SaaS) itself.
The Group’s accounting policy has historically been to capitalise all costs relating to SaaS arrangements as an intangible asset,
and to amortise these costs over the period of their expected benefit, being their finite life of seven years.
The Group has applied the IFRIC decision for the current and comparative year and changed its accounting policy, such that
configuration costs incurred by the Group, associated with cloud-based SaaS arrangements, will be treated as an operating
expense. In these financial statements, previously amortised expenses, in the current and comparative year, associated with the
ERP implementation, will be reversed and the associated written down value as at 1 January 2020 (the start of the comparative
year) will be expensed, as incurred, as shown below:
Impact of changes in accounting policy (net of tax)
As previously
reported
(US$000)
Impact of
change
(US$000)
As restated
(US$000)
Reserves balance as at 1 January 2020
Depreciation and amortisation expense for the year ended 31 December 2020
79,030
(28,283)
(1,266) 1
77,764
360 2
(27,923)
Intangibles balance as at 31 December 2020 (refer to note 12)
277,055
(1,259)
275,796
1 $1,266,000 was the unamortised balance, net of tax, of the ERP system as at 1 January 2020, which was retrospectively expensed at the
commencement of the prior year.
2 $360,000 was the amortisation expense attributed to the ERP system for the year ended 31 December 2020 that was reversed. This reversal
has been applied evenly over the year.
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
to the nearest thousand US dollars, or in certain cases, the nearest US dollar.
New, revised or amended Accounting Standards
The Group has adopted all of the new, revised or amended Accounting Standards and Interpretations issued by the AASB that
are mandatory for the current reporting period.
Any new, revised or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
1 This agenda decision followed the previous agenda decision titled Customer’s right to receive access to the supplier’s software hosted
on the Cloud (issued in March 2019) – which considered whether a customer receives a software asset at the contract commencement date
or a service over the contract term.
Appen 2021 Annual Report
87
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 3. Operating segments
During the year, Appen undertook a restructure of its business units to provide its customers with an enhanced product‑led and
customer centric offering, thus aligning our business to market opportunities and customer needs. The new operating segments,
in place for the first time for the year ended 31 December 2021 are:
•
•
The Global Services segment: which represents the services the Group provides to our five major US technology customers
using their data annotation platforms and tools.
The New Markets segment: which represents our product‑led businesses, including the work we do for our Global
customers using Appen’s annotation products, and our Enterprise, Government and China businesses. New Markets also
includes Quadrant.
These operating segments are based on the internal reports that are provided to the CEO in his capacity as the Chief Operating
Decision Maker (CODM) of the Appen Group, in order to assess performance and growth of the business and to determine
where to allocate resources. The CODM reviews a set of financial reports which covers EBITDA (earnings before interest, tax,
depreciation and amortisation), underlying EBITDA, revenue and operating segment reports on a monthly basis. The accounting
policies adopted for internal reporting to the CEO/CODM are consistent with those adopted in this financial report.
Major customers
During the year ended 31 December 2021, approximately 87.0% (31 December 2020: 88.9%) of the Group’s revenue was derived
from sales to the largest five customers.
Segment information
The following tables show revenue and EBITDA for the new reportable segments for the year ended 31 December 2021 and
31 December 2020. The revenue and segment profit for the New Markets segment includes the contribution from Quadrant,
following its acquisition on 13 September 2021. Refer to note 31 for more details relating to the acquisition.
88
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 3. Operating segments (continued)
31 December 2021
Services revenue
Interest
Other income
Total revenue & other income
Segment EBITDA
Share based payment – employees
Foreign exchange loss
Group underlying EBITDA
Depreciation and amortisation
Restructure costs
Deemed interest on earn‑out liability
Net interest expense
Transaction costs
Cloud computing costs
Acquisition‑related share based payments
Profit before income tax
Income tax expense
Profit after income tax expense
31 December 2020 (restated)
Services revenue
Interest
Other income
Total revenue & other income
Segment EBITDA
Share based payment – employees
Foreign exchange gain
Group underlying EBITDA
Transaction costs
Depreciation and amortisation
Figure Eight earn‑out adjustment
Acquisition‑related share based payments
Deemed interest on earn‑out liability
Net interest expense
Profit before income tax
Income tax expense
Profit after income tax expense
Global
Services
US$000
New Markets
US$000
Corporate
(Unallocated)
US$000
344,679
102,475
–
–
–
–
–
10
110
Total
US$000
447,154
10
110
447,274
91,156
(11,523)
–
79,633
Global
Services
US$000
New Markets
US$000
Corporate
(Unallocated)
US$000
328,143
84,495
–
34
2
26
328,177
84,523
88,269
(7,484)
–
210
86
296
90
(773)
(1,176)
77,684
(35,038)
(2,256)
(657)
(1,362)
(2,729)
(24)
257
35,875
(7,356)
28,519
Total
US$000
412,638
212
146
412,996
80,875
(10,096)
4,660
75,439
(807)
(27,923)
2,559
(2,441)
(853)
(1,435)
44,539
(8,907)
35,632
Appen 2021 Annual Report
89
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 3. Operating segments (continued)
Geographical information
Australia
US
Other countries
Note 4. Revenue
Services revenue
Disaggregation of services revenue
Sales income
Geographical
non-current assets
2021
US$000
Restated
2020
US$000
2021
US$000
Restated
2020
US$000
1,332
5,436
46,269
1,394
412,876
399,657
275,660
285,979
32,946
7,545
9,534
10,565
447,154
412,638
331,463
297,938
2021
US$000
Restated
2020
US$000
447,154
412,638
Services revenue is disaggregated by the type of service and whether the revenue is derived from use of our products and tools
(New Markets) or the customers’ platform (Global Services).
31 December 2021
Revenue – Global Services segment
Revenue – New Markets segment
Total revenue
31 December 2020 (Restated)
Revenue – Global Services segment
Revenue – New Markets segment
Total revenue
Global
customers
US$000
New Markets
customers
US$000
Corporate
(Unallocated)
US$000
344,679
41,652
386,331
–
60,823
60,823
–
–
–
Global
customers
US$000
New Markets
customers
US$000
Corporate
(Unallocated)
US$000
328,143
45,368
373,511
–
39,127
39,127
–
–
–
Total
US$000
344,679
102,475
447,154
Total
US$000
328,143
84,495
412,638
The revenue generated from New Markets customers and segment includes the contribution from Quadrant, following
its acquisition on 13 September 2021. Refer to note 31 for more details.
90
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 4. Revenue (continued)
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 delivering collected or annotated data.
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 provision of managed services or revenue derived from use of platform and tools.
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
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 US dollars using the exchange rates prevailing at the date of the
transaction. 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
(i.e. non US dollars) are recognised in profit or loss.
Appen 2021 Annual Report
91
Notes to the consolidated financial statements
for the year ended 31 December 2021
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
Product development
Other intangibles
Amortisation sub-total
Amortisation – acquisition related:
Product development
Customer relationships
Brand
Customer contracts
Amortisation – acquisition related sub-total
Group
2021
US$000
Restated
2020
US$000
751
168
1,091
27
5,192
7,229
40
16,025
218
16,283
7,130
4,268
75
53
11,526
629
119
1,151
24
4,683
6,606
13 1
9,533
31
9,577
7,123
4,268
300
49
11,740
Total depreciation and amortisation
35,038
27,923
1 Systems implementation configuration costs associated with the implementation of the ERP system are no longer capitalised and have been
expensed, as a result of a change in accounting policy caused by the IFRIC decision (refer to note 2(ii) for further information). Any associated
amortisation expense has been reversed.
Finance costs
Interest and finance charges paid/payable on borrowings
Interest and finance charges paid/payable on lease liabilities
Group
2021
US$000
Restated
2020
US$000
629
743
768
879
1,372
1,647
92
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 5. Expenses (continued)
Share-based payments expense
Share-based payment – employees
Share based payment – acquisition related:
Share‑based payment in respect of Figure Eight acquisition
Share‑based payment in respect of Leapforce acquisition
Share based payment – acquisition related sub‑total
Total share‑based payments expense
Group
2021
US$000
Restated
2020
US$000
773 1
10,096
(257) 1
–
(257)
1,286
1,155
2,441
516
12,537
1 The expense has reduced, as it includes a true‑up adjustment of share‑based payments expense in relation to specific (non‑market) hurdles
of the 2020 and 2021 Long‑Term Incentive Plans, based on management’s assessment of achieving these hurdles.
Transaction costs
Strategic consulting costs
Integration costs
Transaction costs related to the Quadrant acquisition
Other
Total transaction costs
Employee expenses
Defined contribution superannuation expense
Employee expenses
Total employee expenses
Group
2021
US$000
Restated
2020
US$000
1,484
20
1,116
109
2,729
–
651
–
156
807
Group
2021
US$000
Restated
2020
US$000
917
70,098
3,946
67,713
71,015
71,659
Appen 2021 Annual Report
93
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 5. Expenses (continued)
Accounting policy
Depreciation expense
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. The share‑based payments expense is based
on expected targets and hurdles.
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.
94
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 6. Income tax
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:
Share-based payments
Deferred tax adjustments on intangible assets
Figure Eight earn-out payments adjustment
Non-deductible transaction costs related to acquisition
Exchange differences
Sundry items
Adjustment recognised for prior periods
Difference in overseas tax rates
Income tax expense
Group
2021
US$000
Restated
2020
US$000
3,381
3,587
1,402
(1,014)
(55)
10,524
3,889
(5,451)
7,356
8,907
4,114
(5,152)
(1,540)
10,095
2,574
4,943
35,875
44,539
10,763
13,362
(1,533)
(1,419)
–
348
2
–
(696)
(108)
(458)
–
(803)
(42)
8,161
11,255
388
(1,193)
(1,463)
(885)
7,356
8,907
Appen 2021 Annual Report
95
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 6. Income tax (continued)
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Tax losses – China1
Revenue received in advance
Employee benefits
Accrued expenses
Transaction costs
Other expenses and exchange differences
Deferred tax asset
Movements:
Opening balance
(Debited)/credited to profit or loss
Exchange differences
Closing balance
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax loss from Figure Eight acquisition 2
Intangible assets
Revenue received in advance
Other expenses and exchange differences
Deferred tax liability
Movements:
Opening balance
Credited to reserves – cloud computing costs (refer to note 2(ii))
(Debited)/credited to profit or loss
Exchange differences
Closing balance
Group
2021
US$000
Restated
2020
US$000
–
2,489
1
690
150
–
730
4,060
8,240
(4,114)
(66)
4,060
231
–
–
4,909
214
2,021
865
8,240
2,790
5,102
348
8,240
Group
2021
US$000
Restated
2020
US$000
(958)
16,467
1,591
(5,498)
(6,403)
16,097
1,649
1,714
11,602
13,057
13,057
–
(1,540)
85
2,813
(353)
10,193
404
11,602
13,057
1 Losses expire after five years. Sufficient profits are forecast to fully utilise the tax losses within the next five years.
2 Estimated tax losses relating to Figure Eight to be applied to future periods amounts to $19.9 million, of which $4.9 million has been recognised
as a deferred tax asset. Sufficient profits are forecast to fully offset this deferred tax asset against tax losses in the next five years.
96
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 6. Income tax (continued)
Income tax refund due
Group
2021
US$000
Restated
2020
US$000
8,963
8,289
Critical accounting judgements, estimates and assumptions
The Group is subject to tax in numerous jurisdictions. 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, and reflects uncertainty in income taxes, if any.
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.
Appen 2021 Annual Report
97
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 7. Cash and cash equivalents
Current assets
Cash on hand
Cash at bank
Group
2021
US$000
Restated
2020
US$000
3
1
47,875
60,487
47,878
60,488
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
Trade receivables
Less: Allowance for expected credit losses
Other receivables
GST receivable
Group
2021
US$000
Restated
2020
US$000
87,546
49,390
(242)
(622)
87,304
48,768
1,860
79
1,503
340
89,243
50,611
The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short‑term nature
of the balances. The increase in trade receivables at 31 December 2021 was due to increased volumes in the last two months
of the year and that the December month billing milestone aligned with the reporting period at 31 December 2021, whereas for
the comparative period, the billing milestone was only satisfied after the 31 December reporting period and hence classified
as a contract asset under note 9.
Impairment and allowance for expected credit losses
At 31 December 2021, the Group has recognised a provision of $242,000 (2020: $622,000) in respect of the impairment
of receivables.
98
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 8. Trade and other receivables (continued)
The ageing of the receivables and allowance for expected credit losses provided for are as follows:
Group
Not overdue
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
Carrying amount
2021
US$000
83,092
3,667
553
234
Restated
2020
US$000
33,858
12,230
3,085
217
87,546
49,390
Allowance for expected
credit losses
2021
US$000
Restated
2020
US$000
–
–
8
234
242
–
–
405
217
622
Movements in the allowance for expected credit losses are as follows:
Opening balance
Amounts provided for during the year as uncollectable
Amounts reversed
Closing balance
Group
2021
US$000
Restated
2020
US$000
622
(211)
(169)
242
720
(58)
(40)
622
Critical accounting judgements, estimates and assumptions
The allowance for expected credit losses assessment requires a degree of estimation and judgement, based on review
and circumstances of each amount overdue including recent sales experience and historical collection rates and
forward-looking information that is available.
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.
Management is of the view that past models and historical experience may not represent current expectations, and
greater reliance is placed on up-to-date information about the circumstances about each debtor.
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.
Appen 2021 Annual Report
99
Notes to the consolidated financial statements
for the year ended 31 December 2021
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 is set out below
Balance at 1 January
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – 30 June 1
Balance at 30 June
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – 31 December 1
Group
2021
US$000
Restated
2020
US$000
10,471
31,516
31,516
(31,516)
28,177
28,177
(28,177)
10,471
5,531
(5,531)
21,125
21,125
(21,125)
31,516
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 reduction in contract assets
at 31 December 2021 relates to the fact that for many invoices, the last day of the billing period aligned with the 31 December 2021 reporting
period, and hence these invoices are reflected as part of trade receivables (refer to note 8).
Note 10. 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
100
Group
2021
US$000
Restated
2020
US$000
3,915
(2,898)
1,017
1,183
(870)
313
6,166
(4,411)
1,755
182
(149)
33
3,851
(2,255)
1,596
1,197
(759)
438
5,327
(3,447)
1,880
188
(129)
59
3,118
3,973
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 10. Property, plant and equipment (continued)
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 2020 (Restated)
Additions
Disposals
Exchange differences
Depreciation expense (Restated)
Balance at 31 December 2020 (Restated)
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2021
Leasehold
improvements
US$000
Fixtures
and fittings
US$000
Computer
equipment
US$000
Audio
equipment
US$000
Total
US$000
1,645
520
–
60
(629)
1,596
226
(9)
(45)
(751)
1,017
479
73
–
5
(119)
438
1
–
42
(168)
313
1,741
1,246
(1)
45
(1,151)
1,880
1,072
(34)
(72)
(1,091)
1,755
46
38
–
(1)
(24)
59
2
–
(1)
(27)
33
3,911
1,877
(1)
109
(1,923)
3,973
1,301
(43)
(76)
(2,037)
3,118
Critical accounting judgements, estimates and assumptions
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation charges for its property, plant and equipment.
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
Fixtures and fittings
Computer equipment
Audio equipment
Over the lease term
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.
Appen 2021 Annual Report
101
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 11. Right-of-use assets
Non-current assets
Land and buildings – right‑of‑use
Less: Accumulated depreciation
Reconciliations
Group
2021
US$000
Restated
2020
US$000
25,944
(12,387)
25,426
(7,433)
13,557
17,993
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 2020 (Restated)
Additions
Disposals
Exchange differences
Depreciation expense (Restated) (refer to note 5)
Balance at 31 December 2020 (Restated)
Additions
Exchange differences
Depreciation expense (refer to note 5)
Balance at 31 December 2021
Land and
buildings
US$000
15,377
7,092
(257)
464
(4,683)
17,993
1,022
(266)
(5,192)
13,557
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;
• 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.
102
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 12. Intangibles
Non-current assets
Goodwill – at cost
Systems implementation – at cost
Less: Accumulated amortisation
Product 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
2021
US$000
Restated
2020
US$000
247,654
202,595
1,515
(1,293)
222
1,320
(1,253)
67
100,873
80,299
(50,515)
(27,224)
50,358
53,075
31,500
(16,398)
15,102
31,500
(12,130)
19,370
600
(600)
–
2,372
(2,372)
–
1,935
(483)
1,452
600
(525)
75
2,372
(2,319)
53
910
(349)
561
314,788
275,796
Appen 2021 Annual Report
103
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 12. 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:
Group
Balance at
1 January 2020
(Restated)
Additions
Additions
through business
combinations
Exchange
differences
Amortisation
expense
Balance at
31 December 2020
(Restated)
Additions
Additions related
to business
combinations
(refer to note 31)
Exchange
differences
Amortisation
expense
Balance at 31
December 2021
Systems
imple-
mentation
US$000
Product
devel-
opment
US$000
Customer
relation-
ships
US$000
Goodwill
US$000
Brand
US$000
Customer
contracts
US$000
Other
intangibles
US$000
Total
US$000
202,549
–
–
46
–
43
37
–
–
51,038
18,712
–
(19)
23,638
375
102
–
–
–
–
–
–
–
–
–
204
381
277,949
19,130
–
7
–
34
(13)
(16,656)
(4,268)
(300)
(49)
(31)
(21,317)
202,595
–
67
195
53,075
20,574
45,446
(387)
–
–
–
(136)
19,370
–
–
–
75
–
–
–
53
–
–
–
561
275,796
1,025
21,794
–
45,446
84
(439)
–
(40)
(23,155)
(4,268)
(75)
(53)
(218)
(27,809)
247,654
222
50,358
15,102
–
–
1,452
314,788
Goodwill includes the provisional goodwill associated with the Quadrant acquisition. The provisional goodwill value will be
adjusted at 30 June 2022 to reflect new information obtained relating to the valuation of Quadrant’s net assets, mainly relating
to the valuation of separately identifiable acquisition-related intangibles.
Prior year numbers for systems implementation have been adjusted for the change in accounting policy associated with
configuration costs incurred with respect to the implementation of our primary ERP system (refer to note 2(ii) for further information).
The additions for product development during the year relate to continued investment by Appen, in development and
enhancement of its products and tools, to drive growth, scale and cost efficiency.
104
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 12. Intangibles (continued)
Impairment of assets and allocation of goodwill to cash-generating units (CGUs)
Goodwill associated with each strategic acquisition made by the Group has been allocated for impairment testing purposes
to CGUs. The CGUs have been determined based on the expected synergies that each acquisition provides the Group, by making
an assessment of those parts of the business that are expected to benefit and identifying the independent cash flows associated
with each part of the business.
Following the corporate restructure and the associated changes to operating segments, that were announced during the year
(as outlined in the Directors’ report), there has been a change in how performance and growth of the business is measured and
monitored. This has resulted in a change in the Group’s CGUs, and hence a change in the manner in which impairment testing
of goodwill associated with each acquisition has been performed, with the recoverable amount based on separately identifiable
cash inflows based on these new CGUs.
Goodwill associated with the acquisitions of Quadrant Global Pte Ltd (“Quadrant”), Figure Eight Technologies Inc (“Figure Eight”)
and Mendip Media Group Limited (“Mendip”) have been allocated to the New Markets (ex-China) CGU.
Goodwill associated with the acquisitions of Butler Hill, Leapforce Inc and RaterLabs Inc (“Leapforce”) has been allocated
to the Global Services CGU.
Quadrant, Figure Eight and Mendip (New Markets ex-China CGU)
Goodwill associated with the acquisition of Quadrant, Figure Eight and Mendip have been allocated for impairment testing
against the New Markets (ex-China) CGU, based on the goodwill calculated at time of acquisition. Value in use was determined
by discounting the future cash flows to be generated by the New Markets (ex-China) CGU and is based on the following
key assumptions:
• Cash flows were projected based on forecast operating results over the five year period to 31 December 2026, derived
by applying downward sensitivity adjustments to Appen’s five-year plan approved by the Board;
• Average annual revenue growth rate of 23.3% from the current year to 2026. This includes revenue growth resulting from
an increase in our addressable market resulting from the use of Quadrant’s geolocation and POI data capabilities, which will
expand our product and service offering to our customer-base and offer new growth opportunities. Average annual revenue
growth rate excluding Quadrant is 19.1% from the current year to 2026. Growth rates were referenced against our view of
the growth rate for each business unit that comprises the New Markets CGU (ex China), being Global Product, Enterprise,
Government and Quadrant, and the long-term growth rate of the AI industry. We have considered the impact of the COVID-19
pandemic in determining these projected revenue growth rates. All future years of the model use a constant growth rate of 3%;
•
Low case model estimates of the digitisation and business transformation benefits to be achieved over the next five years; and
• A pre-tax discount of 13.8% based on the weighted average cost of capital.
The goodwill carrying value of $194,504,000 (2020: restated $149,442,000) has been allocated to the New Markets (ex-China)
CGU and includes the goodwill carrying value at 31 December 2021, associated with the Quadrant acquisition. At 31 December
2021, the recoverable amount, being the net amount of discounted future cash flows, exceeds the carrying value of assets in the
New Markets (ex-China) CGU.
Management has assessed that the average annual revenue growth rate from the current year to 2026 to result in a break-even
point is 12.7% per annum (i.e. where the recoverable amount of the discounted future cash flows equals the carrying value of the
net assets of the New Markets (ex-China) CGU), in isolation of changes in other new assumptions.
Appen 2021 Annual Report
105
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 12. Intangibles (continued)
Butler Hill, Leapforce and RaterLabs (Global Services CGU)
Goodwill associated with the acquisition of Butler Hill, Leapforce and RaterLabs have been allocated for impairment testing
against the Global Services CGU, based on the goodwill calculated at time of acquisition. Value in use was determined by
discounting the future cash flows to be generated by the Global Services CGU and is based on the following key assumptions:
• Cash flows were projected based on forecast operating results over the five year period to 31 December 2026, derived
by applying downward sensitivity adjustments to Appen’s five-year plan approved by the Board;
• Average annual net revenue growth rate of 8.9% from the current year to 2026. 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 revenue
growth rate of 3%;
•
Low case model estimates of the digitisation and business transformation benefits to be achieved over the next five years; and
• A pre-tax discount of 13.8% based on the weighted average cost of capital.
The goodwill carrying value of $53,150,000 (2020: restated $53,153,000) has been allocated to the Global Services CGU.
At 31 December 2021, the recoverable amount, being the net amount of discounted future cash flows, exceeds the carrying
value of assets in the Global Services CGU.
For the Global Services CGU, no reasonable possible change in key assumptions would result in impairment.
Critical accounting judgements, estimates and assumptions
Capitalisation of product development costs
The Group uses a degree of judgement in order to determine if product development costs satisfy the recognition and
measurement criteria to be capitalised as an asset in accordance with AASB 138 Intangible Assets. This includes the use
of Appen’s project management system to tag each project undertaken by the engineering team, as either new feature
development or maintenance.
Goodwill and other indefinite life intangible assets
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether
goodwill and other indefinite life intangible assets have suffered any impairment. The operating segments, and hence
cash generating units, changed during the year. As a result, the recoverable amounts of cash-generating units were
recalculated based on value-in-use calculations. These calculations required the use of assumptions, including
assumptions relating to future revenue growth, discount rates based on the current cost of capital and growth rates
of estimated future cash flows.
Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets for
each cash-generating unit at each reporting date by evaluating conditions specific to the Group and to the particular
asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined.
This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates
and assumptions.
Accounting policy
General
Expenditure on research activities is recognised as an expense when incurred.
Development costs (for example, product 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.
106
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 12. 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. However, configuration costs associated with the implementation
of cloud‑based ERP systems are expensed as incurred. Refer to note 2(ii) for further information.
Product development
Product 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
technology is activated and is used either internally or externally. The capitalised costs include directly attributable costs
relating to product development, such as employment costs of the engineering team, product hosting services, external
consultants and IT software and hardware.
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 ten 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.
Customer contracts
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 seven years.
Off‑the‑shelf databases are internally generated intangibles and are capitalised only if they meet all of the criteria stated
in the accounting policy section with respect to the accounting policy associated with 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.
Appen 2021 Annual Report
107
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 13. Trade and other payables
Current liabilities
Trade payables
Other payables and accrued expenses
Group
2021
US$000
Restated
2020
US$000
25,311
16,298
21,804
22,364
41,609
44,168
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 14. Derivative financial instruments
Group
2021
US$000
Restated
2020
US$000
Current liabilities/(assets)
Forward foreign exchange contracts – cash flow hedges
816
(1,479)
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.
108
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 15. Contract liabilities
Group
2021
US$000
Restated
2020
US$000
Current liabilities
Invoices issued/deposits received in advance
16,076
7,458
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 to revenue
Additions related to business combinations (refer to note 31)
Revaluation and fair value amortisation relating to Figure Eight
Closing balance
7,458
19,671
15,516
14,462
(16,912)
(22,261)
5,279
580
–
(259)
16,076
7,458
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 $16,076,000 as at 31 December 2021 ($7,458,000 as at 31 December 2020) and is expected
to be recognised as revenue in future periods as follows:
Less than 3 months
Over 3 months
Group
2021
US$000
5,186
10,890
Restated
2020
US$000
1,704
5,754
16,076
7,458
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 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.
Appen 2021 Annual Report
109
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 16. Borrowings
Non-current liabilities
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2021
US$000
Restated
2020
US$000
–
–
–
–
–
–
–
–
Movements in each class of borrowings during the current and previous financial year, are set out below:
Facility B (Working capital)
During the year, the Group drew down, and subsequently repaid, US$10,000,000 to assist with a working capital shortfall due
to timing delays around cash collections from invoices, due to implementation of a new payables and procurement platform
at a major customer.
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
2021
US$000
Restated
2020
US$000
–
–
–
–
–
–
–
27,011
(2,862)
(676)
(23,473)
–
No amount was borrowed to fund the upfront consideration of $25,268,000, which respect to the Quadrant acquisition, which
was funded from the Group’s existing cash reserves.
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.
Facility B
This facility was established in December 2017 and varied in April 2019, with a limited of AU$20 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.
The facility is available to assist with the funding for general corporate and working capital needs of the Group (including
transaction costs) and excludes funding of any permitted acquisition. The facility attracts interest at a margin over bank
reference rates, based on the net leverage ratio.
110
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 16. Borrowings (continued)
Facility C
The facility was established in April 2019 with an initial 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 prior 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.
The facility was not used to fund the upfront consideration of $25,268,000, which respect to the Quadrant acquisition, which
was funded from the Group’s existing cash reserves.
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
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
2021
US$000
Restated
2020
US$000
20,000
20,000
14,525
24,137
58,662
15,418
24,137
59,555
–
–
–
–
–
–
–
–
20,000
20,000
14,525
24,137
58,662
15,418
24,137
59,555
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.
Appen 2021 Annual Report
111
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 17. Lease liabilities
Current liabilities
Lease liability
Non-current liabilities
Lease liability
Group
2021
US$000
Restated
2020
US$000
5,004
5,036
10,056
14,432
Per AASB 16, the Group has recognised the financial liabilities representing the obligation to make future lease payments across
the lease contract terms.
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 2022.
Note 18. Employee benefits
Group
2021
US$000
Restated
2020
US$000
3,030
3,261
420
436
Current liabilities
Annual leave
Non-current liabilities
Long service leave
112
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 18. Employee benefits (continued)
Accounting policy
Short-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
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. Earn-out liability
Earn-out liability
Group
2021
US$000
18,359
Restated
2020
US$000
–
At 31 December 2021, the present value of the deferred consideration on the earn-out liability associated with the acquisition
of Quadrant was $17,702,000 and the deemed interest on the earn-out liability was $657,000. The deemed interest is disclosed
in the consolidated income statement.
Appen 2021 Annual Report
113
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 20. Issued capital
Group
2021
Shares
2020
Shares
2021
US$000
Restated
2020
US$000
Ordinary shares – fully paid
123,074,916
122,345,605
262,917
262,917
Movements in ordinary share capital
Details
Balance
Date
Shares
US$000
31 December 2019
121,107,755
262,917
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
262,917
Issue of share on exercise of performance rights
25 February 2021
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
6 April 2021
28 June 2021
668,527
53,750
7,034
–
–
–
Balance
31 December 2021
123,074,916
262,917
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.
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.
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.
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 may raise capital to fund a strategic investment or acquisition. The acquisition of Quadrant did not require the raising
of capital to fund the up-front consideration.
The capital risk management policy remains unchanged from the prior year.
114
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 20. Issued capital (continued)
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
Common control reserve
Group
2021
US$000
(1,307)
(6,728)
27,719
111,286
2,002
Restated
2020
US$000
(1,307)
(5,149)
27,203
92,035
2,002
132,972
114,784
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 US dollars.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees as part of their remuneration.
Profits reserve
The Profits reserve represents current year profits transferred to a reserve to quarantine these profits from being appropriated
against prior year accumulated losses. Such profits are available for the payment of future dividends.
Other reserves
This reserve represents the equity settled portion of contingent consideration together with any capital raising expenses that
were allocated to equity, in connection with the acquisition of Butler Hill.
Appen 2021 Annual Report
115
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 21. Reserves (continued)
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 2020
(Restated)
Foreign currency translation
Share-based payments
Transfer from accumulated losses
Dividends paid
Balance at 31 December 2020
(Restated)
Foreign currency translation
Share-based payments
Transfer from accumulated losses
Dividends paid
Common
control
US$000
Foreign
currency
translation
US$000
Share-based
payments
US$000
Profits
US$000
Other
US$000
Total
US$000
(1,307)
–
–
–
–
(1,307)
–
–
–
–
(1,540)
(3,609)
–
–
–
(5,149)
(1,579)
–
–
–
14,787
63,822
2,002
–
12,416
–
–
–
–
35,632
(7,419)
–
–
–
–
77,764
(3,609)
12,416
35,632
(7,419)
27,203
92,035
2,002
114,784
–
516
–
–
–
–
28,519
(9,268)
–
–
–
–
(1,579)
516
28,519
(9,268)
Balance at 31 December 2021
(1,307)
(6,728)
27,719
111,286
2,002
132,972
Accounting policy
Foreign currency translation reserve
The assets and liabilities of foreign operations are translated into US dollars using the exchange rates at reporting date.
The revenues and expenses of foreign operations are translated into US 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.
Share-based payments reserve
The Group had a number of share-based payment arrangements that were granted to employees during FY21 and earlier
years. The fair value is based on the number of rights granted and expected to vest and the share price at the date
of grant less the present value of the future dividend stream.
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.
116
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 22. Accumulated losses
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:
2020 final dividend of AU 5.5 cents per share
(2020: 2019 final dividend of AU 5.0 cents per share)
2021 interim dividend of AU 4.5 cents per share
(2020: 2020 interim dividend of AU 4.5 cents per share)
Group
2021
US$000
(4,017)
28,519
Restated
2020
US$000
(4,017)
35,632
(28,519)
(35,632)
(4,017)
(4,017)
Group
2021
US$000
Restated
2020
US$000
5,242
3,560
4,026
3,859
9,268
7,419
Dividend declared
On 24 February 2022, the Company declared a final dividend for the year ended 31 December 2021 of AU 5.5 cents per share.
The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend is 1 March 2022
and the payment date is 18 March 2022. The financial effect of these dividends has not been brought to account in the financial
statements for the year ended 31 December 2021 and will be recognised in subsequent financial periods.
Franking credits
Group
2021
US$000
Restated
2020
US$000
Franking credits available for subsequent financial years based on a tax rate of 30%
18
1,011
The above amounts represent the balance of the franking account as at the end of the financial year. The reduction relative
to the prior year relates to the FY20 tax refund which was finalised and received in FY21.
Accounting policy
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
Appen 2021 Annual Report
117
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 24. Financial instruments
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 the CFO 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.
The CFO reports to the Board on a monthly basis.
Market risk
Foreign currency risk
During the year, the Group changed its reporting currency from Australian dollars to United States (US) dollars. The change was
driven by the fact that more than 90% of Appen’s revenue and assets are denominated in US dollars. This change in reporting
currency significantly reduced the Group’s exposure to foreign currency risk. However, the Group is still exposed to some foreign
currency risk, as certain transactions, principally corporate head office expenses and the payment of dividends to shareholders
are denominated in Australian Dollars.
In order to mitigate foreign currency risk, the Group has entered into forward foreign exchange contracts. Appen’s policy
is to hedge at least 80% of its Australian Dollar denominated expenses for a rolling 12 month period.
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:
Purchase Australian dollars
Forward exchange rates
2021
US$000
Restated
2020
US$000
2021
Restated
2020
20,119
4,291
10,077
13,831
–
–
676
–
1.3148
1.3002
1.3615
1.3969
–
–
1.4384
–
–
–
–
9,000
9,000
9,000
–
–
–
1.4600
1.4600
1.4600
FX Forward Contract
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
More than 12 months
FX Option Contract
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
118
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 24. Financial instruments (continued)
The average month end exchange rates and reporting date exchange rates applied were as follows:
United States Dollars
Australian 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
2021
2020
2021
2020
1.3371
0.7275
0.8479
7.7737
49.3593
6.4382
1.4401
0.7760
0.8737
7.7560
49.5137
6.8938
1.3769
0.7400
0.8815
7.7971
51.0424
6.3588
1.2972
0.7325
0.8153
7.7525
47.9874
6.5277
Foreign exchange risk recognises financial assets and financial liabilities denominated in a currency that is not denominated
in US Dollars. The risk is measured using sensitivity analysis.
The carrying amount of the Group’s foreign currency denominated financial assets and financial liabilities at the reporting date
were as follows:
Group
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Philippine Pesos
Chinese Yuan
Japanese Yen
Singapore Dollars
Hong Kong Dollars
Assets
Liabilities
2021
US$000
10,066
1,732
1,304
1,428
7,788
56
20
–
Restated
2020
US$000
2021
US$000
8,339
1,603
1,395
1,549
3,457
–
–
–
722
191
–
436
1,153
16
–
–
Restated
2020
US$000
1,970
274
–
221
20
–
–
13
22,394
16,343
2,518
2,498
The Group had financial net assets denominated in foreign currencies of $19,876,000 (2020: net assets of $13,845,000).
Financial net assets exclude intangibles, fixed assets, intercompany balances and other non-monetary balances.
Appen 2021 Annual Report
119
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 24. Financial instruments (continued)
Based on this exposure, had the US dollar weakened by 10% or strengthened by 10% (2020: 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 purpose, and the
Group’s equity would have been lower or higher as follows:
Group – 2021
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
Japanese Yen
Singapore Dollars
Hong Kong Dollars
Group – 2020
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Philippine Pesos
Chinese Yuan
USD strengthened
Effect on
profit before
tax
US$000
Effect on
equity
US$000
% change
% change
USD weakened
Effect on
profit before
tax
US$000
Effect on
equity
US$000
10%
10%
10%
10%
10%
10%
10%
10%
–
(3)
(130)
–
–
–
(2)
–
(393)
(153)
(47)
(99)
(664)
(4)
–
1
10%
10%
10%
10%
10%
10%
10%
10%
–
3
130
–
–
–
2
–
393
153
47
99
664
4
–
(1)
(135)
(1,359)
135
1,359
USD strengthened
Restated
Effect on
profit before
tax
US$000
Restated
Effect on
equity
US$000
% change
10%
10%
10%
10%
10%
–
(16)
(140)
–
–
(156)
7
(116)
(6)
(133)
(344)
(592)
USD weakened
Restated
Effect on
profit before
tax
US$000
Restated
Effect on
equity
US$000
–
16
140
–
–
156
(7)
116
6
133
344
592
% change
10%
10%
10%
10%
10%
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 holds an immaterial amount of cryptocurrency assets which, prima facie, may be subject to price risk. Given that
all of the cryptocurrency held is a core and integral part of Quadrant’s business operations, as cryptocurrency is used to pay
geolancers and used to pay suppliers, cryptocurrency assets are deemed to be inventory and valued at the lower of cost and
net realisable value, which is the acquisition date fair value. This means that mark to market movements are not reflected in the
group’s statement of financial position or statement of comprehensive income.
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.
At the reporting date, the Group had no borrowings.
120
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 24. Financial instruments (continued)
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.
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 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.
Financing arrangements
Unused borrowing facilities at the reporting date:
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2021
US$000
Restated
2020
US$000
20,000
20,000
14,525
24,137
58,662
15,418
24,137
59,555
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.
Group – 2021
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
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Remaining
contractual
maturities
US$000
–
–
25,311
16,298
–
–
–
–
–
–
25,311
16,298
4.18%
5,214
46,823
3,116
3,116
5,880
5,880
1,917
1,917
16,127
57,736
Appen 2021 Annual Report
121
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 24. Financial instruments (continued)
Group – 2020 (Restated)
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
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Remaining
contractual
maturities
US$000
–
–
21,804
22,364
–
–
–
–
–
–
21,804
22,364
4.30%
5,253
49,421
4,834
4,834
7,727
7,727
3,080
3,080
20,894
65,062
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
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 Group 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 – 2021
Assets
Total assets
Liabilities
Forward foreign exchange contracts
Earn-out liability and associated deemed interest in respect
of the Quadrant acquisition
Total liabilities
Level 1
US$000
Level 2
US$000
Level 3
US$000
Total
US$000
-
-
–
–
–
–
–
816
–
816
–
–
–
18,359
18,359
-
-
816
18,359
19,175
122
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 25. Fair value measurement (continued)
Group – 2020 (Restated)
Assets
Forward foreign exchange contracts
Total assets
Liabilities
Earn-out liability in respect of the Figure Eight acquisition
Total liabilities
There were no transfers between levels during the financial year.
Level 1
US$000
Level 2
US$000
Level 3
US$000
Total
US$000
–
–
–
–
1,479
1,479
–
–
–
–
–
–
1,479
1,479
–
–
The earn-out liability and associated deemed interest in respect of the Quadrant acquisition is classified as level 3, as the liability
is based on an assessment by management of future revenue projections.
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.
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
Group
Balance at 31 December 2019
Additional interest
Figure Eight purchase price adjustment
Figure Eight earn-out liabilities paid out
Foreign exchange translation
Balance at 30 December 2020
Earn-out liability in respect of the Quadrant acquisition
Deemed interest in respect of the Quadrant acquisition
Balance at 31 December 2021
Earn-out
US$000
27,246
846
(2,559)
(23,473)
(2,060)
–
17,702
657
18,359
Accounting policy
When an asset or liability is measured at fair value, the fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
and assumes the transaction will take place either in a principal or advantageous market.
Assets and liabilities measured at fair value are classified into the three levels discussed above. External valuers may
be used for recurring and non-recurring fair value measurements when internal expertise is not available or the amount
is material.
Appen 2021 Annual Report
123
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 26. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Group
2021
US$
Restated
2020
US$
2,278,145
3,077,301
249,609
76,516
106,934
109,730
(503,919)
3,530,370
2.100,351
6,824,335
Detailed remuneration disclosures are contained in the remuneration report section of the director’s report.
Note 27. Remuneration of auditors
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:
Audit and review services – KPMG
Audit or review of the Group’s financial statements
Audit of the Group’s subsidiaries financial statements – network firms
Total audit services
Other services – KPMG
Compliance services – transfer pricing
Other services
Total other services
Total audit and other services
Group
2021
US$
Restated
2020
US$
311,502
234,590
22,163
19,473
333,665
254,063
72,266
22,775
95,041
428,706
75,418
93,664
169,082
423,145
124
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 28. Contingent liabilities
The Group has given bank guarantees as at 31 December 2021 of $613,000 (2020: $472,564) in satisfaction of its performance
obligations with respect to rental premises. In addition, the Group has a contingent consideration and associated deemed
interest liability of $18,359,000, with respect to the Quadrant acquisition, measured at fair value at balance date.
Note 29. Related party transactions
Parent entity
Appen Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 32.
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 associated with the movement of funds between entities in the Group.
Note 30. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
(Loss)/profit after income tax
Total comprehensive (loss)/income
Company
2021
US$000
(4,961)
(4,961)
Restated
2020
US$000
13,615
13,615
Appen 2021 Annual Report
125
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 30. Parent entity information (continued)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share-based payments reserve
Profits and translation reserve
Other reserves
Accumulated losses
Total equity
Company
2021
US$000
2020
US$000
1,393
2,576
288,821
320,849
1,175
1,175
1,119
1,119
287,646
319,730
262,917
262,917
27,719
(975)
2,002
(4,017)
27,203
31,625
2,002
(4,017)
287,646
319,730
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 2021 and
31 December 2020.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2021 and 31 December 2020.
Capital commitments
The parent entity had no material capital commitments as at 31 December 2021 and 31 December 2020.
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.
Note 31. Business combinations
On 13 September 2021, Appen Limited acquired Quadrant Global Pte Ltd (“Quadrant”), a global leader in mobile location
and Point-of-Interest (POI) data, thereby expanding Appen’s addressable market, data capabilities and product offering for
its existing customers and opening new growth opportunities for the delivery of high-quality data to organisations that rely
on geolocation and POI data for their business.
The total consideration included an upfront consideration of $25,268,000 (cash consideration paid on 13 September 2021
adjusted for working capital) and an earn-out payment of up to $20,000,000 in Appen shares to be issued upon achieving
revenue milestones in 2022 and 2023. At acquisition date, the discounted fair value of the earn-out payment was $17,702,000.
Total goodwill was $45,446,000 representing the difference in the fair value of net assets acquired to consideration paid
or payable.
126
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 31. Business combinations (continued)
The acquired business contributed revenues of $1,129,000 and a loss after tax of $228,000 to the Group for the period from the
date of acquisition on 13 September 2021 to 31 December 2021. If the acquisition had occurred on 1 January 2021, the full year
contribution would have been revenues of $3,725,000 and loss after tax of $485,000.
Details of the fair value of identifiable assets acquired, liabilities assumed and goodwill determined are set out below.
The identification and fair value measurement of the assets and liabilities acquired are provisional and amendments can
be made to these figures up to 12 months, following the date of acquisition if new information is obtained about facts and
circumstances that existed at the acquisition date and, if known, would have affected the measurement of the amounts
recognised as of that date. For example, the Group is yet to identify and value the acquisition-related intangible assets, and
hence at 30 June 2022, there will be a re-allocation of amounts recognised as goodwill to acquisition-related intangible assets.
The Group incurred acquisition-related costs of $1,116,000 to external service providers, inclusive of stamp duty costs of $95,000.
These have been disclosed in the consolidated income statement, but have been excluded from the calculation of underlying
EBITDA. The below table shows the acquisition date net assets acquired, goodwill and consideration paid and payable.
Cash and cash equivalents
Trade and other receivables
Inventory – cryptocurrency
Trade payables
Other payables
Accrued expenses
Unearned revenue
Deferred revenue
Net liabilities acquired at balance date
Goodwill
Acquisition date fair value
Consideration
Cash paid
Earn-out liability (contingent consideration)
Total consideration
Add: Fair value of net identifiable liabilities
Goodwill
Cash used to acquire business, net of cash acquired
Total consideration
Less: cash and cash equivalents acquired
Less: contingent consideration
Net cash used
Acquisition
date fair
value
US$000
269
908
2,481
(294)
(53)
(508)
(238)
(5,041)
(2,476)
45,446
47,922
25,268
17,702
42,970
2,476
45,446
42,970
(269)
(17,702)
24,999
Appen 2021 Annual Report
127
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 31. Business combinations (continued)
Critical accounting judgements, estimates and assumptions
The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking
into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the
business combination accounting is retrospective, where applicable, to the period the combination occurred and may
have an impact on the assets and liabilities, depreciation and amortisation reported.
Inventory – Cryptocurrency assets
Quadrant holds cryptocurrency assets, mainly in the form of Ethereum, stableCoin (USDC) and its own utility token
called eQUAD, which is used to pay its crowd of geolancers for POI (point-of-interest) data and pay suppliers. Given
that cryptocurrency assets are a core and integral part of the Quadrant’s operations, management has deemed that
the cryptocurrency assets should be classified as inventory, and therefore valued at the lower of cost and net realisable
value. This valuation is derived from relevant exchanges for each of the different types of cryptocurrency held at
acquisition date.
Accounting policy
Business combinations occur when an acquirer obtains control over one or more businesses. A business combination
is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under
common control. Under the acquisition method, the business combination will be accounted for from the date that
control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent
liabilities) assumed is recognised. Consideration transferred, including any contingent consideration is required to be
measured at fair value on the date of acquisition, which takes into account the perspective of a “market participant”
and is measured at the amount that the Group would have to pay to such a participant for them to assume the remaining
obligations under the contracts to acquire these businesses.
Contingent consideration obligations are classified as equity or liability in accordance with AASB 132 Financial
Instruments: Presentation. If an obligation to pay contingent consideration that meets the definition of a financial
instrument is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of
the contingent consideration are recognised in profit or loss. Where the accounting standards require that an obligation
to be settled in shares is classified as a liability, change in measurement from the point of initial recognition, through to
when the milestone is achieved, and the number of shares to be granted is determined, are recognised in profit or loss.
Subsequently, once the number of shares is fixed and determined any changes in the value of shares to be granted
between the milestone being achieved and the point of settlement are recognised within equity.
The Group has contingent consideration obligations classified as liabilities at the reporting date.
As a consequence, any changes in the fair value of contingent consideration that do not meet the requirements above,
such as a subsequent renegotiation and settlement of the obligation or consideration, does not result in a change to
the value of goodwill and instead changes to the fair value of contingent consideration is classified as a liability and
recognised in the profit or loss. Any goodwill that arises is tested annually for impairment. Transaction costs on the
acquisition are expensed as incurred, unless they relate to the issue of debt or equity securities.
128
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 32. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy below:
Ownership interest
Name
Appen Butler Hill Pty Limited
Appen Financial Services Pty Ltd
Appen Butler Hill Inc. 1
Leapforce Inc.
RaterLabs Inc.
Figure Eight Technologies Inc.
Figure Eight Federal LLC
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
Appen Japan Pty Ltd 1
Quadrant Pte Ltd 1
Quadrant Protocol Ltd 1
1 Wholly-owned subsidiaries of Appen Butler Hill Pty Limited.
Principal place of business/
Country of incorporation
Australia
Australia
United States of America
United States of America
United States of America
United States of America
United States of America
United Kingdom
United Kingdom
Hong Kong
China
China
China
Japan
Singapore
British Virgin Islands
2021
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2020
%
100%
100%
100%
100%
100%
100%
100%
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 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.
Appen 2021 Annual Report
129
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 33. Deed of cross guarantee
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
Crowd labelling services
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
2021
US$000
57,650
(2,836)
(23,640)
(2,247)
(17)
(1,455)
(680)
(1,337)
(1,772)
(1,522)
(8,248)
(1,559)
12,337
(1,827)
Restated
2020
US$000
41,193
(1,795)
(22,186)
(2,439)
(179)
(1,617)
(549)
(2,013)
(26)
(17,369)
(3,303)
(1,080)
(11,363)
5,894
Profit/(loss) after income tax (expense)/benefit
10,510
(5,469)
Other comprehensive income/(loss)
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year
4,732
4,732
(1,375)
(1,375)
15,242
(6,844)
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.
130
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 33. Deed of cross guarantee (continued)
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
Goodwill
Intangibles
Deferred tax
Intercompany loans
Prepayments
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Contract liabilities
Provisions
Non-current liabilities
Lease liabilities
Provisions
Borrowings
Earn-out liability
Total liabilities
Net assets
Equity
Issued capital
Reserves
Total equity
2021
US$000
Restated
2020
US$000
7,070
3,473
3,047
–
2,265
879
16,734
3,095
1,055
4,267
45,059
1,082
6,662
15,862
3,626
2,020
1,479
3,581
395
26,963
5,882
1,730
5,561
–
795
6,721
247,180
264,497
310
308,710
325,444
286
285,472
312,435
5,019
816
3,048
1,200
10,083
4,868
424
–
18,359
23,651
33,734
4,700
–
1,677
1,173
7,550
6,050
436
–
–
6,486
14,036
291,710
298,399
262,917
28,793
262,917
35,482
291,710
298,399
Appen 2021 Annual Report
131
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 34. Cash flow information
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 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
(Decrease)/increase in trade and other payables
(Decrease)/increase in employee benefits and provisions
Increase/(decrease) in contract liabilities
Decrease in provision for income tax
Net cash from operating activities
Group
2021
US$000
2020
US$000
28,519
35,632
35,038
27,923
(43)
516
(1,565)
380
657
743
2,729
(14)
12,537
(53)
98
853
879
807
–
(2,559)
(17,587)
(2,559)
(247)
8,618
(1,276)
4,565
4,547
1,957
(8,058)
(14,387)
53,923
64,727
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.
132
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 35. Earnings per share
Profit after income tax attributable to the owners of Appen Limited
Group
2021
US$000
Restated
2020
US$000
28,519
35,632
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
122,956,759
121,618,318
Adjustments for calculation of diluted earnings per share:
Rights over ordinary shares
1,857,243
2,039,642
Weighted average number of ordinary shares used in calculating diluted earnings per share
124,814,002
123,657,960
Basic earnings per share
Diluted earnings per share
Accounting policy
Basic earnings per share
Cents
23.19
22.85
Restated
Cents
29.30
28.81
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.
Appen 2021 Annual Report
133
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments
Performance rights
Long-term incentive plan
The Company has developed a Long-term incentive plan (LTIP) which incorporates performance conditions and 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 (up to 31 December 2021) 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 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 dividend yield of 0.45% and a risk free interest
rate of ~0.1%. An overview of all current performance rights plans and conditions is place for all employees including executives
is disclosed in the following table.
134
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Overview of Current Performance Rights and Conditions
Grant
date
Expiry
date 1
Exercise
price
Tranche
Plan
2018
1 Jan 2018
N/A
N/A
N/A
Yes
Perfor-
mance
measure-
ment
N/A
Performance
target
No
performance
condition
Perfor-
mance
target
measure-
ment date
Target
achieved
Vesting
condition
Vesting
date 2
Value
per right
at grant
date ($A)
2018
20 Feb 2018
N/A
N/A
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
2019
21 May 2019
N/A
N/A
1
1
2
3
2
3
1
2
3
1
2
3
1
2
3
1
2
UBEPS
10.0%
End 2018
Yes
UBEPS
10.0%
End 2019
Yes
UBEPS
10.0%
End 2020
Yes
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
Employed
at 1 Jan
2021
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 2018
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
UBEPS
20.0%
End 2020
Yes
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
Employed
at 1 Jan
2021
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
Release of
2020 results
$23.91
Appen 2021 Annual Report
135
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Grant
date
Expiry
date 1
Exercise
price
Tranche
Perfor-
mance
measure-
ment
Performance
target
Perfor-
mance
target
measure-
ment date
Target
achieved
Vesting
condition
Vesting
date 2
3
1
2
3
4
1
2
3
1
2
3
1
1
2
3
1
2
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2019
Yes
UBEPS
20.0%
End 2020
Yes
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2022
Pending
UBEPS
20.0%
End 2020
Pending
UBEPS
20.0%
End 2021
Pending
UBEPS
20.0%
End 2022
Pending
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
0% to 20% End 2020 Yes for rights
with no
performance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022
Pending
No
performance
condition
N/A
Pending
0% to 20% End 2020 Yes for rights
with no
performance
condition
0% to 20% End 2021
Pending
0% to 20% End 2022
Pending
0% to 20% End 2020 Yes for rights
with no
performance
condition
0% to 20% End 2021
Pending
Employed
at 1 Jan
2022
Employed
at 1 Jan
2020
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2023
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2022
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2021
Employed
at 1 Jan
2022
Value
per right
at grant
date ($A)
$23.91
Release of
2021 results
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 2023
$23.37
1 Jan 2023
$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 2023
$18.28
1 Jan 2023
$18.28
Plan
2019
21 May 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2019
22 July 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
19 Dec 2019
N/A
N/A
2020
Jan to Mar
2020
N/A
N/A
2020
2020
Jan to Mar
2020
N/A
N/A
Jan to Mar
2020
N/A
N/A
2019
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
2020
30 Apr 2020
N/A
N/A
136
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Plan
Grant
date
Expiry
date 1
Exercise
price
Tranche
2020
30 Apr 2020
N/A
N/A
2020
Apr to Jun
2020
N/A
N/A
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
Apr to Jun
2020
N/A
N/A
Apr to Jun
2020
N/A
N/A
Apr to Jun
2020
N/A
N/A
Jul to Sep
2020
N/A
N/A
Jul to Sep
2020
Jul to Sep
2020
Jul to Sep
2020
N/A
N/A
N/A
N/A
N/A
N/A
Oct to Dec
2020
N/A
N/A
Oct to Dec
2020
N/A
N/A
Oct to Dec
2020
N/A
N/A
Oct to Dec
2020
N/A
N/A
2020
25 Dec 2020
N/A
N/A
2021
2021
2021
Jan to Mar
2021
N/A
N/A
Jan to Mar
2021
N/A
N/A
Jan to Mar
2021
N/A
N/A
3
1
2
3
4
1
2
3
4
1
2
3
4
1
1
2
3
Perfor-
mance
measure-
ment
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
Perfor-
mance
target
measure-
ment date
Performance
target
Target
achieved
Vesting
condition
Vesting
date 2
Value
per right
at grant
date ($A)
$18.28
Release of
2022 results
0% to 20% End 2022
Pending
0% to 20% End 2020 Yes for rights
with no
performance
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
performance
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
performance
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
0% to 20% End 2021 Yes for rights
with no
performance
condition
0% to 20% End 2022
Pending
0% to 20% End 2023
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
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
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
Release of
2021 Results
$24.34
Release of
2022 Results
$24.34
Release of
2023 Results
$24.34
Appen 2021 Annual Report
137
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Grant
date
Expiry
date 1
Exercise
price
Tranche
Perfor-
mance
measure-
ment
Performance
target
Perfor-
mance
target
measure-
ment date
Target
achieved
Vesting
condition
Vesting
date 2
Value
per right
at grant
date ($A)
Plan
2021
2021
2021
Jan to Mar
2021
N/A
N/A
Jan to Mar
2021
N/A
N/A
Jan to Mar
2021
N/A
N/A
2021
15 Feb 2021
N/A
N/A
2021
15 Feb 2021
N/A
N/A
2021
15 Feb 2021
N/A
N/A
2021
17 Feb 2021
N/A
N/A
2021
17 Feb 2021
N/A
N/A
2021
17 Feb 2021
N/A
N/A
2021
2 Sep 2021
N/A
N/A
2021
2 Sep 2021
N/A
N/A
2021
2 Sep 2021
N/A
N/A
2021
2021
2021
2021
2021
2021
Jul to Sep
2021
Jul to Sep
2021
Jul to Sep
2021
Jul to Sep
2021
Jul to Sep
2021
Jul to Sep
2021
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
138
1
2
3
1
2
3
1
2
3
1
2
3
1
2
3
4
1
2
UBEPS
20%
End 2021
Pending
UBEPS
20%
End 2022
Pending
UBEPS
20%
End 2023
Pending
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
0% to 20% End 2021 Yes for rights
with no
performance
condition
0% to 20% End 2022
Pending
0% to 20% End 2023
Pending
0% to 20% End 2021
Pending
0% to 20% End 2022
Pending
0% to 20% End 2023
Pending
UBEPS
20%
End 2021
Pending
UBEPS
20%
End 2022
Pending
UBEPS
20%
End 2023
Pending
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
N/A or
UBEPS
0% to 20% End 2021
Pending
0% to 20% End 2022
Pending
0% to 20% End 2023
Pending
0% to 20% End 2024
Pending
0% to 20% End 2021
Pending
0% to 20% End 2022
Pending
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2022
Employed
at 1 Jan
2023
1 Jan 2024
$24.36
1 Jan 2024
$24.36
Release of
2023 Results
$24.36
Release of
2021 Results
$23.52
Release of
2022 Results
$23.52
Release of
2023 Results
$23.52
1 Jan 2024
$22.77
1 Jan 2024
$22.77
Release of
2023 Results
$22.77
Release of
2021 Results
$11.59
Release of
2022 Results
$11.59
Release of
2023 Results
$11.59
Release of
2021 Results
$11.52
Release of
2022 Results
$11.52
Release of
2023 Results
$11.52
Release of
2024 results
$11.52
Release of
2021 Results
$11.12
Release of
2022 Results
$11.12
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Plan
2021
2021
Grant
date
Expiry
date 1
Exercise
price
Tranche
Jul to Sep
2021
Jul to Sep
2021
N/A
N/A
N/A
N/A
Perfor-
mance
measure-
ment
N/A or
UBEPS
N/A or
UBEPS
2021
13 Sep 2021
N/A
N/A
2021
13 Sep 2021
N/A
N/A
Perfor-
mance
target
measure-
ment date
Performance
target
Target
achieved
Vesting
condition
Vesting
date 2
Value
per right
at grant
date ($A)
3
4
1
2
0% to 20% End 2023
Pending
0% to 20% End 2024
Pending
N/A
N/A
No
performance
condition
No
performance
condition
N/A
Pending
N/A
Pending
Release of
2023 Results
$11.12
Release of
2024 results
$11.12
15 Dec 2024
$9.98
15 Dec 2025
$9.98
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 15 Dec
2024
Employed
at 15 Dec
2025
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
100%
90–99% of UBEPS Target*
50–80%
Less than 90%
Nil
*At the Board’s discretion.
Set out below are summaries of performance rights granted under the plan:
31 Dec 2021
Plan
2018
2018 Special
2019
2020
2021
31 Dec 2020
Plan
2017
2018
2018 Special
2018 STI
2019
2020
Balance at
the start of
the year
128,881
257,034
892,927
1,040,894
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
–
–
–
–
(126,118)
(2,763)
(257,034)
–
–
–
(230,581)
(143,613)
518,733
(80,864)
(239,206)
720,824
–
928,053
–
(140,278)
787,775
2,319,736
928,053
(694,597)
(525,860)
2,027,332
Balance at
the start of
the year
231,516
129,392
264,067
83,333
1,169,107
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
–
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
The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 1.02 years
(2020: 1.17 years).
Appen 2021 Annual Report
139
Notes to the consolidated financial statements
for the year ended 31 December 2021
Note 36. Share-based payments (continued)
Accounting policy
The cost of equity-settled transactions is measured at fair value on grant date. Fair value is determined based on 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.
Non-market vesting conditions are included in assumptions about the number of rights that are expected to vest. At each
reporting date, the entity revises its estimate of the number of rights that are expected to vest. The employee benefit
expense recognised each period takes into account the most recent estimate. The impact of the revision to original
estimates, if any, is recognised in the statement of profit or loss and other comprehensive income with a corresponding
adjustment to equity.
Note 37. 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, crowd
workers, employees and geographic regions in which the Group operates. The impact of the COVID-19 pandemic is addressed
in the Directors’ report.
Note 38. Events after the reporting period
The impact of the COVID-19 pandemic is ongoing, and there remains uncertainty as exactly 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 2021
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.
140
Directors' declaration
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 2021
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 33 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
Richard Freudenstein
Director
24 February 2022
Sydney
Appen 2021 Annual Report
141
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 2021 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 2021;
• 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
policies; and
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 these requirements.
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.
142
Independent auditor's report
to the shareholders of Appen Limited
Key Audit Matters
The Key Audit Matters we
identified are:
• Valuation of goodwill
• Acquisition of Quadrant
Global Pte Ltd
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.
Valuation of goodwill ($248m)
Refer to Note 12 to the Financial Report
The key audit matter
How the matter was addressed in our audit
The Group’s annual testing of goodwill for impairment
is a key audit matter, given the size of the balance relative
to total assets and the judgements applied due to the
changes to the composition of CGUs during the year,
allocation of goodwill and the forward looking assumptions
the Group applied in their value in use model:
We focused on:
•
Forward looking assumptions – forecast cash flows,
growth rates and terminal growth rates that are used
in the Group’s models are highly sensitive to small
changes in these assumptions, reducing available
headroom. This drives additional audit effort specific
to their feasibility and consistency of application to the
Group’s strategy;
• Discount rates which are applied to determine the
Goodwill value are complicated in nature and vary
according to the conditions and environment the
specific cash generating unit (CGU) is subject to; and
• Changes to the composition of CGUs during the year
necessitating our consideration of the appropriateness
of those changes.
We involved valuation specialists to supplement our senior
audit team members in assessing this key audit matter.
Our procedures included:
• We assessed the basis for the Group’s changes to the
composition of CGUs, based on our understanding of
how operations are monitored and where independent
cash flows are generated, against the requirements
of the accounting standards;
• We checked the forecast cash flows in the Group’s
value in use model to the Board approved FY21 budget
and the FY22–FY25 business plan;
• We assessed the cash flows and related growth rates
applied in the model by comparing them to external
analysts’ reports. We checked the consistency of the
growth rates to the Group’s stated plan and strategy,
past performance of the Group, and our experience
regarding the feasibility of these in the industry in which
they operate;
• Working with our valuation specialists, we independently
developed a discount rate range using publicly
available data for comparable entities, adjusted
by risk factors specific to the Group and the industry
it operates in;
• We assessed the Group’s assumptions for terminal growth
rates in comparison to economic and industry forecasts;
• We performed sensitivity analyses on the key
assumptions used in the model and applied other
values within a range that we assessed as being
reasonably possible, to focus our further work; and
• We assessed the disclosures in the financial report
using our understanding of the Group’s testing for
impairment obtained from our procedures and against
the requirements of the accounting standards.
Appen 2021 Annual Report
143
Independent auditor's report
to the shareholders of Appen Limited
Acquisition of Quadrant Global Pte Ltd
Refer to Note 31 to the Financial Report
The key audit matter
How the matter was addressed in our audit
On 13 September 2021, the Group completed the acquisition
of Quadrant Global Pte Ltd, a provider of mobile location
and Point-of-Interest (POI) data company headquartered
in Singapore. The total consideration consists of an upfront
consideration of $25.3m and contingent consideration
of $17.7m.
We determined that the acquisition was a key audit
matter because of the size of the transaction and the high
level of judgement made by the Group that is required
in determining:
• When control of Quadrant Global Pte Ltd was obtained;
• Consideration payable, including the fair value of the
contingent consideration;
• Disclosure of the acquisition in the financial statements;
and
• Whether acquisition accounting remains provisional
at reporting date.
Our procedures included:
•
Evaluating documentation underlying the Group’s
assessment of when control is obtained of Quadrant
Global Pte Ltd;
• We assessed the Group’s determination of the
contingent consideration against the contractual terms
of the underlying sale and purchase agreements and
the criteria in the accounting standards;
• Where contingent consideration obligations are to be
settled through the issuance of shares, we assessed
the Group’s classification of those obligations as
either a liability or equity for appropriateness. We did
this by inspecting the terms of the sale and purchase
agreement and considering the application of the
criteria in the accounting standards;
• We evaluated the forward looking assumptions
underpinning the significant judgements used by the
Group including examining the basis for the Group’s
expectation that remaining contingent consideration
will be paid. We did this by considering the performance
assumptions against the Group’s stated plan and
strategy and the feasibility of these assumptions;
• We evaluated management’s conclusion as to whether
any element of the acquisition accounting is incomplete
and remains provisional; and
• We assessed the business combination disclosures
in the financial report against the requirements of the
accounting standards.
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.
144
Independent auditor's report
to the shareholders of Appen Limited
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; and
• 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.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Appen Limited
for the year ended 31 December 2021, complies with
Section 300A of the Corporations Act 2001.
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 54 to 79 of the Directors’ report for the year ended
31 December 2021.
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 2022
Appen 2021 Annual Report
145
Additional information
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 01 February 2022.
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 Ordinary shares
% of issued
capital
45
524
1,006
10,090
41,990
69,578,695
11,225,406
7,181,720
22,097,690
12,963,486
56.55
9.12
5.84
17.96
10.53
53,655
123,046,997
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
22
42
106
87
262
836,385
582,526
298,192
267,298
42,931
41.26
28.73
14.71
13.18
2.12
2,027,332
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 5,612 shareholders with unmarketable parcels, holding 165,638 shares.
146
Additional information
Twenty largest shareholders
The names of the twenty largest shareholders of quoted equity securities are as follows:
1
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2 C & J VONWILLER PTY LTD
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