2022 Annual Report
Contents
Overview
Overview
02 Market overview
04 Mission, vision and values
06
08
10
12
2022 at a glance
2022 strategy
Chair message
CEO message
Value Drivers
Value Drivers
14
How we create value
16 Technology, processes, systems
20 Global crowd
24 Our people
28 Customer and brand
34 Financial
40 Social and environment
Governance
Governance
48
58
60
62
Identifying and managing risk
Our approach to governance
Board of Directors
Executive Team
Directors’ Report
Directors’ Report
66
Directors’ report
70 Remuneration report
Financial Report
Financial Report
95
Financial report
160 Directors’ declaration
161
Independent auditor’s report
165 Additional information
168 Materiality assessment
169
Prioritised United Nations
Sustainable Development Goals
170 Non-financial data metrics
173 Corporate directory
Appen Limited
ABN 60 138 878 298
All amounts in this report are
in United States (US) dollars
unless otherwise stated.
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, the Sustainability
Accounting Standards Board (SASB) and the Task Force
on Climate-related Financial Disclosures (TCFD) 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 39 of this report.
Appen has five customer-facing business units including Global,
Enterprise, Government, China and Quadrant. Details of our
businesses and operating segments can be found on pages
66 and 67 of the Directors’ report.
Sustainable Development goals
We support the United Nations’ Sustainable Development Goals
(SDGs), and by doing our part to contribute to the success of the
SDGs we believe we can help contribute to a more sustainable
future. On page 169 we have identified five SDGs as priority
SDGs where we believe we can best contribute.
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 issues through stakeholder engagement and
our annual risk and materiality assessment. The outcome of these
processes and our material issues are described on page 168.
Operating and Financial Review
The sections of this report from pages 10 to 59 titled the Chair
message, CEO 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.
Real world AI
transforming the lives of
our customers and crowd …
Appen has been at the forefront of
innovative AI for more than 25 years.
As a leader in data for the AI lifecycle
we deliver AI products and services
to many of the world’s largest tech
and Fortune 500 customers globally.
Through our global diverse crowd and
technology, we help our customers
... deliver world-class AI products
Appen 2022 Annual Report
Appen 2022 Annual Report
1
1
Market
overview
AI is a dynamic and fast paced market. The following
outlook provides insight into how AI may continue
to evolve, which we constantly evaluate to understand
both the opportunities and potential risks facing Appen.
Appen is the leading
provider in three out
of the four essential
steps of the AI lifecycle:
Data
sourcing
Model
evaluation
by humans
Data
preparation
Model
training and
deployment
Where we don’t provide native
experience, we integrate with
clients and partner with leading
model management companies.
2
State of play
FY22 was a year of challenging external operating conditions.
As the world emerged from the global pandemic, interest rates
have risen from historic low levels in response to inflationary
pressures in many global economies. This has led to weaker
demand for digital advertising and a slowdown in spending
by some of our customers as they reprioritised and canceled
some traditional core projects and cut costs.
There has been no fundamental change to core AI technology
platforms used in our customers’ production applications.
Despite the significant headwinds facing the industry,
data remains fundamental to machine learning and AI.
Our customers continue to need our support through every
stage of the AI lifecycle.
AI trends and market outlook
There remains significant upside for companies that adopt and
use AI at scale. As companies seek to become more efficient
and automate processes, AI solutions are becoming essential
for success. As such, the International Data Corporation
(IDC) expects global spending on AI (which includes software,
hardware, and services for AI-centric systems) to increase
from its current level of ~$118 billion to reach more than
$300 billion by 2026.
Appen operates in the AI data services segment of the market.
To date, growth in this segment has been underpinned by three
key factors including:
1. search and ad relevance,
2. voice interface; and
3. computer vision and autonomous vehicles (AV).
Appen is a global leader in search and ad relevance. We also
have a strong global presence in voice interface. In China,
we have an established leadership position in AV and are
fast becoming an emerging AV player in the rest of the world.
Vehicle safety is a key focus for regulators. The European Union
(EU) New Car Assessment Program (NCAP) is establishing new
rules on vehicle safety and supports a range of mandatory
advanced driver assistance systems, such as distraction
and fatigue warnings. We expect United States auto
regulations to follow.
We believe that new developments in AI such as the metaverse,
the merging of online and offline worlds, and the ongoing
need for data to be representative of the real world will
continue to underpin the need for data collection. Data privacy
regulations will also continue to drive the need for specific
or bespoke data requirements.
2022 was a breakthrough year for AI. The evolution of large
language models (i.e. ChatGPT) and text-to-image models
(i.e. Stable Diffusion), known collectively as generative AI,
has created significant excitement around the future of AI.
To reach its full potential, generative AI will require a significant
amount of real-person data collection and model feedback.
This is because generative AI algorithms rely on large amounts
of high-quality data to learn and improve. Without access
to a diverse range of real-world data, generative AI algorithms
may produce biased or inaccurate results. Large-scale adoption
of generative AI is in its infancy. We are well placed to capture
growth through our crowd-based approach to data collection
and AI model feedback.
The demand for the data labelling market is expected
to remain strong. Research firm Cognilytica estimated the
market for global data labelling at ~$5 billion in 2022 and
expect it to reach more than $19 billion by 2027.
Appen 2022 Annual Report
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Mission,
vision and values
At Appen, we are a trusted partner for 1,000s
of successful data sourcing, data annotation
and model evaluation projects, enabling
the most innovative companies to execute,
expand and improve world-class AI initiatives.
We have a clear view of the future
and how we help our customers
Our mission
Enable our customers to build better AI
by creating large volumes of high-quality
unbiased training data faster
Our vision
To be the leading global provider
of data for the AI lifecycle
4
At Appen, the way we work and how
we behave is guided by our values
Our values
Performance
is having the focus and agility to achieve quality
outcomes and exceed expectations. We never stop
learning, and push and challenge ourselves every day.
Humility
is being part of a team; giving credit and showing
gratitude to others for their contributions; seeking
diverse perspectives; and not being afraid to ask
for help when we don’t know something.
Honesty
is being a truth-teller in a respectful way; taking
accountability for our actions; giving and receiving
direct feedback; and, being honest with each other,
our customers, our crowd and ourselves.
Grit
is about taking ownership; not giving up; and finding
the courage to succeed. Grit and resilience give us the
confidence and determination to achieve our goals.
Appen 2022 Annual Report
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2022
at a glance
Customers
Financial
+20%
revenue growth from our
second largest customer
184
new clients in
New Markets
9 10
leading auto customers
in China
+9 years
average tenure of
top five customers
Revenue (US$M)
$388.5M
13%
Underlying EBITDA 1 before FX (US$M)
$13.6M
83%
Underlying NPAT (US$M)
$(22.8)M
Statutory NPAT 2 $(239.1)M
Dividend cents per share
Nil
2021 10¢
Underlying EBITDA excludes the impairment loss, restructure costs, transaction costs, inventory losses and acquisition-related share-based
payment expenses.
Includes non-cash impairment of $204.3 million reflecting the impairment of Goodwill and certain intangibles associated with the New Markets
(excl China) cash generating unit, comprising Global Product,Enterprise, Government and Enterprise.
1
2
6
13
Appen offices
Employees
50%
Female representation
amongst our board
in line with 50% in FY21
43%
Female representation
amongst senior leadership
from 38% in FY21
Social and environment
Net zero
by 2030
set our road map and
committed to SBTI
Ethical
AI
through our Crowd
code of ethics
100%
renewable Cloud
supplier partner
Technology
Partnership
in Mindtech
Appen’s first investment
in synthetic data
5
secure
facilities
ISO certified
Mobile
App
improves the user
experience for our crowd
Financials as at 31 December 2022, all comparisons are to the year ended 31 December 2021. 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.
Appen 2022 Annual Report
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2022
Strategy
#1 Data for the
AI lifecycle
GROW revenue
and diversify
Drive growth in target
customer segments
AUTOMATE crowd
and labelling
processes
Leverage AI and machine learning
(ML) in our labelling operations to
improve the productivity of our crowd
EXPAND our
product offering
Expand our Tangible Addressable
Market (TAM) by adding new
products and capabilities
– e.g. Quadrant and synthetic data
EVOLVE how
we do business
Improve scalability and productivity of
our go-to-market and project delivery
Appen is a global leader in
providing data for the AI lifecycle.
We offer the broadest range of
data modalities amongst all our
competitors, and will continue
to expand this capability, to win
more customers and to deliver
scale, quality and margin
expansion associated with
our strategic pillars of:
GROW
AUTOMATE
EXPAND
EVOLVE
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. Our transformation office works
across important elements of our strategic pillars
to position the business for success.
Technology underpins all four pillars of our strategy
and has underpinned our growth. We continue
to invest in technology to combine our expertise,
technology, and crowd to deliver better outcomes
for our customers. Through our technology we take
a product-led focus, enabling Appen to build scale
and repeatable products and services.
8
8
Grow
Automate
Appen is already well advanced on the first pillar of its
strategy, which aims to GROW revenue and diversify. We are
achieving this by expanding within our existing customers
and we continue to invest in target customer segments,
namely Enterprise, China, Quadrant and Government.
During the year, we onboarded a new Enterprise leadership
team who have progressively signed new and larger deals,
including a key project with a global car manufacturer for
in-cabin data collection. We also leveraged the growth and
infrastructure of our China business by investing in a local
sales team in Japan and Korea.
Expand
The third pillar of our strategy aims to EXPAND our
product offering and our TAM by adding new products
and capabilities. Examples of this include the acquisition
of Quadrant and our minority investment in Mindtech
Global Limited (Mindtech).
We acquired Quadrant in September 2021. Quadrant
is a global leader in mobile location and Point-of-Interest
(POI) data. It operates a proprietary Geolancer platform
that is used to deliver authentic, accurate, and up-to-date
POI data. Data is manually verified on the ground by crowd
workers. Through Quadrant and our existing global crowd,
Appen is strongly positioned to meet our customers’ scale,
speed, and quality requirements. We continue to focus
on the ramp up of Quadrant to our existing Global and
Enterprise customers.
Evolve
The second pillar of Appen’s strategy is to AUTOMATE our
crowd and labelling processes to improve the productivity
of our crowd. This improves our unit economics and provides
high quality outcomes for our customers. We have a dedicated
data science team that builds and deploys AI models to support
the labelling process.
We entered into a partnership with Mindtech in March 2022.
Mindtech is a synthetic data company specialising in the creation
of high-quality training data for AI computer vision models.
Synthetic data is a new and an emerging component of the
training data market that is used to augment real-world data. It is
used for the creation of edge-case data that is difficult to capture.
The AV space is a data rich opportunity. In China, we support
12 leading car manufacturers with in-cabin work. China continues
to present a potentially large opportunity, requiring modest
investment with near-term impact.
The increased need for data privacy and provenance
requirements underpins the ongoing need for data collection.
Data collection is an attractive growth avenue given the modest
product and personnel investment.
The fourth pillar of Appen’s strategy is to EVOLVE how
we do business to improve scalability and productivity
of the business. This is the focus of our transformation office.
During the year we established several workstreams with
a focus on building technology and processes that improve
our operations. We have made material improvements across
our operations, including how we deliver projects and interact
with our crowd.
Financial outcomes
As part of our strategy, we also set
FY26 targets for revenue, profitability,
and business mix. Our FY22 revenue
performance impacts our ability to
deliver on these targets in the original
timeframe and may also require
higher than expected benefits from
our offshoring strategy. We have
withdrawn our 2026 targets and plan
to update the market with our new
strategy prior to the Annual General
Meeting (AGM) in May.
FY23 focus
In FY23 the EVOLVE component of our strategy will be of great focus
to deliver productivity benefits across the business. A major part of our
transformation efforts will be focused on improving Appen Connect, our
crowd management and project delivery platform. We aim to significantly
enhance capabilities of the platform by the end of 2023, which will
allow us to deliver larger quantities of data to our customers, more
efficiently. We are also revamping the user experience for our crowd,
including a move to a mobile-first interface, automated support, and
simplified project qualification. Improving the experience for our crowd
will strengthen our competitive advantage of having a large, global,
and diverse workforce.
Appen 2022 Annual Report
9
Chair message
Shaping
the future
As a global business servicing large US tech companies, FY22 presented
many external challenges which are reflected in Appen’s financial
performance. Against this backdrop, the Board and management
focused on the areas that were within our control and implemented
our strategy to improve returns and build a more profitable business.
2022 financial result
New leadership
For the 2022 financial year, Appen
announced a Statutory Loss of $239.1
million, primarily reflecting the impairment
of the Company’s investment in its
New Markets business. After carefully
reviewing the carrying values of all
assets, a non-cash impairment charge
of $204.3 million was taken.
As noted during the year, challenging
external operating and macro conditions
resulted in weaker digital advertising
revenue and a slowdown in spending
by some of our major customers.
Total revenue declined 13.1% to $388.1
million. Underlying EBITDA (before foreign
exchange) declined from $78.8 million
to $13.6 million. While these results are
disappointing, they are in line with the
guidance provided on 6 October 2022.
It is pleasing however, that excluding
Global Product, New Markets revenue
increased 15.4% to $70.2 million,
underpinned by strong growth in China.
During the year, the board has focused
on maintaining adequate liquidity and
an appropriate allocation of capital.
As a reflection of Appen’s 2022 financial
performance, we did not pay an interim
or final dividend.
On 15 December 2022, we appointed
Armughan Ahmad as our new CEO &
President. He officially joined Appen on
9 January 2023. Armughan is one of the
technology industry’s most successful and
respected executives, with deep technology
expertise in international markets.
Armughan’s experience in driving growth,
operational excellence and delivering
best-in-class innovation will be critically
important for Appen. His mandate
includes reviewing our strategy, so
Appen is well positioned to fully capture
the long-term growth prospects in the
global AI market and improve returns for
our shareholders.
On behalf of the Board, I thank Mark
Brayan for his considerable contributions
to Appen during his more than seven
years as CEO. He has been instrumental
in growing the business from around
$60 million revenue in 2015 to more than
$440 million revenue in 2021. He leaves
with our best wishes for the future.
Board renewal
During the year, we continued to focus
on our program of Board renewal – filling
the vacancies created by the retirement
of several longstanding directors.
We identified three new Non-executive
Directors with deep skills in technology,
marketing and finance. The appointments
of Stuart Davis, Lynn Mickleburgh and
Mini Peiris come at a pivotal time for
Appen. Collectively, their experience,
skills and detailed knowledge will greatly
benefit the board. Their full biographies
are detailed on pages 60 and 61.
Executive remuneration
Commencing in FY22, we reset our
remuneration strategy in line with
shareholder expectations. Our executive
remuneration remains heavily weighted
towards performance and at-risk
equity-based pay. The board continues to
set challenging short and long-term targets.
Our short-term incentive (STI) scorecard
for key management personnel also
now includes a combination of financial
and non-financial metrics to reflect our
focus on customer, crowd and employee
satisfaction. While we saw improvements
in customer NPS and employee
engagement, our crowd NPS score was
disappointing. We are working hard
to improve the crowd experience and lift
crowd satisfaction.
10
10
In recognition of the improvements
in customer NPS and employee
engagement, a partial STI was paid
to key management personnel.
There was no STI payable for the
company’s financial performance.
Armughan has been hired on
a remuneration package that reflects
the North American technology
sector where Appen operates and
Armughan lives. This package is very
heavily weighted to at risk pay, with
targets that require a significant
improvement in Appen share price.
Indicative and
non‑binding offer
We received an indicative offer from
Telus International. The offer was
non-binding and highly conditional
at a price of $9.50. Appen attempted
to engage Telus in a confidential
discussion regarding the terms of
the offer, but details of their proposal
became public prior to our AGM,
and we were required to disclose
the offer. Without any explanation,
Telus revoked the offer through
their advisors. While this may have
created some uncertainty for you
as shareholders, you can be assured
that at no point did we provide any
non-public information to Telus.
Shaping our future
The Board’s priority has been
to guide Appen through an uncertain
operating environment and assist
management in implementing the
Company’s strategy. We remained
focused on maximising near term
returns and managing costs through
several initiatives. These included
the acceleration of productivity
improvements; evaluating and
increasing the use of offshore facilities
for project delivery, engineering and
business support; and rightsizing
investments to market opportunities.
Our transformation office is fulfilling
an important element of our
strategy – enabling Appen to take
a product-led focus by automating
many repeatable functions.
Operating sustainably
Building a sustainable business and
delivering value to all stakeholders
is a key priority. We recognise the
value of our one million plus crowd
and the value our crowd provides
to our customers.
When it comes to the treatment
of our crowd, the board understands
the expectations of all stakeholders.
The high ethical treatment of our
crowd as defined in our Crowd
Code of Conduct, our Global Ethical
sourcing, and Modern Slavery
Policy is of paramount importance.
Through our transformation program
we are highly focused on improving
the crowd experience and lifting
crowd satisfaction.
Data security and data privacy are
an integral part of our business.
Every day we are trusted with the
data of our customers, crowd and
employees, and you, our shareholders.
Our systems and processes are based
on international standards and every
quarter the board meets with
management to assess our capability.
Our inhouse experts remain at the
forefront of data security to protect
stakeholder data and meet privacy
obligations. Promoting a diverse and
inclusive culture across all aspects
of Appen’s business is also a key focus.
For Al to perform correctly it requires
diverse datasets that are representative
of the real world. To deliver on our
committment to responsible AI we
ensure our crowd is sufficiently
diverse. We foster Impact Sourcing
partnerships to support diversity and
offer work opportunities to individuals
of varying abilities and backgrounds.
Through our partnership with the World
Economic Forum, we remain focused
on responsible AI standards to increase
the value of and trust in AI.
Increasing gender diversity, especially
in senior roles among our full-time
workforce, is an ongoing priority.
In 2022 female representation
among the senior leadership team
increased from 38% to 43%. We also
maintained female representation of
50% among Non-executive Directors.
Appen is committed to supporting
international initiatives to transition
to net zero emissions. This year, we
set our Net Zero Roadmap to achieve
our net zero emissions target.
We also became a signatory to the
United Nations Global Compact
and have committed to take action
to embed the ten principles within
our business practices.
Outlook
We recognise that it’s been
a difficult period for shareholders.
We sincerely thank you for your
patience and ongoing support.
On behalf of the board and
management, we acknowledge
there is more to do to earn your
confidence and trust.
While the operating environment
may continue to present
challenges, we are committed
to improving Appen’s
performance. Under Armughan’s
leadership we are focused on our
growth strategy and positioning
Appen for a stronger future.
Before closing, I would also like
to acknowledge the contribution
of our employees during the past
12 months. They have worked
tirelessly, and the Board and
I thank them for their dedication
and continued service to our
crowd and customers.
RICHARD
FREUDENSTEIN
Non-executive Chair
Appen 2022 Annual Report
11
CEO message
Reigniting
growth
It’s my great pleasure to be joining Appen as CEO & President.
AI is changing the world and Appen is a key player in this major global
shift. I’m excited to be leading Appen through our next phase of growth.
My first few months at Appen have been filled with learning.
I have engaged with all staff during our Next all company
kickoff events in US, UK, Australia, China and the Philippines,
spoken with many crowd contributors and met in person
with many of our clients. I have experienced first hand the
deep sense of pride within our company in terms of the
impactful work we do and our positive impact on society.
Appen’s FY22 results however, reflect the tough times faced
by many tech companies, including our large clients. Despite
the challenging external environment, we have also seen
positive signals in parts of our business. Revenue from
our second largest customer grew 20% and revenue from
China grew 36% in 2022. We added 184 new clients and
secured 25 non-Global deals over $250k. For Enterprise,
our average deal size increased to over $120K.
AI for Good Strategy
One of the reasons why I joined Appen is because the work
we do is impactful and the way we do it has a positive impact
on society. We call this AI for Good, and live this through
our Be Good, Do Good and Lead Good approach. I strongly
believe that Appen’s ethical approach is a competitive
differentiator and my focus is to further embed sustainability
to represent best practices into everything we do.
We help our clients deliver world-class innovative AI products.
Appen helps to power everyday applications such as
Automatic Speech Recognition models for drive-through fast
chain restaurants. We annotate thousands of flight paths
to improve the accuracy of estimated flight times for the
defence and space division of Airbus. These are only a couple
of examples, but we deliver many more. This year, our
customer Net Promoter Score (NPS) was well above target
and reflects the great work our people do for our clients.
We are incredibly proud of our diverse crowd which spans
many cultures, ethnicities and age groups. Through our crowd
code of ethics, we promote their wellbeing and by providing
opportunities for people of all abilities and backgrounds.
This year, to improve our engagement with the crowd, we invested
in our Appen Connect technology platform, and other systems
to support our crowd and make it easier for them to work with us.
A key focus is to make Appen a great place to work. We have
so many talented people across our organisation with deep
expertise in sales go-to-market strategies, project delivery,
engineering and crowd management. Our people are critical
to our success. In FY22, our engagement scores improved and
considering the challenging external environment, this result
demonstrates the resiliency of our team.
Beyond the crowd and our people, we also focused on doing
our part to promote positive social and environmental impacts.
Through our partnership with the World Economic Forum and
by becoming a signatory UN Global Compact – our unwavering
focus is to Lead Good and promote Ethical AI.
Appen’s future in a dynamic market
AI is changing the world, and the pace of change is accelerating.
It is a dynamic and fast growth market and Appen is a category
leader. AI is revolutionising how humans interact with machines
and is one of the most important advances that humanity
is working on. A large driver of the shift is a generative AI.
This AI technology, based on an approach called transformers,
is powering some of the most innovative customer experiences
including breakout products like ChatGPT.
At Appen we are working with many clients, from big tech
companies to medium enterprises on generative AI and
transformer-based technologies. In fact, much of our revenue
is related to approaches like reinforcement learning with human
feedback for transformer based AI.
We expect generative AI to be an ongoing growth driver for
Appen. Human feedback is what determines the end experience
for the customer. Our expertise in large scale relevance
programs is the same as what’s needed for generative AI.
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12
New long-term vision
Priorities to reignite growth
In my first few months, I have
identified five immediate priorities
to reignite growth. My first priority
is to establish a greater level of
operational rigour. There is huge
potential in our business and
realising that potential will require
us to assess our resources and
expenses across the business.
Second, product velocity is key
to our success, and we plan
to accelerate product launches
to capture new market growth.
Automating our systems and
processes will underpin momentum
in product velocity. The integration
of generative AI into our platform
and solutions will be key to
automating part of our processes.
Third, my focus is to build
a consultative sales and a world
class go-to-market capability.
Appen has a great reputation
among our clients. Our brand
is synonymous with trust, quality
and dedication. Lifting our brand
awareness is key.
Fourth, we realise that creating
world-class AI cannot be done
alone. We will expand our partner
ecosystem to reach more clients
and drive greater impact within
our clients. As part of this we
will focus on building industry
solutions in key verticals.
Finally, Appen’s ethical approach
is a competitive differentiator
moving forward and my focus
is to further embed AI for Good
into everything we do. We are
establishing an AI for Good
committee dedicated to leading
the way in AI for Good by ensuring
we ‘do what we say’ through
our social and environmental
initiatives. I will be proudly chairing
this committee.
My key mandate is to review Appen’s
strategy and reset the business.
My overarching first impression is that
Appen has enormous potential. Appen
has done a great job in growing the
market for data for AI. But we now
have an opportunity to reset the
business and fully capitalise on future
growth opportunities being enabled
by generative AI. Most successful
technology adoption takes time to
reach a growth phase, it then enjoys
a high growth phase before it reaches
a period of more stable growth.
Fast growing successful companies
that sustain long-term high-growth
continually reinvent themselves look
to add new s-curves over time.
As a first step in defining Appen’s new
s-curve we have announced a vision
to expand beyond data for AI and build
industry vertical focused AI solutions.
Our industry focused solutions will
bring together our AI platform services
with other leading AI technology and
services companies to deliver business
outcomes for large enterprises.
We are redefining our position in the AI
market from a valuable data provider for
AI to a partner that provides products
and solutions focused on industry
verticals such as Financial Services,
Consumer Retail, Industrial Markets and
Healthcare segments. We have already
seen great success in these verticals
in the past year in our Enterprise and
China markets.
Expanding from data for AI to
a complete AI platform and products
significantly increases our tangible
addressable market (TAM). Industry
sources estimate that the AI data
market will reach around $15 billion
by 2026, while the total AI platform
and services market will be more than
$300 billion at the same time. This
represents a 20x increase.
My commitment is to turn this
growth vision into a well-defined
and actionable strategy. I plan to
provide shareholders with more detail
on our growth vision prior to the AGM
in May, including clear milestones
and KPIs – so you can monitor and
evaluate our progress.
Wrap up
It would be remiss of me not
to comment further on Appen’s
FY22 financial performance.
Let me just say that I understand
your disappointment.
Restoring value and creating
long term value for shareholders,
clients, employees, and crowd
is the ultimate goal. Establishing
operational rigour across the
business is my top priority
to drive positive momentum.
Appen has strong fundamentals
in a high growth market.
Operational rigour will ensure
we maximise growth in our
current market and set us up
for success as we grow into new
areas of the market.
Appen is a key partner for the
world’s leading AI companies
and has the potential to be
even greater – and that is what
really excites me. Thank you
to our shareholders for your
ongoing support.
ARMUGHAN AHMAD
CEO, President and Managing Director
Appen 2022 Annual Report
13
How we create value
Value Driver
Principle risks
How we deliver value
Investment in technology
innovation and transformation
Compliance with security, privacy
and other data regulations
Through our technology and innovative solutions, we look
to streamline and automate processes so 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.
Crowd conditions
Crowd supply meets
customer demand
We are committed to treating our crowd fairly
in accordance with our Crowd Code of Ethics.
Support our crowd under our Whistleblower and
Speak Up Policy.
Our Impact Sourcing strategy also provides jobs
to people who have limited prospects for employment.
Talent strategy and employee
value proposition
Focus on making Appen a great place to work and
creating a magnetic, accountable and inclusive culture.
Invest in our people and HR systems to build a workforce
for the future and optimise the employee experience.
Embed diversity principles across our business via our
Diversity policy.
Changing customer strategy
and needs
Doing great work for our customers and deliver
a superior customer experience.
Ability to execute on operational
requirements
Monitor relevant market and customer trends to meet
the evolving needs of customers.
Strategic direction of business
Financial sustainability
We aim to grow the business and to deliver increased
revenue and earnings to support returns for shareholders.
Technology,
processes
systems
Global crowd
Our people
Customer
and brand
Financial
Compliance with legal, statutory
and ethical obligations
We are taking steps to reduce the impact of our
operations on the environment.
Social and
environment
Environmental, social and
governance (ESG) risks
and performance
Our platform removes traditional barriers to work and
increases global participation and representation in the
development of emerging technologies.
Committed to achieving fair AI and creating responsible
AI standards.
14
Creating and measuring value
SDGs
Investment of $42.1 million in product development, including improved functionality for Appen
Connect, automation of crowd labelling processes, new roster fill initiative and new machine
learning models.
No material privacy breaches.
Met or exceeded 99.9% uptime across all our platforms.
Maintained certification for ISO 27001 and SOC 2.
Gained ISO 27701 for our China business.
Pages 16-19
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 delivered initiatives to ensure the crowd are better matched
to projects requiring their skills and experience and are on-boarded to available projects efficiently.
Pages 20-23
Appointed VP, Crowd Operations to deliver crowd as a customer strategy and lift engagement.
Target 30% female representation of women in senior management positions and for
Non-executive directors. Exceeded this target for senior leadership level, Vice President
and Senior Director levels and Non-executive directors.
Higher employee engagement score.
Continued to deliver the senior leader immersion program for specialty leaders.
Pages 24-27
Higher customer satisfaction with a significant uplift in our Net Promoter Score.
Enhanced the customer experience by improving the roster fill process and Global programs
management, data modalities service range expansion, and process automation.
We demonstrate leadership in making AI ethical and fair through our Crowd Code of Ethics
which also helps to enhance our brand.
Pages 28-33
In response to the challenging external operating conditions, we focused on high impact
initiatives, productivity improvements, use of offshore facilities and rightsizing investments
to market opportunities.
Revised our dividend policy reflecting the operating environment.
Pages 34-39
Expanded our GHG inventory to include Scope 3.
Completed our initial Net Zero Roadmap and have committed to net zero for our operations
by 2025 and for our wider footprint by 2030.
Committed to the Science Based Target Initiative.
Became a signatory to the United Nations Global Compact.
Partnered with Mercy Corps to bring digital work to underprivileged communities.
Conducted further research programs to understand representation across the Crowd
and address gaps.
Pages 40-47
Continued to partner with the World Economic Forum to create responsible AI standards.
Appen 2022 Annual Report
15
Value drivers
Technology
processes,
systems
The strength of our technology, processes, and systems, combined
with our expertise and crowd, enable Appen to provide essential
components of the AI lifecycle – including data sourcing,
data preparation and model evaluation.
Appen’s growth has been underpinned by its technology. We continue to invest
in technology and take a product-led focus by combining our technology,
expertise, and crowd in a repeatable and scalable fashion to drive great customer
experience and efficient delivery.
Our suite of technology products and services includes Appen Mobile, Appen
Connect, our Appen Data Annotation platform (ADAP), China platform and through
Quadrant we have Geolancer, Hydra and QCMP.
$41.2M
Investment in product
development
99.9%
Met or exceeded
uptime across all
properties
Global Services, Global Product,
Enterprise, Government
China
Quadrant
Appen
Mobile
Engages,
enables and
expands our
crowd
Appen
Connect
Matches our
global crowd
workforce to
annotation
tasks
Appen
Data
Annotation
Platform
(ADAP)
Collect and
annotate
training data
China
Platform
Crowd
management
and
annotation
for China
markets
Geolancer
Hydra
QCMP
Point of
interest data
collection
tools
Location
data
collection
Management
of user
consent and
data privacy
compliance
Our large Global customers typically undertake work on their platforms and
engage with our crowd through Appen Mobile and Appen Connect – this is
referred to as Global services revenue. Where we derive revenue from our Global
customers using our platforms and tools, it is termed Global Product revenue.
The Enterprise, Government and China customers use ADAP or China platforms
respectively. This year, our focus has also been to cross sell Quadrant product
to our Global and Enterprise customers.
Priority SDG
16
Appen Mobile
Appen Mobile is the interface for our
crowd where they can 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 smartphone and uploaded seamlessly.
The app improves the user experience
for our crowd. Ultimately this helps to
attract more people in markets where the
use of personal computers is not common
and helps to provide more opportunities
for contractors to increase their income.
Appen Connect
Appen Connect is a purpose-built crowd
management platform that matches the
crowd to our projects. Through the platform
we recruit, onboard, and pay anywhere
between 50,000 to 100,000 crowd
contributors each month. We manage
large-scale, complex annotation and
data collection programs for our
customers, which can sometimes involve
tens of thousands of crowd contractors.
The platform is also used by our internal
recruiters and project managers to
match the right contractors to the right
jobs, and to monitor quality. The platform
includes AI-driven predictive matching
functionality that connects crowd
workers to tasks best suited to their
skills and expertise.
Appen Data
Annotation platform
Appen’s Data Annotation platform, or
ADAP, is a comprehensive data-labelling
solution. The platform is used by both our
customers and internal teams to design,
run, and manage data annotation tasks.
It supports a broad range of use cases,
from content relevance to computer
vision and speech and language.
AI-assisted annotation is an important
feature of the platform, where we use
AI models to greatly improve crowd
productivity and quality. In 2022,
we launched several new AI assistance
capabilities including Automatic
Speech Recognition (ASR) assisted
audio transcriptions, auto speaker
verification and de-duplication in audio
data collection, auto face blurring in
video data collection, auto invoice, and
image de-duplication in document data
collection. We also applied AI assisted
auto fraud detection solution which
reduced contributor screening time
sixfold, as well as reduced fraud activities
in our platform with significantly
increased fraud detection coverage.
Our tools connect with customer systems
through application programming
interfaces (APIs) and allows integration
with their real-time data pipelines.
China platform
Appen’s China platform is a highly
tailored crowd management and
annotation platform that was built
to specific local market requirements.
The China platform has a rich set
of annotation tools supporting various
data modalities including image, video,
audio, and translation. Content relevance
is also supported and our lidar and
CV tools are key differentiators in this
market. The platform has AI pre-labelling
capabilities and supports object detection
for CV labelling and auto labelling for
audio transcription. These features
combined provide China with a unique
competitive advantage in the local market.
The China platform also supports project
and resource management. Tailored
solutions are incorporated into the platform,
enabling customers to become involved
in project delivery and quality reviews.
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 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.
Appen 2022 Annual Report
17
Technology, processes, systems
Our crowd can also elect to work (via opt-in) on the China
platform. This enables the China team to leverage Appen’s
global crowd and access a diverse set of language skills,
a feature that is difficult for local players to replicate.
Data privacy is a key focus and the personal information
of the crowd remains on Appen Connect.
Apart from Appen’s crowd being able to elect to work on the
China platform, the platform is a completely standalone and
fully air gapped.
Quadrant
Appen acquired Quadrant in 2021. Quadrant is a global
leader in mobile location and Point-of-Interest (POI) data.
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 propriety 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 (SDKs) 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.
Managing and protecting data
We manage and protect large amounts of data, including
significant amounts of personal and sensitive information
in line with security, privacy, and other data regulations.
We are also mindful of the increasing risks posed by cyber
security attacks and adopt industry best practices to guard
against such attacks.
Data privacy
We manage large amounts of data, including commercially
sensitive and personally identifiable information.
Our engineering, security and privacy teams work together
closely to ensure that data protection is integrated into our
systems. We also work to comply with specific data privacy
requirements in the markets in which we operate, including
the California Consumer Privacy Act, the Philippines and
Australian Privacy Acts, and the EU/UK General Data
Protection Regulation. Mandatory data privacy training
is provided to all employees on an annual basis.
In 2022, China achieved ISO 27701 Privacy Information
Management System certification. There were no reported
material breaches in 2022 1.
Platform availability, reliability and resilience
Platform availability, reliability and resilience is a key focus
of our engineering teams. The team works to strict system
availability targets and ensures that our systems can safely
scale in response to changes in demand. We consistently
meet or exceed 99.9% 2 uptime across all our properties.
Cyber security
Our cyber security risk management framework is based
on internationally recognised NIST standards and is structured
to identify, detect, protect against, respond and recover to cyber
security threats.
Security penetration testing is conducted annually by
a third-party specialist, and we have ISO 27001: 2013 certified
facilities and a SOC 2 attested data annotation platform.
Additionally, our UK and China facilities are ISO 9001 certified,
and our UK facility is Cyber Essential Plus certified in line
with UK requirements. Appen also achieved Payment Card
Industry (PCI) compliance for its ADAP platform during 2022
as per industry requirements.
Our IT Security policies and standards are adhering to ISO 27001
requirements and the incident response procedure is based
1
2
Based on report from IT services platform, Solarwinds.
Based on report from third-party website monitoring company, StatusCake.
18
“
We are pleased with the
high quality and speed of
the delivered results and are
happy to have engaged in
this collaboration with Appen.”
— ALEIX CANET
Product Owner and Team Lead, Airbus
on the NIST CSF (Cyber Security Framework). We conduct
several incident response tabletop exercises annually.
A cybersecurity maturity assessment conducted by
an independent third party utilising the NIST framework
was conducted during 2022. The positive results showed
Appen’s maturity level continuing to improve.
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. Privileged access and vendor
security reviews are conducted as per our standards.
Appen has cyber security insurance in place.
Airbus
Overview:
AirSense, an advanced analytics solution enabled
by the defense and space division of Airbus, aims
to increase the accuracy of their estimated flight
times and time of arrivals leveraging historical
flight path data.
Challenge:
To annotate thousands of flight paths based on
historical GPS data which required speed, scale
and quality to deliver successfully. Each flight
path consists of a sequence of coordinates called
a ‘cluster,’ and those coordinates needed to be
labelled in the correct order to ensure accuracy
and reduce the margin of error.
Solution:
Our Appen Data Annotation Platform provided
Airbus with the quality and speed needed to
scale their computer vision project. Airbus trained
our onsite team of annotators through video
and constant feedback to ensure high accuracy
of image annotations. The platform’s quality
assurance tools allowed the Airbus team to review
the data quickly and accurately.
Result:
Securely and accurately annotated thousands
of images.
The pilot project successfully launched with
98% accuracy.
FY23 focus
In 2023, our focus is to continue to invest in product, engineering,
and machine learning to streamline and automate our processes.
We will also continue to enhance our cybersecurity maturity
posture through a structured program of work.
Appen 2022 Annual Report
19
Value drivers
Global
crowd
Our skilled and diverse crowd of 1 million+ contractors is what makes
Appen unique. Spanning more than 170 countries and speaking
235+ languages and dialects, we’ve assembled a crowd that’s
unmatched. Attracting and retaining 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 how much work they choose.
The diversity of our crowd continues
to expand, supporting the evolving
requirements from our customers
for unbiased and representative AI
training data.
To improve engagement and overall
crowd experience we continue to invest
in our Appen Connect technology
platform and other systems that enable
recruitment and crowd support at scale.
Crowd engagement
Our crowd Net Promoter Score (NPS)
declined 9 points from 40 to 31 during
the year with responders primarily raising
concerns about project availability, pay
(amount), support and communication.
To address these concerns, we delivered
several initiatives to ensure that our crowd
contributors are better matched to projects
requiring their skills and experience, and are
on-boarded to available projects quickly
and efficiently. Through the roster-fill
program we run fast and efficient
processes to fill rosters, and manage
contributors from application to invoicing.
Contributors also have access to
a self-service function through Zendesk,
which provides them with user guides and
automation tools so they can efficiently
interact with Appen. We are also working
with our customers to increase pay rates.
In addition, we created a new position
of VP, Crowd Operations to help improve
the crowd experience and focus on our
primary objective of treating the crowd
as a customer.
Crowd NPS 1
2022
2021
2020
31
40
47
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.
31
Crowd NPS
9 points from FY21
Ethical AI
through our
Crowd code
of ethics
Priority SDGs
20
Crowd care
Protecting privacy and confidentiality
Our crowd is key to our mission. Therefore, the fair
and ethical treatment of our contractors, and our
ongoing commitment to their wellbeing is a key priority.
As a company, we uphold responsible and sustainable
labour and supply chain practices. We recognise this is the
right thing to do and our customers also expect that their
business partners uphold such standards.
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. We continue
to monitor hourly rates of pay for our crowd to ensure that
any pay gaps are identified and resolved.
Our Global Ethical Sourcing and Modern Slavery Policy
outlines what we expect of our suppliers. Our policy
is published on our website at www.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 www.appen.com/whistleblower-speak-up-policy/.
During the year, we received about 50 complaints, mostly
in connection to discrepancies between tracking time and
what the contributor claims to have worked. Each case was
reviewed by our Crowd care team and most cases were
resolved by reconciling and compensating the contributor
for any discrepancies in hours worked.
Our crowd contractors expect that we safeguard their
personal information, and our customers also insist on privacy
compliance and the highest levels of information security.
We protect our customer’s and 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 customers
or crowd members is trained on the proper handling of this
information and the critical importance of adhering to our
data protection processes.
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.
With the largest group of global contributors, we can provide
advanced data labelling with specific cultural and social nuances.
Our customers greatly value the scale and diversity of our crowd
and consider it critical to making AI work in the real world.
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
abilities and backgrounds. Our Impact Sourcing Partnerships
between our customers and community partners continue
to grow, bringing in people 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.
Quality control
and fraud detection
We have reinvigorated our crowd fraud detection
abilities in 2022 and will continue to improve these
processes over 2023. The key focus is on ensuring
a fair and transparent process for our crowd while
balancing the need to maintain the highest standards
to ensure the integrity of the data and deliverables
provided to our customers. During the year we
implemented a combination of people initiatives such
as improving the way we set and communicate our
expectations of workers, combined with technological
enhancements to prevent and detect user fraud.
Appen 2022 Annual Report
21
Global crowd
How microwork opportunities can benefit people
At Appen, we offer crowdsourced microtasks to workers around the
world on thousands of different projects. We worked with Mercy Corps
Ventures to provide tasks to microworkers for their study. Mercy Corps
Ventures looked at four cohorts of 50 people over a five week period
as they completed microtasks to understand the effect of micro-work
and stablecoin payments on workers in Kenya.
Crowdsourced microtasks are a specific type of microwork. This model
works by distributing microtasks to part-time freelancers. Anyone with
a profile and minimum quality rating can complete tasks and receive
payment. This work can be done at any time of day, from anywhere
in the world and be completed using only a mobile device.
To ensure quality, we add random quality checks interspersed throughout
tasks. These checks ensure that the work meets our standards and
provides workers with a quality rating. The crowdsourced microtask model
is highly efficient as it requires minimal infrastructure while providing
ample opportunity to microworkers and maintaining data quality. This type
of microwork model is flexible and scalable.
One of the major struggles faced by international microworkers is processing
international payments into local currencies. While pay may be above
minimum wage in their locale, the transaction fee to convert to local currency
can often be more than their earnings.
One of the findings from the research study was that using stablecoin
payments significantly lowered the cost of transaction fees, increasing the
take-home pay for microworkers. On a $5 transaction, stablecoin reduced
the cost from $1.44 to $0.10.
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.
Appen’s ‘work-from-anywhere’ model provides
income-generating opportunities for individuals
whose personal circumstances make it difficult
for them to access traditional employment.
In a recent survey, 18% of Crowd working on
one of Appen’s largest projects were previously
unemployed for 12 months or more in the past
three years.
When study participants were
asked for their feedback:
97% said they agreed that they received a fair reward for
completed microtasks.
77% reported higher earnings when compared to their
previous income-generating activities.
95% of participants reported an improved quality of life.
94% reported their income had increased because of the
five weeks of work included in this pilot study.
In addition to receiving greater income, microworkers are
also learning new skills and gaining experience. Microworkers
are learning how to work online, manage time, save money
and solve challenges with the support of peers in WhatsApp
groups. These soft and hard skills can translate to future jobs
and work opportunities, making it easier for people to find
full-time employment or higher-paying jobs.
22
Celebrating our crowd contributor
Yolanda Swilley-Smith
Yolanda lives in Florida and is the mother of three adult
children, grandmother to 12 and great-grandmother to four.
Yolanda joined the Appen contributor team in 2015. She’s
consistently worked on Appen projects since joining and
is currently testing and applying to multiple projects.
“When candidates apply to work as a contributor at Appen,
they get to choose which projects to work on,” says Yolanda.
“There are always a number of different projects going
on, which gives applicants and contributors the ability
to choose what works for them and their interests.”
For Yolanda, the decision to join Appen was simple:
“I decided to be a contributor for Appen because I wanted
my demographics to be represented when technology
makes its advances. I enjoy being relevant and asked
my opinion.” She goes on to say, “What I like about the
tasks and projects are their specific guidelines but still
the ability of the contractor to answer based on their
socioeconomic status, gender and ethnicity.”
Like many of our
contributors, Yolanda
loves this work
because of the
flexibility it provides.
“My favorite part
about being a
contributor is my
ability to be mobile
and still earn a living,”
she says. “Having the
best of both worlds
makes living more fun.”
Our Crowd
Code of Ethics
Fair pay – Our goal is to pay our crowd
above minimum wage in every market around
the world where we operate.
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.
Crowd voice – Our crowd has a valued
voice at Appen, and their feedback helps
us to continuously improve.
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.
Communication – We believe in
helpful, transparent and responsive lines
of communication with our crowd.
Wellbeing – We promote wellness, community
and connections through online forums and
best practices.
The Code of Ethics shows our
dedication to the wellbeing
of our crowd. The Statement
is available at: appen.com/
crowd-wellness/
FY23 focus
Our crowd is key to our mission. In treating our crowd as a customer,
our primary focus in managing the crowd will be to increase automation
to help improve engagement.
Appen 2022 Annual Report
23
Value drivers
Our
people
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. We strive to make Appen a great place to work and
promote an inclusive and diverse culture where people feel supported
to do their best every day.
78%
Employee engagement
from 76% in FY21
43%
female presentation
among senior leaders
from 38% in FY21
Global and diverse work force
2022 employee distribution
As of 31 December 2022, we had 1,136
full time equivalent employees, and
approximately 277 fixed term and 62
casual employees.
Fixed term and casual employees work
in a range of roles including service
delivery contributor, linguist, project
assistant and recruiter.
1,475
employees
Permanent 1,136
Fixed term
277
Casual
62
Full time
1,386
Part time
89
1,475
employees
Asia Pacific 878
USA
350
Australia
160
UK/Europe
87
Occupational profile
Our people have deep industry expertise, particularly in the areas of project delivery,
crowd management and engineering. 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. We recognise that the changing industry requires ongoing
upskilling, reskilling and cross training to meet and exceed customer expectations.
Priority SDGs
1,475
employees
Delivery
Product and engineering
Corporate
885
175
166
Crowd
Sales and marketing
Executive
147
91
11
24
Our 2026 strategic roadmap
In FY22, we’ve expanded our five-point plan into our 2026
strategic roadmap. This roadmap will focus on:.
building a workforce for the future
building a differentiated employee experience
creating an accountable, inclusive and diverse culture
optimising the employee experience through efficient
and effective human resource (HR) operations
Making Appen a great place to work
As a company, we recognise that high levels of engagement
are key to unlocking our full potential. We continue to inspire
engagement from the top down and this year, our employee
engagement score formed part of our executive short-term
incentive (STI) scorecard.
In FY22, we recorded an employee engagement score of
78%, up from 76% on the previous year. Given the challenges
faced by our major customers and the need for our people
to pivot and to focus on near-term high impact priorities,
this is a pleasing result. However, we aim to do even better
and through our 2026 strategic roadmap we are targeting
an engagement score of 85% by 2026.
Employee engagement 1
2022
2021
2020
2019
78%
76%
82%
76%
Diversity and inclusion
Appen celebrates the diverse cultural backgrounds
of our employees across our global operations.
We understand the value of a global workforce
and embrace the unique perspectives, experiences
and backgrounds of our people. Our Diversity
Policy guides our inclusive work practices and
is focused on increasing gender diversity and
under-represented minorities among employees,
in senior management and on the Board.
The Diversity and Inclusion Committee has been in
operation for two years and continues to look for ways
to promote an inclusive work culture and practices
for the benefit of under-represented groups and
the workforce overall. Bias awareness is integrated
into all talent processes, including performance,
succession management and promotions.
In FY23, our focus is to further embed diversity,
equity, inclusion, and belonging (DEIB) into all talent
practices, with courageous inclusion training and
coaching for leaders who represent the biggest lever
in advocating for people in their teams. Our 2026
strategic roadmap is aimed to support the maturity
stages of the DEIB function at Appen from awareness
to advocacy. This includes the development of
a Reconciliation Action Plan in Australia in 2023.
The Board has set a target of 30% female
representation at all senior leadership levels.
As of 31 December 2022, women represented:
Overall workforce
Board director
Executive Team/SVP
Vice President
Senior Director
Director
Manager
% female 2
2022
2021
57
50
30
32
63
45
57
58
50
30
28
53
41
60
1
Measures the likelihood of full time permanent employees (including those in PEOS) referring a friend or colleague to Appen based on their
employee experience. The scale is a 5 point Likert resulting in 1-2 Detractor, 3 Passive and 4-5 Promoter. NPS is calculated by subtracting
the % of total detractors from the % of total promoters. Survey results are provided by Workday Peakon.
2 Based on HR report for all permanent employees generated by Workday.
Appen 2022 Annual Report
25
Our people
Scalable and efficient infrastructure
Training and development
We provide assigned and elective learning opportunities and
career development for our people through our dedicated
learning experience platform, Appen University. In FY22, our
people averaged two hours of training per month through
Appen University, with a total training time of 41,665 hours 1.
In FY22, we continued the senior leader immersion program for
specialty leaders looking to progress their careers. The creation
of the Leadership competencies provided a framework for
a philosophy that everyone at Appen is a leader. New blended
and accessible paths with experiences support progressive
leadership scope: leading self, leading others, leading teams,
leading organisational functions and leading the industry.
For employee development, the Appen Training Council was
formed to ensure training demand is prioritised for its highest
measurable impact. The outcomes of orchestrating training by
role helps ensure that our people get the right training at the
right time to improve performance and change agility. As an
example, for sales product pitch/storytelling, employees put
knowledge and skill into practice for evaluation by recording
a pitch, receiving feedback, and demonstrating increased
knowledge, skill and confidence. The Appen Training Council
is also supporting the tracking of field-training that is peer-led
or expert-led into our internal platform.
This year, we focused on creating processes and leveraging
our systems to ensure scalability of all talent functions from
hiring, onboarding, developing and promoting our people.
We developed Initial Culture in Action and Leadership
competency models. These models serve as the foundation
for defining functional and role-based behaviours and skills
for career pathways in the coming year. We are committed to
measurably growing skills and increasing internal promotions
with transparent career pathways.
Values and culture
Building on the Culture work done in FY21, we recognise
the challenge of deeply anchored values and culture
with a globally distributed and hybrid workforce.
Employee performance and recognition is aligned
to company values as well as goal achievement.
The employee engagement survey reflects how
employees are experiencing the culture, and we are
committed to ongoing listening and improvement.
91%completion rate
for our Code
of Conduct
training in FY22
To view our values see page 5
1
Data from Appen University.
26
Working ethically
Our people are also required to complete mandatory
annual training in critical areas such as data privacy,
security awareness and sexual harassment. Our Code
of Conduct training which sets out employees’ obligations
to act honestly and ethically is also mandatory for all
employees and contractors.
In FY22, we achieved a 91% completion rate for our Code
of Conduct training 1.
To improve our culture of accountability we are
introducing a Good Citizen requirement for STI eligibility.
In FY23 we are targeting training completion rates of 95%
as part of our Good Citizen requirement. We have also
made improvements in how mandatory annual training is
assigned, managed and monitored by leaders of all levels.
New executive team member
We further bolstered our team with the appointment
of Sean Carithers as Senior Vice President, Global.
Sean has deep expertise in markets relevant to Appen
and has successfully transformed and grown large
businesses. He will play a critical role in driving growth
and the digital transformation of our Global business unit.
His biography is detailed on page 63.
Working through
the COVID pandemic
towards the ‘new normal’
We continue to monitor the changing
recommendations from the WHO and conditions
at our global sites and respect that clients may
require on-site attendance of employees. However,
in line with flexible work practices we continue
to adopt a hybrid work policy.
In FY22 the US was able to consolidate and
reduce office lease space and we piloted the
‘Neighborhood’ model for optional in-person
social and cultural connection.
In China, our team was subject to at least
a three month lockdown in Shanghai and
multiple lockdowns in other areas from time to
time. During this period, our workforce delivered
projects while working flexibly.
Additional non-COVID disaster support was
provided when our Cavite site was impacted by
Typhoon Paeng. Appen assembled and distributed
300 relief packages supporting employees and
residents who experienced floods and power loss.
FY23 focus
In FY23, we plan to implement several strategic people system improvements to support the business and
our people priorities. Our key priorities include supporting a culture of accountability via the introduction
of objectives that are cascaded company-wide to ensure alignment of strategic objectives and key result
targets. We are also introducing a new applicant tracking system and are providing training for managers
to ensure that bias awareness is integrated into all hiring practices.
1
Data from Appen University, excluding China and Quadrant employees.
Appen 2022 Annual Report
27
Value drivers
Customer
and brand
At Appen, our focus is doing great work for our customers and
delivering a superior customer experience. As a global market leader
and trusted partner in the development of high-quality, human-centric
data for the AI lifecycle, we enable our customers to launch some
of the most innovative artificial intelligence systems in the world.
Delivering value for our customers
Since 1996, we have built trusted relationships and a reputation for
high-quality data for the AI lifecycle.
Through our expertise, platform, and crowd, we offer unrivalled end-to-end
partnership for our clients. We provide services and tools that collect, annotate,
and evaluate images, text, speech, audio, video, point-of-interest data, and
point cloud data used to build and continuously improve the world’s most
innovative artificial intelligence systems.
As a trusted data partner, we provide value to our customers through:
Trust: With more than 25 years of experience and expertise,
our customers trust us as their data partner for innovative AI
projects. We provide strict data privacy and security, holding major
accreditations and certifications.
Quality: We pride ourselves on delivering unbiased, high-quality, and
globally representative data consistently. Our platform hosts a series
of built-in features that monitor and improve quality throughout the
duration of our customer projects.
Dedication: We’re a trusted partner for thousands of successful data
sourcing, annotation, and evaluation projects. Growing and developing
with our customers helps us build strong and lasting relationships that
deliver some of the greatest AI innovations in the world.
1 Measures the likelihood of customers 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
-100to +100. Source: ChurnZero.
22
Customer NPS 1
184
new client wins
Priority SDGs
28
Customer satisfaction
Our key customer satisfaction measurement tool
is Net Promoter Score (NPS) 1. We seek feedback from our
customers quarterly. We monitor NPS across each of our
two reporting segments and five customer-facing business
units. This year, NPS was well above target at 22. The result
was underpinned by improvement across all business units.
Apart from the scoring process, we also receive qualitative
feedback from our surveys. This feedback provides valuable
insights and helps us to identify opportunities to further
improve the customer experience. This year, we undertook
several initiatives leveraging technology to improve and
enhance the customer experience and make our systems
easier to use.
“
Appen’s breadth of language
expertise and ability to source
speakers for under-resourced
languages has allowed us to offer
a wide range of languages and
dialects, even preserve those
under-resourced languages,
with Microsoft Translator.”
— MARCO CASALAINA
VP of Products, Azure AI
Microsoft Translator
Overview:
Microsoft Translator, powered by Azure Cognitive
Services, has made translation easier, more accurate,
faster, and made synchronous multi-language
communication possible. It started by working with
the world’s most frequently spoken languages and
now, less common languages are being added
regularly. The goal is to teach younger generations,
to preserve languages that are disappearing, and to
make knowledge access equitable and accessible,
no matter what language is spoken.
Challenge:
AI technology is used to analyse language and
translate it into another language. To do this, they
need a large, accurately annotated training dataset
to prepare the translator model for each language.
Microsoft Translator struggled to get the size of
dataset they needed for some of the less frequently
spoken or cataloged languages.
Solution:
Appen provided the expertise, resources and creative
solutions needed to create translated datasets from
rare languages and run the necessary quality checks.
Our process included working with local resources
to source translations from fluent speakers. Appen
collected data, annotated the data by transcribing
and translating each data piece, and evaluated the
model outputs for quality assurance and accuracy.
Result:
Microsoft Translator has 110 languages
available for consumers.
Appen supported the data gathering process
for 108 of those 110 languages.
1 Measures the likelihood of customers 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 -100to +100. Source: ChurnZero.
Appen 2022 Annual Report
29
Customer and brand
Improving the customer experience
Customer experience is a top priority for Appen, and we make
sure our platform is easy to use with simple user interface
and experience. Our customers have access to real-time
dashboards to track productivity, quality statistics, and
contributor performance on their jobs, as well as additional
flexibility through our document and audio tools. We have
also consolidated multiple client interfaces into a single,
easy-to-use interface to improve the overall user experience.
Digital technology and automation are integral to evolving
the experience with our products and services. We have
implemented various workstreams to achieve this goal,
including an improved roster fill process and programs
management, data modalities service range expansion
and process automation. These efforts have resulted
in significant improvements for contributors, reducing the
time from registration to ready to contribute from 42 days
to 12 days. The new roster fill dashboard helps project teams
keep track of the rosters for our top 85 projects across Global
and Enterprise. The new rosters are essential to keep rosters full
and deliver for our customers.
Our machine learning (ML) team is dedicated to ensuring
that our customers have the data and quality they need to
be successful. For example, we have developed an Automatic
Speech Recognition (ASR) model for drive-through order taking
that resulted in a 38%+ efficiency gain with more orders and
46%+ quality improvement, with fewer errors occurring. We also
successfully delivered a video face detection and blurring
automation pipeline that processed more than 2.4 million image
frames in just three weeks because of automation. In addition,
we developed a car license plate detection and blurring model
with 90%+ accuracy.
18
“
The quality of the staff and the
expertise has been what I’ve needed.
They’ve achieved the timelines and
deadlines that they set, which is unusual
in my experience of data processing.
And data processing is rarely timeable.”
— DR. MARK HARVEY
Linguist
30
Our New Markets
division accounts for
18%
of our total revenue,
up from 13.6% in 2021
Growing and diversifying our customer base
Our customers are at the forefront of Al and include some
of the world’s leading tech companies such as Google,
Amazon and Microsoft. We provide services to our Global
customers using their platforms, including large relevance
programs. In FY22, our top five Global customers accounted
for 81.9% of our revenue, down from 87% in the prior period.
In New Markets, we service Enterprise, Government, China,
and Quadrant customers. These customers account for
18.1% of our total revenue, up from 13.6% in the prior period,
and 8.5% in FY20. For some customers, AI is becoming
a core component of their business with large recurring data
needs, while others are running pilots or working to scale
their initial programs. We continue to meet the needs of all
customers and develop products, services and commercial
processes to support different levels of AI awareness,
adoption and maturity.
The Enterprise team is seeing growth with customers who
have a need for a self-service platform and fully managed
service capabilities under one roof. Momentum is picking
up with 48 new client wins in FY22, including three auto
manufacturers and five autonomous mobility suppliers.
Expansion continues in eCommerce retail with Appen’s top
two existing customers doubling in size and the addition of
two significant logos. This builds on Appen's core language
capabilities as we continue to grow in conversational AI,
expanding use cases with existing customers and signing
new logos with customers who are attracted to Appen's
global presence and expertise. We also continue to develop
go-to-market partnerships with significant suppliers
powering the next wave of AI transformation, who in turn
are adding Appen's human in the loop capabilities to their
end customer solutions offerings.
In China, we continue to build capability and see growth across
all data modalities. Our China business supports nine out
of 10 leading auto customers, 23 other autonomous mobility
providers, nine of the top 10 internet companies and all top
mobile companies. This year, China recorded 80 new logo wins.
Leveraging off the growth and support and platform
infrastructure in China, we invested in dedicated local sales
teams in Japan and Korea where we had 14 new client wins
in FY22.
In the Government business, we have bespoke capabilities and
solid customer relationships with many government contractors
and government research labs. Like last year, we experienced
longer sales and budget cycles, impacted by early-stage market
dynamics of this market segment.
The Quadrant business is a leading location data collection
company based in Singapore. FY22 represented our first full
year of ownership.
This year, we focused on cross-selling Quadrant products
to our Global customers and secured several projects across
multiple jurisdictions with existing Global accounts, as well
as Grab and Gojek. We delivered data-as-a-service projects
for a Global customer across three countries with Geolancer
setting new records with more than 200,000 point-of-interest
data collected per day. Appen also has six Geolancer
proof-of-concept projects underway with a global search
engine company, Gojek and Grab.
Appen 2022 Annual Report
31
Customer and brand
Gojek
Overview:
Gojek, Southeast Asia’s leading on-demand platform
providing transportation, food delivery, logistics and more,
needed an accurate Point-of-Interest (POI) database
to improve efficiency of routing and navigation systems
leading to faster pick-ups, managing availability during
peak hours, and covering more rides per driver.
Challenge:
To improve the user experience for their app by adding
custom attributes that traditional, off-the-shelf POI
databases and public maps do not offer. They also wanted
to create a uniform and accurate naming convention for
POIs in their ridesharing platform.
Solution:
Quadrant, an Appen Company, developed a custom
POI interface with custom fields to add pictures and
metadata so Geolancers could collect and update
missing information in the client’s dataset.
32
Result:
Verified 9,000+ POIs in less than a month.
Added 9,500+ photos and contextual
attributes to the database.
Data scored 95%+ in completeness and
>97%+ in accuracy.
Helping to grow the market
As a global leader in the AI industry, we enable our
customers, not only through innovative products and
world-class services, but also by sharing best practices
and industry knowledge built over decades of experience.
Our client work is highlighted through an ongoing webinar
series featuring partners like Mercedes, Boeing, Airbnb,
Pinterest, and CLEAR Global. These market leaders join
Appen to share their experience leading innovations
in their respective industries.
In addition to supporting customers directly, we provide
industry information and resources that monitor trends
and developments in AI. In FY22, we partnered with
The Harris Poll to deliver our 8th annual State of the AI
and Machine Learning Report. This cross-industry report
provides an overview of the status of artificial intelligence
and machine learning through input from senior decision
makers and technical practitioners all over the world.
For this report, The Harris Poll surveyed 504 participants
in the United States, Europe, and the UK to help us
understand AI adoption, the maturity in data management
across the AI lifecycle, and the value placed on responsible
AI. These responses enable us to understand how artificial
intelligence is changing and adapting to the needs
of a post-COVID world.
Appen has been committed to being a leader and advocate for
responsible AI. From the State of AI and Machine Learning report,
93% of respondents agree that responsible AI is a foundation for
all AI projects within their organisation. While helping the market
grow in diversity, Chief Product Officer Sujatha Sagiraju and Chief
People Officer Andrea Clayton were finalists in VentureBeat’s
Women in AI awards for their work in advocating for diversity
in the workforce and within data best practices.
The survey also found that there’s a strong consensus around
the importance of human-in-the loop machine learning with
81% stating it's very or extremely important and 97% reporting
human-in-the-loop evaluation is important for accurate model
performance. This validation highlights the importance of the
work Appen is delivering to clients to build successful, innovative
AI solutions.
As a member of the World Economic Forum, our executives
Sujatha Sagiraju, Jen Cole, and Andrea Clayton joined other
Global AI Action Alliance Contributors and Global Future
Council Members to discuss the importance of inclusion in AI.
The Forum published ‘A Blueprint for Equity and Inclusion in AI’
to identify challenges and solutions to make AI more equitable
and inclusive for all. Designed with an inclusive methodology,
the report proposes best practices for each step within AI
development, but also gives a holistic approach that connects
each stage to benefit the broader ecosystem.
FY23 focus
Each year presents a new opportunity—in the world of tech, a new opportunity
is present each moment. Appen will continue to leverage our position as a global
leader in data for AI to deepen our client partnerships and build new relationships.
In FY23, we remain focused on delivering value to our customers and will continue
to leverage advanced technologies and automation to evolve our offerings.
Appen 2022 Annual Report
33
Value drivers
Financial
Our financial results reflect challenging external operating and macro
conditions that resulted in weaker digital advertising revenue. This caused
a reduction in spend by some of our customers primarily on some core Global
programs associated with ad and non ad-related projects. Considering this
high level of uncertainty, efforts were focused on implementing productivity
improvements, initiating cost savings and prioritising projects with the greatest
near-term returns. Appen’s balance sheet has no debt.
US$M
Revenue
Underlying EBITDA 1
Underlying EBITDA margin
Underlying EBITDA 1 before FX
Underlying EBITDA margin before FX
Underlying NPAT
Statutory NPAT 2
Dividend cents per share
Change
-13.1%
-85.8%
-82.8%
FY22
388.5
11.0
2.8%
13.6
3.5%
(22.8)
(239.1)
Nil
FY21
447.3
77.7
17.4%
78.9
17.6%
40.6
28.5
10
Financial performance summary
The external operating environment and the response
of our customers’ is reflected in Appen’s financial performance
as follows:
• Group revenue and other income decreased 13.1%
to $388.5 million, primarily reflecting a lower contribution
from the Global Division.
• Global Services revenue down 13.0% to $299.8 million.
• New Market revenue down 13.8% to $88.4 million, impacted
by lower Global Product revenue. Excluding Global Product,
New Markets revenue grew 15.4% to $70.2 million.
• Enterprise revenue finished the year strongly with Q4
revenue up 33.9% on Q3.
• Product development investment (excluding
amortisation) increased 36.1% to $41.2 million and
represented 10.6% of revenue.
• Underlying EBITDA (before the impact of foreign exchange
losses) decreased 82.8% to $13.6 million due to lower
revenue, lower gross margin, increased costs to support
growth in China and Quadrant, investment in people,
and OPEX to drive growth, product technology and
transformation.
Priority
SDG
34
1
2
Underlying EBITDA excludes the impairment loss, restructure costs, transaction costs, inventory losses
and acquisition-related share-based payment expenses.
Includes non-cash impairment of $204.3 million reflecting the impairment of goodwill and certain
intangibles associated with the New Markets (excl China) group of cash generating units, comprising
Global Product, Enterprise, Government and Enterprise.
• Underlying EBITDA (including the impact of foreign
exchange gains and losses) decreased by 85.8%
to $11.0 million.
New Markets revenue declined 13.8% to $88.4 million, impacted
by lower Global Product revenue. While second half revenue
from New Markets reduced 3.7% to $43.3 million.
• Underlying net loss after tax of $22.8 million, compared
to an underlying net profit of $40.6 million in FY21, due
to the factors mentioned above and increased amortisation,
mainly in relation to development of our products as well
as additional amortisation on intangibles acquired as part
of the Quadrant acquisition.
• Non-cash impairment of $204.3 million reflecting
the impairment of Goodwill and certain intangibles
associated with the New Markets (excl China) cash
generating unit, comprising Global Product, Enterprise,
Government and Enterprise.
• Statutory net loss after tax and after impairment
of $239.1 million, compared to statutory net profit after
tax of $28.5 million in FY21.
• No dividend was paid to ensure appropriate allocation
of capital.
• Cash balance of $23.4 million at 31 December 2022
and no debt; impairment has no impact on debt covenants
or ability to use these facilities.
Group revenue and customer diversification
As mentioned, Group revenue decreased 13.1% to $388.5 million,
primarily reflecting a lower contribution from the Global division.
Revenue from non-Global customers represented 18.1% of total
group revenue, up from 13.6% in FY21. While revenue from
our global business declined, we saw strong growth in China
and good momentum and a strong pipeline in Enterprise and
Quadrant. Refer to page 31 of the Customer and Brand value
driver for more information.
Excluding Global Product, New Markets revenue grew 15.4%
to $70.2 million primarily due to strong year-on-year growth
in China. Second half revenue from Enterprise, China, Quadrant
and Government grew 4.1% to $35.8 million, with promising
growth in Enterprise and Quadrant revenue being offset
by a decline in revenue in China, because of the heavy impact
of the COVID-19 pandemic in Q4.
New Markets won a total of 184 new clients (FY21: 133 new
customers). This reflects the good momentum in Enterprise,
China and Quadrant, primarily for autonomous vehicles (AV),
in-car cabin data collection and point-of-interest data collection.
The Enterprise team secured 48 new client wins, including three
auto manufacturers and five autonomous mobility suppliers.
Enterprise secured a large deal for labelling of in-cabin data
collection with a large global car manufacturer and has signed
a second deal with the same company at the end of FY22.
The Enterprise team is also progressively signing larger deals.
The average deal size signed was $140,000, up 129.5% from the
average deal size of $61,000 in 2021. Momentum in the Enterprise
business continues to build with end of year bookings up 36%.
Despite a three month lockdown in the first half, China FY22
revenue grew 35.6% to $33.6 million due to 80 new client wins.
However, momentum slowed later in the year due to the heavy
impact of the COVID-19 pandemic on pipeline, sales, staffing
and delivery. Consequently, second half revenue declined 13.6%
to $15.6 million.
Reflecting the seasonality of Appen’s business, group revenue
was skewed to the second half, although not to the extent of prior
years, and was up 12.3% to $205.3 million (1HFY22: $182.8 million).
Appen continues to be the leading AI data company in China
and the business is still growing strongly with revenue growth
of 35.6% over FY21 and 608.3% compared to FY20.
In FY22, model testing and relevance work represented 76.1%
of group revenue.
Revenue by operating division
Global Services FY22 revenue decreased 13.0% to $299.8 million
(FY21: $344.7 million), impacted by a reduction in spend by
some of our global customers for the reasons mentioned above.
We saw some green shoots as revenue from our second largest
customer grew 20% over the year. Second half FY22 Global
Services revenue grew 17.5% to $161.9 million and was driven
by project growth related to digital advertising.
Global ad-related FY22 revenue represented 32.1% (FY21: 23.2%)
of Global revenue (Global Services plus Global Product), while
Global non-ad revenue represented 67.9% of Global revenue,
compared to 76.9% in FY21. The shift in ad-related and non-ad
revenue reflects the overall downturn in spending by some
of our Global customers.
Our local sales teams in Japan and Korea recorded 14 new
client wins. While Japan and Korea are new markets with high
growth potential, our operations are at an early stage.
Quadrant posted a strong revenue performance, albeit off
a small base. At the end of 2022, Quadrant won a landmark
multi-year deal to provide Point-of-Interest (POI) data-as-a-
service to a large Global customer, starting in South-East Asia
with potential to expand globally.
The ramp up of Quadrant to Global and Enterprise customers
is an ongoing focus. In total Quadrant won 42 new client in FY22.
Government had a disappointing year as revenue declined 68%
to $1.3 million. This reflects the non-renewal of a large contract
in May 2021 and slower rate of AI adoption in the Government
sector relative to the private sector, due to longer lead-times,
budgetary and procurement constraints.
Refer to page 31 of the Customer and Brand value driver for
further information.
Appen 2022 Annual Report
35
Financial
Investment in product development 1 US$M
10.6%
FY22
41.2
Product
development
(ex amortisation)
as a % of revenue
23.4
57% capitalised
7.0%
FY20
29.0
6.8%
FY21
30.2
18.7
20.6
10.3
FY20
2
9.6
FY21
17.8
FY22
43% expensed
4.1%
FY19
13.2
9.9
3.3
FY19
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 FY20 spend includes annualisation of Figure Eight engineering spend (acquisition completed April 2019).
Product development
Technology plays a critical role in Appen’s business and underpins
our ability to deliver large scale data requirements for our
customers. Investment in product development in FY22 (excluding
amortisation) increased 36.1% to $41.2 million and represented
10.6% of revenue (2021: $30.2 million or 6.8% of revenue).
This year, we delivered several new product initiatives as follows:
•
Introduced the new roster fill initiative, encompassing
improved management of our Global programs, increasing
our capability to quickly and efficiently on-board
contributors/crowd workers, ensuring we have the right
customer facing teams and crowd expertise in the right
markets. We increased the roster-fill rate from 50% to over
90% on certain projects for one major Global customer and
will extend this initiative to our large Enterprise programs.
• Built new machine learning models for hard-to-miss video
face detection and blurring automation.
• Built new machine learning models and services for invoice
and image content duplication detection.
• Built and deployed an accurate English Automatic
Speech Recognition (ASR) engine tailored for high noise
environments. The ASR engine saw a 37% productivity gain,
40%+ quality improvements, and 37%+ increase in gross
margin for the specific project tested.
• Created several machine learning models to reduce
the human effort required to transcribe speech data.
This helped to reduce crowd costs, enabling Appen
to complete projects quicker and at a lower per unit cost.
• Built new functionality for Tier-2 and Tier-3 auto screening
in the Appen Connect platform to detect fraud and
screen workers. This reduced the number of hours it takes
to onboard a crowd worker from 50 hours to 10 hours
(a 5x increase in speed) and hyper-charge the processing
of crowd worker applications from 6,000 per day
to approximately 38,000 applications per day (a more than
6x increase in processing time).
• Automation of crowd labelling process, allowing Appen
to service its customers quickly and efficiently, and scaling
data delivery to improve per unit delivery costs.
Product related to investment in engineering to ensure that
the annotation and crowd platforms and tools support our
customers and their use cases, and drive efficiencies and scale.
The level of product development spend in FY22 reflects our
commitment to the development of industry-leading products
and tools, as exemplified by the list of new product initiatives.
Amortisation of product development was $20.6 million for FY22
and reflects a higher level of product development investment.
(2021: $16.0 million).
36
Underlying financial performance
Underlying earnings before interest, tax, depreciation and
amortisation (EBITDA) decreased 85.8% to $11.0 million
(31 December 2021: $77.7 million), which translated to a net
margin of 2.8% (31 December 2021: 17.4%). This was due to lower
revenue, lower gross margin, increased costs to support China
and Quadrant growth, investment in people and OPEX to drive
product, technology and transformation spend in Enterprise.
Cost of sales, which is comprised of payments to our crowd
workers for labelling services, increased as a percentage
of revenue (61.2% from 60.0% for the prior year). This is mainly
due to the change in customer and project mix as explained
above. We did achieve improving gross margins in China along
with increased revenues.
The Global Services division reported EBITDA of $54.5 million,
down 40.2% on the prior year. This reflects the impact of reduced
customer spend from some of our large customers on large, high
margin projects and higher allocation of indirect costs resulting
from investment in product, engineering and transformation costs.
New Markets reported an EBITDA loss of $36.5 million
compared to an EBITDA loss of $11.5 million in the prior
year. This primarily reflects (i) a reduction in Global Product
revenue, (ii) higher costs in China to support growth (iii) full
year of Quadrant trading, with investment in cost to drive
future growth, (iv) gross margin reduction in some of the
business units, impacted by customer, project and service mix
(v) higher allocation of indirect costs to Enterprise, resulting
from investment in product, engineering and transformation.
Operating expenses (expenses excluding impairment, crowd
labelling services, share-based payments, depreciation and
amortisation, transaction, finance and restructure costs and the
impact of foreign exchange losses) increased by $36.6 million
compared to the prior year.
The main reasons for the increase relate to higher costs in
China and Quadrant, increases in employee expenses, employee
and crowd recruitment costs, IT costs and travel (with COVID
restrictions lifting). Higher costs in China relate to delivery and
engineering costs to support revenue growth. Higher Quadrant
costs relate to full year of Quadrant trading, plus investment
to drive future growth.
Employee expenses are associated with (i) the establishment
and development of the transformation office and Enterprise
teams (with associated increase in employee and recruitment
costs), (ii) technology and automation (with associated increase
in employee expenses, professional fees, recruitment costs
and IT costs, including hosting costs), and (iii) an increase
in share-based payments expenses.
Cost saving initiatives
In response to the challenging external
environment, we focused on high impact initiatives,
productivity improvements and rightsizing
investments to reduce costs. We have identified
annualised cost savings of ~$10 million via the
following initiatives:
Increased use of offshore facilities for project
delivery, engineering and business support.
This is the major component of the cost savings
and we expect to see the benefits of these
start to flow through in the second half of FY23
and in FY24.
reduced real estate footprint through
non-renewal of leases for under-utilised
facilities and use of sub-leases
where appropriate.
non-renewal of non-essential software licences.
review of external vendors and renegotiation
of fees where appropriate.
reduction in discretionary spend and
non-essential travel.
The identified cost savings are available
for reinvestment in growth opportunities.
The pace of cost growth slowed through the second
half of FY22 (2H FY22). At the group level, 2H FY22
costs increased 12% compared to 1H FY22 (in line
with revenue growth) and Q4 FY22 costs declined
9% compared to Q3 FY22 (while revenue grew 11%).
In Global Services, 2H FY22 costs increased 15%
compared to 1H FY22 (while revenue grew 18%) and
Q4 FY22 costs declined 11% compared to Q3 FY22
(while revenue grew 12%). In New Markets (excluding
Global Product), 2H FY22 costs increased 10%
compared to 1H FY22, (while revenue grew 4%) and
Q4 FY22 costs declined 3% compared to Q3 FY22
(while revenue grew 14%).
Underlying net loss after tax was $22.8 million,
compared to an underlying net profit of $40.6
million in FY21, due to the decrease in EBITDA
and increased amortisation in relation to product
development and intangibles acquired as part
of the Quadrant acquisition.
Appen 2022 Annual Report
37
Financial
Non-cash asset impairment charge
Balance sheet
On 13 February 2023, Appen announced that following a review
of the value of cash generating units (CGU) and of the carrying
value of its assets in accordance with the relevant accounting
standards, the Company expected to recognise a non-cash,
pre-tax impairment charge of $204.3 million for the year ended
31 December 2022. This financial report confirms this amount.
Accordingly, the carrying value of non-goodwill intangibles
attributable to the New Markets CGU was reduced by $15.4 million
and the carrying value of Goodwill was reduced by $188.9 million.
The balance sheet has no debt. At 31 December 2022,
our net assets after the impairment charge are $148 million.
Appen’s 31 December 2022 cash balance was $23.4 million
(31 December 2021: $47.9 million) mainly due to a reduction
in operating cash flows, which were impacted by the current
year performance, increased product and capex spend
and a minority investment in Mindtech, which increases the
addressable market to capture synthetic data.
There remains high conviction in the future growth prospects
of the New Markets business units, however given the FY22
performance, future revenue growth assumptions have been
revised to reflect lower growth rates, resulting in an impairment loss.
We have significant headroom in our larger, more established
Global Services CGU.
The impairment charge is non-cash related and is a non-operating
item. Therefore, underlying EBITDA and underlying NPAT is not
impacted. Additionally, there are no related covenant impacts
or ability to draw our debt facilities.
Note 16 of the financial report (pages 129 to 135) provides
further information in relation to the impact of the impairment
charge on the Group’s intangible assets.
Strong cash conversion through the ability to turn earnings
into cash continues to be a key strength of the business and
the 31 December 2022 cash position.
The trade and other receivables and contract assets
were $94.7 million at 31 December 2022 compared to the
31 December 2021 balance of $99.7 million. This is due
to an increase in trading volumes in Q4 2021 volumes which
have since been collected and lower Q4 2022 revenues
as compared to Q4 2021. The reduction in trade receivables
is also impacted by work in progress and timing of billing
milestones, with such milestones being achieved in early
January, resulting in some work done in December, being
reflected in contract assets.
Total liabilities were $107.0 million at 31 December 2022
down from $110.3 million at 31 December 2021, because
of the cost reduction initiatives outlined above, specifically
relating the reduction in the real estate footprint and
reduction in discretionary spend.
The Quadrant earn out is subject to performance metrics and
is not payable until 2024. The earn out can be settled in cash
or shares.
Subsequent to year end, we received credit approval for the
extension of our debt facilities for nine months to 3 January 2024.
The extension agreement is expected to be finalised in the next
few weeks. A full debt refinance is planned for the second half
of FY23 to achieve an appropriate debt structure to support the
current and future needs of the business. Our existing debt facility
has been resized to a working capital facility of A$20 million
to reflect the current needs of the business.
38
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 loss/(profit) after tax (NPAT) 1
(Less)/add underlying adjustments (net of tax)
Impairment loss
Amortisation of acquisition-related identifiable Intangible assets
Restructure costs
Transaction costs
Deemed interest on earn-out liability 2
Losses on inventory
Cloud computing costs
Acquisition-related share-based payments 3
Statutory NPAT
(Less)/add: tax (benefit)/expense
Add: net interest expense
Add: deemed interest on earn-out liability 2
EBIT 4
Add: depreciation and amortisation
Statutory EBITDA 5
Add/(less): underlying adjustments
Impairment loss
Restructure costs
Transaction costs
Acquisition-related share-based payments 3
Inventory losses
Cloud computing costs
Year ended
31 December
2022
$000
Year ended
31 December
2021
$000
299,755
88.378
360
388,493
344,679
102,475
120
447,274
Change
(13.0%)
(13.8%)
(13.1%)
(22,739)
40,597
(156.0%)
(204,326)
(9,573)
(488)
(1,096)
(540)
(257)
–
(49)
(239,068)
–
772
813
(237,483)
41,582
–
(8,303)
(1,625)
(1,929)
(461)
–
(17)
257
28,519
7,356
1,362
657
37,894
35,038
(938.3%)
(726.7%)
(195,901)
72,932
(368.6%)
204,326
678
1,556
49
309
–
–
2,256
2,729
(257)
–
24
Underlying EBITDA 1
11,017
77,684
(85.8%)
Statutory diluted earnings per share (cents)
Underlying diluted earnings per share (cents)
% Statutory EBITDA/sales revenue
% Underlying EBITDA/sales revenue
(193.78)
(18.43)
(50.4%)
2.8%
22.85
32.53
16.3%
17.4%
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 the impairment loss, restructure costs,
transaction costs, inventory losses and acquisition-related share-based payments expenses.
2 Contingent liability with respect to the Quadrant acquisition which will settle no later than 29 February 2024, subject to Quadrant attaining
3
revenue milestones.
Includes a true-up adjustment reducing the share-based payments expense in relation to the 2020 and 2021 Long-Term Incentive Plans,
for rights that did not vest.
4 EBIT is defined as earnings before interest and tax.
5 EBITDA is EBIT before depreciation and amortisation.
Appen 2022 Annual Report
39
Value drivers
Social
and environment
AI technology helps to power many aspects of our daily lives and
can provide a positive contribution to the community and the
environment. Across the AI lifecycle, we strive to embed social and
environmental principles to ensure the responsible development of AI.
Good business practice
Doing the right thing by our customers, employees and stakeholders is key
to maintaining relationships and our ability to operate.
We hold ourselves to the highest ethical standards and conduct our business
with integrity, respect and fairness. To demonstrate our commitment, we have
become a signatory to the United Nations Global Compact (UNGC). In doing so,
we support the ten principles of UNGC on human rights, labour, environment,
and anti-corruption and adopting them to our business strategies and operations.
Progress regarding implementation of the 10 UNGC principles will be shared in our
FY23 annual report.
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 1.
We ensure our people are aware of their obligations through mandatory code
of conduct training. As of 31 December 2022, 91% 2 of eligible employees had
completed the mandatory code of conduct training. To improve compliance levels
and foster a culture of accountability, next year we are implementing STI conditions
linked to training completion.
Signatory
to the UN Global
Compact
Committed
to Net Zero
Roadmap
Priority SDGs
1
2
Based on financial data from Workday.
Data from Appen University. Calculation consistent with FY21 which excludes China
and Quadrant.
40
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.
We also continued the integration of our supplier
requirements from our Global Ethical Sourcing
and Modern Slavery Policy into our procurement
practices and continue to work with our suppliers
and customers to manage the risks of modern
slavery and human rights abuses in our supply chain.
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 2022, no modern
slavery breaches were recorded.
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:
considering the environmental impacts of our activities.
setting social and environmental standards.
monitoring compliance with our social and
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:
considering environmental and climate change risk
as part of the quarterly risk reporting process.
reviewing relevant reporting from management to
ensure management is effectively managing the risks.
making recommendations to the Board.
Importance of diversity to achieving fair AI
Creating responsible AI standards
Ensuring equitable results for users of AI products requires
developers to consider the impact of bias across the AI
lifecycle. Bias in AI 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 key projects, we are launching
studies globally to help us understand and address any
representation gaps across a number of demographic
characteristics including ethnicity, race, gender, sexual
orientation and disability.
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
impact
The aim is to improve quality, efficiency,
transparency and responsibility for AI projects
while promoting inclusivity and collaboration.
Appen 2022 Annual Report
41
Social Impact
As part of our commitment to having a positive social
impact, Appen partners with organisations to provide work
opportunities to people that otherwise wouldn’t have access
to work, especially those from vulnerable or marginalised
communities such as refugees, people who have been
long-term unemployed, and people with prior justice system
involvement. In 2022 we launched a partnership with
MercyCorps to provide opportunities for their tech training
graduates to work on Appen projects. In 2023 we will
expand this partnership and launch other impact sourcing
partnerships to increase our impact and support of these
communities. Appen is a lead member of the IAOP Center
for Social Impact, helping to connect, convene and support
industry investment in impact sourcing.
Appen employees give back by undertaking pro-bono work
and hold various fundraising events to support a variety
of not-for-profit organisations throughout the year
including the Cerebral Palsy Alliance, Comic Relief, Save the
Children, St Petrocks (supporting those who are homeless
or vulnerably housed) MacMillan Cancer Support, the
Cancer Council and the Organisation for Autism Research.
In 2022, Appen continued its pro-bono partnership with
CLEAR Global, previously Translators Without Borders,
to help support the development of a chatbot for mental
health, focused in regions with limited literacy. Linguist
from Appen undertook Language Specific Peculiarities
(LSP) research to outline the phonological, grammatical,
and orthographic aspects of Sheng, a Swahili-English
slang used primarily by young people in Nairobi and other
urban areas of Kenya. “As a native speaker of Sheng
and Swahili, I was impressed by the level of detail and
accuracy in the LSP document Appen delivered,” shared
Paul Waramabo, Swahili Language Lead for CLEAR Global.
“It’s a powerful tool that shows the endless possibilities for
many underdeveloped languages and what can be done
for those languages.”
Social and environment
Larrakia Nation
Overview:
To preserve the Larrakia language, linguist
Dr. Mark Harvey has teamed up with the Larrakia
Nation Aboriginal Corporation of People and
Appen with a goal to improve the database
of usable text and audio data language samples
of the Larrakia language.
Challenge:
To improve the data and database for the Larrakia
language so it can be useable and preserved for
future teaching and future generations. The two
databases, one with text and one with audio,
were not linked and could only be accessed
independently via loose time alignments.
They needed to isolate sentences or speakers,
to distinguish between passages of English vs.
Larrakia, and reduce errors in the data samples.
Solution:
Appen expert linguists provided acoustic
measurements to help describe Larrakia
vowels and consonants, supplementary English
transcription, and introduced more granular
timestamping by inserting markers at relevant
sense units (phrases, sentences or single words).
Each sense unit was further labelled by speaker
role and language being spoken. Appen specialists
supervised the phonetic annotation of subsets
of vowels and consonants and performed acoustic
measurements, which will help describe and better
understand the phonetic inventory of Larrakia.
Result:
As a partner, Appen has been helpful in
creating a useable, sustainable database.
The Larrakia Language database project
is an ongoing effort.
The next steps will be to preserve and
teach the language.
42
Environmental footprint
Climate strategy
Our environmental and climate change commitments are
outlined in our Environment Position Statement (EPS).
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:
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, suppliers and crowd
on sustainable procurement solutions.
Appen’s Net Zero Roadmap provides pathways towards
achieving net zero emissions across Appen’s business
operations and supply chain which consists of:
Better energy management.
Energy efficiency.
Sustainably sourced energy (renewable energy).
Engagement with suppliers and our crowd to pursue
net zero emissions.
Carbon offsets.
We have also revised our net zero targets as part of the
Roadmap, they are:
Net zero emissions across Appen’s operations by 2025.
Net zero emissions across whole business by 2030.
As carbon offsets play a key part in our Roadmap,
an offset strategy will be drafted in 2023 to ensure the
integrity of the offsets and that our investment is long
term focused and encompass ESG criteria that goes
beyond carbon reductions.
Climate change
We acknowledge the risks associated
with climate change and are committed
to playing our part in supporting the
transition to net zero emissions by signing
up to the Science Based Target initiative
(SBTi) to limit global warming by 1.5°C.
We have created a Net Zero Roadmap to
provide pathways towards achieving our
net zero emissions target. The Roadmap
and its proposed funding (excluding
offsets) which will receive formal approval
once the offset strategy is finalised has
been approved by the Board and will be
adopted across the business.
Further details of the Roadmap
can be found on page 47 and
on Appen’s website.
Appen 2022 Annual Report
43
Social and environment
Risk management
Metrics and targets
The GHG emissions inventory (carbon footprint) for 2022
has been completed based on the principles of GHG
Protocol with emissions breakdown in scope 1, 2 and 3
shown in the following table. We have expanded on the
categories reported in the current year to also include
estimated emissions from our crowd. As part of the
development of Net Zero Roadmap, our estimation
assumptions were reviewed by an external consultant during
the year. The inventory below indicates that 14% of our
overall emissions comes from Appen’s business operations
with the bulk of our emissions coming from our supply chain
(i.e. crowd, suppliers, etc.).
Appen 2022 GHG Inventory 1
2022 (MTC02e)
Scope 1 – Onsite Combustion
Scope 2 – Electricity – Location-Based
Emissions (MTC02e)
Sub-total (Scope 1 and 2)
Scope 3 – Emissions
TOTAL
263
1,475
1,738
9,872
11,610
The reporting boundary for scope 1 and 2 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 six months or less in the reporting period
have been excluded from this boundary.
1
Emissions calculations based on GHG Protocol.
We assess the potential size and scope of climate risk
through our risk management framework along with the
recommendation of the Task Force on Climate-related
Financial Disclosures (TCFD). 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). Please refer to the section ‘Analysis of risks
and opportunities’ for the identification of risks and
opportunities associated with the physical impacts
of climate change on business activities and operations.
As part of the TCFD framework, we have conducted
scenario analysis of our offices around the world
to identify potential physical risks that will impact
on those sites. Please refer to section ‘TCFD-based
Scenario Analysis’ for further details and outcomes.
Further details of our GHG
inventory, including category
breakdown for scope 3 with
emissions by geography and
energy consumptions can
be found in the Appendix
on page 172.
Outlook
Over the next year we will be implementing the key strategies within the Net Zero Carbon Roadmap, engaging with
our crowd and suppliers on emissions reduction and formulation of an offset strategy with the aim of achieving
Climate Active certification by end of 2024.
We are also focused on reviewing our EPS and developing environmental policies for water and waste along with key
initiatives to reduce water and waste generation. We will outline these measures in our 2023 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.
In 2023 we are establishing an AI for Good Committee to ensure we are embedding AI for Good throughout our
governance, products and operations. A large part of the remit of this committee will be dedicated to leading the
way in AI for Good by ensuring we also walk the talk through our social and environmental initiatives. The committee
will be chaired by our CEO and President.
44
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.
Potential Impact
Response
Transition risks
Policy
and legal
Physical risks
Acute
Our customers expect
environmentally responsible
suppliers as part of their
commitment to net zero
emissions in their supply chains.
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 and
other stakeholders.
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.
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.
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 2022 Annual Report
45
Social and environment
TCFD-based scenario analysis
A desktop scenario analysis has been conducted
to help identify potential physical risks that will impact
on Appen offices globally. The below scenarios have been
conducted based on two carbon emissions scenarios from
Intergovernmental Panel on Climate Change (IPCC) Fifth
Assessment Report: low emissions (RCP 4.5 or 2 ⁰C warming)
and high emissions (RCP 8.5 or 4 ⁰C warming).
For each type of risk the associated business impacts were
determined and a risk rating applied. Some of the identified
business impacts included:
Damage to property and potential loss of life.
Rising cost of business operations.
Scarcity of resources such as water, etc.
For each office the above climate scenarios were analysed
in conjunction with the following identified physical risks:
Scenario analysis outcomes
Fires – bushfires and wildfires arising from a hotter and
drier climate.
Heatwave – prolonged high temperatures.
Drought – reduced rainfall from a hotter and drier climate.
Flood – from increased storm activities and intensities
(i.e. storm surges, typhoon etc.).
Inundation – lands under water due to rising sea levels
from climate change.
Based on the physical risk analysis, the key risks impacting most
of the offices are heatwave and drought especially in a high
emissions scenario (RCP 8.5).
In response to the analysis, we have identified and begun
initiatives within the office sites for mitigation and adaptation
which include:
Energy efficient HVAC and installation of LED lightings.
Water efficient plumbing and water fixtures.
Sourcing of on-site or off-site renewable energy
(i.e. solar, wind, hydro).
A snapshot of our Net Zero Roadmap
and the strategic initiatives can be found
on the following page.
46
Net zero roadmap
Our roadmap outlines the key strategies and actions to be taken across our business to achieve net zero emissions by 2030.
Roadmap
targets
Net zero emissions by 2025
for business operations
Net zero emissions by 2030
for business operations
2022
2023
2024
2025
2026
2027
2028
2029
2030
Scope 1 and 2 emissions
Optimise office
location strategy
Office consolidation
Completion
of office
optimisation
strategy
Energy
efficient sites
Implementation
of energy
efficient
practices
Installation
of energy
efficient
equipment
Gas to electric
conversions
Switch to
renewable
energy
providers
Installation
of renewable
energy
All sites
powered by
renewable
energy 1
N
e
t
z
e
r
o
e
m
i
s
s
i
o
n
s
f
r
o
m
s
i
t
e
s
Supplier
engagement
Top suppliers
committed
to net zero
Sustainable procurement strategy
Contractor engagement and awareness programs. Implementation of contractor incentive programs and partnerships.
N
e
t
z
e
r
o
e
m
i
s
s
i
o
n
s
Employee engagement and awareness campaigns
Sustainably
sourced energy
Scope 3 emissions
Partnering with
core suppliers
to net zero
Enable crowd
energy efficient
practices
Support
employees
in their
sustainability
journey
Offsets
Core operations
offset program
Supplier/crowd
offset program
Travel offsets
ramping up to site
energy in 2024
Purchase offsets each year from
2024, increasing by 20% annually
1 Where available in the market otherwise offsets utilised.
Appen 2022 Annual Report
47
Identifying
and managing risk
We operate in a high-growth, dynamic market and ensuring risk
management is embedded in everything we do is critical to meeting
our strategic objectives.
Risk appetite
Emerging risks
We define emerging risks as uncertainties which might
not be clearly understood, or possible to fully assess.
We monitor these risks and as part of our annual
strategic planning session perform horizon scanning
review to identify any that are new and relevant. Our
horizon scanning includes consideration of external
analysis such as the World Economic Forum Global
Risk Report and other available commentary. 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.
Examples of emerging risks that have been incorporated
into principal risks are climate change, geoeconomic
factors and responsible AI.
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.
Risk culture
Our approach to risk management is intertwined with our
strategic planning and objectives. Embedding risk management
across the business from strategy development down to our day-
to-day operations, supported by our company values promotes
transparency and accountability in decision making. This culture
is supported by our Code of Conduct and other policies, regular
training and implementation of cost-effective controls.
Key changes in our principal risks
Every year as part our strategic planning process, we revisit our
principal risks to ensure congruence with our strategic direction
and value drivers. This exercise was conducted concurrently with
our materiality assessment to ensure that material risks from all
stakeholders were appropriately captured, and our assessment
was not materially different to that of our stakeholders. Where
there is a direct correlation with previous reported risks the
movement year on year has been reported.
Further information regarding
emerging risks can be found in their
corresponding principal risks as
identified on the following page.
48
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
risks 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
• Provides oversight of risk management and culture which
contributes to the ability to achieve strategic objectives.
• 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
• Responsible for the implementation of the risk
management framework and risk aware culture within
their teams.
• 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.
• Attest that key risks in their area have been identified and
managed through controls and mitigants on a bi-annual basis.
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 2022 Annual Report
49
Identifying and managing risk
A summary of our principal risks, and how these have changed during the year, mitigation strategies and related trends are detailed
in the following tables. This reflects the risks identified by the Board for the year ended 31 December 2022. 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.
Principal risk
Mitigation
Value Driver
Business model
Strategic direction of business
The AI market is very dynamic and with client
needs and end-user expectations change
rapidly. Demand for services can rapidly change
depending on technological developments within
market segments, geoeconomic confrontations
factors (including global conflicts) and regulatory
developments which can all impact our
business model.
Identified material issues:
Technology innovation
Innovative customer solutions
Incorporated emerging risk:
geoeconomic factors and confrontations
Change
This is a revised risk category for the current
year and is not directly comparable to prior
year categories.
• We have a team that is dedicated to
monitoring AI and technology markets,
customer trends and regulatory changes.
• We use these insights to inform our
strategy and technology roadmap,
and to evolve our offering.
• We scan for additional opportunities
to expand into other markets and/or
technology to support our existing offering.
• Macroeconomic and geopolitical risks,
including consideration of potential
political uncertainty in certain markets
and geographies, are actively factored
into our strategic planning processes and
investment activity.
• We undertake ongoing horizon scanning
to monitor potential policy, legal and
regulatory developments that may
impact our ability to operate in particular
industries, markets and geographical
locations. We have plans and processes
in place to react in an agile manner
with minimal business disruption to any
changes that may occur.
Market demand and competition
• We monitor new investments in the data
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. The profile of the projects that
our customers are undertaking is also changing.
Identified material issue:
Ongoing customer demand for data
Change
This risk has trended upwards due to the
increasing pressure from competitors
in the year.
annotation sector closely.
• We have reprioritised to a product-led
focus to ensure our technology capabilities
remain ahead of the competition.
• We have invested in new sales and
marketing capabilities to deepen and
expand our relationships with existing
and new customers.
• We continue to invest in technology
to increase the quality of our services
and to deploy new capabilities.
• Our core Relevance activities are less
amenable to replication by machines
or insourcing as they require a large-scale
diverse crowd performing subjective
human judgements.
Customer
and brand
Global crowd
Technology,
processes,
systems
Financial
Customer
and brand
Technology,
processes,
systems
Financial
50
Key:
Increase
Decrease
Stable
Principal risk
Mitigation
Value Driver
Changing customer
strategy and needs
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 volume can fluctuate. Clients can
also reprioritise their spend away from areas of
innovation at short notice or have ongoing needs
for training data impacted by strategic changes
of other players in the sector.
Identified material issues:
Customer experience and satisfaction
Innovative customer solutions
Customer concentration
Change
This risk has increased in the past year due
to disruption in the technology sector and
rapid strategic changes that customers have
implemented in response to changes in the
global economic environment.
Ability to execute on
operational requirements
The sector we operate in is fast moving, and
we need to be agile to meet these expectations.
Knowledge and skills need to be developed
at the same rate as our clients to continue
to execute our operations successfully to meet
their expectations.
Identified material issue:
Customer experience and satisfaction
Change
This risk has remained stable in the current
year as we continue our transformation
program against a rapidly changing
customer strategy landscape.
• We continue to build relationships with
key clients to ensure we can anticipate
strategy changes and react accordingly.
• We monitor relevant market and customer
trends and regulatory changes to identify
potential headwinds for our clients which
may impact our future revenue.
• We continue our product-led focus to meet
•
evolving customer needs.
Inclusion of customer NPS targets within
Executive STI.
Customer
and brand
Technology,
processes,
systems
• We have a quick response team for
our major clients to ensure we can
keep pace with their changing needs.
• Our transformation team has improved
and streamlined our processes to ensure
we are able to execute operations
in an effective and consistent manner.
• Refinement of our customer NPS
program which we use to identify
gaps and areas of improvement
in our operational implementation.
Technology,
processes,
systems
Customer
and brand
Global crowd
Appen 2022 Annual Report
51
Identifying and managing risk
Principal risk
Mitigation
Value Driver
Resilient operational model
The loss of data, a physical site or critical
employees could result in a major impact
to our customers, revenues and reputation.
Identified material issues:
Managing technology disruptions and
business continuity
Platform availability
Change
This risk has increased in the past year due
to the increasing frequency of cyber-attacks,
extreme weather events, and potential
impact on key individuals as a result of the
coronavirus pandemic.
People
Talent strategy and employee value
proposition
Our business is reliant on specialised skills.
Our ability to grow is dependent on attracting,
developing and motivating our talent.
Identified material issues:
Culture and engagement
Diversity, equity and inclusion
Talent attraction and retention
Wellbeing and safety
Workplace training and development
Change
Ongoing employment market pressure
remains a key contributor to this risk, however
the internal work over the year has resulted
in a lowering of this risk year on year.
• We store data in enterprise grade,
cloud-based servers which are duplicated
to minimise disruption.
• Our engineering team focuses
on resilience to mitigate the risks
of material or sustained disruption.
• We have business continuity plans for
facilities that require a physical presence
on-site 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.
• Our HR department works closely with
the business to understand the skills
and capabilities required to deliver our
business objectives and to ensure those
needs are met. In 2023, this also includes
a revision of the way we manage employee
goals and accountability.
• We have listened to the feedback provided
by our employees as part of the culture
work conducted and have introduced
new ways of working, additional learning
pathways and other programs to improve
our employee value proposition.
• We continue to benchmark our offerings
across the sector to ensure market
competitiveness and introduced additional
employee benefits programs to retain and
attract talent.
Inclusion of employee engagement targets
within Executive STI.
•
Customer
and brand
Technology,
processes,
systems
Social and
environment
Our people
Social and
environment
52
Key:
Increase
Decrease
Stable
Principal risk
Mitigation
Value Driver
Managing organisation culture and
leadership through change
Future proofing our business has been driven
by a large-scale transformation program.
Reliance on buy-in from employees is critical
for the success of any transformation program.
Identified material issue:
Culture and engagement
• We reinforce our values, desired
behaviours and attributes through
direct links to reward and recognition.
• We have embedded a dedicated
transformation team who is responsible
for planning, executing, co-ordinating and
controlling activities related to change.
• All critical transformation programs have
accompanying change management plans
to ensure buy-in from critical employees.
Our people
Technology,
processes,
systems
Change
This risk has decreased in the year as the
transformation program becomes well
embedded within our ecosystem however
remains a risk due to the speed of change
that is required.
Technology and innovation
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.
Identified material issues:
Technology innovation
Innovative customer solutions
Change
This risk has remained stable in the current
year as we continued to invest in our product
and engineering teams.
• We are investing in our transformation
program to improve both customer
and crowd experiences, and to deliver
automation benefits and efficiencies
and new offerings.
• We utilise agile methods in our project
delivery to ensure investment in
engineering projects is appropriately
prioritised and oversight is in place.
Technology,
processes,
systems
Customer
and brand
Appen 2022 Annual Report
53
Identifying and managing risk
Principal risk
Mitigation
Value Driver
Protection of intellectual property
• We have an Intellectual Property (IP)
With an increasingly product-led strategy the
need for solid intellectual property protection
strategies are key to delivering outcomes for
our customers.
Identified material issue:
Protection of technology
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.
Crowd
Crowd conditions
Independent contractors are critical to our
business. The attraction and retention of skilled
contractors enables our competitive advantage
and customer value proposition.
Identified material issue:
Fair pay, treatment and wellbeing
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.
Committee that looks at new 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.).
• 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.
• 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.
• Our Impact Sourcing strategy provides
jobs and career development to people
who otherwise have limited prospects
for formal employment.
• We are working with our customers to
ensure the value of fair work is understood
and implemented within their own
procurement processes to ensure fair
conditions to contractors.
Inclusion of crowd NPS targets within
Executive STI.
•
Technology,
processes,
systems
Global crowd
Customer
and brand
54
Key:
Increase
Decrease
Stable
Principal risk
Mitigation
Value Driver
Crowd supply meets
customer demand
Our business model relies on our ability to provide
customers with access to a broad range of skills
provided by our global crowd.
Identified material issues:
Crowd diversity and inclusion
Crowd integrity
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.
Data management
Compliance with security, privacy
and other data regulations
We manage a large amount of data as part
of our operations including a significant amount
of personal information which requires increased
security requirements.
Identified material issue:
Data privacy and governance
Change
This risk continues to trend higher due
to increasing regulation globally as well
as an increase in the amount of sensitive
information we are being requested
to process.
• We have begun new programs to
understand how the work we provide fits
into the life of an independent contractor
and are developing new user experiences
and pathways to better tailor the
contractor experience to this feedback.
• We have implemented 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
Technology,
processes,
systems
Customer
and brand
• We continue to integrate security
and privacy requirements into our
systems and offerings by increasing the
collaboration between our engineering
and privacy teams.
• We have a team that is responsible for
understanding emerging information
security risks. They consult with
external advisors.
Information security risk assessments
are conducted on a regular basis
and the IT team undergoes training
in risk management.
•
• We have maintained certification for
ISO 27001 and SOC 2 as well as gaining
ISO 27701 for our China business.
• We have policies, procedures and training
to ensure employees are aware of their
privacy and security obligations.
• Privacy and data security are a standing
agenda item for our IT Governance Steering
Group which reports quarterly to our Audit
and Risk Management Committee.
Appen 2022 Annual Report
55
Identifying and managing risk
Principal risk
Mitigation
Value Driver
Emerging cyber security issues
We manage sensitive customer information,
increasing our exposure and susceptibility
to cyber attacks. Cyber threats could lead
to a loss of data or service interruption
impacting customers and our reputation.
Identified material issue:
Cyber security
Change
The increasing prevalence of cyber
attacks has resulted in an increase
in this risk during the year.
Financial sustainability
We operate globally and our business can be
affected by foreign exchange, changes in debt
markets and tax obligations. As a listed entity we
also have an obligation to protect shareholders’
capital and ensure sustainable earnings.
Identified material issue:
Sustainable earnings
Change
Global economic uncertainty has
resulted in an increase in this risk
in the year.
• We have implemented a cyber security
risk management framework across the
organisation. It includes the deployment
of physical and technological security
measures to identify, protect, detect
and respond to information and cyber
security risks. We have ISO 27001 and
SOC 2 certification.
• We conduct audits of our cyber security
practices, including maturity assessments,
scenario planning, penetration testing and
simulation exercises, for cyber security
incident management.
• The strength of our control environment
is tested on an ongoing basis by
independent security experts. Their
recommendations are implemented
in a prioritised manner.
• We have policies, procedures and annual
training to ensure employees are aware
of the threat and their responsibilities, and
we conduct regular synthetic phishing tests.
•
Improving our market communication
strategy away from short term results
to longer term focus to better manage
stakeholder expectations.
• We naturally hedge foreign exchange risk
by paying for associated services in the
same currency we receive revenue.
• We have a formal hedging policy
to provide protection where we make
payments in Australian dollars with
US funds.
• Extended our debt facilities for a further
four-year term.
• 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.
Technology,
processes,
systems
Customer
and brand
Financial
Our people
56
Key:
Increase
Decrease
Stable
Principal risk
Mitigation
Value Driver
• We regularly review our material
obligations to ensure appropriate controls,
governance and oversight are maintained.
• We understand the local labour and human
rights landscapes in the jurisdictions
we operate in and ensure we comply
with modern slavery requirements.
• Our compliance framework includes
policies, procedures and a suite
of mandatory compliance training which
helps drive positive attitudes to compliance
across the business.
• We have added relevant subject matter
expertise across the business and are
increasing our training program for all
employees to extend our compliance and
reporting capabilities.
• 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.
• We are a signatory to the United Nations
Global Compact and have committed
to take action to embed the ten principles
within our business practices.
• We have completed our initial Net Zero
Roadmap and have committed to net zero
for our operations by 2025 and for our
wider footprint by 2030.
• We have committed to the Science
Based Target Initiative and disclosing
climate-related issues in accordance with
the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations.
Social and
environment
Financial
Our people
Social and
environment
Support
Compliance with legal, statutory
and ethical obligations
We have a responsibility to not only operate
in a manner that is congruent with our legal and
statutory obligations. We also have an obligation
to disseminate and embed responsible AI best
practices across our operations and partnerships.
Identified material issues:
Corporate governance
Corporate citizenship and reputation
Code of conduct compliance
Incorporated emerging risk:
responsible AI
Change
This risk has increased due to growing
compliance and ethical expectations from
stakeholders and the broader community.
Environmental, social and governance
(ESG) risks and performance
We have a responsibility as a corporate citizen
to tackle pressing issues such as climate change,
and modern slavery, and address them across
our business operations and supply chains.
Identified material issues:
Responsible AI
Environmental impact and climate change
Corporate citizenship and reputation
Human rights and modern slavery
Supply chain management
Incorporated emerging risk:
climate change
Change
This risk has decreased due to the
action that the company is taking to
meet our ESG commitments despite an
increasing governance and compliance
expectations from stakeholders.
Appen 2022 Annual Report
57
Our approach
to governance
The Board and management team
maintain a high standard of corporate
governance as part of our commitment
to create value for stakeholders
through effective strategic planning,
risk management, transparency, and
corporate responsibility.
Our governance policies and practices
are consistent with the 4th edition of the
ASX Corporate Governance Council’s
Principles and Recommendations
throughout the year.
The Board regularly reviews governance
practices in light of changing stakeholder
expectations, changes in the Company
and relevant developments in corporate
governance practices.
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.
58
2022 areas of governance focus
• delivered initiatives to ensure the
Strategic and financial performance
• a Board and executive strategy
session was held to focus Appen’s
response to challenging external
operating environment.
Our people
•
•
• continue to have robust COVID-safe
work practices for our employees.
introduced new ways of working,
additional learning pathways and
other programs to improve our
employee value proposition.
the Diversity and Inclusion Committee
continued to focus on initiatives
to promote gender diversity and
implement practices for the benefit
of under-represented groups.
reviewed our organisational
structures within each business
unit and functional area with
a focus on operational efficiency
and enhanced agility.
•
• outlined our Future Ways of
Working for our global employees
to embrace both employee voice
as well as market trends on
workplace practices. This included
the launch of the Neighbourhood
program to help foster and cultivate
deeper connections despite
geographic dispersion.
• completed a role specific
remuneration analysis for every
role globally as part of our ongoing
commitment to maintain remuneration
within market ranges of pay. Where gaps
to market were identified, appropriate
steps were taken to ensure our
continued commitment was honoured.
• executive team strengthened by the
addition of two new members.
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.
crowd are better matched to projects
and onboard more efficiently.
Social and environment
• completed our Net Zero Roadmap
and committed to net zero for
operations by 2025 and for our wider
footprint by 2030.
• committed to the SBTi Initiative.
• became a signatory to the United
Nations Global Compact.
Governance and board renewal
• undertook process of board renewal
with the appointment of three new
Independent Non-executive directors
• Managed CEO succession.
Financial and capital management
• considered dividend policy in light
of current trading performance.
reviewed and revised foreign
exchange hedging policy.
•
Ethics and responsible decision making
• partnered with our key customers to
establish projects to identify and monitor
our impact on social impact activities.
issued our Modern Slavery Statement.
•
Compliance and risk management
•
•
•
internal audit program – reviewed
and assessed processes across
key operational areas, including
a review of our transformation
projects and processes.
reviewed the risk management
framework, revised the risk appetite
statement and updated our strategic
risks to incorporate material ESG risks.
Confirmed the identified risks through
our stakeholder materiality assessment.
focus on cyber security including
a cyber maturity review, ISO27001
compliance across global sites and
SOC2 compliance on key platforms.
Skill
Description
Skill level
Board diversity
Strategy
Finance
Risk
Industry
experience
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,
tax, corporate finance and internal financial controls.
Experience in the identification, monitoring and
management of material financial and non-financial risks,
the oversight of compliance frameworks and controls, and
the ability to identify and oversee mitigation strategies for
emerging risk and compliance issues in the organisation.
Experience and broad understanding of the application
of language technology, machine learning and artificial
intelligence, including market drivers, risks and trends
and encompassing policies, competitors, end users,
regulatory policy and frameworks.
Customer/
client
Experience developing customer/client strategy and
delivering customer/client outcomes.
Capital
markets
Corporate
transactions
Expertise in considering and implementing efficient
capital management including alternative capital sources
and distributions, yields and markets.
Experience in assessing and completing complex
business transactions, including mergers, acquisitions,
divestments, capital management, 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, diversity and inclusion,
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.
50%
of directors
are female
Male
Female
50.0%
50.0%
Non-executive
director tenure
3.1 years
average tenure
of NEDs
0–1 year
1–3 years
3–5 years
5+ years
43.0%
28.5%
0.0%
28.5%
International
business experience
75%
high level
international
experience
High
Medium
75.0%
25.0%
Data and
security
Understanding the use of data and the risks associated
with data security, cyber security and privacy.
Director independence
International
business
experience
Environment,
social and
governance
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.
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
88%
of directors are
independent
Independent
CEO
7
1
Appen 2022 Annual Report
59
Board of
Directors
Richard Freudenstein
BEc, LLB (Hons)
Non-executive Chair
Appointed: Chair on 28 October
and joined as non-executive
Director on 12 August 2021
Board Committee:
Member of the People and
Culture Committee
Richard is a director of Coles Group Limited
(ASX: COL), REA Group Ltd (ASX: REA) and Cricket
Australia. Previously, he was Chair of REA Group Ltd
and a director of Ten Network Holdings Ltd (ASX: TEN),
Foxtel and Astro Malaysia Holdings Berhad. Richard
has held the roles of Chief Executive Officer (CEO)
at Foxtel (2011–2016), News Digital Media at News
Ltd (2006–2010) and The Australian and was Chief
Operating Officer (COO) at British Sky Broadcasting
(2009–2006). He is currently Deputy Chancellor and
Fellow of the Senate at the University of Sydney.
Steve Hasker
BCom, MBA, MIA, ACAA
Independent Non-executive
Director
Appointed: 7 April 2005
Board Committee:
Member of the People and
Culture Committee
Steve has extensive experience as a CEO, COO
and Advisor in the US. Steve has been President
and CEO of Thomson Reuters since March 2020.
He was a Senior Advisor to private equity firm TPG
Capital (2019–2020) and CEO of CAA Global, a TPG
Capital portfolio company (2018–2019). At Nielsen
Holdings PLC, he served as Global President and
COO (2015–2017) and President, Global Products
(2009–2014). Steve was a partner with McKinsey
(1998–2009). Before that, he spent five years in
several financial roles in the U.S. and other countries.
Robin Low
BCom, FCA, GAICD
Independent Non-executive
Director
Appointed: 30 October 2014
Board Committee:
Chair of the Audit and Risk
Management Committee
Robin is a non-executive director who serves on the
boards AUB Group Limited (ASX: AUB), IPH Limited
(ASX: IPH) and Marley Spoon (ASX: MMM). 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 Chair of the Auditing and Assurance
Standards Board and is a Fellow of the Institute
of Chartered Accountants Australia and New Zealand.
60
Vanessa Liu
AB Psychology (magna cum
laude with highest honors);
JD (cum laude)
Independent Non-executive
Director
Appointed: 27 March 2020
Board Committee:
Member of the Audit and Risk
Management Committee
Stuart Davis
LLB
Independent Non-executive
Director
Appointed: 30 March 2022
Board Committee:
Member of the Audit and Risk
Management Committee
Lynn Mickleburgh
BSc (Hons) in Mathematics,
MBA
Independent Non-executive
Director
Appointed: 30 March 2022
Board Committee:
Member of the People and
Culture Committee
Mini Peiris
BSc
Independent Non-executive
Director
Appointed: 4 November 2022
Board Committee:
Member of the People and
Culture Committee
Vanessa has a deep understanding of emerging
technology trends and enterprise uptake of artificial
intelligence, especially in the US market. She is the
Founder and CEO of SaaS technology company
Sugarwork, and is an non-executive director of
Goodman Group (ASX: GMG). Most recently she was
Vice President of SAP.iO, the early-stage venture
arm of SAP. Prior, Vanessa was the COO at Trigger
Media Group, a digital media incubator. Before that,
she was Associate Partner at McKinsey where she
served clients in media and high-tech sectors on
issues of digital strategy, emerging market strategy,
growth and innovation.
Stuart is a director and Chair of the Remuneration
Committee of NEXTDC Limited (ASX: NXT), non-
executive director of Bank of South Pacific Limited and
Chair of the Risk Committee, and director and Chair
of the Risk Committee of PayPal Australia Ltd. He has
more than 30 years’ experience as an international
banker with the HSBC Group where he was CEO, HSBC
India (2009–2012), CEO and Executive Director for
HSBC Bank Australia Limited (2002–2009) and CEO
HSBC Taiwan (1999–2002). He was a member of the
Australian Bankers Association from 2002 to 2009
and Deputy Chair from 2006 to 2009.
Lynn has experience as an ASX non-executive director,
a board advisor and transformational leader of both
Fortune 500 companies and high growth SAAS
companies. She is currently a non-executive director
at Altium Limited (ASX: ALU), where she is Chair of the
HR committee and also serves as a member of the
Audit and Risk Committee. Previously, she was Head of
Business Optimisation at Atlassian Inc, VP Finance at
Citrix Systems and held various global and operational
roles at Adobe Systems and Apple Computer.
Mini is a go-to-market advisor for high growth SaaS
companies within the portfolio of Scale Venture
Partners and is Chief Marketing Officer (CMO)
of Doma (NYSE: DOMA), a real estate technology
company. Prior to that, she was the CMO at
Elementum (a Lightspeed company) and Ambra
Health (acquired by Hg’s Intelerad). Mini spent 12+
years at cloud-pioneer company NetSuite (NYSE: N),
from its early stages through to its IPO and beyond.
She helped drive product growth as VP of Product
Management, then went on to lead a global team as
VP Worldwide Marketing that delivered go-to-market
scale from US$100 million to US$750 million.
Appen 2022 Annual Report
61
Executive
team
Armughan Ahmad
CEO, President & Managing Director
Appointed: January 2023
Bachelor of Computer Science
Armughan brings more than 25 years of experience in scaling multi-billion dollar
businesses and building strong teams. Most recently he served as the President
& Managing Partner of Digital at KPMG, a global leader in delivering innovative digital
transformation services across industry sectors. Before that he was the Senior Vice
President & General Manger at (NYSE:Dell), where he led the company’s Cloud, HPC
and Solutions business. He oversaw product, engineering, sales, marketing, services
and alliances, growing Dell’s business to multi-billions in revenue. Armughan played
a vital role in integrating Dell’s acquisition of EMC data storage, architecting multiple
successful multi-cloud platforms, including Microsoft, VMWare, and RedHat. Prior to Dell,
Armughan held global executive positions at Hewlett Packard (HP) through the acquisition
of 3Com/H3C (NYSE:3COM) a networking and security business, and he has held operating
roles with tech companies backed by private equity.
Armughan serves on the board of Future Skills Center innovating the future of work with
human and machine collaboration. He also serves on the international advisory and school
of engineering boards of University of Waterloo.
Kevin Levine
Chief Financial Officer
Appointed: January 2016
BComm, BAcc
Kevin is responsible for the finance, IT and corporate functions of the company. 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 and distressed companies in the services and technology sectors.
Prior to joining Appen, Kevin was the CEO and Chief Financial Officer (CFO) of Rubicor
Group Limited (ASX:RUB), 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 USA. Kevin
was admitted as a Chartered Accountant in 1989 in South Africa and in 1995 in Australia.
62
Sean Carithers
SVP and General Manager, Global
Appointed: November 2022
BA (Political Science)
Sean is responsible for strategy, sales, delivery and operations for our largest Global
accounts. He brings 25 years of cross-industry experience, delivering technology
innovation to start-up, large enterprise and Fortune 500 companies in B2C, B2B and
B2B2X global markets.
He has worked in executive roles for technology, consulting and global outsourcing
companies, providing large-scale service and technology solutions for advertising, marketing,
sales, retail, customer care, workforce management, billing and payments, blockchain and
artificial intelligence/machine learning. Sean is a certified Business Architect.
Eric de Cavaignac
Chief Transformation Officer
Appointed: November 2021
MBA (Beta Gamma Sigma, Dean’s List), BA (Hons)
Eric is responsible for driving programs to scale operations and delivery, and support
revenue growth. He brings more than 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 several 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 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.
Jen Cole
SVP and General Manager, Enterprise
Appointed: November 2021
MA (Psychology), BS (Psychology)
Jen has more than 22 years of experience building enterprise marketing and data platforms,
leading go-to-market teams, and scaling the delivery of technology enabled services.
She is responsible for 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.
Appen 2022 Annual Report
63
Andrea Clayton
Chief People Officer
Appointed: February 2022
MBA, BA (International Management)
Andrea is responsible for leading the people operations function. She has more than 20
years of progressive experience in building innovative people programs, leading people
operations teams, and transforming company cultures. Andrea has served in a variety
of global human resource (HR) leadership roles, in listed and unlisted companies, lived
and worked in five countries, and has experience leading HR in 30+ countries.
Prior to joining Appen, Andrea served as Chief People Officer at Thrive Pet Healthcare,
one of the largest and fastest growing veterinary companies in the United States.
Through the introduction of industry first programs, flexible policies and achievement
of significant gender diversity at all levels o leadership, Thrive was recognised as the
#1 company in the industry for women by InHerSight. Andrea was also a global HR leader
at General Electric Financial Assurance (now Genworth) for 11 years, including HR Director
for Genworth Australia through its IPO in 2014.
Mike Davie
SVP and General
Manager, Quadrant
Appointed: 2021
BBA, MSc (Database management and business intelligence)
Mike brings a strong background of experience in location data and location-based
business solutions that are fit for purpose, easy to use and simple to organise. Prior
to joining Appen, Mike was the founder and CEO of Quadrant, growing the business mobile
location data services to a portfolio of more than 450 million unique devices per month,
enabling companies to see and understand movement patterns in the real world. With
Quadrant he also developed a proprietary platform, ‘Geolancer’, which provides authentic,
accurate and up-to-date Point-of-Interest data, manually verified on the ground.
Previously, Mike provided leadership and strategy to the Advanced Mobile Product Strategy
team at Samsung where he developed GTM strategies for cutting edge technologies there.
Wilson Pang
Chief Technology Officer
Appointed: November 2018
MEng (ElecEng), BEng (ElecEng)
Wilson has more than 17 years’ experience in software engineering and data science.
He co-authored the book Real World AI: A Practical Guide to Responsible Machine
Learning, which hit the bestseller list on Amazon in March 2021.
Prior to joining Appen, Wilson was Chief Data Officer of CTrip in China, the second largest
online travel agency company in the world, where he led data engineers, analysts, data
product managers and scientists to improve user experience and increase operational
efficiency that grew the business. Before that, he was senior director of engineering
in eBay in California and provided leadership to various domains including data service
and solutions, search science, marketing technology and billing systems. He worked
as an architect at IBM prior to eBay, building technology solutions for various clients.
Executive team
64
Sujatha Sagiraju
Chief Product Officer
Appointed: September 2021
MBA (Technology Management), MS (Petroleum Engineering),
BS (Chemical Engineering)
Sujatha is responsible for Appen’s product strategy. She is a technology pioneer with more
than 20 years of broad experience in building disruptive large-scale online services and
AI/ML and data platforms. She joined Appen from Microsoft where she held leadership
roles in several groups including Bing and Azure AI Platform.
Roc Tian
SVP and General Manager,
China, Japan and Korea
Appointed: August 2019
PhD (Computer Software),
MA (Computer Applications)
Roc comes to Appen with more than 20 years of sales, consulting and management
experience from Fortune 100 companies. He is responsible for Appen’s business strategy,
sales, marketing, delivery, operations and government relationships in China, Japan
and Korea, to ensure continued growth and high client satisfaction. Roc brings a wealth
of sales, consulting, delivery and management experience to Appen, with a track record
of success in scaling technology organisations.
Most recently, Roc was senior partner of IBM GBS where he led the client services, public
sector and enterprise application service lines across the mainland China, Hong Kong
and Taiwan markets with remarkable business performance and achievements. Before
that, Roc was also a core leader responsible for the growth of IBM’s global delivery centre
in China from 4,000 to more than 10,000 people. Before IBM, Roc was a business quality
director for HP’s global delivery centre in China and a key leader responsible for helping
HP grow from a start-up to more than 3,000 people across China. Roc was also the
founder and CTO of a technology start-up that grew to more than 100 people.
Appen 2022 Annual Report
65
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 2022.
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 60–61 of the Annual Report.
Richard Freudenstein – Chairman
Armughan Ahmad – Chief Executive Officer, President and Managing Director from 9 January 2023
Mark Brayan – Managing Director and Chief Executive Officer to 15 December 2022
Stephen Hasker
Stuart Davis – from 29 March 2022
Vanessa Liu
Robin Low
Lynn Mickleburgh – from 29 July 2022
Mini Peiris – from 4 November 2022
Deena Shiff – to 27 May 2022
Principal activities
Appen is the global leader in data for the AI Lifecycle. With over 26 years of experience in data sourcing, data annotation,
and model evaluation, we enable organisations to launch the world’s most innovative artificial intelligence systems. Our expertise
includes a global crowd of more than one 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. Our products and services give leaders
in technology, automotive, financial services, retail, healthcare, and governments the confidence to launch world-class AI products.
Appen was founded in 1996 and listed on the Australian Securities Exchange on 7 January 2015.
Appen has customers and offices globally.
Appen has evolved significantly since 1996 and particularly in the last five years, from being a language data service provider
to become a leading data for the AI lifecycle provider.
Appen 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 share in the high growth market in China; and
• Quadrant: in September 2021, 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.
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 customers’ data annotation platforms and tools. The majority of projects comprise large, at-scale relevance (model
evaluation) 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 collection, annotation and evaluation products, coupled with the provision of at-scale crowd
management with Appen Connect and Appen’s considerable expertise and knowhow built up over the last 26 years. This enables
Appen to deliver high-quality outcomes for customers.
66
Dividends
Dividend declared during the year
Given the annual performance and to ensure appropriate allocation of capital, the Directors have determined not to pay a final
dividend for the year ended 31 December 2022.
No interim dividend was declared for the half-year ended 30 June 2022.
Dividends paid
On 18 March 2022, the 2021 final dividend of AU 5.5 cents per share was paid. This dividend was 50% franked.
Non-cash asset impairment charge
On 13 February 2023, Appen announced that following a review of the value of cash generating units (CGU) and of the carrying
value of its assets in accordance with the relevant accounting standards, the Company expected to recognise a non-cash,
pre-tax impairment charge of $204.3 million for the year ended 31 December 2022. This financial report confirms this amount.
Accordingly, the carrying value of non-Goodwill intangibles attributable to the New Markets CGU was reduced by $15.4 million
and the carrying value of Goodwill was reduced by $188.9 million.
There remains high conviction in the future growth prospects of the New Markets business units, however given the FY22
performance, future revenue growth assumptions had to be reset, and the revised forecast growth assumptions have been
based on lower growth rates, resulting in an impairment loss.
We have significant headroom in our larger, more established Global Services CGU.
The impairment charge is non-cash related and is a non-operating item. Therefore, underlying EBITDA and underlying NPAT
are not impacted. Additionally, there are no related covenant impacts on our debt facilities.
Please refer to Note 16 of the financial report on pages 129-135 for further information in relation to the impact of the impairment
charge on the Group’s intangible assets.
Investment in Synthetic Data business Mindtech
During the year, Appen made a minority investment in Mindtech Global Limited (“Mindtech”), a synthetic data company
specialising in the creation of high-quality training data for AI computer vision models. Appen invested GBP2.0 million (equivalent
to $2.6 million) in exchange for a minority investment stake and the formation of a commercial strategic partnership in Mindtech.
Synthetic data is an emerging component of the training data market that is used to augment real-world data. It is particularly
useful for the creation of edge-case data across a wide variety of applications and markets that are difficult to capture.
The synthetic data market is forecast to grow to $1.15 billion by 2027, according to Cognilytica: Synthetic Data Generation
Market: Research Snapshot Feb. 2022.
The investment is a continuation of Appen’s strategy to deploy capital into product-led capabilities that generate new and
emerging sources of training data to support AI lifecycles.
Appointment of New Chief Executive Officer (CEO) and President
On 15 December 2022, the Board announced the appointment of Armughan Ahmad as Chief Executive Officer (CEO),
President and Managing Director, effective from no later than 30 January 2023. Mr Ahmad’s formal commencement date
was 9 January 2023.
Mr Ahmad brings over 25 years of global experience in the technology industry having led product, sales, and services
organisations at KPMG, Dell Technologies, and Hewlett Packard.
Mr Ahmad is based out of our offices in North America.
Appen’s previous CEO and Managing Director, Mark Brayan, will remain with Appen until 28 February 2023 to ensure a smooth
transition, however Mr Brayan ceased in his role as CEO and Managing Director on 15 December 2022 and became an advisor
to the Chair from 15 December 2022 to 28 February 2023.
Matters subsequent to the end of the year
Other than the commencement of the new Chief Executive Officer, the Directors are not aware of any other matter or circumstance
not otherwise dealt with in this report that has significantly affected or may significantly affect the operations of the Group,
the results of those operations or the state of affairs of the Group in subsequent financial periods.
Appen 2022 Annual Report
67
Directors' report
for the year ended 31 December 2022
Likely developments and expected results of operations
As part of our strategy, we set FY26 targets for revenue, profitability, and business mix. Our FY22 revenue performance impacts
our ability to deliver on these targets in the original timeframe and may also require higher than expected benefits from our
offshoring strategy. While we are not stepping away from our growth agenda or product-led focus, we plan to review our strategic
direction and present these findings to shareholders in May 2023.
Board and Committee meetings
Details of Board and Committee meetings held during the year and individual directors’ attendance at these meetings is summarised below.
Board
Audit and Risk
Management
Committee
People and Culture
Committee
A
22
22
22
13
21
22
19
7
3
B
22
21
21
13
19
22
19
7
3
A
–
4
–
1
–
4
3
–
–
B
–
4
–
1
–
4
3
–
–
A
3
3
3
–
–
–
–
–
–
B
3
3
3
–
–
–
–
–
–
Richard Freudenstein
Robin Low
Steve Hasker
Deena Shiff 1
Mark Brayan 2
Vanessa Liu
Stuart Davis 3
Lynn Mickleburgh 4
Sithumini (Mini) Peiris 5
A: Meetings eligible to attend.
B: Meetings attended.
1 Resigned 27 May 2022.
2 Resigned 15 December 2022.
3 Appointed 29 March 2022.
4 Appointed 29 July 2022.
5 Appointed 04 November 2022.
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.
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
2022
Number
of rights
121,459
227,448
583,641
3,830,336
4,762,884
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.
68
Directors' report
for the year ended 31 December 2022
Shares issued on the exercise of performance rights
371,440 (2021: 729,311) ordinary shares of the Company were issued on the exercise of performance rights during the year ended
31 December 2022.
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 the 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 did not pay 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 advisory services. Details of the amounts paid or payable to the auditor for
non-audit services provided during the financial year by the auditor are outlined in note 29 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.
Verification and assurance
In recognition of the important role that corporate reporting plays in communicating with our investors and other stakeholders,
this year the Board formalised its process to verify the integrity of our periodic corporate reports, which includes the Directors’ report.
The approach we adopt, to ensure that the report is materially accurate, balanced and provide our investors with appropriate
information, as outlined below:
•
•
information about How we create value, Identifying and managing risk, Our approach to governance, and the Remuneration
report were prepared by management in consultation with the Board. The content of this report is guided by regulatory
requirements and our interactions with investors and other stakeholders throughout the year, which helps us to understand
what matters most to our investors and what information should be included in the Directors’ report.
The information in the report has been derived from the Group’s internal records and has been through an internal
verification process.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191
(Rounding Instrument), issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that Corporations Instrument to the nearest thousand US dollars, or in certain
cases, the nearest US dollar.
Appen 2022 Annual Report
69
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 2022, which represents the first
year of implementation of our new executive remuneration
framework. The framework includes our financial and
non-financial performance, and better aligns remuneration
outcomes with long-term shareholder returns.
2022 key remuneration framework changes
Below is a summary of the key changes made to the
remuneration framework from 1 January 2022. All changes
were foreshadowed in the 2021 Remuneration Report, which
was approved by shareholders at the 2022 AGM with a vote
in favour of 94.34%.
Short-term incentive (STI)
• Non-financial measures, which are critical to the
sustainable long-term success of Appen, were added
to the STI scorecard for Executive KMP, to focus their
efforts on ensuring we have satisfied customers, crowd
workers, and employees, via the metrics of customer
net promoter score (NPS), crowd NPS and employee
engagement ratings.
• STI deferral was introduced and applies to 25% of the
CEO’s STI earned, to align Appen with the Australian
market and shareholder expectations.
Long-term incentive (LTI)
• Appen introduced two Long-term incentive (LTI) schemes:
one that allows us to compete for talent in the highly
competitive technology sector in the US, and one for the
Australian market. The Australian LTI scheme is 100%
performance and service-hurdle based, with all LTI
vesting at the end of year three, subject to meeting the
performance metrics of revenue CAGR of 15%, Underlying
Basic Earnings per Share (UBEPS) CAGR of 7.5%, and
three years continuous employment. The three year vesting
period better aligns executive rewards to shareholder
expectations. The former CEO, and CFO, were both
subject to the Australian LTI scheme. The US LTI scheme
has a time-based component which will vest over a three
year period, vesting in three equal tranches annually.
The annual vesting of time-based LTI ensures Appen
remains competitive in the US market, where LTI generally
vests annually, quarterly, or even monthly for many US
technology companies. For senior management in the US,
the LTI scheme also has a performance component which
aligns with the Australian Executive KMP LTI scheme.
•
For all LTI grants from 2022 onwards, annual testing has
been removed and no re-testing can occur.
The new remuneration structure is designed to focus
Executive KMP and all employees on the delivery and
achievement of our annual operating plans and long-term
strategic objectives. Whilst we have long-term strategic
objectives, the Board considers that STI focused on annual
financial and non-financial metrics and performance based
LTI which vests in three years, provides for sufficient time
for the Executives to demonstrate their ability to generate
sustainable revenue and earnings growth.
2022 performance
FY22 was a challenging year for Appen. External operating and
macro conditions resulted in weaker digital advertising revenue
and a slowdown in spending by some of our major customers.
This has impacted our ad related programs and has had a flow
on impact to other core programs. Appen’s FY22 revenue and
underlying EBITDA decreased 13% and 86% respectively.
However, we saw positive momentum in some areas.
The number of projects that the Global Division won in
FY22 was at an all-time high and our non-Global business
grew, as evident in our Enterprise Division with end-of-year
bookings up 36%. While the projects and deals won were
generally smaller and at an earlier stage with lower margins
than our core Global programs, it provides evidence of the
reliance and trust that our Global and non-Global customers
place in Appen, to deliver quality AI training data.
During the year, Appen undertook significant investment
in its customers, crowd, and people, including strategic
investment in transformation, technology, and product
development associated with our strategic long-term
objectives and key goals of automation, scale, margin
expansion, and growing our addressable market.
2022 remuneration outcomes
A summary of remuneration outcomes for FY22 are as follows:
STI
• All KMP received an STI with respect to exceeding
the challenging threshold targets set for some of the
non-financial metrics (customer NPS and employee
engagement) that comprise up to 20% of STI. No STI was
paid to any KMP with respect to the crowd NPS non-
financial metric (worth 10% of STI) or the 70% financial
metric, as FY22 financial performance was not in line
with the targets set. Appen will always regard its financial
outcomes as paramount, and accordingly has allocated
a 70% STI weighting to financial metrics. However, the
non-financial metrics associated with customers, crowd
and employees are important in driving the delivery of our
long-term strategic objectives. The key to Appen’s return
to being a high-growth Company is to ensure that the
business is underpinned by delighted customers and crowd
and fully engaged employees. Exceeding the challenging
targets set for non-financial metrics is the key to success in
exceeding the challenging targets set for financial metrics.
The 2019 Executive LTI award (tranches 1 and 2) were
tested following the end of FY21 and vested in full in
FY22 for Australian Executive KMP following fulfilment
Governance
•
To better align with shareholder expectations, the
Board implemented formal policies with respect
to (i) a Minimum Shareholding Requirement (MSR) for
all KMP. For example, the CEO must own shares to the
value of 100% of fixed remuneration, following five years
of commencement and (ii) malus and clawback for all
eligible participants of an STI and/or LTI.
LTI
•
70
of the necessary performance and service conditions.
Tranche 3 of the 2019 Executive LTI award did not vest
and has expired unexercised, as the challenging UBEPS
target of 20% growth was not met.
• With respect to the 2020 Executive Award (tranches 1, 2,
and 3), the relevant performance condition of 20% UBEPS
annual (year-on-year) growth has not been met in FY20,
FY21, or FY22, and as such the rights have been forfeited.
• With respect to the 2021 Executive Award (tranches
1 and 2), the relevant performance condition of 20%
UBEPS growth has not been met in FY21 and FY22.
In order for these tranches to vest (on release of the
FY23 financial results), a significantly more challenging
UBEPS target will need to be met, i.e. UBEPS growth
of 73% over three years. The share-based payment
expense in relation to these tranches has been reversed.
•
The 2022 Australian Executive KMP LTI award and
the performance component of the US Executive KMP
LTI award will not vest until 2024, given the three year
performance condition. There is no annual testing during
the vesting period.
Non-executive directors
• Non-executive director fees remained unchanged in FY22
and no change is proposed for FY23.
Changes to KMP and remuneration
arrangements
On 15 December 2022, Appen announced the appointment
of Armughan Ahmad as Chief Executive Officer (CEO),
President and Managing Director. Mr Ahmad’s formal
commencement date was 9 January 2023. Mr Brayan ceased
in his role as CEO and Managing Director from 15 December
2022 and became an advisor to the Chair to 28 February
2023. Mr Brayan remains a KMP until 28 February 2023.
Former CEO and Managing Director, Mr Brayan
• During FY22, Mr Brayan did not receive a fixed
remuneration increase and remained on A$750,000.
• As announced to the market on 15 December 2022,
Mr Brayan ceased in his role as CEO. During his
leadership, Mr Brayan has driven the Company from
around $60 million in revenue in 2015 to over $400 million
in FY21 (and $388 million in FY22). This includes ensuring
our customers and crowd are, and remain, excited
about Appen’s products, processes, and capabilities
and ensuring our employees are engaged, motivated,
and happy. Mr Brayan has built and maintained an
experienced and talented executive team around him.
• Mr Brayan remains with Appen on the same fixed
remuneration, as an advisor to the Chair, until
28 February 2023 to ensure a smooth transition.
• On termination in his role as CEO, all performance rights
granted to Mr Brayan under the LTI plans lapsed. After
careful consideration by the Board, given the challenging
threshold targets for the customer NPS and employee
engagement metrics were met, the Board determined
an STI outcome equal to 11.68% of maximum be awarded
to Mr Brayan. Aligned to the changes in the remuneration
framework announced last year, 25% of his award will
be deferred and paid in shares in 12-months time.
Given Mr Brayan’s considerable contribution to Appen
over his more than seven years as CEO and influential
relationships across the market, to protect Appen’s business
interests, Mr Brayan is subject to competitor restraints
and non-socialisation clauses for 10 months from the date
of cessation with the Company. In addition to his contractual
entitlement to payment in lieu of notice (six months), the
Board determined another four months’ fixed remuneration
be paid to enforce the restraints in place. In total, this
represents $625,000 or 10/12ths of his fixed remuneration,
payable on 1 July 2023. Mr Brayan will not receive any other
termination or severance payments, other than his statutory
annual and long-service leave entitlements.
Incoming CEO, President and Managing Director,
Mr Ahmad
• Mr Ahmad commenced with Appen in the CEO role
on 9 January 2023 and is based in North America.
Mr Ahmad’s remuneration reflects his extensive global
experience in the technology industry, strong shareholder
value and reward alignment and compensation for
incentives foregone at his previous place of employment.
• Mr Ahmad’s base salary is set at US$600,000.
• Mr Ahmad’s STI is equivalent to 100% of base salary at
target, up to 150% at maximum, subject to the same mix of
financial and non-financial metrics as other KMP, with 25%
of any STI awarded to be deferred into equity for 12 months.
•
•
The LTI is valued at US$5,000,000 which vests over a
three year performance period, subject to Appen’s absolute
total shareholder return (ATSR) over a three year period
being equal to or greater than 190%, which is the minimum
vesting requirement up to 320% to trigger full vesting.
This performance measure was chosen to align Mr Ahmad’s
interests with shareholders from commencement. Mr Ahmad
will only be rewarded for delivering significant shareholder
value. Mr Ahmad will not be eligible for another LTI grant
until after 31 December 2025.
There is also a sign-on bonus equivalent to
US$2,000,000, payable through monthly vesting
of equity over two years, reflective of technology industry
practice and replaces a portion of what Mr Ahmad would
have otherwise received at his previous employer.
• All equity grants are subject to shareholder approval
at the 2023 AGM.
Page 86 of the remuneration report outlines the remuneration
arrangements for both the incoming and outgoing CEO.
Looking ahead
Appen remains firmly focused on its long-term growth objective
and we believe that the remuneration framework implemented
for the first time in FY22 will incentivise management
to deliver long-term value creation for shareholders. Our aim
is to continue to align remuneration structure, framework,
and outcomes with sustainable shareholder value creation,
while attracting and retaining talent in the highly competitive
US and Australian technology markets.
The Board is committed to an ongoing review of executive
remuneration arrangements given the commencement
of the new CEO and strategic direction of the Company,
and to facilitate this ongoing review, we will engage with
proxy advisors, shareholders, and their representatives
on matters related to remuneration and we look forward
to hearing your views and comments at the 2023 AGM.
Yours sincerely
Stephen Hasker
Chair of the People and Culture Committee
Appen 2022 Annual Report
71
Remuneration report
for the year ended 31 December 2022
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.
The current names and titles of KMP are set out below. There have been no other changes to KMP following the end of the
financial year.
NAME
POSITION
Non-Executive KMP:
Richard Freudenstein
Independent Director and Non-Executive Chairman
Stephen Hasker
Independent Non-Executive Director
Vanessa Liu
Robin Low
Stuart Davis
Independent Non-Executive Director
Independent Non-Executive Director
STATUS
TERM AS KMP
Full year
Full year
Full year
Full year
Independent Non-Executive Director
Part year
from 29 March 2022
Lynn Mickleburgh
Independent Non-Executive Director
Part year
from 29 July 2022
Sithumini (Mini) Peiris
Independent Non-Executive Director
Part year
from 4 November 2022
Deena Shiff
Executive KMP:
Independent Non-Executive Director
Part year
to 27 May 2022
Mark Brayan
Chief Executive Officer (CEO) and Managing Director
Part year
to 15 December 2022
Kevin Levine
Tom Sharkey 1
Advisor to the Chair
Chief Financial Officer (CFO)
Part year
Full year
from 15 December 2022
(to 28 February 2023)
Senior Vice-President (SVP), Global Division
Part year
to 1 September 2022
1 US-based executive. As Tom Sharkey departed close to the end of the year, the role of planning, directing and controlling the activities
of the Global division, was carried out by the two existing KMP, Mark Brayan and Kevin Levine.
Armughan Ahmad commenced as CEO, President, and Managing Director of the Appen Group on 9 January 2023, and is a KMP
from this date. No remuneration was paid to Mr Ahmad in FY22. A summary of the key terms of Mr Ahmad’s employment agreement
was disclosed to the ASX on 15 December 2022 and appears on page 86 of this report.
Our remuneration framework
Link between business strategy and remuneration framework
Our remuneration framework has been designed to motivate our people to deliver and achieve the Company’s annual business
plans and long-term growth objective and key strategic pillars.
Our remuneration framework and outcomes are designed to:
•
Enhance executive remuneration alignment by linking the Group STI scorecard and LTI measures to Appen’s annual business
plans, long-term growth objective and key strategic pillars which is key to delivering sustainable and superior returns
for shareholders. Exceeding the challenging growth targets set for each of the financial and non-financial metrics is key
to delivery of a high-growth future. First and foremost, all employees are incentivised to deliver strong and diversified revenue
and underlying EBITDA each year. Employees are also incentivised to ensure that the business in underpinned by delighted
customers and crowd and fully engaged employees. These three non-financial metrics must always be top-of-mind each and
every day for all Appen employees, when communicating with customers, our crowd and each other, as strong relationships
with these three groups, will drive future financial growth for Appen.
• Strengthen alignment of executives with shareholders by setting challenging STI and LTI targets and removing all re-testing
associated with LTI for grants made from FY22 onwards; and
• Provide for differentiated remuneration structures that reflect local market practices in the US and Australia and enable
Appen to successfully compete for talent in these highly competitive labour markets.
72
Remuneration report
for the year ended 31 December 2022
Our remuneration strategy
and 2022 remuneration principles
Our goal is to ensure that the level and composition of remuneration aligns with shareholder interests,
and allows Appen to compete in some of the tightest markets in the world and attract and retain
high-performing talent in the highly competitive technology sector. The key objectives that underpin
Appen’s 2022 remuneration framework are as follows:
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
Align the KMP
remuneration
outcomes to our
short and long-term
strategy, which is
underpinned by, and
dependent upon,
strong financial
and non-financial
success.
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 in which
Appen operates
and competes with
for talent.
Formalised policy
providing for Board
discretion in relation
to malus and
clawback of both STI
and LTI.
Transparency on
metrics, targets,
assessment, and
outcomes.
Appen 2022 Annual Report
73
Remuneration report
for the year ended 31 December 2022
Executive remuneration elements
Total fixed remuneration (FR)
Objective:
Provide market competitive base salary and benefits commensurate
with skills and experience to attract the best people around the
world to design and lead the delivery of our growth strategy.
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 and alignment to strategy
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 on an annual basis.
Fixed remuneration is intended to be positioned below the median of peers, with greater emphasis on at-risk pay-for-performance.
There is no guarantee of an annual increase in fixed remuneration.
Short-term incentive (STI)
Objective:
Linked to challenging performance-related key annual financial
and non-financial metrics, which are consistent with the execution
of our annual business plans, which in turn focuses on year-on-year
financial success, and long-term strategy, which is underpinned
by both financial and non-financial success.
Structure:
STI are performance-based incentives designed for
executives (and employees) to deliver and outperform key
financial and non-financial metrics to lead to sustainable,
superior returns for shareholders. STI is delivered in the form
of an annual cash bonus payment to all employees, other
than the CEO where 25% of any STI earned will be deferred
into equity with a holding lock of one year. For the purposes
of measuring STI, the performance period is 12 months.
Current year approach and alignment to strategy
The Group STI scorecard comprises:
•
•
•
•
•
revenue (50%): split 30% total revenue and 20% revenue from non-Global customers to incentivise customer diversification,
underlying EBITDA (UEBITDA) (20%),
customer net promoter score (NPS) (10%),
crowd NPS (10%), and
employee engagement (10%).
These measures directly align to our long-term growth strategy by focusing on revenue and earnings growth, diversified revenue,
delighted customers and crowd workers, and fully engaged employees. Each of these components, both financial and non-financial,
are essential for Appen to deliver sustainable growth and superior returns for shareholders.
Long-term incentive (LTI)
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:
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 operates in a dynamic, fast paced and 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 employees, the People and Culture Committee undertakes
regular reviews of the LTI practices in both these markets.
Current year approach and alignment to strategy
Appen has two LTI schemes: one for Australian Executive KMP and employees who are subject to Australian requirements, and
one for all other executives and employees for whom the Company requires a US-style scheme. The reason for a separate US LTI
scheme is to remain competitive in the US market. LTI is set at relatively quite modest levels, compared to our competitors in the
US, and annual time-based vesting is critical for us to attract and retain key talent, as many US technology companies offer LTI that
vest annually, quarterly, or even monthly and sometimes with no performance hurdles. Whilst our growth strategy is long-term, the
Board considers that LTI, which focuses on the delivery of a three year revenue CAGR of 15%–20% and underlying Basic Earnings
per Share (UBEPS) CAGR of 7.5%–10% and vest in three years, provides for sufficient time for the Executives to demonstrate their
ability to generate sustainable revenue and earnings growth.
74
Remuneration report
for the year ended 31 December 2022
Executive KMP remuneration mix (percentage of total remuneration)
The diagram below illustrates the target 2022 remuneration mix (including the target STI opportunity and LTI grant value),
for each Executive KMP that was set at the start of FY22.
Mark Brayan
Former CEO
Kevin Levine
CFO
Tom Sharkey
Former SVP, Global Division
Fixed remuneration
STI
Equity-based LTI
Variable remuneration
21%
36%
43%
27%
27%
13%
13%
60%
60%
For all Executive KMP, there is a heavy skew towards pay-for-performance, leading to lower fixed remuneration (FR) and
higher at-risk variable remuneration, in the form of STI and LTI.
STI detail
The FY22 financial and non-financial metrics applicable to each Executive KMP and their relevant weighting is shown below:
Name
Mark Brayan – CEO
(to 15 December 2022)/
Kevin Levine – CFO
Group
revenue
Revenue
diversific-
ation
Divisional
revenue
Group
EBITDA
Divisional
EBITDA
Customer
NPS
Crowd
NPS
Employee
engagement
30%
20%
Not
applicable 20%
Not
applicable 10%
10%
10%
In 2022, all financial and non-financial metrics for all KMP were set significantly higher than 2021 outcomes. For example,
revenue was set 24% higher, revenue diversification 66% higher, and underlying EBITDA 17% higher. For non-financial metrics,
customer NPS was set 300% higher, crowd NPS 13% higher, and employee engagement 6% higher (FY22 target set was 82%
v FY21 actual of 76%).
Target opportunity is a percentage of fixed remuneration (excluding retirement and insurance benefits for US-based executives).
The on-target 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. Payout for each STI measure is calculated separately, subject to meeting threshold targets. No STI
is awarded for an STI measure unless the STI scorecard measure is at 90% of target (2021: 80% of target). Refer to the table
below for full details on the threshold targets and actual award payouts.
Achievement – % against target
Actual award – % of target payout
Below 90%
90%
100%
120% or more
Nil
50%
100%
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. In 2022, the Board exercised this discretion to reduce Mr Brayan’s STI from 15% of maximum to 11.68%
of maximum. Please see page 91 for information relating to our Malus and Clawback policy for further information.
Appen 2022 Annual Report
75
Remuneration report
for the year ended 31 December 2022
LTI detail
The table below outlines key features of both of our LTI schemes.
Feature
Description
Rules applicable
to both LTI
schemes
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.
The number of performance rights granted is based on face value (actual share price) rather than a discounted
fair value.
No amount is payable in return for the grant of the performance rights.
No amount is payable in return for the issue or transfer of APX Shares.
Conversion
to shares
Australian Executives: Rights convert to shares, assuming all the performance and employment conditions are
met, once the executive submits a conversion notice.
US Executives: Rights convert to shares on the vesting date, assuming all the performance and employment
conditions are met.
Vesting
conditions
The Australian LTI scheme is 100% hurdle-based with all LTI vesting in year three, subject to hurdle
achievement and tenure, with no re-testing. This aligns with Australian market practice and our long-term
strategic goals. The vesting requirement is:
– 50% weighted to growth in group revenue, and
– 50% weighted to growth in underlying basic EPS (UBEPS).
Group revenue growth is a key metric aligned with our business strategy. Winning customers, deals, and projects
is key to our long-term success and is a key metric for technology companies.
UBEPS growth remains a relevant long-term measure as it aligns executive performance to shareholder experience.
Performance rights granted in 2022 may vest in 2025, subject to the CEO and all Australian Executive
KMP achieving three year compound annual growth rates (CAGR) for revenue and UBEPS of at least 15%
and 7.5% respectively.
The key components of the performance rights granted to Australian Executive KMP are as follows:
– achievement of compound annual growth in revenue (FY24 versus FY21).
– achievement of compound annual growth in UBEPS (FY24 versus FY21), and
– continuation of employment until 1 January 2025, being the beginning of the calendar year in which the
performance rights are subject to vesting. The number of rights which may vest in respect of a performance
period will be determined by reference only to achievement of the performance conditions set out in the
table below:
Weighting
Threshold
Maximum
Target
Target
Vesting
Target
Vesting
Group Revenue (CAGR)
50%
Underlying Basic EPS (CAGR) 50%
15%
(FY24 vs FY21)
7.5%
(FY24 vs FY21)
50%
50%
20%
(FY24 vs FY21)
10%
(FY24 vs FY21)
100%
100%
Vesting levels for the achievement of targets are set out in the table below:
Achievement Criteria
% performance rights allocated
100% or more of Maximum
Between Threshold and Maximum
Below Threshold
100%
50–100% (linear)
Nil
As mentioned above, the US LTI scheme is tailored to the US market with 50% of rights issued subject
to a time-based vesting condition only, that vest annually. 50% is subject to the same performance-based
hurdles that apply to Australian executives and these rights may vest after three years, like the Australian LTI
scheme. It also contains the continuation of employment service condition.
76
Remuneration report
for the year ended 31 December 2022
Feature
Description
Performance
period
Australian Executives: performance rights may vest at the end of the three year vesting period subject
to the achievement of the performance and continuing employment hurdles specified on page 76.
US Executives: 50% of performance rights granted may vest annually, which is typical for US remuneration
practices, subject to the achievement of the continuous employment hurdles. The other 50% of performance
rights granted may vest at the end of three years subject to the achievement of the performance and
employment hurdles for grants issued during the year, like the Australian LTI scheme.
Malus and
Clawback
The Board maintains absolute discretion to adjust LTI and all performance-based remuneration that has not
been realised or vested if the Board consider that such remuneration would be an unfair or inappropriate
benefit to an Executive.
The Board has absolute discretion to reduce, cancel, or clawback the performance-based remuneration
to an Executive. For example, this can include such circumstances as:
– making a material misstatement or omission in the group financial statements.
– if the employee acts fraudulently or engages in misconduct, or
– any other circumstance that the Board determines in good faith to have resulted in an unfair or inappropriate
benefit to the Executive.
The Board also has discretion to ensure that the targets are achieved in the right way, and factors like acquisitions
may be adjusted for if it unjustly boosts one or more of the financial metrics associated with the STI or LTI.
Australian Executives:
The diagram below shows the vesting timeline for all remuneration payable to Australian Executives.
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 Executives:
US executives:
The diagram below shows the vesting timeline for all remuneration payable to 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)
Cash awarded
Equity granted
Equity vests/unrestricted
For both Australian and US executives, no vesting occurs (and no STI payment is made), if the performance outcome is less than
90% of target.
Malus and clawback apply to both the STI and LTI. In FY22, a formalised policy was implemented in the interest of good
governance and to address shareholder outcomes and expectations.
Specifically, in making its assessment of performance, the Board maintains overarching discretion. It will look to the quality
of financial or non-financial metrics achieved and the impact of any acquisitions to ensure both STI and LTI targets have been
achieved in the right way, thus truly rewarding progress towards achieving our long-term strategic outcomes. Please see page 91
for more information.
Appen 2022 Annual Report
77
Remuneration report
for the year ended 31 December 2022
Appen’s five year 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
Underlying
EBITDA 1
Underlying
basic EPS 1
Underlying
NPAT 1
Share price
at 31 Dec (A$)
Dividend
(full year)
(US$’000)
(US$’000)
(US¢ per share)
(US$’000)
(%)
4
4
7
2
7
4
,
,
4
1
2
9
9
6
,
3
8
8
4
9
3
3
7
2
,
1
8
1
,
7
7
6
8
4
,
7
5
4
3
9
7
0
,
1
7
6
,
5
2
4
2
3
,
2
7
0
3
2
0
,
4
4
9
0
2
,
4
5
2
7
5
,
4
0
5
9
7
,
3
5
9
8
9
3
8 3
7
3
4
3
3
(
1
8
)
1
1
,
0
1
7
.
1
2
8
3
1
1
.
1
6
,
(
2
2
7
3
9
)
.
2
4
9
.
2
4
6
9
.
2
2
4
6
(A¢ per share)
1
0
0
.
1
0
0
.
.
9
0
.
8
0
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
–
2
0
2
2
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 Executives.
Long-term incentive awards are
linked to revenue and 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.
Appen’s FY22 share price performance
reflects challenging external operating
conditions. In response, we revised our
dividend policy and did not pay an
interim or full year dividend to ensure
appropriate allocation of capital.
1 Underlying NPAT, EBITDA and EPS exclude impairment losses, restructure costs, transaction costs, inventory losses and acquisition-related
share-based payments expenses.
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Remuneration report
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Executive KMP remuneration outcomes
Short-term incentive (STI)
Performance and 2022 STI outcomes
The STI is weighted 70% to financial metrics and 30% to non-financial metrics. Both are critical to the long-term success of Appen.
These metrics were designed to challenge Executive KMP, aligning shareholder interests with executive remuneration outcomes.
With respect to the 70% financial metric component, the FY22 revenue target was approximately 24% higher than 2021
actuals, revenue diversification target 66% higher, and underlying EBITDA 17% higher. The achievement percentage outcomes for
each of the financial metrics was well below the minimum payout threshold of 90%, and as a result no STI was paid with respect
to these metrics.
With respect to the 30% non-financial metric component, customer NPS was set at 300% higher than FY21, crowd NPS 13%
higher and employee engagement 6% higher (FY22 target set was 82% v FY21 actual of 76%).
The Executive KMP exceeded the minimum payout threshold for two of the non-financial metrics, being customer and employee
engagement ratings, which were above the 90% minimum threshold for all eligible KMP, being the former CEO (Mr Brayan) and
CFO. The overall FY22 customer rating was 153.3% of target and the overall FY22 employee engagement rating was 94.9%
of target. Hence, the former CEO and CFO received an STI for exceeding the non-financial metric threshold for customer and
employee engagement rating(s), resulting in a FY22 STI of US$149,342 (11.68% of maximum) and US$42,274 (15% of maximum)
respectively. In relation to the former CEO, the Board reviewed the overall performance of the Company and decided to exercise
discretion to reduce the STI payable from 15% of maximum to 11.68% of maximum, by capping the customer NPS outcome
at 10% and not rewarding overachievement. The non-financial metrics are important to ensure that we have customers that
have full confidence in Appen to deliver high quality AI data promptly and ensure that we have crowd workers and employees
that are highly engaged, motivated to work for us, and excited about Appen’s future. Delivering the challenging targets set
for non-financial metrics is the key component to building a long-term, financially sustainable business which will enable
us to exceed the challenging targets set for the financial metrics.
Mr Sharkey did not receive a pro-rata award from 1 January 2022 on the date of his departure on 1 September 2022.
FY22 STI metric assessment of Executive KMP
The below table discloses the performance of Executive KMP and whether they have met or exceeded the target or hurdle
associated with each financial and non-financial STI scorecard metric.
Metric
Group
revenue
Performance
against the
90% target set Outcome
Below target
Group revenue of $388.5 million, was down 13% from the prior year, primarily caused
by challenging external operating and macro conditions in which some of our large Global
customers have reduced costs and re-prioritised their spend, directly impacting our large
Global programs. Despite this, our Global division project count is at an all-time high. However,
the projects we won are smaller and in their early stages, and therefore insufficient to offset the
reduction in revenue from our large Global programs.
Revenue
diversification
Below target
While FY22 non-Global revenue was 18% of total group revenue up from 14% in the prior year,
the quantum of this non-Global revenue was not at the level of the challenging targets that
were set at the start of FY22.
Below target
Group
underlying
EBITDA
Group underlying EBITDA of $11.0 million was down 86% from the prior year, and reflected the
challenging external operating and macro conditions mentioned above, as well as investment
in product, technology, and transformation to ensure that we automate our processes, increase
scale and margins, and increase our addressable market associated with our long-term
growth strategy.
Divisional
EBITDA
Below target
All of our operating divisions are going through a period of transition as they invest in product,
technology, and transformation to achieve scale and revenue and EBITDA growth to meet their
future targets.
Appen 2022 Annual Report
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for the year ended 31 December 2022
Metric
Performance
against the
90% target set Outcome
Customer NPS Above target
FY22 customer rating was 153.3% of target, which was well above the 90% payout threshold.
Delighted customers are key to winning more deals and more work, which translates to higher
revenue and higher earnings. Appen has built trusted relationships with our customers and
has undertaken several initiatives to improve and enhance this relationship even further.
Some of these initiatives include the following:
– Customers need high levels of data labelled fast, and Appen has been responsive and
adaptive to our customer’s needs by augmenting human labelling with automation.
– Quality Flow and Quality Audit features have provided curated customers for specific jobs.
This has resulted in the creation of various dashboards to allow customers and project
managers to view real-time information quickly and easily in relation to the progress, quality,
and efficiency of customer jobs to assess timeframes, easily deal with any issues and ensure
budgets are not exceeded and costs tightly managed.
– Build and release of the new Roster Fill Dashboard to help project teams keep track of the
rosters for our top 85 projects across Global and Enterprise. These rosters are essential
to keep rosters full and deliver for our customers.
– Dedicated customer-facing teams to service customers directly and be responsive to their
issues in almost real time.
For further information and initiatives undertaken, please refer to the value drivers section
of the annual report relating to Customer and Brand on pages 28–33.
Crowd NPS
Below target
Crowd NPS showed varied results from quarter to quarter in FY22. The overall FY22 crowd
rating was 72.9% of target, which was below the 90% payout threshold.
Responders identified project availability as their key concern, as well as amount of pay, and
support or communication. To address these issues, the Executive team have overseen the
delivery of several initiatives to ensure that our over one million crowd contributors are matched
to their skills and experience, are on-boarded to available projects quickly and efficiently, and
develop their skills to be successful on as many projects as possible. This in turn enhances
contributor satisfaction and promotes retention. Examples of key initiatives undertaken
in FY22 include:
i. Roster-fill, designed to run flawless, fast, and efficient processes to fill rosters and manage
contributors through the funnel from application to invoicing.
ii. Improvements to the contributor experience in Appen Connect, via initiatives such as
project mapping and global profile, designed to match projects to contributors’ skills, and
iii. Zendesk, designed to create a self-service function, where contributors have access to
user guides and automation tools and can efficiently interact with Appen allowing prompt
responses to their queries.
In addition, during the year the Executive team appointed David Botello as our new VP, Crowd
Operations. Our objective is to treat our crowd contributors like customers and provide crowd
contributors with an engaging experience that attracts them to Appen.
Crowd workers that want to work for Appen, are the key to rosters being filled and projects
being completed efficiently, and to a high quality. This translates to the winning of more deals,
new logos and new customers, which in turn translates to higher revenue and higher earnings.
For further information and initiatives undertaken, please refer to the value drivers section
of the annual report relating to Global Crowd on pages 20–23.
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for the year ended 31 December 2022
Metric
Performance
against the
90% target set Outcome
Employee
engagement
At (threshold)
target
Employee engagement scores increased when compared to the start of FY22. FY22 rating was
94.9% of target, which was above the 90% payout threshold. Appen recognises that its people
are paramount to the ongoing success of Appen, because highly engaged and motivated
employees are critical to the delivery of higher revenue and earnings. In FY22, we implemented
a number of key initiatives for the benefit of employees, designed to promote flexibility, choice,
teamwork connections, diversity, and inclusion:
– Launch and implementation of the Future Ways of Working Initiative which has two key elements:
i. Neighbourhood Connections Program, focusing on providing more opportunities for
employees that live in the same city, town, or community to connect and exchange ideas.
In just over three months, the Executive team launched six neighbourhoods globally
as a pilot and will launch another ten globally.
ii. Face-to-Face (F2F) Collaboration, which provides employees and teams with the
flexibility to decide how they wish to work and from where, without prescriptive mandates
or policies, while encouraging in-person teamwork.
– Introduction of significantly greater transparency with respect to pay and promotion,
allowing for maximum opportunity for qualified internal talent to apply for a role, with greater
transparency on what the role is and the specific requirements.
– 2022 Global Compensation Review: In response to employee concerns about global inflation
and cost-of-living pressures, coupled with the commitment of the Executive team to ensure
that market competitive pay is offered in each of the markets and locations that Appen
operates for each employee, the Executive team benchmarked the remuneration for each
and every single employee and for those employees that were found to be paid below market,
their base pay was increased to a market competitive level.
– Appen celebrates the diverse cultural backgrounds of our employees across our global
operations. The Diversity and Inclusion Committee has been in operation for two years and
continues to actively promote an inclusive workforce and groups that are under-represented
in the community.
– Continue the strong focus on promoting and hiring women in senior leadership positions.
At 31 December 2022, the % of females in senior leadership positions was 43%.
For further information and initiatives undertaken, please refer to the value drivers section
of the annual report relating to Our People on pages 24–27.
Appen 2022 Annual Report
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Remuneration report
for the year ended 31 December 2022
STI outcomes
The STI amounts earned and associated achievement and payout (rounded) percentages are disclosed in the table below:
Executive
KMP
Currency
Fixed
remuneration 1
$
STI target
% of fixed
remuneration 2
%
STI target
$
% STI
earned as a
% of target
%
% STI
earned
as a % of
maximum
%
Total STI
earned
$
Total STI
earned
(USD)
$
Total STI
deferred
(USD)
$
Mark
Brayan
Kevin
Levine 4
Tom
Sharkey 5
2022
2021
2022
2021
2022
2021
AUD
AUD
AUD
AUD
USD
USD
750,000
750,000
550,000
500,000
301,863
425,000
167% 1,250,000
17.5%
11.7% 218,983 3
149,342 3
37,336 3
167% 1,250,000
0%
0%
–
–
50%
275,000
22.5%
15.0%
61,988
42,274
50%
250,000
150,931
50%
50%
0%
0%
0%
0%
–
–
–
–
212,500
67.4%
44.9%
143,147
143,147
–
–
–
–
–
Includes superannuation contributions for Australian Executive KMP.
1
2 Percentage of fixed remuneration (excluding retirement and insurance benefits for US Executive KMP).
3 The Board reviewed the overall performance of the Company and decided to exercise discretion to reduce the STI payable for Mr Brayan from
15% of maximum to 11.68% of maximum, by capping the customer NPS outcome at 10% and not rewarding overachievement. 25% of the total STI
earned will be deferred for 12 months.
4 Mr Levine’s fixed remuneration increased by 10%, however his LTI reduced by A$125,000 and his total remuneration reduced by A$50,000.
5 Mr Sharkey finished on 1 September 2022 and received an STI of $143,147 for the FY21 year, which was received in March 2022.
Performance and 2022 LTI outcomes
In order for performance rights to vest, Executive KMP must meet service and performance conditions. During FY22, performance
rights vested in full for Executive KMP with respect to the following plan:
•
2019 Executive Award Plan (tranches 1 and 2) for Australian 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 FY22. See the table on page 92 for a detailed summary on the performance
rights that vested in FY22.
Was there
a performance
condition
required to be met
in FY22 for the
rights to vest?
Performance
hurdle applied
Award
Tranche
2019 Executive Award
2019 Executive Award
1
2
N/A
N/A
Performance condition of 20% annual
UBEPS growth met at end of 2019.
Performance
period 1
Performance
achieved
2019 vs 2018 35% UBEPS
growth over 2018
Performance condition of two year
UBEPS CAGR of 20% met at end of 2020.
2020 vs 2018 30% UBEPS
CAGR
1 2019 base and target UBEPS restated in April 2019 to adjust for the loss-making Figure Eight on acquisition, but prior to full integration into Appen.
With respect to the 2020 Executive Award (tranches 1, 2 and 3), the relevant performance condition of 20% UBEPS annual
(year-on-year) growth has not been met in FY20, FY21 or FY22 and as such the rights have been forfeited.
With respect to the 2021 Executive Award (tranches 1 and 2), the relevant performance condition of 20% UBEPS growth has not
been met in FY21 and FY22 and in order for these tranches to vest (on release of the FY23 financial results), a significantly more
challenging UBEPS target will need to be met i.e. UBEPS growth of 73% over three years. The share-based payment expense
in relation to these tranches has been reversed.
82
Remuneration report
for the year ended 31 December 2022
2022 Executive awards granted
The following awards were granted to Executive KMP for the 2022 year. The grant of performance rights to Mr Brayan was
approved by shareholders at the Annual General Meeting on 27 May 2022. These performance rights and all other unvested
performance rights granted to Mr Brayan were forfeited on Mr Brayan’s termination as CEO, on 15 December 2022.
All active performance-related awards will vest in year three, subject to hurdle achievement and tenure, with no re-testing.
Australian Executive KMP
The vesting requirement is 50% weighted to growth in group revenue and 50% weighted to growth in underlying basic EPS
(UBEPS). 50% of the LTI will vest if compound annual growth in revenue (FY24 versus FY21) is 20%, while 25% of the LTI will vest
if compound annual growth in revenue (FY24 versus FY21) is 15%. 50% of the LTI will vest if compound annual growth in UBEPS
(FY24 versus FY21) is 10.0%, while 25% of the LTI will vest if compound annual growth in UBEPS (FY24 versus FY21) is 7.5%.
Both are also subject to three years continuous service (i.e. tenure).
Plan
Grant
date
Expiry
date
Exercise
price
Tranche
Performance
measurement
Performance
target
Performance
target
measurement
date
Target
achieved
Vesting
condition
Vesting
date
2022 22
N/A
N/A
March
2022
2022 22
N/A
N/A
March
2022
1
1
US Executives
Revenue
15.0%–20.0% End 2024
Pending Employed
at 1 Jan
2025
UBEPS
7.5%–10.0%
End 2024
Pending Employed
at 1 Jan
2025
Release
of 2024
annual
results
Release
of 2024
annual
results
Value per
right at
grant date
A$6.65
A$6.65
The vesting requirement is 50% weighted to annual service (i.e. tenure) conditions over three tranches, with each tranche vesting
annually over a three year period. The remaining 50% is weighted equally to growth in group revenue and growth in underlying
basic EPS (UBEPS), consistent with the Australian Executive KMP.
Plan
Grant
date
Expiry
date
Exercise
price
Tranche
Performance
measurement
Performance
target
Performance
target
measurement
date
Target
achieved
Vesting
condition
Vesting
date
2022 17
N/A N/A
1
N/A
N/A
N/A
Yes
October
2022
Employed
at 1 Jan
2023
2022 17
N/A N/A
2
N/A
N/A
N/A
Pending Employed
October
2022
at 1 Jan
2024
2022 17
N/A N/A
3
N/A
N/A
N/A
Pending Employed
October
2022
at 1 Jan
2025
2022 17
N/A N/A
4
October
2022
50% Revenue
50% UBEPS
15.0% – 20.0%
7.5% – 10.0%
End 2024
Pending Employed
at 1 Jan
2025
Release
of 2022
annual
results
Release
of 2023
annual
results
Release
of 2024
annual
results
Release
of 2024
annual
results
Value per
right at
grant date
A$2.96
A$2.95
A$2.82
A$2.82
Appen 2022 Annual Report
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Remuneration report
for the year ended 31 December 2022
Remuneration received
Actual remuneration received by Executive KMP
The table below details the actual remuneration that was received by current and former Executive KMP for FY22 and
FY21. The remuneration for Mr Brayan and Mr Levine are disclosed in Australian Dollars, as both receive their remuneration
in Australian Dollars. This table differs to the statutory remuneration table on page 85 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.
Executive KMP
Currency
Cash
salary 1
$
Fixed
STI 2
Super-
annuation 1,4
Termination
payments
LTI
value at
vesting
date 5
$
$
$
$
LTI value
at grant
date
Total
value $
$
Mark Brayan
2022
AUD
725,570
24,430
133,333 3
218,983 2
651,729
1,754,045
1,653,323
2021
AUD
727,369
22,631
Kevin Levine
2022
AUD
525,570
2021
AUD
477,369
24,430
22,631
–
–
–
Tom Sharkey 6
2022
USD
301,863
27,000
283,251 7
–
2,735,817
3,485,817
1,351,399
61,988 2
325,865
937,853
826,662
–
–
1,772,049
2,272,049
875,444
–
612,114
–
Jon Kondo 8
2021
2021
USD
425,000
USD
188,304
26,000
26,000
–
143,147
492,686
1,086,833
308,507
135,463
–
368,428
718,195
894,000
1 Annualised fixed remuneration in the form of cash salary plus superannuation did not change for Mr Brayan. Mr Levine’s fixed remuneration
increased by 10%, however his LTI reduced by A$125,000 and his total remuneration reduced by A$50,000.
2 Mr Brayan and Mr Levine will receive an STI with respect to FY22 for exceeding the 90% payout threshold set for customer and employee
non-financial metrics. The Board reviewed the overall performance of the Company and decided to exercise discretion to reduce the STI
payable for Mr Brayan from 15% of maximum to 11.68% of maximum, by capping the customer NPS outcome at 10% and not rewarding
overachievement. 25% of the total STI earned by Mr Brayan will be deferred for 12 months. No STI was payable to either Mr Brayan or Mr Levine
for FY21.
3 Represents the FY22 portion of the 10/12ths of Mr Brayan’s fixed remuneration of A$750,000, payable on 1 July 2023, representing six months
notice and four months additional pay to enforce a restraint. No other termination or severance payments will be made to Mr Brayan.
4 Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
5 Value of LTI at vesting date is based on the market price of shares at the date that the LTI vest.
6 To 1 September 2022.
7 Is comprised of a termination payout of $248,503 and a payment for all unused annual leave of $34,748.
8 To 24 June 2021.
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Remuneration report
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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 were paid in Australian Dollars. The average AUD/USD exchange rates used were
0.6950 for 2022 and 0.7515 for 2021. The 31 December closing AUD/USD exchange rates used were 0.6816 for 2022 and 0.7261
for 2021.
Executive KMP
Mark Brayan
Kevin Levine
Tom Sharkey 6
Fixed
Variable
Cash salary 1
$
Super-
annuation 1,4
$
Leave
entitlements
$
Termination
payments
$
STI
$
LTI 5
$
Total
$
2022
2021
2022
2021
2022
2021
504,283
546,640
365,280
358,757
301,863
425,000
16,979
17,008
16,979
17,008
27,000
26,000
38,316
40,265
27,539
33,903
90,885 3
149,342 2
(771,531)
28,274
–
–
–
–
167,133
771,046
42,274 2
(176,058)
276,014
–
–
29,913
439,581
(605,042)
(23,984)
3,692⁷
248,503
2,348
–
143,147
(26,612)
569,883
Jon Kondo 8
2021
188,304
26,000
–
135,463
–
(674,353)
(324,586)
1 Annualised fixed remuneration in the form of cash salary plus superannuation did not change for Mr Brayan. Mr Levine’s fixed remuneration
increased by 10%, however his LTI reduced by A$125,000 and his total remuneration reduced by A$50,000.
2 Mr Brayan and Mr Levine will receive an STI with respect to FY22 for exceeding the 90% payout threshold set for customer and employee
non-financial metrics. The Board reviewed the overall performance of the Company and decided to exercise discretion to reduce the STI
payable for Mr Brayan from 15% of maximum to 11.68% of maximum, by capping the customer NPS outcome at 10% and not rewarding
overachievement. 25% of the total STI earned by Mr Brayan will be deferred for 12 months. No STI was payable to either Mr Brayan or Mr Levine
for FY21.
3 Represents the FY22 portion of the 10/12ths of Mr Brayan’s fixed remuneration of A$750,000, payable on 1 July 2023, representing six months
notice and four months additional pay to enforce a restraint. No other termination or severance payments will be made to Mr Brayan.
4 Includes discretionary company contributions to an approved 401(k) retirement plan and insurance contributions in the US.
5 The values for equity-settled remuneration were measured at grant date in accordance with AASB 2 Share-based Payments and represent the
current year amortisation of the fair value of the rights over the vesting period. Certain FY22 statutory LTI figures are negative because they
include a true-up adjustment of share-based payments expense in relation to the 2020 and 2021 Long-Term Incentive Plans, for rights that
did not vest or are not expected to vest. Another reason is that for Mr Brayan and Mr Sharkey all unvested rights were forfeited.
6 To 1 September 2022.
7 Mr Sharkey was paid out all of his unused annual leave provision which totalled $34,748 (see footnote 8 of the actual remuneration received
table). The figure of $3,692 represents the accounting expense from 1 January 2022 to 1 September 2022.
8 To 24 June 2021.
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
Armughan Ahmad
CEO, President, and Managing
Director (from 9 January 2023)
No fixed term
1 March
12 months
Kevin Levine
CFO
No fixed term
1 March
3 months
Appen 2022 Annual Report
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for the year ended 31 December 2022
Former CEO and Managing Director
• During FY22, Mr Brayan did not receive a fixed remuneration increase and remained on A$750,000.
• As announced to the market on 15 December 2022, Mr Brayan ceased in his role as CEO. During his leadership, Mr Brayan
has driven the Company from around $60 million in revenue in 2015 to over $400 million in FY21 (and $388 million in FY22).
This includes ensuring our customers and crowd are, and remain, excited about Appen’s products, processes, and capabilities
and ensuring our employees are engaged, motivated, and happy. Mr Brayan has built and maintained an experienced and
talented executive team around him.
• Mr Brayan remains with Appen on the same fixed remuneration, as an advisor to the Chair, until 28 February 2023 to ensure
a smooth transition.
• On termination in his role as CEO, all performance rights granted to Mr Brayan under the LTI plans lapsed. After careful
consideration by the Board, given the challenging threshold targets for the customer NPS and employee engagement metrics
were met, the Board determined an STI outcome equal to 11.68% of maximum be awarded to Mr Brayan. Aligned to the changes
in the remuneration framework announced last year, 25% of his award will be deferred and paid in shares in 12 months time.
Given Mr Brayan’s considerable contribution to Appen over his more than seven years as CEO and influential relationships across
the market, to protect Appen’s business interests, Mr Brayan is subject to competitor restraints and non-socialisation clauses for
10 months from the date of cessation with the Company. In addition to his contractual entitlement to payment in lieu of notice
(six months), the Board determined another four months’ fixed remuneration be paid to enforce the restraints in place. In total,
this represents $625,000 or 10/12ths of his fixed remuneration, payable on 1 July 2023. Mr Brayan will not receive any other
termination or severance payments, other than his statutory annual and long-service leave entitlements.
New CEO, President, and Managing Director – FY23
While not applicable for FY22, outlined below are the key terms of Mr Ahmad’s employment as previously disclosed to the market.
Mr Ahmad commenced work with Appen on 9 January 2023.
In determining Mr Ahmad’s remuneration for FY23, the Board took into account:
• Mr Ahmad’s extensive global experience in the technology industry and the skills and experiences needed of a CEO to scale
Appen to its next phase of growth.
•
The need to compete globally for executive talent in the technology industry and references to industry benchmarks which
are different to general industry. Mr Ahmad is based in North America.
• Strong shareholder value and reward alignment.
• Compensation for remuneration Mr Ahmad would have otherwise received had he not ceased employment at his
previous employer.
Mr Ahmad’s FY23 remuneration is made up of the following components:
Base salary
• US$600,000 inclusive of compulsory Australian superannuation contributions and salary sacrifice arrangements.
Short Term Incentive (STI)
•
•
•
Target STI of 100% of the base salary with the opportunity to earn up to 150% of base salary subject to the achievement
of financial and non-financial performance measures including revenue, earnings (before interest, taxes, depreciation,
and amortisation), customer and crowd net promoter scores and employee engagement metrics.
The KPIs and their respective weightings will be determined by the Board annually.
The STI will be delivered 75% in cash and 25% in deferred equity, which vests over 12 months subject to continued service.
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Remuneration report
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Long Term Incentive (LTI)
• One-off LTI equity grant valued at US$5,000,000, subject to approval by shareholders at the 2023 AGM.
•
The LTI will vest over a three year performance period subject to the Company’s Absolute TSR performance. The 2023
LTI has stretching targets and will commence vesting at threshold performance (50%) when the Company’s Absolute
TSR is equal to or greater than 190%, with full vesting at target performance when Absolute TSR is equal to or greater
than 320% at the end of the performance period. The 2023 LTI will vest on a straight-line basis between threshold and
target performance. For the LTI grant provided to Mr Ahmad, the relevant performance metric is Absolute TSR rather than
group revenue and underlying BEPS. This performance measure was chosen to align Mr Ahmad’s interests directly with
shareholders from commencement. Mr Ahmad will only be rewarded for driving and delivering significant shareholder value.
• Mr Ahmad will not be eligible for further LTI grants until after 31 December 2025 (being the end of the three year performance
period for the 2023 LTI).
Sign-on Bonus
• One-off equity grant valued at US$2,000,000, subject to approval by shareholders at the 2023 AGM.
•
The sign-on bonus is designed to replace a portion of Mr Ahmad’s incentives foregone, which he would have otherwise received
with his previous employer. The sign-on bonus will vest in equal monthly tranches, subject to continued service over a two year
period. This approach to vesting is designed to strike a balance between the entitlements Mr Ahmad would have received had
he not ceased employment, align and reward for delivery of shareholder value immediately and mirror US practices in technology
companies where equity often vests monthly. In the event Mr Ahmad resigns or is terminated for cause, any unvested amount of the
sign-on bonus will lapse. If the Company terminates Mr Ahmad for convenience, vesting will continue until the date of termination.
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 strategy, corporate governance,
remuneration, compliance, risk, and ESG. 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$1,400,000 per annum. This change was made in response to revisions in the Company’s Constitution, in which
the maximum number of directors permitted to sit on the Board increased from seven to ten, associated with the Board renewing
its composition in 2021 and 2022, in which long-standing directors retired. The increase in the number of directors was to ensure
a smooth transition, so that the Company would have the flexibility to have more than seven directors on the Board at any one
time. As a result of Board renewal initiatives implemented during the year, the Board currently has eight directors.
The Company aims to provide a level of remuneration for non-executive directors comparable with its general industry peer
group. Non-executive directors receive an annual fee for Board membership and for service as Chair of Board Committees.
No additional payment is made for being a Member of Board Committees. There has been no change to the level and quantum
of fees payable to the non-executive directors in FY22 relative to what was paid in FY21.
Role
Board Chair
Non-executive director
Audit and Risk Management Committee Chair
People and Culture Committee Chair
Fee
2022 A$
$240,000
$120,000
$20,000
$20,000
All fees presented above include statutory superannuation for Australian directors.
All Non-executive directors are remunerated by way of Board and Committee fees. These fees reflect the workload associated
with a complex global business and the governance oversight required to implement our long-term growth objective and key
strategic pillars and to oversee the business transformation process. Non-executive directors do not receive any short-term
or long-term incentive.
There are no changes to the level of non-executive director fees proposed for 2023.
Appen 2022 Annual Report
87
Remuneration report
for the year ended 31 December 2022
Amounts paid to non-executive directors in USD
Details of fees paid to non-executive directors for FY22 and FY21 in US Dollars are outlined below.
Director
Richard Freudenstein 1
Stephen Hasker
Vanessa Liu
Robin Low
Stuart Davis 3
Lynn Mickleburgh 4
Mini Peiris 5
Deena Shiff 6
Chris Vonwiller 7
William Pulver 8
2022
Super-
annuation
US$
–
–
–
–
86
–
–
–
–
–
Fees
US$
166,804
102,203 2
83,402
97,302
62,547
33,680
12,541
35,583
–
–
Total
US$
166,804
102,203
83,402
97,302
62,633
33,680
12,541
35,583
–
–
594,062
86
594,148
2021
Super-
annuation
US$
4,403
–
–
–
–
–
–
4,006
13,487
6,234
28,130
Fees
US$
44,026
90,184
90,184
105,214
–
–
–
86,178
136,950
63,561
616,297
Total
US$
48,429
90,184
90,184
105,214
–
–
–
90,184
150,437
69,795
644,427
Variances in fees for those non-executive directors that have served a full year term in FY21 and FY22 relates to the impact
of FX translation from Australian dollars to US dollars. All the above non-executive directors provided services for the full year
unless stated otherwise.
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 Part of the amount paid to Mr Hasker in FY22 ($2,203) relates to Mr Hasker’s FY21 fee as Chair of the People and Culture Committee.
3 Stuart Davis was appointed on 29 March 2022.
4 Lynn Mickleburgh was appointed on 29 July 2022.
5 Mini Peiris was appointed on 4 November 2022.
6 Deena Shiff retired on 27 May 2022.
7 Chris Vonwiller retired as Chair on 28 October 2021.
8 William Pulver retired on 25 August 2021.
88
Remuneration report
for the year ended 31 December 2022
Amounts paid to non-executive directors in AUD
Details of fees paid to non-executive directors for FY22 and FY21 in Australian Dollars are outlined below. The total amount paid
in FY22 and FY21 is less than the A$1,400,000 limit approved by shareholders at the 2021 AGM.
Director
Richard Freudenstein 1
Stephen Hasker
Vanessa Liu
Robin Low
Stuart Davis 3
Lynn Mickleburgh 4
Mini Peiris 5
Deena Shiff 6
Chris Vonwiller 7
William Pulver 8
2022
Super-
annuation
A$
Total
A$
Fees
A$
2021
Super-
annuation
A$
Total
A$
–
–
–
–
126
–
–
–
–
–
240,000
60,419
6,042
66,461
147,051
120,000
120,000
120,000
140,000
140,000
91,385
50,461
18,768
49,229
–
–
–
–
–
114,670
180,666
83,198
–
–
–
–
–
–
120,000
120,000
140,000
–
–
–
5,330
17,793
8,160
120,000
198,459
91,358
Fees
A$
240,000
147,051 ²
120,000
140,000
91,259
50,461
18,768
49,229
–
–
856,768
126
856,894
818,953
37,325
856,278
All the above non-executive directors provided services for the full year unless stated otherwise.
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 Part of the amount paid to Mr Hasker in FY22 (A$7,051) relates to Mr Hasker’s FY21 fee as Chair of the People and Culture Committee.
3 Stuart Davis was appointed on 29 March 2022.
4 Lynn Mickleburgh was appointed on 29 July 2022.
5 Mini Peiris was appointed on 4 November 2022.
6 Deena Shiff retired on 27 May 2022.
7 Chris Vonwiller retired as Chair on 28 October 2021.
8 William Pulver retired on 25 August 2021.
Appen 2022 Annual Report
89
Remuneration report
for the year ended 31 December 2022
Remuneration governance
The role of the People and Culture 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 and Committee Chair for the whole financial year
Richard Freudenstein, Member for the whole financial year
Lynn Mickleburgh, Member from 30 November 2022
Mini Peiris, Member from 30 November 2022
Robin Low, Member to 30 November 2022
The graphic 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
Lynn Mickleburgh
Mini Peiris
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
‘Board and Committee meetings’ section on page 68.
90
Remuneration report
for the year ended 31 December 2022
Board oversight of remuneration
The Board ensures variable rewards are only paid when a senior executive creates value for shareholders through meeting their
financial and non-financial targets and exceeding their agreed work plan objectives. The Board reviews all targets on an annual
basis to ensure that they are sufficiently challenging and are consistent with the Company’s long-term business strategy.
Consistent with good governance and to address shareholder expectations, during the year the Board formalised a policy
with respect to malus and clawback, such that the Board may forfeit any entitlement to performance-based remuneration
(both LTI and STI), if in the opinion of the Board, the employee may receive an inappropriate benefit. Examples where Board
discretion may be applied include: if the employee acts fraudulently or dishonestly, is in breach of their obligations to the
Group, mismanages a material risk affecting the Group, or any other circumstance which the Board determines to have resulted
in an inappropriate benefit.
The Board also has the discretion to determine that a portion or all of an employee’s unvested or vested STI and LTI awards
be forfeited if, in the Board’s opinion, negative or adverse circumstances affecting the performance or reputation of the Appen
Group have come to the Board’s attention where circumstances, had they been known at the time when the STI or LTI was
awarded, would have caused the Board to make a lower award or no award.
No Board discretion in relation to malus or clawback was applied in FY22.
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/
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.
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/
Minimum shareholding requirement (MSR)
The Board has adopted a Minimum Shareholding Policy to assist in aligning the interests of all directors with our shareholders.
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.
CEO and other Executive KMP
From 1 January 2022, the formal MSR is 100% of fixed remuneration for the CEO and 50% of fixed remuneration for other
Executive KMP over a five year period.
This is in addition to the requirement for the CEO to defer 25% of any STI earned in equity for a 12 month period.
As at the date of this report, all Executive KMP that have been employed for at least five years are in compliance with the MSR.
Non-executive directors
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).
As at the date of this report, all non-executive directors that have served on the Board for at least three years are in compliance
with the MSR.
Appen 2022 Annual Report
91
Remuneration report
for the year ended 31 December 2022
Other remuneration tables
Securities holdings of Executive KMP
Executive KMP
Mark Brayan
Kevin Levine
Number of
performance
rights held
Number of ordinary
shares held (direct and
indirect)
–
256,327
588,698
226,179
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
2022
Granted
during the
year
Exercised
during the
year
Held at
31 December
2022
Vested
during the
year
Forfeited
Name
Mark Brayan
Kevin Levine
Tom Sharkey
Plan
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
–
–
–
–
–
–
(106,666)
–
–
–
(106,666)
(53,333)
–
–
–
160,000
78,125
55,908
–
–
–
–
187,500
(106,666)
(53,334)
–
–
–
(78,125)
(55,908)
(187,500)
294,033
187,500
(106,666)
(374,867)
80,000
48,828
51,249
–
–
–
–
156,250
(53,333)
(26,667)
–
–
–
–
–
–
48,828
51,249
156,250
180,077
156,250
(53,333)
(26,667)
256,327
(53,333)
45,000
35,000
34,626
–
114,626
–
–
–
175,387
175,387
–
–
–
–
–
(45,000)
(35,000)
(34,626)
(175,387)
(290,013)
–
–
–
–
–
–
–
–
–
–
Performance rights vesting table
The performance details relating to the rights exercised during the year, are shown in the table below:
Grant
date
Tranche
Performance
condition
Measurement
date
Base
UBEPS
US cps
Target
UBEPS
US cps
Actual
UBEPS
US cps
Annual
growth
%
Actual
UBEPS
CAGR
%
Performance
condition met
Service
condition
Vesting
date
FY19 UBEPS
growth over
FY18 UBEPS
>= 20%
FY20 UBEPS
growth over
FY18 UBEPS
>= 20%
31/1/19
1
31/1/19
2
End 2019
N/A 1
28.26 1
38.19
35%
35%
Yes
End 2020
28.26
33.91
36.75
-4%
30% Yes
Employed
at 1 Jan
2022
Employed
at 1 Jan
2022
1 Jan 22
1 Jan 22
1 2019 base and target UBEPS restated in April 2019 to adjust for the loss-making Figure Eight on acquisition, but prior to its full integration
into Appen.
92
Remuneration report
for the year ended 31 December 2022
Performance rights exercised during the year by Executive KMP
Executive
Mark Brayan
Kevin Levine
Tom Sharkey
Number
of rights
exercised
Value of rights at
grant date (US$)
Value of rights at
exercisable date
(US$)
106,666
$1,180,507
53,333
$590,254
–
–
$475,049
$237,524
–
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 2022 are:
Plan
2020
2021
2022
Total
Mark Brayan 1
Kevin Levine
–
–
–
–
48,828
51,249
156,250
256,327
1 All of Mr Brayan’s unvested performance rights were forfeited on his termination as CEO on 15 December 2022.
Executive and Non-executive Director shareholdings
Purchased/
exercised during
the year
14,975
106,666
–
–
–
–
–
–
–
30,000
482,032
50,000
4,000
172,946
50,432
–
–
–
789,410
121,641
Number of shares
Sold during the
year
Ceased
to be KMP
31 December
2022
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(50,432)
–
–
–
44,975
588,698
50,000
4,000
172,946
–
–
–
–
(50,432)
860,619
Director
1 January 2022
Richard Freudenstein
Mark Brayan 1
Stephen Hasker
Vanessa Liu
Robin Low
Deena Shiff 2
Stuart Davis 3
Lynn Mickleburgh 4
Mini Peiris 5
1 Director to 15 December 2022.
2 To 27 May 2022.
3 From 29 March 2022.
4 From 29 July 2022.
5 From 4 November 2022.
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
27 February 2023
Sydney
Appen 2022 Annual Report
93
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 2022 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
27 February 2023
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.
94
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.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Note 16.
Note 17.
Note 18.
Note 19.
Note 20.
Note 21.
Note 22.
Note 23.
Note 24.
Note 25.
Note 26.
Note 27.
Note 28.
Note 29.
Note 30.
Note 31.
Note 32.
Note 33.
Note 34.
Note 35.
Note 36.
Note 37.
Note 38.
General information
Basis of preparation
Operating segments
Revenue
Expenses
Earnings per share
Dividends
Income tax
Financial risk management
Fair value measurement
Cash and cash equivalents
Trade and other receivables
Contract assets
Property, plant and equipment
Right-of-use assets
Intangibles
Non-current assets – investments
Derivative financial instruments
Trade and other payables
Contract liabilities
Borrowings
Lease liabilities
Employee benefits
Earn-out liability
Issued capital
Reserves
Accumulated losses
Key management personnel disclosures
Remuneration of auditors
Contingent liabilities
Related party transactions
Parent entity information
Business combinations
Interests in subsidiaries
Deed of cross guarantee
Cash flow information
Share-based payments
Events after the reporting period
Directors’ declaration
Independent auditor’s report
96
97
98
99
100
100
100
102
104
106
109
110
111
115
121
123
123
125
126
128
129
136
137
137
138
139
141
142
142
143
144
145
146
147
147
147
148
149
152
153
155
156
159
160
161
l
i
a
c
n
a
n
F
i
t
r
o
p
e
r
Appen 2022 Annual Report
95
Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2022
Services revenue
Other income
Interest income calculated using the effective interest method
Expenses
Crowd labelling services
Employee expenses
Share-based payments expense
Depreciation and amortisation expense
Professional fees
Recruitment costs
Information technology costs
Communication and travel expenses
Transaction costs
Deemed interest on earn-out liability
Net foreign exchange loss
Other expenses
Finance costs
Impairment charges on New Markets CGU
Restructure costs
(Loss)/profit before income tax expense
Group
Note
2022
$000
2021
$000
4
388,133
447,154
177
183
110
10
5
5
5
5
24
5
16
(237,712)
(268,378)
(94,221)
(71,015)
(1,492)
(516)
(41,582)
(35,038)
(9,994)
(6,143)
(12,829)
(2,982)
(1,556)
(772)
(2,560)
(9,718)
(996)
(204,326)
(7,088)
(2,394)
(8,772)
(1,339)
(2,729)
(657)
(1,176)
(8,669)
(1,372)
–
(678)
(2,256)
(239,068)
35,875
Income tax benefit/(expense)
8
–
(7,356)
(Loss)/profit after income tax benefit/(expense) for the year attributable to the owners
of Appen Limited
27
(239,068)
28,519
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive loss for the year, net of tax
(1,291)
(1,579)
(1,291)
(1,579)
Total comprehensive (loss)/income for the year attributable to the owners of Appen Limited
(240,359)
26,940
Basic earnings per share
Diluted earnings per share
Cents
(193.78)
(193.78)
6
6
Cents
23.19
22.85
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
96
Consolidated statement of financial position
as at 31 December 2022
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Derivatives
Income tax refund due
Prepayments
Inventory
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangibles
Investments
Deferred tax
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Derivatives
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
2022
$000
Restated 1
2021
$000
11
12
13
18
8
14
15
16
17
8
19
18
20
22
23
21
22
8
23
24
23,429
64,282
30,448
262
2,492
3,112
649
47,878
89,243
10,471
–
8,963
3,729
1,679
124,674
161,963
3,726
9,061
3,118
13,557
109,560
318,830
2,418
5,078
424
130,267
254,941
39,740
–
18,737
3,152
3,390
71
–
4,060
629
340,194
502,157
41,609
816
14,060
5,004
3,030
73
65,090
64,592
–
7,025
15,270
439
19,131
41,865
–
10,056
16,858
420
18,359
45,693
106,955
110,285
147,986
391,872
25
26
27
262,917
128,154
(243,085)
262,917
132,972
(4,017)
147,986
391,872
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
1 The 2021 comparative numbers have been restated to reflect acquisition accounting adjustments during the year. Refer to note 33
for further information.
Appen 2022 Annual Report
97
Consolidated statement of changes in equity
for the year ended 31 December 2022
Group
Issued
Capital
$000
Reserves
$000
Accumulated
Losses $000
Total equity
$000
Balance at 1 January 2022
262,917
132,972
(4,017)
391,872
Loss after income tax (benefit)/expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive (loss)/income for the year
Transactions with owners in their capacity as owners:
Share-based payments (note 5)
Dividends paid (note 7)
–
–
–
–
–
–
(239,068)
(239,068)
(1,291)
–
(1,291)
(1,291)
(239,068)
(240,359)
1,492
(5,019)
–
–
1,492
(5,019)
Balance at 31 December 2022
262,917
128,154
(243,085)
147,986
Group
Issued
Capital
$000
Reserves
$000
Accumulated
Losses
$000
Total equity
$000
Balance at 1 January 2021
262,917
114,784
(4,017)
373,684
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 (note 5)
Dividends paid (note 7)
–
–
–
–
–
–
–
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
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
98
Consolidated statement of cash flows
for the year ended 31 December 2022
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 received/(paid)
Net cash from operating activities
Cash flows from investing activities
Payments for intangibles
Payment for investment
Transaction costs
Payments for property, plant and equipment
Payment for strategic acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Payments for lease liabilities
Dividends paid
Net cash used in financing activities
Net (decrease) 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
2022
$000
2021
$000
395,568
434,261
(380,816)
(374,170)
14,752
60,091
183
(491)
3,784
10
(629)
(5,549)
36
18,228
53,923
16
17
5
14
33
7
(24,892)
(21,794)
(2,633)
(1,556)
(3,039)
–
(2,729)
(1,301)
–
(24,999)
(32,120)
(50,823)
(4,508)
(5,019)
(4,877)
(9,268)
(9,527)
(14,145)
(23,419)
(11,045)
47,878
(1,030)
60,488
(1,565)
Cash and cash equivalents at the end of the financial year
11
23,429
47,878
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Appen 2022 Annual Report
99
Notes to the consolidated financial statements
for the year ended 31 December 2022
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 27 February 2023.
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).
Basis of consolidation
The financial statements include the assets and liabilities of all subsidiaries in the Group as at 31 December 2022 and the results
for all subsidiaries for the year ended 31 December 2022. Inter-entity transactions, with, or between subsidiaries have been
eliminated in full, on consolidation.
Historical cost convention
The financial statements have been prepared on an accruals basis and are based on the historical cost convention, except for
derivative financial instruments, investments, 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 32.
Change in accounting policies
Material accounting policies adopted in the preparation of these financial statements are included in the relevant notes.
The accounting policies adopted are consistent with those of the previous years.
100
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 2. Basis of preparation (continued)
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
(Rounding Instrument), issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that Corporations Instrument to the nearest thousand US dollars, or in certain
cases, the nearest US dollar.
New, revised or amended Accounting Standards
The AASB has issued a number of standards or amendments to standards that are mandatory or effective for the first time for
the reporting period commencing 1 January 2022. The Group has assessed and determined that there are no new or amended
accounting standards applicable for the first time for the 31 December 2022 financial report, that materially affects the Group’s
accounting policies or any of the amounts recognised in the financial statements, with the exception of:
Classification as Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments, as issued in 2020, aim to clarify the requirements on determining whether a liability is current or non-current,
and apply for annual reporting periods beginning on or after 1 January 2023. However, the IASB has subsequently proposed
further amendments to IAS 1 and the deferral of the effective date of the 2020 amendments to no earlier than 1 January 2024.
Due to these ongoing developments, the Group is unable to determine the impact of these amendments on the consolidated
financial statements in the period of initial application. The Group is closely monitoring for any developments.
Notes to the consolidated financial statements
The notes to the consolidated financial statements have been presented in the following sections:
• Group performance, dividends and tax
• Risk management
• Balance sheet-related disclosures
• Group disclosures
Appen 2022 Annual Report
101
Notes to the consolidated financial statements
for the year ended 31 December 2022
Group performance, dividends and tax
Note 3. Operating segments
Appen’s operating and reportable operating segments are aligned to market opportunities and customer needs. The operating
segments 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 collection, annotation and evaluation products and tools, and our Enterprise, Government, China and
Quadrant businesses.
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 statutory 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 2022, approximately 81.9% (2021: 87.0%) 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 reportable segments for the years ended 31 December 2022 and
31 December 2021. The revenue and segment results for the New Markets segment for the year ended 31 December 2022,
includes the full year contribution from Quadrant, which was acquired on 13 September 2021.
102
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 3. Operating segments (continued)
31 December 2022
Services revenue
Interest
Other income
Total revenue & other income
Segment underlying EBITDA
Share based payment – employees
Investment in transformation benefits
Foreign exchange loss
Other
Group underlying EBITDA
Depreciation and amortisation
Restructure costs
Deemed interest on earn-out liability
Net interest expense
Transaction costs
Loss on revaluation of inventory – Cryptocurrency
Acquisition-related share based payments
Impairment loss – New Markets
Loss before income tax benefit
Income tax benefit
Loss after income tax benefit
31 December 2021
Services revenue
Interest
Other income
Total revenue & other income
Segment underlying 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
Global
Services
$000
New
Markets
$000
Corporate
(Unallocated)
$000
299,755
88,378
–
–
–
–
–
183
177
54,524
(36,506)
Global
Services
$000
344,679
–
–
New
Markets
$000
Corporate
(Unallocated)
$000
102,475
–
–
–
10
110
–
91,156
(11,523)
Total
$000
388,133
183
177
388,493
18,018
(1,443)
(3,048)
(2,560)
50
11,017
(41,582)
(678)
(772)
(813)
(1,556)
(309)
(49)
(204,326)
(239,068)
–
(239,068)
Total
$000
447,154
10
110
447,274
79,633
(773)
(1,176)
77,684
(35,038)
(2,256)
(657)
(1,362)
(2,729)
(24)
257
35,875
(7,356)
28,519
Appen 2022 Annual Report
103
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 3. Operating segments (continued)
Geographical information
Geographical information
Australia
US
Other countries
Note 4. Revenue
Services revenue
Sales income
2022
$000
2021
$000
865
337,594
49,674
1,332
412,876
32,946
Geographical
non-current assets
2022
$000
10,178
96,661
17,926
2021
$000
50,311
275,660
9,534
388,133
447,154
124,765
335,505
2022
$000
2021
$000
388,133
447,154
Disaggregation of services revenue
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 2022
Revenue – Global Services segment
Revenue – New Markets segment
Total revenue
31 December 2021
Revenue – Global Services segment
Revenue – New Markets segment
Total revenue
Global
customers
New Markets
customers
$000
$000
Corporate
(Unallocated)
$000
299,755
18,177
317,932
–
70,201
70,201
–
–
–
Global
customers
$000
New Markets
customers
$000
Corporate
(Unallocated)
$000
344,679
41,652
386,331
–
60,823
60,823
–
–
–
Total
$000
299,755
88,378
388,133
Total
$000
344,679
102,475
447,154
104
Notes to the consolidated financial statements
for the year ended 31 December 2022
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 delivering collected, annotated and evaluated data on a customers’ platform; and
• revenue from customers accessing the Group’s platform and tools for evaluating their data.
Revenue is recognised over time as the services are provided at an amount that reflects the consideration to which the
Group is expected to be entitled to in exchange for the services per customer requirements.
Revenue from the delivery of collected, annotated and evaluated data on the customers’ platforms relates to the Global
Services segment. Revenue is recognised over-time based on the services performed to date as a percentage of total
contracted services.
Revenue from customers accessing the Group’s platform and tools relates to the New Markets segment. Customers enter
into contracts for a specified period of time and usage limits to analyse and evaluate their data. Revenue is recognised
over time based on the utilisation of the platform and tools. Unused limits are recognised as revenue using estimates
based on the terms and conditions of the contract, experience, historical and expected future trends.
Variable consideration relating to its performance obligations are contained within the transaction price, if any, and may
reflect 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.
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 2022 Annual Report
105
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 5. Expenses
(Loss)/profit before income tax includes the following specific expenses:
Depreciation and amortisation
Depreciation:
Leasehold improvements
Fixtures and fittings
Computer equipment
Audio equipment
Motor Vehicle
Right-of-use assets – land and buildings
Total depreciation
Amortisation:
Systems implementation
Product development
Other intangibles
Amortisation sub-total
Amortisation – acquisition related 1:
Product development
Customer relationships and contracts
Brand
Amortisation – acquisition related sub-total
Group
2022
$000
2021
$000
758
162
1,346
17
15
4,930
7,228
76
20,583
423
21,082
8,932
4,271
69
13,272
751
168
1,091
27
–
5,192
7,229
40
16,025
218
16,283
7,130
4,321
75
11,526
Total depreciation and amortisation
41,582
35,038
1 The 31 December 2022 expense includes the amortisation expense related to Quadrant acquisition-related intangible assets, which have been
identified, recognised and valued as part of the finalised 31 December 2022 valuation of goodwill associated with the acquisition of Quadrant
under AASB 3 Business Combinations. Refer to notes 16 and 33 for further information.
Finance costs
Interest and finance charges paid/payable on borrowings
Interest and finance charges paid/payable on lease liabilities
Deemed interest on Quadrant earn-out liability
Finance costs expensed
Group
2022
$000
2021
$000
491
505
996
772
1,768
629
743
1,372
657
2,029
106
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 5. Expenses (continued)
Share-based payments expense
Share-based payment in respect of Appen performance rights
Share-based payment in respect of Quadrant or Figure Eight acquisitions
Total share-based payments expense
Group
2022
$000
1,443 1
49
2021
$000
773
(257) 2
1,492
516
1 Includes a true-up adjustment of share-based payments expense in relation to the 2020, 2021 and 2022 Long-Term Incentive Plans, for rights
that did not or were unlikely to vest, as performance conditions were not met or expected to be met.
2 Includes a true-up adjustment of share-based payments expense in relation to the 2020 and 2021 Long-Term Incentive Plans, for rights that did
not or were unlikely to vest, as performance conditions were not met or expected to be met.
Transaction costs
Strategic consulting costs
Integration costs
Other
Transaction costs related to the Quadrant acquisition
Total transaction costs
Employee expenses
Defined contribution superannuation expense
Employee expenses
Total employee expenses
Group
2022
$000
1,326
112
118
–
2021
$000
1,484
20
109
1,116
1,556
2,729
Group
2022
$000
5,518
88,703
2021
$000
917
70,098
94,221
71,015
Appen 2022 Annual Report
107
Notes to the consolidated financial statements
for the year ended 31 December 2022
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.
108
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 6. Earnings per share
(Loss)/profit after income tax attributable to the owners of Appen Limited
Group
2022
$000
(239,068)
2021
$000
28,519
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
123,371,758
122,956,759
Adjustments for calculation of diluted earnings per share:
Rights over ordinary shares
– 1
1,857,243
Weighted average number of ordinary shares used in calculating diluted earnings per share
123,371,758
124,814,002
Basic earnings per share
Diluted earnings per share
Cents
(193.78)
(193.78)
Cents
23.19
22.85
1 Whilst there are unvested performance rights at 31 December 2022, potential ordinary shares are antidilutive when their conversion to ordinary
shares would increase earnings per share or decrease loss per share. The calculation of diluted earnings per share does not assume exercise
of the performance rights, or issue of potential ordinary shares that would have an antidilutive effect on earnings per share.
Accounting policy
Basic earnings per share
Basic earnings per share is calculated by dividing the profit or loss 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 2022 Annual Report
109
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 7. Dividends
Dividends
Dividends paid during the financial year were as follows:
2021 final dividend of AU 5.5 cents per share (2021: 2020 final dividend of AU 5.5 cents per share)
2022 interim dividend of AU nil cents per share (2021: 2021 interim dividend of AU 4.5 cents per share)
Group
2022
$000
5,019
–
2021
$000
5,242
4,026
5,019
9,268
In order to ensure appropriate allocation of capital, no interim or final dividend was paid for the year ended 31 December 2022.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
Group
2022
$000
6
2021
$000
18
The above amounts represent the balance of the franking account as at the end of the financial year. The lower franking credit
levels reflect tax refunds received in FY22 and FY21.
Accounting policy
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
110
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 8. Income tax
Income tax (benefit)/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 (benefit)/expense
Deferred tax included in income tax (benefit)/expense comprises:
(Increase)/decrease in deferred tax assets
Decrease in deferred tax liabilities
Deferred tax – origination and reversal of temporary differences
Reconciliation of income tax (benefit)/expense and tax at the statutory rate
(Loss)/profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable (loss)/income:
Impairment loss
Share-based payments
Deferred tax adjustments
Non-deductible transaction costs related to acquisition
Sundry items and exchange differences
Adjustment recognised for prior periods
Difference in overseas tax rates
Income tax (benefit)/expense
Group
2022
$000
2021
$000
2,075
(1,872)
410
(613)
3,381
3,587
1,402
(1,014)
–
7,356
(1,289)
(1,194)
4,114
(1,540)
(2,483)
2,574
(239,068)
35,875
(71,720)
10,763
61,298
(759)
10,148
–
342
(691)
(203)
894
–
(1,533)
(1,419)
348
2
8,161
388
(1,193)
–
7,356
Appen 2022 Annual Report
111
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 8. 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 – China 1
Revenue received in advance
Employee benefits
Accrued expenses
Other expenses and exchange differences
Deferred tax asset
Movements:
Opening balance
Credited/(debited) to profit or loss
Exchange differences
Closing balance
1 Losses expire after five years. Sufficient profits are forecast to fully utilise the tax losses within the next five years.
Group
2022
$000
2021
$000
6
2,295
1,013
774
355
635
–
2,489
1
690
150
730
5,078
4,060
4,060
1,289
(271)
8,240
(4,114)
(66)
5,078
4,060
112
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 8. Income tax (continued)
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax loss from Figure Eight acquisition 2
Intangible assets
Revenue received in advance
Quadrant acquisition – intangible assets and deferred revenue (note 33)
Other expenses and exchange differences
Deferred tax liability
Movements:
Opening balance
(Debited)/credited to profit or loss
Quadrant acquisition – intangible assets and deferred revenue (note 33)
Other expenses and exchange differences
Closing balance
Group
2022
$000
2021
$000
–
19,391
1,203
–
(958)
16,467
1,591
5,256
(5,324)
(5,498)
15,270
16,858
16,858
(1,194)
–
(394)
13,057
(1,540)
5,256
85
15,270
16,858
2 US tax losses to be applied in future periods amounts to $44 million (gross), of which none have been recognised as a deferred tax asset.
Income tax refund due
Group
2022
$000
2,492
2021
$000
8,963
Appen 2022 Annual Report
113
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 8. Income tax (continued)
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.
114
Notes to the consolidated financial statements
for the year ended 31 December 2022
Risk management
Note 9. Financial risk management
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
Given that 90% of Appen’s revenue and assets are denominated in US dollars and the Group’s reporting currency is United
States (US) dollars, foreign currency risk is not material for the Group.
However, the Group is still exposed to some foreign currency risk, as certain transactions, principally corporate head office
expenses and costs associated with listing on the ASX 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.
Appen 2022 Annual Report
115
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 9. Financial risk management (continued)
The maturity, settlement amounts and the average contractual exchange rates of the Group’s outstanding forward foreign
exchange contracts and foreign exchange – collars at the reporting date were as follows:
FX Forward Contracts
Sell United States dollars
Foreign exchange forward contract maturity:
0–3 months
3–6 months
6–12 months
More than 12 months
Purchase Australian
dollars
Forward
exchange rates
2022
$000
2021
$000
2022
$000
2021
$000
6,370
8,296
9,778
9,778
20,119
4,291
10,077
13,831
1.4815
1.4815
1.4815
1.4815
1.3148
1.3002
1.3615
1.3969
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
Japanese Yen
Singapore Dollars
Korean Won
Average
exchange rates
Reporting date
exchange rates
2022
2021
2022
2021
1.4430
0.8140
0.9521
7.8325
54.538
6.7515
131.77
1.3785
1,291.0
1.3371
0.7275
0.8479
7.7737
49.359
6.4382
113.49
1.3434
–
1.4663
0.8261
0.9338
7.8078
55.732
6.8973
131.06
1.3403
1,261.4
1.3769
0.7400
0.8815
7.7971
51.042
6.3588
115.09
1.3493
–
116
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 9. Financial risk management (continued)
Foreign exchange risk recognises financial assets and financial liabilities denominated in a currency that is not the US dollar and
the risk is measured using sensitivity analysis. The carrying amount of the Group’s foreign currency denominated financial assets
and financial liabilities at reporting date were as follows:
Group
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
Japanese Yen
Singapore Dollars
Korean Won
Assets
2022
$000
4,373
2,130
2,386
–
663
13,589
569
318
118
2021
$000
10,066
1,732
1,304
–
1,428
7,788
56
20
–
Liabilities
2022
$000
1,277
142
–
13
385
1,847
47
–
1
2021
$000
722
191
–
–
436
1,153
16
–
–
24,146
22,394
3,712
2,518
The Group had financial net assets denominated in foreign currencies of $20,434,000 (2021: net assets of $19,876,000).
Financial net assets exclude intangibles, fixed assets, intercompany balances and other non-monetary balances.
Based on this exposure, had the US dollar weakened by 10% or strengthened by 10% (2021: 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 appears on the following page:
Appen 2022 Annual Report
117
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 9. Financial risk management (continued)
Group – 2022
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
Japanese Yen
Singapore Dollars
Group – 2021
Australian Dollars
United Kingdom Pound Sterling
European Economic and Monetary
Union Euro
Hong Kong Dollars
Philippine Pesos
Chinese Yuan
Japanese Yen
Singapore Dollars
USD strengthened
USD weakened
Effect
on profit
before tax
$000
Effect
on equity
$000
% change
Effect
on profit
before tax
$000
Effect
on equity
$000
% change
10%
10%
10%
10%
10%
10%
10%
10%
–
(9)
(73)
–
–
–
(8)
(8)
(310)
(194)
(239)
1
(28)
(1,174)
(52)
(32)
10%
10%
10%
10%
10%
10%
10%
10%
–
9
73
–
–
–
8
8
310
194
239
(1)
28
1,174
52
32
(98)
(2,028)
98
2,028
USD strengthened
USD weakened
Effect
on profit
before tax
$000
Effect
on equity
$000
% change
Effect
on profit
before tax
$000
Effect
on equity
$000
% change
10%
10%
10%
10%
10%
10%
10%
10%
–
(3)
(130)
–
–
–
–
(2)
(393)
(153)
(47)
1
(99)
(664)
(4)
–
10%
10%
10%
10%
10%
10%
10%
10%
–
3
130
–
–
–
–
2
393
153
47
(1)
99
664
4
–
(135)
(1,359)
135
1,359
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.
118
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 9. Financial risk management (continued)
Price risk
The Group holds an immaterial amount of cryptocurrency assets which, prima facie, may be subject to price risk. Cryptocurrency
is a core and integral part of Quadrant’s business operations, as cryptocurrency is used to pay geolancers and some
suppliers, because cryptocurrency provides various benefits to Quadrant, such as: (i) real-time settlement and (ii) allowance
for micropayments. This is because many of the tasks that geolancers perform involve small data volumes and small or micro
payment amounts are provided as consideration. Cryptocurrency allows and can handle these small micropayments, with the
added benefit of not imposing fees on the recipient. Cryptocurrency assets are classified as inventory and valued in these
financial statements at the lower of cost and net realisable value (refer to note 33 for further information).
Interest rate risk
The Group’s main interest rate risk potentially 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 (refer to note 21 for further information).
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 and contract assets 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
2022
$000
2021
$000
20,000
20,000
13,640
24,137
57,777
14,525
24,137
58,662
Appen 2022 Annual Report
119
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 9. Financial risk management (continued)
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 – 2022
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Weighted
average
interest rate
%
1 year
or less
$000
Between
1 and 2 years
$000
Between
2 and 5
years
$000
Over 5
years
$000
Remaining
contractual
maturities
$000
–
–
24,685
15,055
–
–
–
–
–
–
24,685
15,055
Interest-bearing – fixed rate
Lease liability (including interest)
3.99%
Total non-derivatives
3,277
43,017
2,638
2,638
4,012
4,012
941
941
10,868
50,608
Group – 2021
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Weighted
average
interest rate
%
1 year
or less
$000
–
–
25,311
16,298
Interest-bearing – fixed rate
Lease liability (including interest)
4.18%
Total non-derivatives
5,214
46,823
Between
1 and 2
years
$000
Between
2 and 5 years
$000
–
–
5,880
5,880
–
–
3,116
3,116
Over 5
years
$000
Remaining
contractual
maturities
$000
–
–
1,917
1,917
25,311
16,298
16,127
57,736
The cash flows in the maturity analysis are not expected to occur significantly earlier than contractually disclosed above.
120
Notes to the consolidated financial statements
for the year ended 31 December 2022
Balance sheet-related disclosures
Note 10. 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 – 2022
Assets
Forward foreign exchange contracts
Investments
Total assets
Liabilities
Earn-out liability and associated deemed interest in respect
of the Quadrant acquisition
Total liabilities
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
$000
Level 2
$000
Level 3
$000
Total
$000
–
–
–
–
–
262
–
262
–
–
–
2,418
2,418
19,131
19,131
262
2,418
2,680
19,131
19,131
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
–
–
–
–
–
816
–
816
–
–
–
816
18,359
18,359
18,359
19,175
There were no transfers between levels during the financial year.
The following two investments have been classified as level 3 at 31 December 2022:
•
•
The investment in Mindtech (as disclosed in note 17) because its value is based on the cost at acquisition date
on 8 March 2022, adjusted to reflect the 31 December 2022 exchange rate and any other fair value movements based
on unobservable inputs.
The earn-out liability and associated deemed interest in respect of the Quadrant acquisition 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.
Appen 2022 Annual Report
121
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 10. Fair value measurement (continued)
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:
Assets – movement
Additions
Balance at 31 December 2021
Investment in Mindtech (see note 17)
Foreign exchange loss
Balance at 31 December 2022
Liabilities – movement
Balance at 1 January 2021
Additions
Earn-out liability in respect of Quadrant acquisition (see note 24)
Deemed interest in respect of Quadrant acquisition (see note 24)
Balance at 31 December 2021
Additions
Deemed interest in respect of Quadrant acquisition (see note 24)
Balance at 31 December 2022
Group
$000
–
2,633
(215)
2,418
–
17,702
657
18,359
772
19,131
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.
122
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 11. Cash and cash equivalents
Current assets
Cash on hand
Cash at bank
Group
2022
$000
2021
$000
2
3
23,427
47,875
23,429
47,878
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 12. Trade and other receivables
Current assets
Trade receivables
Less: Allowance for expected credit losses
Other receivables
GST receivable
Group
2022
$000
2021
$000
61,407
(288)
61,119
2,375
788
87,546
(242)
87,304
1,860
79
64,282
89,243
The 31 December 2021 balance of trade receivables was impacted by increased volumes in the last two months of the year.
Also, the December month billing milestone aligned with the last day of the reporting period of 31 December 2021, whereas
for 31 December 2022, the billing milestone was satisfied just after the 31 December reporting period. Hence, December 2022
invoices were classified as a contract asset. Refer to note 13 for more information.
Appen 2022 Annual Report
123
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 12. Trade and other receivables (continued)
Impairment and allowance for expected credit losses
At 31 December 2022, the Group has recognised a provision of $288,000 (2021: $242,000) in respect of the impairment
of receivables.
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
Allowance for expected
credit losses
2022
$000
2021
$000
2022
$000
2021
$000
50,400
9,163
987
857
83,092
3,667
553
234
61,407
87,546
–
–
–
288
288
–
–
8
234
242
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
2022
$000
242
169
(123)
288
Restated
2021
$000
622
152
(532)
242
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.
124
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 13. Contract assets
Current assets
Contract assets
Group
2022
$000
2021
$000
30,448
10,471
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
Balance at 30 June
Subsequently invoiced and transferred to receivables – reversal
Accrued revenue recognised – 31 December 1
Balance at 31 December
Group
2022
$000
10,471
2021
$000
31,516
(10,471)
(31,516)
30,334
30,334
28,177
28,177
(30,334)
(28,177)
30,448
30,448
10,471
10,471
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 lower contract assets balance
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 12). For 31 December 2022, the billing milestone
was fully satisfied after the 31 December reporting period and hence December invoices were classified as a contract asset as above.
Appen 2022 Annual Report
125
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 14. Property, plant and equipment
Group
2022
$000
2021
$000
4,128
(3,472)
656
1,198
(940)
258
8,304
(5,543)
2,761
173
(157)
16
50
(15)
35
3,915
(2,898)
1,017
1,183
(870)
313
6,166
(4,411)
1,755
182
(149)
33
–
–
–
3,726
3,118
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
Motor Vehicle – at cost
Less: Accumulated depreciation
126
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 14. 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 2021
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2021
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 31 December 2022
Leasehold
improvements
$000
1,596
226
(9)
(45)
(751)
1,017
454
–
(57)
(758)
656
Fixtures
and fittings
$000
Computer
equipment
$000
Audio
equipment
$000
Motor
Vehicle
$000
438
1
–
42
1,880
1,072
(34)
(72)
(168)
(1,091)
313
47
–
60
1,755
2,487
(5)
(130)
(162)
(1,346)
258
2,761
59
2
–
(1)
(27)
33
1
–
(1)
(17)
16
–
–
–
–
–
–
50
–
–
(15)
35
Total
$000
3,973
1,301
(43)
(76)
(2,037)
3,118
3,039
(5)
(128)
(2,298)
3,726
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
Motor vehicle
Audio equipment
Over the lease term
1–13 years
1–4 years
3–5 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 2022 Annual Report
127
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 15. Right-of-use assets
Non-current assets
Land and buildings – right-of-use
Exchange differences
Less: Accumulated depreciation
Group
2022
$000
2021
$000
19,689
(304)
25,944
238
(10,324)
(12,625)
9,061
13,557
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Group
Opening written down value
Additions
Exchange differences
Depreciation expense (refer to note 5)
Closing written down value
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 22 for lease liabilities;
• Refer to note 9 for contract maturity analysis of lease liabilities; and
• Refer to the consolidated statement of cash flows for repayment of lease liabilities.
Group
2022
$000
13,557
903
(469)
(4,930)
9,061
2021
$000
17,993
1,022
(266)
(5,192)
13,557
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. Short-term leases are those with a lease term of 12 months
or less. The costs associated with these leases are recognised as an expense in the consolidated statement of profit
or loss as incurred.
Judgement
Options to extend leases are assessed for reasonable certainty in assessing the term of the lease to charge the depreciation expense.
128
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles
Non-current assets
Goodwill – at cost
Less: Impairment
Systems implementation – at cost
Exchange differences
Less: Accumulated amortisation
Product development – at cost
Exchange differences
Less: Accumulated amortisation
Customer relationships – at cost
Less: Accumulated amortisation
Less: Impairment
Brand – at cost
Exchange differences
Less: Accumulated amortisation
Customer contracts – at cost
Less: Accumulated amortisation
Other intangibles – at cost
Exchange differences
Less: Accumulated amortisation
Less: Impairment
Group
2022
$000
2021 1
$000
242,051
241,817
(188,937)
–
53,114
241,817
1,515
(1)
(1,370)
144
1,515
1
(1,294)
222
133,689
110,258
(180)
(37)
(79,993)
(50,478)
53,516
59,743
36,052
31,500
(20,669)
(16,398)
(15,383)
–
–
15,102
1,094
(56)
(669)
369
2,372
(2,372)
–
3,396
(83)
(890)
(6)
2,417
1,094
–
(600)
494
2,372
(2,372)
–
1,935
(16)
(467)
–
1,452
109,560
318,830
1 The 31 December 2021 balances have been re-stated to reflect the acquisition accounting adjustments made during the year with respect
to opening balances (refer to note 33 for further information).
Appen 2022 Annual Report
129
Group
Balance at
1 January 2020
Additions
Additions related to
Quadrant acquisition
(see note 33)
Exchange differences
Amortisation expense
Balance at
31 December 2021
Additions/
reallocations
Exchange differences
Amortisation expense
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Systems
implement-
ation
$000
Product
develop-
ment
$000
Customer
relation-
ships
$000
Brand
$000
Customer
contracts
$000
Other
intangibles
$000
Total
$000
67
195
–
–
53,075
19,370
20,574 2
9,385 1
(136)
–
–
–
(40)
(23,155)
(4,268)
75
–
494¹
–
(75)
53
–
–
–
561
275,796
1,025
21,794
–
84
49,488
(439)
(53)
(218)
(27,809)
Goodwill
$000
202,595
–
39,609 3
(387)
–
241,817
222
59,743
15,102
494
–
234
–
–
(2)
23,431²
4,552 4
(143)
–
(76)
(29,515)
(4,271)
–
(56)
(69)
–
Impairment expense
(188,937)
–
–
(15,383)
Balance at
31 December 2022
53,114
144
53,516
–
369
–
–
–
–
–
–
1,452
318,830
1,461
29,444
(67)
(34)
(423)
(34,354)
(6)
(204,326)
2,417
109,560
1 The 31 December 2021 balances have been re-stated to reflect the acquisition accounting adjustments made during the year with respect
to opening balances (refer to note 33 for further information).
2 The additions in product development during the year relate to continued investment by Appen, in development and the addition of new
features, to drive future revenue growth, scale and cost efficiency.
3 During the prior year ended 31 December 2021, the then-provisional goodwill amount relating to the Quadrant acquisition was adjusted
as a result of the identification, recognition and valuation of Quadrant acquisition-related intangible assets (brand and product development).
The goodwill was calculated as the residual of the purchase consideration, the identified acquisition-related intangible assets, and the carrying
value of the other acquired assets and liabilities (refer to note 33). The pre-impairment value of goodwill was finalised on 13 September 2022
(12 months after the acquisition of Quadrant).
4 This was a reallocation of the customer contracts balance relating to Figure Eight and previously disclosed in note 20.
130
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
Impairment of assets and allocation of goodwill to cash-generating units (CGUs)
Timing and indicators for impairment testing
At each reporting period, an assessment of the carrying value of non-current assets is performed. AASB 136: Impairment
of Assets, requires an entity to perform a detailed recoverable amount assessment for an asset when any of the following
impairment indicators are present:
•
•
There are observable indications that an asset’s value has declined during the period more than that which would be expected
as a result of the passage of time or normal use;
Technological, market, economic, or legal environment in which the entity operates has changed or will change with adverse
impact on the entity;
• Market interest rates or other market rates of return on investments have increased during the period and are likely to have
an impact on discount rates;
• Carrying amount of the net assets of the entity is more than its market capitalisation;
•
Evidence that assets are obsolete or physically damaged;
• Significant changes with an adverse impact on the entity have taken place during the period impacting the manner or extent
to which an asset is used or expected to be used (restructure etc); or
•
Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse
than expected.
In addition to the above, goodwill and indefinite life intangible assets (whether in-use or not ready for-use) must be tested,
at least annually, for impairment. As a result, management performed impairment testing at 31 December 2022.
Appen’s assessment of its cash generating units (CGUs)
In FY21, following the business re-organisation, management assessed and identified that the Group has three CGUs: Global
Services, New Markets (ex-China) and China, on the basis of how:
•
•
cash flows are identified and measured; and
resources are allocated and performance monitored, consistent with Appen’s long-term strategic goals of revenue and
customer diversification.
How was goodwill allocated across the Group?
Each acquisition that Appen has made has contributed to the goodwill carrying value at 31 December 2022 of $53,114,000.
The below table summarises the allocation of goodwill to each CGU based on expected synergies each acquisition provides
the Group and the level at which the performance of a CGU inclusive of goodwill is monitored.
Cash-generating unit
Goodwill allocated to the New Markets (ex-China) CGU
Goodwill allocated to the Global Services CGU
Total
Pre-impairment
31 December 2022
carrying value
Impairment loss
Post-impairment
31 December 2022
carrying value
($000)
188,937
53,114
242,051
($000)
(188,937)
–
(188,937)
($000)
–
53,114
53,114
Goodwill is measured and monitored at the lowest level within the entity for which information about goodwill is available and
should not be larger than the corresponding operating segment.
Measurement of the recoverable amount of the New Markets (ex-China) CGU
In order to identify an impairment loss, management assessed if there was a relevant indicator or indicators of impairment,
after considering the detailed list of indicators outlined above. As a result of this review, management considered that there
were possible impairment indicators. For example, estimated future cash inflows from the New Markets (ex-China) CGU,
was less than expected.
Appen 2022 Annual Report
131
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
As a result of identifying at least one indicator, management compared the higher of value-in-use of the CGU/fair value less
costs of disposal (FVLCD), to determine the CGU’s recoverable amount, and compared this to the CGU’s carrying value, and
concluded that based on the assumptions made, the CGU’s carrying value exceeded its recoverable amount, and hence the
CGU had a quantifiable impairment loss.
Value-in-use is defined as the present value of the future cash flows expected to be derived from an asset or CGU from both
its continuing use and ultimate disposal.
The carrying amount of the New Markets (ex-China) CGU was determined to be higher than its recoverable amount, as measured
by the CGUs value-in-use, resulting in an impairment loss of $204,326,000. Please see the section titled How did management
account for the impairment loss for further information.
Management concluded that it is unlikely that the FVLCD would be higher than the CGU’s value-in-use, as this would require
a market participant to apply a higher probability weighting for the market participant scenario, than is currently assumed
in the value-in-use model (see below).
What assumptions were made in calculating the New Markets (ex-China) CGU value-in-use ?
Cash flows were projected based on forecast operating results over the five year period from the year ended 31 December 2023
(FY23) to 31 December 2027 (FY27), derived by applying conservative estimates to Appen’s latest five year plan approved by the
Board. Each of the key assumptions made is presented in the table below.
Key assumption Basis for determining value in use assigned to key assumption
Revenue
growth rate
Given the FY22 performance, future revenue growth assumptions had to be reset, and the revised forecast
growth assumptions have been based on lower growth rates.
The blended compound annual growth rate over the five year period of FY23 to FY27 was forecast to be 22.5%
(CAGR) and 19.0% (CAGR) from FY23 to terminal value. This was achieved by applying a weighted probability
approach to the revenue forecasts that comprises the New Markets CGU (ex-China) business units, being
Global Product, Enterprise, Government and Quadrant. Specifically, management considered three possible
scenarios when calculating the forecast revenue (Budget/Board case, Market Participant case and Bear case)
and applied probability weightings to each of these scenarios to determine the revenue growth rate for each
year between FY23 and FY27 for each business unit.
The Budget/Board scenario was based on revenue growth assumptions that were adopted in the budget that
was presented to the Board.
The Market participant scenario was based on revenue growth projections prepared by reputable investment
banks and brokers. Where available, revenue growth rates specific to each business unit were also adopted.
The Bear scenario was based on revenue continuing to move directionally in line with the historic percentage
revenue movement experienced in FY22 (i.e. low or declining revenue CAGR from FY23 to FY27) for each
business unit.
The revenue growth rate was calculated after considering the following additional factors:
– the pipeline from the Enterprise division.
– the deal growth pipeline from Quadrant with our Global customers for the provision of POI data.
– estimates of the digitisation, business transformation and product development benefits, including the
benefits of scale and the positive impact on margins, to be achieved over the course of the next five years,
as a result of the significant investment in each of these areas.
– low growth for Global Product and Government based on their FY22 performance.
This was sanity checked by benchmarking to industry growth analysis and reports.
Terminal value
growth rate
All future years of the model use a constant growth rate of 3%. The rate was referenced against management’s
view of the growth rate for each business unit and the long-term growth rate of the AI industry.
Discount rate
The discount rate applied to post-tax cash flows was 12.50% (2021: 11%).
The values assigned to each assumption represents management’s conservative assessment of future performance of New Markets
(ex-China) CGU.
132
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
How did management account for the impairment loss ?
As mentioned above, management assessed that the impairment loss relating to the New Markets (ex-China) CGU
at 31 December 2022, was $204,326,000.
Below is a summary of the steps management took to allocate this impairment loss against the assets that comprise the
New Markets (ex-China) CGU.
Step Procedure
1
2
Performed a bottom-up test of each of the assets (ex-goodwill) that comprise the New Markets (ex-China) CGU.
This test required an assessment of the future cash flows of each asset at an individual asset level with a comparison
made to the asset’s carrying value at 31 December 2022. Assets were identified for impairment if the assets recoverable
amount was less than its carrying value. All assets identified for impairment, which totalled $15,389,000, were fully
impaired at 31 December 2022 and any assets in which the carrying value at 31 December 2022, could be supported
were not. See the table below for more information.
Management added any relevant corporate assets and goodwill, and tested these assets for impairment at a CGU level.
The carrying value of any goodwill allocated to the CGU was reduced, by the remaining impairment loss after applying the
loss in step 1. The amount of goodwill that was reduced was $188,937,000.
From a review of each specific asset in the New Markets (ex-China) CGU management identified that the following assets
(ex-goodwill) could be impaired (as per step 1 above), as management does not consider that there was material future value
in these assets. This is based on an assessment of the impairment indicators specified on page 131. For example, there were
observable indicators, from the value of active customer contracts in place at 31 December 2022, that the asset’s value has
declined more than that which is expected based on the useful life of the asset.
The impairment testing involved the use of judgement and compared the pre-impairment carrying value at 31 December 2022,
to the future cash flows likely to be generated from that asset, which as mentioned were either nil or immaterial.
The values presented below are the 31 December 2022, pre-impairment carrying values.
Entity
Figure Eight
Asset
(ex-goodwill)
Figure Eight – Upfront
costs on customer contracts
Value
($000)
15,383
Other
Miscellaneous intangible
assets
6
Total impairable assets
(ex-goodwill)
15,389
Reason for possible impairment
Customer base was acquired from Figure Eight as part
of the acquisition. Customers have largely churned. Hence,
an impairment loss is warranted, because the future cash flows
or value-in-use of these customers and customer contracts has
been assessed to be immaterial.
Relating to formation costs, internal software and other
miscellaneous intangible assets, which have been assessed
as unlikely to provide positive cash flow benefits.
As a result, the impairment loss of $204,326,000 was allocated as follows: specific assets of the New Markets (ex-China) CGU:
$15,389,000 and goodwill $188,937,000.
Appen 2022 Annual Report
133
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
Measurement of the recoverable amount of the 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. Refer to page 131 for the table that
discloses the amount of goodwill that was allocated to the Global Services CGU, which was $53,114,000.
Cash flows were projected based on forecast operating results over the five year period from FY23 to FY27, derived by applying
conservative estimates to Appen’s latest five year plan approved by the Board, as follows:
Key assumption
Basis for determining value-in-use assigned to key assumption
Revenue growth rate
Average annual revenue growth rate of 4.5% from FY23 to FY27 underpinned by:
– estimates of future growth performance, given FY22 performance.
– estimates of the digitisation, business transformation and product development benefits, including
the benefits of scale and the positive impact on margins, to be achieved over the course of the
next five years, as a result of the significant investment in each of these areas.
– consideration of the possibility of a US recession and general global economic uncertainty, and
the impact that this may have on our customer’s budgets and spending and hence our revenue.
Terminal value growth rate Referenced using the same assumptions as per page 132 used for the New Markets (ex-China) CGU.
All future years of the model use a constant terminal value growth rate of 3%.
Discount rate
The discount rate applied to post-tax cash flows was 11.38% (2021: 11%). The Group has adjusted
the discount rate in the current year to reflect the impact of higher global inflation and interest rates.
An independent third-party valuer calculated the rate.
The goodwill carrying value of $53,114,000 (2021: $53,150,000) has been allocated to the Global Services CGU.
At 31 December 2022, the recoverable amount, being the net amount of discounted future cash flows, significantly 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
Goodwill is tested at each reporting date. Where the recoverable amount is less than the carrying amount, an impairment
loss is recognised as an expense in the statement of comprehensive income. The recoverable amount of each CGU
is determined based on value-in-use calculations. These calculations use cash flow projections based on financial
estimates reviewed by management covering a five year period. Cash flows beyond this five year period are extrapolated
using estimated growth rates that do not exceed the long-term average growth rate for the business in which the CGU
operates and are consistent with external sources of information.
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.
134
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 16. Intangibles (continued)
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. Subsequent to initial
recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated
impairment losses, on the same basis as intangible assets that are acquired separately.
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.
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 10 years.
Brand
Brand names acquired in a business combination are amortised on a straight-line basis over the period of their expected
benefit. This includes the acquisition of the Quadrant brand name which has been estimated to have a finite life of five 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 five 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 2022 Annual Report
135
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 17. Non-current assets – investments
During the year, the Group invested GBP2.0 million in exchange for a minority interest stake in Mindtech Global Limited (“Mindtech”).
At 31 December 2022, the Group’s investment in Mindtech represents a fair value investment.
Entity
Mindtech
The breakdown of the fair value investment is summarised below.
Country of
incorporation
England
Fair value at
31 December 2022
$000
2,418
Fair value at
31 December 2021
$000
–
Consideration paid at acquisition date
Foreign exchange movement on investment
Fair value at 31 December 2022
31 Dec 2022
$000
31 Dec 2021
$000
2,633
(215)
2,418
–
–
–
Accounting policy
AASB 9: Financial Instruments allows an irrevocable election on initial recognition to present gains and losses
on investments in equity instruments that are not held for trading in other comprehensive income. Management has
applied this election with respect to the Mindtech investment.
Any future dividends in respect of this investment that are a return on investment will be recognised in profit or loss
and there is no impairment on disposal of the investment.
136
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 18. Derivative financial instruments
Group
2022
$000
2021
$000
Current assets/(liabilities)
Forward foreign exchange contracts – cash flow hedges
262
(816)
Refer to note 10 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.
Note 19. Trade and other payables
Current liabilities
Trade payables
Other payables and accrued expenses
Refer to note 9 for further information on ageing of liabilities.
Group
2022
$000
2021
$000
24,685
15,055
25,311
16,298
39,740
41,609
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.
Appen 2022 Annual Report
137
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 20. Contract liabilities
Group
2022
$000
Restated
2021
$000
Current liabilities
Invoices issued/deposits received in advance
18,737
14,060
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
Issue of eQUADs for Geolancer services 1
Revaluation and fair value amortisation relating to Figure Eight
Re-allocation of customer contracts balance to intangibles (note 16)
Additions relating to business combinations (refer to note 33)
Closing balance
14,060
8,039
(8,548)
104
530
4,552
7,458
19,671
(16,912)
–
580
–
–
3,263
18,737
14,060
1 Quadrant held eQUAD tokens on its balance sheet at acquisition date. These tokens have been re-classified from inventory to contract liabilities,
as the tokens represent a future obligation by Quadrant to deliver services to the token holders. Refer to note 33 for further information.
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 $18,737,000 as at 31 December 2022 ($14,060,000 as at 31 December 2021) and is expected
to be recognised as revenue in future periods as follows:
Less than 3 months
Over 3 months
Group
2022
$000
4,133
14,604
2021
$000
5,186
8,874
18,737
14,060
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. These 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.
138
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 21. Borrowings
The outstanding liabilities at balance date for each Facility is as follows:
Non-current liabilities
Facility A (Senior debt)
Facility B (Working capital)
Facility C (Acquisition funding)
Group
2022
$000
2021
$000
–
–
–
–
–
–
–
–
Background information relating to each Facility
Facility A (Senior debt)
The facility was established in December 2017 and varied in April 2019, with a limit of $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. This facility
expires on 3 April 2023.
Facility B (Working capital)
This facility was established in December 2017 and varied in April 2019, with a limit 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. This facility expires on 3 April 2023.
Facility C (Acquisition funding)
The facility was established in April 2019 with an initial limit of $90 million, and was used to fund the Figure Eight earn-out
consideration. This limit was reduced to $24.1 million after the earn-out payment was completed in April 2020. 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 attracts interest
at a margin over bank reference rates, based on the net leverage ratio. This facility expires on 3 April 2023.
Subsequent to year end, we received credit approval for the extension of our debt facilities for nine months to 3 January 2024.
The extension agreement is expected to be finalised in the next few weeks. A full debt refinance is planned for the second half
of FY23 to achieve an appropriate debt structure to support the current and future needs of the business. Our existing debt
facility has been resized to a working capital facility of A$20 million to reflect the current needs of the business.
Appen 2022 Annual Report
139
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 21. Borrowings (continued)
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
2022
$000
2021
$000
20,000
20,000
13,640
24,137
57,777
14,525
24,137
58,662
–
–
–
–
–
–
–
–
20,000
20,000
13,640
24,137
57,777
14,525
24,137
58,662
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.
140
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 22. Lease liabilities
Current liabilities
Lease liability
Non-current liabilities
Lease liability
Group
2022
$000
2021
$000
3,152
5,004
7,025
10,056
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. This practical expedient for COVID-19 rent concessions were extended
to 30 June 2022.
Appen 2022 Annual Report
141
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 23. Employee benefits
Current liabilities
Annual leave
Non-current liabilities
Long service leave
Accounting policy
Short-term employee benefits
Group
2022
$000
2021
$000
3,390
3,030
439
420
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. These 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 24: Earn-out liability
Non-current liability
31 Dec 2022
$000
31 Dec 2021
$000
19,131
19,131
18,359
18,359
The earn-out liability is due to be settled in February 2024, upon achievement of required milestones.
The present value of the earn-out liability is represented below:
Earn-out liability at acquisition date of 13 September 2021
Deemed interest (13 September 2021 to 31 December 2021)
Earn-out liability at 31 December 2021
Deemed interest (1 January 2022 to 31 December 2022)
Earn-out liability at 31 December 2022
142
31 Dec 2022
$000
17,702
657
18,359
772
19,131
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 25. Issued capital
Group
2022
Shares
2021
Shares
2022
$000
2021
$000
Ordinary shares – fully paid
123,446,356
123,074,916
262,917
262,917
Movements in ordinary share capital
Details
Balance
Date
Shares
$000
31 December 2020
122,345,605
262,917
Issue of shares 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
Issue of shares on exercise of performance rights
24 February 2022
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
Issue of shares on exercise of performance rights
24 March 2022
16 June 2022
302,431
6,649
62,360
–
–
–
Balance
31 December 2022
123,446,356
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 (such
as for FY22 where the Directors decided not to declare an interim and final dividend), 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. There was no capital raising required to fund the
up-front consideration relating to the FY21 acquisition of Quadrant or the FY22 investment in Mindtech.
The capital risk management policy remains unchanged from the prior year.
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.
Appen 2022 Annual Report
143
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 26. Reserves
Common control reserve
Foreign currency translation reserve
Share-based payments reserve
Profits reserve
Other reserves
Group
2022
$000
2021
$000
(1,307)
(8,019)
29,211
106,267
2,002
(1,307)
(6,728)
27,719
111,286
2,002
128,154
132,972
Common control reserve
The reserve represents the difference between the consideration transferred by the Company for the acquisition of commonly
controlled entities and the existing book value of those entities immediately prior to the acquisition.
Foreign currency translation reserve
The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations
to 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
Any available profits are transferred to a separate reserve to quarantine these profits from being appropriated against present
or prior year losses. The profits reserve is 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
are allocated to equity, in connection with the acquisition of Butler Hill.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Group
Balance at 1 January 2021
Foreign currency translation
Share-based payments (see note 5)
Transfer from accumulated losses
Dividends paid
Common
control
$000
(1,307)
–
–
–
–
Balance at 31 December 2021
(1,307)
Foreign currency translation
Share-based payments (see note 5)
Dividends paid
–
–
–
Foreign
currency
translation
$000
Share-based
payments
$000
Profits
$000
27,203
92,035
–
516
–
–
–
–
28,519
(9,268)
Other
$000
2,002
–
–
–
–
Total
U$000
114,784
(1,579)
516
28,519
(9,268)
27,719
111,286
2,002
132,972
–
1,492
–
–
–
(5,019)
–
–
–
(1,291)
1,492
(5,019)
(5,149)
(1,579)
–
–
–
(6,728)
(1,291)
–
–
Balance at 31 December 2022
(1,307)
(8,019)
29,211
106,267
2,002
128,154
144
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 26. Reserves (continued)
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 FY22 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
Any available after-tax profits are transferred to the profits reserve to facilitate the possible payment of dividends
in the future.
Note 27. Accumulated losses
Accumulated losses at the beginning of the financial year
(Loss)/profit after income tax (benefit)/expense for the year
Transfer to Profits reserve
Group
2022
$000
(4,017)
(239,068)
2021
$000
(4,017)
28,519
–
(28,519)
Accumulated losses at the end of the financial year
(243,085)
(4,017)
Appen 2022 Annual Report
145
Notes to the consolidated financial statements
for the year ended 31 December 2022
Group disclosures
Note 28. 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
Detailed remuneration disclosures are contained in the remuneration report.
Group
2022
$
2021
$
1,957,104
2,278,145
400,432
249,609
69,547
76,516
(1,552,631)
(503,919)
874,452
2,100,351
146
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 29. 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
Audit or review of the financial statements – Group
Audit of the financial statements – controlled entities
Total audit services
Other services
Tax compliance services – transfer pricing
Other services - integrated reporting advice
Total non-audit services
Total audit and non-audit services
Note 30. Contingent liabilities
Group
2022
$
2021
$
309,924
23,362
311,502
22,163
333,286
333,665
150,450
7,256
72,266
22,775
157,706
95,041
490,992
428,706
The Group has given bank guarantees as at 31 December 2022 of $134,000 (2021: $613,000) in satisfaction of its performance
obligations with respect to rental premises.
Note 31. Related party transactions
Parent entity
Appen Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 34.
Key management personnel
Disclosures relating to key management personnel are set out in note 28 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.
Appen 2022 Annual Report
147
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 32. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss
(Loss) after income tax
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share-based payments reserve
Profits reserve
Translation reserve
Other reserves
Accumulated losses
Total equity
Company
2022
$000
2021
$000
(205,235)
(4,961)
Company
2022
$000
1,459
2021
$000
1,393
63,157
288,821
1,247
1,247
1,175
1,175
61,910
287,646
262,917
262,917
29,211
7,355
(25,362)
2,002
(214,213)
27,719
7,355
(3,369)
2,002
(8,978)
61,910
287,646
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 2022
and 31 December 2021. Refer to note 35 for more information.
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2022 and 31 December 2021.
Capital commitments
The parent entity had no material capital commitments as at 31 December 2022 and 31 December 2021.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group except: investments in subsidiaries are
accounted for at cost, less any impairment, in the parent entity and dividends received from subsidiaries are recognised
as other income by the parent entity.
148
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 33. 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 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 $39,609,000
representing the difference in the fair value of net assets acquired to consideration paid or payable, which includes the
identification, recognition and valuation of identifiable intangible assets.
The acquired business contributed annual revenues of $3,971,000 (2021: $1,129,000) and an annual loss after tax of $3,466,000
(2021: $228,000). The 2021 comparative relates to the period from the date of acquisition on 13 September 2021 to 31 December
2021. The increased expenditure in 2022 relates mainly to investment in developing the geolancer POI platform, to deliver granular
location data at scale, critical for mapping, digital applications and other use cases.
The below table shows the acquisition date net assets acquired, goodwill and consideration paid and payable. The identification
and fair value measurement of the assets and liabilities acquired reflect the identification and valuation of the acquisition-related
intangible assets at acquisition date. The comparative balance sheet information disclosed in these financial statements has
been re-stated to include the adjusted fair values detailed below. Comparative profit and loss information has not been restated,
as the impact was not considered material. Under the accounting standards, the goodwill measurement period must not exceed
one year from the acquisition date (i.e. finalised by 13 September 2022). Accordingly, goodwill is now final.
Original
provisional amount
13 September 2021
$000
Adjustments
$000
Re-stated
final amount
13 September 2021
$000
Cash and cash equivalents
Trade and other receivables
Inventory – cryptocurrency
Brand (refer to note 16)
Platform development (refer to note 16)
Trade payables
Other payables
Accrued expenses
Unearned revenue
Deferred revenue
Deferred tax liability
Net (liabilities)/assets acquired at balance date
Goodwill
Acquisition date fair value
Cash paid
Earn-out liability (contingent consideration)
Total consideration
Add/(less): Fair value of net identifiable liabilities/(assets)
acquired
Goodwill
Cash used to acquire business, net of cash acquired
Total consideration
Less: cash and cash equivalents
Less: contingent consideration
Net cash used
269
908
2,481
–
–
(294)
(53)
(508)
(238)
(5,041)
–
(2,476)
45,446
42,970
25,268
17,702
42,970
2,476
45,446
42,970
(269)
(17,702)
24,999
–
–
(802) 1
494
9,385
–
–
–
43
1,973 2
(5,256) 3
5,837
(5,837)
–
–
–
–
(5,837)
(5,837)
–
–
–
–
269
908
1,679
494
9,385
(294)
(53)
(508)
(195)
(3,068) 2
(5,256)
3,361
39,609
42,970
25,268
17,702
42,970
(3,361)
39,609
42,970
(269)
(17,702)
24,999
Appen 2022 Annual Report
149
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 33. Business combinations (continued)
Measurement of fair values
1 Quadrant held eQUAD tokens on its balance sheet at acquisition date. These tokens have been re-classified from inventory to deferred
revenue, as the tokens represent a future obligation by Quadrant to deliver services to the token holders.
2 In accordance with AASB 15 Revenue, the deferred revenue balance is a contractual liability, in the form of eQUAD issued by Quadrant
pre-acquisition, with an underlying future obligation by Quadrant to provide services, in accordance with the token agreement.
Under AASB 3 Business Combinations, the measurement of the deferred revenue liability is the fair value of the future service or obligation
measured at the date of acquisition, which is the amount of revenue that Quadrant expects to receive upon subsequent redemption of eQUAD
tokens by holders. The acquisition date fair value is based on an assessment of several factors by management, which include the:
– expected time-frame for holders to redeem their eQUAD tokens (the redemption period), having regard to the fact that cryptocurrency is not
yet widely used globally as a medium of exchange;
– rate of redemption for services by token holders;
– velocity that the eQUAD tokens will be exchanged through the blockchain ecosystem;
– expected future value of the eQUAD tokens at time of redemption for services or when Quadrant acquires eQUAD tokens on-market
to pay suppliers, geolancers and employees (i.e. use the eQUAD tokens as a medium of exchange and a means of transaction); and
– number of eQUAD tokens expected to be in the blockchain ecosystem at the end of the redemption period.
The fair value of the deferred revenue balance is equivalent to the number of eQUAD tokens in circulation at acquisition date multiplied
by the market value of eQUAD tokens on that date.
3 Recognition of the deferred tax on deferred revenue, non-deductible amortisation on platform development, interest unwind on earn-out
liability and historic tax liabilities.
Quadrant holds cryptocurrency assets, mainly in the form of Ethereum and stableCoin (USDC). 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.
Identification and valuation of Quadrant acquisition-related intangible assets
For the purpose of allocating the purchase consideration and valuing the goodwill, the acquisition-related intangible assets have
been valued according to the following valuation methodologies:
Type of intangible asset
Valuation methodology
Brand
Customer relationships
The brand has been valued based on the relief from royalty method, which is the preferred method
to value the Quadrant brand, and includes several key assumptions associated with forecast
revenues, royalty rates and timeframe to transition customers to the Appen brand name. The useful
life has been estimated as five years.
Customer relationships have been valued based on the Multi-Period Excess Earnings (MEEM)
basis. The excess earnings is based on the present value of projected future earnings (revenue
projections, EBITDA margins, attrition rates) net of a reasonable return of other assets, also
contributing to that stream of earnings.
The fair value of customer relationships has been estimated to be $nil, as at the date of acquisition. Quadrant
has only recently commenced selling POI data to customers. The majority of the customer and enterprise
value, for Quadrant, is in the platform assets, which will drive value for customers and the Appen Group.
Platform assets/product
development
Quadrant has three types of platform assets that it is continuously developing. The name of each
platform and valuation methodology is listed below:
Type of Platform asset
Estimated useful life
Quadrant Consent
Management Platform
This platform is used by the developer to ensure that the data collected complies with all global
privacy laws. The useful life has been estimated as seven years.
Location data Platform
Mobile data is gathered from data partners and customers can use this data to perform location
analytics and location-based intelligence. The useful life has been estimated as seven years.
Point-of-Interest (POI)
Platform
The Point-of-Interest Platform provide up-to-date and tailored granular POI data for customers,
using its geolancer contributors. The useful life has been estimated as seven years.
Valuation methodology
for each Platform
To determine the fair value of the Quadrant Consent Management Platform (QCMP), the relief-from-
royalty method was used, which estimates the hypothetical royalty if the intangible asset was licensed
from an independent third party owner. The fair value is the net present value of the prospective stream
of hypothetical royalty savings that would be generated over the expected useful life of the platform
asset. For the Location data Platform and Point-of-Interest Platform, the MEEM was used as the
preferred method to calculate fair value. The excess earnings is based on the present value of projected
future earnings from the respective location and POI data streams (revenue projections and EBITDA
margins) net of a reasonable return of other assets also contributing to those streams of earnings.
150
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 33. Business combinations (continued)
Key accounting judgement
Management has exercised judgement in classifying the net assets and measuring the fair values as outlined above,
and has relied on the views of an independent third-party expert in forming its view. Specifically, judgement was made
by management, based on advice from an independent third party expert, with respect to the classification of eQUAD
tokens and cryptocurrency, as deferred revenue and inventory respectively.
Other accounting policies
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. Refer to note 24 for
further information.
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.
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 have an impact on
the assets and liabilities, and as a consequence, required re-statement of the 31 December 2021 statement of financial position.
Appen 2022 Annual Report
151
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 34. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy described in note 2:
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 AI Europe Limited 1
Appen (UK) 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 Limited Korea 1
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
2022 %
2021 %
Ownership interest
Australia
Australia
United States of America
United States of America
United States of America
United States of America
United States of America
Ireland
United Kingdom
United Kingdom
Hong Kong
China
China
China
Korea
Japan
Singapore
British Virgin Islands
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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.
152
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 35. 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
Services purchased – data collection
Employee expenses
Depreciation and amortisation expense
Travel expense
Professional fees
Rent and occupancy expense
Communication expense
Transaction costs
Net foreign exchange gain/(loss) 1
Other expenses
Impairment loss
Finance costs
(Loss)/profit before income tax benefit/(expense)
Income tax benefit/(expense)
(Loss)/profit after income tax benefit/(expense)
Other comprehensive income
Foreign currency translation
Other comprehensive income for the year, net of tax
2022
$000
55,864
(7,674)
2021
$000
57,650
(2,836)
(23,123)
(23,640)
(4,206)
(2,247)
(715)
(2,066)
(903)
(1,874)
(1,209)
15,498
(17)
(1,455)
(680)
(1,337)
(1,772)
(1,522)
(10,847)
(8,248)
(204,326)
–
(1,493)
(1,559)
(187,074)
350
(186,724)
14,798
14,798
12,337
(1,827)
10,510
4,732
4,732
Total comprehensive income for the year
(171,926)
15,242
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.
Appen 2022 Annual Report
153
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 35. 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 transactions
Other assets
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Contract liabilities
Provisions
Non-current liabilities
Lease liabilities
Deferred tax liability
Provisions
Borrowings
Earn-out liability
Total liabilities
Net assets
Equity
Issued capital
Reserves and retained earnings
Total equity
154
2022
$000
2021
$000
1,947
6,036
–
262
2,256
1,049
11,550
3,095
1,362
4,082
7,070
3,473
3,047
–
2,265
879
16,734
3,095
1,055
4,267
–
39,609
9,896
7,560
9,772
6,662
88,738
247,180
424
310
115,157
311,950
126,707
328,684
5,876
–
3,374
1,390
10,640
4,730
4,109
439
–
19,131
28,409
3,003
816
3,048
1,200
8,067
4,868
5,256
424
–
18,359
28,907
39,049
36,974
87,658
291,710
262,917
(175,259)
262,917
28,793
87,658
291,710
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 36. Cash flow information
Reconciliation of profit after income tax to net cash from operating activities:
(Loss)/profit after income tax expense for the year
Adjustments for:
Impairment loss
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
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables and contract assets
Decrease/(increase) in prepayments
(Decrease) in trade and other payables
Increase/(decrease) in employee benefits and provisions
Increase in contract liabilities
Increase in income tax provision
Net cash from operating activities
Group
2022
$000
2021
$000
(239,068)
28,519
204,326
–
41,582
35,038
–
1,492
(911)
(46)
772
505
(43)
516
(3,506)
380
657
743
1,556
2,729
4,984
617
(1,869)
379
125
3,784
(17,587)
(1,385)
(2,559)
(247)
8,618
2,050
18,228
53,923
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.
Appen 2022 Annual Report
155
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 37. Share-based payments
Performance rights
Long-term incentive plan
Appen has two LTI schemes: one for Australian Executive KMP and staff who are subject to Australian requirements and one for
all other executives and staff for whom the Company requires a US-style scheme to attract and retain key talent.
The Australian LTI scheme is 100% performance and service hurdle-based with all LTI vesting at the end of year three, subject
to hurdle requirements relating to key performance metrics and tenure with no re-testing. The key performance metrics and
vesting requirements are 50% weighted to growth in group revenue and 50% weighted to growth in underlying basic EPS (UBEPS).
For rights to vest for Australian Executive KMP, the requirements are:
•
•
•
•
•
50% vest on achievement of compound annual growth in revenue (FY24 v FY21) of 15%;
100% vest on achievement of compound annual growth in revenue (FY24 v FY21) of 20%;
50% vest on achievement of compound annual growth in UBEPS (FY24 v FY21) of 7.5%;
100% vest on achievement of compound annual growth in UBEPS (FY24 v FY21) of 10.0%; and
continuation of employment until the beginning of the calendar year in which performance rights are subject to vesting
(for the performance rights granted in FY22, this means executives must be employed to 1 January 2025).
Please see the target achievement table for further information.
Weighting
Threshold
Maximum
Target
Group Revenue (CAGR)
Underlying Basic EPS (CAGR)
50%
50%
Target
15%
(FY24 vs FY21)
7.5%
(FY24 vs FY21)
Vesting
50%
50%
Target
20%
(FY24 vs FY21)
10%
(FY24 vs FY21)
Vesting
100%
100%
Vesting levels for the achievement of targets are set out in table below:
Achievement Criteria
100% of more of Maximum
Between Threshold and Maximum
Below Threshold
% performance rights allocated
100%
50-100% (linear)
Nil
Performance rights lapse on cessation of employment before vesting. This means that no performance rights will be granted,
if the executive resigns, despite meeting the relevant performance hurdles.
For US-based executives and other employees, performance rights may vest annually, which is typical for US remuneration
practices, subject to the achievement of the continuous employment hurdles.
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. An overview of the FY22 performance rights granted and conditions is place for each of these
grants made to all employees including executives is disclosed in the following table.
156
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 37. Share-based payments (continued)
Overview of FY22 performance rights granted and their conditions:
Plan
Grant
date
Expiry
date 1
Exercise
price
Tranche
Performance
measurement
Performance
target
Performance
target
measurement
date
Target
achieved
Vesting
condition
Vesting
date
2022
1-Jan-22
N/A
N/A
2022
1-Jan-22
N/A
N/A
2022
25-Feb-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
22-Mar-22
N/A
N/A
2022
Jan to Mar
2022
N/A
N/A
2022
Jan to Mar
2022
N/A
N/A
2022
Jan to Mar
2022
N/A
N/A
2022
Jan to Mar
2022
N/A
N/A
1
2
1
1
1
2
3
4
1
2
3
4
1
2
1
2
3
4
N/A
N/A
N/A
Rev/UBEPS
N/A
N/A
N/A
Rev/UBEPS
N/A
N/A
N/A
Rev/UBEPS
N/A
Rev/UBEPS
N/A
N/A
N/A
N/A
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
No
performance
condition
Refer table
on page 156
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Release
of 2022
results
Release
of 2023
results
Release
of 2023
results
Release
of 2024
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Release
of 2024
results
Release
of 2024
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Value per
right at
grant date
($A)
$11.06
$10.96
$6.48
$6.65
$6.81
$6.73
$6.65
$6.65
$6.81
$6.73
$6.65
$6.65
$6.65
$6.65
$6.85
$6.77
$6.69
$6.69
Appen 2022 Annual Report
157
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 37. Share-based payments (continued)
Plan
Grant
date
Expiry
date 1
Exercise
price
Tranche
Performance
measurement
Performance
target
Performance
target
measurement
date
Target
achieved
Vesting
condition
Vesting
date
2022
19-Apr-22
N/A
N/A
2022
19-Apr-22
N/A
N/A
2022
Apr to Jun
2022
N/A
N/A
2022
Apr to Jun
2022
N/A
N/A
2022
Apr to Jun
2022
N/A
N/A
2022
Apr to Jun
2022
N/A
N/A
2022
Jul to Sep
2022
N/A
N/A
2022
Jul to Sep
2022
N/A
N/A
2022
Jul to Sep
2022
N/A
N/A
2022
Jul to Sep
2022
N/A
N/A
2022
1-Oct-22
N/A
N/A
2022
1-Oct-22
N/A
N/A
2022 Oct to Dec
N/A
N/A
2022
2022 Oct to Dec
N/A
N/A
2022
2022 Oct to Dec
N/A
N/A
2022
2022 Oct to Dec
N/A
N/A
2022
1
2
1
2
3
4
1
2
3
4
1
2
1
2
3
4
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
No
performance
condition
No
performance
condition
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
No
performance
condition
No
performance
condition
No
performance
condition
No
performance
condition
No
performance
condition
Refer table
on page 156
N/A
Pending
N/A
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
N/A
Pending
N/A
Pending
N/A
Pending
N/A
Pending
N/A
Pending
2022–2024
Pending
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Employed
at 30 Jun
2023
Employed
at 20 Feb
2024
Employed
at 1 Jan
2023
Employed
at 1 Jan
2024
Employed
at 1 Jan
2025
Employed
at 1 Jan
2025
Release
of 2022
results
Release
of 2023
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Release
of 2022
results
Release
of 2023
results
Release
of 2022
results
Release
of 2023
results
Release
of 2024
results
Release
of 2024
results
Value per
right at
grant date
($A)
$6.85
$6.77
$5.56
$5.48
$5.40
$5.40
$3.11
$3.10
$2.96
$2.96
$3.11
$3.10
$2.96
$2.95
$2.82
$2.82
1 Rights are convertible to shares on the vesting dates, assuming all the performance conditions of the plan and/or employment condition are met.
If rights are not converted, they expire after eight years from the grant date.
158
Notes to the consolidated financial statements
for the year ended 31 December 2022
Note 37. Share-based payments (continued)
Set out below are summaries of performance rights granted under the plan:
31 Dec 2022
Plan
2019
2020
2021
2022
31 Dec 2021
Plan
2018
2018 Special
2019
2020
2021
Balance at
the start of
the year
518,733
720,824
787,775
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
–
–
–
(185,081)
(212,193)
121,459
(96,841)
(396,535)
227,448
(84,589)
(119,545)
583,641
–
5,044,566
–
(1,214,230)
3,830,336
2,027,332
5,044,566
(366,511)
(1,942,503)
4,762,884
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
The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was
1.33 years (2021: 1.02 years).
Accounting policy
The grant date fair value of equity-settled share-based payment arrangements granted to employees is generally
recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount
recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market
performance conditions are expected to be met, such that the amount ultimately recognised is based on the number
of awards that meet the related services and non-market performance conditions at the vesting date. For share-based
payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect
such conditions and there is no true-up for differences between expected and accrual outcomes.
Note 38. Events after the reporting period
Other than the commencement of the new Chief Executive Officer, the Directors are not aware of any other matter or circumstance
not otherwise dealt with in this report that has significantly affected or may significantly affect the operations of the Group, the results
of those operations or the state of affairs of the Group in subsequent financial periods.
Appen 2022 Annual Report
159
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 2022
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 35 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
27 February 2023
Sydney
160
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 2022 and of its financial
performance for the year ended on that date; and
• Complying with Australian Accounting Standards and
the Corporations Regulations 2001.
The Financial Report comprises:
• Consolidated statement of financial position as at
31 December 2022;
• 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
policies; and
• 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.
Appen 2022 Annual Report
161
Independent auditor's report
to the shareholders of Appen Limited
Key Audit Matters
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 ($53,114,000)
Refer to Note 16 to the Financial Report
The key audit matter
The Group’s annual testing of goodwill for impairment
is a key audit matter, due to the size of the balance
relative to total assets (20%) and the increased judgement
applied by us when evaluating the forward-looking
assumptions including:
•
Forecast cash flows, revenue growth rates and terminal
value growth rates of the Group, specifically the New
Markets (ex-China) CGU which has experienced
a history of operating losses. This impacted the Group
through a reduction in the demand for services, loss
in revenue and margin pressure; and
• Discount rates which are complicated in nature and
vary according to the conditions and environment
the specific cash generating unit (CGU) is subject to.
In addition to the judgements described above, the Group’s
models are highly sensitive to small changes in these
assumptions, reducing available headroom, or in the case
of the New Markets (ex-China) CGU increasing impairment.
This drives additional audit effort specific to their feasibility
and consistency of application to the Group’s strategy.
The Group uses complex models to perform their annual
testing of goodwill for impairment. The models use adjusted
historical performance, and a range of internal and
external sources as inputs to the assumptions. Complex
modelling using forward-looking assumptions tends
to be prone to greater risk for potential bias, error and
inconsistent application. These conditions increase the
possibility of goodwill being impaired, which necessitates
additional scrutiny by us, in particular to address the
objectivity of sources used for assumptions, and their
consistent application.
We involved valuation specialists to supplement our senior
audit team members in assessing this key audit matter.
How the matter was addressed in our audit
Working with our valuation specialists, our procedures
included:
• We considered the appropriateness of the value in use
method applied by the Group to perform the annual
test of goodwill for impairment against the requirements
of the accounting standards.
• We assessed the integrity of the value in use model
used, and the accuracy of the underlying calculations.
• We checked the forecast cash flows in the Group’s value
in use model to the Board approved FY23 budget;
• We assessed the accuracy of the Group’s previous
forecasts to inform our evaluation of forecasts
incorporated in the model. We applied increased
scepticism to assumptions in areas where previous
forecasts were not achieved;
• We challenged the Group’s forecast cash flows,
revenue growth rates and terminal value growth rates
assumptions. We compared growth rates to published
studies of industry trends and expectations and
considered differences for the Group’s operations.
We used our knowledge of the Group, their past
performance, business and customers, and our
industry understanding;
• 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 considered the sensitivity of the models by varying
key assumptions, such as revenue growth rates,
terminal value growth rates and discount rates within
a reasonably possible range. We considered the
interdependencies of key assumptions when performing
the sensitivity analysis and what the Group consider
to be reasonably possible. We then identified those
assumptions at a higher risk of bias which may give rise
to impairment to focus our further procedures; and
• We assessed the Group’s disclosures in the financial
report using our understanding obtained from
our testing and against the requirements of the
accounting standards.
162
Independent auditor's report
to the shareholders of Appen Limited
Other Information
Other Information is financial and non-financial information in Appen Limited’s annual reporting which is provided in addition
to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related
assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider
whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the
work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing
to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and
the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view
and is free from material misstatement, whether due to fraud or error; 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.
Appen 2022 Annual Report
163
Independent auditor's report
to the shareholders of Appen Limited
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Appen Limited
for the year ended 31 December 2022, 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 70 to 93 of the Directors’ report for the year
ended 31 December 2022.
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
27 February 2023
164
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 2023.
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
735
1,170
8,510
32,461
42,921
68,443,353
17,282,411
8,588,346
19,318,369
9,813,877
55.44
14.00
6.96
15.65
7.94
123,446,356
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
8
72
66
130
95
371
2,016,989
1,839,774
492,924
360,404
52,793
42.35
38.63
10.35
7.57
1.11
4,762,884
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 15,775 shareholders with unmarketable parcels, holding 1,306,266 shares.
Appen 2022 Annual Report
165
Additional information
Twenty largest shareholders
The names of the twenty largest shareholders of quoted equity securities are as follows:
Ordinary shares
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
C & J VONWILLER PTY LTD
BNP PARIBAS NOMS PTY LTD
Number held
16,409,123
16,084,838
9,110,495
9,060,286
4,496,818
MATTHEW WONG INVESTMENTS (AUS) PTY LTD
1,445,084
1
2
3
4
5
6
7
8
9
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
10 PACIFIC CUSTODIANS PTY LIMITED APX PLANS CTRL A/C
11
BNP PARIBAS NOMINEES PTY LTD
12 MNA INVESTMENTS PTY LTD
13 WARBONT NOMINEES PTY LTD
14
15
16
17
18
19
ETOR PTY LTD
NEW GREENWICH PTY LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
CRANPORT PTY LTD
NETWEALTH INVESTMENTS LIMITED
SUPERHERO SECURITIES LIMITED
20 CITICORP NOMINEES PTY LIMITED
Remaining quoted equity securities
Total number of ordinary shares on issue
Unquoted equity securities
The Company had the following unquoted securities on issue as at 01 February 2023:
Performance rights
166
% of issued
capital
13.29
13.03
7.38
7.34
3.64
1.17
1.13
0.82
0.73
0.66
0.50
0.34
0.33
0.27
0.27
0.25
0.25
0.25
0.23
0.23
52.13
47.87
1,400,494
1,011,712
901,616
819,278
623,016
422,587
412,465
335,000
332,384
312,676
307,000
302,565
289,216
281,822
64,358,475
59,087,881
123,446,356
100.00
Number
on issue
4,762,884
Number
of holders
371
Additional information
Substantial shareholders
The names of the Substantial Shareholders as disclosed in notices submitted to the ASX as at 01 February 2023 are:
Ordinary shares
Number held
% of issued
capital
9,060,083
7.34%
C & J Vonwiller Pty Limited
Restricted securities
The Company had no restricted securities on issue as at 01 February 2023.
Voting rights
In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney,
or a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for
each fully paid ordinary share, on a poll.
Holders of performance rights have no voting rights.
On-market buy-backs
There is no current on-market buy-back in relation to the Company’s securities.
Appen 2022 Annual Report
167
Materiality assessment
This year, our materiality assessment was a three-step process.
Identify
We identify our most material issues by considering Appen’s economic, environmental, and social
impacts and the risks associated with these. In determining what issues are most material to our business
we consider the following:
•
•
•
•
•
existing and emerging ESG issues
relevant ESG frameworks, assessments and standards
topics in the media impacting our industry
changes to our key and emerging risks
feedback captured from internal and external stakeholders
Evaluate
We evaluate each material issue based on its importance to Appen’s business and to our stakeholders.
We typically engage with each stakeholder group during the year through many forums such as
face-to-face and virtual meetings, surveys and by responding to queries and concerns. Through this
process we have identified 26 material issues on which we report. We have also identified and reported
on other important issues and risks that are of interest to our stakeholders.
Review and report Our Risk, Trust and Safety team and senior management, and the Board review our materials issues.
Our material issues provide a basis of what we report and how we measure our success by the outcomes
we deliver through our six value drivers. We also corroborate the material issues raised with our risk
reporting and ensure they are incorporated into the appropriate risk registers.
Value driver 2022 material issues
Principle risks
Page reference
Technology,
processes
and systems
Technology innovation
• Data security and governance
• Cyber security
•
• Protection of intellectual property
• Managing technology disruptions and business continuity
• Platform availability
Investment in
technology innovation
and transformation
Compliance with
security, privacy and
other data regulations
Global crowd
Fair pay, treatment and wellbeing
•
• Crowd diversity and inclusion
• Crowd integrity
Our people
• Culture and engagement
• Diversity, equity and inclusion
•
Talent attraction and retention
• Wellbeing and safety
• Workplace training and development
Customer
and brand
• Customer experience and satisfaction
•
• Customer concentration
Innovative customer solutions
Financial
• Sustainable earnings
• Ongoing customer demand for data
Social and
environment
Environmental impact and climate change
• Responsible AI
•
• Corporate Governance
• Corporate citizenship and reputation
• Human rights and modern slavery
• Supply chain management
• Code of conduct compliance
Crowd conditions
Crowd supply meets
customer demand
Talent strategy and
employee value
proposition
Changing customer
strategy and needs
Ability to execute
on operational
requirements
Strategic direction
of business
Financial sustainability
Compliance with legal,
statutory and ethical
obligations
Environmental, social
and governance (ESG)
risks and performance
16–19
20–23
24–27
28–33
34–39
40–47
168
Prioritised United Nations Sustainable
Development Goals
Sustainable Development
Goals (SGDs)
Playing our part
9 Industry innovation
and infrastructure
Our services support technology development, research and innovation across the globe,
many of which are used to increase access to technology in developing countries.
8 Decent work and
economic growth
Our work from anywhere model provides income generating opportunities for individuals whose
personal circumstances make it difficult for them to access traditional employment. For many
communities, the ability to access digital work through our platform has unlocked a new world
of possibilities for economic development, skills training, and the ability to participate in the
digital economy.
10 Reduced inequalities
We believe in digital equality through responsible AI practices. By ensuring training data is
representative of the real world this reduces the potential for technology to introduce further bias
and discrimination to underrepresented and marginalised communities. Our diverse global crowd
is fundamental to ensuring this and we continue to invest in research to ensure that our crowd
reflects the real world.
5 Gender equality
We believe in opportunities for all and embed this in our day-to-day practices as guided by our
Diversity Policy. We have a 50% gender balance across our board and have seen an increase
in female representation in our senior management team in the last year.
13 Climate action
We believe we can help drive the global net zero agenda by playing our part and have committed
to the following:
• Net zero across our operations and supply chain by 2030
• Becoming a signatory to the SBTi
Appen 2022 Annual Report
169
Non-financial data metrics
People
Employee Engagement 1
Score (%)
2020
82%
2021
76%
2022
78%
1 Measures the likelihood of full time permanent employees (including those in PEOS) referring a friend or colleague to Appen based on their
employee experience. The scale is a 5 point Likert resulting in 1–2 Detractor, 3 Passive and 4–5 Promoter. NPS is calculated by subtracting
the % of total detractors from the % of total promoters. Survey results are provided by Workday Peakon.
Training hours 1
Total training hours
1 Data from Appen University.
Mandatory training completion rates 1
Code of conduct
1 Data from Appen University, excluding China and Quadrant employees.
2 Appen University is setup in 2019 and not consistently tracked till 2021.
Employee demographics – gender 1
Female
Overall workforce (%)
Board director (%)
Executive Team/SVP (%)
Vice President (%)
Senior Director (%)
Director (%)
Manager (%)
Male
Overall workforce (%)
Board director (%)
Executive Team/SVP (% mgmt.)
Vice President (%)
Senior Director
Director
Manager
2020
29,380
2021
32,527
2022
41,665
2020 2
–
2021
91%
2022
91%
2020
2021
2022
58
43
13
25
50
60
61
42
57
87
75
50
40
39
58
50
30
28
53
41
60
42
50
70
72
47
59
40
57
50
30
32
63
45
57
43
50
70
68
37
55
43
1 HR report for all permanent employees generated from Workday. Refer to link https://appen.com/company-about-us/#Leadership for
percentage on Board director.
170
Non-financial data metrics
Employee demographics – ethnicity 1
US Only
Breakdown
Asian
Black or African American
Hispanic or Latino
White
Indigenous or Native
Other
Not disclosed
2021
2022
Share of total
workforce (%)
Share in all mgmt.
positions (%)
Share of total
workforce (%)
Share in all mgmt.
positions (%)
25.6
4.2
6.7
55.2
0.3
4.5
3.5
26.7
0
3.3
65.6
1.1
1.1
2.2
21.5
6.5
4.3
54.8
0.0
12.9
0.0
22.0
2.0
2.0
64.0
0.0
10.0
0.0
1 HR report for all permanent employees generated from Workday.
All regions
Breakdown
Asian
Black or African American
Hispanic or Latino
White
Indigenous or Native
Other
Not disclosed
Crowd
Crowd NPS 1
Score (%)
2021
2022
Share of total
workforce (%)
Share in all mgmt.
positions (%)
Share of total
workforce (%)
Share in all mgmt.
positions (%)
47.0
1.1
1.8
18.5
0.1
1.8
29.7
34.9
0
1.1
25.7
0.4
0.8
37.1
40.9
1.5
1.0
16.9
0.0
3.6
36.1
32.5
0.6
0.6
21.4
0.0
3.3
41.6
2020
47
2021
40
2022
31
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.
Customer
Customer NPS 1
Score (%)
2020
2021
Not disclosed Not disclosed
2022
22
1 Measures the likelihood of Customer 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: ChurnZero.
Appen 2022 Annual Report
171
Non-financial data metrics
Environment
Geographic distribution of emissions (Scope 1 and 2) 1,2
Australia
US
China and Japan
UK
Philippines
Total
Gas (MWh)
Electricity
(MWh)
Electricity
-renewable
(MWh)
–
709.2
684.6
59.1
–
1,452.9
53.9
923.3
398.2
–
1,209.4
2,584.8
–
23.6 3
–
44.8
–
68.4
Scope 1
tCO2e
–
128.5
124.1
10.7
–
263.3
Scope 2
tCO2e
39.4
Scope 2
(location
based) tCO2e
39.4
323.7
338.8
–
764.4
1,466.3
323.4
338.8
9.5
764.4
1,475.5
1 Greenhouse Gas (GHG) emissions for scope 1 and 2 are calculated based on the GHG Protocol.
2 Electricity and Gas consumptions are based on utility bills (if available) or estimation by leased floor area.
3 Based on Cleanpower SF mix – 2021 (33.6% renewables).
Scope 3 1
Category
Description
Category 1 – Purchased goods and services 2
Suppliers and Crowd contractors
Category 5 – Waste generated in operations 3
Disposal and treatment of waste generated in the
company’s operations
Category 6 – Business travel 4
Business flights and accommodation
Category 7 – Employee commuting 5
Employees commuting between their homes and their
worksites and employees working from home
Category 11 – Use of sold products 6
End use of goods and services sold
Emissions
9,546
217
370
709
162
1 Scope 3 categories and GHG emissions are calculated based on GHG Protocol Scope 3 value chain reporting.
2 Estimated emissions based on supplier spend data and crowd contractors’ work hours in 2022.
3 Estimated waste generation based on employee attendance in 2022.
4 Based on business travel information retrieved from travel agency Egencia, and credit card bookings. Estimated emissions are calculated using
web-based calculators for flight (provided by International Civil Aviation Organisation (ICAO)) and hotel (provided by Greenview).
5 Based on employee attendance in 2022.
6 Based on carbon footprint report from Amazon Web Service, our third party cloud service provider.
Technology
Data privacy breaches (number) 1
System availability 2 (%)
1 Based on report from IT services platform, Solarwinds.
2 Based on report from third-party website monitoring company, StatusCake.
Governance
Political donations 1
1 Based on financial data from Workday.
Social
Philanthropic donations 1
Contributions
Campaigns
1 Based on CSR financial report from Workday.
172
2020
1
99.98%
2021
0
99.9%
2022
0
99.9%
2020
$
0
2021
$
0
2022
$
0
2020
$
2021
$
Not Disclosed Not Disclosed
Not Disclosed Not Disclosed
2022
$
25,953
18,628
Corporate directory
Registered office
Level 6, 9 Help Street
Chatswood NSW 2067
+61 2 9468 6300
www.appen.com
Company secretary
Carl Middlehurst
Investor relations
Rosalie Duff
+61 2 9468 6300
investorrelations@appen.com
www.appen.com/investors
Shareholder enquiries
Link Market Services
Locked Bag A14
Sydney South NSW 1235
+61 1300 554 474
registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
Auditor
KPMG
Tower Three
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW 2000
Stock exchange listing
Appen Limited shares are listed on the
Australian Securities Exchange (ASX code: APX)
Corporate Governance Statement
www.appen.com/corporate-governance
Appen 2022 Annual Report
173
appen.com