2017
ANNUAL REPORT
YEAR ENDED 30 JUNE 2017
IPH LIMITED / ABN 49 169 015 838
CONTENTS
Chairman’s Letter
Chief Executive Officer’s Report
Board of Directors
Financial Report
Corporate Directory
Directors' Report
Auditor’s Independence
Declaration
Financial Statements
Directors' Declaration
Independent Auditor’s
Report to the Members of
IPH Limited
Shareholders Information
01
04
06
09
11
12
33
34
84
85
90
CHAIRMAN’S LETTER
At the same time,
we have continued
to deliver on our
strategic objectives
and further expanded
our platform for
future organic
growth.
In 2017, IPH Limited delivered solid earnings and dividend growth. This was
particularly pleasing given the very strong comparative year caused by increased
patent filing activity in our markets due to the America Invents Act. At the same
time, we have continued to deliver on our strategic objectives and further expanded
our platform for future organic growth.
Solid financial performance and strong cash flows have enabled the Directors to
declare a final dividend of 10.5c per share (fully franked) bringing total dividends
paid during the year to 22c (an increase of 5% on FY16).
Operationally, in the past year we focused on the expansion and strengthening of
the Company’s presence in the high growth Asian region, with the first international
acquisition in China and Hong Kong and continuous development of the new
Thailand and Indonesian offices. As a vote of confidence in our model, we saw an
increase in the number of cases and portfolios transferred to our businesses in Asia
and Australia by both existing and new clients.
As previously announced, David Griffith will step down as Managing Director and
CEO at the Annual General Meeting after 43 years in the IP profession with Spruson
& Ferguson and IPH Limited.
David has made an enormous contribution to the Spruson & Ferguson business
and was a catalyst for the transformation of the entire IP industry in Australia. David
has also developed excellent professional and executive talent within the company
that has enabled the Board to manage an orderly transition upon his retirement.
Dr Andrew Blattman, current CEO of Spruson & Ferguson, will succeed David
as the CEO and Managing Director of IPH. Andrew has more than 20 years of
experience in IP and a deep understanding of the IPH business. The Board is
confident that Dr Blattman has the knowledge, skills and business acumen to drive
the Company into the future.
IPH companies currently employ 65 Principals. The new corporate structure has
enabled us to appoint 27 new Principals across the IPH group since listing.
In November 2016, IPH managed the sell-down of approximately 30m escrowed
shares by certain vendor principals of Spruson & Ferguson. Management and a
number of these Principals continue to hold a significant number of shares.
Looking forward, we remain committed to providing our investors with quality
earnings and return on investment through a combination of organic growth and
strategic acquisitions.
I would like to thank our shareholders for their support of the Company, and our
people for their hard work in driving performance, servicing our clients and growing
the company into the future.
Finally, on behalf of the Board, I would like to take this opportunity to congratulate
David on his career and the legacy he has left through the creation of the IPH
group, and wish him well on his retirement.
Richard Grellman, AM
Chairman
1 / IPH LIMITED ANNUAL REPORT 2017
FINANCIAL HIGHLIGHTS1
2)
3)
186.0M
68.7M
42.9M
30.6
49.9M
38.8
42.9
4)
49.9
22.3c
22.0c
19.5
21.7
22.3
13.5
21
22
1. The Company listed on 17 November 2014.
2. FY15 and FY16 revenue has been restated to include recognition of filing fee revenue per change in the FY17 accounting policy.
3. Earnings before interest, tax, depreciation and amortisation.
4. Diluted earnings per share.
IPH LIMITED ANNUAL REPORT 2017 / 2
18%11%3%15%19%5%FY15FY16FY15FY16 107.8157.5186.0FY15FY1638.559.568.7FY15FY1631.542.1FY15FY16FY15FY16FY17FY17FY17FY17FY17FY17 BUSINESS SNAPSHOT
450+
Employees
5
Brands
PIZZEYS
Patent and Trade Mark Attorneys
AU S T R A L I A | N E W Z E A L A N D
A S I A PAC I F IC
9k+
Clients
14
Offices
6
Countries
#1
Patent group
in Australia &
Singapore1
CHINA
HONG KONG
MALAYSIA
SINGAPORE
AUSTRALIA
THAILAND
INDONESIA
%
22
Patent market share in
Australia1
%
24
Patent market share in
Singapore1
5.5k
Trademark filings2
16k+
Patent filings2
1. Australia – FY17 as at 30 Jun 17. Singapore – CYTD17 as at approx. 30 Jun 17.
2. Filings by all IPH entities. IPH management estimate based on internal filing information. All incoming/outgoing patent/trademark applications filed either
directly or indirectly (through an agent) by SF(AU), SF(Asia), FAKC, Pizzeys, Cullens and SF(China/HK), including where agent is an IPH entity. Applications filed
by SF(China/HK) are those filed by the firm across the entire financial year.
3 / IPH LIMITED ANNUAL REPORT 2017
I am immensely proud of
what has been achieved
over the years, as the
company grew from a
traditional patent and
trade mark attorney
practice to a market-
leading S&P/ASX 200
Asia-Pacific IP group
employing over 450
people in six countries.
CHIEF EXECUTIVE OFFICER’S REPORT
This will be my last report as CEO and Managing Director of IPH Limited as I will be
retiring in November 2017. I am immensely proud of what has been achieved over
the years, as the company grew from a traditional patent and trade mark attorney
practice to a market-leading S&P/ASX 200 Asia-Pacific IP group employing over 450
people in six countries.
Strong earnings and financial performance
In FY17, the Company’s Statutory Net Profit after Tax (“NPAT”) for the year was
$42.9m, which equates to diluted earnings of 22.3c/share and compares to $38.8m
in the previous year. The underlying NPAT for the year was $51.2m, being a 9%
increase over the previous corresponding period. Underlying EBITDA was $71.6m
(an increase of 10% on the corresponding period). The Company’s underlying EPS
is 26.7c (2% increase on FY16, or 6% increase if eliminating the impact of further
investment in Practice Insight).
FY17 results must be viewed against the very strong FY16 year due to the America
Invents Act (AIA). In that respect, the Australian and Asian businesses have done
very well to “fill the gap” created by the pull-forward effect of AIA.
Market Overview
The Australian and Asian patent markets remain strong post-AIA with the
normalisation of patent filing growth patterns. The Australian patent market was
down by 1% on previous year, however up by 8% on FY15. In CY16, the total
number of applications filed in Singapore from US applicants was down by 6% on
the previous corresponding period due to the AIA pull-forward effect.
The combined market opportunity in Asia (excluding China and, primary Asian IP
markets, Japan and South Korea) is greater than the Australian and Singapore
markets combined. The latest patent filing data demonstrates continued growth of
the Asian market with over 56,000 patent applications filed in key Asian jurisdictions
in CY15.
China continues to be a high growth jurisdiction with over 1 million patent
applications filed in CY15 including over 130,000 patent application from our
addressable market, non-residents.
These markets remain very attractive and we continue to see Asia as the growth
centre of IPH.
IP services business
The IPH Group continues to hold the leading patent market position in key markets
in Australia and Singapore with 22% and 24% market share respectively.
In the past 18 months we have been working on growing our presence in Asia
through the opening of the offices in Thailand and Indonesia and new offices in
Beijing and Hong Kong through acquisition. Our new and existing clients have
responded well to our expanded Asian offering as seen by the significant number of
cases transferred in the past 12 months.
In FY17 patent applications by IPH’s Asian operations were up by 5% on FY16
supported by the addition of filings from the recently acquired China/Hong Kong
businesses, driving overall patent filings by IPH companies up by 1%.
IPH’s trademark filings have grown by 38% on the previous year as a result of
the acquisition of a predominantly trademark business in China and Hong Kong,
along with the opening of the Spruson & Ferguson Melbourne office. In addition,
the Spruson & Ferguson (Asia) trademark business is gaining momentum with
IPH LIMITED ANNUAL REPORT 2017 / 4
CHIEF EXECUTIVE OFFICER’S REPORT / continued
Finally, to our shareholders - we
appreciate and value your continued
support of our business. With Dr
Andrew Blattman as the new CEO
of IPH, supported by highly capable
management and professional teams,
I believe IPH is well positioned for
future growth and achieving its vision
of becoming the leading IP group in
secondary markets and adjacent areas
of IP.
David Griffth
CEO & Managing Director
an increase of 50% in trademark
filings in 2H17 compared to 2H16.
IPH continues to hold the number
1 trademark market position with a
combined 13% “qualified” market
share.
The new corporate structure has
allowed IPH to renew and ensure
continuation of the IP professional
leadership team with 27 new Principals
promoted throughout the business
since listing, laying a strong foundation
for future growth.
Data & Analytics software
business
We continue to invest in our Data &
Analytics software business, Practice
Insight. All four products, Filing
Analytics, Citation Eagle, Wisetime
and Document Management System
(DMS) have now been released and
are being promoted for sale. The
products released to date have a
high client retention rate (98%), which
serves as validation of product concept
and testament to Practice Insight’s
customer support team.
Acquisitions
IPH’s first international acquisition in
October 2016 has performed well
against expectations since acquisition
and created an excellent platform for
Spruson & Ferguson to expand the
provision of its services in Greater
China.
The Company’s acquisition strategy
continues primarily to be aimed at
increasing filings into the high growth
Asian regions either through direct
investment in Asia and/or through
acquisition in other secondary markets
with the aim to leverage filings into
Asia.
IPH has adopted a strategic
and disciplined approach to the
assessment and due diligence of
potential acquisitions, finalising only
those acquisitions which align with the
Company’s strategic vision, add value
to the business, and have potential to
generate a solid financial return for our
shareholders.
Outlook
The Group’s Australian and Asian IP
businesses are expected to revert to
growth rates in line with the underlying
market trends experienced in previous
years.
We continue to focus on margin
improvement across all businesses
through IT initiatives and business
process improvements.
In Asia, we expect to maintain market
share in Singapore and organically
grow market share in other jurisdictions
in Asia through leverage of our existing
network of offices/agents and filings in
Asia by IPH Australian businesses.
In China and Hong Kong we will be
focusing on strengthening our patent
capability and capturing a greater share
of the addressable market.
The Practice Insight business will
be focusing on sales and marketing
activities with a view to increasing
revenue and achieving its financial
objectives.
In conclusion, I would like to thank our
dedicated employees for their role in
delivering our very solid result and their
commitment to servicing our clients.
It’s been a great privilege to work with
such a talented and dedicated team
over the years.
I would like to thank the Chairman
and the Board for the leadership
opportunity and for your support of
IPH’s vision, business strategy and
growth.
5 / IPH LIMITED ANNUAL REPORT 2017
BOARD OF DIRECTORS
Richard Grellman, AM
Independent Non-Executive Chairman
FCA
Richard was appointed independent Non-Executive Chairman in September 2014.
Richard worked for KPMG for 32 years, mostly within the Corporate Recovery
Division and was a Partner from 1982 to 2000. Richard is currently the Tribunal of
The Statutory and other Officers Remuneration Tribunal (SOORT), appointed by the
Governor of NSW.
Richard is also Chairman of AMP Foundation and Bible Society Australia. Richard
is a Director of Bisalloy Steel Group Limited and the National Health and Medical
Research Council Institute for Dementia Research.
David Griffith
CEO & Managing Director
BE (Hons)
David Griffith was appointed CEO of IPH in November 2014, after successfully
managing intellectual property (IP) firm Spruson & Ferguson, now subsidiary of
IPH, for over 20 years. Under David’s leadership Spruson & Ferguson became the
first Australian IP firm to the enter Asian IP market with the opening of the firm’s
Singapore office in 1997 and joining what was the partnership of CPA Global.
After amendments to the Australian Patents Act in 2013 allowing for incorporation of
patent attorney practices, in 2014 David led a successful $330m IPO of IPH Limited
(ASX: IPH), the first IP professional services group to list on the ASX. Since David’s
appointment IPH has completed five acquisitions and today is an S&P/ASX 200
company with market capitalisation in excess of $900m.
From 2005 David served on the Board of Computer Patent Annuities Limited
Partnership (CPA) in Jersey, Channel Islands until the company was sold to Private
Equity in 2010.
David began his career in the patent and trade mark attorney profession when he
joined Spruson & Ferguson in 1974. He was a Principal of the firm from 1981 and
Managing Principal from 1999-2015. David was a founding director of Spruson
& Ferguson Asia and has been Chairman since 2011. He is also the Chairman
of Spruson & Ferguson and a Director of Pizzeys, Fisher Adams Kelly Callinans,
Cullens and Practice Insight.
IPH LIMITED ANNUAL REPORT 2017 / 6
BOARD OF DIRECTORS / continued
John Atkin
Independent Non-Executive Director
LLB (1st Class Hons), BA (Pure Mathematics) (1st Class Hons)
John was appointed as a Non-Executive Director in September 2014.
John is a Non-Executive Director of Integral Diagnostics Limited and the Australian
Outward Bound Foundation, and is a member of the Board of the State Library of
NSW Foundation.
John is a former CEO & Managing Director of The Trust Company Limited (2009-
2013) prior to its successful merger with Perpetual Limited. John was also Managing
Partner and Chief Executive of Blake Dawson (2002-2008). John also worked at
Mallesons Stephen Jaques as a Mergers & Acquisitions Partner for 15 years (1987-
2002).
Robin Low
Independent Non-Executive Director
BCom, FCA
Robin was appointed as a Non-Executive Director in September 2014.
Robin is a director of AUB Group Limited, CSG Limited, Appen Limited, Sydney
Medical School Foundation, Primary Ethics, the Public Education Foundation,
Australian Reinsurance Pool Corporation and Gordian Runoff Limited/Enstar
Australia Holdings Pty Limited (part of the NASDAQ listed Enstar Group). She is also
a member of the Auditing and Assurance Standards Board.
Robin worked at PricewaterhouseCoopers for 28 years and was a partner from
1996 to 2013.
Sally Pitkin
Independent Non-Executive Director
PhD (Governance), LLM, LLB, FAICD
Sally was appointed as a Non-Executive Director in September 2014.
Sally is a non-executive director of Star Entertainment Group Limited, Link Group
and Super Retail Group Limited. Sally is the President Queensland Division of the
Australian Institute of Company Directors, and member of the National Board.
Sally is a former corporate partner of the law firm Clayton Utz.
7 / IPH LIMITED ANNUAL REPORT 2017
FINANCIAL REPORT
Corporate Directory
Directors' Report
Auditor’s Independence
Declaration
Financial
Statements
Directors' Declaration
Independent Auditor’s Report to
the Members of IPH Limited
Shareholders Information
11
12
33
34
84
85
90
CORPORATE DIRECTORY
Directors
Mr Richard Grellman AM - Chairman
Mr David Griffith
Ms Robin Low
Dr Sally Pitkin
Mr John Atkin
Company secretary
Mr Philip Heuzenroeder
Notice of annual
general meeting
The details of the annual general meeting of IPH Limited are:
Monday 20 November at 10:30am at the offices of EY
200 George Street
Sydney NSW 2000
Registered office
Principal place of
business
Share register
Auditor
Solicitors
Level 35
31 Market Street
Sydney NSW 2000
Tel: 02 9393 0301
Fax: 02 9261 5486
Level 35
31 Market Street
Sydney NSW 2000
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Tel: 1300 554 474
Deloitte Touche Tohmatsu
Level 9, Grosvenor Place
225 George Street
Sydney NSW 2000
Watson Mangioni Lawyers Pty Limited
Level 13
50 Carrington Street
Sydney NSW 2000
Stock exchange listing
IPH Limited shares are listed on the Australian Securities Exchange (ASX code: IPH)
Website
www.iphltd.com.au
Corporate Governance
Statement
The Corporate Governance Statement can be found at www.iphltd.com.au and has been
approved by the Board of Directors
11 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS' REPORT
30TH JUNE 2017
The Directors present their report, together with the financial statements, of the consolidated entity (referred to hereafter as the
‘Group’) consisting of IPH Limited (referred to hereafter as the ‘Company’ or ‘Parent Entity’) and the entities it controlled at the
end of, or during, the year ended 30 June 2017.
IPH Limited (“IPH”, ASX:IPH), is the holding company of intellectual property services firms Spruson & Ferguson, Fisher Adams
Kelly Callinans, Pizzeys and Cullens and data analytics software development company, Practice Insight. The group employs
a multidisciplinary team of approximately 450 people in Australia, Singapore, Malaysia, Thailand, Indonesia, China, Hong Kong
and Germany.
IPH is the leading intellectual property (“IP”) services group in the Asia-Pacific region offering a wide range of IP services and
products to a diverse client base of Fortune Global 500 companies, multinationals, public sector research organisations, SMEs
and professional services firms worldwide.
IPH was the first IP services group to list on the Australian Securities Exchange.
1. Directors
The following persons were Directors of IPH Limited during the whole of the financial year and up to the date of this report,
unless otherwise stated:
Name
Office
Mr Richard Grellman, AM
Non-executive Chairman
Mr David Griffith
Ms Robin Low
Dr Sally Pitkin
Mr John Atkin
Managing Director and Chief Executive Officer
Non-executive Director
Non-executive Director
Non-executive Director
On 2 May 2017, the company announced Dr Andrew Blattman will be appointed as the next Managing Director and CEO of
IPH Limited. Dr Blattman will move into the role towards the end of 2017 taking over from David Griffith who will step down
after 43 years in the intellectual property profession.
1.1 Information on Directors
The skills, experience, and expertise of each person who is a director of the Company at the end of the financial year is
provided below, together with details of the company secretary as at year end.
Name:
Title:
Richard Grellman, AM
Non-executive Chairman (appointed 23 September 2014)
Qualifications:
FCA
Experience and
expertise:
Other current
directorships:
Richard worked for KPMG for 32 years, mostly within the Corporate Recovery Division and was
a Partner from 1982 to 2000. Richard is currently the Tribunal of The Statutory and other Officers
Remuneration Tribunal (SOORT), appointed by the Governor of NSW.
Richard is also Chairman of AMP Foundation (2012) and Bible Society Australia (2011). Richard
is also a Director of Bisalloy Steel Group Limited (2003) and the National Health and Medical
Research Council Institute for Dementia Research (2015).
Former directorships (last
3 years)
Chairman of Crowe Horwath Australasia Limited (2011 - 2015), Chairman of Genworth Mortgage
Insurance Limited (2012-2016).
Interests in shares:
67,586
Special responsibilities: Chairman
IPH LIMITED ANNUAL REPORT 2017 / 12
Name:
Title:
David Griffith
Managing Director and Chief Executive Officer
Qualifications:
BE (Hons)
Experience and
expertise:
David Griffith was appointed CEO of IPH in November 2014, after successfully managing
intellectual property (IP) firm Spruson & Ferguson, now subsidiary of IPH, for over 20 years.
Under David’s leadership Spruson & Ferguson became the first Australian IP firm to the enter
Asian IP market with the opening of the firm’s Singapore office in 1997 and joining what was the
partnership of CPA Global in 1998.
After amendments to the Australian Patents Act in 2013 allowing for incorporation of patent
attorney practices, David led a successful $AU330m IPO of IPH Limited (ASX: IPH) in November
2014. IPH was the first IP professional services group to list on the ASX. Since David’s
appointment IPH has completed five acquisitions and today is an S&P/ASX 200 company with
market capitalisation of c.A$900m.
From 2005 David served on the Board of Computer Patent Annuities Limited Partnership (CPA)
in Jersey, Channel Islands until the company was sold to Private Equity in 2010.
David began his career in the patent and trade mark attorney profession when he joined Spruson
& Ferguson in 1974. He was a Principal of the firm from 1981 and Managing Principal from
1999-2015. David was a founding director of Spruson & Ferguson Asia and has been Chairman
since 2011. He is also the Chairman of Spruson & Ferguson and a Director of Pizzeys, Fisher
Adams Kelly Callinans, Cullens and Practice Insight.
Emeritus member, IPTA; Member of Honor, FICPI; member of AIPPI, APAA and LESANZ.
No other current directorships
Memberships of
Professional Associations:
Other current
directorships:
Interests in shares:
2,598,765
Special responsibilities:
CEO
Name:
Title:
Qualifications:
Experience and
expertise:
Other current
directorships:
Robin Low
Non-executive Director (appointed 23 September 2014)
BCom, FCA, GAICD
Robin worked at PricewaterhouseCoopers for 28 years and was a Partner from 1996 to 2013.
She is also a member of the Auditing and Assurance Standards Board.
AUB Group Limited (2014), CSG Limited (2014), Appen Limited (2014), Sydney Medical
School Foundation (2012), Primary Ethics (2011), Public Education Foundation (2010),
Australian Reinsurance Pool Corporation (2017) and Gordian Runoff Limited/Enstar Australia
Holdings Pty Limited (part of the NASDAQ listed Enstar Group) (2017).
Interests in shares:
65,804
Special responsibilities:
Chairman - Audit Committee, Member – Risk Committee, Nomination and Remuneration
Committee
13 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 DIRECTORS' REPORT / continued
30TH JUNE 2017
Name:
Title:
Sally Pitkin , FAICD
Non-executive Director (appointed 23 September 2014)
Qualifications:
PhD (Governance), LLM, LLB, FAICD
Experience and
expertise:
Other current
directorships:
Former directorships (last
3 years)
Sally is a former Corporate Partner of the law firm Clayton Utz. Sally is the President Queensland
of the Australian Institute of Company Directors.
Non-executive Director of Star Entertainment Group Limited, Link Group and Super Retail Group
Limited
Non-executive director of Billabong International Limited (2012 – 2016)
Interests in shares:
53,841
Special responsibilities:
Chairman – Risk Committee. Member Audit Committee, Nomination and Remuneration
Committee
Name:
Title:
John Atkin
Non-executive Director (appointed 23 September 2014)
Qualifications:
LLB (1st Class Hons), BA (Pure Mathematics) (1st Class Hons)
Experience and
expertise:
John is a former Chief Executive Officer and Managing Director of The Trust Company Limited
(2009 - 2013). John was also Managing Partner and Chief Executive of Blake Dawson (2002 -
2008). He also worked at Mallesons Stephen Jaques as a Mergers & Acquisitions Partner for 15
years (1987 - 2002).
Other current
directorships:
Integral Diagnostics Limited (2015), The Australian Outward Bound Foundation (2007) and the
State Library of NSW Foundation (2013).
Former directorships
(last 3 years)
Managing Director of The Trust Company Limited (2009 - 2013), Non-executive director Aurizon
Holdings Limited (2010 - 2016), Chairman GPT Metro Office Fund (2014-2016).
Interests in shares:
97,292
Special responsibilities:
Chairman - Nomination and Remuneration Committee. Member Audit Committee, Risk
Committee
The directors hold no interest in options, performance rights or contractual rights to the securities of IPH Limited as at the date
of this report.
Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all
other types of entities, unless otherwise stated.
‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
IPH LIMITED ANNUAL REPORT 2017 / 14
1.2 Meetings of Directors
The number of meetings of the Company’s Board of Directors (‘the Board’) held during the year ended 30 June 2017, and the
number of meetings attended by each Director were:
Full Board
Nomination and
Remuneration
Committee
Audit
Committee
Risk
Committee
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Richard Grellman AM
David Griffith
Robin Low
Sally Pitkin
John Atkin
7
7
7
7
7
7
7
7
7
7
-
-
3
3
3
-
-
3
3
3
-
-
5
5
5
-
-
5
5
5
-
-
2
2
2
-
-
2
2
2
Held: represents the number of meetings held during the time the Director held office.
2. Company secretary
Philip Heuzenroeder, BEc, LLB, LLM, GAICD (Order of Merit). Mr Heuzenroeder was appointed Group General Counsel and
Company Secretary on 29 April 2016. He is a solicitor with over 20 years professional experience working in private practice
and in-house, with experience in a broad range of areas of law including commercial law, competition law, ICT and intellectual
property, and litigation. Philip was formerly a Principal of Spruson & Ferguson Lawyers and was a director of the Cure Brain
Cancer Foundation from 2013 to 2017.
3. Principal activities
During the year principal activities of the Group consisted of:
» IP services related to provision of filing, prosecution, enforcement and management of patents, designs, trade marks and
other IP in Australia, Asia and other countries; and
» the development and provision of IP data and analytics software under the subscription licence model whereby the software
is licensed and paid for on a recurring basis.
There were no significant changes in the nature of activities of the Group during that period.
4. Operational and Financial Review
4.1 Operations and Financial performance
The summary financial analysis below shows the results on a statutory and underlying basis.
The FY17 underlying earnings of the Group have been determined by adjusting statutory earnings amounts to eliminate the
effect of business acquisition adjustments, business acquisition costs, new business establishment costs and non-cash share
based payments expenses.
Revenue has grown by $28.5M to $186.0M, up by 18%, driven by organic growth and the impact of acquisitions offset by the
impact of a stronger Australian dollar than in the comparative period.
EBITDA increased by $9.2M to $68.7M, up from $59.5M in FY16. Underlying EBITDA of $71.6M has increased by 10% from
the prior corresponding period.
The Group achieved a statutory net profit after tax of $42.9M up 10% from $38.8M in FY16. Underlying net profit after tax of
$51.2M is a 9% improvement over the prior period.
When comparing results to the prior corresponding period, the impact of the America Invents Act should be recalled. This led
to a significant increase in inbound filings in Asia (peaking in September 2015) and to a lesser extent in Australia.
15 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 Australian IP
Asian IP
Revenue
FY17
Revenue
FY16
Chg%
EBITDA
FY17
EBITDA
FY16
Chg%
123,162
101,653
21.2%
50,575
42,286
19.6%
68,622
60,297
13.8%
29,579
26,940
9.8%
191,784
161,950
18.4%
80,154
69,226
15.8%
Data and Analytics Software
Corporate Office
Eliminations
743
(217)
397
63
(6,278)
(4,911)
(2,504)
(5,615)
(410)
(762)
(3,425)
-
Underlying Revenue / EBITDA
186,032
157,499
18.1%
71,626
65,039
10.1%
Business acquisition costs
Business combination adjustments
New business establishment costs
Restructuring expenses
Share based payments
(2,617)
(2,092)
1,181
(207)
-
(1,325)
(338)
(1,064)
(1,231)
(844)
Statutory Revenue / EBITDA
186,032
157,499
18.1%
68,658
59,470
15.4%
Interest Income
Interest Expense
Depreciation and amortisation
Net Profit Before Tax
Tax
Net Profit After Tax
Australian IP
113
(1,241)
(10,329)
534
(1,530)
(7,164)
57,201
51,310
11.5%
(14,308)
(12,467)
42,893
38,843
10.4%
The Australian IP segment achieved sales revenue growth of 21% to $123.2M of which $23.3M was attributable to the Cullens
acquisition and full period contributions of the Pizzeys and Callinans legacy business (now merged into Fisher Adams Kelly
Callinans).
The Group has maintained its number one patent market share position (all patent applications filed in Australia) in the half year.
The overall market is marginally down (in terms of number of patent filings) on the prior corresponding period, however this is
due to the impact of the America Invents Act in the comparative period.
EBITDA was up by 20% to $50.6M at a margin of 41% (2016: 42%). This included organic growth of approximately 5%. The
organic growth was assisted by the successful integration of the Callinans business into Fisher Adams Kelly.
Asian IP
The Asian IP segment achieved sales revenue growth of 14% to $68.6M of which $9.9M was attributable to the Ella Cheong
acquisition. The slowing of organic growth during FY17 is not unexpected as a result of the spike in filings related to the
America Invents Act (AIA) in the prior corresponding period. We have seen the market stabilise in the second half of the year in
number of filings.
EBITDA was up by $2.7M, or 10%, reflecting the investment in Ella Cheong and new offices in Thailand and Indonesia.
On the latest available data the Group has maintained its number one patent market share position (all patent applications filed
in Singapore).
IPH LIMITED ANNUAL REPORT 2017 / 16
DIRECTORS' REPORT / continued30TH JUNE 2017 Data and Analytics Software
The Group continues to invest in its Data and Analytics Software business through its Practice Insight subsidiary. Key activities
in the year have been the ongoing development of the Citation Eagle (formerly Licensing Alerts) and Wisetime products, as
well as the build-up of sales resources. The existing Filing Analytics product has acquired 55 new customers in the year. The
Citation Eagle & Wisetime products were launched in June 2017.
Movements in FX Rates
Foreign exchange rates used to translate earnings throughout the period were:
AUD/USD
AUD/EUR
SGD/AUD
Year End
Average
Year End
Average
Year End
Average
0.7680
0.7426
0.7692
0.8391
0.7286
13.2%
0.7545
(3.5)%
0.6866
0.6699
0.6730
0.6968
0.6564
5.7%
0.6919
(5.4)%
1.0340
1.0027
1.0598
1.0987
1.0122
7.9%
1.0505
(3.8)%
FY15
FY16
Movement
FY17
Movement
4.1.1 Adjustments to Statutory Results
Adjustments to the statutory EBITDA have been made for:
» Business acquisition costs – costs incurred in the pursuit of acquisitions which have been completed, not ultimately
pursued or are currently in progress
» Business combination adjustments – P&L impact of the revaluation of earn-out agreements for the Pizzeys, Cullens and
Callinans acquisitions and movement in the deferred consideration for Ella Cheong
» New business establishment costs – cost of establishing offices in China, Indonesia and Thailand
» Restructuring expenses – costs of restructuring across the Group. The prior year includes costs associated with the
restructuring of Callinans and the one-time impact on executive leave balances as a result of corporatisation of the business.
» Share based payments – accounting charges for the share based incentive plans
17 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 4.2 Statement of Financial Position
Balance Sheet as
at 30 June 2017
Balance Sheet as
at 30 June 2016
$’m
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
PP&E
Acquisition intangibles & goodwill
Deferred tax asset
Total assets
Trade and other payables
Tax provisions
Deferred acquisition liability
Deferred tax liability
Other liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
24.4
38.0
3.4
65.8
3.0
213.1
5.1
287.0
11.2
6.9
-
18.7
10.5
47.3
58.7
38.0
3.7
100.4
4.3
190.2
3.1
298.0
13.9
6.9
28.2
17.4
9.8
76.2
239.7
221.8
233.6
(12.3)
18.4
239.7
218.6
(13.2)
16.4
221.8
A summary of specific key movements are as follows:
Cash & cash equivalents
» The decrease in cash relates to the acquisition of Ella Cheong and deferred payments in relation to Pizzeys, Cullens and
Callinans. The Group has undrawn bank facilities of $95m at its disposal. The Group generated positive cash flows from
operating activities of $49.9m.
» As at 30 June 2017 the cash balance was denominated in AUD (12%), USD (69%), other (19%).
Acquisition intangibles & goodwill
» The increase in intangible assets arises from the acquisition of Ella Cheong.
» Identifiable intangible assets (at cost) consist of customer relationships $71.6m, trademarks $3.5m and software of $3.8m.
» Goodwill resulting from the acquisitions is $144.6m.
Liabilities
» All deferred acquisition liabilities have been settled during FY17 – Pizzeys $13.4m, Cullens $6.1m and Callinans $2.7m.
» The deferred tax liabilities related to the identifiable intangible assets on acquisitions and have increased with the acquisition
of Ella Cheong.
IPH LIMITED ANNUAL REPORT 2017 / 18
DIRECTORS' REPORT / continued30TH JUNE 2017 Equity
» The increase in issued capital arises on equity components of the settlement of deferred acquisition payments.
Acquisitions
On 31 October 2016 IPH completed its first international acquisition upon reaching agreement to acquire Ella Cheong (Hong
Kong) Limited and its subsidiary Ella Cheong Intellectual Property Agency (Beijing) Company Limited (“Ella Cheong Hong Kong
& Beijing”). Upon completion of the transaction Ella Cheong Hong Kong & Beijing was rebranded as Spruson & Ferguson,
and further extends the IPH group’s reach into Asia. The agreed purchase consideration for the acquisition is HK$169.4m
(approximately A$28.9m).
The acquisitions represent a significant step in IPH’s strategy of building an intellectual property network in secondary markets
internationally and provide an excellent platform for Spruson & Ferguson to expand the provision of its services for existing and
new clients in Greater China.
4.3 Business Model, Strategy and Outlook
4.3.1 Business Model
IPH Limited is an intellectual property group operating a number of independent professional businesses providing intellectual
property services (“IP Services”) and IP data and analytics software (“Data Services”) sectors.
In IPH’s IP services businesses in Australia and Asia, revenue is derived from fees charged for the provision of professional IP
services by each firm as related to securing, enforcing and managing IP rights in the country (directly or through an agent ) in
which registration is sought by the client. The business model allows IPH to generate recurring revenue streams throughout all
stages of the IP lifecycle from its long-standing and diverse client base.
Practice Insight, IPH’s Data services business, generates revenue from the sale of its products directly or through a third party
under an annual subscription licence model.
Factors that affect the performance of both business segments include, amongst others, the performance of the global and
Australian economies, client activity levels, competitor activity, and the regulatory environment in which the services are
provided.
4.3.2 Strategy
IPH Vision, Mission and Values
From the Company’s foundation and listing on the ASX in November 2014, IPH has been pursuing the vision of becoming the
leading IP group in IP secondary1 markets and adjacent areas of IP.
IPH mission is to provide the highest quality of service to our clients, meeting their needs and exceeding their expectations,
whilst delivering sustainable growth and value to all of our stakeholders.
From our origins in 1887 as Spruson & Ferguson, IPH’s success continues to be underpinned by key drivers and values at the
core our businesses, which remain unchanged:
» Excellence in service delivery to our clients
» Innovation in value creation
» Integrity in business practices
» Efficiency and effectiveness in operations
» Empowerment and engagement of our people
1. The primary IP markets of USA, Japan and Western Europre generate the majority of IP rights and clients by value. The secondary markets are all countires
outside of USA, Japan and Western Europe.
19 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 Value creating growth strategies
IPH’s plan is to achieve its goals through implementation of strategic initiatives in five key areas:
» Australian IP businesses
» Asia IP business
» Other secondary IP markets
» Adjacent to IP markets
» Business Improvements and Operations
Australian IP businesses
A key objective of all IPH’s Australian businesses is to continue to organically grow volume of filings, market share and revenue
across all disciplines. IPH’s Australian businesses are also important part of Asian growth strategy and valuable source of filings
and revenue into IPH’s Asian business in high growth Asian region.
Asian IP businesses
Over the past two years IPH has successfully executed on its Asian growth strategy with opening offices in Thailand and
Indonesia and expanding into China and Hong Kong through acquisition of Ella Cheong Hong Kong and Beijing (re-branded
Spruson & Ferguson). The expansion provided excellent platform for IPH’s Asian business to extend the provision of IP services
to new geographical areas for existing clients and improved services offering for potential new clients. The key focus for IPH’s
Asian business is to leverage existing infrastructure for further organic growth. IPH will continue to assess organic and M&A
opportunities in Asia as they arise.
Other secondary IP markets
IPH adopted strategic and disciplined approach to assessment of any of the potential M&A opportunities in Asia-Pacific and
other secondary IP markets. Most and foremost, the growth opportunities are evaluated on the extent to which they help to
achieve IPH’s strategic objectives. IPH continues to evaluate acquisition opportunities in international secondary markets.
Adjacent to IP markets
Over the past 40 years the IP industry observed the rise of non-traditional IP service providers offering alternative ways of
servicing and delivering value to clients through technology and data-driven business models. With the acquisition and further
investment in Practice Insight IPH is well positioned to capitalise on disruptive innovation. IPH continuously explores new
opportunities in the adjacent to IP markets.
Business Improvements and Operations
In FY18, IPH will continue to focus on optimisation of IPH’s businesses with a view to extract operational efficiencies and
improve quality of service for our clients.
IPH LIMITED ANNUAL REPORT 2017 / 20
DIRECTORS' REPORT / continued30TH JUNE 2017 4.3.3 Outlook
The Group’s Australian businesses are expected to revert to growth rates in line with the underlying market trends experienced
in recent years. There will be a focus on continued margin improvement across all businesses through IT initiatives and
business process improvements.
In Asia, it is expected that filing growth trends in the region will continue to normalise back to pre-AIA levels. We expect to
maintain market share in Singapore and look to expand market share in higher growth jurisdictions. There will be a focus on
leveraging and strengthening the Group’s existing network in Asia. Organic company growth in the region will be driven by
filings directed from IPH’s Australian businesses and international clients acquired through traditional channels. The increasing
trend of case transfers will support revenue growth into the future. Our China and Hong Kong businesses will seek to
strengthen the patent capability of the offices and the capturing of market share in our addressable market.
The Data and Analytics Software business now has all products released, with the expectation that further enhancements will
be made to the product suite on the basis of customer feedback. The immediate focus is on marketing and sales with a further
investment in FY18 of approximately $3M, subject to meeting periodic performance milestones.
4.4 Risks
Risk
Description
Management of Risk
Strategic
planning and
implementation
The Company conducts its operations in
a market that has undergone significant
changes with the development of corporatised
service providers, which market continues
to adjust. This provides the Group with both
opportunities and risks requiring development
and communication of a clear strategic vision
and objectives.
Transition of CEO The Company’s Managing Director and Chief
Executive Officer will retire in November 2017
and be replaced by a new appointment.
Competition and
changing market
conditions
The sectors in which the Company operates
are subject to vigorous competition, based
on factors including price, service, innovation
and the ability to provide the customer with
an appropriate range of IP services in a timely
manner. Scope exists for market conditions to
change over time reflecting economic, political
or other circumstances.
Regulatory
environment
The Company is subject to significant
regulatory and legal oversight.
The Board is closely involved in identifying, reviewing
and confirming strategic objectives and reviewing
implementation, including assessing opportunities and risks,
and in providing direction to management.
The replacement Chief Executive Officer is an internal
appointment of a known executive with significant
experience in IP and in the management of the Company’s
business.
Effective client service, comprising a high level of expertise
at competitive prices delivered in a timely manner. All
operations of the IPH Group are now or will be supported
by industry leading IT systems. Regular marketing visits are
undertaken to maintain and develop client relationships and
understand potential changes in client needs, and internal
and external pressures.
IPH also provides of a broad range of intellectual property
services, and its operations are geographically widespread,
reducing exposure to any one form of intellectual property
country or jurisdiction in which it operates.
Senior executives ensure that all regulatory and legal
issues affecting IPH’s business are monitored and that any
changes to the business operations necessary to comply
with regulatory and legal changes are undertaken in a timely
manner.
Careful management and oversight of the Group’s internal
case management system.
Principal review of all professional work and compliance
with a professional work approval matrix for outgoing work.
The approval matrix is correlated to the complexity and level
of potential risk associated with the work.
21 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 Risk
Description
Management of Risk
Regulatory
reforms
The Group’s service offerings are subject to
changes to government legislation, regulation
and practices including particularly, if
implemented, proposals to streamline multi-
jurisdictional patent filing and examination
processes.
The Company is proactive in any review or evaluation of
regulations likely to affect its operations materially, and
works with regulators or review authorities to ensure a
clear understanding of facts and circumstances, and
consideration of all stakeholder perspectives.
The Company seeks to offer its services in a range of
secondary markets. Many of these markets have less
developed IP regulations and systems, and require
translations into languages other than English, and are
therefore less likely to be affected by such proposals if
they were to be implemented than developed or primary
markets.
Other factors which help safeguard the company’s role are
effective technology, excellent client service and efficient
operations and the likely need for IP applicants to continue
to be required to record a local address for service of
documents with the local IP office for examination and
prosecution purposes.
The Company also continues to seek to develop revenue
streams from adjacent markets.
Personnel
The Company depends on the talent and
experience of its personnel. The loss of any
key personnel, or a significant number of
personnel generally may have an adverse
effect on the Company. Employee costs
represent a significant component of the
Group’s total cost base.
Retention practices including appropriate remuneration,
incentive programmes (both short and long term), retention
awards, working environment and rewarding work.
Careful management of staff numbers and salary levels and
consideration of resourcing requirements as the Company
grows.
Disintermediation The Group acts as an intermediary agent
between its clients and IP offices. The removal
of intermediaries in the IP application and
registration process would have an adverse
impact on the Group.
IPH’s intermediary role is safeguarded by clients’ reliance on
the Group’s expertise (both general IP expertise and local
expertise) and regulatory barriers such as exclusive rights of
patent attorneys to provide various IP related services and
requirements for IP applicants to record a local address for
service of documents with the local IP office.
Other factors which help safeguard the Company’s
intermediary role are effective technology, excellent client
service and efficient operations. The Company also seeks
to offer its services in a range of secondary markets. Many
of these markets have less developed IP regulations and
systems and require translations into languages other
than English, and are therefore less likely to be affected by
disintermediation.
IPH LIMITED ANNUAL REPORT 2017 / 22
DIRECTORS' REPORT / continued30TH JUNE 2017 Risk
Description
Management of Risk
The Company has established business continuity
plans and procedures and maintains system back up
and maintenance processes. The Company conducts
appropriate reviews of its information technology systems,
operations and human resourcing. The Company continually
invests in system enhancements and engages quality 3rd
party suppliers to assist with its systems developments.
The Company’s transition of its IT systems to offsite ‘cloud-
based’ systems has enabled centralised oversight and
standardisation of processes.
The need for the Company’s services is safeguarded by
the reliance of target clients’ on the Group’s expertise (both
general IP expertise and local expertise) and regulatory
barriers such as exclusive rights of patent attorneys to
provide various IP related services, and requirements
for IP applicants to record a local address for service of
documents with the local IP office.
Other factors which help safeguard the Company against
technology disruption include its own investment in
awareness of and effective technology development, and in
efficiency in operations. The Company also seeks to offer
its services in a range of secondary markets. Many of these
markets have less developed IP regulations and systems,
are less advanced technologically and require technical
translations into languages other than English.
The Company monitors the foreign currency exposures
that arise from its foreign currency revenue, expenditure
and cash flows and from the foreign currency assets
and liabilities held on its balance sheet. The Company
undertakes regular sensitivity analyses of these exposures.
The Company has foreign currency hedging facilities
available as part of its bank facilities. The Chief Financial
Officer regularly reports to the Board in respect of the
Company’s foreign currency exposures. The Board reviews
its hedging policy in respect of the foreign currency
exposures from time to time. Currently the Group does not
hedge against its foreign currency exchange risk.
Conflict of interest advice obtained from outside Counsel
from which the Group has developed a comprehensive
conflict of interest policy.
The Company is proactive in any review or evaluation of
regulations likely to affect its operations materially, and
works with regulators or review authorities to ensure a
clear understanding of facts and circumstances, and
consideration of all stakeholder perspectives.
Case
management
and technology
systems
The Group’s internally customised systems
represent an important part of its operations
upon which the Group is reliant.
Technology
Disruption
The increasing use of electronic systems
and processes by regulatory authorities in
some markets may provide opportunities for
technology disruption in the industry.
Foreign exchange
risk
The Group’s financial reports are prepared
in Australian dollars. However, a substantial
proportion of the Group’s sales revenue,
expenditure and cash flows are generated in,
and assets and liabilities are denominated in
US dollars, Euros and Singapore dollars.
Conflict of duties Patent and trademark attorney are required
to abide by a code of conduct that requires
them to act in accordance with the law,
in the best interests of their client, in the
public interest, and in the interests of the
registered attorney’s profession as a whole.
There may be circumstances in with the
Company is required to act in accordance
with these duties contrary to other corporate
responsibilities and against the interests of
shareholders and the short term profitability
of IPH. An amendment to the Code of
Conduct may affect the manner in which the
Group conducts its activities.
23 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 Risk
Description
Management of Risk
Professional
liability and
uninsured risks
The provision of patent and trademark
services and legal services by the Company
gives rise to the risk of potential liability for
negligence or other similar client or third
party claims.
Acquisitions
The Company’s growth strategy involves
the acquisition of other intellectual property
businesses. Risks arise in ensuring that
potential acquisitions are appropriately
selected and that all issues affecting the
value of individual acquisitions are identified
and reflected in the purchase considerations.
After acquiring a new business, risks arise in
ensuring the business is properly integrated
into the IPH Group
The Company maintains file management processes which
are highly automated, safeguarded, controlled and regularly
reviewed.
The Company has comprehensive quality assurance
processes to ensure appropriate standards of professional
work are maintained.
The Group has in place a comprehensive insurance
programme which includes professional indemnity
insurance. To support its professional indemnity insurance
arrangements the Group has internal processes to ensure
timely notification to the underwriters of any potential claim
arising from its business activities.
The Company seeks to identify acquisition opportunities
that provide an appropriate match for the Company’s
strategic objectives, values and culture. The Company
undertakes an extensive due diligence process covering all
relevant matters relating to each acquisition target. Where
appropriate the Company engages competent professional
experts to assist with the due diligence process. For each
acquisition the Company requires comprehensive legal
contracts to be completed with the Vendors. The contracts
include appropriate indemnities and warranties and
employment arrangements with key individuals. For most
acquisitions part of the consideration is paid in the form
of IPH shares which are required to be escrowed for up to
two years. Management keeps the Board closely informed
throughout each acquisition process and seeks the Non-
executive Directors’ counsel where appropriate. The Board
conducts a formal detailed review of each acquisition prior
to giving its final approval. After completing an acquisition,
processes are undertaken to review standards of
governance, compliance with IPH policies and procedures,
and levels of financial control and reporting, and where
necessary brought into line with Group standards.
5. Remuneration report (audited)
Introduction from the Nomination and Remuneration Committee Chair
Dear Shareholder,
On behalf of the Board, I am pleased to present the Remuneration Report for the 2017 financial year.
The Company’s remuneration framework was initially developed in the context of the Company’s IPO in November 2014
and particularly the very significant continuing equity ownership held by the CEO and a number of other Principals. As
foreshadowed in last year’s report, the Committee has reviewed the framework and implemented changes that reflect the
transition from a private firm to a publicly listed company and the acquisition of a number of other businesses during that time.
Professional Staff Incentive Plan
The long term incentive scheme in place for professional staff has been replaced for future years by a new Equity Incentive Plan
that provides a more direct link between individual performance and incentive achievement. In broad terms, half the balance of
an incentive achieved (by reference to individual targets such as billings and client and expertise development) in any particular
year will be paid in cash and half in IPH Limited shares. These shares will be issued to the employee immediately but held in
trust for a period of three years. It is anticipated that this plan will be progressively rolled out to all business units in the group.
IPH LIMITED ANNUAL REPORT 2017 / 24
DIRECTORS' REPORT / continued30TH JUNE 2017 Corporate Executive Remuneration
Short and long term incentive measures for FY18 have been formalised for the IPH executive.
The Directors are of the view that fixed remuneration should be set at median market levels compared to peers with similar
revenues and market capitalisation. At this stage of the company’s development, a simple annual bonus for superior
performance awarded at the Board’s discretion having regard to the Group’s overall performance and the individual executive’s
performance against agreed performance goals or key result areas is appropriate as a short term supplement to fixed
remuneration. The long term Incentive is structured to align the long term interests of shareholders and executives and is
pitched at the upper quartiles compared to the same peer group. Long term incentives will vest over a three year period with
reference to EPS performance hurdles.
These changes have taken effect from 1 July 2017. Details of these arrangements affecting the KMP have been included in this
report for the information of shareholders.
CEO Transition
As announced on 2 May 2017, Dr Andrew Blattman will succeed David Griffith as Managing Director and CEO in November
2017. In light of this transition Dr Blattman’s remuneration has been reviewed as of 1 July 2017.
Company Performance
The underlying performance of IPH Limited since the IPO has been extremely positive. Total shareholder returns during
that time have ranked the company 16th against its peers in the ASX300 Accumulation Index. As a result of this and the
achievement of the EPS hurdle, the performance criteria for the long term Incentives issued at IPO have been met and will
therefore vest on the vesting date of 9 September 2017.
The Company continues to review its remuneration framework for all its executives and professional staff, including KMP, to
ensure that on an ongoing basis the Company is able to attract, motivate and retain the talent necessary to run the business
and drive behaviour that aligns with the creation of sustainable shareholder value.
We look forward to your continued support and welcome your feedback on our remuneration report.
Yours sincerely,
John Atkin
Nomination and Remuneration Committee Chair
The remuneration report details the key management personnel (‘KMP’) remuneration arrangements for the Group, in
accordance with the requirements of the Corporations Act 2001 and its Regulations.
KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the Group,
directly or indirectly, including all Directors.
The remuneration report is set out under the following main headings:
» Principles used to determine the nature and amount of remuneration
» Details of remuneration
» Service agreements
» Share-based compensation
» Additional disclosures relating to key management personnel
5.1 Principles used to determine the nature and amount of remuneration
The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate
for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation
of value for shareholders. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria
for good reward governance practices:
» competitiveness and reasonableness;
» acceptability to shareholders;
» performance linkage / alignment of executive compensation; and
» transparency.
25 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 The Nomination and Remuneration Committee (‘NRC’) is responsible for reviewing and making recommendations to the Board
on remuneration packages and policies related to the Directors and other KMP and to ensure that the remuneration policies
and practices are consistent with the Group’s strategic goals and human resources objectives. The performance of the Group
depends on the quality of its Directors and other KMP. The remuneration philosophy is to attract, motivate and retain high
performance and high quality personnel.
The NRC has structured an executive remuneration framework that is market competitive and complementary to the reward
strategy of the Group.
Alignment to shareholders’ interests:
» focuses on sustained growth in earnings per share as well as focusing the executive on key non-financial drivers of value; and
» attracts and retains high calibre executives.
Alignment to program participants’ interests:
» rewards capability and experience;
» reflects competitive reward for contribution to growth in shareholder wealth; and
» provides a clear structure for earning rewards.
Ernst & Young (EY) was engaged by the NRC to provide remuneration advice in relation to Key Management Personnel
(KMP), but did not provide the NRC with remuneration recommendations as defined under Division 1, Part 1.2, 9B(1) of
the Corporations Act 2001 (Cth). The Board was satisfied that advice received was free from any undue influence by key
management personnel to whom the advice may relate, because strict protocols were observed and complied with regarding
any interaction between EY and management, and because all remuneration advice was provided to the NRC chair.
The table below lists consultants who were retained during the year. All consultants are independent and were engaged solely
on the basis of their competency in the relevant field.
Advisor
Services Provided
Ernst & Young
Calculation of the fair value of retention rights and performance rights granted under the Long Term
Incentive Plan and Retention Rights Plan published on the ASX on 17 November 2014 and subsequently
replaced by the IPH Limited Employee Incentive Plan, approved by shareholders at the Annual
General Meeting held on 16 November 2016, for the purpose of calculating the value of share based
remuneration.
Orient Capital
Calculation of the total shareholder return achieved by IPH Limited compared to the S&P/ASX 300 Index,
for the purpose of determining whether long term incentive criteria have been met.
5.2 Executive remuneration
The Group aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has
both fixed and variable components.
The executive remuneration and reward framework for KMP for FY17 had the following components:
» base pay and non-monetary benefits; and
» other remuneration such as superannuation and long service leave.
The combination of these comprises the KMP’s total remuneration. In addition John Wadley as the incoming CFO was entitled
to be considered for a bonus for superior performance awarded at the Board’s discretion on the CEO’s recommendation
having regard to the Group’s overall performance and his performance against agreed performance goals or key result areas
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the
NRC, based on individual and business unit performance, the overall performance of the Group and comparable market
remunerations.
Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits)
where it does not create any additional costs to the Group and provides additional value to the executive.
No KMP have been granted options or performance rights over shares during the year ended 30 June 2017.
IPH LIMITED ANNUAL REPORT 2017 / 26
DIRECTORS' REPORT / continued30TH JUNE 2017 5.3 Company performance
For the year to 30 June 2017, other than for John Wadley, there was no link between Company performance and KMP
remuneration. However, each of the other three executive members of the KMP who are ex-trustees (i.e. David Griffith the
CEO, Dr Andrew Blattman and Kristian Robinson) continued to hold a substantial shareholding thereby providing a significant
alignment of interests with company performance. Each of these executive KMP have had their executive service agreements,
particularly their base pay, amended to reflect their roles in the Group.
For the year ended 30 June 2017, the earnings per share were 22.46 cents (2016: 21.92 cents). Shares in the company closed
on 30 June 2017 at $4.80 (2016: $6.42 per share). Dividends totalling 22 cents were declared for FY17 (2016: 21cents).
5.4 Non-executive Directors remuneration
Fees and payments to non-executive Directors reflect the demands and responsibilities of their role. Non-executive Directors’
fees and payments are reviewed periodically by the NRC. The NRC may, from time to time, receive advice from independent
remuneration consultants to ensure Non-executive Directors’ fees and payments are appropriate and in line with the market.
The Chairman’s fees are determined independently from the fees of other non-executive Directors based on comparative roles
in the external market. Non-executive Directors do not receive share options or other incentives and their remuneration must
not include a commission on, or a percentage of, operating revenue.
ASX listing rules require the aggregate non-executive Directors remuneration be determined periodically by a general meeting.
Under the Company’s Constitution and as set out in the IPO Prospectus, total aggregate remuneration available to non-
executive Directors is set currently at $750,000 per annum.
Non-executive Director Fees (Directors’ fees and committee fees) (inclusive of superannuation) for the year ending 30 June
2017 is summarised as follows:
Name - Position
Richard Grellman AM - Chairman
Robin Low - Director
Sally Pitkin - Director
John Atkin - Director
FY 2017 Fees
$190,000
$90,000
$90,000
$90,000
The non-executive Directors are not entitled to participate in any employee incentive scheme (including the LTIP). However, as
disclosed at the time of the company’s IPO, Richard Grellman and Robin Low had elected to receive 20% of their fees in the
form of shares, which are purchased on the market by the Company. The price of shares purchased in the year was $5.52,
which reflected the market price at the time they were acquired. This election ceased from September 2016.
Directors may also be reimbursed for expenses reasonably incurred in attending to the Company’s affairs. Non-executive
Directors may be paid such additional or special remuneration as the Directors decide is appropriate where a Director performs
extra work or services which are not in the capacity as a Director of the Group. There is no contractual redundancy benefit for
Directors, other than statutory superannuation contributions.
5.5 Details of remuneration
Amounts of remuneration
The key management personnel of the Group consisted of the following Directors of IPH Limited:
» Richard Grellman, AM - Non-executive Chairman
» David Griffith - Managing Director and Chief Executive Officer
» Robin Low - Non-executive Director
» Sally Pitkin - Non-executive Director
» John Atkin - Non-executive Director
And the following persons:
» Malcolm Mitchell - Group Chief Financial Officer (from 1 July 2016 to 1 September 2016)
» John Wadley - Chief Financial Officer (from 1 September 2016)
» Andrew Blattman - Chief Executive Officer, Spruson & Ferguson Pty Limited
» Kristian Robinson - Managing Director, Spruson & Ferguson Asia Pte Limited
27 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 Short-term benefits
Post
employment
benefits
Long-term
benefits
Share-
based
payments
Cash
salary
and fees
$
Cash
bonus
$
Non-
monetary
$
Super-
annuation
$
Employee
leave
$
Equity-
settled
$
Total
$
Non-Executive Directors:
Richard Grellman
2017
177,854
Robin Low
Sally Pitkin
John Atkin
2016
177,854
2017
2016
2017
2016
2017
2016
82,192
82,192
82,192
82,192
82,192
82,192
Executive Directors:
David Griffith
2017
730,690
2016
480,954
Other Key Management Personnel:
Andrew Blattman
2017
480,693
Kristian Robinson
2017
404,9791
2016
356,554
2016
347,266
-
-
-
-
-
-
-
-
-
-
-
-
-
-
John Wadley2
2017
278,419 50,000
Former Key Management Personnel:
Malcolm Mitchell3
2017
52,500 50,000
2016
328,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,146
12,146
7,808
7,808
7,808
7,808
7,808
7,808
-
-
-
-
-
-
-
-
19,615
12,281
19,308
251,071
19,615
7,679
23,455
65,859
-
-
6,140
35,664
16,861
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
190,000
190,000
90,000
90,000
90,000
90,000
90,000
90,000
762,586
751,333
507,987
445,868
411,119
382,930
345,280
102,500
328,500
1. Remuneration received in Singapore Dollars. Translated at the average exchange rate for the year of S$1.0505 (2016: S$1.0121)
2. John Wadley became a KMP on 1 September 2016. Balances represent remuneration from this date.
3. Ceased to be a KMP on 1 September 2016. Represents remuneration to date of resignation.
IPH LIMITED ANNUAL REPORT 2017 / 28
DIRECTORS' REPORT / continued30TH JUNE 2017 5.6 Service agreements
Remuneration and other terms of employment for KMP are formalised in service or employment agreements. Details of these
agreements are as follows:
David Griffith, Managing Director and Chief Executive Officer.
» Minimum three-year agreement commenced 17 November 2014.
» Base salary, inclusive of superannuation for the year ended 30 June 2017 of $750,000.
Dr Andrew Blattman, Chief Executive Officer, Spruson & Ferguson Pty Limited.
» Minimum three-year agreement commenced 1 January 2017.
» Base salary, inclusive of superannuation for the year ended 30 June 2017 of $500,308.
Kristian Robinson, Managing Director, Spruson & Ferguson Asia Pte Limited.
» Minimum three-year agreement commenced 1 January 2017.
» Base salary, inclusive of superannuation for the year ended 30 June 2017 of SGD 437,932.
John Wadley, Chief Financial Officer during the period 1 September 2016 to 30 June 2017.
» Base salary, inclusive of superannuation for the year ended 30 June 2017 of $350,000. Annual superior performance bonus
of up to 20% of base salary.
» Base salary, inclusive of superannuation for the year ended 30 June 2018 of $450,000. Annual superior performance bonus
of up to 10% of base salary and a proposed long term incentive opportunity of 50% of base salary (to be finalised).
As announced in April, David Griffith will retire as CEO later in 2017 and Andrew Blattman will assume that position. Dr
Blattman will be employed directly by IPH Limited under an employment contract with an indefinite term. His remuneration
has been adjusted from 1 July 2017 to a base salary, inclusive of superannuation for the year ended 2018 of $750,000. He
is entitled to be considered for an annual superior performance bonus of up to 20% of base salary and has a proposed long
term incentive opportunity of 100% of base salary (subject to any necessary shareholder approval upon taking up his position).
Material terms of the arrangements will be disclosed as required upon taking up the position.
Except where minimum employment term applies, KMP may terminate their employment contract by giving six months’ notice
in writing. Contracts may be terminated by the Company with six months’ notice. In the event of serious misconduct or other
specific circumstances warranting summary dismissal, the Company may terminate the employment contract immediately
by notice in writing and without payment in lieu of notice. Upon the termination of the employment contract, the KMP will
be subject to a restraint of trade period of 12 months throughout Australia, New Zealand and Asia. The enforceability of the
restraint is subject to all usual legal requirements.
KMP have no entitlement to termination payments in the event of removal for misconduct. Messers Griffith, Blattman and
Robinson receive five weeks annual leave.
5.7 Additional disclosures relating to key management personnel
The following disclosures relate only to equity instruments in the Company or its subsidiaries.
Shareholding
The number of shares in the Company held during the financial year by each Director and other members of key management
personnel of the Group, including their personally related parties, is set out below:
29 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 30 June 2017
Ordinary shares
Richard Grellman
Robin Low
Sally Pitkin
John Atkin
David Griffith
Andrew Blattman
Kristian Robinson
Malcolm Mitchell1
John Wadley2
Balance at the start of
the year
Additions
Disposals
Balance at the end of
the year
54,712
60,039
52,519
97,292
6,098,766
6,006,166
3,938,991
10,000
-
16,318,485
12,874
5,765
1,322
-
-
-
-
-
379
20,340
-
-
-
-
(3,500,001)
(1,500,000)
(2,900,000)
(10,000)
-
67,586
65,804
53,841
97,292
2,598,765
4,506,166
1,038,991
-
379
(7,910,001)
8,428,824
1. Ceased to be a KMP on 1 September 2016. Disposal represents no longer being designated as a KMP, not necessarily a disposal of holding.
2. John Wadley became a KMP on 1 September 2016
30 June 2016
Ordinary shares
Richard Grellman
Robin Low
Sally Pitkin
John Atkin
David Griffith
Malcolm Mitchell
Andrew Blattman
Kristian Robinson
Balance at the start of
the year
Additions
Disposals
Balance at the end of
the year
48,792
48,190
47,619
95,238
6,098,766
-
5,911,111
3,876,172
16,125,888
5,920
11,849
4,900
2,054
-
10,000
95,055
62,819
192,597
-
-
-
-
-
-
-
-
-
54,712
60,039
52,519
97,292
6,098,766
10,000
6,006,166
3,938,991
16,318,485
Option holding
No options over ordinary shares in the Company were held during the financial year by each Director and other members of
key management personnel of the Group, including their personally related parties.
Performance rights holding
There were no performance rights issued to each Director and other members of key management personnel of the Group in
the year ended 30 June 2017.
This concludes the remuneration report, which has been audited.
IPH LIMITED ANNUAL REPORT 2017 / 30
DIRECTORS' REPORT / continued30TH JUNE 2017
6. Shares under performance and retention rights
Details of unissued shares or interests under performance and retention rights at the date of this report are:
Issuing entity
Type
Number of shares
Class
Exercise Price
Expiry Date
IPH Limited
IPH Limited
Performance
Retention
747,922
271,413
Ordinary
Ordinary
0.00
0.00
Up to Sept 2020
Up to June 2020
7. Shares under option
There were no unissued ordinary shares of IPH Limited under option at the date of this report.
8. Dividends
Dividends paid during the financial year were as follows:
Final dividend of 10.0 cents per share for the year ended 30 June 2016,
paid on 14 September 2016. (franked to 5.0c)
Interim dividend of 11.5 cents per share for the year ended 30 June 2017,
paid on 15 March 2017. (100% franked)
18,893
22,031
9. Significant changes in the state of affairs
There were no other significant changes in the state of affairs of the Group during the financial year.
10. Matters subsequent to the end of the financial year
Apart from the dividend declared, no other matter or circumstance has arisen since 30 June 2017 that has significantly
affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.
11. Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law.
12. Indemnity and insurance of officers
The Company has indemnified the Directors and executives of the Company 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 Directors and executives of
the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits
disclosure of the nature of the liability and the amount of the premium.
13. Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or
any related entity.
14. 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.
31 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT / continued30TH JUNE 2017 15. Non-audit 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 28 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.
The Directors are of the opinion that the services as disclosed in note 28 to the financial statements do not compromise the
external auditor’s independence requirements of the Corporations Act 2001 for the following reasons:
» all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the
auditor; and
» none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of
Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing
or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as
advocate for the Company or jointly sharing economic risks and rewards.
16. Officers of the Company who are former partners of Deloitte Touche Tohmatsu
There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu.
17. Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument dated 24
March 2016 and in accordance with that Instrument amounts in the annual financial report are rounded off to the nearest
thousand dollars, unless otherwise indicated.
18. Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
the following page.
19. Auditor
Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2) (a) of the Corporations Act 2001.
David Griffith
Managing Director
17 August 2017
Sydney
IPH LIMITED ANNUAL REPORT 2017 / 32
DIRECTORS' REPORT / continued30TH JUNE 2017 AUDITOR’S INDEPENDENCE DECLARATION
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
Tel: +61 2 9322 7000
www.deloitte.com.au
The Board of Directors
IPH Limited
Level 35, St Martins Tower
31 Market Street
Sydney NSW 2000
17 August 2017
Dear Board Members
IPH Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of IPH Limited.
As lead audit partner for the audit of the financial report of IPH Limited for the financial year
ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Tara Hill
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
33 / IPH LIMITED ANNUAL REPORT 2017
STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH JUNE 2017
Consolidated
Note
30 June 2017
30 June 2016
Revenue
Other income
Expenses
Employee benefits expense
Depreciation and amortisation expenses
Rental expenses
Business acquisition costs
Agent fee expenses
Insurance expenses
Travel expenses
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit for the year is attributable to:
Owners of IPH Limited
Total comprehensive income for the year is attributable to:
Owners of IPH Limited
Earnings per share
From continuing operations
Basic earnings (cents per share)
Diluted earnings (cents per share)
5
6
7
7
7
7
8
$’000
182,041
4,104
(49,055)
(10,329)
(5,420)
(1,574)
(51,033)
(657)
(1,466)
(8,169)
(1,241)
57,201
(14,308)
42,893
(438)
(438)
42,455
42,893
42,893
42,455
42,455
$’000
154,410
3,623
(39,657)
(7,164)
(4,729)
(3,133)
(41,726)
(533)
(1,410)
(6,841)
(1,530)
51,310
(12,467)
38,843
505
505
39,348
38,843
38,843
39,348
39,348
37
37
22.46
22.33
21.92
21.70
These statements should be read in conjunction with the following notes.
IPH LIMITED ANNUAL REPORT 2017 / 34
STATEMENT OF FINANCIAL POSITION
AS AT 30TH JUNE 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Other
Total current assets
Non-current assets
Available-for-sale financial assets
Property, plant and equipment
Intangibles
Deferred tax
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax
Provisions
Deferred consideration
Other financial liabilities
Deferred revenue
Total current liabilities
Non-current liabilities
Deferred tax
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity attributable to owners of IPH Limited
Consolidated
Note
30 June 2017
30 June 2016
$’000
$’000
9
10
11
12
13
14
15
16
17
18
19
15
21
22
23
24
24,398
38,020
3,426
65,844
180
3,004
212,926
5,077
221,187
287,031
11,244
6,903
6,271
-
1,570
1,029
27,017
18,715
1,605
20,320
47,337
58,761
37,919
3,527
100,207
180
4,350
190,156
3,087
197,773
297,980
13,924
6,933
6,328
4,554
24,592
1,195
57,526
17,399
1,243
18,642
76,168
239,694
221,812
233,598
(12,340)
18,436
239,694
218,583
(13,238)
16,467
221,812
These statements should be read in conjunction with the following notes.
35 / IPH LIMITED ANNUAL REPORT 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Other
Total current assets
Non-current assets
Available-for-sale financial assets
Property, plant and equipment
Intangibles
Deferred tax
Total assets
Total non-current assets
Current liabilities
Trade and other payables
Income tax
Provisions
Deferred consideration
Other financial liabilities
Deferred revenue
Total current liabilities
Non-current liabilities
Deferred tax
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Consolidated
Note
30 June 2017
30 June 2016
$’000
$’000
9
10
11
12
13
14
15
16
17
18
19
15
21
22
23
24
24,398
38,020
3,426
65,844
180
3,004
212,926
5,077
221,187
287,031
11,244
6,903
6,271
-
1,570
1,029
27,017
18,715
1,605
20,320
47,337
233,598
(12,340)
18,436
239,694
58,761
37,919
3,527
100,207
180
4,350
190,156
3,087
197,773
297,980
13,924
6,933
6,328
4,554
24,592
1,195
57,526
17,399
1,243
18,642
76,168
218,583
(13,238)
16,467
221,812
239,694
221,812
Total equity attributable to owners of IPH Limited
These statements should be read in conjunction with the following notes.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30TH JUNE 2017
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IPH LIMITED ANNUAL REPORT 2017 / 36
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30TH JUNE 2017
Consolidated
Note
30 June 2017
30 June 2016
$’000
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and other finance costs paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payments for purchase of subsidiaries, net of cash acquired
Payments for property, plant and equipment
Payments for internally developed software
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Dividends paid
Repayment of borrowings
Net cash (used in)/from financing activities
6
7
36
33
13
14
25
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
9
205,480
(136,759)
113
(1,241)
(17,671)
49,922
(39,088)
(619)
(2,670)
(42,377)
-
(40,407)
-
(40,407)
(32,862)
58,761
(1,501)
24,398
151,164
(94,976)
534
(1,530)
(13,137)
42,055
(49,571)
(2,564)
(731)
(52,866)
108,454
(33,786)
(10,550)
64,118
53,307
5,346
108
58,761
These statements should be read in conjunction with the following notes.
37 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
30TH JUNE 2017
Note 1. General information
The financial statements cover IPH Limited as a Group consisting of IPH Limited and the entities it controlled at the end of, or
during, the year. The financial statements are presented in Australian dollars, which is IPH Limited’s functional and presentation
currency.
IPH Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 35, 31 Market Street, Sydney NSW 2000
A description of the nature of the Group’s operations and its principal activities are included in the Directors’ report, which is
not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors, on 17 August 2017.
Note 2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian
Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.
The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial
performance or position of the Group.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early
adopted.
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 preparation
The financial statements have been prepared under the historical cost convention except for certain financial instruments that
are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally
based on the fair values of the consideration given in exchange for assets.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are
disclosed in note 3.
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.
Principles of consolidation
The Consolidated financial statements are those of the Consolidated entity (“the Group”), comprising the financial statements
of the parent entity and all of the entities the parent controls. The Company controls an entity when it has power over the
investee and the Group 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 to direct the activities of the entity.
IPH LIMITED ANNUAL REPORT 2017 / 38
Note 2. Significant accounting policies (continued)
Principles of consolidation (continued)
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company
loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are
included in the Consolidated statement of profit or loss and other comprehensive income from the date the Company gains
control until the date when the Company ceases to control the subsidiary.
External non controlling interests are allocated their share of total comprehensive income and are presented within equity in the
Consolidated Statement of Financial Position, separately from the equity of shareholders.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
Changes in the Group’s ownership interests in existing subsidiaries
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries
are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are
adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and
attributed to owners of the Company.
Foreign currency translation
The individual financial statements of each Group entity are presented in the currency of the primary economic environment
in which the entity operates (its functional currency). For the purpose of the Consolidated financial statements, the results and
financial position of each Group entity are expressed in Australian dollars (‘$’), which is the functional currency of the Company
and the presentation currency for the Consolidated financial statements.
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing
at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates
prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
» exchange differences on transactions entered into in order to hedge certain foreign currency risks; and
» exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially
in other comprehensive income and reclassified from equity to profit or loss on repayment.
For the purpose of presenting these Consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated into Australian dollars as follows:
» Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated
significantly during that period, in which case the exchange rates at the dates of the transactions are used.
» Assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the balance date;
and
» All resulting exchange differences are recognised in other comprehensive income, in the foreign currency translation reserve.
Goodwill and fair value accounting adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities
of the foreign entity and translated at the closing rate.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable.
Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the
transaction at the end of the reporting period and where outcome of the contract can be estimated reliably.
Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated
services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that
related expenditure is recoverable.
39 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Revenue recognition (continued)
Dividend revenue is recognised when the right to receive a dividend has been established (provided that it is probable that the
economic benefits will flow to the Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and
the amount of revenue can be measured reliably. Interest income is recognised on an accruals basis
Other revenue, including commission revenue, is recognised when it is received or when the right to receive payment is
established.
All revenue is stated net of the amount of goods and services tax (GST).
Work in progress
Work in progress (WIP) represents costs incurred and profit recognised on client assignments and services that are in progress
at balance date. WIP is valued at net realisable value after providing for any foreseeable losses. WIP older than 90 days is
reviewed and any WIP not thought to be recoverable is written off.
Disbursements recoverable
Recoverable client disbursements recorded in work in progress are recognised when services are provided. The amount
recognised is net of any GST payable. Internally generated disbursements are credited directly to the profit & loss as they are
charged to a client matter.
Disbursements older than 60 days are constantly being reviewed and any not thought to be recoverable are written off.
Income Tax
The income tax expense or benefit is the tax payable on the current periods taxable income based on the national income tax
rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between
the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Current tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit
or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by
reporting date.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax base of those items.
Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that
it is probable that sufficient taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial
recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor
accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from
goodwill.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments except where the Group is able
to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and
interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise
the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and
liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the
Company intends to settle its current tax assets and liabilities on a net basis.
IPH LIMITED ANNUAL REPORT 2017 / 40
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Income Tax (continued)
Current and deferred tax for the period
Current and deferred tax is recognised as an expense or income in the Statement of Comprehensive Income, except when it
relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity.
The Company and its wholly-owned Australian resident entities are part of a tax-Consolidated group which was formed on 3
September 2014. As a consequence, all members of the tax-Consolidated group are taxed as a single entity. The head entity
within the tax Consolidated group is IPH Limited.
Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the
tax-Consolidated group are recognised in the separate financial statements of the members of the tax Consolidated group
using the “separate taxpayer within group” approach.
Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the
tax-Consolidated group are recognised by the Company (as head entity in the tax-Consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-Consolidated group, amounts are recognised
as payable to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or
payable between the parent entity and the other members of the tax Consolidated group in accordance with the arrangement.
Where the tax contribution amount recognised by each member of the tax Consolidated group for a particular period is
different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax
credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and at banks, short term deposits with an original maturity of three months or
less held at call with financial institutions, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities
in the Consolidated statement of financial position.
Trade and other receivables
Trade and other receivables include amounts due from customers for services performed in the ordinary course of business.
Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All
other receivables are classified as non-current assets.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment.
Unearned income is recognised as a liability when received and is recognised as revenue once a patent service has been
provided or completed.
Trade and other payables
Trade and other payables represent the liabilities for goods and services received that remain unpaid at the end of the reporting
period. The balance is recognised as a current liability with the amounts normally paid within 90 days of recognition of the liability.
Financial instruments
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or
loss when the asset is derecognised or impaired.
Available-for-sale financial assets
Available for sale financial assets include any financial assets not included in the above categories and are measured at fair
value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. The cumulative gain or loss is
held in equity until the financial asset is de-recognised, at which time the cumulative gain or loss held in equity is recognised in
profit and loss.
41 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Financial instruments (continued)
Financial liabilities
Financial liabilities include trade payables, other creditors and loans from third parties including inter group balances.
Non derivative financial liabilities are recognised at amortised cost using the effective interest method.
Trade accounts payable comprise the original debt less principal payments plus where applicable any accrued interest.
Financial liabilities are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period.
The carrying amount of financial assets is reviewed annually the directors’ to assess whether there is any objective evidence
that a financial asset is impaired.
Where such objective evidence exists, the company recognises impairment losses.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives,
using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of
each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are amortised over their expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over
the shorter of the lease term and their useful lives.
Leasehold improvements
Plant and equipment
Furniture, fixtures and fittings
Computer equipment
6-15 years
2-20 years
5-20 years
3-5 years
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are measured at their fair value at the date of
the acquisition.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested
annually for impairment, or more frequently of 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 and loss and not
subsequently reversed.
Intangible assets acquired separately
Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and
accumulated impairment losses.
IPH LIMITED ANNUAL REPORT 2017 / 42
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Intangible assets (continued)
Customer Relationships
Customer relationships are the assessed value of the supply of goods and services that exist at the date of acquisition. In
valuing customer relationships, consideration is given to historic customer retention and decay statistics, projected future cash
flows and appropriate capital charges.
Customer relationships are amortised over a period of 10 years. The estimated useful lives, residual values and amortisation
method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a
prospective basis.
Trademarks
Trademarks are intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated
impairment losses.
Software acquired
Software acquired through a business combination is assessed as the identifiable value of that software at the date of
acquisition. Acquired software is amortised over a period of 4 years.
Internally-generated intangible assets
Internally-generated intangible assets, including software, arising from development (or from the development phase of an
internal project) is recognised if, and only if, all of the following have been demonstrated:
» the technical feasibility of completing the intangible asset so that it will be available for use or sale;
» the intention to complete the intangible asset and use or sell it;
» the ability to use or sell the intangible asset;
» how the intangible 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
intangible asset; and
» the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be
recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
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.
The useful lives of intangible assets are as follows:
Software
3 years
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised.
Impairment of assets
Goodwill and other assets that have an indefinite useful life are not amortised but are tested annually for impairment in
accordance with AASB 136 ‘Impairment of Assets’. Assets subject to annual depreciation or amortisation are reviewed for
impairment whenever events or circumstances arise that indicates that the carrying amount of the asset may be impaired.
An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable
amount of an asset is defined as the higher of its fair value less costs to sell and value in use.
For the purposes of impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash generating units).
43 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash
flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease
or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the
statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless
they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general
policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The
aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Employee benefits
Short and long-term employee benefit
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, and long service
leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration
rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured
at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by the
employees up to reporting date.
Retirement benefit costs
Payments to defined contribution plans are recognised as an expense when employees have rendered service entitling them to
the contributions.
Borrowings costs
Borrowing costs can include interest, amortisation of discounts or premiums relating to borrowings, ancillary costs incurred
in connection with arrangement of borrowings, foreign exchange losses net of hedged amounts on borrowings. Borrowings
are initially recognised at fair value, net of transaction costs and subsequently measured at amortised cost. Any difference
between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of
the borrowings using the effective interest method.
IPH LIMITED ANNUAL REPORT 2017 / 44
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not
recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset
or as part of an item of the expense. Receivables and payables in the Consolidated statement of financial position are shown
inclusive of GST.
Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and
financing activities, which are disclosed as operating cash flows.
Share based payments
Equity settled share based compensation benefits are provided to employees. Equity settled transactions are awards of shares,
options or rights, which are provided in exchange for the rendering of services. Equity settled share based payments are
measured at the fair value of the equity instruments at the grant date.
The fair value at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting
period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity.
At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The
impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to the equity settled employee benefits reserve.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, 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 that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best
use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair
value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements (note 26). Classifications are reviewed at each reporting date and
transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value
measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not
available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and
reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is
undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable,
with external sources of data.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from
the proceeds.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
45 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments
or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued
or liabilities incurred. The consideration transferred also includes the fair value of any contingent consideration arrangement
and the fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business
combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or
accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree
at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised
in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or
loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest
in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the
acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of
the identifiable net assets acquired, being a bargain purchase, the difference is recognised as a gain directly in profit or loss on
the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and any previously held equity interest.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. Contingent consideration is classified either as equity or a financial liability. Amounts
classified as financial liability are subsequently remeasured to fair value with changes to fair value recognised in profit or loss.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional
amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new
information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on
either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to
determine fair value.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of IPH Limited, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial
year, adjusted for bonus elements in ordinary shares issued 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 potential ordinary shares and the weighted
average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument dated 24
March 2016 and in accordance with that Instrument amounts in the annual financial report are rounded off to the nearest
thousand dollars, unless otherwise indicated.
IPH LIMITED ANNUAL REPORT 2017 / 46
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory,
have not been early adopted by the Group for the annual reporting period ended 30 June 2017. The Group’s assessment of
the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below.
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces
all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and
Measurement’. AASB 9 introduces new classification and measurement models for financial assets. New simpler hedge
accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the
entity. New impairment requirements will use an ‘expected credit loss’ model to recognise an allowance. The Group will adopt
this standard from 1 July 2018 and the financial impact of its adoption is currently being assessed. The primary exposure of the
group is to trade debtors, creditors and any debt that may be drawn.
AASB 15 Revenue from Contracts with Customers
This standard is currently applicable to annual reporting periods beginning on or after 1 January 2018. AASB 15 replaces
all current guidance on revenue recognition from contracts with customers. It requires identification of discrete performance
obligations within a transaction and an associated transaction price allocation to these obligations. Revenue is recognised
upon satisfaction of these performance obligations, which occur when control of the goods or services are transferred to the
customer. Revenue received for a contract that includes a variable amount is subject to revised conditions for recognition,
whereby it must be highly probable that no significant reversal of the variable component may occur when the uncertainties
around its measurement are removed.
The Group expects to adopt the standard from 1 July 2018 and apply the standard retrospectively, recognising the cumulative
effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The new standard will be
relevant to the recognition of service charges and recoverable expenses. Any financial impact of adoption is currently being
assessed by the Group.
AASB 16 Leases
This standard is currently applicable to annual reporting periods beginning on or after 1 January 2019. AASB 16 replaces
the current AASB 117 Leases standard and sets out a comprehensive model for identifying lease arrangements and the
subsequent measurement. A contract contains a lease if it conveys the right to control the use of an identified asset for a
period of time. The majority of leases from the lessee perspective within the scope of AASB 16 will require the recognition of a
“right of use” asset and a related lease liability, being the present value of future lease payments. This will result in an increase
in the recognised assets and liabilities in the statement of financial position as well as a change in expense recognition, with
interest and depreciation replacing operating lease expense, with the exception of for leases of low value assets and leases
with a term of 12 months or less.
The Group expects to adopt the standard from 1 July 2019 and the primary impact from adoption will be the treatment of
premises and leased office equipment across the Group. The adoption of the standard will increase net current assets and
lease liabilities due to the recognition of the lease liability and right of use asset; expense relating to minimum lease payments
will reduce and there will be an increase in interest expense. The quantum of these changes is currently being determined.
Other amending accounting standards issued are not considered to have a significant impact on the financial statements of the
Consolidated entity as their amendments provide either clarification of existing accounting treatment or editorial amendments.
These standards (and their operative dates) include:
» AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure initiative: Amendments to AASB 107 (from 1
January 2017)
» IFRS 2 Share-based payment – amendments clarifying how to account for certain types of share-based payment
transactions (from 1 January 2018)
47 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 2. Significant accounting policies (continued)
Changes in Accounting Policies
Recognition of filing fee revenue and expense
The accounting policy for the recognition of subcontracted services revenue has been reviewed as part of the Group’s
assessment and alignment of the accounting policies of newly acquired entities. The new Standard AASB 15 Revenue from
Contracts with Customers includes additional guidance in relation to the determination of principal versus agency relationship
in the context of a performance obligation, such guidance is not as extensively included within the current AASB 118 Revenue
Standard.
From 1 July 2016, the Group has changed its revenue recognition policy in relation to the treatment of filing fees paid to
National IP bodies and recovered from clients. Under the new policy both reimbursement and payment of filing fees are
recorded as gross revenue and expense in the Statement of Profit or Loss; previously they were netted off. The Group believes
that recording filing fee transactions as gross provides information that is more relevant to the Group’s business acting as
Principal for clients in preparing and lodging intellectual property applications with the relevant national bodies.
The 30 June 2016 Comparative information has been amended to reflect the payment and receipt of filing fees which were
paid by the Group and subsequently reimbursed by clients. During the prior year, filing fees totalling $14.4m were shown as a
net value rather being grossed up in the Statement of Profit or Loss and Other Comprehensive Income. As a result, revenue
disclosed for 30 June 2016 has been amended to $154.4m (reported: $140.0m) and agents fees expense has been amended
to $41.7m (reported: $27.3m). There has been no change to reported net profit, earnings per share or equity and reserve
balances.
Deferred tax measurement relating to indefinite life intangible assets
The IFRS Interpretations Committee (IFRIC) has issued an agenda decision related to the expected manner of recovery of
indefinite life intangible assets. The Committee was asked to clarify how an entity determines the expected manner of recovery
of an intangible asset with an indefinite useful life for deferred tax measurement purposes. The Committee indicated that the
fact that an entity does not amortise an indefinite life intangible asset does not necessary mean that the carrying amount will
be recovered only through sale and not use. Therefore the entity should determine the expected manner of recovery of the
carrying amount of the intangible asset.
As a result of the IFRIC clarification, a deferred tax liability has been recognised in relation to the trade mark intangible assets
resulting in an increase to goodwill. Deferred tax liabilities of $1.05m have been recognised as a result with a corresponding
increase in goodwill. Refer note 33.
Note 3. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect
the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to
assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions
on historical experience and on other various factors, including expectations of future events, management believes to be
reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual
results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.
Goodwill and other indefinite life intangible assets
The Group tests annually, or more frequently if events of changes in circumstances indicate impairment, whether goodwill
and other indefinite life intangible assets, total carrying value $148m, have suffered any impairment, in accordance with the
accounting policy stated in note 2.
Customer relationships, total carry value $59.9m are finite intangible assets and are amortised over their expected life. Assets
subject to amortisation are reviewed for impairment whenever events or circumstances arise that indicates that the carrying
amount of the asset may be impaired.
Business combinations
The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking
into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business
combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on
the assets and liabilities, depreciation and amortisation reported. Acquisitions of $28.9m were made during the year.
IPH LIMITED ANNUAL REPORT 2017 / 48
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 4. Operating segments
Identification of reportable operating segments
The Group is organised into three segments: Intellectual Property Services Australia; Intellectual Property Services Asia; and
Data and Analytics Software. These operating segments are based on the internal reports that are reviewed and used by
the senior executive team and Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in
assessing performance and in determining the allocation of resources. There is no aggregation of operating segments.
Intellectual Property
Services Australia
Related to the provision of filing, prosecution, enforcement and management of patents, designs,
trade marks and other IP in Australia.
Intellectual Property
Services Asia
Related to the provision of filing, prosecution, enforcement and management of patents, designs,
trade marks and other IP in Asia.
Data and Analytics
Software
Develops and provides IP data and analytics software under a subscription license model.
The CODM reviews profit before interest, income tax and adjustments to the statutory reported results. The accounting policies
adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information
reported to the CODM is on at least a monthly basis.
Intersegment transactions
There are varying levels of integration between the segments. The integration includes provision of professional services,
shared technology and management services. Intersegment transactions were made at market rates. Intersegment
transactions are eliminated on consolidation.
Reliance on major customers
Maximum revenue from any customer is less than 2% of overall revenue of the Group. Country of origin of revenue has not
been disclosed as this is commercially sensitive information.
49 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 4. Operating segments (continued)
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i
IPH LIMITED ANNUAL REPORT 2017 / 50
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 5. Sales Revenue
Revenue from the rendering of services
Note 6. Other Income
Net Realised foreign exchange gain
Net unrealised foreign exchange (loss)/gain
Other income
Commission
Interest
Consolidated
30 June 2017
30 June 2016
$’000
182,041
182,041
$’000
154,410
154,410
Consolidated
30 June 2017
30 June 2016
$’000
1,050
26
1,367
1,548
113
4,104
$’000
1,363
(409)
679
1,456
534
3,623
51 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 7. Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Amortisation - Acquired Intangibles
Amortisation - Software Development
Share based payments
Superannuation expense
Deferred acquisition and deferred settlement costs remeasurement
Business acquisition impairment - customer relationships
Other expenses
Professional fees
IT & Communication
Office Expenses
Other
Finance costs
Interest on bank facilities - Overdraft
Other interest expense - Facility fees
Consolidated
30 June 2017
30 June 2016
$’000
1,084
7,737
1,508
10,329
1,325
3,418
(1,181)
-
1,414
1,728
1,328
3,699
8,169
26
1,215
1,241
$’000
1,336
5,036
792
7,164
845
2,931
(632)
961
1,312
1,324
1,199
3,006
6,841
3
1,527
1,530
Rental expense relating to operating leases
Minimum lease payments
5,420
4,729
IPH LIMITED ANNUAL REPORT 2017 / 52
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 8. Income Tax Expense
Income tax expense
Current tax
Deferred tax
Under / (Over) provided in prior years
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets (note 15)
Decrease in deferred tax liabilities (note 15)
Consolidated
30 June 2017
30 June 2016
$’000
$’000
16,565
(2,984)
727
14,308
2,062
985
3,047
14,046
(1,574)
(5)
12,467
(1,574)
-
(1,574)
Reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
57,201
51,310
Tax at the statutory tax rate of 30%
17,160
15,393
Tax effect amounts which are not deductible / (taxable) in calculating taxable income:
Permanent adjustments
Equity settled share based payments
Earn-out revaluations
Acquisition costs
Difference in overseas tax rates
Losses not brought to account
Under / (Over) provision with respect to current tax in prior years
Other
Effect of income that is exempt from tax
Income tax expense
Note 9. Current assets - cash and cash equivalents
Cash on hand
Cash at bank
53 / IPH LIMITED ANNUAL REPORT 2017
(191)
279
(343)
805
(1)
390
(187)
334
(3,590)
(3,394)
35
9
117
27
14,308
79
(5)
-
(142)
12,467
Consolidated
30 June 2017
30 June 2016
$’000
73
24,325
24,398
$’000
12
58,749
58,761
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 10. Current assets - trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Consolidated
30 June 2017
30 June 2016
$’000
38,759
(739)
38,020
$’000
38,493
(574)
37,919
Impairment of receivables
The Group has recognised a gain of $13,000 (2016: Impairment expense of $136,000) in profit or loss in respect of impairment
reversal of receivables for the year ended 30 June 2017.
The ageing of the impaired receivables provided for above are as follows:
Past due more than 91 days
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additions through business combinations (note 33)
Additional provisions recognised
Receivables written off during the year as uncollectable
Closing balance
Consolidated
30 June 2017
30 June 2016
$’000
682
$’000
574
Consolidated
30 June 2017
30 June 2016
$’000
574
334
(13)
(156)
739
$’000
760
-
136
(322)
574
IPH LIMITED ANNUAL REPORT 2017 / 54
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 10. Current assets - trade and other receivables (continued)
Past due but not impaired
Customers with receivable balances past due but without provision for impairment, amount to $10,793,000 as at 30 June
2017 (2016: $8,812,000). The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms
of customers based on recent collection practices.
The ageing of the past due but not impaired receivables are as follows:
31 to 60 days overdue
61 to 90 days overdue
Past due more than 91 days
Consolidated
30 June 2017
30 June 2016
$’000
8,297
729
1,767
10,793
$’000
6,301
913
1,598
8,812
Ageing has been calculated with reference to the trading terms of local clients (30 days) and international clients (90 days). The
prior period disclosure has been amended to reflect this methodology.
Note 11. Current assets - other
Prepayments
Work in progress
Other current assets
Consolidated
30 June 2017
30 June 2016
$’000
1,122
1,042
1,262
3,426
$’000
1,448
975
1,104
3,527
Note 12. Non-Current assets - Available-For-Sale Financial Assets
Unquoted ordinary shares - at fair value
Consolidated
30 June 2017
30 June 2016
$’000
180
180
$’000
180
180
55 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 13. Non-Current assets - Property, plant and equipment
Leasehold improvements - at cost
Less: Accumulated depreciation
Plant and equipment - at cost
Less: Accumulated depreciation
Furniture, fixtures and fittings - at cost
Less: Accumulated depreciation
Computer equipment - at cost
Less: Accumulated depreciation
Consolidated
30 June 2017
30 June 2016
$’000
3,143
(1,533)
1,610
1,076
(784)
292
1,572
(1,165)
407
6,531
(5,836)
695
3,004
$’000
2,811
(1,131)
1,680
992
(533)
459
1,592
(1,025)
567
7,277
(5,633)
1,644
4,350
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Leasehold
improvements
Plant and
equipment
Furniture,
fixtures and
fittings
Computer
equipment
Balance at 1 July 2015
Additions
Additions through business combinations (note 33)
Disposals / Transfers
Exchange differences
Depreciation expense
Balance at 30 June 2016
Additions
Additions through business combinations (note 33)
Disposals / Transfers
Exchange differences
Depreciation expense
Balance at 30 June 2017
$’000
138
1,721
23
(17)
1
(186)
1,680
40
2
96
-
(208)
1,610
$’000
$’000
69
539
-
(23)
-
(126)
459
10
14
-
-
(191)
292
167
229
242
-
-
(71)
567
114
3
(157)
-
(120)
407
$’000
814
1,796
-
(23)
10
(953)
1,644
455
14
(847)
(6)
(565)
695
Total
$’000
1,188
4,285
265
(63)
11
(1,336)
4,350
619
33
(908)
(6)
(1,084)
3,004
IPH LIMITED ANNUAL REPORT 2017 / 56
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 14. Non Current assets - intangibles
Goodwill - at cost
Patents and trade marks - at cost
Capitalised software development - at cost
Less: Accumulated amortisation
Software Acquired
Less: Accumulated amortisation
Customer Relationships
Less: Accumulated amortisation
Less : Impairment
Consolidated
30 June 2017
30 June 2016
$’000
144,570
3,519
148,089
5,780
(2,612)
3,168
3,805
(2,064)
1,741
71,598
(10,709)
(961)
59,928
212,926
$’000
124,156
3,511
127,667
1,978
(867)
1,111
3,805
(1,112)
2,693
63,570
(3,924)
(961)
58,685
190,156
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2015
Provisional accounting adjustments1
Additions
Patents
and trade
marks
$’000
14
Goodwill
$’000
33,581
(10,861)
1,014
-
-
Additions through business combinations (note 33)
101,436
2,483
Impairment loss
Amortisation expense
Balance at 30 June 2016
Additions2
Additions through business combinations (note 33)
Disposals / Transfers
Amortisation expense
Balance at 30 June 2017
-
-
-
-
124,156
3,511
1,100
19,314
-
-
8
-
-
-
144,570
3,519
Customer
relationships
Capitalised
software
development
Software
Acquired
$’000
-
8,631
-
54,939
(961)
(3,924)
58,685
-
8,028
-
(6,785)
59,928
Total
$’000
$’000
$’000
930
-
34,525
-
3,805
973
-
-
-
-
-
2,589
973
158,858
(961)
(792)
(1,112)
(5,828)
1,111
2,662
-
903
2,693
190,156
-
-
-
3,770
27,342
903
(1,508)
(952)
(9,245)
3,168
1,741
212,926
1. Due to the proximity of the acquisitions of Practice Insight Pty Ltd and Fisher Adams Kelly Pty Limited to the prior year end, the intangible assets arising on the
acquisitions were provisionally allocated entirely to goodwill. A portion of the goodwill was subsequently reallocated to other identifiable intangible assets once final
assessments had been determined.
2. Additions to Goodwill include $1.049m on recognition of deferred tax liabilities onto trademarks and $51k final accounting adjustment for Cullens acquisition.
57 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 14. Non Current assets - intangibles (continued)
Impairment testing
For the purposes of impairment testing, goodwill is allocated to Cash Generating Units (CGU’s) that are an identifiable group of
assets that generate cash associated with the goodwill.
The acquired legal entities are managed as standalone CGU’s. A summary of the goodwill by cash generating unit is set out
below:
Cash Generating Unit
Fisher Adams Kelly Callinans
Practice Insight
Pizzeys
Cullens
Spruson & Ferguson (Hong Kong)1
Other
Total
Consolidated
30 June 2017
30 June 2016
$’000
23,978
3,834
68,158
28,980
19,314
306
$’000
23,674
3,834
67,753
28,589
-
306
144,570
124,156
1. Ella Cheong (Hong Kong) Limited was acquired on 31 Oct 2016 and subsequently renamed Spruson & Ferguson (Hong Kong) Limited
The recoverable amount of a CGU is determined primarily on a value-in-use calculation and secondly based on estimated net
selling prices. Value-in-use calculations use cash flow projections based on financial budgets prepared by management and
approved by the Board. Cashflows for future years are extrapolated using the estimated growth rates stated below. After five
years a terminal growth rate is assumed and terminal value-in-use calculated. The terminal growth rates do not exceed the
average growth rates that the business has experienced and are generally lower than the short term growth rates assumed.
Key assumptions used for value-in-use calculations
5 yr EBITDA CAGR
Cash Generating Unit
Fisher Adams Kelly Callinans
Practice Insight
Pizzeys
Cullens
S&F Hong Kong
2017
%
4.8
20.8
6.1
5.1
17.7
2016
%
5.2
32.2
7.9
-
-
Terminal
growth rates
Discount rates
Pre-Tax
Post-Tax
2017 & 2016
%
2.5
2.5
2.5
2.5
2.5
%
15
25
15
15
15
%
10.5
17.5
10.5
10.5
10.5
The post-tax discount rate has been applied to discount the future attributable post-tax cash flows.
At 30 June 2017, the assessed value-in-use for each CGU exceeded the carrying amounts of the CGU and no impairment loss
was recognised.
Impact of possible change in key assumptions
No impairment charge would arise as a result of the following changes in assumptions:
» Holding all assumptions constant, if the forecast cashflows in years 1 to 5 declined by 5%
» Holding all assumptions constant, if the discount rate increased by 0.5%
» Holding all assumptions constant, if the terminal rate declined by 0.5%
IPH LIMITED ANNUAL REPORT 2017 / 58
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 15. Deferred tax assets/liabilities
The net deferred tax asset comprises the following balances
Opening
balance
Recognised in
profit or loss
Acquisitions Recognised in
equity
Closing
balance
$’000
$’000
$’000
$’000
$’000
Impairment of receivables
Property, plant and equipment
Provisions
Accrued expenses
Unbilled revenue
Prepayments
Foreign exchange
Transaction costs
Leased assets
Software
131
(242)
1,707
-
(213)
(18)
3
1,336
305
308
(36)
220
248
178
79
(11)
90
(88)
80
302
-
-
-
-
-
-
-
-
-
-
Intangible assets - Customer Relationships
(17,605)
Intangible assets - Trademarks (Note 33)
Sundry
-
(24)
1,965
-
21
(1,325)
(1,049)
-
(14,312)
3,048
(2,374)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95
(22)
1,955
178
(134)
(29)
93
1,248
385
610
(16,965)
(1,049)
(3)
(13,638)
Disclosed as:
Deferred tax asset
Deferred tax liability
Note 16. Current liabilities - trade and other payables
Trade payables
Sundry creditors and accruals
Refer to note 26 for further information on financial instruments
Consolidated
30 June 2017
30 June 2016
$’000
$’000
5,077
(18,715)
(13,638)
3,087
(17,399)
(14,312)
Consolidated
30 June 2017
30 June 2016
$’000
6,705
4,539
11,244
$’000
5,721
8,203
13,924
59 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 17. Current liabilities - provisions
Employee benefits
Lease make good
Other provisions
Note 18. Deferred consideration
Deferred consideration
Consolidated
30 June 2017
30 June 2016
$’000
5,479
51
741
6,271
$’000
5,057
484
787
6,328
Consolidated
30 June 2017
30 June 2016
$’000
-
$’000
4,554
Prior period consideration was in relation to the acquisition of Cullens and was settled during the year. Deferred consideration
arose on the acquisition of Ella Cheong (Hong Kong) Limited and was settled during the year
Reconciliations
Reconciliation of the movement in deferred acquisition costs for the financial year is set out below:
Opening balance
Recognised on acquisition (note 33)
Revaluation of liability
Settlement of deferred consideration - cash
Consolidated
30 June 2017
30 June 2016
$’000
4,554
6,894
256
(11,704)
-
$’000
4,950
4,554
-
(4,950)
4,554
IPH LIMITED ANNUAL REPORT 2017 / 60
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 19. Current liabilities - other financial liabilities
Deferred Acquisition costs
Lease Incentive liability
Preference shares
Other
Consolidated
30 June 2017
30 June 2016
$’000
-
1,370
200
-
1,570
$’000
23,674
711
200
7
24,592
Deferred acquisition costs relate to additional consideration arising on settlement that is dependent on certain performance
conditions being met. The balance represents the fair value of the expected consideration due to paid at the designated date.
Reconciliations
Reconciliation of the movement in deferred acquisition costs for the financial year is set out below:
Opening balance
Recognised on acquisition
Revaluation of liability
Settlement of deferred costs
Consolidated
30 June 2017
30 June 2016
$’000
23,674
-
(1,437)
(22,237)
-
$’000
-
24,306
(632)
-
23,674
The deferred acquisition costs settled during the year relate to earn-outs on Pizzeys ($13.4m), Cullens ($6.1m) and Callinans
($2.7m).
61 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 20. Borrowings
Current
Bank overdraft
Multi-option facility
Non Current
Bank overdraft
Multi-option facility
Consolidated
30 June 2017
30 June 2016
$’000
$’000
-
-
-
-
-
-
Consolidated
30 June 2017
30 June 2016
$’000
$’000
-
-
-
-
-
-
On 25 August 2014, the Group entered into a facilities agreement (‘Agreement’) with Australian and New Zealand Banking
Group Limited (‘ANZ’). The facilities under the Agreement comprised:
» A multi-option facility with a term of three years for the general corporate purposes of the Group; and
» A revolving annual credit facility allowing for financial guarantees and standby letters of credit to be issued for the general
corporate purposes of the Group.
On 7 July 2015, IPH Limited amended the agreement to extend the facility to $97m over a three year term maturing on 31 July
2018 comprising:
- A multi-option acquisition loan facility
- A multi-option revolving loan facility including a bank guarantee facility and overdraft facility for the general corporate
purposes of the Group
Upon executing the new Multi-Option Facility Agreement, borrowings under the previous facility were extinguished.
Assets pledged as security
The bank facility made available by ANZ is secured by cross guarantee and all assets from IPH Limited and a number of its
wholly owned subsidiaries. The value of current and non-current assets pledged as security are as noted on the Consolidated
balance sheet.
IPH LIMITED ANNUAL REPORT 2017 / 62
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 20. Borrowings (continued)
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Total facilities
Bank overdraft1
Multi-option facility1
Standby letter of credit facility
Bank guarantees1
Used at the reporting date
Bank overdraft
Multi-option facility
Standby letter of credit facility
Bank guarantees
Unused at the reporting date
Bank overdraft
Multi-option facility
Standby letter of credit facility
Bank guarantees
Consolidated
30 June 2017
30 June 2016
$’000
$’000
-
97,000
-
-
-
97,000
-
-
97,000
97,000
-
-
-
2,473
2,473
-
94,527
-
-
-
-
-
2,494
2,494
-
94,506
-
-
1. The Multi-option facility Includes facility sublimits of $10m and $7m which may be used for the issuance of bank guarantees and available overdraft respectively.
94,527
94,506
Note 21. Non-current liabilities - provisions
Employee benefits
Lease incentive liability
Consolidated
30 June 2017
30 June 2016
$’000
278
1,327
1,605
$’000
373
870
1,243
63 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 22. Equity - issued capital
Consolidated
Consolidated
30 June 2017
30 June 2016
30 June 2017
30 June 2016
Ordinary Class shares - fully paid
191,688,526
188,883,320
191,688,526
188,883,320
Movements in ordinary share capital
Shares
Shares
Balance
$’000
233,598
233,598
$’000
218,583
218,583
Date
Shares
$’000
162,378,265
35,305
Acquisition of Fisher Adams Kelly Pty Ltd
27 August 2015
1,029,010
4,950
Acquisition of Pizzeys Patent & Trademark Attorneys
30 September 2015
6,776,263
46,756
Dividend reinvestment plan issues
Acquisition of Callinans Patent & Trademark Attorneys
Shares issued
Capital raising costs
Retention rights exercised
7 October 2015
2 November 2015
507,271
393,932
3,050
2,978
1 December 2015
15,197,330
110,940
2 December 2015
47,619
-
-
(1,790)
Acquisition of Cullens & Cullens Services No 1Pty Ltd
30 June 2016
2,553,630
16,394
Balance at 30 June 2016
Retention rights exercised
Acquisition of Pizzeys Patent & Trademark Attorneys1
Acquisition of Cullens & Cullen Services No 1Pty Ltd1
Acquisition of Ella Cheong (Hong Kong) Ltd1
Retention rights exercised
Acquisition of Callinans Patent & Trademark Attorneys 1
Dividend reinvestment - interim dividend (Note 25)
Retention rights exercised
Balance at 30 June 2017
1. Refer note 33 for share issuances arising from business acquisitions.
188,883,320
218,583
19 August 2016
42,187
31 August 2016
1,229,545
31 August 2016
31 October 2016
6 December 2016
31 January 2017
15 March 2017
13 June 2017
487,890
737,261
47,619
143,248
113,155
4,301
-
6,787
2,693
4,313
-
705
517
-
191,688,526
233,598
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.
IPH LIMITED ANNUAL REPORT 2017 / 64
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 22. Equity - issued capital (continued)
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 optimum capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding
relative to the current Company’s share price at the time of the investment.
The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk
management decisions. There have been no events of default on the financing arrangements during the financial year.
Dividend reinvestment plan
The group operates a dividend reinvestment plan. The issue price is the average of the daily volume weighted average market
price of all shares sold by normal trade during the 10 days trading days commencing on the second trading day following the
dividend record date.
Note 23. Equity - reserves
Foreign currency reserve
Share-based payments reserve
Minority interest acquisition reserve
Consolidated
30 June 2017
30 June 2016
$’000
(166)
2,676
(14,850)
(12,340)
$’000
272
1,340
(14,850)
(13,238)
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign
operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign
operations.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration,
and other parties as part of their compensation for services. Specifically the reserve relates to performance rights issued by the
Company to its employees under its LTIP.
Minority interest acquisition reserve
This reserve represents the difference between the amount by which non-controlling interests are adjusted and the fair value of
the consideration paid or received, where there is no change in control.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are presented in the Statement of Changes
in Equity.
65 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 24. Equity - retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense for the year attributable to owners of IPH Limited
Dividends paid (note 25)
Retained profits at the end of the financial year
Note 25. Equity - dividends
Consolidated
30 June 2017
30 June 2016
$’000
16,467
42,893
(40,924)
18,436
$’000
14,461
38,843
(36,837)
16,467
Interim dividend
December 2015 - paid 23 March 2016
December 2016 - paid 15 March 2017
Final dividend
June 2015 - paid 7 October 2015
June 2016 - paid 14 September 2016
Consolidated
Cents per share
30 June 2017
30 June 2016
$’000
$’000
11.0
11.5
10.0
10.0
-
22,031
-
18,893
20,496
-
16,341
-
On 17 August 2017, the Company declared an ordinary dividend of 10.50 cents per share (franked at 100%) to be paid on 13
September 2017. The dividend value is $20,133,000. No provision for this dividend has been recognised in the Statement of
Financial Position as at 30 June 2017, as it was declared after the end of the financial year.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan was reactivated for the interim dividend paid on 15 March 2017. 113,155 shares were issued
to participants at $4.57 per share totalling $517,000.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
Consolidated
30 June 2017
30 June 2016
$’000
3,092
$’000
5,604
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
» franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
IPH LIMITED ANNUAL REPORT 2017 / 66
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 26. Financial instruments
Financial risk management objectives
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest
rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different
methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of
interest rate and foreign exchange and ageing analysis for credit risk.
Market risk
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through
foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash
flow forecasting.
The Group does not enter into any derivative financial instruments to manage its exposure to foreign currency risk.
The Group’s net asset exposure at the reporting date was as follows:
30 June 2017
Net asset exposure (Local Currency)
195,890
27,942
1,603
5,349
336
A$’000
US$’000
€’000 S$000
Other1
30 June 2016
Net asset exposure (Local Currency)
173,890
30,615
2,304
4,141
(107)
1. Australian dollar equivalent
67 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 26. Financial instruments (continued)
Sensitivity analysis
The sensitivity of the Group’s Australian dollar denominated Profit or Loss account and Statement of Financial Position to
foreign currency movements is based on a 10% fluctuation (2016: 10% fluctuation) on the average rates during the financial
year. This analysis assumes that all other variables including interest rates remain constant. A 10% movement in the average
foreign exchange rates would have impacted the Group’s profit after tax and equity as follows:
USD
Euro
SGD
Other currencies
10% Weakening 10% Strengthening
2017
$’000
3,635
238
505
34
2016
$’000
3,822
319
372
11
2017
$’000
(3,305)
(217)
(459)
(31)
2016
$’000
(4,204)
(351)
(409)
(10)
Net exposure to foreign currency risk
4,412
4,524
(4,012)
(4,974)
Price risk
The Group is not exposed to any significant price risk.
Interest rate risk
The Group’s main interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the Group to interest
rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not enter into any
derivative financial instruments to manage its exposure to interest rate risk.
As at the reporting date, the Group had the following variable rate borrowings outstanding:
Consolidated
Multi-option facility
Net exposure to cash flow interest rate risk
30 June 2017
30 June 2016
Weighted average
interest rate
Balance
Weighted
average interest
rate
%
-
$’000
-
-
%
-
Balance
$’000
-
-
The Group had no bank loans outstanding at 30 June 2017 (2016: $0) and is therefore not exposed to movements in interest
rates.
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 may obtain payment in advance or restrict the services offered 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 have any material credit risk exposure to any single debtor or group of debtors and does not
hold any collateral.
IPH LIMITED ANNUAL REPORT 2017 / 68
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 26. Financial instruments (continued)
Liquidity risk
Liquidity risk management 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)
Unused borrowing facilities at the reporting date:
Bank overdraft
Multi-option facility
Standby letter of credit facility
Bank guarantees
Consolidated
30 June 2017
30 June 2016
$’000
-
94,506
-
-
$’000
-
94,506
-
-
94,506
94,506
The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the
continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time.
69 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 26. Financial instruments (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
and therefore these totals may differ from their carrying amount in the statement of financial position.
The cash flows in the maturity analysis below are not expected to occur significantly earlier than contractually disclosed below.
Consolidated - 30 June 2017
Non-derivatives
Non-interest bearing
Trade payables
Other payables and accruals
Deferred acquisition costs
Interest-bearing - variable
Multi-option facility
Total non-derivatives
Consolidated - 30 June 2016
Non-derivatives
Non-interest bearing
Trade payables
Other payables and accruals
Deferred acquisition costs
Interest-bearing - variable
Multi-option facility
Total non-derivatives
Weighted
average
interest rate
1 year
or less
Between 1
and 2 years
Between 2
and 5 years
%
$’000
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
-
-
-
0.00%
6,705
4,539
-
-
11,244
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,705
4,539
-
-
11,244
Weighted
average
interest rate
1 year
or less
Between 1
and 2 years
Between 2
and 5 years
%
$’000
$’000
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
-
-
-
0.00%
5,721
8,203
23,674
-
37,598
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,721
8,203
23,674
-
37,598
Note 27. 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
Consolidated
30 June 2017
30 June 2016
$
$
2,471,711
1,937,704
91,661
26,100
78,333
352,594
2,589,472
2,368,631
IPH LIMITED ANNUAL REPORT 2017 / 70
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 28. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor
of the Company, and unrelated firms:
Audit services - Deloitte Touche Tohmatsu (Australia)
Audit or review of the financial statements
Other assurance services
Other services - Deloitte Touche Tohmatsu (Australia)
Tax compliance services
Deloitte Touche Tohmatsu (Singapore)
Audit or review of the financial statements
Tax compliance services
Audit services - unrelated firms
Audit or review of the financial statements
Other services - unrelated firms
Corporate and taxation services
Note 29. Contingent liabilities
Consolidated
30 June 2017
30 June 2016
$
$
266,850
3,990
-
270,840
52,627
-
52,627
23,175
63,082
86,257
297,000
4,000
147,658
448,658
66,780
44,193
110,973
5,142
836
5,978
The Group has given bank guarantees in respect of operating lease commitments for office premises as at 30 June 2017 of
$1,831,000 (2016: $1,853,000).
Note 30. Commitments
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
Over five years
Consolidated
30 June 2017
30 June 2016
$’000
$’000
5,055
6,895
2,475
14,425
4,539
8,479
2,392
15,410
Operating lease commitments include contracted amounts for offices and plant and equipment under non-cancellable
operating leases expiring within 1 to 10 years with, in some cases, options to extend. The leases have various escalation
clauses. On renewal, the terms of the leases are renegotiated.
71 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 31. Related party transactions
Parent entity
IPH 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 27 and the remuneration report in the Directors’ report.
Transactions with related parties
There were no additional transactions with related parties
Note 32. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Share-based payments reserve
Retained earnings
Parent
30 June 2017
30 June 2016
$’000
$’000
31,893
31,893
14,991
237,773
1,898
1,898
232,727
2,677
471
235,875
43,611
43,611
148,198
319,663
96,340
96,386
217,112
954
5,211
223,277
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Other than the security provided for the ANZ Facility Agreement as disclosed in note 20, the parent entity had no guarantees in
relation to the debts of its subsidiaries as at 30 June 2017 apart from being party to the deed of cross guarantee as detailed in
Note 39.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2017.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2.
IPH LIMITED ANNUAL REPORT 2017 / 72
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 33. Business combinations
Ella Cheong (Hong Kong) Limited
On 31 October 2016, the Group acquired 100% of the ordinary shares of Ella Cheong (Hong Kong) Limited and its subsidiary
Ella Cheong Intellectual Property Agency (Beijing) Company Limited, under the terms of a Share Purchase Agreement (SPA).
The agreed purchase price was HK$169,414,000 (A$28,916,000). The consideration is settled by way of issue of 737,261 IPH
shares at an issue price of $5.4933 and cash of A$17,709,000.
Subsequent to acquisition the entities were renamed Spruson & Ferguson (Hong Kong) Limited and Spruson & Ferguson
Intellectual Property Agency (Beijing) Company Limited.
The acquired business contributed revenues of $9,943,000 and profit after tax of $1,857,000 to the Group for the period from
1 November 2016 to 30 June 2017. If the acquisition occurred on 1 July 2016, the full year contributions would have been
revenues of $14,220,000 and profit after tax of $2,661,000.
Consideration transferred
The following table summarises the acquisition date fair value of each major class of consideration transferred.
Cash
Equity instruments (737,261 ordinary shares)
Deferred consideration
Total consideration transferred
$’000
17,709
4,313
6,894
28,916
The Group incurred acquisition related costs of $161,000. These costs have been included in business acquisition expenses.
Equity instruments issued
On 31 October 2016, $4,049,996 of the purchase price was settled by way of the issue of 737,261 ordinary shares in IPH to
the vendors of Ella Cheong (Hong Kong) Ltd at an agreed price of $5.4933 per share. The shares issued have been recorded
in the financial statements at the acquisition date fair value on issue date of $5.85 per share totalling $4,313,000.
Deferred consideration
HK$41,457,000 of the purchase price was deferred and paid in cash in May 2017. The final value of deferred consideration
recorded in the financial statements was A$7,149,914. No further consideration is payable on the acquisition.
73 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 33. Business combinations (continued)
Ella Cheong (Hong Kong) Limited (continued)
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Intangible assets - customer relationships
Deferred tax liabilities
Trade and other payables
Current tax liability
Other creditors
Net assets acquired
Goodwill
Acquisition-date fair value of total consideration transferred
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of total consideration transferred
Less: shares issued by company as part of consideration
Less: cash and cash equivalents acquired
Net cash used
Fair value
$’000
2,122
2,107
520
33
8,028
(1,325)
(1,185)
(286)
(412)
9,602
19,314
28,916
28,916
(4,313)
(2,122)
22,481
IPH LIMITED ANNUAL REPORT 2017 / 74
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 33. Business combinations (continued)
Acquisitions undertaken in the year ended 30 June 2016
Cullens Pty Limited and Cullens Services No1 Pty Limited (“Cullens”)
On 30 June 2016, the Group acquired 100% of the ordinary shares of Cullens Pty Limited and Cullens Services No1 Pty
Limited “Cullens” under the terms of a Share Purchase Agreement (SPA).
The final accounting for the acquisition of Cullens was finalised during the current financial year. The IFRS Interpretations
Committee (IFRIC) clarified that an intangible asset with an indefinite useful life is not a non-depreciable asset. Therefore a
deferred tax liability has been recognised in relation to the trade mark intangible asset resulting in an increase to goodwill of
$340,000. Additional adjustments resulted in a further $51,000 of additional goodwill. The final acquisition details are as follows:
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets - customer relationships
Intangible assets - trade marks
Deferred tax assets
Deferred tax liabilities
Trade and other payables
Current tax liability
Provisions
Net assets acquired
Goodwill
Acquisition-date fair value of total consideration transferred
Fair value
$’000
1,868
2,776
202
13,661
1,134
122
(4,438)
(1,130)
(1,067)
(410)
12,718
28,980
41,698
Application of IFRIC on non-depreciable intangible assets
The IFRS Interpretations Committee (IFRIC) clarified that an intangible asset with an indefinite useful life is not a non-
depreciable asset.
The acquisitions of Pizzeys Patent & Trade Mark Attorneys Pty Ltd (“Pizzeys”) in September 2015 and Fisher Adams Kelly Pty
Ltd (“FAK”) in May 2015, included trademarks. As a result of the IFRIC clarification, a deferred tax liability has been recognised
in relation to the trade mark intangible asset resulting in an increase to goodwill.
A deferred tax liability of $304,000 has been recognised in FAK, $405,000 in Pizzeys with a corresponding increase in goodwill
of the same amount in each entity respectively. The resulting carrying value of goodwill in FAK is $23,978,000; Pizzeys
$68,158,000
Settlement of Deferred Acquisition Costs
During the year, the following amounts were paid as settlement of deferred acquisition costs from prior periods:
Pizzeys Patent & Trade Mark Attorneys Pty Ltd
Cullens Pty Limited and Cullen Services No1 Pty Limited
Callinans Patent & Trade Mark Attorneys Pty Ltd
Cash1
$’000
6,651
7,955
2,000
16,606
Shares
$’000
6,787
2,693
705
10,185
Total
$’000
13,438
10,648
2,705
26,791
1. Cullens cash includes deferred consideration (note 18) and deferred acquisition (note 19) amounts
75 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 34. Interests in subsidiaries
The Consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policies described in note 2:
Principal place of
business/Country
of incorporation
Principal
activities
Ownership
interest
Ownership
interest
30 June 2017
30 June 2016
Name
Spruson & Ferguson Pty (NSW) Limited2,3
Spruson & Ferguson Pty Limited2,3
Spruson & Ferguson Lawyers Pty Limited2,3
Spruson & Ferguson (Asia) Pte Limited
Spruson & Ferguson SDN BHD
IPH Holdings (Asia) Pte Ltd
PT Spruson Ferguson Indonesia
IPH (Thailand) Ltd4
Spruson & Ferguson Ltd
IPH Services Limited2,3
Practice Insight Pty Limited2,3
Wise Time Pty Limited2,6
Australia Non Trading entity
Australia
Patent attorneys
Australia
Lawyers
Singapore
Patent attorneys
Malaysia
Patent attorneys
Singapore Non Trading entity
Indonesia
Patent attorneys
Thailand Non Trading entity
Thailand
Patent attorneys
Australia
Australia
Australia
Software
development
Data analysis and
software
Data analysis and
software
Fisher Adams Kelly Pty Limited2,3
Australia
Patent attorneys
Pizzeys Patent & Trademark Attorneys Pty Ltd2,3
Australia
Patent attorneys
Cullens Pty Limited2,3
Cullens Services No 1 Pty Limited2,3
Pizzeys Pte Ltd
Spruson & Ferguson (Shanghai) Ltd
Spruson & Ferguson Limited
Spruson & Ferguson (Beijing) Ltd
Australia
Patent attorneys
Australia
Patent attorneys
Singapore
Patent attorneys
China
Patent attorneys
Hong Kong Non Trading entity
China
Patent attorneys
Spruson & Ferguson (Hong Kong) Ltd5
Hong Kong
Patent attorneys
Spruson & Ferguson Intellectual Property
Agency (Beijing) Company Ltd5
China
Patent attorneys
100%
100%
100%
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
1. IPH Limited is the head entity within the tax Consolidated group.
2. These companies are member of the tax Consolidated group
3. These wholly owned subsidiaries entered into a deed of cross guarantee with IPH limited pursuant to ASIC Corporations (Wholly-owned Companies) Instrument
2016/785 and are relieved from the requirements to prepare and lodge an audited financial report (note 39)
4. The Group holds 90.6% of the voting rights and thus has control of this entity
5. These entities were acquired through the Ella Cheong acquisition (Note 33) and subsequently renamed.
6. This entity was deregistered on 16 November 2016.
Note 35. Events after the reporting period
No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s
operations, the results of those operations, or the Group’s state of affairs in future financial years.
IPH LIMITED ANNUAL REPORT 2017 / 76
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 Note 36. Reconciliation of profit after income tax to net cash from operating
activities
Consolidated
30 June 2017
30 June 2016
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Unrealised foreign exchange
Share-based payments
Other
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase in deferred tax assets
Decrease/(increase) in other assets
Increase/(decrease) in trade and other payables
Increase in provision for income tax
Increase in other liabilities
(Increase)/Decrease in deferred revenue
Increase in provisions
Net cash from operating activities
Note 37. Earnings per share
Profit after income tax
Profit after income tax attributable to the owners of IPH Limited
Weighted average number of ordinary shares used in calculating basic earnings
per share
Options over ordinary shares
Weighted average number of ordinary shares used in calculating diluted earnings
per share
Basic earnings per share
Diluted earnings per share
77 / IPH LIMITED ANNUAL REPORT 2017
$’000
42,893
10,329
1,067
1,332
(1,408)
2,095
(3,047)
768
(4,582)
(316)
(218)
(166)
1,175
49,922
$’000
38,843
7,164
108
845
338
(6,350)
(420)
(558)
1,667
(453)
248
8
615
42,055
Consolidated
30 June 2017
30 June 2016
$’000
42,893
42,893
$’000
38,843
38,843
Number
Number
190,953,365
177,222,041
1,164,271
192,117,636
1,769,596
178,991,637
Cents
22.46
22.33
Cents
21.92
21.70
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 38. Share-based payments
On 24 October 2014, the Long Term Incentive Plan (‘LTIP’) was adopted by the Board of Directors and was established to
attract, motivate and retain key staff. Participation in the LTIP is at the Board’s discretion and no individual has a contracted
right to participate in the LTIP or to receive any guaranteed benefits.
Retention rights
Each retention right issued under the LTIP converts into one ordinary share of IPH Limited on exercise. No amounts are paid
or payable by the recipient of the retention right, and the retention rights carry neither rights to dividends nor voting rights. The
retention rights are treated as in substance options and accounted for as share-based payments.
A portion of the aggregate retention rights granted will vest at each twelve month anniversary of the grant date; vesting is
conditional on continued employment.
Set out below are summaries of the rights granted under the plan:
Balance at
the start of
year
47,619
47,619
Grant Date
19 Nov 2014
19 Nov 2014
16 Sept 2015
16 Sept 2015
16 Sept 2015
Vesting
Date
Exercise
price
Granted
Exercised
Expired/
forfeited/
other
Balance at the
end of the year
19 Nov 20161
19 Nov 2017
1 July 20162
1 July 2017
1 July 2018
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-
-
-
-
-
-
42,183
63,275
105,458
134,149
(47,619)
-
(42,183)
-
-
-
-
-
-
(5,756)
(9,594)
(6,219)
19 August 2016
30 June 2019
Total Retention Rights
95,238
345,065
(89,802)
(21,569)
1. Share price at date of exercise $5.80
2. Share price at date of exercise $4.86
-
47,619
-
57,519
95,864
127,930
328,932
Performance rights
Each performance right issued under the LTIP converts into one ordinary share of IPH Limited on exercise. No amounts are
paid or payable by the recipient of the performance right, and the performance rights carry neither rights to dividends nor
voting rights. The performance rights are treated as in substance options and accounted for as share-based payments.
Performance Rights will vest (and become exercisable) to the extent that the applicable performance, service or other vesting
conditions specified at the time of the grant are satisfied (collectively the ‘Performance Criteria’). Performance Criteria may
include conditions relating to continuous employment or service, the individual performance of the participant and/or the
Group’s performance. Typically, the Performance Criteria must be satisfied within a predetermined performance period. Both
the performance Criteria and the performance period are set by the Board at its absolute discretion.
The Board has set the following Performance Criteria for the performance period for the Performance Rights granted to
employees:
» 50% of the Performance Rights granted will vest subject to a relative total shareholder return (‘TSR’) performance hurdle over
the relevant vesting period; and
» The remaining 50% of the Performance Rights granted will vest subject to an earnings per share (‘EPS’) performance hurdle
over the relevant vesting period.
IPH LIMITED ANNUAL REPORT 2017 / 78
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 38. Share-based payments (continued)
Performance rights (continued)
TSR Rights
TSR rights will be assessed against the relative performance over the relevant performance period of a list of companies
included in the ASX300 Accumulation Index. The relative TSR performance targets and corresponding percentages of the
maximum number of TSR Rights that would vest are as follows:
» Below the 50th percentile: 0%
» At the 50th percentile: 25%
» Better than the 50th percentile but below the 75th percentile: Pro-rata straight-line between 25% and 100%
» Equal to or above the 75th percentile: 100%
For the FY15 award, the performance has exceeded the 75th percentile and the rights will be issued in full.
EPS Rights
The absolute EPS performance target (being the compound annual EPS growth over the relevant performance period, adjusted
to take into account one-off items, if necessary) and corresponding percentages of the maximum number of EPS Rights that
would vest are as follows:
» Compound EPS growth of less than 7% per annum: 0%
» Compound EPS growth of 7% per annum : 20%
» Compound EPS growth of more than 7% per annum but less than 15% per annum: Pro-rata straight line between 20% and
100%
» Compound EPS growth equal to or above 15% per annum : 100%
Minimum EPS Target
FY15 Award (Nov 2014)
EPS in the financial year ending 30 June 2017 of 17.3 cents,
being the forecast pro forma EPS of IPH for the financial year
ending 30 June 2015 with a compound annual growth rate of 7%
applied to it for the following 2 financial years.
FY16 Award (Sept/Dec 15)
Compound annual growth
rate (CAGR) of 7%
EPS Target
EPS in the financial year ending 30 June 2017 of 20.0 cents,
being the forecast pro forma EPS of IPH for the financial year
ending 30 June 2015 with a compound annual growth rate of
15% applied to it for the following 2 financial years.
Compound annual growth
rate (CAGR) of 15%
For the FY15 award, the performance has exceeded the EPS Target and the rights will be issued in full.
79 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 38. Share-based payments (continued)
The performance rights are subject to a vesting period from grant date and are detailed below:
Grant Date
Vesting
Date
Exercise
price
Balance at
the start
of year
Granted
Exercised
TSR - 19 Nov 141
9 Sept 2017
EPS - 19 Nov 141
9 Sept 2017
TSR - 16 Sept 15
8 Sept 2018
EPS - 16 Sept 15
8 Sept 2018
TSR - 2 Dec 15
8 Sept 2018
EPS - 2 Dec 15
8 Sept 2018
Total Performance Rights
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
118,449
118,449
133,047
133,047
3,528
3,528
510,048
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. These awards have achieved the maximum performance hurdles and will vest 100% for both TSR and EPS at the vesting date
Expired/
forfeited/
other
Balance at
the end of
the year
(7,560)
(7,560)
(7,406)
(7,406)
-
-
110,889
110,889
125,641
125,641
3,528
3,528
(29,932)
480,116
IPH Limited Employee Incentive Plan
A new incentive plan, the IPH Limited Employee Incentive Plan (the “Incentive Plan”), was approved at the AGM on 16
November 2016. This plan replaces the existing Long Term Incentive Plan and Retention Rights Plan. Each performance right
issued under the Incentive Plan converts into one ordinary share of IPH Limited on exercise. No amounts are paid or payable
by the recipient of the performance right, and the performance rights carry neither rights to dividends nor voting rights. The
performance rights are treated as in substance options and accounted for as share-based payments.
The conditions attached to rights issued under the Incentive Plan can be in the form of a retention requirement, TSR, EPS or
other Key Performance Indicator (KPI) metric for the Group, business unit and individual.
TSR and EPS target and measurement criteria remain the same as per the EPS and TSR Rights under the previous plan.
Performance Rights issued under the new Incentive Plan during the financial year were:
Grant Date
Final vesting
date
Exercise
price
Balance at
the start
of year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Retention - 23 May 17
23 May 20191,2
Retention - 24 May 17
1 Jan 20201
Retention - 24 May 17
1 May 20201
Retention - 7 June 17
1 June 20201
TSR - 23 May 17
EPS - 23 May 17
EPS - 24 May 17
1 Sept 2019
1 Sept 2019
1 Sept 2020
KPI - 26 June 17
31 Aug 2017
Total Performance Rights
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-
-
-
-
-
-
-
-
-
5,963
20,000
21,142
21,368
2,235
2,235
7,166
179,743
259,852
(1,193)
-
-
-
-
-
-
-
(1,193)
-
-
-
-
-
-
-
-
-
4,770
20,000
21,142
21,368
2,235
2,235
7,166
179,743
258,659
1. Annual vesting at the following rates: 20% first vesting date, 30% second and 50% final vesting date
2. Share price at date of exercise of the first tranche was $4.75
Fair value of retention and performance rights granted
The weighted average share price during the financial year was $5.25 (2016: $7.18).
The weighted average remaining contractual life of rights outstanding at the end of the financial year was 0.9 years (2016: 2.1
years)
IPH LIMITED ANNUAL REPORT 2017 / 80
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 38. Share-based payments (continued)
Valuation model inputs used to determine the fair value of rights at the grant date, are as follows:
Vesting
Date
Share price at
grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest rate
Fair value at
grant date
Grant Date
Performance rights
TSR - 19 Nov 14
EPS - 19 Nov 14
TSR - 17 Sept 15
EPS - 17 Sept 15
TSR - 2 Dec 15
EPS - 2 Dec 15
Retention rights
19 Nov 2014
19 Nov 2014
19 Nov 2014
17 Sept 2015
17 Sept 2015
17 Sept 2015
19 Sept 20161
9 Sept 2017
9 Sept 2017
8 Sept 2018
8 Sept 2018
8 Sept 2018
8 Sept 2018
19 Nov 2015
19 Nov 2016
19 Nov 2017
1 July 2016
1 July 2017
1 July 2018
30 June 2019
1. Expected volatility and risk free rate not included in this valuation
IPH Limited Employee Incentive Plan
Retention - 23 May 171,2
23 May 2019
Retention - 24 May 171,2
Retention - 24 May 171,2
Retention - 7 June 171,2
TSR - 23 May 17
EPS - 23 May 17
EPS - 24 May 17
KPI - 26 June 17
1 Jan 2020
1 May 2020
1 June 2020
1 Sept 2019
1 Sept 2019
1 Sept 2020
31 Aug 2017
$2.10
$2.10
$6.12
$6.12
$8.20
$8.20
$2.10
$2.10
$2.10
$6.12
$6.12
$6.12
$5.80
$4.81
$4.86
$4.86
$4.76
$4.81
$4.81
$4.86
$4.83
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
6.40%
6.40%
3.50%
3.50%
3.50%
3.50%
6.40%
6.40%
6.40%
3.50%
3.50%
3.50%
4.00%
5.40%
5.40%
5.40%
5.40%
5.40%
5.40%
5.40%
5.40%
2.56%
2.56%
2.00%
2.00%
2.00%
2.00%
2.44%
2.49%
2.58%
1.96%
1.93%
1.99%
1.58%
1.63%
1.66%
1.65%
1.65%
1.65%
1.77%
1.57%
$1.04
$1.75
$4.45
$5.51
$6.66
$7.40
$1.97
$1.84
$1.73
$5.95
$5.75
$5.55
$5.17
$4.49
$4.39
$4.31
$4.31
$1.21
$4.25
$4.07
$4.78
1. Annual vesting at the following rates: 20% first vesting date, 30% second and 50% final vesting date
2. Risk free interest rate and fair value at grant date are at the weighted average of the rights issued
The weighted fair value of the rights granted during the year is $4.80 (2016: $5.39)
Amounts recognised in the Financial Statements
During the financial year ended 30 June 2017, an expense of $1,325,000 was recognised in the Statement of Profit or Loss in
relation to equity settled share based payment awards. (June 2016: $845,000)
81 / IPH LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017
Note 39. Deed of cross guarantee
The members of the Group party to the deed of cross guarantee are detailed in note 34. The Consolidated statement of profit
or loss and other comprehensive income and Consolidated statement of financial position of the entities party to the deed of
cross guarantee are:
30 June 2017
30 June 2016
Revenue
Other income
Expenses
Employee benefits expense
Depreciation and amortisation expense
Rental expenses
Business acquisition costs
Agent fee expenses
Insurance expenses
Travel expenses
Printing & stationery expenses
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit for the year is attributable to:
Owners of IPH Limited
Profit after income tax expense for the year
Total comprehensive income for the year is attributable to:
Owners of IPH Limited
Profit after income tax expense for the year
$’000
116,204
24,637
(33,592)
(8,515)
(3,388)
(1,583)
(35,064)
(513)
(986)
(237)
(7,674)
(1,224)
48,065
(9,985)
38,080
-
38,080
38,080
38,080
38,080
38,080
$’000
95,364
29,325
(28,812)
(6,569)
(3,607)
(2,430)
(26,651)
(353)
(1,043)
(436)
(6,405)
(1,525)
46,858
(8,352)
38,506
-
38,506
38,506
38,506
38,506
38,506
IPH LIMITED ANNUAL REPORT 2017 / 82
NOTES TO THE FINANCIAL STATEMENTS / continued 30TH JUNE 2017NOTES TO THE FINANCIAL STATEMENTS / continued30TH JUNE 2017 NOTES TO THE FINANCIAL STATEMENTS / continued
30TH JUNE 2017
Note 39. Deed of cross guarantee (continued)
30 June 2017
30 June 2016
$’000
$’000
14,008
22,861
2,785
39,654
2,693
186,566
48,064
4,581
241,904
281,558
7,611
2,788
6,070
1,370
868
18,707
-
1,605
17,463
19,068
37,775
51,372
22,145
2,455
75,972
2,677
147,502
48,275
2,992
201,446
277,418
5,945
1,794
5,292
28,904
1,195
43,130
-
1,768
13,301
15,069
58,199
243,783
219,219
233,582
2,669
7,532
243,783
218,582
(10,164)
10,801
219,219
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Investments in subsidiaries
Deferred tax
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax
Provisions
Other liabilities
Deferred revenue
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
83 / IPH LIMITED ANNUAL REPORT 2017
DIRECTORS’ DECLARATION
In the Directors’ opinion:
» the attached financial statements and notes comply with the Corporations Act 2001, the 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 note 2 to the financial statements;
» the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2017 and
of its performance for the financial year ended on that date; and
» there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
At the date of this declaration, the company is within the class of companies affected by ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785. The nature of the deed of cross guarantee is such that each company which is party to the
deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee.
In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which the ASIC
Corporations Instrument applies, as detailed in note 39 to the financial statements, will as a group, be able to meet any
obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee.
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
David Griffith
Managing Director
17 August 2017
Sydney
IPH LIMITED ANNUAL REPORT 2017 / 84
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IPH LIMITED
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to the Members of
IPH Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of IPH Limited (the “Company”) and its subsidiaries (the “Group”)
which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory information, and
the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial
performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. 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 auditor independence requirements
of 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 (the Code) that are relevant to our
audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
to the directors of the Company, would be in the same terms if given to the directors as at the time of this
auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
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 for 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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
85 / IPH LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IPH LIMITED
Key Audit Matter
Accounting for Acquisitions
As disclosed in Note 33 ‘Business
Combinations’, the Group made a significant
acquisition during the financial year.
Accounting for the transaction is a complex
and judgemental exercise, requiring
management to determine:
o
o
the fair value of the total purchase
consideration including any deferred
amounts; and
the identifiable intangible assets such as
customer contracts and relationships, to
be recognised separately from goodwill.
As a result the assessment of the accounting
for the acquisitions was a key audit matter.
How the scope of our audit responded to the Key
Audit Matter
Our procedures performed in conjunction with our
valuation specialists, included, amongst others:
o Understanding the process that management and the
directors were following to account for the
acquisition.
o Obtaining a detailed understanding of the terms and
conditions of the purchase contract to enable us to
critically assess management’s accounting treatment
including the determination of the nature and the
amount of deferred consideration.
o Evaluating the competence, capability and objectivity
of management’s external expert and performing a
detailed review of their report to understand the
scope of their engagement and any limitations in the
report. In addition we held discussions with them.
o
o
Evaluating the methodology used by management to
ascertain the fair value of the purchase consideration
at acquisition date.
Evaluating the appropriateness of the values
attributed to the acquired intangible assets assumed
as part of each business acquisition:
Assessing the identification and valuation of
customer relationships and the appropriateness
of the amortisation rate;
Performing procedures over the intangible asset
valuations, specifically:
analysing cash flow assumptions including
revenue growth rates, gross margin,
contributory asset charges,
assessing the discount rate used; and
challenging the reasonableness of the
valuation outputs.
We also evaluated the adequacy of the Group’s disclosures in
note 33.
IPH LIMITED ANNUAL REPORT 2017 / 86
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IPH LIMITED
Key Audit Matter
How the scope of our audit responded to the Key
Audit Matter
Recoverability of Goodwill and Intangible
Assets
As disclosed in Note 3 ‘Critical accounting
judgements, estimates and assumptions’ and
Note 14 ‘Intangible Assets’, the Group had
goodwill and intangible assets of $212,926,000
as at 30 June 2017.
The determination of the recoverable amount
of the goodwill and intangible assets is
complex and requires management to exercise
significant judgement in particular in
determining the key assumptions used in cash
flow projections, such as:
long term growth rates
discount rates; and
budgeted EBITDA, specifically growth
rates.
We have identified two cash generating units
(CGUs) being Pizzeys Patent & Trade Mark
Attorneys Pty Limited and Practice Insight Pty
Limited where recoverability of the CGU was a
key audit matter.
Our procedures performed in conjunction with our
corporate finance specialists included, amongst others:
Obtaining an understanding of the key
controls associated managements’ recoverable
amount assessment.
Assessing the appropriateness of management’s
impairment model.
Agreeing the inputs used in the model to board
approved forecasts.
Assessing the historical accuracy of
management’s forecasting by comparing actual
results to budgeted results for preceding years.
Challenging the key assumptions and estimates
used by management in their models, including
performing an independent calculation of the
discount rates used, analysis of the growth rates
used in years 2 to 5 including reference to
industry data and the long term growth rates into
perpetuity.
Challenging and evaluating the appropriateness
of management’s sensitivity analysis and
challenging the key inputs, specifically in relation
to changes of growth rates and discount rates
applied.
Given the start-up nature of Practice Insight,
discussing the operational strategies with
management to obtain further understanding as
to the basis of the assumptions used in forecasts
for Practice Insights.
Evaluating the adequacy of the Group’s disclosures in
note 3.
Other Information
The directors are responsible for the other information. The other information comprises the Directors’
Report, which we obtained prior to the date of this auditor’s report, and also includes the following
information which will be included in the annual report (but does not include the financial report and our
auditor’s report thereon): the Chairman’s Letter, Chief Executive Officer’s Report, Board of Directors, and
Shareholders Information, which is expected to be made available to us after that date.
Our opinion on the financial report does not cover the other information and we do not and will not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, 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. If,
based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
87 / IPH LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IPH LIMITED
When we read the Chairman’s Letter, Chief Executive Officer’s Report, Board of Directors, Corporate
Governance Report, and Shareholders Information, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and use our professional judgement to
determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial report
that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations,
or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and 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 this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
IPH LIMITED ANNUAL REPORT 2017 / 88
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IPH LIMITED
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group’s audit. We remain solely responsible for
our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 24 to 30 of the Directors’ Report for the year
ended 30 June 2017.
In our opinion, the Remuneration Report of IPH Limited for the year ended 30 June 2017, complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
DELOITTE TOUCHE TOHMATSU
Tara Hill
Partner
Chartered Accountants
Sydney, 17 August 2017
89 / IPH LIMITED ANNUAL REPORT 2017
The shareholder information set out below was applicable as at 31 August 2017.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Unmarketable Parcels
Equity security holders
SHAREHOLDERS
INFORMATION
Securities
133,804,905
22,631,011
14,856,072
18,018,531
2,435,526
191,746,045
-
%
69.78
11.80
7.75
9.40
1.27
100.00
0.00
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Rank
Name
31 Aug 2017
%IC
39,016,763
20.35
11,371,356
9,817,360
9,140,861
4,067,175
3,987,654
3,976,562
3,200,404
2,462,963
2,358,024
2,253,086
2,113,166
1,937,249
1,641,976
5.93
5.12
4.77
2.12
2.08
2.07
1.67
1.28
1.23
1.18
1.10
1.01
0.86
0.82
0.79
0.74
0.73
0.71
0.69
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
UBS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
TALABAH PTY LIMITED
WOMBEE PTY LTD
BNP PARIBAS NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
SETDOR PTY LIMITED
NABIDE PTY LIMITED
KORTRUS PTY LIMITED
AFTRUS PTY LIMITED
SHANTAY PTY LIMITED
CURNTRUS PTY LIMITED
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
1,564,589
BERGTRUS PTY LIMITED
ASSONET PTY LIMITED
CIP INVESTMENTS PTY LTD
ROSSARD PTY LIMITED
O’BRIENTRUS PTY LIMITED
1,514,708
1,414,814
1,407,407
1,361,004
1,314,814
The above table includes shareholders that may hold shares for the benefit of third parties.
105,921,935
55.24
IPH LIMITED ANNUAL REPORT 2017 / 90
SHAREHOLDERS
INFORMATION
Geography distribution
AUSTRALIA
BAHRAIN
CHINA
CYPRUS
HONG KONG
INDONESIA
IRELAND
KUWAIT
MALAYSIA
NEW ZEALAND
PAPUA NEW GUINEA
SINGAPORE
SOUTH AFRICA
SWITZERLAND
THAILAND
UNITED ARAB EMIRATES
UNITED KINGDOM
UNITED STATES
VANUATU
Ordinary Shares
Number of
shares
189,465,218
Number of
holder
13,949
760
23,483
3,100
754,823
2,231
900
460
4,050
274,305
2,380
1,110,130
16,193
575
2,000
513
69,883
9,147
5,894
1
3
1
7
2
1
1
3
122
1
19
2
1
1
1
10
6
2
191,746,045
14,133
Unquoted equity securities
Performance Rights over ordinary shares granted under
the Long Term Incentive Plan
Retention Rights granted under the Long Term Incentive Plan
747,922
271,413
35
21
Number on Issue
Number of holders
Substantial holders
The names of substantial shareholders of the Company’s ordinary shares as at 31 August 2017 (holding no less than 5%) who
have notified the Company in accordance with section 671B of the Corporations Act 2001 are:
Holder
Perpetual Limited and its related bodies corporate
IPH Limited and its related bodies corporate
Number of securities
24,989,192
11,751,549
91 / IPH LIMITED ANNUAL REPORT 2017
SHAREHOLDERS
INFORMATION
Voting rights
The voting rights attached to ordinary shares are set out below:
Ordinary shares
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.
There are no other classes of equity securities.
Restricted securities
There are no restricted securities.
Securities Subject to Voluntary Escrow
Class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Expiry Date
Number of Shares
30/9/2017
2/11/2017
30/6/2018
31/8/2018
31/10/2018
6,776,263
537,180
2,042,905
1,619,860
737,261
Annual General Meeting (AGM)
The 2017 annual general meeting (AGM) of IPH Limited will be held on Monday 20 November at 10:30am at the offices of EY,
200 George Street, Sydney NSW 2000.
IPH Limited is listed on the ASX and its ordinary shares are quoted under the ASX code ‘IPH’.
Annual Report
Amendments to the Corporations Act 2001 have changed the obligations of companies regarding the provision of annual
reports to shareholders. The default option for receiving annual reports has changed from a printed copy to an electronic copy
via IPH’s website at www.iphltd.com.au.
Online voting
Shareholders can lodge voting instructions electronically either as a direct vote or by appointing a proxy for the 2016 AGM
at www.iphltd.com.au. The information required to log on and use online voting is shown on the voting form distributed to
shareholders with the Notice of Annual General meeting.
IPH LIMITED ANNUAL REPORT 2017 / 92
SHAREHOLDERS
INFORMATION
Voting Rights
At a general meeting, a shareholder present in person or by proxy, attorney or representative has one vote on a show of hands
and on a poll has one vote for each fully paid share held.
Voting at any meeting of shareholder is by a show of hands unless a poll is demanded in the manner described in the
Company’s Constitution. If there are two or more joint holders of a share and more than one of them is present at a general
meeting, in person or by proxy, attorney or representative, and tenders a vote in respect of the share, the Company will count
only the vote cast by, or on behalf of, the shareholder by the joint holder whose name appears first in the Company’s register
of shareholder.
The quorum required for a meeting of members is two shareholders. If the votes are equal on a proposed resolution, the matter
is decided in the negative.
Shareholder questions
Shareholders can submit a written question to the Company or the Company’s auditor in regard to the AGM or any of
the proposed resolutions to be considered at the AGM, using the form supplied with the Notice of AGM distributed to
shareholders.
Information about IPH
Information about IPH Limited including company announcements, presentations and reports can be accessed at www.iphltd.
com.au
93 / IPH LIMITED ANNUAL REPORT 2017
IPH LIMITED ANNUAL REPORT 2017 / 94