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www.iphltd.com.au
YEAR ENDED
30TH JUNE
IPH Limited | ABN 49 169 015 838
Contents
02
The IPH
Group
04
12
FY19 Year
In Review
Corporate
Directory
14
41
Directors’
Report
Financial
Statements
102
Independent
Auditor’s
Report
107
Shareholder
Information
www.iphltd.com.au
AJ Park
Glasshouse Advisory
Griffith Hack
Shelston IP
Spruson & Ferguson
Pizzeys
Practice Insight
Watermark
8IP Jurisdictions
27Offices2
1000+
Employees3
The IPH Group1
1.
The expanded IPH group following the acquisition of Xenith IP on 15 August 2019
2. Refers to number of primary offices of IPH group businesses in the Asia-Pacific region
3. Approximate employee numbers as at 15 August 2019
2
www.iphltd.com.au The IPH Story
About our business
IPH is the leading intellectual property (IP) professional
services group in the Asia-Pacific region. As the first
IP services group to list on the Australian Securities
Exchange (ASX) in 2014, IPH has always been focused on
growth and evolution, to enable broader access to high
quality and trusted IP professional services across the
Asia-Pacific region.
Our vision is to be the leading IP services group in
secondary IP markets and adjacent areas of IP.
The IPH group businesses work with a broad range of
clients, including some of the world’s leading companies,
multinationals, universities, public sector research
organisations, foreign associates and other corporate and
individual clients.
Our group businesses comprise leading IP firms which
provide services for the protection, commercialisation,
enforcement and management of all forms of intellectual
property including patents, trade marks and designs. We
also operate in adjacent areas which support our
IP businesses.
Our growth story
Since 2014, IPH has completed eight acquisitions in Australia,
New Zealand and Asia and we’ve made excellent progress
towards our vision, more than doubling the group’s footprint
in Asia-Pacific. As a publicly listed IP services group, we
access the capital needed to invest in our group businesses
and ensure they have the capabilities, resources and systems
to deliver the highest quality services to their clients, provide
expanded career opportunities for their people, and continue
to evolve to meet the needs of clients in a rapidly changing IP
services market.
In the 2019 financial year, we continued to realise our
vision in numerous ways. We successfully merged Fisher
Adams Kelly Callinans (FAKC) and Cullens Patent and
Trade Mark Attorneys (Cullens) IP service businesses into
our biggest IP services business, Spruson & Ferguson in
July 2018. We also continued the integration of leading
New Zealand IP firm AJ Park into the IPH group following
its acquisition in October 2017. In the 2019 financial year,
IPH commenced the process to acquire Xenith IP Group
by way of a Scheme of Arrangement.
At the time of writing, we have successfully completed
the acquisition of Xenith IP Group – our largest acquisition
to date – and its subsidiary businesses of Glasshouse
Advisory, Griffith Hack, Shelston IP and Watermark joined
the IPH group on 15 August 2019. We now offer eight high
quality brands, also including AJ Park, Spruson & Ferguson,
Pizzeys and Practice Insight, to the market with 27 offices
across eight jurisdictions in the Asia-Pacific region.
Our growth over the past five years has been beneficial for
our people too. The IPH group, and its group businesses,
now employ more than 1000 employees. As our business
has grown and evolved we have been able to provide
more opportunities for our people. For example, since
listing on the ASX in 2014, we’ve made more than 35
promotions to Principal.
Our success is firmly underpinned by our core values of
excellence in service delivery to our clients, innovation in
value creation, integrity in business practices, efficiency
and effectiveness in operations and empowerment and
engagement of our people.
The following timeline shows the continued evolution of
our business.
Five years of growth and expansion at IPH
IPH lists
on the
ASX with
Spruson
&
Ferguson
as the
founding
business
IPH
acquires
IP data
analysis &
software
applications
businesses
Practice
Insight and
WiseTime
IPH acquires
Australian
IP firm
Fisher
Adams
Kelly
IPH
acquires
Australian
IP firm
Pizzeys
IPH firm
Fisher
Adams Kelly
acquires the
business of
Australian
IP firm
Callinans
Opening of
Spruson &
Ferguson
Indonesia
Opening of
Spruson &
Ferguson
Thailand
IPH
acquires
Australian
IP firm
Cullens
IPH
acquires
Ella Cheong
Hong Kong
and Beijing
Opening of
Spruson &
Ferguson
Melbourne
IPH
acquires
AJ Park
in New
Zealand
IPH
acquires
Xenith
IP Group
Limited
Merger
of Fisher
Adams
Kelly
Callinans
and Cullens
with
Spruson &
Ferguson
4
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A
3
2019 Annual Report
FY19 Year
in Review
4 www.iphltd.com.au
4
Directors’ Reportwww.iphltd.com.au Chairman’s Letter
Dear Shareholder,
Sustainability
In 2019 we saw the continued evolution of the IPH
group, in what was a successful and significant financial
year for our business.
The group delivered continued double-digit revenue and
earnings growth in our Asian operations and improved
margins in our Australian and New Zealand businesses.
As a result, Statutory Net Profit After Tax (NPAT) increased
by 31 per cent to $53.1 million, equating to an increase in
diluted earnings per share of 29 per cent to 26.7 cents.
It also demonstrated our ability to leverage our extensive
network across Asia, implement our strategy to integrate
domestic acquisitions and further strengthen our
Australian and New Zealand operations.
The Directors declared a final dividend of 13 cents per
share, 60 per cent franked, bringing the full year dividend
to 25 cents per share, up 11 per cent on the prior year.
Successful acquisition of Xenith IP Group
A key achievement for the year was the successful
agreement to acquire Xenith IP Group, which was
implemented on 15 August 2019.
The acquisition reinforces IPH’s leadership position in the
Australian and New Zealand markets and provides an
exceptional opportunity to harness our network across the
Asia-Pacific region.
This acquisition was the largest transaction in IPH’s history
since listing and marks a major milestone in the continued
implementation of our vision to be the leading IP group in
secondary IP markets and adjacent areas of IP.
We have a strong track record of successfully integrating
acquisitions to create value for our shareholders while
delivering benefits for our clients and our people. We now
look forward to creating further value and benefits for all
stakeholders with the addition into the IPH group of Xenith
and its leading businesses.
Board appointment
In April 2019 the Board was pleased to announce the
appointment of Jingmin Qian as a Non-executive Director.
Jingmin brings a broad range of industry experience to
IPH, including strategy, mergers and acquisitions, capital
planning and Asian expansion, gained in senior roles
with L.E.K. Consulting, Boral Limited, Leighton Holdings
and her advisory practice. Jingmin’s wide-ranging skills
and experience across several industries are a valuable
addition to the Board of IPH.
IPH is committed to sustainable practices throughout our
business. We recognise that a sustainable business is one
that provides a safe, rewarding and diverse environment for
our people, while operating in an environmentally and socially
responsible manner. This year, IPH is preparing a stand-
alone sustainability report to provide shareholders and other
stakeholders with further information on our approach to
sustainability. This report will be available on the IPH website
prior to our 2019 Annual General Meeting.
Fifth anniversary of the IPH group
In November 2014 IPH became the first IP services group to
list on the Australian Securities Exchange and in 2019 we will
mark the fifth anniversary of IPH Limited.
The change to our corporate structure and subsequent
ASX-listing has been fundamental in enabling the group to
access capital to harness opportunities for further growth
and development through both investment in our existing
businesses and through acquisitions.
These investments over the past five years have been
critical to our expansion and our ability to deliver enhanced
value for shareholders, and have enabled us to create a
strong platform for future growth.
Our model also ensures our group businesses have the
capability, resources and systems to deliver services of
the highest quality to clients and create opportunities for
development and career progression for our people.
We can be proud of our achievements over the past five
years and look forward to the path ahead for our business.
Conclusion
I would like to acknowledge IPH’s Managing Director and CEO,
Dr Andrew Blattman, his leadership team, and all our people
across the IPH group for their hard work in FY19, and their
continued efforts in providing outstanding service to their clients.
I would also like to extend a warm welcome to all Xenith
employees who are now part of IPH. The combination
of our two groups creates compelling opportunities and
we now look forward to drawing on the strengths of each
business for the benefit of all our stakeholders.
Finally, on behalf of the Board of Directors, I would like to thank
our shareholders for your ongoing support of IPH Limited.
Richard Grellman, AM
Chairman
5
2019 Annual Report Operational Highlights1
Strategic priorities for FY19
Results in FY19
Leverage existing network
to grow our Asian business
Double-digit organic growth
for the third consecutive
half fuelled by take up of
Asian offering
Continue to evaluate
acquisition and expansion
opportunities
Successfully achieved
largest ever acquisition –
Xenith IP Group
Margin expansion through
AJ Park and merger of FAKC
and Cullens into Spruson &
Ferguson
Practice Insight refocused
post sale of IP products
Focus on attract, motivate
and retain key talent
Outperformance by AJ Park
enhances group EBITDA
margin and synergies
realised through Spruson &
Ferguson merger
Sale of Filing Analytics,
Citation Eagle and DMS
products – now fully focused
on WiseTime
Successful delivery of IPH
incentive plan into AJ Park
and the expanded Spruson &
Ferguson
Leverage market leading
position in Australia /
New Zealand
Increased referrals into
IPH Asia network in FY19
1
2
3
4
5
6
1. IPH Limited 2019 Full Year Results Investor Presentation, 20 August 2019.
6 www.iphltd.com.au
www.iphltd.com.au Financial Highlights
Revenue 1
A$259.5m
Operating Cashflow
A$61.6m
259.5
226
186
157.5
107.8
)
m
$
(
300
250
200
150
100
50
0
)
m
$
(
70
60
50
40
30
20
10
0
61.6
49.9
46.5
42.1
31.5
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
EBITDA 2
A$85.9m
Earnings Per Share 3
26.7c
85.9
68.7
70.1
59.5
)
m
$
(
90
80
70
60
50
40
30
20
10
0
38.5
)
s
t
n
e
c
(
30
25
20
15
10
5
0
26.7
19.5
21.7
22.3
20.8
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
NPAT
A$53.1m
53.1
38.8
42.9
40.7
30.6
)
m
$
(
55
50
40
30
20
10
0
Full Year Dividend
25c
13.5
)
e
r
a
h
s
r
e
p
s
t
n
e
c
(
25
20
15
10
5
0
21
22
22.5
25
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
1. FY15 and FY16 revenue has been restated to include recognition of filing fee revenue per change in the FY17 accounting policy.
2. Earnings before interest, tax, depreciation and amortisation.
3. Diluted earnings per share.
7
2019 Annual Report
CEO’s Report
The 2019 financial year was one of great achievement on
many fronts for the IPH group.
We delivered strong financial results with double-digit
growth in Asia and improved margins in our Australian and
New Zealand businesses assisting in delivering a 31 per
cent increase in Statutory Net Profit After Tax for FY19.
We further developed our business, with the successful
acquisition of Xenith IP Group, the continued integration of
AJ Park into the group, and implementation of the merger
of the IPH businesses of Fisher Adams Kelly Callinans
(FAKC) and Cullens into Spruson & Ferguson.
Our focus on attracting, motivating and retaining our
people continued with the delivery of the IPH incentive
plan to AJ Park and the expanded Spruson & Ferguson
business, and continued development and promotion of
our people across the group.
Financial results
In the 2019 financial year we achieved double-digit growth in
all of our financial metrics against the prior year and delivered
underlying EBITDA of $89.7 million – up 21 per cent.
The main contributors to these results were four months
of acquisitive growth from the AJ Park business; foreign
currency rate changes; and organic growth from our
existing businesses, particularly in Asia.
In FY19, our Asia business has continued to outperform
following the second half of the 2018 financial year due,
in part, to follow-on activities arising from the filings in that
period, and also in the last quarter of the 2019 financial year,
where the business benefited from a significant client filing
across several jurisdictions. An increase in filings in countries
requiring translations has also made a positive contribution.
Our underlying result also includes the interim dividend
from Xenith IP of $576,000 received in March 2019.
IPH continued to deliver growth in earnings and revenue
on a ‘like-for-like’ basis which adjusts for the impact of
acquisitions and foreign exchange movements. Like-for-like
revenue increased by 2 per cent to $231.4 million and like-
for-like EBITDA increased by 9 per cent to $80.4 million.
Like-for-like revenue from our Asian business increased by 13
per cent with like-for-like EBITDA increasing by 16 per cent.
While Australia and New Zealand revenue was slightly
behind the prior period, EBITDA growth was still achieved
due to savings derived from the merger of FAKC and
Cullens with Spruson & Ferguson, as well as margin
improvement in AJ Park.
8
Market conditions
In FY19 IPH maintained leading market share positions in
Australia, New Zealand and Singapore.
In Australia, the overall patent market grew by 0.8 per
cent in FY19. IPH group’s filings (including AJ Park since
November 2017) declined by 3.5 per cent for the year. The
reduction in filings reflects IPH’s client mix and filing activity
and IPH maintained its number one position with IPH
combined group market share (excluding Xenith) of 22.1
per cent in Australia at 30 June 2019.
In Singapore, IPH group patent filings for the calendar year
to 30 June 2019 were in line with the market growth of 4.7
per cent and the IPH group continues to hold the number
one patent market share of 24.0 per cent for the calendar
year to 30 June 2019.
IPH group filing activity also increased across most Asian
jurisdictions, particularly in Thailand, Indonesia, Malaysia,
The Philippines and Vietnam. Total patent filing growth
across key Asian jurisdictions, excluding Singapore, was
22.7 per cent for the year.
The overall trade mark market in Australia decreased by
8.2 per cent for the year and IPH trade mark filings were
down, consistent with the overall market. However, the
IPH group continues to hold the number one trade mark
market position in Australia with 14.2 per cent share of
filings from the top 50 agents.
Delivering on our strategy
During FY19 the group made significant progress in
implementing a number of strategic initiatives.
Growth through acquisition
We commenced the process of acquiring the Xenith
IP Group during the 2019 financial year – representing
the largest acquisition in IPH’s history. Following the
successful Scheme implementation on 15 August 2019,
the combined group now has a broadened Australian
business and can leverage IPH’s significant experience
and geographic reach in the Asia region with the
combined business operating eight leading IP services
firms and IP adjacent businesses, with more than 1000
staff across 27 offices in eight jurisdictions in Asia-Pacific.
One of the key opportunities from this transaction is the
ability to offer clients from the businesses of Griffith Hack,
Shelston IP and Watermark the expertise and reach of the
IPH Asian offering. This is consistent with our successful
approach with Spruson & Ferguson and AJ Park; and for
Pizzeys through its own associated Singapore practice.
Our strengthened Asia-Pacific business provides clients with
a comprehensive IP service offering across the region and
strong career development opportunities for our people.
www.iphltd.com.au CEO’s Report
The acquisition of Xenith is consistent with IPH’s strong track
record in successfully integrating acquisitions to create value
for our clients, our people and our shareholders.
across IPH. Our corporate structure continues to provide
us the ability to further develop and invest in our people
which is a key part of our competitive advantage.
We were pleased to successfully implement the IPH
incentive plan for all eligible staff within AJ Park and across
the expanded Spruson & Ferguson business. We also
appointed eight new Principals across the group in FY19.
Priorities for the 2020 financial year
Our strategic priorities in 2020 include maintaining our leading
market positions in Australia, New Zealand and Singapore,
and seeking to expand in other higher growth jurisdictions.
Our immediate focus is to integrate Xenith successfully into
the IPH group and harness the collective experience and
expertise of member firms to provide our clients with an
even more comprehensive IP service offering.
We have commenced the Xenith integration process
and have also started work to identify and leverage cost
synergies and revenue opportunities arising from the
Xenith transaction to deliver further margin improvement
across the combined business. We expect to provide an
update on these activities at the Annual General Meeting.
We will continue to leverage our Asian network to expand
organic revenue opportunities and market share in high
growth markets across the region. In Australia and New
Zealand, our strategy also includes a continued focus
on expanding our service provision with existing foreign
associate firms, and attracting new corporate clients.
We will look to increase market share and sales in our
WiseTime product and further invest in our digital platform
development.
Finally, we continue to evaluate potential international
acquisition opportunities in core secondary IP markets.
In a very busy year, IPH made significant progress. I want to
acknowledge and thank all our people across the businesses
for their hard work in delivering a very strong financial
result and creating a platform for further growth, and our
shareholders for your continuing support of IPH.
Consolidating acquisitions
In 2017, IPH acquired New Zealand’s premier IP firm AJ Park,
the group’s first acquisition in the New Zealand market.
AJ Park continues to deliver value for the wider group. In
FY19, AJ Park delivered EBITDA of A$10.8 million. EBITDA
margin improved from 17 per cent to 22 per cent, while
referrals from AJ Park to other IPH group companies
continued to increase during the year.
Another important aspect of the acquisition is the
opportunities that can be created for AJ Park employees
by being part of the IPH group. In FY19 AJ Park
announced three Principal promotions and we were
pleased to successfully implement the IPH incentive plan
for eligible AJ Park employees.
Our largest IP business, Spruson & Ferguson, continued to
evolve its Australian operations in 2019. The merger of FAKC
and Cullens IP service businesses with Spruson & Ferguson
was successfully completed in July 2018 and the three firms
are now fully integrated and operating as Spruson & Ferguson.
Organic growth
We continue to generate organic growth by leveraging
our strong network across the region and have observed
increasing numbers of clients file with the group in multiple
jurisdictions. In FY19 we saw gains from this network
effect with double-digit revenue and earnings growth in
our Asia operations.
WiseTime
Our Practice Insight business is now completely focused
on its WiseTime product following the sale of its Filing
Analytics and Citation Eagle products to CPA Global in
August 2018 for $10 million; followed by the sale of its
DMS data management system product in May 2019
to German IP software provider PACE IP GmbH for
€900,000. Net profit on the sale from both transactions of
$2.9 million was excluded from underlying results.
WiseTime is a privacy-first, automated timekeeping tool
for legal professionals. Clients throughout Europe, USA,
Canada, The Republic of Korea and Asia-Pacific are using
WiseTime, and Practice Insight is continuing its focus on
product development and growth in sales.
Continued focus on our people
As a professional services business, our people are critical
to our success. In the 2019 financial year, we continued
our focus on attracting, motivating and retaining key talent
Dr. Andrew Blattman
CEO and Managing Director
9
2019 Annual Report Board of Directors
The Board of Directors bring
relevant experience and
skills to the governance of
IPH, including professional
services, financial
management, legal services
and corporate governance.
10
Richard Grellman, AM
Dr Andrew Blattman
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 Fastbrick Robotics Ltd
and SuperConcepts Pty Ltd (AMP).
Richard is a Director of Bisalloy Steel
Group Limited and the National
Health and Medical Research Council
Institute for Dementia Research,
and lead Independent Director of
Salvation Army Australia.
CEO and Managing Director
BScAgr (Hons 1), PhD, GraDipIP
Andrew was appointed as Managing
Director & Chief Executive Officer of
IPH in November 2017.
Andrew has more than 20 years’
experience in the intellectual
property profession. Previously he
was CEO of Spruson & Ferguson,
the largest entity in the IPH Group.
Andrew joined Spruson & Ferguson
in 1995 and in 1999 he was
appointed as a Principal of the firm.
In 2015 Andrew was appointed CEO
of Spruson & Ferguson. Under his
leadership Spruson & Ferguson
significantly expanded its footprint in
the Australian and Asian IP markets
– opening new offices in Melbourne,
Beijing, Hong Kong SAR, Jakarta
and Bangkok.
Since Spruson & Ferguson’s
incorporation and the listing of IPH
on the ASX in 2014, Andrew has
played a key role in the development
and growth of the IPH Group.
He has a deep knowledge and
understanding of the IPH business
and the environment in which the
company operates.
www.iphltd.com.au IPH Limited
John Atkin
Robin Low
Jingmin Qian
Independent Non-executive
Director
Independent Non-executive
Director
Independent Non-executive
Director
LLB (1st Class Hons), BA (Pure
Mathematics) (1st Class Hons),
FAICD
John was appointed as a Non-
executive Director in September 2014.
John is Chairman of the Australian
Institute of Company Directors,
Australian Outward Bound Foundation
and Qantas Superannuation Limited.
He is a Director of Integral Diagnostics
Limited, Commonwealth Bank
Officers Superannuation Corporation
Pty Limited, and Outward Bound
International Inc.
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).
BCom, FCA, GAICD
BEc, MBA, CFA, FAICD
Robin was appointed as a Non-
executive Director in September 2014.
Jingmin was appointed as a Non-
executive Director in April 2019.
Robin is a Director of AUB Group
Limited, CSG Limited, Appen Limited,
Primary Ethics, the Public Education
Foundation, Australian Reinsurance
Pool Corporation and Gordian Runoff
Limited/Enstar Australia Holdings Pty
Ltd (part of the NASDAQ listed Enstar
Group) and Guide Dogs NSW/ACT.
Robin is also Deputy Chairman of the
Auditing and Assurance Standards
Board.
Robin was with Pricewaterhouse
Coopers for 28 years and was
a partner from 1996 to 2013,
specialising in audit and risk.
Jingmin is a Director of Abacus
Property Group, Trustee of Club
Plus Super, a member of Macquarie
University Council and a Director of
the Australia China Business Council.
She is also a senior advisor to leading
global and Australian organisations
and Director of Jing Meridian
Advisory Pty Ltd.
Jingmin previously held senior
roles with L.E.K. Consulting, Boral
Limited and Leighton Holdings, and
brings a broad range of commercial
experience covering strategy,
mergers and acquisitions, capital
planning, investment review and
Asian expansion.
11
2019 Annual Report Corporate
Directory
12 www.iphltd.com.au
12
Heading Herewww.iphltd.com.au Corporate Directory
Directors
Mr Richard Grellman AM - Chairman
Dr Andrew Blattman
Mr John Atkin
Ms Robin Low
Ms Jingmin Qian
Company secretary
Mr Philip Heuzenroeder
Notice of annual general meeting
The details of the annual general meeting of IPH Limited are:
Thursday 21 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
Stock exchange listing
Level 24, Darling Park Tower 2
201 Sussex Street, Sydney NSW 2000
Tel: 02 9393 0301
Fax: 02 9261 5486
Level 24, Darling Park Tower 2
201 Sussex 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 23, 85 Castlereagh Street, Sydney NSW 2000
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 has been
approved by the Board of Directors and can be
found at www.iphltd.com.au
13
2019 Annual Report Directors’
Report
14 www.iphltd.com.au
14
www.iphltd.com.au 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 2019.
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.
Directors’ Report
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
Dr Andrew Blattman
CEO and Managing Director
Mr John Atkin
Non-executive Director
Ms Robin Low
Non-executive Director
Ms Jingmin Qian
Non-executive Director
(appointed 1st April 2019)
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: Richard Grellman, AM
Title:
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 Fastbrick Robotics Ltd and SuperConcepts Pty Ltd (AMP). Richard is
a Director of Bisalloy Steel Group Limited and the National Health and Medical Research Council
Institute for Dementia Research, and lead Independent Director of Salvation Army Australia.
Former directorships
(last 3 years)
Chairman of Genworth Mortgage Insurance Limited (2012-2016),
Chairman of the AMP Foundation (2012-2018)
Interests in shares:
71,449
Special responsibilities:
Chairman. Member – Nomination and Remuneration Committee
15
2019 Annual Report
Directors’ Report
Name: Dr. Andrew Blattman
Title:
CEO and Managing Director (appointed 20 November 2017)
Qualifications:
BScAgr (Hons 1), PhD, GraDipIP
Experience and
expertise:
Andrew has more than 20 years’ experience in the intellectual property profession. Previously
he was CEO of Spruson & Ferguson, the largest entity in the IPH Limited group. Andrew joined
Spruson & Ferguson in 1995 and in 1999 he was appointed as a Principal of the firm.
In 2015 Andrew was appointed CEO of Spruson & Ferguson. Under his leadership Spruson
& Ferguson significantly expanded its footprint in the Australian and Asian IP markets –
opening new offices in Melbourne, Beijing, Hong Kong SAR, Jakarta and Bangkok.
Since Spruson & Ferguson’s incorporation and the listing of IPH on the Australian Securities
Exchange in 2014, Andrew has played a key role in the development and growth of the
IPH group. He has a deep knowledge and understanding of the IPH business and the
environment in which the company operates.
Memberships of
Professional Associations:
FIPTA, APAA, AIPPI, FICPI and IPSANZ
Other current
directorships:
No other current directorships
Interests in shares:
2,506,166
Special responsibilities:
CEO
Name: John Atkin
Title:
Non-executive Director (appointed 23 September 2014)
Qualifications:
LLB (1st Class Hons), BA (Pure Mathematics) (1st Class Hons), FAICD
Experience and
expertise:
Other current
directorships:
John is a former Chief Executive Officer and 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). He also worked at Mallesons
Stephen Jaques as a Mergers & Acquisitions Partner for 15 years (1987-2002).
John is Chairman of the Australian Institute of Company Directors, Australian Outward
Bound Foundation and Qantas Superannuation Limited. He is a Director of Integral
Diagnostics Limited, Commonwealth Bank Officers Superannuation Corporation Pty
Limited, Outward Bound International Inc.
Former directorships
(last 3 years):
Non-executive director Aurizon Holdings Limited (2010-2016), Chairman GPT Metro Office
Fund (2014-2016).
Interests in shares:
115,829
Special responsibilities:
Chairman – Nomination and Remuneration Committee.
Member – Audit Committee, Risk Committee
16
www.iphltd.com.au Name: Robin Low
Title:
Non-executive Director (appointed 23 September 2014)
Qualifications:
BCom, FCA, GAICD
Experience and
expertise:
Robin was with PricewaterhouseCoopers for 28 years and was a Partner from 1996
to 2013, specialising in audit and risk.
Other current
directorships:
Robin is a Director of AUB Group Limited, CSG Limited, Appen Limited, Primary Ethics,
the Public Education Foundation, Australian Reinsurance Pool Corporation, Gordian
Runoff Limited/Enstar Australia Holdings Pty Ltd (part of the NASDAQ listed Enstar
Group) and Guide Dogs NSW/ACT. Robin is also Deputy Chairman of the Auditing and
Assurance Standards Board.
Interests in shares:
74,214
Special responsibilities:
Chairman – Audit Committee. Member – Nomination and Remuneration Committee,
Risk Committee
Name: Jingmin Qian
Title:
Non-executive Director (appointed 1 April 2019)
Qualifications:
BEc, MBA, CFA, FAICD
Experience and
expertise:
Other current
directorships:
Jingmin previously held senior roles with L.E.K. Consulting, Boral Limited and Leighton
Holdings, and brings a broad range of commercial experience covering strategy,
mergers and acquisitions, capital planning, investment review and Asian expansion.
Jingmin is a Director of Abacus Property Group, Trustee of Club Plus Super, a member
of Macquarie University Council and a Director of the Australia China Business Council.
She is also a senior advisor to leading global and Australian organisations and Director
of Jing Meridian Advisory Pty Ltd.
Interests in shares:
Nil
Special responsibilities:
Chairman – Risk Committee. Member – Audit Committee, Nomination and
Remuneration 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.
17
30th June 20192019 Annual Report 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 2019, 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
Andrew Blattman
John Atkin
Robin Low
Jingmin Qian
9
9
9
9
3
9
9
9
9
3
2
-
3
3
2
2
-
3
3
2
Held: represents the number of meetings held during the time the Director held office.
3
-
5
5
1
3
-
5
5
1
2
-
4
4
1
2
-
4
4
1
2. Company Secretary
4. Operational and financial review
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 25 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, New Zealand, Asia and
other countries; and
» the development and provision of IP data and analytics
and autonomous timekeeping 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.
4.1 Operations and financial performance
The summary financial analysis below shows the results
on a statutory and underlying basis.
The FY19 underlying earnings of the Group have been
determined by adjusting statutory earnings amounts to
eliminate the effect of business acquisition costs, new
business establishment costs, restructuring expenses,
non-cash share based payments expenses and the
disposal of Practice Insight businesses.
Revenue increased by 15% to $259.5m, driven by the
impact of organic growth, acquisitions, the sale of
Practice Insight businesses and also the impact of a
weaker Australian dollar compared to the prior year.
Statutory EBITDA increased by 23% to $85.9m, from
$70.1m in FY18. Underlying EBITDA, including an interim
dividend of $576k from the investment in Xenith IP
Group, increased by 21% to $89.7m from $74.0m for the
prior corresponding period.
The Group achieved a statutory net profit after tax of
$53.1m; an increase of 31% on the prior year’s result
of $40.7m. Underlying net profit after tax increased by
21% to $62.9m compared to the prior year.
18
Directors’ Reportwww.iphltd.com.au $’000
Revenue
FY19
Revenue
FY18
Australian & New Zealand IP
171,645
155,367
Asian IP
93,460
77,968
Chg%
10%
20%
EBITDA
FY19
EBITDA
FY18
61,818
54,147
38,617
31,146
265,105
233,335
14%
100,435
85,293
Data and Analytics Software
Corporate Office
477
(20)
1,212
(1,209)
(1,427)
(2,709)
(10,040)
(8,367)
Eliminations
(8,914)
(7,312)
724
(213)
Chg%
14%
24%
18%
Underlying Revenue / EBITDA
256,648
226,026
14%
89,692
74,004
21%
Business acquisition costs
Business combination adjustments
New business establishment costs
Restructuring expenses
Share based payments
Disposal of Practice Insight
businesses
2,857
(3,477)
-
(31)
(982)
642
(786)
(985)
(2,134)
(2,200)
(676)
2,857
-
Statutory Revenue / EBITDA
259,505
226,026
15%
85,857
70,068
23%
Interest Income
Interest Expense
Impairment
Depreciation and amortisation
Net Profit Before Tax
Tax
Net Profit After Tax
92
29
(2,661)
(1,537)
-
(2,148)
(12,654)
(13,092)
70,632
53,320
32%
(17,521)
(12,647)
53,111
40,673
31%
19
30th June 20192019 Annual Report 4.1 Operations and financial performance Continued >
Australian and New Zealand IP
Revenue in the ANZ IP segment increased by 10.4% to
$171.6m which includes $49.8m attributable to AJ Park.
Total Australian market patent filings increased by 0.8%
for the period. IPH Group’s filings (including AJ Park)
declined by 3.5%. The reduction in filings reflect IPH’s
client mix and filing activity.
The Group has maintained its number one patent
market share position (all patent applications filed in
Australia) for the year at 22.1%.
Underlying EBITDA increased by 14% to $61.8m
at a margin of 36.0% which includes the impact of
favourable foreign exchange movements. On a like for
like basis, Underlying EBITDA increased by 3% with an
increase in EBITDA margin from 34.5% to 36.4%. The
improvement relates to cost efficiencies as a result of
the merger of Fisher Adams Kelly Callinans (FAKC) and
Cullens into Spruson & Ferguson, and also from the
continued improved performance in AJ Park.
Asian IP
IPH Group patent filing activity increased across
most Asian jurisdictions, including Thailand, Vietnam,
Indonesia, Malaysia and the Philippines. Total patent filing
growth in these jurisdictions was 22.7% for the year.
On the latest available data the Group has maintained
its number one patent market share position in
Singapore (all patent applications filed in Singapore).
Data and analytics software
IPH’s wholly-owned subsidiary, Practice Insight Pty Limited,
sold two of its products, Filing Analytics and Citation Eagle,
to CPA Global for $10 million in August 2018. Net proceeds
from the sale were used to repay debt.
In May 2019, Practice Insight sold its DMS document
management system product suite to German IP
software provider PACE IP GmbH, a sister company of
Serviva GmbH.
Net profit on the sale from both transactions of $2.9
million has been excluded from underlying results.
These divestments have enabled Practice Insight now to
focus solely on its autonomous time-keeping tool, WiseTime.
The Asian IP segment achieved sales revenue growth
of 20% to $93.4m. On a like for like basis revenue
increased by 13% to $87.9m. Underlying EBITDA was
up by $4.9m, or 16%.
Movements in FX rates
Foreign exchange rates used to translate earnings
throughout the period were:
AUD/USD
AUD/EUR
AUD/SGD
Year End
Average
Year End
Average
Year End
Average
0.7692
0.7545
0.6730
0.6919
1.0598
1.0505
0.7407
0.7754
0.6420
0.6498
1.0095
1.0404
(2.8%)
6.1%
1.0%
0.7022
0.7153
0.6176
0.6270
0.9500
0.9765
7.8%
3.5%
6.1%
FY17
FY18
Movement
FY19
Movement
20
Directors’ Reportwww.iphltd.com.au 4.1.1 Adjustments to statutory results
The internal reporting that is regularly provided to the
chief operating decision makers includes financial
information prepared on both a statutory and underlying
basis. It is considered important to include the financial
information on an underlying basis as this reflects
the ongoing or underlying activities of the Group and
excludes items that are not expected to occur frequently
and do not form part of the core activities of the Group.
Adjustments to the statutory EBITDA for FY19 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.
» New business establishment costs – costs of
establishing new offices.
» Restructuring expenses – costs of restructuring across
the Group. In the current year these predominately
related to the merger of Cullens and Fisher Adams
Kelly Callinans into Spruson & Ferguson; and the
restructuring of certain aspects of AJ Park.
» Share based payments – accounting charges for the
share-based incentive plans.
» Profit on sale of Practice Insight businesses – disposal
of the Filing Analytics and Citation Eagle businesses
and DMS.
21
30th June 20192019 Annual Report 4.2 Statement of financial position
Balance Sheet
as at 30 Jun 2019
Balance Sheet
as at 30 Jun 2018
$’m
Cash and cash equivalents
Trade and other receivables
Investments
Other current assets
Total current assets
PP&E
Acquisition intangibles & goodwill
Deferred tax asset
Other non-current assets
Total assets
Trade and other payables
Tax provisions
Deferred tax liability
Borrowings
Other liabilities
Total liabilites
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
22
35.3
63.4
39.2
7.3
145.2
6.7
255.1
7.8
0.2
414.9
19.1
10.2
22.4
65.5
12.9
130.1
284.8
262.8
(2.0)
24.0
284.8
26.2
57.1
-
5.3
88.6
6.2
266.3
6.6
0.2
367.9
16.7
6.3
22.9
40.1
14.3
100.3
267.6
262.8
(11.5)
16.3
267.6
Directors’ Reportwww.iphltd.com.au A summary of specific key movements are as follows:
4.3 Business model, strategy and outlook
Cash & cash equivalents
» The cash flow statement within the financial report
provides details of the cash movements during the
year. The Group generated positive cash flows from
operating activities of $61.6m.
» The Group derives the majority of its revenue in USD and
as such carries a significant amount of cash in USD. As
at 30 June 2019 the cash balance was denominated in
AUD (28%), USD (39%) and other (33%).
» The increase in investments relates to the acquisition
of a 19.9% interest in the shares of Xenith IP Group
in February 2019 at a total cost of approximately $33
million, revalued at 30 June 2019.
Trade and other receivables
» As at 30 June 2019 the trade receivables balance was
denominated in AUD (37%), USD (44%) and other (19%).
Acquisition intangibles & goodwill
» The decrease in intangible assets arises from the
reduction of goodwill and software intangibles as a result
of the sale of the Practice Insight businesses and further
amortisation of customer relationship intangibles.
» Identifiable intangible assets, net of amortisation,
consist of customer relationships $62.7m, trademarks
$4.2m and software of $3.5m.
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”). It
also operates a Data and Analytics Software Business
(“Data Services”) which, following divestment during
FY19 of its IP data and document management systems
products, is focused solely on its autonomous time-
keeping tool, WiseTime.
In IPH’s IP services businesses in Australia, New
Zealand 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.
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
» Goodwill recognised on acquisitions is $184.6m.
IPH vision, mission and values
Liabilities
The increase in Group Borrowings reflects the acquisition
of a 19.9% interest in the shares of Xenith IP Group in
February 2019 at a total cost of approximately $33 million
which was funded from the Group’s debt facilities.
Equity
There were no issues of shares during the year.
From the Company’s foundation and listing on the ASX
in November 2014, IPH has been pursuing its vision of
becoming the leading IP group in IP secondary1 markets
and adjacent areas of IP.
IPH’s 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 the 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, Western Europe and Korea generate the
majority of IP rights and clients by value. The secondary markets are all countries
outside of USA, Japan, Western Europe and Korea.
23
30th June 20192019 Annual Report Value creating growth strategies
IPH’s plan is to achieve its goals through implementation
of strategic initiatives in five key areas:
» Australian and New Zealand IP businesses
in Asia-Pacific and other secondary IP markets. First
and foremost, the growth opportunities are evaluated on
the extent to which they help to achieve IPH’s strategic
objectives. IPH continues to evaluate potential acquisition
opportunities in international secondary markets.
» Asia IP business
» Other secondary IP markets
» Adjacent to IP markets
» Business improvements and operations
Australian and New Zealand IP businesses
A key objective of all IPH’s ANZ businesses is to
continue to organically grow the volume of filings,
market share and revenue across all disciplines, and to
invest in providing superior service to global customers
consistent with the longstanding strength and reputation
of its brands, Spruson & Ferguson, Pizzeys and AJ Park.
IPH’s ANZ businesses are also an important part of
the Asian growth strategy in that they are a valuable
source of filings and revenue into IPH’s Asian business.
The integration of the Cullens and FAKC brands
into Spruson & Ferguson in FY19 better enabled
professionals in these businesses to offer a pan-Asian
filing solution to their clients.
Asian IP businesses
Asia has been a key part of the Group’s strategy since
the opening of the Singapore office in 1997. In recent
years IPH has supported its Asian growth strategy
with the opening of offices in Thailand and Indonesia
and expanding into China and Hong Kong through the
acquisition of Ella Cheong Hong Kong and Beijing (re-
branded Spruson & Ferguson). The expansion provides
a strong platform to extend the provision of IP services
to new geographical areas for existing clients and an
improved multi-country service 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 potential organic and
M&A opportunities in Asia as they arise.
Other secondary IP markets
IPH has adopted a strategic and disciplined approach
to the assessment of any potential M&A opportunities
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
investment in Practice Insight, IPH is well positioned
to capitalise on disruptive innovation. IPH continuously
considers new developments in this area to ensure it
maintains its market leadership position.
Business improvements and operations
The Spruson & Ferguson business has operated at
industry-leading efficiency levels for many years. The Group
will continue to focus on the optimisation of all of IPH’s
businesses with a view to extract operational efficiencies
and improve the quality of service for our clients.
4.3.3 FY20 priorities
IPH’s strategic priorities include maintaining its leading
positions in Australia/New Zealand and Singapore, and
seeking to expand in other higher growth jurisdictions.
The immediate focus is to integrate Xenith successfully into
the IPH group and harness the collective experience and
expertise of member firms to provide clients with an even
more comprehensive IP service offering.
IPH has commenced the work to identify and leverage cost
synergies and revenue opportunities arising from the Xenith
transaction to deliver further margin improvement across the
combined business over the next three years. IPH expects
to provide an update on these activities at the Annual
General Meeting on 21 November 2019.
IPH will continue to leverage its Asian network to expand
organic revenue opportunities and market share in high
growth markets across the region. In Australia/New
Zealand, the Group’s strategy also includes continuing to
focus on expanding its service provision with existing foreign
associate firms, and attracting new corporate clients.
IPH continues to evaluate potential international acquisition
opportunities in core secondary IP markets.
24
Directors’ Reportwww.iphltd.com.au
4.4 Risks
Risk
Description
Management of Risk
Strategic planning
and implementation
Competition and
changing market
conditions
The Company conducts its
operations in a market that has
undergone significant changes with
the development of corporatised
service providers, which the market
continues to adjust to. This provides
the Group with both opportunities
and risks requiring development and
communication of a clear strategic
vision and objectives.
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.
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 to maintain and develop client
relationships and understand potential changes in client
needs, and internal and external pressures.
IPH also provides 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 process for outgoing
work. The approval process is correlated to the complexity
and level of potential risk associated with the work.
25
30th June 20192019 Annual Report Risk
Description
Management of Risk
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 consider the development
of revenue streams from adjacent markets.
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.
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 or expansion
by other providers.
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.
Personnel
Disintermediation
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.
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. It is also
possible that third party service
providers that currently only provide
services with respect to limited
aspects of IP protection may seek to
extend their relationships with clients
into other aspects of the provision of
IP services that the Group currently
services causing a diminution of
relationships with clients.
26
Directors’ Reportwww.iphltd.com.au Risk
Description
Management of Risk
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.
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, and its management
of cyber risk. The Company continually invests in system
enhancements and engages quality 3rd party suppliers to
assist with its systems development and maintenance.
The Company’s transition of its IT systems to offsite
‘cloud-based’ systems enables 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 and
has engaged in appropriate use of foreign currency
denominated finance facilities to reduce exposure. 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 directly hedge against its foreign
currency exchange risk to a material extent.
27
30th June 20192019 Annual Report Risk
Description
Management of Risk
Conflict of duties
Professional liability
and uninsured risks
Patent and trademark attorneys
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, particularly with the
expansion of the Group to include
additional business units.
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.
The Company has been 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 has sought detailed advice on issues
of conflict of interest and compliance with related
professional obligations. The Company actively assists
its business units to implement appropriate processes
and procedures for compliance, including relevant
professional standards bodies’ Codes of Conduct and
Professional Rules.
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.
28
Directors’ Reportwww.iphltd.com.au Risk
Description
Management of Risk
Acquisitions
The Company’s growth strategy
may include the acquisition of other
intellectual property businesses.
Risks arise in ensuring that potential
acquisitions are appropriately
selected and issues affecting the
value of individual acquisitions
are identified and reflected in the
purchase considerations.
The Company assesses potential acquisition opportunities
against the Company’s strategic objectives, values and
culture. Where an appropriate potential acquisition is
identified the Company undertakes extensive due diligence
process and where appropriate engages competent
professional experts to assist with the due diligence
process and appropriate documentation of the transaction.
The Company’s Board is involved in the review of, and
approves, all corporate acquisitions.
Integration of
acquired businesses
Following the acquisition of new
businesses, risks arise in ensuring
the business is properly integrated
into the IPH Group, that people and
culture issues that may arise are
addressed, key staff retained and
value maintained.
Management of an
expanded group
With the expansion of the Group
to include new business units with
multiple offices and across multiple
jurisdictions risk may arise with
respect to ensuring the appropriate
structuring and resourcing of key
management and shared services
functions and appropriate reporting
and oversight of Group operations.
The Company seeks to identify potential post-acquisition risks
when assessing potential acquisitions including for cultural fit
and matching of expectations, and to mitigate such risks by
appropriate transaction and post-acquisition management
structures. Steps are taken following acquisition to review and
ensure appropriate on-boarding of new acquisitions with IPH
governance, policies, processes and practices and levels of
financial control and reporting, and to integrate Company and
Group approaches to retention of key staff and utilisation of
appropriate information technology platforms. The integration
of new acquisitions is regularly reviewed by the Company’s
Board and relevant Board Committees.
As the Group expands, with the oversight of the Board,
the Company reviews and adapts existing management
structures to ensure appropriate oversight, reporting
requirements, support and resourcing is in place, and
that the Company is attracting, retaining and motivating
appropriate skilled personnel.
29
30th June 20192019 Annual Report 5. Remuneration report (audited)
Introduction from the Nomination and
Remuneration Committee Chair
Dear Shareholders,
On behalf of the Board, I am pleased to present the
Remuneration Report for the 2019 financial year.
Professional staff incentive plan
The Equity Incentive Plan introduced in 2017 has
proven to be a reward which is valued by eligible
staff. The intent of providing a more direct link
between individual performance and incentive
achievement is being realised. The plan was
successfully implemented during the financial year
into the AJ Park business as well as for staff from
Cullens and FAKC which merged into Spruson &
Ferguson from 1 July 2018.
To ensure affordability of the incentive plan with
an expanded participation pool, key performance
indicators (KPIs) have been strengthened to provide
a direct link between individual performance and
business performance. In broad terms, half of an
incentive achieved (by reference to business unit,
practice group and individual targets) in a particular
year will be paid in cash and half in IPH Limited
shares (issued to the employee and held in trust for a
period of three years).
Corporate executive remuneration
Short and long term incentive measures remain in
place for the IPH executives.
In broad terms, fixed remuneration is set at
median market levels compared to peers with
similar revenues and market capitalisation. Fixed
remuneration is supplemented with an 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 KPIs. The long term
incentive is structured to align the long term
interests of shareholders and executives. Long
term incentives will vest over a three year period
with reference to EPS performance hurdles.
As the Company evolves as a corporate entity, we
will continue to review the remuneration framework
for all executives and professional staff, including
KMP, to ensure its ability to attract, motivate and
retain the talent necessary to run the business, and
simultaneously drive behaviour that aligns with the
creation of sustainable shareholder value.
We look forward to your support and welcome your
feedback on our remuneration report.
Yours sincerely,
John Atkin
Nomination and Remuneration
Committee Chair
30
Directors’ Reportwww.iphltd.com.au
5. Remuneration report (audited) Continued >
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 topics:
» 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.
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 people objectives.
The performance of the Group depends on the quality
of its Directors and other KMP. The remuneration
philosophy is to attract and retain high quality people,
and motivate high performance.
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.
EY was engaged by the NRC to provide remuneration
advice and other valuation services 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.
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 FY19 had the following components:
» base salary, short and long term incentives and non-
monetary benefits; and
» other remuneration such as superannuation and long
service leave.
The combination of these comprises the KMP’s total
remuneration.
Fixed remuneration, consisting of base salary, super-
annuation 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.
31
30th June 20192019 Annual Report 5.2 Executive remuneration Continued >
Short and long term incentives strengthen alignment with
overall performance of the Group and provide a more
complete and market-comparable remuneration package.
Short term incentives are set at 33% for the CEO and 25%
for the CFO, with a stronger focus alignment through the
long term incentives at 100% for the CEO and 75% for the
CFO. Incentives are also reviewed annually by the NRC.
Long term incentive
Under the long term incentive plan, the CEO and CFO are
issued Performance Rights which entitle the holder at the
Vesting Date to an equivalent number of Shares subject to
satisfying defined vesting conditions.
Performance Rights will vest on the Vesting Date subject
to the Company’s achievement of a minimum compound
annual growth rate (CAGR) in Earnings Per Share over the
Performance Period. EPS performance will be assessed on
the basis of the Company’s EPS performance during the
relevant Performance Period compared to the EPS targets for
that period as determined by the Board.
The Board will determine a target for EPS for the
Performance Period (EPS Target) and a minimum target
for EPS for the Performance Period (Minimum EPS
Target) prior to any issue from year to year. For vesting
to occur, EPS for the Performance Period must be at
least equal to the Minimum EPS Target.
EPS targets for the 2019 Plan are:
The table below outlines how Performance Rights issued in
2019 will vest based on the Company’s EPS performance over
the Performance Period (measured by calculating the CAGR
between EPS for FY18 and EPS for FY21).
EPS in FY21
Percentage of
Performance
Rights that vest
Less than 7% CAGR in EPS
over the Performance Period
Nil vesting
Equal to 7% CAGR in EPS
over the Performance Period
20% vesting
CAGR in EPS greater than
7%, up to and including
10% CAGR in EPS over the
Performance Period
Pro-rated vesting (i.e.
on a straight-line basis)
between 20.01% and
65%
CAGR in EPS greater than
10%, up to and including
15% CAGR in EPS over the
Performance Period
Pro-rated vesting (i.e.
on a straight-line basis)
between 65.01% and
100%
At or above 15% CAGR in
EPS over the Performance
Period
100% vesting
Dividends will not be paid on Performance Rights.
» Minimum EPS Target – 7% CAGR in EPS over the three
year Performance Period ending on 30 June 2021, and
5.3 Company performance
» EPS Target – 15% CAGR in EPS over the three year
Performance Period ending on 30 June 2021.
For the year to 30 June 2019 the overall financial
performance of the Group met the threshold whereby a
proportion of the STI related to financial performance to
KMP was paid. KMP were then assessed on their individual
non-financial KPIs on which a further proportion of the STI
was paid. Finally, taking into account: the Group’s financial
performance in FY19, the completion of the XIP Group
acquisition; the completion of the divestment of two sets of
Practice Insight products; and further progress against the
Group’s strategic objectives, the Board awarded a further
discretionary STI component.
32
Directors’ Reportwww.iphltd.com.au The Group’s performance and the consequences on shareholders
financial wealth in the last five financial years is summarised below:
NPAT (‘000)
EPS (cents per share)
Dividends Paid (‘000)
2015
2016
2017
2018
2019
30,589
38,843
42,893
40,673
53,112
19.51
21.92
22.46
20.79
26.91
5,514
36,837
40,924
42,823
51,360
Total Dividends (cents per share)
3.5
21.0
22.0
22.5
25.0
Share Price (30 June closing price)
$4.70
$6.42
$4.80
$4.45
$7.46
Return of Capital (‘000)
-
-
-
2,727
-
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 paid (Directors’ fees and
committee fees) (inclusive of superannuation) for the year
ended 30 June 2019 are summarised as follows:
Name - Position
FY2019 Fees
Richard Grellman AM – Chairman
John Atkin – Director
Robin Low – Director
Jingmin Qian – Director1
250,000
140,000
140,000
35,000
565,000
1 Fees paid from the date of commencement on 1 April 2019
The Non-executive Directors are not entitled to participate
in any employee incentive scheme (including the LTIP).
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.
33
30th June 20192019 Annual Report
5.5 Details of remuneration
Amounts of remuneration
The key management personnel of the Group consisted
of the following Directors of IPH Limited:
» John Atkin – Non-executive Director
» Robin Low – Non-executive Director
» Jingmin Qian – Non-executive Director
» Richard Grellman, AM – Non-executive Chairman
(commenced 1 April 2019)
» Andrew Blattman – Managing Director and
And the following persons:
Chief Executive Officer
» John Wadley – Chief Financial Officer
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
Cash
salary and
fees $
Cash
bonus $
Non-
monetary $1
Super-
annuation $
Employee
Leave $2
Equity-
settled $3
Total $
Non-Executive Directors:
Richard Grellman
2019
228,312
2018
203,444
John Atkin
2019
127,854
2018
105,023
Robin Low
2019
127,854
2018
105,023
Jingmin Qian4
2019
31,963
Executive Directors:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,688
16,556
12,146
9,977
12,146
9,977
3,037
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250,000
220,000
140,000
115,000
140,000
115,000
35,000
Andrew Blattman5
2019
879,467 225,000
(3,838)
25,729
66,302
535,247
1,727,907
2018
729,946
Former Directors:
Sally Pitkin6
2018
31,962
David Griffith7
2018
282,908
Other Key Management Personnel:
-
-
-
20,733
25,155
98,788
242,427
1,117,049
-
-
3,038
7,763
-
4,812
-
-
35,000
295,483
John Wadley
2019
524,362 135,000
19,203
21,165
5,693
20,618
-
-
160,574
860,304
72,728
534,776
2018
435,737
Former Key Management Personnel:
Kristian Robinson8
2018
148,6849
-
-
-
11,5139
2,386
16,921
179,504
1. Non-monetary benefits represent the movement in the accrued annual leave balance during the year
2. Employee Leave balances represent the movement in accrued long service leave balances during the year.
3. Accounting charge based on the fair value of the award at date of grant. Total number of rights are included in the performance rights holding table at the end of this report.
4. Jingmin Qian commenced as a director from 1 April 2019
5. Andrew Blattman became an Executive Director on 20 November 2017. Comparative balances represent remuneration for the full year.
6. Sally Pitkin ceased to be a Non-Executive Director on 20 November 2017. Balances represent remuneration to this date.
7. David Griffith ceased to be an Executive Director on 20 November 2017. Balances represent remuneration to this date.
8. Kristian Robinson ceased to be a KMP on 20 November 2017 reflecting changes in the management structure of the expanded Group.
Balances represent remuneration to this date.
9. Remuneration received in Singapore Dollars. Translated at the average exchange rate for the period to November 17 of S$1.0631
34
Directors’ Reportwww.iphltd.com.au 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:
Dr Andrew Blattman, Managing Director and
Chief Executive Officer
» Remuneration package (inclusive of superannuation)
for the year ended 30 June 2019 of $900,000. Annual
superior performance bonus of up to 33.33% of
remuneration and a long term incentive opportunity of
100% of remuneration.
John Wadley, Chief Financial Officer.
» Remuneration package (inclusive of superannuation)
for the year ended 30 June 2019 of $540,000.
Annual superior performance bonus of up to 25% of
remuneration and a long term incentive opportunity of
50% of remuneration.
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 and without notice or payment in lieu of
notice. Upon termination of the employment contract,
the KMP will be subject to a restraint of trade period
of 12 months throughout Australia, New Zealand and
Singapore. 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. Andrew Blattman
receives 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:
30 June 2019
Ordinary shares
Richard Grellman
Andrew Blattman
John Atkin
Robin Low
Jingmin Qian
John Wadley
Balance at the
start of the year
Additions
Disposals
Balance at the
end of the year
71,449
4,506,166
115,829
74,214
-
401
4,768,059
-
-
-
-
-
-
-
-
71,449
(2,000,000)
2,506,166
-
-
-
-
115,829
74,214
-
401
(2,000,000)
2,768,059
35
30th June 20192019 Annual Report Shareholding Continued >
30 June 2018
Ordinary shares
Richard Grellman
Andrew Blattman
John Atkin
Robin Low
John Wadley
Sally Pitkin1
David Griffith2
Kristian Robinson3
Balance at the
start of the year
Additions
Disposals
Balance at the
end of the year
67,586
3,863
4,506,166
-
97,292
18,537
65,804
8,410
379
22
-
-
-
-
-
53,841
2,598,765
1,038,991
-
-
-
(53,841)
(2,598,765)
(1,038,991)
71,449
4,506,166
115,829
74,214
401
-
-
-
1. Sally Pitkin ceased to be a Director on 20 November 2017. Disposal represents no longer being designated as a Director, not necessarily a disposal of holding.
2. David Griffith ceased to be a KMP on 19 November 2017. Disposal represents no longer being designated as a KMP, not necessarily a disposal of holding.
3. Kristian Robinson ceased to be a KMP on 20 November 2017. Disposal represents no longer being designated as a KMP, not necessarily a disposal of holding.
8,428,824
30,832
(3,691,597)
4,768,059
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
The number of performance rights issued to KMPs is set out below:
30 June 2019
Plan1
Grant
Date
Vesting
Date
Rights
Granted
Fair
Value
per
Right
Total
Fair Value
at Grant Date
Expense
at Year
End
%
Vested
%
Forfeited
Andrew Blattman
2018 20 Nov 17 1 Sep 20
156,780
4.91
769,790
242,427
2019 26 Nov 18 1 Sep 21
198,676
4.68
929,804
292,820
John Wadley
2018 20 Nov 17 1 Sep 20
47,034
4.91
230,937
72,728
-
-
-
-
2019 26 Nov 18 1 Sep 21
59,603
4.68
278,942
87,846
462,093
2,209,473
695,821
1. Financial year in which the award is granted.
This concludes the remuneration report, which has been audited.
36
Directors’ Reportwww.iphltd.com.au
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
Performance
1,443,542
Ordinary
IPH Limited
Retention
70,303
Ordinary
0.00
0.00
Up to April 2022
Up to August 2019
7. Shares under option
11. Environmental regulation
There were no unissued ordinary shares of IPH Limited
under option at the date of this report.
The Group is not subject to any significant environmental
regulation under Australian Commonwealth or State law.
8. Dividends
Dividends paid during the financial year were as follows:
Final dividend of 11.0 cents per share for
the year ended 30 June 2018, paid on 12
September 2018. (50% franked)
Interim dividend of 12.0 cents per share
for the year ended 30 June 2019, paid on
13 March 2019. (50% franked)
21,706
23,680
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
On 12th April 2019, IPH announced that it had entered
into a scheme of arrangement with Xenith IP Limited
to acquire the remaining 80.1% of shares it did not
own at $2.15 per share. The scheme of arrangement
was approved by shareholder vote on 25th July 2019
and approved by the Federal Court of Australia on
1st August 2019. The implementation date for the
acquisition was 15th August 2019.
The value of the shares acquired was $153.6m, funded
by the drawdown of $46.1m from existing debt facilities
and the issuance of 15.6m new IPH Shares.
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.
37
30th June 20192019 Annual Report
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 27 to the financial
statements.
The Directors are satisfied that the provision of non-
audit services during the financial year, by the auditor
(or by another person or firm on the auditor’s behalf), is
compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as
disclosed in Note 27 to the financial statements do
not compromise the external auditor’s independence
requirements of the Corporations Act 2001 for the
following reasons:
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.
,
s independence declaration
18. Auditor
» all non-audit services have been reviewed and approved
to ensure that they do not impact the integrity and
objectivity of the auditor; and
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.
» 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.
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.
Dr. Andrew Blattman
Managing Director
20 August 2019, Sydney
38
Directors’ Reportwww.iphltd.com.au 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 24, Tower 2, Darling Park
201 Sussex Street, Sydney
20 August 2019
Dear Board Members
Auditor’s Independence Declaration to 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 year ended 30
June 2019, 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
H Fortescue
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
2019 Annual Report
39
39
30th June 20192019 Annual Report
40 40 www.iphltd.com.au
www.iphltd.com.au Financial
Statements
2019 Annual Report
41
41
2019 Annual Report Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 30th June 2019
Note
30 June 2019
30 June 2018
Consolidated
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
Items that will not be reclassified subsequently to profit or loss
Fair value gain on investment in equity instruments
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)
These statements should be read in conjunction with the following notes.
42
5
6
7
7
7
7
8
$’000
252,544
7,054
(68,634)
(12,655)
(8,086)
(3,724)
(74,567)
(2,122)
(2,278)
(14,239)
(2,661)
70,632
(17,521)
53,111
3,857
4,478
8,335
61,446
53,111
53,111
61,446
61,446
37
37
26.91
26.75
$’000
221,956
4,100
(65,282)
(13,092)
(8,511)
(1,158)
(65,983)
(1,010)
(1,992)
(14,171)
(1,537)
53,320
(12,647)
40,673
167
-
167
40,840
40,673
40,673
40,840
40,840
20.79
20.69
www.iphltd.com.au
Statement of Financial Position
For the year ended 30th June 2019
Consolidated
Note
30 June 2019
30 June 2018
$’000
$’000
9
10
12
11
13
14
15
16
17
18
19
15
20
21
22
23
35,263
63,406
39,194
7,317
145,180
26,213
57,112
-
5,342
88,667
6,693
6,183
255,054
266,303
176
7,793
269,716
414,896
18,874
10,222
8,110
200
179
180
6,557
279,223
367,890
16,722
6,316
8,052
402
1,106
37,585
32,598
65,470
22,368
4,723
92,561
130,146
284,750
40,102
22,931
4,671
67,704
100,302
267,588
262,763
262,763
(2,025)
24,012
(11,461)
16,286
284,750
267,588
43
Current assets
Cash and cash equivalents
Trade and other receivables
Investment in financial assets
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Other assets
Deferred tax
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax payable
Provisions
Other financial liabilities
Contract liabilities
Total current liabilities
Non-current liabilities
Borrowings
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
These statements should be read in conjunction with the following notes.
2019 Annual Report
Statement of Changes in Equity
For the year ended 30th June 2019
Foreign
Currency
Translation
Reserve
Minority
Interest
Reserve
Issued
Capital
$’000
$’000
$’000
Balance at 1 July 2017
233,598
(166)
(14,850)
Profit after income tax
expense for the year
Effect of foreign exchange
differences
Total comprehensive
income for the year
-
-
-
Transactions with owners in their capacity as owners:
Issue of ordinary shares as
consideration for a business
combination, net of
transaction costs
Share buy back
Dividend Reinvestment plan
Share-based payments
Dividends paid (Note 24)
27,036
(2,727)
4,856
-
-
Balance at 30 June 2018
262,763
Balance at 1 July 2018
262,763
Profit after income tax
expense for the year
Effect of foreign exchange
differences
Fair value gain on investment
in equity instruments
designated at FVTOCI
Total comprehensive income
for the year
-
-
-
-
Equity
Settled
Employee
Benefits
Reserve
$’000
2,676
-
-
-
-
-
-
676
-
-
-
-
-
Other
Reserve
Retained
Profits
Total
equity
-
-
-
-
-
-
-
-
-
-
-
-
-
4,478
4,478
$’000
$’000
18,436 239,694
40,673
40,673
-
167
40,673
40,840
-
27,072
-
-
-
(2,727)
4,856
676
(42,823)
(42,823)
16,286 267,588
16,286 267,588
53,111
53,111
-
-
3,857
4,478
53,111
61,446
(14,814)
3,352
(14,814)
3,352
-
167
167
-
-
-
-
-
1
1
-
3,857
-
3,857
-
-
-
36
-
-
-
-
-
-
-
-
-
-
-
Transactions with owners in their capacity as owners:
Share-based payments charge
Share-based payments vested
Dividends paid (Note 24)
-
-
-
-
-
-
2,200
(1,099)
-
-
-
-
-
-
2,200
(1,099)
(45,385)
(45,385)
Balance at 30 June 2019
262,763
3,858
(14,814)
4,453
4,478
24,012 284,750
These statements should be read in conjunction with the following notes.
44
www.iphltd.com.au
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
Proceeds from sale of Practice Insight businesses
Payments for investments
Payments for property, plant and equipment
Payments for internally developed software
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Share buy back
Dividends paid
Proceeds of borrowings
Repayment of borrowings
Net cash (used in)/from financing activities
Net (decrease)/increase
in cash and cash equivalents
Cash and cash equivalents at the
beginning of the financial year
Effects of exchange rate changes
on cash and cash equivalents
Cash and cash equivalents
at the end of the financial year
These statements should be read in conjunction with the following notes.
Statement of Cash Flows
For the year ended 30th June 2019
Consolidated
Note
30 June 2019
30 June 2018
$’000
$’000
6
7
36
32
33
13
14
21
24
280,534
(199,082)
92
(2,661)
(17,333)
61,550
240,447
(175,495)
29
(1,537)
(16,987)
46,457
-
(38,621)
10,160
(32,796)
(2,274)
(3,616)
576
-
-
(745)
(3,269)
-
(27,950)
(42,635)
-
(45,386)
34,180
(10,576)
(21,782)
(2,727)
(37,967)
46,023
(7,000)
(1,671)
11,818
2,152
26,213
24,398
(2,768)
(336)
9
35,263
26,213
45
2019 Annual Report
Notes to the Financial Statements
Note 1. General information
Basis of preparation
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 24, Darling Park Tower 2, 201 Sussex 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
20 August 2019.
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 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’).
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 31.
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.
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.
46
www.iphltd.com.au
30th June 2019
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.
The Group provides professional services in relation
to the protection, commercialisation, enforcement and
management of all forms of intellectual property. Delivery
of these services represent performance obligations.
Upon completion of each performance obligation, which is
satisfied at a point in time, the Group is entitled to payment
for the services performed. Fees for completion of each
performance obligation are determined by reference to a
scale of charges and revenue is recognised.
47
2019 Annual Report Note 2. Significant accounting policies 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).
Contract assets
Contract assets represent costs incurred and profit
recognised on client assignments and services that are
in progress at balance date. Contract assets are valued
at net realisable value after providing for any foreseeable
losses. Contract assets older than 90 days are reviewed
and any not thought to be recoverable are written off.
Disbursements recoverable
Recoverable client disbursements recorded in contract
assets 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
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.
48
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.
Notes to the Financial Statementswww.iphltd.com.au Current and deferred tax for the period
Financial instruments
Current and deferred tax is recognised as an expense
or income in the Statement of Profit or Loss and
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.
Financial assets
Financial assets are classified as either financial
assets at amortised cost, at fair value through other
comprehensive income (FVTOCI) or at fair value through
profit or loss (FVTPL). Financial assets are initially
recognised at fair value on the trade date, including,
in the case of instruments not recorded at fair value
through profit or loss, directly attributable transaction
costs. Subsequently, financial assets are carried at
fair value (equity investments, trade receivables and
derivatives) or amortised cost adjusted for any loss
allowance (loans and other receivables).
Impairment of financial assets
The impairment approach is based on expected
credit losses (ECL model) for financial assets held
at amortised cost and fair value through other
comprehensive income. Therefore, it is not necessary
for a loss event to have occurred before credit losses
are recognised. Instead, a loss allowance is always
recognised for ECL and is re-measured at each
reporting date for changes in those expected credit
losses. ECL represent are probability-weighted estimate
of credit losses over the expected life of the financial
instrument. Because ECL consider both the amount
and timing of payments, a credit loss arises even if
the entity expects to be paid in full but later than when
contractually due.
For financial assets, a credit loss is the present value of
the difference between: (i) the contractual cash flows
that are due under the contract; and (ii) the cash flows
expected to be received.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying
amount is reduced through the use of an allowance
account. When a trade receivable is considered
uncollectible, it is written off against the allowance
account. Subsequent recoveries of amounts previously
written off are credited against the allowance account.
Changes in the carrying amount of the allowance
account are recognised in profit or loss.
49
30th June 20192019 Annual Report Note 2. Significant accounting policies Continued >
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.
The Group’s receivables balances are subject to an
assessment of the expected loss based on historical
experience and an associated impairment charge
is provided. Historical experience is considered an
appropriate indicator of future credit losses. Trade
receivables are written off when there is no reasonable
expectation of recovery.
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.
Financial liabilities are classified as current liabilities
unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the
reporting period.
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.
Unearned income is recognised as a liability when
received and is recognised as revenue once a patent
service has been provided or completed.
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.
The carrying amount of financial assets is reviewed
annually by the directors’ to assess whether there is any
objective evidence that a financial asset is impaired.
Leasehold improvements
Plant and equipment
6-15 years
2-20 years
Where such objective evidence exists, the Group
recognises impairment losses.
Furniture, fixtures and fittings
5-20 years
Financial liabilities
Computer equipment
3-5 years
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.
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.
50
Notes to the Financial Statementswww.iphltd.com.au Intangible assets
Internally-generated 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.
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.
Trade marks
Trade marks 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 four years.
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 internally-generated 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.
51
30th June 20192019 Annual Report Note 2. Significant accounting policies Continued >
Impairment of assets
Leases
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).
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 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.
52
Notes to the Financial Statementswww.iphltd.com.au 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.
Borrowing 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.
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 25). 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.
53
30th June 20192019 Annual Report Notes to the Financial Statements
Note 2. Significant accounting policies Continued >
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 are no longer at the discretion of the Company.
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 Group 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 Group
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.
54
www.iphltd.com.au 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.
Adoption of new accounting standards
The Group has adopted all of the new and revised
Standards and Interpretations issued by the Australian
Accounting Standards Board (AASB) that are relevant to
its operations and effective for an accounting period that
begins on or after 1 July 2018.
AASB 9 Financial Instruments
The Group has adopted AASB 9 ‘Financial Instruments’
from 1 July 2018. The Group has no complex financial
instruments and does not apply hedge accounting. The
primary impact is in relation to the calculation of impairment
losses impacts the way the Group calculates the bad debts
provision, now termed the credit loss allowance.
AASB 9 requires an expected loss model in relation to
the determination of impairment of trade receivables. The
Group’s receivables balances are subject to the expected
loss based on historical experience and an associated
impairment charge is provided. Historical experience
is considered an appropriate indicator of future credit
losses. Trade receivables are written off when there is no
reasonable expectation of recovery.
30th June 2019
AASB 9 introduces new classes of financial instrument
and associated terminology. The table below shows
information relating to financial assets that have been
reclassified as a result of transition to AASB 9:
Original
Measurement
Category
under AASB 139
New
Measurement
Category
under AASB 9
Cash & Cash
Equivalents
Fair Value through
Profit and Loss
Amortised cost
Trade & Other
Receivables
Loans and
Receivables
Amortised cost
Trade & Other
Payables
Amortised cost
Amortised cost
Other Financial
Liabilities
Fair Value through
Profit and Loss
Fair Value through
Profit and Loss
Borrowings
Amortised cost
Amortised cost
There was no material change to retained earnings arising
on adoption of the new standard.
AASB 15 Revenue from Contracts with Customers
The Group has adopted AASB 15 ‘Revenue from Contracts
with Customers’ from 1 July 2018. AASB 15 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
is transferred to the customer.
The Group provides professional services in relation
to the protection, commercialisation, enforcement and
management of all forms of intellectual property. Delivery
of these services represent performance obligations.
Upon completion of each performance obligation, which is
satisfied at a point in time, the Group is entitled to payment
for the services performed. Fees for completion of each
performance obligation are determined by reference to a
scale of charges and revenue is recognised, which remains
consistent with the previous treatment under AASB 118.
Disclosure of disaggregated revenue can be seen in Note 4.
There was no material change to retained earnings arising
on adoption of the new standard.
55
2019 Annual Report
Note 2. Significant accounting policies Continued >
New and revised standards not yet effective
AASB 16 Leases
AASB 16 ‘Leases’ is currently applicable to annual
reporting periods beginning on or after 1 January
2019 and sets out the principles for the recognition,
measurement, presentation and disclosure of leases
and requires lessees to account for all leases under a
single on-balance sheet model similar to the accounting
for finance leases under AASB 117.
From a lessee perspective, at the commencement
date of a lease, a lessee will recognise a liability to
make lease payments (‘lease liability’) and an asset
representing the right to use the underlying asset during
the lease term (‘right-of-use asset’). Lessees will be
required to separately recognise the interest expense
on the lease liability and the depreciation expense on
the right-of-use asset. Over the life the liability incurs
interest and is reduced as lease payments are made
and the asset is amortised over its useful life.
The new standard is expected to impact leases which
are currently classified by the Group as operating
leases, being mainly leases over premises and
equipment. On adoption the Group will apply an
exemption under the new standard and not recognise
low value leases and leases with a term of less than 12
months on the balance sheet.
The Group plans to adopt AASB 16 using the modified
retrospective method, with the effect of a balance
sheet gross up of the lease liability of approximately
$33.5m, right of use asset of approximately $32.0m
and a transition adjustment to retained earnings of
approximately $1.5m.
Implementation of the standard will increase reported
EBITDA going forward as a result of rental expense
being replaced by depreciation and an interest
charge. The impact of this change is an increase in
interest expense of approximately $1.5m, depreciation
of approximately $5.7m and increase in EBITDA of
approximately $6.9m.
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
have suffered any impairment, in accordance with the
accounting policy stated in Note 2.
Customer relationships 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.
56
Notes to the Financial Statementswww.iphltd.com.au 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.
Note 4. Operating segments
Identification of reportable operating segments
The Group is organised into three segments: Intellectual
Property Services Australia & New Zealand; 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 & New
Zealand
Related to the provision of filing,
prosecution, enforcement and
management of patents, designs,
trade marks and other IP in Australia
and New Zealand.
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.
57
30th June 20192019 Annual Report Notes to the Financial Statements
Note 4. Operating segments Continued >
30 June 2019
Consolidated
Revenue
Intellectual Property Services
Australia
& NZ
Asia
Data and
analytics
software
Corporate
Intersegment
eliminations /
unallocated
$’000
$’000
$’000
$’000
$’000
Total
$’000
Sales to external customers
163,344
89,200
Intersegment sales
856
3,669
Total sales revenue
164,200
92,869
Other revenue
Total revenue
7,446
591
171,646
93,460
-
-
-
477
477
-
-
-
(20)
(20)
-
252,544
(4,525)
-
(4,525)
252,544
(4,390)
4,105
(8,914)
256,649
Less: Overheads
(109,827)
(54,843)
(1,904)
(10,020)
9,638
(166,956)
Earnings before interest, tax,
depreciation and amortisation
(EBITDA), before adjustments
61,818
38,617
(1,427)
(10,040)
724
89,692
Less: Depreciation
(1,119)
(233)
Less: Amortisation
(8,510)
(1,169)
Less: Management Charges
2,324
(8,071)
(53)
(519)
-
(97)
(984)
5,748
(1,549)
(11,105)
-
30
-
Segment result:
(Profit before interest,
tax and adjustments)
54,513
29,144
(1,998)
(5,374)
754
77,039
Reconciliation of segment result
Segment result
Adjustments to statutory result:
» Business acquisition costs
» New business establishment costs
» Restructuring expenses
» Profit on sale of Practice Insight business
» Share-based payments
Total adjustments
Interest income
Finance costs
Profit for the period before income tax expense
Reconciliation of segment revenue
Segment revenue
Profit on sale of Practice Insight business
Interest income
Total revenue
58
77,039
(3,477)
(31)
(985)
2,857
(2,200)
(3,837)
92
(2,661)
70,632
256,649
2,857
92
259,598
www.iphltd.com.au 30 June 2018
Consolidated
Revenue
Intellectual Property Services
Australia
& NZ
Asia
Data and
analytics
software
Corporate
Intersegment
eliminations /
unallocated
$’000
$’000
$’000
$’000
$’000
Total
$’000
Sales to external customers
146,655
75,301
Intersegment sales
802
2,539
Total sales revenue
147,457
77,840
Other revenue
Total revenue
7,910
128
155,367
77,968
-
-
-
1,212
1,212
Less: Overheads
(101,220)
(46,822)
(3,921)
-
-
-
(1,209)
(1,209)
(7,158)
-
221,956
(3,341)
-
(3,341)
221,956
(3,971)
4,070
(7,312)
226,026
7,099
(152,022)
Earnings before interest, tax,
depreciation and amortisation
(EBITDA), before adjustments
54,147
31,146
(2,709)
(8,367)
(213)
74,004
Less: Depreciation
(1,131)
(204)
(24)
Less: Amortisation
(7,716)
(1,005)
(1,961)
Less: Management Charges
3,937
(5,491)
-
(139)
(934)
1,554
-
22
-
(1,498)
(11,594)
-
Segment result:
(Profit before interest,
tax and adjustments)
49,237
24,446
(4,694)
(7,886)
(191)
60,912
Reconciliation of segment result
Segment result
Adjustments to statutory result:
» Business acquisition costs
» Business acquisition adjustments
» New business establishment costs
» Restructuring expenses
» Share-based payments
Total adjustments
Interest income
Finance costs
Impairment of intangible assets
Profit for the period before income tax expense
Reconciliation of segment revenue
Segment revenue
Interest income
Total revenue
60,912
(982)
642
(786)
(2,134)
(676)
(3,936)
29
(1,537)
(2,148)
53,320
226,026
29
226,056
59
30th June 20192019 Annual Report Notes to the Financial Statements
Note 5. Sales revenue
Revenue from the rendering of services
Note 6. Other income
Net realised foreign exchange gain/(loss)
Net unrealised foreign exchange (loss)/gain
Dividends received
Profit on sale of Practice Insight
businesses (Note 33)
Other income
Commission
Interest
30 June 2019
$’000
252,544
252,544
30 June 2019
$’000
1,866
(536)
576
2,857
843
1,356
92
7,054
60
Consolidated
30 June 2018
$’000
221,956
221,956
Consolidated
30 June 2018
$’000
(270)
826
-
-
2,063
1,452
29
4,100
www.iphltd.com.au Note 7. Expenses
Profit before income tax includes the following specific expenses:
Consolidated
30 June 2019
30 June 2018
Depreciation
Amortisation – Acquired Intangibles
Amortisation – Software Development
Share-based payments (Note 38)
Superannuation expense
Deferred acquisition and deferred settlement costs remeasurement
Other expenses:
Professional fees
IT & Communication
Office expenses
Other
Impairment of FAKC & Cullens trademarks (Note 14)
Finance costs
Interest on bank facilities – Overdraft
Interest on bank facilities – Loan
Other interest expense – Facility fees
Rental expense relating to operating leases
$’000
1,549
9,214
1,891
12,655
2,200
3,740
-
2,732
3,066
1,766
6,676
-
14,239
21
1,859
781
2,661
$’000
1,498
9,362
2,232
13,092
676
3,780
(642)
2,020
2,471
1,798
5,734
2,148
14,171
9
754
774
1,537
Minimum lease payments
8,086
8,511
61
30th June 20192019 Annual Report Note 8. Income tax expense
Income tax expense
Current tax
Deferred tax
(Over) / Under 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)
Reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Permanent differences
Equity settled share-based payments
Acquisition costs
Difference in overseas tax rates
Losses not brought to account
Under / (Over) provision with respect to current tax in prior years
Other
Income tax expense
62
Consolidated
30 June 2019
30 June 2018
$’000
$’000
21,905
(4,114)
(270)
17,521
(1,144)
(2,970)
(4,114)
70,632
21,190
391
27
329
16,080
(3,754)
321
12,647
(1,500)
(2,254)
(3,754)
53,320
15,996
172
(905)
277
(3,887)
(3,146)
28
(331)
(226)
195
340
(282)
17,521
12,647
Notes to the Financial Statementswww.iphltd.com.au Note 9. Current assets Ð cash and cash equivalents
Cash on hand
Cash at bank
Term Deposit
Note 10. Current assets Ð trade and other receivables
Trade receivables
Less: loss allowance
Consolidated
30 June 2019
30 June 2018
$’000
314
34,099
850
35,263
$’000
89
26,124
-
26,213
Consolidated
30 June 2019
30 June 2018
$’000
64,655
(1,249)
63,406
$’000
57,930
(818)
57,112
Impairment of receivables
The Group has recognised a loss of $727,000 (2018:
$381,000) in profit or loss in respect of receivables for the
year ended 30 June 2019. The ageing of the impaired
receivables provided for above are as follows:
Consolidated
30 June 2019
30 June 2018
$’000
$’000
Past due more
than 91 days
1,249
818
63
30th June 20192019 Annual Report Note 10. Current assets Ð trade and other receivables Continued >
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additions through business combinations
Additional provisions recognised
Receivables written off during the year as uncollectable
Closing balance
Past due but not impaired
Customers with receivable balances past due but without
provision for impairment, amount to $22,932,000 as at 30
June 2019 (2018: $19,262,000). 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
Ageing has been calculated with reference to the trading
terms of local clients (30 days) and international clients
(90 days). No interest is charged on outstanding trade
receivables.
64
Consolidated
30 June 2019
30 June 2018
$’000
818
-
727
(296)
1,249
$’000
739
94
381
(396)
818
Consolidated
30 June 2019
30 June 2018
$’000
17,290
1,790
3,853
22,933
$’000
14,913
1,278
3,071
19,262
Notes to the Financial Statementswww.iphltd.com.au Note 11. Current assets Ð other
Prepayments
Contract assets
Foreign exchange contracts
Other current assets
Note 12. Investments
Investment in equity instruments1
Consolidated
30 June 2019
30 June 2018
$’000
2,518
2,524
28
2,247
7,317
$’000
1,459
2,192
-
1,691
5,342
Consolidated
30 June 2019
30 June 2018
$’000
39,194
39,194
$’000
-
-
1. IPH acquired an equity interest of 19.9% in Xenith IP Group on 13 February 2019. This has been designated at Fair Value Through Other Comprehensive Income.
65
30th June 20192019 Annual Report
Notes to the Financial Statements
Note 13. Non-Current assets Ð 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
Consolidated
30 June 2019
30 June 2018
$’000
7,287
(3,376)
3,911
1,024
(853)
171
4,162
(3,118)
1,044
13,119
$’000
7,355
(3,545)
3,810
1,258
(984)
274
3,853
(3,024)
829
12,915
Less: Accumulated depreciation
(11,553)
(11,645)
1,566
6,693
1,270
6,183
66
www.iphltd.com.au 30th June 2019
Reconciliations
Reconciliations of the written down values at the
beginning and end of the current and previous
financial year are set out below:
Leasehold
improvements
Plant and
equipment
Furniture,
fixtures and
fittings
Computer
equipment
Total
$’000
$’000
$’000
$’000
$’000
Consolidated
Balance at 1 July 2017
Additions
1,610
1,394
Additions through business combinations
1,252
Disposals / Transfers
Exchange differences
Depreciation expense
Balance at 30 June 2018
Additions
Disposals / Transfers
Exchange differences
Depreciation expense
Balance at 30 June 2019
(45)
2
(403)
3,810
595
-
4
(499)
3,911
292
180
-
-
5
(203)
274
36
(41)
3
(100)
171
407
33
726
695
3,004
673
2,280
686
2,664
(205)
(51)
(301)
20
(152)
829
514
(151)
3
(151)
7
34
(740)
(1,498)
1,270
6,183
1,128
2,274
(35)
(226)
2
13
(799)
(1,549)
1,044
1,566
6,693
67
2019 Annual Report
Consolidated
30 June 2019
30 June 2018
$’000
$’000
184,648
4,189
188,838
7,999
(4,518)
3,481
-
-
-
90,950
(28,215)
62,735
255,054
185,223
4,237
189,460
8,871
(4,648)
4,223
3,805
(3,015)
790
90,950
(19,120)
71,830
266,303
Notes to the Financial Statements
Note 14. Non-Current assets Ð 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
68
www.iphltd.com.au 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 2017
Additions
Additions through business
combinations
Exchange differences
Impairment1
Amortisation expense
Goodwill
$’000
144,570
-
14
-
-
Patents and
trade marks
Customer
relationships
Capitalised
software
development
Software
Acquired
Total
$’000
3,519
-
$’000
$’000
$’000
$’000
59,928
3,168
1,741
212,926
-
3,269
40,639
2,866
20,313
-
(2,148)
-
-
3,269
63,818
32
-
-
-
-
-
18
-
Balance at 30 June 2018
185,223
4,237
71,830
Additions
Disposals (Note 33)
Exchange differences
Amortisation expense
-
(3,834)
3,259
-
33
(80)
-
-
-
(8,411)
(2,232)
(951)
(11,594)
4,223
3,584
790
266,303
-
3,616
(2,432)
(671)
(7,017)
(3)
-
3,256
-
-
1
(9,095)
(1,891)
(119)
(11,105)
Balance at 30 June 2019
184,648
4,189
62,735
3,481
-
255,054
1. On 30 June 2018 FAKC and Cullens were merged with Spruson & Ferguson Australia and will operate under the Spruson & Ferguson name. As a result, the intangible asset
relating to the former FAKC and Cullens trademarks has been assessed as having no ongoing economic benefit and hence has been written off.
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.
On 30 June 2018 Fisher Adams
Kelly Callinans (FAKC) and Cullens
were merged with Spruson &
Ferguson Australia. The goodwill
relating to the former FAKC and
Cullens CGU’s is now assessed
within the Spruson & Ferguson
Australia CGU.
A summary of the goodwill by CGU
is set out on the right:
Consolidated
30 June 2019
30 June 2018
$’000
$’000
CGU
Spruson & Ferguson Australia
52,958
52,958
Practice Insight
Pizzeys
AJ Park
-
68,158
3,834
68,158
42,468
40,653
Spruson & Ferguson (Hong Kong)
20,758
19,314
Other
Total
306
306
184,648
185,223
69
30th June 20192019 Annual Report
Note 14. Non-Current assets Ð intangibles Continued >
The recoverable amount of a CGU is determined
primarily utilising 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
Terminal
growth rates
Discount rates
CGU
Spruson & Ferguson Australia1
Pizzeys
AJ Park
2019
%
4.3
7.1
3.8
2018
%
4.4
6.2
6.9
Spruson & Ferguson Hong Kong
19.4
18.6
PRE-TAX
2019 & 2018
%
POST-TAX
2019 & 2018
%
15
15
15
15
10.5
10.5
10.5
10.5
%
2.5
2.5
2.5
2.5
1. CGU for testing the former FAKC & Cullens goodwill. Prior year CAGR percentage is the average for FAKC & Cullens.
The post-tax discount rate has been applied to discount
the future attributable post-tax cash flows.
At 30 June 2019, 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 in any CGU 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 declinded by 0.5%
Sensitivity analysis has been conducted on the
assumptions above to assess the effect on the
recoverable amount of changes in the key assumptions.
A decrease of the EBITDA CAGR by 3% or an increase
in the post tax discount rate of 0.88% would result
in the carrying value of the Pizzeys CGU to equal the
recoverable amount.
70
Notes to the Financial Statementswww.iphltd.com.au
Note 15. Deferred tax assets / liabilities
Opening
balance
Recognised
in profit
or loss
Acquisitions
Recognised
in equity
Closing
balance
$’000
$’000
$’000
$’000
$’000
The net deferred tax liability comprises the following balances:
Loss allowance
Property, plant and equipment
Provisions
Accrued expenses
Unbilled revenue
Prepayments
Foreign exchange
Transaction costs
Leased assets
Software
66
135
1,983
250
(316)
(4)
45
758
622
975
166
239
297
499
(92)
(1)
553
83
88
(679)
(396)
Intangible assets – Customer
Relationships
Intangible assets – Trade marks
Sundry
Fair value movement on Investments
(21,075)
2,580
(405)
592
-
-
380
-
232
374
2,280
749
(408)
(5)
598
841
710
(100)
(18,495)
(405)
972
(1,919)
(1,919)
(16,374)
4,114
(396)
(1,919)
(14,575)
Disclosed as:
Deferred tax asset
Deferred tax liability
Consolidated
30 June 2019
30 June 2018
$’000
$’000
7,793
(22,368)
(14,575)
6,557
(22,931)
(16,374)
71
30th June 20192019 Annual Report Note 16. Current liabilities Ð trade and other payables
Trade payables
Sundry creditors and accruals
Note 17. Current liabilities Ð provisions
Employee benefits
Provision for onerous lease1
Other provisions
1. The termination date of the lease was reached during the financial year.
Note 18. Current liabilities Ð other financial liabilities
Preference shares
Foreign exchange contracts
72
Consolidated
30 June 2019
30 June 2018
$’000
9,203
9,671
18,874
$’000
11,104
5,618
16,722
Consolidated
30 June 2019
30 June 2018
$’000
6,331
-
1,779
8,110
$’000
6,393
750
909
8,052
Consolidated
30 June 2019
30 June 2018
$’000
200
-
200
$’000
200
202
402
Notes to the Financial Statementswww.iphltd.com.au Note 19. Borrowings
Non Current
Multicurrency loan facility
On 11 February 2019, the Group entered into a facilities
agreement (‘Agreement’) with HSBC and Westpac which
refinanced the facilities previously outstanding with ANZ.
The facilities under the Agreement comprise:
» a $90m multicurrency revolving loan facility;
» a $100m acquisition term loan facility; and
» a $20m revolving credit facility for the general corporate
purposes of the Group.
The Agreement has a term of three years maturing on
11 February 2022.
Assets pledged as security
The bank facility made available by HSBC and Westpac
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 statement of
financial position.
Consolidated
30 June 2019
30 June 2018
$’000
$’000
65,470
65,470
40,102
40,102
73
30th June 20192019 Annual Report
Note 19. Borrowings Continued >
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Consolidated
30 June 2019
30 June 2018
$’000
$’000
190,000
20,000
210,000
65,470
65,470
124,530
13,500
138,030
94,000
-
94,000
40,102
40,102
47,913
-
47,913
Consolidated
30 June 2019
30 June 2018
$’000
251
4,472
4,723
$’000
200
4,471
4,671
Total facilities
Loan facilities
Working capital facility
Used at the reporting date
Loan facilities
Unused at the reporting date
Loan facilities
Working capital facility1
1. At 30 June 2019 $6.5m of bank guarantees had been drawn on the working capital facility.
Note 20. Non-current liabilities Ð provisions
Employee benefits
Lease liability1
1. The movement in the lease liability reflects the straight-lining of rent over the life of the leases.
74
Notes to the Financial Statementswww.iphltd.com.au
Note 21. Equity Ð issued capital
Consolidated
Consolidated
30 June 2019
30 June 2018
30 June 2019
30 June 2018
Shares
Shares
$’000
$’000
Ordinary Class shares – fully paid
197,341,566
197,341,566
262,763
262,763
197,341,566
197,341,566
262,763
262,763
Movements in ordinary share capital
Date
Shares
$’000
Balance at 1 July 2017
191,688,526
233,598
Retention rights exercised
11 July 2017
57,519
-
Dividend reinvestment – final dividend (Note 24)
13 September 2017
550,929
2,479
Performance rights exercised
19 October 2017
310,128
-
Acquisition of AJ Park Ltd1
31 October 2017
4,621,547
27,036
Retention rights exercised
22 November 2017
47,619
Performance rights exercised
23 February 2018
4,000
Dividend reinvestment – interim dividend (Note 24)
14 March 2018
683,114
Shares bought back during the period
(621,816)
-
-
2,377
(2,727)
Balance at 30 June 2018
Balance at 30 June 2019
1. Refer Note 32 for share issuances arising from business acquisitions.
197,341,566
262,763
197,341,566
262,763
75
30th June 20192019 Annual Report Note 21. Equity Ð issued capital Continued >
Ordinary shares
Capital risk management
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.
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.
Employee Share Trust
On 1 July 2017, IPH established the Employee Share Trust
for the purpose of acquiring and allocating shares granted
through the IPH Employee Incentive Plan. As at 30 June
2019, the number of shares held by the trust was 175,917
(2018: 88,350). The Trust acquired 189,995 shares on
market during the year.
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.
Share buy-back
On 8 May 2018 the Group announced a buy-back of up
to $40m of ordinary shares and extended the buy-back
for a further year from 31 May 2019. There were no shares
bought back during the year to 30 June 2019. During the
prior year 621,816 shares were bought back at an average
price of $4.38 per share.
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 trading days commencing on the second
trading day following the dividend record date.
76
Notes to the Financial Statementswww.iphltd.com.au
Note 22. Equity Ð reserves
Foreign currency reserve
Share-based payments reserve
Minority interest acquisition reserve
Fair value gain on investment in equity instruments (Note 12)
Consolidated
30 June 2019
30 June 2018
$’000
3,858
4,453
(14,814)
4,478
(2,025)
$’000
1
3,352
(14,814)
-
(11,461)
Foreign currency reserve
Minority interest acquisition 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.
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.
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 long-term incentive plan (LTIP).
Note 23. Equity Ð 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 24)
Retained profits at the end of the financial year
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.
Consolidated
30 June 2019
30 June 2018
$’000
16,286
53,111
(45,385)
24,012
$’000
18,436
40,673
(42,823)
16,286
77
30th June 20192019 Annual Report
Note 24. Equity Ð dividends
Interim dividend
December 2017 – paid 14 March 2018
December 2018 – paid 13 March 2019
Final dividend
June 2017 – paid 13 September 2017
June 2018 – paid 12 September 2018
Consolidated
30 June 2019
30 June 2018
Cents per share
$’000
$’000
11.5
12.0
10.0
11.0
-
22,689
23,680
-
-
21,705
20,134
-
On 20 August 2019, the Company declared an
ordinary dividend of 13 cents per share (franked at
60%) to be paid on 18 September 2019. The dividend
value is $27,680,000. No provision for this dividend
has been recognised in the Statement of Financial
Position as at 30 June 2019, as it was declared after
the end of the financial year.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan did not operate
during the year.
Franking credits
Consolidated
30 June 2019
June 2018
$’000
$’000
1,750
1,500
Franking credits
available for
subsequent financial
years based on a tax
rate of 30%
The above amounts represent the balance of the franking
account as at the end of the financial year, adjusted for:
» franking credits that will arise from the payment of
the amount of the provision for income tax at the
reporting date.
78
Notes to the Financial Statementswww.iphltd.com.au
Note 25. Financial instruments
Market risk
Financial risk management objectives
The Group’s activities expose it to a variety of financial
risks: market risk (including foreign currency risk, price
risk and interest rate risk), credit risk and liquidity risk.
The Group’s overall risk management program focuses
on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the financial
performance of the Group. The Group uses different
methods to measure different types of risk to which it is
exposed. These methods include sensitivity analysis in
the case of interest rate and foreign exchange and ageing
analysis for credit risk.
Foreign currency risk
The Group undertakes certain transactions denominated
in foreign currency and is exposed to foreign currency risk
through foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial
transactions and recognised financial assets and financial
liabilities denominated in a currency that is not the entity’s
functional currency. The risk is measured using sensitivity
analysis and cash flow forecasting.
The Group uses derivative financial instruments such as
forward foreign exchange contracts to hedge certain risk
exposures which are not significant. Derivatives are not
used as trading or other speculative instruments.
The Group’s net asset exposure at the reporting date
was as follows:
A$'000
US$'000
€'000
S$000
NZD$000
Other1
30 June 2019
Net asset exposure
(Local Currency)
30 June 2018
Net asset exposure
(Local Currency)
1. Australian dollar equivalent
243,718
13,208
1,750
9,075
6,402
3,754
248,892
2,039
1,966
7,773
6,006
1,689
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 (2018: 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
NZD
Other currencies
Net exposure to
foreign currency risk
10% Weakening
10% Strengthening
2019
2018
2019
2018
$’000
$’000
$’000
$’000
1,881
283
955
608
375
204
197
777
601
169
(1,710)
(185)
(258)
(178)
(868)
(707)
(553)
(546)
(341)
(154)
4,103
1,948
(3,730)
(1,770)
79
30th June 20192019 Annual Report
Note 25. Financial instruments Continued >
Price risk
The Group is not exposed to any significant price risk.
Interest rate risk
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.
The Group’s main interest rate risk arises from its
borrowings. Borrowings issued at variable rates expose
As at the reporting date, the Group had the following
variable rate borrowings outstanding:
Consolidated
30 June 2019
30 June 2018
Weighted
average
interest rate
Balance
Weighted
average
interest rate
Balance
%
$’000
%
$’000
Multi-option facility
3.70
65,470
3.85
40,102
Net exposure to cash flow interest rate risk
65,470
40,102
Credit risk
Liquidity 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.
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.
80
Notes to the Financial Statementswww.iphltd.com.au
Financing arrangements (unused)
Unused borrowing facilities at the reporting date:
Multicurrency loan facility
Working capital facility
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.
Consolidated
30 June 2019
30 June 2018
$’000
124,530
13,500
138,030
$’000
47,913
-
47,913
81
30th June 20192019 Annual Report
Note 25. 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.
Weighted
average
interest rate
1 year
or less
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
Remaining
contractual
maturities
%
$’000
$’000
$’000
$’000
$’000
-
-
9,203
9,671
-
18,874
-
-
-
-
-
-
65,470
65,470
-
-
-
-
9,203
9,671
65,470
84,344
Multi-option facility
3.70%
Total non-derivatives
Weighted
average
interest rate
1 year
or less
Between
1 and 2
years
Between
2 and 5
years Over 5 years
Remaining
contractual
maturities
%
$’000
$’000
$’000
$’000
$’000
Consolidated -
30 June 2019
Non-derivatives
Non-interest bearing
Trade payables
Sundry creditors
and accruals
Interest-bearing -
variable
Consolidated -
30 June 2018
Non-derivatives
Non-interest bearing
Trade payables
Other payables
and accruals
Interest-bearing -
variable
Multicurrency
loan facility
-
-
11,104
3,927
3.85%
-
-
-
-
-
-
-
40,102
40,102
-
-
-
-
11,104
3,927
40,102
55,133
Total non-derivatives
15,031
82
Notes to the Financial Statementswww.iphltd.com.au The following tables detail the Group’s assets and
liabilities, measured or disclosed at fair value, using a three
level hierarchy, based on the lowest level of input that is
significant to the entire fair value measurement, being:
» Level 1 Unadjusted quoted prices in active markets for
identical assets or liabilities that the entity can access
at the measurement date.
» Level 2 Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability,
either directly or indirectly.
» Level 3 Unobservable inputs for the asset or liability.
The Board considers that the carrying amount of financial
assets and financial liabilities recognised in the financial
statements approximate their fair value.
The table below shows the assigned level for each asset
and liability held at fair value by the Group:
Consolidated - 30 June 2019
%
$’000
$’000
$’000
Level 1
Level 2
Level 3
Total
Current assets
Investment in shares
Total current assets
39,194
39,194
-
-
-
39,194
39,194
Level 1
Level 2
Level 3
Total
Consolidated - 30 June 2018
$’000
$’000
$’000
$’000
Current assets
Investment in shares
Total current assets
-
-
-
-
-
-
-
-
83
30th June 20192019 Annual Report Note 26. Key management
personnel disclosures
Compensation
The aggregate compensation made to Directors
and other members of key management
personnel of the Group is set out here:
Consolidated
30 June 2019
30 June 2018
$
$
Short-term employee benefits
2,295,177
2,069,153
Post-employment benefits
95,911
104,597
Long-term benefits
66,302
105,986
Share-based payments
695,821
332,076
3,153,211
2,611,812
84
Notes to the Financial Statementswww.iphltd.com.au Consolidated
30 June 2019
30 June 2018
$
$
Note 27. 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:
Short-term employee benefits
2,295,177
2,069,153
Post-employment benefits
95,911
104,597
Long-term benefits
66,302
105,986
Share-based payments
695,821
332,076
Audit services - Deloitte Touche Tohmatsu (Australia)
3,153,211
2,611,812
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
Consolidated
30 June 2019
30 June 2018
$’000
$’000
341,000
4,080
290,500
4,000
-
-
345,080
294,500
58,302
-
58,302
50,709
-
50,709
Audit or review of the financial statements
44,968
41,524
Other services - unrelated firms
Corporate and taxation services
187,435
232,403
107,904
149,428
85
30th June 20192019 Annual Report Consolidated
30 June 2019
30 June 2018
$’000
$’000
6,947
23,524
11,012
41,482
7,874
21,567
16,355
45,796
Note 28. Contingent liabilities
The Group has given bank guarantees in respect of
operating lease commitments for office premises as at
30 June 2019 of $6,500,000 (2018: $5,985,000).
Note 29. 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
Operating lease commitments include contracted
amounts for offices and plant and equipment under non-
cancellable operating leases expiring within one 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.
Note 30. Related party transactions
Parent entity
IPH Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 35.
Key management personnel
Disclosures relating to key management personnel are
set out in Note 26 and the remuneration report in the
Directors’ report.
Transactions with related parties
There were no additional transactions with related parties.
86
Notes to the Financial Statementswww.iphltd.com.au
Note 31. 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
Other reserves
Retained earnings
Parent
30 June 2019
30 June 2018
$’000
$’000
37,000
41,478
93,860
354,196
4,027
71,416
61,442
61,442
31,071
326,648
2,208
42,310
262,763
262,763
5,705
4,478
9,832
282,778
3,353
-
18,222
284,338
Guarantees entered into by the parent entity
in relation to the debts of its subsidiaries
Other than the security provided for the debt facility
agreement as disclosed in Note 19, the parent entity had
no guarantees in relation to the debts of its subsidiaries
as at 30 June 2019 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 2019.
Capital commitments –
Property, plant and equipment
The parent entity had no capital commitments for
property, plant and equipment as at 30 June 2019.
Significant accounting policies
The accounting policies of the parent entity are consistent
with those of the Group, as disclosed in Note 2.
87
30th June 20192019 Annual Report
Note 32. Business combinations
Note 34. Events after the reporting period
On 12 April 2019, IPH announced that it had entered into a
scheme of arrangement with Xenith IP Limited to acquire
the remaining 80.1% of shares it did not own at $2.15
per share. The scheme of arrangement was approved
by shareholder vote on 25 July 2019 and approved by
the Federal Court of Australia on 1 August 2019. The
acquisition was completed on 15 August.
The shares were acquired for $153.6m, funded by the
draw down of $46.1m from existing debt facilities and the
issuance of 15.6m new IPH shares.
The fair value of the assets and liabilities acquired is yet to
be assessed due to the proximity of the date of acquisition
to the date of this financial report.
Acquisitions undertaken in the year ended
30 June 2018
AJ Park IP Limited
On 31 October 2017, the Group acquired 100% of the
ordinary shares of AJ Park IP Limited under the terms of a
Share Purchase Agreement (SPA).
The final accounting for the acquistion was finalised during
the previous financial year. There were no acquisition
adjustments recorded during the year ended 30 June 2019.
Note 33. Sale of Practice Insight
businesses
On 15 August 2018, a wholly owned subsidiary, Practice
Insight Pty Ltd, sold its Filing Analytics and Citation
Eagle businesses to CPA Global Services Limited for
$10 million. A profit of $2,072,000 arising from the sale
has been recognised on the sale of these businesses
comprising the following:
Proceeds from sale
Less disposed assets:
Goodwill
Acquired Intangibles
Software
Trademarks
Less costs of sale:
Transaction costs
Net profit on sale after transaction costs
$’000
10,000
(3,834)
(671)
(2,147)
(80)
(1,196)
2,072
On 1 May 2019, Practice Insight entered into an
agreement to sell its DMS product to Pace IP UG of
Germany for €900,000 ($1.4 million), with the initial
settlement payment of €100k received and the balance
payable in installments over two years. A profit on sale of
$786,000 has been recognised from the sale.
88
Notes to the Financial Statementswww.iphltd.com.au Note 35. 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:
Name
Principal place of
business / Country
of incorporation
Principal
activities
Ownership
interest
Ownership
interest
Spruson & Ferguson
Pty (NSW) Limited 2,3
Australia
Non Trading entity
Spruson & Ferguson Pty Limited 2,3
Australia
Patent attorneys
30 June 2019
30 June 2018
100%
100%
100%
100%
Australia
Lawyers
100%
100%
Spruson & Ferguson
Lawyers Pty Limited 2,3
Spruson & Ferguson (Asia)
Pte Limited
Singapore
Patent attorneys
Spruson & Ferguson SDN BHD
Malaysia
Patent attorneys
IPH Holdings (Asia) Pte Ltd
Singapore
Non Trading entity
PT Spruson Ferguson
Indonesia
Indonesia
Patent attorneys
IPH (Thailand) Ltd4
Thailand
Non Trading entity
Spruson & Ferguson Ltd
Thailand
Patent attorneys
IPH Services Limited 2,3
Australia
Practice Insight Pty Limited 2,3
Australia
Software
development
Data analysis and
software
Practice Insight GmbH
Germany
Data analysis and
software
Fisher Adams Kelly Pty Limited 2,3
Australia
Patent attorneys
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
100%
100%
Pizzeys Patent & Trademark
Attorneys Pty Ltd 2,3
Australia
Patent attorneys
100%
100%
Cullens Pty Limited 2,3
Australia
Patent attorneys
Cullen Services
No 1 Pty Limited 2,3
Australia
Patent attorneys
100%
100%
100%
100%
89
30th June 20192019 Annual Report Note 35. Interests in subsidiaries Continued >
Name
Principal place of
business / Country
of incorporation
Principal
activities
Ownership
interest
Ownership
interest
Pizzeys Pte Ltd
Singapore
Patent attorneys
100%
100%
Spruson & Ferguson
(Shanghai) Ltd
China
Patent attorneys
100%
100%
30 June 2019
30 June 2018
Spruson & Ferguson Limited
Hong Kong
Non Trading entity
Spruson & Ferguson (Beijing) Ltd
China
Patent attorneys
Hong Kong
Patent attorneys
100%
100%
100%
100%
100%
100%
Spruson & Ferguson
(Hong Kong) Ltd
Spruson & Ferguson Intellectual
Property Agency (Beijing)
Company Ltd
Beijing Pat SF Intellectual Property
Agency Co Ltd5
China
Patent attorneys
100%
100%
China
Patent attorneys
0%
0%
0%
0%
0%
100%
100%
AJ Park IP Ltd
New Zealand
Patent attorneys
AJ Park Law Ltd5
New Zealand
Lawyers
AJ Park IP Pty Ltd
Australia
Patent attorneys
Spruson & Ferguson Projects
Pty Ltd
Australia
Non Trading Entity
Spruson & Ferguson (Qld) Pty Ltd
Australia
Non Trading Entity
100%
0%
100%
100%
100%
1. IPH Limited is the head entity within the tax consolidated group.
2. These companies are members 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 have Alliance Agreements with Group entities which results in consolidation in the IPH Group for Accounting purposes.
90
Notes to the Financial Statementswww.iphltd.com.au
Note 36. Reconciliation of profit after income
tax to net cash from operating activities
Profit after income tax expense for the year
Adjustments for:
Consolidated
30 June 2019
30 June 2018
$’000
53,111
$’000
40,673
Depreciation and amortisation
12,655
13,092
Impairment of Intangible
Unrealised foreign exchange
Share-based payments
Change in operating assets and liabilities
(Increase) in trade and other receivables
(Increase) in deferred tax assets
(Increase) in other assets
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase in other liabilties
(Decrease)/increase in deferred revenue
(Decrease)/Increase in provisions
Net cash from operating activities
-
536
2,200
(7,787)
(3,718)
(2,179)
4,115
3,906
(202)
(926)
(161)
61,550
2,148
(826)
676
(8,416)
(3,753)
(894)
1,183
(587)
(3,190)
77
6,274
46,457
91
30th June 20192019 Annual Report 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
Consolidated
30 June 2019
30 June 2018
$’000
53,111
53,111
$’000
40,673
40,673
Number
Number
197,341,566
195,636,068
Options over ordinary shares
1,193,492
966,124
Weighted average number of ordinary shares
used in calculating diluted earnings per share
198,565,456
196,602,192
Basic earnings per share
Diluted earnings per share
Cents
26.91
26.75
Cents
20.79
20.69
Note 38. Share-based payments
Retention rights
Initial Incentive Plan – October 2014
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.
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 12 month anniversary of the grant date; vesting is
conditional on continued employment.
Set out below are summaries of the rights granted
under the plan:
Grant date
Vesting date
Exercise
price
Balance
at the start
of year
Granted
Exercised
Expired/
forfeited/
other
Balance
at the end
of the year
16 Sep 2015
1 Jul 20181
19 Aug 2016
1 Aug 2019
$0.00
$0.00
Total Retention Rights
1. Share price at date of exercise $4.40
85,212
88,476
173,688
-
-
-
(85,212)
-
-
(15,065)
(85,212)
(15,065)
-
73,411
73,411
92
Notes to the Financial Statementswww.iphltd.com.au Performance rights
EPS 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.
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 FY16 award, the performance was below the 50th
percentile and no rights vested.
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%
FY16 Award (Sep/Dec 15)
Minimum
EPS Target
EPS Target
Compound annual growth rate (CAGR) in
EPS for the period from 1 July 2015 to 30
June 2018 of 7%
Compound annual growth rate (CAGR) in
EPS for the period from 1 July 2015 to 30
June 2018 of 15%
For the FY16 award, the EPS performance did not meet
the minimum EPS Target and no rights vested.
Revised IPH Limited Incentive Plan –
November 2016
Professional staff and senior management
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.
93
30th June 20192019 Annual Report Note 38. Share-based payments Continued >
TSR and EPS target and measurement criteria remain the
same as per the EPS and TSR rights under the previous plan.
Movement in performance rights issued under the
Incentive Plan to professional staff and senior managers
during the financial year were:
Final
vesting
date
Exercise
price
Balance
at the start
of the year
Granted
Exercised2
Expired /
forfeited
/ other
Balance
at the end
of the year
23 May 20191,3
$0.00
2,981
1 Jan 20201,3
$0.00
16,000
1 May 20201,3
$0.00
16,914
1 June 20201,3
$0.00
17,094
1 Sept 2019
$0.00
2,235
1 Sept 2019
$0.00
2,235
1 Sept 2020
$0.00
7,166
5 Feb 20211
$0.00
4,606
9 Apr 20222
$0.00
57,972
31 Aug 2018
$0.00
93,519
-
-
-
-
-
-
-
-
-
-
-
(2,981)
(6,000)
(10,000)
-
(16,914)
-
-
-
(6,410)
-
10,684
-
-
-
(2,235)
(2,235)
(7,166)
(921)
(14,493)
(93,519)
-
-
-
-
-
-
3,685
43,479
-
31 Aug 2019
$0.00
-
771,942
-
(54,546)
717,396
Grant date
Retention -
23 May 17
Retention -
24 May 17
Retention -
24 May 17
Retention -
7 Jun 17
TSR -
23 May 17
EPS -
23 May 17
EPS -
24 May 17
Retention -
22 Feb 18
Retention -
7 May18
KPI -
7 Dec 17 &
14 Mar 18
KPI -
FY194
Total Performance Rights
220,722
771,942
(121,343)
(96,077)
775,244
1. Annual vesting at the following rates: 20% first vesting date, 30% second and 50% final vesting date.
2. Annual vesting of 25% of the award.
3. Share price at date of exercise of the each tranche: $5.42 (1 Jan 19); $6.83 (1 Jun 19).
4. Rights were issued in three tranches with grant dates of 6 Sept 18, 26 Nov 18 and 28 Feb 18.
94
Notes to the Financial Statementswww.iphltd.com.au
IPH Executives – Long Term Incentive
An executive long term incentive was introduced during
FY18. Performance rights vest subject to achievement
of a minimum compound annual growth rate in EPS over
the performance period. The Board will determine a target
for EPS for the performance period. For vesting to occur,
EPS for the performance period must be at least equal to
the Mimimum EPS Target.
EPS Targets for the plan are:
» Minimum EPS Target: 7% CAGR in EPS over the three
year performance period ending on 30 June
» EPS Target: 15% CAGR in EPS over the three year
performance period ending on 30 June.
Vesting of rights is as follows:
» Less than 7% CAGR in EPS over the performance
period - Nil vesting
» Equal to 7% CAGR in EPS over the performance
period - 20% vesting
» Greater than 7% CAGR in EPS up to and including 10%
CAGR - straight line vesting between 20% and 65%
» Greater than 10% CAGR in EPS up to and including 15%
CAGR - straight line vesting between 65% and 100%
» At or above 15% CAGR in EPS over the performance
period - 100% vesting.
Grant date
Final
vesting
date
Exercise
price
Balance
at the start
of the year
Granted
Exercised
LTI - 20 Nov 17 1 Sep 2020
$0.00
288,811
-
LTI - 26 Nov 18 1 Sep 2021
$0.00
-
396,891
Total LTI
Performance
Rights
288,811
396,891
-
-
-
Expired /
forfeited /
other
Balance
at the end
of the year
-
288,811
(30,398)
366,493
(30,398)
655,304
95
30th June 20192019 Annual Report
Note 38. Share-based payments Continued >
Fair value of retention and performance rights granted
» The weighted average share price during the financial year
was $6.01 (2018: $4.49).
» The weighted average remaining contractual life of rights
outstanding at the end of the financial year was 0.9 years
(2018: 1.4 years)
» The weighted fair value of the rights granted during the year
is $5.15 (2018: $4.33)
Valuation model inputs used to determine the fair value of rights
at the grant date, are as follows:
Initial Incentive Plan – October 2014
Grant date
Vesting date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest
rate
Fair value
at grant
date
Performance rights
8 Sep 2018
$6.12
$0.00
35.00%
3.50%
2.00%
$4.45
8 Sep 2018
$6.12
$0.00
35.00%
3.50%
2.00%
$5.51
8 Sep 2018
$8.20
$0.00
35.00%
3.50%
2.00%
$6.66
8 Sep 2018
$8.20
$0.00
35.00%
3.50%
2.00%
$7.40
TSR -
16 Sep 2015
EPS -
16 Sep 2015
TSR -
2 Dec 2015
EPS -
2 Dec 2015
Retention rights
17 Sep 2015
1 Jul 2018
$6.12
$0.00
35.00%
3.50%
1.99%
$5.55
19 Aug 20161
30 Jun 2019
$5.80
$0.00
4.00%
$5.17
1. Expected volatility and risk free rate not included in this valuation
96
Notes to the Financial Statementswww.iphltd.com.au Revised IPH Limited Incentive Plan – November 2016
Professional staff and senior management
Grant date
Vesting date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest
rate
Fair value
at grant
date
Retention -
23 May 171,2
Retention -
24 May 171,2
Retention -
24 May 171,2
Retention -
7 Jun 171,2
TSR -
23 May 17
EPS -
23 May 17
EPS -
24 May 17
KPI -
1 Dec 17
KPI -
14 Mar 18
Retention -
22 Feb 181,2,4
Retention -
7 May 182,3,4
KPI FY19 -
6 Sep4
KPI FY19 -
26 Nov4
KPI FY19 -
28 Feb4
23 May 2019
$4.81
$0.00
35.00%
5.40%
1.58%
$4.49
1 Jan 2020
$4.86
$0.00
35.00%
5.40%
1.63%
$4.39
1 May 2020
$4.86
$0.00
35.00%
5.40%
1.66%
$4.31
1 Jun 2020
$4.76
$0.00
35.00%
5.40%
1.65%
$4.31
1 Sep 2019
$4.81
$0.00
35.00%
5.40%
1.65%
$1.21
1 Sep 2019
$4.81
$0.00
35.00%
5.40%
1.65%
$4.25
1 Sep 2020
$4.86
$0.00
35.00%
5.40%
1.77%
$4.07
31 Aug 2018
$5.48
$0.00
32.00%
5.00%
1.66%
$5.28
31 Aug 2018
$3.55
$0.00
37.00%
6.30%
1.76%
$3.45
5 Feb 2021
$3.74
$0.00
6.30%
2.00%
$3.25
9 Apr 2022
$3.86
$0.00
6.30%
2.08%
$3.32
31 Aug 2019
$5.65
$0.00
5.20%
1.94%
$5.37
31 Aug 2019
$5.40
$0.00
5.20%
1.91%
$5.19
31 Aug 2019
$6.06
$0.00
4.80%
1.73%
$5.91
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
3. Annual vesting of 25% of the award
4. Expected volatility not included in this valuation
97
30th June 20192019 Annual Report
Note 38. Share-based payments Continued >
IPH Executives – Long Term Incentive
Grant date
Vesting date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest
rate
Fair value
at grant
date
LTI - 20 Nov
2017
LTI - 26 Nov
20181
1 Sept 2020
$5.64
$0.00
32.00%
5.00%
1.89%
$4.91
1 Sept 2021
$5.40
$0.00
5.20%
2.07%
$4.68
1. Expected volatility not included in this valuation.
Amounts recognised in the Financial Statements
During the financial year ended 30 June 2019, an expense
of $2,200,000 was recognised in the Statement of Profit
or Loss in relation to equity settled share-based payment
awards. (June 2018: $676,000)
98
Notes to the Financial Statementswww.iphltd.com.au Note 39. Deed of cross guarantee
The members of the Group party to the deed of cross guarantee are detailed in Note 35. 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 2019
30 June 2018
Revenue
Other income
Expenses
Employee benefits expense
Depreciation and amortisation expense
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
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
114,690
43,781
(36,319)
(8,614)
(3,396)
(3,583)
(34,300)
(1,129)
(1,379)
(8,982)
(2,669)
58,100
(10,645)
47,455
4,478
51,933
47,455
47,455
51,933
51,933
$’000
113,659
36,648
(35,816)
(11,386)
(4,536)
(1,078)
(33,923)
(610)
(1,205)
(8,869)
(1,535)
51,349
(7,667)
43,682
-
43,682
43,682
43,682
43,682
43,682
99
30th June 20192019 Annual Report Note 39. Deed of cross guarantee Continued >
30 June 2019
30 June 2018
$’000
$’000
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
Borrowings
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
100
16,112
49,409
45,085
110,606
3,271
175,044
91,488
7,660
277,463
388,069
10,256
-
4,576
6,673
-
121
21,626
65,470
4,724
20,929
91,123
112,748
275,321
262,748
958
11,615
275,321
11,088
37,422
3,714
52,224
3,568
184,104
120,754
5,563
313,989
366,213
8,202
5,000
1,492
6,726
-
872
22,293
35,102
4,670
20,958
60,730
83,023
283,190
262,748
5,026
15,417
283,191
Notes to the Financial Statementswww.iphltd.com.au Directors’ Declaration
,
opinion:
In the Directors
» 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 2019 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
Dr. Andrew Blattman
Managing Director
20 August 2019, Sydney
101
2019 Annual Report
Independent
Auditor’s
Report
102 www.iphltd.com.au
102
www.iphltd.com.au 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
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 2019, 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)
giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial
performance for the year then ended; and
(ii)
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 Asia Pacific Limited and the Deloitte Network.
103
2019 Annual ReportIPH Limited
Key Audit Matter
Recoverability of goodwill
As at 30 June 2019, goodwill totalled $184.6
million, of which $68.2 million relates to the
Pizzeys cash generating unit (“CGU”), as
disclosed in note 14.
As set out in note 14, a decline in the EBITDA
CAGR by 3.0% or an increase in the post tax
discount rate of 0.88% would result in the
carrying value of the Pizzeys CGU being equal to
the recoverable amount.
The determination of the recoverable amount of
goodwill is complex and requires management to
exercise significant judgement in particular in
determining the key assumptions used in cash
flow projections, such as:
short term budgeted revenue and
EBITDA;
long term growth rates; and
discount rates.
How the scope of our audit responded to the Key Audit
Matter
Our procedures performed in conjunction with our valuation
specialists, included, but were not limited to:
o
o
o
o
o
o
assessing the appropriateness of management’s
discounted cash flow (“DCF”) model;
agreeing the cash flow projections used in the DCF
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 DCF models, including
analysis of long term growth rates by reference to
industry data;
challenging and evaluating the appropriateness of
management’s sensitivity analysis; and
evaluating the appropriateness of disclosures made in
the financial report against the relevant accounting
standards.
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 IPH Group, the IPH Story, the Chairman’s Letter, Operational Highlights,
Financial Highlights, CEO’s Report, Board of Directors, Corporate Directory and Shareholder 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.
When we read the IPH Group, the IPH Story, the Chairman’s Letter, Operational Highlights, Financial
Highlights, CEO’s Report, Board of Directors, Corporate Directory and Shareholder 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.
104
www.iphltd.com.auIndependent Auditor’s Report
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.
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.
105
2019 Annual ReportIPH Limited
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 30 to 36 of the Directors’ Report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of IPH Limited for the year ended 30 June 2019, 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
H Fortescue
Partner
Chartered Accountants
Sydney, 20 August 2019
106
www.iphltd.com.auIndependent Auditor’s Report
Shareholder
information
2019 Annual Report
107
107
2019 Annual ReportIPH Limited Shareholder Information
The shareholder information set out below was applicable as at 31 August 2019.
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
Securities
187,916,357
10,525,453
5,450,291
8,059,125
1,482,343
Number of
shareholders
%
90
88.04
472
752
3,110
3,087
4.93
2.55
3.78
0.69
213,433,569
7,511
100.00
Unmarketable Parcels
0
0
0.00
108
www.iphltd.com.au
IPH Limited
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest registered holders of quoted equity securities are listed below:
Rank
Name
A/C designation
30 Aug 2019
%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
68,472,034
32.08
47,375,897
22.20
16,900,312
7.92
7,173,946
3.36
BNP PARIBAS NOMS PTY LTD
5,196,810
2.43
BNP PARIBAS NOMINEES PTY LTD
4,074,105
1.91
HSBC CUSTODY NOMINEES
(AUSTRALIA) LIMITED
SETDOR PTY LIMITED
UBS NOMINEES PTY LTD
TALABAH PTY LIMITED
3,449,931
1.62
2,300,000
1.08
2,227,922
1.04
2,067,175
0.97
WARBONT NOMINEES PTY LTD
1,700,041
0.80
CS FOURTH NOMINEES PTY LIMITED
1,629,874
0.76
HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED-GSCO ECA
AMP LIFE LIMITED
WOMBEE PTY LTD
1,269,338
0.59
1,169,316
0.55
1,000,654
0.47
CS THIRD NOMINEES PTY LIMITED
904,889
0.42
ECAPITAL NOMINEES PTY LIMITED
803,042
0.38
BRISPOT NOMINEES PTY LTD
769,186
0.36
BAINPRO NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES
(AUSTRALIA) LIMITED - A/C 2
Total
Balance of register
Grand total
The above table includes shareholders that may hold shares for the benefit of third parties.
704,469
0.33
599,153
0.28
169,788,094
79.55
43,645,475
20.45
213,433,569 100.00
109
2019 Annual Report
Securities
%
No. of holders
207,887,351
97.40
7,402
31 Aug 2019
%
98.55
760
10,000
21,304
595,141
3,332
1,174
3,900
1,000
82,624
5,825
41,087
10,660
1,900
0.00
0.00
0.01
0.28
0.00
0.00
0.00
2.23
0.00
0.04
0.00
0.02
0.00
0.00
1
1
1
2
2
1
3
79
1
6
1
4
6
1
0.01
0.01
0.01
0.03
0.03
0.01
0.04
1.05
0.01
0.08
0.01
0.05
0.08
0.01
213,433,569
100.001
7,511
100.001
Shareholder Information
Geography distribution
NEW ZEALAND
4,767,511
AUSTRALIA
BAHRAIN
DENMARK
GERMANY
HONG KONG
INDONESIA
JAPAN
MALAYSIA
QATAR
SINGAPORE
THAILAND
UNITED KINGDOM
UNITED STATES OF AMERICA
VANUATU
Total
1. May not add up to 100 due to rounding.
110
www.iphltd.com.au IPH Limited
Number
on Issue
Number
of holders
713,152
10
Unquoted equity securities
Performance Rights over ordinary shares granted
under the Long Term Incentive Plan
Substantial holders
The names of substantial shareholders of the Company’s ordinary shares as at 31 August 2019 (holding no less than 5%)
who have notified the Company in accordance with section 671B of the Corporations Act 2001 are:
Holder
Date of last
notice received
Number of
securities
Percentage of
issued capital1
Paradice Investment Management Pty Ltd
19 August 2019
13,185,819
The Vanguard Group
27 May 2019
11,076,840
Mitsubishi UFJ Financial Group Inc
30 August 2019
10,734,904
1. Percentage of issued securities at 31 August 2019.
6.18%
5.19%
5.03%
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
Expiry Date
Number of Shares
31 October 2019
4,621,547
111
2019 Annual Report Shareholder Information
Annual General Meeting (AGM)
Voting rights
The 2019 annual general meeting (AGM) of IPH Limited will
be held on 21 November 2019 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 2019 AGM. 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.
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 shareholders 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 the
lesser (by number) of: five shareholders present in person;
or shareholders present in person representing at least 10
per cent of the voting shares.
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.
112
www.iphltd.com.au IPH Limited
Level 24
Tower 2, Darling Park
201 Sussex Street,
Sydney, NSW 2000
Australia
Phone: +61 2 9393 0301
Email: info@iphltd.com.au
Cover image:
Supertree Grove and OCBC Skyway
Singapore, 2019
IPH Limited | ABN 49 169 015 838
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www.iphltd.com.au
YEAR ENDED
30TH JUNE