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www.iphltd.com.au
YEAR ENDED
30TH JUNE
IPH Limited | ABN 49 169 015 838
Contents
02
The IPH
Group
16
Directors’
Report
111
Shareholder
Information
04
14
FY20 Year
In Review
Corporate
Directory
45
Financial
Statements
105
Independent
Auditor’s
Report
www.iphltd.com.au
AJ Park
Griffith Hack
Shelston IP
Spruson & Ferguson
Pizzeys
WiseTime
8
IP Jurisdictions
20
Offices1
900+
Employees2
Servicing more
than 25 countries
across the region.
The IPH Group
PIZZEYS
Patent and Trade Mark Attorneys
AU S T R A L I A | N E W Z E A L A N D
A S I A PAC I F I C
1. Refers to number of primary offices of IPH group businesses in the Asia-Pacific region
2. Approximate employee numbers as at 30 June 2020
2
www.iphltd.com.au The IPH Story
About our business
Growth and consolidation at IPH
IPH is the leading intellectual property (IP) professional
services group in the Asia-Pacific region and was the
first IP services group to list on the Australian Securities
Exchange (ASX) in 2014.
Our vision is to be the leading IP services group in
secondary IP markets and adjacent areas of IP.
We are always looking at ways to strengthen our network
offering for our clients, career opportunities for our people
and return on investment for our shareholders.
In FY20, we grew and consolidated our portfolio of
businesses and our group now includes more than 900
employees working across five leading IP firms servicing
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.
Through the IPH network, we provide services for
the protection, commercialisation, enforcement and
management of all forms of intellectual property including
patents, trade marks and designs with offices in eight IP
jurisdictions in the Asia Pacific servicing more than 25
countries across the region. We also operate in adjacent
areas of IP through our WiseTime business.
Consolidating our business for future growth
Following five years of significant growth for the group,
we have been focused on consolidating our businesses
and strengthening our Asia-Pacific platform to better
service our clients.
In FY20, we successfully completed the integration
of Xenith IP into the IPH group. The acquisition of this
business in August 2019 was our largest since listing,
and the integration of these businesses was a large
programme of work for the group. This included the
integration of Watermark into Griffith Hack to create one
firm operating under the Griffith Hack brand and the
divestment of the R&D tax and incentives business of
Glasshouse Advisory to Grant Thornton in May 2020.
We have also undertaken consolidation of corporate
services across the group, allowing us to offer enhanced
career opportunities for our people in these functions,
while ensuring our group businesses have the capabilities,
resources and systems to deliver the highest quality
services to their clients.
Through our group of leading IP firms, we are well
positioned for future growth and to continue to deliver on
our strategic priorities for the year ahead.
Nov 2014
IPH lists on the ASX with Spruson &
Ferguson as the founding business
Apr 2015
IPH acquires IP data analysis &
software applications businesses
Practice Insight and WiseTime
May 2015
IPH acquires Australian
IP firm Fisher Adams Kelly
Sep 2015
IPH acquires Australian
IP firm Pizzeys
Nov 2015
IPH firm Fisher Adams Kelly
acquires the business of
Australian IP firm Callinans
Mar 2016
Opening of Spruson & Ferguson
Indonesia
May 2016
Opening of Spruson & Ferguson
Thailand
Jun 2016
IPH acquires Australian
IP firm Cullens
Nov 2016
IPH acquires Ella Cheong
Hong Kong and Beijing
Jun 2017
Opening of Spruson & Ferguson
Melbourne
Oct 2017
IPH acquires AJ Park
in New Zealand
Jul 2018
Merger of Fisher Adams Kelly
Callinans and Cullens with
Spruson & Ferguson
Aug 2019
IPH acquires Xenith IP Group Limited
May 2020
Divestment of Glasshouse Advisory
R&D tax and EMDG practices to
Grant Thornton
Jul 2020
Integration of IPH Group businesses
Watermark and Griffith Hack completed
Sep 2020
IPH Group business AJ Park
acquires Baldwins IP
3
2020 Annual Report
FY20 Year
in Review
4 www.iphltd.com.au
4
Directors’ Reportwww.iphltd.com.au Chairman’s Letter
Dear Shareholder,
IPH’s results in FY20 demonstrated the ongoing
resilience of our business despite the difficult
environment in the second half of the year due to the
COVID-19 pandemic.
With a solid balance sheet and continued strong cash flow
generation, the company remains well placed to manage
the short term business disruption while ensuring we can
deliver sustainable returns to our shareholders over the
medium term.
FY20 results
For FY20, the company delivered a 3 per cent increase
in Statutory Net Profit After Tax (NPAT) to $54.8 million,
equating to Diluted Earnings Per Share of 25.8 cents,
down 3 per cent on the prior year.
The Directors declared a final dividend of 15 cents per
share, 100 per cent franked, bringing the full year dividend
to 28.5 cents per share, up 14 per cent on the prior year.
The full year dividend is in line with the Board’s dividend
policy to pay 80-90 per cent of cash NPAT as dividends.
More detail on our financial results is contained within the
CEO Report and Operating and Financial Review.
Strong financial position
During FY20, Xenith IP has been successfully integrated
into IPH with the delivery of net cost and revenue
synergies of $3.5 million which was in line with the
guidance provided at the time of the acquisition.
Meanwhile, IPH’s New Zealand business, AJ Park,
reached an agreement to acquire the New Zealand
intellectual property firm, Baldwins Intellectual Property
(Baldwins) for a total consideration of approximately
NZ$7.9 million. This transaction is expected to be
completed in mid-October 2020.
We continue to evaluate potential international acquisition
opportunities in secondary core IP services markets.
Sustainability
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.
Last year we produced our first stand-alone sustainability
report to provide shareholders and other stakeholders
with further information on our approach to sustainability
across our business.
We continue to engage with our stakeholders on
sustainability issues and will shortly produce our second
report which will be available on the IPH website prior to
the 2020 Annual General Meeting.
IPH retains a strong balance sheet to manage through the
current environment while maintaining investments which
support our strategy for medium term growth.
Conclusion
The Company’s net debt at 30 June 2020 was
$68.3 million with a conservative leverage ratio (Net
Debt / EBITDA) of 0.6 times. IPH has no refinancing
commitments until February 2022.
Implementing our growth strategy
The acquisition of Xenith IP Group was successfully
implemented on 15 August 2019. This acquisition was the
largest transaction in IPH’s history since listing and marked
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.
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 FY20. In particular, I want to thank our employees for
their ongoing efforts during the COVID-19 pandemic
in supporting each other and continuing to provide
outstanding service to our clients.
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
2020 Annual Report Operational Highlights1
Strategic priorities for FY20
Results in FY20
1
2
3
4
5
6
Successful Xenith IP integration
Maintain market leading position
in Australia / New Zealand and
continued margin expansion
Continued focus on Asia to
develop the network effect
Xenith integration successfully
completed, including integration
of Watermark business into
Griffith Hack and divestment of
Glasshouse Advisory practice.
IPH group maintains the number
one patent position in Australia,
New Zealand and Singapore.
Margin expansion achieved within
Xenith IP group.
Increased referrals into Asia
business from the expanded
group. Griffith Hack is now a top
10 client of IPH Beijing and
Hong Kong practice.
WiseTime growth in sales
WiseTime revenue growth and
growing customer base.
Digital platform development
Continued focus on potential
overseas acquisitions in
secondary IP markets
Digital platform development is in
progress, with multiple streams of
work underway. Due to COVID-19,
IT resources have been focused on
ensuring business continuity.
Acquisition of Baldwins IP in
New Zealand. Continue to assess
other potential opportunities in
overseas markets.
1. IPH Limited 2020 Full Year Results Investor Presentation, 20 August 2020
6
www.iphltd.com.au Financial Highlights
Revenue 1
A$370.1m
Operating Cashflow
A$89.8m
370.1
259.5
226
157.5
186
)
m
$
(
400
300
250
200
150
100
50
0
)
m
$
(
90
80
70
60
50
40
30
20
10
0
89.8
61.6
42.1
49.9
46.5
FY16
FY17
FY18
FY19
FY20
FY16
FY17
FY18
FY19
FY20
EBITDA 2
A$113.2m
Earnings Per Share 3
25.8c
113.2
85.9
68.7
70.1
59.5
)
m
$
(
120
110
100
90
80
70
60
50
40
30
20
10
0
)
s
t
n
e
c
(
40
30
20
10
0
21.7
22.3
20.8
26.7
25.8
FY16
FY17
FY18
FY19
FY20
FY16
FY17
FY18
FY19
FY20
NPAT
A$54.8m
Full Year Dividend
28.5c
53.1
54.8
38.8
42.9
40.7
)
m
$
(
60
50
40
30
20
10
0
)
e
r
a
h
s
r
e
p
s
t
n
e
c
(
30
25
20
15
10
5
0
28.5
22.5
25
21
22
FY16
FY17
FY18
FY19
FY20
FY16
FY17
FY18
FY19
FY20
1. 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
2020 Annual Report
CEO’s Report
8
www.iphltd.com.au 30th June 2020
In what was an unprecedented year for the IPH group
due to the global pandemic, we continued to deliver
successfully on our strategic priorities to achieve our
vision to be the leading IP group in secondary
IP markets.
Financial results
IPH delivered a solid result in FY20 despite some impact
to our business caused by COVID-19 and the integration of
the Xenith businesses into the IPH group.
Underlying Earnings Before Interest, Tax, Depreciation
and Amortisation (EBITDA) was $126.0 million compared
to $89.7 million for the prior year. Underlying revenue for
the year increased by 44 per cent to $369.6 million while
Underlying Net Profit After Tax (NPAT) lifted by 24 per cent
to $77.7 million. These results included adoption of the
accounting standard, AASB16.
Pre adoption of this standard, Underlying EBITDA
increased by 28 per cent to $114.5 million.
Like-for-like1 revenue decreased by 3 per cent with like-for-
like EBITDA declining by 1 per cent.
In IPH’s Asian IP business, like-for-like revenue increased
by 6 per cent and like-for-like EBITDA improved by 8 per
cent. EBITDA margin increased from 41.3 per cent to 42.2
per cent.
Managing our response to COVID-19
Following the escalation of the pandemic, we implemented
comprehensive COVID-19 response plans across all
offices with our primary focus being on the safety and
wellbeing of our people, our clients and our communities.
Our robust IT systems enabled all IPH employees to work
remotely, while still delivering the high quality IP services
that our clients know and expect. We did experience some
slowdown in workflow (new filings and instructions on
existing matters) due to disruption amongst some clients
and the general economic and market uncertainty, as
well as the temporary closure of IP Offices in some of the
jurisdictions our group businesses service.
However, the flow-on effect of previous filings and the
level of new filings enabled IPH to avoid making any
redundancies, stand-downs or pay reductions for our staff
as a result of the pandemic itself.
While we did not access any government assistance in
Australia or New Zealand, approximately A$1.1 million in
government assistance was received in various forms in
Singapore, China and Hong Kong Special Administrative
Region, China.
We continue to closely monitor and adjust our business
operations as required and in accordance with the latest
Government and regulatory health and safety advice.
Like-for-like revenue in IPH’s Australian and New Zealand
IP businesses declined by 5 per cent.
Market conditions
Despite the weaker market conditions in the second half,
the pre-existing IPH business delivered a solid result with
revenue declining by 1 per cent and EBITDA down 2 per
cent on the prior year.
The integration of Griffith Hack into Watermark was
successfully completed during the year. As anticipated in
an integration programme of this size, the level of merger
activity caused some disruption to those former Xenith
IP businesses during the second half of the year. Griffith
Hack (including the former Watermark business) is also
predominantly Melbourne-based and has also been more
impacted by the COVID-19 restrictions. Together with
reduced client filing activity, previous Xenith IP business
like-for-like revenue declined by 5 per cent. However, the
delivery of corporate cost synergies resulted in like-for-like
EBITDA increasing by 7 per cent.
IPH maintains its leading patent market share positions in
Australia, New Zealand and Singapore.
In Australia, total patent filings were generally steady for
the first nine months of 2020 but declined by 2.6 per
cent in the final quarter as a result of COVID-19. Total
Australian market patent filings decreased by 0.6 per cent
for the year, however if Innovation Patents (to be phased
out in August 2021) are removed from this total, the
market declined by 1.5 per cent. IPH group’s patent filings
(including Xenith on a pro forma basis) in Australia declined
by 5.3 per cent. The reduction in filings reflect IPH’s group
client mix and filing activity compared to the prior period.
There were no major client losses during the period.
IPH remains the patent market leader in Australia with
combined group patent market share (including Xenith IP
on a pro forma basis) of 36.5 per cent to 30 June 2020.
1 The ‘like-for-like’ basis is before adoption of the accounting standard, AASB16,
and adjusts for the impact of foreign exchange movements and also for the
acquisition of the Xenith IP businesses, which was effective 15 August 2019.
9
2020 Annual Report CEO’s Report
In Singapore, IPH Group patent filings for the calendar
year ended 31 December 2019 increased by 22.2 per cent
compared to the prior corresponding period, with the IPH
Group maintaining its number one patent market share of
23.3 per cent.
We continue to expect financial benefits of approximately
$2 million per annum from FY21, primarily through the
consolidation of leased office space and corporate,
administrative and operational efficiencies and
improvements.
Filing activity in other key Asian jurisdictions (excluding
Singapore), declined in the second half compared
to a very strong 2HFY19, which included one client
undertaking a significant filing programme across multiple
jurisdictions. Removing the effect of the filing activity of
this single client, we still achieved growth in Asian filings in
the first three quarters of the year. This is due to a number
of other large filers across the network and reinforces the
sustainability of our network effect across the region.
Our acquisition strategy is also supporting this growth in
client referrals. For example, AJ Park is now the number
one client by revenue in our trade mark business in Beijing
and Hong Kong, while Griffith Hack is now one of the top
ten clients by revenue of our patent business in Beijing and
Hong Kong. Patent filings in China increased by almost 7
per cent on the prior year.
Although the overall trade mark market in Australia
increased by 0.7 per cent for the year, a significant
proportion of this growth was accounted for by ‘self-filers’.
If these are excluded, the market declined by 3 per cent
for the year.
IPH remains the leading Australian trade mark group by
market share of the top 50 agents with market share of
21.3 per cent (including Xenith IP on a pro forma basis).
Delivering our strategy
IPH continued to successfully implement our growth
strategy during the year.
Xenith IP integration
We successfully completed the integration of Xenith IP
into the IPH group.
A major initiative as part of this acquisition was the
integration of Watermark into Griffith Hack to create one
firm operating under the Griffith Hack brand.
Full integration, including IT systems, was achieved
on schedule in July 2020, with both businesses now
operating as Griffith Hack. Due to COVID-19, teams have
been virtually integrated with physical offices retained.
Following a detailed review of the Glasshouse Advisory
business, IPH concluded that this business would be
better placed within a specialist group, more closely
aligned to its service offering. IPH divested the R&D tax
and incentives business of Glasshouse Advisory to Grant
Thornton in May 2020 and the remaining aspects of the
business ceased operation by 30 June 2020.
Strengthening our New Zealand presence
Our New Zealand business, AJ Park, continues to
hold the number 1 position for patents and trade
marks in New Zealand. We also further strengthened
our client service offering in New Zealand through AJ
Park’s acquisition of intellectual property firm Baldwins
Intellectual Property (Baldwins).
Baldwins is a well-known New Zealand IP firm, with high
quality IP professional staff working from Auckland and
Wellington offices. Clients include large multi-national
corporations, universities, government agencies, start-
ups and individual inventors. This acquisition, which
is expected to complete in mid-October, will give the
merged businesses greater depth of expertise, enhanced
career opportunities for their people and provide clients
with access to a complementary team of experienced IP
professionals.
WiseTime
Following the disposal of three of the four products from
the Practice Insight business last year, we remain focused
on developing autonomous time-keeping technology,
WiseTime.
WiseTime achieved revenue growth in FY20 from a
growing customer base. This included early adopter
growth from small to medium sized firms following the
version 2 launch in September and in Q4 FY20, several
large IP practices deployed or committed to deploy
WiseTime to their firms.
10
www.iphltd.com.au 30th June 2020
Focusing on our people
Strategic priorities FY21
We continue to focus on attracting, motivating, developing
and retaining our people across the group.
In FY20 key activities included ongoing investment in
leadership capability, identifying talent and developing our
pipeline for succession planning.
In May 2020 a new Managing Director was appointed
in our New Zealand business, AJ Park, and in Australia,
a new Managing Director was appointed to Spruson
& Ferguson Australia in August 2020. Both of these
appointments came from within the IPH group,
demonstrating our ability to provide career progression
and retaining leadership talent within the group.
In FY20 our employee incentive plan was implemented for
eligible staff across the group, including former Xenith IP
businesses. We are pleased to note that 97 per cent of fee
earning employees eligible for the incentive plan received
an award for FY20. This has been a key priority for the
group and we are very pleased to have been able deliver
on this opportunity in a difficult business climate.
Despite the uncertain conditions, we were also pleased to
make nine Principal promotions across the group for FY21,
reinforcing our commitment to create an environment
where our people can flourish, and supporting our
leadership capability.
Looking ahead to FY21, IPH’s strategic priorities include
maintaining our leading market positions in Australia/New
Zealand and Singapore and seeking to expand in other
secondary jurisdictions.
With the integration of Watermark into Griffith Hack and
divestment of the Glasshouse Advisory business complete,
we will continue to focus on harnessing the growth potential
of the remaining Xenith IP brands within IPH.
In New Zealand, the restructuring of management in AJ
Park and the acquisition of Baldwins provides us with a
strong opportunity to leverage our position in that market.
The company will continue to build on our positive
momentum in leveraging our Asian network to expand
organic revenue opportunities and grow market share in
high growth markets across the region.
We continue to evaluate potential international acquisition
opportunities in secondary core IP services markets.
I would like to acknowledge and thank all our people
across the businesses for their hard work in FY20, and
their adaptability and continued focus on client service as
we have navigated through these unprecedented times.
Finally, thank you to our shareholders for your continuing
support of IPH.
Dr. Andrew Blattman
CEO and Managing Director
11
2020 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.
12
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,
Bisalloy Steel Group Limited and lead
Independent Director of Salvation
Army Australia.
Richard was also formerly
Chairman of Genworth Mortgage
Insurance Limited, Chairman of
the AMP Foundation, Chairman of
SuperConcepts Pty Ltd (AMP) and
Director of the National Health and
Medical Research Council Institute for
Dementia Research.
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, 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 Chief Executive
Officer and Managing Director of The
Trust Company Limited (2009-2013)
prior to its successful merger with
Perpetual Limited, a former non-
executive director of Aurizon Holdings
Limited (2010-2016), and former
Chairman of GPT Metro Office Fund
(2014-2016). 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).
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, Appen Limited, Marley
Spoon AG, 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
on the University of New South Wales
audit committee and was formerly
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, a Director of the
Australia China Business Council,
Director of the Foundation for
Australian Studies in China and a
Director of the CFA Society of Beijing.
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.
Note: Directors’ profiles as at 28 September 2020
13
2020 Annual Report Corporate
Directory
14 www.iphltd.com.au
14
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
Registered office
Principal place of business
Share register
Auditor
Solicitors
Stock exchange listing
IPH will hold its 2020 Annual General Meeting as a virtual
meeting on Thursday, 19 November 2020, commencing
at 10.30am (AEDT). Shareholders can attend the virtual
Annual General Meeting through the online platform:
https://agmlive.link/IPH20.
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
15
2020 Annual Report Directors’
Report
16 www.iphltd.com.au
16
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 2020.
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
Managing Director and
Chief Executive Officer
Mr John Atkin
Non-executive Director
Ms Robin Low
Non-executive Director
Ms Jingmin Qian
Non-executive Director
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
was also formerly Chairman of Genworth Mortgage Insurance Limited (2012-2016).
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 the AMP Foundation (2012-2018)
Interests in shares:
51,773
Special responsibilities:
Chairman. Member – Nominations and Remuneration Committee
17
2020 Annual Report
Directors’ Report
Name: Dr. Andrew Blattman
Title:
Managing Director and Chief Executive Officer (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:
St Paul’s College Foundation
Interests in shares:
2,206,166
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)
Experience and
expertise:
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, a former non-
executive director of Aurizon Holdings Limited (2010-2016), and former Chairman of GPT
Metro Office Fund (2014-2016). John was also Managing Partner and Chief Executive of
Blake Dawson (2002-2008). He also worked at Mallesons Stephen Jaques as a Mergers &
Acquisitions Partner for 15 years (1987-2002).
Other current
directorships:
John is Chairman of the Australian Institute of Company Directors, and Qantas
Superannuation Limited. He is a Director of Integral Diagnostics Limited, Commonwealth
Bank Officers Superannuation Corporation Pty Limited, and Outward Bound International Inc.
Interests in shares:
115,829
Special responsibilities:
Chairman - Nominations and Remuneration Committee.
Member - Audit Committee, Risk Committee
18
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, Appen Limited, Marley Spoon AG, 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 on the University of New
South Wales audit committee and was a former Deputy Chairman of the Auditing and
Assurance Standards Board.
Former directorships
(last 3 years):
CSG Limited
Interests in shares:
74,214
Special responsibilities:
Chairman - Audit Committee
Member - Nominations 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, a Director of the Australia China Business Council and a
Director of the Foundation for Australian Studies in China. 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, Nominations and Remuneration Committee
The non-executive directors hold no interest in options, performance rights or contractual rights to the securities of
IPH Limited as at the date of this report.
19
30th June 20202020 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 2020,
and the number of meetings attended by each Director were:
Full Board
Nominations
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
7
7
7
7
7
7
7
7
7
7
3
-
3
3
3
3
-
3
3
3
-
-
5
5
5
-
-
5
5
5
-
-
2
2
2
-
-
2
2
2
Held: represents the number of meetings held during the time the Director held office. Whilst not a member of the
committees Andrew Blattman was in attendance except in circumstances of a conflict of interest.
2. Company Secretary
Philip Heuzenroeder, BEc, LLB, LLM, GAICD (Order of
Merit). Mr Heuzenroeder was appointed Group General
Counsel and Company Secretary on 29 April 2016. He
is a solicitor with over 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, 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 the 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;
» the development of autonomous timekeeping
software under a subscription licence model whereby
the software is licensed and paid for on a recurring
basis; and
» the provision of R&D taxation and other government
incentives advice. This service line was transferred to
Grant Thornton in May 2020.
There were otherwise no significant changes in the nature
of activities of the Group during that period.
4. Operational and financial review
4.1 Operations and financial performance
The summary financial analysis below shows the results
on a statutory and underlying basis. Results commentary
below reflects the adoption of the Accounting Standard,
AASB16. Financial results for the prior corresponding
period do not include the adoption of this accounting
standard as any transition impact has been taken through
retained earnings as permitted by the Accounting
Standard. The impact of this treatment is to increase
reported EBITDA on a year on year basis, but an
immaterial difference at the NPAT line.
The Directors believe it is 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.
20
Directors’ Reportwww.iphltd.com.au
$’000
Revenue
FY20
Revenue
FY19
Chg%
EBITDA
FY20
EBITDA
FY19
Australian & New Zealand IP
277,649
171,646
62%
95,583
61,819
Asian IP
102,709
93,460
10%
46,087
38,617
380,358
265,106
43%
141,670
100,436
Data and Analytics Software
Corporate Office
2,743
2,040
477
(19)
(1,869)
(1,427)
(13,178)
(10,039)
Eliminations
(15,509)
(8,915)
(587)
723
Chg%
55%
19%
41%
Underlying Revenue / EBITDA
369,632
256,649
44%
126,036
89,693
41%
Business acquisition costs
New business establishment costs
Restructuring expenses
452
Share based payments
Onerous lease provisions and
asset writeoffs
Impairment of Watermark brand
Disposal of Practice Insight
businesses
(1,202)
(3,476)
-
(4,127)
(31)
(986)
(2,180)
(2,200)
(3,704)
(1,600)
2.857
2,857
Statutory Revenue / EBITDA
370,084
259,506
43%
113,223
85,856
32%
Interest Income
Interest Expense
Depreciation and amortisation
Net Profit Before Tax
Tax
Net Profit After Tax
75
92
(7,125)
(2,661)
(34,481)
(12,654)
71,692
70,632
2%
(16,940)
(17,521)
54,752
53,111
3%
21
30th June 20202020 Annual Report 4.1 Operations and financial performance Continued >
The FY20 underlying earnings of the Group have been
determined by adjusting statutory earnings amounts to
eliminate the effect of amortisation of intangible assets,
business acquisition costs, new business establishment
costs, restructuring expenses and non-cash share based
payments expenses. The current year items also included
the impairment of the Watermark brand as a result of
its merger into Griffith Hack, transfer and close down
of Glasshouse Advisory business, and the creation of
onerous lease provisions of additional leased space which
also resulted from the merger and business closure. A
summary of adjustments is outlined in section 4.1.1.
Reported balances include the consolidation of Xenith
IP which was acquired on 15 August 2019. In the 10.5
months of ownership the group contributed $106.9m in
underlying revenue and $21.2m in underlying EBITDA
(pre AASB16).
Revenue increased by 43% to $370.1m, driven by the
impact of organic growth, the acquisition of Xenith IP,
and also the positive impact of a weaker Australian dollar
compared to the prior year.
Statutory EBITDA increased by 32% to $113.2m, from
$85.9m in FY19. Underlying EBITDA increased by 41% to
$126.0m from $89.7m for the prior year.
The Group achieved a statutory net profit after tax of
$54.8m; an increase of 3% on the prior year’s result of
$53.1m. Underlying net profit after tax increased by 24% to
$77.7m compared to the prior year.
Pre Adoption of AASB16
Pre adoption of the accounting standard AASB16,
Underlying Earnings Before Interest, Tax, Depreciation and
Amortisation (Underlying EBITDA) increased by 28 per
cent to $114.5m.
Australian and New Zealand IP
Underlying revenue in the Australia and New Zealand IP
segment increased by 62.0% to $277.7m. This includes
$106.9m in revenue attributable to the Xenith IP businesses
which were acquired on effective 15 August 2019.
Total Australian market patent filings decreased by 0.6%
for the year or, if Innovation Patents (to be phased out 25
August 2021) are removed, the market declined 1.5%.
Total patent filings declined by 2.6% in the 4th quarter
compared to the corresponding quarter in the prior year.
For FY20 IPH Group’s filings (including Xenith IP) declined
by 5.3%. The reduction in filings reflect IPH’s client mix
and filing activity.
22
The Group has maintained its number one patent market
share position (all patent applications filed in Australia) for
the year at 36.5% (including Xenith IP).
Underlying EBITDA increased by 55% to $95.6m which
includes the contribution from Xenith IP and the impact of
favourable foreign exchange movements.
On a like for like basis (pre AASB16), Underlying EBITDA
decreased by 8%. Despite the weaker market conditions
in the second half, the pre-existing IPH business delivered
a solid result with like for like revenue declining by 2% and
EBITDA down by 3% on the prior year. Amongst the Xenith
IP acquired businesses, Griffith Hack, including the former
Watermark business were more impacted in Q4 with the
possible impact of COVID-19, in part due to their larger
Victorian presence and integration activities, contributing
to a like-for-like revenue decline of 6%.
Asian IP
The Asian IP segment achieved sales revenue growth
of 10% to $102.7m. On a like for like basis (pre AASB16)
revenue increased by 6%. Like for Like (pre AASB16)
Underlying EBITDA was up by 8%.
Removing the effect of one significant client filing across
several jurisdictions, filing activity across other key Asian
jurisdictions, excluding Singapore, moderated in the
second half compared to a very strong 2HFY19.
As at 3 August 2020, the Group has maintained its
number one patent market share position in Singapore (all
patent applications filed in Singapore).
The China and Hong Kong practice performed well in
achieving “like for like” revenue growth of 10% and EBITDA
growth of 14%.
Adjacent Businesses
The Group continues to invest in WiseTime, an
autonomous time-keeping software application. This
business should benefit from the increase in “working from
home” and has seen an increase in interest.
The Group acquired Glasshouse Advisory as part of its
acquisition of Xenith IP. After a strategic review, the R&D
tax incentive and Export Market Development Grant
practice was divested to Grant Thornton Australia in May
2020, and the balance of the business ceased.
Impact and response to COVID-19
IPH disclosed during the final quarter that it had seen
some disruption to the business as a result of COVID-19.
Directors’ Reportwww.iphltd.com.au The Group was initially impacted in Beijing and Hong Kong
from late January. With the escalation of the pandemic
in March, the business implemented comprehensive
COVID-19 response plans across all offices with the
primary focus on the safety and wellbeing of its people,
clients and communities.
The Group’s IT systems have enabled all IPH staff to
work remotely. Most Patent and Trade Mark Offices have
remained open during the pandemic with the exception of
some smaller IP offices in SE Asia.
In the second half of the year, IPH experienced some
slowdown in workflow (new filings and instructions on
existing matters) due to disruption amongst some clients
and the general economic and market uncertainty, as
well as the temporary closure of Patent Offices in some of
the jurisdictions IPH group companies service. However,
the flow-on effect of previous filings and the level of
new filings maintained enabled IPH to avoid making any
redundancies, stand-downs or pay reductions for its staff
as a result of the pandemic itself.
Government assistance was not accessed in Australia
or New Zealand, however approximately $1 million in
government assistance was received in various forms in
Singapore, China and Hong Kong SAR, China.
No significant deterioration in collection of debtors has
been identified.
Movements in FX rates
Foreign exchange rates used to translate earnings
throughout the period were:
FY18
FY19
Movement
FY20
Movement
AUD/USD
AUD/EUR
AUD/SGD
Year End
Average
Year End
Average
Year End
Average
0.7407
0.7754
0.6420
0.6498
1.0095
1.0404
0.7022
0.7153
0.6176
0.6270
0.9500
0.9765
7.8%
3.5%
6.1%
0.6877
0.6712
0.6124
0.6069
0.9591
0.9283
6.2%
3.2%
4.9%
The average exchange rates incurred in FY20 were
favourable to the reported results compared to those
incurred during FY19. A one cent movement in the AUD/
USD equates to a c$1.9m movement in service charges
(revenue), the majority of which falls to the EBITDA line.
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 FY20 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 integration of Xenith IP
businesses.
» Onerous lease provisions and asset write-offs –
costs associated with the rationalisation of office
premises following the merger of Watermark and
Griffith Hack and the transfer and close down of
Glasshouse Advisory.
» Impairment of Watermark brand – the Watermark
brand is no longer in use following the merger with
Griffith Hack.
» Share-based payments – accounting charges for the
share-based incentive plans.
23
30th June 20202020 Annual Report 4.2 Statement of financial position
$’m
Cash and cash equivalents
Trade and other receivables
Investments
Other current assets
Total current assets
Property, plant and equipment
Right-of-use assets
Acquisition intangibles and goodwill
Deferred tax asset
Other non-current assets
Total assets
Trade and other payables
Tax provisions
Lease liabilities
Deferred tax liability
Borrowings
Other liabilities
Total liabilites
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Balance Sheet
as at 30 Jun 2020
Balance Sheet
as at 30 Jun 2019
82.9
89.1
-
9.1
181.1
13.3
38.8
483.3
22.6
-
739.1
24.7
3.3
53.7
60.4
151.2
23.1
316.4
422.7
402.2
0.5
20.0
422.7
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
Overall the Group maintains a sound balance sheet position
with a gearing level of c0.6 times (Net debt/Underlying
EBITDA), and with re-financing not due until February 2022.
As a prudent measure, the Company drew down $20m
from its debt facilities in March. Subsequent to year-end,
$12.7m of this balance was repaid in August 2020.
24
Directors’ Reportwww.iphltd.com.au A summary of specific key movements are as follows:
Liabilities
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 $89.8m.
» Group borrowings of $151.2m have increased from
the comparative period due to the drawdown of debt
for the acquisition of Xenith ($46.1m) and repayment of
Xenith outstanding debt ($21m), and a drawdown and
repayment of a further $20m and $5m respectively
during the period.
» 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 2020 the cash balance was
denominated in AUD (46%), USD (40%) and other (14%).
» Cash conversion for the year was in excess of 100%
» Deferred tax liabilities have increased significantly
due to the recognition of deferred taxes on customer
relationships and trademarks from the acquisition of
Xenith and the tax treatment upon implementation of
AASB16.
which includes the collection of cash from a strong 4th
quarter in earnings in FY19.
Equity
Investments
» At 30 June 2019 this balance represented the
investment in 19.9% of Xenith from February 2019.
Following the acquisition of the remaining shares in
Xenith, this amount has been transferred to the cost of
acquisition.
Trade & other receivables
» As at 30 June 2020 the trade receivables balance
was denominated in AUD (25%), USD (53%) and
other (22%).
Right-of-use asset & interest bearing lease liabilities
» This is the recognition of lease assets and liabilities in
accordance with AASB16 from 1 July 2019.
Acquisition intangibles & goodwill
» The increase in intangible assets arises from the
recognition of goodwill $113.9m, customer relationships
$120.1m and trademarks $14.6m following the
acquisition of Xenith, less amortisation costs during the
period.
» Identifiable intangible assets, net of amortisation,
consist of: customer relationships $163.2m; trademarks
$17.2m and internally developed software $4.8m.
» Goodwill resulting from current year and historic
acquisitions is $298m.
» Approximately 15.6m new shares ($130.7m) were
issued during the period to partially fund the acquisition
of Xenith. Additional equity movements relate to shares
issued under the dividend reinvestment plan and the
vesting of performance rights.
4.3 Business model, strategy and outlook
4.3.1 Business model
IPH Limited is an intellectual property group operating
a number of professional services businesses providing
intellectual property services (“IP Services”). In
FY20 it also operated in areas which support our IP
businesses, through Glasshouse Advisory (now ceased
operations) and the WiseTime business, an autonomous
time-keeping software application.
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 the business
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.
25
30th June 20202020 Annual Report 4.3.2 Strategy
IPH vision, mission and values
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 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.
Business improvements and operations
The Group will continue to focus on the optimisation of
all IPH’s businesses with a view to extract operational
efficiencies and improve the quality of service for our clients.
1. The primary IP markets of USA, Japan Western, Europe and the Republic of
Korea generate the majority of IP rights and clients by value. The secondary
markets are all countries outside of USA, Japan, Western Europe and the
Republic of Korea.
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.
From its origins in 1887 as Spruson & Ferguson, IPH’s
success continues to be underpinned by the key drivers
and values at the core of 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
Value creating growth strategies
IPH’s seeks to achieve its goals through implementation of
strategic initiatives in five key areas:
» Australian and New Zealand IP businesses
» Asia IP businesses
» 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 Australia and New Zealand
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, AJ Park, Griffith Hack, Pizzeys,
Shelston IP and Spruson & Ferguson.
IPH’s Australia and New Zealand 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 successful acquisition of the Xenith
IP businesses in August 2019 and subsequent integration
provides an additional opportunity for professionals in
these businesses to offer a pan-Asian filing solution to
their clients.
26
Directors’ Reportwww.iphltd.com.au
4.3.3 FY21 priorities
IPH’s strategic priorities include maintaining its leading
positions in Australia, New Zealand and Singapore, and
seeking to expand in other secondary market jurisdictions.
With the completion of integration of Watermark into Griffith
Hack and transfer of Glasshouse Advisory businesses, a
continued focus in FY21 is to harness the growth potential
of the Xenith IP businesses within IPH. In New Zealand,
restructuring of management in AJ Park and the proposed
acquisition of Baldwins provides IPH with a strong
opportunity to leverage its position in that market.
The Company will continue to build on its positive
momentum in leveraging its Asian network to expand
organic revenue opportunities and grow market share in
high growth markets across the region.
IPH continues to evaluate potential international acquisition
opportunities in secondary markets.
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 or, where travel is not possible,
virtual meetings or other forms of communication, 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.
27
30th June 20202020 Annual Report Risk
Description
Management of Risk
Regulatory reforms
The Group’s service offerings are
subject to changes to government
legislation, regulation and practices
including particularly, if implemented,
proposals to streamline multi-
jurisdictional patent filing and
examination processes.
The Company is proactive in any review or evaluation of
regulations likely to affect its operations materially, and
works with regulators or review authorities to ensure a
clear understanding of facts and circumstances, and
consideration of all stakeholder perspectives.
The Company seeks to offer its services in a range of
secondary markets. Many of these markets have less
developed IP regulations and systems, and require
translations into languages other than English, and are
therefore less likely to be affected by such proposals if
they were to be implemented than developed or
primary markets.
Other factors which help safeguard the Company’s role
are effective technology, excellent client service and
efficient operations and the likely need for IP applicants
to continue to be required to record a local address
for service of documents with the local IP office for
examination and prosecution purposes.
The Company also continues to consider the development
of revenue streams from adjacent markets.
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 including
loss of knowledge and relationships.
Employee costs represent a
significant component of the Group’s
total cost base.
Retention practices including appropriate remuneration,
incentive programmes (both short and long term having
regard to appropriate key performance indicators),
retention awards, working environment and rewarding
work. Learning and development programs are in place to
attract, develop and build the capability of our workforce
to meet our current and future needs of clients.
Careful management of staff numbers and salary levels
and consideration of resourcing requirements as the
Company grows.
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.
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.
Personnel
Disintermediation
28
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 and
technology 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 electronic
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, although a
number of the Group’s acquired subsidiaries maintain
FX contracts to hedge specific risks or transactions. This
policy is currently under review.
29
30th June 20202020 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.
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.
30
Directors’ Reportwww.iphltd.com.au Risk
Description
Management of Risk
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
Global or regional
economic, health or
physical events
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.
Risk may arise as a result of
global or regional events in the
nature of natural disasters or other
physical events, global or regional
health events or global or regional
economic shocks which may
impact on the level of demand for IP
services by clients and their ability to
provide or confirm instructions, the
capability and timing for IP regulatory
authorities to accept, review and
progress the prosecution of IP
rights, and the ability of the Group to
provide its services.
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.
The nature of the Group’s customer base means that
it receives revenue from a large number of customers
located in a range of jurisdictions such that no one
customer accounts for more than a small percentage of
the overall revenue of the Group.
Further much of the demand for patent related services
arises from research and development programmes
conducted over longer periods that are likely to be less
susceptible to economic impacts in the short term. The
IP prosecution process also generally extends over longer
timeframes and is usually subject to certain fixed milestone
steps which are known in advance and required to be met
to preserve rights, providing a degree of protection against
short term decisions to cease or delay prosecution.
The Company has established business continuity plans
and procedures. The Company’s transition of its IT
systems to offsite ‘cloud-based’ systems enables remote
conduct of its business by employees where required.
Similarly, the ability of many customers and IP offices to
continue their core operations in a remote environment
facilitates ongoing provision of instructions and responses.
31
30th June 20202020 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 2020 financial year.
This year marked two significant steps in the
development of the remuneration systems for the
group. In FY15 the CEO had a total remuneration
package of $250,000 per annum which was the same
as that received by all the other vendor principals. This
was a term of the agreement between all the vendor
principals which led to the IPO and reflected the
firm’s history as a private unit trust with no separation
between ownership of the firm, management of
the firm and working in the firm. Since FY16 the
remuneration systems and settings for the firm have
been progressively adjusted to reflect those more
appropriate for a professionally managed public listed
company where there is a clear distinction between
the owners, managers and workers in the firm. At
the commencement of the year we completed the
adjustment of the remuneration for the CEO in line
with market. This resulted in a significant increase
in his base remuneration. We also adjusted the
remuneration paid to the Chairman and Non-executive
directors, again to align with market. The key steps in
that process of adjustment over the last five years are
set out in the report.
The remuneration now provided to KMP, both executive
and non-executive, is significantly higher than when the
Group listed. Those increases reflect both the process
of adjustment from the system adopted at the time of
the IPO and the growth in the size, value and complexity
of the firm’s business over that time. It is worth noting
the very significant change in the size, complexity and
value of the Group since its IPO.
The other significant milestone achieved this year has
been the vesting of the first tranche of Performance
Rights granted to executive KMP under the Group’s
revised Long-Term Incentive (LTI) Plan. The details are
set out in the report. Those Performance Rights were
granted in FY18.
Revenue
EBITDA (Underlying)2
Number of employees
Number of brands/business units
FY15 annualised
pro forma forecast1
$82.8m
$30.4m
300
1
FY20
$370.1m
$114.5m
~900
7
Jurisdictions with material client facing presence
3
8
$331m
$1.6bn
Market capitalisation
1. Prospectus page 17
2. Pre-AASB16
32
Directors’ Reportwww.iphltd.com.au
In assessing the level of vesting for the LTI, and
in making awards under the Short-Term Incentive
scheme to the IPH Executive, the Board considered
what weight should be given to the impact of
COVID-19 on the business and the group’s response
to it. Our management team did a commendable job
in ensuring the health and safety of our employees
and facilitating a smooth transition to the “working
from home” environment across all our offices in eight
different jurisdictions. As detailed in our OFR, there
was an unavoidable impact resulting in a reduction in
workflow (filings and instructions on existing matters)
due to disruption amongst some clients and the
general uncertainty of financial conditions, as well
as the temporary closure of IP Offices in some of
the jurisdictions we service. Despite this, the flow-
on effect of previous filings and a level of new filings
maintained activity levels. This made redundancies,
stand-downs and pay reductions as a result of
COVID-19 unnecessary. The JobKeeper scheme in
Australia was not accessed, however approximately
$1m in government assistance was received in various
forms in Singapore, Hong Kong and China. The
overall financial result achieved was not significantly
below budgeted levels and the Group has been able
to declare a higher dividend than the prior year, in line
with pre-COVID-19 expectations.
In exercising its discretion on the level of awards, the
Board sought to ensure fair treatment of management,
employees and shareholders, with reference to these
considerations. Details of the STI awards and support
for their award (including the Board’s discretion) are set
out in report. Discretion was also exercised assessing
outcomes for staff in the Business Units participating in
the Employee Incentive Plan.
The Board also made a modest upward adjustment
to the vesting of the LTI. That award was to reward
performance over a three-year period. During that
time, the Compound Annual Growth Rate (CAGR)
of the Group’s underlying Earnings Per Share (EPS)
exceeded 11.1% per annum and the share price grew
from $4.80 to $7.46 at 30 June 2020. The TSR over
this period was 75%.
Finally, in light of the present uncertain global outlook,
annual pay reviews have been delayed across
the group (with the exception of promotions and
addressing anomalies). Consistent with this delay, the
remuneration of IPH Executive will be reviewed with
effect from 1 January 2021.
Changes in the FY20 Remuneration Report
During the year I have had the opportunity to meet
with shareholders and proxy advisors to receive their
feedback on remuneration matters and address any
issues arising from the FY19 report. The following matters
raised have been addressed in the body of the report:
» Rationale for level of CEO fixed remuneration;
» Greater disclosure of STI metrics and outcomes;
» LTIP performance hurdle, its calculation, and the
use of a single metric; and
» Rationale for the level of NED fees.
As the Company continues to grow and mature, we
will continue to review the remuneration framework
and settings 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
33
30th June 20202020 Annual Report 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:
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.
a) 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.
» Overview of Executive Remuneration Framework and
b) Alignment to program participants’ interests:
Guiding Principles
» Overview of Executive Remuneration
» Evolution of Remuneration Framework and Settings
Since Listing
» 2020 Remuneration Outcomes
» Overview of Non-Executive Director Remuneration
» Details of Remuneration of Key Management Personnel
» Service Agreements
» Additional Disclosures Relating to Key Management
Personnel
5.1 Overview of Executive Remuneration
Framework and Guiding Principles
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, fairness and reasonableness;
»
»
»
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 Overview of 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
executive KMP for FY20 had the following components:
» base salary, short and long-term incentives and non-
» acceptability to shareholders and other stakeholders;
monetary benefits; and
» performance linkage and alignment of executive
» other remuneration such as superannuation and long
compensation with remuneration provided across the
Group; and
» transparency.
The Nominations 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
service leave.
The combination of these comprises the executive KMP’s
total remuneration.
Fixed Remuneration
Fixed remuneration, consisting of base salary,
superannuation and non-monetary benefits, are reviewed
annually by the NRC, based on individual and Business
Unit performance, the overall performance of the Group
and comparable market remuneration. Executives may
receive their fixed remuneration in the form of cash or
34
Directors’ Reportwww.iphltd.com.au
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.
In broad terms, fixed remuneration is set at or above
median market levels compared to peers with similar
revenues and market capitalisation, while the short-term
at-risk component is set at below median levels. The
Board believes that the “at-risk” component should be
weighted towards long-term incentives, to align with long-
term value creation for shareholders.
The re-set of CEO fixed remuneration in the current year
reflects the significant increase in scope and complexity
in the organisation since the initial public offering in 2014,
and through subsequent material acquisitions made by the
Company in 2017 and 2019. Since its first year as a listed
entity (FY15) the Company’s Revenue and Underlying
EBITDA have more than doubled while dividends paid to
shareholders have increased by 851 per cent. Over that
time Total Shareholder Return has increased by c327%.
The indicative market capitalisation of the Company at
listing was $331 million compared to around $1.6 billion
currently. The company’s operational scale has also
increased significantly with total staff numbers increasing
from 300 at listing to around 900 employees.
In addition to the assessment above, the Board has
considered the amount of the CEO’s remuneration against
available remuneration benchmarks for like businesses and
roles. The Board has also considered the composition of
remuneration in terms of the mix of fixed, and short and long-
term at-risk incentives. Following such review, the Directors
considered the increase of the CEO’s fixed remuneration was
appropriate as well as confirming a significant proportion of
the total potential remuneration of Dr Blattman should be in
the form of at-risk long-term incentive opportunity so as to
further align the interests of Dr Blattman with the interests of
the Company and its shareholders.
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 on alignment through
the long-term incentives at 100% for the CEO and 75%
for the CFO. Incentives are also reviewed annually by the
NRC. The mix of remuneration is illustrated above.
1. Dividends paid FY15 to FY19
Remuneration mix
Andrew
Blattman
John
Wadley
43%
14%
43%
50%
12%
38%
0%
20%
40%
60%
80%
100%
Fixed
STI
LTI
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.
The Board has reviewed the Long-Term Incentive (LTI)
Earnings Per Share (EPS) targets, taking into account
shareholder feedback and appropriate levels of growth for
IPH to pursue in the markets in which the Group operates.
As a result, the LTI targets for the 2020 plan as outlined
below have been re-calibrated to align with internal
objectives and external expectations whilst maintaining an
appropriate level of stretch.
The Board also considered the possible inclusion of an
additional performance condition based on Return on
Invested Capital (ROIC). While return on capital is a key
consideration both in driving improvements in the organic
business and in any acquisition, the Board determined the
complexities of the measurement and its susceptibility to
change due to extraneous timing effects did not warrant
its inclusion. The Board will ensure that management
continues to apply a disciplined approach to investing the
Group’s capital when evaluating acquisitions and other
investment opportunities.
35
30th June 20202020 Annual Report
5.2 Executive Remuneration Continued >
The Board was cognisant when setting the targets for
the 2020 awards of the timing of the Xenith acquisition
and its potential impact on the achievement of those
targets. Acquisitions form part of IPH’s strategy and
LTIP targets are calibrated to include both organic and
acquisitive growth. A significant aspect of management’s
performance and the company’s success is dependent
upon the successful integration of acquisitions. Board
expectations of vesting are an input into their assessment
of the overall remuneration mix.
EPS targets for the 2020 Plan are:
» Minimum EPS Target – 5% CAGR in EPS over the
three-year Performance Period ending on 30 June
2022; and
» EPS Target – 12.5% CAGR in EPS over the three-year
Performance Period ending on 30 June 2022.
The table below outlines how Performance Rights
issued in 2020 will vest based on the Company’s EPS
performance over the Performance Period (measured
by calculating the CAGR between EPS for FY19 and
EPS for FY22).
EPS in FY22
Percentage of Perfor-
mance Rights that vest
Less than 5% CAGR in EPS
over the Performance Period
Nil vesting
Equal to 5% CAGR in EPS
over the Performance Period
25% vesting
CAGR in EPS greater than
5%, up to and including 12.5%
CAGR in EPS over
the Performance Period
Pro-rated vesting on
a straight-line basis
At or above 12.5% CAGR
in EPS over the Performance
Period
100% vesting
Dividends will not be paid on Performance Rights.
5.3 Evolution of Remuneration Framework and
Settings Since Listing
At the IPO the Chief Executive Officer’s total remuneration
package was $250,000 per annum which was the same
salary received by all the vendor principals that continued
employment with the company. No short term or long-
term incentives applied to executive management. In early
2016 the group engaged GRG to provide remuneration
36
advice and undertake a benchmarking exercise for both
executive remuneration and Chair and director fees. That
advice indicated that both executive remuneration and
director fees were very significantly below comparable
benchmarks and the Board determined to commence the
process of adjusting the remuneration settings for KMP. As
a first step the fixed remuneration for the CEO was lifted
to $750,000 per annum without any incentive. In 2018,
the fees for the Chair were lifted to $220,000 per annum
and the non-executive director fee lifted to $115,000 per
annum (in both cases inclusive of all committees).
When Andrew Blattman was appointed CEO during
2017 his initial fixed remuneration was set at $750,000
per annum in line with that of his predecessor. We
recognised at the time this fixed remuneration was still
a long way below comparable benchmarks for fixed
remuneration. However, to bring his total remuneration
package closer to benchmarks Andrew’s received an
STI at a maximum of 20% of base and an LTI of 100% of
base. No change was made to the fees payable for the
Chair or non-executive directors.
In June/July 2018, when reviewing outcomes for FY18
and setting remuneration for FY19, the Board determined
that the CEO should not receive any STI payment for
FY18 as the overall result achieved by the Group was
not adequate. However, the CEO’s fixed remuneration
was increased to $900,000 and an STI at a maximum of
33.33% of base, bringing it closer to but still below the
comparable benchmarks at the time as advised by EY.
No change was made to the fees payable for the Chair or
non-executive directors.
In June/July 2019 a further benchmarking exercise
was undertaken for both executive KMP. The CEO’s
fixed remuneration was increased to $1,250,000 per
annum. This put the CEO’s fixed remuneration slightly
above median for comparable benchmarks at the time
as advised by EY. That setting is in line with the overall
framework where more emphasis is placed on fixed
remuneration and long-term incentives, than short
term. (At a maximum of 33.33% of fixed remuneration,
the CEO’s STI is significantly lower than comparable
benchmarks.)
At the same time the fees for the Chair and non-executive
directors were increased to levels below comparable
benchmarks as advised by GRG in their report during
FY17. While that report was over two years old, when
regard was made to the changes in the Group’s business,
the increase in market capitalisation of the Company over
that period and that the fees proposed were less than
the benchmarks assessed in 2017, it was decided the
expense of obtaining a more current benchmark report
was not warranted.
Directors’ Reportwww.iphltd.com.au 5.4 2020 Remuneration Outcomes
NPAT (‘000)
EPS (cents per share)
Underlying EPS (cents per share)
2016
2017
2018
2019
2020
38,843
42,893
40,673
53,112
54,752
21.9
26.2
22.5
26.7
20.8
26.4
26.9
31.7
25.9
36.6
Dividends Paid (‘000)
36,837
40,924
42,823
51,360
61,015
Total Dividends (cents per share)
21.0
22.0
22.5
25.0
28.5
Share Price (30 June closing price)
$6.42
$4.80
$4.45
$7.46
$7.46
Return of Capital (‘000)
-
-
2,727
-
-
The Group aims to align its Executive remuneration
to its strategic objectives and the consequences on
shareholder’s financial wealth. The evolution of the Group’s
remuneration policy aligns with the growth in the business
in the last five financial years as summarised above.
2020 STIP Outcomes – Summary of plan design
Financial KPI – The CEO (maximum 50% of STIP
Opportunity) and CFO (maximum 30%) have the
attainment of the Group Underlying EBITDA budget (on an
FX adjusted or constant currency basis) as their financial
target. The Board believes the budget has an appropriate
amount of “stretch” built into the budget target. Group
Underlying EBITDA was selected as it is the most
common measure used to assess the group’s financial
performance.
Strategic KPI’s – The CEO (maximum 50% of STIP
Opportunity) and CFO (maximum 70%) have the
attainment of a number individual objectives in line with the
Board approved strategy of:
» Consolidation of acquisitions;
» Organic Growth; and
» Growth Step-outs.
2020 STIP Outcomes – Performance commentary
The Group achieved an Underlying EBITDA of $114.5m
(an increase of 28% on the prior year) in a difficult
operating environment in the second half of the year
illustrating the resilience of the IPH business. This
outcome included the acquisitive impact of the Xenith
group and continued strong organic growth from the
Asian business. Underlying EPS grew from 31.7 cents
per share to 36.7 cents per share (pre AASB16) and
dividends to shareholders increased by 14%.
Financial KPI
The Group EBITDA target was not achieved. While the
Group performed well in achieving an Underlying EBITDA
of $114.5m in the circumstances, this EBITDA outcome
was close to but behind the FX-adjusted budgeted target
and therefore none of the potential award based upon the
financial element was payable.
However, as a result of the COVID-19 disruption, the ability
to meet financial budgetary outcomes was constrained,
and therefore the Board exercised its discretion and
granted all members of the IPH Executive 50% of their
STIP potential amount related to the Financial KPI.
In exercising its discretion on the level of awards, the
Board sought to ensure fair treatment of management,
employees and shareholders. Discretion was also
exercised assessing outcomes for staff in the Business
Units participating in the Employee Incentive Plan.
Strategic KPI
An award was made to each executive KMP member
on the basis of their achievement of individual objectives
inline with the Board approved strategic objectives of:
consolidating acquisitions; organic growth and growth
step outs (acquisitive growth). The CEO and CFO were
awarded 90% of their STIP potential amount related to the
Strategic KPI. Notable progress included:
Consolidating acquisitions – The consolidation of
the acquisition of the Xenith Group. Significantly, this
included the integration of the Watermark business to a
single Griffith Hack brand and the transfer of a portion
of the Glasshouse Advisory business to Grant Thornton.
Cost synergies have been achieved as a result of the
consolidation of these businesses.
37
30th June 20202020 Annual Report 5.4 2020 Remuneration Outcomes Continued >
Organic growth – The Group maintained organic
growth in Asia, even with tougher second half conditions
and a strong comparative period. This was due to the
replacement of the large client filer noted in the prior year
with multiple new clients, as well as further case inflow
through the network effect of files directed by IPH entities.
Growth step-outs – On 10 June 2020, the Group
announced that AJ Park has reached an agreement
to acquire the New Zealand intellectual property firm
Baldwins Intellectual Property (Baldwins). The transaction
is subject to a number of conditions including clearance
of the proposed acquisition by the New Zealand
Commerce Commission. The Company continues
to evaluate potential acquisition opportunities in
international secondary markets.
2020 STIP Outcomes – Individual KMP outcome
Executive
STI Foregone %
STI Paid %
STI Payment $
STI Foregone %
STI Paid %
STI Payment $
Andrew Blattman
John Wadley
30
22
70
78
288,750
117,000
25
-
75
100
225,000
135,000
2020
2019
2018 LTIP Grant – tested at the conclusion
of the 2020 year
The performance period for the 2018 LTI commenced
on 1 July 2017 and concluded on 30 June 2020.
Performance was assessed at the end of the 2020
financial year and as a result of performance over the
period, there was a partial vesting.
In 2019, the Committee reviewed the definition of earnings
which is used in the calculation of earnings per share.
The LTIP issues made in 2018 and 2019 used a “cash-
adjusted” earnings measure. The Committee felt the
use of this third measure (in addition to the established
statutory and underlying measures) had the potential to
create confusion. Therefore, it was decided to re-calculate
the targets based upon an underlying earnings measure
consistent with that adopted for market reporting.
This had the effect of increasing the maximum EPS target
for the 2018 issue from 38.4 cents per share to 40.5 cents
per share, and the maximum EPS target for the 2019 issue
from 37.9 cents per share to 40.2 cents per share. This
new methodology was approved before the 2020 issue
and thus no change was required to that issue.
In determining the calculation of the Underlying EPS,
adjustments are made to statutory profit after tax. The
outcome for FY20 is as follows:
Statutory Net Profit after tax ($M)
Net amount of non-cash amortisation expenses of acquired intangibles
Net amount of non-cash share based payments as part of the share incentive plan
Net amount of adjustment to statutory results as disclosed in the
Operational and Financial Review
Underlying Net Profit after tax
Underlying EPS (cents per share)
54.8
13.9
1.4
7.6
77.7
36.6c
38
Directors’ Reportwww.iphltd.com.au Grant
Performance period
Measure
Minimum Maximum
Performance achived
2018
1/7/2018 – 30/6/2020
Underlying EPS CAGR
7%
15%
11.1% per annum
On the basis of the underlying EPS achieved, the CAGR
equated to 11.1%, which would have led to a pay-out of
72.5% of the maximum award. As a result of the impact
of COVID-19 in the last three months of the 36 month
vesting period, the Board felt it appropriate to exercise its
discretion with regard to the level of vesting, and vested a
further 2.5% of the maximum award for each participant.
In doing so, the Board took into account the level of
earnings that had been forecast pre-COVID-19.
Executive
Maximum Award1
Rights
% Vested
% Forfeited
Vested ($)2
Expensed ($)3
Andrew Blattman
$750,000
156,780
John Wadley
$225,000
47,034
75
75
25
25
877,184
263,158
577,342
173,203
1. Maximum remuneration attributable to rights
2. Value of shares vesting at 30 June 2020 share price
3. Expensed in the IPH Group P&L account over the life of the award
5.5 Overview of Non-Executive
Director 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. At the 2019 Annual General Meeting
approval was sought and obtained to increase the
maximum aggregate remuneration of non-executive
directors by $500,000 to $1.25m. This is consistent with
the “re-set” of the CEO’s remuneration as described
above, reflecting the significant increase in scope and
complexity in the organisation since the initial public
offering in 2014. This amount had not increased since the
Company’s listing. This increase allows the remuneration
of non-executive directors to appropriately reflect the
expectations placed upon them both by the Company
and the regulatory environment in which it operates. It
also allows the appointment of additional non-executive
directors from time to time to ensure the Board has the
requisite skills and experience.
Non-executive director fees paid (directors’ fees and
committee fees) (inclusive of superannuation) for the year
ended 30 June 2020 are summarised as follows:
Name - Position
Richard Grellman AM - Chairman
John Atkin - Director
Robin Low - Director
Jingmin Qian – Director
FY20 Fees
330,000
165,000
165,000
165,000
825,000
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.
39
30th June 20202020 Annual Report
5.6 Details of Remuneration of Key Management Personnel
Amounts of remuneration
The key management personnel of the Group consisted of the following Directors of IPH Limited:
» Richard Grellman AM – Non-executive Chairman
» Andrew Blattman – Managing Director and Chief Executive Officer
» John Atkin – Non-executive Director
» Robin Low – Non-executive Director
» Jingmin Qian – Non-executive Director
And the following persons:
» John Wadley – Chief Financial Officer
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-
based
payments
Non-Executive
Directors:
Cash salary
and fees
$
Cash
bonus
$
Non-
monetary1
$
Super-
annuation
$
Employee
leave2
$
Equity-
settled3
$
Richard Grellman
2020
304,660
2019
228,312
John Atkin
2020
150,685
2019
127,854
Robin Low
2020
150,685
2019
127,854
Jingmin Qian4
2020
150,685
2019
31,963
Executive Directors:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,340
21,688
14,315
12,146
14,315
12,146
14,315
3,037
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
330,000
250,000
165,000
140,000
165,000
140,000
165,000
35,000
Andrew Blattman
2020
1,228,997 288,750
9,272
27,889
129,347
763,344
2,447,599
2019
879,467 225,000
(3,838)
25,729
66,302
535,247
1,727,907
Other Key Management Personnel:
John Wadley
2020
589,325 117,000
(10,204)
21,725
2019
524,362 135,000
19,203
21,165
-
-
253,522
971,368
160,574
860,304
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.
40
Directors’ Reportwww.iphltd.com.au
5.7 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 2020 of $1,250,000. 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 2020 of $600,000.
Annual superior performance bonus of up to 25% of
remuneration and a long-term incentive opportunity of
75% of remuneration.
Executive 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.
5.8 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 2020 -
Ordinary Shares
Richard Grellman
Andrew Blattman
John Atkin
Robin Low
Jingmin Qian
John Wadley
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
1,773
(21,449)
51,773
2,506,166
115,829
74,214
-
401
2,768,059
Balance at the
start of the year
71,449
4,506,166
115,829
74,214
-
401
4,768,059
-
-
-
-
12
1,785
(300,000)
2,206,166
-
-
-
-
115,829
74,214
-
413
(321,449)
2,448,395
Additions
Disposals
Balance at the
end of the year
-
-
-
-
-
-
-
-
71,449
(2,000,000)
2,506,166
-
-
-
-
115,829
74,214
-
401
(2,000,000)
2,768,059
41
30th June 20202020 Annual Report 5.8 Additional Disclosures Relating to Key Management Personnel Continued >
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
2020
Plan1
Balance
at start
of year
Granted
during
year
Andrew
Blattman
John
Wadley
2018
156,780
2019
198,676
-
-
2020
-
175,809
2018
47,034
2019
59,603
-
-
2020
-
63,229
Vested
Forfeited
%
(117,585)
75
(39,195)
-
-
-
-
-
-
FY20
Expense
$
Unvested
at end
of year
Future
P&L
Expense
$
61,105
-
31,383
293,622
198,676
343,361
408,617
175,809
885,337
%
25
-
-
(35,276)
75
(11,758)
25
18,331
-
9,415
-
-
-
-
-
-
-
-
88,087
59,603
103,009
147,104
63,229
318,725
462,093
239,038
(152,861)
(50,953)
1,016,866
497,317
1,691,230
1. Financial year in which the award is granted.
This concludes the remuneration report, which has been audited.
6. Shares under performance rights
Details of unissued shares or interests under performance rights
across all incentive plans of the Group at the date of this report are:
Issuing entity
Type
Number of shares
Class
Exercise Price
Expiry Date
IPH Limited
Performance
1,280,723
Ordinary
0.00
Up to Sept 2022
7. Shares under option
There were no unissued ordinary shares of IPH Limited under option at the date of this report.
8. Dividends
Dividends paid during the financial year were as follows:
Final dividend of 13.0 cents per share for the year ended 30 June 2019,
paid on 18 September 2019. (60% franked) (A$’000s)
Interim dividend of 13.5 cents per share for the year ended 30 June 2020,
paid on 13 March 2020. (100% franked) (A$’000s)
42
27,680
28,856
Directors’ Reportwww.iphltd.com.au 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
There were no significant events post 30 June 2020 that
have impacted on the Group.
11. Environmental regulation
The Group is not subject to any significant environmental
regulation under Australian Commonwealth or State law.
12. Indemnity and insurance of officers
The Company has indemnified the Directors and executives
of the Company for costs incurred, in their capacity as a
Director or executive, for which they may be held personally
liable, except where there is a lack of good faith.
During the financial year, the Company paid a premium
in respect of a contract to insure the Directors and
executives of the Company against a liability to the extent
permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability
and the amount of the premium.
13. Indemnity and insurance of auditor
The Company has not, during or since the end of the
financial year, indemnified or agreed to indemnify the
auditor of the Company or any related entity against a
liability incurred by the auditor.
During the financial year, the Company has not paid a
premium in respect of a contract to insure the auditor of
the Company or any related entity.
14. Proceedings on behalf of the Company
No person has applied to the Court under section
237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene in
any proceedings to which the Company is a party for the
purpose of taking responsibility on behalf of the Company
for all or part of those proceedings.
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 25 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 25 to the financial statements do not compromise
the external auditor’s independence requirements of the
Corporations Act 2001 for the following reasons:
» all non-audit services have been reviewed and
approved to ensure that they do not impact the integrity
and objectivity of the auditor; and
» none of the services undermine the general principles
relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants issued
by the Accounting Professional and Ethical Standards
Board, including reviewing or auditing the auditor’s
own work, acting in a management or decision-making
capacity for the Company, acting as advocate for the
Company or jointly sharing economic risks and rewards.
16. Officers of the Company who are former
partners of Deloitte Touche Tohmatsu
There are no officers of the Company who are former
partners of Deloitte Touche Tohmatsu.
17. Rounding of amounts
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors Reports) Instrument dated
24 March 2016 and in accordance with that Instrument
amounts in the annual financial report are rounded off to
the nearest thousand dollars, unless otherwise indicated.
18. Auditor’s independence declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Corporations Act 2001
is set out on the following page.
19. Auditor
Deloitte Touche Tohmatsu continues in office in accordance
with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution
of Directors, pursuant to section 298(2) (a) of the
Corporations Act 2001.
Dr. Andrew Blattman
Managing Director
20 August 2020, Sydney
43
30th June 20202020 Annual Report 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 2020
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 2020, 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 organisation.
44
www.iphltd.com.au
Financial
Statements
2020 Annual Report
45
45
2020 Annual Report Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 30th June 2020
Revenue
Other income
Expenses
Employee benefits expense
Agent fee expenses
Amortisation of acquired intangibles
Depreciation of right-of-use assets
Depreciation and amortisation of fixed assets and intangibles
Insurance expenses
Travel expenses
Occupancy expenses
Business acquisition costs
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
Fair value loss on hedging 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.
46
Note
30 June 2020
30 June 2019
Consolidated
5
6
7
7
7
7
7
8
$’000
365,674
4,485
(115,462)
(105,590)
(19,616)
(9,624)
(5,241)
(2,500)
(1,910)
(1,713)
(1,120)
(28,566)
(7,125)
71,692
(16,940)
54,752
(516)
855
(542)
(203)
54,549
54,752
54,752
54,549
54,549
33
33
25.85
25.76
$’000
252,544
7,054
(68,634)
(74,567)
(9,214)
-
(3,441)
(2,122)
(2,278)
(8,086)
(3,724)
(14,239)
(2,661)
70,632
(17,521)
53,111
3,857
4,478
-
8,335
61,445
53,111
53,111
61,445
61,445
26.91
26.75
www.iphltd.com.au
Current assets
Cash and cash equivalents
Trade and other receivables
Investment in financial assets
Contract assets
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangibles
Deferred tax
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax payable
Provisions
Interest bearing lease liabilities
Other financial liabilities
Contract liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax
Interest bearing lease liabilities
Other financial liabilities
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.
Statement of Financial Position
For the year ended 30th June 2020
Consolidated
Note
30 June 2020
30 June 2019
$’000
$’000
9
10
11
12
13(a)
13(b)
13(c)
14
15
16
13(b)
17
14
13(b)
23
18
19
20
21
82,910
89,132
-
4,763
4,254
35,263
63,406
39,194
2,524
4,793
181,059
145,180
13,273
38,808
483,259
22,709
-
558,049
739,108
24,733
3,270
19,160
11,076
200
1,803
60,242
151,238
60,397
42,587
774
1,208
256,204
316,446
422,662
6,692
-
255,053
7,793
178
269,716
414,896
18,874
10,222
8,110
-
200
179
37,585
65,470
22,368
4,472
-
251
92,561
130,146
284,750
402,149
262,763
468
20,045
422,662
(2,025)
24,012
284,750
47
2020 Annual Report
Statement of Changes in Equity
For the year ended 30th June 2020
Issued
Capital
$’000
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
-
-
-
-
Foreign
Currency
Translation
Reserve
Minority
Interest
Acquisition
Reserve
$’000
1
-
3,857
-
3,857
$’000
(14,814)
-
-
-
-
-
-
-
Equity
Settled
Employee
Benefits
Reserve
$’000
3,352
-
-
-
-
Other
Reserve
Retained
Profits
Total
Equity
-
-
-
-
4,478
$’000
$’000
16,286 267,588
53,111
53,111
-
-
3,857
4,478
4,478
53,111
61,446
2,196
(1,095)
-
4,453
4,453
-
-
-
4,478
4,478
-
-
2,196
(1,095)
(45,385)
(45,385)
24,012 284,750
24,012 284,750
Transactions with owners in their capacity as owners:
Share-based payments charge
Share-based payments vested
Dividends paid
-
-
-
-
-
-
Balance at 30 June 2019
Balance at 1 July 2019
262,763
262,763
3,858
3,858
(14,814)
(14,814)
-
-
-
-
-
(2,183)
(2,183)
262,763
3,858
(14,814)
4,453
4,478
21,829 282,567
AASB 16 transitional impact
on retained earnings (note 2)
Adjusted opening balance
at 1 July 2019
Profit after income tax
expense for the year
Effect of foreign
exchange differences
Fair value gain on investment in
equity instruments designated
at FVTOCI
Hedge revaluation (note 23)
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 (note 29)
Dividend Reinvestment
Plan (note 21)
Share-based payments charge
Dividends paid (note 22)
130,730
8,656
-
-
-
(516)
-
-
(516)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,696
-
-
-
855
(542)
54,752
54,752
-
-
-
(516)
855
(542)
313
54,752
54,549
-
-
-
-
- 130,730
-
-
8,656
2,696
(56,536)
(56,536)
Balance at 30 June 2020
402,149
3,342
(14,814)
7,149
4,791
20,045 422,662
These statements should be read in conjunction with the following notes.
48
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
Dividends paid
Proceeds of borrowings
Repayment of borrowings
Payment of lease liabilities
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 2020
Consolidated
Note
30 June 2020
30 June 2019
$’000
$’000
6
7
32
29
13(a)
13(c)
22
413,835
(288,793)
75
(4,857)
(30,442)
89,818
(40,324)
-
-
(2,117)
(3,046)
-
280,534
(199,082)
92
(2,661)
(17,333)
61,550
-
10,160
(32,796)
(2,274)
(3,616)
576
(45,487)
(27,950)
(47,880)
90,183
(26,107)
(11,898)
4,298
(45,385)
34,180
(10,576)
-
(21,781)
48,629
11,819
35,263
26,213
(982)
(2,769)
9
82,910
35,263
49
2020 Annual Report
Notes to the Financial Statements
Note 1. General information
Basis of preparation
The financial statements have been prepared under the
historical cost convention except for certain financial
instruments that are measured at revalued amounts or
fair values, as explained in the accounting policies below.
Historical cost is generally based on the fair values of the
consideration given in exchange for assets.
Critical accounting estimates
The preparation of the financial statements requires the
use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements, are disclosed in note 3.
Parent entity information
In accordance with the Corporations Act 2001, these
financial statements present the results of the Group only.
Supplementary information about the parent entity is
disclosed in note 28.
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.
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 2020.
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.
Other than AASB 16 – Leases, the adoption of these
Accounting Standards and Interpretations did not have any
significant impact on the financial performance or position of
the Group.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been early
adopted.
Statement of compliance
These general purpose financial statements have been
prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian
Accounting Standards Board (‘AASB’) and the Corporations
Act 2001, as appropriate for for-profit oriented entities.
These financial statements also comply with International
Financial Reporting Standards as issued by the International
Accounting Standards Board (‘IASB’).
50
www.iphltd.com.au
30th June 2020
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.
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).
51
2020 Annual Report Note 2. Significant accounting policies Continued >
Government grants
Deferred tax
Grants from governments are recognised at their fair value
where there is reasonable assurance that the grant will
be received and the Group will comply with any specified
requirements. All government grants are recognised in
the Statement of Profit or Loss and Other Comprehensive
Income on a systematic basis over the periods in which
the Group recognises the related costs.
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 are reviewed and any thought not
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 and loss as they are charged to a client matter.
Disbursements older than 60 days are monitored and
any thought not to be recoverable are written off.
Income tax
The income tax expense or benefit is the tax payable
on the current period’s taxable income based on the
national income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable
to temporary differences between the tax bases of assets
and liabilities and their carrying amounts in the financial
statements.
Current tax
Current tax is calculated by reference to the amount of
income taxes payable or recoverable in respect of the
taxable profit or tax loss for the period. It is calculated
using tax rates and tax laws that have been enacted or
substantively enacted by reporting date.
Deferred tax 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 assets and liabilities 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.
Current and deferred tax for the period
Current and deferred tax is recognised as an expense
or income in the Statement of Profit or Loss and Other
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.
52
Notes to the Financial Statementswww.iphltd.com.au 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 instruments
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).
Derivative financial instruments
A derivative is a type of financial instrument typically used
to manage risk. A derivative’s value changes over time
in response to underlying variables including interest
rates or exchange rates and is entered into for a fixed
period. A hedge is where a derivative is used to manage
an underlying exposure and the Group uses derivatives
to manage its exposure to interest rates and foreign
exchange risk accordingly.
All derivatives are measured at fair value through the
Statement of Profit and Loss and Other Comprehensive
Income unless designated and effective as a hedge where
the hedge accounting provisions apply.
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 a 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.
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.
53
30th June 20202020 Annual Report Note 2. Significant accounting policies Continued >
Trade and other receivables
Property, plant and equipment
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.
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.
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.
Where such objective evidence exists, the Group
recognises impairment losses.
Financial liabilities
Financial liabilities include trade payables, other
creditors and loans from third parties including inter
group balances.
Non derivative financial liabilities are recognised at
amortised cost using the effective interest method.
Trade accounts payable comprise the original debt
less principal payments plus where applicable any
accrued interest.
Financial liabilities are classified as current liabilities
unless the group has an unconditional right to defer
settlement of the liability for at least twelve months after
the reporting period.
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 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.
Leasehold improvements
Plant and equipment
6-15 years
2-20 years
Furniture, fixtures and fittings
5-20 years
Computer equipment
2-5 years
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
Intangible assets
Intangible assets acquired as part of a business
combination, other than goodwill, are measured at their
fair value at the date of the acquisition.
Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the
net identifiable assets of the acquired subsidiary/associate
at the date of acquisition. Goodwill is not amortised.
Instead, goodwill is tested annually for impairment, or
more frequently of events or changes in circumstances
indicate that it might be impaired and it is carried at
cost less accumulated impairment losses. Impairment
losses on goodwill are taken to profit and loss and not
subsequently reversed.
Intangible assets acquired separately
Intangible assets with finite lives that are acquired
separately are carried at cost less accumulated
amortisation and accumulated impairment losses.
54
Notes to the Financial Statementswww.iphltd.com.au 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.
Impairment of assets
Goodwill and other assets that have an indefinite
useful life are not amortised but are tested annually for
impairment in accordance with AASB 136 ‘Impairment
of Assets’. Assets subject to annual depreciation or
amortisation are reviewed for impairment whenever
events or circumstances arise that indicates that the
carrying amount of the asset may be impaired.
An impairment loss is recognised where the carrying
amount of the asset exceeds its recoverable amount.
The recoverable amount of an asset is defined as the
higher of its fair value less costs to sell and value in use.
For the purposes of impairment, assets are grouped
at the lowest levels for which there are separately
identifiable cash flows (cash generating units).
For the purpose of impairment testing, goodwill
acquired in a business combination shall, from the
acquisition date, be allocated to each of the acquirer’s
cash-generating units, or groups of cash-generating
units, that is expected to benefit from the synergies of
the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units
or groups of units.
Customer relationships
Customer relationships are the assessed value of
the supply of goods and services that exist at the
date of acquisition. In valuing customer relationships,
consideration is given to historic customer retention
and decay statistics, projected future cash flows and
appropriate capital charges.
Customer relationships are amortised over a period of
10 years. The estimated useful lives, residual values and
amortisation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate
accounted for on a prospective basis.
Trademarks
Trademarks are intangible assets with indefinite useful lives
that are acquired separately and are carried at cost less
accumulated impairment losses.
Software acquired
Software acquired through a business combination is
assessed as the identifiable value of that software at the
date of acquisition. Acquired software is amortised over a
period of 4 years.
Internally-generated intangible assets
Internally-generated intangible assets, including software,
arising from development (or from the development phase
of an internal project) is recognised if, and only if, all of the
following have been demonstrated:
» the technical feasibility of completing the intangible
asset so that it will be available for use or sale;
» the intention to complete the intangible asset and use
or sell it;
» the ability to use or sell the intangible asset;
» how the intangible asset will generate probable future
economic benefits;
» the availability of adequate technical, financial and other
resources to complete the development and to use or
sell the intangible asset; and
» the ability to measure reliably the expenditure
attributable to the intangible asset during its
development.
The amount initially recognised for internally-generated
intangible assets is the sum of the expenditure
incurred from the date when the intangible asset first
meets the recognition criteria listed above. Where no
internally generated intangible asset can be recognised,
development expenditure is recognised in profit or loss in
the period in which it is incurred.
55
30th June 20202020 Annual Report Notes to the Financial Statements
Note 2. Significant accounting policies Continued >
As a practical expedient, AASB 16 permits a lessee not
to separate non-lease components, and instead account
for any lease and associated non-lease components as a
single arrangement. The Group has not used this practical
expedient.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the Group’s
incremental borrowing rate. The lease liability is
subsequently measured by increasing the carrying amount
to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to
reflect the lease payments made.
Lease payments included in the measurement of the lease
liability comprise:
» Fixed lease payments (including in-substance fixed
payments), less any lease incentives receivable; and
» Lease payments that depend on an index rate,
initially measured using the index or rate at the
commencement date.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
» The lease term has changed or there is a significant
event or change in circumstances, in which case the
lease liability is remeasured by discounting the revised
lease payments using a revised discount rate; or
» A lease contract is modified and the lease modification
is not accounted for as a separate lease, in which case
the lease liability is remeasured based on the lease
term of the modified lease by discounting the revised
lease payments using a revised discount rate at the
effective date of the modification.
To determine the incremental borrowing rate, the Group
makes adjustments specific to the lease including factors
such as lease term, country, currency and security. The
weighted average incremental borrowing rate applied to
lease liabilities on 1 July 2019 was 4.27%.
Variable rents that do not depend on an index or rate
are not included in the measurement of the lease liability
and the right-of-use asset. The related payments are
recognised as an expense in the period in which the event
or condition that triggers those payments occurs, and is
disclosed in note 13(b).
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
The Group recognises a right-of use-asset and a lease
liability at the lease commencement date. The right-
of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or
before the commencement day, less any lease incentives
received and any initial direct costs. They are subsequently
measured at cost less accumulated depreciation and
impairment. Right-of-use assets are depreciated over
the shorter period of lease term and useful life of the
underlying asset. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset
reflects that the Group expects to exercise a purchase
option, the related right-of-use asset is depreciated over
the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease.
The Group applies AASB 136 to determine whether
a right-of-use asset is impaired and accounts for any
identified impairment loss as described in the ‘Impairment
of assets’ policy.
Whenever the Group incurs an obligation for costs to
dismantle and remove a leased asset, restore the site on
which it is located or restore the underlying asset to the
condition required by the terms and conditions of the lease,
a provision is recognised and measured under IAS 37. To
the extent that the costs relate to a right-of-use asset, the
costs are included in the related right-of-use asset.
56
www.iphltd.com.au 30th June 2020
Employee benefits
Share-based payments
Short and long-term employee benefit
A liability is recognised for benefits accruing to
employees in respect of wages and salaries, annual
leave, and long service leave when it is probable that
settlement will be required and they are capable of
being measured reliably.
Liabilities recognised in respect of short-term employee
benefits, are measured at their nominal values using
the remuneration rate expected to apply at the time of
settlement. Liabilities recognised in respect of long term
employee benefits are measured at the present value of
the estimated future cash outflows to be made by the
Group in respect of services provided by the employees
up to reporting date.
Retirement benefit costs
Payments to defined contribution plans are recognised
as an expense when employees have rendered service
entitling them to the contributions.
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.
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 23). 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.
57
2020 Annual Report Notes to the Financial Statements
Note 2. Significant accounting policies Continued >
For recurring and non-recurring fair value measurements,
external valuers may be used when internal expertise
is either not available or when the valuation is deemed
to be significant. External valuers are selected based
on market knowledge and reputation. Where there is a
significant change in fair value of an asset or liability from
one period to another, an analysis is undertaken, which
includes a verification of the major inputs applied in the
latest valuation and a comparison, where applicable, with
external sources of data.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
Dividends
Dividends are recognised when declared during the financial
year and 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.
58
www.iphltd.com.au 30th June 2020
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of IPH Limited, excluding any
costs of servicing equity other than ordinary shares, by the
weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in
ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into
account the after income tax effect of interest and other
financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares
assumed to have been issued for no consideration in
relation to dilutive potential ordinary shares.
Rounding of amounts
The Company is of a kind referred to in ASIC
Corporations (Rounding in Financial/Directors Reports)
Instrument dated 24 March 2016 and in accordance
with that Instrument amounts in the annual financial
report are rounded off to the nearest thousand dollars,
unless otherwise indicated.
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 (the AASB) that are relevant
to its operations and effective for an accounting period
that begins on or after 1 July 2019.
AASB 16 Leases
The Group initially adopted AASB 16 Leases from 1 July
2019. As a result the Group, as a lessee, has recognised
right-of-use assets and lease liabilities representing its
obligation to make lease payments. The Group has applied
AASB 16 using the modified retrospective approach,
under which the cumulative effect of initial application is
recognised in retained earnings at 1 July 2019. Accordingly,
comparative information has not been restated.
Transition
Upon transition the standard allows companies to utilise
a number of practical expedients. The Group has utilised
the following:
(i) All contracts which have previously been classified as
a lease will continue to be treated as a lease.
(ii) The same discount rate (the Group’s incremental
borrowing rate) has been applied to leases with
similar characteristics (eg. similar lease terms). For
older long term leases, the comparable government
bond rates at time of inception of the lease have been
used as the discount rate.
The Group leases office space in each location in which it
operates. At transition, for leases classified as operating
leases under AASB 117, lease liabilities were measured
at the present value of the remaining lease payments,
discounted at the Group’s relevant incremental borrowing
rate as at 1 July 2019. Right-of-use assets were
measured at their carrying amount as if AASB 16 had
been applied since the commencement of the lease,
discounted using the Group’s incremental borrowing rate
at the date of initial application.
The Group presents right-of-use assets within its own
line in non-current assets and presents lease liabilities
as interest bearing lease liabilities in the Statement of
Financial Position.
Impacts on the financial statements at transition
On transition to AASB 16, the Group recognised right-of-
use assets and additional lease liabilities, recognising the
difference in retained earnings. The impact on transition
is summarised below:
Right-of-use assets
Lease liabilities
Deferred tax liabilities
Retained profits
Reduction in provisions
$000’s
30,087
(31,495)
(818)
2,183
42
The movement in retained earnings reported at the half
year at 31 December 2019 was recorded as a charge of
$830k. Following review of the lease accounting transition
at year end, it was identified that some cash lease
incentives provided by landlords had not been included
within the transition models. These incentives have been
incorporated in the figures above.
59
2020 Annual Report
Note 2. Significant accounting policies Continued >
The total value of the Group’s lease liabilities at 1 July 2019
(after the above impacts for AASB 16) were as follows:
Note 3. Critical accounting judgements,
estimates and assumptions
Current lease liabilities
Non-current lease liabilities
$000’s
(5,575)
(30,297)
The following table shows the operating lease commitments
disclosed in applying AASB 117 leases at 30 June 2019,
discounted using the incremental borrowing rate at the date
of initial application of the lease liabilities recognised in the
consolidated Statement of Financial Position at the date of
initial application:
Gross operating lease
commitments at 30 June 2019
Less: Effect of discounting the
above amounts
Lease liabilities recognised at 1
July 2019
$000’s
41,482
(5,610)
35,872
Acquisition of Xenith IP Limited
On 15 August 2019 IPH acquired the remaining interest
in Xenith IP Limited (XIP) which it did not already own. XIP
had implemented AASB 16 prior to acquisition and as a
result right-of-use assets of $20,222,000 and lease liabilities
of $28,344,000 were recognised in IPH at the date of
acquisition (refer note 29).
Impacts on financial statements at 30 June 2020
At 30 June 2020, the Group recognised right-of-use lease
assets of $38,808,000 and lease liabilities of $53,663,000
as a result of applying AASB 16. Depreciation relating to
AASB 16 leases was $9,624,000 and additional interest
expense was $2,268,000.
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.
COVID-19
Management have considered the impact of COVID-19
and the current economic environment on the judgements,
estimates and assumptions that affect the reported
amounts in the financial statements and adjusted these
where appropriate. Further detail in respect of the impact
on the operations of the Group is discussed in detail in the
Operational and Financial Review of the Directors’ Report.
60
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 3%
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 Adjacent Businesses.
Adjacent Businesses includes the operations of Wisetime
(formerly presented as Data Analytics) and Glasshouse
Advisory (acquired as a subsidiary of XIP). 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.
Adjacent
Businesses
Adjacent businesses include
Wisetime the autonomous time-
keeping tool and Glasshouse
Advisory.
61
30th June 20202020 Annual Report Notes to the Financial Statements
Note 4. Operating segments Continued >
Intellectual Property Services
30 June 2020
Consolidated
Australia
& NZ
Asia
Adjacent
businesses
Corporate
Intersegment
eliminations /
unallocated
$’000
$’000
$’000
$’000
$’000
Total
$’000
Revenue
Sales to external customers
266,059
97,345
2,270
Intersegment sales
2,528
5,292
Total sales revenue
268,587
102,637
Other revenue
Total revenue
9,062
72
277,649
102,709
-
2,270
473
2,743
-
-
-
2,040
2,040
-
365,674
(7,820)
-
(7,820)
365,674
(7,689)
3,958
(15,509)
369,632
Less: Overheads
(182,066)
(56,622)
(4,612)
(15,218)
14,922
(243,596)
Earnings before interest, tax,
depreciation and amortisation
(EBITDA), before adjustments
95,583
46,087
(1,869)
(13,178)
(587)
126,036
Less: Depreciation
(10,002)
(2,482)
Less: Amortisation
(19,147)
(1,225)
Less: Management Charges
3,159
(7,199)
(400)
(110)
-
(273)
(866)
4,037
-
24
3
(13,157)
(21,324)
-
69,593
35,181
(2,379)
(10,280)
(560)
91,555
Segment result:
(Profit before interest,
tax and adjustments)
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
» Impairment of intangible assets
» Impairment of right-of-use assets and asset write offs
» Share-based payments
Total adjustments
Interest income
Finance costs
Profit for the period before income tax expense
Reconciliation of segment revenue
Segment revenue
Restructuring
Profit on sale of Practice Insight business
Interest income
Total revenue
62
91,555
(1,202)
-
(4,127)
-
(1,600)
(3,704)
(2,180)
(12,813)
75
(7,125)
71,692
369,632
452
-
75
370,159
www.iphltd.com.au Intellectual Property Services
30 June 2019
Consolidated
Australia
& NZ
Asia
Adjacent
businesses
Corporate
Intersegment
eliminations /
unallocated
$’000
$’000
$’000
$’000
$’000
Total
$’000
Revenue
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
-
-
-
(19)
(19)
-
252,544
(4,525)
-
(4,525)
252,544
(4,390)
4,105
(8,915)
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
61,819
38,617
(1,427)
(10,039)
723
89,693
Less: Depreciation
(1,119)
(233)
Less: Amortisation
(8,510)
(1,169)
Less: Management Charges
2,324
(8,071)
(53)
(519)
-
(145)
(937)
5,748
-
30
-
(1,550)
(11,105)
-
Segment result:
(Profit before interest,
tax and adjustments)
54,514
29,144
(1,999)
(5,373)
753
77,038
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
» Impairment of intangible assets
» Impairment of right-of-use assests and asset write offs
» Share-based payments
Total adjustments
Interest income
Finance costs
Profit for the period before income tax expense
Reconciliation of segment revenue
Segment revenue
Restructuring
Profit on sale of Practice Insight business
Interest income
Total revenue
77,038
(3,478)
(31)
(986)
2,857
-
-
(2,200)
(3,838)
92
(2,661)
70,632
256,649
-
2,857
92
259,598
63
30th June 20202020 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
Net unrealised foreign exchange loss
Dividends received
Profit on sale of Practice Insight businesses
Other income
Commission
Interest
30 June 2020
$’000
365,674
365,674
30 June 2020
$’000
1,732
(1,556)
-
-
1,736
2,498
75
4,485
64
Consolidated
30 June 2019
$’000
252,544
252,544
Consolidated
30 June 2019
$’000
1,866
(536)
576
2,857
843
1,356
92
7,054
www.iphltd.com.au Note 7. Expenses
Profit before income tax includes the following specific expenses:
Consolidated
30 June 2020
30 June 2019
Depreciation - Property, plant and equipment
Amortisation - Software development
Depreciation - Right-of-use asset
Amortisation - Acquired intangibles
Total depreciation and amortisation
Employee benefits expense:
Share based payments (note 34)
Superannuation expense
Government COVID-19 stimulus grants1
Other expenses:
Advertising and marketing
Impairment of right-of-use assets and revaluation
of lease liabilities arising from onerous leases
Impairment of leasehold improvements
Impairment of Watermark trademark
IT and communication
Office expenses
Professional fees
Staff welfare and training
Other
Finance costs:
Interest on bank facilities – Overdraft
Interest on bank facilities – Loan
Other interest expense – Facility fees
Interest on lease contracts (note 13(b))
Total finance costs
1. Grants received from Asian governments in response to the impact of COVID-19.
$’000
3,533
1,708
5,241
9,624
19,616
34,481
2,180
7,151
(1,071)
825
2,385
1,319
1,600
5,052
2,152
3,006
1,128
11,099
28,566
36
3,779
1,042
4,857
2,268
7,125
$’000
1,550
1,891
3,441
-
9,214
12,655
2,200
3,740
-
575
-
-
-
3,066
1,766
2,732
470
5,630
14,239
21
1,859
781
2,661
-
2,661
65
30th June 20202020 Annual Report Note 8. Income tax expense
Consolidated
30 June 2020
30 June 2019
$’000
$’000
Income tax expense
Current tax
Deferred tax
(Under)/Over provided in prior years
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets (note 14)
Decrease in deferred tax liabilities (note 14)
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
66
23,935
(6,859)
(136)
16,940
(1,520)
(5,339)
(6,859)
71,692
21,508
108
(169)
249
21,905
(4,114)
(270)
17,521
(1,144)
(2,970)
(4,114)
70,632
21,190
391
27
329
(4,683)
(3,887)
-
(136)
63
28
(331)
(226)
16,940
17,521
Notes to the Financial Statementswww.iphltd.com.au Note 9. Current assets - cash and cash equivalents
Cash on hand
Cash at bank
Term Deposit1
1. Restricted cash cover for bank facilities.
Note 10. Current assets - trade and other receivables
Trade receivables from contracts with customers
Less: loss allowance
Consolidated
30 June 2020
30 June 2019
$’000
162
81,898
850
82,910
$’000
314
34,099
850
35,263
Consolidated
30 June 2020
30 June 2019
$’000
91,886
(2,754)
89,132
$’000
64,655
(1,249)
63,406
Impairment of receivables
The Group has recognised a loss of $1,855,000 (2019:
$727,000) in profit or loss in respect of the loss allowance
for the year ended 30 June 2020. The ageing of the
impaired receivables provided for above are as follows:
Consolidated
30 June 2020
30 June 2019
$’000
2,396
$’000
1,249
Past due more
than 91 days
67
30th June 20202020 Annual Report
Consolidated
30 June 2020
30 June 2019
$’000
1,249
470
1,855
(820)
2,754
$’000
818
-
727
(296)
1,249
Consolidated
30 June 2020
30 June 2019
$’000
26,895
2,882
7,073
36,850
$’000
17,289
1,790
3,853
22,932
Note 10. Current assets - trade and other receivables Continued >
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provisions recognised through business combinations (note 29)
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 $36,850,000 as at 30
June 2020 (2019: $22,932,000). 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.
68
Notes to the Financial Statementswww.iphltd.com.au
Note 11. Current assets - investment in financial assets
Current
Investment in equity instruments1
Consolidated
30 June 2020
30 June 2019
$’000
-
-
$’000
39,194
39,194
1. IPH acquired an equity interest of 19.9% in Xenith IP Group on 13 February 2019. This was designated at Fair Value Through Other
Comprehensive Income. On acquisition of Xenith IP Group on 15 August 2019 this investment formed part of the acquisition cost (note 29).
Note 12. Current assets - other
Prepayments
Foreign exchange contracts (note 23)
Other current assets
Consolidated
30 June 2020
30 June 2019
$’000
3,697
384
173
4,254
$’000
2,518
28
2,247
4,793
69
30th June 20202020 Annual Report
Consolidated
30 June 2020
30 June 2019
$’000
14,846
(8,038)
6,808
1,589
(1,359)
230
6,281
(4,228)
2,053
29,093
(24,911)
4,182
13,273
$’000
7,287
(3,376)
3,911
1,024
(853)
171
4,162
(3,118)
1,044
13,119
(11,553)
1,566
6,692
Notes to the Financial Statements
Note 13. Non-current assets
(a) Property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Furniture, fixtures and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
70
www.iphltd.com.au 30th June 2020
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 2018
Additions
Disposals / Transfers
Exchange differences
Depreciation expense
Balance at 30 June 2019
Additions
Additions through business
combinations (note 29)
Disposals
Impairment
Exchange differences
Depreciation expense
Balance at 30 June 2020
Leasehold
improvements
Plant and
equipment
Furniture,
fixtures and
fittings
Computer
equipment
Total
$’000
$’000
$’000
$’000
$’000
3,810
596
-
4
(499)
3,911
424
5,366
(240)
(1,319)
(33)
(1,301)
6,808
274
36
(41)
2
(100)
171
80
41
-
-
(3)
(59)
230
829
514
(151)
3
1,270
1,128
(35)
3
6,183
2,274
(227)
12
(151)
(800)
(1,550)
1,044
1,566
6,692
383
913
-
-
(10)
1,230
2,117
3,314
9,634
(2)
-
(30)
(242)
(1,319)
(76)
(277)
(1,896)
(3,533)
2,053
4,182
13,273
71
2020 Annual Report
Note 13. Non-current assets Continued >
(b) Leases
The Group enters leases in relation to office space and office equipment.
The Statement of Financial Position shows the following amounts relating to leases:
Right-of-use assets
Premises
Equipment
Balance at 1 July 2019
Adoption of AASB 16
Remeasurements
Additions through business
combinations (note 29)
Depreciation expense
Impairment arising from onerous leases
Exchange gains / (losses)
Balance at 30 June 2020
$’000
-
29,730
2,562
20,222
(9,475)
(4,661)
162
38,540
$’000
-
357
66
-
(149)
-
(6)
268
Total
$’000
-
30,087
2,628
20,222
(9,624)
(4,661)
156
38,808
Consolidated
Lease liabilities
30 June 2020
30 June 2019
$’000
11,076
42,587
53,663
$’000
-
4,472
4,472
Current
Non-current
72
Notes to the Financial Statementswww.iphltd.com.au
The Statement of Profit or Loss and Other Comprehensive
Income shows the following amounts relating to leases:
Depreciation charge - Right-of-use assets
Interest expense (included in finance costs)
Expense relating to variable lease payments not included
in lease liabilities (included in other expenses)
Income from subleasing of right-of-use assets
(included in other income)
Impairment of right-of-use assets
Total cash outflow for leases in 2020 was $11,898,000.
(c) Intangibles
Goodwill - at cost
Patents and trade marks - at cost
Capitalised software development - at cost
Less: Accumulated amortisation
Customer relationships
Less: Accumulated amortisation
Less: Impairment
Consolidated
30 June 2020
30 June 2019
$’000
9,624
2,268
2,818
(260)
2,385
$’000
-
-
-
-
-
Consolidated
30 June 2020
30 June 2019
$’000
298,038
17,232
315,270
10,792
(6,022)
4,770
212,011
(47,831)
(961)
163,219
483,259
$’000
184,648
4,189
188,837
7,999
(4,518)
3,481
91,911
(28,215)
(961)
62,735
255,053
73
30th June 20202020 Annual Report Note 13. Non-current assets Continued >
Reconciliations
Reconciliations of the written down values at the beginning and end
of the current and previous financial year are set out below:
Consolidated
Goodwill
$’000
Balance at 1 July 2018
185,223
Additions
Exchange differences
Disposals
Amortisation expense
-
(3,834)
3,259
-
Patents and
trade marks
Customer
relationships
Capitalised
software
development
Software
acquired
Total
$’000
4,237
33
(81)
-
-
$’000
$’000
$’000
$’000
71,830
-
-
-
4,223
3,583
790
266,303
-
3,616
(2,431)
(671)
(7,017)
(3)
-
3,256
(9,095)
(1,891)
(119)
(11,105)
Balance at 30 June 2019
184,648
4,189
62,735
3,481
(6)
3,003
-
-
-
-
-
-
-
-
-
255,053
(536)
3,046
248,620
(1,600)
(21,324)
483,259
Exchange differences
Additions
(530)
-
-
43
-
-
Additions through business
combinations (note 29)
113,920
14,600
120,100
Impairment1
Amortisation expense
-
-
(1,600)
-
-
(19,616)
(1,708)
Balance at 30 June 2020
298,038
17,232
163,219
4,770
1. On 1 July 2020 Watermark was merged with Griffith Hack and will operate under the Griffith Hack name. As a result, the intangible asset
relating to the former Watermark trademark has been assessed as having no ongoing economic benefit and hence has been written off.
74
Notes to the Financial Statementswww.iphltd.com.au
Impairment testing
For the purposes of impairment testing, goodwill is
allocated to cash generating units (CGUs) that are an
identifiable group of assets that generate cash associated
with the goodwill. A summary of the goodwill by CGU is
set out below:
CGU
Spruson & Ferguson Australia
Pizzeys
AJ Park
Spruson & Ferguson (Hong Kong)1
Griffith Hack2
Shelston
Spruson & Ferguson Asia1
Other
Total
Consolidated
30 June 2020
30 June 2019
$’000
52,958
68,158
41,424
34,839
54,006
36,992
9,355
306
$’000
52,958
68,158
42,468
20,758
-
-
-
306
298,038
184,648
1. A portion of the Goodwill arising on the acquisition of Xenith has been allocated to Spruson & Ferguson Asia and Spruson &
Fergusion (Hong Kong) as increased revenue is expected to be attributable to these CGUs as a result of the Xenith acquisiton.
2. The Griffith Hack CGU includes goodwill previously allocated to Watermark as these entities have been combined going forward.
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.
75
30th June 20202020 Annual Report
Note 13. Non-current assets Continued >
Key assumptions used for value-in-use calculations
CGU
2020
2019
Pre-tax
Post-tax
5 yr EBITDA CAGR
Terminal growth rates
Discount rates1
Spruson & Ferguson Australia
Spruson & Ferguson Asia
Pizzeys
AJ Park
%
4.1
8.2
4.9
4.0
%
4.3
-
7.1
3.8
S&F Hong Kong
13.6
19.4
Griffith Hack
Shelston
6.6
5.9
-
-
%
2.5
2.5
2.5
2.5
2.5
2.5
2.5
%
15
12.6
15
14.6
13.8
15
15
%
10.5
10.5
10.5
10.5
11.5
10.5
10.5
1. With the exception of S&F Hong Kong which had an increase in discount rate from
10.5% to 11.5% reflecting the economic environment in that CGU, all other rates have
remained the same from 2019 to 2020
The post-tax discount rate has been applied to discount
the future attributable post-tax cash flows.
At 30 June 2020, 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 discount rate
increased by 0.5%
» Holding all assumptions constant, if the terminal rate
declined by 0.5%
In addition to the above sensitivity testing, for Pizzeys and
Shelston, the carrying value of the respective CGU would
equal the recoverable amount at any of the following levels:
Pizzeys
Shelston
Discount rate
11.40%
11.10%
Terminal growth rate
1.20%
1.70%
4 Year EBITDA CAGR
(FY21 to FY25)
1.50%
3.70%
76
Notes to the Financial Statementswww.iphltd.com.au
Note 14. Deferred tax assets/liabilites
Opening
balance
Recognised in
profit or loss
Acquisitions
Recognised
in equity
Closing
balance
$’000
$’000
$’000
$’000
$’000
The net deferred tax asset comprises the following balances:
Loss allowance
Property, plant and equipment
Provisions
Accrued expenses
Unbilled revenue
Prepayments
Foreign exchange
Transaction costs
Leased assets
Software
Intangible assets -
Customer relationships
Intangible assets - Trademarks
Sundry
Financial instruments
232
374
2,280
749
(408)
(5)
598
841
710
172
25
487
(142)
(733)
(126)
558
(440)
141
-
2,542
936
-
-
(178)
2,965
-
-
-
-
-
-
-
-
545
399
5,309
1,543
(1,141)
(131)
978
3,366
1,227
2,493
(818)
3,612
(100)
(14)
58
(18,495)
5,735
(36,020)
(405)
973
-
(4,380)
-
138
480
(211)
(159)
-
-
-
-
-
232
(56)
(48,780)
(4,305)
762
211
-
(14,575)
6,859
(31,305)
1,333
(37,688)
77
Fair value movement on investments
(1,919)
-
1,919
30th June 20202020 Annual Report Notes to the Financial Statements
Note 14. Deferred tax assets/liabilities Continued >
Disclosed as:
Deferred tax asset
Deferred tax liability
Note 15. Current liabilities - trade and other payables
Trade payables
Sundry creditors and accruals
Note 16. Current liabilities - provisions
Employee benefits
Provision for onerous contracts
Other provisions
Movement in provision for onerous contracts
Opening balance at beginning of financial year
Additions
Closing balance at the end of financial year
78
Consolidated
30 June 2020
30 June 2019
$’000
$’000
22,709
(60,397)
(37,688)
7,793
(22,368)
(14,575)
Consolidated
30 June 2020
30 June 2019
$’000
15,064
9,669
24,733
$’000
9,203
9,671
18,874
Consolidated
30 June 2020
30 June 2019
$’000
18,577
523
60
19,160
$’000
8,110
-
-
8,110
Consolidated
30 June 2020
30 June 2019
$’000
-
523
523
$’000
-
-
-
www.iphltd.com.au Note 17. Non-current liabilities - borrowings
Non Current
Multicurrency loan facility
Consolidated
30 June 2020
30 June 2019
$’000
$’000
151,238
151,238
65,470
65,470
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.
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.
Financing arrangements
The Agreement has a term of three years maturing
on 11 February 2022.
Unrestricted access was available at the reporting date to
the following lines of credit:
Total facilities
Loan facilities
Working capital facility
Used at the reporting date
Loan facilities
Bank guarantees drawn under working capital facility
Unused at the reporting date
Loan facilities
Working capital facility
Consolidated
30 June 2020
30 June 2019
$’000
$’000
190,000
20,000
210,000
151,238
151,238
12,813
38,762
7,187
45,949
190,000
20,000
210,000
65,470
65,470
6,100
124,530
13,900
138,430
79
30th June 20202020 Annual Report
Note 18. Non-current liabilities - provisions
Employee benefits
Provision for onerous contracts
Movement in provision for onerous contracts
Opening balance at beginning of financial year
Additions
Closing balance at the end of financial year
Note 19. Equity - issued capital
Consolidated
30 June 2020
30 June 2019
$’000
565
643
1,208
$’000
251
-
251
Consolidated
30 June 2020
30 June 2019
$’000
-
643
643
$’000
-
-
-
Consolidated
Consolidated
30 June 2020
30 June 2019
30 June 2020
30 June 2019
Shares
Shares
$’000
$’000
Ordinary Class shares - fully paid
214,396,164
197,341,566
402,149
262,763
214,396,164
197,341,566
402,149
262,763
80
Notes to the Financial Statementswww.iphltd.com.au
Movements in ordinary share capital
Opening balance
Balance at 30 June 2019
Note 19. Equity - issued capital Continued >
Date
Shares
$’000
1 July 2018
197,341,566
262,763
197,341,566
262,763
Acquisition of Xenith IP Group Ltd (note 29)
15 August 2019
15,581,683
130,730
Performance and retention rights exercised
28 August 2019
510,320
Dividend reinvestment - final dividend (note 22)
18 September 2019
307,613
Dividend reinvestment - interim dividend (note 22)
13 March 2020
654,982
-
2,879
5,777
Balance at 30 June 2020
214,396,164
402,149
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.
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
2020, the number of shares held by the trust was 579,154
(2019: 175,917). The Trust acquired 510,320 shares on
market during the year.
Share buy-back
There were no shares bought back during the year ended
30 June 2020.
The Group’s objectives when managing capital is to
safeguard its ability to continue as a going concern, so
that it can provide returns for shareholders and benefits
for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the
Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new
shares or sell assets to reduce debt.
The Group would look to raise capital when an opportunity
to invest in a business or company was seen as value
adding relative to the current Company’s share price at the
time of the investment.
The Group is subject to certain financing arrangements
covenants and meeting these is given priority in all capital
risk management decisions. There have been no events
of default on the financing arrangements during the
financial year.
Dividend reinvestment plan
The group operates a dividend reinvestment plan. The
issue price is the average of the daily volume weighted
average market price of all shares sold by normal trade
during the 10 days trading days commencing on the
second trading day following the dividend record date.
81
30th June 20202020 Annual Report
Note 20. Equity - reserves
Foreign currency reserve
Share-based payments reserve
Minority interest acquisition reserve
Other reserve
Consolidated
30 June 2020
30 June 2019
$’000
3,342
7,149
(14,814)
4,791
468
$’000
3,858
4,453
(14,814)
4,478
(2,025)
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 and arose on the initial
listing of IPH.
Share-based payments reserve
Other reserve
The reserve is used to recognise the value of equity
benefits provided to employees and Directors as part
of their remuneration, and other parties as part of their
compensation for services. Specifically the reserve relates
to performance rights issued by the Company to its
employees under its LTIP.
This reserve includes the following items:
» fair value gains or losses on investments in equity
instruments designated as FVTOCI; and
» revaluation of hedging instruments.
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.
82
Notes to the Financial Statementswww.iphltd.com.au Note 21. Equity - retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense for the year attributable to owners of IPH Limited
Transitional impact on adoption of AASB 16 (note 2)
Dividends paid (note 22)
Retained profits at the end of the financial year
Note 22. Equity - dividends
Consolidated
30 June 2020
30 June 2019
$’000
24,012
54,752
(2,183)
$’000
16,286
53,111
-
(56,536)
(45,385)
20,045
24,012
Interim dividend
December 2018 - paid 13 March 2019
December 2019 - paid 13 March 2020
Final dividend
June 2018 - paid 12 September 2018
June 2019 - paid 18 September 2019
Consolidated
30 June 2020
30 June 2019
Cents per share
$’000
$’000
12.0
13.5
11.0
13.0
-
23,680
28,856
-
-
21,705
27,680
-
On 20 August 2020, the Company declared an ordinary
dividend of 15 cents per share (franked at 100%) to be paid
on 18 September 2020. The dividend value is $32,159,425.
No provision for this dividend has been recognised in the
Statement of Financial Position as at 30 June 2020, as it
was declared after the end of the financial year.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan was active during the
financial year. 962,595 shares were issued to participants
totalling $8,656,199. The Dividend Reinvestment Plan did
not operate during the comparative year.
83
30th June 20202020 Annual Report Consolidated
30 June 2020
30 June 2019
$’000
9,100
$’000
1.750
The Group does not trade in derivative instruments for
speculative purposes. The Group uses different methods
to measure the different types of risks to which it is
exposed, including sensitivity analysis in the case of
interest rate and foreign exchange and ageing analysis for
credit risk.
i) Market risk
Foreign currency risk
The Group undertakes certain transactions denominated
in foreign currency and is exposed to foreign currency risk
through foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial
transactions and recognised financial assets and financial
liabilities denominated in a currency that is not the
entity’s functional currency. The risk is measured using
sensitivity analysis and cash flow forecasting. The focus
is on minimising exposure to fluctuations in the rate of the
United States Dollar (“USD”) and the European Union’s
Euro (“EUR”) which represent most of the Group’s foreign
currency exposure.
The Group’s policy, with some minor exceptions, is not
to hedge against foreign currency risk. The exceptions,
which are outlined in the table below, relate to foreign
currency contracts entered into by a number of the
Group’s acquired subsidiaries to hedge specific risks or
transactions. The largest net position, against the USD, is
less than 10% of this exposure.
Note 22. Equity - dividends Continued >
Franking credits
Franking credits available for subsequent
financial years based on a tax rate of 30%
The above amounts represent the balance of the franking
account as at the end of the financial year, adjusted for
franking credits that will arise from the payment of the
amount of the provision for income tax at the reporting date.
Note 23. Financial instruments
Financial risk management objectives
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’s principal financial
instruments, other than derivatives, comprise of cash
and bank loan facilities. The main purpose of financial
instruments is to manage liquidity and hedge the Group’s
exposure to financial risks, namely:
» foreign currency risk;
» interest rate risk;
» liquidity risk; and
» credit risk.
The Group uses derivatives to reduce the Group’s
exposure to fluctuations in interest rates and foreign
exchange rates. These derivatives create an obligation or
a right that effectively transfers one or more of the risks
associated with an underlying financial instrument, asset
or obligation. Derivative financial instruments that the
Group uses to hedge its risks include:
» foreign exchange contracts; and
» interest rate swaps.
84
Notes to the Financial Statementswww.iphltd.com.au
30 June 2020
Current
Foreign
currency
(000’s)
Exchange
rate ($)
< 3 months
$’000
3 - 6 months
$’000
> 6 months
$’000
Fair value
($'000)
Pay USD / receive AUD
USD 6,800
Pay USD / receive NZD1
USD 1,800
Pay EUR / receive AUD
EUR 977
0.67
0.64
0.60
1 Converted to AUD equivalent at 30 June 2020 spot rate.
Forward exchange contracts were used in the prior year to
hedge risk exposures which were not significant.
The Group’s net asset exposure at the reporting date was
as follows:
5,997
4,215
-
291
-
1,081
883
537
1,807
-
75
18
384
A$'000
US$'000
€'000
S$000
NZD$000
Other1
348,005
41,491
5,736
9,628
7,137
3,369
243,718
13,208
1,750
9,075
6,402
3,754
30 June 2020
Net asset exposure
(Local Currency)
30 June 2019
Net asset exposure
(Local Currency)
1. Australian dollar equivalent.
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 (2019: 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
10% Weakening
10% Strengthening
2020
$'000
2019
$'000
2020
$'000
2019
$000
5,046
1,881
(4,587)
(1,710)
744
729
667
337
283
955
608
375
(677)
(662)
(606)
(306)
(258)
(868)
(553)
(341)
Net exposure to foreign currency risk
7,523
4,102
(6,838)
(3,730)
85
30th June 20202020 Annual Report
Note 23. Financial instruments Continued >
Interest rate risk
The Group’s main interest rate risk arises from its
borrowings. Borrowings issued at variable rates expose
the Group to interest rate risk. Borrowings issued at fixed
rates expose the Group to fair value interest rate risk.
The Group’s policy is to seek to reduce its interest rate
exposure using interest rate swaps. Instruments in place at
year end are summarised in the table below:
Carrying amount
Notional amount
Hedge ranges
Average
maturity profile
($'000)
($'000)
% p.a.
years
As at 30 June 2020
Interest rate swaps
(774)
50,000
0.79-0.92
<5
The group did not enter into any interest rate swaps during
the 2019 financial year.
As at the reporting date, the Group had the following
variable rate borrowings outstanding:
Consolidated
Multicurrency loan facility
Net exposure to cash flow
interest rate risk
30 June 2020
30 June 2019
Weighted average
interest rate
%
1.87
Weighted
average
interest rate
%
3.70
Balance
$’000
151,238
151,238
Balance
$’000
65,470
65,470
ii) Liquidity risk
iii) Credit risk
Liquidity risk management requires the Group to maintain
sufficient liquid assets (mainly cash and cash equivalents)
and available borrowing facilities to be able to pay debts
as and when they become due and payable.
The Group manages liquidity risk by maintaining adequate
cash reserves and available borrowing facilities by
continuously monitoring actual and forecast cash flows
and matching the maturity profiles of financial assets and
liabilities.
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.
iv) Price risk
The Group is not exposed to any significant price risk.
86
Notes to the Financial Statementswww.iphltd.com.au
Offsetting financial assets and financial liabilities
The Group presents its derivative assets and liabilities
on a gross basis.
Derivative financial instruments
Fair value hedge
A fair value hedge is a hedge of the exposure to changes
in fair value of an asset or liability that is attributable
to a particular risk and could affect the Statement of
Comprehensive Income. Changes in the fair value of
derivatives (hedging instruments) that are designated as fair
value hedges are recorded in profit or loss, together with
any changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk (hedged item).
If the hedge no longer meets the criteria for hedge
accounting, the adjustment to the carrying amount of
a hedged item for which the effective interest method
is used is amortised to profit or loss over the period to
maturity using a recalculated effective interest rate.
Cashflow hedge
A cash flow hedge is a hedge of the exposure to variability
in cash flows attributable to a particular risk of a highly
probable forecast transaction or a recognised asset or
liability. The effective portion of changes in the fair value
of derivatives that are designated as cash flow hedges is
recognised in other comprehensive income in equity via the
cash flow hedge reserve. Amounts accumulated in equity
are reclassified to profit or loss in the periods when the
hedged item affects profit or loss. Any gain or loss related to
ineffectiveness is recognised in profit or loss immediately.
At inception of a hedge relationship the Group formally
designates and documents the relationship between the
hedging instrument and the hedged item, along with the
risk management objectives and strategy for undertaking
the hedge transaction. Both at inception and an ongoing
basis that the hedging instrument is effective in offsetting
changes in cash flows and fair values of the hedged
item attributable to the hedged risk, which is when the
hedging relationship meets all of the following hedge
effectiveness requirements:
» an economic relationship between the hedged item
and the hedging instrument;
» effect of credit risk does not dominate the value
changes that result from that economic relationship;
and
» hedge ratio of the designated hedge is the same; that
is the Group hedges the same quantity of the hedging
instrument and the hedged item.
Hedge accounting is discontinued when the hedging
instrument expires, is terminated, is no longer in an
effective hedge relationship, or the forecast transaction is
no longer expected to occur. The fair value gain or loss of
derivatives recorded in equity is recognised in profit or loss
over the period that the forecast transaction is recorded
in profit or loss. If the forecast transaction is no longer
expected to occur, the cumulative gain or loss in equity is
recognised in profit or loss immediately.
Effects of hedge accounting on the financial position and performance
The effects of the interest rate swaps on the group’s financial position and performance are as follows:
30 June 2020
30 June 2019
Carrying amount (non-current liability)
Notional amount
Maturity date
Hedge ratio
Change in fair value of outstanding hedging instruments since inception of hedge
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate for the year
$’000
(774)
50,000
2023
1:1
(774)
774
1.55%
$’000
-
-
-
-
-
-
-
87
30th June 20202020 Annual Report
Note 23. Financial instruments Continued >
The group has the following derivative financial instruments
in the following line items in the Statement of Financial Position:
Current assets
Foreign exchange contracts - fair value hedges
Non-current liabilities
Interest rate swaps - cash flow hedges
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.
30 June 2020
30 June 2019
$’000
$’000
384
384
774
774
-
-
-
-
Consolidated -
30 June 2020
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
Non-derivatives
Non-interest bearing
Trade payables
Sundry creditors and accruals
Interest-bearing - variable
-
-
15,064
9,669
-
-
-
-
-
-
15,064
9,669
Lease liabilities
4.23%
14,901
14,087
20,170
13,546
62,704
Multi-option facility
1.87%
2,828
152,888
-
-
155,716
Total non-derivatives
42,462
166,975
20,170
13,546
243,153
88
Notes to the Financial Statementswww.iphltd.com.au Consolidated -
30 June 2019
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
Non-derivatives
Non-interest bearing
Trade payables
Other payables and accruals
Interest-bearing - variable
-
-
Multicurrency loan facility
3.70%
Total non-derivatives
9,203
9,671
2,422
21,296
-
-
-
-
2,422
2,422
67,892
67,892
-
-
-
-
9,203
9,671
72,736
91,610
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 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.
Level 1 Unadjusted quoted prices in active markets for
identical assets or liabilities that the entity can access at
the measurement date.
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 2020
Level 1
Level 2
Level 3
Financial assets measured at fair value
Forward foreign exchange contracts
Total current assets
Financial liabilities measured at fair value
Interest rate swaps
Total non-current liabilities
Consolidated - 30 June 2019
Current assets
Investment in shares
Total current assets
$’000
$’000
$’000
-
-
-
-
384
384
774
774
-
-
-
-
Level 1
Level 2
Level 3
$’000
$’000
$’000
Total
$’000
384
384
774
774
Total
$’000
39,194
39,194
-
-
-
-
39,194
39,194
89
30th June 20202020 Annual Report Note 24. Key management personnel disclosures
Compensation
The aggregate compensation made to Directors and other
members of key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Note 25. Remuneration of auditors
During the financial year the following fees were paid or payable for
services provided by Deloitte Touche Tohmatsu, the auditor of the
Company, and unrelated firms:
Audit services - Deloitte Touche Tohmatsu (Australia)
Audit or review of the financial statements
Other assurance services
Deloitte Touche Tohmatsu (Singapore)
Audit or review of the financial statements
Audit services - unrelated firms
Consolidated
30 June 2020
30 June 2019
$
$
2,979,854
2,295,177
117,899
129,347
95,911
66,302
1,016,866
695,821
4,243,966
3,153,211
Consolidated
30 June 2020
30 June 2019
$
$
522,000
341,000
17,500
4,080
539,500
345,080
65,232
65,232
58,302
58,302
Audit or review of the financial statements
45,984
44,968
Other services - unrelated firms
Corporate and taxation services
90
147,500
187,435
193,484
232,403
Notes to the Financial Statementswww.iphltd.com.au Note 26. Contingent liabilities
Key management personnel
The Group has given bank guarantees in respect
of leased office premises as at 30 June 2020 of
$12,813,000 (2019: $6,100,000).
Disclosures relating to key management personnel are
set out in note 24 and the remuneration report in the
Directors’ report.
Note 27. Related party transactions
Parent entity
IPH Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 31.
Transactions with related parties
There were no additional transactions with related parties.
Note 28. 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
Other 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 2020
30 June 2019
$’000
$’000
45,743
313
46,056
37,000
4,478
41,478
116,543
93,860
503,290
354,195
3,874
87,859
4,027
71,417
402,149
262,763
9,450
4,792
(960)
5,705
4,478
9,832
415,431
282,778
91
30th June 20202020 Annual Report
Note 28. Parent entity information Continued >
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 17, the parent entity had
no guarantees in relation to the debts of its subsidiaries
as at 30 June 2020 apart from being party to the deed of
cross guarantee as detailed in note 35.
Contingent liabilities
The parent entity had no contingent liabilities as at
30 June 2020.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for
property, plant and equipment as at 30 June 2020.
Significant accounting policies
The accounting policies of the parent entity are consistent
with those of the Group, as disclosed in note 2.
Note 29. Business combinations
The acquired business contributed revenues of $107.5m
and profit after tax of $9.5m to the Group for the period
from 15 August 2019 to 30 June 2020. For the period prior
to ownership from 1 July to 14 August 2019, the acquired
business generated revenues of $13.4m and a loss
after tax of $3.6m. The loss after tax is due to costs and
adjustments associated with the acquisition by IPH and is
not representative of ongoing business.
Consideration transferred
The following table summarises the acquisition date fair
value of each major class of consideration transferred.
Cash
Equity instruments (15,581,683
ordinary shares)
Total consideration transferred
on acquisition date
$’000
46,076
130,730
176,806
38,130
214,936
Acquisitions undertaken in the year ended
30 June 2020
Recognition of existing investment in XIP
as part of acquisition value
Xenith IP Group Ltd
Total acquisition value
On 15 August 2019, the Group acquired the remaining
80.1% of the ordinary shares of Xenith IP Group Limited
(XIP) which it did not already own under the terms of a
Scheme of Arrangement valued at $2.15 per Xenith share.
At the date of acquisition the carrying value of the intial
investment in XIP was $38,129,622. The Group acquired
the remaining shares for $176,806,120. The consideration
was settled by way of issue of 15,581,683 IPH shares and
cash facilities of $46,075,800, funded by a drawdown on
IPH’s existing debt facility.
The Group incurred acquisition related costs in the year
of $416,000. These costs have been included in business
acquisition expenses.
Equity instruments issued
$130,730,320 of the purchase price was settled by way
of the issue of 15,581,683 ordinary shares in IPH to the
vendors of XIP. The shares issued have been recorded in
the financial statements at the acquisition date fair value of
$8.39 per share.
92
Notes to the Financial Statementswww.iphltd.com.au Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition.
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Right-of-use assets
Intangible assets - customer relationships
Intangible assets - trademarks
Current tax liabilities
Deferred tax liabilities
Trade and other payables
Provisions
Borrowings
Interest bearing lease liabilities
Other creditors
Net assets acquired
Goodwill
Acquisition-date fair value of total consideration transferred
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of total consideration transferred
Less: shares issued by company as part of consideration
Less: existing investment in XIP
Less: cash and cash equivalents acquired
Net cash used
The acquisition accounting has been finalised. Since provisionally
reported at 31 December 2019, adjustments to the opening tax
values resulted in an increase in deferred tax liabilities of $1.4m
and a corresponding increase in goodwill of the same amount.
Fair value
$’000
5,752
25,044
7,814
9,634
20,222
120,100
14,600
(115)
(31,305)
(11,045)
(8,565)
(21,100)
(28,344)
(1,676)
101,016
113,920
214,936
214,936
(130,730)
(38,130)
(5,752)
40,324
93
30th June 20202020 Annual Report
Note 30. Events after the reporting period
Note 31. Interests in subsidiaries
There were no significant events post 30 June 2020 that
have impacted on the Group.
The consolidated financial statements incorporate the
assets, liabilities and results of the following subsidiaries in
accordance with the accounting policies described in note 2:
Beijing Pat SF Intellectual Property Agency Co Ltd5
China
Patent
attorneys
Australia
Lawyers
100%
Name
AJ Park IP Ltd
AJ Park IP Pty Ltd
AJ Park Law Ltd5
GH Law Pty Ltd2,3,6
GH PTM Pty Ltd2,3,6
Glasshouse Advisory Pty Ltd2,3,6
Griffith Hack Holdings Pty Ltd2,3,6
Intellectual Property Management Pty Ltd2,3,6
IPH Holdings (Asia) Pte Ltd
IPH Services Pty Ltd2,3
IPH (Thailand) Ltd4
Principal place of
busines/Country of
incorporation
New Zealand
Australia
Ownership
interest
30 June 2020
Ownership
interest
30 June 2019
100%
100%
100%
100%
Principal
activities
Patent
attorneys
Patent
attorneys
New Zealand
Lawyers
Australia
Australia
Australia
Australia
Singapore
Australia
Thailand
Patent
attorneys
Non trading
entity
Non trading
entity
Non trading
entity
Non trading
entity
Support
services
Non trading
entity
Patent
attorneys
Patent
attorneys
0%
0%
100%
100%
100%
100%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
49%
49%
100%
100%
100%
100%
100%
100%
100%
100%
Pizzeys Patent & Trade Mark Attorneys Pty Ltd2,3
Australia
Pizzeys Pte Ltd
Singapore
Practice Insight Pty Limited2,3
PT Spruson Ferguson Indonesia
Australia
Data analysis
and software
Indonesia
Patent
attorneys
Shelston IP Lawyers Pty Ltd2,3,6
Australia
Lawyers
100%
0%
94
Notes to the Financial Statementswww.iphltd.com.au Name
Shelston IP Pty Ltd2,3,6
Spruson & Ferguson (Asia) Pte Limited
Principal place of
busines/Country of
incorporation
Australia
Singapore
Spruson & Ferguson (Hong Kong) Ltd
Hong Kong
Spruson & Ferguson Intellectual Property Agency
(Beijing) Company Ltd
China
Ownership
interest
30 June 2020
Ownership
interest
30 June 2019
100%
0%
100%
100%
100%
100%
100%
100%
Principal
activities
Patent
attorneys
Patent
attorneys
Patent
attorneys
Patent
attorneys
Spruson & Ferguson Lawyers Pty Limited2,3
Australia
Lawyers
100%
100%
Hong Kong
Non trading
entity
100%
100%
Spruson & Ferguson Limited
Spruson & Ferguson Ltd
Spruson & Ferguson (M) SDN BHD
Spruson & Ferguson (NSW) Pty Limited2,3
Spruson & Ferguson Pty Limited2,3
Spruson & Ferguson (Shanghai) Ltd
Watermark Advisory Services Pty Ltd2,3,6
Watermark Australasia Pty Ltd2,3,6
Watermark Holdings Pty Ltd2,3,6
Thailand
Malaysia
Australia
Australia
China
Australia
Australia
Australia
Patent
attorneys
Patent
attorneys
Non trading
entity
Patent
attorneys
Patent
attorneys
Non trading
entity
Non trading
entity
Non trading
entity
Watermark Intellectual Property Lawyers Pty Ltd2,3,6
Australia
Lawyers
100%
Watermark Intellectual Property Pty Ltd2,3,6
WiseTime GmbH
Xenith IP Group Pty Ltd2,3,6
Xenith IP Services Pty Ltd2,3,6
Australia
Germany
Australia
Australia
Patent
attorneys
Data analysis
and software
Non trading
entity
Support
services
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.
6. These entites were acquired by IPH Group in the financial year ended 30 June 2020.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
0%
0%
0%
0%
0%
95
30th June 20202020 Annual Report Note 32. Reconciliation of profit after income tax to net cash from operating activities
Consolidated
30 June 2020
30 June 2019
$’000
54,752
$’000
53,111
34,481
12,655
1,600
3,704
1,556
2,268
2,180
(682)
(9,100)
6,291
(3,658)
(4,402)
-
(53)
881
-
-
536
-
2,200
(7,787)
(3,718)
(2,179)
4,115
3,906
(202)
(926)
(161)
89,818
61,549
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Impairment of Intangible assets
Onerous lease and write downs
Unrealised foreign exchange
Interest on lease liabilities
Share-based payments
Change in operating assets and liabilities:
Decrease/(Increase) in trade and other receivables
(Increase) in deferred tax assets
Decrease/(Increase) in other assets
(Decrease)/Increase in trade and other payables
(Decrease)/increase in provision for income tax
Increase in other liabilties
(Decrease) in deferred revenue
Increase/(Decrease) in provisions
Net cash from operating activities
96
Notes to the Financial Statementswww.iphltd.com.au Note 33. Earnings per share
Profit after income tax
Profit after income tax attributable to the owners of IPH Limited
Weighted average number of ordinary shares used in
calculating basic earnings per share
Options over ordinary shares
Weighted average number of ordinary shares used in
calculating diluted earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
30 June 2020
30 June 2019
$’000
54,752
54,752
$’000
53,111
53,111
Number
Number
211,828,389
197,341,566
755,802
1,193,492
212,584,191
198,565,456
Cents
25.85
25.76
Cents
26.91
26.75
Note 34. Share-based payments
On 24 October 2014, the Long Term Incentive Plan
(‘LTIP’) was adopted by the Board of Directors and was
established to attract, motivate and retain key staff.
Participation in the LTIP is at the Board’s discretion and no
individual has a contracted right to participate in the LTIP
or to receive any guaranteed benefits.
Retention rights
Each retention right issued under the LTIP converts
into one ordinary share of IPH Limited on exercise. No
amounts are paid or payable by the recipient of the
retention right, and the retention rights carry neither rights
to dividends nor voting rights. The retention rights are
treated as in substance options and accounted for as
share-based payments.
A portion of the aggregate retention rights granted will
vest at each twelve month anniversary of the grant date;
vesting is conditional on continued employment.
Set out below are summaries of the rights granted under
the plan:
Grant Date
Vesting
Date
Exercise
price
Balance
at the start
of year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
19 August 2016
1 August 2019
$0.00
73,411
Total Retention Rights
73,411
-
-
(70,303)
(3,108)
(70,303)
(3,108)
-
-
97
30th June 20202020 Annual Report
Note 34. Share-based payments Continued >
Revised IPH Limited Employee Incentive Plan -
November 2016
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 or other Key Performance Indicator (KPI)
metric for the Group, business unit and individual.
Movement in Performance Rights issued under the new
Incentive Plan during the financial year were:
Final
vesting
Date
Exercise
price
Balance
at the start
of year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Grant Date
Retention -
7 Jun 17
Retention -
22 Feb 18
Retention -
7 May 18
1 June 20201
$0.00
10,684
5 Feb 20211
$0.00
3,685
9 Apr 20222
$0.00
43,479
-
-
-
-
-
(10,684)
(1,382)
(2,303)
-
-
(14,493)
(14,493)
14,493
(709,487)
(7,909)
-
KPI - FY193
31 Aug 2019
$0.00
717,396
KPI - FY204
31 Aug 2020
$0.00
-
905,496
-
(569,610)
335,886
Total Performance Rights
775,244
905,496
(725,362)
(604,999)
350,379
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. Rights were issued in 3 tranches with grant dates of 6 Sept 18, 26 Nov 18 and 28 Feb 18
4. Rights were issued in 3 tranches with grant dates of 11 Oct 19, 1 Nov 19 and 4 Dec 19
The performance rights that vest are converted into shares
and held on behalf of the employee in in the IPH Employee
Share Trust for a further three years. The employees
receive dividends whilst the shares are in trust but are
unable to trade the shares. Shares are forfeited should
the employee cease to be an employee during the three
year holding period. A share based payment charge
is recognised in the profit and loss account during this
period of restriction.
for the performance period must be at least equal to the
Minimum EPS Target.
EPS Targets for the FY18 and FY19 plans are:
» Minimum EPS Target: 7% CAGR in EPS over the three
year performance period ending on 30 June; and
» EPS Target: 15% CAGR in EPS over the three year
performance period ending on 30 June.
Vesting of Rights is as follows:
IPH Executives - Long Term Incentive
» Less than 7% CAGR in EPS over the Performance
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
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%
98
Notes to the Financial Statementswww.iphltd.com.au
» 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
EPS Targets for the FY20 plan:
Vesting of Rights is as follows:
» Less than 5% CAGR in EPS over the
Performance Period - Nil vesting
» Equal to 5% CAGR in EPS over the
Performance Period - 25% vesting
» Minimum EPS Target: 5% CAGR in EPS over the three
» Greater than 5% CAGR in EPS up to and including
year performance period ending on 30 June
12.5% CAGR - pro-rated vesting on a straight line basis
» EPS Target: 12.5% CAGR in EPS over the three year
» At or above 12.5% CAGR in EPS over the Performance
performance period ending on 30 June
Period - 100% vesting
Grant Date
Final
vesting
Date
Exercise
price
Balance
at the start
of year
Granted
Exercised
LTI - 20 Nov 17
1 Sept 2020
$0.00
288,811
LTI - 26 Nov 18
1 Sept 2021
$0.00
366,493
-
-
LTI - 22 Nov 19
1 Sept 2022
$0.00
-
377,044
Total LTI Performance Rights
655,304
377,044
-
-
-
-
Expired/
forfeited/
other
Balance at
the end of
the year
(72,203)
216,608
(29,802)
336,691
-
377,044
(102,005)
930,343
Fair value of retention and performance rights granted
The weighted average share price during the financial year was $8.19 (2019: $6.01).
The weighted average remaining contractual life of rights outstanding at the end of the financial year
was 1.04 years (2019: 0.9 years).
The weighted fair value of the rights granted during the year is $7.71 (2018: $5.15).
Valuation model inputs used to determine the fair value of rights at the grant date, are as follows:
Initial Incentive Plan - Oct 2014
Grant Date
Retention rights
19 August 20161
1. Expected volatility and risk free rate not included in this valuation
Vesting
Date
Share
price at
grant date
Exercise
price
Dividend
yield
Fair value at
grant date
30 June 2019
$5.80
$0.00
4.00%
$5.17
99
30th June 20202020 Annual Report
Revised IPH Limited Incentive Plan - November 2016
Professional Staff and Senior Management
Grant Date
IPH Limited Employee Incentive Plan
Vesting
Date
Share
price at
grant date
Exercise
price
Dividend
yield
Risk-free
interest rate
Fair value
at grant
date
Retention - 22 Feb 181,2
5 Feb 2021
$3.74
$0.00
6.30%
2.00%
$3.25
Retention - 7 May 182,3
9 April 2022
$3.86
$0.00
6.30%
2.08%
$3.32
KPI FY19 - 6 Sep
31 Aug 2019
$5.65
$0.00
5.20%
1.94%
$5.37
KPI FY19 - 26 Nov
31 Aug 2019
$5.40
$0.00
5.20%
1.91%
$5.19
KPI FY19 - 28 Feb
31 Aug 2019
$6.06
$0.00
4.80%
1.73%
$5.91
KPI FY20 - 11 Oct
31 Aug 2020
$8.16
$0.00
3.90%
0.70%
$7.88
KPI FY20 - 1 Nov
31 Aug 2020
$8.05
$0.00
3.90%
0.83%
$7.79
KPI FY20 - 4 Dec
31 Aug 2020
$8.07
$0.00
3.90%
0.77%
$7.84
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.
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
1 Sept 2020
$5.64
$0.00
32.00%
5.00%
1.89%
$4.91
LTI - 26 Nov 20181
1 Sept 2021
$5.40
$0.00
5.20%
2.07%
$4.68
LTI - 22 Nov 20191
1 Sept 2022
$8.20
$0.00
3.90%
0.74%
$7.36
1. Expected volatility not included in this valuation.
Amounts recognised in the Financial Statements
During the financial year ended 30 June 2020, an expense
of $2,180,000 was recognised in the Statement of Profit or
Loss in relation to equity settled share based payment
awards. (June 2019: $2,200,000)
100
Notes to the Financial Statementswww.iphltd.com.au
Note 35. Deed of cross guarantee
The members of the Group party to the deed of cross
guarantee are detailed in note 31. 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:
Revenue
Other income
Expenses
Employee benefits expense
Depreciation of right-of-use assets
Depreciation and amortisation of fixed assets and intangibles
Occupancy 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
30 June 2020
30 June 2019
$’000
$’000
220,755
114,690
44,146
43,781
(79,969)
(36,319)
(6,119)
(24,472)
(711)
(1,120)
-
(8,614)
(3,396)
(3,583)
(66,632)
(34,300)
(1,334)
(1,369)
(17,724)
(6,473)
58,978
(1,129)
(1,379)
(8,982)
(2,669)
58,100
(12,098)
(10,645)
46,880
47,455
313
47,193
4,478
51,933
101
30th June 20202020 Annual Report 30 June 2020
30 June 2019
$’000
$’000
46,880
46,880
47,193
47,193
63,970
58,273
7,536
47,455
47,455
51,933
51,933
16,112
49,409
45,086
129,779
110,607
9,794
27,509
3,271
-
284,201
175,044
98,878
21,755
442,136
571,915
91,488
7,660
277,463
388,070
Note 35. Deed of cross guarantee Continued >
Profit for the year is attibutable to:
Owners of IPH Limited
Profit after income tax expense for the year
Total comprehensive income for the year is attibutable to:
Owners of IPH Limited
Profit after income tax expense for the year
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangibles
Investments in subsidiaries
Deferred tax
Total non-current assets
Total assets
102
Notes to the Financial Statementswww.iphltd.com.au Current liabilities
Trade and other payables
Income tax
Provisions
Interest bearing lease liabilities
Deferred revenue
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liability
Interest bearing lease liabilities
Other financial liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
30 June 2020
30 June 2019
$’000
$’000
16,990
(4,361)
15,898
6,567
1,832
10,256
4,576
6,673
-
121
36,926
21,626
151,238
40,735
32,748
774
2,791
228,286
265,212
65,470
20,929
-
-
4,724
91,123
112,749
306,703
275,321
289,574
262,748
9,261
7,868
958
11,615
306,703
275,321
103
30th June 20202020 Annual Report Directors’ Declaration
,
In the Directors
opinion:
» the attached financial statements and notes comply
with the Corporations Act 2001, the Accounting
Standards, the Corporations Regulations 2001
and other mandatory professional reporting
requirements;
» the attached financial statements and notes comply
with International Financial Reporting Standards as
issued by the International Accounting Standards
Board as described in note 2 to the financial
statements;
» the attached financial statements and notes give a
true and fair view of the Group’s financial position
as at 30 June 2020 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 35 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 2020, Sydney
104 www.iphltd.com.au
Independent
Auditor’s
Report
2020 Annual Report
105
105
2020 Annual Report Independent Auditor’s Report
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 2020, 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 2020 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 (including Independence
Standards) (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 organisation.
106 www.iphltd.com.au
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Recoverability of goodwill and intangible
assets
As at 30 June 2020, goodwill and intangible assets
totalled $298.0 million and $185.2 million
respectively, of which $68.2 million relates to the
Pizzeys cash generating unit (“CGU”), and $37.0
million relates to the Shelston CGU as disclosed in
note 13(c).
As set out in note 13(c), for the Pizzeys CGU, a
decline in the 4 year EBITDA CAGR from 4.9% to
1.5% or an increase in the post tax discount rate
from 10.5% to 11.4% would result in the carrying
value of the Pizzeys CGU being equal to the
recoverable amount.
Similarly, as also set out in note 13(c), for the
Shelston CGU, a decline in the EBITDA CAGR from
5.9% to 3.7% or an increase in the post tax discount
rate from 10.5% to 11.1% would result in the
carrying value of the Shelston CGU being equal to
the recoverable amount.
The determination of the recoverable amount of
goodwill and intangible assets is complex and
requires management to exercise significant
judgement in particular in determining the key
assumptions used in cash flow projections, such as:
short term budgeted revenue and EBITDA,
particularly in light of current economic
uncertainty caused by COVID-19;
long term growth rates; and
discount rates.
Accounting for the acquisition of Xenith IP
Group Pty Ltd (“XIP”)
As disclosed in note 29, on 15 August 2019 IPH
Limited acquired XIP and in accordance with the
requirements of AASB 3 Business Combinations
(“AASB 3”) IPH have recorded the fair value of the
assets acquired and assumed liabilities on
acquisition date. The consideration was $214.9
million and goodwill of $113.9 million was
recognised on acquisition.
Accounting for an acquisition is a complex and
judgemental exercise, requiring management to
determine:
•
•
the fair value of the total purchase
consideration including any deferred
amounts;
the identifiable intangible assets such as
customer contracts and relationships, to
be recognised separately from goodwill;
and
Our procedures performed in conjunction with our
valuation specialists, included, but were not limited to:
o
o
o
o
o
o
o
o
obtain an understanding of management’s
process to assess the recoverable amount of
goodwill and intangible assets including the
preparation of discounted cash flows models, and
budgeting and forecast processes;
assessing the appropriateness of management’s
discounted cash flow (“DCF”) models;
agreeing the cash flow projections used in the
DCF model to Board approved forecasts;
consideration of the impact of COVID-19 on
current year actual cash flows and future forecast
cash flows, with specific focus on revenue and
EBITDA 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:
o analysis of long term growth rates by
reference to industry data and external
economic outlook; and
o determining our independent expectation of
an appropriate discount rate range;
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.
Our procedures performed in conjunction with our
valuation specialists, included, but were not limited to:
o
o
o
obtaining a detailed understanding of the terms
and conditions of the Scheme of Implementation
Deed including the relevant purchase
consideration and assessing management’s
accounting treatment;
evaluating the competence, capability and
objectivity of management’s external expert and
performing a detailed review of their signed
valuation report to understand the scope of their
engagement and any limitations in the report;
challenging the appropriateness of the values
attributed to the acquired intangible assets
assumed by:
2020 Annual Report
107
IPH Limited
Independent Auditor’s Report
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
•
the allocation of goodwill to the CGUs that
are expected to benefit from the synergies
of the business combination.
o
o
o
assessing the identification and
valuation of customer relationships and
the appropriateness of the amortisation
rate;
analysing cash flow assumptions
including revenue growth rates, gross
margin and contributory asset charges;
assessing the discount rate used and
challenging the reasonableness of the
valuation outputs;
o
o
challenging management’s qualitative and
quantitative basis for the allocation of the
acquired goodwill; 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 Group’s annual report (but does not include the financial report and
our auditor’s report thereon): The IPH Group, The IPH Story, Chairman’s Letter, Operational Highlights,
Financial Highlights, CEO’s Report 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 Chairman’s Letter, Chief Executive Officer’s Report, Board of Directors and Shareholders
Information, if we conclude that there is a material misstatement therein, we are required to communicate
the matter to the directors and use our professional judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations,
or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
108 www.iphltd.com.au
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, actions taken to eliminate
threats or safeguards applied.
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.
2020 Annual Report
109
IPH Limited
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in section 5 of the Directors’ Report for the year ended
30 June 2020.
In our opinion, the Remuneration Report of IPH Limited for the year ended 30 June 2020, 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 2020
110
www.iphltd.com.au
Independent Auditor’s Report
Shareholder
information
2020 Annual Report
111
111
IPH Limited2020 Annual Report Shareholder Information
The shareholder information set out below was applicable as at 31 August 2020.
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
Total
Securities
%
Number of
shareholders
191,865,905
89.49
9,037,292
4,911,838
7,199,904
1,381,225
4.22
2.29
3.36
0.64
214,396,164
100.00
66
401
674
2,825
3,030
6,996
283
Unmarketable Parcels
6,079
0.00
112 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 as at 31 August 2020 are listed below:
Rank
Name
A/C designation
31 Aug 2020
%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
82,905,431
38.67%
40,482,032
18.88%
14,943,166
6.97%
14,542,951
6.78%
BNP PARIBAS NOMINEES PTY LTD
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