Integrated Research Limited
Annual Report 2014

Plain-text annual report

I n t e g r a t e d R e s e a r c h A n n u a l R e p o r t 2 0 1 4 Asia Pacifi c/Middle East/Africa Americas - West Coast Europe Corporate HQ Integrated Research Ltd Level 9/100 Pacifi c Highway North Sydney NSW 2060 Australia +61 (2) 9966 1066 +61 (2) 9966 1042 info.ap@ir.com 3 Temasek Avenue Level 21, Centennial Tower Singapore 039190 +65 6549 7038 +65 6549 7011 info.ap@ir.com Singapore Americas ‑ East Coast Germany Integrated Research (Singapore) Pte Ltd Integrated Research Inc. Integrated Research UK Ltd Integrated Research Inc. 8055 East Tuft s Avenue Suite 950 Denver CO 80237 USA +1 (303) 390 8700 +1 (303) 390 8777 info.usa@ir.com 1818 Library Street Suite 500 Reston VA 20190 USA +1 (703) 956 3016 +1 (303) 390 8777 info.usa@ir.com Integrated Research UK Ltd The Atrium, Harefi eld Road Uxbridge, Middlesex UB8 1PH United Kingdom +44 (0) 189 581 7800 info.europe@ir.com Münchner Büro der Integrated Research UK Ltd Terminalstrasse Mitt e 18 85356 München, Germany +49 (89) 97 007 132 info.germany@ir.com Visit our website at www.ir.com or our community blog at www.realtime.ir.com Integrated Research Annual Report Providing Business Insight™ 2014 ABN 76 003 588 449 Corporate Directory Directors Steve Killelea Darc Rasmussen Managing Director and CEO Solicitors Ashurst 225 George Street Sydney, NSW, 2000 Chairman and Non-Executi ve Director Level 36, Grosvenor Place Alan Baxter Independent Non-Executi ve Director Bankers Registered Offi ce by shares. Westpac Banking Corporati on Securities Exchange Listing Australian Securiti es Exchange Code IRI Country of Incorporation Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited Notice of Annual General Meeting The Annual General Meeti ng of Integrated Research Limited will be held at 3:00pm on Thursday, 13 November 2014, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney. Garry Dinnie Independent Non-Executi ve Director Kate Costello Independent Non-Executi ve Director Peter Lloyd Non-Executi ve Director Clyde McConaghy Non-Executi ve Director Secretary David Purdue Level 9, 100 Pacifi c Highway North Sydney, NSW, 2060 Phone: (+61 2) 9966 1066 Share Registry Computershare Auditors Ernst & Young Ernst & Young Centre 680 George Street Sydney, NSW, 2000 Access your 2014 Annual Report online. Visit www.ir.com/annualreport2014 This report is proudly printed on 100% recycled carbon neutral paper and is FSC® Certi fi ed from 100% post consumer waste. Cover and text printed on Revive Pure 100% Recycled Silk. 100% FSC® C023640 Selected employee photos: Colin Tan, Integrated Research Senior Soft ware Engineer, R&D and Michael Halbwirth, Head of Marketi ng Europe. 4704 Designed and printed by RDA Creati ve www.rda.com.au Corporate Directory Directors Steve Killelea Chairman and Non-Executi ve Director Darc Rasmussen Managing Director and CEO Solicitors Ashurst Level 36, Grosvenor Place 225 George Street Sydney, NSW, 2000 Alan Baxter Independent Non-Executi ve Director Bankers Garry Dinnie Independent Non-Executi ve Director Kate Costello Independent Non-Executi ve Director Peter Lloyd Non-Executi ve Director Clyde McConaghy Non-Executi ve Director Secretary David Purdue Registered Offi ce Level 9, 100 Pacifi c Highway North Sydney, NSW, 2060 Phone: (+61 2) 9966 1066 Share Registry Contents Computershare Auditors Westpac Banking Corporati on Securities Exchange Listing Australian Securiti es Exchange Code IRI Country of Incorporation Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Notice of Annual General Meeting The Annual General Meeti ng of Integrated Research Limited will be held at 3:00pm on Thursday, 13 November 2014, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney. 2014 Highlights Letter from the Chairman Chief Executive Officer’s Report Ernst & Young 3 Ernst & Young Centre 680 George Street 4 Sydney, NSW, 2000 6 Directors’ Report Remuneration Report Corporate Governance Statement Financial Statements 15 28 40 45 Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 51 78 79 Lead Auditor’s Independence Declaration 81 ASX Additional Information Corporate Directory 82 85 4704 Designed and printed by RDA Creati ve www.rda.com.au L e tt e r f r o m t h e C h a i r m a n D i r e c t o r s ’ R e p o r t D i r e c t o r s a n d S e n o r i M a n a g e m e n t R e m u n e r a ti o n R e p o r t C o r p o r a t e G o v e r n a n c e S t a t e m e n t F i n a n c i a l S t a t e m e n t s I n d e p e n d e n t A u d i t R e p o r t Access your 2014 Annual Report online. Visit www.ir.com/annualreport2014 This report is proudly printed on 100% recycled carbon neutral paper and is FSC® Certi fi ed from 100% post consumer waste. Cover and text printed on Revive Pure 100% Recycled Silk. 100% FSC® C023640 Selected employee photos: Colin Tan, Integrated Research Senior Soft ware Engineer, R&D and Michael Halbwirth, Head of Marketi ng Europe. 2 Integrated Research and its controlled entities • Annual Report 2014 2014 Highlights Financial Summary In millions of AUD (except earnings per share) Year ended 30 June Revenue from licence fees Total revenue Net profit after tax Net assets Cash at balance date Americas revenue Europe revenue Asia Pacific revenue Earnings per share (cents per share) In millions Year ended 30 June Americas revenue (USD) Europe revenue (UK Sterling) Asia Pacific revenue (AUD) 2014 2013 % Change 28.0 53.2 8.5 30.7 13.3 38.1 7.9 8.1 5.0 2014 34.8 4.4 8.1 26.6 48.9 9.1 30.0 14.8 34.4 6.9 7.5 5.4 2013 35.2 4.5 7.5 ↑ 5% ↑ 9% ↓ (6%) ↑ 2% ↓ (10%) ↑ 11% ↑ 14% ↑ 8% ↓ (7%) % Change ↓ (1%) ↓ (2%) ↑ 8% Total revenue (AUD millions) Net profit after tax (AUD millions) Revenue from licence sales (AUD millions) $53.2 $48.6 $48.9 $42.7 $44.6 $37.4 $38.2 $7.9 $7.5 $5.8 $5.4 $9.0 $9.1 $8.5 $28.9 $28.0 $26.6 $25.0 $21.7 $19.6 $18.4 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 3 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportIntegrated Research and its controlled entities • Annual Report 2014 n a m r i a h C e h t m o r f r e tt e L 4 Letter from the Chairman Dear fellow shareholders, The Company’s performance in 2014 was steady and for the first time in Integrated Research’s history, Company-reported revenue exceeded $50 million. As a result of growth in Unified Communications and Payments products together with the benefits of a lower Australian dollar, the Company generated after-tax profit of $8.5 million on revenue of $53.2 million. After reporting a strong first half performance, the momentum did not continue through the second half primarily due to the absence of large licence sale contracts, highlighting the lumpiness of the business. However a strong customer retention rate of 95% ensured that recurring maintenance revenue was up 16% to $20.6 million. The Company’s net profit after tax result was down 6% to $8.5 million when compared to the prior year. Underlying operating costs were up 5% due to strategic investments to build capacity in Europe and Asia Pacific, along with one-off recruiting and management change costs. After taking into account the translation effects of a lower Australian dollar, revenue was up 9% and operating costs were up 11%. The Company’s effective tax rate was 20% due to the benefits of the Company’s research and development (R&D) program. The overall market for Unified Communications continues to evolve with Microsoft Lync significantly growing its market share. The Company is well placed to take advantage of this market dynamic and is seeking to advance its lead through continuing dedicated innovation for Microsoft Lync. Prognosis already manages the largest Microsoft Lync customer in the world, which has deployed over 400,000 endpoints. The high margin Infrastructure product line, including HP NonStop, remained steady during the year. The Company continues to deepen its relationship with ACI Worldwide, leading provider of Payments applications, through the development of leading edge performance management products for the Payments markets in which both ACI and IR operate. The Company successfully delivered a new Prognosis module for Integrated Research and its controlled entities • Annual Report 2014 “The fundamentals of the Company’s key markets remain strong as we continue to expand the scope of our markets by creating quality products that embrace changes in market direction.“ the ACI Money Transfer System that is anticipated to be shipped with every sale of that ACI solution, extending the collaboration between the companies. The Company’s consulting services business grew for a fifth consecutive year and it is noted that the consulting backlog is 30% higher at the end of the financial year when compared to the end of the prior reporting period. Although operating revenue for the Company’s American and European regions was down 1% and 2% respectively, Asia Pacific achieved revenue growth of 8% compared to the prior year driven by licence sales growth in Payments products. We continue to build on our solid foundation of world-class R&D with the release of Prognosis 10 during the year. Its new design enables the business to rapidly deploy products to market, evidenced by the quick release of Prognosis for Contact Centre toward the end of the financial year. This adds to the portfolio of products including Unified Communications, Payments, and IT infrastructure in which the Company participates. The Company will continue to invest in its core R&D capability as it seeks to create innovative solutions to meet the challenges of its customers. During the year we appointed our new Chief Executive Officer - Mr. Darc Rasmussen to the Board. Darc brings new vigour to the role and has been placing an emphasis on strategy, including building up our European and Asia-Pacific operations, together with focus on strategic marketing and partnering capabilities. The fundamentals of the Company’s key markets remain strong as we continue to expand the scope of our markets by creating quality products that embrace changes in market direction. Strong partnerships with industry leaders like Avaya and ACI can deliver profitable growth from existing markets, and embed Prognosis deeper into our customers’ business. The strong customer retention rate underscores the strength of the underlying business. The Board is pleased to announce a final dividend of 2.5 cents per share, franked to 35 per cent, bringing the total dividend for the year to 5.0 cents per share franked at 33 per cent. This compares with total dividends of 5.0 cents per share, of which 36 per cent was franked, for the prior financial year. I would especially like to thank you, our valued shareholders, for your continued support. Steve Killelea Chairman 5 Directors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportLetter from the ChairmanIntegrated Research and its controlled entities • Annual Report 2014t r o p e R s ’ r e c ffi O e v ti u c e x E f e h C i 6 Chief Executive Officer’s Report Dear fellow shareholders, I would like to take this opportunity to comment on the Company’s performance and financial results for the 2014 financial year and to set out the key activities that will deliver success for the future. In the past year we have embarked on a well-structured agenda to take Integrated Research to the next level of growth. The plan builds on the traditional strengths of the Company while adding new capabilities to support expansion. Integrated Research achieved annual revenue growth of 9% to $53.2 million over the prior year. Maintenance revenues grew 16% to $20.6 million and this recurring revenue base now represents 39% of total revenues. The Company is investing for mid and long-term growth with a view to protecting short-term profitability and growing shareholder returns. As such the Company continues to focus on the creation, sale and support of Prognosis-based products into the Unified Communications (UC), Payments and Infrastructure markets, as well as entering new high-growth markets like Contact Centres. To position itself firmly in these markets Integrated Research recently launched the largest release in its 25-year history, Prognosis 10, with $10 million invested into its research and development. The Prognosis architecture has been re-engineered to support the web, mobile access and cloud-based delivery as well as rapid extensibility, meaning the Company is able to develop new solutions faster and significantly reduce time to market. During 2014 the Company completed the rapid development of a new solution for the Contact Centre market. Delivered in May 2014, early customers are already adopting and benefiting from its capabilities. Contact Centres have evolved into high-value, highly complex, mission-critical technology-driven environments and increasingly require the proactive management that Prognosis delivers. With over 15 million Contact Centre agents worldwide1 this Integrated Research and its controlled entities • Annual Report 2014 achieved annual revenue “Integrated Research growth of 9% to $53.2 million over the prior year. Maintenance revenues grew 16% to $20.6 million and this recurring revenue base now represents 39% of total revenues.“ Management would like to recognise and thank the highly talented and professional team of employees across the globe at Integrated Research for their dedication and hard work during the course of the year, and their passion and commitment to the future of your Company. We hope you share our excitement about your Company’s path and the opportunities we have together. Thank you for your support. Darc Rasmussen CEO & Managing Director 1. Gartner Worldwide Contact Centre Forecast: Total Market, 2011-2018 2, 3 Gartner Market Statistics: Enterprise Telephony Equipment, Worldwide, 2013 Update By Megan Fernandez, 25 March 2014 represents a significant market opportunity for Integrated Research. There is also synergy with the UC offering as Contact Centre solutions become the entry point to the rest of the business. The Company’s UC revenues grew by 15% in 2014 outperforming the global UC market growth of 7%2. Microsoft increased its UC market share by over 100%3, albeit off a low base. With the release of two new versions of Prognosis for Microsoft Lync planned for this financial year, the Company is positioning itself to take advantage of this growth opportunity. The Company’s Payments revenues grew 31% supported by the strategic partnership with the leading provider for global payments software, ACI Worldwide. The Payments industry is evolving with high growth in payments transactions driven by new channels such as the Internet and mobile phones, and the growth of electronic payments in developing economies. Revenue from Infrastructure solutions, including HP NonStop again delivered a solid result of $19.5 million. The Company has been invited by HP to conduct early development of Prognosis on its new HP NonStop x86 platform due for release in 2H FY15. Management expects this new release will continue to underpin the Infrastructure solution revenue base. Integrated Research has now delivered value to over 1,000 organisations in over 50 countries. These include many of the world’s largest stock exchanges, banks, financial services institutions, airlines, technology and telecommunications companies. The Company is in the process of re-inventing its marketing capability to fully leverage its leadership position. A new marketing team at Integrated Research is implementing smart cost-effective customer-centric marketing to fully exploit the leadership of the Company and the global growth opportunities. Over 70% of the Company’s revenues come from the Americas driven by a professional, locally-based sales, consulting and support organisation. In contrast only 35% of the market opportunity for the Company is in the Americas, with 37% in Europe and 28% in Asia Pacific. This provides opportunities for growth, and management has implemented a well-structured plan to build operations in Europe and Asia Pacific to take full advantage of the potential in those markets. 7 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportIntegrated Research and its controlled entities • Annual Report 2014Building a Foundation for Growth through Products, Partnerships and People About Integrated Research Integrated Research (IR) designs, develops and distributes Prognosis performance management solutions for Unified Communications, Contact Centres, payments and IT Infrastructure. Prognosis is aligned to help today’s businesses succeed and compete in a landscape where system performance and customer engagement is everything. The deep insight it provides into technology performance minimises outages, reduces costs, delivers business critical insight and ensures user satisfaction. With over 1,000 enterprise customers in more than 50 countries and a world-class R&D capability we remain profitable and debt free. Our customers include: „ 9 of the top 10 US banks, „ 5 of the world’s 10 largest companies, „ 4 of the 8 biggest stock exchanges, „ 8 of the 10 biggest telcos and „ 4 out of 5 of the biggest oil and gas companies. We service our customers through direct sales offices in the USA, UK, Germany, Singapore and Australia together with a channel-driven global distribution network. Everything we do is about understanding customers’ challenges and helping them solve them. 8 Integrated Research and its controlled entities • Annual Report 2014“At Presidio we enable thousands of customer interactions through our Contact Centre services daily. With Prognosis for Contact Centre we get full real‑time visibility into the diversity of applications and infrastructure that support those interactions. Prognosis allows us to proactively identify and address issues before they impact the customer experience.“ Ricky Santos, Senior Vice President, Presidio Managed Services Customer First Using Prognosis to bring insight to client interactions and resolve issues with the user experience not only solves problems, it creates new opportunities to market. The latest release Prognosis 10, includes Contact Centre and service provider specific solutions that reflect the deep domain expertise we’ve gained from working closely with our customers. One of our largest customers - service provider Presidio, is a leading provider of professional, cloud and managed services for advanced IT solutions where every customer interaction is critical. Prognosis 10 allows its staff to proactively resolve problems such as dropped calls, slow voice recognition response times and poor voice quality before they affect Contact Centre services and availability. Our Customer Care programme and Voice of the Customer strategy demonstrate how our customer-first philosophy results in customer satisfaction and retention rates that remain high and among the best in the industry. Customer Care ensures that customers gain the most benefit from their investment in Prognosis by helping them implement it quicker and more effectively to meet their needs. Our Voice of the Customer strategy enables customers to identify and prioritise their needs and wishes so that we can evaluate new concepts and ideas and develop solutions for them. To expand our regional footprint and customer focus in every region, we’ve increased our presence in continental Europe and opened a new office in Singapore. In the coming year you will see us taking a bolder position in our marketing and celebrating the successes we have achieved with leading global companies. 9 Integrated Research and its controlled entities • Annual Report 2014Prognosis for Contact Centre In 2014 we released software designed to target major contact centre system flaws capable of costing businesses considerable revenue and driving their customers to their competitors. Ground-breaking call recording assurance software ensures customer calls within contact centres are recorded and playable so they comply with government regulations. Prognosis for IT Infrastructure Hewlett Packard continues to innovate in HP NonStop with the release of a new product range supporting the x86 chip set. As a long-term performance management solution for HP systems and an AllianceONE partner, HP has invited us to participate in pre-release development that ensures it will be supported by Prognosis when launched to the market in FY15. Prognosis for Payments The payments industry is dynamic with new players, technologies and changing consumer behavior. We work closely with ACI Worldwide to develop and deliver new solutions including fraud management and money transfer systems for ACI’s customers across the globe. Our products The systems Prognosis manages are complex and their availability and performance require management in real time. Our development teams understand their design, implementation and use in the real world to ensure that Prognosis provides the insights customers’ support teams need to resolve issues effectively. Prognosis 10, released in December 2013 is the foundation for rapid innovation, new solutions, high-speed release delivery and entry into new markets. It includes a mobile-friendly interface that lets busy professionals stay in touch with system performance on the go, and share information easily with their colleagues so that issues can be managed around the clock and around the globe. Prognosis for Unified Communications (UC) Prognosis for UC enables our customers to achieve real-time performance management of communications across multiple technologies, vendors and applications. This gives them rapid insight to imminent problems and enables them to prevent outages before customers or the business is affected. This deep insight across the complete UC ecosystem resulted in Prognosis being chosen to manage the largest Microsoft Lync customer in the world, which has implemented over 400,000 endpoints. “The payments industry is dynamic with new players, technologies and changing consumer behavior.“ 10 Integrated Research and its controlled entities • Annual Report 2014 Our partners We continue to expand and scale our strategic partner relationships and special priority will be placed on transforming our engagements with them to grow our business more effectively across the globe. Avaya Integrated Research has been chosen as the only Avaya DevConnect Select Product Partner for real-time voice quality performance management and monitoring of Avaya environments and Prognosis now ships with every Avaya order. As Avaya’s clients have direct access to Prognosis through their Avaya representatives we have appointed a Global UC Alliance Director to drive joint go-to-market initiatives. ACI Worldwide ACI Alliance revenue has also increased considerably and a Prognosis module is now embedded into ACI’s solution. This has seen Prognosis make the transition from IT departments into the business, becoming an integral part of the business’s success. A Global ACI Alliance Director was appointed in January 2014 to grow the global strategic alliance and further expand the mutually successful program. “Extended solutions are developed as a result of finding answers to real world customer problems. All customers can benefit from our deep domain expertise.“ Trish Taylor, Program Office Manager. Consulting For the fifth consecutive year IR’s Consulting Services continue to grow ensuring that customers get the most from their investment in Prognosis. IR’s consultants share their knowledge with customers tailored to the size and complexity of their environments. The extended solutions developed as a result of finding answers to real world customer problems may be incorporated into future releases of Prognosis. This means all customers can benefit from the deep domain expertise gained from customer intimacy. 11 Integrated Research and its controlled entities • Annual Report 2014Our employees IR has 200 employees globally, many of whom have been with us for five years or more. Some employees reach a decade and more of employment with IR, having started their careers as graduates and advanced through the ranks of research and development to team leads, product managers and solutions consultants. This progression means that IR employees are in touch with customers needs and can consistently show how they’ve solved real problems for real customers and made a real impact on their lives. Recently Travis Polland, Principal Solutions Strategist, with a wealth of experience at the digital coalface was asked to join the ‘war room’ of a Prognosis customer. After a system upgrade a global Contact Centre had been down for 12 hours and there was no return. They had to find the way forward. This was a pivotal point for the customer. Travis joined a global virtual team from his Denver base using Prognosis remotely to validate the subjective measurements taken on the other side of the world. Over the course of the next 3 hours the virtual team of customer, vendor and consultant, isolated the problem and the Contact Centre was able to resume its high-quality customer service. “Everybody received good value out of it. By making changes ‘in‑flight’ we could see how those changes impacted the agents. This was a pivotal point for the customer; it was also a pivotal point for IR because it was the first time we were in a ‘war room’ with a customer.“ Travis Polland, Principal Solutions Strategist Integrated Research employee, five years Training is another key service delivered by IR consultants to ensure customers get the most out of Prognosis. Denver-based Solutions Consultant Jitesh Harani, an Integrated Research employee for six years explains: “We provided some training recently for one of our customers, a leading distributor of broad‑based maintenance, repair and operations products. Before deploying Prognosis they often didn’t know about a problem until someone told them about it. Now using Prognosis they can be proactive, wherever they are. In the office, on the road, or in an airport transit lounge with a tablet or mobile phone they can manage and even prevent these things from happening. Our customer is very enthusiastic about how robust Prognosis is and how it gives them so much information outside the immediate Unified Communications environment.“ Jitesh Harani, Solutions Consultant Integrated Research employee, six years 12 Integrated Research and its controlled entities • Annual Report 2014IR provides tools and expertise that optimise systems for the real world. As partnerships are vital to IR’s growth and scale, we ensure that our teams work closely with each other. “Our team worked with ACI in America with early morning video calls to understand the different way users rely on ACI’s products. As a result of matching user personas like the wire room manager and operator to user needs we were able to show our progress at the end of every development cycle and ensure we were on the right track.“ Mina Gurgis, Advanced Software Engineer ACI Team Integrated Research employee, four years “Putting a face to the feature.“ “In the R&D department, we have always tried to deliver value to our customers and to give users clear insight into their systems. Now as part of our Customer Care initiative, we are on a new path and we are exploring it alongside the operators and administrators that we service. Personally, I am excited by the interactions and feedback because I can see the difference we make. We have raised quality to a whole new level, we deliver more than ever before and our solutions have targeted impact because now we can ‘put a face’ to the feature.“ Joel Tow, R&D Team Lead, Customer Care Integrated Research employee, two years 13 Integrated Research and its controlled entities • Annual Report 2014“With a keen focus on driving channels to success through partnering and collaboration, we are building and growing a scalable Channel landscape in different countries and environments across continental Europe.“ Hans-Joerg Friedrich Head of Channels Continental Europe 14 Directors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Directors’ Report Review of operations and activities Principal activities Integrated Research Limited’s principal activities are the design, development, implementation and sale of systems and applications management computer software for business-critical computing, Unified Communication networks and Payment networks. Group overview Integrated Research has a twenty-six year heritage of providing performance monitoring, diagnostics and management software solutions for business-critical computing environments. Since its establishment in 1988, the Company has provided its core Prognosis products to a cross section of large organisations requiring high levels of computing performance and reliability. The Prognosis product range is an integrated suite of monitoring and management software, designed to give an organisation’s technical personnel operational insight into their HP NonStop, distributed system servers, Unified Communications (UC), and Payment environments and the business applications that run on these platforms. Integrated Research has developed its Prognosis products around a fault-tolerant, highly distributed software architecture, designed to achieve high levels of functionality, scalability and reliability with a low total cost of ownership. Integrated Research services customers in more than 50 countries through direct sales offices in the USA, UK, Germany, Singapore and Australia, and via a global, channel-driven distribution network. Integrated Research’s customer base consists of many of the world’s largest organisations and includes major stock exchanges, banks, credit card companies, telecommunications companies, computer companies, service providers and manufacturing companies. The Company generates its revenue from licence fees, recurring maintenance and consulting services. Revenue from the sale of licences where there is no post-delivery obligations is recognised in profit at the date of the delivery of the licence key. Revenue from maintenance contracts is recognised rateably over the service agreement, which is typically one year. Revenue from consulting services is recognised over the period the services are delivered. “The Company achieved an annual Profit After Tax result of $8.5 million“ 15 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Review and results of operations Overview The Company achieved an annual Profit After Tax result of $8.5 million compared to the prior year of $9.1 million. The Company’s overall financial performance was contrasted by two distinct halves. Profitability in the first half was up 64% as a result of a significant transaction with Avaya toward the end of the period. The strong first half momentum did not continue into the second half primarily due to the absence of further large licence sale contracts. Over 70% of the Company’s Revenue comes from the Americas which represents approximately 30% of the global market for the Company’s Unified Communications products. The Company is in the process of re-engineering its go to market with a view to growing its operations in Asia Pacific and Europe to take advantage of this opportunity. The Company is also in the process of bringing new product lines to market to service the growing Microsoft Lync market opportunity and the under-served needs of performance management in the Contact Centre market. Revenue Revenue for the year was $53.2 million, an increase of 9% over 2013. Licence fees increased by 5% to $28.0 million with both Unified Communications and Payments product lines continuing to grow, and Infrastructure remaining flat compared to the prior year. Maintenance revenues grew 16% over the previous corresponding year due in part to a strong retention rate of 95% and also due to the annualisation of growth from the installed base of Unified Communications customers. Revenue from consulting services grew by 3% to $4.6 million. Over 95% of the Company’s revenues are derived outside of Australia. Using prior year exchange rates, the Company’s revenue would have remained flat compared to the prior year. The Company may benefit from a lower exchange rate in 2015, although this will be partially offset by forward exchange contracts in place at 30 June 2014 as disclosed in Note 20. The following table presents Company revenues for each of the relevant product groups: In thousands of AUD Unified Communications Infrastructure Payments Consulting Total revenue 2014 25,118 19,530 3,962 4,633 53,243 2013 21,760 19,566 3,023 4,510 48,859 % Change 15% (0%) 31% 3% 9% Unified Communications (UC) revenue rose 15% over the previous year with a large first half transaction with Avaya coupled with an overall increase in maintenance revenue driven by strong customer retention and growth in the installed base. In the fourth quarter Avaya extended the territories in which it sells Prognosis to cover Europe and parts of Asia Pacific. The overall Unified Communications market continues to evolve with Microsoft Lync significantly growing its market share. Integrated Research is well placed to take advantage of this market dynamic. Infrastructure revenues remained flat over the previous year as a consequence of customers continuing to move toward new and evolving technological platforms that are not as reliant on fault tolerant high end systems such as HP NonStop. Payments revenue rose 31% over the previous year as the Company continues to progress from a direct to an indirect sales model. Both the Company and ACI1 continue to work together to develop and deliver new solutions including new fraud management and money transfer systems delivered in the fourth quarter of FY14. Consulting services showed growth for a fifth year in a row, with revenue increasing 3% to $4.6 million as customers increasingly look to extend their Prognosis solution to provide greater insight into their Unified Communications, Payments and Infrastructure environments. 1 ACI Worldwide is the leading international provider of electronic payment and banking systems. 16 Directors’ ReportIntegrated Research and its controlled entities • Annual Report 2014The following table presents Company revenues for each of the relevant geographic segments in underlying natural currencies: Americas (USD’000) Europe (£’000) Asia Pacific (A$’000) 2014 34,759 4,415 8,100 2013 35,247 4,519 7,496 % Change (1%) (2%) 8% The Americas was down by 1% over the previous year with strong first half growth driven by Unified Communications licence sales offset by the absence of large licence sales in the second half as a consequence of delays in purchasing from customers. The US FY15 pipeline remains strong and the overall customer retention rate of 94% provides the region with a platform for future growth. Europe revenues were down 2% over the prior year as the regional operation went through a significant re-building phase with changes in management and an increased investment in sales capability. Asia Pacific revenue grew by 8% to $8.1 million driven by licence sales growth in Payments products. The Asia Pacific region will continue to build with increasing investment in the Singapore office and the development of the sales team. Expenses Total expenses were $42.6 million, up 11% against the prior year. The higher expenses have been driven in part by a lower Australian dollar giving rise to higher offshore translated costs. In constant currency, expenses were up 5%. The number of staff at the end of the current year was 198 (2013: 200). The following table presents the Company’s cost base compared to the preceding year: In thousands of AUD Research and development expenses Sales, consulting and marketing expenses General and administration expenses Total expenses 2014 11,067 26,836 4,707 42,610 2013 10,777 23,279 4,280 38,336 Research and development expenditure of $11.1 million was 21% of total revenue and slightly higher than historical averages. The major development initiative during the 2014 financial year was on Prognosis 10 which was released toward the end of the first half. The new architectural release, Prognosis 10, delivers a new powerful web-based interface, mobile user experience, a powerful business insights module as well as rapid extensibility through the proprietary Prognosis frameworks2. Management believes these capabilities are important differentiators to its competitors and important in supporting customers achieve their business objectives. The new architecture of Prognosis 10 also allows the Company to increase the speed with which it can develop and deliver new innovations to the market. Evidence of this has been seen through the rapid release of two additional versions of Prognosis (Version 10.1 and 10.1.5) since the release of Prognosis 10.0. Net research and development expenses are represented as follows: In thousands of AUD Gross research and development spending Capitalisation of development expenses Amortisation of capitalised expenses Net research and development expenses 2 Proprietary Prognosis frameworks includes “PACE”: Prognosis Agile Component Engine and “PQL”: Prognosis Query Language. 2014 12,294 (7,967) 6,740 11,067 2013 12,051 (7,880) 6,606 10,777 17 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Shareholder returns Returns to shareholders remains strong through the payment of partly franked dividends: Net profit ($’000) Basic EPS Dividends per share Dividend franking percentage Return on equity Financial position 2014 $8,489 5.03¢ 5.0¢ 33% 28% 2013 $9,078 5.40¢ 5.0¢ 36% 30% 2012 $9,035 5.41¢ 5.0¢ 58% 31% The following table presents key items from the consolidated statement of financial position: In thousands of AUD Assets: Cash and cash equivalents (current) Trade and other receivables (current and non-current) Intangible assets (non-current) Liabilities: 2014 2013 13,300 22,857 16,257 14,827 23,564 15,040 Deferred revenue (current and non-current) 16,369 14,729 Equity 30,747 30,010 The Company’s financial position remains strong with $13.3 million in cash and cash equivalents as a result of continuing strong cashflow from operations. Cashflow from operations was $16.1 million for the year facilitating the payment of dividends and reinvestment in research and development. Trade and other receivables decreased by 3% over the preceding year due to an improvement in collections partially offset by an increase in deferred payment terms with key managed service providers who have a need to match payments with underlying cashflows from their customers. The increase in intangible assets is a result of the capitalisation of development costs primarily on Prognosis 10 as referenced in preceding paragraphs. The consolidated statement of financial position presented at page 48 together with the accompanying notes provides further details. 18 Directors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Outlook and Strategy for 2015 Prognosis derives its competitive advantage from its unique design which enables real time insights, monitoring, extreme scalability, high flexible and very deep visibility into the diversity of systems and applications that it manages. As such, Prognosis is ideally suited to complex, high transaction volume and high traffic environments. Competition exists in each of the markets in various forms. Firstly, some of the large telephony and payments vendors provide their own performance management software, although this is generally inferior to the capability of Prognosis and does not solve the problem where heterogeneous environments exist. Secondly, some of the large solution software vendors also provide performance management capabilities, but this is typically not their core specialisation. Lastly, the Company from time to time competes with smaller, start-up niche vendors. The Company remains focussed on sustaining its competitive advantage through continuing innovation that comes from its research and development program. Through deep forensic analysis into the root cause of problems and extensive reporting on service levels, Prognosis enables proactive and rapid resolution of issues as well as capacity optimisation and operational planning. This provides insight into potential issues before they become business-critical. Prognosis helps users improve their operational maturity by proactively minimizing expensive outages, improving user satisfaction and optimizing IT operations and resources. Prognosis is progressively using its real time access to big data volumes to deliver insights into a customer’s business that goes beyond improving and optimising operational efficiency. Through real time access and analysis, Prognosis Business Insights reveals business and customer trends that are leveraged for economic, fraud management and competitive advantage. The Company’s growth strategy is to create, sell and support Prognosis-based products and services that deliver profitable growth from existing markets and customers, as well as creating new products that open new markets. The Company currently focuses on three core markets: Infrastructure, Communications and Payments. The Company is actively building a fourth core market in the Contact Centre space. This has not yet become a material part of the business. The Infrastructure market for Integrated Research includes users of high-end computing systems such as the HP NonStop platform for financial, telecommunication, trading, manufacturing and other high-volume, high-value transaction environments. NonStop is an important part of HP’s server strategy and remains at the operational core of many of the world’s largest companies. The Company continues to invest in Prognosis for Nonstop to be aligned with HP and its customers. Prognosis for Distributed Systems (Windows, Unix and Linux) is mostly sold alongside the Company’s NonStop and Unified Communications products, as customers seek a common monitoring interface for all platforms, or convert applications from one platform to another. The Communications segment includes users of IP Telephony and Unified Communications (UC) applications such as video, messaging, mobility and presence. The Company anticipates growth in this segment through the ongoing shipment of IP phones and endpoints as well as the increasing value per endpoint through the use of UC applications. UC networks are becoming more pervasive, more critical and more complex and as such they require effective performance management and Prognosis is strongly positioned to benefit from this need. The company will continue to invest in R&D to expand the suite of Prognosis for UC products to cover more platforms, vendors and applications, and by doing so increase the Company’s addressable market and revenue potential. The Company has expanded its suite of Payments products by adding new products for additional platforms, vendors and applications, including fraud management and wholesale money transfer applications. This expands the Company’s addressable market in the Payments segment and increases revenue potential. The Company will maintain this strategy in the Payments market. Our strategic alliance with ACI, the world’s largest payments software vendor, has delivered revenue growth in FY14 and continues to be an important channel to market for the Company. Consulting Services provide Prognosis customers with implementation, customisation and training services to ensure that they get the most out of their investment in Prognosis. Consulting Services also help IR develop unique and repeatable solutions that extend the use and value of Prognosis. Consulting Services achieved profitability in FY14 and the Company will continue to invest in people and processes to grow consulting revenue and margin. The Company continues to invest in its R&D capability through the addition of resources and its use of the Agile development methodology which has improved the rate and quality of software production for the Company. 19 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Directors and senior management Directors The directors of the Company at any time during or since the end of the financial year are listed below: Steve Killelea AM Non‑Executive Director and Chairman Steve founded Integrated Research in August 1988 and held the position of Managing Director and Chief Executive Officer until retiring from his executive position in November 2004. He was appointed as a Non-Executive Director in November 2004 and elected Chairman in July 2005. Steve is also Chairman of the Institute for Economics and Peace and The Charitable Foundation and for activities involved with these he has received a number of international awards including the Order of Australia. He is also active in the financial community with investments in many high tech companies. Steve’s current term will expire no later than the close of the 2015 Annual General Meeting. Listed company directorships held in the past three years: None. Age: 65 years. Darc Dencker‑Rasmussen MAICD Managing Director and Chief Executive Officer Darc was appointed CEO and Managing Director of Integrated Research in October, 2013. Darc is a seasoned 25-year IT and enterprise software professional with extensive international experience in building and growing Software as a Service (SaaS) and Cloud based businesses. Darc was Chief Operating Officer and served as Executive Director at TrustedCloud (formerly IntraPower ASX:IPX). Prior to joining TrustedCloud, Mr Rasmussen served as Senior Vice President of CRM (Customer Relationship Management) at SAP in Germany and led SAP’s Strategic Initiative to build and grow their CRM business worldwide. Darc also served as Director and Vice President for Asia Pacific for Softbrands (acquired by Infor) and built their significant regional footprint. Listed company directorships held in the past three years other than listed above: None. Age: 54 years. Alan Baxter BSc, Dip Ed Independent Non‑Executive Director Alan was appointed as a Director in June 2009. Alan has over forty years’ experience in Information Technology covering a broad range of the industry’s activities. These include many years in a variety of roles with IBM Australia, CEO of DMR Consulting in Australia and COO of Fujitsu Consulting’s global operations from London. He was non-executive Chairman of Fujitsu Australia & New Zealand, a director of Mincom Ltd, non-executive Chairman of Konekt Limited and also of Innogence Limited. He is a non-executive director of CPT Global, a publicly listed technology consulting company. Alan’s current term will expire no later than the close of the 2015 Annual General Meeting. Listed company directorships held in the past three years other than listed above: None. Age: 69 years. 20 Kate Costello LLB, FAICD Independent Non‑Executive Director Kate was appointed as a Director in August 2005. She is a lawyer and has over twenty years experience in corporate governance and strategy development. She is also a Director of Governance Matters Pty Ltd, LBT Innovations Ltd, and a number of other private companies. Kate’s current term will expire no later than the close of the 2014 Annual General Meeting. Listed company directorships held in the past three years other than listed above: None. Age 61 years. Directors and Senior ManagementIntegrated Research and its controlled entities • Annual Report 2014Garry Dinnie BCom, FCA, FAICD, FAIM, MIIA(Aust) Clyde McConaghy B.Bus., MBA, FAICD, FIOD ‑ UK Independent Non‑Executive Director Non‑Executive Director Garry was appointed a Director in February 2013. He is a Director & Chair of the Audit & Risk Committee of CareFlight Limited, Inabox Group Limited, Australian Settlements Limited and a Director of a number of private companies. He is also the Chair or member of a number of Audit & Risk Committees of NSW public sector and private sector entities. He was previously a partner with Ernst & Young for 25 years specialising in audit, advisory and IT services. Garry’s current term will expire no later than the close of the 2016 Annual General Meeting. Listed company directorships held in the past three years other than listed above: None. Age: 62 years. Clyde was appointed a Director in December 2007. He has three decades of international strategic market development experience in the technology, online and media industries. Clyde is a Board Director of Infomedia Ltd (an ASX-listed technology company) and Serko Ltd (a NZX-listed technology company). Clyde was a Board Director of WMRC Plc (now IHS Global Insight) on the London Stock Exchange and a Director of the Economist Intelligence Unit in London. Clyde is Managing Director of Optima Boards, a board advisory firm for companies and not-for-profit entities. Clyde’s current term will expire no later than the close of the 2014 Annual General Meeting. Listed company directorships held in the past three years other than listed above: None. Age: 52 years. Peter Lloyd Non‑Executive Director Peter was appointed a Director in July 2010. He has 40 years’ experience in computing technology, having worked for both computer hardware and software solution providers. For the past 31 years Peter has been specifically involved in the provision of payments solutions for banks and financial institutions. He is also a Director of The Grayrock Group Pty Ltd, Transacumen Pty Ltd and Limehouse Creative Pty Ltd. Peter’s current term will expire no later than the close of the 2016 Annual General meeting. Listed companies directorships held in the past three years: None. Age: 60 years. Company Secretary David Purdue BEc, MBA, Grad Dip CSP, FCA, FGIA, FCIS, GAICD David was appointed Company Secretary in July 2012. David is also the Company’s Global Commercial Manager and is responsible for the Company’s global commercial business. Prior to this, David spent three years at Integrated Research’s Colorado office to manage the Americas finance operations. David is a Chartered Accountant and Chartered Secretary with over 25 years experience in both professional practice and industry. Resigning Director during the year Mark Brayan Managing Director and Chief Executive Officer (Resigned September 2013) Mark Brayan was Managing Director and Chief Executive Officer between September 2007 and September 2013. Mark contributed substantially to the development of the Company’s Unified Communications market and led the Company through significant change in the capability and structure of the business. Listed company directorships held in the past three years: None. Age 50 years. 21 Letter from the ChairmanDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors and Senior ManagementIntegrated Research and its controlled entities • Annual Report 2014Senior management Peter Adams B.Com, CA Chief Financial Officer Peter joined Integrated Research in March 2008 and is responsible for overseeing the Company’s finance and administration, including regulatory compliance and investor relations. Peter is a Chartered Accountant with over 25 years experience. He has held a number of senior accounting and finance roles, including seven years as CFO with Infomedia (an ASX-listed technology company), six years with Renison Goldfields (ex ASX top 100 Resources Company) and two years with Transfield Pty Ltd. Peter’s career began with Arthur Andersen, where he was responsible for managing large audit clients. Alex Baburin B.App. Sc Chief Operations Officer Alex Baburin joined Integrated Research in November 2006 and is responsible for the Company’s software development and global support activities. Alex has over 25 years experience in the development, creation and management of high-technology hardware and software products for Honeywell and Siemens. Before joining Integrated Research he was responsible for general management of the Siemens Access Control product line globally and for much of that time was based in Germany. Andre Cuenin BSc, MBA President Americas & VP European Field Operations Andre joined Integrated Research in October 2008 and is responsible for all business operations in both the Americas and Europe region. Andre has over 25 years experience in IT sales, including VP of Field Operations at Stratavia, where he was responsible for sales and professional services marketing worldwide. Prior to this he spent 15 years with CA (previously known as Computer Associates) in several senior management positions including VP of Worldwide Sales Operations. Kevin Ryder M.Mgt, MBA Vice President, Global Marketing Kevin joined Integrated Research in October 2013 and is responsible for global marketing and ensuring IR’s sales and marketing teams align to deliver revenue focused results. Kevin has over 25 years sales and marketing experience in the ICT industry, including leadership roles in Europe, North America, Asia and Australia. Most recently he was the Enterprise Marketing Director at Microsoft and prior to that, GM of Marketing at KAZ Group (now owned by Fujitsu). Kevin was also GM for Eicon Technology and in that role was responsible for establishing the Asia Pacific regional office in Sydney and successfully growing the business. Melanie Newman GDip HR General Manager ‑ Human Resources Melanie is responsible for the Human Resources function at Integrated Research which includes responsibility for aligning Strategic HR initiatives with the Business Strategy to support a high performance culture. Melanie has over 15 years HR Management experience mostly within global organisations in the Information Technology industry. 22 Directors and Senior ManagementIntegrated Research and its controlled entities • Annual Report 2014The directors present their report together with the Financial Statements of Integrated Research Limited (“the consolidated entity”), being the Company and its controlled entities, for the year ended 30 June 2014 and the Auditor’s Report thereon. Results The net profit of the consolidated entity for the 12 months ended 30 June 2014 after income tax expense was $8.5 million. Dividends Dividends paid or declared by the Company since the end of the previous financial year were: Final 2013 - Ordinary shares Interim 2014 - Ordinary shares Final 2014 - Ordinary shares 40% franked 30% franked 35% franked 3.0 2.5 2.5 5,055 4,223 4,224 13 Sep 2013 21 Mar 2014 12 Sep 2014 Cents Per share Total Amount $’000 Date of Payment Events subsequent to reporting date For dividends declared after 30 June 2014 see Note 19 in the financial statements. The financial effect of dividends declared and paid after 30 June 2014 has not been brought to account in the financial statements for the year ended 30 June 2014 and will be recognised in subsequent financial statements. No other transaction or event of a material or unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years. Future developments Likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations are referred to generally in the Review of Operations and Activities Report. Further information on likely developments including expected results would in the Directors’ opinion, result in unreasonable prejudice to the Company and has therefore not been included in this Report. Directors and company secretary Details of current directors’ qualifications, experience, age and special responsibilities are set out on pages 20 to 21. Details of the company secretary and his qualifications are set out on page 21. 23 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Officers who were previously partners of the audit firm No officers of the Company were partners of the current audit firm during the financial year. Directors’ meetings The numbers of meetings of the Company’s board of directors and of each board committee held during the year ended 30 June 2014, and the numbers of meetings attended by each director were: Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings Strategy Committee Meetings Board Meetings A 11 2 9 10 11 11 12 11 B 12 2 9 12 12 12 12 12 A - - - - - 3 3 3 B - - - - - 3 3 3 A 2 - - 3 3 - - - B 3 - - 3 3 - - - A - 1 2 3 3 3 - - B - 1 2 3 3 3 - - Alan Baxter Mark Brayan Darc Rasmussen Kate Costello Steve Killelea Peter Lloyd Clyde McConaghy Garry Dinnie A: Number of meetings attended. B: Number of meetings held during the time the directors held office or was a member of the board or committee during the year. State of affairs In the opinion of the directors there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review. Environmental regulation The consolidated entity’s operations are not subject to significant environmental regulations under either Commonwealth or State legislation. 24 Directors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Directors’ interests The relevant interest of each director in the shares, options or performance rights over ordinary shares issued by the companies in the consolidated entity and other relevant bodies corporate, as notified by the directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Ordinary shares in Integrated Research Options Performance rights Directly held Beneficially held - - - - 197,000 8,700 199,622 - Total 197,000 8,700 199,622 - 94,497,339 337,612 94,834,951 - - - - - - Number of options Number of rights - - - - - - - - 350,000 - - - - - Alan Baxter Darc Rasmussen Kate Costello Garry Dinnie Steve Killelea Clyde McConaghy Peter Lloyd Share options and performance rights Options and performance rights granted to directors and senior executives During or since the end of the financial year, the Company granted performance rights for no consideration over unissued ordinary shares in Integrated Research Limited to the following named directors and executive officers of the consolidated entity as part of their remuneration: Directors Darc Rasmussen Executive Officers Andre Cuenin Number of performance rights granted Performance hurdle Exercise price Expiry date 350,000 85,000 Yes Yes Nil Nil Oct 2016 Sep 2017 The performance rights were granted under the Integrated Research Performance Rights and Option Plan (established November 2011). The performance rights vest on 8 October 2016 for Mr Rasmussen and 31 August 2017 for Mr Cuenin, subject to applicable performance hurdles. The performance rights are automatically exercised upon vesting. The Company will issue shares upon vesting conditions being met for Executive Officers. The Company will either issue shares or make an on-market purchase for Mr Rasmussen upon his vesting conditions being satisfied. 25 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Unissued shares under performance rights Unissued ordinary shares of Integrated Research Limited under performance rights at the date of this report are as follows: Performance rights Expiry date Sept 2014 Nov 2014 Sept 2015 Oct 2016 Oct 2016 Sep 2017 Total performance rights Exercise price Nil Nil Nil Nil Nil Nil Number of shares 430,000 746,500 160,000 165,000 350,000 85,000 1,936,500 Performance rights do not entitle the holder to participate in any share issue of the Company or any other body corporate. Shares issued on the exercise of options During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued): Number of shares Amount paid on each share 582,000 10,000 $0.28 $0.31 Indemnification and insurance of officers and auditors Indemnification The Company has agreed to indemnify the directors of the Company on a full indemnity basis to the full extent permitted by law, for all losses or liabilities incurred by the director as an officer of the Company including, but not limited to, liability for negligence or for reasonable costs and expenses incurred, except where the liability arises out of conduct involving a lack of good faith. Insurance During the financial year Integrated Research Limited paid a premium to insure the directors and executive officers of the consolidated entity and related bodies corporate. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against officers in their capacity as officers of the consolidated entity. 26 Directors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Remuneration report The Company’s Remuneration Report, which forms part of this Directors’ Report, is on pages 28 to 39. Corporate governance A statement describing the Company’s main corporate governance practices in place throughout the financial year is on pages 40 to 44. Non‑audit services During the year Ernst and Young, the Company’s auditor, has performed certain other services in addition to their statutory duties. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit & Risk Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: „ All non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit & Risk Committee to ensure they do not impact the integrity and objectivity of the auditor, and „ The non-audit services provided do not undermine the general principles relating to auditor independence as set out in Professional Statement F1 Professional independence, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. A copy of the auditors’ independence declaration as required under Section 307C of the Corporations Act is on page 81 and forms part of the Directors’ Report. Rounding of amounts to nearest thousand dollars The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class order, amounts in the Financial Statements and the Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. This report is made in accordance with a resolution of the directors. Steve Killelea Chairman Darc Rasmussen Chief Executive Officer Dated at North Sydney this 19th day of August 2014 27 Letter from the ChairmanDirectors and Senior ManagementRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportDirectors’ ReportIntegrated Research and its controlled entities • Annual Report 2014Remuneration report (audited) Remuneration policies Remuneration levels for key management personnel and secretaries of the Company, and relevant key management personnel of the consolidated entity are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Nomination and Remuneration Committee obtains independent advice on the appropriateness of remuneration packages given trends in comparative companies both locally and internationally and the objectives of the Company’s remuneration strategy. Key management personnel (including directors) have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structure takes into account: „ The capability and experience of the directors and senior executives „ The directors and senior executives ability to control the relevant segment’s performance „ The consolidated entity’s performance including: „ The consolidated entity’s earnings „ The growth in share price and returns on shareholder wealth Remuneration packages include a mix of fixed and variable remuneration and short and long-term performance based incentives. Fixed remuneration Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. Remuneration levels are reviewed annually through a process that considers individual, segment and overall performance of the consolidated entity. In addition, external remuneration surveys provide periodic analysis to ensure the directors’ and senior executives’ remuneration is competitive in the market place. A senior executive’s remuneration is also reviewed on promotion. Performance‑linked remuneration Performance linked remuneration includes both short-term and long-term incentives and is designed to reward executive directors and senior executives for exceeding their financial and personal objectives. The short-term incentive (STI) is an “at risk” bonus provided in the form of cash, while the long-term incentive (LTI) is provided as either options or performance rights over ordinary shares of Integrated Research Limited under the rules of the share plans. Short‑term incentive bonus The Nomination and Remuneration Committee is responsible for setting the key performance indicators (KPIs) for the Chief Executive Officer, and for approving the KPIs for the senior executives who report to him. The KPIs generally include measures relating to the consolidated entity, the relevant segment, and the individual, and include financial, people, customer, strategy and risk measures. The measures are chosen as they directly align the individual’s reward to the KPIs of the consolidated entity and to its strategy and performance. The financial performance objectives vary with position and responsibility and are aligned with each respective year’s budget. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes and staff development. At the end of the financial year the Nomination and Remuneration Committee assesses the actual performance of the CEO against the KPIs set at the beginning of the financial year. A percentage of the predetermined maximum amounts for each KPI is awarded depending on results. The committee recommends the cash incentive to be paid to the CEO for approval by the board. 28 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Long‑term incentive Prior to the 2012 financial year, options were issued to executive directors and other senior executives under the Employee Share Option Plan. In November 2011, the Company established a new plan titled Integrated Research Performance Rights and Options Plan (IRPROP). Performance rights are issued to executive directors and other senior executives under the IRPROP. The ability of executive directors to exercise either options or performance rights is conditional on the consolidated entity achieving certain profit after tax (PAT) performance hurdles over the vesting period. PAT was considered the most appropriate performance hurdle given its intrinsic link to creating shareholder wealth. Consequences of performance on shareholder wealth In considering the consolidated entity’s performance and benefits for shareholder wealth, the Nomination and Remuneration Committee has regard to the following indices in respect of the current financial year and the previous four financial years: New licences ($’000) Net profit ($’000) Dividends paid ($’000) Closing share price Change in share price 2014 28,048 8,489 9,278 $0.995 ($0.04) 2013 26,632 9,078 8,413 $1.035 $0.37 2012 28,861 9,035 7,512 $0.665 $0.39 2011 25,005 7,465 4,171 $0.275 ($0.125) 2010 18,413 5,401 7,506 $0.40 $0.125 Net profit and new licence sales are considered in setting the STI, as two of the financial performance targets are profit after tax and new licences. The Nomination and Remuneration Committee considers that the above performance linked structure is generating the desired outcomes. Key Management Personnel The following were key management personnel of the consolidated entity at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Directors (full year) Directors (part year) Steve Killelea ‑ Chairman Darc Rasmussen ‑ Chief Executive Officer (appointed October 2013) Mark Brayan ‑ Chief Executive Officer (resigned August 2013) Alan Baxter Kate Costello Peter Lloyd Clyde McConaghy Garry Dinnie Other key management personnel (full year) Other key management personnel (part year) Peter Adams ‑ Chief Financial Officer Andrew Levido ‑ GM ‑ Global Sales (resigned July 2014) Alex Baburin ‑ Chief Operations Officer Kevin Ryder ‑ VP Global Marketing (appointed October 2013) Andre Cuenin ‑ President Americas & VP European Field Operations Jonathan Stern ‑ Vice President ‑ Asia Pacific David Purdue ‑ Company Secretary & Global Commercial Manager 29 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Service agreements Service contracts for current executive directors and current senior executives are unlimited in term but capable of termination by either party according to a period specified in the employment contract and the consolidated entity retains the right to terminate the contract immediately by payment in lieu of notice or a severance payment or an amount for redundancy equal to the scale of payments prescribed in the NSW Employment Protection Act. Mr Darc Rasmussen, Chief Executive Officer, has a contract of employment with Integrated Research Limited dated 26 August 2013, which provides for specific notice and severance undertakings of up to three months compensation depending on the particular circumstances. Mr Rasmussen can terminate his employment by giving three months prior notice in writing. Mr Peter Adams, Chief Financial Officer, has a contract of employment with Integrated Research Limited dated 23 January 2008, which provides for specific notice and severance undertakings of up to three months compensation depending on the particular circumstances. Mr Adams can terminate his employment by giving three months prior notice in writing. Mr Alex Baburin, Chief Operations Officer, has a contract of employment with Integrated Research Limited dated 18 October 2006, which provides for specific notice and severance undertakings of up to one month’s compensation depending on the particular circumstances. Mr Baburin can terminate his employment by giving one month prior notice in writing. Mr Andre Cuenin, President Americas & VP European Field Operations, has a contract of employment with Integrated Research Inc dated 22 September 2008, which provides for specific notice and severance undertakings of one month’s compensation depending on the particular circumstances. Mr Cuenin can terminate his employment by giving one month prior notice in writing. Mr David Purdue, Company Secretary and Global Commercial Manager, has a contract of employment with Integrated Research Limited dated 27 May 2008, which provides for specific notice and severance undertakings of one month compensation depending on the particular circumstances. Mr Purdue can terminate his employment by giving one month prior notice in writing. Mr Kevin Ryder - Vice President, Global Marketing, has a contract of employment with Integrated Research Limited dated 14 October 2013, which provides for specific notice and severance undertakings of one month compensation depending on the particular circumstances. Mr Ryder can terminate his employment by giving one month prior notice in writing. Non‑executive Directors Total remuneration for all non-executive directors last voted upon at the Annual General Meeting in November 2013 is not to exceed $750,000 per annum. Director’s base fees in FY14 were $70,000 per annum inclusive of compulsory superannuation. The chairman receives the base fee by a multiple of two. Director’s fees cover all main board activities and committee membership. Directors can elect to salary sacrifice their directors fees into superannuation. Non-executive directors do not receive performance related compensation or retirement benefits. Directors’ and executive officers’ remuneration Details of the nature and amount of each major element of the remuneration of each of the key management personnel director of the Company and each of the executives and relevant group key management executives are reported below. The estimated value of options and performance rights disclosed is calculated at the date of grant using the Binomial option pricing model, adjusted to take into account the inability to exercise options during the vesting period. Further details of options and performance rights granted during the year are set out below. Executive officers are officers who are involved in, or who take part in, the management of the affairs of Integrated Research Limited and/or related bodies corporate. Remuneration for overseas-based employees has been translated to Australian dollars at the average exchange rates for the year. No director or executive appointed during the year received a payment as part of his or her consideration for agreeing to hold the position. 30 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Short term Post- employment Share- based payments Other compen- sation Proportion of remuneration Salary & fees $ Bonus $ Non-cash benefits $ Super- annuation contribution $ Value of options and rights $ Termi- nation benefit $ Perfor‑ mance related Total $ Value of options and rights 2014 In AUD Directors Non‑executive Alan Baxter Kate Costello Garry Dinnie Peter Lloyd (also see page 36) Steve Killelea (Chairman) 64,073 64,073 64,073 64,073 128,146 Clyde McConaghy 64,073 Executive Mark Brayan (resigned Aug 2013) 225,702 - - - - - - - - - - - - - 5,927 5,927 5,927 5,927 11,854 5,927 - - - - - - 755 8,887 (24,718) Darc Rasmussen (appointed Oct 2013) 355,770 92,370 4,532 13,331 330,545 Executive officers (excluding directors) Peter Adams 271,510 36,938 4,532 Alex Baburin 266,416 34,683 - 17,775 24,644 467 3,894 Andre Cuenin 259,615 244,293 1,615 7,788 14,310 Andrew Levido (resigned July 2013) 106,557 David Purdue 202,693 - - 378 4,532 5,599 (4,257) 17,775 6,105 154,277 22,016 - 14,271 232,233 110,993 4,532 17,775 - - Kevin Ryder (appointed October 2013) Jonathan Stern (resigned July 2014) Total compensation: key management (consolidated, including directors) - - - - - - - - - - - - - - - 70,000 70,000 70,000 70,000 140,000 70,000 - - - - - - - - - - - - 210,626 0% (12%) 796,548 12% 42% 331,222 329,637 527,621 108,277 231,105 11% 11% 46% 0% 0% 190,564 12% 365,533 30% 0% 1% 3% (4%) 3% 0% 0% 2,523,284 541,293 20,876 169,334 326,346 - 3,581,133 31 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Short term Post- employment Share- based payments Other compen- sation Proportion of remuneration Salary & fees $ Non-cash benefits $ Bonus $ Super- annuation contribution $ Value of options and rights $ Termi- nation benefit $ Perfor‑ mance related Total $ Value of options and rights 2013 In AUD Directors Non‑executive Alan Baxter 60,665 John Brown (Resigned 17 Dec 2012) Kate Costello Garry Dinnie (Joined 17 Feb 2013) Peter Lloyd (also see page 36) Steve Killelea (Chairman) 26,274 60,665 26,758 60,665 121,330 Clyde McConaghy 60,665 Executive - - - - - - - - - - - - - - 5,460 2,365 5,460 2,408 5,460 10,920 5,460 - - - - - - - - - - - - - - 66,125 28,639 66,125 29,166 66,125 132,250 66,125 - - - - - - - - - - - - - - Mark Brayan 449,653 40,434 4,532 16,470 22,365 - 533,454 8% 4% Executive officers (excluding Directors) Peter Adams 264,510 39,381 4,532 Alex Baburin 241,789 28,290 Andre Cuenin 222,047 188,803 John Dunne 200,018 23,381 3,750 - 16,470 21,761 6,661 16,470 8,429 6,730 3,012 8,078 338 - - - - - 278,998 126,002 4,532 16,470 4,257 185,886 - 2,644 16,470 4,433 140,364 46,195 2,266 8,235 45,851 22,927 147,930 79,218 - - - - 2,475 - 1,419 - - - - - - - - - - 333,322 298,570 420,523 247,947 12% 9% 45% 9% 4,088 - 3% 2% 7% 3% - 430,259 29% 1% 209,433 - 2% 197,060 23% 71,253 32% - - 228,567 35% 1% 2,597,818 594,631 18,506 159,353 58,723 3,429,031 David Leighton (retired July 2012) Andrew Levido (resigned July 2013) David Purdue (appointed Company Secretary July 2012) Pierre Semaan (resigned Dec 2012) Jonathan Stern (appointed April 2013) Pim Van Der Poel (appointed Oct 2012 resigned July 2013) Total compensation: key management (consolidated, including directors) 32 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Analysis of bonuses included in remuneration Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company and each of the named Company executives and relevant group executives are detailed below: Directors Darc Rasmussen Executives Peter Adams Alex Baburin Andre Cuenin Jonathan Stern Kevin Ryder Short term incentive bonuses Included in remuneration $ (A) % vested in year % forfeited in year (B) 92,370 36,938 34,683 244,293 110,993 22,016 46% 74% 87% 72% 63% 67% 54% 26% 13% 28% 37% 33% (A) Amounts included in remuneration for the financial year represents the amount that vested in the financial year based on achievement of personal goals and satisfaction of specified performance criteria. No amounts vest in future financial years in respect of the short-term incentive bonus scheme for the 2014 financial year. (B) The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year. 33 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Equity instruments All options refer to options over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis under the Employee Share Option Plan (ESOP). Options and rights over equity instruments granted as compensation No options have been granted to named executives either during or since the end of the financial year. All options expire on the earlier of their expiry date or termination of the individual’s employment, except for termination due to retirement. The options are exercisable on an annual basis on the first to fourth anniversaries of the grant date. In addition to a continuing employment service condition, the ability of executives to exercise options is conditional on the consolidated entity achieving certain performance hurdles. Further details, including grant dates and exercise dates regarding options granted to executives under the ESOP are in note 16 to the financial statements. Exercise of options granted as compensation During the reporting year the following shares were issued to executives on the exercise of options previously granted as compensation. Executives Alex Baburin Fair value of options exercised during the year ($) Payment value of options exercised during the year ($) Number of shares issued 10,000 1,254 3,100 34 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014 Analysis of rights over equity instruments granted as compensation Performance rights granted Value yet to vest ($) Number Date Percent vested in year Percent forfeited in year (A) Financial year in which grant expires Min (B) Max (C) Directors Darc Rasmussen 350,000 Nov-13 Mark Brayan 170,000 Dec-11 Executives Peter Adams 170,000 Oct-12 100,000 Dec-11 30,000 Oct-12 Alex Baburin 75,000 Dec-11 30,000 Oct-12 Andre Cuenin 75,000 Dec-11 50,000 Oct-12 85,000 Apr-14 Andrew Levido 56,250 Oct-12 David Purdue 14,500 Dec-11 20,000 Oct-12 Pim Van Der Poel 25,000 Oct-12 - - - - - - - - - - - - - - - 100% 100% 100% - 100% - 100% - - 100% - - 100% 2016 2015 2016 2015 2016 2015 2016 2015 2016 2017 2016 2015 2016 2016 nil nil nil nil nil nil nil nil nil nil nil nil nil nil 303,625 nil nil nil 26,520 nil 26,520 nil 44,200 79,639 nil 5,562 17,680 nil (A) The percentage forfeited in the year represents the reduction from the maximum number of options available to vest due to the performance hurdles not being achieved or due to the resignation of the executive. (B) The minimum value of options yet to vest is $nil as the executives may not achieve the required performance hurdles or may terminate their employment prior to vesting. (C) The maximum values presented above are based on the values calculated using the Binomial option pricing model as applied in estimating the value of options for performance rights for employee benefit expense purposes. 35 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Other Transactions with Key Management Personnel The consolidated entity received consulting services totalling $159,480 for the year ended 30 June 2013 from The Grayrock Group Pty Limited, a company in which Peter Lloyd is a director. There were no services received for the year ended 30 June 2014. Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. Equity instruments All options refer to options over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis under the Employee Share Option Plan (ESOP). All performance rights refer to performance rights over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis under the Integrated Research Performance Rights and Option Plan (IRPROP). Key management personnel compensation The key management personnel compensation are as follows: In AUD Short-term benefits Post-employment benefits Equity compensation benefits Consolidated 2014 2013 3,085,453 3,210,955 169,334 326,346 159,353 58,723 3,581,133 3,429,031 36 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Options over equity instruments granted as compensation The movement during the reporting year in the number of options over ordinary shares in Integrated Research Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Held at 1 July 2013 Granted as compensation Exercised Other changes* Held at 30 June 2014 Vested during the year Vested and exercisable at 30 June 2014 Current Year Executives Alex Baburin 10,000 - (10,000) - - - - Held at 1 July 2012 Granted as compensation Exercised Other changes* Held at 30 June 2013 Vested during the year Vested and exercisable at 30 June 2013 Prior Year Directors Mark Brayan 1,000,000 Executives Peter Adams 350,000 Alex Baburin 40,000 Andre Cuenin Pierre Semaan 300,000 200,000 John Dunne 15,000 - - - - - - (500,000) (500,000) (87,500) (262,500) - (75,000) - - (50,000) (150,000) - 225,000 - - - - (7,500) - 7,500 7,500 7,500 - - - - - - 40,000 10,000 10,000 * Other changes represent options that expired or were forfeited during the year There were no options granted as compensation during the current year. 25% of options granted vest annually on the anniversary of the grant date, and may also be subject to the consolidated entity achieving certain performance hurdles. Options expire on the earlier of their expiry date or termination of the individual’s employment. No options have been granted since the end of the financial year. The options were provided at no cost to the recipients. 37 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Performance rights over equity instruments granted as compensation The movement during the reporting year in the number of performance rights over ordinary shares in Integrated Research Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Held at 1 July 2013 Granted as compensation Exercised Other changes* Held at 30 June 2014 Vested during the year Vested and exercisable at 30 June 2014 Current Year Directors Mark Brayan 340,000 - Darc Rasmussen - 350,000 Executives Peter Adams Alex Baburin Andre Cuenin Andrew Levido David Purdue Pim Van Der Poel 130,000 105,000 125,000 56,250 34,500 25,000 - - 85,000 - - - - - - - - - - - (340,000) - - 350,000 (100,000) (75,000) 30,000 30,000 (75,000) 135,000 (56,250) - - 34,500 (25,000) - - - - - - - - - - - - - - - - Held at 1 July 2012 Granted as compensation Exercised Other changes* Held at 30 June 2013 Vested during the year Vested and exercisable at 30 June 2013 Prior Year Directors Mark Brayan 170,000 170,000 Executives Peter Adams 100,000 Alex Baburin Andre Cuenin John Dunne Andrew Levido David Purdue Pierre Semaan Pim Van Poel 75,000 75,000 75,000 - 14,500 65,000 30,000 30,000 50,000 30,000 56,250 20,000 - - 25,000 - - - - - - - - - - - - - - - - 340,000 130,000 105,000 125,000 105,000 56,250 34,500 (65,000) - - 25,000 - - - - - - - - - - - - - - - - - - * Other changes represent performance rights that expired or were forfeited during the year Performance rights expire on the earlier of their expiry date or termination of the individual’s employment. No performance rights have been granted since the end of the financial year. The performance rights were provided at no cost to the recipients. 38 Remuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Movements in shares The movement during the reporting period in the number of ordinary shares in Integrated Research Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Current Year Directors Non‑executive Alan Baxter Kate Costello Steve Killelea Executive Mark Brayan Darc Rasmussen Executive officers (excluding directors) Peter Adams Alex Baburin David Purdue Held at 1 July 2013 Purchases Received on exercise of options Other changes* Sales Held at 30 June 2014 100,000 200,000 94,834,951 25,000 97,000 199,622 - - - 8,700 5,000 - 18,750 - - - - - - - - - 10,000 - - - - (25,000) - - - - - (200,000) - - - - - - 197,000 199,622 94,834,951 - 8,700 5,000 10,000 18,750 * Other changes represent net movement from ceasing to hold office. Held at 1 July 2012 Purchases Received on exercise of options Other changes* Sales Held at 30 June 2013 Prior Year Directors Non‑executive Alan Baxter John Brown Kate Costello Steve Killelea Executive Mark Brayan 100,000 101,000 200,000 94,834,951 25,000 Executive officers (excluding directors) Peter Adams John Dunne Pierre Semaan Andre Cuenin David Purdue - - - - 18,750 - - - - - - - - - - - - - - 500,000 87,500 7,500 50,000 75,000 - - (101,000) - - - - - - - - - - - 100,000 - 200,000 94,834,951 500,000 25,000 (82,500) (7,500) (50,000) (75,000) 5,000 - - - - 18,750 Shareholdings at the date of the Directors’ Report for existing Key Management Personnel remain unchanged. Other transactions with the consolidated entity There were no other transactions between the key management personnel, or their personally-related entities, and the consolidated entity. 39 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportRemuneration ReportIntegrated Research and its controlled entities • Annual Report 2014Corporate Governance Statement This statement outlines the main corporate governance practices that were in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. Board of Directors and its Committees Role of the board The board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the board is responsible for the overall corporate governance of the consolidated entity including evaluating and approving its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for directors and senior executives, establishing and monitoring the achievement of management goals and assessing the integrity of internal control and management information systems. It is also responsible for approving and monitoring financial and other reporting. Board process To assist in the execution of its responsibilities, the Board has established a number of board committees including a Nomination and Remuneration Committee, an Audit and Risk Committee and a Strategy Committee. These committees have written mandates and operating procedures, which are reviewed on a regular basis. The board has also established a framework for the management of the consolidated entity including board-endorsed policies, a system of internal control, a business risk management process and the establishment of appropriate ethical standards. The full board currently holds twelve scheduled meetings each year and any extraordinary meetings at such other times as may be necessary to address any specific matters that may arise. The agenda for its meetings is prepared in conjunction with the Chairman, Chief Executive Officer and Company Secretary. Standing items include strategic matters for discussion, the CEO’s report, financial reports, key performance indicator reports and presentations by key executives and external industry experts. Board papers are circulated in advance. Directors have other opportunities, including visits to operations, for contact with a wider group of employees. Director education The consolidated entity follows an induction process to educate new directors about the nature of the business, current issues, the corporate strategy and expectations of the consolidated entity concerning performance of directors. In addition executives make regular presentations to the board to ensure its familiarity with operational matters. Directors are expected to access external continuing education opportunities to update and enhance their skills and knowledge. Independent advice and access to company information Each director has the right of access to all relevant company information and to the company’s executives and, subject to prior consultation with the chairman, may seek independent professional advice from a suitably qualified adviser at the consolidated entity’s expense. A copy of the advice received by the director is made available to all other members of the board. Composition of the board The names of the directors of the Company in office at the date of this report are set out on pages 20 to 21 of this report. The company’s constitution provides for the board to consist of between three and twelve members. At 30 June 2014 the board members were comprised as follows: „ Mr Steve Killelea - Non Executive Director (Chairman) „ Mr Alan Baxter - Independent Non Executive Director „ Ms Kate Costello - Independent Non Executive Director „ Mr Garry Dinnie - Independent Non Executive Director „ Mr Peter Lloyd - Non Executive Director „ Mr Clyde McConaghy - Non Executive Director „ Mr Darc Rasmussen - Executive Director (Chief Executive Officer) 40 Corporate Governance StatementIntegrated Research and its controlled entities • Annual Report 2014The election of Mr Killelea, who holds a majority of the company’s issued shares, as non-executive chairman, does not comply with the ASX Corporate Governance Council recommendation that the chairman be an independent director. However, the board is satisfied that the company benefits from Mr Killelea’s experience and knowledge gained through his long involvement with Integrated Research and his associations throughout the information technology industry. Mr Killelea founded Integrated Research in 1988 and was the CEO and managing director of the company until his retirement in November 2004. At each Annual General Meeting one-third of directors, any director who has held office for three years and any director appointed by directors in the preceding year must retire, then being eligible for re-election. The CEO is not required to retire by rotation. The composition of the board is reviewed on a regular basis to ensure that the board has the appropriate mix of expertise and experience. When a vacancy exists, through whatever cause, or where it is considered that the board would benefit from the services of a new director with particular skills, the Nomination and Remuneration Committee, in conjunction with the board, determines the selection criteria for the position based on the skills deemed necessary for the board to best carry out its responsibilities. The committee then selects a panel of candidates and the board appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. Nomination and Remuneration Committee The Nomination and Remuneration Committee is a committee of the board of directors and is empowered by the board to assist it in fulfilling its duties to shareholders and other stakeholders. In general, the committee has responsibility to: 1) ensure the company has appropriate remuneration policies designed to meet the needs of the company and to enhance corporate and individual performance and 2) review board performance, select and recommend new directors to the board and implement actions for the retirement and re-election of directors. Responsibilities Regarding Remuneration The Committee reviews and makes recommendations to the board on: „ Executive remuneration and incentive policies. „ Policies on employee incentive plans, including equity incentive plans. „ Superannuation arrangements. „ The remuneration framework and policy for non-executive directors. „ Remuneration levels are competitively set to attract and retain the most qualified and experienced directors and senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies and industry surveys. Remuneration packages include a mix of fixed remuneration, performance-based remuneration and equity-based remuneration. Responsibilities Regarding Nomination The Committee develops and makes recommendations to the board on: „ The CEO and senior executive succession planning. „ The range of skills, experience and expertise needed on the board and the identification of the particular skills, experience and expertise that will best complement board effectiveness. „ A plan for identifying, reviewing, assessing and enhancing director competencies. „ Board succession plans to maintain a balance of skills, experience and expertise on the board. „ Evaluation of the board’s performance. „ Appointment and removal of directors. „ Appropriate composition of committees. The terms and conditions of the appointment of non-executive directors are set out in a letter of appointment, including expectations for attendance and preparation for all board meetings, expected time commitments, procedures when dealing with conflicts of interest, and the availability of independent professional advice. The members of the Nomination and Remuneration Committee during the year were: „ Ms Kate Costello (Chairperson) - Independent Non-Executive „ The appointment, remuneration, performance „ Mr Alan Baxter - Independent Non-Executive objectives and evaluation of the chief executive officer. „ Mr Steve Killelea - Non-Executive „ The remuneration packages for senior executives. „ The Company’s recruitment, retention and termination policies and procedures for senior executives. The Nomination and Remuneration Committee meets at least twice a year and as required. The Committee met three times during the year under review. 41 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportFinancial StatementsIndependent Audit ReportCorporate Governance StatementIntegrated Research and its controlled entities • Annual Report 2014Audit and Risk Committee The Audit and Risk Committee has a documented charter, approved by the board. All members must be non-executive directors with a majority being independent. The chairman may not be the chairman of the board. The committee advises on the establishment and maintenance of a framework of risk management and internal control of the consolidated entity. The members of the Audit and Risk Committee during the year were: „ Review the external auditor’s management letter and responses by management. „ Provide an avenue of communication between the auditors, management and the board. „ Monitor compliance with all financial statutory requirements and regulations. „ Review financial reports and other financial information distributed to shareholders so that they provide an accurate reflection of the financial health of the company. „ Mr Garry Dinnie - Independent Non-Executive „ Monitor corporate risk management and „ Mr Peter Lloyd - Non-Executive assessment processes, and the identification and management of strategic and operational risks. „ Mr Clyde McConaghy - Non-Executive „ Enquire of the auditors of any difficulties During the year, the Audit and Risk Committee provided the Board with updates to the Company’s risk management register (with the Board approving this document). The external auditor, Chief Executive Officer and Chief Financial Officer are invited to Audit and Risk Committee meetings at the discretion of the committee. The committee met three times during the year and committee members’ attendance record is disclosed in the table of directors’ meetings on page 24. The external auditor met with the audit committee/board three times during the year, two of which included time without the presence of executive management. The Chief Executive Officer and the Chief Financial Officer declared in writing to the board that the company’s financial reports for the year ended 30 June 2014 comply with accounting standards and present a true and fair view, in all material respects, of the company’s financial condition and operational results. This statement is required annually. The main responsibilities of the Audit and Risk Committee include: „ Serve as an independent party to monitor the financial reporting process and internal control systems. „ Review the performance and independence of the external auditors and make recommendations to the board regarding the appointment or termination of the auditors. „ Review the scope and cost of the annual audit, negotiating and recommending the fee for the annual audit to the board. encountered during the audit, including any restrictions on the scope of their work, access to information or changes to the planned scope of the audit. The Audit and Risk Committee reviews the performance of the external auditors on an annual basis and normally meets with them during the year as follows: „ To discuss the external audit plans, identifying any significant changes in structure, operations, internal controls or accounting policies likely to impact the financial statements and to review the fees proposed for the audit work to be performed. „ Prior to announcement of results: „ To review the half-year and preliminary final report prior to lodgement with the ASX, and any significant adjustments required as a result of the auditor’s findings. „ To recommend the Board approval of these documents. „ Review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any recommendations made. „ To finalise half-year and annual reporting: „ Review the draft financial report and recommend board approval of the financial report. „ As required, to organise, review and report on any special reviews or investigations deemed necessary by the board. 42 Corporate Governance StatementIntegrated Research and its controlled entities • Annual Report 2014Strategy Committee The Strategy Committee has a documented charter, approved by the board and is responsible for reviewing strategy and recommending strategies to the board to enhance the company’s long-term performance. The committee is comprised of at least three members, including the chairman of the board and the Chief Executive Officer. The board appoints a member of the committee to be chairman. The members of the Strategy Committee during the year were: „ Mr Steve Killelea (Chairman) - Non-Executive „ Mr Darc Rasmussen - Executive „ Mr Peter Lloyd - Non-Executive „ Ms Kate Costello - Independent Non-Executive „ Mr Mark Brayan - Executive (resigned August 2013) The Strategy Committee is responsible for: „ Review and assist in defining current strategy. „ Assess new strategic opportunities, including M&A proposals and intellectual property developments or acquisitions. „ Stay close to the business challenges and monitor operational implementation of strategic plans. „ Endorse strategy and business cases for consideration by the full board. The Committee met three times during the year under review. Risk management Under the Audit and Risk Charter, the Audit and Risk Committee reviews the status of business risks to the consolidated entity through integrated risk management programs ensuring risks are identified, assessed and appropriately managed and communicated to the board. Major business risks arise from such matters as actions by competitors, government policy changes and the impact of exchange rate movements. Comprehensive policies and procedures are established such that: „ Capital expenditure above a certain size requires board approval. „ Financial exposures are controlled, including the use of forward exchange contracts. „ Risks are identified and managed, including internal audit, privacy, insurances, business continuity and compliance. „ Business transactions are properly authorised and executed. The Chief Executive Officer and the Chief Financial Officer have declared, in writing to the board that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board. Internal control framework The board is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. The board has instigated the following internal control framework: „ Financial reporting - Monthly actual results are reported against budgets approved by the directors and revised forecasts for the year are prepared monthly. „ Continuous disclosure - Identify matters that may have a material effect on the price of the Company’s securities, notify them to the ASX and post them to the Company’s website. „ Quality and integrity of personnel - Formal appraisals are conducted at least annually for all employees. „ Investment appraisals - Guidelines for capital expenditure include annual budgets, detailed appraisal and review procedures and levels of authority. Internal Audit The Company does not have an internal audit function but utilises its financial resources as needed to assist the board in ensuring compliance with internal controls. Ethical standards All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. Every employee has a nominated supervisor to whom they may refer any issues arising from their employment. Conflict of interest Each Director must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the board considers that a significant conflict exists the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered. The board has developed procedures to assist directors to disclose potential conflicts of interest. Details of director related entity transactions with the consolidated entity are set out in Remuneration report page 28 to 39. 43 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportFinancial StatementsIndependent Audit ReportCorporate Governance StatementIntegrated Research and its controlled entities • Annual Report 2014Code of conduct The consolidated entity has advised each director, manager and employee that they must comply with the code of conduct. The code aligns behaviour of the board and management with the code of conduct by maintaining appropriate core values and objectives. It may be reviewed on the company’s website and includes: „ Responsibility to the community and fellow employees to act with honesty and integrity, and without prejudice. „ Compliance with laws and regulations in all areas where the company operates, including employment opportunity, occupational health and safety, trade practices, fair dealing, privacy, drugs and alcohol, and the environment. „ Dealing honestly with customers, suppliers and consultants. „ Ensuring reports and other information are accurate and timely. „ Proper use of company resources, avoidance of conflicts of interest and use of confidential or proprietary information. Equal Employment Opportunity The Company has a policy on Equal Employment Opportunity with the provision that commits to a workplace that is free of discrimination of all types. It is Company policy to hire, develop and promote individuals solely on the basis of merit and their ability to perform without prejudice to race, colour, creed, national origin, religion, gender, age, disability, sexual orientation, marital status, membership or non membership of a trade union, status of employment (whether full or part-time) or any other factors prohibited by law. The board is satisfied that the Equal Employment Opportunity policy is sufficient without the need to further establish a separate policy on gender diversity as required by the ASX Corporate Governance Council recommendation. Trading in company securities by directors and employees Directors and employees may acquire shares in the company, but are prohibited from dealing in company shares whilst in possession of price sensitive information, and except in the periods: „ From 24 hours to 28 days after the release of the company’s half-yearly results announcement or following the wide dissemination of information on the status of the corporation and current results. „ From 24 hours after the release of the company’s annual results announcement to a maximum of 28 days after the annual general meeting. Directors must obtain the approval of the Chairman of the board and notify the Company Secretary before they buy or sell shares in the company, subject to board veto. The Company advises the ASX of any transactions conducted by directors in shares in the company. Communication with shareholders The board provides shareholders with information using a comprehensive continuous disclosure policy which includes identifying matters that may have a material effect on the price of the company’s securities, notifying them to the ASX, posting them on the Company’s website (www.ir.com), and issuing media releases. Disclosures under this policy are in addition to the periodic and other disclosures required under the ASX Listing Rules and the Corporations Act. More details of the policy are available on the Company’s website. The Chief Executive Officer and the Chief Financial Officer are responsible for interpreting the Company’s policy and where necessary informing the board. The Company Secretary is responsible for all communication with the ASX. The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. Important issues are presented to the shareholders as single resolutions. The external auditor is requested to attend the Annual General Meetings to answer any questions concerning the audit and the content of the auditor’s report. The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options and shares to directors, the Remuneration Report and changes to the Constitution. Copies of the Constitution are available to any shareholder who requests it. 44 Corporate Governance StatementIntegrated Research and its controlled entities • Annual Report 2014Integrated Research Financial Report 2014 Financial Statements Contents Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements 1. Significant accounting policies 2. Segment reporting 3. Finance income 4. Expenditure 5. Auditors’ remuneration 6. Income tax expense 7. Earnings per share 8. Cash and cash equivalents 9. Trade and other receivables 10. Other current assets 11. Other financial assets 12. Property, plant and equipment 13. Deferred tax assets and liabilities 14. Intangible assets 15. Trade and other payables 16. Employee benefits 17. Provisions 18. Other liabilities 19. Capital and reserves 20. Financial instruments 21. Operating leases 22. Consolidated entities 23. Reconciliation of cash flows from operating activities 24. Key management personnel disclosures 25. Related parties 26. Parent entity disclosures 27. Subsequent events 46 Page 47 48 49 50 51 51 57 58 58 58 59 60 60 61 62 62 63 64 65 66 66 69 69 69 71 74 75 75 76 76 77 77 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Consolidated statement of comprehensive income For the year ended 30 June 2014 In thousands of AUD Revenue Revenue from licence fees Revenue from maintenance fees Revenue from consulting Total revenue Expenditure Research and development expenses Sales, consulting and marketing expenses General and administration expenses Total expenditure Other gains and losses Currency exchange gains/(losses) Profit before finance income and tax Finance income Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit Gain/(loss) on cash flow hedge taken to equity Foreign exchange translation differences Other comprehensive income Total comprehensive income for the year Profit attributable to: Members of Integrated Research Total comprehensive income attributable to: Members of Integrated Research Earnings per share attributable to members of Integrated Research: Basic earnings per share (AUD cents) Diluted earnings per share (AUD cents) Consolidated Notes 2014 2013 28,048 20,562 4,633 53,243 26,632 17,717 4,510 48,859 (11,067) (26,836) (4,707) (10,777) (23,279) (4,280) 4 (42,610) (38,336) (364) 591 10,269 11,114 384 10,653 (2,164) 8,489 456 11,570 (2,492) 9,078 897 14 911 (777) 415 (362) 9,400 8,716 8,489 9,078 9,400 8,716 5.03 5.00 5.40 5.35 3 6 7 7 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 51 to 77. 47 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Consolidated statement of financial position As at 30 June 2014 In thousands of AUD Current assets Cash and cash equivalents Trade and other receivables Current tax assets Other current assets Total current assets Non-current assets Trade and other receivables Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Income tax liabilities Other current liabilities Total current liabilities Non‑current liabilities Deferred tax liabilities Provisions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Consolidated Notes 2014 2013 8 9 10 9 11 12 13 14 15 17 18 13 17 18 19 19 13,300 20,225 616 1,024 35,165 2,632 786 1,680 1,463 16,257 22,818 14,827 21,407 29 781 37,044 2,157 724 1,706 1,187 15,040 20,814 57,983 57,858 4,074 2,105 237 13,580 19,996 3,664 778 2,798 7,240 4,190 2,004 1,349 13,086 20,629 3,582 756 2,881 7,219 27,236 27,848 30,747 30,010 1,667 (361) 29,441 30,747 1,501 (1,721) 30,230 30,010 The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 51 to 77. 48 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Consolidated statement of changes in equity For the year ended 30 June 2014 Consolidated In thousands of AUD Balance at 1 July 2013 Profit for the year Other comprehensive income for the year (net of tax) Total comprehensive income for the year Share based payments expense Shares issued Dividends to shareholders Share capital 1,501 - - - - 166 - Hedging reserve Translation reserve Employee benefit reserve Retained earnings Total (777) (1,368) 424 30,230 30,010 - 897 897 - - - - 14 14 - - - - - - 449 - - 8,489 8,489 - 911 8,489 9,400 - - 449 166 (9,278) (9,278) Balance at 30 June 2014 1,667 120 (1,354) 873 29,441 30,747 Balance at 1 July 2012 1,175 Profit for the year Other comprehensive income for the year (net of tax) Total comprehensive income for the year Share based payments expense Shares issued Dividends to shareholders - - - - 326 - - - (777) (777) - - - (1,783) 276 29,565 29,233 - 415 415 - - - - - - 148 - - 9,078 9,078 - (362) 9,078 8,716 - - 148 326 (8,413) (8,413) Balance at 30 June 2013 1,501 (777) (1,368) 424 30,230 30,010 The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 51 to 77. 49 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Consolidated statement of cash flows For the year ended 30 June 2014 Net cash provided by operating activities 23 In thousands of AUD Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Income taxes paid Cash flows from investing activities Payments for capitalised development Payments for property, plant and equipment Payments for intangible asset Divestment of other non-current financial assets Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issuing of shares Payment of dividend Net cash used in financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at 1 July Effects of exchange rate changes on cash Cash and cash equivalents at 30 June Consolidated Notes 2014 2013 54,080 50,658 (35,627) (30,683) 18,453 (2,434) 16,019 19,975 (2,519) 17,456 (7,967) (7,882) (609) (173) - 384 (495) (121) 1,093 456 (8,365) (6,949) 166 (9,278) (9,112) (1,458) 14,827 (69) 326 (8,413) (8,087) 2,420 12,038 369 19 8 13,300 14,827 The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 51 to 77. 50 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Notes to the Financial Statements For the year ended 30 June 2014 Note 1: Significant accounting policies Integrated Research Limited (the “Company”) is a company domiciled in Australia. The financial report of the Company for the year ended 30 June 2014 comprises the Company and its subsidiaries (together referred to as the “consolidated entity”). The financial report was authorised for issue by the directors on 19 August 2014. Integrated Research is a for-profit Company limited by ordinary shares. a) Statement of Compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, and Interpretations and the Corporations Act 2001. Financial statements of the consolidated entity comply with International Financial Reporting Standards and interpretations adopted by the International Accounting Standards Board. b) Basis of Preparation The financial statements are presented in Australian dollars and are prepared on the historical cost basis, with the exception of derivatives, which are at fair value. The company is of a kind referred to in ASIC Class Order (CO) 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective 31 January 2006) and in accordance with that Class Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. The preparation of financial statements in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. New accounting standards and Interpretations The Company has applied the following standards and amendments for first time for their annual reporting period commencing 1 July 2013 and have not had any material effect on its financial position or performance: AASB 10 ‘Consolidated Financial Statement’ AASB 12 ‘Disclosure of Interests in Other Entities’ AASB 13 ‘Fair Value Measurement’ AASB 119 ‘Employee Benefits’ AASB 2012-2 ‘Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities’ AASB 2012-5 ‘Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle’ AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ 51 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 1: Significant accounting policies (cont.) Standards and Interpretations issued not yet effective At the date of authorisation of the financial report, a number of standards and Interpretations were in issue but not yet effective. Initial application of the following Standards is not expected to materially affect any of the amounts recognised in the financial statements, but may change the disclosures presently made in relation to the consolidated entity’s financial statements: Standard/Interpretation AASB2012-3 ‘Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities’ AASB 9 ‘Financial Instruments’ AASB 2013-3 ‘Amendments to Australian Accounting Standards - Recoverable Amount Disclosures for Non-Financial Assets’ AASB 1031 ‘Materiality’ AASB2013-9 ‘Amendments to Australian Accounting Standards - ‘Conceptual Framework, Materiality and Financial Instruments’ Annual Improvements 2010-2012 Cycle ‘Annual Improvements to IFRSs 2010-2012 cycle’ Annual Improvements 2011-2013 Cycle ‘Annual Improvements to IFRSs 2011-2013 cycle’ IAS 16 and IAS 38 ‘Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)’ IFRS 15 ‘Revenue from Contracts with Customers' Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 Jan 2014 30 June 2015 1 January 2018 30 June 2019 1 Jan 2014 1 Jan 2014 30 June 2015 30 June 2015 1 Jan 2014 30 June 2015 1 July 2014 30 June 2015 1 July 2014 30 June 2015 1 Jan 2016 1 Jan 2017 30 June 2017 30 June 2018 The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements. c) Basis of consolidation Subsidiaries are entities controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee). Exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee including: The contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements and the Company’s voting rights and potential voting rights. The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Company gains control until the date the Company ceases to control the subsidiary. 52 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 1: Significant accounting policies (cont.) Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it: de-recognises the assets (including goodwill) and liabilities of the subsidiary; de-recognises the carrying amount of any non-controlling interests; de-recognises the cumulative translation differences recorded in equity; recognises the fair value of the consideration received; recognises the fair value of any investment retained; recognises any surplus or deficit in profit or loss; reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Company had directly disposed of the related assets or liabilities. d) Foreign currency In preparing the financial statements of the individual entities transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. On consolidation, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation are translated to Australian dollars at foreign exchange rates ruling at the year end date. The revenues and expenses of foreign operations, are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in other comprehensive income and accumulated in the translation reserve. e) Derivative financial instruments The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. The fair value of forward exchange contracts is their quoted market price at the year end date, being the present value of the quoted forward price. f) Hedging On entering into a hedging relationship, the consolidated entity normally designates and documents the hedge relationship and risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated. For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in the profit or loss. 53 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 1: Significant accounting policies (cont.) g) Property, plant and equipment Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses (see accounting policy (k)). The cost of acquired assets includes (i) the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is provided on property, plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed annually, with the effect of any changes recognised on a prospective basis. The following useful lives are used in the calculation of depreciation: Leasehold improvements Plant and equipment 6 to 10 years 4 to 8 years h) Intangible Assets Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete development. The useful lives of the capitalised are assessed as finite. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in profit or loss as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses (see accounting policy (k)). Amortisation is charged to profit or loss on a straight-line basis over the estimated useful life, but no more than three years. Intellectual property Intellectual property acquired from third parties is amortised over its estimated useful life, but no more than three years. Computer software Computer software is stated at cost and depreciated on a straight-line basis over a 2½ to 3 year period. i) Trade and other receivables Trade and other receivables are stated at their amortised cost less impairment losses. The carrying amount of uncollectible trade receivables is reduced by an impairment loss through the use of an allowance account. Allowance for returns is offset against trade receivables for estimated warranty claims based upon historical experience. j) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months or less. k) Impairment The carrying amounts of the consolidated entity’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated at each year end date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss. The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. 54 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014 Note 1: Significant accounting policies (cont.) the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. l) Employee benefits Superannuation Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred. There are no defined benefit plans in operation. Long‑term service benefits The consolidated entity’s net obligation in respect of long-term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the year end date which have maturity dates approximating to the terms of the consolidated entity’s obligations. Share‑based payment transactions The share option and performance rights programmes allows the consolidated entity’s employees to acquire shares of the Company. The fair value of options and performance rights granted are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options or the performance rights. The fair value of the instrument granted is measured using a binomial option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options or performance rights that are expected to vest. Wages, salaries, annual leave, and non‑monetary benefits Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees’ services provided to the year end date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at the year end date. m) Provisions A provision is recognised in the statement of financial position when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting Employee benefits Provisions for employee benefits include liabilities for annual leave and long service leave and are measured at the amounts expected to be paid when the liabilities are settled. Make good The make good provision is for leases undertaken by the Company. For each provision raised a corresponding asset has been recognised and is amortised over the shorter of the term of the lease or the useful life of the asset. n) Trade and other payables Trade and other payables are stated at their amortised cost. o) Revenue The consolidated entity allocates revenue to each element in software arrangements involving multiple elements based on the relative fair value of each element. The typical elements in the multiple element arrangement are licence and maintenance fees. The Company’s determination of fair value is generally based on the price charged when the same element is sold separately. Revenue from the sale of licences, where the consolidated entity has no post delivery obligations to perform is recognised in profit or loss at the date of delivery of the licence key. Revenue from maintenance contracts is recognised rateably over the term of the service agreement, which is typically one year. Maintenance contracts are typically priced based on a percentage of licence fees and have a one year term. Services provided to customers under maintenance contracts include technical support and supply of software updates. Revenue from multiple element software arrangements, where the fair value of an undelivered element cannot be reliably measured are recognised over the period the undelivered services are provided. Revenue from consulting services is recognised over the period the services are provided. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods. 55 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 1: Significant accounting policies (cont.) Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable or payable are classified as operating cash flows. p) Expenses Operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense and spread over the lease term. Financing income Financing income comprises interest receivable on funds invested. q) Income tax Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the year end date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the year end date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional dividend franking deficit tax that arises from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. r) Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), or similar taxes, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or payable is included as a current asset or liability in the statement of financial position. s) Significant accounting judgements, estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Intangible assets An intangible asset arising from development expenditure on an internal project is recognised only when the consolidated entity can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project commencing from the commercial release of the project. The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use or more frequently when an indication of impairment arises during the reporting period. Share based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a binomial option pricing model and applying management determined probability factors relating to non-market vesting conditions. Receivables The consolidated entity assesses impairment of receivables based upon assessment of objective evidence for significant receivables and by placing non significant receivables in portfolios of similar risk profiles, based on objective evidence from historical experience adjusted for any effects of conditions existing at each reporting date. This assessment includes judgements and estimates of future outcomes the actual results of which may differ from the estimates at the reporting date. 56 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 2. Segment reporting The information reported to the CODM (being the Chief Executive Officer) for the purposes of resource allocation and assessment of performance is focused on geographical performance. The principal geographical regions are The Americas - Operating from the United States with responsibility for the countries in North, Central and South America, Europe - operating from the United Kingdom with responsibility for the countries in Europe, Asia Pacific - operating from Australia with responsibility for the countries in the rest of the world and Corporate Australia - includes revenue and expenses for research and development and corporate head office functions of the company. Inter-segment pricing is determined on an arm’s length basis. Segment profit represents the profit earned by each segment without allocation of investment revenue and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the Group’s accounting policies. Americas Europe Asia Pacific Corporate Australia1 Eliminations Consolidated In thousands of AUD 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Sales to customers outside the consolidated entity 38,133 34,432 7,896 6,939 8,100 7,496 (886) (8) - - 53,243 48,859 Inter-segment sales - - - - - - 28,714 27,675 (28,714) (27,675) - - Total segment revenue 38,133 34,432 7,896 6,939 8,100 7,496 27,828 27,667 (28,714) (27,675) 53,243 48,859 Total revenue 53,243 48,859 Segment results 1,147 861 197 174 202 187 8,723 9,892 - - 10,269 11,114 10,269 11,114 384 456 1,045 (1,045) - - 2 2 - 474 515 - 7,415 7,320 - - (2,164) (2,492) 8,489 9,078 - 782 616 - 7,555 7,445 Results from operating activities Financing income (interest received) Dividend received from subsidiary Income tax expense Profit for the year Capital additions3 Depreciation and amortisation expenditure In thousands of local currency2 Sales to customers outside the consolidated entity 91 76 215 25 106 97 32 27 Americas (USD) Europe (GBP) 2014 2013 2014 2013 34,759 35,247 4,415 4,519 Inter-segment sales - - - - Total segment revenue 34,759 35,247 4,415 4,519 Segment results 1,044 881 111 113 1 Corporate Australia includes both the research and development and corporate head office functions of the Integrated Research Limited. 2 Segment results represented in local currencies as reviewed by the Chief Operating Decision Maker. 3 Excludes internal development costs capitalised but includes third party assets acquired. 57 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 3. Finance income In thousands of AUD Interest income Note 4. Expenditure Total expenditure includes: In thousands of AUD Employee benefits expense: Defined contribution plans Equity settled share-based payments Other employee benefits Depreciation and amortisation Bad and doubtful debt expense Operating lease rental expenses Note 5. Auditors’ remuneration 2014 and 2013 Ernst and Young. In AUD Remuneration for audit and review of the financial reports of the Company or any entity in the consolidated entity: Audit and review of financial reports: Auditors of the Company Remuneration for other services by the auditors of the Company or any entity in the consolidated entity: Taxation services: Auditors of the Company Consolidated 2014 384 384 2013 456 456 Consolidated 2014 2013 1,617 453 29,798 31,868 7,555 288 1,514 1,513 148 27,507 29,168 7,445 182 1,221 Consolidated 2014 2013 135,000 162,740 121,361 75,389 58 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 6. Income tax expense Recognised in profit for the year In thousands of AUD Current tax expense: Current year Prior year adjustments Deferred tax expense: Origination and reversal of temporary differences 13 Total income tax expense in profit and loss Numerical reconciliation between income tax expense and profit before tax In thousands of AUD Profit before tax Income tax using the domestic corporate tax rate of 30% Increase in income tax expense due to: Non-deductible expenses Effect of tax rates in foreign jurisdictions Decrease in income tax expense due to: R&D tax incentive Other Prior year adjustments Income tax expense Consolidated Note 2014 2013 2,203 (233) 1,970 194 2,164 2,430 (93) 2,337 155 2,492 Consolidated 2014 10,653 3,196 203 202 2013 11,570 3,471 105 76 (1,199) (1,144) (5) (233) 2,164 77 (93) 2,492 59 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 7. Earnings per share The calculation of basic and diluted earnings per share at 30 June 2014 was based on the profit attributable to ordinary shareholders of $8,489,000 (2013: $9,078,000); a weighted number of ordinary shares outstanding during the year ended 30 June 2014 of 168,719,799 (2013: 168,226,574); and a weighted number of ordinary shares (diluted) outstanding during the year ended 30 June 2014 of 169,895,017 (2013: 169,659,715), calculated as follows: In thousands of AUD Profit for the year Weighted average number of shares used as the denominator (Number) Number for basic earnings per share: Ordinary shares Effect of employee share plans on issue Number for diluted earnings per share Basic earnings per share (AUD cents) Diluted earnings per share (AUD cents) Note 8. Cash and cash equivalents In thousands of AUD Cash at bank and on hand Consolidated 2014 8,489 2013 9,078 Consolidated 2014 2013 168,719,799 168,226,574 1,175,218 1,433,141 169,895,017 169,659,715 5.03 5.00 5.40 5.35 Consolidated 2014 2013 13,300 14,827 60 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 9. Trade and other receivables In thousands of AUD Current Trade debtors Less: Allowance for doubtful debts GST receivable Non-current Trade debtors Consolidated 2014 2013 20,934 (858) 20,076 149 22,451 (1,139) 21,312 95 20,225 21,407 2,632 2,157 The credit period on sales ranges from 30 to 90 days although in limited circumstances extended payment terms have been offered. No interest is charged on trade debtors. Ageing of past due but not impaired: In thousands of AUD Past due 90 days Consolidated 2014 1,868 2013 3,770 The movement in the allowance for doubtful debts in respect of trade receivables is detailed below: In thousands of AUD Balance at beginning of year Amounts written off during the year Increase in provision Balance end of year Consolidated 2014 1,139 (569) 288 858 2013 1,237 (280) 182 1,139 The consolidated entity has used the following criteria to assess the allowance loss for trade receivables and as a result is unable to specifically allocate the allowance to the ageing categories shown above: „ historical bad debt experience; „ the general economic conditions; „ an individual account by account specific risk assessment based on past credit history; and „ any prior knowledge of debtor insolvency or other credit risk. Included in the consolidated entity’s trade receivable balance are debtors with a carrying amount of $1,010,000 (2013: $2,631,000) which are 90 days past due at the reporting date which the consolidated entity has not provided for as there has been no significant change in credit quality and the consolidated entity believes that the amounts are still considered recoverable. The consolidated entity does not hold any collateral over these balances. 61 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 10. Other current assets In thousands of AUD Other prepayments Fair value of hedge asset - forward foreign exchange contracts Note 11. Other financial assets In thousands of AUD Deposits The carrying amount of other financial assets is a reasonable approximation of their fair value. Consolidated 2014 847 177 1,024 2013 781 - 781 Consolidated 2014 786 2013 724 62 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 12. Property, plant and equipment In thousands of AUD Plant and Equipment At cost Accumulated depreciation Leasehold Improvements At cost Accumulated depreciation Total property, plant and equipment At cost Accumulated depreciation Total written down amount Plant and Equipment Carrying amount at start of year Additions Effects of foreign currency exchange Depreciation expense Carrying amount at end of year Leasehold Improvements Carrying amount at start of year Additions Effects of foreign currency exchange Depreciation expense Carrying amount at end of year Consolidated 2014 2013 3,148 4,899 (2,215) (3,972) 933 927 2,174 2,021 (1,427) (1,242) 747 779 5,322 6,920 (3,642) (5,214) 1,680 1,706 927 427 - (421) 933 779 182 (2) (212) 747 863 482 11 (429) 927 957 13 9 (200) 779 63 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 13. Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Consolidated In thousands of AUD Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain Unrealised foreign exchange loss Assets Liabilities Net 2014 2013 - 252 965 416 893 - 115 - 416 745 533 587 - - 2014 4,842 2013 4,485 2014 2013 (4,842) (4,485) - - - - - - - - - - 191 - 252 965 416 893 - 115 416 745 533 587 (191) - Deferred tax assets/(liabilities) 2,641 2,281 4,842 4,676 (2,201) (2,395) Set off of deferred tax asset (1,178) (1,094) (1,178) (1,094) - - Net deferred tax assets/(liabilities) 1,463 1,187 3,664 3,582 (2,201) (2,395) Movement in temporary differences during the year: In thousands of AUD For year ended 30 June 2014 Property, plant and equipment Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain Unrealised foreign exchange loss In thousands of AUD For year ended 30 June 2013 Property, plant and equipment Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain 64 Consolidated Balance 1 July 13 Recognised in income Recognised in equity Balance 30 June 14 - (4,485) 416 745 533 587 (191) - (2,395) - (357) (164) 220 (117) 306 191 115 194 - - - - - - - - - - (4,842) 252 965 416 893 - 115 (2,201) Consolidated Balance 1 July 12 Recognised in income Recognised in equity Balance 30 June 13 (50) (4,063) 468 772 364 - (41) (2,550) 50 (422) (52) (27) 169 587 (150) 155 - - - - - - - - - (4,485) 416 745 533 587 (191) (2,395) Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 14. Intangible assets The amortisation is recognised in the following line item in the statement of comprehensive income: In thousands of AUD Research and development expenses The balance of capitalised intangible assets comprises: Consolidated 2014 6,922 6,922 2013 6,816 6,816 Consolidated Software development Third party software In thousands of AUD Cost Balance at 1 July 2012 Fully amortised & offset Effects of foreign currency exchange Internally developed Acquired Balance at 30 June 2013 Balance at 1 July 2013 Fully amortised & offset Effects of foreign currency exchange Internally developed Acquired Balance at 30 June 2014 Amortisation Balance at 1 July 2012 Fully amortised & offset Effects of foreign currency exchange Amortisation for year Balance at 30 June 2013 Balance at 1 July 2013 Fully amortised & offset Effects of foreign currency exchange Amortisation for year Balance at 30 June 2014 Carrying amounts Balance at 30 June 2013 Balance at 30 June 2014 20,964 (4,295) - 7,882 - 24,551 24,551 (5,619) - 7,967 - 26,899 7,422 (4,295) - 6,607 9,734 9,734 (5,619) - 6,740 10,855 14,817 16,044 Total 22,614 (4,295) 14 7,882 121 26,336 26,336 (6,408) (2) 7,967 173 1,650 - 14 - 121 1,785 1,785 (789) (2) - 173 1,167 28,066 1,343 - 10 209 1,562 1,562 (789) (1) 182 954 223 213 8,765 (4,295) 10 6,816 11,296 11,296 (6,408) (1) 6,922 11,809 15,040 16,257 65 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 15. Trade and other payables In thousands of AUD Trade and other creditors The average credit period on trade and other payables is 30 days. Note 16. Employee benefits In thousands of AUD Current Liability for annual leave Liability for long service leave Non-current Liability for long service leave Pension plans Consolidated 2014 4,074 4,074 2013 4,190 4,190 Consolidated 2014 2013 1,498 607 2,105 1,549 455 2,004 361 374 Employees of the consolidated entity accumulate pension benefits through statutory contributions by the entities in the consolidated entity as required by the laws of the jurisdictions in which they operate, supplemented by individual contributions. 66 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 16. Employee benefits (cont.) Share based payments Performance Rights On 21 November 2011, the consolidated entity established the Integrated Research Performance Rights and Options Plan (IRPROP). The plan enables the Company to offer performance rights to eligible employees to obtain shares in Integrated Research at no cost contingent upon performance conditions being met. The performance conditions include either a service period with performance components or a service period with a net after tax profit hurdle. The performance rights are automatically exercised into shares upon the performance conditions being met. The following performance rights were granted during the period: Grant Date 10 September 2013 14 November 2013 04 April 2014 Number of Rights Earliest Vesting Date Expiry date 165,000 350,000 85,000 Sep 2016 Oct 2014 Aug 2017 Oct 2016 Oct 2016 Sep 2017 The fair value of the performance rights including assumptions used are as follows: Grant date 10 Sep 2013 14 Nov 2013 04 Apr 2014 Fair value at measurement date $0.7815 $0.8675 Share price Exercise price Expected volatility Contractual life (expressed in days) Expected dividends Risk-free interest rate (based on 3 year treasury bonds) $0.93 nil 50% 1,096 5.80% 2.68% $0.98 nil 50% 2,080 4.19% 3.04% $0.9369 $1.115 nil 50% 1,245 5.80% 3.00% The fair values of services received in return for performance rights granted to employees is measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on a Binomial option-pricing model. During the year ended 30 June 2014, the consolidated entity recognised an expense through profit of $452,000 related to the fair value of performance rights (2013: $156,000). The following table provides the movement in performance rights during the year: In thousands of performance rights Outstanding at the beginning of the year Forfeited during the year Exercised during the year Granted during the year Outstanding at the end of the year Exercisable at the end of the year (vested) 2014 1,853 (516) - 600 1,937 - 2013 1,535 (93) - 411 1,853 - 67 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 16. Employee benefits (cont.) Share Options On 4 October 2000, the consolidated entity established a share option programme that entitles employees to purchase shares in the entity. In accordance with this programme, options are exercisable at the market price of the shares at the date of grant. The terms and conditions of the grants made and number outstanding at 30 June 2014 are as follows: „ All options vest at the rate of 25% per annum, starting on the first anniversary of the grant date „ The contractual life of each option is five years from the grant date „ Exercises are settled by physical delivery of shares The number and weighted average exercise prices of share options is as follows: In thousands of options Outstanding at the beginning of the year Forfeited during the year Exercised during the year Granted during the year Outstanding at the end of the year Exercisable at the end of the year (vested) There are no options outstanding at 30 June 2014. Weighted Average exercise price Number of options Weighted Average exercise price Number of options 2014 $0.29 $0.28 $0.30 $- $- $- 2014 872 (479) (393) - - - 2013 $0.36 $0.40 $0.38 $- $0.29 $0.28 2013 2,645 (912) (861) - 872 467 During the year ended 30 June 2014, 392,500 options were exercised (2013: 860,500). The fair values of services received in return for share options granted to employees is measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Binomial option-pricing model. The contractual life of the option (five years) is used as an input into this formula. Expectations of early exercise are incorporated into the Binomial formula. There were no options granted during the 2014 financial year (2013:nil). 68 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 17. Provisions In thousands of AUD Current Employee benefits Non-current Employee benefits Lease make good Note 18. Other liabilities In thousands of AUD Current Fair value of hedge liabilities - forward foreign exchange contracts Deferred revenue Non-Current Deferred revenue Note 19. Capital and reserves Share capital In thousands of shares On issue 1 July Issued against employee options exercised On issue 30 June Consolidated Note 2014 2013 16 16 2,105 2,105 361 417 778 2,004 2,004 374 382 756 Consolidated 2014 2013 9 13,571 13,580 1,238 11,848 13,086 2,798 2,881 Ordinary shares 2014 2013 168,367 167,507 393 860 168,760 168,367 Effective 1 July 1998, the Company Law reform Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. 69 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 19. Capital and reserves (cont.) Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the consolidated entity, as well as from the translation of liabilities that hedge the consolidated entity’s net investment in a foreign subsidiary. Employee benefit reserve The employee benefit reserve arises on the grant of either share options or performance rights to employees under the Integrated Research Performance Rights and Option Plan (established November 2011) or the Employee Share Option Plan (established October 2000). Refer to note 16 for further details. Dividends Dividends recognised in the current year by the company are: In thousands of AUD Cents per share Total amount Franked/ unfranked Date of payment 2014 Final 2013 Interim 2014 Total amount 2013 Final 2012 Interim 2013 Total amount 3.0 2.5 3.0 2.0 5,055 40% franked 13 Sep 2013 4,223 30% franked 21 Mar 2014 9,278 5,045 70% franked 14 Sep 2012 3,368 30% franked 15 Mar 2013 8,413 After the end of the financial year, the following dividend was proposed by the directors. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2014 and will be recognised in subsequent financial statements: In thousands of AUD Final 2014 Cents per share Total amount Franked/ unfranked Date of payment 2.5 4,224 35% franked 12 Sep 14 The final dividend declared of 2.5 cents together with the interim dividend paid in March 2014 of 2.5 cents takes total dividends for the 2014 financial year to 5.0 cents. Franking account disclosure: In thousands of AUD Adjusted franking account balance Impact on franking account balance of dividends not recognised Company 2014 737 (634) 2013 944 (866) 70 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 20. Financial instruments Capital risk management The consolidated entity manages its capital to ensure that controlled entities will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of treasury management. The capital structure of the consolidated entity consists of cash and cash equivalents and equity attributable to equity holders of the company, comprising issued capital, reserves, and retained earnings as disclosed in Notes 8 and 19 respectively. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. Financial risk management objectives The Board of Directors has overall responsibility for the establishment and oversight of the consolidated entity’s financial management framework. The Board has an established Audit and Risk Committee, which is responsible for developing and monitoring the consolidated entity’s financial management policies. The Committee provides regular reports to the Board of Directors on its activities. The Audit and Risk Committee oversees how Management monitors compliance with risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks. The main risks arising from the consolidated entity’s financial instruments are currency risk, credit risk, liquidity risk and cash flow interest rate risk. The consolidated entity seeks to minimise the effects of these risks, where deemed appropriate, by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the consolidated entity’s policies on foreign exchange risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risk The consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and cash flow interest rate risks. The consolidated entity enters into foreign exchange forward contracts to hedge the exchange rate risk arising from transactions not recorded in an entity’s functional currency. 71 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 20. Financial instruments (cont.) Foreign currency risk management The consolidated entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The carrying amount of the consolidated entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date that are denominated in a currency that is different to the functional currency of the respective entities undertaking the transactions is as follows: In thousands of AUD US Dollar Euro UK Sterling Foreign currency sensitivity Consolidated Liabilities Assets 2014 188 - - 2013 325 - - 2014 2,153 1,889 1 2013 3,989 2,669 10 At 30 June 2014, if the US Dollar, Euro and UK Sterling weakened and strengthened against the Australian Dollar by the percentage shown, with all other variables held constant, net profit for the year would increase (decrease) by: In thousands of AUD US Dollar Impact Euro Impact UK Sterling Impact Change in currency (i) - 10% decrease US Dollar Impact Euro Impact UK Sterling Impact Change in currency (i) - 10% increase Consolidated Net profit Retained earnings 2014 2013 2014 2013 218 210 - (179) (172) - 407 297 1 (347) (243) (1) 218 210 - (179) (172) - 407 297 1 (347) (243) (1) (i) This has been based on the change in the exchange rate against the Australian Dollar in the financial years ended 30 June 2014 and 30 June 2013. The sensitivity analysis has been based on the sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates based on historical volatility. In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year end exposure does not necessarily reflect the exposure during the course of the year. The consolidated entity includes certain subsidiaries whose functional currencies are different to the consolidated entity presentation currency. The main operating entities outside of Australia are based in the United States, the United Kingdom and Singapore. As stated in the consolidated entity’s accounting policies per Note 1, on consolidation the assets and liabilities of these entities are translated into Australian Dollars at exchange rates prevailing at the year end date. The income and expenses of these entities is translated at the average exchange rates for the year. Exchange differences arising are classified as equity and are transferred to a foreign exchange translation reserve. The consolidated entity’s future reported profits could therefore be impacted by changes in rates of exchange between the Australian Dollar and the United States Dollar and the Australian Dollar and the UK Sterling. 72 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 20. Financial instruments (cont.) Forward foreign exchange contracts The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the AUD. The currencies giving rise to this risk are primarily United States Dollar, UK Sterling and Europe Euro. The consolidated entity uses forward exchange contracts to hedge its foreign currency risk. The forward exchange contracts have maturities of less than two years after the year end date. The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and measures them at fair value. The following table details the forward foreign currency contracts outstanding as at reporting date: Average Exchange Rate Foreign Currency Contract Value Fair Value Outstanding contracts 2014 2013 2014 FC’000 2013 FC’000 2014 A$’000 2013 A$’000 2014 A$’000 2013 A$’000 Consolidated Sell US Dollar Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months Sell Euros Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months Sell Sterling Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months 0.92 0.91 0.89 0.92 0.68 0.68 0.67 0.67 0.55 0.55 0.55 0.54 1.01 1.01 1.00 1.00 0.78 0.76 0.75 0.75 - - - - 2,900 1,650 1,750 1,300 310 210 215 295 270 70 160 150 3,600 2,400 2,550 2,000 750 200 200 100 - - - - 3,136 1,808 1,967 1,408 454 309 321 443 490 128 293 275 3,564 2,376 2,561 2,013 966 262 266 134 - - - - 45 38 79 (1) 3 1 3 5 (2) (1) (2) (2) (357) (257) (255) (209) (104) (26) (20) (10) - - - - 166 (1,238) These hedge assets are classified as a level 2 fair value measurement, being derived from inputs provided from financial institutes, rather than quoted prices that are observable for the asset either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value measurement of the OTC forward contact would not qualify as Level 1 as there is not a quoted price for the actual contract, even though data used to value the contract may be derived entirely from active foreign-exchange and interest-rate market. Interest rate risk management The consolidated entity is exposed to interest rate risk on the cash held in bank deposits. Cash in bank and term deposits of $13,949,000 were held by the consolidated entity at the reporting date, attracting an average interest rate of 3.01% (2013: 3.26%). If interest rates had been 50 basis points higher or lower and all other variables were held constant, the consolidated entity’s net profit would increase/(decrease) by $69,745 (2013: $78,000). 73 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 20. Financial instruments (cont.) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts. The consolidated entity does not have any significant credit risk exposure to any single counterparty or any consolidated entity of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the consolidated entity’s short, medium and long-term funding and liquidity management requirements. The consolidated entity manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. All creditor and other payables shown in Note 15 for both 2014 and 2013 carry no interest obligation and have a maturity of less than three months. Fair value of financial instruments The carrying value of financial assets and financial liabilities of the consolidated entity is a reasonable approximation of their fair value. Note 21. Operating leases Non-cancellable operating lease rentals is for office space with payables as follows: In thousands of AUD Less than one year Between one and five years Greater than five years Consolidated 2014 1,078 1,768 - 2013 1,197 2,250 - 2,846 3,447 74 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 22. Consolidated entities Country of incorporation 2014 2013 Ownership interest Parent entity: Integrated Research Limited Subsidiaries: Integrated Research, Inc Integrated Research UK Limited Australia USA UK Integrated Research Singapore Pty Limited Singapore Note 23. Reconciliation of cash flows from operating activities In thousands of AUD Profit for the year Depreciation and amortisation Provision for doubtful debts Interest received Share-based payments expense Net exchange differences Change in operating assets and liabilities: (Increase)/decrease in trade debtors (Increase)/decrease in future income tax benefit (Increase)/decrease in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in other operating liabilities Increase/(decrease) in provision for income taxes payable Increase/(decrease) in provision for deferred income taxes Increase/(decrease) in other provisions Net cash from operating activities 100% 100% 100% 100% 100% 100% Consolidated 2014 8,489 7,555 (281) (384) 453 (805) 988 (276) 892 (116) 411 (1,112) 82 123 2013 9,078 7,445 (98) (456) 148 (725) (2,085) (734) 261 (95) 4,082 (304) 579 360 16,019 17,456 75 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 24. Key management personnel disclosures Key management personnel compensation The key management personnel compensation are as follows: In AUD Short-term benefits Post-employment benefits Equity compensation benefits Consolidated 2014 2013 3,085,453 3,210,955 169,334 159,353 326,346 58,723 3,581,133 3,429,031 Other Transactions with Key Management Personnel The consolidated entity received consulting services totalling $159,480 for the year ended 30 June 2013 from The Grayrock Group Pty Limited, a company in which Peter Lloyd is a director. There were no services received for the year ended 30 June 2014. Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. Note 25. Related parties The consolidated entity has a related party relationship with its key management personnel (see remuneration report pages 28-39). At 30 June 2014 Mr Steve Killelea, the Chairman of the Company, owned either directly or indirectly 56.13% of the Company (2013: 56.33%). 76 Financial StatementsIntegrated Research and its controlled entities • Annual Report 2014Note 26. Parent entity disclosures In thousands of AUD Financial Position Assets Current assets Non-current assets Total Assets Liabilities Current Liabilities Non-current liabilities Total Liabilities Net Assets Equity Issued Capital Employee benefits Reserve Hedging reserve Retained Earnings Total Equity Financial Performance Profit for the year Other comprehensive income Total comprehensive income Parent Entity 2014 2013 18,044 18,244 36,288 4,814 4,603 9,417 26,871 1,667 873 120 24,211 26,871 8,732 897 9,629 20,085 17,211 37,296 6,828 4,563 11,391 25,905 1,501 424 (777) 24,757 25,905 8,621 (777) 7,844 Investments in subsidiaries are included at cost. Note 27. Subsequent events For dividends declared after 30 June 2014 see Note 19 in the financial statements. The financial effect of dividends declared and paid after 30 June 2014 have not been brought to account in the financial statements for the year ended 30 June 2014 and will be recognised in subsequent financial reports. No other transaction or event of a material or unusual nature has arisen in the interval between the end of the financial year and the date of this report, which is likely, in the opinion of the directors of the company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years. 77 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementIndependent Audit ReportFinancial StatementsIntegrated Research and its controlled entities • Annual Report 2014Directors’ Declaration In accordance with a resolution of the directors of Integrated Research Limited, we state that: 1. In the opinion of the directors: (a) the financial statements and notes of Integrated Research Limited for the financial year ended 30 June 2014 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1; and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors by the chief executive officer and chief financial officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2014. On behalf of the board Dated at North Sydney this 19th day of August 2014. Steve Killelea Chairman Darc Rasmussen Chief Executive Officer n o ti a r a l c e D ’ s r o t c e r i D 78 Integrated Research and its controlled entities • Annual Report 2014 79 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportIntegrated Research and its controlled entities • Annual Report 201480 Independent Audit ReportIntegrated Research and its controlled entities • Annual Report 201481 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportIntegrated Research and its controlled entities • Annual Report 2014ASX Additional Information Shareholder information Analysis of numbers of equity security holders by size of holding as at 1 September 2014. 1 -1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Class of equity security Ordinary shares Shares Options Performance rights 555 1,826 996 1,246 79 4,702 - - - - - - - 29 43 29 5 106 n o ti a m r o f n I l i a n o ti d d A X S A 82 Integrated Research and its controlled entities • Annual Report 2014 Equity security holders Twenty largest quoted equity security holders The names of twenty largest holders of quoted equity securities as at 1 September 2014 are listed below: 1 2 3 4 5 6 7 8 9 10 11 MR STEPHEN JOHN KILLELEA MR ANDREW RHYS RUTHERFORD CITICORP NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LTD KEY GLORY INVESTMENTS PTY LTD JP MORGAN NOMINEES AUSTRALIA LIMITED CUSTODIAL SERVICES LTD FORSYTH BARR CUSTODIANS LTD ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD SPECTROK PTY LTD BELL POTTER NOMINEES LTD 12 MR KEVIN JOHN CAIRNS + MRS CATHERINE VALERIE CAIRNS 13 MR RODNEY WALTER ROSS 14 FERGFAM NOMINEES PTY LTD 15 MR GARY RONALD POOLE + MRS LEIGH MARGARET POOLE 16 MS FIONA CATHERINE MURPHY 17 BIPETA PTY LTD 18 MR COLIN GREGORY ORGAN 19 20 FARVEX CORPORATION PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED Ordinary shares Number held Percentage of issued shares 94,497,339 55.93 3,505,869 1,670,985 1,513,207 1,000,000 986,347 945,484 754,870 664,545 641,359 532,000 500,000 405,000 375,263 365,000 342,775 337,612 330,000 325,000 307,172 2.07 0.99 0.90 0.59 0.58 0.56 0.45 0.39 0.38 0.31 0.30 0.24 0.22 0.22 0.20 0.20 0.20 0.19 0.18 83 Letter from the ChairmanDirectors and Senior ManagementDirectors’ ReportRemuneration ReportCorporate Governance StatementFinancial StatementsIndependent Audit ReportIntegrated Research and its controlled entities • Annual Report 2014n o ti a m r o f n I l i a n o ti d d A X S A Unquoted equity securities Option issued under the Integrated Research Limited Employee Option Plan to take up ordinary shares Performance Rights issued under the Integrated Research Limited Performance Rights and Option Plan to take up ordinary shares * Number of unissued ordinary shares under the Performance Rights. On-market buy-back There is no current on-market buy-back. Substantial holders Substantial holders in the Company are set below: Stephen John Killelea* * Include direct and indirect holdings. Voting rights Number on issue Number of holders - 1,936,500* - 108 Number held Percentage 94,834,951 56.13 The voting rights attaching to each class of equity securities are set out below: 1. Ordinary shares. On a show of hands every member present at a meeting in person or proxy shall have one vote and upon a poll each share have one vote. Registered Offi ce by shares. 2. Options. No voting rights. 3. Performance rights. No voting rights. Access your 2014 Annual Report online. Other information Visit www.ir.com/annualreport2014 Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed Company limited by shares. This report is proudly printed on 100% recycled carbon neutral paper and is FSC® Certi fi ed from 100% post consumer waste. Cover and text printed on Revive Pure 100% Recycled Silk. 100% FSC® C023640 Selected employee photos: Colin Tan, Integrated Research Senior Soft ware Engineer, R&D and Michael Halbwirth, Head of Marketi ng Europe. 84 Corporate Directory Directors Steve Killelea Darc Rasmussen Managing Director and CEO Solicitors Ashurst 225 George Street Sydney, NSW, 2000 Chairman and Non-Executi ve Director Level 36, Grosvenor Place Alan Baxter Independent Non-Executi ve Director Bankers Westpac Banking Corporati on Securities Exchange Listing Australian Securiti es Exchange Code IRI Country of Incorporation Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited Notice of Annual General Meeting The Annual General Meeti ng of Integrated Research Limited will be held at 3:00pm on Thursday, 13 November 2014, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney. Garry Dinnie Independent Non-Executi ve Director Kate Costello Independent Non-Executi ve Director Peter Lloyd Non-Executi ve Director Clyde McConaghy Non-Executi ve Director Secretary David Purdue Level 9, 100 Pacifi c Highway North Sydney, NSW, 2060 Phone: (+61 2) 9966 1066 Share Registry Computershare Auditors Ernst & Young Ernst & Young Centre 680 George Street Sydney, NSW, 2000 4704 Designed and printed by RDA Creati ve www.rda.com.au Integrated Research and its controlled entities • Annual Report 2014 Corporate Directory Directors Steve Killelea Chairman and Non-Executi ve Director Darc Rasmussen Managing Director and CEO Solicitors Ashurst Level 36, Grosvenor Place 225 George Street Sydney, NSW, 2000 Alan Baxter Independent Non-Executi ve Director Bankers Westpac Banking Corporati on Securities Exchange Listing Australian Securiti es Exchange Code IRI Country of Incorporation Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Notice of Annual General Meeting The Annual General Meeti ng of Integrated Research Limited will be held at 3:00pm on Thursday, 13 November 2014, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney. Garry Dinnie Independent Non-Executi ve Director Kate Costello Independent Non-Executi ve Director Peter Lloyd Non-Executi ve Director Clyde McConaghy Non-Executi ve Director Secretary David Purdue Registered Offi ce Level 9, 100 Pacifi c Highway North Sydney, NSW, 2060 Phone: (+61 2) 9966 1066 Share Registry Computershare Auditors Ernst & Young Ernst & Young Centre 680 George Street Sydney, NSW, 2000 Access your 2014 Annual Report online. Visit www.ir.com/annualreport2014 This report is proudly printed on 100% recycled carbon neutral paper and is FSC® Certi fi ed from 100% post consumer waste. Cover and text printed on Revive Pure 100% Recycled Silk. 100% FSC® C023640 Selected employee photos: Colin Tan, Integrated Research Senior Soft ware Engineer, R&D and Michael Halbwirth, Head of Marketi ng Europe. 4704 Designed and printed by RDA Creati ve www.rda.com.au I n t e g r a t e d R e s e a r c h A n n u a l R e p o r t 2 0 1 4 Corporate HQ Asia Pacifi c/Middle East/Africa Integrated Research Ltd Level 9/100 Pacifi c Highway North Sydney NSW 2060 Australia +61 (2) 9966 1066 +61 (2) 9966 1042 info.ap@ir.com Singapore Integrated Research (Singapore) Pte Ltd 3 Temasek Avenue Level 21, Centennial Tower Singapore 039190 +65 6549 7038 +65 6549 7011 info.ap@ir.com Americas - West Coast Integrated Research Inc. 8055 East Tuft s Avenue Suite 950 Denver CO 80237 USA +1 (303) 390 8700 +1 (303) 390 8777 info.usa@ir.com Americas ‑ East Coast Integrated Research Inc. 1818 Library Street Suite 500 Reston VA 20190 USA +1 (703) 956 3016 +1 (303) 390 8777 info.usa@ir.com Europe Integrated Research UK Ltd The Atrium, Harefi eld Road Uxbridge, Middlesex UB8 1PH United Kingdom +44 (0) 189 581 7800 info.europe@ir.com Germany Integrated Research UK Ltd Münchner Büro der Integrated Research UK Ltd Terminalstrasse Mitt e 18 85356 München, Germany +49 (89) 97 007 132 info.germany@ir.com Visit our website at www.ir.com or our community blog at www.realtime.ir.com Integrated Research Annual Report Providing Business Insight™ 2014 ABN 76 003 588 449 

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