More annual reports from Integrated Research Limited:
2023 ReportIntegrated Research
Annual Report 2016
ABN 76 003 588 449
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Asia Pacifi c/Middle East/Africa
Integrated Research Limited
Level 9, 100 Pacifi c Highway
North Sydney NSW 2060
Australia
T. +61 (2) 9966 1066
F. +61 (2) 9966 1042
E. info.ap@ir.com
Singapore
Unit 12‑01, Palais Renaissance
390 Orchard Road
Singapore 238871
T. +65 6684 5856
E. info.ap@ir.com
United Kingdom & Ireland
Integrated Research UK Ltd
The Atrium, Harefi eld Road
Uxbridge, Middlesex
UB8 1PH
United Kingdom
T. +44 (0) 189 581 7800
E. info.europe@ir.com
Terminalstrasse Mitte 18
85356 Munchen, Germany
T. +49 (89) 97 007 132
E. info.germany@ir.com
Integrated Research (Singapore) Pte. Ltd.
Integrated Research Germany GmbH
Integrated Research, Inc.
Germany
Americas ‑ East Coast
Americas ‑ West Coast
Integrated Research, Inc.
6312 S. Fiddlers Green Circle, Suite 500N
Denver, CO 80111, USA
T: +1 (303) 390 8700
F: +1 (303) 390 877
E. info.usa@ir.com
12950 Worldgate Dr, Suite 720
Herndon, VA 20170, USA
T: +1 (303) 390 8700
F: +1 (303) 390 8777
E. info.usa@ir.com
Americas ‑ Mid West
Integrated Research, Inc.
6601 Lyndale Ave. S., Suite 330
Richfi eld, Minnesota, MN 55423, USA
T. +1 (612) 243 6700
F. +1 (303) 390 8777
E. info.usa@ir.com
ir.com
Nothing is as constant as change.
As IR celebrates another year of record growth
we’re making sure our global customers can
interact and transact in a frictionless way.
In the age of digital transformation we bring
a thousand points of reference into a single
point of view.
Corporate
directory
Directors
Steve Killelea
Non‑Executive Director & Chairman
Darc Dencker‑Rasmussen
Managing Director & CEO
Share Registry
Computershare
Solicitors
Ashurst
Level 11, 5 Martin Place
Sydney NSW 2000
Nick Abrahams
Non‑Executive Director
Alan Baxter
Non‑Executive Director
Paul Brandling
Non‑Executive Director
Garry Dinnie
Non‑Executive Director
Peter Lloyd
Non‑Executive Director
Company Secretary
David Purdue
Registered Offi ce
Level 9, 100 Pacifi c Highway
North Sydney NSW 2060
T. +61 (2) 9966 1066
Bankers
National Australia Bank
Westpac Banking Corporation
Securities Exchange Listing
Australian Securities 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 Meeting of
Integrated Research Limited will be
held on:
The Mint
at 3:00pm
Friday 25 November 2016
10 Macquarie Street, Sydney
This Annual Report is printed on Titan Plus Satin. Fibre is sourced from certifi ed and well managed forests in compliance with the
environmental and social standards of the FSC® Council.
4847 Designed and Produced by RDA Creative www.rda.com.au
Contents
CEO’s report
2016 highlights
Chairman’s letter
3
4
6
9
11
13 Directors’ report
27 Remuneration report (audited)
About Integrated Research
Marketing highlights
38 Corporate governance
45 Financials
79 Directors’ declaration
80 Independent auditor’s report
83 ASX additional information
85 Corporate directory
1
Integrated Research and its controlled entities Annual Report 2016 Achievements
Global
recognition
by Gartner
& Aragon
Research
UC
39%
Regional
Europe 58%
Asia Pacific 16%
Consulting
7th consecutive
year
120
Fortune 500 Customers
Total Revenue
20%
2
Integrated Research and its controlled entities Annual Report 2016
Financial highlights
10/10
Top US Banks
6/10
Top Fin Services
Companies Globally
6/10
Top Automotive Companies
IN MILLIONS OF AUD (EXCEPT EARNINGS PER SHARE)
Year ended 30 June
2016
2015
% Change
Revenue from licence fees
45.7
41.0
11%
Total revenue
Net profit after tax
Net assets
84.5
70.3
20%
16.0
14.3
12%
41.0
36.1
14%
Cash at balance date
8.5
15.3
‑44%
Americas revenue
Europe revenue
58.0
52.7
10%
17.2
10.2
69%
Asia Pacific revenue
10.3
8.9
Earnings per share (cents per share)
9.4
8.4
16%
12%
6/10
Biggest Telcos
Year ended 30 June
2016
2015
% Change
Americas revenue (USD)
42.0
43.6
‑4%
Europe revenue (UK Sterling)
8.4
5.3
58%
Asia Pacific revenue (AUD)
10.3
8.9
16%
Total revenue
(AUD millions)
Net profit after tax
(AUD millions)
Revenue from licence sales
(AUD millions)
48.6
48.9
53.2
70.3
84.5
9.0
9.1
8.5
14.3
16.0
28.9
26.6
28.0
41.0
45.7
2012 2013 2014 2015
2016
2012 2013 2014 2015
2016
2012 2013 2014 2015
2016
Integrated Research and its controlled entities Annual Report 2016
3
Letter from
the Chairman
It is my pleasure to comment on another record
performance of Integrated Research for the financial
year to 30 June 2016. It is particularly pleasing to
see that the investments made in both Europe and
Asia are bearing fruit, and the Company is recording
high growth both in profit and revenue to further
cement its leading global position.
Dear fellow shareholders,
The Company achieved an increase
of 12% in net profit after tax over
the prior year to $16.0 million;
licence sales increased by 11%
and total revenue increased by
20% to $84.5 million with revenue
coming from a wide range of
customers, products and regions.
This underscores the strength of the
Company’s global business, with over
95% of its revenue being derived
outside Australia.
Europe revenues grew by 58% to
£8.4 million and Asia Pacific revenue
increased by 16% to $10.3 million
driven by licence sales growth
primarily in unified communications.
The Americas delivered a solid
performance with revenue of
US$42.0 million with underlying
growth achieved in Skype for
Business and Contact Centres.
IR Consulting Services achieved
a 7th consecutive year of growth,
with revenue increasing by 33% to
$7.4 million.
The Company cemented its
leadership position in Unified
Communications achieving a
number of significant awards
and citations. Gartner, the world’s
leading information technology
research advisory company named
Integrated Research a Cool Vendor
in the “Cool Vendors in Availability
and Performance, 2016” report.
IR was the only UC Performance
Management Vendor awarded
this distinction.
Integrated Research was also
named the only ‘Hot Vendor’ by
Aragon Research in the Unified
Communications and Collaboration
segment. Aragon Research selects
Hot Vendors across multiple markets
that are unique technological leaders
and recognized Integrated Research
for its ability to manage highly
complex UC environments across
multiple vendors.
2016 marks the 8th consecutive year
of growth in Unified Communications
increasing on the prior year by 39%
to $50.8 million. Prognosis sales to
customers using Skype for Business
was a significant contributor to
this and represents a major growth
opportunity in the future.
Over the past year the Company
has collaborated with Cisco to
achieve compliance with both the
US Government Federal Information
Processing Standards and the
Federal Risk and Authorization
Management Program.
The Company has now secured
initial contractual arrangements
for the supply of solutions to the
US Federal Government.
4
Integrated Research and its controlled entities Annual Report 2016 Annual revenue 20%
$84.5M
The future outlook for IR remains
strong. 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 Board is pleased to announce a
final dividend of 3.5 cents per share
franked to 60% bringing the total
dividend for the year to 6.5 cents per
share franked at 58%. This compares
with total dividends of 7.5 cents per
share franked at 35 % for the prior
financial year.
I would especially like to thank you,
our valued shareholders, for your
continued support.
Steve Killelea
Chairman
Successful implementation should
result in the addition of many millions
of users, creating strong growth in
future years. Integrated Research
already has contracts for supply
to the US Department of Justice,
US Customs and Border Protection,
Department of the Treasury and
other Federal and State Government
Agencies. According to the US
Bureau of Labor Statistics, as of
April 2016 more than 22 million
people were employed in the
US government.
Payments revenue rose 10% over
the previous year with strong licence
sale growth coming from the UK.
The Company has expanded its
suite of Payments solutions by
adding new products including
fraud management, payments
analytics and wholesale money
transfer applications. Development
innovations in Payments will enable
visibility into new technology roll‑outs
such as Apple Pay.
After the above‑trend performance
in HP Non‑Stop revenues for FY2015,
the high margin Infrastructure product
line delivered $20.8 million in revenue
for FY2016, consistent with the
previous 5‑year average. The annual
revenue from the Infrastructure
product line is highly aligned to the
underlying licence renewal profile.
The 2017 renewals should assist in
underpinning a good performance for
the FY17 financial year.
The Company remains focused
on sustaining its competitive
advantage through continuing
innovation that comes from its
research and development program.
Research and development
expenditure of $13.6 million was 16%
of total revenue, which underlines
the company’s commitment to
technical excellence. Prognosis 11
was released in June 2016 and will
provide the Company with further
growth opportunities.
The Company continues to focus
on expanding its capabilities
and improving productivity.
Total expenses were $64.5 million,
up 22% against the prior year.
The increase in cost was driven
by three factors. Firstly, the
annualisation of investments
made part way through the 2015
financial year; secondly additional
cost carried from the acquisition
of the Testing Solutions business;
and thirdly the higher cost base
driven through a lower Australian
dollar giving rise to higher offshore
translated costs.
On 1 July 2015 IR completed the
acquisition of US based IQ Services.
The integration of the acquisition is
substantially complete. The Company
achieved $4.3 million in revenue
from the Testing solution line and the
deferred revenue backlog grew by
132% over the course of the year.
5
Integrated Research and its controlled entities Annual Report 2016 Chief Executive
Officer’s Report
The Company’s deep engagement with its
customers and an understanding of what they
need to support their success has resulted in
strong recurring revenue streams. Strategic
investments made in 2015 into Europe have
paid off in 2016 with revenue growing by 58%.
Dear shareholders,
The Company once again delivered
record revenues and profits in 2016.
This consistent result is a strong
indicator of the success of the four
strategic initiatives the Company
commenced in 2014: To create
agile and innovative solutions,
leverage growth through partners,
grow momentum through strategic
marketing and build regional growth.
In 2015 the Company started a
three‑year transition to reduce the
number of one‑off perpetual licence
sales and correspondingly increase
the number of recurring term
licences. Recurring term licences
create a compounding growth base
that underpins future performance
and growth.
The Company has now completed
two years of the three‑year transition
from perpetual to recurring term
arrangements. The Company has
managed to show healthy growth
through each of the first two
bridging years despite the lower
initial cashflow of recurring term
arrangements. The three‑year term
licences that were signed in 2015
become due for renewal in 2018
and the Company expects that will
provide a platform for solid cash flow
and revenue growth acceleration
over and above what was achieved in
past years.
Prognosis has proven to be a sticky
solution in the past, with historical
renewal rates of above 90%.
To maximize the benefits of renewals,
the Company will continue to focus
on activities that will support high
renewal rates. These activities include
focused account management
to ensure customer adoption and
satisfaction as well as expanding
share of wallet.
Analysis of the Company’s base of
over 1,200 enterprise customers
shows significant potential to expand
the number of IR solutions sold to
each customer. Prognosis is a modular
solution and customers will typically
purchase a subset of those modules
in their initial purchase. Subsequent
purchases may include additional
solutions such as Reporting and
Analytics, Video Management, Testing
Solutions, Contact Centre and Call
Recording Assurance to name some
of the most commonly applicable.
These additional modules provide the
opportunity significant upsell.
Strong recurring revenue streams are
supported by the Company’s deep
engagement with its customers and
an understanding of what they need
to support their success. Prognosis 11,
released in June 2016, was built using
that insight. Prognosis 11 product
enhancements in Call Recording
Assurance, Skype for Business and
Unified Communications for cloud and
service providers should see revenue
realisation in the 2017 financial year
6
Integrated Research and its controlled entities Annual Report 2016 Annual after tax profit 12%
$16.0M
and beyond. In addition, the Company
is now the only vendor to maintain
current certification across all the
major Unified Communications
platforms, namely Cisco, Avaya and
Microsoft Skype for Business.
Skype for Business is the fastest
growing solution in Microsoft’s history
and Prognosis sales to customers
using Skype for Business was a
significant contributor to the 39%
growth in the Company’s Unified
Communications (UC) product line
this year. It also represents a major
future growth opportunity for the
Company in years to come. IR has
been a trusted Microsoft Unified
Communications partner since 2010.
In addition to the Company’s status
as a Microsoft Gold Partner it is one
of very few companies certified
specifically for Skype for Business. It is
also the only solution recommended
by Microsoft for both the Essentials
and Advanced categories of its
Skype Operations Framework ‑ the
best practices framework for the
implementation of the solution.
This partnership with Microsoft
validates the importance of Prognosis
in the successful deployment of the
Microsoft Skype for Business solution.
As companies like Apple, Samsung,
Google and others offer the latest
advancements in payments and
financial technology, the payments
processing industry must adapt
to these new challenges and
customer demands. New Prognosis
payment capabilities were delivered
in Prognosis 11 this year, providing
visibility and management of new
technology roll outs of tokenized
transactions like Apple Pay.
These capabilities build on more than
a decade of experience in helping
customers de‑risk deployments of
new technology and help them
realize the benefits from their
investment sooner. The Company has
a significant growth opportunity as
these disruptive payments methods
become mainstream.
The Company’s strategic investments
made in 2015 into Europe paid off
in 2016 with revenue growing by
58% to £8.4 million. The growth was
across both the UK and Continental
Europe with key wins in both Unified
Communications and Payments.
The key account wins included large
engagements with Barclaycard,
HSBC, Nationwide Building Society
and T‑Systems.
All these elements combine to support
the Company’s objective to sustain and
exceed the high growth rate achieved
in the Unified Communications product
line with an eight‑year compound
annual growth rate of 24%.
While investment in the Singapore
office started somewhat later than
in Europe, it enabled Asia Pacific to
grow revenue by 16% to $10.3 million.
The licence growth was delivered
across Infrastructure and UC products.
Our highly successful strategic
marketing initiative ensured that
we reached more people with
our solutions, our brand and our
successes. Our global reach has
expanded with website, collateral
and social media engagement in
languages like German, Chinese
and Spanish. The Company was also
recognised for its thought leadership
by both Gartner and Aragon Research
as well as in 68 editorial media articles
written about the Company and the
value its solutions deliver to customers.
Management would like to recognise
and thank the highly talented and
professional team of employees
who make the Company’s ongoing
success possible. We also thank
you, our fellow shareholders, for
supporting the Management team
and employees in their endeavours to
innovate, grow and build sustainable
market leading value.
Darc Rasmussen
CEO & Managing Director
7
Integrated Research and its controlled entities Annual Report 2016 Minneapolis (MN)
Denver (CO)
Washington (DC)
London
Munich
Sydney
Singapore
IR is a truly global company
8
8
Integrated Research and its controlled entities Annual Report 2016
Integrated Research and its controlled entities Annual Report 2016 About IR
IR is the corporate brand name of Integrated
Research Limited, the leading global provider of
experience management solutions for unified
communications, contact centres and critical
IT infrastructure.
What we do
Our vision
IR designs, develops, markets,
sells and implements IR Prognosis
solutions to a cross section of the
world’s largest organisations.
To make the world a smarter,
easier place to live and work in,
where people and technology
interact in a frictionless way.
For almost 3 decades we have
provided real‑time, fault‑tolerant
management for business‑critical
computer systems and applications.
Why customers buy
IR Prognosis provides best in class
user and customer experience
management that optimizes
operations of mission critical systems
through insight into real time and
historical events.
Prognosis helps systems run fluidly
at the highest level of optimisation
giving our customers total control
over their entire eco‑system
Why we succeed
We help organisations replace
reactive, hands‑on systems
and procedures with proactive,
automated systems for
performance management.
Prognosis works to identify areas
where problems are brewing or may
occur in the future, pro‑actively
avoiding disruptions in service to
hundreds of millions of people on
a daily basis.
Our mission
To create innovative technology
that optimises operations, predicts
business disruption and automates
the steps to improve the experience
of every interaction.
Our brand
The IR brand uses dots and dashes
to convey ideas in simple and
engaging ways.
We focus on the challenges our
customers face and the solutions we
provide. We don’t over complicate
things because simplicity is key and
less is more.
Our momentum
Our products have stood the
test of time, and we have always
invested for the future to innovate,
grow and build sustainable market
leading value.
Over the past 12 months our R&D
team has delivered breakthrough
innovations in exciting areas such as
anomaly detection and self‑healing.
These and many more will deliver new
revenue streams and ensure that IR
remains the market leader.
9
Integrated Research and its controlled entities Annual Report 2016 Performance Management Innovation
g
t i m i s i n
p
O
SELF HEALING
Taking action and
learning how to adapt
o r y
c t
T r a j e
PREDICTION
Forecasting and
predicting future events
Automation
Learning
Prediction
Prescription
INSIGHT
Establishing patterns
and causality
Root Cause
Analytics
g
F i x i n
VISIBILITY
Real-time and historical
events and data
Visibility
1010
Integrated Research and its controlled entities Annual Report 2016
Integrated Research and its controlled entities Annual Report 2016 Innovation is at the heart of IR
IR employees’ innovative thinking and deep domain expertise delivers real
value as we help our customers replace reactive, hands‑on systems and
procedures with proactive, automated solutions.
These solutions deliver meaningful improvements and help our customers progress towards greater operational maturity.
This means better customer experiences and when we deliver them, we’re fulfilling our vision. By helping people and
technology interact in a frictionless way, we’re making the world a smarter and easier place to live and work in.
Gartner ‘Cool Vendor 2016’
Aragon Research ‘Hot Vendor 2016’
IR was named by the world’s leading IT research and
advisory company, Gartner as a Cool Vendor for our
innovative and unique method to deliver visibility
specifically into Microsoft Skype for Business voice calls,
with readiness to provide the same insight for Microsoft
Skype for Business Online.
Each year, Silicon Valley based analyst firm Aragon
Research selects Hot Vendors across multiple markets
that are doing something truly new or different. IR was
selected for our ability to manage highly complex UC
environments across multiple vendors, including Microsoft,
Cisco and Avaya, without the use of network probes.
Gartner “Cool Vendors in Availability and Performance,
2016” by Cameron Haight, Vivek Bhalla, Colin Fletcher
and Sanjit Ganguli, 19 April, 2016
Hot Vendors in Unified Communications and
Collaboration, 2016
Research Note 2016‑24
July 20, 2016
Our products, our promise
Prognosis for United
Communications
Prognosis for
Payments
Prognosis is the best
experience management
solution for unified
communications on
premises, as a hybrid or
in the cloud.
We help our customers
de‑risk deployments of
new technology and
help them realise the
benefits from their
investment sooner.
Prognosis for
Contact Center
Prognosis ensures the
quality of customer
interactions across
multiple channels like
voice, video, web, app
sharing and web chat.
It enables our customers
to deliver the best user
experience possible for
collaboration, meetings,
and voice/video calls
across Microsoft Skype for
Business, Cisco, and Avaya
UC solutions.
Prognosis performance
management is specifically
designed to give complete
real‑time visibility into
payments processors
like ACI, FIS, other
vendors and in‑house
developed systems.
Specialist initiatives
around call recording
assurance, stress and
heartbeat testing ensure
compliance, performance
under load and day to
day functionality.
Prognosis for
Infrastructure
Prognosis IT infrastructure
performance management
spots patterns in data
so customers can stop
problems in their tracks.
This means they can
make systems work better,
respond to issues faster,
prevent outages and get
back to doing what they
do best.
11
Integrated Research and its controlled entities Annual Report 2016 1212
Integrated Research and its controlled entities Annual Report 2016
Integrated Research and its controlled entities Annual Report 2016 Directors’
Report
Contents
14 Review of operations
18 Outlook and strategy for 2017
20 Board of Directors
22 Senior management
24 Directors’ interests
25 Share options and performance rights
27 Remuneration report (audited)
29 Service agreements
Integrated Research and its controlled entities Annual Report 2016
13
13
Integrated Research and its controlled entities Annual Report 2016 Directors’
Report
Annual revenue 20%
Unified Communications revenue 39%
Annual after tax profit 12%
$84.5M
$50.8M
$16.0M
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. More recently,
the Company added testing
solution services revenue through
the acquisition of the business
of IQ 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 and testing
solution services is recognised over
the period the services are delivered.
Review and
results of
operations
Overview
The Company achieved a 12%
increase in annual after tax profit
over the prior year to $16.0 million,
which is within the guidance provided
to the Australian Stock Exchange
on July 20, 2016. The strong result
was driven through licence sale
growth in Unified Communications.
The Company saw growth across
European and Asia‑Pacific markets
and saw triple‑digit growth in product
sales on the Microsoft Skype for
business platform.
Revenue
Revenue for the year was
$84.5 million, an increase of
20% over 2015. Licence fees
increased by 11% to $45.7 million
with strong growth from Unified
Communications partially offset
with lower Infrastructure sales.
Maintenance revenues grew 15%
over the previous corresponding
year despite a lower than historical
average customer retention rate
of 91%. Revenue from consulting
services grew by 33% to $7.4 million.
Revenue was enhanced by a stronger
US dollar relative to the prior year.
In constant currency, annual revenue
increased by 10% compared to the
prior year.
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‑eight 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 for mission critical
business operations.
The Prognosis product range is an
integrated suite of monitoring and
management software, designed to
give an organisation’s management
and technical personnel operational
insight into and optimise the
operation of their HP NonStop,
distributed system servers,
Unified Communications (“UC”),
and Payment environments and the
business applications that run on
these platforms.
14
Integrated Research and its controlled entities Annual Report 2016Directors’ Report The following table presents
Company revenues for each of the
relevant product groups:
In thousands of AUD
Unified Communications
Infrastructure
Payments
Consulting
Total revenue
Unified Communications (UC)
revenue rose 39% over the previous
year driven through an array of
large software deals with customers
including Cisco, Citigroup, Dell, Ford
Motor Company, HSBC, Nationwide
Building Society (UK) and T‑Systems.
The Company achieved UC licence
sales growth across all of the major
UC platforms including Microsoft,
Avaya and Cisco.
Infrastructure revenues decreased by
10% over the previous year. After a
strong above trend performance
in HP Non‑Stop revenues in 2015,
the high margin Infrastructure
product line delivered $20.8 million
in revenue for 2016 consistent with
the previous five year average.
The annual revenue from the
Infrastructure product line is highly
correlated to the underlying licence
renewal profile. The 2017 renewal
profile should assist in underpinning a
steady performance for that year.
2015 % Change
2016
50,778
20,812
5,576
7,366
36,485
23,177
5,069
5,548
84,532
70,279
39%
(10%)
10%
33%
20%
Payments revenue rose 10% over the
previous year with strong licence sale
growth coming from the UK with a key
deal with Barclaycard. The Company has
expanded its suite of Payments products
by adding new products for additional
platforms, vendors and applications,
including fraud management, payments
analytics and wholesale money
transfer applications.
Consulting services showed growth for
a seventh year in a row, with revenue
increasing 33% to $7.4 million as
customers increasingly look to extend
their Prognosis solution to provide
greater insight into their Unified
Communications, Payments and
Infrastructure environments.
The following table presents
Company revenues for each of the
relevant geographic segments in
underlying natural currencies:
Americas (USD’000)
Europe (£’000)
Asia Pacific (A$’000)
2016
41,997
8,438
10,271
2015 % Change
43,621
5,338
8,866
(4%)
58%
16%
The Americas strong performance in
2015 was partly driven by a cyclical
upswing in Infrastructure from
HP‑NonStop renewals. The reduction
of these renewals in 2016 dragged the
overall Americas performance down
to finish the year 4% below 2015.
The Americas continues to be the
largest revenue contributor for the
group and the forward Infrastructure
renewal pipeline shows a return to
historic averages. The Americas
performance for 2016 delivered a
solid performance in the Unified
Communications product line from
both the traditional Avaya and Cisco
platforms as well as the rapidly growing
Microsoft Skype for Business platform.
The Company’s strategic investments
made in 2015 into Europe paid off in
2016 with revenue growing by 58% to
£8.4 million. The growth was across both
the UK and Continental Europe with key
wins in both Unified Communications
and Payments. The key account wins
included a handful of large deals such as
Barclaycard, HSBC, Nationwide Building
Society and T‑Systems.
The investment in the Singapore office
and the sales team enabled Asia Pacific
to grow revenue by 16% to $10.3 million.
The licence growth was delivered
across Infrastructure and Unified
Communications products.
15
Integrated Research and its controlled entities Annual Report 2016 Expenses
The Company continued to focus on expanding its capabilities and improving productivity. Total expenses were
$64.5 million, up 22% against the prior year. The increase in cost was driven by three factors. Firstly the annualisation of
investments made part way through the 2015 financial year; secondly, additional cost carried from the acquisition of
the Testing Solutions business; and thirdly, the higher cost base was driven through a lower Australian dollar giving rise to
higher offshore translated costs. In constant currency, expenses were up 14%. The number of staff at the end of the current
year was 231 (2015: 222). 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
2016
13,582
44,983
5,962
64,527
2015
12,431
35,161
5,220
52,812
Research and development expenditure of $13.6 million was 16% of total revenue. Prognosis 11 was released in June 2016
and will provide the Company with further growth opportunities in coming periods. Product enhancements in Call
Recording Assurance, Skype for Business and Unified Communications for service providers should see revenue
realisation in the 2017 financial year and beyond. Development activities in Payments will enable visibility into new
technology roll‑outs such as Apple Pay. In addition, the Company continues to maintain certification with all the major
Unified Communications platforms, the only vendor to do so.
Net research and development expenses are represented as follows:
In thousands of AUD
Gross research and development spending
Capitalisation of development expenses
Amortisation of capitalised expenses
Net research and development expenses
2016
14,007
(9,565)
9,140
13,582
2015
13,215
(9,037)
8,253
12,431
16
Integrated Research and its controlled entities Annual Report 2016Directors’ Report Shareholder
returns
Returns to shareholders remain
strong through the payment of
partly franked dividends:
Net profit ($’000)
Basic EPS
Dividends per share
Dividend franking percentage
Return on equity
2016
2015
$16,029
$14,251
9.42¢
6.5¢
58%
39%
8.41¢
7.5¢
35%
39%
2014
$8,489
5.03¢
5.0¢
33%
28%
Financial
position
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)
2016
2015
8,544
52,390
21,972
15,323
38,272
17,020
Liabilities:
Deferred revenue (current and non‑current)
25,946
22,523
Equity
41,046
36,132
The Company’s end of year cash
position was $8.5 million, down
44% compared to the prior year.
The reduction in year end cash has
been driven primarily by the change in
customer buying patterns where there
has been a greater take‑up of term
based renewal contracts over perpetual
upfront cash arrangements. Whilst this
purchasing change has reduced cash
in the short term, the increase in the
term contract activity bodes well for the
future as the renewal opportunities will
provide a compounding revenue effect
in future periods. The Company has
completed two years of a three year
transition and sees the 2018 financial
year as the time when this revenue
compounding will begin to take effect
and as a result drive an improvement
to both cashflow from operations as
well as underpin revenue growth. In the
short term, there is the possibility of
working capital fluctuations and as a
result, the Company has established
a three year $10 million multicurrency
debt facility to fund these fluctuations.
During the year, $1.5 million was drawn
down from the debt facility but was
repaid before the end of the year.
The Company remains free of debt as
at 30 June 2016.
Trade and other receivables increased
by 42% over the preceding year due to
three factors. Firstly, a strong increase
in sales toward the end of the year;
secondly a weaker Australian dollar
resulting in higher translated US
dollar debtors; and thirdly an increase
in deferred payment terms with
customers who seek to make regular
annual payments over the term of their
committed contract.
The increase in intangible assets arose
primarily from the acquisition of the
IQ Services business.
The consolidated statement of financial
position presented at page 47 together
with the accompanying notes provides
further details.
17
Integrated Research and its controlled entities Annual Report 2016 Outlook and
Strategy for 2017
Hundreds of thousands
of businesses rely
on billions of Unified
Communications
interactions everyday
to run their business;
IR Prognosis ensures the
quality of experience
and optimises these
mission critical
internal and external
customer interactions.
On the Payments side of the
business hundreds of millions of
people rely on billions of payments
transactions daily, IR Prognosis oils
the smooth operation of their daily
lives and of the business economy
that we all depend on.
Prognosis derives its competitive
advantage from its unique
intellectual property (IP) and design
that enables real time insight,
monitoring, fault root cause analysis,
business and operational analytics,
performance management and
optimisation. The solution is highly
scalable, extremely flexible and
delivers very deep visibility into the
diversity of systems and applications
that it manages. As such, Prognosis
is ideally suited to complex,
high transaction volume, mission
critical and high traffic environments.
Competition exists in each of
the markets in various forms.
Firstly, some of the large telephony
and payment 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 multi‑vendor
environments exist, as is most often
the case. 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
focused on sustaining its competitive
advantage through continuing
innovation that comes from its
research and development program.
Through deep visibility, forensic
analysis into the root cause of
problems, extensive analytics
at multiple levels and recently,
new automation capabilities,
Prognosis enables proactive
and rapid resolution of issues,
capacity management as well
as operational, cost and user
experience optimisation.
The solution provides insight
into potential issues before
they become business‑critical.
Prognosis helps users improve
their operational maturity by
proactively minimising expensive
outages, lowering costs, improving
user satisfaction, retaining and
growing customers and optimising
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. While growth in the
Contact Centre solutions has been
strong, 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 mission
critical 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 audio
communication, video, messaging,
collaboration, mobility and presence.
The Company anticipates growth
in this segment through the
ongoing shipment of IP based video,
telephony and other endpoints
as well as the increasing value
per endpoint through the use of
UC applications. UC networks are
becoming more pervasive, more
mission critical and more complex
and as such they require effective
performance and user experience
management. 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.
18
Integrated Research and its controlled entities Annual Report 2016Directors’ Report IR has been a trusted Microsoft
Unified Communications partner
since 2010, helping customers and
partners successfully plan, deploy,
test, operate and optimize Skype for
Business. In March 2016 IR Prognosis
for Unified Communications
completed certification as an IT
Pro Tool certified solution for Skype
for Business. Skype for Business IT
Pro Tools partners help customers
accelerate deployment and
adoption of Skype for Business
and migration from existing
legacy communications systems.
This ensures Microsoft customers can
deliver the best possible experience
for their users. Prognosis sales to
customers using Skype for Business
was a significant contributor to the
growth in the Company’s Unified
Communications product line
and represents a major growth
opportunity in the future. Microsoft
Skype for Business is the fastest
growing Unified Communications
solution in the market today.
Last month Prognosis was named as
the only solution recommended by
Microsoft for both the Essentials and
Advanced category of their Skype
Operations Framework, the best
practices required for successful
Skype for Business implementations.
Prognosis has ensured voice and
video quality and performance
for Cisco Unified Communications
solutions since 2000 and manages
many of the largest and most
complex Cisco implementations
across the globe. Over the past year
the Company has collaborated with
Cisco to achieve compliance with
both the US Government Federal
Information Processing Standards
(FIPS 140‑2) and the Federal Risk
and Authorization Management
Program (FedRAMP).
The Company has expanded its suite
of Payments solutions by adding new
products for additional platforms,
vendors and applications, including
new technology for roll‑outs such
as Apple Pay. 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. The strategic
alliance with ACI, a global leader in
the payments market, continues
to support the Company’s
Payments business. In FY2016 the
Company expanded its leverage
into the Payments market by
growing relationships with additional
payments software vendors
including FIS (Efunds Corporation) in
Asia Pacific. These new relationships
are expected to deliver further
growth over the coming years.
IR 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 configure unique and
repeatable solutions that extend the
use and value of Prognosis.
Consulting Services achieved
growth in FY2016 for the seventh
consecutive year. The Company
will continue to invest in people and
processes to grow consulting revenue
and margin.
On 1 July 2015 IR completed the
acquisition of US based IQ Services.
The acquisition expands IR’s
Prognosis product line to now include
best in class Virtual Customer®
testing capabilities. Automated Virtual
Customers® behave like an army of
secret shoppers that test Unified
Communications and Contact Centre
systems to ensure they deliver the
high quality customer experience
real customers expect and demand.
Embedded into Prognosis, the cloud
based end‑to‑end automated testing
as a service becomes the markets
only fully integrated proactive systems
management and testing product
solution for UC and contact centres.
The acquisition provides IR with
an expanded offering to new and
existing customers with unique
competitive advantage as well as
geographic expansion opportunities
for the acquired products into
Europe and Asia, as IQ Services
previously only operated in North
America. The integration of the
acquisition is substantially complete.
Bookings growth in FY2016 driven
by solution synergies is expected
to continue in FY2017 realising
the potential of the acquisition
going forward.
In FY2015 the Company started
a three year transition to reduce
the number of one‑off perpetual
licence sales and correspondingly
increase the number of recurring
term licences. The Company has
now completed two years of the
three year transition from perpetual
to recurring term arrangements.
The Company has managed to show
healthy growth through each of the
first two bridging years despite the
lower initial cash of recurring term
arrangements. The three year term
licences that were signed in FY2015
are coming up for renewal in FY2018
and the Company expects that will
provide a platform for cashflow and
revenue growth.
Prognosis has proven to be a
sticky solution in the past with
historical renewal rates of above
90%. To maximize the benefit
of compounding recurring term
renewals that will accelerate from
FY2018 and beyond the Company
will focus on activities that will secure
those renewals. These activities will
include account management focus
to ensure customer adoption and
satisfaction as well as expansion
of share of wallet. Analysis of the
Company’s customer base of over
1,200 enterprise customers shows
significant potential to expand
the number of IR solutions sold
to each customer. Prognosis is a
modular solution and customers
will typically purchase only a
small subset of those modules on
their initial purchase. Subsequent
purchases may include additional
solutions such as Reporting and
Analytics, Video Management,
Testing solutions, Contact Centre
and Call Recording Assurance
to name some of the most
commonly applicable. These are sold
at rates per user per year that vary
between 12.5% to 300% of the initial
purchase price.
The Company has also proven its
capability to acquire new customers,
adding over 100 new logos in FY2016.
The compounding impact of
recurring term renewals, expansion
of share of wallet and continued
focus on new customer acquisition
are three significant factors that
management expects to support
growth through FY2017 and beyond.
The Company continues to invest in its
R&D capability through the use of the
Agile development methodology which
has improved the rate and quality of
software production for the Company.
19
Integrated Research and its controlled entities Annual Report 2016 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
Darc Dencker‑
Rasmussen
MAICD
Managing Director and
Chief Executive Officer
Nick Abrahams
B Comm, LLB (Hons), MFA
Alan Baxter
BSc, Dip Ed
Non‑Executive Director
Independent
Non‑Executive Director
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,
Smarter Capital and
The Charitable Foundation
and for activities involved
with these he has received
a number of international
awards including the Order
of Australia, Luxembourg
Peace Prize.
Listed company directorships
held in the past three years
other than listed above:
None.
Age: 67 years.
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: 56 years.
Nick was appointed as a
Director in September 2014.
Mr. Abrahams is highly
experienced in corporate,
intellectual property
and international law
pertaining to the technology
industry, with over
20 years’ experience as
a private practice lawyer.
He has worked extensively
internationally representing
Australian high‑tech
companies as well as working
for three years with a law
firm in Japan. Mr Abrahams
also spent time working
in the United States in
the late nineties and was
an executive with Warner
Brothers in Los Angeles,
followed by a period as a
senior executive at listed
technology company, Spike
Networks, also in Los Angeles.
Mr Abrahams returned
to legal practice in 2002
and is a partner of and
leads the Asian technology
practice of a global law firm.
Nick’s current term will
expire no later than the
close of the 2017 Annual
General Meeting.
Listed company directorships
held in the past three years
other than listed above:
None.
Age: 50 years.
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 2018 Annual
General Meeting.
Listed company directorships
held in the past three years
other than listed above:
None.
Age: 71 years.
20
Integrated Research and its controlled entities Annual Report 2016Directors’ Report Paul Brandling
BSc Hons, MAICD
Independent
Non‑Executive Director
Garry Dinnie
BCom, FCA, FAICD, FAIM,
MIIA(Aust)
.
Independent
Non‑Executive Director
Peter Lloyd
MAICD
Non‑Executive Director
Company Secretary
David Purdue
BEc, MBA, Grad Dip CSP,
FCA, FGIA, FCIS, GAICD
David was appointed
Company Secretary
in July 2012. David was
also the Company’s Global
Commercial Manager
until his retirement
in July 2016. 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.
Garry was appointed a
Director in February 2013.
He is a Director & Chair
of the Audit & Risk
Committee of CareFlight
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:
Inabox Group Limited
Age: 64 years.
Peter was appointed director
in July 2010. He has over
40 years’ experience on
computing technology,
and in the sales and
marketing of computer
software products and
services. For the past
31 years, Peter has been
specifically involved in the
provision of payments
solutions for banks and
financial institutions. He is
currently the proprietor of
The Grayrock Group Pty Ltd,
a management consultancy
company focussing on
the payments industry,
and a Non‑Executive
Director of Taggle 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: 62 years.
Paul was appointed a
Director in August 2015.
He worked in the information
technology industry for
28 years and has broad
experience in hardware,
services and software.
He has previously held the
positions of Vice President
and Managing Director
of Hewlett‑Packard South
Pacific plus Vice President
and Managing Director
of Compaq South Pacific.
From 2001 to 2012,
Paul was a member of the
International CEO Forum
(Australia) and served as a
Director of the Australian
Information Industry
Association (AIIA) from
2002 to 2011. Mr Brandling
was a Director of Amcom
Telecommunications Limited
until its acquisition and
was a Director of Vocus
Communications Limited
until February 2016. He is
currently a Director of cyber
security specialist Tesserent
Limited. Paul’s current term
will expire no later than the
close of the 2018 Annual
General Meeting.
Listed company directorships
held in the past three years
other than listed above:
None.
Age: 58 years.
21
Integrated Research and its controlled entities Annual Report 2016 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.
Jason Barker
BA (hons)
Senior Vice President,
Asia Pacific, Middle
East & Africa
Jason joined IR in October 2014 and is responsible for all business
operations across the Asia Pacific, Middle East & Africa regions.
Jason joins with 20 years’ experience in Technology,
Media & Telecommunications most recently as Vice President
Sales, Asia Pacific at Acision where, based out of Singapore, he was
responsible for leadership of the Sales team across the region.
Prior to this Jason spent 5 years in Australia leading Asia Pacific
teams with Subex and Surfkitchen and before this held several
European focussed roles, based out of the UK.
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.
Heidi Newbery
BSc, PGDip Psych,
GDip HR
General Manager ‑
Human Resources
Heidi is responsible for the Human Resources and Learning
Development functions which includes responsibility for
aligning strategic HR initiatives with the Business Strategy
that enable a high performance culture. Heidi has over
18 years HR, sales and adult learning experience mostly within
global organisations in the software and technology industry.
Kevin Ryder
M.Mgt, MBA
Chief Marketing Officer,
Global Marketing
Kevin joined IR in October 2013 and as Chief Marketing Officer
is responsible for product marketing, strategic alliances,
partner programs and marketing communications. 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.
22
Integrated Research and its controlled entities Annual Report 2016Directors’ Report 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 2016 and the
Auditor’s Report thereon.
Results
The net profit of the consolidated entity for the 12 months ended 30 June 2016 after income tax expense was
$16.0 million.
Dividends
Dividends paid or declared by the Company since the end of the
previous financial year were:
Cents
Per share
Final 2015 ‑ Ordinary shares
Interim 2016 ‑ Ordinary shares
Final 2016 ‑ Ordinary shares
35% franked
55% franked
60% franked
4.0
3.0
3.5
Total
Amount
$’000
6,793
5,113
5,970
Date of
Payment
22 Sep 2015
20 Apr 2016
13 Oct 2016
Events subsequent to reporting date
For dividends declared after 30 June 2016 see Note 23 in the financial statements. The financial effect of dividends
declared and paid after 30 June 2016 has not been brought to account in the financial statements for the year ended
30 June 2016 and will be recognised in subsequent financial statements.
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
Integrated Research and its controlled entities Annual Report 2016
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 2016, and the numbers of meetings attended by each director were:
Board Meetings
Audit and Risk
Committee Meetings
Nomination and
Remuneration
Committee Meetings
Strategy
Committee Meetings
A
12
10
12
12
11
12
12
B
12
10
12
12
12
12
12
A
‑
5
8
8
3
‑
‑
B
‑
5
8
8
3
‑
‑
A
4
‑
‑
4
‑
4
‑
B
4
‑
‑
4
‑
4
‑
A
1
6
‑
‑
7
7
7
B
1
6
‑
‑
7
7
7
Alan Baxter
Paul Brandling
Nick Abrahams
Garry Dinnie
Peter Lloyd
Steve Killelea
Darc Rasmussen
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.
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
Total
Number of options
Number of rights
Alan Baxter
Darc Rasmussen
Garry Dinnie
Steve Killelea
Nick Abrahams
Paul Brandling
Peter Lloyd
‑
279,273
‑
89,497,339
‑
10,202
‑
197,000
56,351
‑
337,612
2,000
‑
‑
197,000
335,624
‑
89,834,951
2,000
10,202
‑
‑
‑
‑
‑
‑
‑
‑
‑
250,000
‑
‑
‑
‑
‑
24
Integrated Research and its controlled entities Annual Report 2016Directors’ Report 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
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
Kevin Ryder
Number of
performance
rights granted
Performance
hurdle
Exercise price
Expiry date
250,000*
Yes
Nil
Oct 2016
25,000
15,000
30,000
85,000
15,000
Yes
Yes
Yes
Yes
Yes
Nil
Nil
Nil
Nil
Nil
Mar 2019
Mar 2019
Mar 2019
Mar 2019
Mar 2019
The performance rights were granted under the Integrated Research Performance Rights and Option Plan
(established November 2011). The Company will either issue shares or make an on‑market purchase for Mr Rasmussen
upon his vesting conditions being satisfied.
*This is the third tranche of the original plan granted on 14 November 2013 of 850,000 rights. Tranche 1 and 2 of
600,000 rights vested in October 2015.
Unissued shares under performance rights
Unissued ordinary shares of Integrated Research Limited under performance rights at the date of this report are as follows:
Expiry date
Oct 2016
Oct 2016
Sep 2017
Sep 2017
Oct 2017
Sep 2018
Dec 2018
Mar 2019
Total performance rights
Performance rights
Exercise price
Number of shares
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
150,000
250,000
465,000
85,000
700,000
93,800
60,000
195,000
1,998,800
Performance rights do not entitle the holder to participate in any share issue of the Company or any other body corporate.
25
Integrated Research and its controlled entities Annual Report 2016 • 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 82 and forms part of the
Directors’ Report.
Rounding
of amounts
to nearest
thousand dollars
The Company is of a kind referred
to in ASIC Corporations Instrument
2016/191 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.
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.
To the extent permitted by law,
the Company has agreed to
indemnify its auditors, Ernst & Young
Australia, as part of the terms of
its audit engagement agreement
against claims by third parties
arising from the audit (for an
unspecific amount). No payment has
been made to Ernst & Young during
or since the financial year.
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.
Remuneration
report
The Company’s Remuneration Report,
which forms part of this Directors’
Report, is on pages 27 to 37.
Corporate
governance
A statement describing the
Company’s main corporate
governance practices in place
throughout the financial year is
on pages 38 to 43.
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
Steve Killelea
Chairman
Darc Rasmussen
Chief Executive Officer
North Sydney, 22 August 2016
North Sydney, 22 August 2016
26
Integrated Research and its controlled entities Annual Report 2016Directors’ Report Remuneration report
(audited)
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.
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.
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.
27
Integrated Research and its controlled entities Annual Report 2016 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
2016
45,725
16,029
11,906
$2.250
$0.560
2015
41,031
14,251
10,162
$1.690
$0.695
2014
2013
28,048
26,632
8,489
9,278
$0.995
($0.04)
9,078
8,413
$1.035
$0.37
2012
28,861
9,035
7,512
$0.665
$0.39
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 Steve Killelea
Chairman
Nick Abrahams
Alan Baxter
Peter Lloyd
Garry Dinnie
Darc Rasmussen Chief Executive Officer
Part year Paul Brandling
(Joined August 2015)
Other key management personnel
Full year Peter Adams
Chief Financial Officer
Alex Baburin
Chief Operations Officer
Jason Barker
Senior Vice President Asia Pacific
Andre Cuenin
President Americas & VP European Field Operations
Kevin Ryder
Chief Marketing Officer
David Purdue
Company Secretary
28
Integrated Research and its controlled entities Annual Report 2016Remuneration report 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 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’s
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 David Purdue, Company Secretary
and Global Commercial Manager,
had a contract of employment
with Integrated Research Limited
dated 27 May 2008. Mr Purdue
retired in July 2016 from the position
of Global Commercial Manager.
Mr Purdue continues in the role of
Company Secretary.
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’s
prior notice in writing.
Mr Kevin Ryder ‑ Chief Marketing
Officer, 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.
Mr Jason Barker ‑ Vice President,
APAC, has a contract of employment
with Integrated Research Singapore
Pte Limited dated 21 August 2014
which provides for specific notice
and severance undertakings of one
month compensation depending
on the particular circumstances.
Mr Barker can terminate his
employment by giving one month
prior notice in writing.
29
Integrated Research and its controlled entities Annual Report 2016 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 FY2016
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
Integrated Research and its controlled entities Annual Report 2016Remuneration report Short term
2016
In AUD
Salary &
fees
$
Bonus
$
Non‑
cash
benefits
$
Non‑executive Directors
Post‑
employ‑
ment
Super‑
annua‑
tion
contri‑
bution
$
Share‑
based
pay‑
ments
Other
compen‑
sation
Long
term
Long
service
leave
$
Value of
options
and
rights
$
Termina‑
tion
benefit
$
Proportion of
remuneration
Perfor‑
mance
related
Total
$
Value of
options
and
rights
63,927
63,927
55,239
63,927
63,927
127,854
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
6,073
6,073
5,248
6,073
6,073
12,146
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
70,000
70,000
60,487
70,000
70,000
140,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Nick Abrahams
Alan Baxter
Paul Brandling
(appointed
August 2015)
Garry Dinnie
Peter Lloyd
Steve Killelea
(Chairman)
Executive
Directors
Darc Rasmussen
500,000 102,662
4,532
19,308
10,446 105,936
‑
742,884
14%
14%
Executive officers (excluding directors)
Peter Adams
291,797
49,385
4,532
19,308
6,086 40,842
Alex Baburin
278,953
27,410
Jason Barker
346,535 210,662
‑
‑
23,104
32,572
5,651
37,718
Andre Cuenin
342,998 343,350
16,707
10,159
David Purdue
199,613
15,000
4,532
19,308
3,976
16,904
Kevin Ryder
244,242
48,013
380
31,380
5,402
27,716
‑
‑
38,707
23,774
‑
‑
‑
‑
‑
‑
411,950
382,304
619,008
736,988
259,333
357,133
12%
7%
34%
47%
6%
13%
10%
10%
6%
3%
6%
8%
Total compensation:
key management
(consolidated,
including directors)
2,642,939 796,482
30,683 196,825
31,561 291,597
‑ 3,990,087
31
Integrated Research and its controlled entities Annual Report 2016
Short term
2015
In AUD
Salary &
fees
$
Bonus
$
Non‑
cash
benefits
$
Non‑executive Directors
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
50,158
63,927
13,277
63,927
63,927
127,854
23,276
Nick Abrahams
(appointed
September 2014)
Alan Baxter
Kate Costello
(retired
September 2014)
Garry Dinnie
Peter Lloyd
Steve Killelea
(Chairman)
Clyde McConaghy
(retired
November 2014)
Executive
Directors
Post‑
employ‑
ment
Super‑
annua‑
tion
contri‑
bution
$
4,765
6,073
1,261
6,073
6,073
12,146
2,211
Share‑
based
pay‑
ments
Other
compen‑
sation
Long
term
Long
service
leave
$
Value of
options
and
rights
$
Termina‑
tion
benefit
$
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Darc Rasmussen
500,000 162,000
4,532
18,783
15,201 280,619
Executive officers (excluding directors)
Peter Adams
281,519
62,863
4,532
18,783
Alex Baburin
272,965
42,728
Jason Barker
(appointed
October 2014)
233,182
129,973
‑
‑
27,408
15,818
Andre Cuenin
292,143
370,449
13,886
8,764
8,156
7,610
‑
‑
27,109
27,109
17,826
54,828
David Purdue
201,685
‑
4,532
18,783
4,991
15,081
Kevin Ryder
225,473
34,478
5,408
‑
‑
‑
24,343
6,306
13,463
‑
‑
‑
Proportion of
remuneration
Perfor‑
mance
related
Value of
options
and
rights
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Total
$
54,923
70,000
14,538
70,000
70,000
140,000
25,487
981,135
17%
29%
402,962
377,820
396,799
16%
11%
33%
740,070
50%
245,072
304,063
5,408
‑
11%
‑
7%
7%
4%
7%
6%
4%
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2,418,721 802,491
27,482
171,284
42,264 436,035
‑ 3,898,277
Jonathan
Stern (resigned
July 2014)
Total compensation:
key management
(consolidated,
including directors)
32
Integrated Research and its controlled entities Annual Report 2016Remuneration report
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 in this table:
Directors
Darc Rasmussen
Executives
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
David Purdue
Kevin Ryder
Short term incentive bonuses
Included in
remuneration
$ (A)
% vested in
year
% forfeited in
year
(B)
102,662
41%
59%
49,385
27,410
210,662
343,350
15,000
48,013
77%
53%
99%
77%
100%
74%
23%
47%
1%
23%
‑
26%
(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 2016 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
Integrated Research and its controlled entities Annual Report 2016 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. Performance
rights granted as compensation are listed in the table below.
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)
Directors
Darc Rasmussen
Executives
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
David Purdue
Kevin Ryder
350,000
250,000
250,000
30,000
100,000
25,000
30,000
100,000
15,000
40,000
60,000
30,000
50,000
85,000
100,000
85,000
20,000
50,000
75,000
15,000
Nov‑13
Oct‑14
Oct‑15
Oct‑12
Nov‑14
Dec‑15
Oct‑12
Nov‑14
Dec‑15
Nov‑14
Nov‑14
Dec‑15
Oct‑12
Apr‑14
Nov‑14
Dec‑15
Oct‑12
Nov‑14
Nov‑14
Dec‑15
100%
100%
‑
100%
‑
‑
100%
‑
‑
‑
‑
‑
100%
‑
‑
‑
100%
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2017
2017
2017
2016
2018
2020
2016
2018
2020
2018
2019
2020
2016
2018
2018
2020
2016
2018
2018
2020
‑
‑
nil
‑
nil
nil
‑
nil
nil
nil
nil
nil
‑
nil
nil
nil
‑
nil
nil
nil
Max
(C)
‑
‑
216,875
‑
84,470
46,147
‑
84,470
27,688
33,788
46,494
55,377
‑
79,639
84,470
156,901
‑
42,235
63,353
27,688
(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 performance rights 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 performance rights for employee benefit expense purposes.
34
Integrated Research and its controlled entities Annual Report 2016Remuneration report Other transactions with key management personnel
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 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
Long term benefit
Equity compensation benefits
Consolidated
2016
2015
3,470,104
3,248,694
196,825
31,561
171,284
42,264
291,597
436,035
3,990,087
3,898,277
35
Integrated Research and its controlled entities Annual Report 2016 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
2015
Granted as
compensation
Exercised
Other
changes*
Held at
30 June
2016
Vested
during the
year
Vested and
exercised
at 30 June
2016
Current Year
Directors
Darc Rasmussen
600,000
250,000 (600,000)
130,000
130,000
100,000
235,000
70,000
75,000
25,000
(30,000)
15,000
(30,000)
30,000
‑
85,000
(50,000)
‑
(20,000)
15,000
‑
‑
‑
‑
‑
‑
‑
‑
250,000
600,000
600,000
125,000
30,000
30,000
115,000
30,000
30,000
130,000
‑
‑
270,000
50,000
50,000
50,000
20,000
20,000
90,000
‑
‑
Darc Rasmussen
350,000
250,000
Held at
1 July
2014
Granted as
compensation
Exercised
Other
changes*
Held at
30 June
2015
Vested
during the
year
Vested and
exercised
at 30 June
2015
‑
‑
‑
‑
‑
30,000
30,000
100,000
100,000
‑
100,000
135,000
100,000
34,500
50,000
(14,500)
‑
75,000
‑
‑
‑
‑
‑
‑
‑
‑
600,000
130,000
130,000
100,000
235,000
70,000
75,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
14,500
14,500
‑
‑
Executives
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
David Purdue
Kevin Ryder
Prior Year
Directors
Executives
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
David Purdue
Kevin Ryder
* 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.
36
Integrated Research and its controlled entities Annual Report 2016Remuneration report 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
Non‑executive Directors
Nick Abrahams
Alan Baxter
Paul Brandling
Steve Killelea
Executive Directors
Darc Rasmussen
Executive officers
(excluding directors)
Peter Adams
Alex Baburin
Andre Cuenin
David Purdue
Prior Year
Non‑executive Directors
Alan Baxter
Kate Costello
Steve Killelea
Executive Directors
Darc Rasmussen
Executive officers
(excluding directors)
Peter Adams
Alex Baburin
David Purdue
Held at
1 July 2015
Purchases
Received on
exercise of
performance
rights
Other
changes*
Sales
Held at
30 June
2016
‑
2,000
197,000
‑
10,202
94,834,951
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2,000
197,000
10,202
‑ (5,000,000)
89,834,951
(320,727)
335,624
38,700
17,651
600,000
5,000
10,000
‑
33,250
‑
‑
‑
‑
30,000
30,000
50,000
20,000
‑
‑
‑
‑
‑
(15,000)
‑
‑
‑
Held at
1 July 2014
Purchases
Received on
exercise of
options
Other
changes*
Sales
20,000
40,000
50,000
53,250
Held at
30 June
2015
197,000
199,622
94,834,951
‑
‑
‑
8,700
30,000
5,000
10,000
18,750
‑
‑
‑
‑
‑
‑
‑
‑
‑
14,500
‑
(199,622)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
197,000
‑
94,834,951
38,700
5,000
10,000
33,250
* Other changes represent net movement from ceasing to hold office.
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.
37
Integrated Research and its controlled entities Annual Report 2016 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
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.
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.
38
Integrated Research and its controlled entities Annual Report 2016Corporate Governance 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 2016 the board members
were comprised as follows:
• Mr Steve Killelea ‑
Non Executive Director (Chairman)
• Mr Nick Abrahams ‑
Non Executive Director
• Mr Alan Baxter ‑ Independent
Non Executive Director
• Mr Paul Brandling‑ Independent
Non Executive Director
• Mr Garry Dinnie ‑ Independent
Non Executive Director
• Mr Peter Lloyd ‑
Non Executive Director
• Mr Darc Rasmussen ‑ Executive
Director (Chief Executive Officer)
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.
Mr Abrahams was appointed
as a Non‑Executive Director
in September 2014. While there are
good arguments that Mr Abrahams
is in fact independent, he has
been classified as not independent
due to a pre‑existing business
relationship between Mr Abrahams
and Mr Killelea. The board is satisfied
that the company benefits from
Mr Abrahams’ experience and
knowledge gained through his more
than 20 year career as a lawyer
assisting technology companies in
Australia and overseas.
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.
The composition of the board during
the year ended 30 June 2016
did not comply with the ASX
Corporate Governance Council
recommendation that the majority
of the board should be independent
directors. However, the Company
is working toward compliance
through the appointment of Mr. Paul
Brandling who is an Independent
Non‑Executive Director.
The company secretary is
accountable directly to the board,
through the chair, on all matters to
do with the proper functioning of
the board.
39
Integrated Research and its controlled entities Annual Report 2016 Nomination and
Remuneration Committee
Responsibilities regarding
nomination
The Nomination and Remuneration
Committee has a documented
charter, approved by the board.
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:
• The appointment, remuneration,
performance objectives
and evaluation of the chief
executive officer.
• The remuneration packages for
senior executives.
• The Company’s recruitment,
retention and termination
policies and procedures for
senior executives.
• 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.
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 performance of the chief
executive officer and the board
was undertaken in the reporting
period identifying both strengths
and development actions.
The performance of other senior
management was conducted by
the chief executive officer.
The members of the Nomination and
Remuneration Committee during the
year were:
• Mr Alan Baxter ‑ Independent
Non‑Executive (Chairman)
• Mr Garry Dinnie ‑ Independent
Non‑Executive Director
• Mr Steve Killelea ‑ Non‑Executive
A matrix of skills and diversity
of the board as required by
the ASX corporate governance
recommendations is available on the
Company’s website at www.ir.com.
The Nomination and Remuneration
Committee meets at least twice a
year and as required. The Committee
met four times during the year
under review.
Audit and Risk Committee
The Audit and Risk Committee has
a documented charter, approved by
the board. The charter states that
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:
• Mr Nick Abrahams ‑
Non‑Executive Director
• Mr Garry Dinnie ‑ Independent
Non‑Executive (Chairman)
• Mr Peter Lloyd ‑ Non‑Executive
(up to November 2015)
• Mr Paul Brandling‑ Independent
Non Executive Director
(from December 2015)
While the Committee is chaired by
an independent director who is not
chair of the Board, during first five
months of the year the number
of independent directors did not
form a majority of the Audit and
Risk Committee as recommended
by the ASX Corporate Governance
recommendations. In December 2015,
the Company moved toward
compliance on this matter with
the appointment of Paul Branding
(Independent Non‑Executive Director)
to the Committee.
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).
40
Integrated Research and its controlled entities Annual Report 2016Corporate Governance • Monitor corporate risk
management and assessment
processes, and the identification
and management of strategic and
operational risks.
• Enquire of the auditors of
any difficulties 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:
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) ‑
• To discuss the external audit
Non‑Executive
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
• Mr Darc Rasmussen ‑ Executive
• Mr Alan Baxter ‑
Independent Non‑Executive
(up to October 2015)
• Mr Peter Lloyd ‑ Non‑Executive
• Mr Paul Brandling‑
Independent Non‑Executive
(from November 2015)
The Strategy Committee is
responsible for:
• Review and assist in defining
current strategy.
approval of these documents.
• Assess new strategic opportunities,
‑ 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.
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 seven times
during the year under review.
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 eight 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 eight
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 2016 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 as set out in the
charter 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.
• 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.
41
Integrated Research and its controlled entities Annual Report 2016 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
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 27 to 37.
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.
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.
Material exposure to
economic, environmental and
social sustainability risks
By the nature of the industry that the
Company participates in, exposures
to economic, environmental and
social sustainability risks are not
considered material.
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.
42
Integrated Research and its controlled entities Annual Report 2016Corporate Governance 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.
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 42 days after
the release of the company’s
half‑yearly results announcement.
From 24 hours to 56 days after
release of the company’s annual
results announcement.
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.
Participants in the Company’s
Performance Rights program are
specifically prohibited to hedge the
exposure to the Integrated Research
share price during the vesting
period in respect of the unvested
performance rights.
43
Integrated Research and its controlled entities Annual Report 2016
4444
Integrated Research and its controlled entities Annual Report 2016
Integrated Research and its controlled entities Annual Report 2016 Financials
Contents
46 Consolidated statement of comprehensive income
47 Consolidated statement of financial position
48 Consolidated statement of changes in equity
49 Consolidated statement of cash flows
50 Notes to the financial statements
50 Note 1: Significant accounting policies
57 Note 2: Segment reporting
58 Note 3: Business combinations
59 Note 4: Expenditure
59 Note 5: Other gains and (losses)
59 Note 6: Finance income
59 Note 7: Auditors’ remuneration
60 Note 8: Income tax expense
61 Note 9: Earnings per share
61 Note 10: Cash and cash equivalents
62 Note 11: Trade and other receivables
63 Note 12: Other current assets
63 Note 13: Other financial assets
63 Note 14: Property, plant and equipment
64 Note 15: Deferred tax assets and liabilities
66 Note 16: Intangible assets
67 Note 17: Goodwill
67 Note 18: Trade and other payables
68 Note 19: Employee benefits
69 Note 20: Deferred consideration for acquisition
69 Note 21: Provisions
70 Note 22: Other liabilities
70 Note 23: Capital and reserves
72 Note 24: Financial instruments
76 Note 25: Operating leases
76 Note 26: Consolidated entities
76 Note 27: Reconciliation of cash flows from operating activities
77 Note 28: Key management personnel disclosures
77 Note 29: Related parties
77 Note 30: Parent entity disclosures
78 Note 31: Subsequent events
79
Directors’ declaration
80 Independent auditor’s report
83
ASX additional information
Integrated Research and its controlled entities Annual Report 2016
45
45
Integrated Research and its controlled entities Annual Report 2016
Consolidated statement of comprehensive income
For the year ended 30 June 2016
In thousands of AUD
Revenue
Revenue from licence fees
Revenue from maintenance fees
Revenue from testing solution services
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)
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
Consolidated
Notes
2016
2015
45,725
27,153
4,288
7,366
84,532
41,031
23,700
‑
5,548
70,279
(13,582)
(44,983)
(5,962)
(12,431)
(35,161)
(5,220)
(64,527)
(52,812)
1,347
1,502
21,352
34
21,386
(5,357)
16,029
18,969
297
19,266
(5,015)
14,251
247
(46)
201
(317)
915
598
4
5
6
8
Total comprehensive income for the year
16,230
14,849
Profit attributable to:
Members of Integrated Research
Total comprehensive income attributable to:
Members of Integrated Research
16,029
14,251
16,230
14,849
Earnings per share attributable to members of Integrated Research:
Basic earnings per share (AUD cents)
Diluted earnings per share (AUD cents)
9
9
9.42
9.34
8.41
8.34
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 50 to 78.
46
Integrated Research and its controlled entities Annual Report 2016Financial Statements
Consolidated statement of financial position
As at 30 June 2016
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
Deferred revenue
Other current liabilities
Total current liabilities
Non‑current liabilities
Deferred consideration for acquisition
Deferred tax liabilities
Provisions
Deferred revenue
Other non‑current liabilities
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Consolidated
Notes
2016
2015
10
11
12
11
13
14
15
16
18
21
22
20
15
21
22
23
23
8,544
29,017
164
1,781
39,506
15,323
25,012
184
1,344
41,863
23,373
13,260
824
1,793
1,492
21,972
49,454
804
1,969
1,342
17,020
34,395
88,960
76,258
8,513
2,618
3,385
20,363
42
34,921
2,036
3,916
981
5,583
477
12,993
7,241
2,327
1,719
18,698
604
30,589
‑
4,408
899
3,825
405
9,537
47,914
40,126
41,046
36,132
1,667
1,726
37,653
41,046
1,667
935
33,530
36,132
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 50 to 78.
47
Integrated Research and its controlled entities Annual Report 2016 Consolidated statement of changes in equity
For the year ended 30 June 2016
Consolidated
In thousands of AUD
Balance at 1 July 2015
Profit for the year
Other comprehensive income
for the year (net of tax)
Total comprehensive income
for the year
Share based payments expense
Dividends to shareholders
Share
capital
1,667
‑
‑
‑
‑
‑
Balance at 30 June 2016
1,667
Consolidated
In thousands of AUD
Balance at 1 July 2014
Profit for the year
Other comprehensive income
for the year (net of tax)
Total comprehensive income
for the year
Share based payments expense
Dividends to shareholders
Share
capital
1,667
‑
‑
‑
‑
‑
Hedging
reserve
Translation
reserve
(197)
‑
247
(439)
‑
(46)
247
(46)
Employee
benefit
reserve
1,571
‑
‑
‑
Retained
earnings
33,530
16,029
‑
Total
36,132
16,029
201
16,029
16,230
‑
‑
50
‑
‑
590
‑
590
‑
(11,906)
(11,906)
(485)
2,161
37,653
41,046
Hedging
reserve
Translation
reserve
Employee
benefit
reserve
(1,354)
873
120
‑
(317)
(317)
‑
‑
‑
915
915
‑
‑
Retained
earnings
29,441
14,251
‑
Total
30,747
14,251
598
14,251
14,849
‑
‑
‑
698
‑
1,571
‑
(10,162)
33,530
698
(10,162)
36,132
Balance at 30 June 2015
1,667
(197)
(439)
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 50 to 78.
48
Integrated Research and its controlled entities Annual Report 2016Financial Statements Consolidated statement of cash flows
For the year ended 30 June 2016
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
Net cash provided by operating activities
Cash flows from investing activities
Payments for capitalised development
Payments for property, plant and equipment
Payments for purchase of business
Payments for intangible asset
Interest received
Interest paid
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
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
2016
2015
27
3
23
74,354
62,012
(54,446)
(38,855)
19,908
(3,690)
16,218
(9,565)
(311)
(1,211)
(152)
154
(120)
23,157
(1,738)
21,419
(9,037)
(1,004)
‑
(126)
297
‑
(11,205)
(9,870)
1,500
(1,500)
(11,906)
(11,906)
(6,893)
15,323
114
‑
‑
(10,162)
(10,162)
1,387
13,300
636
10
8,544
15,323
The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 50 to 78.
49
Integrated Research and its controlled entities Annual Report 2016
Notes to the
Financial
Statements
For the year ended
30 June 2016
50
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 2016 comprises
the Company and its subsidiaries
(together referred to as the
“consolidated entity”).
The financial report was authorised
for issue by the directors on
22 August 2016.
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 Legislative Instrument
2016/191 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 the first time
for the annual reporting period
commencing 1 July 2015 and
have not had any material
effect on its financial position
or performance:
• AASB2012‑3 ‘Amendments
to Australian Accounting
Standards ‑ Offsetting
Financial Assets and
Financial Liabilities’
• 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’
• AASB 2014‑1 Part
A ‘Annual Improvements
2010‑2012 Cycle’
• AASB 2014‑1 Part
A ‘Annual Improvements
2011‑2013 Cycle’
Integrated Research and its controlled entities Annual Report 2016Financial Statements 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
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied
in the financial
year ending
AASB 9 ‘Financial Instruments’
1 January 2018
30 June 2018
AASB 2014‑4 ‘Clarification of Acceptable
Methods of Depreciation and Amortisation
(Amendments to AASB 116 and AASB 138)’
AASB 2015‑1 ‘Amendments to Australian
Accounting Standards ‑ Annual
Improvements 2012‑2014 Cycle’
AASB 2015‑3 ‘Amendments to Australian
Accounting Standards arising from the
Withdrawal of AASB1031 Materiality’
1 January 2016
30 June 2016
1 January 2016
30 June 2016
1 July 2015
30 June 2016
Initial application of the
following Standard is likely to
impact the amounts recognised
in the financial statements.
The Company is still assessing
the impact of these standards.
Standard/Interpretation
AASB 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 January 2018
30 June 2018
AASB 16 ‘Leases’
1 January 2019
30 June 2019
51
Integrated Research and its controlled entities Annual Report 2016 Note 1: Significant
accounting policies (cont.)
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.
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. Fair value measurement
Fair value is the price that would
be received to sell an asset or
paid to transfer a liability in an
orderly transaction between
market participants at the
measurement date. The fair value
measurement is based on the
presumption that the transaction
to sell the asset or transfer the
liability takes place either:
i)
ii)
in the principal market for the
assets or liability; or
in the absence of a
principal market, in the most
advantageous market for
the asset or liability.
The principal or the most
advantageous market must be
accessible by the Company.
The fair value of an asset or
a liability is measured using
the assumptions that market
participants would use when
pricing the asset or liability,
assuming that market participants
act in their economic best interest.
52
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 1: Significant
accounting policies (cont.)
f. Derivative financial
instruments
A fair value measurement of a
non‑financial asset takes into
account a market participant’s
ability to generate economic
benefits by using the asset in its
highest and best use or by selling
it to another market participant
that would use the asset in its
highest and best use.
The Company uses valuation
techniques that are appropriate
in the circumstances and
for which sufficient data are
available to measure fair value,
maximising the use of relevant
observable inputs and minimising
the use of unobservable inputs.
All assets and liabilities for which
fair value is measured or disclosed
in the financial statements are
categorised within the fair value
hierarchy, described as follows,
based on the lowest level input
that is significant to the fair value
measurement as whole:
Level 1 ‑ Quoted (unadjusted)
market prices in active markets
for identical assets or liabilities
Level 2 ‑ Valuation techniques
for which the lowest level input
that is significant to the fair
value measurement is directly or
indirectly observable.
Level 3 ‑ Valuation techniques
for which the lowest level input
that is significant to the fair value
measurement is unobservable.
For assets and liabilities that
are recognised in the financial
statements at fair value on a
recurring basis, the Company
determines whether transfers
have occurred between levels
in the hierarchy by re‑assessing
categorisation (based on
the lowest level input that is
significant to the fair value
measurement as a whole) at the
end of each reporting period.
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.
g. 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.
h. 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 (l)).
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:
6 to 10 years
• Plant and equipment:
4 to 8 years
53
Integrated Research and its controlled entities Annual Report 2016 Note 1: Significant
accounting policies (cont.)
j. 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.
For the trade receivables with
extended payment terms beyond
twelve months, the receivable is
initially recognised at fair value
calculated by applying a discount
to the contracted cash flows.
The discount rate applied is
based upon the corporate
borrowing rate that would apply
to the type of customer, taking
into account the customers’
credit worthiness based on its size
and jurisdiction.
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 their risk 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.
m. 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.
k. Cash and cash equivalents
Long‑term service benefits
Cash and cash equivalents
comprises cash balances and call
deposits with an original maturity
of three months or less.
l. 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.
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 Corporate
bond rate at the year end date
which have maturity dates
approximating to the terms of the
consolidated entity’s obligations.
Share‑based payment transactions
The performance rights
programmes allow the
consolidated entity’s employees
to acquire shares of the Company.
The fair value of 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 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.
i. 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
assets 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 (l)).
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.
Customer relationships
Customer relationships are initially
measured at fair value and
amortised over the estimated useful
life, but no more than five years.
54
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 1: Significant
accounting policies (cont.)
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.
n. 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 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.
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.
o. Trade and other payables
q. Expenses
Trade and other payables are
stated at their amortised cost.
p. 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.
The Company introduced a new
line of revenue (testing solutions
services) following the acquisition
of the IQ Services business.
Revenue from testing solutions
services is recognised over the
period the services are provided.
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.
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.
r. 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.
55
Integrated Research and its controlled entities Annual Report 2016 Receivables
The consolidated entity assesses
impairment of receivables
based on 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.
u. Business Combination
and Goodwill
Business combinations are
accounted for using the
acquisition method. The cost of
an acquisition is measured as the
aggregate of the consideration
transferred at acquisition
date measured at fair value.
Any contingent consideration to
be transferred by the acquirer
will be recognised at fair
value at the acquisition date.
Changes in the fair value of the
contingent consideration are
recognised in the Statement of
Comprehensive Income.
Goodwill is initially measured
at cost, being the excess of the
aggregate of the consideration
transferred over the net
identifiable assets acquired
and liabilities assumed.
Goodwill is tested annually for
impairment. Acquisition‑related
costs are expensed as
incurred and included in
administrative expenses.
Note 1: Significant
accounting policies (cont.)
s. 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.
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.
t. 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 ‑ Development
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.
Intangible assets ‑ Goodwill
Goodwill acquired from business
acquisitions is initially measured
at cost. Good is tested annually
for impairment or earlier if
changes in circumstances
indicate a potential impairment,
the impairment policy is explained
in note 1(l). The impairment
testing requires judgements
over future cashflow streams
and assumptions used in
the calculations.
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.
56
Integrated Research and its controlled entities Annual Report 2016Financial Statements 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 and Singapore 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
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
57,956 52,688 17,208 10,182 10,271 8,866
(903)
(1,457)
‑
‑ 84,532 70,279
‑
‑
‑
‑
‑
‑ 41,006 38,109 (41,006) (38,109)
‑
‑
57,956 52,688 17,208 10,182 10,271 8,866 40,103 36,652 (41,006) (38,109) 84,532 70,279
In thousands of
AUD
Sales to customers
outside the
consolidated entity
Inter‑segment
revenue
Total segment
revenue
Total revenue
84,532 70,279
‑
21,352 18,969
21,352 18,969
34
297
(5,357)
(5,015)
16,029 14,251
2,535
1,130
10,636
9,114
‑
‑
‑
‑
‑
Segment results
3,160
1,598
426
248
359
222
17,407 16,901
Results from
operating activities
Financing income
Income tax
expense
Profit for the year
Capital additions2
1,354
704
49
112
Depreciation
and amortisation
expenditure
555
156
86
71
8
7
17
1,124
297
4
9,988 8,883
Americas
(USD)
Europe
(GBP)
In local currency3
2016
2015
2016
2015
Sales to customers
outside the
consolidated entity
Inter‑segment
sales
Total segment
revenue
41,997 43,621
8,438 5,338
‑
‑
‑
‑
41,997 43,621
8,438 5,338
Segment results
2,276
1,311
209
133
1 Corporate Australia includes both the research and development, hedging and corporate head office functions of Integrated Research Limited.
2 Excludes internal development costs capitalised but includes third party assets acquired. Additions also include assets acquired through the purchase
of businesses.
3 Segment results represented in local currencies as reviewed by the Chief Operating Decision Maker.
57
Integrated Research and its controlled entities Annual Report 2016 Note 3: Business combinations
On 1st July 2015, the Company acquired the operational assets of the US based IQ Services business. The acquisition
provides the Company with a number of strategically significant growth opportunities in its existing markets and into new
allied markets. The business combination is anticipated to provide the world’s most complete view of cloud, hybrid and
traditional on premises operations for unified communications and contact centre solutions.
The acquisition has been accounted for using the acquisition method. The interim consolidated financial statements
include the results of the acquired business for the six month period from the acquisition date.
The fair values of the identifiable assets and liabilities of the acquired business on 1 July 2015 were as follows:
In thousands of AUD
Assets:
Prepayments
Property, plant and equipment
Capitalised Development
Customer relationships
Third party software
Total Assets
Liabilities:
Provisions
Deferred revenue
Total Liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total Net Assets Acquired
Represented by:
Payment due on acquisition date
Deferred consideration within one year
Deferred consideration beyond one year
Purchase consideration
Notes
Fair value
recognised on
acquisition
16
16
16
16
52
335
844
779
94
2,104
159
752
911
1,193
3,204
4,397
325
845
3,227
4,397
The goodwill recognised at acquisition is primarily attributed to the expected synergies and other benefits from
combining the assets and activities of IQ Services with those of the Company. The goodwill has been tested for
impairment at 30 June 2016 (refer note 17).
The deferred consideration recognised at acquisition date represents Company’s estimate of the fair value of future
payments for the acquisition after taking into account the following inputs:
• an implicit finance charge to discount the obligations to net present value;
•
•
the currency exchange rate since the obligations are due in United States dollars; and
the probability of the vendor achieving certain earn‑out targets.
At 30 June 2016, the Company revised its fair value of the deferred consideration liability to $2,036,000, resulting in a
credit to profit of $1,413,000. The write‑back reflects the fair value of the deferred consideration based on the current
year actual results and revised forecast EBITDA for FY17 and FY18. The contingent consideration is based upon IQ
Services achieving EBITDA milestones over the three years between 1 July 2015 and 30 June 2018. There are catch‑up
mechanisms over the three year period with the potential final payment ranging between $nil and $3.5 million.
The table below provides the movement of the deferred consideration during the year:
In thousands of AUD
Payment at acquisition
Deferred consideration
Purchase
consideration
at acquisition
Cash paid
during the
period
Currency
revaluation
Finance
charges
Writeback of
liability
Deferred
consideration
at end of year
325
4,072
4,397
(325)
(886)
(1,211)
‑
182
182
‑
81
81
‑
(1,413)
(1,413)
‑
2,036
2,036
58
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 4:
Expenditure
In thousands of AUD
Total expenditure includes:
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:
Other gains and (losses)
In thousands of AUD
Writeback of deferred consideration
for acquisition
Currency exchange gains/(losses)
Note
3
Note 6:
Finance income
In thousands of AUD
Interest income
Finance charges on earn out liability
Interest on borrowings
Note 7:
Auditors’ remuneration
2016 and 2015 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
2016
2015
2,218
655
43,562
46,435
10,636
1,463
1,912
1,872
728
36,504
39,104
9,114
1,004
1,600
Consolidated
2016
1,413
(66)
1,347
Consolidated
2016
154
(81)
(39)
34
2015
‑
1,502
1,502
2015
297
‑
‑
297
Consolidated
2016
2015
200,850
142,509
12,448
86,251
216,800
157,460
59
Integrated Research and its controlled entities Annual Report 2016 Note 8:
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
Total income tax expense in
profit and loss
Consolidated
Note
2016
2015
4,589
126
4,715
5,978
(98)
5,880
15
642
(865)
5,357
5,015
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
Other
Prior year adjustments
Decrease in income tax expense due to:
R&D tax incentive
Write‑back of deferred consideration for acquisition
Income tax expense
Consolidated
2016
21,386
6,416
257
192
158
126
2015
19,266
5,780
303
121
244
(98)
(1,273)
(1,335)
(519)
5,357
‑
5,015
60
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 9: Earnings per share
The calculation of basic and diluted earnings per share at 30 June 2016 was based on the profit attributable to
ordinary shareholders of $16,029,000 (2015: $14,251,000); a weighted number of ordinary shares outstanding during
the year ended 30 June 2016 of 170,239,391 (2015: 169,409,027); and a weighted number of ordinary shares (diluted)
outstanding during the year ended 30 June 2016 of 171,653,017 (2015: 170,918,803), 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 10: Cash and cash equivalents
In thousands of AUD
Cash at bank and on hand
Consolidated
2016
16,029
2015
14,251
Consolidated
2016
2015
170,239,391
169,409,027
1,413,626
1,509,776
171,653,017
170,918,803
9.42
9.34
8.41
8.34
Consolidated
2016
8,544
2015
15,323
61
Integrated Research and its controlled entities Annual Report 2016 Note 11:
Trade and other receivables
Current
In thousands of AUD
Trade debtors
Less: Allowance for doubtful debts
GST receivable
Non‑current
In thousands of AUD
Trade debtors
Consolidated
2016
2015
30,763
25,768
(1,860)
28,903
114
(852)
24,916
96
29,017
25,012
Consolidated
2016
23,373
2015
13,260
The credit period on sales ranges from 30 to 90 days. Customers of good credit
worthiness can request for extended payment plans over the committed term of
the licence contract which typically is up to three years.
Ageing of past due but not impaired:
Consolidated
In thousands of AUD
Past due 30 days
Past due 60 days
Past due 90 days
Total
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
2016
832
1,200
374
2,406
Consolidated
2016
852
(455)
1,463
1,860
2015
873
1,697
654
3,224
2015
858
(1,010)
1,004
852
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 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.
62
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 12:
Other current assets
In thousands of AUD
Other prepayments
Fair value of hedge asset ‑ forward foreign
exchange contracts
Note 13:
Other financial assets
In thousands of AUD
Deposits
Consolidated
2016
1,607
174
1,781
2015
1,325
19
1,344
Consolidated
2016
824
2015
804
The carrying amount of other financial assets is a reasonable approximation of
their fair value.
Note 14:
Property, plant
and equipment
Plant and Equipment
In thousands of AUD
At cost
Accumulated depreciation
Leasehold Improvements
In thousands of AUD
At cost
Accumulated depreciation
Total property, plant and equipment
In thousands of AUD
At cost
Accumulated depreciation
Total written down amount
Consolidated
2016
3,887
2015
3,389
(2,579)
(2,073)
1,308
1,316
Consolidated
2016
2,368
2015
2,279
(1,883)
(1,626)
485
653
Consolidated
2016
6,255
2015
5,668
(4,462)
(3,699)
1,793
1,969
63
Integrated Research and its controlled entities Annual Report 2016 Note 14:
Property, plant and
equipment (cont.)
Plant and Equipment
In thousands of AUD
Carrying amount at start of year
Additions
Acquired through business acquisition
Disposals
Effects of foreign currency exchange
Depreciation expense
Carrying amount at end of year
Leasehold Improvements
In thousands of AUD
Carrying amount at start of year
Additions
Acquired through business acquisition
Disposals
Effects of foreign currency exchange
Depreciation expense
Carrying amount at end of year
Consolidated
2016
1,316
308
231
(6)
28
(569)
1,308
Consolidated
2016
653
3
104
‑
(11)
(264)
485
2015
933
831
‑
(10)
43
(481)
1,316
2015
747
173
‑
(67)
31
(231)
653
Note 15: 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
Deferred tax assets/(liabilities)
Set off of deferred tax asset
Net deferred tax assets/(liabilities)
Assets
Liabilities
Net
2016
‑
355
1,051
774
437
‑
142
2,759
(1,267)
1,492
2015
‑
273
1,117
428
670
‑
‑
2,488
(1,146)
1,342
2016
5,183
2015
5,067
2016
2015
(5,183)
(5,067)
‑
‑
‑
‑
‑
‑
5,183
(1,267)
3,916
‑
‑
‑
‑
487
‑
5,554
(1,146)
4,408
355
1,051
774
437
‑
142
273
1,117
428
670
(487)
‑
(2,424)
(3,066)
‑
‑
(2,424)
(3,066)
64
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 15: Deferred tax assets and liabilities (cont.)
Movement in temporary differences during the year:
For year ended 30 June 2016
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
Balance
1 July 15
Recognised
in income
Recognised
in equity
Balance
30 June 16
(5,067)
273
1,117
428
670
(487)
‑
(3,066)
(116)
82
(66)
346
(233)
487
142
642
‑
‑
‑
‑
‑
‑
‑
‑
(5,183)
355
1,051
774
437
‑
142
(2,424)
For year ended 30 June 2015
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
Balance
1 July 14
Recognised
in income
Recognised
in equity
Balance
30 June 15
(4,842)
(225)
252
965
416
893
‑
115
(2,201)
21
152
12
(223)
(487)
(115)
(865)
‑
‑
‑
‑
‑
‑
‑
‑
(5,067)
273
1,117
428
670
(487)
‑
(3,066)
65
Integrated Research and its controlled entities Annual Report 2016 Consolidated
Software
development
Third party
software
Goodwill
Customer
Relationship
Note 16: Intangible assets
The balance of capitalised intangible assets comprises:
Cost
In thousands of AUD
Balance at 1 July 2014
Fully amortised & offset
Internally developed
Purchased
Effects of foreign currency exchange
26,899
(5,672)
9,037
‑
‑
1,167
(250)
‑
126
14
Balance at 30 June 2015
30,264
1,057
Balance at 1 July 2015
Fully amortised & offset
Acquired through business acquisition
Internally developed
Purchased
Effects of foreign currency exchange
30,264
(8,127)
844
9,565
‑
‑
1,057
‑
94
‑
152
‑
Amortisation
In thousands of AUD
Balance at 1 July 2014
Fully amortised & offset
Amortisation for year
Effects of foreign currency exchange
Balance at 30 June 2015
Balance at 1 July 2015
Fully amortised & offset
Amortisation for year
Effects of foreign currency exchange
10,855
(5,672)
8,253
‑
13,436
13,436
(8,127)
9,421
‑
954
(250)
150
11
865
865
‑
216
(5)
Balance at 30 June 2016
32,546
1,303
3,289
Consolidated
Software
development
Third party
software
Goodwill
Customer
Relationship
‑
‑
‑
‑
‑
‑
‑
‑
3,204
‑
‑
85
‑
‑
‑
‑
‑
‑
‑
‑
779
‑
‑
21
800
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
165
(5)
160
Total
28,066
(5,922)
9,037
126
14
31,321
31,321
(8,127)
4,921
9,565
152
106
37,938
Total
11,809
(5,922)
8,403
11
14,301
14,301
(8,127)
9,802
(10)
15,966
Total
17,020
21,972
Balance at 30 June 2016
14,730
1,076
Carrying amounts
Consolidated
In thousands of AUD
Balance at 30 June 2015
Balance at 30 June 2016
Software
development
Third party
software
16,828
17,816
192
227
Goodwill
‑
3,289
Customer
Relationship
‑
640
66
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 17: Goodwill
Goodwill through business combination has been allocated to the applicable cash generating unit for impairment testing.
Management has identified the Group as the cash generating unit (the Prognosis CGU) to which the carrying value
of goodwill is allocated for impairment testing. Management performs its annual impairment testing at least annually.
The carrying value of goodwill at 30 June 2016 is $3,289,000. The goodwill resides in the Company’s American
subsidiary, Integrated Research Inc. and is therefore subject to movements in foreign exchange rates. A reconciliation of
the movement in goodwill is included in note 16.
The recoverable amount of the Prognosis CGU has been determined using a value in use approach. The value in use of
the Prognosis CGU has been based on the detailed financial projections approved by the Board of Directors covering a
five year period and the terminal value.
The following key assumptions were used for value in use calculation:
1. Cash flow forecasts
The cash flow forecasts are based upon a Board approved 2017 budget and projections for the subsequent four years of
the Prognosis CGU.
2. Discount rate
Discount rate of 11% applied for value in use calculation is based on the post‑tax weighted average of capital cost
applicable to the Prognosis CGU.
3. Terminal value
The terminal growth rate after the five year projection period has been calculated using a growth rate of 3% which is
determined by Management based on their assessment of expected long term annual growth for the software industry.
The impairment testing indicates existence of sufficient headroom in the current year therefore no impairment is
recognised in the Prognosis CGU at 30 June 2016.
With regard to the assessment of the value in use of the Prognosis CGU, management believe that a reasonable change
in any of the above key assumptions would not cause the carrying values to materially exceed their recoverable amounts.
Note 18:
Trade and other payables
In thousands of AUD
Trade and other creditors
Consolidated
2016
8,513
8,513
2015
7,241
7,241
The average credit period on trade and other payables is 30 days.
67
Integrated Research and its controlled entities Annual Report 2016 Note 19:
Employee benefits
In thousands of AUD
Consolidated
Current
Liability for annual leave
Liability for long service leave
2016
1,889
729
2,618
2015
1,684
643
2,327
Non‑current
Liability for long service leave
408
399
Pension plans
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.
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
Oct‑14*
Aug‑15
Dec‑15
Number of
Rights
Earliest
Vesting
Date
Expiry date
250,000
Oct 2016
Oct 2016
94,900
Aug 2018
Sep 2018
195,000
Feb 2019
Mar 2019
* This is the third tranche of the original plan granted on 14 November 2013 of 850,000 rights
The fair value of the performance
rights including assumptions used
are as follows:
Grant date
Fair value at measurement date
Share price
Exercise price
Expected volatility
Contractual life (expressed in days)
Expected dividends
Risk‑free interest rate
(based on 3 year treasury bonds)
Aug 2015
Dec 2015
$2.0075
$2.210
$1.8459
$2.090
nil
50%
1,096
3.20%
2.00%
nil
50%
1,193
3.80%
2.00%
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.
68
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 19
Employee benefits (cont.)
During the year ended 30 June 2016, the consolidated entity recognised an
expense through profit of $655,000 related to the fair value of performance rights
(2015: $728,000).
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)
Note 20:
Deferred consideration
for acquisition
Current
In thousands of AUD
Deferred consideration for acquisition
Note 21:
Provisions
In thousands of AUD
Current
Employee benefits
Non‑current
Employee benefits
Lease make good
2016
2,405
(186)
(760)
540
1,999
‑
2015
1,937
(465)
(712)
1,645
2,405
‑
Consolidated
2016
2,036
2,036
2015
‑
‑
Consolidated
2016
2,618
2,618
408
573
981
2015
2,327
2,327
399
500
899
Note
3
Note
19
19
69
Integrated Research and its controlled entities Annual Report 2016 Note 22:
Other liabilities
In thousands of AUD
Current
Fair value of hedge liabilities ‑ forward
foreign exchange contracts
Non‑current
Other creditors
Consolidated
2016
2015
42
604
477
405
Note 23:
Capital and reserves
Share capital
In thousands of shares
On issue 1 July
Ordinary shares
2016
2015
169,671
168,959
Issued against employee performance right exercised
760
712
On issue 30 June
170,431
169,671
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.
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 19 for further details.
70
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 23:
Capital and reserves (cont.)
Dividends
Dividends recognised in the current year by the company are:
In thousands of AUD
per share Total amount
Cents
Franked/
unfranked
Date of
payment
2016
Final 2015
Interim 2016
Total amount
2015
Final 2014
Interim 2015
Total amount
4.0
3.0
2.5
3.5
6,793 35% franked
22 Sep 2015
5,113 55% franked
20 Apr 2016
11,906
4,224 35% franked
12 Sep 2014
5,938 35% franked 20 Mar 2015
10,162
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 2016 and will be
recognised in subsequent financial statements:
In thousands of AUD
Cents
per share
Total amount
Franked/
unfranked
Date of
payment
Final 2016
3.5
5,970 60% franked
13 Oct 16
The final dividend declared of 3.5 cents together with the interim dividend paid
in March 2016 of 3.0 cents takes total dividends for the 2016 financial year to
6.5 cents.
Franking account disclosure:
In thousands of AUD
Adjusted franking account balance
Impact on franking account balance of
dividends not recognised
Company
2016
1,613
2015
1,020
(1,535)
(1,019)
71
Integrated Research and its controlled entities Annual Report 2016 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 10
and 23 respectively.
Borrowing facility
On 21 December 2015, the
Company established an AUD 10
million multicurrency revolving cash
advance facility. The purpose of the
facility is to fund working capital
requirements and the deferred
consideration for the IQ Services
business acquisition. The facility was
drawn down by $1.5 million during the
year and was repaid before year end.
The facility is secured by a General
Security Agreement with a deed
of cross guarantee including the
parent entity, Integrated Research
UK Limited, and Integrated Research
Inc. The facility is also subject to
certain debt covenants including
a leverage ratio, interest cover
ratio and capitalisation ratio.
The Company met all the covenant
requirements during the year.
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.
Note 24:
Financial instruments
72
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 24: 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
Consolidated
Liabilities
Assets
2016
62
‑
‑
2015
56
‑
‑
2016
5,380
689
1
2015
1,949
2,450
1
Foreign currency sensitivity
At 30 June 2016, if the US Dollar, Euro and UK sterling weakened or 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
2016
591
77
‑
(483)
(63)
‑
2015
272
210
‑
(223)
(172)
‑
2016
591
77
‑
(483)
(63)
‑
2015
272
210
‑
(223)
(172)
‑
(i) This has been based on the change in the exchange rate against the Australian dollar in the financial years ended 30 June 2016 and 30 June 2015.
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.
73
Integrated Research and its controlled entities Annual Report 2016 Note 24: 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 the 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
2016
2015
2016
FC’000
2015
FC’000
2016
A$’000
2015
A$’000
2016
A$’000
2015
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
0.72
0.73
0.73
0.74
0.65
0.64
0.65
0.66
0.52
0.53
0.53
0.51
0.84
0.84
0.76
0.77
0.69
0.67
0.68
‑
0.54
0.50
0.50
0.49
1,650
1,400
1,150
1,050
2,850
1,200
1,850
1,950
2,287
1,914
1,581
1,419
3,378
1,431
2,436
2,536
240
50
125
130
100
25
50
100
370
95
175
‑
250
100
100
75
370
78
192
198
192
47
95
196
534
141
259
‑
461
198
199
152
61
20
21
(10)
10
2
1
(2)
11
2
3
13
(334)
(141)
(1)
(39)
(3)
1
1
‑
(50)
(7)
(8)
(3)
132
(584)
These hedge assets and liabilities 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 (ie 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 $9,192,000 were held by the consolidated entity at the reporting date, attracting an average interest rate of 1.70%
(2015: 2.36%). 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 +/‑$45,960 (2015: +/‑ $79,855).
74
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 24: 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.
The largest single counterparty exposure with any one customer is with Avaya with a receivable balance at 30 June 2016
of $7.0 million (2015: $7.23 million). Ongoing credit evaluation is performed on the financial condition of accounts.
The maximum expense to credit risk at the reporting date is the carrying value of each class of financial assets described
at Note 11.
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 18 for both 2016 and 2015 carry no interest obligation.
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. The fair value of non‑current debtors for 2016 are presented in the following table:
In thousands of AUD
Non‑current debtors
Consolidated
Carrying amount
Fair value
23,373
23,373
23,980
23,980
For non‑current trade debtors Integrated Research has considered a discount rate to recognise the net present value
of the debtors. Level 3 inputs have been considered including corporate borrowing rates, size of the customer and
jurisdiction of the customer. A discounted cashflow model was used to derive the fair value. The range of discount rates
was between 3.5% to 5.5%. A 1% increase in the discount rate would lower the fair value of non‑current receivables by
approximately $216,000. The carrying value of non‑current trade debtors for 2015 of the consolidated entity was a
reasonable approximation of their fair value.
75
Integrated Research and its controlled entities Annual Report 2016 Note 25:
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
2016
1,332
2,403
‑
3,375
2015
1,475
2,663
132
4,270
Note 26:
Consolidated entities
Country of
incorporation
Ownership interest
2016
2015
Parent entity:
Integrated Research Limited
Australia
Subsidiaries of Integrated
Research Limited:
Integrated Research Inc
Integrated Research Singapore
Pte Limited
USA
Singapore
100%
100%
100%
100%
Integrated Research UK Limited
UK
100%
100%
Subsidiaries of Integrated Research
UK Limited:
Integrated Research Germany GmbH
Germany
100%
‑
In thousands of AUD
Profit for the year
Depreciation and amortisation
Provision for doubtful debts
Interest received
Interest paid
Share‑based payments expense
Net exchange differences
Change in operating assets and liabilities:
Consolidated
2016
16,029
10,636
1,008
(154)
120
655
(70)
2015
14,251
9,114
(6)
(297)
‑
728
(66)
(Increase)/decrease in trade debtors
(15,125)
(15,409)
(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
(150)
(286)
1,272
2,933
121
94
3,167
7,154
(1,515)
1,481
492
373
744
343
16,218
21,419
Note 27:
Reconciliation of cash flows
from operating activities
76
Integrated Research and its controlled entities Annual Report 2016Financial Statements Note 28:
Key management
personnel disclosures
Key management personnel compensation
The key management personnel compensation are as follows:
In AUD
Short‑term benefits
Post‑employment benefits
Long term benefit
Equity compensation benefits
Consolidated
2016
2015
3,470,104
3,248,694
196,825
31,561
171,284
42,264
291,597
436,035
3,990,087
3,898,277
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 29:
Related parties
At 30 June 2016 Mr Steve Killelea, the Chairman of the Company, owned either
directly or indirectly 52.71% of the Company (2015: 55.89%).
Note 30:
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
Parent Entity
2016
2015
28,047
24,050
17,979
46,026
18,928
42,978
8,612
4,684
13,296
32,730
1,667
2,161
50
28,852
32,730
7,295
5,167
12,462
30,516
1,667
1,571
(197)
27,475
30,516
77
Integrated Research and its controlled entities Annual Report 2016 Note 30:
Parent entity disclosures
(cont.)
In thousands of AUD
Financial Performance
Profit for the year
Other comprehensive income
Total comprehensive income
Investments in subsidiaries are included at cost.
Parent Entity
2016
2015
13,283
247
13,530
13,412
(317)
13,095
Note 31:
Subsequent events
Dividends
For dividends declared after 30 June 2016 see Note 23 in the financial statements.
The financial effect of dividends declared and paid after 30 June 2016 have
not been brought to account in the financial statements for the year ended
30 June 2016 and will be recognised in subsequent financial reports.
78
Integrated Research and its controlled entities Annual Report 2016Financial Statements Directors’ declaration
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 2016 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 2016 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 2016.
On behalf of the board.
Steve Killelea
Chairman
Darc Rasmussen
Chief Executive Officer
North Sydney, 22 August 2016
North Sydney, 22 August 2016
79
Integrated Research and its controlled entities Annual Report 2016 Independent Auditor’s Report
80
Integrated Research and its controlled entities Annual Report 2016 27 to 37
81
Integrated Research and its controlled entities Annual Report 2016 Independent Auditor’s Report
82
Integrated Research and its controlled entities Annual Report 2016 Class of equity security
Ordinary shares
Shares
Options
Performance
Rights
864
2,222
987
1,204
74
5,351
‑
‑
‑
‑
‑
‑
‑
14
21
25
5
65
Units % of Units
ASX additional information
Shareholder information
Analysis of numbers of equity security holders by size of holding
As at September 2016
1 ‑1,000
1,001 ‑ 5,000
5,001 ‑ 10,000
10,001 ‑ 100,000
100,001 and over
Fully Paid Ordinary Shares (Total)
As of 13 September 2016
Rank Name
1. MR STEPHEN JOHN KILLELEA
2. NATIONAL NOMINEES LIMITED
3. MR ANDREW RHYS RUTHERFORD
89,497,339
5,629,590
3,385,869
1,995,000
1,931,944
1,592,793
1,458,743
1,365,222
840,086
678,433
597,945
4.
5.
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
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