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Singapore
Germany
Americas ‑ East Coast
Integrated Research (Singapore) Pte. Ltd.
Integrated Research Germany GmbH
Integrated Research, Inc.
Unit 14‑03, Palais Renaissance
Hamborner Str. 53
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
E. info.ap@ir.com
390 Orchard Road
Singapore 238871
T. +65 6684 5856
E. info.ap@ir.com
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
40472 Düsseldorf, Germany
T. +49 (89) 97 007 132
E. info.germany@ir.com
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
Integrated Research
Annual Report 2018
ABN 76 003 588 449
Creating clarity and
insight in a world of
connected devices.
Corporate
directory
Directors
Steve Killelea
Non‑Executive Director & Chairman
John Merakovsky
Managing Director and Chief
Executive Offi cer
Nick Abrahams
Non‑Executive Director
Paul Brandling
Independent Non‑Executive Director
and Deputy Chairman
Garry Dinnie
Independent Non‑Executive Director
Peter Lloyd
Non‑Executive Director
Anne Myers
Independent 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
Share Registry
Computershare
Solicitors
Ashurst
Level 11, 5 Martin Place
Sydney NSW 2000
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:
Thursday 15 November 2018
Museum of Sydney
Cnr. Phillip & Bridge Streets, Sydney
at 3:00pm
This Annual Report is printed on Impress DM Matt. Impress DM is a FSC Certifi ed paper which is made from elemental
chlorine free pulp derived from well‑managed forests. It is manufactured by an EMAS and ISO 14001 certifi ed mill.
4914 Designed and Produced by RDA Creative www.rda.com.au
Contents
CEO’s report
Chairman’s letter
Financial highlights
2
4
6
9
10 2018 in IR
13 Directors’ report
27 Remuneration report (audited)
About IR
37 Corporate governance
45 Financials
79 Directors’ declaration
80 Independent auditor’s report
87 ASX additional information
89 Corporate directory
1
Integrated Research and its controlled entities Annual Report 2018 Achievements
APAC: Revenue
14%
13.2M
30 years
in business
Strong growth
from Service
Providers
New reseller
agreements
with Cisco &
Avaya
Consulting
9%
Financial highlights
Total revenue
(AUD millions)
Net profit after tax
(AUD millions)
Revenue from licence sales
(AUD millions)
53.2
70.3
84.5
91.2
91.2
8.5
14.3
16.0
18.5
19.2
28.0
41.0
45.7
53.4
52.6
2014 2015
2016
2017
2018
2014 2015
2016
2017
2018
2014 2015
2016
2017
2018
2
2
Integrated Research and its controlled entities Annual Report 2018
Integrated Research and its controlled entities Annual Report 2018 Unified
Communications
7%
Testing
28%
New
customers:
Paypal,
Coles,
JLL, BHP.
R&D
Investment
19% of
Revenue
IN MILLIONS OF AUD (EXCEPT EARNINGS PER SHARE)
Year ended 30 June
2018
2017
% Change
Revenue from licence fees
52.6
53.4
‑2%
Total revenue
91.2
91.2
0%
Net profit after tax
19.2
18.5
4%
Net assets
57.8
48.5
19%
Cash at balance date
11.2
14.1
‑21%
Americas revenue
64.2
64.3
0%
Europe revenue
13.7
14.9
‑8%
Asia Pacific revenue
13.2
11.6
14%
Earnings per share (cents per share)
11.2
10.9
3%
Our customers
9/10
Top US Banks
7/10
Biggest Telcos
6/10
Top Fin Services
Companies Globally
6/10
Top Automotive Companies
Year ended 30 June
2018
2017
% Change
Americas revenue (USD)
49.5
48.2
3%
Europe revenue (UK Sterling)
7.8
8.8
‑10%
Asia Pacific revenue (AUD)
13.2
11.6
14%
125+
of Fortune 500
Integrated Research and its controlled entities Annual Report 2018
3
3
Integrated Research and its controlled entities Annual Report 2018 Chairman’s Letter
Dear fellow shareholders,
The Company achieved a modest 4% increase in profit over the prior year
to $19.2 million on revenue of $91.2 million. Growth would have been stronger
but was held back by a number of factors, including a poor performing
European operation, a cyclical downturn in Infrastructure and Avaya’s
emergence from Chapter 11 bankruptcy midway through the financial year.
Importantly, these factors are seen to be temporary,
which would indicate a return to stronger performance
in future periods. The fundamentals of the business are
sound, as indicated by a strong maintenance retention
rate of more than 95%.
The Company grew most strongly in Asia Pacific,
with revenues increasing 14% to $13.2 million.
This was assisted by continued growth in licence
sales of the core Prognosis software platform to
service providers, call centres and enterprises
that rely on Unified Communications (UC)
systems. Revenue from the Americas increased by
3% to US$49.5 million, with growth offset from the
cyclical downturn in Infrastructure. European sales
declined 10% to £7.8 million, partly driven by poor
trading conditions and partly due to internal factors.
Management is currently making changes and I expect
this situation will be rectified in the near future.
Globally, the Company’s revenue from UC sales increased
by 7% to $54.9 million. UC remains the Company’s largest
line of business and continues to show strong potential as
more enterprises and service providers adopt Prognosis
to manage their UC and collaboration systems. The UC
result was affected by Avaya remaining in Chapter 11 for
half of the financial year and resulted in a 20% decline
in licence revenue. Avaya has emerged from Chapter 11
in a much stronger financial position and is now investing
for growth. It has also signed a reseller agreement with
Integrated Research in July 2018, which enables Avaya’s
salespeople to attain commissions and meet their quotas
on Prognosis sales.
The Company achieved strong UC licence sales growth
from Cisco customers. The relationship with Cisco
continues to deepen, as evidenced by the signing of a
global distribution agreement that came into effect in
January 2018. Cisco will now carry the Prognosis UC
products in its global price book. This will enable Cisco’s
salespeople to attain commissions and meet their quotas
on sales of Prognosis.
The Company delivered strong growth in Consulting
and Testing Solutions during the year. Consulting fees
increased by 9% to $7.4 million and sales of testing
solutions increased by 28% to $5.2 million.
Since its formation in 1988, the Company has become
the global leader in providing software to manage
performance and user experience for UC, payments
systems and critical computing infrastructure. Its solutions
give organisations such as banks and telecommunications
companies a real‑time understanding of the performance
of their systems. This ensures their users are not disrupted
as they use an ATM, make an electronic payment or
complete a video conference call.
The Company serves more than 1,200 customers in
over 60 countries. It added 72 new customers this year,
including BHP, Coles, Bosch and PayPal and the service
providers DXC Technology, Ethan Group and Inside One.
This year’s results again show the diversity of the
Company’s business and its ability to evolve its products
to meet customers’ needs and expand into new areas.
Prognosis is a differentiated, highly scalable technology
platform that forms the basis of the majority of the
Company’s products. It is built on a single code base that
is leveraged across multiple portfolios. This allows for
significant diversification and has enabled the Company
to consistently maintain its margins.
The introduction of AASB15 Revenue from Contracts
with Customers accounting standard will not have a
material effect on the Company’s revenues, based on
historic contracts under the Company’s existing business
model. Further detail can be found in Note 1 to the
Financial Statements.
The Company has a well‑crafted, multi‑pronged strategy
to grow through developing products in adjacent
markets. The Company will be releasing new products
for Payments, UC and real‑time compliance monitoring.
The company is also developing a number of artificial
intelligence‑based applications for its current markets.
4
Integrated Research and its controlled entities Annual Report 2018 “Since its formation in 1988, the
Company has become the global
leader in providing software to manage
performance and user experience.”
Total expenses for the year were 4% higher at
$66.9 million. Research and development expenditure
was $17.3 million or 19% of revenue. This is up from
15% in the prior year and underlines the Company’s
commitment to technical excellence.
The Company’s balance sheet remains strong, with
$11.2 million of cash at 30 June 2018 and no debt.
The Board is pleased to announce a fully franked
final dividend of 3.5 cents per share. The total
dividend for the year is 6.5 cents per share franked
at 100%, which compares to 6.5 cents franked at
85% for the prior financial year.
Finally, I would like to express my sincere thanks
to you, our valued shareholders, for your
continued support.
Steve Killelea
Chairman
Integrated Research and its controlled entities Annual Report 2018
5
CEO’s Report
Dear shareholders,
Since its inception, Integrated Research has proven that it has a sound
business model and offers an enduring value proposition to customers
facing complex problems. It has diverse sources of income, a range
of products serving distinct markets, a strong innovation program,
and world‑class customers and partners.
Those customers include 125 Fortune 500 companies,
nine of the top 10 US banks, seven of the world’s top 10
telecommunications companies and six of the top 10
automotive groups globally. They all turn to the Company
to gain clarity and insight into the performance of the
millions of connected devices they depend on to run
their operations, connect staff and communicate with
their customers.
During the year, the Company made changes that will
drive further growth in its largest solution area, Prognosis
for Unified Communications (UC).
The Company cemented its long‑term partnership with
the global leader in UC solutions, Cisco, by being selected
to join its SolutionsPlus program. Cisco now includes
Prognosis solutions for UC, video conferencing and
contact centres in its global price list ‑ alongside its own
competitive monitoring solution.
The Company welcomed its first Cisco SolutionsPlus
customer, Jones Lang LaSalle, in June. Sales of Prognosis
to customers with Cisco equipment increased by 60%
during the year, making them a significant contributor to
the growth in the Company’s UC product line.
The Company signed a similar global resale arrangement
with Avaya in July 2018 and is the only company to
support every major UC vendor. This will be significant as
customers implement UC solutions from Avaya, Cisco and
Microsoft, in particular.
The Company saw lower UC licence sales to Avaya
customers during the year and flat sales to Microsoft
Skype for Business customers after two years of strong
growth. This followed Avaya’s slow recovery from
bankruptcy protection and mixed messaging from
Microsoft about Skype for Business and Microsoft Teams.
However, Microsoft has clarified its positioning and
Avaya has completed its restructure and begun
investing for growth. This should see customers buying
their solutions again, with flow‑on benefits for sales
of Prognosis.
The Company expects to see these changes and the
expanded Cisco relationship underpin strong growth
in UC in FY2019. It also expects to see growth in sales
of Prognosis to service providers as more enterprises
outsource their UC systems.
To bring new products to market and drive future
growth, the Company expanded its research and
development (R&D) team in Sydney by approximately
30 staff. These additions increased total staff
numbers to 260 people.
Assisted by this increased capacity, the Company released
major upgrades to all product lines, including its Call
Recording Assurance (CRA) regulatory technology. CRA is
an artificial intelligence‑based speech analytics platform
that verifies that 100% of calls recorded by regulated
entities such as traders and brokers are intelligible.
An innovative new, cloud‑based platform is being
developed that will enable the Company to expand into
new markets, while also adding value to existing Prognosis
customers. That platform will be released in the second
half of the year and it will serve as a foundation to enable
customers to gain greater intelligence and actionable
insights from a growing number of connected devices.
The Company is focused on improving its performance
in Europe. The 10% decline in sales in the year can be
attributed to its operations being sub‑scale and to
internal execution. These issues are being addressed
through a restructure of that business, which is
well underway.
In the Americas and Asia Pacific, the Company is building
on its strengths. The Americas is its largest sales region
and recorded growth in UC and Payments solutions, but a
cyclical decline in Infrastructure sales limited total growth
to 3%. Revenue in the Asia Pacific grew by 14% over the
prior year, with licence sales growing across all product
lines. Growth in UC and contact centre licence sales
exceeded 70%.
6
Integrated Research and its controlled entities Annual Report 2018 “An innovative new, cloud‑based
platform is being developed that
will enable the Company to expand
into new markets.”
I would like to highlight the addition of three new
members to the Company’s capable leadership team.
They are Vanessa Walker as General Manager of People
and Culture, Greg Clancy as Chief Product Officer and
Michael Tomkins as Head of Development.
The Company also greatly appreciates the exceptional
contribution its talented team makes around the world
and the continued support of its shareholders.
John Merakovsky
CEO
Integrated Research and its controlled entities Annual Report 2018
7
People & Leaders Standards
Delivering great results
Driving and supporting growth and change
Building strong and productive relationships
Personal growth
Maintaining purpose and integrity
Committed and proud of what we do
8
8
Integrated Research and its controlled entities Annual Report 2018
Integrated Research and its controlled entities Annual Report 2018 About IR
IR is the corporate brand name of Integrated
Research Limited, the leading global provider
of proactive experience management solutions
for critical unified communications, payments,
contact centres and IT infrastructure ecosystems.
More than 1,200 organisations in over 60 countries ‑ including some of the
world’s largest banks, airlines and telecommunications companies rely on IR
Prognosis to provide business critical insights and ensure continuity‑critical
systems deliver high availability and performance for millions of their
customers across the globe.
Today IR Prognosis experience management solutions are trusted by
125+ of the Fortune 500 companies to keep their business running.
Why customers buy
IR Prognosis provides assurance
by recognising issues, predicting
disruption and providing prescriptive
guidance so customers can solve
problems fast.
Why we succeed
IR helps organisations replace
reactive, manual systems with
proactive, automated technology
for managing the performance of
their environments. Our customers
rely on us to guarantee millions of
interactions and transactions occur
without incident, every day.
Our purpose
To create clarity and insight in a
world of connected devices.
Our vision
To make the world a smarter,
easier place to live and work in,
where people and technology
interact in a frictionless way.
Our mission
To create innovative technology
that optimises operations, predicts
business disruption and automates
the steps to improve the experience
of every interaction.
Our momentum
IR celebrates its 30th year in business
and remains an industry pioneer
with innovative technology allowing
businesses to stop problems before
they even happen.
As IR embarks on its strategic journey
with cloud analytics our commitment
to investing in the future to bring a
new realm of opportunities sits at the
core of every decision we make.
9
Integrated Research and its controlled entities Annual Report 2018 2018 in IR
Over 30 years, we have seen a lot of change but remained true to our core
values: Innovation, Customer First, Teamwork, High Performance and Leadership.
Innovation
Innovation is the vital ingredient that drives growth,
attracts new business and draws talent to our business.
This year, we delivered great innovations with Prognosis
for Cloud UC and UC Assessor, and our inclusion in
Cisco’s SolutionsPlus program. Our Innovation Day
hackathon attracted a record number of submissions
and we launched i365 as an internal initiative to drive
innovation. We increased our investment in research and
development to bring new products to market and drive
future growth. We also released major upgrades to all
product lines, including an artificial intelligence (AI) based
speech analytics platform. We will release a new cloud
analytics platform that interoperates with all versions of
Prognosis, whether it is on‑premises, hybrid or in the cloud,
in the second half of FY2019.
Customer First
This year’s IR Summit was once again very valuable
in allowing us to gain an in‑depth understanding of
our customers. A record 140 [customers and partners]
participated in hands‑on lab sessions, innovation
discoveries and best‑practice reviews. Our Meet the Expert
event in Cologne, Germany, has also established a loyal
support group, with 75% of customers returning this year.
In the UK, our Customer First approach delivered to BT is a
stellar example of how going the extra mile with a service
provider can yield a strong long‑term partnership. In Asia
Pacific, our team has met with customers in all corners
of the region from events run by customers such as
HPE TTS, to vendor roadshows like Avaya Engage, Skype
for Business user groups and Cisco Connect. We have
invested in customer‑facing systems, including the IR
Community, and new roles such as Customer Success
Managers. And, of course, we have also focused heavily on
the quality of our products to drive satisfaction. Globally,
we are striving to ensure our Customer First value is centre
stage in everything we do.
Prognosis
for Unified
Communications
Prognosis for Unified
Communications is
the leading proactive
experience management
solution for unified
communications (UC)
on‑premises, hybrid or
in the cloud. It enables
our customers to deliver
the best user experience
possible for collaboration,
meetings and voice or
video calls across Avaya,
Cisco and Microsoft
UC solutions.
Prognosis for
Payments
Prognosis for Payments
helps customers de‑risk
deployments of new
technology and reap
the benefits from their
investment sooner.
Prognosis performance
management is specifically
designed to give complete
real‑time visibility into
payments handled by
processors such as ACI
and FIS, and customers’
internal systems.
Prognosis for
Contact Center
Prognosis for Contact
Centre ensures the quality
of customer interactions
across multiple channels,
including voice, video and
the web. It helps make sure
that contact centre systems
deliver the performance
that organisations expect
so they can provide
high‑quality experiences
for customers, make agents
more efficient, and gain
revenue and cost benefits.
We expanded our contact
centre solutions with new
offers that ensure the
quality of call recording
activities and stress‑test the
performance of systems.
Prognosis for
Infrastructure
Prognosis for Infrastructure
manages the performance
of IT systems and spots
patterns in data so that
customers can stop
problems in their tracks.
This means they can
make systems work better,
respond faster, prevent
outages and get back to
doing what they do best.
10
Integrated Research and its controlled entities Annual Report 2018 “When an idea comes to you
or when a particular issue arises
the community gives you the
opportunity to interact with a
myriad of people who have many
different ideas and responses to it.”
‑ John Merakovsky, CEO, IR
Leadership
Strong leadership is key to spearheading strategic
direction and overcoming challenges. We augmented
our leadership team, hiring Vanessa Walker as our Global
Head of People and Culture, Greg Clancy as Chief Product
Officer and Michael Tompkins as Head of R&D. We also
took time to define our purpose, giving our team a
common direction to deliver on the long‑term needs of the
organisation and ensure IR continues to grow for the next
30 years.
Innovation
Leadership
Values
Customer First
High Performance
Teamwork
11
Integrated Research and its controlled entities Annual Report 2018 1212
Integrated Research and its controlled entities Annual Report 2018
Integrated Research and its controlled entities Annual Report 2018 Directors’
Report
Contents
14 Review of operations
17 Outlook and strategy for 2019
20 Board of Directors
22 Senior management
24 Directors’ interests
25 Share options and performance rights
27 Remuneration report (audited)
Integrated Research and its controlled entities Annual Report 2018
13
13
Integrated Research and its controlled entities Annual Report 2018 Directors’
Report
Annual revenue comparable
Licence Fees 2%
Annual after tax profit 4%
$91.2M
$52.6M
$19.2M
Review and
results of
operations
Overview
The Company achieved an after‑tax
profit of $19.2 million, a 4% increase
in annual after tax profit over
the prior year which is within the
guidance provided to the Australian
Stock Exchange on July 13, 2018.
The result was driven through
modest licence sale growth in the
Unified Communications product
line offset by a cyclical downturn
in the Company’s Infrastructure
product lines. Revenue by geography
was mixed with Asia Pacific up 14% to
A$13.2 million, the Americas up 3% to
US$49.5 million and Europe down 10%
to £7.8 million.
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
thirty 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 Prognosis
products to a cross section of
large organisations requiring high
levels of computing performance
and reliability.
Prognosis 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.
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 60 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
carriers, technology companies,
service providers and manufacturers.
The Company generates its
revenue from licence fees,
recurring maintenance, testing
solutions and consulting services.
Revenue from the sale of licences
where there are 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.
Revenue from consulting services
and testing solution services is
recognised over the period the
services are delivered.
14
Integrated Research and its controlled entities Annual Report 2018Directors’ Report Revenue
Revenue of $91.2 million was comparable to the prior year. Licence fees decreased by 2% to $52.6 million with 9% licence
growth in Unified Communications being more than offset by licence sale reductions in Payments and Infrastructure.
The following table presents Company revenues for each of the relevant product groups:
In thousands of AUD
Unified Communications
Infrastructure
Payments
Consulting
Total revenue
2018
54,865
20,838
8,105
7,367
91,175
2017
51,132
24,449
8,804
6,784
91,169
% Change
7%
(15%)
(8%)
9%
0%
Unified Communications (UC) revenue rose 7% over the previous year with strong growth from Cisco customers offset by
lower sales in the Avaya channel. Licence sales to Skype for Business customers was down 2% over the prior year.
The cyclical downturn in Infrastructure revenues was deeper than anticipated with overall revenues declining 15% over
the previous year. Licence transactions sold during the year were closed on a multi‑year term basis with maturities
averaging just under three years.
Payments revenue declined 8% over the previous year with strong licence sale growth in Asia Pacific and the Americas
being more than offset by a decline in Europe. Despite the overall reduction, the global payments pipeline would indicate
a return to growth in the coming year.
The following table presents Company revenues for each of the relevant geographic segments in underlying
natural currencies:
Americas (USD’000)
Asia Pacific (A$’000)
Europe (£’000)
2018
49,519
13,189
7,849
2017
% Change
48,207
11,596
8,752
3%
14%
(10%)
The Americas revenue grew by 3% over the prior year. Strong Prognosis sales to UC service providers was partially offset
by the cyclical decline in Infrastructure sales. Asia Pacific achieved growth of 14% with strong second half licence growth
in Unified Communications. Trading conditions in Europe was challenging with the operation reporting a 10% decline
over the prior year.
Expenses
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
2018
15,335
45,703
5,849
66,887
2017
% Change
14,862
43,605
6,086
64,553
3%
5%
(4%)
4%
15
Integrated Research and its controlled entities Annual Report 2018 Total expenses were up 4% to $66.9 million. The Company continues to aggressively invest for growth with total staff
numbers increasing by 16% over the course of the year to close at 260. Gross spending on research and development
expenditure represents 19% of total revenue compared to 15% for the prior year:
In thousands of AUD
Gross research and development spending
Capitalisation of development expenses
Amortisation of capitalised expenses
Net research and development expenses
Gross spend as a % of revenue
2018
17,341
(11,524)
9,518
15,335
19%
Shareholder returns
Returns to shareholders remain strong through the payment of franked dividends:
Net profit ($’000)
Basic EPS
Dividends per share
Dividend franking percentage
Return on equity
2018
$19,180
11.19¢
6.5¢
100%
33%
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)
Liabilities:
2017
% Change
13,430
(8,588)
10,020
14,862
15%
2017
$18,520
10.86¢
6.5¢
85%
38%
29%
(34%)
(5%)
3%
2016
$16,029
9.42¢
6.5¢
58%
39%
2018
2017
11,238
71,078
21,938
14,113
59,297
19,934
Deferred revenue (current and non‑current)
32,014
28,488
Equity
57,838
48,520
The Company’s end of year cash position was $11.2 million, 20% lower compared to the prior year. The increase in trade
and other receivables is a result of higher licence fees toward the end of the financial year and the continued offering of
deferred payment terms to customers. The increase in deferred revenue is driven in part by a stronger consulting backlog
and in part by a lower Australian dollar at the end of the year.
The consolidated statement of financial position presented at page 47 together with the accompanying notes provides
further details.
16
Integrated Research and its controlled entities Annual Report 2018Directors’ Report Outlook and
Strategy for 2019
Thirty years on from its
inception, Integrated
Research continues
to provide the world’s
leading enterprises
and organisations
clarity and insight into
the operations of their
mission critical systems.
Unified Communications is now the
largest portfolio segment. Having all
but replaced fixed‑line telephony
across the world, billions of voice
and video calls and collaboration
sessions are conducted every day,
with business communication reliant
on the quality of these experiences.
IR Prognosis monitors and analyses
these interactions to optimise the
experience; no jitter, no latency,
no interruptions.
On the Payments side of the
business, hundreds of millions of
people conduct billions of payments
transactions using their credit cards
or through ATMs. IR Prognosis is used
by the world’s largest card issuers,
banks, processors and merchants
to ensure these transactions
are processed flawlessly without
network and infrastructure failure,
thereby maximising the revenue of
these organisations and ensuring
consumers in economies across the
world have a flawless experience.
IR’s competitive advantage derives
from the company’s know‑how and
unique intellectual property (IP).
The architectural design enables
real time insight, monitoring, fault
root‑cause analysis, business and
operational analytics, performance
management and optimisation.
Being 100% software‑based, 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. Both the increasing
nature of business complexity, and
the unique IP, make Prognosis more
relevant and needed in today’s
business world than it was at its origin
thirty years ago.
We experience competition in various
forms in each of our markets. Firstly,
some of the large telephony and
payment vendors have developed
their own performance management
software. These bespoke solutions
are generally inferior to Prognosis
both in terms of the depth of the
metrics captured and analysed
(which directly translates into the
power of insight and speed of issue
resolution) and the inability to
monitor heterogeneous multi‑vendor
environments, as is most often
the case. Secondly, some of the
large solution software vendors
have developed performance
management products, which
again lack the depth and insight
of Prognosis, this discipline not
being their core specialisation.
Occasionally in specific niches,
IR competes with smaller, lower‑cost
start‑ups. Across all three competitive
segments, customers choose IR
when they value the quality of
experience, insight and operational
optimisation that Prognosis delivers.
We remain focused on sustaining
our competitive advantage in
a world of connected devices,
through continuing innovation
that comes from our research and
development efforts.
Through deep visibility, forensic
analysis into the root cause of
problems, extensive analytics at
multiple levels and new automation
capabilities, Prognosis enables
proactive and rapid resolution of
issues, capacity management as
well as operational, cost and user
experience optimisation.
Our solutions provide 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.
17
Integrated Research and its controlled entities Annual Report 2018 Outlook and Strategy for 2019 (continued)
Prognosis is progressively using
its real‑time access to big data
to generate and deliver insights
into a customer’s business that
goes beyond improving and
optimising operational efficiency.
These capabilities today are
delivered on‑premises, and
increasingly in the cloud. We are
at heart a data company, and are
using our deep understanding of
infrastructure, payments and UC
networks to build cloud‑based
analytics products that leverage
our aggregated customer‑data to
predictively model potential issues
and provide resolution strategies
before business interruption.
This cloud analytics capability has
been designed for consumption
by all our customer base; across
infrastructure, payments and UC,
and whether the platform to be
monitored is on‑premises or in
the cloud.
The Company’s growth comes from
expanding the capabilities delivered
into existing markets and customers,
expanding our sales and service
capabilities into new geographic
markets as they mature and adopt
these core technologies, and by
creating new products that open
new markets.
Whilst the bulk of our revenues
are earned in three core markets
(Infrastructure, Communications
and Payments) we have leveraged
our voice know‑how into the speech
analytics space, particularly in
markets where regulation requires
that companies record all their calls,
and that these recordings must be
reliably recorded and intelligible
for compliance purposes. Known as
Call Recording Assurance, this is a
significant growth opportunity for IR.
Whilst growth in this segment has
been strong, this has not yet become
a material part of the business.
Our Infrastructure customers
include users of high‑end
computing systems such as the
HP Enterprise NonStop platform
for financial, telecommunication,
trading, manufacturing and other
high‑volume, high‑value mission
critical transaction environments.
NonStop remains at the operational
core of many of the world’s largest
companies, and is an important
part of the HPE sever strategy.
We continue to invest in Prognosis for
Nonstop to be aligned with HPE and
its customers.
New customers continue to
adopt Unified Communications
(UC) applications such as audio
and video conferencing, instant
messaging, collaboration, mobility
and tele‑presence, and the number
of transactions and multi‑party
collaboration events is growing
rapidly across enterprises worldwide.
We anticipate further growth in this
segment as customers migrate away
from legacy platforms to modern,
flexible and collaboration‑enabled
solutions that provide greater
communication efficacy than
voice alone. UC networks are
becoming more pervasive,
more mission critical and more
complex and as such they require
effective performance and
user experience management.
This complexity and high
performance demand generates a
need for solutions such as Prognosis,
and we therefore expect to benefit
from this need in terms of further
growth. 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.
This includes vendors providing
‘Unified Communications as a
Service’, for example Microsoft Teams
and Cisco Webex Teams.
Prognosis has been used worldwide
to monitor voice and video quality
and performance for Cisco UC
solutions since 2000. Whilst we
initially competed directly with
Cisco’s own monitoring solution, our
success in selling to and managing
many large and complex Cisco
implementations paved the way to
IR joining Cisco’s elite SolutionsPlus
program in the second half of FY18.
This is Cisco’s partner ecosystem and
online marketplace that enables their
global channel partners to select
and buy the best technologies that
support Cisco products, in order to
build and deploy the best and most
scalable solutions for their customers.
Since the launch of Prognosis in
SolutionsPlus, our sales pipeline from
this channel has grown significantly.
We anticipate significant demand
and growth in Prognosis sales
through this extensive channel,
which is responsible for 80 percent of
Cisco’s annual revenue.
Prognosis is an embedded
component of the HCS‑G service,
Cisco’s dedicated collaboration
environment for the US Federal
Government, which is being sold
exclusively through major System
Integrators such as AT&T, Verizon,
WWT and IronBow. Compliance with
both the US Government Federal
Information Processing Standards
(FIPS 140‑2) and the Federal Risk and
Authorization Management Program
(FedRAMP) provides significant
future revenue opportunities for
IR in partnership with Cisco in the
US Federal Government market.
The timing of revenue for IR is
dependent upon the uptake of
the overall solution by the US
Federal Government.
Microsoft’s Skype for Business is
now one of the leading global UC
solutions for both enterprises and
service providers. IR has capitalised
on this growth by introducing
three Microsoft‑specific products,
which are now widely used by a
proportional share of our customer
base, alongside our Cisco and
Avaya solutions. Prognosis UC
Assessor is our Microsoft‑certified
cloud‑delivered product that provides
a comprehensive, end‑to‑end
assessment and troubleshooting
solution for customers migrating
to Skype for Business, be that in
the cloud, hybrid or on‑premises.
Microsoft partners and customers
rely on this software‑as‑a‑service
platform to assess and plan their
Skype for Business or Teams
infrastructure implementation,
which both increases our revenue
opportunities earlier in the lifecycle
and provides a natural move to using
Prognosis as the core monitoring
solution for their UC environment.
18
Integrated Research and its controlled entities Annual Report 2018Directors’ Report Microsoft continues to support
Skype for Business on‑premises,
and have also incorporated
this core technology into their
Office 365 Teams cloud‑based
collaboration platform. Through our
close partnership with Microsoft and
our reputation as a leading vendor
in the Microsoft ecosystem, IR is well
positioned to support customers
regardless of which deployment
platform they choose; cloud, hybrid
or on‑premises.
Due to both general economic
growth and the explosion in the
use of pin‑less card transactions
such as Paywave and Paypass,
payment transaction volumes have
grown massively across all of our
markets, placing enormous demand
on our customers’ infrastructure
and therefore increased reliance
on Prognosis. We have expanded
its suite of Payments solutions by
adding new data and analytics
capabilities; this expands the
company’s addressable market in
the Payments segment and increases
revenue potential. We will maintain
this strategy in the Payments market
and work with its leading customers
and partners to support the adoption
of new payments types. The strategic
alliance with ACI, a global leader in
the payments market, continues to
support our Payments business.
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.
The Company will continue to invest
in people and processes to grow
consulting revenue and margin.
Due to scalability, reliability and
ultimately the business insight it
provides, Prognosis has proven to
be a sticky solution, with historical
renewal rates continuing to be
maintained above 90%. To ensure
that our customers obtain highest
The proportion of our revenue from
one‑off perpetual deals has reduced
significantly and deliberately, replaced
by new recurring multi‑year deals.
We have proven our capability to
acquire new customers, adding 72 new
logos during the 2018 financial year.
Supported by strong growth drivers
particularly in UC, our continued focus
on new customer acquisition and our
long‑term cloud roadmap are four
significant factors that management
expects to support growth through the
financial year ending 30 June 2019
and beyond.
economic benefit from Prognosis,
we have built a service and support
culture that maximizes adoption
within our customer base and
focusses on delivering their critical
success criteria and subsequently
the high levels of satisfaction and
advocacy. This approach naturally
results in a high level of renewal
and expansion of share of wallet.
Analysis of the Company’s customer
base of over 1,200 enterprise
customers shows significant potential
to cross‑sell. 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.
The foundations of our business
model are extremely strong.
With 88% of our revenue now
recurring as multi‑year deals, and
retention rates across our portfolio
greater than 90%, the compounding
impact of recurring term renewals
coupled with the expansion of
our share of customer wallet,
contributes significantly to strong
future earnings.
19
Integrated Research and its controlled entities Annual Report 2018 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
John Merakovsky
B.Sc (Hons) PhD
Managing Director and
Chief Executive Officer
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, Luxemburg Peace
Prize. Steve’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:
None.
Age: 69 years.
John joined IR in July 2017 as the Company’s Chief
Executive Officer and was appointed Managing Director
in September 2017. John is a veteran of the digital industry
with 25 years of experience working in technology and
digital companies. This includes extensive experience
in commercialising technologies as an entrepreneur,
consultant, Managing Director, CEO and General Manager
of various companies. Prior to joining IR, John was the
General Manager of Seek Learning (the education arm
of Seek Ltd) and was previously the Managing Director of
Experian ANZ, having served as its Managing Director of
Marketing Services Asia‑Pacific for 5 years.
Listed company directorships held in the past three years:
None.
Age: 50 years.
Paul Brandling
BSc Hons, MAICD
Independent Non‑Executive
Director and
Deputy Chairman
Nick Abrahams
B Comm, LLB (Hons), MFA
Non‑Executive Director
Paul was appointed a Director in August 2015. He has
worked in the information technology industry for over
30 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
previously a Director of Amcom Telecommunications
Limited until its acquisition, was a Director of Vocus
Communications Limited until February 2016 and
previously a Director of Tesserent Limited (ASX: TNT)
until October 2017. He currently serves as a Non
Executive Director of Infomedia Ltd (ASX: IFM) and Avoka
Technologies Pty Ltd. Paul’s current term will expire no
later than the close of the 2018 Annual General Meeting.
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 is global leader for the technology
and innovation practice of a global law firm. Mr. Abrahams
is on the Board of the Vodafone Foundation, on the Board of
Sydney Film Festival and is a Director of the Garvan Research
Foundation. Nick’s current term will expire no later than the
close of the 2020 Annual General Meeting.
Listed company directorships held in the past three years
other than listed above: None.
Listed company directorships held in the past three years
other than listed above: None.
Age: 60 years.
Age: 52 years.
20
Integrated Research and its controlled entities Annual Report 2018Directors’ Report Garry Dinnie
BCom, FCA, FAICD, FAIM,
MIIA(Aust)
Independent
Non‑Executive Director
Peter Lloyd
MAICD
Non‑Executive Director
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 2019
Annual General Meeting.
Listed company directorships held in the past three years
other than listed above: Inabox Group Limited
Age: 66 years.
Peter was appointed Director in July 2010. He has over 40
years’ experience on computing technology, having worked
for both computer hardware and software providers. For the
past 35 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
focusing on the payments industry. Peter is a Non‑Executive
Director of Taggle Pty Ltd. And a Non‑Executive Director of
Flamingo AI Limited (ASX: FGO). Peter’s current term will expire
no later than the close of the 2019 Annual General Meeting.
Listed companies directorships held in the past three years:
None.
Age: 64 years.
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.
Anne Myers
MBA, GAICD
Independent
Non‑Executive Director
Anne was appointed a Director in July 2018. Ms. Myers has
worked in the finance and technology industry for over
30 years with experience in business strategy, technology,
digital innovation and operational functions. Anne is
the former Chief Operating Officer and CIO of ING
Direct Australia and has acted in executive technology
and business roles for QBE, Macquarie Bank and
St George Bank. She currently acts as an advisory board
member to early phase technology innovators, including
TokenOne Pty Limited, is a director of Defence Bank
Limited and United Way Australia Limited and is a Council
Member of the University of New England. Ms. Myers has
also worked in the not for profit sector for United Way
Australia, and was a member of the Industry Advisory
Network for the University of Technology. Anne’s current
term will expire no later than the close of the 2018 Annual
General Meeting.
Listed companies directorships held in the past three years:
None.
Age: 60 years.
21
Integrated Research and its controlled entities Annual Report 2018 Senior management
Peter Adams
B.Com, CA
Chief Financial Officer
Peter joined IR 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.
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.
Greg Clancy
B.App.Sc (CompSc)
(Hons), MCS, D.E.S.S. (AI)
Chief Product Officer
Greg joined IR in July 2018 and is responsible for the strategy,
delivery, and commercialisation of the IR’s product and platform
portfolio. With more than 20 years of senior product leadership
at global enterprise software companies Greg is a champion of
technology innovation and setting product vision and strategy
for industry defining impact. Most recently he was based in
Silicon Valley, California responsible for transforming Ivanti to
the cloud while injecting innovation around analytics, machine
learning, bots, and automation.
Andre Cuenin
BSc, MBA
President Americas
& VP European
Field Operations
Andre joined IR in October 2008 and is responsible for all
business operations in both the Americas and Europe region.
Andre has over 25 years experience in IT sales, including VP
of Field Operations at Stratavia, where he was responsible for
sales and professional services marketing worldwide. Prior to
this he spent 15 years with CA (previously known as Computer
Associates) in several senior management positions including VP
of Worldwide Sales Operations.
Kevin Ryder
M.Mgt, MBA
Chief Marketing Officer
Kevin joined IR in October 2013 and is responsible for global
brand, marketing and customer experience. He has extensive
experience in the ICT industry, including leadership roles in
Europe, North America, Asia and Australia. Prior to joining IR,
Kevin was the Enterprise Marketing Director at Microsoft and has
previously held senior executive roles at KAZ Group, Attachmate
and Eicon Technology. Kevin was ranked #18 by CMO Magazine
in the 2015 CMO50 list, recognising Australia’s most innovative
chief marketing officers.
Vanessa Walker
B.Bus
General Manager,
People & Culture
Vanessa joined IR in September 2017 as the General Manager,
People & Culture. Vanessa has extensive experience in both
strategic & operational commercially driven HR roles, particularly in
the technology sector with companies such as Experian, Hyperion,
Sage & Hitachi Data Systems. This includes a strong focus on Talent
Management, Culture & Employee Engagement across Asia Pacific
through leadership of regional HR teams & and globally via active
participation in the organisations’ global HR Councils.
22
Integrated Research and its controlled entities Annual Report 2018Directors’ 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 2018 and the Auditor’s
Report thereon.
Results
The net profit of the consolidated entity for the 12 months ended 30 June 2018 after income tax expense was
$19.2 million.
Dividends
Dividends paid or declared by the Company since the end of the previous financial year were:
Final 2017 ‑ Ordinary shares
Interim 2018 ‑ Ordinary shares
Final 2018 ‑ Ordinary shares
100% franked
100% franked
100% franked
3.5
3.0
3.5
5,987
5,150
26 Sep 2017
10 Apr 2018
6,009
16 Oct 2018
Cents
Per share
Total Amount
$’000
Date of
Payment
Events subsequent to reporting date
For dividends declared after 30 June 2018 see Note 22 in the financial statements. The financial effect of dividends
declared and paid after 30 June 2018 has not been brought to account in the financial statements for the year ended
30 June 2018 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 be 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.
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.
23
Integrated Research and its controlled entities Annual Report 2018 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 2018, 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
12
12
12
11
9
B
12
12
12
12
12
9
A
4
4
4
‑
‑
‑
B
4
4
4
‑
‑
‑
A
‑
‑
3
‑
3
‑
B
‑
‑
3
‑
3
‑
A
‑
4
‑
4
4
4
B
‑
4
‑
4
4
4
Nick Abrahams
Paul Brandling
Garry Dinnie
Peter Lloyd
Steve Killelea
John Merakovsky
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
Steve Killelea
67,855,619
337,612
68,193,231
John Merakovsky
Nick Abrahams
Paul Brandling
Garry Dinnie
Peter Lloyd
‑
‑
10,202
‑
‑
‑
5,042
‑
2,000
2,000
‑
5,042
10,202
2,000
2,000
‑
‑
‑
‑
‑
‑
‑
210,000
‑
‑
‑
‑
24
Integrated Research and its controlled entities Annual Report 2018Directors’ 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
John Merakovsky
Executive Officers
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
Kevin Ryder
Number of
performance
rights granted
Performance
hurdle
Exercise price
Expiry date
210,000
Yes
Nil
Sep 2020
20,000
15,000
20,000
25,000
15,000
No
No
No
No
No
Nil
Nil
Nil
Nil
Nil
Sep 2020
Sep 2020
Sep 2020
Sep 2020
Sep 2020
The performance rights were granted under the Integrated Research Performance Rights and Option Plan
(established November 2011).
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
Sep 2020
Sep 2020
Sep 2020
Mar 2019
Dec 2018
Sep 2018
Total performance rights
Performance rights
Exercise price
Number of shares
Nil
Nil
Nil
Nil
Nil
Nil
210,000
110,000
439,000
90,000
60,000
90,900
999,900
Performance rights do not entitle the holder to participate in any share issue of the Company or any other body corporate.
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 unspecified
amount). No payment of this type has been made to Ernst & Young during or since the financial year.
25
Integrated Research and its controlled entities Annual Report 2018 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 35.
Corporate
governance
A statement describing the Company’s
main corporate governance practices
in place throughout the financial year
is on pages 37 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
• 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 86 and forms part of the
Directors’ Report.
Auditor
The Board granted approval under
section 324DAA of the Corporations
Act for Mr John Robinson to
continue as lead auditor, to play
a significant role in the audit of
the Company for two additional
successive financial years being the
year ended 30 June 2018 and year
ending 30 June 2019. The approval
was granted in accordance with
a recommendation from the
Audit & Risk Committee who were
satisfied the approval is consistent
with maintaining the quality of the
audit provided to the Company and
would not give rise to a conflict of
interest situation (as defined under
324CD of the Corporations Act).
The decision is supported by the
Audit & Risk Committee’s satisfaction
with the quality of Ernst & Young and
Mr Robinson’s work as auditor and
that the Company maintains, and will
continue to maintain, robust auditor
independence policies and controls
to ensure the independence of the
auditor is maintained.
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.
Steve Killelea
Chairman
John Merakovsky
Chief Executive Officer
North Sydney, 16 August 2018
North Sydney, 16 August 2018
26
Integrated Research and its controlled entities Annual Report 2018Directors’ Report Remuneration report
(audited)
Remuneration
policies
Remuneration levels for key
management personnel and
secretaries of the Company,
and relevant key management
personnel of the consolidated
entity are competitively set to
attract and retain appropriately
qualified and experienced
directors and senior executives.
The Nomination and Remuneration
Committee obtains independent
advice on the appropriateness
of remuneration packages given
trends in comparative companies
both locally and internationally and
the objectives of the Company’s
remuneration strategy.
Key management personnel
(including directors) have authority
and responsibility for planning,
directing and controlling the
activities of the Company and
the consolidated entity.
The remuneration structures
explained below are designed to
attract suitably qualified candidates,
reward the achievement of strategic
objectives, and achieve the broader
outcome of creation of value for
shareholders. The remuneration
structure takes into account:
• The capability and experience of
the directors and senior executives
• The directors and senior
executives ability to control the
relevant segment’s performance
• The consolidated entity’s
performance including:
‑ The consolidated
entity’s earnings
‑ The growth in share price and
returns on shareholder wealth
Remuneration packages include a mix
of fixed and variable remuneration
and short and long‑term performance
based incentives.
Fixed remuneration
Fixed remuneration consists of
base remuneration (which is
calculated on a total cost basis
and includes any fringe benefits
tax (FBT) related to employee
benefits including motor vehicles),
as well as employer contributions to
superannuation funds.
Remuneration levels are reviewed
annually through a process that
considers individual, segment
and overall performance of the
consolidated entity. In addition,
external remuneration surveys
provide periodic analysis to ensure
the directors’ and senior executives’
remuneration is competitive in the
market place. A senior executive’s
remuneration is also reviewed
on promotion.
Performance‑linked
remuneration
Performance linked remuneration
includes both short‑term and
long‑term incentives and is designed
to reward executive directors and
senior executives for exceeding their
financial and personal objectives.
The short‑term incentive (STI) is
an “at risk” bonus provided in the
form of cash, while the long‑term
incentive (LTI) is provided as either
options or performance rights
over ordinary shares of Integrated
Research Limited under the rules of
the share plans.
Short‑term incentive bonus
The Nomination and Remuneration
Committee is responsible for setting
the key performance indicators (KPIs)
for the Chief Executive Officer,
and for approving the KPIs for the
senior executives who report to him.
The KPIs generally include measures
relating to the consolidated entity,
the relevant segment, and the
individual, and include financial,
people, customer, strategy and
risk measures. The measures are
chosen as they directly align the
individual’s reward to the KPIs of
the consolidated entity and to its
strategy and performance.
The financial performance objectives
vary with position and responsibility
and are aligned with each respective
year’s budget. The non‑financial
objectives vary with position and
responsibility and include measures
such as achieving strategic outcomes
and staff development.
At the end of the financial year
the Nomination and Remuneration
Committee assesses the actual
performance of the CEO against
the KPIs set at the beginning of
the financial year. A percentage
of the predetermined maximum
amounts for each KPI is awarded
depending on results. The committee
recommends the cash incentive to
be paid to the CEO for approval by
the board.
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.
Performance hurdles are tested at
each vesting date.
27
Integrated Research and its controlled entities Annual Report 2018 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:
Licences ($’000)
Net profit ($’000)
Dividends paid ($’000)
Closing share price
Change in share price
2018
52,591
19,180
11,137
$3.11
($0.11)
2017
53,441
18,520
11,088
$3.22
$0.97
2016
45,725
16,029
11,906
$2.25
$0.56
2015
41,031
14,251
10,162
$1.69
$0.695
2014
28,048
8,489
9,278
$0.995
($0.04)
Net profit and 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
Paul Brandling
Peter Lloyd
Garry Dinnie
Part year
John Merakovsky
Chief Executive Officer
Other key management personnel
Full year
Peter Adams
Chief Financial Officer
Jason Barker
Senior Vice President Asia Pacific
Andre Cuenin
President Americas & VP European Field Operations
Kevin Ryder
Chief Marketing Officer
Part year
Alex Baburin
Chief Operations Officer
Andrew Dutton
Interim Chief Executive Officer
28
Integrated Research and its controlled entities Annual Report 2018Remuneration report (audited) 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 Peter Adams, Chief Financial
Officer, has a contract of
employment with Integrated
Research Limited dated
23 January 2008, which provides
for specific notice and severance
undertakings of up to three months
compensation depending on the
particular circumstances. Mr Adams
can terminate his employment by
giving three months prior notice
in writing.
Mr Alex Baburin, Chief Operations
Officer, had 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 Jason Barker ‑ Vice President,
APAC, has a contract of employment
with Integrated Research Singapore
Pte Limited dated 21 August 2014
and amended 11 April 2018 which
provides for specific notice and
severance undertakings of up
to three month compensation
depending on the particular
circumstances. Mr Barker can
terminate his employment by giving
three month prior notice in writing.
Mr Andrew Dutton, Interim Chief
Executive Officer, provided
services via a contractual
agreement between Integrated
Research and Odgers Interim
Pty Ltd. The contractual agreement
commenced in February 2017
through to July 2017.
Mr John Merakovsky, Chief
Executive Officer, has a contract
of employment with Integrated
Research Limited dated
9 June 2017, which provides for
specific notice and severance
undertakings of up to three
months compensation depending
on the particular circumstances.
Mr Merakovsky 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 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.
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 during the financial year was $75,000 per annum inclusive of compulsory superannuation.
The chairman receives the base fee by a multiple of two and the deputy chairman receives the base fee by a multiple of
one and a half. 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.
29
Integrated Research and its controlled entities Annual Report 2018 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
Black‑Scholes methodology, 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.
Share‑
based
pay‑
ments
Other
com‑
pensa‑
tion
Long
term
Proportion of
remuneration
Long
service
leave
$
Value of
options
and
rights
$
Termi‑
nation
benefit
$
Perfor‑
mance
related
Total
$
Value
of
options
and
rights
Post‑
em‑
ploy‑
ment
Super‑
annua‑
tion
contri‑
bution
$
6,507
7,204
6,507
6,507
13,014
Short term
2018
In AUD
Salary &
fees
$
Bonus
$
Non‑
cash
benefits
$
Non‑executive Directors
Nick Abrahams
68,493
75,832
68,493
68,493
136,986
Paul Brandling
(Deputy
Chairman)
Garry Dinnie
Peter Lloyd
Steve Killelea
(Chairman)
Executive
Directors
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
John Merakovsky
462,106
82,460
‑
19,213
9,400 341,299
Executive officers (excluding directors)
Peter Adams
310,419
68,524
4,532 20,049
6,728
17,062
Alex Baburin
(to October 2017)
322,096
‑
‑
12,346
5,576
‑
Jason Barker
346,000 226,795
2,779
22,437
Andre Cuenin
349,672
377,658
12,615
10,415
Andrew Dutton*
(to July 2017)
66,000
‑
‑
‑
‑
‑
‑
39,686
49,565
‑
Kevin Ryder
270,906
77,910
1,900 26,393
6,288
12,797
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
75,000
83,036
75,000
75,000
150,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
914,478
9%
37%
427,314
16%
4%
340,018
‑
637,697
799,925
36%
47%
66,000
‑
‑
6%
6%
‑
396,194
20%
3%
2,545,496 833,347
21,826 150,592
27,992 460,409
‑ 4,039,662
Total
compensation:
key management
(consolidated,
including directors)
30
Integrated Research and its controlled entities Annual Report 2018Remuneration report (audited)
Post‑
em‑
ploy‑
ment
Super‑
annua‑
tion
contri‑
bution
$
6,073
2,601
6,073
8,242
6,073
12,146
Short term
2017
In AUD
Salary &
fees
$
Bonus
$
Non‑
cash
benefits
$
Non‑executive Directors
Nick Abrahams
63,927
27,374
63,927
86,758
63,927
127,854
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Alan Baxter (to
December 2016)
Paul Brandling
Garry Dinnie
Peter Lloyd
Steve Killelea
(Chairman)
Executive
Directors
Darc Rasmussen
(to February 2017)
Share‑
based
pay‑
ments
Other
com‑
pensa‑
tion
Long
term
Proportion of
remuneration
Long
service
leave
$
Value of
options
and
rights
$
Termi‑
nation
benefit
$
Perfor‑
mance
related
Total
$
Value
of
options
and
rights
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
70,000
29,975
70,000
95,000
70,000
140,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
451,574
16% (45%)
456,379
449,290
634,628
892,190
12%
10%
33%
48%
17%
18%
8%
12%
551,746
72,500
2,644
19,616
6,737
(201,669)
Executive officers (excluding directors)
Peter Adams
292,916
54,817
4,532
19,616
6,200
78,298
Alex Baburin
286,707
42,695
‑
32,431
6,033
81,424
Jason Barker
346,000
211,717
2,779
22,437
Andre Cuenin
334,515 429,080 12,001
9,888
Andrew
Dutton* (from
February 2017)
323,400
David Purdue
69,002
‑
‑
‑
‑
‑
7,202
‑
‑
‑
‑
51,695
106,706
Kevin Ryder
252,165
52,813
4,560
31,618
5,688
18,280
‑
365,124
Total
compensation:
key management
(consolidated,
including directors)
2,890,218 863,622
26,516
184,016
24,658
150,046
‑ 4,139,076
‑
323,400
‑
‑
15,312
91,516
0%
14%
17%
5%
* Mr Andrew Dutton was appointed as the Company’s interim CEO. The amounts disclosed above reflect the cost to the Company for services rendered
that were billed through an independent third party agent. The amounts disclosed therefore do not necessarily reflect the amounts received by
Mr Dutton.
31
Integrated Research and its controlled entities Annual Report 2018
Analysis of bonuses included in remuneration
Details of the vesting profile of the short‑term incentive cash bonuses awarded as remuneration to each director of the
Company and each of the named Company executives and relevant group executives are detailed below:
Directors
John Merakovsky
Executives
Peter Adams
Jason Barker
Andre Cuenin
Kevin Ryder
Short term incentive bonuses
Included in
remuneration
$ (A)
% vested in
year
% forfeited
in year
(B)
82,460
68,524
226,795
377,658
77,910
47%
81%
93%
79%
87%
53%
19%
7%
21%
13%
(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 2018 financial year.
(B) The amounts forfeited are due to the performance or service criteria not being met in relation to the current
financial year.
32
Integrated Research and its controlled entities Annual Report 2018Remuneration report (audited) 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
Number
Date
Fair value
per share
($)
Percent
vested in
year
Directors
John Merakovsky
210,000
Nov‑17
3.595
‑
Executives
Peter Adams
100,000
20,000
Nov‑14
Sep‑17
Alex Baburin
100,000
Jason Barker
15,000
40,000
60,000
30,000
20,000
Andre Cuenin
100,000
50,000
25,000
Nov‑14
Sep‑17
Nov‑14
Nov‑14
Dec‑15
Sep‑17
Nov‑14
Dec‑15
Sep‑17
0.844
3.178
0.844
3.178
100%
‑
100%
0.844
100%
0.775
1.846
3.178
‑
‑
‑
0.844
100%
1.846
3.178
‑
‑
David Purdue
50,000
Nov‑14
0.844
100%
Kevin Ryder
75,000
15,000
Nov‑14
Sep‑17
0.844
3.178
100%
‑
‑
100%
Percent
forfeited
in year
(A)
Financial
year in
which
grant
expires
Value yet to vest or
value vested ($)
Min
(B)
Max
(C)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2021
nil
755,034
2018
2021
2018
2021
2018
2019
2020
2021
2018
2020
2021
nil
nil
nil
‑
nil
nil
nil
nil
nil
nil
nil
84,470
63,558
84,470
‑
33,788
46,494
55,377
63,558
84,470
92,294
79,448
2018
nil
42,235
2018
2021
nil
nil
63,353
47,669
(A) The percentage forfeited in the year represents the reduction from the maximum number of performance rights
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 Black‑Scholes methodology as
applied in estimating the value of performance rights for employee benefit expense purposes.
33
Integrated Research and its controlled entities Annual Report 2018 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).
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
2017
Granted as
compensa‑
tion
Exercised
Other
changes*
Held at
30 June
2018
Vested
during the
year
Vested and
exercised
at 30 June
2018
Current Year
Directors
John Merakovsky
‑
210,000
‑
‑
‑
210,000
‑
‑
20,000
100,000
100,000
100,000
100,000
130,000
150,000
50,000
75,000
20,000
(100,000)
15,000
(100,000)
(15,000)
‑
100,000
100,000
20,000
(40,000)
25,000
(100,000)
‑
(50,000)
15,000
(75,000)
‑
‑
‑
‑
110,000
40,000
40,000
75,000
100,000
100,000
‑
50,000
50,000
15,000
75,000
75,000
Held at
1 July
2016
Granted as
compensa‑
tion
Exercised
Other
changes*
Held at
30 June
2017
Vested
during the
year
Vested and
exercised
at 30 June
2017
Executives
Peter Adams
Alex Baburin
Jason Barker
Andre Cuenin
David Purdue
Kevin Ryder
Prior Year
Directors
Darc Rasmussen
250,000
350,000
Executives
Peter Adams
Alex Baburin
125,000
150,000
115,000
150,000
Jason Barker
130,000
‑
Andre Cuenin
270,000
150,000
David Purdue
Kevin Ryder
50,000
90,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
(600,000)
‑
(175,000)
100,000
(165,000)
100,000
‑
130,000
(270,000)
150,000
‑
50,000
(15,000)
75,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
* Other changes represent performance rights that expired or were forfeited during the year.
Performance rights expire on the earlier of their expiry date or termination of the individual’s employment.
No performance rights have been granted since the end of the financial year. The performance rights were provided at
no cost to the recipients.
34
Integrated Research and its controlled entities Annual Report 2018Remuneration report (audited) 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:
Held at
1 July
2017
Purchases
Received
on exercise
of perfor‑
mance
rights
Other
changes*
Sales
Held at
30 June
2018
Current Year
Non‑executive Directors
Nick Abrahams
Paul Brandling
Garry Dinnie
Steve Killelea
Peter Lloyd
Executive officers
(excluding directors)
Peter Adams
Alex Baburin
Andre Cuenin
David Purdue
Kevin Ryder
Prior Year
Non‑executive Directors
Nick Abrahams
Alan Baxter
Paul Brandling
Garry Dinnie
Steve Killelea
Peter Lloyd
Executive Directors
Darc Rasmussen
Executive officers
(excluding directors)
Peter Adams
Alex Baburin
Andre Cuenin
David Purdue
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
100,000
100,000
100,000
50,000
75,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,042
10,202
2,000
(21,641,720)
68,193,231
‑
2,000
(105,000)
10,000
(25,600)
(102,200)
‑
‑
‑
(150,000)
(25,000)
(40,000)
‑
‑
78,250
35,000
Held at
30 June
2017
Received on
exercise of
options
Purchases
Other
changes*
Sales
5,042
10,202
2,000
89,834,951
2,000
15,000
27,800
50,000
53,250
‑
Held at
1 July
2016
2,000
197,000
10,202
3,042
‑
‑
‑
2,000
89,834,951
‑
‑
2,000
335,624
20,000
40,000
50,000
53,250
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(197,000)
‑
‑
‑
‑
(335,624)
‑
‑
‑
‑
‑
‑
‑
5,042
‑
10,202
2,000
89,834,951
2,000
‑
‑
‑
‑
‑
(5,000)
(12,000)
‑
‑
15,000
27,800
50,000
53,250
* Other changes represent net movement post 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.
35
Integrated Research and its controlled entities Annual Report 2018 3636
Integrated Research and its controlled entities Annual Report 2018
Integrated Research and its controlled entities Annual Report 2018Corporate Governance Corporate
Governance
Statement
Contents
38 Board of directors and its committees
41 Risk management
42 Ethical standards
43 Communication with shareholders
Integrated Research and its controlled entities Annual Report 2018
37
37
Integrated Research and its controlled entities Annual Report 2018 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.
The agenda for its meetings is
prepared in conjunction with
the chairman, chief executive
officer and company secretary.
Standing items include strategic
matters for discussion, the CEO’s
report, financial reports, key
performance indicator reports and
presentations by key executives
and external industry experts. Board
papers are circulated in advance.
Directors have other opportunities,
including visits to operations,
for contact with a wider group
of employees.
Director education
The consolidated entity follows
an induction process to educate
new directors about the nature of
the business, current issues, the
corporate strategy and expectations
of the consolidated entity
concerning performance of directors.
In addition executives make regular
presentations to the board to ensure
its familiarity with operational
matters. Directors are expected to
access external continuing education
opportunities to update and enhance
their skills and knowledge.
Independent advice
and access to company
information
Each director has the right of access
to all relevant company information
and to the company’s executives
and, subject to prior consultation
with the chairman, may seek
independent professional advice
from a suitably qualified adviser at
the consolidated entity’s expense.
A copy of the advice received by the
director is made available to all other
members of the board.
Board of
directors and its
committees
Role of the board
The board’s primary role is the
protection and enhancement of
long‑term shareholder value.
To fulfil this role, the board is
responsible for the overall corporate
governance of the consolidated
entity including evaluating and
approving its strategic direction,
approving and monitoring capital
expenditure, setting remuneration,
appointing, removing and creating
succession policies for directors
and senior executives, establishing
and monitoring the achievement of
management goals and assessing
the integrity of internal control and
management information systems.
It is also responsible for approving
and monitoring financial and
other reporting.
Board process
To assist in the execution of its
responsibilities, the Board has
established a number of board
committees including a Nomination
and Remuneration Committee,
an Audit and Risk Committee
and a Strategy Committee.
These committees have written
mandates and operating
procedures, which are reviewed on
a regular basis. The board has also
established a framework for the
management of the consolidated
entity including board‑endorsed
policies, a system of internal control,
a business risk management process
and the establishment of appropriate
ethical standards.
The full board currently holds twelve
scheduled meetings each year and
any extraordinary meetings at such
other times as may be necessary to
address any specific matters that
may arise.
38
Integrated Research and its controlled entities Annual Report 2018Corporate Governance 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 2018 the board members
were comprised as follows:
• Mr Steve Killelea ‑ Non Executive
Director (Chairman)
• Mr Nick Abrahams ‑
Non‑Executive Director
• Mr Paul Brandling‑ Independent
Non Executive Director
• Mr Garry Dinnie ‑ Independent
Non Executive Director
• Mr Peter Lloyd ‑
Non Executive Director
• Mr John Merakovsky ‑ 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 2018 did
not comply with the ASX Corporate
Governance Council recommendation
that the majority of the board
should be independent directors.
The Company recently appointed an
additional independent non‑executive
Director (Ms Anne Myers) in July 2018.
Peter Lloyd is deemed independent
commencing July 2018 at which time
the company will be compliant with
the recommendation.
The company secretary is
accountable directly to the board,
through the chair, on all matters to
do with the proper functioning of
the board.
Nomination and
Remuneration
Committee
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.
39
Integrated Research and its controlled entities Annual Report 2018 Responsibilities
Regarding Nomination
The Committee develops and makes
recommendations to the board on:
• The CEO and senior executive
succession planning.
• The range of skills, experience
and expertise needed on the
board and the identification of
the particular skills, experience
and expertise that will best
complement board effectiveness.
• A plan for identifying, reviewing,
assessing and enhancing
director competencies.
• Board succession plans to
maintain a balance of skills,
experience and expertise on
the board.
• Evaluation of the
board’s performance.
• Appointment and removal
of directors.
• Appropriate composition
of committees.
The terms and conditions of the
appointment of non‑executive
directors are set out in a letter of
appointment, including expectations
for attendance and preparation for
all board meetings, expected time
commitments, procedures when
dealing with conflicts of interest,
and the availability of independent
professional advice.
The 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 Garry Dinnie ‑ Independent
Non‑Executive Director (Chairman)
• Mr Steve Killelea ‑ Non‑Executive
The company does not comply with
the ASX Corporate Governance
Council recommendation that
the committee consist of three
members, a majority of whom should
be independent directors. During
this period of non‑compliance, the
Company utilised the skills and
experience of the other independent
and non‑executive Directors of the
Board. The recent addition of another
non‑executive Director in July 2018
should enable the company to move
toward compliance.
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 three 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 Paul Brandling ‑ Independent
Non Executive Director
During the year, the Audit and Risk
Committee provided the Board
with updates to the Company’s risk
management register (with the Board
approving this document).
The external auditor, Chief Executive
Officer and Chief Financial
Officer are invited to Audit and
Risk Committee meetings at
the discretion of the committee.
The committee met four 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 four
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 2018 comply with
accounting standards and present
a true and fair view, in all material
respects, of the company’s financial
condition and operational results.
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.
40
Integrated Research and its controlled entities Annual Report 2018Corporate Governance • Review financial reports and other
financial information distributed to
shareholders so that they provide
an accurate reflection of the
financial health of the company.
• 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:
• To discuss the external audit
plans, identifying any significant
changes in structure, operations,
internal controls or accounting
policies likely to impact the
financial statements and to review
the fees proposed for the audit
work to be performed.
Prior to announcement of results:
• To review the half‑year and
preliminary final report prior to
lodgement with the ASX, and
any significant adjustments
required as a result of the
auditor’s findings.
• To recommend the Board approval
of these documents.
• Review the results and findings
of the auditor, the adequacy
of accounting and financial
controls, and to monitor
the implementation of any
recommendations made.
To finalise half‑year and
annual reporting:
• Review the draft financial report
and recommend board approval
of the financial report.
• As required, to organise, review
and report on any special
reviews or investigations deemed
necessary by the board.
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 has
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.
Strategy Committee
The Strategy Committee has a
documented charter, approved
by the board and is responsible
for reviewing strategy and
recommending strategies to
the board to enhance the
company’s long‑term performance.
The committee is comprised of at
least three members, including the
chairman of the board and the Chief
Executive Officer. The board appoints
a member of the committee to
be chairman.
The members of the Strategy
Committee during the year were:
• Mr Steve Killelea (Chairman) ‑
Non‑Executive
• Mr John Merakovsky ‑ Chief
Executive Officer
• Mr Peter Lloyd ‑ Non‑Executive
• Mr Paul Brandling‑ Independent
Non‑Executive
The Strategy Committee is
responsible for:
• Reviewing and assisting in defining
current strategy.
• Assessing new strategic
opportunities, including
M&A proposals and intellectual
property developments
or acquisitions.
• Staying close to the business
challenges and monitor
operational implementation
of strategic plans.
• Endorsing strategy and business
cases for consideration by the
full board.
The Committee met four times during
the year under review.
41
Integrated Research and its controlled entities Annual Report 2018 Internal control
framework
The board is responsible for the
overall internal control framework,
but recognises that no cost effective
internal control system will preclude
all errors and irregularities. The board
has instigated the following internal
control framework:
•
Financial reporting ‑ Monthly
actual results are reported against
budgets approved by the directors
and revised forecasts for the year
are prepared monthly.
• Continuous disclosure ‑ Identify
matters that may have a
material effect on the price of the
Company’s securities, notify them
to the ASX and post them to the
Company’s website.
• Quality and integrity of personnel
‑ Formal appraisals are conducted
at least annually for all employees.
•
Investment appraisals ‑ Guidelines
for capital expenditure include
annual budgets, detailed appraisal
and review procedures and levels
of authority.
Internal Audit
The Company does not have an
internal audit function but utilises
its financial resources as needed
to assist the board in ensuring
compliance with internal controls.
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.
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 35.
Code of conduct
The consolidated entity has advised
each director, manager and employee
that they must comply with the code
of conduct. The code aligns behaviour
of the board and management with
the code of conduct by maintaining
appropriate core values and
objectives. It may be reviewed on the
company’s website and includes:
• Responsibility to the community
and fellow employees to act
with honesty and integrity,
and without prejudice.
• Compliance with laws and
regulations in all areas where
the company operates, including
employment opportunity,
occupational health and safety,
trade practices, fair dealing,
privacy, drugs and alcohol, and
the environment.
• Dealing honestly with customers,
suppliers and consultants.
• Ensuring reports and other
information are accurate and timely.
• Proper use of company resources,
avoidance of conflicts of interest
and use of confidential or
proprietary information.
Equal Employment
Opportunity
The Company has a policy on Equal
Employment Opportunity with the
provision that commits to a workplace
that is free of discrimination of all
types. It is Company policy to hire,
develop and promote individuals
solely on the basis of merit and their
ability to perform without prejudice
to race, colour, creed, national origin,
religion, gender, age, disability,
sexual orientation, marital status,
membership or non‑membership of
a trade union, status of employment
(whether full or part‑time) or any
other factors prohibited by law.
The board is satisfied that the Equal
Employment Opportunity policy
is sufficient without the need to
further establish a separate policy
on gender diversity as required by
the ASX Corporate Governance
Council recommendation.
Trading in company
securities by directors
and employees
Directors and employees may acquire
shares in the company, but are
prohibited from dealing in company
shares whilst in possession of price
sensitive information, and except in
the periods:
•
•
From 24 hours to 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.
42
Integrated Research and its controlled entities Annual Report 2018Corporate 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.
43
Integrated Research and its controlled entities Annual Report 2018 4444
Integrated Research and its controlled entities Annual Report 2018
Integrated Research and its controlled entities Annual Report 2018Financial Statements 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
58 Note 2: Segment reporting
59 Note 3: Expenditure
59 Note 4: Other gains and (losses)
59 Note 5: Finance income
60 Note 6: Auditors’ remuneration
60 Note 7: Income tax expense
61 Note 8: Earnings per share
61 Note 9: Cash and cash equivalents
62 Note 10: Trade and other receivables
63 Note 11: Other current assets
63 Note 12: Other financial assets
63 Note 13: Property, plant and equipment
64 Note 14: Deferred tax assets and liabilities
66 Note 15: Intangible assets
67 Note 16: Goodwill
67 Note 17: Trade and other payables
67 Note 18: Employee benefits
69 Note 19: Deferred consideration for acquisition
69 Note 20: Provisions
69 Note 21: Other liabilities
70 Note 22: Capital and reserves
72 Note 23: Financial instruments
75 Note 24: Operating leases
76 Note 25: Consolidated entities
76 Note 26: Reconciliation of cash flows from operating activities
77 Note 27: Key management personnel disclosures
77 Note 28: Related parties
77 Note 29: Parent entity disclosures
78 Note 30: Subsequent events
79
Directors’ declaration
80 Independent auditor’s report
87
ASX additional information
Integrated Research and its controlled entities Annual Report 2018
45
45
Integrated Research and its controlled entities Annual Report 2018
Consolidated statement of comprehensive income
For the year ended 30 June 2018
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
Loss on cash flow hedge taken to equity
Foreign exchange translation differences
Other comprehensive income
Consolidated
Notes
2018
2017
52,591
26,010
5,207
7,367
91,175
53,441
26,871
4,073
6,784
91,169
(15,335)
(14,862)
(45,703)
(43,605)
(5,849)
(6,086)
(66,887)
(64,553)
1,560
(908)
25,848
25,708
423
26,271
(7,091)
19,180
173
25,881
(7,361)
18,520
(176)
498
322
(20)
(269)
(289)
3
4
5
7
Total comprehensive income for the year
19,502
18,231
Profit attributable to:
Members of Integrated Research
Total comprehensive income attributable to:
Members of Integrated Research
19,180
18,520
19,502
18,231
Earnings per share attributable to members of Integrated Research:
Basic earnings per share (AUD cents)
Diluted earnings per share (AUD cents)
8
8
11.19
11.15
10.86
10.78
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 2018Financial Statements
Consolidated statement of financial position
As at 30 June 2018
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
2018
2017
9
10
11
10
12
13
14
15
17
20
21
19
14
20
21
22
22
11,238
44,186
1,037
1,792
58,253
14,113
35,998
1,156
1,860
53,127
26,892
23,299
255
2,547
687
21,938
52,319
171
1,872
1,147
19,934
46,423
110,572
99,550
10,140
3,085
1,986
9,620
2,607
4,302
22,643
20,077
329
38,183
11
36,617
‑
4,281
829
9,371
70
14,551
1,476
3,440
882
8,411
204
14,413
52,734
51,030
57,838
48,520
1,667
3,043
53,128
57,838
1,667
1,768
45,085
48,520
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 2018 Consolidated statement of changes in equity
Balance at 30 June 2018
1,667
(146)
(256)
3,445
For the year ended 30 June 2018
Consolidated
In thousands of AUD
Balance at 1 July 2017
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
‑
‑
‑
‑
‑
Consolidated
In thousands of AUD
Balance at 1 July 2016
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 2017
1,667
Hedging
reserve
Translation
reserve
Employee
benefit
reserve
Retained
earnings
Total
(754)
2,492
45,085
48,520
30
‑
(176)
(176)
‑
‑
50
‑
(20)
(20)
‑
‑
30
‑
498
498
‑
‑
‑
‑
‑
953
‑
Employee
benefit
reserve
2,161
‑
‑
‑
331
‑
(485)
‑
(269)
(269)
‑
‑
(754)
2,492
19,180
19,180
‑
322
19,180
19,502
‑
(11,137)
53,128
953
(11,137)
57,838
Retained
earnings
37,653
18,520
Total
41,046
18,520
‑
(289)
18,520
18,231
‑
(11,088)
45,085
331
(11,088)
48,520
Hedging
reserve
Translation
reserve
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 2018Financial Statements Consolidated statement of cash flows
For the year ended 30 June 2018
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
26
Cash flows from investing activities
Payments for capitalised development
Payments for property, plant and equipment
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
22
9
Consolidated
Notes
2018
2017
82,734
88,897
(53,362)
(54,983)
29,372
(7,930)
21,442
33,914
(7,752)
26,162
(11,524)
(8,588)
(1,158)
(803)
(27)
518
(95)
(80)
289
(116)
(12,286)
(9,298)
4,500
(4,500)
(11,137)
(11,137)
(1,981)
14,113
(894)
11,238
6,250
(6,250)
(11,088)
(11,088)
5,776
8,544
(207)
14,113
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 2018 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 2017 and
have not had any material
effect on its financial position
or performance:
AASB 2016‑1 ‘Amendments
to Australian Accounting
Standards ‑ Recognition
of Deferred Tax Assets for
Unrealised Losses’
AASB 2016‑2 ‘Amendments
to Australian Accounting
Standards ‑ Disclosure Initiative:
Amendments to AASB 107’
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 2018 comprises
the Company and its subsidiaries
(together referred to as the
“consolidated entity”).
The financial report was authorised
for issue by the directors on
16 August 2018.
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.
Notes to the
Financial
Statements
For the year ended
30 June 2018
50
Integrated Research and its controlled entities Annual Report 2018Financial 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
AASB 2016‑5 Amendments to Australian Accounting Standards
‑ Classification and Measurement of Share‑based Payment
Transactions
AASB 2017‑1 Amendments to Australian Accounting Standards ‑
Transfers of Investments Property, Annual Improvements 2014‑2016
Cycle and Other Amendments
AASB Interpretation 22 Foreign Currency Transactions and Advance
Consideration
AASB 2017‑6 Amendments to Australian Accounting Standards ‑
Prepayment Features with Negative Compensation
AASB 2018‑1 Amendments to Australian Accounting Standards ‑
Annual Improvements 2015‑2017 Cycle
AASB 2018‑2 Amendments to Australian Accounting Standards ‑
Plan Amendment, Curtailment or Settlement
AASB Interpretation 23 Uncertainty over Income Tax Treatments,
and relevant amending standards
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 Jan 2018
30 June 2019
1 Jan 2018
30 June 2019
1 Jan 2018
30 June 2019
1 Jan 2019
30 June 2020
1 Jan 2019
30 June 2020
1 Jan 2019
30 June 2020
1 Jan 2019
30 June 2020
51
Integrated Research and its controlled entities Annual Report 2018 Note 1: Significant
accounting policies (cont.)
Initial application of the following
Standards is likely to impact the
amounts recognised in the future
financial statements.
AASB15 ‘Revenue from Contracts
with Customers’
The standard is applicable to the
financial year ended 30 June 2019
and has superseded all current
revenue recognition requirements
under Australian Accounting
Standards. The Company will apply
the modified retrospective method in
adopting the new standard, resulting
in the recognition of transition
adjustments on adoption.
The Company has materially assessed
the impact of adopting AASB 15 and
the indicative transition adjustments
as follows:
• There are no material transition
adjustments required for revenue
arising from historic contracts with
customers;
• There is a transition adjustment
required in relation to the
incremental costs of obtaining a
contract.
The transition adjustment arises
from the Company remunerating
employees who actively participate
in the sales process with commissions
calculated based on revenues where
they have been involved in the
successful contract execution. This
typically includes revenues which
will be recognised in subsequent
financial reporting periods.
Under the current accounting
policy, commissions related to sales
are recognised as an expense on
contract execution, which is the point
at which a constructive obligation
arises for the Company. Under AASB
15, these costs will be recognised
as an asset on contract execution
with the amortisation period being
consistent with the period over
which the associated revenue will be
recognised.
For the 30 June 2019 financial
year the transition adjustment as
at 1 July 2018 is expected to be an
increase of no more than $2 million
to the Company’s assets.
52
AASB9 ‘Financial Instruments’
c) Basis of consolidation
The standard is applicable to the
financial year ended 30 June 2019.
AASB 9 will replace the requirements
of AASB 139 Financial Instruments:
Recognition and Measurement and
bring together the classification,
measurement, impairment and
hedge accounting requirements for
financial instruments.
The Company is continuing to assess
any possible impacts of adopting the
standard and at this point does not
expect a transition adjustment as at
1 July 2018.
AASB16 ‘Leases’
The standard is applicable to the
financial year ended 30 June 2020.
It introduces a single lessee
accounting model and requires
a lessee to recognise assets and
liabilities for all leases with a term
of more than twelve months, unless
the underlying asset is of low value.
A lessee will recognise a right‑of‑use
asset representing its right to use the
underlying leased asset and a lease
liability representing its obligation to
make lease payments. Depreciation
of the asset and interest on the
liability will be recognised.
This standard will impact the
Company’s financial position at
transition and in future years, as
the Company’s operating leases
(primarily in relation to its offices)
are recognised on balance sheet.
The standard is not expected to
materially impact the Company’s
opening retained earnings as at
1 July 2019. Rental expense currently
recognised in the consolidated
statement of comprehensive income
will be replaced with depreciation
and interest.
The accounting policies set out
below have been applied consistently
to all periods presented in the
consolidated financial statements.
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.
Integrated Research and its controlled entities Annual Report 2018Financial Statements 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.
Note 1: Significant
accounting policies (cont.)
c) Basis of consolidation
(cont.)
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.
53
Integrated Research and its controlled entities Annual Report 2018 Note 1: Significant
accounting policies (cont.)
f) Derivative financial
instruments
The consolidated entity uses
derivative financial instruments
to hedge its exposure to
foreign exchange risks arising
from operational activities.
In accordance with its treasury
policy, the consolidated entity
does not hold or issue derivative
financial instruments for
trading purposes.
Derivative financial instruments
are recognised initially at
fair value. Subsequent to initial
recognition, derivative financial
instruments are stated at
fair value. The gain or loss on
remeasurement to fair value
is recognised immediately in
profit or loss. However, where
derivatives qualify for hedge
accounting, recognition of any
resultant gain or loss depends
on the nature of the item
being hedged.
The fair value of forward
exchange contracts is their
quoted market price at the year
end date, being the present value
of the quoted forward price.
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
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 amortised 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 2018Financial Statements 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.
k) Cash and cash
equivalents
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.
Refer to Note 1 (u) for Goodwill
impairment considerations.
For intangible assets that are
not yet available for use, the
recoverable amount is estimated
at each year end date.
An impairment loss is recognised
whenever the carrying
amount of an asset or its cash
generating unit exceeds its
recoverable amount. Impairment
losses are recognised in profit
or loss unless the asset has
previously been revalued, in
which case the impairment
loss is recognised as a reversal
to the extent of that previous
revaluation with any excess
recognised through profit or loss.
The recoverable amount of other
assets is the greater of their fair
value less costs to sell and value
in use. In assessing value in use,
the estimated future cash flows
are discounted to their present
value using a pre‑tax discount
rate that reflects current market
assessments of the time value of
money and 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.
Long‑term service benefits
The consolidated entity’s net
obligation in respect of long‑term
service benefits, other than
pension plans, is the amount of
future benefit that employees
have earned in return for their
service in the current and
prior periods. The obligation
is calculated using expected
future increases in wage and
salary rates including related
on‑costs and expected settlement
dates, and is discounted using
the rates attached to the high
quality 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 Black‑Scholes
methodology, taking into account
the terms and conditions upon
which the options were granted.
The amount recognised as an
expense is adjusted to reflect the
actual number of share options
or performance rights that are
expected to vest.
Wages, salaries, annual leave,
and non‑monetary benefits
Liabilities for employee benefits
for wages, salaries and annual
leave represent present
obligations resulting from
employees’ services provided to
the year end date, calculated at
undiscounted amounts based on
remuneration wage and salary
rates that the consolidated entity
expects to pay as at the year
end date.
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.
55
Integrated Research and its controlled entities Annual Report 2018 Note 1: Significant
accounting policies (cont.)
o) Trade and other
payables
Trade and other payables are
stated at their amortised cost.
p) Revenue
q) Expenses
Operating lease payments
Payments made under operating
leases are recognised in profit
or loss on a straight‑line basis
over the term of the lease. Lease
incentives received are recognised
in profit or loss as an integral part
of the total lease expense and
spread over the lease term.
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.
Services provided to customers
under maintenance contracts
include technical support and
supply of software updates.
Revenue from testing solutions
services is recognised over the
period the 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.
r) Financing income
Financing income comprises
interest receivable on funds
invested. the financing
component of the sale of
licences and interest payable
on borrowings.
s) 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.
t) 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.
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.
56
Integrated Research and its controlled entities Annual Report 2018Financial Statements Intangible assets ‑ Goodwill
Goodwill acquired from business
acquisitions is initially measured
at cost. Goodwill 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 Black‑Scholes methodology
and applying management
determined probability
factors relating to non‑market
vesting conditions.
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.
Note 1: Significant
accounting policies (cont.)
v) 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.
57
Integrated Research and its controlled entities Annual Report 2018 Note 2. Segment reporting
The Chief Operating Decision Maker (CODM), being the Chief Executive Officer, reviews a variety of information on the
performance of Prognosis across the group for the purpose of resource allocation. The CODM monitors profit at a group
level for the Prognosis group.
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 and Germany 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 ‑ with responsibility 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.
Information regarding these geographic 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
2018
2017
2018
2017
2018 2017
2018
2017
2018
2017
2018
2017
64,176 64,314
13,740 14,867
13,189 11,596
70
392
‑
‑
91,175 91,169
‑
‑
‑
‑
‑
‑
46,615 48,013
(46,615)
(48,013)
‑
‑
64,176 64,314
13,740 14,867
13,189 11,596 46,685 48,405
(46,615)
(48,013)
91,175 91,169
91,175 91,169
1,925
1,929
342
327
379
313 23,202 23,139
‑ 25,848 25,708
In thousands of
AUD
Sales to customers
outside the
consolidated
entity
Inter‑segment
revenue
Total segment
revenue
Total revenue
Segment results
(before finance
income and tax)
Results from
operating activities
Financing income
Income tax expense
Profit for the year
25,848 25,708
423
173
(7,091)
(7,361)
19,180 18,520
1,563
883
10,582 11,299
‑
‑
‑
‑
Capital additions2
273
96
105
94
81
17
1,104
676
Depreciation
and amortisation
expenditure
443
475
90
70
44
9
10,005 10,745
Americas
(USD)
Europe
(GBP)
In local currency3
2018
2017
2018
2017
Sales to customers
outside the
consolidated entity
49,519 48,207
7,849 8,752
Inter‑segment sales
‑
‑
‑
‑
Total segment
revenue
49,519 48,207
7,849 8,752
Segment results
1,485
1,446
196
219
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.
58
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 3. Expenditure
Total expenditure includes:
In thousands of AUD
Employee benefits expense:
Defined contribution plans
Equity settled share‑based payments
Other employee benefits
Depreciation and amortisation
Bad and doubtful debt expense
Operating lease rental expenses
Note 4. Other gains and (losses)
In thousands of AUD
Writeback of deferred consideration for acquisition
Loss on sale of financial assets
Currency exchange gains/(losses)
Note
19
24
Consolidated
2018
2017
2,414
950
46,556
49,920
10,582
350
2,102
Consolidated
2018
1,496
(738)
802
1,560
1,998
363
41,904
44,265
11,299
527
1,930
2017
528
(676)
(760)
(908)
At 30 June 2018, the Company revised the fair value of the deferred consideration liability to nil resulting in a credit to
profit of $1,496,000, which is inclusive of $20,000 in foreign exchange gains on translation. The write‑back reflects the
fair value of the deferred consideration based on the current year actual results for the 2018 financial year. The deferred
consideration was based upon IQ Services achieving EBITDA milestones over the three years between 1 July 2015 and
30 June 2018. There were catch‑up mechanisms over the three year period with the potential final payment ranging
between nil and $3.5 million which were not met.
Note 5. Finance income
In thousands of AUD
Interest income
Interest on borrowings
Consolidated
2018
518
(95)
423
2017
289
(116)
173
59
Integrated Research and its controlled entities Annual Report 2018 Note 6. Auditors’ remuneration
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
Other auditors
Remuneration for other services by the auditors of the Company or any entity
in the consolidated entity:
Taxation services:
Auditors of the Company
Note 7. 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
14
Total income tax expense in profit and loss
Numerical reconciliation between income tax expense and profit before tax
In thousands of AUD
Profit before tax
Income tax using the domestic corporate tax rate of 30%
Increase in income tax expense due to:
Non‑deductible expenses
Effect of tax rates in foreign jurisdictions
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
60
Consolidated
Note
2018
2017
Consolidated
2018
2017
275,080
‑
211,250
24,926
114,451
130,926
8,636
(244)
8,392
(1,301)
7,091
Consolidated
2018
26,271
7,881
303
321
214
(244)
(901)
(483)
7,091
6,915
315
7,230
131
7,361
2017
25,881
7,768
250
201
(126)
315
(855)
(192)
7,361
Integrated Research and its controlled entities Annual Report 2018Financial Statements
Note 8. Earnings per share
The calculation of basic and diluted earnings per share at 30 June 2018 was based on the profit attributable to ordinary
shareholders of $19,180,000 (2017: $18,520,000); a weighted number of ordinary shares outstanding during the year
ended 30 June 2018 of 171,436,022 (2017: 170,550,871); and a weighted number of ordinary shares (diluted) outstanding
during the year ended 30 June 2018 of 172,067,466 (2017: 171,755,729), 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 9. Cash and cash equivalents
In thousands of AUD
Cash at bank and on hand
Consolidated
2018
19,180
2017
18,520
Consolidated
2018
2017
171,436,022
170,550,871
631,444
1,204,858
172,067,466
171,755,729
11.19
11.15
10.86
10.78
Consolidated
2018
11,238
2017
14,113
61
Integrated Research and its controlled entities Annual Report 2018 Note 10. 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
2018
45,374
(1,346)
44,028
158
44,186
2017
37,234
(1,454)
35,780
218
35,998
Consolidated
2018
26,892
2017
23,299
The Company provides customers of good credit worthiness extended payment plans over the committed term of the
licence contract ranging between one to five years. For customers not on extended payment plans the credit period on
sales range from 30 to 90 days.
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
2018
2,292
1,594
903
4,789
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
(Decrease)/increase in provision
Balance end of year
Consolidated
2018
1,454
(458)
350
1,346
2017
1,988
305
244
2,537
2017
1,860
(933)
527
1,454
The Company has used the following criteria to assess the allowance loss for trade receivables 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 Company’s trade receivable balance are debtors which are 90 days past due at the reporting date which
the Company has not provided for as there has been no significant change in credit quality and the consolidated entity
believes that the amounts are still recoverable. The Company does not hold any collateral over these balances.
62
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 11. Other current assets
In thousands of AUD
Other prepayments
Fair value of hedge asset ‑ forward foreign exchange contracts
Note 12. Other financial assets
In thousands of AUD
Deposits
Consolidated
2018
1,783
9
1,792
2017
1,763
97
1,860
Consolidated
2018
255
2017
171
The carrying amount of other financial assets is a reasonable approximation of their fair value.
Note 13. 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
Consolidated
2018
5,325
(3,672)
1,653
Consolidated
2018
3,292
(2,398)
894
Total property, plant and equipment
Consolidated
In thousands of AUD
At cost
Accumulated depreciation
Total written down amount
2018
8,617
(6,070)
2,547
2017
4,350
(3,046)
1,304
2017
2,642
(2,073)
569
2017
6,992
(5,120)
1,872
63
Integrated Research and its controlled entities Annual Report 2018 Note 13: Property, plant and equipment (cont.)
Plant and Equipment
In thousands of AUD
Carrying amount at start of year
Additions
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
Effects of foreign currency exchange
Depreciation expense
Carrying amount at end of year
Note 14. Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
2018
1,304
896
22
(569)
1,653
Consolidated
2018
569
629
10
(314)
894
2017
1,308
512
(20)
(496)
1,304
2017
485
290
(11)
(195)
569
Consolidated
In thousands of AUD
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Unrealised foreign exchange gain
Unrealised foreign exchange loss
Assets
Liabilities
Net
2018
‑
619
1,140
170
206
‑
‑
2017
‑
321
1,260
553
77
‑
242
2,453
2018
5,454
2017
4,746
2018
2017
(5,454)
(4,746)
‑
‑
‑
‑
275
‑
5,729
‑
‑
‑
‑
‑
‑
619
1140
170
206
(275)
‑
321
1,260
553
77
‑
242
4,746
(1,306)
3,440
(3,594)
(2,293)
‑
‑
(3,594)
(2,293)
Deferred tax assets/(liabilities)
2,135
Set off of deferred tax asset
(1,448)
(1,306)
(1,448)
Net deferred tax assets/(liabilities)
687
1,147
4,281
64
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 14: Deferred tax assets and liabilities (cont.)
Movement in temporary differences during the year:
For year ended 30 June 2018
In thousands of AUD
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Unrealised foreign exchange gain
Unrealised foreign exchange loss
For year ended 30 June 2017
In thousands of AUD
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Unrealised foreign exchange gain
Unrealised foreign exchange loss
‑
‑
‑
‑
‑
‑
‑
‑
Consolidated
Recognised
in income
Recognised
in equity
Balance
1 July 17
(4,746)
321
1,260
553
77
‑
242
(708)
298
(120)
(383)
129
(275)
(242)
(2,293)
(1,301)
Balance
1 July 16
(5,183)
355
1,051
774
437
‑
142
(2,424)
Consolidated
Recognised
in income
Recognised
in equity
437
(34)
209
(221)
(360)
‑
100
131
‑
‑
‑
‑
‑
‑
‑
‑
Balance
30 June 18
(5,454)
619
1,140
170
206
(275)
‑
(3,594)
Balance
30 June 17
(4,746)
321
1,260
553
77
‑
242
(2,293)
65
Integrated Research and its controlled entities Annual Report 2018 Note 15. Intangible assets
The balance of capitalised intangible assets comprises:
Cost
In thousands of AUD
Balance at 1 July 2016
Fully amortised & offset
Internally developed
Purchased
Effects of foreign currency exchange
Software
development
Third party
software
32,546
(12,326)
8,588
‑
‑
1,303
‑
‑
80
(5)
Balance at 30 June 2017
28,808
1,378
Consolidated
Goodwill
3,289
‑
‑
‑
(86)
3,203
Customer
Relationship
800
‑
‑
‑
(20)
780
Total
37,938
(12,326)
8,588
80
(111)
34,169
1,378
3,203
780
34,169
Balance at 1 July 2017
Fully amortised & offset
Internally developed
Purchased
Effects of foreign currency exchange
28,808
‑
11,524
‑
‑
Balance at 30 June 2018
40,332
1,424
‑
‑
38
8
‑
‑
‑
131
3,334
Consolidated
‑
‑
‑
32
812
Amortisation
In thousands of AUD
Balance at 1 July 2016
Fully amortised & offset
Amortisation for year
Effects of foreign currency exchange
Balance at 30 June 2017
Balance at 1 July 2017
Fully amortised & offset
Amortisation for year
Effects of foreign currency exchange
Software
development
Third party
software
Goodwill
Customer
Relationship
14,730
(12,326)
10,301
‑
12,705
12,705
‑
9,448
‑
1,076
‑
147
(5)
1,218
1,218
‑
98
8
‑
‑
‑
‑
‑
‑
‑
‑
‑
160
‑
160
(8)
312
312
‑
155
20
‑
11,524
38
171
45,902
Total
15,966
(12,326)
10,608
(13)
14,235
14,235
‑
9,701
28
Balance at 30 June 2018
22,153
1,324
‑
487
23,964
Carrying amounts
Consolidated
In thousands of AUD
Balance at 30 June 2017
Balance at 30 June 2018
Software
development
Third party
software
16,103
18,179
160
100
Goodwill
3,203
3,334
Customer
Relationship
468
325
Total
19,934
21,938
66
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 16. Goodwill
Goodwill arose on the acquisition of IQ Services business in the year ending 30 June 2016. Management has identified
the Group as the cash generating unit (the Prognosis CGU) to which goodwill is allocated for impairment testing.
Management performs its annual impairment testing at least annually. The carrying value of goodwill at 30 June 2018 is
$3,334,000 (2017: $3,203,000). A reconciliation of the movement in goodwill is included in note 15.
The recoverable amount of the Prognosis CGU has been determined using a value in use approach. The value in use has
been based on the following key assumptions:
1. Cash flow forecasts
The cash flow forecasts are based upon a Board approved 2019 budget and management projections for the subsequent
four years of the Prognosis CGU.
2. Discount rate
Discount rate of 11% (2017: 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% (2017: 3%)
which is determined by Management based on their assessment of expected long term annual growth for the
software industry.
The value in use does not indicate any impairment is required at 30 June 2018.
Management believe that a reasonable change in any of the above key assumptions would not cause the carrying values
to exceed their recoverable amounts.
Note 17. Trade and other payables
In thousands of AUD
Trade and other creditors
The average credit period on trade and other payables is 30 days.
Note 18. Employee benefits
In thousands of AUD
Current
Liability for annual leave
Liability for long service leave
Non‑current
Liability for long service leave
Pension plans
Consolidated
2018
10,140
2017
9,620
Consolidated
2018
2017
2,143
942
3,085
1,765
842
2,607
242
316
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.
67
Integrated Research and its controlled entities Annual Report 2018 Note 18. Employee benefits (cont.)
Share based payments
Performance Rights
On 21 November 2011, the consolidated entity established the Integrated Research Performance Rights and Options Plan
(IRPROP). The plan enables the Company to offer performance rights to eligible employees to obtain shares in Integrated
Research at no cost contingent upon performance conditions being met. The performance conditions include either
a service period with performance components or a service period with a net after tax profit hurdle. The performance
rights are automatically exercised into shares upon the performance conditions being met. The following performance
rights were granted during the period:
Grant Date
Sep‑17
Oct‑17
Nov‑17
Number of Rights
Earliest Vesting Date
Expiry date
125,000
475,000
210,000
Aug 2020
Sep 2020
Aug 2018
Sep 2020
Oct 2020
Sep 2020
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)
Model Used
Sep 2017
Oct 2017
Nov 2017
$3.178
$3.38
nil
50%
1,125
1.7%
2.0%
$3.217
$3.39
nil
50%
1,122
1.7%
2.0%
$3.595
$3.77
Nil
50%
1,018
1.7%
2.0%
Black‑Scholes
Black‑Scholes
Black‑Scholes
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.
During the year ended 30 June 2018, the consolidated entity recognised an expense through profit of $950,000 related
to the fair value of performance rights (2017: $363,000).
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)
2018
1,801
(511)
(1,100)
810
1,000
‑
2017
1,999
(848)
(150)
800
1,801
‑
68
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 19. Deferred consideration for acquisition
In thousands of AUD
Non‑current
Deferred consideration for acquisition
Note 20. Provisions
In thousands of AUD
Current
Employee benefits
Non‑current
Employee benefits
Lease make good
Note 21. Other liabilities
In thousands of AUD
Current
Fair value of hedge liabilities ‑ forward
foreign exchange contracts
Non‑current
Other creditors
Note
4
Consolidated
2018
2017
‑
‑
1,476
1,476
Consolidated
Note
2018
2017
18
18
3,085
2,607
242
587
829
316
566
882
Consolidated
2018
2017
329
11
70
204
69
Integrated Research and its controlled entities Annual Report 2018 Note 22. Capital and reserves
Share capital
In thousands of shares
On issue 1 July
Issued against employee performance right exercised
On issue 30 June
Ordinary shares
2018
170,581
1,100
171,681
2017
170,431
150
170,581
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 18 for further details.
70
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 22. Capital and reserves (cont.)
Dividends
Dividends recognised in the current year by the company are:
In thousands of AUD
Cents
per share
Total amount
Franked/
unfranked
Date of
payment
2018
Final 2017
Interim 2018
Total amount
2017
Final 2016
Interim 2017
Total amount
3.5
3.0
3.5
3.0
5,987
100% franked
5,150
100% franked
26 Sep 17
10 Apr 18
11,137
5,970
60% franked
5,118
70% franked
13 Oct 16
19 Apr 17
11,088
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 2018 and will be
recognised in subsequent financial statements:
In thousands of AUD
Final 2018
Cents
per share
3.5
Total amount
Franked/
unfranked
6,009
100% franked
Date of
payment
16 Oct 18
The final dividend declared of 3.5 cents together with the interim dividend paid in April 2018 of 3.0 cents takes total
dividends for the 2018 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
2018
7,260
(2,575)
2017
4,643
(2,566)
71
Integrated Research and its controlled entities Annual Report 2018 Note 23. Financial instruments
Capital risk management
The consolidated entity manages its capital to ensure that controlled entities will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of treasury management.
The capital structure of the consolidated entity consists of cash and cash equivalents and equity attributable to equity holders
of the company, comprising issued capital, reserves, and retained earnings as disclosed in Notes 10 and 23 respectively.
Borrowing Facility
The Company has available a $10 million multicurrency revolving cash advance facility that remains undrawn at
30 June 2018. The primary purpose of the facility is to fund working capital requirements. On 29 June 2018, the facility
was extended for a further three and a half years (terminates 31 December 2021).
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.
Interest is variable, linked to Bank Bill Swap Bid Rate (BBSY), plus a margin.
Bank Guarantee Facility
The Company has a $900,000 bank guarantee facility. The primary purpose of the facility is to provide bank guarantees
to the Company’s landlord pursuant to contractual lease arrangements. At 30 June 2018, the total value of bank
guarantees provided was $819,000. The facility terminates on 31 December 2019.
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.
72
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 23. 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
Consolidated
Liabilities
Assets
2018
1,258
‑
2017
707
‑
2018
6,047
1,396
2017
4,345
1,249
Foreign currency sensitivity
At 30 June 2018, if the US Dollar and Euro 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
Change in currency (i) ‑ 10% decrease
US Dollar Impact
Euro Impact
Change in currency (i) ‑ 10% increase
Consolidated
Net profit
Retained earnings
2018
532
155
(435)
(127)
2017
404
139
(331)
(114)
2018
532
155
(435)
(127)
2017
404
139
(331)
(114)
(i) This has been based on the change in the exchange rate against the Australian dollar in the financial years ended 30 June 2018 and 30 June 2017.
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, Germany 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 United
States Dollar, UK Sterling, Euro and Singapore Dollar each.
73
Integrated Research and its controlled entities Annual Report 2018 Note 23. 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
2018
2017
2018
FC’000
2017
FC’000
2018
A$’000
2017
A$’000
2018
A$’000
2017
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
0.77
0.77
0.77
0.74
0.64
0.62
0.62
‑
0.58
0.57
0.56
‑
0.75
0.75
0.76
0.75
0.67
0.69
0.69
‑
0.57
0.61
0.60
0.58
2,800
2,000
1,250
1,250
1,850
3,623
2,454
450
1,150
750
2,619
1,629
1,687
596
1,515
995
(166)
(86)
(60)
‑
150
50
100
‑
70
50
100
‑
100
50
50
‑
150
50
50
50
235
81
161
‑
120
87
180
‑
150
73
73
‑
263
82
83
86
(3)
1
1
‑
(5)
(3)
1
‑
(320)
46
10
15
15
1
(2)
(3)
‑
10
(3)
(3)
1
87
These hedge assets and liabilities are classified as a level 2 fair value measurement, being derived from inputs provided
from financial institutions, rather than quoted prices that are observable for the asset either directly (i.e. as prices) or
indirectly (i.e. derived from prices). The fair value measurement of the over the counter 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.
74
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 23. 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 balance with any one customer at 30 June 2018 was $4.5 million (2017: $3.9 million).
Ongoing credit evaluation is performed on the financial condition of accounts.
The Company continued its program to sell selected account receivable balances to a third party without recourse.
The purpose of the program is to manage credit risk and improve working capital. During the year ended 30 June 2018
a total of $14.4 million (2017: $8.0 million) debtors were sold at a cost of $738,000 (2017: $676,000). The Company
continues to bear maintenance support obligations to the end customers which are carried as a liability in the deferred
revenue account of the Company’s balance sheet of $3.0 million (2017: $0.8 million).
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 17 and Note 21 for both 2018 and 2017 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.
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%. The carrying value of non‑current trade debtors for 2018 of the consolidated entity was a
reasonable approximation of their fair value.
Note 24. 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
2018
2,001
1,674
‑
3,675
2017
1,938
3,275
‑
5,213
75
Integrated Research and its controlled entities Annual Report 2018 Note 25. Consolidated entities
Parent entity:
Integrated Research Limited
Subsidiaries of Integrated Research Limited:
Integrated Research Inc
Integrated Research Singapore Pte Limited
Integrated Research UK Limited
Subsidiaries of Integrated Research UK Limited:
Ownership interest
Country of
incorporation
2018
2017
Australia
USA
Singapore
UK
100%
100%
100%
100%
100%
100%
Integrated Research Germany GmbH
Germany
100%
100%
Note 26. Reconciliation of cash flows from operating activities
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:
(Increase)/decrease in trade debtors
(Increase)/decrease in future income tax benefit
(Increase)/decrease in other operating assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in other operating liabilities
Increase/(decrease) in provision for income taxes payable
Increase/(decrease) in provision for deferred income taxes
Increase/(decrease) in other provisions
Net cash from operating activities
Consolidated
2018
19,180
10,582
(108)
(518)
95
950
883
2017
18,520
11,299
(406)
(289)
116
363
18
(11,889)
(6,501)
579
(16)
520
2,234
(2,316)
841
425
345
(569)
546
2,238
1,068
(476)
(110)
21,442
26,162
76
Integrated Research and its controlled entities Annual Report 2018Financial Statements Note 27. 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
2018
2017
3,400,669
3,780,356
27,992
150,592
460,409
24,658
184,016
150,046
4,039,662
4,139,076
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 28. Related parties
At 30 June 2018 Mr Steve Killelea, the Chairman of the Company, owned either directly or indirectly 39.72% of the
Company (2017: 52.67%).
Note 29. 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
2018
2017
40,730
20,553
61,283
9,505
5,845
15,350
45,933
1,667
3,445
(146)
40,967
45,933
37,197
16,475
53,672
10,830
4,116
14,946
38,726
1,667
2,492
30
34,537
38,726
77
Integrated Research and its controlled entities Annual Report 2018 Note 29. 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.
Note 30. Subsequent events
Dividends
Parent Entity
2018
2017
17,660
(176)
17,484
16,857
(20)
16,837
For dividends declared after 30 June 2018 see Note 22 in the financial statements. The financial effect of dividends
declared and paid after 30 June 2018 have not been brought to account in the financial statements for the year ended
30 June 2018 and will be recognised in subsequent financial reports.
78
Integrated Research and its controlled entities Annual Report 2018Financial 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 2018
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 2018 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 2018.
This declaration is made in accordance with a resolution of the Directors.
Steve Killelea
Chairman
John Merakovsky
Chief Executive Officer
North Sydney, 16 August 2018
North Sydney, 16 August 2018
79
Integrated Research and its controlled entities Annual Report 2018 80
Integrated Research and its controlled entities Annual Report 2018 81
Integrated Research and its controlled entities Annual Report 2018 82
Integrated Research and its controlled entities Annual Report 2018 83
Integrated Research and its controlled entities Annual Report 2018 84
Integrated Research and its controlled entities Annual Report 2018 27 to 35
85
Integrated Research and its controlled entities Annual Report 2018 86
Integrated Research and its controlled entities Annual Report 2018 ASX additional information
Shareholder information
Analysis of numbers of equity security holders by size of holding as at September 2018
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 11 September 2018
Rank Name
1.
2.
3.
4.
MR STEPHEN JOHN KILLELEA
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
5. MR ANDREW RHYS RUTHERFORD
6.
7.
8.
9.
BNP PARIBAS NOMINEES PTY LTD
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