IRESS 2011 ANNUAL REPORT DIRECTORS P Dunai – Chairman A Walsh – Managing Director B Burdett J Seabrook J Cameron J Hayes COMPANY SECRETARY S Bland P Ferguson REGISTERED OFFICE Level 18, 385 Bourke Street Melbourne Vic 3000 Phone: (03) 9018 5800 Fax: (03) 9018 5844 SHARE REGISTRY Link Market Services Limited Level 4, 333 Collins Street Melbourne Vic 3000 BANKERS National Australia Bank Limited AUDITORS Deloitte Touche Tohmatsu SOLICITORS Mallesons Stephen Jaques STOCK EXCHANGE LISTING IRESS Market Technology Limited shares are quoted on the Australian Stock Exchange under the code IRE. THE ANNUAL GENERAL MEETING The Annual General Meeting of the Shareholders of IRESS Market Technology Limited will be held in the Board Room at Level 18, 385 Bourke Street, Melbourne 3000 on Thursday, 3 May 2012 at 11.30 a.m. * For full details and Proxy Form please refer to the separate document enclosed. IRESS ANNUAL REPORT HIGHLIGHTS FINANCIAL SUMMARY CHAIRMAN AND MANAGING DIRECTOR’S REPORT DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT INDEPENDENT AUDITOR’S REPORT DIRECTORS’ DECLARATION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS 2 2 3 9 33 34 46 48 49 50 51 52 53 SHAREHOLDER INFORMATION 110 1 IRESS ANNUAL REPORT HIGHLIGHTS Consolidated profit from ordinary activities after income tax, adjusted for non-recurring items, for the twelve months ended 31 December 2011 was $59.8 million, an increase of 2.4% on the previous year. Group segment profits were $89.1 million, an increase of 3.4% on the previous year, and basic earnings per share on an adjusted basis increased 1.1% to 47.210 cents per share. Reported profit after tax, which includes the impact of non-recurring/non-operating items, was $41.3 million, compared with $50.5 million last year, a decline of 18.1%. Consistent with prior periods, the significant non-operating charges in 2011 related to the depreciation and amortisation of software arising on the acquisition of businesses. Collectively these charges had a pre-tax impact of $17.827 million (2010: $9.560 million). In addition the above adjusted results are prior to inclusion of share based payment expenses which are excluded to provide inter-period comparability of the underlying business operations. Directors have declared a final dividend of 24.0 cents per share 83% franked at a 30% tax rate. The final dividend combined with the first half interim dividend of 14.0 cents gives a total of 38.0 cents partially franked on each share. A total dividend of 38.0 cents per share represents a payout ratio of around 80.7% of full year adjusted earnings. FINANCIAL SUMMARY 12 MONTHS TO 31 DECEMBER 2011 Total revenues ($m) Profit before income tax expense ($m) Profit attributable to the members of the parent entity ($) Adjusted basic earnings per share (cents) Dividend per share (cents) *Calculated prior to inclusion of the 3.5 cent unfranked special dividend. CONSOLIDATED 2011 CONSOLIDATED 2010 204.758 179.585 60.160 41.341 47.210 38.0 67.827 50.479 46.675 38.0* 2 IRESS Market Technology Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT FINANCIAL MARKETS – AUSTRALIA AND NEW ZEALAND During 2011, revenue growth was strongly associated with client preparation for multiple trading venues. Revenue for our leading range of multi-markets products and services commenced once venue competition opened in October, supported by investment made by the company in headcount. The success of this technology transition was viewed as a key event to retain and enhance our position in the Australian financial markets. While it is early days, we are well prepared for the opportunities presented in the increasingly complex and fragmented Australian equity market. Outside of services associated with multi-markets, revenues were largely flat in the face of challenging trading volumes for our clients and an ever increasingly cost driven focus. In addition to the sizeable bad debts arising on the demise of Minc Financial and MF Global they represented a loss in ongoing recurring subscription revenues, which are yet to be fully replaced. Cancellations coming from the prolonged poor conditions increased late in the second half. The division achieved revenue growth of 4.2% over the full year (up 0.6% and 1.7% on the prior half year’s results for the period to June 2011 and December 2011 respectively). Investment in staff to support clients through what has been arguably the most significant change in Australia’s trading micro-structure, resulted in a decline in segment profits of 4.4% for the full year (down 5.9% and 2.4% respectively on the prior half’s results). Some of the key highlights were: Multi-markets transition ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ 10,000 users upgraded for consolidated market data for all venues. 19 of 22 brokers live on ChiX launch used IOS+. 59 IOS+ servers now in production are multi-market featured. Best Market Router (BMR) in production with 15 clients. Liquidity view and trade-through analysis (best-execution) tools available. Operator Trader Workstation (OTW) terminal providing multi-market upgrade path for Integrated Trading System (ITS) users. IRESS Optical Network (ION) 10GB low latency network established and used by 7 of top 10 brokers. Liquidity Pool and auto-crosser in production with 3 clients. IOS+ key role in providing high capacity flexible order management across all venues. Low-latency IRESS eco-system offering superior technical and cost outcomes to clients. Extended retail product suite including new web and mobile (iphone, ipad, Android) offerings. 3 CHAIRMAN AND MANAGING DIRECTOR’S REPORT FINANCIAL MARKETS – CANADA Our Canadian financial markets operations produced good revenue growth with revenue up 10.9% (CAD) on 2010 (up 7.0% and 7.1% on the prior half year’s results (CAD) for the period to June 2011 and December 2011 respectively). The outcome reflected resilience in the underlying business, together with additional revenue associated with project completions. This growth occurs in a period of prolonged and challenging macro conditions for our client base, the impact providing a subduing influence on demand for new services. Some improvements in contribution together with moderated growth in the operating cost base yielded a 13.5% (CAD) improvement in segment profits (up 5.7% and 15.4% on the prior half year’s results (CAD) for the period to June 2011 and December 2011 respectively). The performance of the division was lessened by strong currency movements translating to growth of 2.0% and 4.5% for revenue and segment profit respectively when measured in Australian dollars. Some of the key highlights were: Positive progress on institutional order management with clients and prospects. Now in broader client base rollout. Continues to be a core strategic focus. IRESS Best Market Router (BMR) shows continued high performance delivery of trade-through compliance and advanced routing features. Enhanced North American Trading Module “FXM” ready for production, offering high performance and further flexibility in cross border settlements. Competitively priced desk automation trading algorithms ready for production. Response to client demand and increasingly electronic environment. Market data desktop with analysis tools well received as essential in fragmented market. IRESS Optical Network (ION) now deployed, enhancing ultra-low latency trading ecosystem in Canada. IRESS infrastructure performed extremely well during record volatility and volume rates. Retail order management extensions now in rollout with seed client. Differentiating features and expect applications in many other firms. Retail online trading and market data suite differentiated competitively with a number of opportunities continuing. 4 IRESS Market Technology Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT FINANCIAL MARKETS – SOUTH AFRICA The acquisition of Peresys was completed on 20 January 2011, with the focus during the year to seed new product opportunities in response to client demand, and integrate business operations. Our financial markets business in South Africa enjoys many of the characteristics of our other business units, with revenues comprising approximately 90% recurring subscription revenue and the remainder generated by volume based services. The macro climate and its impact on volumes and client businesses was no less relevant in South Africa during 2011, with the business experiencing both good growth in subscription revenues across products, somewhat mitigated by reduced volume levels and associated volatility. Structural changes anticipated for professional equity markets during 2012 in South Africa are expected to provide an opportunity to leverage the broader IRESS technology suite. The significant appreciation of the Australian dollar against the South African rand lessened the otherwise solid results of the business during 2011 when assessed in Australian dollar terms. Some of the key highlights were: Retail product suite (Trader/Investor/Mobile) in production and well received. Hedge fund Execution Management System (EMS) solution in production. Trading architecture evolving, creating new opportunities. IRESS trading gateway to the South African derivatives exchange (SAFEX) now deployed, with demonstrable latency reductions. JSE trading engine relocating from the United Kingdom and changing technology platforms in mid-2012. IRESS network and technology investments open pathway for providing unique offering of ASP solutions combined with smooth transition for clients. Integration between IRESS and local FIX order routing hub providing seamless transition for clients over exchange and topology changes, and new opportunities. Private wealth solution of combined XPLAN/IRESS Portfolio System (IPS)/IOS+ a key differentiator. Components already in production. FINANCIAL MARKETS – ASIA Revenue growth in Asian financial markets during 2011 was progressing well as we continued to build capability and respond to new opportunities. However, revenue was impacted late in the second half by the collapse of MF Global, which was material for this division. 5 CHAIRMAN AND MANAGING DIRECTOR’S REPORT WEALTH MANAGEMENT – AUSTRALIA & NEW ZEALAND Wealth Management in Australia and New Zealand has continued to perform well through a period of ongoing change for the industry and our clients. The division delivered good growth through differentiated product capability, demand for tangible efficiency savings through technology, and enhanced adviser workflow and end client experience. Contributing to this growth have been numerous new and transitional rollouts that have presented additional new client requirements and opportunities, in addition to broad organic opportunities across the client base and product range as clients look to efficiency. The wealth management sector is not immune from the economic climate and the secular changes driven by advice reform, which includes consolidation. But while it remains difficult to anticipate exactly how the segment will be impacted in the longer-term, our experience amidst current conditions has been positive and demonstrates our important role in providing flexible solutions allowing clients to reposition themselves for growth. The division achieved revenue growth of 12.2% over the full year (up 5.3% and 7.5% on the prior half year’s results for the period to June 2011 and December 2011 respectively). Positive revenue momentum combined with moderated expenses in the second half produced segment profit growth of 8.7% for the full year (up 1.1% and 8.9% respectively on the prior half’s results). Some of the key highlights were: Clients and projects ∙ ∙ ∙ Increased involvement in numerous institutional XPLAN transitions. Clients focussing on scalable advice platform and efficiencies. Private wealth management responding as differentiated segment. Product is differentiating and proving portable ∙ ∙ ∙ ∙ Actively responding to clients and opportunities. XPLAN 2 now deployed at 50% of sites, with well received design and user experience. FoFA demanding integrated advice platform (efficiency and compliance). XPLAN modules that ease compliance or enhance client experience in demand. Industry ∙ ∙ ∙ ∙ Advice reform driving common trends in global markets. IRESS leveraging synergy and leadership opportunities. Trend from commission to advice driving focus on client management, marketing, engagement. Long-term impacts difficult to predict. Technology is and will remain key enabler. XPLAN continues to be ranked as most widely used and richest functionality. 6 IRESS Market Technology Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT WEALTH MANAGEMENT – SOUTH AFRICA The South African business continues to support its client base and the significant projects underway for migration to XPLAN, against the significant impact of client roll-offs previously flagged. While these offsets are small in a group sense, they represent material amounts for this business. Opportunities continue for our integrated advice platform that offers direct cost savings, efficiency and best practice opportunities for our clients. Revenue declined 6.3% (ZAR) over the year which generated a 23.9% (ZAR) decline in segment profit. Some of the key highlights were: Several institutional XPLAN transitions underway or commencing in 2012. Clients seeking to leverage integrated advice platform to manage multi-channel distribution and compliance, in a cost efficient manner. Increasing focus on investment planning and assets under management. Regulation and education criteria having some impact on industry dynamics. WEALTH MANAGEMENT – ASIA Opportunities in the region continue to provide confidence in our medium-long term prospects that span various segments in wealth management from tied sales, to independent advice networks, to expatriate advice franchises and private banking. We continue to progress product and business building given our medium term outlook. WEALTH MANAGEMENT – UNITED KINGDOM In November 2011, IRESS announced the launch of its Wealth Management division in the United Kingdom on the back of its selection as strategic supplier of wealth management advice technology by the largest distributor of retail financial advice in the UK. IRESS’ goal is to establish a competitive and comprehensive advice platform to meet the needs of the UK advice market, and over time to build a business similar to its leading wealth management operations in other markets. The UK division has been initiated with a local management team, with the local team growing based on deliverables. The new division is underpinned by a long-term supply agreement, with 2012 dedicated to localisation and commencement of rollout, and minimum fees payable from 2013. During the initial years of the rollout phase, the seed license fee revenue will be insufficient to offset operational expenses as IRESS focuses on establishing its presence. IRESS’ net segment profit operational funding requirement during the establishment phase will be fully expensed and limited to $5.0m per annum, subject to regular review. 7 CHAIRMAN AND MANAGING DIRECTOR’S REPORT OUTLOOK The Company will continue its strategy of local tailoring of solutions to all segments of our client base and adding value, avoiding where possible commodity product status. Continuing to act as a responsive vendor, and meeting client requirements as their businesses evolve, is key. In addition to understanding changes in technology and regulation it requires a willingness to invest for the medium term, and engage in active and responsive dialogue with our clients. While the timing of a full recovery in our mature businesses remains difficult to predict, the differing level of maturity across our various divisions provides a useful mix of early stage emerging to mature activities. Specifically looking at the group’s financial outlook for 2012, the early signs are mixed, with maturing projects and newly commencing client technology initiatives, combined with a widespread focus on cost reductions throughout financial markets given the extended turbulent climate. Demand remains for our solutions, particularly in areas providing direct savings, and those with which our clients can enhance services and engagement with their end clients. However, we remain cautious given the environment and expect conditions for at least the short term to moderate underlying financial growth, suggesting that flat 2012 segment profits before growth investments would represent a good result. Our confidence in the merit of our growth investments divisions (Asia and United Kingdom) is undiminished despite the ongoing difficult environment. While having a short-term impact on group results, we remain convinced of the medium and long-term potential for strong growth, and have no doubt, that in these cases, our approach is the best balance of risk and reward for creating shareholder value. Acquisitions where these make sense to bring forward growth, continue to be considered within the parameters of our longstanding risk profile. ACKNOWLEDGEMENTS IRESS has a fabulous pool of technology, but its greatest asset continues to be the dedicated and committed staff working for the Company. During the year, numerous and complex demands were made of our staff to meet client and project requirements globally. It is fully recognised that the success of IRESS is largely a result of the dedication and commitment of our staff, to whom we offer our sincere thanks. This observation is not something that is taken for granted. During 2011 the demands on staff if anything, increased as staff worked to fulfil client requirements, roll-out objectives, and to address the consequences of our growing breadth of operations, networks and market data. In addition, the extensive internal deadlines for medium-term initiatives further demanded staff. There was an increase in remuneration levels during the year consistent with industry trends. For reasons outlined above, some divisions also experienced headcount growth. Managing the human resources of the company is a vital component in generating long term returns to shareholders, and to this end we appreciate the requirement to be fully aware of local employment market conditions in all areas where we operate, and the importance of long term retention and stability in our workforce. We would also like to thank our clients for their continued support and loyalty, and assure them of our commitment to meeting and exceeding their needs in the future. Mr A Walsh Managing Director Mr P Dunai Chairman 8 IRESS Market Technology Limited DIRECTORS’ REPORT The Directors of IRESS Market Technology Limited submit herewith the annual financial report for the financial year ended 31 December 2011. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows. BOARD OF DIRECTORS NAME PARTICULARS Mr P Dunai Mr A Walsh Chairman since May 2010, member of the Nomination and Remuneration Committee. Served as Managing Director of the Company from inception until retiring from that role in October 2009. A founding shareholder who joined the Board in 1993. He was Chairman of Nomination and Remuneration Committee until 5 May 2011. Managing Director. Founded XPLAN Technology Pty Ltd which was acquired in 2003 by the Company, and from 2003 managed the transition of XPLAN from an independent start-up organisation to a fully integrated material division of the Group until taking up his current role. He joined the Board in October 2009. Mr J Killen (OAM) Non–executive director, Chairman of the Audit Committee for part of the year. Joined the Board in 2000 and was Chairman of the Audit Committee from appointment through to his retirement from the Board on 5 May 2011. Mr B Burdett Ms J Seabrook Mr J Cameron Mr J Hayes Non–executive director, member of the Audit Committee, joined the Board in 2006 and is also Chairman of Neurosciences Victoria Ltd, and a director of Investment Technology Group Inc, a New York Stock Exchange listed company. Non–executive director, Lead Independent Director since May 2010, Chair of the Nomination and Remuneration Committee since 5 May 2011, and a member of the Audit Committee. She joined the Board in August 2008 and is also a special advisor to Gresham Partners Limited, a non-executive director of Iluka Resources Limited, Bank of Western Australia Ltd, Amcor Limited and the Export Finance and Insurance Corporation. She is also a member of the Federal Government's Takeovers Panel and ASIC’s external advisory group. Non-executive director, member of the Nomination and Remuneration Committee since 5 May 2011, and member of the Audit Committee until 5 May 2011. He joined the Board in March 2010 and is also a director of FIX Protocol Limited. Non–executive director, Chairman of the Audit Committee. Joined the Board on 10 June 2011, assuming Chair of the Audit Committee from this date. He is also a member of the Advisory Council of Comcover, a Federal Government Entity. The above named Directors held office during and since the end of the financial year except for: Mr J Killen (OAM) who retired from the board on 5 May 2011; and Mr J Hayes who joined the board on 10 June 2011. COMPANY SECRETARY NAME PARTICULARS Mr S Bland Mr P Ferguson Chief Financial Officer and Company Secretary, joined the Company in 2001 and has held his current position since then. He is a nominee director for all wholly owned subsidiaries. Group General Counsel and Company Secretary, joined the Company in June 2011. Since his appointment, he has assumed primary responsibility for Company Secretarial matters. 9 DIRECTORS’ REPORT PRINCIPAL ACTIVITIES During the course of the year, the consolidated entity’s activities consisted of the provision of information, trading, compliance, order management, portfolio and financial planning systems and related tools. The principal clients comprise Australian, New Zealand, Canadian and South African domestic equity participants, and wealth management professionals in Australia, New Zealand and South Africa. In addition, the consolidated entity has emerging operations in Asia and recently established operations in the United Kingdom. REVIEW OF OPERATIONS In looking at the consolidated entity’s performance during 2011, the following are important themes: Pursuit of medium term growth opportunities: In January 2011, the Peresys operations were acquired, establishing IRESS Financial Market activities in South Africa. In addition to being a new and profitable business segment providing good growth opportunities, it does impact year on year comparisons for the consolidated entity; Organic growth initiatives to establish IRESS services in Asia which commenced in 2010 continued in the current year. Significant progress in trialling of services and engagement with clients continued and was broadly in line with expectations. The financial investment of seeding this longer term opportunity continued in the current year and remains an important avenue for future growth; and In a similar manner to our organic initiative in Asia, in November 2011 wealth management operations were commenced in the United Kingdom supported through securing a seed client arrangement with the largest retail distributor in the United Kingdom. Economic Conditions: In the broad 2011 was a tough year for the financial services sector, which generally translated into softer demand for new services, and some cancellations; Despite this, opportunity and demand for our leading solutions in segments remained, most noticeably in expanded requirement for retail wealth management technology and services; Failures by Minc Financial and MF Global impacted on the current year through lost recurring revenue as well as sizeable bad debts; and Demand for skilled staff relevant to our business activities continues to remain high. Conversion of off-shore results to Australian Dollars: Group consolidated results for the year are impacted by appreciation of the Australian dollar, most noticeably in conversion of the results from our South African operations given the 22% decline in the South African Rand. IRESS’ recurring subscription model continues to drive results and outlook. During the year, the profitability of the consolidated entity was impacted by: Australia & New Zealand Financial Markets - Revenue $108.9m. (2010: $104.5m) up 4.2%; segment profits $56.3m (2010: $58.9m) down 4.4%. Revenue growth was strongly associated with project deliveries in the commencing and final periods of the second half, driven by client preparation for multiple trading venues late in 2011. While revenue for our leading range of multi-markets products and services commenced once venue competition opened in October, its positive effect was impacted through the loss of MF Global and increased cancellations. While headcount did increase during 2011 (mainly in H2’2011), it was also impacted by the full year impact of the headcount increases late in H2’2010 which was largely to support project work associated with the move to multi-markets. The collapses of Minc Financial and MF Global resulted in a $0.519m bad debt expense. The combined impact of these resulted in a margin decline from 56.3% to 51.7%. Canadian Financial Markets – Revenue $24.0m. (2010: $23.5m) up 2.0% (10.9% in CAD); segment profits $8.2m (2010: $7.8m) up 4.5% (13.5% in CAD). The segment produced good revenue growth in line with project completions, although its impact was somewhat lessened due to broader economic factors. Modest improvements in contribution from news, data and communication services combined with moderated growth in the operating cost base saw margins in CAD improve from 33.5% to 34.2%. 10 IRESS Market Technology Limited DIRECTORS’ REPORT South African Financial Markets – Revenue $15.3m (ZAR 114.2m) (2010: nil); segment profits $5.5m (ZAR 41.8m) (2010: nil). The underlying entity making up this segment (Peresys (Pty) Ltd) was acquired with effect from 20 January 2011. This business has high levels of recurring revenues, some of which are linked to volume usage. Due to reduced trading volumes as experienced globally, this component of their revenues was negatively impacted. Revenue growth in H2’11 was up 20.4% in ZAR, supported in part from the part period in January missing from H1, a price increase in April as well as growth in subscription revenues. Cost growth associated with post acquisition changes, and some initiatives to support future growth resulted in H2 margins staying largely unchanged for H2’11 at 36.6% in ZAR. Asian Financial Markets – Revenue $1.1m. (2010: $0.6m); segment loss $(1.5)m (2010: $(0.6)m). The segments results were impacted through the loss of MF Global in the second half, reducing revenues from a major client to the division as well as a bad debt of $0.262m. Australia & New Zealand Wealth Management– Revenue $49.1m. (2010: $43.8m) up 12.2%; segment profits $20.3m (2010: $18.6m) up 8.7%. The business has continued to perform well, with revenues driven by transitional rollouts as well as solid organic growth across the broader client base. Demand for services continues to be driven by the efficiencies available through the suite of technology offerings. Growth in headcount to support the large number of migrations saw margins decline marginally from 42.6% to 41.3%. South African Wealth Management – Revenue $6.0m. (2010: $7.1m) down 15.3% (6.3% in ZAR); segment profits $1.7m (2010: $2.5m) down 31.6% (23.9% in ZAR). The known loss of two clients (as announced with last year’s results) produced a financial outcome inconsistent with the level of activity and work performed on XPLAN rollouts and responding to client requirements and opportunities. With modest cost increases, margins decreased from 35.0% to 28.4%. Asian Wealth Management – Revenue $0.2m (2010: $0.3m) down $0.1m and segment loss $(1.3)m (2010: loss $(1.1)m). The business continues to make progress in engaging clients and establishing solutions with seed clients across the broad spectrum of wealth management services in these markets. The cost base remained substantially unchanged from 2010. United Kingdom Wealth Management – This operation was established in November 2011, and generated no revenue in the period, and a segment loss of $(0.1)m. The reported net profit after tax was $41.3m, an 18.1% decrease on reported profits for the same period last year. Impacting on comparability of results for 2011 and 2010 are: a primary factor in increased operating expenses in 2011 on 2010 was the 28.7% increase in group headcount across the year. In addition to the 93 staff introduced into the group through the acquisition of Peresys, headcount was increased in both financial markets and wealth management A&NZ to support client lead initiatives (approximately a further 35 staff), the other area of growth was staffing for financial market activities in Asia. Also very late in 2011 there were some new staff associated with setting up wealth management operations in the UK. Further 2011 wages and other related costs reflected the full year impact for the 58 additional staff added during 2010; the increase in total direct staff costs before share based payments at 27.1% was in line with the movement in headcount. Short term incentives increased very slightly as a percentage of base wages, reflecting amongst other factors the enormous effort by many associated with very major projects across the group, most notably the multi- market implementation in Australia. Share based payments, which lag headcount movements, increased by 2.8%. Overall total employee related expenses increased by $15.635m or 24.4%; customer data fees increased by 8.5% reflecting expanded data requirement, largely associated with the commencement of our financial markets South Africa operations; communication and technology expenses increased by $1.270m or 13.6% reflecting in part expansion and upgrade to our networks, including in Asia and South Africa; primarily as a direct result of the increased headcount, and the introduction of Peresys into the group results, facility related expenses increased by 28.1%. Office relocations in Brisbane, Perth and Singapore were also a factor; 11 DIRECTORS’ REPORT during 2011 the group experienced two large bad debts (Minc Financial and MF Global) which together with an increase in the doubtful debts provision at Peresys, resulted in a net bad debt expense for the year of $0.882m. Until this year, bad debts of this magnitude were unprecedented for the consolidated entity. In 2010, given our negligible claims history, there was a write back in the bad debt provision which resulted in a credit of $0.722m in the Income Statement. In 2011 the bad debt expense was $0.882m, which represents a net movement year on year of $1.604m; depreciation and amortisation increased by $7.489m (49.6%) primarily due to recognition of new assets associated with the purchase of assets from Peresys and the subsequent purchase of Peresys, which collectively gave rise to assets such as computer software and referred to in management presentations as Strategic Charges; net interest income decreased by $1.862m primarily from decreased average cash holdings during the year. In addition interest expense flowing from deferred consideration associated with the Peresys vendor earnout, resulted in a non-cash interest expense being recognised; as previously flagged the effective income tax rate increased back to longer term levels at 31.3% from 25.6% in 2010. The change arose from concluding the previously observed overlap on tax deductions arising from the transition of share grants from performance rights to deferred shares; and the collective impact of these changes was a decrease in basic EPS from 40.335 cents per share to 32.644 cents per share, a decrease of 19.1%. CHANGES IN OPERATIONS DURING THE YEAR During the course of the year, the operations of the consolidated entity were modified by the following changes: Establishment of Financial Market operations in South Africa Effective from 20 January 2011, IRESS Market Technology Limited (‘IRESS’) acquired Peresys (Pty) Ltd (‘Peresys’) and its subsidiaries. Shortly prior to this in a separate transaction, IRESS acquired all the computer software and registered intellectual property rights of Peresys (collectively the ‘transaction’). Peresys is a South African based technology solutions provider to the financial markets, specialising in building and running FIX enabled connected trading communities across all asset classes, including equities, fixed interest and derivatives. Peresys was acquired for an expected ZAR 375m (approximately AUD 56.1m). The transaction included an upfront cash payment of ZAR 340.5m (approximately AUD 51.0m) and performance based payments based around the growth of the business of up to ZAR 24.2m (approximately AUD 3.6m), most of which is payable at the end of three years. The total aggregate purchase price is capped at ZAR 364.7m (approximately AUD 54.6m). In addition, up to an additional ZAR 10m (approximately AUD 1.5m) is available to certain staff, with payment based on performance of the business over three years. Establishment of Wealth Management operations in the United Kingdom In November 2011, IRESS Market Technology Limited (‘IRESS’) announced the establishment of wealth management operations in the United Kingdom through a wholly owned UK subsidiary, IRESS Technology Limited (‘IRESS UK’). At the same time it was announced IRESS UK had been selected as the strategic supplier of wealth management advice technology to the largest distributor of retail financial advice in the UK. Supporting this new initiative the former Directors of leading financial services consultancy business were employed, after agreeing to wind down their consulting business. As this is an organic entry into the UK, there were no upfront payments or acquisition related amounts. The arrangement with our seed client recognises their position in terms of future pricing of services, but there are no capital payment amounts involved. The arrangement with the new local management team, includes potential to participate in share grants assessed exclusively on the performance of the UK business over the medium term. CHANGES IN STATE OF AFFAIRS There were no other significant changes in the state of affairs of the consolidated entity other than that referred to in the financial statements or notes thereto. 12 IRESS Market Technology Limited DIRECTORS’ REPORT SUBSEQUENT EVENTS Other than as noted below, there has not been any other matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years, and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. DIVIDENDS In respect of the financial year ended 31 December 2010, the Directors recommended a final dividend of 24.0 cents per share franked to 66% at 30% corporate tax rate to be paid to the holders of fully paid ordinary shares on 31 March 2011. The record date to participate in the final dividend is 15 March 2011. In addition, directors recommended a once off special unfranked dividend of 3.5 cents per share to be paid to the holders of fully paid ordinary shares on 31 March 2011. In respect of the financial year ended 31 December 2011, an interim dividend of 14.0 cents per share franked to 90% at 30% corporate tax rate was paid to the holders of fully paid ordinary shares on 30 September 2011. In respect of the financial year ended 31 December 2011, the Directors recommend a final dividend of 24.0 cents per share franked to 83% at 30% corporate tax rate to be paid to the holders of fully paid ordinary shares on 30 March 2012. The record date to participate in the final dividend is 16 March 2012. DIRECTORS’ MEETINGS The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, 6 Board meetings, 5 Audit Committee meetings and 4 Nomination and Remuneration Committee meetings were held. BOARD OF DIRECTORS AUDIT COMMITTEE NOMINATION AND REMUNERATION COMMITTEE ELIGIBLE TO ATTEND ATTENDED ELIGIBLE TO ATTEND ATTENDED ELIGIBLE TO ATTEND ATTENDED 6 6 2 6 6 6 4 6 6 2 6 6 5 4 – – 1 5 5 1 4 – – 1 5 5 1 4 4 – – – 4 4 – 4 – – – 4 4 – DIRECTORS Mr P Dunai Mr A Walsh Mr J Killen Mr B Burdett Ms J Seabrook Mr J Cameron Mr J Hayes 13 DIRECTORS’ REPORT INDEMNIFICATION OF OFFICERS AND AUDITORS During the year, the Company paid a premium in respect of a contract insuring each of the Directors of the Company (as named above), the Company Secretary and each of the Executive Officers of the Company and of any related body corporate against a liability or expense incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. In accordance with section 300(9) of the Corporations Act 2001 further details have not been disclosed due to confidentiality provisions in the insurance contract. In addition, the Company has entered into a Deed of Indemnity which ensures that generally the Directors of the Company will incur no monetary loss as a result of defending actions taken against them as Directors. Certain actions are specifically excluded, for example, the incurring of penalties and fines which may be imposed in respect of breaches of the law. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by the law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred in their capacity as an officer or auditor. AUDIT SERVICES Details of amounts paid or payable to the auditor for audit services provided during the year by the auditor are outlined in Note 27. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 33. ROUNDING OFF AMOUNTS The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars. AUDITED REMUNERATION REPORT This Remuneration Report provides details of IRESS’ policy for determining the remuneration of directors and executives; the relationship between the policy and the performance of the company during the financial year; and the remuneration of board members and executives in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel of the group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the company and the group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the parent or the group receiving the highest remuneration. 14 IRESS Market Technology Limited DIRECTORS’ REPORT RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION The graph below outlines the relative share price performance of IRESS Market Technology Limited over the five years to December 2011, compared to the S&P/ASX 200 index. Over the five years the IRESS share price had decreased by 0.2% and the S&P/ASX 200 index had decreased by 28.5%. Further, during this period, IRESS has maintained its high dividend payout ratio, and the weighted average franking of dividends was 85.6%. 160 140 120 100 80 60 40 20 0 7 0 n a J 7 0 r p A 7 0 l u J 7 0 t c O 8 0 n a J 8 0 r p A 8 0 l u J 8 0 t c O 9 0 n a J 9 0 r p A 9 0 l u J 9 0 t c O 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O 2 1 n a J IRESS S&P/ASX 200 An analysis of company performance over the five years to December 2011 is set out in the table below. MEASURE (a) Share price Change in share price Change in share price (%) Volume weighted average price for period 31 DECEMBER 2007 31 DECEMBER 2008 31 DECEMBER 2009 31 DECEMBER 2010 31 DECEMBER 2011 796.9¢ 97.6¢ 14.0% 513.0¢ (283.9¢) (35.6%) 855.6¢ 342.7¢ 66.8% 869.6¢ 13.9¢ 1.6% 693.0¢ (176.6¢) (20.3%) 799.6¢ 591.7¢ 687.0¢ 840.4¢ 833.7¢ Basic earnings per share 21.904¢ 29.622¢ 34.784¢ 40.335¢ 32.644¢ Diluted earnings per share 21.176¢ 28.795¢ 34.175¢ Dividend per share (b) 26.0¢ 31.0¢ 34.0¢ 40.016¢ 38.0¢(c) 32.589¢ 38.0¢ Weighted average franking on ordinary dividends 100% 100% 100% 100%(c) 85.6% (a) The share price figures in the table for the four years ended 31 December 2010 have been adjusted to align with ASX adjustment factor arising from the special dividend paid 31 March 2011. (b) Dividend per share calculated based on total of interim and final dividend rather than dividends actually paid in the year. The calculation excludes the impact of the 3.5¢ special dividend paid in March 2011. 15 DIRECTORS’ REPORT (c) All dividends prior to the December 2010 final dividend were fully franked. The calculation 2010 has been adjusted to reflect value for the 3.5¢ special dividend paid in March 2011 as an increase to the franking percentage, rather than a heightened dividend per share. As set out on pages 14 to 32 the Board has regard to a number of factors when setting the levels of fixed, short term and long term remuneration for the managing director and executives including financial performance, non-financial factors and strategic factors. DIRECTORS AND KEY MANAGEMENT PERSONNEL DETAILS This remuneration report includes information on the remuneration of: the directors of IRESS Market Technology Limited, being: ∙ Mr P Dunai (Chairman, Chairman of Nomination and Remuneration Committee until 5 May 2011); ∙ Mr A Walsh (Managing Director) ∙ Mr J Killen (Chairman of the Audit Committee, Non-executive Director; retired from the Board 5 May 2011); ∙ Mr B Burdett (Non-executive Director); ∙ Ms J Seabrook (Non-executive Director, Lead Independent Director, Chair of Nomination and Remuneration Committee since 5 May 2011); ∙ Mr J Cameron (Non-executive Director); and ∙ Mr J Hayes (Non-executive Director, appointed 10 June 2011, Chairman of the Audit Committee since 10 June 2011); and other key management personnel being: ∙ Mr S Bland (Chief Financial Officer and Company Secretary); ∙ Mr J Davies (President & Chief Executive Officer, Financial Markets Canada); ∙ Mr P Ferguson (Group General Counsel and Company Secretary); ∙ Ms K Gross (General Manager, Products, Sales & Marketing); and ∙ Mr D Walker (Chief Technical Officer). (Collectively, the above other key management personnel represent the ‘executives’.) 16 IRESS Market Technology Limited DIRECTORS’ REPORT SHARE RIGHTS SHARE RIGHTS GRANTED TO, AND VESTING IN, DIRECTORS AND EXECUTIVES The following table sets out the share rights issued by the company to directors during the year, as well as the share rights which vested during the year to directors or a related body corporate of a director. No share rights have been issued to directors or executives since the end of the year. No share rights granted to directors or executives have been cancelled during the year or since the end of the year. No rights that were granted in the year ended 2011 vested in 2011. DIRECTORS Mr P Dunai Mr A Walsh NOTE (a) (a) (b) SHARE RIGHTS GRANTED DURING THE YEAR SHARE RIGHTS VESTED DURING THE YEAR – 300,000 30,000 200,000 56,000 25,000 (a) Governed by the rules of the Employee Performance Rights Plan. (b) Governed by the rules of the Employee Deferred Share Plan. During the year, the following share rights were issued to executives and staff and the following share rights vested to executives or a related body corporate of theirs. EXECUTIVES Mr S Bland Mr J Davies (d) Mr P Ferguson Ms K Gross Mr D Walker PERFORMANCE RIGHTS GRANTED DURING THE YEAR (a) DEFERRED SHARES/DEFERRED SHARE RIGHTS GRANTED DURING THE YEAR (b) SHARE RIGHTS VESTED DURING THE YEAR (c) 31,040 15,430 – 28,520 32,710 10,290 10,010 – 10,070 10,290 59,000 33,000 – 44,500 54,000 (a) Governed by the rules of the Employee Performance Rights Plan. (b) Governed by the rules of the Employee Deferred Share Plan and the Employee Deferred Share Rights Plan. (c) Comprises performance rights and deferred shares. (d) Vested share rights may be unexercised. The number of share rights which subsequently vest is dependent on a number of variables including the performance of the company. In accordance with the applicable share plan rules and where they were eligible to vest, all performance rights eligible for vesting in May 2011 and August 2011, issued in May 2008 and August 2008 respectively, vested. Further details of the above performance rights, deferred shares and deferred share rights are set out in Notes 36 to 38. 17 DIRECTORS’ REPORT SHARE RIGHTS EXERCISED BY DIRECTORS AND EXECUTIVES During the financial year, the following vested share rights were exercised by the nominated person(s) and converted into ordinary shares in IRESS Market Technology Limited. With the exception of Mr Davies, no vested shares for directors or executives remain unexercised at 31 December 2011. PERFORMANCE RIGHTS EXERCISED DURING THE YEAR (a) DEFERRED SHARES/DEFERRED SHARE RIGHTS EXERCISED DURING THE YEAR (b) AGGREGATE AMOUNT PAID $ DIRECTORS Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker 200,000 56,000 46,000 – – 33,000 42,000 – 25,000 13,000 – – 11,500 12,000 1 1 1 – – 1 1 (a) Governed by the Employee Performance Rights Plan. The exercise price was $1 in total for each series of performance rights exercised. (b) Governed by the Employee Deferred Share Plan or the Employee Deferred Share Rights Plan as applicable. Further details on the Employee Performance Rights Plan, the Employee Deferred Share Plan and the Employee Deferred Share Rights Plan are set out in Notes 36, 37 and 38 respectively. DIRECTOR AND EXECUTIVE SHAREHOLDINGS The following table sets out each director’s relevant interest held directly or through a related body corporate in shares, performance rights and deferred share rights of the Company at the date of this report, including where applicable, shares yet to be beneficially transferred/withdrawn by the respective director from the IRESS Employee Share Trust. There are no vested share rights which have not been exercised. Unvested performance rights and deferred shares may, subject to meeting performance hurdles, vest at some time in the future. DIRECTORS Mr P Dunai (a) Mr A Walsh (a) Mr B Burdett Ms J Seabrook Mr J Cameron Mr J Hayes FULLY PAID ORDINARY SHARES UNVESTED PERFORMANCE RIGHTS UNVESTED DEFERRED SHARES 890,000 71,950 100,000 20,000 – 4,600 – 525,000 – – – – – 59,000 – – – – (a) Some or all of these shares may still be subject to restrictions as set out in the share plan rules, and as such are currently held on trust for the respective director by the IRESS Market Technology Equity Plan Trust. 18 IRESS Market Technology Limited DIRECTORS’ REPORT The following table sets out the relevant interest in shares, performance rights, deferred shares and deferred share rights of the Company for each executive held directly or through a related body corporate, at the date of this report including where applicable, shares yet to be beneficially transferred/withdrawn by the respective executive from the IRESS Employee Share Trust. There are no vested share rights which have not been exercised. Unvested performance rights and deferred shares may, subject to meeting performance hurdles, vest at some time in the future. EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker FULLY PAID ORDINARY SHARES (a)(b) 270,390 – – 227,610 471,260 UNVESTED PERFORMANCE RIGHTS UNVESTED DEFERRED SHARES UNVESTED DEFERRED SHARE RIGHTS 108,730 51,280 – 94,690 106,400 20,480 – – 20,460 21,080 – 21,090 – – – (a) Some or all of these shares may still be subject to restrictions as set out in the share plan rules, and as such are currently held on trust for the respective executive by the IRESS Market Technology Equity Plan Trust. (b) Mr Davies holds 73,000 vested but unexercised share rights. The balance of this remuneration report is set out under the following headings. Policy and Structure: ∙ ∙ ∙ Non-executive directors’ remuneration Executive remuneration Performance under share based incentive plans Relationship between Company Performance and Remuneration Specific Remuneration Details Outline of Employment Contracts for the Managing Director and Executives POLICY AND STRUCTURE Non-executive directors’ remuneration The company’s non-executive directors receive fees (including statutory superannuation) for their services plus the reimbursement of reasonable expenses. Non-executive directors’ fees are reviewed annually and are determined by the Board having regard for fees paid to non-executive directors of comparable companies, and where considered necessary the Board seeks external advice on this subject. The Board aims to set the aggregate remuneration at a level which provides the ability for IRESS to attract and retain highly competent directors. The aggregate remuneration level is determined from time to time by shareholders in general meeting, in accordance with the company’s Constitution. The aggregate amount is then apportioned between the directors as agreed, taking into account market comparisons, the director’s responsibilities, and the time spent by the non- executive directors on IRESS matters. Non-executive directors do not receive performance-based bonuses. Fees paid to non-executive directors during 2011 were within the maximum aggregate limit of $600,000 per annum agreed to by shareholders at the Annual General Meeting held on 5 May 2010. 19 DIRECTORS’ REPORT At the end of the year the non-executive directors’ annualised fee structure was as follows. ROLE Chairman Chairman of Audit Committee Chair of Nominations and Remuneration Committee / Lead Independent Director Non-executive directors CURRENT FEE $ (a) 163,500 92,375 92,375 80,000 (a) Includes statutory superannuation contributions or salary in lieu of statutory superannuation contributions by the Company. Directors may elect to take all or part of their fees in cash or additional superannuation contributions. The Company initiated a non-executive director equity plan in April 2008, but it has remained dormant up to 31 December 2011. There are no other schemes for retirement benefits for non-executive directors. This is consistent with Principle 9.3 of the Australian Stock Exchange (ASX) Corporate Governance Guidelines. EXECUTIVE REMUNERATION Philosophy The overall objective of the Company’s approach to executive remuneration is to have practices and policies that will enable it to attract, retain, motivate and reward executives of the calibre required to be successful in terms of delivering long term returns to shareholders. Further, the Company’s practices will be legal, ethical and consistent with being a good corporate citizen. It will comply with remuneration disclosures required by law and will seek to maintain the highest standards of clarity and transparency in communications with shareholders. The total remuneration package should comprise a base package which is both reasonable and market competitive. A significant component of executive remuneration should be an ‘at risk’ incentive award which provides an opportunity for the executive to receive superior remuneration when superior results are delivered. At risk incentives are based on a mix of performance criteria for each executive, including total company performance, relevant divisional or business unit performance and the achievement of personal objectives from the performance appraisal process. The at risk incentives should provide both short term benefits (to promote continuous increases in annual performance outcomes) and long term benefits (to promote sustained delivery of long term shareholder wealth). The Company believes that the long term interests of executives and shareholders should be aligned and that such alignment is best achieved by executives having either direct equity in the Company or instruments whose value is ultimately determined by the Company’s share price over the medium to long term. Fixed annual remuneration The fixed remuneration consists of cash salary (‘Base’), benefits, and fringe benefits. In situations where it is consistent with the treatment of the broader employee base, the company will gross-up the amount in relation to benefits that do not qualify as company income tax deductions. The Company makes superannuation contributions on fixed remuneration amounts. To ensure that fixed remuneration arrangements remain competitive, the fixed remuneration component of executive remuneration is reviewed annually based on performance and market data. Benchmarking of executive remuneration is against executive remuneration practices for executive roles having similar scope, accountability and complexity to those being reviewed. Positions may be benchmarked against: other positions within the Company so that internal relativities are maintained; and/or roles situated in companies listed on the Australian Stock Exchange with market capitalisations similar to that of the Company’s and/or within an industry sector in which the Company has operations. 20 IRESS Market Technology Limited DIRECTORS’ REPORT Short term incentive remuneration The Company operates a short term bonus scheme to provide competitive performance based remuneration incentives to both executives and staff. Its objectives are to: align the interests of the executives and staff with those of shareholders; provide participants with an opportunity to be rewarded with at risk remuneration where superior performance outcomes are achieved over the measurement period; and reflect a strong commitment towards attracting and retaining high performing executives and staff who are committed to the ongoing success of the Company. Performance objectives are established for all executives and structured to reflect each executive’s potential impact on and contribution to the business. The performance objectives comprise elements of total company performance and individual performance and contain measures of financial, non-financial and strategic outcomes. Achievement of performance objectives would entitle an executive to a cash bonus. Generally, bonus arrangements are capped at a maximum of 50% of Base, however when exceptional outcomes are delivered, or where warranted by special circumstances, it can exceed this amount. All executive bonus amounts are determined based on the recommendation of the Managing Director, having regard to actual performance against the performance objectives. These recommendations are then put to the Nomination and Remuneration Committee for approval. In the Managing Director’s case, the review and recommendation is performed by the Nomination and Remuneration Committee, with recommendations put to the Board for approval (where the Managing Director does not vote). Under the short term remuneration arrangements outlined above, the following bonuses for executive directors and executives were accrued during the year and paid in December 2011. MAXIMUM THAT COULD BE EARNED % ACHIEVED % NOT ACHIEVED % OF BASE % OF BASE (b) % OF BASE Mr A Walsh Mr S Bland Mr J Davies (a) Mr P Ferguson Ms K Gross (a) Mr D Walker (a) 50 50 – 30 – – 43 44 34 19 44 45 7 6 – 11 – – (a) While not stipulated in their employment contracts, practice has been to adopt a bonus as a percentage of base salary cap of 50% except where there are special circumstances. (b) Based on annualised monthly salary as at 31 December 2011. For its Australian executives the Company makes superannuation contributions on bonus payments at the statutory rate or salary payments in lieu of superannuation, which is not included in the above bonus percentages. 21 DIRECTORS’ REPORT Longer term incentive remuneration The Company currently operates the following long term incentive plans (the details of which are set out in Notes 36 to 38 of the financial statements): Employee Performance Rights Plan; Employee Deferred Share Plan; and Employee Deferred Share Rights Plan. (collectively ‘share rights’). The decision to make an award of share rights is made periodically by the Board (usually annually). Individual participation is based on a number of factors including the strategic significance of the role and outcomes achieved; capacity to impact on strategic outcomes in terms of special achievements or requirements; future potential and succession planning requirements; and personal performance. Hedging of unvested share rights is prohibited. Grants of performance rights under the Employee Performance Rights Plan have been made in May each year since the plan was first introduced in 2003. Performance Rights vest, subject to meeting performance criteria (outlined below) at the end of the three years. The Employee Deferred Share Plan was introduced in April 2008. Deferred shares vest at the end of two years (or other periods specified in the offer). The Employee Deferred Share Rights plan was introduced in April 2008. Deferred shares vest at the end of two years (or other periods specified in the offer). The Peter Dunai Performance Rights Plan was introduced in May 2005, with the final rights granted under this plan vesting in 2010. References to this plan are included in the 2011 Annual Report only when dealing with comparative periods. For summary details on this plan refer to Note 37 of the 2010 Annual Report. Following the introduction of the Deferred Share Plan and the Deferred Share Rights Plan, directors have indicated that it is their intention to largely limit future grants of performance rights to the managing director and executives. Performance criteria - Performance Rights The Company’s performance ranking for a performance period is determined by reference to the total shareholder return of the Company during the performance period as compared to the total shareholder return for each company in a peer group of companies. The peer group of companies comprises the top 200 companies listed in the ASX/S&P 200 companies after excluding mining companies and listed property trusts. A peer company must have been in the ASX/S&P 200 companies for the entire performance period (i.e. new entrants and companies dropping out of the ASX/S&P 200 companies are excluded). The Company’s ranking within that group of companies at the end of the relevant performance period determines the number of performance rights in the particular tranche that become exercisable (if any) on the following basis. PERFORMANCE RANKING RANGE NUMBER OF PERFORMANCE RIGHTS EXERCISABLE. Below 50th percentile No rights exercisable. 50th percentile 50% of the rights in the tranche available to be exercised. 51st percentile to 74th percentile Rights available in the tranche available to be exercised will be determined on a pro–rata basis between 50% and 100% depending on the Company’s percentile performance ranking. 75th percentile or higher 100% of rights in the tranche available to be exercised. 22 IRESS Market Technology Limited DIRECTORS’ REPORT Performance under share based incentive plans The table below summarises the various share rights granted to Mr Peter Dunai, and the performance of the Company, as measured under the applicable plans rules. There were no new grants of share rights to Mr Dunai in 2011. GRANT DATE Number of share rights granted Applicable plan rules Total share rights cancelled Fair value estimate at grant date (a) 1st performance ranking date Date Percentile ranking Vested Total vested and exercised Total valid outstanding Percentage vested 19 AUGUST 2008 200,000 Employee Performance Rights Plan – $3.69 19 August 2011 Top quartile 200,000 200,000 – 100% (a) The value of performance rights at grant date set out in the tables above is based on the external valuation advice from PricewaterhouseCoopers Securities Limited. The valuation has been made using a Monte Carlo simulation option pricing model using standard option pricing inputs such as the underlying stock price, exercise price, expected dividends, expected risk free rates and expected share price volatility (refer Note 35) as well as adjusting for the likelihood of achieving performance hurdles. 23 DIRECTORS’ REPORT The table below summarises the various share rights granted to Mr Andrew Walsh, and the performance of the Company, as measured under the applicable plans rules. GRANT DATE Number of share rights granted Applicable plan rules (a) Total share rights cancelled Fair value estimate at grant date (b) Performance ranking date Date Percentile ranking Vested Total vested and exercised Total valid outstanding (c) 7 MAY 2008 7 MAY 2009 7 MAY 2009 7 MAY 2010 7 MAY 2010 9 MAY 2011 9 MAY 2011 9 MAY 2011 (d) 56,000 100,000 25,000 125,000 29,000 150,000 30,000 150,000 EPRP EPRP DSP EPRP DSP EPRP DSP EPRP – – – – – – – – $3.85 $3.90 $6.52 $5.68 $8.34 $5.87 $9.23 $5.79 7 May 2011 Top quartile 56,000 7 May 2012 – – 9 May 2011 Top quartile 25,000 56,000 – 25,000 7 May 2013 7 May 2012 7 May 2015 7 May 2013 7 May 2015 – – – – – – – – – – – – – – – – 100,000 – 125,000 29,000 150,000 30,000 150,000 Percentage vested 100% – 100% – – – – – EPRP denotes Employee Performance Rights Plan, DSP denotes Deferred Share Plan. (a) (b) Refer Note (a) on page 23. (c) The quantum of performance rights ultimately vesting in the Managing Director is a function of the performance of the Company relative to its peer group. (d) This series of performance rights has a three year measurement period commencing 7 May 2012. 24 IRESS Market Technology Limited DIRECTORS’ REPORT The table below summarises the various performance rights granted to executives and staff, and the performance of the Company, as measured under the applicable plans rules. GRANT DATE 7 MAY 2008 7 MAY 2009 7 MAY 2010 9 MAY 2011 Performance rights granted 235,000 199,000 252,650 267,640 Number of participants at grant date Number of current participants Total performance rights cancelled 7 7 – 6 6 – 13 13 – 13 13 – Fair value estimate at grant date (a) $3.85 $3.90 $5.68 $5.96 Performance ranking date 7 May 2011 7 May 2012 7 May 2013 7 May 2014 Ranking Vested Total vested and exercised Total vested and not exercised Top quartile 235,000 215,000 20,000 – – – – – – – – – – – – Total valid outstanding (b) – 199,000 252,650 267,640 Percentage vested 100% – – – (a) Refer to note (a) on page 23. (b) The quantum of performance rights ultimately vesting in executives and staff is a function of the performance of the Company relative to its peer group. The table below summarises the various deferred shares granted to executives and staff and deferred share rights granted to staff. RIGHT GRANTED DEFERRED SHARES DEFERRED SHARE RIGHTS Grant date 7 May 2009 7 May 2010 7 May 2011 7 May 2009 7 May 2010 7 May 2011 Number granted 553,720 540,230 554,000 94,320 71,280 70,750 Number of participants at grant date Current number of participants Total share rights cancelled 26,852 26,240 Fair value at grant date $6.52 $8.34 168 220 244 – 199 18 – 1,000 $6.00 17 17 – 20 19 940 $7.67 $8.49 239 7,840 $9.23 Performance ranking date 9 May 2011 7 May 2012 7 May 2013 9 May 2011 7 May 2012 7 May 2013 Vested 526,868 Total vested and exercised 526,868 Total vested and not exercised Total valid outstanding – – 1,980 1,980 – – – – 93,320 26,100 67,220 – – – – – – 512,010 546,160 – 71,280 69,810 Percentage vested 100% – – 100% – – 25 DIRECTORS’ REPORT SPECIFIC REMUNERATION DETAILS The following table discloses the remuneration of the Directors of the Company for the year ended 31 December 2011. SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SHARE BASED PAYMENTS SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ EQUITY SETTLED SHARE RIGHTS $ (b) TOTAL $ EXECUTIVE DIRECTOR Mr A Walsh NON-EXECUTIVE DIRECTORS 782,500 350,000 Mr P Dunai 150,000 Mr J Killen (c) Mr B Burdett Ms J Seabrook Mr J Cameron Mr J Hayes (d) 35,312 73,394 84,748 73,394 47,263 – – – – – – – – – – – – – 25,000 913,010 2,070,510 13,500 155,688 319,188 3,178 6,606 7,627 6,606 4,254 – – – – – 38,490 80,000 92,375 80,000 51,517 (a) (b) There were no other short term employee benefits, other pension or post employment benefits, other long term employee benefits, termination benefits or other share based payments paid to directors during the year. This expense is a function of both the value and duration of the instruments granted. The expense recognised in 2011 represents a combination of share grants made in 2011 and prior years. (c) Retired 5 May 2011. (d) Appointed 10 June 2011. 26 IRESS Market Technology Limited DIRECTORS’ REPORT The following table discloses the remuneration of the Directors of the Company for the year ended 31 December 2010. SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SHARE BASED PAYMENTS SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ EQUITY SETTLED SHARE RIGHTS $ (b) TOTAL $ EXECUTIVE DIRECTOR Mr A Walsh NON-EXECUTIVE DIRECTORS 681,250 350,000 – 25,000 569,311 1,625,561 Mr N Hamilton (c) 46,816 Mr P Dunai (d) 179,422 Mr J Killen Mr B Burdett Ms J Seabrook Mr J Cameron (e) 78,375 67,875 74,767 54,300 – – – – – – – 471 – – – – 4,213 6,750 7,054 6,109 6,729 4,887 – 51,029 499,159 685,802 – – – – 85,429 73,984 81,496 59,187 (a) (b) There were no other short term employee benefits, other pension or post employment benefits, other long term employee benefits, termination benefits or other share based payments paid to directors during the year. This expense is a function of both the value and duration of the instruments granted. The expense recognised in 2010 represents a combination of share grants made in 2010 and prior years. (c) Retired 5 May 2010. (d) Excludes $112,939 in accrued leave entitlements paid to Mr Dunai following his transition to Chairman. (e) Appointed 15 March 2010. 27 DIRECTORS’ REPORT The following table discloses the remuneration of the five executives of the Company and the Consolidated Entity (other than the Managing Director) for the year ended 31 December 2011. SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SHARE BASED PAYMENTS SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ EQUITY SETTLED SHARE RIGHTS $ (b) TOTAL $ Mr S Bland 350,315 162,000 Mr J Davies (c) 386,107 132,217 Mr P Ferguson (d) 127,385 45,000 Ms K Gross 296,385 155,000 Mr D Walker 365,393 170,000 1,523 9,509 – 1,321 1,523 25,000 2,925 15,515 28,585 25,000 268,066 806,904 168,245 699,003 – 187,900 240,446 721,737 264,596 826,512 (a) (b) There were no prescribed or other benefits paid to executives during the year. This expense is a function of both the value and duration of the instruments granted. The expense recognised in 2011 represents a combination of share grants made in 2011 and prior years. (c) Where applicable remuneration details have been converted to Australian dollars at the weighted average exchange rate. (d) This figure reflects the total remuneration received by Mr Ferguson since joining the company on 21 June 2011. The following table discloses the remuneration of the seven executives of the Company and the Consolidated Entity (other than the Managing Director) for the year ended 31 December 2010. SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SHARE BASED PAYMENTS SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ EQUITY SETTLED SHARE RIGHTS $ (b) TOTAL $ Mr S Bland 326,161 133,000 Mr J Davies (c) 360,964 127,483 Ms K Gross Mr A Rudy Mr J Rudy 246,880 114,000 220,740 83,000 210,940 85,000 Mr D Walker 321,230 132,000 Ms T Vigilante 271,717 88,000 1,455 8,237 1,164 1,455 1,455 1,455 – 25,259 2,749 26,962 26,962 26,635 26,380 26,380 273,225 759,100 168,514 667,947 227,311 616,317 170,587 502,744 181,689 505,719 260,177 741,242 109,023 495,120 (a) (b) There were no prescribed or other benefits paid to executives during the year. This expense is a function of both the value and duration of the instruments granted. The expense recognised in 2010 represents a combination of share grants made in 2010 and prior years. (c) Where applicable, Mr Davies’ remuneration details have been converted to Australian dollars at the weighted average exchange rate. 28 IRESS Market Technology Limited DIRECTORS’ REPORT Share rights granted, exercised or lapsed in favour of the Managing Director and executives or a related body corporate of theirs during the financial year ended 31 December 2011 were as follows. % OF REMUNERATION CONSISTING OF SHARE BASED CONSIDERATION (a) VALUE OF SHARE BASED CONSIDERATION GRANTED DURING THE YEAR AT GRANT DATE $ (b) VALUE OF SHARE BASED CONSIDERATION EXERCISED DURING THE YEAR $ (c) VALUE OF SHARE BASED CONSIDERATION AT LAPSE DATE, WHERE LAPSED DURING THE YEAR $ DIRECTORS Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker (d) 44 33 24 – 33 32 – 2,025,900 279,975 176,948 – 262,925 289,928 738,000 378,600 261,860 155,000 – 202,030 239,940 – – – – – – – (a) (b) (c) This figure is calculated on the value of share rights included in remuneration for the year ended 31 December 2011 as a percentage of the total value of all remuneration received in that same year. External valuation advice from PricewaterhouseCoopers Securities Limited has been used to determine the value of the performance rights. The valuation has been made using a Monte Carlo simulation option pricing model using standard option pricing inputs such as the underlying stock price, exercise price, expected dividends, expected risk free interest rates and expected share price volatility. In addition, the likely achievement of performance hurdles of the share rights have been taken into account. Figures in this column are calculated by multiplying the number of share rights exercised by directors and executives during the year by the share price prevailing on the date share rights were exercised, notwithstanding that the underlying shares may not be beneficially held by the respective director or executive as the shares may not have been withdrawn from the IRESS Employee Share Trust. (d) Share grants vesting in Mr Dunai primarily pertain to his prior role as Managing Director. In this light it would be inconsistent to include an assessment of grants vesting in the current year relative to his current fees as a Director. 29 DIRECTORS’ REPORT Share Rights granted, exercised or lapsed in favour of the Managing Director and executives or a related body corporate of theirs during the financial year ended 31 December 2010 were as follows. % OF REMUNERATION CONSISTING OF SHARE BASED CONSIDERATION (a) VALUE OF SHARE BASED CONSIDERATION GRANTED DURING THE YEAR AT GRANT DATE $ (b) VALUE OF SHARE BASED CONSIDERATION EXERCISED DURING THE YEAR $ (c) VALUE OF SHARE BASED CONSIDERATION AT LAPSE DATE, WHERE LAPSED DURING THE YEAR $ DIRECTORS Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Ms K Gross Mr A Rudy Mr J Rudy Mr D Walker Ms T Vigilante (d) 35 36 25 37 34 36 35 22 – 951,860 264,984 188,702 246,658 164,982 194,978 269,988 159,989 5,499,188 591,723 511,993 – 401,237 361,956 357,786 503,653 227,515 – – – – – – – – – (a) (b) (c) This figure is calculated on the value of share rights included in remuneration for the year ended 31 December 2010 as a percentage of the total value of all remuneration received in that same year. External valuation advice from PricewaterhouseCoopers Securities Limited has been used to determine the value of the performance rights. The valuation has been made using a Monte Carlo simulation option pricing model using standard option pricing inputs such as the underlying stock price, exercise price, expected dividends, expected risk free interest rates and expected share price volatility. In addition, the likely achievement of performance hurdles of the share rights have been taken into account. Figures in this column are calculated by multiplying the number of share rights exercised by directors and executives during the year by the share price prevailing on the date share rights were exercised, notwithstanding that the underlying shares may not be beneficially held by the respective director or executive as the shares may not have been withdrawn from the IRESS Employee Share Trust. (d) Share grants vesting in Mr Dunai primarily pertain to his prior role as Managing Director. In this light it would be inconsistent to include an assessment of grants vesting in the current year relative to his current fees as a Director. 30 IRESS Market Technology Limited DIRECTORS’ REPORT OUTLINE OF EMPLOYMENT CONTRACTS FOR THE MANAGING DIRECTOR AND EXECUTIVES Contractual terms for most executives are similar but do vary on occasions. Details of the general contractual terms for executives (Mr S Bland, Mr J Davies, Ms K Gross, Mr P Ferguson and Mr D Walker) are as follows. CRITERION PARTICULARS Length of contract Open ended Notice period Not less than 3 months (a) Fixed remuneration The fixed remuneration component consists of salary, statutory employer superannuation or retirement scheme contributions and benefits (comprising health insurance). Any fringe benefit tax liability in respect to benefits is borne by the employing entity. (b) Incentive arrangements Eligible to participate in the employing entity’s short term incentive arrangements. Eligible to participate in the Company’s long term incentive arrangements. Resignation Retirement Employment may be terminated by giving written notice of same for the period specified in the Notice Period of the contract. If resignation occurs during the year, then there is no entitlement to any bonus or long term incentives which have not vested, unless otherwise determined by the Board. There are no financial entitlements due from the employing entity on the retirement of an executive. Directors do have a discretion to make ex-gratia payments, for example if retirement were to occur during the year, then directors may elect to make a pro-rata award under any applicable bonus or incentive plan, based on performance up to the date of retirement. Termination on notice by the employing entity The employing entity may terminate the employment agreement by providing written notice of same for the period specified in the Notice Period of the contract, or payment in lieu of the notice period. Redundancy If termination occurs during the year then a pro-rata award will be made for any applicable bonus or incentive plan, based on performance up to the date of termination. If the employing entity terminates employment for reasons of bona fide redundancy, a severance payment will be made. The quantum will be at the Board’s discretion taking account of such matters as statutory requirements, the executive’s contribution, position and length of service. If redundancy occurs during the year then a pro-rata award will be made for any applicable bonus or incentive plan, based on performance up to the date of termination. Income protection insurance The Company currently has Income Protection Insurance cover for all Australian domiciled staff covering the period from 2 years after the applicable incident until that staff member turns 65. Australian domiciled executives are included in this policy. Termination for serious misconduct The employing entity may terminate the employment agreement at any time without notice and the executive will only be entitled to accrued leave entitlements. Termination and share grants Depending on the circumstances, directors may choose to exercise their discretion in relation to share grants. Any such discretion would be assessed on a case by case basis. (a) Mr Davies has a six week notice period (b) In November 2011, Mr Bland moved to six weeks annual leave entitlement 31 DIRECTORS’ REPORT Details of the contractual terms for the Managing Director are broadly the same as set out for executives in the above table. Key points of difference are as follows. CRITERION Length of contract Position Notice period PARTICULARS Open ended. Managing Director. Not less than six months. Incentive arrangements Eligible to participate in the company’s short term incentive arrangements. Eligible to participate in the Employee Performance Rights Plan, Employee Deferred Share Plan, Employee Deferred Share Rights Plan or any replacement or supplementary plan. Restraint A restraint arrangement exists during Mr Walsh’s employment and for a period of six months post his employment. Termination and share grants Depending on the circumstances, directors may choose to exercise their discretion in relation to share grants. Any such discretion would be assessed on a case by case basis. Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors Mr A Walsh Managing Director MELBOURNE, 22 February 2012 32 IRESS Market Technology Limited AUDITORS INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 550 Bourke Street Melbourne VIC 3000 PO Box 78 Melbourne VIC 3001 Australia DX 10307SSE Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 www.deloitte.com.au The Board of Directors IRESS Market Technology Limited Level 18, 385 Bourke St MELBOURNE VIC 3000 22 February 2012 Dear Board Members Independence Declaration: IRESS Market Technology Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of IRESS Market Technology Limited. As lead audit partner for the audit of the financial statements of IRESS Market Technology Limited for the financial year ended 31 December 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Sneza Pelusi Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu 33 CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE The Board of IRESS Market Technology Limited is committed to the Principles of Good Corporate Governance & Best Practice Recommendations issued by the ASX Corporate Governance Council. In those few cases where the Board has exercised its discretion to adopt a different approach, it does so because it believes this is in the best interests of shareholders, as explained in the material set forth below. PRINCIPLE DESCRIPTION Principle 1 Lay solid foundations for management and oversight Companies should establish and disclose the roles and responsibilities of board and management. 1.1 1.2 1.3 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions. Companies should disclose the process for evaluating the performance of senior executives. Companies should provide the information indicated in the Guide to reporting on Principle 1. Principle 2 Structure the board to add value Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. CORPORATE GOVERNANCE STATEMENT REFERENCE STATUS 1 Board Charter Comply 1.2 Comply 4, 5 & Directors’ Biographies & Directors’ Report Comply 2.1 2.2 2.3 2.4 2.5 2.6 A majority of the board should be independent directors. 4.3 Comply The chair should be an independent director. The roles of chair and chief executive officer should not be exercised by the same individual. The board should establish a nomination committee. Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. Companies should provide the information indicated in the Guide to reporting on Principle 2. 4.3, 4.4, 4.5, Lead Independent Director Charter Not comply 4.3 Comply 9.1, Nomination & Remuneration Committee Charter Comply 11.1 Comply Comply 4.1, 4.2, 4.3 & Directors’ Biographies & Directors’ Report 34 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT PRINCIPLE DESCRIPTION Principle 3 Promote ethical and responsible decision-making Companies should actively promote ethical and responsible decision-making. CORPORATE GOVERNANCE STATEMENT REFERENCE STATUS 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: 2 Comply the practices necessary to maintain confidence in the company’s integrity; the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them. Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 2.5, 2.6 Not comply 2.5, 2.6, 2.7 Not comply 2.7 Comply Companies should provide the information indicated in the Guide to reporting on Principle 3. 2, 13 Comply 3.2 3.3 3.4 3.5 Principle 4 Safeguard integrity in financial reporting Companies should have a structure to independently verify and safeguard the integrity of their financial reporting. 4.1 4.2 4.3 4.4 The board should establish an audit committee. 10 Comply The audit committee should be structured so that it: consists only of non-executive directors; consists of a majority of independent directors; is chaired by an independent chair, who is not chair of the board; has at least three members. 10.1, Audit Committee Charter Comply The audit committee should have a formal charter. 9.1 Comply Companies should provide the information indicated in the Guide to reporting on Principle 4. 10 & Directors’ Biographies & Directors’ Report Comply 35 CORPORATE GOVERNANCE STATEMENT PRINCIPLE DESCRIPTION Principle 5 Make timely and balanced disclosure 5.1 5.2 Companies should promote timely and balanced disclosure of all material matters concerning the company. Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Companies should provide the information indicated in the Guide to reporting on Principle 5. Principle 6 Respect the rights of shareholders Companies should respect the rights of shareholders and facilitate the effective exercise of those rights. Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. 6.1 6.2 CORPORATE GOVERNANCE STATEMENT REFERENCE STATUS 12 Comply 12 Comply 12.2, 12.3 Comply Companies should provide the information indicated in the Guide to reporting on Principle 6. 12, 14 Comply Principle 7 Recognise and manage risk 7.1 7.2 7.3 Companies should establish a sound system of risk oversight and management and internal control. Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 3.2 Comply 3.3, 3.4, 3.5 Comply 3.6 Comply 7.4 Companies should provide the information indicated in the Guide to reporting on Principle 7. 3 Comply 36 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT PRINCIPLE DESCRIPTION Principle 8 Remunerate fairly and responsibly Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear. 8.1 The board should establish a remuneration committee. 8.2 The remuneration committee should be structured so that it: consists of a majority of independent directors; is chaired by an independent director; and has at least three members. CORPORATE GOVERNANCE STATEMENT REFERENCE STATUS 9.1, 11, Nomination and Remuneration Committee Charter 11.4, 11.5, 11.6 Lead Independent Director Charter Comply Comply 8.3 8.4 Companies should clearly distinguish the structure of non- executive directors’ remuneration from that of executive directors and senior executives. 7, Directors’ Report Comply Companies should provide the information indicated in the Guide to reporting on Principle 8. 7, 9, 11 & Directors’ Report Comply 37 CORPORATE GOVERNANCE STATEMENT INTRODUCTION IRESS’ Board works under a set of well–established corporate governance policies that reinforce the responsibilities of all directors in accordance with the requirements of the Corporations Act 2001 and the Australian Stock Exchange (ASX). In addition, many of the governance elements are enshrined in the Company’s Constitution. In addition, in December 2011 the Board adopted a revised Board Charter, which is intended to supplement the description of the Board’s responsibilities as set forth in the Constitution. The Company’s policies and corporate governance practices are reviewed annually and will continue to be developed and refined to meet the needs of the Company and best practice. This Corporate Governance Statement outlines the key aspects and mechanisms of IRESS’ governance framework, which have been established, and kept under review, by the Board. Copies of or summaries of the charters under which the Board and Board committees operate and other relevant information referred to in this Corporate Governance Statement are available on IRESS’ website http://www.iress.com. 1 BOARD RESPONSIBILITIES 1.1 The Board has ultimate responsibility to set strategy and policy for the business and affairs of the Company and its subsidiaries for the benefit of the shareholders after having considered regulatory matters and other ethical expectations and obligations. The Board is accountable to shareholders for the performance of the Group. 1.2 The Board’s responsibilities and functions include, to: review and approve corporate strategies, budgets, plans and policies developed by management and evaluate performance of the Group against those strategies and business plans in order to: ∙ monitor the performance of functions delegated to the executive team including the progress of major capital expenditure, capital management, acquisitions, divestitures and strategic commitments; and ∙ assess the suitability of the Company’s overall strategies, business plans and resource allocation; appoint a Managing Director for the ongoing management of the business and execution of its strategies; regularly evaluate the performance of the Managing Director and senior management and ensure appropriate executive succession planning is conducted; monitor financial and business results (including the audit process) to understand at all times the financial position of the Group; ensure regulatory compliance and maintain adequate risk management processes; report to shareholders; and implement a culture of compliance with the highest legal and ethical standards and business practices. 1.3 In carrying out its duties, the Board meets regularly to discuss matters relevant to the Company, with additional meetings held as required to address specific issues. 1.4 The Board delegates management of the Company’s resources to the executive team under the leadership of the Managing Director. Any powers not specifically reserved for the Board are deemed to have been delegated to the executive team. 38 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT 2 ETHICAL STANDARDS AND DIVERSITY 2.1 The Company is committed to upholding high legal, moral and ethical standards in all of its corporate activities and has adopted a Code of Ethics, which aims to strengthen its ethical climate and provide basic guidelines for situations in which ethical issues arise. The Code of Ethics applies to directors, executives, management and employees, and sets standards for ethical behaviour and business practice beyond complying with the law, and is based on the key principles whereby the Company: strives to do business with customers and suppliers of sound business character and reputation; strives to maintain the highest standard of ethical behaviour in business dealings and to behave with integrity in all dealings with customers, shareholders, government, employees, suppliers and the community; does not knowingly support any public or private organisation which espouses discriminatory policies or practices; and expects all employees to perform their duties with honesty, truthfulness and integrity. 2.2 It is the policy of the Company to comply with the letter and spirit of all applicable laws, including those relating to employment, discrimination, health, safety, trade practices and securities. The Company has also developed procedures to ensure that employees are aware of and discharge their obligations under relevant privacy laws in their handling of information provided to the Group. 2.3 No director, officer, executive or manager of the Company has authority to violate any law or to direct another employee or any other person to violate any law on behalf of the Company. 2.4 The Company’s ethical practices and procedures are reviewed regularly, and processes are in place to promote and communicate these policies within the Company. 2.5 The Board notes that the ASX Corporate Governance Council’s recommendations include a recommendation that the Company should adopt a formal policy in relation to diversity. 2.6 The Company has a broad and diverse employee base across several international jurisdictions. The Board informally monitors diversity but has not adopted a formal policy. The informal monitoring entails considering diversity under a broad definition, including gender diversity, across the Group not only at the Board and executive levels, but also across the general staff base. While the Board continues to observe no indicators of biases, or impediments to diversity, it does not intend to adopt a more formalised process. 2.7 As at 31 December 2011 approximately 33% of the aggregate employment base of the Company were women, and comprised 1 director (out of a total of 6), 2 senior managers (out of a total of 14) and 215 staff (out of a total of 641). The Board believes that these statistics suggest that its approach of informally monitoring gender diversity has produced satisfactory results. 39 CORPORATE GOVERNANCE STATEMENT 3 RISK MANAGEMENT 3.1 All business activities contain an element of risk. IRESS’ philosophy toward risk is to identify the risks in advance, determine potential risk mitigation strategies, assess the risk in terms of the risk/reward equation and then determine how to proceed. Calculated risk taking is viewed as an essential part of the IRESS’ approach to creating long term shareholder value. 3.2 For the purposes of assisting investors to better understand the nature of the risks faced by the Company, the Board has prepared a list of operational risks as part of the Principle 7 disclosures. However the Board notes that this does not necessarily represent an exhaustive list and that it may be subject to change based on underlying market events. The key areas of risk faced by IRESS include operational risk – relating to internal processes or external events, contractual risk – relating to performance requirements in our contractual engagements, key staff risk, and competitor risk and financial/economic risk. Several of these risks are inherent in the nature of the business and are managed operationally on a day-to-day basis. Appropriate policies and procedures are in place to oversee and manage these risks, and are periodically reviewed by management and the results communicated to the Board. 3.3 The Board is responsible for approving the Company’s risk management strategy and policies including the overall internal control framework. In considering the internal control framework the Board considers no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility, the Board has instigated an approach that can be described under the following five headings. Financial reporting – there is a comprehensive budgeting system with an annual budget approved by the directors. Monthly actual results are reported against budget or an alternative benchmark (where considered appropriate) and revised internal forecasts for the year are prepared regularly. Procedures are also in place to ensure that disclosure obligations are reviewed and information is reported to the ASX in accordance with Continuous Disclosure Requirements. Quality and integrity of personnel – the Company’s human resource related policies and procedures are directed towards achieving the highest levels of service and integrity. External advice – the Company engages external experts, particularly in the areas of legal, tax and valuation matters to support management in performing their duties. Operating controls – procedures including information systems controls are appropriately documented. Exception and corrective action reports highlight any departures from these procedures. Functional specialty reporting – at various times (for example pre and/or post an acquisition), the Board may request additional ad-hoc information to address a particular area of concern or risk. 3.4 The tasks of undertaking and assessing risk management and internal control effectiveness are delegated to management through the Managing Director, the CFO and the Group General Counsel, including responsibility for the day to day design and implementation of the Company's risk management and internal control system. Management reports to the Board on the Company’s key risks and the extent to which it believes these risks are being adequately managed. The reporting on risk by management is a periodic agenda item at Board meetings. 3.5 In accordance with section 295A of the Corporations Act, the Managing Director and CFO have provided a written statement to the Board that: their view provided on the Company's financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the Board; the Company's risk management and internal compliance and control system is operating effectively in all material respects. Internal control assurance letters are completed by the key management personnel of all significant business units, as well as by finance managers, in support of these written statements. 3.6 The Board notes that due to its nature, internal control assurance from the Managing Director and CFO can only be reasonable rather than absolute. This is due to such factors as the need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not and cannot be designed to detect all weaknesses in control procedures. 40 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT 4 BOARD COMPOSITION 4.1 The Board’s policy is that there should be a majority of independent, non–executive directors to ensure that Board discussions or decisions have the benefit of predominantly outside views and experience, and that the majority of directors are free from interests and influences that may create a conflict with their duty to the Company. Maintaining a balance of experience and skills is an important factor in Board composition. Details of each director are set out on page 9. 4.2 The Board has adopted the definition of independence set out in the Corporate Governance Principles and Recommendations released by the ASX Corporate Governance Council in August 2007. The Board has developed guidelines to determine materiality thresholds for the purposes of that definition. Broadly speaking, these guidelines seek to determine whether the director is generally free of any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company. 4.3 The Company currently has six directors, one of whom is an Executive Director (the Managing Director). The remaining five directors are non–executive. With the exception of the Chairman, all non-executive directors are ‘independent’. 4.4 The Board notes that the ASX Corporate Governance Council’s recommendations include a recommendation that the Chairman be an independent director. As noted in 4.3 above, although he is Chairman of the Board, Mr Dunai is not an independent director. 4.5 The Board believes it is important that Mr Dunai remains actively engaged with the Company and that this requirement is best met by him holding the position of Chairman. The Board is also of the view it is capable of making, and does make, independent decisions with regard to the best interests of the Company notwithstanding that the Chairman is not independent. As an additional measure, Ms Seabrook holds the position of Lead Independent Director, with a clear charter to act as a point of reference and coordination where there is, or it is perceived there may be, a conflict for the Chair (refer item 8 of this Corporate Governance Statement). 4.6 In the opinion of the Board, the present composition fairly represents the interests of all shareholders in the Company. 5 BOARD ACCESS TO INFORMATION AND INDEPENDENT ADVICE 5.1 All directors have unrestricted access to all employees of the group and, subject to the law, access to all Company records and information held by group employees and external advisers. The Board receives regular detailed financial and operational reports from senior management. 5.2 Any director can seek independent professional advice at the Company’s expense in the furtherance of his or her duties, subject to prior discussion with the Chairman. If this occurs, the Chairman must notify the other directors of the approach, with any resulting advice received to be generally circulated to all directors. 41 CORPORATE GOVERNANCE STATEMENT 6 APPOINTMENT TERM AND OTHER DIRECTORSHIPS 6.1 6.2 In accordance with the Company’s constitution, all directors other than the Managing Director are required to seek re–election at least once in every three years on a rotating basis. In order to ensure that composition of the Board will change over time, the Board has a general policy that non– executive directors should not serve for a period exceeding 12 years, and that the Chairman should not serve in that role for more than 10 years. 6.3 Directors are required continually to evaluate the number of Boards on which they serve to ensure that each can be given the time and attention required to fulfil their duties and responsibilities. Directors are required to seek approval from the Chairman prior to accepting an invitation to become a director of any corporation. 7 REMUNERATION 7.1 Non–executive directors are paid an annual fee within a fixed amount approved for all non–executive directors by shareholders. The total aggregate annual amount approved for the Company is currently $600,000 per annum, which was set in 2010. 7.2 The Company does not pay retirement benefits to directors. 7.3 For information relating to the consolidated entity’s remuneration practices, and details relating to directors’ and executives’ remuneration during the financial year, see the Audited Remuneration Report which starts on page 14, and is incorporated into this corporate governance statement by reference. 7.4 No additional fees were paid to directors for serving on sub–committees during the period. As members of management, executive directors, when appointed, do not receive any additional directors’ fee. 7.5 The fees paid to directors take into account what is paid by comparable companies and what is necessary to attract high–calibre people to consider Board appointment. In line with general industry practice, the Board reviews its remuneration strategies in relation to non–executive directors from time to time. 7.6 Further details regarding the remuneration paid to directors and senior executives of the Company and the group are set out in the Directors’ Report on pages 14 to 32. 7.7 Subject to the restriction that persons may not deal in any securities when they are in possession of price–sensitive information, directors and employees generally may only buy or sell the Company’s shares in the periods immediately following the release of the Company’s half–year and full year results and Annual General Meeting. At all times, directors dealing in the Company’s shares must obtain prior approval from the Chairman. 7.8 The relevant interests of each director in the share capital of the Company at the date of this report, as notified to the ASX pursuant to the Listing Rules and section 205G of the Corporations Act 2001, are set out on page 18 in the Directors’ Report. 42 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT 8 CONFLICT OF INTEREST AND LEAD INDEPENDENT DIRECTOR 8.1 In order to ensure that any interests of a director in a particular matter to be considered by the Board are brought to the attention of all the directors, the Company has developed protocols consistent with obligations imposed by the Corporations Act 2001 and the Listing Rules, to require each director to disclose any contracts, offices held, interests in transactions and other directorships which may involve any potential conflict. Appropriate procedures have been adopted to ensure that, where the possibility of a material conflict arises, relevant information is not provided to the director, and the director does not participate in discussion on the particular issue, or vote in respect of the matter at the meeting where the matter is considered. 8.2 Concurrent with Mr Dunai assuming the role of Chairman, Ms Seabrook assumed the role of Lead Independent Director. This appointment became effective on 5 May 2010. 8.3 The role of the Lead Independent Director is to provide a point of reference and coordination where there is, or it is perceived there may be, a conflict for the Chair where the Chair is not an independent director. 9 BOARD COMMITTEES 9.1 The Board has two standing committees, namely the Audit Committee and a Nomination and Remuneration Committee. The Company has adopted an Audit Committee Charter and a Nomination and Remuneration Charter to define the tasks and responsibilities delegated to these committees. 9.2 The Board periodically reviews the Audit Committee and Nomination and Remuneration Committee Charters. The Audit Committee Charter was updated in October 2011. 9.3 The Board also delegates specific functions to ad hoc committees of directors on an ‘as needs’ basis. The powers delegated to these committees are set out in Board resolutions. Senior executives attend Board and committee meetings by invitation, whenever particular matters arise that require management presentations or participation. 10 ACCOUNTABILITY AND AUDIT 10.1 The members of the Audit Committee during the year were all non–executive directors and comprised: Mr J Killen (Chair) (retired 5 May 2011); Mr J Hayes (Chair) (appointed 10 June 2011) Mr B Burdett; Ms J Seabrook; and Mr J Cameron (retired from Audit Committee 5 May 2011). 10.2 Members of the Audit Committee are financially literate and the Board is of the opinion that the members of the committee possess sufficient financial expertise and knowledge of the industry in which the Company operates. Details of the qualifications of the Audit Committee members are included in the Directors’ Report on page 9. 10.3 The Audit Committee reviews the financial statements, adequacy of financial controls and the annual external audit arrangements. It monitors the controls and financial reporting systems, applicable Company policies, national and international accounting standards and other regulatory or statutory requirements. 10.4 The Committee also liaises with the Company’s external auditors, reviews the scope of their activities, their remuneration and independence, and advises the Board on their appointment and removal. It is Board policy that the lead external audit partner and review partner are each rotated periodically. 10.5 The Chief Financial Officer, other relevant Company officers (as required) and the lead external audit partner participate at meetings of the Audit Committee. 10.6 The Board has adopted a policy that the Company’s external auditor shall not provide non–audit services that may detract from the external auditor’s independence and impartiality or be perceived as doing so. Any other services provided by the external auditor are reviewed on a case by case basis and must be approved by the Audit Committee in advance. 43 CORPORATE GOVERNANCE STATEMENT 11 NOMINATION AND REMUNERATION 11.1 The Nomination and Remuneration Charter provides for periodic review of the structure and performance of the Board, Board committees and individual directors and a framework for changes when necessary. This includes identifying suitable candidates for appointment as non–executive directors. The Charter also addresses matters such as succession and senior executive compensation policy, including short and long–term incentive plans and the Company’s recruitment, retention and termination policies. 11.2 The Charter provides for directors to access the services of independent professional advisers to assist in the search for high–calibre people at all levels and ensure that the terms and conditions offered by the Company are competitive with those offered by comparable companies. 11.3 The members of the Nomination and Remuneration Committee are: Ms J Seabrook (Chair); Mr P Dunai; and Mr J Cameron. 12 CONTINUOUS DISCLOSURE 12.1 The Board has a disclosure policy and procedures in place which are designed to ensure that information reported to the ASX is in accordance with the continuous disclosure requirements of its Listing Rules. The Board regularly reviews the Company’s compliance with its continuous disclosure obligations. The Company Secretary is responsible for coordinating disclosure of information to the ASX, the Australian Securities and Investments Commission and shareholders. 12.2 In addition to the Company’s obligations to disclose information to the ASX and to distribute information to shareholders, the Company publishes annual and half–year reports, media releases, and other relevant publications on its website, at www.iress.com 12.3 The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and discussion of the Group’s strategy and goals. The Company invites the external auditor to attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. 13 SECURITIES DEALINGS 13.1 The Board’s policy concerning trading in Company securities precludes directors, executives and employees from dealing in the Company’s securities except during three defined approved trading windows. Dealing in shares outside these periods is prohibited without prior approval from the Board, the Managing Director or the Company Secretary. In the case of directors, prior approval from the Chairman is required for all dealings in the Company’s securities. The approved trading windows are for the four weeks after: one day following the announcement of the half-year and full year results (as the case may be); and one day following the holding of the annual general meeting. 13.2 All directors, executives and employees are prohibited from trading the Company’s securities at any time if they possess price-sensitive information not available to the market and which could reasonably be expected to influence the market. At no time may directors, executives and employees may not engage in short term dealings in the Company’s shares. 44 IRESS Market Technology Limited CORPORATE GOVERNANCE STATEMENT 13.3 Hedging of unvested share rights is also prohibited. The Board’s view is that any share-right participant who enters into such schemes on the unvested component of their rights would be in breach of the terms and conditions of the grant, and the Board would exercise its right to cancel any of these hedged share rights. 13.4 As required by the ASX listing rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company. 13.5 At the end of 2010, pursuant to changes in the ASX listing rules, the Company announced its Securities Trading Policy applying to Key Management Personnel. This policy is broadly consistent with the internal policies on dealing in the Company’s securities, albeit with some incremental restrictions and obligations on the non-director members in this group. 14 ADDITIONAL CORPORATE GOVERNANCE INFORMATION 14.1 The corporate governance section of the Company’s website contains various material relating to corporate governance, including the Board Charter, Sub-committee Charters, Code of Ethics, Lead Independent Director Charter, Securities Trading Policy applying to Key Management Personnel and other information. The link to the corporate governance section of the Company’s website is www.iress.com/en/company_profile/ corporate_governance.html. 45 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IRESS MARKET TECHNOLOGY LTD Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 550 Bourke Street Melbourne VIC 3000 PO Box 78 Melbourne Australia VIC 3001 DX 10307SSE Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 We have audited the accompanying financial report of IRESS Market Technology Limited, which comprises the Statement of Financial Position as at 31 December 2011, and the Statement of Comprehensive Income, Statement of Cash Flows and Statement of Changes in Equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 48 to 109 DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with AASB 101 ‘Presentation of Financial Statements’, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the consolidated financial statements and notes comply with International Financial Reporting Standards. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu 46 IRESS Market Technology Limited INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IRESS MARKET TECHNOLOGY LTD AUDITOR’S INDEPENDENCE DECLARATION In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of IRESS Market Technology Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. AUDITOR’S OPINION ON THE FINANCIAL REPORT In our opinion: (a) the financial report of IRESS Market Technology Limited is in accordance with the Corporations Act 2001, including: i) ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2011 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. REPORT ON THE REMUNERATION REPORT We have audited the Remuneration Report included in pages 14 to 32 of the Directors’ Report for the year ended 31 December 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report based on our audit conducted in accordance with Australian Auditing Standards. AUDITOR’S OPINION In our opinion the Remuneration Report of IRESS Market Technology Limited for the year ended 31 December 2011, complies with Section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Sneza Pelusi Partner Chartered Accountants MELBOURNE, 22 February 2012 47 DIRECTORS’ DECLARATION The directors declare that: (a) (b) (c) (d) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; in the directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and the directors have been given the declarations required by s.295A of the Corporations Act 2001 Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors Mr A Walsh Managing Director MELBOURNE, 22 February 2012 48 IRESS Market Technology Limited STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011 Revenue from ordinary activities Customer data fees Communication and other technology expenses Employee related expenses Other expenses including administration expenses Facilities rent Bad and doubtful debts NOTE 2 3 Business acquisition and restructure expenses Profit before depreciation, amortisation, interest and income tax expense 2 Depreciation and amortisation expense Profit before interest and income tax expense Interest revenue Interest expense Net interest Profit before income tax expense Income tax expense Profit attributable to the members of the parent entity Other comprehensive income Exchange differences arising on translation of foreign operations Total comprehensive income for the period EARNINGS PER SHARE Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Notes to the financial statements are included on pages 53 to 109. 2 4 5 CONSOLIDATED 2011 $’000 2010 $’000 204,758 179,585 (21,885) (20,170) (10,579) (9,309) (79,725) (64,090) (6,540) (4,752) (3,188) (2,489) (882) (793) 722 (15) 81,166 79,482 (22,587) (15,098) 58,579 64,384 1,795 (214) 1,581 3,488 (45) 3,443 60,160 67,827 (18,819) (17,348) 41,341 50,479 – – (5,754) (342) 35,587 50,137 32.644 40.335 32.589 40.016 49 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 CURRENT ASSETS Cash and cash equivalent assets Trade receivables Other receivables Current tax receivables Other financial assets Total current assets NON–CURRENT ASSETS Plant and equipment Computer software Goodwill Intangibles Deferred tax assets Other financial assets Total non–current assets Total assets CURRENT LIABILITIES Trade payables Other payables Current tax payables Provisions Total current liabilities NON–CURRENT LIABILITIES Provisions Deferred tax liabilities Total non–current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Retained earnings Total equity Notes to the financial statements are included on pages 53 to 109. 50 IRESS Market Technology Limited NOTE 6 6 4 7 8 9 10 10 11 12 13 13 14 15 16 4 17 18 19 CONSOLIDATED 2011 $’000 2010 $’000 48,925 99,063 12,104 10,025 3,817 1,791 668 1,463 1,650 280 67,305 112,481 6,773 4,068 39,369 16,175 40,137 31,234 4,707 11,120 46 1,540 6,263 50 102,152 59,330 169,457 171,811 10,175 6,025 6,646 6,614 10,250 11,041 3,927 2,910 30,377 27,211 9,802 1,426 11,228 5,554 1,431 6,985 41,605 34,196 127,852 137,615 75,898 75,898 29,124 27,788 22,830 33,929 127,852 137,615 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011 CONSOLIDATED ISSUED CAPITAL $’000 RETAINED EARNINGS $’000 SHARE BASED PAYMENTS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 TOTAL $’000 75,898 33,929 32,094 (4,306) 137,615 – – – – – – 41,341 – 41,341 – – (52,440) – – – – 7,090 – – 41,341 (5,754) (5,754) (5,754) 35,587 – – – – 7,090 (52,440) 75,898 22,830 39,184 (10,060) 127,852 75,898 27,093 25,194 (3,964) 124,221 – – – – – – 50,479 – 50,479 – – (43,643) – – – – 6,900 – – 50,479 (342) (342) (342) 50,137 – – – – 6,900 (43,643) 75,898 33,929 32,094 (4,306) 137,615 2011 Opening balance Profit for the year Increase/(decrease) in translation reserve arising on translation of foreign operations Total comprehensive income for the year Issue of share capital Cost of share-based payments Equity dividends Closing balance 2010 Opening balance Profit for the year Increase/(decrease) in translation reserve arising on translation of foreign operations Total comprehensive income for the year Issue of share capital Cost of share-based payments Equity dividends Closing balance Notes to the financial statements are included on pages 53 to 109. 51 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Payments to employees Interest and bill discounts received Interest paid Income tax paid NOTE CONSOLIDATED INFLOWS (OUTFLOWS) 2011 $’000 2010 $’000 218,584 192,313 (62,513) (50,080) (71,363) (56,746) 1,696 (214) 3,467 – (31,474) (13,398) Net cash provided by operating activities 22 54,716 75,556 CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment Payment for software from Peresys Payment for acquisition of subsidiaries Proceeds from/(payment for) investment in listed companies Proceeds from sale of plant and equipment Dividends received 23 24 (7,129) (3,783) (39,335) – (3,412) (1,799) 5 26 91 5 – 69 Net cash used in investing activities (49,754) (5,508) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of equity securities Dividends paid Net cash used in financing activities Net increase/(decrease) in cash held Cash at the beginning of the financial year Effects of exchange rate changes on the balance of cash held in foreign currencies Cash at the end of the financial year Notes to the financial statements are included on pages 53 to 109. – – (52,438) (43,644) (52,438) (43,644) (47,476) 26,404 99,063 73,225 (2,662) (566) 48,925 99,063 52 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 1 SUMMARY OF ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘Australian Accounting Standards). Compliance with the Australian Accounting Standards ensures that the financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 22 February 2012. BASIS OF PREPARATION The financial report has been prepared on the basis of historical cost. Cost is based on the fair values of the consideration given in exchange for assets. In the application of Australian Accounting Standards management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. 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 judgments. Actual results may differ from these estimates. 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. Judgments made by management in the application of Australian Accounting Standards that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies have been adopted in the preparation and presentation of the financial report. (a) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and short term, highly liquid investments in money market instruments that are readily convertible to known amounts of cash. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. (b) Employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of short term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date. Contributions to defined contribution superannuation plans are expensed when incurred. 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (c) Financial assets Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs. Subsequent to initial recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition, investments in jointly controlled entities are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements. Loans and receivables Trade receivables, loans, and other receivables are recorded at amortised cost less impairment. (d) Foreign currency Foreign currency transactions All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Exchange differences are recognised in profit or loss in the period in which they arise except that: exchange differences which relate to assets under construction for future productive use are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings; and exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form part of the net investment in a foreign operation, are recognised in the foreign currency translation reserve in the consolidated financial statements and recognised in profit or loss on disposal of the net investment. Foreign operations On consolidation, the assets and liabilities of the consolidated entity’s overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to Australian Accounting Standards are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. 54 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (e) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (‘GST’), except: where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (f) Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. (g) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the comprehensive statement of financial position liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the Statement of Comprehensive Income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Tax consolidation The company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian Taxation Law. IRESS Market Technology Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax- consolidated group using the ‘stand alone taxpayer’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax consolidated group, amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in Note 4. Where the tax contribution amount recognised by each member of the tax consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. (h) Intangible assets Intangible assets acquired in a business combination All potential intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. Amortisation is provided on identifiable intangibles and 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. The following estimated useful lives are used in the calculation of amortisation of identifiable intangibles. Computer software 1 year to 5 years Customer list 2 years to 3 years Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in Profit or Loss when the asset is derecognised. 56 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (i) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 “Business Combinations” are recognised at their fair value at the acquisition date. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the consolidated entity reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date (j) Impairment of assets At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. Goodwill is tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed. (k) Leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (l) Payables Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. (m) Principles of consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in AASB 127 ‘Consolidated and Separate Financial Statements’. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceed the cost of acquisition, the deficiency is credited to profit and loss in the period of acquisition. The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entity. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full. (n) Plant and equipment Plant and equipment and leasehold improvements are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on plant and equipment and 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 at the end of each annual reporting period. Useful life The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation. Leasehold improvements Computer equipment Furniture and fittings Office equipment 3 years 3 years 3 years 3 years (o) Provisions Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. 58 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Dividends A provision is only recognised for dividends when they have been declared, determined or publicly recommended by the directors. (p) Revenue recognition Rendering of services Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined by reference to the proportion of the term of the delivery of services that has expired. Dividend and interest revenue Dividend revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. (q) Share based payments Equity settled share based payments are measured at fair value at the date of grant. Fair value is measured using a Monte Carlo simulation model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight- line basis over the vesting period, based on the consolidated entity’s estimate of shares that will eventually vest. The share based payments expense arising from the share rights plans (refer Notes 36 to 38) operated by IRESS, are considered equity settled share based payment transactions in which IRESS receives goods or services as consideration for equity instruments of IRESS. (r) Computer software development expenditure Where the underlying intellectual property rights are owned by the consolidated entity, all expenses incurred on computer software development are expensed as incurred. Computer software acquired through an acquisition, or expenses incurred for licensed third party software are capitalised and amortised over the useful life or licence term as applicable. (s) Financial instruments issued Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (t) Adoption of new and revised Accounting Standards In the current year the Consolidated Entity has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2011. The adoption of all new and revised Standards and Interpretations did not affect the amounts reported for the current or prior periods. In addition, the new and revised Standards and Interpretations have not had a material impact and not resulted in change to the Consolidated Entity’s presentation of or disclosure in these financial statements. At the date of authorisation of the financial report, the following Standards and Interpretations were on issue but not yet effective: AASB 9 ‘Financial Instruments’ (December 2009), AASB 2009-11 ‘Amendments to Australian Accounting Standards arising from AASB 9’ AASB 9 ‘Financial Instruments’ (December 2010), AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’ AASB 10 ‘Consolidated Financial Statements’ AASB 11 ‘Joint Arrangements’ Applies to annual reporting periods beginning on or after 1 January 2013 Applies on a modified retrospective basis to annual reporting periods beginning on or after 1 January 2013 Applies to annual reporting periods beginning on or after 1 January 2013 Applies to annual reporting periods beginning on or after 1 January 2013 AASB 12 ‘Disclosure of Interests in Other Entities’ Applies to annual reporting periods beginning on or after 1 January 2013 AASB 13 ‘Fair Value Measurement’ and related AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ AASB 119 ‘Employee Benefits’ (2011), AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from AASB 119’ (2011) and AASB 2011-11 ‘Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements’ Applies to annual reporting periods beginning on or after 1 January 2013 Applies to annual reporting periods beginning on or after 1 January 2013 AASB 127 ‘Separate Financial Statements’ (2011) Applies to annual reporting periods beginning on or after 1 January 2013 AASB 128 ‘Investments in Associates and Joint Ventures’ (2011) Applies to annual reporting periods beginning on or after 1 January 2013 AASB 1053 ‘Application of Tiers of Australian Accounting Standards’ and AASB 2010-2 ‘Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements’ Applies to annual reporting periods beginning on or after 1 July 2013 but may be early adopted for annual reporting period beginning on or after 1 July 2009 60 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 AASB 1054 ‘Australian Additional Disclosures’, AASB 2011-1 ‘Amendments to Australian Accounting Standards arising from the Trans- Tasman Convergence Project’ and AASB 2011- 2 ‘Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project – Reduced Disclosure Requirements’ AASB 2010-6 ‘Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets’ AASB 2010-8 ‘Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets’ AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ AASB 2011-6 ‘Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method and Proportionate Consolidation – Reduced Disclosure Requirements’ AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements standards’ AASB 2011-9 ‘Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income’ AASB 1054 - Applies to annual reporting periods beginning on or after 1 July 2011 AASB 2011-1 - Applies to annual reporting periods beginning on or after 1 July 2011 AASB 2011-2 - Applies to annual reporting periods beginning on or after 1 July 2013 Applies to annual periods beginning on or after 1 July 2011 Applicable to annual periods beginning on or after 1 January 2012 Applicable to annual reporting periods beginning on or after 1 July 2013 Applies to annual reporting periods beginning on or after 1 July 2013 Applies to annual reporting periods beginning on or after 1 July 2013 Applicable to annual reporting periods beginning on or after 1 July 2012, with early adoption permitted The Directors have not assessed the impact of the adoption of these Standards and Interpretations in future periods on the financial statements of the consolidated entity. 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 2 PROFIT BEFORE INCOME TAX EXPENSES Profit before income tax expense includes the following items of revenue and expense. REVENUE Sales revenue Rendering of services Other revenue Interest revenue Total revenues from ordinary activities EXPENSES Net transfers to/(from) bad and doubtful debts provisions arising from Other entities Depreciation of non–current assets Plant and equipment Amortisation of non–current assets Computer software Other intangibles Operating lease rental expenses Minimum lease payments Interest Expense (a) Net foreign exchange (gain)/loss CONSOLIDATED 2011 $’000 2010 $’000 204,526 179,811 232 (226) 204,758 179,585 1,795 3,488 206,553 183,073 882 (722) 2,931 3,798 18,018 1,638 11,034 266 4,277 3,555 214 575 45 321 Sales of assets in the ordinary course of business have given rise to the following (profits)/losses Plant and equipment (6) (3) (a) Includes $0.207m (2010: nil) non-cash interest expense recognised on deferred consideration payable on the Peresys transaction. 62 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 3 EMPLOYEE RELATED EXPENSES Employee related expenses can be broken down as follows Total monetary based expense (a) Share based payment expense (b) Total employee related expense CONSOLIDATED 2011 $’000 2010 $’000 72,635 57,190 7,090 6,900 79,725 64,090 (a) Total monetary based expense comprises salary and fees, bonuses, superannuation and other benefits. Contributions to superannuation and similar post employment arrangements amounted to $4.350m (2010: $3.468m) for the consolidated entity. (b) Expense recognised in accordance with AASB 2 ‘Share Based Payment’. This expense is a function of both the value and duration of the instruments granted. The expense recognised in 2011 represents a combination of share grants made in 2011 and in prior years. INCOME TAX 4 INCOME TAX RECOGNISED IN PROFIT OR LOSS TAX EXPENSE COMPRISES Current tax expense/(income) Adjustments recognised in the current year in relation to the current tax of prior years Effect of changes in tax rates and laws Deferred tax expense/(income) relating to the origination and reversal of temporary differences Effect of different tax rates Total tax expense The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows. Profit from continuing operations Income tax expense calculated at 30% Non deductible expenses / non assessable income 20,859 19,373 (87) 426 119 18 (3,033) (1,969) 654 (193) 18,819 17,348 60,160 67,827 18,048 20,348 978 767 Deductible share based payment expenses not previously recognised (1,200) (3,711) Effect of different tax rates Effect on deferred tax balances due to the change in income tax rate from 32% to 28.5% on our Canadian operations Effect on deferred tax balances due to the change in income tax rate from 30% to 28% on our New Zealand operations (Over)/under provision of income tax in previous year Income tax expense 654 (193) 425 1 (87) 18 – 119 18,819 17,348 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. INCOME TAX RECOGNISED DIRECTLY IN EQUITY During both the current and prior periods no current or deferred amounts were charged directly to equity. CURRENT TAX ASSETS AND LIABILITIES CONSOLIDATED 2011 $’000 2010 $’000 1,731 1,600 60 50 1,791 1,650 (6,740) (9,617) (3,510) (1,424) (10,250) (11,041) (8,459) (9,391) 4,379 6,741 11,120 2,530 3,733 6,263 (1,426) (1,431) CURRENT TAX ASSETS Tax refund receivable attributable to Entities in the tax-consolidated group Other entities CURRENT TAX PAYABLES Income tax payable attributable to Parent entity Other entities DEFERRED TAX BALANCES DEFERRED TAX ASSETS COMPRISE Tax losses - revenue Temporary differences DEFERRED TAX LIABILITIES COMPRISE Temporary differences 64 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Deferred tax assets/(liabilities) arise from the following. CONSOLIDATED OPENING BALANCE $000 CHARGED TO INCOME $000 CHARGED TO EQUITY $000 ACQUISITIONS /DISPOSALS $000 EXCHANGE DIFFERENCES $000 CHANGES IN TAX RATE $000 CLOSING BALANCE $000 2011 GROSS DEFERRED TAX LIABILITIES Other financial assets (1,392) Sundry receivables (39) (1,431) (1) 34 33 GROSS DEFERRED TAX ASSETS Doubtful debts 320 (152) Other financial assets 1,204 233 516 336 944 413 2,860 245 109 (295) 3,733 3,000 Plant and equipment Payables Provisions Other liabilities 2010 GROSS DEFERRED TAX LIABILITIES Other financial assets (3,080) 1,688 Sundry receivables (33) (6) (3,113) 1,682 GROSS DEFERRED TAX ASSETS Doubtful debts 494 (174) Other financial assets 2,540 (1,336) Plant and equipment (1,442) 1,972 Payables Provisions Other liabilities 336 – 1,284 (340) 237 3,449 176 298 – – – – – – – – – – – – – – – – – – – – (27) – (27) 17 – – 136 89 84 326 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1) (1,421) – (5) (1) (1,426) (8) – 177 1,437 (90) 3,286 (131) 586 (89) 1,053 – 202 (318) 6,741 – – – – – (14) – – – (1,392) (39) (1,431) 320 1,204 516 336 944 413 (14) 3,733 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 UNRECOGNISED DEFERRED TAX BALANCES There are no deferred tax assets which have not been brought to account as assets. TAX CONSOLIDATION (a) Relevance of Tax Consolidation to the Consolidated Entity The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 14 March 2003 and are therefore taxed as a single entity from that date. The head entity within the tax- consolidated group is IRESS Market Technology Limited. The members of the tax-consolidated group are identified at Note 30. The tax consolidated group does not include the IRESS Market Technology Equity Plan Trust. (b) Nature of Tax Funding Arrangements and Tax Sharing Agreements Refer to accounting policy Note 1(g). 66 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 5 EARNINGS PER SHARE Basic earnings per share Diluted earnings per share BASIC EARNINGS PER SHARE 2011 CENTS PER SHARE 2010 CENTS PER SHARE 32.644 32.589 40.335 40.016 2011 ’000 2010 ’000 The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows. Earnings used in the calculation of basic earnings per share reconciles to profit attributable to the members of the parent entity in the statement of comprehensive income Weighted average number of ordinary shares (a) $ No. 41,341 50,479 126,642 125,148 (a) Performance rights issued by the company are considered to be potential ordinary shares and are therefore excluded from the weighted average number of ordinary shares used in the calculation of basic earnings per share. Where dilutive, potential ordinary shares are included in the calculation of diluted earnings per share. DILUTED EARNINGS PER SHARE The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows. Earnings used in the calculation of diluted earnings per share reconciles to profit attributable to the members of the parent entity in the statement of comprehensive income $ 41,341 50,479 Weighted average number of ordinary shares (refer to footnote (a) above) No. 126,856 126,147 Weighted average number of ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows. Weighted average number of ordinary shares used in the calculation of basic EPS No. 126,642 125,148 Shares deemed to be issued for no consideration in respect of performance rights (i.e. the dilutive impact of performance rights in existence during the year that were exercisable at below the weighted average market price) (a) No. 214,012 998,945 Weighted average number of converted, lapsed, or cancelled potential ordinary shares used in the calculation of diluted earnings per share No. Right to purchase ordinary shares pursuant to the employee share scheme No. – – – – (a) The dilutive impact of future vestings of granted performance rights has been derived assuming the relative ranking of IRESS to its peer group as measured at 31 December 2011 continues at that level through to the final vesting date for the applicable performance right. 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 6 CURRENT RECEIVABLES Trade receivables Allowance for doubtful debts Sundry receivables and prepayments MOVEMENT IN THE ALLOWANCE FOR DOUBTFUL DEBTS Opening balance Additions Provision acquired through business combination Amounts written off as uncollectible Provision reversed Closing balance CONSOLIDATED 2011 $’000 2010 $’000 12,731 10,883 (627) (858) 12,104 10,025 3,817 3,817 1,463 1,463 858 573 62 (866) – 627 1,703 – – (94) (751) 858 The consolidated entity’s policy requires customers to pay within 30 days from date of invoice. All credit and recovery risks associated with trade receivables have been provided for in the statement of financial position. The provision in respect of trade and sundry receivables is determined with regard for historical write-offs and specifically identified customers. Other balances in other receivables do not contain impaired assets and are not past due. An analysis of trade receivables as at 31 December 2011 showing receivables ‘past due but not impaired’ and receivables ‘considered impaired’ is as follows. CONSOLIDATED PDNI (a) CONSOLIDATED CI (b) 2011 $ 2010 $ 2011 $ 2010 $ 8,430 2,390 761 523 7,117 1,721 482 705 12,104 10,025 144 10 41 432 627 137 76 14 631 858 0 – 30 days 31 – 60 days 61 – 90 days 91+ days Total (a) PDNI – past due not impaired. (b) CI – considered impaired. 68 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 7 OTHER CURRENT FINANCIAL ASSETS Other assets 8 PLANT AND EQUIPMENT CONSOLIDATED 2011 CONSOLIDATED 2011 $’000 2010 $’000 668 280 LEASEHOLD IMPROVE- MENTS $’000 FURNITURE & FITTINGS $’000 COMPUTER EQUIPMENT $’000 OFFICE EQUIPMENT $’000 TOTAL $’000 GROSS CARRYING AMOUNT (COST) Balance at beginning of financial year 6,209 1,642 13,573 278 21,702 Additions Additions through business combination Net foreign currency exchange differences Disposals 576 8 (60) (83) 209 34 (76) (108) 4,808 156 (461) (905) Balance at end of financial year 6,650 1,701 17,171 18 13 (18) (31) 260 5,611 211 (615) (1,127) 25,782 ACCUMULATED DEPRECIATION Balance at beginning of financial year (5,574) (1,497) (10,376) (187) (17,634) Disposals Net foreign currency exchange differences 82 33 104 62 899 332 30 14 1,115 441 Depreciation expense (324) (121) (2,430) (56) (2,931) Balance at end of financial year (5,783) (1,452) (11,575) (199) (19,009) NET BOOK VALUE At 31 December 2011 867 249 5,596 61 6,773 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 CONSOLIDATED 2010 LEASEHOLD IMPROVE- MENTS $’000 FURNITURE & FITTINGS $’000 COMPUTER EQUIPMENT $’000 OFFICE EQUIPMENT $’000 TOTAL $’000 GROSS CARRYING AMOUNT (COST) Balance at beginning of financial year 6,198 1,622 11,028 Additions Additions through business combination Net foreign currency exchange differences Disposals 24 2 (15) – 26 – (6) – 2,680 12 (84) (63) 260 15 3 – – 19,108 2,745 17 (105) (63) Balance at end of financial year 6,209 1,642 13,573 278 21,702 ACCUMULATED DEPRECIATION Balance at beginning of financial year (4,173) (1,100) (8,574) (117) (13,964) Disposals Net foreign currency exchange differences – 8 – 4 60 58 – (2) 60 68 Depreciation expense (1,409) (401) (1,920) (68) (3,798) Balance at end of financial year (5,574) (1,497) (10,376) (187) (17,634) NET BOOK VALUE At 31 December 2010 635 145 3,197 91 4,068 Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year. Leasehold improvements Furniture and fittings Computer equipment Office equipment 70 IRESS Market Technology Limited CONSOLIDATED 2011 $’000 2010 $’000 324 121 1,409 401 2,430 1,920 56 68 2,931 3,798 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 9 COMPUTER SOFTWARE GROSS CARRYING AMOUNT (COST) Balance at beginning of financial year Additions (a) Additions through business combination (Note 24) Net foreign currency exchange differences Adjustment – short term software licence (b) Adjustment – fully written down software (c) Disposals Balance at end of financial year ACCUMULATED AMORTISATION Balance at beginning of financial year Adjustment – short term software licence (b) Adjustment – fully written down software (c) Disposals Net foreign currency exchange differences Amortisation expense Balance at end of financial year NET BOOK VALUE At 31 December CONSOLIDATED 2011 $’000 2010 $’000 78,348 78,235 41,052 1,748 64 (587) 158 (128) (1,221) (1,299) – – (306) (366) 117,350 78,348 (62,173) (52,932) 1,221 1,299 – 305 684 – 366 128 (18,018) (11,034) (77,981) (62,173) 39,369 16,175 Aggregate amortisation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year 18,018 11,034 (a) Primarily made up of software acquired from Peresys (Proprietary) Limited for $39.335 (refer Note 23) (b) Short-lived third party software licence written down. (c) Computer software written off as part of a periodic review of fully written down assets 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 10 GOODWILL AND INTANGIBLES GOODWILL GROSS CARRYING AMOUNT Balance at beginning of the financial year Additional amounts recognised from business combinations occurring during the period Purchase price adjustment Effect of foreign currency exchange differences Balance at end of financial year There are no accumulated impairment losses. CONSOLIDATED 2011 $’000 2010 $’000 31,234 29,722 12,896 1,985 – (3,993) (292) (181) 40,137 31,234 ALLOCATION OF GOODWILL TO CASH GENERATING UNITS Goodwill has been allocated for impairment testing purposes to the following cash generating units; Financial Markets – Canada, Financial Markets – South Africa, Wealth Management – Australia & New Zealand, Wealth Management – South Africa and Wealth Management – Asia. In accordance with AASB136 ‘Impairment of Assets’, impairment testing was completed as at 31 December 2011 and no impairment of goodwill was indicated. The carrying amount of goodwill allocated to cash generating units that are significant individually or in aggregate is as follows: Financial Markets – Canada (a) (b) Financial Markets – South Africa (a) (c) Wealth Management – Australia & New Zealand (a) Wealth Management – South Africa (a) (b) Wealth Management – Asia (a) (b) Balance at end of financial year (a) refer Note 25 for a description of the operations of these cash generating units (b) movement represents only net exchange rate differences arising during the period. (c) refer Note 24 for a description on this business combination CONSOLIDATED 2011 $’000 2010 $’000 8,155 8,680 10,493 – 15,179 15,179 4,403 1,907 5,390 1,985 40,137 31,234 72 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 IMPAIRMENT TESTING ASSUMPTIONS The following assumptions were adopted in the assessment of indicators of impairment as at 31 December 2011 for each of the cash generating units; importantly these assumptions do not seek to represent directors’ valuations of these businesses, and there is an inherent level of conservatism in the assumptions adopted: The recoverable amount of the cash generating unit has been determined based on a value in use calculation using monthly cash flow projections based on the budgets approved by management for the twelve months ending 31 December 2012, the monthly cashflows for the subsequent four years (‘projection period’), and a terminal value at the end of the projection period. Zero revenue growth is assumed during the projection period. Wages, operating costs and depreciation (as a proxy for capital expenditure) are assumed to grow on a partially fixed, partially variable basis with revenue. A terminal annual growth factor of 2% is assumed. A discount rate of 15% has been assumed. Where applicable the exchange rate prevailing as at 31 December 2011 is assumed to continue. For the Financial Markets – South Africa cash generating unit, the above assumptions were adopted, together with a notional charge to the cash generating unit for use of intellectual property (Software) formerly owned by Peresys (Pty) Ltd, and now owned by the ultimate parent entity. For the Wealth Management – Asia cash generating unit, the above assumptions were adopted, together with a period of revenue growth during the projection period. INTANGIBLES GROSS CARRYING AMOUNT The movement in the intangibles balance represents the addition of intangibles resulting from a business combination (refer Note 24) and amortisation of these assets in accordance with their anticipated useful lives (refer Note 2). 11 DEFERRED TAX ASSETS Temporary differences attributable to Parent entity Entities in the tax consolidated group (Note 30) Other entities (a) Tax losses – other entities CONSOLIDATED 2011 $’000 2010 $’000 5,504 1,344 (107) 4,379 11,120 5,135 (1,153) (249) 2,530 6,263 (a) Wholly owned subsidiaries that are not entities in the tax consolidated group. 12 OTHER NON-CURRENT FINANCIAL ASSETS Investment in shares at fair value 46 50 Investment in shares represents numerous minimum shareholding parcels in ASX listed stapled securities and property trusts held for the purposes of managing IRESS’ capture and recording of corporate actions in these securities. 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 13 CURRENT PAYABLES Trade payables Sundry creditors and accruals Trade payables and other creditors are non-interest bearing liabilities. The consolidated entity generally processes trade creditor payments in accordance with the supplier’s trading terms. 14 CURRENT TAX PAYABLES Income tax payable attributable to Parent entity Other entities CONSOLIDATED 2011 $’000 2010 $’000 10,175 10,175 6,025 6,025 6,646 6,646 6,614 6,614 6,740 3,510 9,617 1,424 10,250 11,041 74 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 15 CURRENT PROVISIONS Employee benefits (Note 26) Dividends Restructuring and termination costs Provision for additional payment arising on the acquisition of subsidiaries DIVIDENDS Opening balance Additional provisions recognised Reductions arising from payments/other sacrifices of future economic benefits Closing balance (a) RESTRUCTURING AND TERMINATION COSTS Opening balance Additional provisions recognised Reductions arising from payments/other sacrifices of future economic benefits Closing balance PROVISION FOR ADDITIONAL PAYMENT ARISING ON THE ACQUISITION OF SUBSIDIARIES Opening balance Reductions arising from payments/other sacrifices of future economic benefits Closing balance CONSOLIDATED 2011 $’000 2010 $’000 3,487 2,736 41 300 99 39 36 99 3,927 2,910 39 40 52,440 43,643 (52,438) (43,644) 41 39 36 264 – 300 99 – 99 145 – (109) 36 391 (292) 99 (a) The provision for dividends represents the aggregate amount of dividends declared, determined or publicly recommended on or before the reporting date, which remain undistributed at the reporting date, regardless of the extent to which they are expected to be paid in cash. At 31 December 2011, the balance represents unpresented dividend cheques. 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 16 NON-CURRENT PROVISIONS Employee benefits (Note 26) Provision for third party software licence Provision for additional payment arising on the acquisition of subsidiaries PROVISION FOR ADDITIONAL PAYMENT ARISING ON THE ACQUISITION OF SUBSIDIARIES Opening balance Provision for additional payment arising on the acquisition of subsidiaries Reductions arising from payments/other sacrifices of future economic benefits Non-cash interest expense Net foreign currency exchange difference Closing balance CONSOLIDATED 2011 $’000 2010 $’000 3,891 3,379 2,532 9,802 – 3,872 (1,010) 207 (537) 2,532 2,175 3,379 – 5,554 – – – – – – 76 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 17 ISSUED CAPITAL ISSUED CAPITAL 127,036,010 fully paid ordinary shares (2010: 126,018,142) CONSOLIDATED 2011 $’000 2010 $’000 75,898 75,898 2011 2010 NO. ‘000 $’000 NO. ‘000 $’000 FULLY PAID ORDINARY SHARE CAPITAL Balance at beginning of financial year 126,018 75,898 123,812 75,898 Issue of shares to IRESS Market Technology Equity Plan Trust (’Trust’) pursuant to share plans (a) 1,018 – 2,206 – Balance at end of financial year 127,036 75,898 126,018 75,898 (a) Additional issued capital arising from the issue of these shares in the years ended 31 December 2011 and 31 December 2010 amounted to $26 and $134 respectively. PERFORMANCE RIGHTS Performance rights have been granted to the Managing Director, executives and employees of the Consolidated Entity. These performance rights will vest over time subject to satisfying the criteria set out in the relevant performance rights plan rules. Once vested, the holder of the performance right is required to pay $1 per series to exercise the performance right (refer Notes 36 and 37). Performance rights granted to Mr Peter Dunai vested in August 2011. Mr Dunai is currently Chairman but at the time of grant was Managing Director. In accordance with the plan rules Mr Dunai was required to pay $1 to exercise these performance rights. Pursuant to performance rights granted in prior years which vested during the year, 334,548 shares (491,000 shares less 156,452 treasury shares) were subscribed for by the Trust. DEFERRED SHARES Pursuant to deferred shares granted to the Managing Director, executives and employees (refer Note 37) during the year which have not yet vested, 590,000 new shares were subscribed for by the Trust. DEFERRED SHARE RIGHTS Pursuant to deferred share rights granted in prior years which vested during the year, 93,320 shares were subscribed for by the Trust. Following cancellations of share rights granted to employees, as at 31 December 2011, the Trust holds 23,200 treasury shares. 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 18 RESERVES RESERVES COMPRISE Share based payments reserve Foreign currency translation reserve MOVEMENTS IN SHARE BASED PAYMENTS RESERVES Balance at beginning of financial year Share based payments expense Balance at end of financial year The share based payment reserve arises on recognition of the share based payment expense following the grant of share rights to employees (including the Managing Director) under the applicable share rights plan. MOVEMENTS IN FOREIGN CURRENCY TRANSLATION RESERVES Balance at beginning of financial year Translation of foreign operations Balance at end of financial year Exchange differences relating to foreign currency monetary items forming part of the net investment in a foreign operation, and the translation of foreign operations, are brought to account by entries made directly to the foreign currency translation reserve, as described in Note 1(d). 19 RETAINED EARNINGS Balance at beginning of financial year Net profit attributable to members of the parent entity Dividends provided for or paid Balance at end of financial year CONSOLIDATED 2011 $’000 2010 $’000 39,184 32,094 (10,060) (4,306) 29,124 27,788 32,094 25,194 7,090 6,900 39,184 32,094 (4,306) (3,964) (5,754) (342) (10,060) (4,306) 33,929 27,093 41,341 50,479 (52,440) (43,643) 22,830 33,929 78 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 20 PARENT ENTITY DISCLOSURE FINANCIAL POSITION ASSETS Current assets Non current assets Total assets LIABILITIES Current liabilities Non current liabilities Total liabilities EQUITY Issued capital Retained earnings Share based payments reserve Foreign currency translation reserve Total Equity FINANCIAL PERFORMANCE Profit for the year Total comprehensive income CONTINGENT LIABILITIES The parent entity has given a letter of support to guarantee that the following wholly owned subsidiaries will meet their debts as and when they fall due. The total liabilities of the wholly owned subsidiaries (excluding amounts owed to the parent entity) are: IRESS Data Pty Ltd IRESS Market Technology (NZ) Limited IRESS Asia Holdings Ltd IRESS Market Technology (Singapore) Pte Ltd IRESS Technology Limited COMPANY 2011 $’000 2010 $’000 96,254 139,451 78,961 35,175 175,215 174,626 15,691 20,298 10,485 7,592 26,176 27,890 75,898 75,898 33,957 38,744 39,184 32,094 – – 149,039 146,736 35,204 44,511 35,204 44,511 – 242 – – – – 1,201 – – – 242 1,201 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 21 DIVIDENDS FULLY PAID ORDINARY SHARES Recognised amounts Interim dividend Final dividend (b) 31 DECEMBER 2011 31 DECEMBER 2010 CENTS PER SHARE TOTAL $’000 CENTS PER SHARE TOTAL $’000 14.0 (a) 17,785 14.0 (b) 17,642 24.0 (c) 30,244 21.0 (d) 26,001 Special dividend unfranked 3.5 4,411 – – 52,440 43,643 Unrecognised amounts Final dividend 24.0 (e) 30,489 24.0 (c) 30,244 Special dividend unfranked – – 3.5 4,411 30,489 34,655 (a) Franked to 90% at a 30% tax rate. (b) Fully franked at a 30% tax rate. (c) Franked to 66% at a 30% tax rate. (d) This relates to the dividend paid based on the prior year’s results. Where applicable, amounts provided have been amended to reflect the actual dividend paid. (e) Franked to 83% at a 30% tax rate. The estimated value of the 2011 final dividend (that will be declared subsequent to 31 December 2011) has been calculated based on 127,036,010 ordinary shares, comprising shares on issue as at 31 December 2011. Adjusted franking account balance (a) COMPANY 2011 $’000 2010 $’000 10,859 4,196 (a) The franking account balance is maintained on a tax paid basis in accordance with the simplified dividend system. It has not been adjusted for the unrecognised partially franked final dividend above. 80 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 22 NOTES TO THE STATEMENT OF CASH FLOWS CONSOLIDATED 2011 $’000 2010 $’000 RECONCILIATION OF CASH For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows Cash 48,925 99,063 RECONCILIATION OF PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY TO NET CASH FLOWS FROM OPERATING ACTIVITIES Profit for the period (Profit)/loss on sale of non–current assets Depreciation and amortisation of non–current assets Doubtful debts expense Net foreign exchange (gain) / loss Equity settled share based payments Increase/(decrease) in deferred tax balances Changes in net assets and liabilities, net of effect of acquisitions (Increase)/decrease in assets current trade receivables other current assets Increase/(decrease) in liabilities current trade payables other non–current liabilities other provisions current tax liability Net cash from operating activities 41,341 50,479 (6) (3) 22,587 15,098 881 575 (722) 321 7,090 6,900 (4,862) (1,971) (4,424) (2,549) (13,199) (354) 2,940 1,717 1,017 (941) 2,132 85 134 6,006 54,716 75,556 SUBSIDIARIES ACQUIRED DURING THE YEAR During the year, the consolidated entity acquired some subsidiaries (refer Note 24). The net outflow on acquisition was $3.412m. 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 23 ACQUISITION OF SOFTWARE On 18 January 2011, IRESS Market Technology Limited acquired software from Peresys (Proprietary) Ltd. The software was acquired for ZAR 264.000m (AUD 39.335m), which is considered to be fair value. 24 ACQUISITION OF BUSINESSES PERESYS (PROPRIETARY) LTD On 20 January 2011, IRESS Market Technology Limited acquired 100% of Peresys (Proprietary) Ltd (‘Peresys’). Peresys is a South African based technology solutions provider to the financial markets, specialising in building and running FIX enabled connected trading communities across all asset classes, including equities, fixed interest and derivatives. Peresys was acquired for ZAR 66.209m (AUD 9.706m). The transaction included an upfront cash payment of ZAR 39.155m (AUD 5.834m), short term deferred consideration of ZAR 7.296m (AUD 1.044m) and performance based payments based around the growth of the business of up to ZAR 19.758m (AUD 2.828m), most of which is payable at the end of three years. In addition, up to an additional ZAR 10.000m (AUD 1.464m) is available to certain staff, with payment based on performance of the business over three years. Details on the assets and liabilities acquired are as follows. FAIR VALUE OF NET ASSETS ACQUIRED CURRENT ASSETS Cash and cash equivalent assets Receivables NON-CURRENT ASSETS Plant and equipment Customer list Deferred tax assets CURRENT LIABILITIES Payables Current tax liabilities Provisions NON-CURRENT LIABILITIES Provisions Fair value of identifiable assets acquired Goodwill arising on acquisition Purchase price TOTAL FAIR VALUE RECOGNISED ON ACQUISITION $’000 3,432 1,337 275 5,659 299 (2,270) (10,138) (318) (1,466) (3,190) 12,896 9,706 Other than for the customer list recognised, there were no fair value adjustments to the net book value of the assets acquired. In its acquisition of Peresys, IRESS Market Technology Limited paid a premium to the fair value of the net assets acquired. Goodwill was recognised on this acquisition, as other possible classes of intangible assets did not meet the criteria for recognition as at the date of acquisition. Goodwill represents, amongst other things, the anticipated future earnings capacity of the assets acquired. 82 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Since acquisition, Peresys has contributed revenue of AUD 15.320m to the Consolidated Entity. Had this business combination been effected at 1 January 2011, the revenue of the Consolidated Entity from continuing operations would have been AUD 205.149m, and the profit for the full year from continuing operations would have been AUD 41.470m. In determining the ‘pro-forma’ revenue and profit of the Consolidated Entity had Peresys been acquired at the beginning of the current reporting period, the directors have evenly apportioned the revenue and profit of Peresys over this period on the basis of there being no abnormal items within those results. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS Notwithstanding the funding support letter described below, the Directors are of the opinion that there is no change to the Consolidated Entity’s contingent liabilities or capital commitments arising from the Peresys acquisition. As part of the transaction documents a Funding Support Letter was required to indemnify the former Peresys directors. The document requires the consolidated entity to meet certain future obligations of Peresys crystallised in the transaction. The following table sets out the cash flow impact of the Peresys acquisition. Total consideration Provision for second payment (a) Cash paid Cash and cash equivalent balances acquired Net cash flow on acquisition date TOTAL COST OF ACQUISITION $’000 9,706 (2,862) 6,844 (3,432) 3,412 (a) Includes $0.537m foreign currency movement and $0.207 non-cash interest expense. 25 SEGMENT INF0RMATION The consolidated entity operates in two areas – Financial Markets and Wealth Management. Any transactions directly between segments are charged on an arm’s length basis. FINANCIAL MARKET SERVICES The consolidated entity’s financial market services division provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants in Australia, New Zealand, Canada and Asia. During the period the consolidated entity, through the acquisition of Peresys (refer Note 24), commenced operations in South Africa. On 20 January 2011, IRESS Market Technology Limited acquired Peresys (Pty) Ltd (‘Peresys’) and its subsidiaries. Peresys provides technology solutions to the financial markets in South Africa. 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 WEALTH MANAGEMENT SERVICES In this division the consolidated entity provides financial planning systems and related tools to wealth management professionals located in Australia, New Zealand, South Africa and Asia. In addition this segment recently established operations in the United Kingdom. SEGMENT REVENUES FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia EXTERNAL SALES TOTAL 2011 $’000 2010 $’000 2011 $’000 2010 $’000 108,919 104,538 108,919 104,538 23,954 15,320 1,061 23,488 – 613 23,954 15,320 1,061 23,488 – 613 Total financial markets 149,254 128,639 149,254 128,639 WEALTH MANAGEMENT Australia & New Zealand South Africa Asia United Kingdom Total wealth management Total of all segments Interest revenue Eliminations Unallocated Consolidated 49,122 43,783 49,122 43,783 5,991 7,072 5,991 7,072 159 – 317 – 159 – 317 – 55,272 51,172 55,272 51,172 204,526 179,811 204,526 179,811 1,795 – 232 3,488 – (226) 206,553 183,073 84 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 SEGMENT PROFITS FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia Total financial markets WEALTH MANAGEMENT Australia & New Zealand South Africa Asia United Kingdom Total wealth management services Total of all segments Share based payment expense (Refer Note 3 (b)) Other contribution Earnings before interest, taxes, depreciation and amortisation Depreciation and amortisation expense Interest (a) Profit before income tax expense Income tax expense Profit attributable to the members of the parent entity 2011 $’000 2010 $’000 56,289 58,904 8,197 5,543 7,843 – (1,454) (586) 68,575 66,161 20,289 18,636 1,689 2,468 (1,320) (1,121) (119) – 20,539 19,983 89,114 86,144 (7,090) (6,900) (858) 239 81,166 79,483 (22,587) (15,098) 1,581 3,442 60,160 67,827 (18,819) (17,348) 41,341 50,479 (a) Includes $0.207m (2010: nil) non-cash interest expense recognised on deferred consideration payable on the Peresys transaction, and other sundry contribution of $0.006m (2010: $0.003m). 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 SEGMENT ASSETS AND INFORMATION 2011 $’000 2010 $’000 CASH RECEIVABLES PAYABLES CASH RECEIVABLES PAYABLES Australia & New Zealand 38,113 9,031 (8,745) 90,868 7,329 (5,367) Canada South Africa Asia United Kingdom 1,817 8,729 266 – 1,738 1,312 23 – (901) (474) (55) – 1,275 6,771 149 – 1,906 552 238 – (993) (246) (40) – Total consolidated 48,925 12,104 (10,175) 99,063 10,025 (6,646) OTHER SEGMENT INFORMATION DEPRECIATION & AMORTISATION Australia & New Zealand Canada South Africa Asia United Kingdom Total ADDITIONS TO PLANT AND EQUIPMENT Australia & New Zealand Canada South Africa Asia United Kingdom Total ADDITIONS TO SOFTWARE Australia & New Zealand (a) Canada South Africa Asia United Kingdom Total CONSOLIDATED 2011 $’000 2010 $’000 19,893 13,898 577 1,980 137 – 673 455 72 – 22,587 15,098 4,113 557 552 389 – 1,870 752 49 74 – 5,611 2,745 40,991 1,745 – 29 32 – – – 161 – 41,052 1,906 (a) Primarily made up of software acquired from Peresys (Proprietary) Limited for $39.335m (refer Note 23) 86 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 ADDITIONS TO PLANT AND EQUIPMENT THROUGH BUSINESS COMBINATIONS Australia & New Zealand Canada South Africa Asia United Kingdom Total TOTAL NON CURRENT ASSETS Australia & New Zealand Canada South Africa Asia United Kingdom Total 26 EMPLOYEE BENEFITS THE AGGREGATE EMPLOYEE BENEFIT LIABILITY RECOGNISED AND INCLUDED IN THE FINANCIAL STATEMENTS IS AS FOLLOWS Provision for employee benefits Current (Note 15) Non–current (Note 16) Number of employees (full time equivalent basis) and directors at end of the financial year, excluding staff on maternity leave or other unpaid leave. CONSOLIDATED 2011 $’000 2010 $’000 – – 211 – – 211 – – – 17 – 17 71,409 41,116 9,613 10,280 18,818 2,312 – 5,805 2,129 – 102,152 59,330 3,487 3,891 7,378 2,736 2,175 4,911 2011 NO. 2010 NO. 659 512 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 27 REMUNERATION OF AUDITORS Auditor of the parent entity (a) Related practice of parent entity auditor (b) CONSOLIDATED 2011 $ 2010 $ 225,000 257,700 44,859 19,159 269,859 276,859 (a) The auditor of IRESS Market Technology Limited is Deloitte Touche Tohmatsu. (b) Remuneration paid to international associates of Deloitte Touche Tohmatsu Australia located in Canada, New Zealand, South Africa, Singapore, Hong Kong and Ireland. There were no amounts paid/payable to the auditor for non-audit services. 28 CONTINGENT LIABILITIES The Directors are of the opinion that there are no other contingent liabilities that need to be disclosed at the reporting date. 29 LEASES LEASING ARRANGEMENTS Operating leases relate to office facilities with lease terms of between 2 to 10 years. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period. Melbourne, Sydney, Brisbane and Perth office lease arrangements are supported by bank guarantees. At 31 December 2011, the total rental bank guarantees in place amounted to $2,610,953 (2010: $2,415,539). NON-CANCELLABLE OPERATING LEASES Not longer than 1 year Longer than 1 year and not longer than 5 years In respect of non-cancellable operating leases, the following liabilities have been recognised. MAKE GOOD PROVISIONS Current Non-current 88 IRESS Market Technology Limited CONSOLIDATED 2011 $’000 2010 $’000 4,200 3,783 10,679 10,356 14,879 14,139 327 – 164 – NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 30 SUBSIDIARIES NAME OF ENTITY COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY OWNERSHIP INTEREST 2011 % 2010 % PARENT ENTITY IRESS Market Technology Limited (a) Australia SUBSIDIARIES IRESS Market Technology (NZ) Limited (c) New Zealand / Provision of sales and related services to users of IRESS technologies in New Zealand 100 100 IRESS Wealth Management Pty Ltd (b) Australia / Provision of financial planning technology and related services IRESS Canada Holdings Limited Canada / Holding company IRESS Data Pty Ltd (b) (c) Australia / Data procurement 100 100 100 100 100 100 IRESS Asia Holdings Limited (c) Hong Kong / Provision of financial market and financial planning technology and related services 100 100 IRESS Market Technology (Singapore) Pte Ltd (c) Singapore / Provision of financial market and financial planning technology and related services 100 100 IRESS South Africa (Australia) Pty Ltd (b) Australia / Software licensing company 100 100 Peresys (Proprietary) Ltd (d) South Africa / Provision of financial market technology and related services IRESS Technology Limited (c) (e) United Kingdom / Provision of financial market and financial planning technology and related services 100 100 – – (a) IRESS Market Technology Limited is the head entity within the tax consolidated group. (b) This company and its Australian subsidiaries (if any) are members of the tax consolidated group. (c) Subsidiary provided with a letter of support from Parent entity. (d) Acquired 20 January 2011. (e) Established 23 September 2011. 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 In relation to its Australian and New Zealand wealth management operations, IRESS Wealth Management Pty Ltd holds the following controlled entities. NAME OF BUSINESS ACQUIRED / INCORPORATED PlanTech Holdings Pty Ltd COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY Australia / Holding company for PlanTech companies below PlanTech Consulting Group Pty Ltd Australia / Provider of risk (life insurance) information and PlanTech’s financial planning services Planning Resources Group Pty Ltd VisiPlan Pty Ltd Australia / No active operations, currently receives small amount of passive income associated with former PlanTech business Australia / Provision of financial planning technology and related services TransActive Systems Pty Ltd Australia / Provision of mortgage information and related services Dealer Management Systems Pty Ltd Australia / Provision of financial planning technology and related services FundData Pty Ltd Australia / Provision of financial planning technology and related services OWNERSHIP INTEREST 2011 % 2010 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 In relation to its South African wealth management operations, IRESS Wealth Management Pty Ltd holds the following controlled entities NAME OF BUSINESS ACQUIRED / INCORPORATED COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY IRESS Spotlight Wealth Management Solutions (RSA) Pty Ltd Australia / Provision of financial planning technology and related services OWNERSHIP INTEREST 2011 % 2010 % 100 100 Spotlight Wealth Management (Pty) Ltd South Africa / Provision of financial planning technology and related services 100 100 Advicenet Advisory Services (Pty) Ltd South Africa / Provision of financial planning technology 100 100 IRESS Wealth Management (RSA) (Proprietary) Limited and related services South Africa / Dormant 100 100 90 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 IRESS Canada Holdings Limited holds the following controlled entities. NAME OF BUSINESS ACQUIRED / INCORPORATED COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY IRESS (Ontario) Limited Canada / Holding company KTG Technologies Corp. Canada / Dormant IRESS Market Technology Canada LP Canada / Provision of financial market technology and related services OWNERSHIP INTEREST 2011 % 2010 % 100 100 100 100 100 100 IRESS (LP) Holdings Corp. Canada / General partner to IRESS Market Technology Canada LP 100 100 IRESS Market Technology (Singapore) Pte Ltd holds the following controlled entity. NAME OF BUSINESS ACQUIRED / INCORPORATED Sentryi Pte Ltd (a) COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY Singapore / Provision of financial market and financial planning technology and related services OWNERSHIP INTEREST 2011 % 2010 % 100 100 (a) Subsidiary provided with a letter of support IRESS Market Technology (Singapore) Pte Ltd with consent from Parent entity Peresys (Proprietary) Ltd holds the following controlled entities. NAME OF BUSINESS ACQUIRED / INCORPORATED COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY Peresys Derivatives (Proprietary) Ltd South Africa / Dormant Peresys Software Limited Ireland / Provision of services to Peresys (Proprietary) Ltd OWNERSHIP INTEREST 2011 % 100 100 2010 % – – Within the IRESS group there are unsecured funding arrangements in place. 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 31 SUBSEQUENT EVENTS There has not been any other matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 32 FINANCIAL INSTRUMENTS CAPITAL RISK MANAGEMENT The consolidated entity manages its capital to ensure that entities in the consolidated entity will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The consolidated entity’s overall strategy remains unchanged from 2010. The capital structure of the consolidated entity consists of net cash (cash and cash equivalents), and equity (comprising issued capital, reserves and retained earnings as detailed in notes 17 to 19). The consolidated entity is not subject to any externally imposed capital requirements. The directors review the capital structure of the consolidated entity on a periodic basis. FINANCIAL RISK FACTORS The company and consolidated entity undertakes transactions in a limited range of financial instruments including cash assets and receivables. These transactions and activities result in exposure to a number of financial risks, including market risk (interest rate risk, foreign currency risk), credit risk, and liquidity risk. These financial risks are managed such to mitigate inappropriate volatility of financial performance and maintain an optimal capital structure that provides returns for shareholders, provides benefits for other stakeholders and an appropriate cost of capital. 92 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Details of foreign currency risk, liquidity risk, interest rate risk, credit risk and fair values are detailed below. (a) Foreign Currency Risk i) Impact on Australian dollar equivalent reported earnings Entities within the Consolidated Entity transact in their local currencies, which differ from the Consolidated Entity’s presentation currency of Australian Dollars. Whilst a movement in these local currencies when compared with the Australian Dollar does not impact underlying profit or loss (as differences are recognised in comprehensive income through the foreign currency translation reserve), movements do impact on the Australian Dollar equivalent reported earnings. These movements therefore impact on the perceived performance of the company when viewed in Australian Dollars. To assist users in understanding the impact exchange rate movements had on reported revenues from the year ended 31 December 2011 and 31 December 2010, the financial performance of business units (as set out in Note 25) can be viewed as follows: LC (a) LOCAL CURRENCY (b) TOTAL (AUD) (c) 2011 ‘000 2010 ‘000 2011 ‘000 2010 ‘000 TOTAL SEGMENT REVENUES FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia Total financial markets WEALTH MANAGEMENT Australia & New Zealand South Africa Asia United Kingdom Total wealth management Total of all segments AUD CAD ZAR AUD AUD ZAR AUD GBP 108,919 104,538 108,919 104,538 24,606 22,189 23,954 23,488 114,210 1,061 – 613 15,320 1,061 –- 613 149,254 128,639 49,122 43,783 49,122 43,783 44,323 47,327 5,991 7,072 159 – 317 – 159 – 317 –- 55,272 51,172 204,526 179,811 (a) (b) (c) LC is the local currency unit for the segment used in management accounts. New Zealand results not reported separately and instead are converted to AUD in management accounts. For the company’s Asia operations, the two primary underlying currencies are SGD and HKD, but these are not reported separately in management accounts and instead are converted to AUD These are the segment revenues as reflected in management accounts. Reported segment revenues as reflected in Note 25. 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 ii) Impact on Profit or Loss Foreign currency risk refers to the risk that the value of a recognised asset or liability, or the future value of a foreign currency denominated income stream, will fluctuate due to changes in foreign currency rates. The immediate exposure of the company to foreign currency risk arises primarily from loans to wholly owned foreign subsidiaries. These investments can give rise to realised and unrealised gains and losses in the company due to loans to subsidiaries with the following currencies, Canadian dollar, New Zealand dollar, South African rand, Singapore dollar, Hong Kong dollar and the Pound Sterling. NET SUBSIDIARY INTERCOMPANY BALANCES BY CURRENCY Payable / (receivable) by parent company AUD NZD CAD ZAR SGD HKD GBP TOTAL LOCAL CURRENCY 2011 ‘000 2010 ‘000 (49,299) (44,660) 319 1,551 (4,796) (3,773) (31,950) – (3,042) (5,369) (3,484) (2,324) (50) – The consolidated entity does not hedge the effect of the exchange rate movements on these loans. These loans are interest bearing (refer Note 33). The carrying value of the company’s intercompany receivables or payables is based on the prevailing exchange rates at year end and unrealised gains and losses arise from movements in the subsidiaries’ local currency. The effect of a change in the exchange rate on unrealised gains/losses and reported financial performance is as follows. 94 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 MOVEMENT IN EXCHANGE RATE TO AUD Strengthened by NZD cent Weakened by NZD cent Strengthened by CAD cent Weakened by CAD cent Strengthened by ZAR rand Weakened by ZAR rand Strengthened by SGD cent Weakened by SGD cent Strengthened by HKD cent Weakened by HKD cent Strengthened by GBP penny Weakened by GBP penny COMPANY UNREALISED GAIN/(LOSS) 2011 AUD ‘000 2010 AUD ‘000 (2) 2 43 (44) 5 (5) 17 (18) 1 (1) 1 (1) (9) 9 39 (39) – – 35 (35) – – – – The primary currency risk for subsidiaries of the consolidated entity is the underlying local currency for that subsidiary. In assessing foreign currency risk management, the emerging businesses segments (Financial Markets in Asia, and Wealth Management in Asia and United Kingdom) are anticipated to be net borrowers in local currency from the company until these businesses reach a level of scale. Thereafter they should be net generators of cash in local currency. The remaining business segments are already net generators of cash in local currency. The company does not currently hedge the impact of changes in foreign currency rates on the value of future cashflows from its foreign subsidiaries. A material enduring change in relative exchange rates could have a significant effect on the Australian dollar equivalent value of these operations. The consolidated entity regularly reassesses market conditions, the financial risk, the terms of these loans, and the appropriateness of mitigating exposure using hedges such to optimise return on capital. During the month of January 2011, the company entered into a cashflow hedge in the form of two forward foreign currency contracts directly associated with the amounts payable to Peresys (Proprietary) Ltd and its shareholders. These forward contracts had terms of 15 and 10 days respectively, and were 100% effective. No other forward contracts were entered into during the year, and there are no open foreign currency contracts at 31 December 2011 (2010: nil). 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (b) Liquidity Risk Liquidity risk includes the risk that, as a result of deficiencies in managing operational liquidity, the company has insufficient funds to settle a transaction; or it is forced to sell financial assets at a value less than what they are worth. The consolidated entity’s liquidity is regularly monitored. The consolidated entity’s financial liabilities comprise trade payables and other creditors, which are non-interest bearing liabilities. Refer to note 13 for details regarding contractual maturity. IRESS currently has surplus funds invested in highly liquid instruments. The consolidated entity as at 31 December 2011 does not hold any standing debt facilities (2010: nil). The consolidated entity expects to meet its obligations from a combination of existing cash reserves, operating cashflows and the proceeds of maturing financial assets. (c) Interest Rate Risk The cash of the consolidated entity comprises highly liquid deposits that earn interest at a variable rate. Sensitivity of cash deposits to movements in the interest rate can be demonstrated using assumptions that are not necessarily relevant to the future financial position of the company, and assuming a constant deposit amount based on 31 December 2011 year end balances. The effect of a change in the interest rate, interest income and reported financial performance is as follows: MOVEMENT IN INTEREST RATE 1% CONSOLIDATED $’000 489 The consolidated entity regularly reassesses market conditions, the financial risk, and the terms of deposits so as to optimise return on capital. (d) Credit Risk Credit risk refers to the risk a counterparty will default on its contractual obligations resulting in a financial loss to the consolidated entity. The consolidated entity (other than in relation to loans with wholly owned subsidiaries) does not have any significant credit risk to any single counterparty or group of counterparties having similar characteristics. The company has a material exposure through receivables to clients in the financial services and wealth management industries. The company actively manages this exposure. Credit risk on cash and cash equivalent instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the financial report, net of any allowances for losses, represents the consolidated entity’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. (e) Fair Value The carrying amount of financial assets and financial liabilities for the company and consolidated entity recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 . 96 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 33 RELATED PARTY DISCLOSURES (a) Equity Interests in Related Parties Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 30. (b) Key Management Personnel Disclosures Details of key management personnel disclosures are set out in Note 34. (c) Transactions within the Wholly Owned Group The wholly owned group includes: the ultimate parent entity in the wholly owned group; and wholly owned subsidiaries. The ultimate parent entity in the wholly owned group is IRESS Market Technology Limited. All loans advanced to and payable to subsidiaries are unsecured and subordinate to other liabilities. During the financial year, the consolidated entity recognised a net receivable of $1,614,961 (2010: $1,699,300) from its wholly owned subsidiaries for their taxes consolidated for the current period. The company has a series of arrangements with subsidiaries which support the basis on which charges between entities are made. (d) Transactions with Other Related Parties During the year, Spotlight Wealth Management (Pty) Ltd rented premises at commercial rates from Spotlight House (Pty) Ltd, an entity associated with Mr P Moretonas, an employee of Spotlight Wealth Management (Pty) Ltd. The amount paid was $161,322 (2010: $144,771). (e) Transactions with ASX Limited ASX Limited (‘ASX’) owns 23,750,001 of the ordinary shares in IRESS. ASX is a major supplier of Australian equity market data to IRESS. All transactions with ASX are conducted on a full arm’s length basis. Total fees paid to ASX for Australian equity and related market data and associated services in 2011 were $12,194,966 (2010: $11,822,525). Depending on the particular data set or service being subscribed for, these fees are typically based on either: a per user royalty type charge; or a fixed annual amount. IRESS, as a listed entity on the Australian Stock Exchange, pays ASX listing and other related fees at the scheduled rate. 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 34 DIRECTORS AND KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Directors and key management personnel The directors of IRESS Market Technology Limited were: Mr P Dunai (Chairman, Chairman of Nomination and Remuneration Committee until 5 May 2011); Mr A Walsh (Managing Director) Mr J Killen (Chairman of the Audit Committee, Non-executive Director; retired from the Board 5 May 2011); Mr B Burdett (Non-executive Director); Ms J Seabrook (Non-executive Director, Lead Independent Director, Chair of Nomination and Remuneration Committee since 5 May 2011); Mr J Cameron (Non-executive Director); and Mr J Hayes (Non-executive Director, appointed 10 June 2011, Chairman of the Audit Committee since 10 June 2011); The executives of the IRESS Market Technology Limited consolidated entity during the year were: Mr S Bland (Chief Financial Officer and Company Secretary); Mr J Davies (President & Chief Executive Officer, Financial Markets Canada); Mr P Ferguson (Group General Counsel and Company Secretary); Ms K Gross (General Manager, Products, Sales & Marketing); and Mr D Walker (Chief Technical Officer). The Nomination and Remuneration Committee, in accordance with the Company’s Nomination and Remuneration Charter reviews the remuneration packages of all directors and executives on an annual basis. Remuneration packages are reviewed and adjusted by a performance factor to reflect changes in the performance of the Company. The non-executive directors are appointed in accordance with the Company’s constitution, with directors required to stand for re-election every three years. No termination payments arise should a non executive director resign, retire or fail to be re-elected. Termination payments would arise should directors elect to terminate this arrangement prior to expiry. Generally, the minimum notice period for any executive is three months, and the maximum is six months. Except for termination payments arising from the circumstances outlined below, payments arising at the discretion of the board, or payments in lieu of notice, no termination payments are payable to executives. Further details on employment terms for executives are set out on pages 31 and 32. Contractual terms associated with the employment of the Managing Director and executives could, in certain circumstances, give rise to additional future payments particularly with regard to situations involving redundancy or termination without cause. 98 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 The aggregate compensation of the key management personnel of the consolidated entity and the company is set out below. Short term employee benefits Post-employment benefits Other long term benefits Termination benefits Share-based payment CONSOLIDATED 2011 (a) 2010 3,800,289 4,269,612 163,795 247,069 – – – – 2,010,051 2,458,997 5,974,135 6,975,678 (a) There were 11 key management personnel in 2011, some of whom have a part year of service (2010:14). (b) Director and key management personnel equity holdings Fully paid ordinary shares issued by IRESS Market Technology Limited to directors and key management personnel or to a related party of them OPENING BALANCE NO. GRANTED AS COMPENSATION NO. RECEIVED ON EXERCISING OF SHARE RIGHTS NO. (a) NET OTHER CHANGE NO. CLOSING BALANCE NO. BALANCE HELD NOMINALLY NO. 2011 DIRECTORS Mr P Dunai 690,000 Mr A Walsh 70,950 Mr J Killen (b) 77,500 Mr B Burdett 100,000 Ms J Seabrook 20,000 Mr J Cameron Mr J Hayes EXECUTIVES – – Mr S Bland 220,390 Mr J Davies (c) Mr P Ferguson – – Ms K Gross 183,110 Mr D Walker 417,260 – – – – – – – – – – – – 200,000 – 890,000 81,000 (80,000) 71,950 – – – – – – – – – – 100,000 20,000 – 4,600 4,600 59,000 (9,000) 270,390 – – 44,500 54,000 – – – – – – 227,610 471,260 – – – – – – – – – – – – 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Fully paid ordinary shares issued by IRESS Market Technology Limited to directors and key management personnel or to a related party of them OPENING BALANCE NO. GRANTED AS COMPENSATION NO. RECEIVED ON EXERCISING OF SHARE RIGHTS NO. (a) NET OTHER CHANGE NO. CLOSING BALANCE NO. BALANCE HELD NOMINALLY NO. 2010 DIRECTORS Mr N Hamilton 100,000 Mr P Dunai 30,625 Mr A Walsh – Mr J Killen 77,500 Mr B Burdett 80,000 Ms J Seabrook 20,000 Mr J Cameron – EXECUTIVES Mr S Bland 170,500 Mr J Davies (c) 60,000 Ms K Gross 135,000 Mr A Rudy Mr J Rudy 5,000 – Mr D Walker 366,400 Ms T Vigilante – – – – – – – – – – – – – – – – 659,375 70,950 – – – – – – – – 100,000 690,000 70,950 77,500 20,000 100,000 – – 20,000 – 61,390 (11,500) 220,390 – (60,000) – 48,110 – 183,110 43,400 (48,400) 42,900 (42,900) – – 60,390 (9,530) 417,260 27,280 – 27,280 – – – – – – – – – – – – – – 100 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Performance Rights issued by IRESS Market Technology Limited to directors and key management personnel, or to a related party of them OPENING UNVESTED BALANCE NO. GRANTED AS COMPENSATION NO. VESTED DURING THE PERIOD NO. (b) CLOSING UNVESTED BALANCE NO. 2011 DIRECTORS (a) Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker 2010 DIRECTORS (a) Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Ms K Gross Mr A Rudy Mr J Rudy Mr D Walker Ms T Vigilante 200,000 281,000 123,690 55,850 – 99,170 115,690 759,375 207,950 138,390 65,000 108,110 88,400 89,400 130,390 9,280 – (200,000) – 300,000 (56,000) 525,000 31,040 15,430 – 28,520 32,710 (46,000) (20,000) – (33,000) (42,000) – (559,375) 125,000 (51,950) 31,690 15,850 28,170 19,370 23,770 31,690 17,610 (46,390) (25,000) (37,110) (33,400) (33,400) (46,390) (9,280) 108,730 51,280 – 94,690 106,400 200,000 281,000 123,690 55,850 99,170 74,370 79,770 115,690 17,610 (a) (b) (c) During the year, other than as noted above, there were no outstanding performance rights issued to directors or a related party of them. Retired 5 May 2011 Upon vesting, performance rights are exercisable. With the exception of Mr Davies, all performance rights which vested during the relevant year were exercised prior to the year end in both 2011 and 2010. Details of the terms and conditions of the Employee Performance Rights plan are set out in Note 36. No amounts remain outstanding on performance rights exercised during the year. 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Deferred shares /deferred share rights issued by IRESS Market Technology Limited to directors and key management personnel, or to a related party of them (a) OPENING UNVESTED BALANCE NO. GRANTED AS COMPENSATION NO. VESTED DURING THE PERIOD NO. CLOSING UNVESTED BALANCE NO. 2011 DIRECTORS Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker 2010 DIRECTORS Mr P Dunai Mr A Walsh EXECUTIVES Mr S Bland Mr J Davies Ms K Gross Mr A Rudy Mr J Rudy Mr D Walker Ms T Vigilante – 54,000 23,190 24,080 – 21,890 22,790 – – 30,000 (25,000) 10,290 10,010 – 10,070 10,290 (13,000) (13,000) – (11,500) (12,000) 100,000 44,000 – (100,000) 29,000 (19,000) 28,000 28,000 22,500 18,000 18,500 26,000 31,000 10,190 11,080 10,390 6,590 7,190 10,790 7,190 (15,000) (15,000) (11,000) (10,000) (9,500) (14,000) (18,000) – 59,000 20,480 21,090 – 20,460 21,080 – 54,000 23,190 24,080 21,890 14,590 16,190 22,790 20,190 (a) During the year, other than as noted above, there were no outstanding deferred shares or deferred share rights issued to directors or a related party of them. With the exception of Mr Davies, directors and executives receive deferred shares. 102 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (c) Other transactions with Directors and key management personnel During the year, there were no transactions with directors or key management personnel or their related parties other than transactions associated with the director’s or key management personnel’s compensation or equity holdings, which impacted on profit from ordinary activities before income tax, assets or liabilities. 35 SHARE BASED PAYMENTS To assist in the attraction, retention and motivation of employees, the Company operates the following share based payment plans: the Employee Performance Rights Plan; the Employee Deferred Share Plan; and the Employee Deferred Share Rights Plan. Summaries of the rules governing the above plans are set out in Notes 36 to 38 respectively. The per unit fair value of share rights granted to directors, executives and staff during the financial year has been derived based on the external valuation advice from PricewaterhouseCoopers Securities Limited. The valuation has been made using a Monte Carlo simulation option pricing model using standard option pricing inputs such as the underlying stock price, exercise price, expected dividends, expected risk free rates and expected share price volatility. In addition, the likely achievement of performance hurdles of the share rights (where applicable) has been taken into account. 103 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Set out below are the fair values of share rights (which were derived by PricewaterhouseCoopers Securities Limited) and the key inputs used in the pricing model, which were available during the year. SERIES (a) SHARE PRICE ON GRANT DATE $ GRANT DATE FAIR VALUE $ EXPECTED VOLATILITY % DIVIDEND YIELD % RISK-FREE INTEREST RATE % KEY PERFORMANCE MEASURE (b) INTERIM VESTING TERM MONTHS INDICATIVE VESTING 31/12/11 % (c) VALID OUTSTANDING 31/12/11 May 2008 PR 7/5/08 Aug 2008 PR 19/8/08 May 2009 PR 7/5/09 May 2009 DSR 7/5/09 May 2009 DS 7/5/09 May 2010 PR 7/5/10 May 2010 DSR 7/5/10 May 2010 DS 7/5/10 May 2011*4 PR 9/5/11 May 2011*3 PR 9/5/11 May 2011 PR 9/5/11 May 2011 DSR 9/5/11 May 2011 DS 9/5/11 6.26 6.15 6.52 6.52 6.52 8.34 8.34 8.34 9.23 9.23 9.23 9.23 9.23 3.85 3.69 3.90 6.00 6.52 5.68 7.67 8.34 5.79 5.87 5.96 8.49 9.23 35 35 35 35 4.3 4.3 4.3 4.3 6.4 5.7 3.9 3.6 N / A N / A N / A 35 35 4.3 4.3 5.0 4.7 N / A N / A N / A 30 30 30 30 N/A 4.3 4.3 4.3 4.3 N/A 5.2 5.2 5.2 5.1 N/A A A A B B A B B A A A B B No No No No No No No No No No No No No 36 36 36 24 24 36 24 24 48 48 36 24 24 100 100 77 100 100 56 100 100 – – – – – – – 299,000 – – 377,650 71,280 561,570 150,000 150,000 267,640 69,810 576,160 (a) (b) (c) PR refer Note 36, DS refer Note 37, DSR refer Note 38. A denotes series is benchmarked on modified ASX200 index, B denotes series is measured on ongoing employment and acceptable performance. Indicative vesting has been calculated based on ranking relative to the benchmark as at 31 December 2011. Actual vesting will be determined based on performance at the end of the vesting period. Deferred shares and deferred share rights are assumed to fully vest for this analysis. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 The following table summarises movements in not-fully-vested share rights in place during the year. HOLDER INCENTIVE PLAN DIRECTOR – P DUNAI August 2008 PR DIRECTOR – A WALSH May 2008 PR EXECUTIVES STAFF May 2009 PR May 2009 DS May 2010 PR May 2010 DS May 2011*4 PR May 2011*3 PR May 2011 DS May 2008 PR May 2009 PR May 2009 DSR May 2009 DS May 2010 PR May 2010 DSR May 2010 DS May 2011 PR May 2011 DSR May 2011 DS May 2008 PR May 2009 PR May 2009 DSR May 2009 DS May 2010 PR May 2010 DSR May 2010 DS May 2011 PR May 2011 DSR May 2011 DS UNVESTED 1/1/11 OR GRANTED DURING THE YEAR ’000 200 56 100 25 125 29 150 150 30 141 146 13 37 107 11 31 108 10 31 94 53 80 498 146 60 501 160 61 523 VESTED ’000 (200) (56) – (25) – – – – – (141) – (13) (37) – – – – – – (94) – (80) (490) – – (2) – – – CANCELLED ’000 UNVESTED 31/12/11 ’000 – – – – – – – – – – – – – – – – – – – – – – (8) – – (19) – (1) (8) – – 100 – 125 29 150 150 30 – 146 – – 107 11 31 108 10 31 – 53 – – 146 60 480 160 60 515 105 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 The following table sets out the share rights of directors, executives and staff exercised during the year and the weighted average share price prevailing on the date of exercise. 2011 2010 INCENTIVE PLAN (a) May 2005 PDPR May 2006 PDPR May 2006 PR May 2007 PR May 2008 PR August 2008 PR May 2008 DSR May 2009 DSR May 2008 DS May 2009 DS May 2010 DS WEIGHTED AVERAGE SHARE PRICE ($) QUANTITY – – 15,000 8,000 271,000 200,000 16,500 26,100 – 551,868 1,980 – – 9.07 9.07 9.20 8.15 9.22 8.65 – 9.20 7.91 WEIGHTED AVERAGE SHARE PRICE ($) 8.19 8.19 7.88 8.08 – – 8.72 – 8.34 – – QUANTITY 300,000 259,375 24,000 848,802 – – 40,000 – 807,430 – – (a) Calculated as the weighted average closing share price on the date(s) the share rights were exercised during the year. 36 SUMMARY OF THE EMPLOYEE PERFORMANCE RIGHTS PLAN On 7 May 2003, the IRESS Employee Performance Rights Plan (the PR Plan) was established to assist in the attraction, retention and motivation of employees of the Company. This plan was modified on 26 March 2008 following the creation of the IRESS Market Technology Equity Plan Trust (the Trust). The key terms of the PR Plan are set out below. GENERAL RULES (a) The PR Plan is open to full–time and part–time employees of an entity in the IRESS group. (b) (c) (d) (e) The Board will determine the quantum of performance rights issued under the PR Plan. The total number of unvested performance rights together with all other shares outstanding under the various employee share plans, must not exceed 5% of the total number of issued shares in that class at the time of the offer. The PR Plan will be administered by the trustee in accordance with the instructions of the Board. The Board may make further rules for the operation of the PR Plan which are consistent with the PR Plan. The PR Plan provides for the possibility of accelerated vesting of performance rights upon the occurrence of a specified ‘event’ (such as a takeover is made for the Company, a scheme of arrangement is proposed or the Company is wound up). (f) Performance rights lapse in certain circumstances, including where: i) ii) iii) the performance criteria have not been satisfied within the required time period; vested performance rights expire; or an employee or consultant ceases their employment with the Company. Refer to i) below for further details. 106 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 (g) Where an employee leaves the Company, other than for a qualifying reason, all unvested rights lapse. Where an employee leaves the Company as a result of a qualifying reason, performance rights granted in the last six months lapse but remaining unvested rights vest on a pro–rata basis having regard to the period which has elapsed between the issue of the performance rights to the employee and the employee leaving the Company. Finally, where in the Board's view there are special circumstances under which it would be unfair not to allocate shares or the cash equivalent to a departing employee, the Board has the capacity to make such an allocation of shares or cash. (h) The quantum of performance rights issued to an employee under the PR Plan are modified in accordance with standard industry adjustments to reflect: i) ii) a bonus issue; or a reconstruction of the Company’s issued capital. (i) (j) Performance rights will not be quoted on the ASX, however upon issuance of shares in accordance with the PR Plan rules, the Company will immediately apply for quotation of those shares on the ASX. The exercise price for a performance right holder to subscribe for and be allotted, credited as fully paid, shares arising under the Plan, is $1, irrespective of the number of performance rights exercised on the applicable day. The $1 fee is payable each time a performance right holder subscribes for shares under the Plan. (k) During the ‘restriction period’, any share provided on the exercise of a performance right is held on trust by the trustee. In addition to other restrictions the Board considers necessary to give effect to the restrictions, it may place a holding lock on these shares. (l) Shares may be withdrawn from the Trust upon the submission and approval of a valid ‘withdrawal notice’. PERFORMANCE CRITERIA The following performance criteria shall apply to performance rights issued under the PR Plan. Performance ranking The Company’s performance ranking for a performance period is determined by reference to the total shareholder return of the Company during the performance period as compared to the total shareholder return for each company in a peer group of companies. The peer group of companies comprises the top 200 companies listed in the ASX/S&P 200 companies after excluding mining companies and listed property trusts. A peer company must have been in the ASX/S&P 200 companies for the entire performance period (i.e. new entrants and companies dropping out of the ASX/S&P 200 companies are excluded). The Company’s ranking within that group of companies at the end of the relevant performance period determines the number of performance rights in the particular tranche that become exercisable (if any) on the following basis. PERFORMANCE RANKING RANGE NUMBER OF PERFORMANCE RIGHTS EXERCISABLE. Below 50th percentile No rights exercisable. 50th percentile 50% of the rights in the tranche available to be exercised. 51st percentile to 74th percentile Rights available in the tranche available to be exercised will be determined on a pro–rata basis between 50% and 100% depending on the Company’s percentile performance ranking. 75th percentile or higher 100% of rights in the tranche available to be exercised. Total shareholder return in respect of a company in a performance period, is the increase in the value of a shareholder’s investment in that company during the performance period, on the basis that all dividends and other returns grossed up for franking credits, are immediately reinvested in the Company, at the closing price for the shares on the payment date of the dividend or other return. Tranches Performance rights granted in 2005 and subsequent years become available for exercise at the end of the third year based on the Company’s performance ranking for the performance period. Performance rights granted in prior periods were eligible for exercise in tranches over three years. 107 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Performance period For performance rights granted in 2005 and subsequent years the performance period is the period commencing on the commencement date and ending three years after the commencement date. TERMS OF THE RIGHTS (a) Rights may be exercised during a two year period from the date on which they become exercisable and to the extent they are not exercised within that period they will lapse. (b) Should the performance criteria not be met in the performance period for that series, the Company’s ranking will be retested on a monthly basis for up to 6 months after the end of the performance period for that series. 37 SUMMARY OF THE EMPLOYEE DEFERRED SHARE PLAN On 26 March 2008, the IRESS Employee Share Plan (the Deferred Share Plan) was established. The Deferred Share plan is broadly similar in operation to the Employee Performance Rights Plan outlined in Note 36. Key areas of difference are as follows. GENERAL RULES (a) No exercise price is payable for a deferred share holder to subscribe for and be allotted, credited as fully paid, shares arising under the Plan; (b) (c) Participants are eligible to receive dividends and vote during the vesting period; and The vesting term and performance criteria are stipulated in the individual offering. VESTING TERM AND CRITERIA Deferred shares granted in May 2008, 2009 and 2010 have a two year vesting period, and performance criteria requiring satisfactory individual performance during the vesting period. There is no benchmarking against an external peer group of companies with graduated vesting based on relative ranking, as is the case for performance rights. 38 SUMMARY OF THE EMPLOYEE DEFERRED SHARE RIGHTS PLAN On 26 March 2008, the IRESS Employee Deferred Share Rights Plan (the Deferred Share Rights Plan) was established. The Deferred Share Rights plan is very similar in operation to the Deferred Share Plan outlined in Note 37. Key areas of difference are as follows. GENERAL RULES (a) Participants are not eligible to receive dividends or vote during the vesting period. VESTING TERM AND CRITERIA Deferred shares rights granted in May 2008, 2009 and 2010 have a two year vesting period, and performance criteria requiring satisfactory individual performance during the vesting period. As with deferred shares, there is no benchmarking against an external peer group of companies or graduated vesting based on relative ranking, as is the case for performance rights. 108 IRESS Market Technology Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 39 SUMMARY OF THE IRESS NON-EXECUTIVE DIRECTOR SHARE PLAN The IRESS Non-Executive Directors share plan (‘NED Plan’) was established following the Company’s Annual General Meeting in May 2008. As at 31 December 2011, and at the date of this report, no shares have been issued under the NED plan. The key terms of the NED Plan are set out below. GENERAL RULES (a) Participation in the NED Share Plan is voluntary. (b) (c) The maximum proportion of a participating non-executive director’s remuneration which may be provided in the form of shares is 50%. It is currently proposed that shares will be allocated to participants for prescribed periods (either quarterly or half- yearly) and in advance. If a participating director ceases to hold office during this period he or she will forfeit a pro rata portion of shares for that period. (d) Once allocated, the shares will be held in trust on behalf of participating directors in accordance with the terms of the NED Share Plan until the earlier of: i) ii) iii) a prescribed period from the date of allocation; cessation of office; or the occurrence of a specified ‘event’ (such as a takeover is made for the Company, a scheme of arrangement is proposed or the Company is wound up). (e) During this period, participating directors will not be able to sell or otherwise deal in the shares. (f) While the shares are held on trust, participating directors will be entitled to dividends and voting rights and may enjoy other rights accruing to the shares in common with other shareholders (e.g. rights to participate in bonus and rights issues). (g) If shares are not able to be provided to a participating director for any reason (e.g. because of legal impediments applicable at the time), cash will be provided instead. 109 SHAREHOLDER INFORMATION The following information reflects shareholdings at 31 January 2012. DISTRIBUTION OF MEMBERS AND THEIR HOLDINGS SIZE OF HOLDING 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,00 – 100,000 100,001 and over NUMBER OF ORDINARY SHAREHOLDERS 2,296 3,034 623 343 33 SHARES 1,297,654 7,685,923 4,605,210 7,820,068 105,627,155 Total 6,329 127,036,010 NUMBER OF PERFORMANCE RIGHTS HOLDERS NUMBER OF DEFERRED SHARE HOLDERS NUMBER OF DEFERRED SHARE RIGHTS HOLDERS – – – 11 3 14 54 117 41 27 – 239 4 3 7 6 – 20 Number of shareholders with less than a marketable parcel 107 ORDINARY SHARE CAPITAL 127,036,010 fully paid ordinary shares are held by 6,329 shareholders All issued ordinary shares carry one vote per share held SHARE RIGHTS 1,244,290 performance rights held by 14 individual holders 1,117,170 deferred share held by 239 individual holders 141,090 deferred shares rights held by 20 individual holders Only deferred shares carry a right to vote TREASURY SHARES 23,200 treasury shares Treasury shares have the right to vote and would be voted in accordance with the recommendation of the directors 110 IRESS Market Technology Limited SHAREHOLDER INFORMATION SUBSTANTIAL SHAREHOLDERS ORDINARY SHAREHOLDERS ASX Limited Hyperion Asset Management Limited Commonwealth Bank Group BlackRock Investment Management (Australia) Limited Total FULLY PAID NUMBER PERCENTAGE 23,750,001 15,349,992 7,223,772 6,577,657 18.70% 12.08% 5.69% 5.18% 52,901,422 41.65% TWENTY LARGEST SHAREHOLDERS OF QUOTED EQUITY SECURITIES ORDINARY SHAREHOLDERS ASX Ltd JP Morgan Nominees Australia Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Pacific Custodians Pty LimitedCogent Nominees Pty Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Australian Foundation Investment Company Limited Mirrabooka Investments Limited UBS Wealth Management Australia Nominees Pty Ltd M F Custodians Ltd Argo Investments Limited Navigator Australia Ltd AMP Life Limited Nulis Nominees (Australia) Limited SmallCo Investment Manager Ltd Invia Custodian Pty Limited CS Fourth Nominees Pty Ltd FULLY PAID NUMBER PERCENTAGE 23,750,001 22,382,448 16,213,817 14,222,487 8,019,556 4,472,330 2,501,226 2,213,516 1,719,782 1,655,291 1,070,000 870,047 860,991 791,884 733,521 412,635 371,391 367,086 363,250 339,270 18.70% 17.62% 12.76% 11.20% 6.31% 3.52% 1.97% 1.74% 1.35% 1.30% 0.84% 0.68% 0.68% 0.62% 0.58% 0.32% 0.29% 0.29% 0.29% 0.27% 111