IRESS 2012 ANNUAL REPORT Copyright © IreSS Market technology limited. all rights reserved. Copyright © IreSS limited. all rights reserved. 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 8 42 43 54 56 57 58 59 60 61 SHAREHOLDER INFORMATION 127 ABN 47 060 313 359 BOARD OF DIRECTORS P Dunai – Chairman A Walsh – Managing Director J Seabrook J Cameron J Hayes A D’Aloisio COMPANY SECRETARY 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 1, 333 Collins Street Melbourne Vic 3000 BANKERS National Australia Bank Limited AUDITORS Deloitte Touche Tohmatsu SOLICITORS King & Wood Mallesons STOCK EXCHANGE LISTING IRESS Limited shares are quoted on the Australian Securities Exchange under the code IRE. 1 IRESS ANNUAL REPORT HIGHLIGHTS Total Group revenues for the twelve months ended 31 December 2012 increased by 1.3% to $207.5 million, and segment profits decreased by 6.4% to $83.4 million. Reported profit after tax was $39.2 million, compared with $41.3 million for the prior year, a decline of 5.1%. Underlying Group segment profit after income tax (including the Consolidated Entity’s investment in the emerging financial market and wealth management businesses in Asia and the United Kingdom) for the twelve months ended 31 December 2012 was $54.4 million, a decline of 9.0% on the previous year. This figure is derived after excluding share based payments, non-core items and amortisation of intangible assets recognised through acquisition (strategic charges). Collectively these adjustments amounted to $21.9 million for the twelve months ended 31 December 2012 (2011: $25.9 million). Group segment profit after income tax but before investments in Asia and the United Kingdom for the twelve months ended 31 December 2012 was $59.6 million, a decline of 3.9% on the prior year. Basic earnings per share for the year was 30.646 cents per share (2011: 32.644 cents per share) a decrease 6.1%. Directors have declared a final dividend of 24.5 cents per share 90% franked at a 30% tax rate. The final dividend combined with the first half interim dividend of 13.5 cents gives a total of 38.0 cents 90% franked at a 30% tax rate on each share (2011 full year dividend: 38.0 cents per share 85.6% franked at a 30% tax rate). FINANCIAL SUMMARY 12 MONTHS TO 31 DECEMBER 2012 CONSOLIDATED 2012 CONSOLIDATED 2011 Total revenues ($m) 207.476 204.758 Profit before income tax expense ($m) Profit attributable to the members of the parent entity ($m) Basic earnings per share (cents) Dividend per share (cents) 56.842 39.228 30.646 38.0 60.160 41.341 32.644 38.0 2 IRESS Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT AUSTRALIA AND NEW ZEALAND – FINANCIAL MARKETS During 2012, the revenue experience was, by and large, flat. The business conditions brought by low trading volumes saw strong responses by our clients in headcount reductions and general cost focus. Screen cancellations peaked in April 2012, but were reasonably constant for the second half of the year. Gross screen cancellations for the full 2012 year were around 32% higher than the same figure for 2011. Consistent with this cost focus we also saw mergers of some sell-side clients and instances of outsourced execution for trading. Notwithstanding these very challenging conditions the business achieved revenue growth in certain client segments and in specific products that substantially offset the negative factors. Under these circumstances, the 2012 result is viewed as a significant achievement and illustrates the underlying resilience of the division. Demand for IOS+, IPS and retail online trading solutions has been notable in generating revenues through the year. Additional revenue opportunities following the introduction of trading venue competition continue to flow through by way of new products and implementations, however overall these have been more gradual than might have been anticipated as a result of broad market conditions and diluted regulatory obligations for best execution. The division experienced slight revenue decline of 0.2% over the full year (down 0.7% and 0.6% on the prior half year’s results for the period to June 2012 and December 2012 respectively). Segment profits declined by 3.7% for the full year (down 2.5% and 0.0% respectively on the prior half’s results). AUSTRALIA AND NEW ZEALAND – WEALTH MANAGEMENT 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 strong growth through differentiated product capability, demand for tangible efficiency savings through technology, and enhanced adviser workflow and end client experience. Revenue growth reflects increasing implementation demand, with a number of parallel themes driving and increasing demand for our solutions: regulatory preparedness ahead of FoFA deadlines in 2013 is clearly a focus for all participants; consumer expectations influencing advisory responses and increasing use of technology. 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 post reform for growth. The division achieved revenue growth of 9.7% over the full year (up 2.5% and 6.6% on the prior half year’s results for the period to June 2012 and December 2012 respectively). Positive revenue momentum combined with moderated expenses in the second half produced segment profit growth of 15.2% for the full year (up 9.8% and 1.3% respectively on the prior half’s results). 3 CHAIRMAN AND MANAGING DIRECTOR’S REPORT CANADA During 2012 our business in Canada was fully exposed to the declining conditions facing our sell-side clients which are clearly the most challenged of the business segments we service. With minimal diversification away from this client segment our revenues tracked these declining conditions and the financial stress, and headcount reductions experienced by our clients. This heightened cost focus also resulted in significant pricing and competitive pressure impacting on our business. The substantially fixed cost base of our business results in leverage of our segment profit to increases, or as was the case this year, declines in revenue. While revenues declined by 9.1% (CAD), segment profit declined by nearly 23%. Together with ongoing investment in our trading solutions, our business priority in Canada is to diversify our revenue sources, which has proven to enhance resilience for the Group. Business segments, such as market data, retail online trading and private wealth management, present opportunities for us where we are working with seed prospects and positioning experience locally. However, these areas will be insufficient to offset short-term impacts. This has resulted in a revenue decline for the year of 9.1% (CAD) (down 7.6% and 9.8% on the prior half year’s results for the period to June 2012 and December 2012 respectively), directly and negatively impacting segment profit by nearly 23% (CAD). While the full year comparison is partially impacted by some one-off project fees in 2011, the underlying result reflects the stress across our sell-side clients. The performance of the division was marginally impacted by currency movements translating to decline of 10.0% and 23.5% for revenue and segment profit respectively when measured in Australian dollars. SOUTH AFRICA Revenue growth during the year was strong in local currency following large strategic deployments and medium-term investment decisions. The extension of our high-performance managed environment in Johannesburg was coordinated with market-wide technology change and resulted in the overwhelming majority of our financial markets client base moving to our fully hosted and managed trading solution. Our investment positions us as a vendor of scale providing clients a broader range of services and options, able to provide a unique combination of services across data, financial markets and wealth management aligned to advisory demand and strategic goals of our clients and prospects. Our private wealth management service is an area of increased focus as we see advisory businesses demand more efficient tools to manage and implement portfolios, to generate advice, and to service and interact with clients. These trends are consistent with other regions and importantly have an eye to global regulatory trends. The region achieved revenue growth for the year of 13.4% (ZAR) (up 4.0% and 3.7% on the prior half year’s results for the period to June 2012 and December 2012 respectively). The ongoing investment in the financial markets area resulted in segment profit increasing by 0.2% (ZAR). As with prior periods, the Group has not hedged the net foreign currency amounts for the offshore divisions, as we do not consider we can ultimately add value by hedging the recurring net long Rand cashflows. Accordingly, appreciation of the Australian dollar against the Rand had a significant impact on the region’s results when measured in Australian dollars, with revenues for the year down 0.3% and segment profits down 10.4%. 4 IRESS Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT INVESTMENTS ASIA Our primary focus in 2012 has been supporting clients implementing white-label and proprietary solutions in response to the collapse of MF Global in late 2011. This has been successful with the majority of revenue now reinstated and a promising set of opportunities stemming from these projects. While beneficial in assisting in development of direct client relationships, we are positioned behind our original plans by approximately 12-18 months. We maintain a strategic view to our positioning in Asia across financial markets and wealth management as more institutional businesses look regionally. Our capability in the region is increasingly important to Australian businesses operating in Asia and Asian businesses in Australia, where there have been a number of new names over the past twelve months. At the same time we recognise our investment in Asia necessarily involves an element of patience. The requirement for local relationships, the scale of operations, nature of business structures and numerous differences between the various markets which are our focus, involves challenges which take time to work through. Our strategy is to build on our growing relationships and direct service offerings, proving out the value of our integrated offering with seed clients. From this base we are looking to augment our technology with targeted acquisitions. We continue to progress product and business building given our medium term outlook. UNITED KINGDOM In late 2011, IRESS commenced UK operations after selection as strategic advice technology provider by Sesame Bankhall Group (SBG). Following an intensive localisation effort supported by SBG’s commitment to XPLAN, the pilot and rollout of XPLAN commenced in July receiving an extremely pleasing response. Our investment in localised product, service and technology has seen a positive response whereby 170 firms representing over 700 SBG advisers have proactively registered to adopt XPLAN. We also recently announced that Towry will implement XPLAN as its core advice platform. In the UK, Towry is one of the largest high net worth advice specialists and in the top ten advice firms by turnover. This underlines the competitiveness and relevance of XPLAN in the UK market, and progresses our strategy to expand beyond our seed engagement. The last twelve months have been very rewarding as we make differentiating progress in the UK. Our progress and success in the UK over a short period is a credit to our people and product suite. We continue to see a healthy pipeline of opportunities stimulated by the need for integration, efficient advice, and effective oversight demanded by the new paradigm set in the UK by the Retail Distribution Review (RDR). Revenue contribution will be visible during 2013 as XPLAN is implemented and services become billable. 5 CHAIRMAN AND MANAGING DIRECTOR’S REPORT OUTLOOK The Group 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, continues to be key to supporting our subscription based business model. 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. To achieve these goals, maintaining a dedicated and motivated pool of staff is critical, and excessive tracking of headcount in line with revenue to preserve margins in the short term, risks undermining the longer-term objectives. Specifically looking at the Group’s financial outlook for 2013, the year has commenced net positive, which will help to offset negative trading momentum observed during 2012. The start of the year has seen a turnaround in sentiment towards equity markets translating to increased trading activity, indicating some cautious optimism from few data points, however we remain cautious on short term results. Should sentiment continue to improve during the year we would still however anticipate subdued increase in broad demand for our services. With flattish 2012 revenue growth impacting 2013 and our deliberate investments in future growth, we expect a decline in Group segment profit by a similar level in 2013. For 2013 we anticipate investing less than 5% of group revenues in our growth investments divisions (Asia and United Kingdom). Our confidence in the merit of this expenditure is undiminished despite their different rates of visible progress. The UK opportunity is very transparent and appears well placed to make meaningful returns against that investment in the near term. The opportunity in Asia we believe will ultimately reward patience and perseverance. 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. 6 IRESS Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT ACKNOWLEDGEMENTS IRESS has an outstanding pool of technology, but its greatest asset continues to be the staff working for the Group. It is fully recognised that ultimately the success of IRESS is directly as a result of their dedication and commitment. During the year, numerous and complex demands were made of our staff to meet client and project requirements globally. As our business becomes more global, it is important to recognise that all parts of the staff base support and influence growth opportunities in other parts of the world. A success in one area often results from a broader multi-team and multi-regional effort than may be apparent at first glance. In this context we acknowledge and thank the staff for their immense contribution during the year. This observation is not something that is taken for granted. During 2012 the demands on staff if anything continued to increase as staff worked to fulfil client requirements, implementations, and to address the consequences of our growing breadth of operations and networks. In addition, extensive internal deadlines for medium-term initiatives further demanded staff. Recognising these demands, there was an increase in base remuneration levels for staff during the year, other than Executives who received no increase to their base remuneration. For reasons outlined above, some divisions also experienced headcount growth. Managing human resources 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 7 DIRECTORS’ REPORT The Directors of IRESS Limited submit herewith the annual financial report for the financial year ended 31 December 2012. 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. 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. Ms J Seabrook 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, and the Export Finance and Insurance Corporation. She is also a member of ASIC’s external advisory group. Jenny is a chartered accountant with employment experience in the capital markets and mergers and acquisitions sectors and extensive public company board experience. Jenny’s previous directorships include Amcor Limited, Australia Post and BankWest. Mr J Cameron Non-executive director and member of the Nomination and Remuneration Committee since 5 May 2011. He joined the Board in 2010. He has worked in IT for over 30 years in Australia, USA, United Kingdom and France. He was a key member of the team that automated both the equities and options trading floors for the ASX. He was founder and CEO of Cameron Systems which created CameronFIX which is now the world’s leading implementation of the FIX protocol - the standard way that financial organisations worldwide trade electronically. His company was acquired in 2006 by ORC Software, where John served as CTO for three years. He is also a Director of the international standards body FIX Protocol Limited. Mr J Hayes 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. A Fellow of CPA Australia with over 40 years’ experience in Financial Services. Senior roles included CFO of both ASX Limited and Advance Bank Australia Limited and Vice President Financial Services with BT Australia Ltd. Non-Executive Director roles with ASX Perpetual Registry Ltd (now Link Market Services) and Orient Capital Ltd. Executive Director roles with the Australian Clearing House Ltd, ASTC Ltd (CHESS) and ASX Operations Pty Ltd. Mr A D’Aloisio Non-Executive Director and member of the Audit Committee. Joined the Board on 1 June 2012. He was Managing Director and Chief Executive Officer at the Australian Stock Exchange (ASX) from 2004 to 2006.He was Chairman of ASIC from 2007 to 2011. Tony has served in both executive and non-executive roles in commercial and Government enterprises and has held positions of Chief Executive, Chairman and Board member in local and international bodies. These have included Director of Boral Limited, The Business Council of Australia and the World Federation of Exchanges as well Chairman of the (International) Joint Forum. COMPANY SECRETARY NAME PARTICULARS Mr P Ferguson Group General Counsel and Company Secretary, joined the Company in June 2011. 8 IRESS Limited 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 the United Kingdom. The activities of the Consolidated Entity are typically viewed as falling into Financial Markets and Wealth Management, although there are numerous areas of cross-over and many clients who subscribe to both Financial Market and Wealth Management services. FINANCIAL MARKET SOLUTIONS The Financial Markets business provides a leading range of multi-market products and services including global market data, buy-side and sell-side order management (OMS and EMS), portfolio management, direct exchange connectivity or FIX based routing, smart order routing (BMR). These solutions can be delivered via the desktop, web or mobile device. The solutions are modular and integrated, allowing clients to tailor functionality for different trader roles, business units and departments, while maintaining a single platform across their organisation. We have specific solutions for retail advisers and their clients, through to institutional traders and specialist market makers. Our equity information systems deliver comprehensive market data and market analysis tools, catering to the diverse needs of equity and derivative traders. Each solution in our range is tailored in its delivery, interface and content to meet specific trader requirements. WEALTH MANAGEMENT SOLUTIONS The Wealth Management business is primarily based around the XPLAN suite of products and services. The XPLAN solution is a web-based system and includes features to address, client management, practice management, document management, compliance management, portfolio management and research, cash flow modelling, risk insurance research, mortgage qualification and research, integrated revenue (commission) management system. XPLAN represents a comprehensive range of integrated wealth management software tools for financial planning and wealth professionals. XPLAN is a scalable financial planning software platform that scales to support any business model. The service is delivered as a total solution, which includes infrastructure, integration, data transformation and migration and, most importantly, on-going client support. 9 DIRECTORS’ REPORT OPERATING AND FINANCIAL REVIEW OPERATIONS IRESS’ recurring subscription model continues to drive results and outlook. Economic Conditions: 2012 remained a tough year in the financial services sector with a widespread focus on cost reductions throughout financial markets given the extended turbulent climate. Regulatory change was a driver for growth in our wealth management services. Action by our clients to control costs has been steady and ongoing over the last twelve months and provides an up to date indication of the response by our clients to conditions. Group results have remained flat as client technology initiatives have been offset by cost reductions, downsizing and consolidation. Despite this, there remains strong demand in specific segments, products and geographies. 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 11% (2011: 22%) decline in the South African Rand. Cash flows from operations: The net cash generated from operating activities was $61.5m, a 12.3% increase from the same period last year, which mainly arises from reduced income tax payments. SHAREHOLDER RETURNS An analysis of shareholder returns over the five years to December 2012 is set out on page 26 of the Directors’ Report. DIVIDENDS The IRESS dividend policy is to maintain a payout ratio of not less than 80% of underlying group earnings (including all growth investments). Where possible, and subject to accounting limitations, a higher payout ratio will be sought in order to partially offset the impact of growth investments. The dividend policy may be modified by the Board in the future, where it is felt appropriate, including situations which may arise from the Company pursuing its strategy. Dividends continue to be franked to essentially the fullest extent possible. In respect of the financial year ended 31 December 2012, an interim dividend of 13.5 cents per share franked to 90% at 30% corporate tax rate was paid to the holders of fully paid ordinary shares on 28 September 2012. In respect of the financial year ended 31 December 2012, the Directors recommend a final dividend of 24.5 cents per share franked to 90% at 30% corporate tax rate to be paid to the holders of fully paid ordinary shares on 28 March 2013. The record date to participate in the final dividend is 12 March 2013. 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 and a final dividend of 24.0 cents per share franked to 83% at 30% corporate tax rate paid to holders of fully paid ordinary shares on 30 March 2012. 10 IRESS Limited DIRECTORS’ REPORT INVESTMENTS FOR FUTURE PERFORMANCE In looking at the Consolidated Entity’s performance during 2012, the following are important themes: BUSINESS Pursuit of medium term growth opportunities: The Consolidated Entity continued its strategy of local tailoring of solutions to all segments of our client base and adding value, avoiding where possible commodity product status. 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. Continuing to act as a responsive vendor, and meeting client requirements as their businesses evolve, is key. Key highlights for 2012 were: ∙ ∙ ∙ ∙ ∙ Balance sheet and financial stability continue to provide investment capacity. Resilience in our more mature business operations. Wealth Management A&NZ performed very strongly as clients continued to invest in technology ahead of regulatory change. Organic investments in Asia and the United Kingdom built around key seed clients continue to mature. The Company is confident and committed to opportunities seeding medium term growth. Financial Markets operations were commenced in the United Kingdom in July 2012 with the appointment of senior management. Continued focus on expansion of product offerings in response to market opportunities, regulatory change and technology. NETWORK AND INFRASTRUCTURE Ongoing investment in our network, infrastructure and related services continues to be key in supporting superior services and meeting client expectations. Highlights in this area for 2012 included: Extension of our high-performance managed data centre environment in South Africa. New hosting trading services in South Africa in response to exchange technology evolution. Established two redundant data centres in UK to provide high-performance managed services. Introduced a policy framework aligned to ISO 27001 11 DIRECTORS’ REPORT REVIEW OF GROUP RESULTS The reported net profit after tax was $39.2m, a 5.1% decrease on reported profits for the same period last year. Impacting on comparability of results for 2012 and 2011 are: Revenue from ordinary activities which increased by $2.8m or 1.3%. Total customer data fees and communication and other technology expenses increased by $0.9m or 2.8%. Employee benefits expense which increased by $7.2m or 9.4% during the year. This increase arises from a number of factors including ∙ ∙ ∙ The $1.4m increase in share based payments expense which can be further split as a decline of $0.3m or 4.2% for general long incentive arrangements for executives and staff, combined with the $1.7m increase associated with a once-off share right incentive arrangements to facilitate the establishment of the Consolidated Entity’s activities in the United Kingdom. A continued increase in total head count during the year to support existing clients and support the growth investment businesses. The FTE headcount for the group increased by 45 staff to a total of 704 at the end of the year. In terms of geographic spread the change was 21, 1, 6, 7 and 10 for Australia, Canada, South Africa, Asia and the United Kingdom respectively. However, a better measure for the actual impact of this increase in headcount had on the total wages bill is to compare the average monthly FTE headcount numbers for 2011 and 2012, which shows an increase of 56 staff. The actual underlying base rate increase (in local currency terms) for staff during the year was 3.7% (when South Africa is excluded), and for Executives there was no increase in fixed annual remuneration. Other employee administration expenses which increase by $0.6m or 20.4%, mainly representing increased travel and accommodation expenditure associated with supporting the increasingly global business. Other expenses including general and administrative expenses increased by $1.1m or 15.4% a primary contributor was foreign currency losses arising on loans to wholly owned subsidiaries which are held by the Company and denominated in the offshore entity’s currency, together with an increase in expenses such as insurance and company network costs. Facilities expense increased by $0.3m or 8.0%, which is mainly represented by increased rental area associated with the expanded headcount and establishment of permanent offices in the United Kingdom. Bad and Doubtful debts declined by $0.4m or 42.1% despite an increase in the provision for doubtful debts. The decline arises from the high level of bad debts in 2011 arising from the collapse on MF Global. Business acquisition and restructure expenses declined by $0.7m primarily due to acquisition expenses incurred in 2011 associated with the purchase of Peresys. Depreciation and amortisation expense declined by $3.6m. Splitting this item between normal operating business depreciation and amortisation, and amortisation of assets recognised as part of an acquisition (strategic charges), the movement is an increase of $1.6m and a decline of $5.1m respectively. The decline in strategic charges reflects several of these assets became fully written down during the year. The increase in operating depreciation and amortisation expenses primarily represents the investment in network and infrastructure facilities over the past eighteen months. Net interest income decreased by $0.6m predominately as a result of lower average cash balance on hand in 2012 and lower average interest rates on cash deposits. In addition the number of shares on issue increased by 1.584m to support the employee share plans. The collective impact of these changes was a decrease in basic EPS from 32.644 cents per share to 30.646 cents per share, a decrease of 6.1%. 12 IRESS Limited DIRECTORS’ REPORT The results of the business when viewed on a segment basis including investments are as follows: FINANCIAL MARKETS $‘000 (b) WEALTH MANAGEMENT $‘000 (b) UNDERLYING GROUP $‘000 STRATEGIC CHARGES $‘000 REPORTED GROUP $‘000 RECURRING OPERATIONAL (a) Operating Revenue Segment Profit Segment Profit before tax Segment Profit after tax (c) SBP & NON-CORE Share Based Pmts. Total Non-Core Exp. Before Tax REPORTED Profit after tax Table 1 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 146,934 59,809 206,743 149,254 55,272 204,526 62,672 20,733 83,405 68,575 20,539 89,114 – – – – 59,024 19,228 78,251 (12,692) 66,774 19,251 86,026 (17,827) 41,020 13,363 54,383 (8,821) 46,409 13,379 59,788 (12,390) – – (185) (743) – – (610) (211) (6,959) (1,496) (7,090) (795) (954) – – – 206,743 204,526 83,405 89,114 65,560 68,198 45,562 47,398 (8,455) (7,090) (795) (954) 39,228 41,341 (a) (b) (c) IRESS considers inter-period comparability of results is best presented as the underlying operating results of the relevant businesses calculated excluding share based payments, non-core items, and amortisation of intangible assets recognised through acquisition (strategic charges) and has presented results consistently in this way for the past 8 years. These segment results are inclusive of the Consolidated Entity’s investments in the emerging Financial Markets and Wealth Management businesses in Asia and the United Kingdom. This figure is derived based on a generic tax calculation for the recurring business operations. Directors consider the Underlying Group Profit after tax result represents the appropriate starting point when setting dividends. The segment operating results are discussed in more detail on the following pages. 13 DIRECTORS’ REPORT FINANCIAL MARKETS OPERATING RESULTS RECURRING OPERATIONAL (a) Operating Revenue Segment Profit Table 2 A&NZ $’000 CANADA $’000 RSA $’000 ASIA $’000 (b) UK $’000 (b) TOTAL $’000 2012 2011 2012 2011 108,756 21,555 15,709 789 125 146,934 108,919 23,954 15,320 1,061 – 149,254 54,216 6,271 4,900 (2,337) (378) 62,672 56,289 8,197 5,543 (1,454) – 68,575 (a) (b) IRESS considers inter-period comparability of results is best presented as the underlying operating results of the relevant businesses calculated excluding share based payments, non-core items, and amortisation of intangible assets recognised through acquisition (strategic changes) and has presented results consistently in this way for the past 8 years. This table includes the financial market investment businesses. Commentary on operating results Australia & New Zealand Financial Markets - Revenue $108.8m. (2011: $108.9m) down 0.2%; segment profits $54.2m (2011: $56.3m) down $2.1m or 3.7%. The result reflects flat revenues in a challenging market where much of the focus by our clients was directed to cost management. Total staff costs increased by $1.7m, and operating expenses increased by $0.4m. The increase in staff reflects 3 FTE added during the year plus the full year effect for 20 staff added in 2011. Canadian Financial Markets – Revenue $21.6m (2011: $24.0m) down 10.0% (9.1% in CAD); segment profits $6.3m (2011: $8.2m) down 23.5% (22.7% in CAD). Canada has faced extremely challenging conditions in 2012 characterised by cost pressures, contraction in the market and increased competitive activity. Reflecting this cost focus, total staff costs were flat year-on-year when measured in CAD. South African Financial Markets – Revenue $15.7m (2011: $15.3m) up 2.5% (up 16.4% in ZAR); segment profits $4.9m (2011: $5.5m) down 11.6% (down 1.5% in ZAR). Revenue growth reflects the technology and medium term investment decisions as we extended our high performance managed network to Johannesburg. Total staff costs increased by 18.0% in ZAR which in part represents inflation based increases for staff (which is running at 5 – 6%) as well as an increase of 11 in the average headcount which was to support client lead initiatives. Asian Financial Markets – Revenue $0.8m (2011: $1.1m); segment loss $(2.3)m (2011: $(1.5)m). The impact of the collapse of MF Global in the second half on 2011 continued to drive focus in 2012, with clients in the region seeking white-labelled proprietary solutions. Recognising the longer term view is to ensure we have strong local business knowledge and capability, investment in headcount continued during the year with FTE headcount up 6 (although the increase in average headcount was 9). UK Financial Markets – This operation was established during the second half of 2012. 14 IRESS Limited DIRECTORS’ REPORT WEALTH MANAGEMENT OPERATING RESULTS RECURRING OPERATIONAL (a) Operating Revenue Segment Profit Table 3 A&NZ $’000 RSA $’000 ASIA $’000 (b) UK $’000 (b) TOTAL $’000 2012 2011 2012 2011 53,864 49,122 5,545 5,991 195 159 205 59,809 – 55,272 23,366 1,584 (1,632) (2,585) 20,733 20,289 1,689 (1,320) (119) 20,539 (a) (b) IRESS considers inter-period comparability of results is best presented as the underlying operating results of the relevant businesses calculated excluding share based payments, non-core items, and amortisation of intangible assets recognised through acquisition (strategic changes) and has presented results consistently in this way for the past 8 years. This table includes the wealth management investment businesses. Commentary on operating results Australia & New Zealand Wealth Management– Revenue $53.9m (2011: $49.1m) up 9.7%; segment profits $23.4m (2011: $20.3m) up 15.2%. This business continues to perform well, with ongoing demand for technology based efficiencies and the compliance and oversight capability offered by XPLAN as a result of reforms and repositioning within the wealth management segment. To support these opportunities headcount increased by 17 (although the average increase was closer to 11). Other operating expenses increased by 4.5%. South African Wealth Management – Revenue $5.5m (2011: $6.0m) down 7.4% (up 5.6% in ZAR); segment profits $1.6m (2011: $1.7m) down 6.2% (up 6.1% in ZAR). Revenue growth was modest with much work undertaken to support revenue growth in future periods. Total staff costs were essentially flat year-on-year when measured in ZAR, which reflects a combination of increases in line with inflation for existing staff and a small decline in headcount. Asian Wealth Management – Revenue $0.2m (2011: $0.2m) and segment loss $(1.6)m (2011: loss $(1.3)m). The business continues to make progress engaging clients in this segment. United Kingdom Wealth Management – Revenue $0.2m (2011: $0.0m) up $0.2m and segment loss $(2.6)m (2011: loss $(0.1)m). This business was established in November 2011 initially to support its seed client Sesame Bankhall Group. The nature of that arrangement was anticipated to generate very modest revenues in 2012. Recognising the importance of supporting Sesame Bankhall Group as well as the other opportunities available the company continued to invest in this business including the addition of 7 extra staff. STRATEGY AND FUTURE PERFORMANCE The Consolidated Entity’s objectives are to maintain the Consolidated Entity’s existing franchise and grow business operations through a combination of organic and inorganic transactions with a view to generating acceptable risk adjusted growth in earnings. 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. CHANGES IN OPERATIONS DURING THE YEAR During the course of the year, the operations of the Consolidated Entity were not modified in any material way. 15 DIRECTORS’ REPORT 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. SUBSEQUENT EVENTS There has not been any matter or circumstance 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. REVIEW OF FINANCIAL CONDITION CAPITAL STRUCTURE AND TREASURY POLICY IRESS capital structure consists solely of fully paid up shares, and share rights associated with employee share plans (refer note 18). Treasury practice is not to hedge foreign exchange exposures. Cash management practice is to invest cash balances beyond immediate day to day requirements in short dated term deposit or similar instruments. LIQUIDITY AND FUNDING IRESS continues to have a net positive cash balance holding $55.967m (2011: $48.925m). IRESS has no formal debt facilities or lines of credit. In the broad day to day banking operations are unsecured. IMPACT OF LEGISLATION AND OTHER EXTERNAL REQUIREMENTS SIGNIFICANCE OF CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS Significant accounting policies adopted in the preparation and presentation of the financial report are set out in Note 1. In applying the Australian Accounting Standards Management are required to make judgements, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. These estimates are reviewed on an ongoing basis. Judgements that have significant effects on the financial statement and estimates with a significant risk of material adjustment in the next year are disclosed in the relevant notes to the financial statements. SIGNIFICANCE AND IMPACT OF CHANGES IN LEGISLATION, REGULATION AND OTHER EXTERNAL REQUIREMENTS Accounting Standards and Interpretations on issue but not yet effective are set out in Note 1t. The Directors have assessed the impact of the adoption of these Standards and Interpretations. The Directors do not believe these Standards and Interpretations will have a material impact in future periods on the financial statements of the Consolidated Entity at this point in time. 16 IRESS Limited DIRECTORS’ REPORT 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, 5 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 5 5 2 5 5 5 3 5 5 1 5 5 5 3 – – 2 5 – 5 2 – – 1 5 – 5 2 4 – – 4 4 – – 4 – – 4 4 – – DIRECTORS Mr P Dunai Mr A Walsh Mr B Burdett Ms J Seabrook Mr J Cameron Mr J Hayes Mr A D’Aloisio Table 4 17 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 30 to the financial statements. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 42 of the full year financial statements. 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 Financial Report are rounded off to the nearest thousand dollars, and where possible, in the Directors’ Report. 18 IRESS Limited DIRECTORS’ REPORT AUDITED REMUNERATION REPORT This Remuneration Report provides details of IRESS’ policy for determining the remuneration of Directors and Key Executives; the relationship between the policy and the performance of the company during the financial year; and the remuneration of Board Members and Key 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. The remuneration report is set out under the following headings: Directors and Other Key Management Personnel details Policy and Structure: Non-Executive Directors’ remuneration Executive Director and Key Executive remuneration Relationship between company performance and remuneration Share rights in 2012 Specific remuneration details Outline of employment contracts for the Managing Director and Executives DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL DETAILS This remuneration report includes information on the remuneration of: the Directors of IRESS Limited, being: Mr P Dunai (Chairman, member of the Nomination and Remuneration Committee); Mr A Walsh (Managing Director); Mr B Burdett (Non-Executive Director) (Resigned: 5 May 2012); Ms J Seabrook (Non-Executive Director, Lead Independent Director, Chair of Nomination and Remuneration Committee, member of the Audit Committee); Mr J Cameron (Non-Executive Director, member of the Nomination and Remuneration Committee); Mr J Hayes (Non-Executive Director, Chairman of the Audit Committee); and Mr A D’Aloisio (Non-Executive Director, member of the Audit Committee) (Appointed: 1 June 2012). and other key management personnel being: Mr S Barnes (Chief Operating Officer); Mr S Bland (Chief Financial Officer); Mr P Ferguson (Group General Counsel and Company Secretary); and Mr D Walker (Chief Technical Officer). Collectively, the above other key management personnel represent the ‘Key Executives’. 19 DIRECTORS’ REPORT 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 at a 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 2012 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. At the end of the year the Non-Executive Directors’ annualised fee structure was as follows. ROLE Chairman Chairman of the Audit Committee Chair of the Nomination and Remuneration Committee / Lead Independent Director Non-Executive Directors Table 5 $ (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 2012. There are no other schemes for retirement benefits for Non-Executive Directors. This is consistent with Principle 9.3 of the Australian Securities Exchange (ASX) Corporate Governance Guidelines. 20 IRESS Limited DIRECTORS’ REPORT EXECUTIVE DIRECTOR AND KEY 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 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. Below is a high level view of the components making up Executive remuneration arrangements, each of which is examined in more detail on the following pages. FIXED ANNUAL REMUNERATION SHORT TERM INCENTIVE REMUNERATION LONGER TERM INCENTIVE REMUNERATION DEFERRED SHARES/ DEFERRED SHARE RIGHTS PERFORMANCE RIGHTS Method of Remuneration Cash Cash Equity Equity Measured Against Term Timing Table 6 Benchmark Annual October Performance Objectives Performance Objectives ASX200 excluding Mining and Property Trusts Annual Typically 3 Years Typically 3 Years December May May 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. As applicable, the Company makes superannuation contributions on fixed remuneration amounts up to applicable age based limits. To ensure that fixed remuneration arrangements remain competitive, the fixed remuneration component of Executive remuneration is reviewed annually in October based on performance and market data. In 2012 there was no change to fixed annual remuneration. In 2011 the change for reported Executives was 6%. Assessment of executive remuneration is against Executive remuneration practices for executive roles having similar scope, accountability and complexity to those being reviewed. Positions may be compared against: 21 DIRECTORS’ REPORT other positions within the Company so that internal relativities are maintained; and/or roles situated in companies with market capitalisations similar to that of the Company’s and/or within an industry sector in which the Company has operations. Short term incentive remuneration The Company operates a short term cash 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 Consolidated Entity performance and individual performance and contain measures of financial, non-financial and strategic outcomes which we assess for the current year in December. Achievement of performance objectives would entitle an Executive to a cash bonus paid in December and is taken into consideration in making long term incentive awards. 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 incentive arrangements outlined above, the following cash bonuses for Executive Directors and Key Executives were accrued during the year and paid in December 2012 after being reviewed and approved by the Board and Nomination and Remuneration Committee respectively. MAXIMUM STI THAT COULD BE EARNED % ACHIEVED % NOT ACHIEVED % OF BASE % OF BASE (b) % OF BASE 50 20 50 30 – 37 20 38 26 43 13 – 12 4 7 Mr A Walsh Mr S Barnes Mr S Bland Mr P Ferguson Mr D Walker (a) Table 7 (a) While not stipulated in his employment contract, 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 2012 excluding superannuation. For its Australian Key Executives the Company makes superannuation contributions on bonus payments at the statutory rate (subject to age based limits), which is not included in the above bonus percentages. 22 IRESS Limited 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 37 to 39 of the financial statements): Employee Performance Rights Plan; Employee Deferred Share Plan; and Employee Deferred Share Rights Plan. (collectively ‘share rights’). The Managing Director, Executives and staff are eligible to participate in the Company’s long term incentive arrangements. 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 strategic outcomes in terms of special achievements or requirements; future potential and succession planning requirements; and personal performance including achievement of the individual’s short term objectives. Hedging of unvested share rights is prohibited. Performance rights 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 vesting period (typically three years). 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 performance right arrangement is intended to assess performance over the measurement period generally, and closely link Executive interests with shareholders. Reflecting this view, the Employee Performance Rights Plan allows for six re-tests (monthly commencing one month after the initial measurement date). The Board considers re-testing is appropriate, as a single measurement date provides heightened exposure to the share price on a single date, and would result in unwarranted discounting by Executives. The peer group of companies comprises the top 200 companies listed in the ASX/S&P 200 companies index after excluding mining companies and listed property trusts at the date the share right grant is made. A peer company must remain in the ASX/S&P 200 companies index for the entire performance period (i.e. new entrants and companies dropping out of the ASX/S&P 200 companies index are excluded). The peer group has been selected to align Executive assessment with the criteria broadly applicable to the investment mandates under which institutional shareholders have invested in the Company. This is in recognition that there is no clear superior alternative and institutional shareholders overwhelmingly represent our largest shareholder group. Directors regularly review the suitability of this benchmark. 23 DIRECTORS’ REPORT 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 series 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 series are available to be exercised. 51st percentile to 74th percentile Rights available in the series available to be exercised are determined on a pro–rata basis between 50% and 100% depending on the Company’s percentile performance ranking. 75th percentile or higher 100% of the rights in the series are available to be exercised. Table 8 Deferred Share and Deferred Share Rights The Employee Deferred Share Plan and the Employee Deferred Share Rights Plan were introduced in April 2008. 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. Deferred Shares and Deferred Share Rights are primarily allocated based on personal performance over the last financial year. Vesting of those Shares or Share Rights is dependent upon continued employment for the term of the security and acceptable individual performance. Historically the vesting period for the Employee Deferred Share Plan and the Employee Deferred Share Rights Plan offers has been two years (unless another period was specified in the offer). During the 2012 year, Deferred Share Right and Deferred Share offers were made in a combination of two and three year terms, reflecting an intention to migrate the typical term for these share rights to a three year term from 1 January 2013. 24 IRESS Limited DIRECTORS’ REPORT RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION The graph below outlines the relative share price performance of IRESS Limited over the five years to December 2012, compared to the S&P/ASX 200 Industrials index. Over the five years the IRESS share price had increased by 3.4% and the S&P/ASX 200 Industrials index had decreased by 26.1%. Further, during this period, IRESS has maintained its high dividend payout ratio. 140 120 100 80 60 40 20 0 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 2 1 r p A 2 1 l u J 2 1 t c O 3 1 n a J IRESS S&P/ASX 200 Industrial Table 9 (a) (a) This chart is not the benchmark used in assessing performance rights. 25 DIRECTORS’ REPORT An analysis of company performance over the five years to December 2012 is set out in the table below. MEASURE (a) Share price 31 DECEMBER 2008 31 DECEMBER 2009 31 DECEMBER 2010 31 DECEMBER 2011 31 DECEMBER 2012 513.0¢ 855.6¢ 869.6¢ 693.0¢ 824.0¢ Change in share price (283.9¢) 342.6¢ 14.09¢ (176.6¢) 131.0¢ Change in share price (%) (35.6%) 66.8% 1.6% (20.3%) 18.9% Volume weighted average price for period 591.7¢ 687.0¢ 840.4¢ 833.7¢ 703.4¢ Dividend per share (b) 31.0¢ 34.0¢ 38.0¢(c) 38.0¢ 38.0¢ Weighted average franking on ordinary dividends Basic EPS 100% 29.6¢ 100% 100%(c) 34.8¢ 40.3¢ 85.6% 32.6¢ 90% 30.6¢ Segment profit (e) ($’000) $76,491 $82,640 $79,493 $89,114 $83,405 Investment in New Business Units (d) ($’000) Segment profit before investment in New Business Units ($’000) Table 10 – ($176) ($1,707) ($2,893) ($6,932) $76,491 $82,816 $81,200 $92,007 $90,337 (a) The share price figures in the table for the three 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 (c) calculation excludes the impact of the 3.5¢ special dividend paid in March 2011. All dividends prior to the December 2010 final dividend were fully franked. The calculation for 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. (d) New Business Units comprise investments in the Financial Markets and Wealth Management businesses in Asia and the United Kingdom. (e) Refer note 24 (Segment Information). 26 IRESS Limited DIRECTORS’ REPORT SHARE RIGHTS IN 2012 Share Rights granted to, and vesting in, Directors and Key Executives The following table sets out the share rights granted by the Company as well as the share rights which vested during the year to Directors and Key Executives or a related body corporate of theirs. No share rights have been granted to Directors or Key Executives since the end of the year. Other than as noted below, no share rights granted to Directors or Key Executives have been cancelled during the year or since the end of the year. No rights that were granted in the year ended 2012 vested in 2012. 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 on retesting, 64% of performance rights eligible for vesting in May 2012 (which were issued in May 2009) vested. All deferred shares (issued in May 2010) vested. APPLICABLE PLAN RULES (a) SHARE RIGHTS GRANTED DURING THE YEAR SHARE RIGHTS VESTED DURING THE YEAR SHARE RIGHTS LAPSED DURING THE YEAR AGGREGATE AMOUNT PAID $ EPRP DSP EPRP DSP EPRP DSP EPRP DSP EPRP DSP 160,000 65,000 64,000 29,000 25,100 20,320 47,220 14,150 15,970 12,930 51,670 15,480 – – 29,440 10,190 – – 26,880 10,790 36,000 – – – 16,560 – – – 15,120 – 1 – 1 – 1 – 1 – 1 – DIRECTORS Mr A Walsh KEY EXECUTIVES Mr S Barnes Mr S Bland Mr P Ferguson Mr D Walker Table 11 (a) EPRP denotes Employee Performance Rights Plan (refer note 37), DSP denotes Deferred Share Plan (refer note 38). The exercise price was $1 in total for each series of performance rights exercised. Further details of the performance rights, deferred shares and deferred share rights are set out in Notes 37 to 39 of the financial statements. Share Rights exercised by Directors and key executives During the financial year, all vested share rights were exercised. No vested shares for Directors or Key Executives remain unexercised at 31 December 2012. 27 2 8 Share Rights held by the Managing Director during the year The table below summarises the various share rights held by the Managing Director, Mr Andrew Walsh during the year. NUMBER OF SHARE RIGHTS GRANTED APPLICABLE PLAN RULES (a) TOTAL SHARE RIGHTS CANCELLED/ LAPSED FAIR VALUE ESTIMATE AT GRANT DATE (b) GRANT DATE PERFORMANCE RANKING DATE DATE (f) PERCENTILE RANKING (PR ONLY) VESTED DIRECTORS’ REPORT TOTAL VESTED AND EXERCISED TOTAL VALID OUTSTANDING (c) % VESTED DIRECTORS EXECUTIVE DIRECTOR Mr A Walsh 7-May-09 100,000 EPRP 36,000 $3.90 7-May-12 Third quartile 64,000 64,000 – 64% 7-May-10 125,000 EPRP 7-May-10 29,000 DSP 9-May-11 150,000 EPRP 9-May-11 30,000 DSP 9-May-11 (d) 150,000 EPRP 7-May-12 80,000 EPRP 7-May-12 (e) 80,000 EPRP 7-May-12 65,000 DSP – – – – – – – – $5.68 7-May-13 $8.34 7-May-12 $5.87 7-May-15 $9.23 7-May-13 $5.79 7-May-15 $3.64 7-May-16 $3.56 7-May-16 $6.18 7-May-15 – – – – – – – – – – 125,000 – 29,000 29,000 – 100% – – – – – – – – – – – – 150,000 30,000 150,000 80,000 80,000 65,000 – – – – – – Table 12 (a) (b) (c) (d) (e) (f) EPRP denotes Employee Performance Rights Plan (refer note 37), DSP denotes Deferred Share Plan (refer note 38). 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 share price, exercise price, expected dividends, expected risk free rates and expected share price volatility (refer Note 36 of the financial statements) as well as adjusting for the likelihood of achieving performance hurdles. The quantum of performance rights ultimately vesting is a function of the performance of the Company relative to its peer group. This series of performance rights has a three year measurement period commencing 7 May 2012. This series of performance rights has a three year measurement period commencing 7 May 2013. For performance rights, the date shown is the earliest date for performance testing. Share Rights held by Executives and staff during the year The table below summarises the share rights held by Executives and staff during the year. SHARE RIGHTS GRANTED NUMBER OF PARTICIPANTS AT GRANT DATE NUMBER OF CURRENT PARTICIPANTS GRANT DATE TOTAL SHARE RIGHTS CANCELLED / LAPSED FAIR VALUE ESTIMATE AT GRANT DATE (a) RANKING/ VESTING DATE (b) 7-May-09 199,000 7-May-10 252,650 9-May-11 267,640 7-May-12 401,650 7-May-10 540,230 7-May-11 554,000 7-May-12 258,020 7-May-12 688,720 7-May-12 (d) 1,500 7-May-12 (d) 9,843 7-May-12 (d) 9,843 7-May-12 (d) 15,468 7-May-12 (d) 35,785 7-May-12 (d) 47,713 7-May-12 (d) 53,677 7-May-12 (d) 161,032 6 13 13 15 220 244 284 269 1 1 1 1 3 3 3 3 – 11 11 15 – 219 275 260 1 1 1 1 3 3 3 3 71,640 $3.90 7-May-12 43,140 $5.68 7-May-13 44,290 $5.96 7-May-14 – $3.76 7-May-15 31,760 $8.34 7-May-12 54,110 $9.23 7-May-13 5,560 $6.18 7-May-14 11,350 $6.18 7-May-15 – – – – – – – – $6.18 7-May-14 $6.18 7-May-13 $6.18 7-May-14 $6.18 7-May-15 $6.18 7-May-13 $6.18 7-May-14 $6.18 7-May-15 $6.18 7-May-16 Performance rights Deferred shares 2 9 DIRECTORS’ REPORT RANKING (PR ONLY) VESTED Third quartile 127,360 TOTAL VESTED AND EXERCISED TOTAL VESTED AND NOT EXERCISED TOTAL VALID OUT- STANDING (c) % VESTED 127,360 – – 64% – – – – – – – – – – – – – – – – – – – – – – 209,510 – 223,350 – 401,650 – – – 508,470 508,470 – – 100% – – – – – – – – – – – – – – – – – – – – – – – 499,890 – 252,460 – 677,370 – – – – – – – 1,500 9,843 9,843 15,468 35,785 47,713 53,677 – 161,032 – – – – – – – – – – 3 0 Deferred share rights GRANT DATE 7-May-10 7-May-11 7-May-12 7-May-12 71,280 70,750 24,330 69,860 7-May-12 (d) 17,603 7-May-12 (d) 18,586 7-May-12 (d) 24,039 7-May-12 (d) 149,324 7-May-12 (d) 111,891 7-May-12 (d) 112,694 7-May-12 (d) 147,075 Table 13 SHARE RIGHTS GRANTED NUMBER OF PARTICIPANTS AT GRANT DATE NUMBER OF CURRENT PARTICIPANTS TOTAL SHARE RIGHTS CANCELLED FAIR VALUE ESTIMATE AT GRANT DATE (a) RANKING/ VESTING DATE (b) RANKING (PR ONLY) VESTED TOTAL VESTED AND EXERCISED TOTAL VESTED AND NOT EXERCISED TOTAL VALID OUT- STANDING (c) % VESTED DIRECTORS’ REPORT 17 20 18 19 1 1 1 3 3 3 3 – 17 17 18 1 1 1 3 3 3 3 5,870 8,830 1,180 2,540 – – – – – – – $7.67 7-May-12 $8.49 7-May-13 $5.55 7-May-14 $5.26 7-May-15 $5.86 7-May-13 $5.55 7-May-14 $5.26 7-May-15 $5.86 7-May-13 $5.55 7-May-14 $5.26 7-May-15 $4.99 7-May-16 – – – – – – – – – – – 65,410 40,920 24,490 – 100% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 61,920 23,150 67,320 17,603 18,586 24,039 149,324 111,891 112,694 147,075 – – – – – – – – – – (a) (b) (c) (d) 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 share price, exercise price, expected dividends, expected risk free rates and expected share price volatility (refer Note 36) as well as adjusting for the likelihood of achieving performance hurdles. This is the scheduled vesting date for Deferred Shares and Deferred Share Rights. For Performance Rights the date shown is the first date for measurement of performance ranking. 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. These share grants are linked to specific criteria associated with the establishment of the Consolidated Entity's operation in the United Kingdom and have 1, 2, 3 and 4 year vesting periods. The grants made are once off, and are outside the typical long term incentive arrangement for Executives and staff (refer Note 39). Share grants with same start and end dates have not been aggregated as the grants differ in their performance criteria for vesting. DIRECTORS’ REPORT Director and Key Executive shareholdings The following table sets out the relevant interest in shares, performance rights, deferred shares and deferred share rights of the Company for each Director and Key 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 Key Executive from the IRESS Market Technology Equity Plan 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. 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 / Key Executive by the IRESS Market Technology Equity Plan Trust. FULLY PAID ORDINARY SHARES (a) UNVESTED PERFORMANCE RIGHTS UNVESTED DEFERRED SHARES DIRECTORS Mr P Dunai Mr A Walsh Ms J Seabrook Mr J Cameron Mr J Hayes Mr A D’Aloisio KEY EXECUTIVES Mr S Barnes Mr S Bland Mr P Ferguson Mr D Walker Table 14 900,000 172,950 30,000 20,000 10,200 8,050 – 299,830 – 482,930 – 585,000 – – – – 25,100 109,950 15,970 116,070 – 95,000 – – – – 20,320 24,440 12,930 25,770 (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 individual by the IRESS Market Technology Equity Plan Trust. 31 DIRECTORS’ REPORT SPECIFIC REMUNERATION DETAILS Details of the remuneration of each Director and Key Executives prepared in accordance with statutory requirements and accounting standards are detailed on pages 35 to 38, and in addition details of the actual remuneration received by each Director and Key Executive are set out on pages 32 to 34. Actual Remuneration Actual remuneration, as set out on pages 32 to 34, is provided in addition to the statutory reporting of remuneration with a view to increasing transparency about what remuneration was actually received during the year. Actual remuneration for this analysis has been calculated to include cash salary and fees, superannuation, non-cash benefits received during the year and the full value of incentive payments vested during the financial year calculated as at the date the entitlement was realised. Actual remuneration does not include the share based payments expense which reflects the amortised accounting value for share rights granted in the current and prior years which may or may not align with achieved outcomes. SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ SHARE ENTITLEMENTS REALISABLE DURING THE YEAR $ (b) TOTAL ACTUAL REMUN-ERATION RECEIVED $ (c) DIRECTORS EXECUTIVE DIRECTOR Mr A Walsh 2012 805,000 300,000 2011 782,500 350,000 NON-EXECUTIVE DIRECTORS Mr P Dunai (e) 2012 150,000 2011 150,000 Mr B Burdett (i) 2012 25,312 2011 73,394 Ms J Seabrook 2012 84,748 2011 84,748 Mr J Cameron 2012 73,394 2011 73,394 Mr J Hayes 2012 84,748 2011 47,263 Mr A D’Aloisio 2012 42,813 – – – – – – – – – – – 32 IRESS Limited – – – – – – – – – – – – – 25,000 25,000 574,740 1,704,740 747,630 1,905,130 13,500 13,500 2,278 6,606 7,627 7,627 6,606 6,606 7,627 4,254 3,853 – – – – – – – – – – – 163,500 163,500 27,590 80,000 92,375 92,375 80,000 80,000 92,375 51,517 46,666 DIRECTORS’ REPORT SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ SHARE ENTITLEMENTS REALISABLE DURING THE YEAR $ (b) TOTAL ACTUAL REMUN- ERATION RECEIVED $ (c) FORMER DIRECTORS Mr J Killen (f) 2011 35,312 Total Non-Executive Directors remuneration 2012 461,015 2011 464,111 – – – Total Directors remuneration 2012 1,266,015 300,000 2011 1,246,611 350,000 KEY EXECUTIVES – – – – – 3,178 41,491 41,771 66,491 66,771 – – – 38,490 502,506 505,882 574,740 2,207,246 747,630 2,411,012 Mr S Barnes (g) 2012 217,917 65,000 – 25,283 – 308,199 Mr S Bland 2012 366,258 138,000 2011 350,315 162,000 1,592 1,523 25,000 244,913 775,764 25,000 544,570 1,083,408 Mr P Ferguson (d) 2012 240,000 62,000 330 20,569 2011 127,385 45,000 – 15,515 – – 322,899 187,900 Mr D Walker 2012 375,354 162,000 2011 365,393 170,000 1,592 1,523 25,000 232,801 796,747 25,000 498,420 1,060,336 33 DIRECTORS’ REPORT SHORT TERM EMPLOYMENT BENEFITS POST EMPLOYMENT (a) SALARY & FEES $ BONUS $ NON- MONETARY $ SUPER- ANNUATION $ SHARE ENTITLEMENTS REALISABLE DURING THE YEAR $ (b) TOTAL ACTUAL REMUN- ERATION RECEIVED $ (c) FORMER KEY EXECUTIVES Mr J Davies (h) 2011 386,107 132,217 Ms K Gross 2011 296,385 155,000 9,509 1,321 2,925 304,590 835,348 28,585 410,735 892,026 Total Key Executive remuneration Total Directors and Key Executive remuneration Table 15 2012 1,199,529 427,000 3,514 95,852 477,714 2,203,609 2011 1,525,585 664,217 13,876 97,025 1,758,315 4,059,018 2012 2,465,543 727,000 3,514 162,343 1,052,454 4,410,855 2011 2,772,196 1,014,217 13,876 163,796 2,505,945 6,470,030 (a) 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. (b) Comprises shares arising on the exercise of performance rights and vesting of deferred shares during the year. Figures in this column are calculated by multiplying the number of share entitlements realised, by the share price prevailing on the date the entitlement is realised, notwithstanding that the underlying shares may not be beneficially held by the respective Director or Key Executive as the share may not have been withdrawn from the IRESS Market Technology Equity Plan Trust. Share price at vesting was $6.18 (2011: $9.23). Actual remuneration for this analysis includes cash salary and fees, superannuation, non-cash benefits received during the year and the full value of incentive payments vested during the financial year calculated as at the date of vesting. (c) (d) 2011 amounts reflect the total remuneration received by Mr Ferguson since joining the company on 21 June 2011. (e) Share grants vesting in Mr Dunai in 2011 primarily pertain to his prior role as Managing Director. In this capacity, $1,846,000 of deferred shares vested shares with Mr Dunai in 2011. Retired 5 May 2011. This figure reflects the total remuneration received by Mr Barnes since joining the company on 30 April 2012. (f) (g) (h) Where appropriate remuneration details have been converted to Australian dollars at the weighted average exchange rate. (i) Retired 3 May 2012. 34 IRESS Limited Statutory Remuneration The following tables disclose the nature and amount of each major element of remuneration for each Director and key executive in accordance with statutory requirements and accounting standards: DIRECTORS’ REPORT SHORT TERM EMPLOYMENT BENEFITS POST EMPLOY- MENT (a) SHARE BASED PAYMENTS SALARY & FEES BONUS NON- MONETARY SUPER- ANNUATION EQUITY SETTLED SHARE RIGHTS EXPENSE TOTAL REMUNERATION INCLUDING SHARE BASED PAYMENTS % OF REMUNERATION CONSISTING OF SHARE BASED CONSIDERATION VALUE OF SHARE BASED CONSIDERATION GRANTED DURING THE YEAR AT GRANT DATE VALUE OF SHARE BASED CONSIDERATION EXERCISED DURING THE YEAR VALUE OF SHARE BASED CONSIDERATION AT LAPSE DATE, WHERE LAPSED DURING THE YEAR $ $ $ $ $ (b) $ (T) % (c) $ (d) $ (e) $ DIRECTORS EXECUTIVE DIRECTOR Mr A Walsh 2012 805,000 300,000 2011 782,500 350,000 NON-EXECUTIVE DIRECTORS Mr P Dunai 2012 150,000 2011 150,000 Mr B Burdett 2012 25,312 2011 73,394 Ms J Seabrook 2012 84,748 2011 84,748 Mr J Cameron 2012 73,394 2011 73,394 – – – – – – – – 3 5 – – – – – – – – – – 25,000 1,157,302 2,287,302 25,000 913,010 2,070,510 13,500 – 163,500 13,500 155,688 319,188 2,278 6,606 7,627 7,627 6,606 6,606 – – – – – – 27,590 80,000 92,375 92,375 80,000 80,000 51 44 – (f) – – – – – – 977,700 574,740 222,480 2,025,900 747,630 – – – – – – – – – 738,000 – – – – – – – – – – – – – – – 3 6 DIRECTORS’ REPORT SHORT TERM EMPLOYMENT BENEFITS POST EMPLOY- MENT (a) SHARE BASED PAYMENTS SALARY & FEES BONUS NON- MONETARY SUPER- ANNUATION EQUITY SETTLED SHARE RIGHTS EXPENSE TOTAL REMUNERATION INCLUDING SHARE BASED PAYMENTS % OF REMUNERATION CONSISTING OF SHARE BASED CONSIDERATION VALUE OF SHARE BASED CONSIDERATION GRANTED DURING THE YEAR AT GRANT DATE VALUE OF SHARE BASED CONSIDERATION EXERCISED DURING THE YEAR VALUE OF SHARE BASED CONSIDERATION AT LAPSE DATE, WHERE LAPSED DURING THE YEAR $ $ $ $ $ (b) $ (T) % (c) $ (d) $ (e) $ NON-EXECUTIVE DIRECTORS CONTINUED Mr J Hayes 2012 2011 84,748 47,263 Mr A D’Aloisio 2012 42,813 FORMER DIRECTORS Mr J Killen (j) 2011 35,312 2012 461,015 2011 464,111 2012 1,266,015 300,000 2011 1,246,611 350,000 Total Non- Executive Directors remuneration Total Directors remuneration KEY EXECUTIVES – – – – – – – – – – – – – – 7,627 4,254 3,853 3,178 41,491 – – – – – 92,375 51,517 46,666 38,490 502,506 41,771 155,688 661,570 66,491 1,157,302 2,789,808 66,771 1,068,698 2,732,080 Mr S Barnes (i) 2012 217,917 65,000 – 25,283 47,807 356,006 Mr S Bland 2012 2011 366,258 138,000 1,592 25,000 263,114 793,965 350,315 162,000 1,523 25,000 268,066 806,904 – – – – – – 41 – 13 33 33 – – – – – – – – – – – 738,000 – – – – – – 977,700 574,740 222,480 2,025,900 1,485,630 219,954 – – – 264,994 244,913 102,341 279,975 544,570 – DIRECTORS’ REPORT SHORT TERM EMPLOYMENT BENEFITS POST EMPLOY- MENT (a) SHARE BASED PAYMENTS SALARY & FEES BONUS NON- MONETARY SUPER- ANNUATION EQUITY SETTLED SHARE RIGHTS EXPENSE TOTAL REMUNERATION INCLUDING SHARE BASED PAYMENTS % OF REMUNERATION CONSISTING OF SHARE BASED CONSIDERATION VALUE OF SHARE BASED CONSIDERATION GRANTED DURING THE YEAR AT GRANT DATE VALUE OF SHARE BASED CONSIDERATION EXERCISED DURING THE YEAR VALUE OF SHARE BASED CONSIDERATION AT LAPSE DATE, WHERE LAPSED DURING THE YEAR $ $ $ $ $ (b) $ (T) % (c) $ (d) $ (e) $ KEY EXECUTIVES CONTINUED Mr P Ferguson (g) 2012 240,000 62,000 330 20,569 30,419 353,318 2011 127,385 45,000 – 15,515 – 187,900 Mr D Walker 2012 375,354 162,000 1,592 25,000 270,922 834,868 2011 365,393 170,000 1,523 25,000 264,596 826,512 FORMER KEY EXECUTIVES Mr J Davies (h) 2011 386,107 132,217 9,509 2,925 168,245 699,003 Ms K Gross 2011 296,385 155,000 1,321 28,585 240,446 721,737 2012 1,199,529 427,000 3,514 95,852 612,263 2,338,157 2011 1,525,585 664,217 13,876 97,025 941,353 3,242,056 2012 2,465,543 727,000 3,514 162,343 1,769,565 5,127,965 2011 2,772,196 1,014,217 13,876 163,796 2,010,051 5,974,136 Total Key Executive remuneration Total Directors and Key Executive remuneration Table 16 3 7 9 – 32 32 24 33 26 29 35 32 139,955 – – – – – 289,946 232,801 93,442 289,928 498,420 176,948 304,590 262,925 410,435 – – – 914,848 477,714 195,782 1,009,776 1,758,015 – 1,892,548 1,052,454 418,262 3,035,676 3,243,645 – 3 8 (a) (b) (c) (d) (e) DIRECTORS’ REPORT 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 2012 represents a combination of share grants made in 2012 and prior years. This figure is calculated on the value of share rights included in remuneration for the year ended 31 December 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 share 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 (from prior year grants) exercised by Directors and Executives during the year as well as any share rights which vested 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 Market Technology Equity Plan Trust. Share grants vesting with Mr Dunai in 2011 primarily pertain to his prior role as Managing Director. This figure reflects the total remuneration received by Mr Ferguson since joining the company on 21 June 2011. (f) (g) (h) Where appropriate remuneration details have been converted to Australian dollars at the weighted average exchange rate. (i) (j) This figure reflects the total remuneration received by Mr Barnes since joining the company on 30 April 2012. Retired 5 May 2011. DIRECTORS’ REPORT OUTLINE OF EMPLOYMENT CONTRACTS FOR THE MANAGING DIRECTOR AND EXECUTIVES The Executives comprise the Key Executives plus the following Senior Group Executives: Mr J Davies (President & Chief Executive Officer, Financial Markets Canada) Ms K Gross (Executive General Manager, Financial Markets Australia and New Zealand) Mr J Hoang (Managing Director Asia) Mr A Knowles (Executive Product Manager, Wealth Management) Mr A Mendelowitz (Managing Director, Financial Markets EMEA) (a) Mr P Moretonas (Managing Director, Wealth Management South Africa) Mr R Pretorius (Managing Director, Financial Markets South Africa) (a) Ms K Squire (Executive Product Manager, Financial Markets) Mr M Thelwell (Managing Director, Wealth Management United Kingdom) (b) Ms T Vigilante (Executive General Manager Wealth Management Australia and New Zealand) (a) Mr Mendelowitz and Mr Pretorius, or entities associated with them, are entitled to participate in additional future financial incentives arising from their role as vendors of Peresys (Proprietary) Ltd which was acquired by the Company in January 2011. All these transactions arose whilst they were not a related party and were part of arm’s length negotiations. (b) Mr Thelwell is a participant in long term share right incentive arrangements to facilitate the establishment of the Consolidated Entity’s activities in the United Kingdom (refer page 29). Contractual terms for most Executives are similar but do vary on occasions. Details of the typical contractual terms for the Executives are as follows: CRITERION PARTICULARS Length of contract Open ended. Notice period Not less than 3 months. Fixed remuneration The fixed remuneration component consists of salary, statutory employer superannuation or retirement scheme contributions and benefits (primarily comprising health insurance). Any fringe benefit tax liability in respect to benefits is borne by the employing entity. (a) Incentive arrangements Eligible to participate in the employing entity’s short term incentive arrangements. Resignation Eligible to participate in the Company’s long term incentive arrangements. 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. Retirement There are no additional financial entitlements due from the employing entity on retirement. 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. 39 DIRECTORS’ REPORT CRITERION PARTICULARS 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 provides Income Protection Insurance where it is IRESS’ local practice in that jurisdiction to make it available to staff generally. 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 entitlements and vested share rights. Termination and share grants As noted above, 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. Table 17 (a) In November 2011, Mr Bland moved to six weeks annual leave entitlement. Details of the contractual terms for the Managing Director are broadly the same as set out for the Executives in the above table. Key points of difference are as follows: CRITERION Position Notice period Restraint Table 18 PARTICULARS Managing Director. Not less than six months. A restraint arrangement exists during Mr Walsh’s employment and for a period of six months post his employment. 40 IRESS Limited DIRECTORS’ REPORT 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, 20 February 2013 41 AUDITOR’S INDEPENDENCE DECLARATION The Board of Directors IRESS Limited Level 18, 385 Bourke St MELBOURNE VIC 3000 20 February 2013 Dear Board Members Independence Declaration: IRESS Limited 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 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 Limited. As lead audit partner for the audit of the financial statements of IRESS Limited for the financial year ended 31 December 2012, 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 G J McLean Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 42 IRESS Limited CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE The Board of IRESS 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 43 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 Comply 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 44 IRESS Limited 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 45 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 46 IRESS Limited 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 Securities Exchange (ASX). In addition, many of the governance elements are enshrined in the Company’s Constitution. In addition, The Board operates in accordance with a 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. 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; 47 CORPORATE GOVERNANCE STATEMENT 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, Executive, officer 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 monitors diversity and has adopted a formal diversity policy, available on IRESS’ website http://www.iress.com. The Board has not included in that policy a requirement that the Board establish measurable objectives for achieving gender diversity. The monitoring undertaken by the Board 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. The Board continues to observe no indicators of bias, or impediments to diversity and believes the Company’s diversity ratios reflect well on the Group 2.7 As at 31 December 2012 approximately 33% of the aggregate employment base of the Company were women, and comprised 1 Director (out of a total of 6), 3 Executives (out of a total of 14) and 239 staff (out of a total of 709). The Board believes that these statistics suggest that its approach of informally monitoring gender diversity has produced satisfactory results. 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. 48 IRESS Limited CORPORATE GOVERNANCE STATEMENT 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. 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 8. 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’. There was a short period during 2012 when the Board had only 5 Directors, following the retirement of Bill Burdett as Director on 5 May 2012 and the appointment of Tony D’Aloisio on 1 June 2012. 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. 49 CORPORATE GOVERNANCE STATEMENT 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. 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 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 19, and is incorporated into this corporate governance statement by reference. 7.4 Other than as reported on page 20, 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 Key Executives of the Company and the group are set out in the Directors’ Report on pages 19 to 41. 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 31 in the Directors’ Report. 50 IRESS 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 an 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. 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 Hayes (Chair) Mr B Burdett (retired from the Board and Audit Committee 5 May 2012); Ms J Seabrook; and Mr A D’Aloisio (appointed 23 August 2012). 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 8. 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. 51 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 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 engage in short term dealings in the Company’s shares. 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. 52 IRESS Limited CORPORATE GOVERNANCE STATEMENT 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. 53 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IRESS LIMITED 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 www.deloitte.com.au We have audited the accompanying financial report of IRESS Limited, which comprises the Statement of Financial Position as at 31 December 2012, 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 56 to 126. 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 Accounting Standard 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 Limited 54 IRESS Limited INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IRESS LIMITED 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 Limited, would be in the same terms if given to the directors at the time of this auditor’s report. AUDITOR’S OPINION ON THE FINANCIAL REPORT In our opinion: (a) the financial report of IRESS 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 2012 and of their 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 19 to 41 of the Directors’ Report for the year ended 31 December 2012. 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 Limited for the year ended 31 December 2012, complies with Section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU G J McLean Partner Chartered Accountants MELBOURNE, 20 February 2013 55 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 attached financial statements are in compliance with International Financial Reporting Standards issued by the International Accounting Standards Board as stated in Note 1 of the financial statements; 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, 20 February 2013 56 IRESS Limited STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 Revenue from ordinary activities Customer data fees Communication and other technology expenses Employee benefits expenses Employee administration expenses Other expenses including general administration expenses Facilities rent Bad and doubtful debts Business acquisition and restructure expenses Profit before depreciation, amortisation, interest and income tax expense 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 after income tax expense 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 61 to 126. NOTE 2 3 4 2 5 6 CONSOLIDATED 2012 $’000 2011 $’000 207,476 204,758 (22,129) (21,885) (11,228) (10,579) (83,193) (76,016) (3,807) (3,162) (8,181) (7,087) (3,444) (3,188) (511) (123) (882) (793) 74,860 81,166 (19,018) (22,587) 55,842 58,579 1,263 1,795 (263) (214) 1,000 1,581 56,842 60,160 (17,614) (18,819) 39,228 41,341 – – (846) (5,754) 38,382 35,587 30.646 32.644 30.402 32.589 57 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 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 61 to 126. 58 IRESS Limited NOTE 7 7 5 8 9 10 11 11 12 13 14 14 15 16 17 5 18 19 20 CONSOLIDATED 2012 $’000 2011 $’000 55,967 48,925 12,131 12,104 2,313 3,817 1,531 1,791 – 668 71,942 67,305 7,768 6,773 24,993 39,369 39,383 40,137 3,081 4,707 9,954 11,120 42 46 85,221 102,152 157,163 169,457 8,309 10,175 6,075 6,025 3,503 10,250 3,956 3,927 21,843 30,377 6,462 9,802 2,020 1,426 8,482 11,228 30,325 41,605 126,838 127,852 75,898 75,898 36,314 29,124 14,626 22,830 126,838 127,852 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 CONSOLIDATED ISSUED CAPITAL $’000 RETAINED EARNINGS $’000 SHARE BASED PAYMENTS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 TOTAL $’000 75,898 22,830 39,184 (10,060) 127,852 – – – – – – – 39,228 – 39,228 – – 419 (47,851) – – – – 8,455 (419) – – 39,228 (846) (846) (846) 38,382 – – – – – 8,455 – (47,851) 75,898 14,626 47,220 (10,906) 126,838 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 2012 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 Other reserves Equity dividends Closing balance 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 Notes to the financial statements are included on pages 61 to 126. 59 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 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) 2012 $’000 2011 $’000 226,497 218,584 (66,974) (62,513) (77,640) (71,363) 1,363 1,696 (91) (214) (21,688) (31,474) Net cash provided by operating activities 23 61,467 54,716 CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment Payment for software from Peresys Payment for acquisition of subsidiaries Deferred payment for acquisition of subsidiaries Proceeds from/(payment for) investment in listed companies Proceeds from sale of plant and equipment Dividends received from Treasury Shares held by the IRESS Market Technology Equity Plan Trust 26 27 (5,857) (7,129) – – (39,335) (3,412) (320) 4 2 76 – 5 26 91 Net cash used in investing activities (6,095) (49,754) 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 61 to 126. 60 IRESS Limited – – (47,850) (52,438) (47,850) (52,438) 7,522 (47,476) 48,925 99,063 (480) (2,662) 55,967 48,925 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 Consolidated Entity is a for-profit entity and is involved in the provision of information, trading, compliance, order management, portfolio and financial planning systems and related tools. The financial statements were authorised for issue by the Directors on 20 February 2013. 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. 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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. 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. (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. 62 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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. 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. 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 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 5 to the financial statements. 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, including Computer Software, 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. (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. 64 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 AASB 3 “Business Combinations” does not apply to a business combination of entities under common control. A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party both before and after the business combination, and that control is not transitory. Business combinations under common control are accounted for in the financial statements of the acquiring entity prospectively from the date the acquiring entity obtains the ownership interest. At the date of transaction, the carrying value of assets and liabilities in the transferring entity’s financial statements are recognised in the acquiring entity’s financial statements. Any difference between the consideration paid and the carrying value is recognised directly in profit or loss in the separate financial statements of the entities involved. Any profits or losses recognised are eliminated in the consolidated financial report. (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. (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. 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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. Dividends A provision is only recognised for dividends when they have been declared, determined or publicly recommended by the Directors. 66 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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 37 to 39) 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. 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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 2012. 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” (December 2009) Applies to annual reporting periods beginning on or after 1 January 2013 AASB 9 “Financial Instruments” (December 2010), AASB 2010-7 “Amendments to Australian Accounting Standards arising from AASB 9” (December 2010) Applies on a modified retrospective basis to annual reporting periods beginning on or after 1 January 2013 AASB 10 “Consolidated Financial Statements” AASB 11 “Joint Arrangements” AASB 12 “Disclosure of Interests in Other Entities” AASB 13 “Fair Value Measurement” and related AASB 2011-8 “Amendments to Australian Accounting Standards arising from AASB 13” AASB 127 “Separate Financial Statements” (2011) Applies 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 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 128 “ Investments in Associated 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” AASB 2011-2 “Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project – Reduced Disclosure Requirements” 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 statements” AASB 2011-9 “Amendments to Australian Accounting standards – Presentation of items of Other Comprehensive Income” Applies to annual reporting periods beginning on or after 1 July 2013 but may be early adopted for annual reporting periods beginning on after 1 July 2009 Applies 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 Applies to annual reporting periods beginning on or after 1 July 2013 Applies to annual reporting periods beginning on or after 1 July 2012 68 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 AASB 2012-9 “Amendment to AASB 1048 arising from the Withdrawal of Australian Interpretation 1039” AASB 2012-10 “Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments” AASB 2012-11 “Amendments to Australian Accounting Standards – Reduced Disclosure Requirements and Other Amendments” Applies 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 July 2013 The Directors have assessed the impact of the adoption of these Standards and Interpretations in future periods on the financial statements of the Consolidated Entity. The Directors do not believe these Standards and Interpretations will have a material impact in future periods on the financial statements of the Consolidated Entity at this point in time. The Consolidated Entity does not intend to adopt any of these pronouncements before their effective dates. (u) Use of estimates and judgements In the preparation of the financial statement, the Directors are required to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial report are: Goodwill When determining whether goodwill is impaired, it is necessary to estimate the value-in-use of the cash generating units to which goodwill has been allocated. The value-in-use calculation required the Company to estimate the future cash-flows expected to arise from the cash generating unit and a suitable discount rate to calculate present value. The Directors have assessed that no impairment of goodwill has occurred during the year. 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 2 PROFIT BEFORE INCOME TAX EXPENSE 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 2012 $’000 2011 $’000 206,743 204,526 733 232 207,476 204,758 1,263 1,795 208,739 206,553 511 882 4,272 2,931 13,223 1,523 18,018 1,638 4,169 4,277 263 946 214 575 Sales of assets in the ordinary course of business have given rise to the following (profits)/losses Plant and equipment (8) (6) (a) Includes $0.172m (2011: $0.207m) non-cash interest expense recognised on deferred consideration payable on the Peresys transaction. 70 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 3 EMPLOYEE BENEFIT EXPENSES Employee benefit expenses can be broken down as follows Total monetary based expense (a) Share based payment expense (b) Total employee benefit expense CONSOLIDATED 2012 $’000 2011 $’000 74,738 68,926 8,455 7,090 83,193 76,016 (a) (b) Total monetary based expense comprises salary and fees, bonuses, superannuation and other benefits. Contributions to superannuation and similar post employment arrangements amounted to $4.831m (2011: $4.350m) for the Consolidated Entity. 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 2012 represents a combination of share grants made in 2012 and in prior years. Share based payment expense consists of UK Establishment Share Grants (Note 36) All other share rights Total share based payment expense An analysis of full time equivalent staff as at year end is as follows: Australia Canada South Africa Asia United Kingdom Total full time equivalent staff 1,657 6,798 8,455 – 7,090 7,090 2012 No. 2011 No. 432.6 412.2 55.5 54.2 166.5 160.1 36.1 13.4 29.6 3.0 704.1 659.1 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 4 EMPLOYEE ADMINISTRATION EXPENSES Employee administration expenses can be broken down as follows Travel and accommodation Communication Other Total administration expense 5 INCOME TAX CONSOLIDATED 2012 $’000 2011 $’000 2,834 2,336 559 414 561 265 3,807 3,162 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 19,869 20,859 (461) 320 (87) 426 (2,063) (3,033) (51) 654 17,614 18,819 72 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 Deductible share based payment expenses not previously recognised Movements in issued / vested shares Movements in cancelled share rights Effect of different tax rates Effect on deferred tax balances due to the change in income tax rate from 28.5% to 26.5% on our Canadian operations (2011: decrease from 32% to 28.5%) 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 CONSOLIDATED 2012 $’000 2011 $’000 56,842 60,160 17,053 18,048 810 374 255 (312) (51) (516) (80) 654 320 425 – (461) 1 (87) 17,614 18,819 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 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 1,493 1,731 38 60 1,531 1,791 (1,461) (6,740) (2,042) (3,510) (3,503) (10,250) (1,972) (8,459) 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 DEFERRED TAX BALANCES DEFERRED TAX ASSETS COMPRISE Tax losses - revenue Temporary differences DEFERRED TAX LIABILITIES COMPRISE Temporary differences CONSOLIDATED 2012 $’000 2011 $’000 567 9,387 4,379 6,741 9,954 11,120 (2,020) (1,426) 74 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Deferred tax assets/(liabilities) arise from the following. CONSOLIDATED OPENING BALANCE $000 CHARGED TO INCOME $000 ACQUISITIONS/ DISPOSALS $000 CHANGES IN TAX RATE $000 CLOSING BALANCE $000 2012 GROSS DEFERRED TAX LIABILITIES Other financial assets Sundry receivables Provisions GROSS DEFERRED TAX ASSETS Doubtful debts Other financial assets Plant and equipment Payables Provisions Other liabilities 2011 GROSS DEFERRED TAX LIABILITIES Other financial assets Sundry receivables Provisions GROSS DEFERRED TAX ASSETS Doubtful debts Other financial assets Plant and equipment Payables Provisions Other liabilities (7) (5) (1,414) (1,426) 177 1,437 3,286 586 1,053 202 6,741 19 (39) (1,411) (1,431) 320 1,204 516 336 944 413 3,733 (301) 2 (295) (594) 90 487 1,440 (21) 610 51 2,657 2 34 (3) 33 (152) 233 2,860 245 109 (295) 3,000 – – – – – – – – – – – (27) – – (27) 17 – – 136 89 84 326 – – – – – – (11) – – – (11) (1) – – (308) (3) (1,709) (2,020) 267 1,924 4,715 565 1,663 253 9,387 (7) (5) (1,414) (1) (1,426) (8) – (90) (131) (89) – (318) 177 1,437 3,286 586 1,053 202 6,741 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 Limited. The members of the tax-consolidated group are identified at Note 31. 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). 76 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 6 EARNINGS PER SHARE Basic earnings per share Diluted earnings per share BASIC EARNINGS PER SHARE 2012 CENTS PER SHARE 2011 CENTS PER SHARE 30.646 30.402 32.644 32.589 2012 ’000 2011 ’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. 39,228 41,341 128,004 126,642 (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 $ 39,228 41,341 Weighted average number of ordinary shares (refer to footnote (a) above) No. 129,033 126,856 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. 128,004 126,642 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) Weighted average number of converted, lapsed, or cancelled potential ordinary shares used in the calculation of diluted earnings per share Right to purchase ordinary shares pursuant to the employee share scheme No. No. 1,029 214 – – (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 2012 continues at that level through to the final vesting date for the applicable performance right. No potential ordinary shares are deemed anti-dilutive (2011: Nil). 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 7 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 Closing balance CONSOLIDATED 2012 $’000 2011 $’000 13,153 12,731 (1,022) (627) 12,131 12,104 2,313 2,313 3,817 3,817 627 522 – (127) 1,022 858 573 62 (866) 627 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 2012 showing receivables ‘not impaired’ and receivables ‘considered impaired’ is as follows. CONSOLIDATED NI (a) CONSOLIDATED CI (b) 2012 $ 2011 $ 2012 $ 2011 $ 8,610 2,336 468 717 8,430 2,390 761 523 80 165 150 627 12,131 12,104 1,022 144 10 41 432 627 0 – 30 days 31 – 60 days 61 – 90 days 91+ days Total (a) NI – not impaired. (b) CI – considered impaired. 78 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 8 OTHER CURRENT FINANCIAL ASSETS Other assets 9 PLANT AND EQUIPMENT CONSOLIDATED 2012 CONSOLIDATED 2012 $’000 2011 $’000 – 668 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 6,650 1,701 17,171 260 25,782 Additions Additions through business combination Adjustment - fully written down assets (a) Net foreign currency exchange differences Disposals 703 – (29) 3 – 267 4,387 – – (104) (6,629) (28) (49) (158) (592) Balance at end of financial year 7,327 1,787 14,179 – – (84) (7) (15) 154 5,357 – (6,846) (190) (656) 23,447 ACCUMULATED DEPRECIATION Balance at beginning of financial year (5,783) (1,452) (11,575) (199) (19,009) Disposals Net foreign currency exchange differences Adjustment - fully written down assets (a) – 1 29 46 20 598 70 104 6,629 14 7 84 658 98 6,846 Depreciation expense (456) (136) (3,632) (48) (4,272) Balance at end of financial year (6,209) (1,418) (7,910) (142) (15,679) NET BOOK VALUE At 31 December 2012 1,118 369 6,269 12 7,768 (a) Assets written off as part of a periodic review of fully written down assets. 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 CONSOLIDATED 2011 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 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 80 IRESS Limited CONSOLIDATED 2012 $’000 2011 $’000 456 136 324 121 3,632 2,430 48 56 4,272 2,931 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 10 COMPUTER SOFTWARE GROSS CARRYING AMOUNT (COST) Balance at beginning of financial year Additions (a) Additions through business combination 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 2012 $’000 2011 $’000 117,350 78,348 2,227 41,052 – (59) 64 (587) (1,606) (1,221) (21,357) – (3,379) (306) 93,176 117,350 (77,981) (62,173) 1,606 1,221 21,357 – 58 – 305 684 (13,223) (18,018) (68,183) (77,981) 24,993 39,369 Aggregate amortisation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year 13,223 18,018 Primarily made up of software acquired from Peresys (Proprietary) Limited for $39.335m in January 2011. (a) (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. 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 CONSOLIDATED 2012 $’000 2011 $’000 11 GOODWILL AND INTANGIBLES GOODWILL GROSS CARRYING AMOUNT BALANCE AT BEGINNING OF THE FINANCIAL YEAR 40,137 31,234 Additional amounts recognised from business combinations occurring during the period Effect of foreign currency exchange differences Balance at end of financial year There are no accumulated impairment losses. – 12,896 (754) (3,993) 39,383 40,137 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 2012 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) (b) 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 24 for a description of the operations of these cash generating units. (b) Movement represents only net exchange rate differences arising during the period. 8,239 9,954 8,155 10,493 15,179 15,179 4,032 1,979 4,403 1,907 39,383 40,137 82 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 INTANGIBLES CONSOLIDATED 2012 GROSS CARRYING AMOUNT (COST) DATABASE $’000 CUSTOMER LIST $’000 OTHER $’000 TOTAL $’000 Balance at beginning of financial year 1,540 5,969 Additions through business combination Adjustment - fully written down assets (a) Net foreign currency exchange differences – – – Balance at end of financial year 1,540 – (1,341) (238) 4,390 (2,802) 135 1,341 (1,523) (2,849) 38 – (38) – – (38) – 38 – – – 7,547 – (1,379) (238) 5,930 (2,840) 135 1,379 (1,523) (2,849) 3,081 1,504 5,659 (1,194) 5,969 (1,504) 340 (1,638) (2,802) 41 – (3) 38 3,085 5,659 (1,197) 7,547 (41) (1,545) 3 – (38) 343 (1,638) (2,840) – – – – – – – 1,540 – – – – 1,540 1,541 DATABASE $’000 CUSTOMER LIST $’000 OTHER $’000 TOTAL $’000 ACCUMULATED DEPRECIATION Balance at beginning of financial year Net foreign currency exchange differences Adjustment - fully written down assets (a) Depreciation expense Balance at end of financial year NET BOOK VALUE At 31 December 2012 CONSOLIDATED 2011 GROSS CARRYING AMOUNT (COST) Additions through business combination Net foreign currency exchange differences Balance at end of financial year ACCUMULATED DEPRECIATION Balance at beginning of financial year Net foreign currency exchange differences Depreciation expense Balance at end of financial year NET BOOK VALUE At 31 December 2011 Balance at beginning of financial year 1,540 1,540 3,167 – 4,707 (a) Assets written off as part of a periodic review of fully written down assets. 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 IMPAIRMENT TESTING ASSUMPTIONS The following assumptions were adopted in the assessment of indicators of impairment as at 31 December 2012 for each of the cash generating units; importantly these assumptions do not seek to represent Directors’ valuations of these businesses: The recoverable amount of the cash generating unit has been determined based on a value in use calculation using cash flow projections which broadly track the financial outcomes contained in the long term strategic plan approved by the Board in October 2012. 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%. A nominal discount rate equating to 11% after tax. Where applicable the exchange rate prevailing as at 31 December 2012 continues. 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 (Proprietary) Limited, and now owned by the ultimate parent entity. 12 DEFERRED TAX ASSETS Temporary differences attributable to Parent entity Entities in the tax consolidated group (Note 31) Other entities (a) Tax losses – other entities CONSOLIDATED 2012 $’000 2011 $’000 5,715 2,842 830 567 5,504 1,344 (107) 4,379 9,954 11,120 (a) Wholly owned subsidiaries that are not entities in the tax consolidated group. 13 OTHER NON-CURRENT FINANCIAL ASSETS Investment in shares at fair value 42 46 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. 84 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 14 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. 15 CURRENT TAX PAYABLES Income tax payable attributable to Parent entity Other entities CONSOLIDATED 2012 $’000 2011 $’000 8,309 10,175 8,309 10,175 6,075 6,075 6,025 6,025 1,461 2,042 3,503 6,740 3,510 10,250 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 16 CURRENT PROVISIONS Employee benefits (Note 25) 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 2012 $’000 2011 $’000 3,880 3,487 42 34 – 41 300 99 3,956 3,927 41 39 47,851 52,440 (47,850) (52,438) 42 41 300 – (266) 34 99 (99) – 36 264 – 300 99 – 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 2012, the balance represents unpresented dividend cheques. 86 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 17 NON-CURRENT PROVISIONS Employee benefits (Note 25) Provision for third party software licence (a) Provision for additional payment arising on the acquisition of subsidiaries CONSOLIDATED 2012 $’000 2011 $’000 4,226 – 2,236 6,462 3,891 3,379 2,532 9,802 (a) The provision for third party software was reclassified to Plant and Equipment and subsequently written off. 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 2,532 – – 3,872 (221) (1,010) 172 (247) 2,236 207 (537) 2,532 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 18 ISSUED CAPITAL ISSUED CAPITAL 128,620,231 fully paid ordinary shares (2011: 127,036,010) FULLY PAID ORDINARY SHARE CAPITAL CONSOLIDATED 2012 $’000 2011 $’000 75,898 75,898 2012 2011 NO. ‘000 $’000 NO. ‘000 $’000 Balance at beginning of financial year 127,036 75,898 126,018 75,898 Issue of shares to IRESS Market Technology Equity Plan Trust (’Trust’) pursuant to share plans (a) 1,584 – 1,018 – Balance at end of financial year 128,620 75,898 127,036 75,898 (a) Additional issued capital arising from the issue of these shares in the years ended 31 December 2012 and 31 December 2011 amounted to $13 and $26 respectively. The IRESS Market Technology Equity Plan Trust is a special purpose entity which is included in the Consolidated Entity for financial reporting. The Company provides funding to the Trust to support the Trust as part of its administrative role for the share plans, either by subscribing for shares in the Company or by buying shares on-market. Where the Trust subscribes for shares in the Company, the increase in the number of fully paid ordinary shares is recognised as an increase in the number of shares on issue, however the cash proceeds are not recognised as a monetary increase in total paid up capital. 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 Note 37). Pursuant to performance rights granted in prior years which vested during the year, 172,210 shares (191,360 shares less 19,150 treasury shares) were subscribed for by the Trust. DEFERRED SHARES Pursuant to deferred shares granted to the Managing Director, Executives and employees during the year which have not yet vested (refer Note 38), 1,346,601 new shares were subscribed for by the Trust. DEFERRED SHARE RIGHTS Pursuant to deferred share rights granted to Executives and employees in prior years which vested during the year (refer Note 39), 65,410 shares were subscribed for by the Trust. Following cancellations of share rights granted to employees, as at 31 December 2012, the Trust holds 72,750 treasury shares. 88 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 19 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 (Note 3) Other reserves (a) Balance at end of financial year CONSOLIDATED 2012 $’000 2011 $’000 47,220 39,184 (10,906) (10,060) 36,314 29,124 39,184 32,094 8,455 (419) 7,090 – 47,220 39,184 (a) Share based payments expense arising on the performance rights which lapsed during 2012 transferred to retained earnings. 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 (10,060) (4,306) (846) (5,754) (10,906) (10,060) 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). 20 RETAINED EARNINGS Balance at beginning of financial year Net profit attributable to members of the parent entity Dividends provided for or paid Other reserves (a) Balance at end of financial year 22,830 33,929 39,228 41,341 (47,851) (52,440) 419 – 14,626 22,830 (a) Share based payments expense arising on the performance rights which lapsed during 2012 transferred to retained earnings. 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 21 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 Total Equity FINANCIAL PERFORMANCE Profit for the year Total comprehensive income CONTINGENT LIABILITIES The parent entity has given a letter of support to ensure that the following wholly owned subsidiaries will meet their debts as and when they fall due. IRESS Data Pty Ltd IRESS Asia Holdings Ltd IRESS Market Technology (Singapore) Pte Ltd IRESS Technology Limited Peresys (Proprietary) Limited 90 IRESS Limited COMPANY 2012 $’000 2011 $’000 61,591 96,254 134,045 78,961 195,636 175,215 12,106 15,691 7,406 10,485 19,512 26,176 75,898 75,898 53,006 33,957 47,220 39,184 176,124 149,039 27,902 35,204 27,902 35,204 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 22 DIVIDENDS Recognised amounts Interim dividend Final dividend (b) 31 DECEMBER 2012 31 DECEMBER 2011 CENTS PER SHARE TOTAL $’000 CENTS PER SHARE TOTAL $’000 13.5 (a) 17,363 14.0 (a) 17,785 24.0 (b) 30,488 24.0 (c) (d) 30,244 Special dividend unfranked – – 3.5 4,411 47,851 52,440 Unrecognised amounts Final dividend 24.5 (e) 31,512 24.0 (b) 30,488 Special dividend unfranked – – – – 31,512 30,488 (a) (b) (c) (d) (e) Franked to 90% at a 30% tax rate. Franked to 83% at a 30% tax rate. Franked to 66% at a 30% tax rate. 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. Franked to 90% at a 30% tax rate. The estimated value of the 2012 final dividend declared subsequent to 31 December 2012 has been calculated based on 128,620,231 ordinary shares, comprising shares on issue as at 31 December 2012. Adjusted franking account balance (a) COMPANY 2012 $’000 2011 $’000 13,981 10,859 (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. 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 23 NOTES TO THE STATEMENT OF CASH FLOWS CONSOLIDATED 2012 $’000 2011 $’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 55,967 48,925 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 39,228 41,341 (8) (6) 19,018 22,587 511 946 882 575 8,455 7,090 1,760 (4,862) 1,477 (4,424) 1,954 (13,200) (1,817) – (3,310) (6,747) 2,940 1,717 1,017 (941) 61,467 54,716 92 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 24 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 South Africa with emerging businesses in Asia and the UK. 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 and South Africa with emerging businesses in Asia and the UK. SEGMENT REVENUES FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia United Kingdom Total financial markets WEALTH MANAGEMENT Australia & New Zealand South Africa Asia United Kingdom Total wealth management Total of all segments Unallocated Revenue Interest revenue Eliminations Consolidated EXTERNAL SALES 2012 $’000 2011 $’000 108,756 108,919 21,555 15,709 789 125 23,954 15,320 1,061 – 146,934 149,254 53,864 49,122 5,545 5,991 195 205 159 – 59,809 55,272 206,743 204,526 733 232 207,476 204,758 1,263 1,795 – – 208,739 206,553 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 SEGMENT PROFITS / (LOSSES) FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia United Kingdom 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 (Note 3) 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 2012 $’000 2011 $’000 54,216 56,289 6,271 4,900 8,197 5,543 (2,337) (1,454) (378) – 62,672 68,575 23,366 20,289 1,584 1,689 (1,632) (1,320) (2,585) (119) 20,733 20,539 83,405 89,114 (8,455) (7,090) (90) (858) 74,860 81,166 (19,018) (22,587) 1,000 1,581 56,842 60,160 (17,614) (18,819) 39,228 41,341 (a) Includes $0.172m (2011: $0.207m) non-cash interest expense recognised on deferred consideration payable on the Peresys transaction, and other sundry contribution of $0.008m (2011: $0.006m). 94 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 SEGMENT ASSETS AND INFORMATION 2012 $’000 2011 $’000 CASH RECEIVABLES PAYABLES CASH RECEIVABLES PAYABLES Australia & New Zealand 35,779 9,659 (6,458) 38,113 9,031 (8,745) Canada South Africa Asia United Kingdom 1,716 14,735 2,292 1,445 1,043 1,114 158 157 (700) (930) (141) (80) 1,817 8,729 266 – 1,738 1,312 23 – (901) (474) (55) – Total consolidated 55,967 12,131 (8,309) 48,925 12,104 (10,175) 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 2012 $’000 2011 $’000 15,767 19,893 672 2,027 423 129 577 1,980 137 – 19,018 22,587 3,022 558 1,061 88 628 4,113 557 552 389 – 5,357 5,611 2,153 40,991 – 32 21 21 – 29 32 – 2,227 41,052 (a) In 2011, this balance was primarily made up of software acquired from Peresys (Proprietary) Limited for $39.335m. 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 25 EMPLOYEE BENEFITS THE AGGREGATE EMPLOYEE BENEFIT LIABILITY RECOGNISED AND INCLUDED IN THE FINANCIAL STATEMENTS IS AS FOLLOWS Provision for employee benefits CURRENT (Note 16) Annual leave NON CURRENT (Note 17) Annual leave Long service leave Deferred incentive (a) Total CONSOLIDATED 2012 $’000 2011 $’000 – – – – – – – – 211 – – 211 55,117 71,409 10,299 9,613 16,759 18,818 2,502 2,312 544 – 85,221 102,152 3,880 3,487 625 2,525 1,076 8,106 442 2,250 1,199 7,378 (a) As part of the Peresys (Proprietary) Limited acquisition completed in January 2011, certain employees are eligible to participate in a deferred cash based incentive arrangement. The final amount payable is subject to the performance of the business over the period from acquisition to 31 December 2013. 96 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 26 CONTINGENT LIABILITIES Peresys (Proprietary) Limited (Peresys), a wholly owned subsidiary, has a potential exposure to fines arising from the processing of the company’s change of year end to align with the IRESS group practice of using a 31 December year end. Peresys was acquired by IRESS in January 2011, and while forms to change its registered year end date to 31 December were lodged, they were not ultimately processed by the Registrar of Companies. As a result the financial year of Peresys for income tax purposes in South Africa was not automatically modified to 31 December. While Peresys has operated on basis the change was effective and has otherwise been compliant in terms of income tax payments, the mismatch means there is a possibility fines will levied by the South African Revenue Service. There are a number of factors which make assessment of the financial exposure difficult to estimate (under some scenarios there may be no fine at all), however the potential maximum fine was estimated as at 31 December 2012 to be in the order of ZAR 22m (AUD$2.5m). Management are working with the regulators to minimise our exposure. 27 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 2012, the total rental bank guarantees in place amounted to $3,370,484 (2011: $2,610,953). 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 (a) Non-current (a) This amount is included in Sundry creditors and accruals (Note 14). CONSOLIDATED 2012 $’000 2011 $’000 3,932 4,200 11,068 10,679 15,000 14,879 297 – 297 327 – 327 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 28 ACQUISITION OF SOFTWARE IN 2011 On 18 January 2011, the Company acquired software from Peresys (Proprietary) Ltd. The software was acquired for ZAR 264.000m (AUD 39.335m), which is considered to be fair value. 29 ACQUISITION OF BUSINESSES IN 2011 PERESYS (PROPRIETARY) LIMITED On 20 January 2011, the Company acquired 100% of Peresys (Proprietary) Limited (‘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. 98 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 In its acquisition of Peresys, the Company 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. For the period from acquisition to 31 December 2011, Peresys 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. In 2012 a contingent liability arose as disclosed in Note 26. 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 (a) Includes $0.537m foreign currency movement and $0.207 non-cash interest expense. 30 REMUNERATION OF AUDITORS Auditor of the parent entity (a) Other audit services Related practice of parent entity auditor (b) TOTAL COST OF ACQUISITION $’000 9,706 (2,862) 6,844 (3,432) 3,412 CONSOLIDATED 2012 $’000 2011 $’000 236,600 225,000 52,325 – 76,898 44,859 365,823 269,859 The auditor of IRESS Limited is Deloitte Touche Tohmatsu. (a) (b) Remuneration paid to international associates of Deloitte Touche Tohmatsu Australia located in Canada, New Zealand, South Africa, Singapore, Hong Kong, Ireland and United Kingdom. There were no amounts paid/payable to the auditor for non-audit services. 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 31 SUBSIDIARIES NAME OF ENTITY COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY PARENT ENTITY IRESS Limited (a) Australia SUBSIDIARIES OWNERSHIP INTEREST 2012 % 2011 % IRESS (NZ) Limited (d) 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 IRESS Asia Holdings Limited (c) Hong Kong / Provision of financial market and financial planning technology and related services 100 100 100 100 100 100 100 100 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) Limited (c) South Africa/Provision of financial market technology and related services IRESS Technology Limited (c) Planning Resources Group Pty Ltd (e) United Kingdom / Provision of financial market and financial planning technology and related services Australia / No active operations, currently receives small amount of passive income associated with former PlanTech business 100 100 100 100 100 100 IRESS Limited is the head entity within the tax consolidated group. This company and its Australian subsidiaries (if any) are members of the tax consolidated group. (a) (b) (c) Subsidiary provided with a letter of support from Parent entity. (d) (e) Formerly IRESS Market Technology (NZ) Limited. This name change occurred on 1 June 2012. Following the successful migration of wealth management clients from acquired subsidiaries/technologies across to IRESS Wealth Management Pty Ltd/ Xplan technology, several Australian subsidiaries were effectively dormant. Recognising this, a restructuring exercise was completed during the year, with a view to these now dormant entities being liquidated during 2013. One consequence of the restructure was ownership of this entity transferred from IRESS Wealth Management Pty Ltd to IRESS Limited. 100 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY PlanTech Holdings Pty Ltd (a) Australia / Holding company for PlanTech companies below IRESS Information Pty Ltd (a) (b) Australia / Provider of risk (life insurance) information and PlanTech’s financial planning services VisiPlan Pty Ltd (a) Australia / Provision of financial planning technology and related services TransActive Systems Pty Ltd (a) Australia / Provision of mortgage information and related services Dealer Management Systems Pty Ltd (a) Australia / Provision of financial planning technology and related services FundData Pty Ltd (a) Australia / Provision of financial planning technology and related services (a) (b) These companies are members of the tax consolidated group. Formerly PlanTech Consulting Group Pty Ltd. This name change occurred on 22 May 2012. OWNERSHIP INTEREST 2012 % 2011 % 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 IRESS Spotlight Wealth Management Solutions (RSA) Pty Ltd COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY Australia / Provision of financial planning technology and related services Spotlight Wealth Management (Pty) Ltd South Africa / Provision of financial planning technology and related services Advicenet Advisory Services (Pty) Ltd (a) South Africa / Provision of financial planning technology and related services IRESS Wealth Management (RSA) (Proprietary) Limited South Africa / Dormant (a) Advicenet Advisory Services (Pty) Limited is a subsidiary of Spotlight Wealth Management (Pty) Ltd. OWNERSHIP INTEREST 2012 % 2011 % 100 100 100 100 100 100 100 100 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 2012 % 2011 % 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 COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY Sentryi Pte Ltd Dormant Peresys (Proprietary) Limited holds the following controlled entities. NAME OF BUSINESS ACQUIRED / INCORPORATED Peresys Derivatives (Proprietary) Ltd (a) COUNTRY OF INCORPORATION / PRINCIPAL ACTIVITY South Africa / Dormant OWNERSHIP INTEREST 2012 % 2011 % 100 100 OWNERSHIP INTEREST 2012 % 2011 % 100 100 Peresys Software Limited Ireland / Provision of services to Peresys (Proprietary) Ltd 100 100 (a) Wound up pursuant to Voluntary Deregistration effective 10 July 2012. Within the IRESS group there are unsecured funding arrangements in place. 102 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 32 SUBSEQUENT EVENTS There has not been any matter or circumstance 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. 33 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 2011. 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 18 to 20). 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. 103 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Details of foreign currency risk, liquidity risk, interest rate risk, credit risk and fair values are detailed below. (a) Foreign Currency Risk The consolidated entity has exposures to movements in foreign currency rates, which can be viewed as: i) Conversion of each overseas entity results to their Australian dollar equivalent for financial reporting (Translation FX) ii) Transactions entered into by the entity which are denominated in a foreign currency (Transaction FX) Translation FX does not result in foreign currency gains or losses in the profit or loss of the Consolidated Entity. Translation FX does impact the relative contribution attributed to the offshore entities in the Consolidated Entity’s Australian dollar result, when assessed period on period. Accordingly, foreign currency movements will impact on the perceived performance of the company when viewed in Australian Dollars. Transaction FX exposures arise where the entity sources services invoiced in a currency other than the entity’s functional currency. For all entities in the Group other than the Company these exposures are relatively modest. The predominant exposure of the Company to Transaction FX arises from loans to wholly owned foreign subsidiaries which are denominated in currencies other than Australian Dollars. These exposures are described in greater detail below. i) Conversion of overseas entities results to their Australian dollar equivalent for financial reporting (Translation FX) 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. To assist users in understanding the impact exchange rate movements had on reported revenues from the year ended 31 December 2012 and 31 December 2011, the financial performance of business units (as set out in Note 24) can be viewed as follows: LC (a) LOCAL CURRENCY (b) TOTAL (AUD) (c) 2012 ‘000 2011 ‘000 2012 ‘000 2011 ‘000 AUD CAD ZAR AUD GBP AUD ZAR AUD GBP 108,756 108,919 108,756 108,919 22,356 24,606 21,555 23,954 132,936 114,210 15,709 15,320 789 81 1,061 – 789 125 1,061 – 146,934 149,254 53,864 49,122 53,864 49,122 46,800 44,323 5,545 5,991 195 133 159 – 195 205 159 – 59,809 55,272 206,743 204,526 TOTAL SEGMENT REVENUES FINANCIAL MARKETS Australia & New Zealand Canada South Africa Asia United Kingdom Total financial markets WEALTH MANAGEMENT Australia & New Zealand South Africa Asia United Kingdom Total wealth management Total of all segments 104 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (a) LC is the local currency unit for the segment used in the management accounts. New Zealand results are not reported separately and instead are converted to AUD in the management accounts. For the Company’s Asia operations, the two primary underlying currencies are SGD and HKD, but these are not reported separately in the management accounts and instead are converted to AUD. These are the segment revenues as reflected in the management accounts. (b) (c) Reported segment revenues as reflected in Note 24. ii) Transactions entered into by the entry which are denominated in a foreign currency (Transaction FX) 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 predominant 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 2012 ‘000 2011 ‘000 (14,879) (49,299) (515) 319 (5,077) (4,796) (32,665) (31,950) (4,617) (3,042) (607) (3,484) (1,150) (50) The Consolidated Entity does not hedge the effect of the exchange rate movements on these loans. These loans are interest bearing (refer Note 34). 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. 105 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 MOVEMENT IN EXCHANGE RATE TO AUD COMPANY UNREALISED GAIN/(LOSS) 2012 AUD ‘000 2011 AUD ‘000 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 3 (3) 47 (48) 4 (4) 28 (29) – – 27 (28) (2) 2 43 (44) 5 (5) 17 (18) 1 (1) 1 (1) 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. (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 14 for details regarding contractual maturity. IRESS currently has surplus funds invested in highly liquid instruments. The Consolidated Entity as at 31 December 2012 does not hold any standing debt facilities (2011: 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. 106 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 The following table details the Consolidated Entity’s exposure to liquidity risk as at 31 December 2012 WEIGHTED AVERAGE EFFECTIVE INTEREST RATE 1 MONTH TO 3 MONTHS 3 MONTHS TO 1 YEAR 1 YEAR TO 5 YEARS MORE THAN 5 YEARS 2012 % $ ‘000 $‘000 $ ‘000 $ ‘000 FINANCIAL ASSETS Cash at bank 3.0 55,967 Current receivables Sundry receivables and prepayments Tax receivable Other financial assets FINANCIAL LIABILIITES Current trade payables Sundry creditors and accruals Tax payable Provisions – – – – – – – – – – – 1,531 – 12,131 2,313 – – 70,411 1,531 8,309 – – – – 6,075 3,503 3,956 – – – – 42 42 – – – 6,462 8,309 13,534 6,462 – – – – – – – – – – – TOTAL $’000 55,967 12,131 2,313 1,531 42 71,984 8,309 6,075 3,503 10,418 28,305 107 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 The following table details the Consolidated Entity’s exposure to liquidity risk as at 31 December 2011 WEIGHTED AVERAGE EFFECTIVE INTEREST RATE 1 MONTH TO 3 MONTHS 3 MONTHS TO 1 YEAR 1 YEAR TO 5 YEARS MORE THAN 5 YEARS 2011 % $ ‘000 $‘000 $ ‘000 $ ‘000 FINANCIAL ASSETS Cash at bank 3.0 48,925 Current receivables Sundry receivables and prepayments Tax receivable Other financial assets FINANCIAL LIABILIITES Current trade payables Sundry creditors and accruals Tax payable Provisions – – – – – – – – – – – 1,791 668 12,104 3,817 – – 64,846 2,459 10,175 – 6,025 10,250 – – – 3,927 9,802 10,175 20,202 9,802 – – – – 46 46 – – – TOTAL $’000 48,925 12,104 3,817 1,791 714 67,351 10,175 6,025 10,250 13,729 40,179 – – – – – – – – – – – (c) Interest Rate Risk The cash of the Consolidated Entity comprises highly liquid deposits, generally bank 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 2012 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 $’000 560 The Consolidated Entity regularly reassesses market conditions, the financial risk, and the terms of deposits so as to optimise return on capital. 108 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (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 to the financial statements. 34 RELATED PARTY DISCLOSURES (a) Equity Interests in Related Parties Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements. (b) Key Management Personnel Disclosures Details of key management personnel disclosures are set out in Note 35 to the financial statements. (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 Limited. All loans advanced to and payable to subsidiaries are unsecured and in some instances subordinate to other liabilities. During the financial year, the Consolidated Entity recognised a net payable of $2,000,013 (2011: receivable of $1,614,961) 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 $138,909 (2011: $161,322) or in local currency terms ZAR 1,175,987 (2011: ZAR 1,080,322). 109 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (e) Transactions with ASX Limited ASX Limited (‘ASX’) owns 24,750,029 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 2012 were $11,573,487 (2011: $12,194,966). 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 Securities Exchange, pays ASX listing and other related fees at the scheduled rate. 35 DIRECTORS AND KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Directors and key management personnel The Directors of IRESS Limited were: Mr P Dunai (Chairman, Member of the Nomination and Remuneration Committee); Mr A Walsh (Managing Director); Mr B Burdett (Non-Executive Director; resigned 5 May 2012); Ms J Seabrook (Non-Executive Director, Lead Independent Director, Chair of Nomination and Remuneration Committee, Member of the Audit Committee); Mr J Cameron (Non-Executive Director, Member of the Nomination and Remuneration Committee); Mr J Hayes (Non-Executive Director, Chairman of the Audit Committee); and Mr A D’Aloisio (Non-Executive Director, Member of the Audit Committee appointed 1 June 2012). The Key Executives of the IRESS Limited Consolidated Entity during the year were: Mr S Barnes (Chief Operating Officer) Mr S Bland (Chief Financial Officer); Mr P Ferguson (Group General Counsel and Company Secretary); 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. Typically, 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 39 and 40. 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. 110 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 payments CONSOLIDATED 2012 $’000 (a) 2011 $’000 3,196,057 3,800,289 162,343 163,795 – – – – 1,769,565 2,010,051 5,127,965 5,974,135 (a) There were 11 key management personnel throughout 2012, some of whom have a part year of service (2011:12). (b) Director and key management personnel equity holdings Fully paid ordinary shares issued by IRESS Limited to Directors and key management personnel or to a related party of them. OPENING BALANCE NO. GRANTED AS COMPEN- SATION NO. RECEIVED ON EXERCISING OF SHARE RIGHTS NO. (a) NET OTHER CHANGE NO. CLOSING BALANCE NO. BALANCE HELD NOMINALLY NO. 2012 DIRECTORS Mr P Dunai 890,000 Mr A Walsh 71,950 Ms J Seabrook 20,000 Mr J Cameron – Mr J Hayes 4,600 Mr A D’Aloisio KEY EXECUTIVES Mr S Barnes – – Mr S Bland 270,390 Mr P Ferguson – Mr D Walker 471,260 – – – – – – – – – – – 10,000 900,000 93,000 8,000 172,950 – – – – – 10,000 30,000 20,000 20,000 5,600 10,200 8,050 8,050 – – 39,630 (10,190) 299,830 – – – 37,670 (26,000) 482,930 – – – – – – – – – – 111 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Fully paid ordinary shares issued by IRESS 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 (c) 77,500 Mr B Burdett (d) 100,000 Ms J Seabrook 20,000 Mr J Cameron Mr J Hayes KEY EXECUTIVES – – Mr S Bland 220,390 Mr J Davies (b) 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 – – – – – – – – – – – – (a) This includes shares which may not be beneficially held by the Director or Executive as the shares have not been withdrawn from the IRESS Market Technology Equity Plan Trust. Where applicable, figures relate to a period a Director was a Director. (b) Mr Davies receives ordinary shares on exercise of vested share rights. In 2011, there were no share rights that were exercised. (c) Retired 5 May 2011. (d) Retired 5 May 2012. 112 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Performance Rights issued by IRESS 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) CANCELLED DURING THE PERIOD NO. CLOSING UNVESTED BALANCE NO. 2012 DIRECTORS (a) Mr P Dunai Mr A Walsh KEY EXECUTIVES Mr S Barnes Mr S Bland Mr P Ferguson – – – – – 525,000 160,000 (64,000) (36,000) 585,000 – 108,730 – 25,100 47,220 15,970 51,670 – – 25,100 (29,440) (16,560) 109,950 – – 15,970 (26,880) (15,120) 116,070 Mr D Walker 106,400 2011 DIRECTORS (a) Mr P Dunai Mr A Walsh KEY EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker 200,000 – (200,000) 281,000 300,000 (56,000) 123,690 55,850 – 99,170 115,690 31,040 15,430 – 28,520 32,710 (46,000) (20,000) – (33,000) (42,000) – – – – – – – – 525,000 108,730 51,280 – 94,690 106,400 (a) During the year, other than as noted above, there were no outstanding performance rights issued to Directors or a related party of them. (b) 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 2012 and 2011. Details of the terms and conditions of the Employee Performance Rights plan are set out in Note 37. No amounts remain outstanding on performance rights exercised during the year. 113 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Deferred shares /deferred share rights issued by IRESS 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. 2012 DIRECTORS Mr P Dunai Mr A Walsh KEY EXECUTIVES Mr S Barnes Mr S Bland Mr P Ferguson Mr D Walker 2011 DIRECTORS Mr P Dunai Mr A Walsh KEY EXECUTIVES Mr S Bland Mr J Davies Mr P Ferguson Ms K Gross Mr D Walker – 59,000 – 20,480 - 21,080 – 54,000 23,190 24,080 – 21,890 22,790 – – 65,000 (29,000) 20,320 14,150 12,930 15,480 – (10,190) – (10,790) – – 30,000 (25,000) 10,290 10,010 – 10,070 10,290 (13,000) (13,000) – (11,500) (12,000) – 95,000 20,320 24,440 12,930 25,770 – 59,000 20,480 21,090 – 20,460 21,080 (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. (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. 114 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 36 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 37 to 39 respectively. MAY 2012 GRANTS Effective from 7 May 2012, the Board issued share grants with a fair value of $14,066,153 (2011: $9,335,122) made up as follows: 160,000 and 65,000 (2011: 300,000 and 30,000) performance rights and deferred shares respectively to the Managing Director; 333,490, 142,090 and 17,580 (2011: 164,230, 49,820 and 10,010) performance rights, deferred shares and deferred share rights respectively to Executives; 68,160, 806,150 and 76,610 (2011: 103,410, 510,180 and 60,740) performance rights, deferred shares and deferred share rights respectively to employees of the Consolidated Entity; and 333,361 and 581,212 (2011: nil) deferred shares and deferred share rights respectively to certain employees in the United Kingdom associated with the establishment of the Consolidated Entities operations in the United Kingdom (UK Establishment Share Grants). Deferred Shares and Deferred Share Rights will, subject to the satisfaction of individual performance criteria, vest in 2 and 3 years in accordance with the Employee Deferred Share Plan and Employee Deferred Share Rights Plan. Performance Rights issued to the Managing Director were issued in two series as set out below and subject to the satisfaction of the peer group performance criteria, will vest in 4 years from the grant date (i.e. 7 May 2016) in accordance with the Employee Performance Rights Plan: 80,000 performance rights with measurement commencing May 2012 (2011: 150,000 measurement commencing May 2011) 80,000 performance rights with measurement commencing May 2013 (2011: 150,000 measurement commencing May 2012) Performance Rights issued to Executives, subject to the satisfaction of the peer group performance criteria, will vest in 3 years in accordance with the Employee Performance Rights Plan. Only 3 year deferred shares grants were made to Executives in 2012. The UK Establishment Share Grants are linked to specific criteria associated with the establishment of these businesses in the region and have 1, 2, 3 and 4 year vesting periods. The UK Establishment Share Grants have an aggregate fair value of $5,215,630 (2011: nil), and are viewed as a once-off grant. The combination of the performance criteria applied to meet vesting requirements combined with the ultimate value being linked to the share price is intended to provide a close alignment to shareholder interests. While vesting outcomes are weighted to years 3 and 4 for these grants, the UK Establishment Share Grants have modest interim vesting opportunities. Importantly, this means the actual share accounting expense is weighted more heavily to years 1 and 2. The UK Establishment Share Grants represented $1,657,474 (2011: nil) or 19.6 % (2011: nil) of the groups’ total share based payments expense. FAIR VALUE OF SHARE RIGHTS AVAILABLE DURING THE YEAR 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. 115 1 1 6 I R E S S L m i NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 i t e d 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) GRANT DATE SHARE PRICE ON GRANT DATE FAIR VALUE EXPECTED VOLATILITY DIVIDEND YIELD RISK-FREE INTEREST RATE KEY PERFORMANCE MEASURE INTERIM VESTING TERM MONTHS INDICATIVE VESTING 31/12/12 VALID OUTSTANDING 31/12/12 $ $ % % % (b) 2009 Staff PR 7/05/2009 2009 Staff DSR 7/05/2009 2010 Staff PR 7/05/2010 2010 Staff DSR 7/05/2010 2010 Staff DS 7/05/2010 2010 MD PR 7/05/2010 2010 MD DS 7/05/2010 2011 Staff PR 9/05/2011 2011 Staff DSR 9/05/2011 2011 Staff DS 9/05/2011 2011 MD1 PR 9/05/2011 2011 MD2 PR – 4Yr 9/05/2011 2011 MD DS 9/05/2011 2012 Staff PR 7/05/2012 2012 Staff DSR – 2Yr 7/05/2012 2012 Staff DSR – 3Yr 7/05/2012 6.52 6.52 8.34 8.34 8.34 8.34 8.34 9.23 9.23 9.23 9.23 9.23 9.23 6.18 6.18 6.18 3.90 6.00 5.68 7.67 8.34 5.68 8.34 5.96 8.49 9.23 5.87 5.79 9.23 3.76 5.55 5.26 35.0% 35.0% 35.0% 35.0% N/A 35.0% N/A 30.0% 30.0% N/A 30.0% 30.0% N/A 30.0% 30.0% 30.0% 4.3% 4.3% 4.3% 4.3% N/A 4.3% N/A 4.3% 4.3% N/A 4.3% 4.3% N/A 5.5% 5.5% 5.5% 3.9% 3.6% 5.0% 4.7% N/A 5.0% N/A 5.2% 5.1% N/A 5.2% 5.2% N/A 2.77 2.70 2.70 A B A B B A B A B B A A B A B B No No No No No No No No No No No No No No No No 36 24 36 24 24 36 24 36 24 24 48 48 24 36 24 36 % (c) 64 100 – 100 100 – 100 – 100 100 – 100 100 100 100 100 – – 209,510 – – 125,000 – 223,350 61,920 499,890 150,000 150,000 30,000 401,650 23,150 67,320 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 SERIES (a) GRANT DATE SHARE PRICE ON GRANT DATE FAIR VALUE EXPECTED VOLATILITY DIVIDEND YIELD RISK-FREE INTEREST RATE KEY PERFORMANCE MEASURE INTERIM VESTING TERM MONTHS INDICATIVE VESTING 31/12/12 VALID OUTSTANDING 31/12/12 $ $ % % % (b) 2012 Staff DS - 2 Yr 7/05/2012 2012 Staff DS – 3Yr 7/05/2012 2012 MD1 PR – 4Yr 7/05/2012 2012 MD2 PR – 4Yr 7/05/2012 2012 MD DS - 3Yr 7/05/2012 2012 UK DSR – 1Yr 7/05/2012 2012 UK DS - 1Yr 7/05/2012 2012 UK DSR – 2Yr 7/05/2012 2012 UK DS - 2Yr 7/05/2012 2012 UK DSR – 3Yr 7/05/2012 2012 UK DS – 3Yr 7/05/2012 2012 UK DSR – 1Yr 7/05/2012 2012 UK DS – 1Yr 7/05/2012 2012 UK DSR – 2Yr 7/05/2012 2012 UK DS – 2Yr 7/05/2012 2012 UK DSR – 3Yr 7/05/2012 2012 UK DS – 3Yr 7/05/2012 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 3.64 3.56 6.18 5.86 6.18 5.55 6.18 5.26 6.18 5.86 6.18 5.55 6.18 5.26 6.18 N/A N/A 30.0% 30.0% N/A 30.0% N/A 30.0% N/A 30.0% N/A 30.0% N/A 30.0% N/A 30.0% N/A N/A N/A 5.5% 5.5% N/A 5.5% N/A 5.5% N/A 5.5% N/A 5.5% N/A 5.5% N/A 5.5% N/A N/A N/A 2.82 2.82 N/A 2.94 N/A 2.70 N/A 2.70 N/A 2.94 N/A 2.70 N/A 2.70 N/A B B A A B C C C C C C C C C C C C No No No No No No No No No No No No No No No No No 24 36 48 48 36 9 9 21 21 33 33 12 12 24 24 36 36 % (c) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 253,960 677,370 80,000 80,000 65,000 17,603 9,843 18,586 9,843 24,039 15,468 149,324 35,785 111,891 47,713 112,694 53,677 1 1 7 1 1 8 I R E S S L m i NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 i t e d SERIES (a) GRANT DATE SHARE PRICE ON GRANT DATE FAIR VALUE EXPECTED VOLATILITY DIVIDEND YIELD RISK-FREE INTEREST RATE KEY PERFORMANCE MEASURE INTERIM VESTING TERM MONTHS INDICATIVE VESTING 31/12/12 VALID OUTSTANDING 31/12/12 $ $ % % % 2012 UK DSR – 4Yr 7/05/2012 2012 UK DS – 4Yr 7/05/2012 6.18 6.18 4.99 6.18 30.0% N/A 5.5% N/A 2.77 N/A (b) C C No No 48 48 % (c) 100 100 147,075 161,032 (a) (b) (c) PR refer Note 37, DS refer Note 38, DSR refer Note 39. A denotes series is benchmarked on modified ASX200 index. B denotes series is measured on ongoing employment and acceptable performance. C denotes series is measured on ongoing employment, acceptable individual performance and specific criteria associated with the establishment of these businesses in the region. Indicative vesting has been calculated based on ranking relative to the benchmark as at 31 December 2012. 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 2012 The following table summarises movements in not-fully-vested share rights in place during the year. 2012 DIRECTOR - ANDREW WALSH 2009 PR 2010 PR 2010 DS 2011 PR 2011 PR - 4Yr 2011 DS 2012 PR – 4Yr 2012 PR – 4Yr 2012 DS – 3Yr EXECUTIVES & KMP 2009 PR 2010 PR 2010 DSR 2010 DS 2011 PR 2011 DSR 2011 DS 2012 PR 2012 DSR – 3Yr 2012 DS – 3 Yr UNVESTED AS AT 1/1/12 OR GRANTED DURING YEAR '000 VESTED '000 CANCELLED / LAPSED '000 UNVESTED 31/12/12 '000 100 125 29 150 150 30 80 80 65 146 155 11 50 164 10 50 333 18 142 (64) – (29) – – – – – – (93) – (11) (50) – – – – – – (36) – – – – – – – – (53) – – – – – – – – – – 125 – 150 150 30 80 80 65 – 155 – – 164 10 50 333 18 142 119 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 UNVESTED AS AT 1/1/12 OR GRANTED DURING YEAR '000 VESTED '000 CANCELLED / LAPSED '000 UNVESTED 31/12/12 '000 53 98 60 462 103 60 496 68 24 52 260 547 167 46 130 58 137 69 147 161 (34) – (54) (457) – – – – – – – – – – – – – – – – (19) (43) (6) (6) (44) (8) (46) – (1) (3) (6) (11) – – – – – – – – – 55 – – 59 52 450 68 23 50 254 535 167 46 130 58 137 69 147 161 STAFF 2009 PR 2010 PR 2010 DSR 2010 DS 2011 PR 2011 DSR 2011 DS 2012 PR 2012 DSR 2012 DSR – 3Yr 2012 DS 2012 DS – 3 Yr UK ESTABLISHMENT SHARE GRANT 2012 DSR - 1Yr 2012 DS – 1 Yr 2012 DSR 2012 DS 2012 DSR – 3Yr 2012 DS – 3 Yr 2012 DSR – 4Yr 2012 DS – 4Yr Unless specified in the above table, DS and DSR have a two year term, and PR have a 3 year term. 120 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 The following table reconciles the Performance rights outstanding at the beginning and end of the year. PERFORMANCE RIGHTS Balance at beginning of year Granted during the year Realisable during the year Cancelled during the year Balance at end of year 2012 2011 NUMBER OF PERFORMANCE RIGHTS NUMBER OF PERFORMANCE RIGHTS 1,244,290 561,650 (191,360) (195,070) 1,419,510 1,167,650 567,640 (491,000) – 1,244,290 The following table reconciles the Deferred Shares outstanding at the beginning and end of the year. DEFERRED SHARES Balance at beginning of year Granted during the year Realisable during the year Cancelled during the year Balance at end of year 2012 2011 NUMBER OF DEFERRED SHARES NUMBER OF DEFERRED SHARES 1,117,170 1,346,601 (535,490) (68,700) 1,859,581 1,121,338 590,000 (553,848) (40,320) 1,117,170 The following table reconciles the Deferred Share rights outstanding at the beginning and end of the year. DEFERRED SHARE RIGHTS Balance at beginning of year Granted during the year Realisable during the year Cancelled during the year Balance at end of year 2012 2011 NUMBER OF DEFERRED SHARE RIGHTS NUMBER OF DEFERRED SHARE RIGHTS 141,090 675,402 (65,410) (17,480) 733,602 164,600 70,750 (93,320) (940) 141,090 121 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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. INCENTIVE PLAN (a) QUANTITY 2012 2011 WEIGHTED AVERAGE SHARE PRICE ($) WEIGHTED AVERAGE SHARE PRICE ($) QUANTITY May 2006 PR May 2007 PR May 2008 PR August 2008 PR May 2009 PR May 2008 DSR May 2009 DSR May 2010 DSR May 2009 DS May 2010 DS – 33,000 20,000 – 191,360 28,000 17,580 40,920 – 535,490 – 7.80 7.90 – 8.05 7.70 7.76 7.36 – 6.18 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 (a) Calculated as the weighted average closing share price on the date(s) the share rights were exercised during the year. 122 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 37 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) (b) (c) (d) (e) The PR Plan is open to full–time and part–time employees of an entity in the IRESS group. 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. (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’. 123 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 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 index after excluding mining companies and listed property trusts. A peer company must have been in the ASX/S&P 200 companies index for the entire performance period (i.e. new entrants and companies dropping out of the ASX/S&P 200 companies index 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 series 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 series available to be exercised. 51st percentile to 74th percentile Rights available in the series 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 series 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. Series 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 series over three years. 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. 124 IRESS Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 38 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 37. 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 prior to 2012 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. Deferred shares issued in 2012 as part of the UK Establishment Share Grants have specific vesting criteria associated with the establishment of these businesses in the region. 39 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 38. 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 prior to 2012 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. Deferred shares issued in 2012 as part of the UK Establishment Share Grants have vesting criteria associated with the establishment of these businesses in the region. 125 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 40 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 2012, 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) (b) (c) Participation in the NED Share Plan is voluntary. 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. 126 IRESS Limited SHAREHOLDER INFORMATION The following information reflects shareholdings at 31 January 2013. DISTRIBUTION OF MEMBERS AND THEIR HOLDINGS SIZE OF HOLDING 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over NUMBER OF ORDINARY SHAREHOLDERS 2,301 3,074 613 354 34 SHARES 1,297,109 7,697,919 4,496,399 8,441,720 106,687,084 Total 6,376 128,620,231 NUMBER OF PERFORMANCE RIGHTS HOLDERS NUMBER OF DEFERRED SHARE HOLDERS NUMBER OF DEFERRED SHARE RIGHTS HOLDERS – – – 14 4 18 72 139 54 42 2 309 8 4 3 8 3 26 Number of shareholders with less than a marketable parcel 87. ORDINARY SHARE CAPITAL 128,620,231 fully paid ordinary shares are held by 6,376 shareholders All issued ordinary shares carry one vote per share held SHARE RIGHTS 1,419,510 performance rights held by 18 individual holders 1,859,581 deferred share held by 309 individual holders 733,602 deferred shares rights held by 26 individual holders Only deferred shares carry a right to vote TREASURY SHARES 72,750 treasury shares Treasury shares have the right to vote and would be voted in accordance with the recommendation of the Directors. 127 SHAREHOLDER INFORMATION SUBSTANTIAL SHAREHOLDERS ORDINARY SHAREHOLDERS ASX Limited Hyperion Asset Management Limited BlackRock Investment Management (Australia) Limited Vinva Investment Management Limited Total FULLY PAID NUMBER PERCENTAGE 24,750,029 15,349,992 6,577,657 6,496,612 19.24% 11.93% 5.11% 5.05% 53,174,290 41.33% TWENTY LARGEST SHAREHOLDERS OF QUOTED EQUITY SECURITIES ORDINARY SHAREHOLDERS ASX Limited JP Morgan Nominees Australia Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Pacific Custodians Pty LimitedBNP Paribas Nominees Pty Limited BNP Paribas Nominees Pty Limited JP Morgan Nominees Australia Limited Australian Foundation Investment Company Limited Citicorp Nominees Pty Limited Mirrabooka Investments Limited Argo Investments Limited Navigator Australia Ltd UBS Wealth Management Australia Nominees Pty Ltd Nulis Nominees (Australia) Limited SmallCo Investment Manager Ltd HSBC Custody Nominees (Australia) Limited – GSCP ECA Invia Custodian Pty Limited RBC Investor Services Australia Nominees Pty Limited 128 IRESS Limited FULLY PAID NUMBER PERCENTAGE 24,750,029 22,465,327 17,620,957 9,596,829 5,587,290 5,276,768 4,648,350 2,963,295 2,213,086 2,216,791 1,251,360 1,250,000 791,884 786,347 536,517 474,663 446,052 417,569 363,250 351,873 19.24% 17.47% 13.7% 7.46% 4.34% 4.10% 3.61% 2.30% 1.80% 1.72% 0.97% 0.97% 0.62% 0.61% 0.42% 0.37% 0.35% 0.32% 0.28% 0.27% Copyright © IreSS Market technology limited. all rights reserved. Copyright © IreSS limited. all rights reserved. AUSTRALIA ASIA CANADA NEW ZEALAND EUROPE – AFRICA Hong Kong Singapore | +852 3965 3341 | +65 6672 6288 Toronto | +1 416 907 9200 Auckland Wellington | +64 9 300 5571 | +64 4 462 6850 Cape Town Durban Johannesburg London | +27 21 657 8800 | +27 31 203 7500 | +27 11 576 0040 | +44 203 397 4660 Melbourne Sydney Brisbane Perth Adelaide | +61 3 9018 5800 | +61 2 8273 7000 | +61 7 3011 4700 | +61 8 6211 5900 | +61 3 9018 5800 Email Web | enquiries@iress.com | www.iress.com Copyright © IRESS Limited. All rights reserved.