Annual Report 2015 IRESS Limited ABN 47 060 313 359 IRESS LIMITED About Us TORONTO LONDON JOHANNESBURG AGM DETAILS 05 May 2016 11:30am AEST RACV City Club 501 Bourke Street MELBOURNE VIC 3000 During the year, the principal continuing activities of IRESS were the provision of information, trading, compliance, order management, portfolio and wealth management, and lending systems and related tools. IRESS’ principal clients are financial markets and wealth management participants in Australia, New Zealand, South East Asia, Canada, South Africa and the United Kingdom. The core business activities of IRESS are carried out within three main divisions being financial markets, wealth management, and enterprise lending. These divisions serve distinct client needs, but there is increasing cross-over and many clients subscribe to services across IRESS’ product set. ANNUAL REPORT 2015 / 1 About Us Highlights Chairman and CEO’s Letter Principal Activities Operating and Financial Review Board of Directors Directors’ Report Financial Report Independent Auditor’s Report Shareholder Information Corporate Directory IFC 2 4 6 8 14 16 40 69 71 73 YEARS EXPERIENCE / 23 GLOBAL EMPLOYEES / 1,422 GLOBAL OFFICES / 14 SINGAPORE IRESS provides solutions to clients using three core platforms: IRESS (market information and trading platform), XPLAN (wealth management and advice platform), and MSO (lending automation and processing platform). IRESS’ strategy is based on building leading software with quality delivery and long-term focus on diversifying its business and achieving positions of scale. The success of this strategy over time has underpinned resilient, recurring revenue. MELBOURNE AUCKLAND IRESS Limited ABN 47 060 313 359 2 / IRESS LIMITED Highlights Sustainable growth in revenue and earnings Australia and New Zealand Results underpinned by resilience of trading products in a challenging market and continuing strong demand for XPLAN. Investment continues in key products to create new client opportunities and maintain IRESS’ market leading position. Operating Revenue (AU$) Segment Profit1 (AU$) 5% 2% United Kingdom 17% 26% XPLAN implementations translating to revenue growth. Strong interest in IRESS’ integrated private wealth solutions. Acquisitions will add scale and capability. Transition of the lending business to a recurring revenue model is underway. South Africa 18% 35% Strong demand for IRESS’ suite of products reflects strengthening market position. XPLAN conversions contributing to growth. Private wealth solutions gaining traction. Canada Revenue resilient despite challenging conditions. Investment in people and infrastructure. Key private wealth client secured (MD Financial). Asia Continuing strong demand for CFD platform. Key cash equity client secured (Maybank King Eng). 5% 33% 34% 11% Total Group 10% 7% (1) Segment profit represents earnings before interest, tax, depreciation, amortisation, share based payments and non-core, non-recurring items. First full year of revenue from Avelo acquisition in 2013. Offshore revenue now 45% of total. Growth in financial markets and wealth management in Australia reflecting continued strong demand for key products, particularly XPLAN. Operating revenue (AU$) $329m ANNUAL REPORT 2015 / 3 Operating revenue (AU$) $362m Revenue underpinned by resilient financial markets revenue in Australia and strong growth in South Africa and Australia wealth management. Strong revenue momentum in UK wealth management. Acquisitions and FX made significant contributions. Acquisition of Avelo establishes a new platform for growth in the UK. Continuing high demand for XPLAN in Australia to address FoFA initiatives. Operating revenue (AU$) $251m Australian financial markets revenue resilient in difficult market conditions. Wealth management growth in Australia strong, reflecting continuing demand for solutions to support regulatory change and increase efficiency. Operating revenue (AU$) $207m 2012 2013 2014 2015 4 / IRESS LIMITED Chairman and CEO’s Letter IRESS produced a solid performance in 2015, delivering for both shareholders and clients. Our ongoing investment is driving strong outcomes, and we expect this will continue in 2016. TONY D’ALOISIO / CHAIRMAN / ANDREW WALSH / MANAGING DIRECTOR / CHIEF EXECUTIVE OFFICER IRESS continues to diversify geographically and by market segment through organic growth and strategic acquisitions. The three acquisitions completed in 2015, two in the United Kingdom and one in Australia, are evidence of this. This diversification supports continued business resilience and performance, providing further sources of high-quality, recurring revenue. We have continued to position IRESS as an innovative, reliable, and respected technology partner through leading products and delivery. Consistent with this, we are increasingly recognised by our clients for the breadth and depth of our solutions – from boutique firms through to some of the world’s most respected financial institutions. In the past year IRESS has achieved a number of significant client wins and product milestones and has focused investment in our core infrastructure and processes to ensure we continue to anticipate technology trends and manage risks. As a solution provider with scale, we are uniquely positioned to continue to meet the needs of a broad range of financial services participants. Solid financial performance For the full year to 31 December 2015, IRESS’ revenue was up 10% on 2014. Statutory net profit was $55.4 million, up 9%. Segment Profit, a measure of core underlying business performance, was $119.2 million, up 7%. On a constant currency basis, and excluding the contribution from acquisitions, Segment Profit growth in 2015 was 3%. The 2015 result reflects strong performances from IRESS’ businesses including the United Kingdom, Australia & New Zealand and South Africa, particularly in the second half. During the second half, prior investments by IRESS have translated into solid revenue growth. In particular, we have seen growing momentum in our United Kingdom business in wealth management and lending. We are very pleased with this progress and are confident of future growth opportunities. Australia and New Zealand performed strongly with double-digit growth in wealth management. Our financial markets business remains highly resilient with run-rate recurring revenue exceeding that in the prior year, despite client-specific impacts in Australia in the first half. Recent and significant client wins in South Africa, Canada and Asia will continue to demonstrate IRESS’ capability in these markets and create further client opportunities. The overall result was positively impacted by the acquisitions in the United Kingdom of Proquote and Pulse Software Systems. The result was also positively impacted by currency movements, although we do not rely on these as indicators of underlying performance. Dividend and capital management The Board has determined to pay a final dividend of 26.7 cents per share for second half earnings, franked to 60% at a 30% corporate rate. This represents a total dividend for the year ended 31 December 2015 of 42.7 cents per share, an increase from 2014 of 3%. The full-year dividend reflects IRESS’ consistent financial performance in 2015 and prior periods and the strength of cash generation. External borrowing increased during 2015 to $202.4m (2014: $180.5m) as a result of the acquisitions of Proquote and Pulse. The net debt balance at 31 December 2015 was $184.9m and continues to reflect the conservative position of the IRESS business. Notably, the debt facilities underlying these borrowings were renegotiated during 2015 and have enhanced pricing and improved terms. Strong business momentum IRESS continues to evolve to meet clients’ desires to leverage solutions from our broad product suite. This includes continued product investment and development. Globally, the convergence of client segments and channel offerings continues and we are well positioned to meet the opportunities this creates. Our business, people and solutions will continue to evolve to reflect this environment and the opportunities presented by a heightened focus on technology. Business successes in 2015 included: • • Appointed the advice technology partner for the Commonwealth Bank of Australia (CBA) to deploy IRESS’ multi-channel advice platform supporting CBA’s full-service advice businesses and scaled advice. Announced a long-term, strategic partnership with Atom, the United Kingdom’s first all-digital bank, to implement the latest version of IRESS’ Mortgage Sales & Origination product. ANNUAL REPORT 2015 / 5 IRESS’ focus in 2016 We are confident of strong revenue growth in 2016, underpinned by momentum in wealth management, resilient financial markets performance and by the full year impact of acquisitions. The challenge of execution across the business remains, however we anticipate our activities will deliver solid profit growth in 2016. Executive appointments During 2015, we welcomed two new executives to the IRESS team: John Harris, Chief Financial Officer, and Simon New, Group Executive – Strategy. Aaron Knowles, a long-serving executive of the group, has also been appointed to the new role of Group Executive – Product effective 1 January 2016. All have impressive backgrounds and the required specialist and leadership skills that IRESS requires to continue to build on its success. Thank you Thank you to IRESS’ clients and users for their ongoing support and advocacy. We thank our dedicated and passionate management team and employees, who represent IRESS across our international business. IRESS has evolved significantly in recent years and this would not have been possible without the hard work and dedication of the IRESS team. IRESS continues to be well positioned for the future and we thank you, our shareholders, for your continued support. • • Improved revenue quality and overall revenue growth in the United Kingdom reflecting implementation successes and associated recurring license revenue. Appointed technology partner to Maybank Kim Eng, a leading investment bank in Asia, to provide multi-asset solutions for retail trading. • Commenced enterprise implementations of our private wealth solution with MD Financial Management, a leading wealth manager and discretionary asset manager in Canada. Strong demand in South Africa for our breadth of solutions, IRESS Professional market data, XPLAN and IRESS’ private wealth solution. • • Commenced the rollout of IRESS’ next generation online market data and trading solution, ViewPoint, including to a tier 1 Canadian bank. Proquote, Pulse and Innergi During 2015, we completed three acquisitions and welcome the clients and people of these businesses into IRESS. The strategic acquisitions of established United Kingdom financial technology businesses Proquote and Pulse accelerates our position in this market, in line with strategy, by broadening our client base, product suite and capability. Having established substantial operations in the United Kingdom in 2013, we have identified, and have been responding to additional opportunities in complementary client segments where our integrated product suite has proved attractive. Regulatory and structural market change in the United Kingdom means there is an increasing demand for unified, flexible and reliable technology solutions. These acquisitions allow us to expand capability and our client base as well as deepen our local expertise. The acquisition in Australia of personal finance content provider, Innergi, further strengthens XPLAN. There has been a significant increase in demand from advisers for new ways to engage with their clients, particularly digitally. Tools such as those provided by Innergi, which are being integrated into XPLAN, allow advisers to engage more meaningfully with clients face-to-face and online. 6 / IRESS LIMITED Principal Activities 48% of revenue is now from operations outside of Australia and New Zealand. Solutions Clients IRESS was founded in Australia and the continued strength of its Australian business remains an important component of its growth strategy. Over time, IRESS has diversified and grown by geography and market segments, and 48% of revenue is now from operations outside Australia and New Zealand (2014: 45%). In October 2015 IRESS acquired two leading, established financial technology businesses, Proquote and Pulse Software Systems. These acquisitions add further capability and scale to the Group’s UK business. Financial Markets Wealth Management Private Wealth Management Enterprise Lending Global market data and trading software including order and execution management services, smart order routing, FIX services, portfolio management, securities lending, analytics tools and connectivity. Integrated wealth management platform offering client management, business automation, portfolio management, research, financial planning tools, digital engagement portal, and scaled advice. Integrated software solution offering market data, order management, portfolio management, CRM and wealth management platform. Sell-side and buy-side institutions, retail advisory and online brokers, platforms. Institutional and independent advisory, wealth managers, mortgage intermediaries. Discretionary retail fund managers, private client advisors, wealth managers. Multi-channel mortgage sales and origination platform including automated workflow and processing. Suite also includes mortgage intermediary advice solution. Lenders, mortgage intermediaries. 2015 has seen ongoing and increased strategic focus on providing integrated IRESS solutions that span the traditional product and client segments of financial markets and wealth management. There is continued market convergence between retail financial markets and wealth management and IRESS is well placed to respond to an increased demand for a broad platform of capabilities and solutions. There has been increased investment in IRESS’ private wealth solution, which spans the entire IRESS product suite and reflects an expectation of increased international demand in this area. Enterprise lending has continued the successful re- positioning of the next generation Mortgage Sales and Originations (MSO) product. Benefits to lending institutions include lower cost of total ownership while supporting a digitised mortgage sales experience for the end consumer. The transformation of the enterprise lending business from services-based to product-based will move the business from less predictable licence, maintenance and service-based revenue to a recurring revenue model consistent with other parts of the Group. Strategy and Future Performance IRESS’ strategy is to deliver sustained, medium and long-term growth, underpinned by quality, predictable revenue. Growth will occur through organic activity and, where in line with IRESS’ strategic objectives, through inorganic activity. Key areas of focus are: • • • • • Clients – maintain resilient leadership in established markets. Growth – grow revenue organically and pursue inorganic opportunities when appropriate. Products – anticipate trends and innovate to maintain product leadership. Align product development to current and emerging client needs. Group – enhance IRESS’ brand through strong stakeholder relationships and communication. People – position IRESS as an employer of choice globally. ANNUAL REPORT 2015 / 7 During 2015 IRESS performed well against strategy with strong revenue retention in all markets and stand- out growth in South Africa and in wealth management in Australia. IRESS grew organically and focussed investment in the development of key products IOS+, ViewPoint and the latest version of MSO. IRESS is on track with the implementation of XPLAN Prime for scaled advice. UK revenue growth and key client wins in Canada and Asia were tightly aligned to strategy. IRESS also acquired Proquote, Pulse and Innergi during the year. IRESS has focused on the improvement of internal processes and systems to support scalable growth. Significant investment was made during the year into further developing leadership capabilities across the business. IRESS remains committed to diversifying its business across geography and product and to achieving a position of scale in each of the markets in which it chooses to compete. Future focus will be on further capitalising on investment made in the UK and on the private wealth opportunities globally. Ongoing investment in core product offerings will ensure that IRESS’ technology platforms continue to evolve to meet the changing needs of clients and users. Investment in people and core infrastructure will continue in order to support further growth. Material business risks The material business risks with potential to impact IRESS are outlined below, together with actions undertaken to mitigate those risks. Risk Nature of risk Mitigation Information security breach and failure of critical systems Due to the nature of IRESS’ business the Group could be impacted significantly by the failure of critical systems, whether caused by malicious attack or other factors. Dedicated information security functions across jurisdictions. Board oversight through the Audit & Risk Committee and executive oversight via an Information Security Governance Committee. Controls, audit and governance provides a framework for actively identifying security gaps, new exposures and the development of appropriate treatment plans. Network and malware scanning and mandatory information security awareness training across the business. Comprehensive disaster recovery procedure in place. Focus on redundancy for critical systems. IRESS’ services offerings includes the management of sensitive data, exposing IRESS to compliance costs and potential reputational and legal risk. IRESS’ risk management strategy includes rigour around network design, application of redundancy design and periodic reviews of such infrastructure. IRESS has established an Information Security Governance Committee which has implemented the ISO 21001 Information Security Policies, overseen the accreditation process and facilitated the associated audits. IRESS continually reviews and updates the security controls on the IRESS network, based on known security threats and the latest intelligence. There is also a group-wide program of work to support compliance with IRESS privacy obligations, which is underpinned by the IRESS Privacy Policy and mandatory privacy training. Additionally, there are continual projects which look to improve governance and decision making processes with regard to the use of customer and corporate data. Economic climate Foreign Exchange Regulation Market or technology risk Economic conditions, domestically and internationally, can impact client revenue and accordingly client demand for IRESS’ systems. IRESS is exposed to foreign exchange movements which may affect the value of profits repatriated to Australia. Regulation can impact IRESS and its clients because regulation increases the cost of doing business, or because regulation results in structural changes, including consolidation or fragmentation, both of which can negatively impact IRESS client engagements. The risk that a pronounced shift in technology or a pronounced change in the way market-segments organise themselves and make use of IRESS’ products or solutions. IRESS has documented its Business Continuity and Disaster Recovery processes in place with a focus on improving business continuity recovery options for internal environments and business systems. This risk is mitigated by IRESS’ diverse geographic presence and diverse product portfolio. IRESS’ presence in several jurisdictions and the increase in relative revenue contributions from those jurisdictions tends to ameliorate some of this exposure. IRESS reports foreign exchange movements transparently in its periodic financial statements in order to enable investors to better understand the performance of the underlying business. IRESS’ risk management strategy includes the close monitoring of regulatory developments globally. IRESS is pro-actively engaged in the development of new and existing relationships with relevant regulatory stakeholders, policy makers, and media groups to monitor the regulatory landscape. This strategy is focused on limiting potential impacts of regulatory development so that IRESS may continue to service its global markets and efficiently respond to compliance requests. IRESS endeavours to manage this risk by maintaining a highly skilled and educated technology organisation and by exploring the potential utilisation or impact of emerging technologies. In the same way, IRESS endeavours to manage market change by maintaining a high degree of engagement with its customers. In that regard, IRESS is fortunate that its customer base, being distributed geographically and being comprised of highly sophisticated industry representatives, is likely to be at the forefront of industry change and evolution. 8 / IRESS LIMITED Operating and Financial Review Group performance 2015 result underpinned by resilient financial markets revenue, continuing strong demand for wealth products and take up of IRESS’ integrated solutions. 5 . 1 6 3 0 . 9 2 3 14 15 2 . 9 1 1 4 . 1 1 1 14 15 . 4 5 5 . 7 0 5 14 15 10% OPERATING REVENUE 7% SEGMENT PROFIT 9% REPORTED PROFIT AU$ (m) Operating Revenue Segment Profit (1) Constant currency (2): 2015 361.5 2014 329.0 119.2 111.4 Excluding Acquisitions Including Acquisitions 115.2 116.8 111.4 111.4 Segment Profit after SBP (3) 109.3 102.5 Reported Profit (NPAT)(4) Basic EPS (c per share) Dividend (c per share) 55.4 35.2 42.7 50.7 32.3 41.5 10% 7% 3% 5% 7% 9% 9% 3% (1) Segment profit represents earnings before interest, tax, depreciation, amortisation, share based payments (SBP) and non-recurring items. (2) Constant currency assumes current and prior year earnings of foreign operations are translated at the same foreign exchange rates. (3) Segment profit after SBP represents earnings before interest, tax, depreciation, amortisation, and non-recurring items. (4) Reported profit (NPAT) represents profit after income tax. Net profit after tax (NPAT) IRESS’ reported NPAT for the year was $55.4m (2014: $50.7m) representing an increase of $4.7m (9%) on the prior year. IRESS’ consistent financial performance and its quality, predictable revenue is underpinned by a focus on client service and support, ongoing investment in products and technology, and a recurring subscription revenue model. Revenue from ordinary activities grew 10% to $361.5m (2014: $329.0m) primarily as a result of growth in Australia, the UK and South Africa. In Australia, revenue growth was driven by strong demand for IRESS’ XPLAN wealth management platform as the industry continues to look to technology to enhance digital engagement with clients, evolve new channels of advice, and support compliance within an increasingly complex regulatory environment. Growth in the global wealth management market, and specifically in United Kingdom, is also underpinned by these same themes. In addition, there is an increasing trend towards outsourced technology provision and consolidation of vendor supply that promotes workflow efficiency and commercial benefits. In South Africa, revenue growth was driven by continuing strong demand for IRESS’ suite of trading solutions and market data as well as volume based variable fees following higher trading volumes in local financial markets during the year. The rollout of XPLAN to new and existing clients continued, while deployment of IRESS’ private wealth management (PWM) solution to several tier one private client managers also contributed to revenue growth in 2015. In 2015, currency fluctuations, particularly the depreciation of the Australian dollar against the British Pound, contributed approximately $13.8m to the Group’s revenue expressed in Australian dollars. Employee benefits expense grew 14% to $185.1m (2014: $163.0m) reflecting head count increases of 109 from 2014 (2015: 1,422) to support revenue growth and IRESS’ ongoing investment in the development of its market leading technologies. This included a significant investment in people supporting the UK business in the first half with a particular focus on implementation and integration capacity to support client projects. A similar investment in the capacity and capability of people to drive growth was made in Canada. Other notable movements in expenses included: • • • communication and other technology expenses grew 21% to $17.6m (2014: $14.6m) as a result of ongoing investment in technology and infrastructure, one-off implementation costs of a new global human resources system (approximately $1m) and additional network costs associated with the recently acquired Proquote and Pulse businesses; customer data fees increased 3%, largely reflecting price increases on existing services, which is offset by a corresponding increase in revenue; and depreciation and amortisation expense increased 12% to $26.3m (2014: $23.4m) as a result of an increase in software amortisation (including from the acquisition of Proquote and Pulse). ANNUAL REPORT 2015 / 9 361.5 AU$ (MILLION) OPERATING REVENUE 5 . 1 6 3 0 . 9 2 3 14 15 . 7 2 4 . 5 1 4 Higher net interest expense (excluding the revaluation of derivatives noted) was driven by the acquisition of Proquote and Pulse which were funded by increased borrowings. The impact of higher debt levels was partially offset by the refinancing of debt facilities during the year on enhanced pricing and terms. The effective tax rate of 20% was driven primarily by deductions associated with previous acquisitions (including tax losses not previously recognised) and the employee share plan. The effective tax rate remains in line with the prior year. Balance Sheet External borrowings increased to $202.4m (2014: $180.5m) as a result of the acquisition of Proquote and Pulse. IRESS refinanced debt facilities during the year with total borrowing capacity to $300m (2014: $180m), with an expanded banking group on improved pricing and terms. Although borrowing increased during 2015, the group remains conservatively geared. IRESS is a highly cash generative business and has net debt at 31 December 2015 of $184.9 (2014: $117.1m) IRESS maintains a disciplined approach to the assessment of acquisitions and relating funding decisions. Derivative liabilities increased to $21.1m (2014: $12.9m). The $8.2m revaluation of derivatives is reflected in the profit or loss under financing expense. This expense offsets the foreign currency gain on GBP loans associated with UK acquisitions of $9.8m. The revaluation of the derivatives also resulted in an increase in deferred tax assets. Intangibles increased $96.0m during the year to $529.3m (2014: $433.3m). This increase predominately relates to $85.9m of assets acquired on acquisition and $15.6m relating to foreign currency movements, offset by $20.1m of amortisation. Dividends The IRESS dividend policy is to maintain a payout ratio of not less than 80% of underlying earnings1 on an annualised basis. The dividend policy may be modified by the Board in the future, where it is felt appropriate. Dividends continue to be franked to the fullest extent possible, while reflecting the geographical context of the business. $’000 2015 $’000 2014 Cents per share Cents per share 2015 2014 42.7 DIVIDENDS CENTS PER SHARE 14 15 Interim dividend franked to 50% (2014: 40%) 25,605 25,455 Final dividend declared after balance date franked to 60% (2014: 40%) Total 42,740 68,345 40,570 66,025 16.0 26.7 42.7 16.0 25.5 41.5 The record date for the final dividend is 10 March 2016 payable on 24 March 2016. (1) Underlying Group Earnings is defined as segment profit less operating depreciation and after deducting tax at a standardised rate. 10 / IRESS LIMITED Operating and Financial Review Group performance Segment Profit IRESS uses segment profit as a measure of underlying earnings to aid inter-period comparability of results. The table below shows the reconciliation between segment profit and earnings before interest, tax depreciation and amortisation (EBITDA): Results 2015 $m 119.2 (9.9) 109.3 (6.7) 9.8 112.5 (26.3) 86.2 1.8 (10.8) (8.2) 68.9 (13.5) 55.4 2014 $m 111.4 (8.9) 102.5 (6.3) 1.7 97.9 (23.4) 74.5 2.0 (10.8) (2.3) 63.4 (12.7) 50.7 Movement from 2014 % 7 11 7 6 100+ 15 12 16 (9) 0 100+ 9 6 9 The cost of issuing share-based remuneration to employees is amortised to the profit or loss over the vesting period (generally three years). The increase of $0.9m in the 2015 share based payments expense reflects increases in IRESS’ employee numbers, revenue and segment profit. Share-based payments expense as a proportion of segment profit remains consistent year on year. Non-recurring items are primarily costs in relation to: • • • • • transaction and integration costs associated with the acquisition of Proquote and Pulse; implementation of a new global HR system; restructuring costs associated with the consolidation of UK offices; payments to the previous CFO upon cessation of employment; and external advice regarding Group restructuring and debt refinancing. Foreign exchange gains of $9.8m (2014: $1.7m) relate predominately to the funding arrangements associated with IRESS’ investment in the UK. These gains were offset by an unrealised loss from the revaluation of hedging instruments of $8.2m (2014: $2.3m) recognised within financing expense. Operating revenue Movement from 2014 Segment profit Movement from 2014 2015 $m 108.6 80.3 188.9 4.9 86.2 91.1 32.8 2014 $m 108.9 71.4 180.3 1.2 73.7 74.9 30.8 123.9 105.7 19.5 26.6 2.5 18.6 22.5 1.9 361.5 329.0 Local Currency % (0) 12 5 % (0) 13 5 100+ 100+ 17 22 6 17 5 18 34 10 5 9 (4) 5 1 15 34 6(1) 2015 $m 46.6 38.3 84.8 (2.0) 21.9 19.9 7.3 27.2 2.6 8.6 (4.0) 2014 $m 50.6 32.7 83.3 (1.3) 18.6 17.3 4.2 21.5 3.9 6.4 (3.6) 119.2 111.4 Local Currency % (8) 17 2 (43) 5 2 66 14 (37) 31 (11) 5(1) % (8) 17 2 (59) 18 15 73 26 (33) 35 (11) 7 Segment Profit Share based payments Segment Profit after SBP Non-recurring items FX gain/(Loss) EBITDA Depreciation and amortisation EBIT Interest revenue Interest expense Financing expense PBT Tax Reported NPAT Review of segment results ANZ Financial Markets ANZ Wealth Management Total ANZ UK Financial Markets UK Wealth Management UK ex-Lending UK Enterprise Lending Total UK Canada South Africa Asia Group (1) Group growth rates shown in the “Local Currency” column are on a constant currency basis. ANNUAL REPORT 2015 / 11 Case Study XPLAN Prime Scaled Advice People are increasingly seeking financial advice in different ways across the globe and this has been stimulated through regulatory changes. Full service advice is an important and critical component of advice, while at the same time, the way people seek advice and choose to engage is evolving. We developed Prime to give our clients an objective-based advice solution that advisers can use alongside their clients with a strong focus on an engaging and efficient user experience. Prime allows wealth management firms to scale their advice service with full support for their back-end processes via XPLAN. Prime gives more people access to the advice they need, when they need it, and for IRESS’ clients to deliver a seamless, omni-channel client experience with fast, streamlined fully compliant advice. Bringing our clients unified scaled advice solutions 9 . 8 8 1 3 . 0 8 1 14 15 188.9 ANZ OPERATING REVENUE AU$ (MILLION) Australia and New Zealand Operating Revenue grew 4.8% to $188.9m (2014: $180.3m) and segment profit increased 1.8% to $84.8m (2014: $83.3m). Operating revenue growth reflects continuing strong performance in wealth management while segment profit growth reflects IRESS’ continuing investment in its products and people. The ANZ financial markets business performed strongly despite client- specific impacts including a bad debt write-off associated with a client entering administration. Financial markets Financial markets revenue in ANZ continues to be highly resilient, remaining in line with prior year despite external ongoing structural challenges facing the segment, particularly on the sell-side. Despite two significant market participants withdrawing from the Australian market, the monthly revenue run rate has returned to be in line with the 2014 level as a result of incremental revenue growth from existing customers and annual indexation. The decline in segment profit of 8.0% from $50.6m in 2014 to $46.6m in 2015 reflects continued investment in product and people during the year including the continuing development and rollout of IOS+, ViewPoint (next generation IRESS’ online market data and trading solution), continuing enhancements to content and functionality of IRESS Professional, and IRESS digital products including a new app to support the Apple watch. The investment in these technologies and products are deployed across IRESS internationally. Wealth management Momentum in wealth management in Australia remained strong with operating revenue and segment profit growth of 12.5% and 17.0%, respectively, in 2015. The strong performance of this business reflects the continuing strong demand for XPLAN from both new and existing clients as financial advisers and dealer groups increasingly look to technology to improve their service offering, lower costs and meet statutory obligations in an increasingly complex regulatory environment. In 2015, revenue growth was driven primarily by new client rollouts and revenue growth from existing customers as they continue to turn to IRESS’ technology in response to business opportunities and regulatory complexity. As previously disclosed, IRESS was appointed the advice technology partner for the Commonwealth Bank of Australia (CBA) to deploy XPLAN across all of CBA’s advice businesses and to introduce XPLAN Prime, a scaled advice platform. This project was a key focus for the business in 2015 and continues to deliver to plan. 12 / IRESS LIMITED Operating and Financial Review Group performance 9 . 3 2 1 7 . 5 0 1 123.9 UK OPERATING REVENUE AU$ (MILLION) 14 15 5 . 9 1 6 . 8 1 14 15 19.5 CANADA OPERATING REVENUE AU$ (MILLION) 2.5 ASIA OPERATING REVENUE AU$ (MILLION) 5 . 2 9 . 1 14 15 United Kingdom Canada In local currency, operating revenue was 0.7% higher than the prior year, with the business demonstrating revenue resilience despite continuing challenging conditions in Canadian financial markets. During 2015, IRESS invested in leadership, product development and implementation capabilities with the business now well placed to capitalise on client opportunities. As previously disclosed during 2015, the Canadian business secured a foundation private wealth client, MD Financial, a top five wealth manager in Canada. Implementation of a unified technology solution for trading and portfolio management, CRM and advice commenced in the second half of the year and will continue to be a focus in 2016. This is a significant win for the business and provides valuable credentials in the local wealth management market. During the year, IRESS’ next generation online market data and trading solution (ViewPoint) was successfully rolled out to a Tier 1 Canadian bank three months ahead of plan. The decline in segment profit of $1.3m 33% (local currency 36%) was driven primarily by the investment in new people (as detailed above), product implementation capability and increased costs associated with new premises. Asia Operating revenue in Asia increased 34% from 2014 despite competitive local market conditions. Revenue growth was driven primarily by an increase in use and functionality of IRESS’ online trading platform by brokers offering Contracts for Difference (CFD) in Singapore. Revenue also grew as a result of the completion of several retail and private wealth implementations, including an integrated technology solution for a large Malaysian bank. In October, the Asian business secured a sell-side client for the implementation of end-to-end retail equity workflow that has commenced, and will continue to be a key focus in 2016. This is a significant win for the business and is a valuable credential for IRESS in the Asian broking market. The decline in segment profit in 2015 reflects an increased allocation of global market data costs into the region which has a disproportionate impact on this segment due to relative size. In local currency, the wealth management revenue increase of 2.5% (excluding the impact of the Pulse acquisition), was further enhanced by the depreciation of the Australian dollar leading to total revenue increase in Australian dollars of 14.4%. Revenue growth was driven primarily by a number of XPLAN implementations and strong client retention. Revenue grew 7% in the second half as the first half investment in implementation capability was translated into customer revenue. Wealth management segment profit margins improved from 22% in the first half to 27% in the second half (excluding the impact of the Pulse acquisition) as revenue began coming online while costs remained flat half on half. Integration work is underway following the recent acquisition of Pulse and the strategic and operational actions from these integration initiatives are ongoing. Pulse contributed segment profit of £0.5m in 2015, which reflects results from 1 November 2015. In local currency, the financial markets’ revenue increase of 100+% was largely driven by the impact of the Proquote acquisition which added £1.6m in 2015. Excluding the Proquote acquisition revenue grew 18% driven largely by increased client activity. The increase in financial markets segment loss was driven largely by an increase in staff costs (additional headcount to drive revenue growth and pay rises) and increased rental costs following a move to a larger office. During the year the UK business experienced strong demand from advice and private wealth businesses for integrated IRESS solutions, with several new implementations underway in 2016 at leading private wealth firms. Rollouts are to commence during 2016, deploying a unified technology solution for market data, trading and order management, portfolio management, CRM, advice, and revenue management. In recognition of the increasing convergence of our financial markets and wealth management businesses in the UK, we will be reporting them as a single segment from 2016. Integration work is underway following the recent acquisition of Proquote and the strategic and operational actions from these integration initiatives are ongoing. Proquote contributed segment profit of £0.2m in 2015, which reflects results from 1 November 2015. Enterprise lending operating revenue decreased 3.6% due to one-off revenue items in 2014 that were not repeated in 2015. Segment profit increased by 66% largely as a result of full year of cost savings from the restructure of the business in 2014. The first implementation of the latest version of MSO is now underway with Atom (the UK’s first all-digital bank), and is progressing to plan. 6 . 6 2 5 . 2 2 14 15 26.6 SOUTH AFRICA OPERATING REVENUE AU$ (MILLION) South Africa In local currency, operating revenue grew 14.7% (following growth of 10% in 2014), driven by revenue growth across business segments and products. Financial markets revenue growth of 15% in local currency was underpinned by increased sales of sell-side trading solutions to new market entrants and an increase in market share of existing brokers. There was also continued strong demand for IRESS’ trading algorithms, market data, and SmartHub which was rolled out in South Africa during 2015. IRESS also benefitted from an increase in volume-based variable fees following higher trading volumes on local financial markets during the year. Wealth management revenue growth in South Africa was underpinned by solid relationships with corporate and institutional clients, with new wins and the completion of several new XPLAN deployments the principal driver of growth. Revenue from the implementation of integrated IRESS solutions at private wealth managers increased largely as a result of the migration of several large clients from standalone legacy Peresys products to integrated IRESS solutions. Several new client wins also contributed to growth. Segment profit increased 30.7% (in local currency) which reflects strong revenue growth partially offset by an increase in staff costs resulting from a pay increase in line with the prevailing market environment. ANNUAL REPORT 2015 / 13 Case Study IRESS ViewPoint Delivering IRESS ViewPoint involved an international team of product, design and technical specialists across IRESS. The goal was to deliver an exceptional user experience built on the latest technologies to bring flexibility, scalability and be highly customisable for our clients and for end users. IRESS ViewPoint is a market data and trading solution built on HTML 5 technology supporting all operating systems and browser technology, without reliance on any plug-ins. It offers our clients the ability to deliver a fully branded service to their clients (primarily active traders and retail investors), with the ability to integrate their own rich content for a unique experience. We have integrated the IRESS ViewPoint interface across our mobile suite, enabling end users to stay in touch with the market through the day moving seamlessly across devices. In 2015, we successfully deployed IRESS ViewPoint to a leading financial institution in Canada with full multi-lingual support. Clients in our other markets are preparing for implementation. A new experience in trading for the retail market 14 / IRESS LIMITED Directors’ Report Board of Directors The appointment of Niki Beattie and Geoff Tomlinson, both with significant international executive and Board experience, further strengthens the Board of Directors. TONY D’ALOISIO NIKI BEATTIE JOHN CAMERON JOHN HAYES Mr A D’Aloisio Non-Executive Director since June 2012, Chairman since August 2014, member of the Audit & Risk Committee and People & Performance Committee. Tony was previously Chairman of ASIC from 2007 to 2011 and Managing Director and Chief Executive Officer of ASX Limited (“ASX”) from 2004 to 2006. Tony has served in both Executive and Non-Executive roles and has held positions of Chief Executive, and Chairman in commercial and Government enterprises such as; Boral Limited, The Business Council of Australia and the World Federation of Exchanges and the International Joint Forum. Ms N Beattie Non-Executive Director since February 2015 and member of the People & Performance Committee. Niki has more than twenty years’ experience working in financial technology, strategic advisory and capital markets in management, Board and advisory capacities. This includes 14 years in senior positions at Merrill Lynch International, based in Europe. Niki is currently Non- Executive Chairman of Pan-European share trading platform Aquis Exchange, Non-Executive Director of European financial services company Kepler Cheuvreux International and Non-Executive Director of Russian exchange group, Moscow Exchange. Mr J Cameron Non-Executive Director since March 2010 and member of the People & Performance Committee. John has worked in IT for over 30 years in Australia, USA, the United Kingdom and France. He was a key member of the team that automated both the equities and options trading floors for the ASX. John 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. The company was acquired in 2006 by ORC Software, where John served as CTO for three years. John was previously a Director of the international standards body FIX Protocol Limited from 2010 to 2013. Mr J Hayes Non-Executive Director since June 2011 and Chair of the Audit & Risk Committee. 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. John’s previous directorships include 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. He was a member of the Advisory Council of Comcover, a Federal Government Entity for six years until December 2013. ANNUAL REPORT 2015 / 15 JENNY SEABROOK GEOFF TOMLINSON ANDREW WALSH PETER FERGUSON Mr A Walsh Chief Executive Officer and Managing Director since October 2009. Andrew was an original founder of XPLAN Technology Pty Ltd, which was acquired by IRESS in 2003. Andrew managed the transition of XPLAN from an independent start-up organisation to a fully integrated and material division of the Group until taking up his current role as CEO in 2009. Mr P Ferguson Group General Counsel and Company Secretary, Peter joined IRESS in June 2011. Peter has many years’ experience in international legal and commercial appointments in the financial technology sector, with prior international and domestic appointments including seven years with Nasdaq OMX, located in Stockholm and later Sydney, GBST and SIRCA. Ms J Seabrook Non-Executive Director since August 2008, Chair of the People & Performance Committee and member of the Audit & Risk Committee. Jenny is a special advisor to Gresham Partners Limited, a Non-Executive Director of Iluka Resources Limited, a Non-Executive Director of MMG Limited and a Non-Executive Director of Western Australian Treasury Corporation. Jenny is a chartered accountant with experience in capital markets and mergers and acquisitions in the financial services industry and was a member of the Takeovers Panel from 2000 to 2012. Jenny has extensive Board experience including Alinta Gas, Amcor Limited, Australia Post, BankWest, MG Kaillis, West Australian Newspaper Holdings Limited, Western Power and the Export Finance and Insurance Corporation. Mr G Tomlinson Non-Executive Director since February 2015 and member of the Audit & Risk Committee. Geoff has more than 40 years’ experience in financial services. His executive career encompassed 29 years with the National Mutual Group, including six years as Group Managing Director and Chief Executive Officer. Geoff is currently Chairman of Growth Point Properties Australia Ltd and Chairman of Calibre Group. Geoff was a Non-Executive Director of National Australia Bank (“NAB”) from March 2000 to December 2014, including Chairman of its wealth management division MLC. Previous Directorships include Amcor Ltd, Suncorp Ltd, Dyno Nobel Ltd, Programmed Maintenance Services Ltd and Neverfail Springwater Ltd. 16 / IRESS LIMITED Directors’ Report For the year ended 31 December 2015 Directors meetings The following table sets out the number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 31 December 2015, and the number of meetings attended by each Director. Director Board Meetings Audit & Risk People & Performance Eligible Attended Eligible Attended Eligible Attended Tony D'Aloisio Niki Beattie John Cameron John Hayes Jenny Seabrook Geoff Tomlinson Andrew Walsh 11 11 11 11 11 11 11 11 11 10 8 11 10 11 6 – – 6 6 3 – 6 – – 6 6 3 – 7 3 7 – 7 – – 7 3 7 – 7 – – Subsequent events There has been no 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 Group, the results of those operations, or the state of affairs of the Group in future years. Changes in operations during the year During the year, the operations of the Group were not modified in any material way. As noted on page 6 the enterprise lending business in the United Kingdom accelerated its focus towards a more product based solution, lowering the cost of ownership and broadening the addressable target market. Changes in state of affairs Significant changes in the state of affairs of the Group during the financial year other are outlined below; • Acquisitions The Group acquired Proquote Limited and Pulse Software Systems Ltd during the year, two leading established financial technology businesses, further adding capability and scale in the United Kingdom. • Debt restructure In October 2015 IRESS restructured its debt funding platform and established additional funding bringing total borrowing capacity to $300m. Total assets increased $70.3m on the prior period as a result of the Proquote and Pulse acquisitions. Cash has been utilised to pay down borrowing facilities resulting in a decrease of $35.7m in cash balances. ANNUAL REPORT 2015 / 17 all non-audit services were subject to the corporate governance procedures adopted by the Company to ensure that they do not impact the integrity and objectivity of the auditor; and the non-audit services provided did not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity of the Company, acting as an advocate of the Company or jointly sharing risks or rewards. Auditors’ independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001, is set out on page 39. Rounding of amounts The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the nearest thousand dollars, the Company being in a class specified in the ASIC Class Order 98/100 dated 10 July 1998. Corporate Governance The Corporate Governance Statement is located on the IRESS website. 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. 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 the Directors or Officers of the Company will, subject to the specific terms of the indemnity, incur no monetary loss as a result of defending actions taken against them as a Director or Officer. 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. Non-Audit services Details of the amounts paid or payable to the auditor for audit services provided during the year by the auditor are outlined in Note 7 to the financial statements. During the year, the Company’s auditor, has performed certain other services in addition to its audit responsibilities. The Board is satisfied that the provision of non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: 18 / IRESS LIMITED Directors’ Report For the year ended 31 December 2015 AUDITED REMUNERATION REPORT Contents Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8 Section 9 2015 overview Key questions Key Management Personnel How IRESS sets incentive outcomes Executive KMP remuneration policy and incentive plans overview Actual remuneration received Remuneration outcomes and the link between performance and reward Executive KMP statutory remuneration Executive KMP service agreements Section 10 Remuneration governance Section 11 Non-executive Director fees Section 12 Additional required disclosures Please refer to page 38 for definitions of terms used in this remuneration report. 19 20 21 22 23 27 28 31 32 33 33 35 ANNUAL REPORT 2015 / 19 SECTION 1 – 2015 OVERVIEW This remuneration report provides detail of IRESS’ remuneration policy and practice for Key Management Personnel (KMP) for the 2015 financial year. The information presented in this report has been audited as required under section 308(3C) of the Corporations Act 2001 and forms part of the Director’s Report. Summary of 2015 performance and remuneration The Board follows a disciplined process of establishing objectives for the company and individual executives at the start of the year, for assessing company and individual performance and for determining remuneration outcomes based on performance. This process, which is described in detail in Sections 4 and 5 of this report, can be summarised as follows: • The Board sets financial targets for the company and determines a cash STI bonus pool at the start of the year for Executive KMP and other staff. • Strategic and operational targets are also set for the company and for individual executives at the start of the year. • The final cash STI bonus pool for the year is adjusted based on Group segment profit performance against targets. • The cash STI bonus pool is then allocated to operating segments and to individual executives based on achievement of financial, strategic, operational and people objectives. The resulting short-term incentive (STI) outcomes for the KMP is shown on page 29 of this report. • STI and LTI equity grants reflect individual performance against operational and strategic targets as well as the executive’s future potential for value creation. • STI and LTI outcomes are assessed for reasonableness against prior year, across executives and with consideration of market factors. Section 5 of this report details the Board’s assessment of the company’s performance in 2015 against the financial, strategic, operational and people objectives that it established at the beginning of the year. In summary: • Financial performance was solid although below the targets set by the Board at the start of the year. As a result, the overall size of the cash STI pool was reduced (11%) from the level established at the start of the year. • Operational, strategic and people outcomes were at or above target. The Board’s assessment of performance has translated into the following remuneration outcomes: Fixed remuneration Fixed remuneration increases for Executive KMP were generally within the range of 1% and 2%. STI LTI Changes to KMP in 2015 Fixed remuneration for P Ferguson (Group General Counsel and Company Secretary) increased by 14% during 2015, based on market remuneration information for this role, and his contribution towards achieving the Group’s objectives. a) Executive KMP STI outcomes for 2015 totalled $1,970,973 (2014: $1,793,878) including total cash STI of $684,643 (2014: $697,777) and deferred equity STI of $1,286,330 (subject to final Board approval in May 2016) (2014: $1,096,101). b) Executive KMP STI payouts received (2015 cash STI plus vested deferred equity awarded in previous years) increased from a total of $697,777 in 2014 (an average of 20% of total fixed remuneration) to $1,984,576 in 2015 (an average of 46% of total fixed remuneration) primarily due to the fact that no deferred equity was scheduled to vest in 2014 because of the extension in the period of time to vesting from 2 years to 3 years in 2012. a) Subject to Board and shareholder approval in May 2016, it is proposed to award Executive KMP with performance rights for performance in 2015 with a fair value of approximately $1,282,000. It is proposed that the MD/CEO be awarded 120,000 performance rights with a fair value of approximately $597,000 and other Executive KMP be awarded performance rights with a fair value of $685,000. Performance rights with a fair value total of $1,193,003 were issued to Executive KMP in May 2015 of which $1,073,000 relates to 2014 performance and $120,003 was awarded to J Harris shortly after joining the Group. b) MD/CEO; Two tranches of performance rights were eligible for vesting in 2015. 1. Tranche 1 (four year performance period from 7 May 2011 to 7 May 2015): 100% did not vest and were forfeited, as IRESS’ TSR for the period was below the peer group median. 2. Tranche 2 (three year performance period from 7 May 2012 to 7 May 2015): 12.6% forfeited and 87.4% vested, as IRESS’ TSR for the period was at the 68.7th percentile. Other Executive KMP; one grant of performance rights was eligible for vesting in 2015 (three year performance period from 7 May 2012 to 7 May 2015); 12.6% forfeited and 87.4% vested, as IRESS’ TSR for the period was at the 68.7th percentile. S Bland (Chief Financial Officer) ceased employment with the Group on 1 October 2015. J Harris (Chief Financial Officer) commenced employment with IRESS on 20 April 2015 and was officially appointed to the CFO role and became a KMP on 11 May 2015. S New was appointed Group Executive, Strategy in September 2015 and became a KMP. G Tomlinson and N Beattie joined IRESS’ Board of Directors in February 2015. 20 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 SECTION 2 – KEY QUESTIONS The key questions outlined below provide a summary of the Group’s approach to Executive KMP remuneration. KEY QUESTIONS IRESS APPROACH ADDITIONAL DETAIL Remuneration in 2015 1. 2. How is IRESS’ 2015 performance reflected in this year’s remuneration outcomes? What changes have been made to the remuneration structure in FY15? 3. Are any changes planned for FY16? 2015 remuneration reflects the achievement of solid profitability and strategic objectives that support long term growth (as detailed in Section 7). Section 7 / page 28 No changes have been made to IRESS’ remuneration structure in 2015. Yes. The following changes to the Executive LTI plan will be effective in 2016: • Face value of awards (based on current share price), not fair value, will be used to determine LTI grant quantum. This will not change the underlying benefit being awarded to the Executive KMP. • Performance period will reflect financial years (e.g., a three-year performance period would be 1 January 2016 to 31 December 2018). • Franking credits will be excluded from relative TSR calculations. • The comparator peer group used to measure IRESS’ relative TSR performance currently excludes companies that drop out of the S&P/ASX200 Index. In 2016 these companies will remain in the comparator peer group for assessment of relative TSR. Section 5 / page 23 Remuneration framework 4. Where does IRESS’ remuneration (fixed remuneration and total remuneration opportunity) sit against the market? IRESS considers the size and complexity of the role, the skills and experience of the individual and market pay levels of comparable roles in determining remuneration. IRESS believes that the total remuneration it offers executives is competitively positioned against comparable companies with a similar market capitalisation and/or operating in a similar industry sector. Section 5 / page 23 5. What proportion of remuneration is “at risk”? 6. 7. Are there any clawback provisions for incentives? Is there a minimum shareholding requirement for KMP? Short-term incentive (STI) plan The target remuneration mix is for sixty percent (60%) of the MD/CEO’s total remuneration and on average forty five percent (45%) of other Executive KMP’s total remuneration to be at risk and dependent on Group and individual performance. Section 5 / page 23 Yes. The Board may exercise discretion to withhold unvested STI and LTI awards for unsatisfactory individual performance. No. IRESS does not have a minimum shareholding requirement. However, the average holding of ordinary shares by Executive KMP is $1,346,754 or 283% of fixed remuneration and the average holding of ordinary shares by NEDs is $202,227 or 169% of fees. Section 12 / page 35 8. What are the STI performance measures? STI awards are based on the achievement of objectives in the following categories, aligned with IRESS’ business strategy: Section 5 / page 23 • Financial – Group segment profit • Operational, strategic and people – client, growth, products, company and people related objectives 9. How is the cash STI bonus pool determined? The overall cash STI bonus pool is set at the start of the year. It is then adjusted based on the Group’s actual segment profit relative to targets. This pool is then allocated to segments or businesses (for both Executive KMP and other staff), based on financial and strategic performance. The deferred equity component of STI is determined with reference to individual performance against operational and strategic targets as well as the executive’s future potential for value creation. The award of deferred equity STI grants is also assessed in the context of the target remuneration mix. 10. What is the target STI opportunity range for each executive? There is no set minimum or maximum STI opportunity as STI outcomes are based on Group segment profit and the agreed cash STI bonus pool for each financial year. The Board has established a target rem mix for the MD/CEO and other Executive KMP. However, the actual STI outcome for each executive will be determined, firstly, by the size of the cash STI bonus pool (which can go up or down based on the Group’s performance against financial targets) and, secondly, by the performance of the individual executive. 11. How are STI awards delivered? STI awards are delivered as a mix of cash and deferred equity. ANNUAL REPORT 2015 / 21 LTI plan 12. Is the LTI grant quantum determined using face value or fair value? 13. Why is relative TSR the sole performance measure? 14. Does the LTI have re-testing? Consistent with prior years, 2015 performance rights were granted based on the fair value of rights. Section 5 / page 23 The Board has always considered face value in their determination of LTI grants. In 2016, the Group will formally move to a ‘face value’ approach, where grants of performance rights are based on the prevailing weighted average IRESS share price at or around the date of grant. The fair values of LTI grants will continue to be disclosed as per statutory requirements. The Board reviewed the Executive LTI plan in 2015 and continues to believe that relative TSR is the most appropriate way to align executive and shareholder interests, and reward executives for the Group’s performance against peers. To the extent any portions of awards do not vest on the first test date, the awards are retested once, six months after the initial test date. Rights granted before 2014, continue to be subject to six, monthly retests. 15. What is the treatment of LTI awards in the event of a change of control? In the event of a change of control, the Board has the discretion to allow unvested performance rights to vest. SECTION 3 – KEY MANAGEMENT PERSONNEL IRESS’ KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. KMP comprises the Executive KMP (the MD/CEO and Group Executives) as well as Non-executive Directors (NEDs). For the year ended 31 December 2015, the KMP were: KMP POSITION TERM AS KMP Non-executive Directors A D’Aloisio N Beattie J Cameron J Hayes J Seabrook G Tomlinson Non-executive Chairman Non-executive Director (appointed 1 February 2015) Non-executive Director Non-executive Director Non-executive Director Non-executive Director (appointed 1 February 2015) Executive Director A Walsh Executives S Barnes S Bland P Ferguson J Harris J McNeill (nee Milton) S New M Rady D Walker Managing Director and CEO (MD/CEO) Chief Operating Officer Chief Financial Officer (ceased employment on 1 October 2015)(1) Group General Counsel and Company Secretary Chief Financial Officer (appointed 20 April 2015)(2) Group Executive, Human Resources Group Executive, Strategy (appointed 1 November 2015) Group Executive, Financial Markets Chief Technical Officer Full year Part year Full year Full year Full year Part year Full year Full year Part year Full year Part year Full year Part year Full year Full year (1) S Bland was appointed CFO in 2001. (2) J Harris joined IRESS on 20 April 2015 as CFO Designate and was appointed CFO, and became a KMP, on 11 May 2015. Aaron Knowles was appointed Group Executive Product and became a KMP on 1 January 2016. There have not been any other changes to KMP after the reporting date and before the financial report was authorised for issue. 22 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 SECTION 4 – HOW IRESS SETS INCENTIVE OUTCOMES IRESS’ variable remuneration process is underpinned by rigorous performance objectives and performance assessment, with active People and Performance Committee (PPC)(1) and Board involvement and judgement, as outlined below. Objectives supporting IRESS’ business strategy, and related incentive opportunities, are set at the commencement of the financial year… • The Board sets stretch financial targets for the Group and individual business units (revenue and segment profit) having regard to prior year performance. • The Board confirms strategic goals for each key focus area (Clients, Growth, Products, People, Company) and sets specific performance criteria relating to these goals. • The Board sets the budgeted STI pool for the year. • The Board determines a set of specific objectives for the MD/CEO and retains flexibility to adjust objectives during the year, where required, to adapt to the changing business environment. • The Executive KMPs’ specific objectives are set by the MD/CEO and are reviewed by the PPC. Achievement of the Group’s segment profit target is a specific objective for all Executive KMP and, where appropriate, Executive KMP will have additional segment profit targets for the business for which they are responsible. …with performance against objectives assessed at year end… …Resulting in STI and LTI outcomes • The budgeted cash STI pool available for allocation is reviewed with reference to the Group’s financial performance relative to targeted Group segment profit and adjusted by the Board. • The Board reviews actual financial results against targeted financial results and the Executive KMP receive any cash STI after the Group’s full-year results have been finalised. • STI and LTI deferred equity are issued after • The cash STI pool is allocated by the MD/ the AGM. • The MD/CEO’s deferred equity grant is subject to shareholder approval at the AGM in May each year. CEO to different parts of the business based on achievement of financial targets and performance and additional operational and strategic criteria. The PPC reviews and confirms the pool allocation. • The MD/CEO’s individual performance assessment and STI is set by the Board. The individual performance assessment and STI award recommendations for other Executive KMP are made by the MD/CEO to the PPC for ratification and recommendation to the Board. • The PPC and Board are particularly active in their oversight of the STI process due to the pool based nature of incentive schemes. • STI and LTI grants (to be tested for performance and vesting in future years) are determined based on current year performance and the individual’s criticality to the business and future potential contribution. Consideration is also given to the positioning of the individual’s target total remuneration against market benchmarks. • LTI grants from a prior period are tested for vesting based on the LTI vesting schedule. (1) During the year the Nomination and Remuneration Committee became the People and Performance Committee. The People and Performance charter (available at iress.com) sets out the role, composition and responsibility of the Committee. ANNUAL REPORT 2015 / 23 SECTION 5 – EXECUTIVE KMP REMUNERATION POLICY AND INCENTIVE PLANS OVERVIEW IRESS’ Executive KMP remuneration framework consists of fixed remuneration, and short term and long term variable remuneration. A significant portion of total Executive KMP remuneration is variable and at-risk. FIXED 100% of fixed pay awarded in cash ~ 1/3 awarded in cash (subject to one-year performance objectives) STI LTI T N A D N E P E D E C N A M R O F R E P , I K S R T A O E C / D M ~ 2/3 of total STI award deferred in the form of share rights (subject to a three-year service requirement and satisfaction of individual performance objectives) 50% of annual grant has a one-year deferred start and is subject to a (cid:31)three-year performance period based on relative TSR hurdle. 50% of annual grant subject to a four-year performance period based on relative TSR hurdle. Subject to a three-year performance period based on a relative TSR hurdle. R E H T O I S E V T U C E X E Year 1 Year 2 Year 3 Year 4 Remuneration mix The diagram below shows the target mix of fixed, STI and LTI components of remuneration. For both the MD/CEO and other Executive KMP, a portion of total Executive KMP remuneration is variable and at-risk. O E C D M / r o f e g a r e v A P M K e v i t u c e x E Fixed 40% STI 33% Cash 53% Fixed 55% Cash 65% LTI 27% Equity 47% LTI 15% Equity 35% STI 30% 24 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 Approach to setting remuneration The Group uses a mix of fixed and ‘at risk’ remuneration to reward employees and drive performance. The Group also encourages employee share ownership through an employee share plan in Australia and the UK. Eligible participants are invited to acquire IRESS shares and IRESS matches this up to a maximum value. The Australian plan has been operating since 2013. In 2015, 245 employees participated, subscribing to 24,255 shares including 7,276 matched shares. The UK plan was established in 2015, with 190 employees subscribing to 39,814 shares including 5,407 matched shares. High-performing employees making a significant contribution to long term value creation are also invited to participate in the Group’s deferred equity STI scheme. The objective of this scheme is to drive retention of key employees and align the interest of employees with shareholders. The Group targets a remuneration mix of fixed remuneration (40%), STI (33%) and LTI (27%) for the MD/CEO and an average remuneration mix of Fixed Remuneration (55%), STI (30%) and LTI (15%) for other Executive KMP. The proportion of remuneration received as equity is targeted at 47% of Total Remuneration for the MD/CEO and 35% on average for other Executive KMP. The Board believes that this target mix is effective in driving performance and aligning the interests of shareholders and Executive KMP. Based on market information, IRESS believes its total remuneration opportunity is competitively positioned against comparable companies with a similar market capitalisation and/or operating in a similar industry sector. Elements of KMP remuneration Fixed remuneration Fixed remuneration consists of base salary, superannuation, and non-monetary benefits (eg. secondment allowances) and is reviewed annually. The following factors are taken into account when setting fixed remuneration levels at IRESS: • The size and complexity of the role • Skills and experience of the individual • Market pay levels for comparable roles IRESS is conscious that any adjustments to fixed remuneration have a flow-on impact on incentive awards. Therefore, any decision to increase fixed remuneration considers the resulting change in total remuneration. Short-term incentives STI awards are based on the Group’s performance against the Group segment profitability target and satisfaction of individual objectives. Awards are typically one-third cash and two-thirds deferred equity. The Board retains discretion in its assessment of performance in order to allow for changes in priorities and deliverables over the course of the year. a. What is the STI plan? The STI is an ‘at-risk’ incentive awarded annually, subject to performance against agreed financial and non-financial performance measures. b. Who participates in the STI plan? c. How are STI awards delivered? The MD/CEO, other Executive KMP and select employees are eligible to participate in the STI plan. Generally: • One third of the STI award is delivered in cash. • Two thirds of the award is delivered in deferred share rights. A deferred share right is a deferred right issued by IRESS to acquire one fully paid ordinary share in IRESS (subject to adjustment for certain capital actions). • Deferred share rights vest subject to a three-year continuing service requirement and achievement of a satisfactory level of individual performance. d. How is the STI plan funded? The cash STI plan is funded by a Group-wide aggregate bonus pool. The target bonus pool is determined at the beginning of each financial year, taking into consideration budgeted Group segment profit. At the end of the financial year, the actual bonus pool available for allocation is determined with reference to the Group’s financial performance relative to budgeted Group segment profit. This pool is then allocated to business segments and functions, based on financial performance and achievement towards strategic goals of the Group throughout the year. Executives then make recommendations for cash bonus and deferred equity allocations based on individual performance. e. What is the target STI opportunity? There is no set minimum or maximum STI opportunity as cash STI outcomes are based on Group segment profit and the resulting STI bonus pool for each financial year. As described above, the Board has established a target remuneration mix for the MD/CEO and other Executive KMP. However, the actual STI outcome for each executive will be determined, firstly, by the size of the cash STI bonus pool (which goes up or down based on the Group’s performance against financial targets) and, secondly, by the performance of the individual executive. In addition to considering the target mix, group performance and individual performance, the Board further considers the total remuneration outcome for each executive in the context of the market. f. Why does the Group consider the STI an appropriate incentive plan? The available cash STI pool directly reflects Group performance. The cash STI component supports the Group’s focus on a high performing culture by rewarding performance in areas critical to the Group, allowing differentiation between businesses and individuals. The deferred component of the STI award recognises ongoing contribution, enables retention of key employees and provides continuing alignment with shareholder interests. ANNUAL REPORT 2015 / 25 g. What are the performance measures? STI awards are delivered subject to performance against financial, operational, strategic and people objectives. Achievement of performance against the Group segment profitability target and satisfaction of individual objectives is required before any award is payable. Performance against operational, strategic and people objectives of the Group is also assessed in determining STI awards. Key focus area Financial Performance goals • Group segment profit performance. Operational/Strategic: Clients • Maintain resilient leadership in established markets. Operational/Strategic: Growth • Grow revenue organically and pursue inorganic opportunities where appropriate. Operational/Strategic: Products • Anticipate trends and innovate to maintain product leadership. • Align product development to current and emerging client needs. Operational/Strategic: Company • Enhance IRESS brand through strong stakeholder relationships and communication. People • Position IRESS as an employer of choice globally. The performance goals in the table above are cascaded down from the MD/CEO to other Executive KMP. Each executive is set specific performance targets which they are accountable for and directly influence. h. How is performance assessed? At the end of the financial year, the Board assesses the Group’s and individual Executive KMP’s performance against objectives set at the start of the year. The Board retains discretion in its assessment of performance in order to allow for changes in priorities and deliverables over the course of the year. i. What is the vesting period for deferred share rights? Deferred share rights vest three years after the STI award is granted, provided the Board is satisfied that the individual’s performance is satisfactory and the service condition is met. Given the qualitative nature of the performance conditions, Board assessment is considered the most appropriate mechanism to measure the conditions. j. How will shares to The Board assesses annually whether to issue new shares or buy shares on market. satisfy deferred share rights be sourced? k. Is there a clawback The Board may exercise discretion to withhold deferred STI rights for unsatisfactory individual performance. provision? l. Are participants entitled to dividends and voting rights? KMP deferred STI is received in the form of deferred share rights that do not carry any voting rights or receive dividends. Shares allocated upon the vesting of rights carry the same rights as any other IRESS share. Participants in the broader IRESS deferred STI scheme receive Deferred Shares which carry voting rights and receive dividends in the same manner as any other IRESS share. m. How are STI awards treated upon termination? If less than six months of the measurement period relating to the STI awards has elapsed at the date of cessation of employment: Any unvested deferred share rights will lapse. If six months or more of the measurement period relating to the STI award has elapsed at the date of cessation of employment: Any unvested deferred share rights will lapse, unless the Board exercises its discretion not to lapse the unvested deferred share rights, in which case participants will be entitled to receive a pro-rata amount subject to applicable law and the satisfaction of any conditions imposed by the Board under the plan. In the event of a takeover bid, change of control, compromise or arrangement involving a scheme of arrangement, voluntary winding up or compulsory winding up of IRESS, the Board has discretion to allow unvested deferred share rights to vest. The purpose of the Executive LTI plan at IRESS is to: • Closely link executives’ interests with those of shareholders; and • Achieve the Group’s long-term objective of delivering sustainable returns to shareholders. LTI grants are limited to the MD/CEO and Executives who are most able to influence shareholder value. LTI awards are granted in the form of performance rights. A performance right is a right issued by IRESS to acquire one fully paid ordinary share in IRESS provided specific company performance hurdles are achieved. The LTI opportunity is 67.5% of fixed remuneration for the MD/CEO and an average of 27.3% of fixed remuneration for other Executive KMP. As with STI awards, LTI awards are determined based on achievement of Group and individual objectives. In addition, the award of LTI gives consideration to the retention of key executives, the potential for long term value creation of the executive and the alignment of executive and shareholder interests. n. How are STI awards treated upon a change of control? Long-term incentives a. What is the purpose of the Executive LTI plan? b. Who participates in the LTI plan? c. How are LTI awards delivered? d. What is the LTI opportunity? e. How does IRESS determine the amount of the LTI opportunity awarded? f. How does IRESS The number of LTI awards granted to each executive is calculated using fair value of the rights at or around the date of grant. determine how many rights to grant? Refer to Note 17 in the Notes to the consolidated financial statements for detail on the fair value calculation methodology applied to share based payments. 2016 change: In order to improve the transparency of awards granted, from 2016, LTI awards will be calculated using a face value approach where grants are based on the prevailing weighted average share price at the date of grant. 26 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 g. How is vesting determined? Vesting of performance rights granted is determined based on relative TSR performance. IRESS’ TSR performance is measured against a comparator group consisting of companies listed in the S&P/ASX 200 Index, excluding mining and resources companies, and listed property trusts. The comparator group companies are determined as at the grant date of the awards. The Board reviewed the LTI plan in 2015 and continues to believe that, at this time, relative TSR is the most appropriate way to align executive and shareholder interests, and reward executives for the Group’s performance against peers within the industry. The 2015 TSR calculation for IRESS and companies in the comparator group includes franking credits. 2016 change: From 2016, franking credits will be excluded from calculations to remove complexity and align with prevailing market practice. The exclusion of franking credits also reflects the increasingly global nature of IRESS’ business. The comparator peer group used to measure IRESS’ relative TSR performance currently excludes companies that drop out of the S&P/ASX200 Index. In 2016 these companies will remain in the peer group for assessment of relative TSR. h. What is the vesting schedule? Performance rights vest on the following basis: IRESS’ relative TSR ranking Percentage of performance rights to vest Below 50th percentile Nil. 50th percentile 50% of performance rights vest. 51st percentile to 74th percentile Pro-rata vesting between 50% and 100%. 75th percentile or higher 100% of performance rights vest. i. What is the MD/CEO performance period? The LTI grant for the MD/CEO consists of two tranches: 1) 50% of performance rights are assessed over a four-year period commencing on the date of the Annual General Meeting (AGM) (e.g. 7 May 2016 to 7 May 2020 for the FY15 grant). 2) Deferred performance rights: 50% of performance rights have a one-year deferred start and are assessed over a three-year period (e.g. 7 May 2017 to 7 May 2020 for the FY15 grant). Other Executive KMP Performance is assessed over a three-year performance period commencing on the date of the AGM. For the 2015 grant, performance will be measured from 7 May 2016 to 7 May 2019. 2016 change: From 2016, the LTI performance period will commence at the start of the relevant financial year (i.e. 1 January) (the length of the vesting period will be unchanged) to align measurement of individual and Group performance, and improve alignment of performance measurement to strategic time frames. j. How will shares to satisfy the rights be sourced? If shares are to be provided on vesting the Board assesses at the time of vesting whether to issue new shares or buy shares on market. k. Are awards subject to re-testing if they do not vest on initial testing? l. What happens to unvested LTI grants if an executive leaves the Group? m. How are unvested LTI awards treated upon a change of control? n. Are participants entitled to dividends and voting rights? To the extent any portions of awards do not vest on the first test date, the awards are retested once, six months after the initial test date. Rights granted before 2014, are subject to six, monthly retests. Reason other than resignation, termination for cause or gross misconduct: Unvested LTI awards will lapse in full (if less than 6 months of the performance period has elapsed at the date of cessation of employment) or pro-rata (if 6 months or more of the performance period has elapsed), unless the Board determines otherwise. Performance rights that do not lapse will remain eligible to vest in accordance with the terms. Resignation, termination for cause or gross misconduct: All unvested LTI awards at the time of cessation of employment will lapse. In the event of a takeover bid, change of control, compromise or arrangement involving a scheme of arrangement, voluntary winding up or compulsory winding up of IRESS, the Board has the discretion to allow unvested performance rights to vest. Performance rights do not carry any voting rights or receive dividends. Shares allocated upon the vesting of rights carry the same rights as any other IRESS share. o. Are there restrictions Consistent with the Corporations Act 2001, participants are prohibited from hedging their unvested performance rights. on dealing with securities allocated under the LTI plan? ANNUAL REPORT 2015 / 27 SECTION 6 – ACTUAL REMUNERATION RECEIVED The table below details the actual remuneration received by IRESS’ Executive KMP during 2015 and 2014. Actual remuneration is provided in addition to the statutory remuneration (refer to section 8, page 31) to increase transparency of the remuneration actually received by executives during the year. Actual remuneration for 2015 does not include equity incentives (a) awarded during 2015 (for 2014 performance), as the realisation of these awards is dependent upon remaining employed with the Group and achieving performance hurdles over a measurement period that extends beyond 2015; or (b) to be awarded for 2015 performance, as these incentives remain subject to Board approval in May 2016. Therefore actual remuneration received in 2015 included fixed remuneration paid during the year, cash STI earned for 2015 performance (accrued in 2015 and to be paid after the release of the 2015 financial results in February 2016), and deferred equity (STI and LTI) awarded in 2012 which vested in 2015. Position MD/CEO A Walsh Other Executive KMP S Barnes S Bland P Ferguson J Harris J McNeill (nee Milton)(e) S New (e) M Rady D Walker Total Executive KMP Financial Year Fixed remuneration(a) $ Cash STI earned Deferred STI vested(c)(d) LTI vested(d) $ STI (b) $ 1,095,373 1,112,632 300,000 400,000 661,700 1,330,665 – – Sign-on and termination payments $ Total actual remuneration earned $ – – – – 3,387,738 1,512,632 927,909 487,058 54,000 58,000 206,248 222,661 – – – 143,623 418,891 563,378(g) 1,569,253 40,000 40,000 45,000 55,000 – 40,429 29,777 20,214 – 75,000 40,000 100,000 85,000 684,643 697,777 – – 131,240 141,674 – – – – – – – – – – – – – – – – – – 157,122 458,374 – – – – – – – – – – – – – – – 628,372 686,238 344,139 468,928 – 405,551 353,341 126,609 – 602,625 341,126 1,232,610 589,393 1,299,933 2,572,265 563,378 9,407,461 – – – 4,256,061 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 (f) 2015 2014 2015 2014 445,000 429,058 443,361 588,372 373,324 299,139 413,928 – 365,122 323,564 106,395 – 527,625 301,126 517,114 504,393 4,287,242 3,558,284 (a) Base salary, superannuation and non-monetary benefits. (b) STI paid or vested during the financial year. The amount disclosed for 2015 reflects the cash STI earned during the reporting period and deferred share rights granted in 2012 that vested in the reporting period. (c) The vesting period for deferred STI was extended from 2 years to 3 years in 2012. As such, no deferred STI was eligible for vesting in 2014. (d) The value of LTI and deferred STI that vested during the financial year is calculated on the basis of the share price at vesting date times the number of rights that vested. All deferred STI and LTI that vested during the 2015 financial year has been exercised. (e) Remuneration of J McNeil and S New is denominated in British Pounds and is subject to foreign exchange movements. The Australian dollar amounts shown in the table have been converted at an average exchange rate of 0.4919. (f) M Rady joined the Group during 2014. (g) The $563,378 payment to S Bland related to a termination payment. There were no sign-on payments in the 2014 and 2015 financial years. 28 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 SECTION 7 – REMUNERATION OUTCOMES AND THE LINK BETWEEN PERFORMANCE AND REWARD Overview of Group performance The table below provides summary information on the Group’s earnings for the five years to 31 December 2015: MEASURE Net Profit After Tax (NPAT) ($’000s) Segment profit ($’000s) (a) Statutory EPS – basic (cents) Dividends per share – ordinary (cents) (b) Franking credit included in dividend (cents) Share price at 31 December Annual TSR Annual TSR ASX200 2015 55,385 119,175 35.2 42.7 10.30 10.00 (2.79%) (2.15%) 2014 50,671 111,444 32.3 41.5 7.11 10.71 16.33% 1.09% 2013 24,241 88,201 17.5 38.0 13.60 9.44 19.97% 14.09% 2012 39,228 83,404 30.6 38.0 14.66 8.24 21.76% 13.63% 2011 41,341 89,114 32.6 38.0 13.94 6.93 (17.36%) (15.68%) (a) Segment profit details are set out in Note 2 segment information. (b) Dividend per share is calculated based on the total of the interim dividend and the announced (but not yet paid) final dividend relating to the financial year. (c) For the purposes of this table, TSR excludes franking and is not calculated on the same basis as TSR used for LTI vesting. IRESS accumulation index growth vs ASX 200 IRESS accumulation index growth vs ASX 200 140 120 100 80 60 40 20 2011 2012 2013 2014 2015 2016 IRESS ASX 200 Translation of Group performance into STI awards STI awards are based on the achievement of objectives against financial, operational, strategic and people measures. These categories are aligned with IRESS’ business strategy. At the start of the year the Board sets financial targets for the Group and a resulting target cash STI bonus pool for Executive KMP and other staff was established. 2015 financial performance was below these targets and cash STI bonus pool was adjusted down by 11% as a result. The Group performed well against operational and strategic objectives supporting long-term growth. The key items considered by the Board in determining STI and LTI allocations are summarised below: Financial: • Segment Profit increased 7% in 2015 driven by solid growth in the wealth management Australia and South African segments. The Board noted that foreign exchange fluctuations also contributed positively to the 2015 result. Segment profit increased by 3% assuming constant currency without the impact of acquisitions. • After a flat first half, wealth management revenue in the United Kingdom (UK) grew 7% in the second half of 2015 (versus the first half) and the business ended the year with solid visible revenue momentum. • Canadian revenue stabilised in 2015 but a significant investment in people and infrastructure resulted in a decline in segment profit. During the year, the Canadian business won a key contract with a large Canadian wealth manager that will drive future revenue growth. • Financial markets revenue in Australia was resilient despite difficult industry conditions and the exit of a number of participants from the market. Industry exits combined with a material bad debt expense associated with a large client entering administration resulted in a segment profit decline year on year. • Revenue growth in Asia was strong with 2015 client wins delivering positive revenue momentum. Strategic: • The Group successfully completed the acquisitions of Proquote and Pulse, bolstering its strategic UK market presence, and has completed the initial stage of business integration. The acquisition of Innergi was also completed in the year and added valuable digital content to enhance engagement with end users of XPLAN. • Financial capacity was augmented with the increase in the size of the Group’s debt capacity from $180m to $300m and the improved terms and tenor of these facilities. ANNUAL REPORT 2015 / 29 Operational: • Substantial developments in core products (including XPLAN Prime, IOS+, Viewpoint and MSO) were delivered which will both protect current income streams and drive future growth. • Significant new client wins were achieved in all geographies including CBA in Australian wealth management, MD Financial in Canada and Maybank Kim Eng in Asia. • High levels of customer retention and increasing product penetration across IRESS’s core client base. People: • Significant investment in the development of leadership capabilities across the Group continues. • Investment in core infrastructure continues laying the foundation to support growth. Shareholder returns: • Total shareholder return for the year (excluding the impact of franking credits) was nominally negative 2.79% which was slightly below the performance of the ASX200 which returned negative 2.15% over a volatile year for equity markets globally. • Earnings per share (EPS) for 2015 was 35.2 cents per share, an increase of 9% on 2014. • Dividends for 2015 (interim dividend of 16.0 cents and announced (but not yet paid) final dividend of 26.7 cents) total 42.7 cents, an increase of 3 per cent on 2014. The Board’s assessment of the Group’s performance against 2015 objectives is summarised in the table below. This assessment, in conjunction with the performance of the MD/CEO and other Executive KMP against their individual objectives for the year, formed the basis for the determination of STI and LTI awards for the year. OPERATIONAL, STRATEGIC AND PEOPLE MEASURES 2015 PERFORMANCE OUTCOME Financial Clients Growth Products Group People Below target At target Above target Above target At target At target Executive KMP STI awards in FY15 The following table shows the proposed STI outcomes for each of the Executive KMP for 2015 and 2014. Cash STI amounts have been accrued but not paid as at the time of this report’s release. Payment of cash STI and the granting of deferred share rights will occur in 2016 as described in Section 4. The value of deferred share rights is subject to final approval by the Board in May 2016 and the Board retains the discretion to alter these amounts up or down up to that day should the performance of the Group or of individual KMP vary materially. As noted above, there is no set minimum or maximum STI opportunity for individual executives as STI outcomes are based on the agreed cash STI bonus pool (which is determined based on financial performance for the year) and the allocation between Executive KMP and other staff. As such, IRESS is unable to state a % of maximum STI forfeited for 2015. The Board has established a target remuneration mix for the MD/CEO and other Executive KMP which it believes is effective in driving performance. It retains the discretion to vary the actual mix based on its assessment of Group and individual performance. The actual mix of base, STI and LTI relating to 2015 and 2014 performance is shown below. The percentage of deferred share rights granted in previous years that lapsed during the year is shown in section 12. None of the proposed STI equity outcomes for the Executive KMP for 2015 have lapsed or been forfeited in 2015. The below STI and LTI table shows total remuneration relating to 2015 and 2014 performance 2015 EARNED 2014 EARNED STI LTI STI LTI Cash ($) DSR(1) ($) Total STI ($) Total LTI(3) ($) Cash ($) DSR(1) ($) Total STI ($) Total LTI(3) ($) A Walsh S Barnes S Bland P Ferguson J Harris(2)(4) J McNeill (nee Milton) S New (2) M Rady (2) D Walker Total 300,000 54,000 – 40,000 55,000 40,429 20,214 75,000 100,000 684,643 466,330 145,000 – 100,000 100,000 60,000 60,000 170,000 185,000 766,330 199,000 – 140,000 155,000 100,429 80,214 245,000 285,000 596,689 110,000 – 85,000 120,000 50,000 40,000 135,000 145,000 400,000 58,000 40,000 45,000 – 29,777 – 40,000 85,000 496,100 139,999 – 94,999 – 49,998 – 135,002 180,003 896,100 197,999 40,000 139,999 – 79,775 – 175,002 265,003 618,000 110,002 – 75,000 – – – 129,998 140,000 1,286,330 1,970,973 1,281,689 697,777 1,096,101 1,793,878 1,073,000 (1) Fair value of deferred share rights proposed or awarded. (2) M Rady joined the Group part way through 2014 and S New and J Harris joined the Group part way through 2015. (3) Fair value of performance rights proposed or awarded. (4) Performance rights with a fair value of $120,003 were awarded to J Harris as part of the May 2015 grant (shortly after he joined IRESS ) reflecting a long term incentive appropriate for the role. 30 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 The table below shows the actual mix of remuneration components relating to 2015 and 2014 performance compared to the target mix MD/CEO Target remuneration mix Actual remuneration mix Average of other Executive KMP Target remuneration mix Actual remuneration mix 2015 2014 Fixed STI LTI Fixed STI LTI 40% 42% 55% 57% 33% 32% 30% 27% 27% 25% 15% 16% 40% 40% 55% 61% 33% 36% 30% 24% 27% 25% 15% 15% Translation of Group performance into LTI awards LTI awards closely link executives’ interests with those of shareholders and with the Group’s long-term objective of delivering sustainable returns to shareholders. IRESS’ share price performance, along with other shareholder returns such as dividends, directly affects the vesting of LTI awards as all performance rights granted under the Executive LTI plan are subject to a relative TSR performance measure. The diagram below illustrates the vesting outcomes for those LTI grants eligible to vest in 2015 based on the Group’s relative TSR performance. None of the LTI performance rights to be awarded for performance in 2015 have lapsed or been forfeited in 2015. Relevant LTI grants to be tested in FY15 • MD/CEO: FY11 grant • Other Executive KMP: FY12 grant Performance periods ending in FY15 • MD/CEO: – Performance rights: 7 May 2011 to 7 May 2015 – Deferred performance rights: 7 May 2012 to 7 May 2015 • Other Executive KMP: 7 May 2012 to 7 May 2015 Relative TSR performance IRESS’ maximum TSR performance as measured on 7 May 2015 and subsequent retest dates was: 7 MAY 2011 TO 7 MAY 2015 7 MAY 2012 TO 7 MAY 2015 • • TSR 27.29% Percentile rank: 38.7th percentile • • TSR: 62.98% Percentile rank: 68.7th percentile LTI vesting outcomes MD/CEO: • • Deferred performance rights: 87.4% of performance rights vested. Performance rights: 0% of performance rights vested. Other Executive KMP: 87.4% performance rights vested. % 7 5 % 9 5 % 0 4 % 8 3 A / N % 4 3 % 6 3 % 9 3 % 6 1 – % 7 3 % 7 3 % 6 1 – % 0 2 % 2 1 % 4 4 % 2 4 % 6 3 % 5 4 2 5 7 , 6 2 5 , 2 8 3 3 , 5 1 7 , 2 4 5 9 , 5 3 7 7 2 9 , 0 9 6 1 6 1 , 9 7 9 9 4 1 , 1 9 8 9 3 6 , 1 8 5 9 3 1 , 8 8 4 3 6 9 , 4 9 4 – 0 0 1 , 1 8 5 3 9 6 , 9 0 5 9 0 6 , 6 2 1 – 8 1 1 , 0 6 6 6 2 1 , 1 4 3 6 9 9 , 9 1 9 4 3 7 , 3 7 8 – – – – 8 7 3 , 3 6 5 – – – – – – – – – – – – – 2 9 2 , 6 0 6 , 7 6 0 1 , 0 1 5 , 6 – 8 7 3 , 3 6 5 0 3 2 , 1 8 6 9 1 6 , 1 2 8 3 1 8 , 7 8 3 0 2 , 4 4 3 5 7 , 2 0 1 7 8 6 , 6 4 1 2 9 1 , 6 6 5 5 5 , 5 5 5 3 0 , 6 2 – 7 9 5 , 7 1 4 6 , 1 1 – – – 4 0 2 , 8 2 4 5 1 , 1 4 1 5 9 9 , 9 5 1 2 1 4 , 1 0 1 , 1 6 6 2 , 9 7 2 , 1 . s r a e y 9 4 1 , 0 5 4 7 8 0 , 1 8 3 1 0 2 , 4 3 1 6 5 0 , 6 1 1 ) 2 8 7 , 1 7 ( 0 9 0 , 6 1 1 3 2 1 , 2 0 1 5 4 4 , 8 8 – – 8 0 9 , 3 6 1 5 5 7 , 8 4 1 – – – 9 8 2 , 9 2 8 2 7 , 1 6 1 6 4 3 , 4 2 1 6 1 6 , 9 6 9 9 7 7 , 4 7 9 0 0 0 , 0 3 0 0 0 , 0 3 0 0 0 , 5 3 1 9 3 , 2 2 3 1 9 , 1 2 0 0 6 , 6 2 5 2 7 , 3 3 4 1 1 , 5 1 1 1 3 , 3 3 – 5 3 2 , 8 2 1 7 9 , 4 2 – – 5 2 6 , 7 2 5 2 1 , 6 2 6 6 1 , 0 3 1 7 8 , 2 2 5 7 9 , 9 3 2 2 7 0 , 8 6 1 0 0 0 , 0 0 3 0 0 0 , 0 0 4 – 0 0 0 , 4 5 0 0 0 , 8 5 0 0 0 , 0 4 0 0 0 , 0 4 0 0 0 , 5 4 0 0 0 , 5 5 – 9 2 4 , 0 4 7 7 7 , 9 2 4 1 2 , 0 2 – 0 0 0 , 5 7 0 0 0 , 0 4 0 0 0 , 5 8 0 0 0 , 0 0 1 3 4 6 , 4 8 6 7 7 7 , 7 9 6 3 7 3 , 5 6 2 3 6 , 2 8 – – 9 4 4 , 1 2 7 7 , 1 9 9 0 , 2 5 2 5 , 1 – 1 6 6 , 6 0 3 3 , 6 8 6 2 6 7 9 , 9 2 – – – 8 4 9 , 1 2 7 7 , 1 1 3 0 , 4 9 4 7 7 , 7 0 1 0 0 0 , 0 0 0 1 , , 0 0 0 0 0 0 1 , 0 0 0 0 1 4 , 7 6 6 6 0 4 , 0 0 0 0 2 4 , 0 0 0 0 6 5 , 0 0 5 7 3 3 , 0 0 5 2 8 2 , 1 4 6 0 5 3 , – 6 2 2 0 3 3 , 3 6 2 2 9 2 , 7 2 1 6 0 1 , – 0 0 0 0 0 5 , 1 0 0 5 7 2 , 0 0 0 5 8 4 , 0 5 7 9 7 4 , 4 9 4 , 9 3 9 3 , , 1 8 1 6 9 2 3 , 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 ANNUAL REPORT 2015 / 31 . 9 1 9 4 . 0 f o e t a r e g n a h c x e n g e r o i f e g a r e v a n a t a d e t r e v n o c e r e w e b a t e h t n l i n w o h s s t n u o m a r a l l o d n a i l a r t s u A e h T . s t n e m e v o m X F o t j t c e b u s e r a d n a s d n u o P h s i t i r B n i i d e t a n m o n e d e r a w e N S d n a l l i e N c M J f o n o i t a r e n u m e R . s r a e y l i a c n a n fi 5 1 0 2 r o 4 1 0 2 e h t n i l i P M K e v i t u c e x E e h t o t d e d v o r p s t fi e n e b t n e m y o p m e - t s o p r e h t o r o s t fi e n e b n o s n e p o n e r e w e r e h T i ) d ( ) e ( l i a c n a n fi 5 1 0 2 r o 4 1 0 2 e h t g n i r u d P M K e v i t u c e x E e h t o t d e d v o r p i , s t fi e n e b e e y o p m e m r e t l t r o h s r e h t o r o , s e s u n o b r e h t o d n a g n i r a h s t fi o r p m r e t t r o h s r e h t o o n e r e w e r e h T ) c ( l . s t s o c n o i t a c o e r s i r r a H J d n a ; s t s o c n o i t a c o e r d n a e c n a w o l l l a t n e m d n o c e s K U h s a W A l , i i i d e v e c e r s e d s b u s e c n a r u s n i l h t l a e h o t e t a e r s t fi e n e b y r a t e n o M - n o N ) b ( . s r a e y l i a c n a n fi 5 1 0 2 r o 4 1 0 2 e h t g n i r u d s e c n e s b a d e t a s n e p m o c m r e t t r o h s d a h P M K e v i t u c e x E o N ) a ( - e c n a m r o f r e P d e t a e r l n o i t a r e n u m e r l a t o t f o % s a n o i t a r e n u m e r l a t o T n o i t a r e n u m e R s$ t n e m y a p n o i t a n m r e T i I S T F E N E B M R E T - G N O L s$ t h g R i – s t n e m y a p d e s a b e r a h S e c n a m r o f r e P s$ t h g R i – s t n e m y a p d e s a b e r a h S e r a h S d e r r e f e D - T S O P T N E M Y O L P M E S T N E M E L T T N E I I S T F E N E B M R E T - T R O H S n o i t a u n n a r e p u S e v i t n e c n i h s a C y r a t e n o M - n o N s e e F d n a y r a a S l . d o i r e p g n i t s e v e h t r e v o e u a v r i a l f $ ) d ( $ ) c ( $ ) b ( $ ) a ( r a e Y l i a c n a n F i e r a s t h g i r e c n a m r o f r e p d n a s t h g i r e r a h s d e r r e e d d r a d n a t s s h t f i r e d n U . s d r a d n a t s g n i t n u o c c a 2 B S A A d n a s t n e m e r i u q e r y r o t u t a t s h t i w e c n a d r o c c a n i d e r a p e r p n o i t a r e n u m e r P M K e v i t u c e x E f o s l i a t e d s t n e s e r p w o e b e b a t e h T l l I N O T A R E N U M E R Y R O T U T A T S P M K E V T U C E X E – I I 8 N O T C E S e t a d t n a r g e h t n o d e s a b d e s n e p x e P M K e v i t u c e x E s e n r a B S n o s u g r e F P d n a B S l n o i t i s o P O E C / D M l h s a W A ) e ( ) n o t l i M e e n ( s i r r a H J l l i e N c M J ) e ( w e N S y d a R M l r e k a W D l a t o T 32 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 SECTION 9 – EXECUTIVE KMP SERVICE AGREEMENTS All IRESS Executive KMP have a formal contract, known as a service agreement. These agreements are of an ongoing nature and have no set term of service. The key terms of the service agreements for the MD/CEO and other Executive KMP are summarised below. Executive KMP termination entitlements are limited to 12 months base salary. MD/CEO CRITERION Term of contract Notice period Resignation Retirement Termination on notice by IRESS Redundancy ARRANGEMENTS Ongoing. Six months (from the employee and Group). The MD/CEO may resign by giving six months written notice. There are no additional financial entitlements due from IRESS on retirement. IRESS may terminate the employment agreement by providing six months written notice, or payment in lieu of the notice period. If IRESS terminates employment for reasons of bona fide redundancy, a severance payment will be made. The quantum of the payment will be determined subject to the Board’s discretion, taking into account matters such as statutory requirements, the executive’s contribution, position and length of service. Termination for serious misconduct IRESS may terminate the employment agreement at any time without notice. Restraint of trade A restraint of trade arrangement exists during the MD/CEO’s employment for a period of six months following his employment with the Group. An addendum to Mr A Walsh’s employment contract was implemented in 2013 to support his short-term secondment to the UK following the acquisition of Avelo. This arrangement assisted Mr A Walsh with the incremental costs incurred in a short-term transfer of this type. The primary benefits related to accommodation and education support that continued to be provided in 2015 until his relocation back to Australia in August 2015. The addendum arrangement terminated on Mr A Walsh’s permanent return to Australia. Executive KMP Details of the contractual terms for the other Executive KMP members are aligned with the terms set out above for the MD/CEO, with the key points of differences as follows: CRITERION Notice period ARRANGEMENTS Six months with the exception of P Ferguson and S Barnes whose notice period is a minimum of three months. Restraint of employment No restraint of employment provisions apply. Upon his cessation of employment as CFO on 1 October 2015 Mr S Bland received a termination payment of $563,378 and payment for accrued statutory leave entitlements. This payment was consistent with his service agreement and in line with statutory thresholds. In addition, Mr S Bland retains 32,511 performance rights that were issued in 2013 and 2014 and 9,989 Deferred Share Rights that were issued in 2014. The vesting conditions associated with these performance rights are unchanged. All other deferred equity rights were forfeited upon cessation of employment. ANNUAL REPORT 2015 / 33 SECTION 10 – REMUNERATION GOVERNANCE The Board and People and Performance Committee (PPC) work closely to apply the Group’s remuneration philosophy and ensure our strategy drives and supports sustainable shareholder value. How remuneration decisions are made – roles and responsibilities Board • Oversees remuneration • Ultimately responsible for recommendations and decisions made by the PPC Approves remuneration policy for NEDs, CEO and other senior executives • • Reviews PPC charter annually With advice from People and Performance Committee • Reviews remuneration taking into account a wide variety of information including internal budgets, general and specific global and regional market factors, and peer review • Makes recommendations to the Board on remuneration matters • Where relevant, approves the remuneration arrangements for Executives • Governed by PPC charter Based on input from External advisors Management • Management makes relevant proposals to the PPC for consideration by the Board, taking into consideration external advice • • • At IRESS’ request, external advisors provide both information on current market practice and independent input into key remuneration decisions The terms of engagement for external advisors include specific measures designed to protect to independence External advisors interact with members of IRESS’ management team Individual executives, including the MD/CEO, do not participate in People & Performance Committee meetings where their own remuneration is being discussed. To ensure independence, IRESS’ management team is precluded from requesting services from an external advisor that would be considered a ‘remuneration recommendation’ as defined by the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011. No remuneration recommendations (as defined by the Corporations Act 2001) were provided to the IRESS Board during the reporting period. SECTION 11 – NON-EXECUTIVE DIRECTOR FEES In order to ensure independent oversight of the Group, NEDs do not participate in performance-based incentives or receive post-employment benefits. Approach to setting NED fees The Group’s NEDs receive fees for their services plus the reimbursement of reasonable expenses. The NED fee structure takes into account the responsibilities of NEDs and the time spent by NEDs on IRESS matters. NED fees are reviewed annually and are determined by the Board in consideration of fees paid to NEDs by comparable companies. The Board seeks external advice on this subject where considered necessary. 34 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 Maximum aggregate NED fee pool The total amount of remuneration provided to all NEDs is determined by shareholders at the Annual General Meeting in accordance with the Group’s Constitution. The maximum aggregate remuneration for NEDs is set around the median level for comparable companies, to provide the ability for IRESS to attract and retain appropriately qualified and experienced directors. The maximum aggregate remuneration of $900,000 per annum was approved at the Annual General Meeting held on 2 May 2013. The total amount of remuneration paid to NEDs in 2015 was $784,623. NED fee policy The table below contains the fee policy for NEDs during 2015. No changes to fees were made from 2014 to 2015. Fees include statutory superannuation contributions or fees in lieu of statutory superannuation contributions paid by the Group. ROLE Board Chair Board member Audit and Risk Committee Chair Member People and Performance Committee Chair Member The Board Chair is not entitled to additional Committee fees. Non-executive Director statutory remuneration The total statutory remuneration paid to NEDs during 2015 and 2014 is as set out in the table below. POLICY FEES ($) 200,000 110,000 22,000 Nil 22,000 Nil Non-executive Directors A D’Aloisio N Beattie (a) J Cameron J Hayes J Seabrook G Tomlinson P Dunai (b) Total Non-executive Director fees SHORT-TERM BENEFITS POST-EMPLOYMENT ENTITLEMENTS Financial year Fees $ Superannuation $ Total $ 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 182,648 119,423 100,833 – 100,457 98,276 120,548 117,892 120,548 117,892 92,085 – – 132,962 717,119 586,445 17,352 11,225 8,957 – 9,543 9,213 11,452 11,056 11,452 11,056 8,748 – – 12,413 67,504 54,963 200,000 130,648 109,790 – 110,000 107,489 132,000 128,948 132,000 128,948 100,833 – – 145,375 784,623 641,408 (a) NED fees are paid inclusive of superannuation for all NEDs except for N Beattie. N Beattie is paid NED fees excluding superannuation. Superannuation for N Beattie is paid on a percentage of total fees relating to the portion of work performed in Australia. (b) P Dunai retired 27 September 2014. ANNUAL REPORT 2015 / 35 SECTION 12 – ADDITIONAL REQUIRED DISCLOSURES Deferred share rights and performance rights awarded during the year The table below discloses deferred share rights and performance rights granted to the Executive KMP during the year. No rights vest if the conditions are not satisfied, hence the minimum value yet to vest is nil. The maximum value of the grants yet to vest has been determined as the fair value of awards at grant date that is yet to be expensed. None of the rights granted during the year either vested or lapsed in 2015. Deferred share rights and performance rights are granted for no consideration and have an exercise price of $1 for all deferred share rights or performance rights exercised on a particular day. Executive KMP who exercised their rights during the year paid this sum on exercise. Executive Vehicle Financial year Grant date Number of rights granted Fair value at grant date ($) A Walsh Deferred share rights Performance rights S Barnes Deferred share rights Performance rights S Bland Deferred share rights Performance rights P Ferguson Deferred share rights Performance rights J Harris Deferred share rights Performance rights J McNeill (nee Milton) Deferred share rights Performance rights S New Deferred share rights Performance rights M Rady Deferred share rights Performance rights D Walker Deferred share rights Performance rights 2015 2015 2015 2015 2015 – – 2015 2015 2015 2015 2015 – 2015 2015 2015 2015 2015 2015 7 May 2015 7 May 2015 7 May 2015 7 May 2015 7 May 2015 – – 7 May 2015 7 May 2015 – 7 May 2015 7 May 2015 – – – 7 May 2015 7 May 2015 7 May 2015 7 May 2015 55,000 60,000 60,000 15,521 20,755 – – 10,532 14,151 – 22,642 5,543 – – – 14,967 24,528 19,956 26,415 9.02 5.17 5.13 9.02 5.30 – – 9.02 5.30 – 5.30 9.02 – – – 9.02 5.30 9.02 5.30 Vesting date (a) Expiry date (a) 7 May 2018 7 May 2018 7 May 2019 7 Nov 2019 7 May 2019 7 Nov 2019 7 May 2018 7 May 2018 7 May 2018 7 Nov 2018 – – – – 7 May 2018 7 May 2018 7 May 2018 7 Nov 2018 – – 7 May 2018 7 Nov 2018 7 May 2018 7 May 2018 – – – – – – 7 May 2018 7 May 2018 7 May 2018 7 Nov 2018 7 May 2018 7 May 2018 7 May 2018 7 Nov 2018 (a) Vested rights will be automatically exercised for Australian Executive KMP on or around the time IRESS notifies them that their rights have vested. For Executive KMP outside Australia, vested rights may be exercised at any time before 7 May 2020. 36 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 Deferred share rights and performance rights vested and lapsed during the year The table below discloses deferred share rights and performance rights that had vesting determinations made during the year for the Executive KMP. Executive Vehicle Deferred share rights Performance rights A Walsh Performance rights Deferred share rights S Barnes Performance rights Deferred share rights S Bland Performance rights Deferred share rights P Ferguson Performance rights Deferred share rights J Harris Performance rights J McNeill (nee Milton) Deferred share rights Performance rights Deferred share rights S New Performance rights Deferred share rights M Rady Performance rights Deferred share rights D Walker Performance rights Financial year Grant date 2012 7 May 2012 2011 7 May 2011 2011 7 May 2011 2012 7 May 2012 2012 7 May 2012 2012 7 May 2012 2012 7 May 2012 2012 7 May 2012 2012 7 May 2012 2012 2012 2012 2012 2012 2012 2012 2012 – – – – – – – – Number of rights granted 65,000 150,000 150,000 20,320 25,100 14,150 47,220 12,930 15,970 – – – – – – – – Fair value at grant date ($) Vesting date Expiry date Number of rights vested* Number of rights lapsed 6.18 7 May 2015 7 May 2015 65,000 – 5.87 7 May 2015 7 Nov 2015 – 150,000 5.79 7 May 2015 7 Nov 2015 131,100 18,900 6.18 7 May 2015 7 May 2015 3.76 7 May 2015 7 Nov 2015 6.18 7 May 2015 7 May 2015 3.76 7 May 2015 7 Nov 2015 6.18 7 May 2015 7 May 2015 3.76 7 May 2015 7 Nov 2015 20,320 21,937 14,150 41,270 12,930 13,958 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,163 – 5,950 – 2,012 – – – – – – – – – 6,510 2012 7 May 2012 2012 7 May 2012 15,480 51,670 6.18 7 May 2015 7 May 2015 3.76 7 May 2015 7 Nov 2015 15,480 45,160 * One ordinary share is provided for each vested right, subject to adjustment for certain capital actions. Shares provided on vesting of rights are fully paid and accordingly there is no unpaid amount. ANNUAL REPORT 2015 / 37 Shareholdings The number of ordinary shares held in the Company during the financial year by each KMP, including their personally related parties is set out below. NEDs A D’Aloisio (c) N Beattie J Cameron J Hayes J Seabrook G Tomlinson Executive KMP A Walsh S Barnes P Ferguson J Harris J McNeill (nee Milton) S New M Rady S Bland (d) D Walker Total Balance as at 1 Jan 2015 (a) Shares acquired during the year (b) Other changes Balance as at 31 Dec 2015 (a) 35,534 – 36,668 12,467 36,667 – 258,521 – – – – – – 27,478 571,223 978,558 – – – – – – 196,100 42,257 26,888 – – – – 55,420 60,640 381,305 – – – – – – – – – – – – – (62,898) (78,226) 35,534 – 36,668 12,467 36,667 – 454,621 42,257 26,888 – – – – 20,000 553,637 (141,124) 1,218,739 (a) Balance includes shares held on behalf of KMP by the trustee under the IRESS Limited Equity Plans Trust Deed. (b) Shares acquired by Executive KMP during the year were acquired on the exercise of deferred share rights and performance rights granted as compensation. (c) A D’Aloisio acquired 6,045 shares in 2014. The opening balance has been amended to reflect this. (d) S Bland opening balance has been restated from prior year to 27,428. Options There were no listed options held in the Company by KMP during the financial year ended 31 December 2015. Rights held during the financial year The number of deferred shares, deferred share rights (deferred STI) and LTI performance rights held in the Company by each Executive KMP is set out below. No rights are granted to NEDs or related parties. LTI Performance Rights MD/CEO A Walsh Executive KMP S Barnes S Bland P Ferguson J Harris J McNeill (nee Milton) S New M Rady D Walker Total Balance as at 1 January 2015 Granted as compensation Vested during the year (a) Forfeited during the year Balance as at 31 December 2015 (b) 716,000 120,000 (131,100) (168,900) 536,000 69,700 99,790 44,200 – 8,370 – – 109,810 20,755 – 14,151 22,642 – – 24,528 26,415 (21,937) (41,270) (13,958) – – – – (45,160) (3,163) (26,009) (2,012) – – – – (6,510) 65,355 32,511 42,381 22,642 8,370 – 24,528 84,555 1,047,870 228,491 (253,425) (206,594) 816,342 (a) All performance rights that vested during the financial year are exercisable. No shares vested during the year are unexercisable. (b) No performance rights were, as at 31 December 2015 vested (or vested and exercisable) and not yet exercised; or vested and unexercisable. 38 / IRESS LIMITED Directors’ Report (continued) For the year ended 31 December 2015 STI Deferred Share Rights MD/CEO A Walsh Executive KMP S Barnes S Bland P Ferguson J Harris J McNeill (nee Milton) S New M Rady D Walker Total Balance as at 1 January 2015 Granted as compensation Vested during the year (a) Forfeited during the year Balance as at 31 December 2015 (a) (b) 178,000 55,000 (65,000) – 168,000 54,470 54,330 41,080 – 59,811 – – 58,220 15,521 – 10,532 – 5,543 – 14,967 19,956 (20,320) (14,150) (12,930) – – – – (15,480) 445,911 121,519 (127,880) – (30,191) – – – – – – (30,191) 49,671 9,989 38,682 – 65,354 – 14,967 62,696 409,359 (a) All deferred share rights that vest during the financial year are exercisable. No shares vested during the year are unexercisable. (b) No deferred share rights were, as at 31 December 2015 vested (or vested and exercisable) and not yet exercised; or vested and unexercisable. Transactions with KMP No transactions involving an equity instrument (excluding share based payment compensation) occurred between KMP and the Company during 2015. Loans to KMP or related parties No loans to KMP or related parties were provided during 2015. Terms used in this remuneration report TERM CFO MEANING Chief Financial Officer Executives Members of IRESS’ Executive Leadership Team (including the Executive KMP and other executives) Executive KMP The KMP that are also part of the Executive Leadership Team (including the MD/CEO, the CFO and other Group executives) KMP LTI KMP are those people with authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly Long-term incentives MD/CEO Managing Director and Chief Executive Officer NED PPC STI TSR Non-executive Director People & Performance Committee (PPC) Short-term incentives TSR measures the percentage change in a company’s security price together with the value of dividends/distributions received during the period, assuming that all of those dividends/distributions are re-invested into new securities Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001 (Cth). A D’ALOISIO CHAIRMAN 25 February 2016 A WALSH CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR 25 February 2016 Auditor’s Independence Declaration ANNUAL REPORT 2015 / 39 40 / IRESS LIMITED Financial Report Contents Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 1. Summary of significant accounting policies 2. Segment information 3. Notes to the statement of cash flows 4. Expenses 5. Employee benefit expenses 6. Earnings per share 7. Remuneration of auditors 8. Income tax 9. Trade and other receivables 10. Plant and equipment 11. Intangibles 12. Provisions 13. Borrowings and derivative liabilities 14. Financial instruments 15. Issued capital 16. Dividends 17. Share-based payments 18. Related party transactions 19. Commitments 20. Contingencies 21. Business combinations 22. Subsidiaries 23. Deed of cross guarantee 24. Parent entity financial information 25. Subsequent events Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 41 42 43 44 45 45 48 50 50 50 51 51 51 53 54 55 56 57 57 59 60 60 62 62 62 63 65 66 67 67 68 69 71 73 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2015 ANNUAL REPORT 2015 / 41 Revenue Other income Customer data fees Communication and other technology expenses Employee benefit expenses Other expenses Foreign exchange gain Profit before depreciation, amortisation, interest and income tax Depreciation and amortisation expense Profit before interest and income tax expense Interest revenue Interest expense Financing expense (1) Net interest and financing costs Profit before income tax Income tax expense Profit after income tax Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Total comprehensive income for the period Earnings per share Basic earnings per share Diluted earnings per share (1) Comprises the revaluation of the derivative liabilities. Notes 5 4 4 8 6 2015 $’000 361,464 242 (29,192) (17,601) (185,062) (27,224) 9,831 112,458 (26,267) 86,191 1,776 (10,847) (8,214) (17,285) 68,906 (13,521) 55,385 2014 $’000 328,964 109 (28,456) (14,555) (162,966) (26,881) 1,702 97,917 (23,371) 74,546 1,951 (10,821) (2,275) (11,145) 63,401 (12,730) 50,671 8,782 64,167 8,860 59,531 Cents per share Cents per share 35.17 34.66 32.33 31.87 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 42 / IRESS LIMITED Consolidated statement of financial position As at 31 December 2015 Assets Current assets Cash and cash equivalents Trade and other receivables Current tax receivables Total current assets Non-current assets Plant and equipment Intangibles Deferred tax assets Other financial assets Total non-current assets Total assets Liabilities Current Liabilities Trade facilities Trade and other payables Current tax payables Provisions Derivative liabilities Total current liabilities Non-current liabilities Borrowings Trade and other payables Derivative liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity The consolidated statement of financial position should be read in conjunction with the accompanying notes. Notes 2015 $’000 2014 $’000 9 10 11 8 13 12 13 13 13 12 8 15 39,233 37,294 31 76,558 9,998 529,300 28,413 33 567,744 644,302 2,133 33,466 5,275 8,713 10,069 59,656 200,903 8,000 11,055 7,580 17,797 245,335 304,991 339,311 275,983 45,093 18,235 339,311 74,914 34,577 37 109,528 9,675 433,343 21,387 34 464,439 573,967 – 26,604 1,762 6,583 – 34,949 179,110 – 12,910 4,863 11,351 208,234 243,183 330,784 275,315 31,760 23,709 330,784 Consolidated statement of changes in equity For the year ended 31 December 2015 Issued capital $’000 Retained earnings $’000 Share based payments reserve $’000 2015 Balance at 1 January 2015 Profit for the period Other comprehensive income Total comprehensive income Transactions with owners in their capacity as owners: Dividends declared Share-based payment expense Employee share payments Transfer share-based payments reserve(1) Balance at 31 December 2015 2014 Balance at 1 January 2014 Profit for the period Other comprehensive income Total comprehensive income Transactions with owners in their capacity as owners: Dividends declared Share-based payment expense Transfer share-based payments reserve(1) 275,315 – – – – – 668 – 668 275,983 275,315 – – – – – – – Balance at 31 December 2014 275,315 23,709 55,385 – 55,385 (66,175) – – 5,316 (60,859) 18,235 (9,417) 50,671 – 50,671 (64,434) – 46,889 (17,545) 23,709 (1) Share grants which have fully expired have been transferred from share based payment reserve to retained earnings. The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2015 / 43 Foreign currency translation reserve $’000 15,156 – 8,782 8,782 – – – – – Total equity $’000 330,784 55,385 8,782 64,167 (66,175) 9,867 668 – (55,640) 16,604 – – – – 9,867 – (5,316) 4,551 21,155 23,938 339,311 54,575 – – – – 8,918 (46,889) (37,971) 16,604 6,296 – 8,860 8,860 – – – – 326,769 50,671 8,860 59,531 (64,434) 8,918 – (55,516) 15,156 330,784 44 / IRESS LIMITED Consolidated statement of cash flows For the year ended 31 December 2015 Cash flows from operating activities Receipts from customers Payments to suppliers Payments to employees Interest received Interest paid Income taxes paid Net cash inflow from operating activities 3 Cash flows from investing activities Payments for plant and equipment Payments for intangibles Proceeds from sale of plant and equipment Acquisition of subsidiaries & businesses, net of cash acquired Acquisition and integration costs paid Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Proceeds from employee share plan repayments Dividends paid Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the year The consolidated statement of cash flows should be read in conjunction with the accompanying notes. Notes 2015 $’000 2014 $’000 403,176 (111,836) (175,404) 1,776 (10,921) (16,045) 90,746 (6,058) (4,557) 169 (70,880) (3,500) (84,826) 250,849 (224,805) 668 (66,288) (39,576) (33,656) 74,914 (2,025) 39,233 362,953 (97,956) (164,563) 1,951 (10,821) (9,017) 82,547 (8,095) (2,752) – (2,208) (1,026) (14,081) – – – (64,275) (64,275) 4,191 71,405 (682) 74,914 ANNUAL REPORT 2015 / 45 BASIS OF PREPARATION IRESS Limited (the ‘Company’) is a for profit Company domiciled in Australia. The financial report is a general purpose financial report comprising the Company and its subsidiaries (collectively referred to as the ‘Group’ or ‘IRESS’) which has been prepared in accordance with the Corporations Act 2001 (Cth), Australian Accounting Standards and Interpretations, and International Financial Reporting Standards (IFRS). (d) Foreign currency translation 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. The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The disclosures in the financial report for the year ended 31 December 2015 have been enhanced to improve the relevance and readability for users of the financial report. As a result of enhancing the financial report, certain line items within the consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position have been combined and re-stated in the comparative period. The financial statements were authorised for issue by the Directors on 25 February 2016. The financial report has been prepared on a historical cost basis, except for derivative financial instruments and investments in financial assets which have been measured at fair value. All amounts are presented in Australian dollars, unless otherwise stated. The Group is of a kind referred to in ASIC Class Order 98/100 and in accordance with that Class Order, amounts in the consolidated financial statements and Directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 1. 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. (b) Employee benefits Short-term employee benefits are expensed as the related service is provided. A provision is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Contributions to defined contribution superannuation plans are expensed when incurred. (c) Financial instruments Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets are classified into the following categories; • Loans and receivables – subsequently measured at amortised cost • Fair value through profit or loss – subsequently measured at fair value by reference to active market transactions or using a valuation technique where no active market exists. • Held to maturity – subsequently measured at amortised cost • Available for sale – subsequently measured at fair value. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Exchange differences are recognised in profit or loss in the period in which they arise except that 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 Assets and liabilities of foreign operations are translated using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Any exchange differences are recognised in equity. On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit or loss. (e) Income tax Current tax Current tax comprises expected tax payable/receivable on taxable income/ loss for the year and any prior period adjustments. Current tax is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for; • Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • Temporary differences related to investments in subsidiaries, to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and • Taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that the future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Notes to the consolidated financial statementsFor the year ended 31 December 2015 46 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Income tax (continued) Tax consolidation The Company and 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. (f) Intangible assets Intangible assets are initially measured at cost if it is probable that future economic benefits that are attributable to the asset will flow to the entity and the cost can be measured reliably. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is generally recognised in profit or loss. Identifiable intangible assets with a finite life are amortised on a straight-line basis over their expected useful life as follows. • Computer software • Customer lists • Customer relationships • Brand names 1 – 8 years 2 – 3 years 1 – 10 years 1 – 10 years Identifiable intangible assets with indefinite life are not amortised but tested for impairment annually. The Group holds Database indefinite life intangible assets. (g) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If any obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. (h) Impairment of assets At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, the recoverable amount of an asset or cash generating unit (CGU) is the greater of its value in use and its fair value less cost of disposal. Value in use is based on the estimated future cash flows, 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 or CGU. The Group uses a post-tax discount rate applied to post-tax estimated future cash flows. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis. An impairment loss can only be reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment of goodwill is not subsequently reversed. (i) Consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the Group. 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. An entity is controlled when IRESS is exposed to, or has rights to, variable returns from involvement with the entity and has the ability to affect those returns through power over the entity. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. In reporting the consolidated financial statements, all intercompany balances and transactions, and unrealised profits within the Group are eliminated in full. (j) Plant and equipment Plant and equipment are measured at cost less accumulated depreciation and impairment. Depreciation is calculated on a straight-line basis over its expected useful life, the following estimated useful lives are used in the calculation of depreciation. • Leasehold improvements • Computer equipment • Furniture and fittings • Office equipment 3-10 years 3-10 years 3-10 years 3-10 years (k) Leases Leases in which a significant amount of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases are charged to the profit or loss on a straight-line basis over the period of the lease. (l) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of Management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. ANNUAL REPORT 2015 / 47 (m) 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 state of completion of the contract. The state of completion of the contract is determined by reference to the proportion of the term of the delivery of services that has expired. (n) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any gains or losses are recognised in the profit or loss in the event the borrowings are derecognised. (o) Borrowing Costs Borrowing costs not related to the establishment of facilities are recognised in profit or loss in the period in which they are incurred. Borrowing costs relating to the establishment of facilities are capitalised as part of the debt instrument and amortised over the life of the facility. (p) Share based payments The grant date fair value of equity settled share based payment awards granted to employees is recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. (q) Derivatives Derivatives are initially recognised at fair value; any directly attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in profit or loss. (r) Adoption of new and revised accounting standards The Group has adopted all 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 on or after 1 January 2015. REFERENCE AASB 2014-1 AASB 2013-9 AASB 2015-3 TITLE Amendments to Australian Accounting Standards Part A: Annual improvements Part B: Defined Benefit Plans Part C: Materiality Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality At the date of authorisation of the financial report, the following relevant Standards and Interpretations were in issue but not yet effective. REFERENCE AASB 15 AASB 2014-5 AASB 1057 AASB 9 AASB 2014-4 AASB 2015-1 AASB 2015-2 IFRS 16 TITLE Revenue from Contracts with Customers Amendments to Australian Accountings Standards arising from AASB 15 Application of Australian Accounting Standards Financial Instruments Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 Leases APPLICATION 1 Jan 2015 1 Jan 2015 1 Jul 2015 APPLICATION 1 Jan 2018 1 Jan 2018 1 Jan 2016 1 Jan 2018 1 Jan 2016 1 Jan 2016 1 Jan 2016 1 Jan 2019 With the exception of AASB 15 and IFRS 16, Management have assessed the impact of the adoption of these Accounting Standards and Interpretations in future periods on the financial statements of the Group. Management do not believe these Accounting Standards and Interpretations will have a material impact in future periods on the financial statements of the Group at this point in time. Management are in the process of assessing the impact of AASB 15 in future periods on the financial statements of the Group. The Group does not intend to early adopt any of these pronouncements. 48 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The below table outlines revenue by product. (CONTINUED) (s) Use of estimates and judgements In the preparation of the financial statements, Management is required to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. These estimates and associated assumptions are based on historical experience and are assessed to be reasonable under the circumstances. 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. The most significant of these assumptions and judgements are: Impairment When determining whether an asset or CGU 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 requires the Company to estimate the future cash-flows expected to arise from the CGU and a suitable discount rate to calculate present value. Business combinations The cost process for assets acquired is allocated to identifiable assets and liabilities at their estimated fair values at the time of acquisition. Any excess value beyond that allocated to assets and liabilities is recognised in the financial position as goodwill. To determine fair values on acquisition, estimates must be made. Commonly, an active market does not exist for assets and liabilities obtained through acquisitions and therefore alternative methods must be used to determine fair values. If fair value of assets acquired exceeds the consideration paid, the difference is recognised in the income statement. The allocation of the consideration to identifiable assets and liabilities is made on a provisional basis. The values allocated are reviewed based on improved knowledge of operations in subsequent period, but no later than the 12 months after the acquisition. Tax treatment assumptions The Group is subject to income taxes in Australia and overseas jurisdictions. Deferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against which the assets can be utilised. The Group’s assumptions regarding future realisation may change due to future operating performance and other factors. 2. SEGMENT INFORMATION The Group’s operations are managed by region. The exceptions to this are in Australia and New Zealand, where the operations are still managed by financial markets and wealth management, and in the United Kingdom, where the operations are currently managed by financial markets, wealth management and enterprise lending. Any transactions directly between segments are charged on an arm’s length basis. REGION Australia and New Zealand Canada South Africa Asia United Kingdom Total Revenue by product Financial markets Wealth management Enterprise lending 2015 $’000 2014 $’000 154,816 173,880 32,768 361,464 146,651 151,516 30,797 328,964 The Group’s segments are outlined below. ANZ financial markets Provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants in Australia and New Zealand. ANZ wealth management Provides financial planning systems and related tools to wealth management professionals located in Australia and New Zealand. Canada Provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants in Canada. South Africa Provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants and provides financial planning systems and related tools to wealth management professionals located in South Africa. Asia Provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants and provides financial planning systems and related tools to wealth management professionals located in Asia. UK financial markets Provides information, trading, compliance, order management, portfolio systems and related tools to cash equity participants in the United Kingdom. UK enterprise lending This enterprise lending segment operates in the United Kingdom to provide enterprise mortgage origination software and associated consulting services. UK wealth management Provides financial planning systems and related tools to wealth management professionals located in the United Kingdom. The below table outlines assets and liabilities by geographical areas. 2015 2014 Assets $’000 51,867 5,254 30,330 2,696 554,155 644,302 Liabilities $’000 189,926 1,950 5,836 2,662 104,617 304,991 Assets $’000 101,515 6,302 33,512 4,120 428,518 573,967 Liabilities $’000 194,768 1,877 5,441 489 40,608 243,183 ANNUAL REPORT 2015 / 49 ) 8 1 9 , 8 ( ) 9 0 6 , 4 ( 7 1 9 , 7 9 ) 1 7 3 , 3 2 ( 6 4 5 , 4 7 ) 5 4 1 , 1 1 ( 1 0 4 , 3 6 ) 0 3 7 , 2 1 ( 1 7 6 , 0 5 ) 9 9 3 , 8 ( ) 1 8 5 , 2 ( ) 8 1 8 , 5 ( – 4 4 4 , 1 1 1 0 3 5 , 1 2 6 2 2 , 4 3 8 5 , 8 1 ) 9 7 2 , 1 ( L A T O T K U L A T O T I G N D N E L T M G M S T E K R A M I A S A 2 4 2 – – – 4 6 4 , 1 6 3 2 1 9 , 3 2 1 8 6 7 , 2 3 7 0 2 , 6 8 6 0 7 , 1 6 3 2 1 9 , 3 2 1 8 6 7 , 2 3 7 0 2 , 6 8 – 7 3 9 , 4 7 3 9 , 4 7 7 1 4 5 , 2 8 1 6 , 2 K U K U K U I E S R P R E T N E H T L A E W I L A C N A N F I ) 7 6 8 , 9 ( 0 5 1 , 3 ) 7 6 2 , 6 2 ( 1 9 1 , 6 8 ) 5 8 2 , 7 1 ( 6 0 9 , 8 6 ) 1 2 5 , 3 1 ( 5 8 3 , 5 5 8 5 4 , 2 1 1 ) 0 4 3 , 0 1 ( ) 1 1 8 , 2 ( ) 3 5 7 , 6 ( ) 6 7 7 ( 5 7 1 , 9 1 1 2 2 2 , 7 2 3 2 3 , 7 7 3 9 , 1 2 ) 8 3 0 , 2 ( ) 9 4 0 , 4 ( ) 4 1 1 ( L A T O T K U L A T O T I G N D N E L T M G M S T E K R A M I A S A 9 0 1 – – – 4 6 9 , 8 2 3 7 3 7 , 5 0 1 7 9 7 , 0 3 8 3 7 , 3 7 3 7 0 , 9 2 3 7 3 7 , 5 0 1 7 9 7 , 0 3 8 3 7 , 3 7 – 2 0 2 , 1 2 0 2 , 1 – 3 0 9 , 1 3 0 9 , 1 K U K U I E S R P R E T N E H T L A E W K U I L A C N A N F I – – 5 6 1 – 5 6 1 4 1 6 , 6 2 2 8 4 , 9 1 5 1 9 , 8 8 1 2 2 3 , 0 8 3 9 5 8 0 1 , H T U O S I A C R F A A D A N A C Z N A L A T O T Z N A T M G M H T L A E W I L A C N A N F I S T E K R A M Z N A ) I D E U N T N O C ( I N O T A M R O F N I T N E M G E S . 2 S T N E M G E S E L B A T R O P E R e m o c n i r e h t O e u n e v e R 5 1 0 2 0 0 0 $ ’ 4 1 6 , 6 2 2 8 4 , 9 1 0 8 0 , 9 8 1 2 2 3 , 0 8 8 5 7 8 0 1 , e m o c n i r e h t o & e u n e v e r l a t o T 0 8 5 , 8 8 9 5 , 2 4 2 8 , 4 8 0 6 2 , 8 3 4 6 5 6 4 , e s n e p x e t n e m y a p d e s a b e r a h S ) s s o l ( / t fi o r p t n e m g e S s t l u s e R ) 4 7 8 ( ) 5 9 4 ( ) 4 4 4 , 4 1 ( . s e s s o l i d n a s n a g e g n a h c x e n g e r o i f ) 0 2 4 ( ) 4 2 0 4 1 , ( i n o i t a c e r p e d , x a t , t s e r e t n i e r o f e b t fi o r P e s n e p x e x a t e m o c n i e r o f e b t fi o r P x a t & t s e r e t n i e r o f e b t fi o r P n o i t a s i t r o m a & n o i t a c e r p e D i e s n e p x e g n c n a n fi i t e N n o i t a s i t r o m a & e s n e p x e x a t e m o c n I r a e y e h t r o f t fi o r P ) ( 1 s m e t i g n i r r u c e r - n o N d e s i l i a e r n u d n a s e s n e p x e n o i t i s u q c a s s e n s u b s e s i r p m o c y e t a n m o d e r p s m e t i i l i g n i r r u c e r - n o N ) 1 ( H T U O S I A C R F A A D A N A C Z N A L A T O T Z N A T M G M H T L A E W I L A C N A N F I S T E K R A M Z N A S T N E M G E S E L B A T R O P E R – – 9 0 1 – 9 0 1 3 9 4 , 2 2 4 7 5 , 8 1 7 5 2 , 0 8 1 1 9 3 , 1 7 6 6 8 8 0 1 , ) 4 4 6 , 3 ( 3 9 4 , 2 2 4 7 5 , 8 1 6 6 3 , 0 8 1 1 9 3 , 1 7 5 7 9 8 0 1 , e m o c n i r e h t o & e u n e v e r l a t o T 5 7 3 , 6 4 8 8 , 3 9 9 2 , 3 8 3 0 7 , 2 3 6 9 5 0 5 , e s n e p x e t n e m y a p d e s a b e r a h S ) s s o l ( / t fi o r p t n e m g e S s t l u s e R ) 5 8 1 ( ) 0 2 0 , 1 ( ) 0 8 4 ( ) 7 8 2 , 3 1 ( ) 7 0 5 ( ) 0 8 7 2 1 , ( i n o i t a c e r p e d , x a t , t s e r e t n i e r o f e b t fi o r P e s n e p x e x a t e m o c n i e r o f e b t fi o r P x a t & t s e r e t n i e r o f e b t fi o r P n o i t a s i t r o m a & n o i t a c e r p e D i e s n e p x e g n c n a n fi i t e N n o i t a s i t r o m a & e s n e p x e x a t e m o c n I r a e y e h t r o f t fi o r P ) ( 1 s m e t i g n i r r u c e r - n o N . s e s s o l i d n a s n a g e g n a h c x e n g e r o i f d e s i l i a e r n u d n a s e s n e p x e n o i t i s u q c a s s e n s u b s e s i r p m o c y e t a n m o d e r p s m e t i i l i g n i r r u c e r - n o N ) 1 ( e m o c n i r e h t O e u n e v e R 4 1 0 2 0 0 0 $ ’ 50 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 3. NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of profit attributable to members of the parent entity to net cash flows from operating activities. Profit for the financial year Depreciation and amortisation Share based payment expense Foreign exchange gain Impairment of goodwill Amortisation of prepaid loan establishment fees Acquisition, integration and restructuring costs Loss on sale of assets Change in working capital and tax balances, net of effects from acquisition of controlled entities Receivables Payables Derivatives Net tax balances Provisions 2015 $’000 55,385 26,267 9,867 (9,831) – 827 3,500 167 2,362 (2,452) 8,214 (3,062) (498) 2014 $’000 50,671 23,371 8,918 (1,702) 2,265 1,784 3,234 – 2,711 (7,000) 2,275 2,720 (6,700) Net cash inflow from operating activities 90,746 82,547 4. EXPENSES Depreciation and Amortisation Depreciation Amortisation Total depreciation and amortisation Rental expense relating to operating leases Business restructuring expenses Business acquisition expenses Impairment Goodwill Trade receivables 5. EMPLOYEE BENEFIT EXPENSES Defined contribution plans Termination benefits Share-based payment expense Employee administration expense Salary and wages and other employee benefits 2015 $’000 6,136 20,131 26,267 6,804 – 3,500 – 1,077 2015 $’000 10,715 2,078 9,867 10,004 152,398 185,062 2014 $’000 6,305 17,066 23,371 5,904 2,208 1,026 2,265 391 2014 $’000 9,584 853 8,918 8,844 134,767 162,966 6. EARNINGS PER SHARE Basic earnings per share Diluted earnings per share Earnings used in the calculation of basic and diluted earnings per share Weighted average number of ordinary shares used in basic earnings per share Effect of potentially dilutive shares Weighted average number of ordinary shares used in diluted earnings per share 7. REMUNERATION OF AUDITORS Auditors of the parent entity Audit or review of the financial report Other non-audit services (1) Network firms of the parent entity auditor Audit or review of the financial report Other non-audit services (1) (1) Other services comprise assurance and other compliance reviews. 8. INCOME TAX Income tax expense Current tax on profits for the year Adjustments for current tax of prior periods Deferred tax expense/(income) Effect of different tax rates Income tax expense Reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2014: 30%) Effect of non-assessable income and non-deductible expense Employee share plan Effect of different tax rates in foreign jurisdiction Previously unrecognised tax losses Adjustments for current tax of prior periods Income tax expense ANNUAL REPORT 2015 / 51 2015 Cents per share 2014 Cents per share 35.17 34.66 32.33 31.87 $’000 $’000 55,385 50,671 Number Number 157,462 2,332 159,794 156,713 2,473 159,186 2015 $ 2014 $ 343,151 288,070 631,221 331,476 198,394 529,870 582,327 17,230 599,557 200,226 – 200,226 2015 $’000 19,722 (848) (6,104) 751 13,521 2015 $’000 68,906 20,672 (4,013) (1,391) 751 (1,650) (848) 13,521 2014 $’000 11,860 (4,132) 4,723 279 12,730 2014 $’000 63,401 19,020 (3,574) 1,137 279 – (4,132) 12,730 52 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 8. INCOME TAX (CONTINUED) Deferred tax assets Temporary differences attributable to: Other financial liabilities Plant and equipment Provisions Equity raising costs Business acquisition and restructuring expenses Intangible assets Tax losses - other entities not part of the Australian tax consolidated group Movement in deferred tax assets Opening 1 January Credited/(charged) to the profit or loss Closing 31 December Deferred tax liabilities Temporary differences attributable to: Intangible and other financial assets Movement in deferred tax liabilities Opening 1 January (Credited)/charged to the profit or loss Acquisition of intangibles Closing 31 December Unrecognised deferred tax balances Unused tax losses incurred during the year for which no deferred tax asset has been recognised are outlined below. Tax losses not recognised United Kingdom Potential tax benefit at UK tax rate 20% Subject to satisfying the various tax loss continuity rules per UK tax legislation, these unrecognised tax losses do not expire. 2015 $’000 9,431 6,891 4,198 98 1,536 1,614 4,645 2014 $’000 4,416 4,596 5,085 675 1,688 1,747 3,180 28,413 21,387 21,387 7,026 28,413 26,579 (5,192) 21,387 2015 $’000 2014 $’000 17,797 11,351 11,351 922 5,524 17,797 2015 $’000 15,548 3,110 11,820 (469) – 11,351 2014 $’000 29,738 5,948 9. TRADE AND OTHER RECEIVABLES Trade receivables Provision for impairment Other receivables(1) (1) Consists of prepayments, unbilled revenue and other. Due to the short term nature of the trade and other receivables, their carrying amount is considered to be the same as their fair value. Movement in provision for impairment of trade receivables Balance 1 January Allowances made Allowances utilised Balance 31 December ANNUAL REPORT 2015 / 53 2015 $’000 25,300 (2,275) 23,025 14,269 37,294 2015 $’000 1,974 1,378 (1,077) 2,275 2014 $’000 26,674 (1,974) 24,700 9,877 34,577 2014 $’000 1,335 1,030 (391) 1,974 The Group’s policy requires customers to pay within 30 days from date of invoice. The provision for impairment is determined with regard to historical write-offs and customers which have been specifically identified. An analysis of trade receivables ageing at 31 December showing receivables ‘not impaired’ and receivables ‘considered impaired’ is as follows. 0-30 days 31-60 days 61-90 days 91+ days Total 2015 2014 Not impaired $’000 Considered impaired $’000 Not impaired $’000 Considered impaired $’000 13,550 5,965 743 2,767 23,025 171 212 76 1,816 2,275 16,391 4,721 138 3,450 24,700 229 220 34 1,491 1,974 54 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 4 1 0 2 0 0 0 ’ $ L A T O T 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 $ ’ I E C F F O T N E M P U Q E I R E T U P M O C T N E M P U Q E I D N A E R U T N R U F I S G N T T F I I D L O H E S A E L S T N E M E V O R P M I I T N E M P U Q E D N A T N A L P . 0 1 0 4 9 , 2 3 3 8 0 , 8 3 3 1 3 9 1 3 7 2 5 , 0 2 7 2 2 , 4 2 6 3 4 , 3 3 8 0 , 4 4 6 6 , 8 4 5 4 9 , y r a u n a J 1 t A t s o C ) 2 4 2 , 3 2 ( ) 8 0 4 , 8 2 ( ) 4 1 2 ( 8 9 6 , 9 8 9 6 , 9 – 5 7 0 , 6 5 7 6 , 9 5 7 6 , 9 1 5 4 8 5 0 , 6 9 9 9 9 – 4 1 ) 4 2 ( ) 0 7 1 ( ) 1 ( 1 3 2 0 2 1 – ) 5 0 3 , 6 ( ) 6 3 1 , 6 ( ) 7 4 ( ) 4 5 2 ( 5 6 5 6 4 6 7 – ) 7 ( ) 5 4 ( ) 2 0 8 , 3 1 ( ) 6 5 7 , 7 1 ( ) 5 8 9 , 1 ( ) 3 1 6 , 2 ( ) 1 4 2 , 7 ( 5 2 7 , 6 5 2 7 , 6 – 1 1 2 , 4 1 7 4 , 6 1 7 4 , 6 3 4 3 5 2 5 , 3 1 5 4 , 1 1 5 4 , 1 – 2 4 7 0 7 4 , 1 0 7 4 , 1 3 4 0 2 , 1 ) 1 ( ) 1 ( ) 2 2 ( ) 6 3 ( 9 2 2 2 0 1 4 3 3 4 3 2 4 , 1 3 2 4 , 1 – – 8 0 1 , 1 ) 2 3 ( ) 3 9 6 , 4 ( ) 7 2 2 , 4 ( ) 5 3 7 ( ) 1 9 9 ( ) 0 3 8 ( ) 5 8 7 7 , ( i n o i t a c e r p e d d e t a u m u c c A l 9 6 6 1 , 9 6 6 1 , 1 4 2 2 3 1 , r a e y f o t r a t s t a e c n a a b g n n e p O l i s n o i t i s u q c A i s n o i t i d d A ) 3 3 1 ( ) 8 1 ( ) 3 7 8 ( ) l 1 ( n o i t a s n a r t y c n e r r u c n g e r o F i i n o i t a c e r p e D ) 1 ( l a s o p s D i 5 7 6 , 9 8 9 9 , 9 5 6 3 8 0 , 8 3 9 4 8 , 2 4 9 1 3 4 8 3 2 3 1 7 4 , 6 3 1 2 , 6 0 7 4 , 1 3 9 6 , 1 9 6 6 , 1 8 0 0 2 , r a e y f o d n e t a e c n a a b g n s o C l i l 7 2 2 , 4 2 2 9 4 , 7 2 3 8 0 , 4 8 5 0 , 5 4 5 4 , 9 6 7 9 9 , r e b m e c e D 1 3 t A t s o C ) 8 0 4 , 8 2 ( ) 1 5 8 , 2 3 ( ) 4 5 2 ( ) 9 3 2 ( ) 6 5 7 , 7 1 ( ) 9 7 2 , 1 2 ( ) 3 1 6 , 2 ( ) 5 6 3 , 3 ( ) 5 8 7 , 7 ( ) 8 6 9 7 , ( i n o i t a c e r p e d d e t a u m u c c A l 5 7 6 , 9 8 9 9 , 9 5 6 4 8 1 7 4 , 6 3 1 2 , 6 0 7 4 , 1 3 9 6 , 1 9 6 6 , 1 8 0 0 2 , i . n o i t a c e r p e d d e t a u m u c c a l f o t e n t s o C ) 1 ( 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ L A T O T I L L W D O O G R E T U P M O C E R A W T F O S R E M O T S U C I S P H S N O T A L E R I R E M O T S U C S T S L I S D N A R B E S A B A T A D 9 5 8 , 8 3 5 3 4 1 , 7 4 5 4 2 5 , 1 9 3 2 6 4 , 8 9 3 7 9 8 , 3 2 1 8 0 8 , 4 2 1 0 7 7 , 7 1 4 4 2 , 8 1 8 2 1 , 4 9 8 0 , 4 ) 1 7 6 , 8 9 ( ) 0 0 8 , 3 1 1 ( – – ) 9 3 6 , 3 9 ( ) 8 8 4 , 5 0 1 ( ) 7 7 9 ( ) 3 2 2 , 4 ( ) 5 5 0 , 4 ( ) 9 8 0 , 4 ( 8 8 1 , 0 4 4 3 4 3 , 3 3 4 4 2 5 , 1 9 3 2 6 4 , 8 9 3 8 5 2 , 0 3 0 2 3 , 9 1 3 9 7 , 6 1 1 2 0 , 4 1 – – 2 5 7 , 2 ) 6 6 1 ( 0 9 6 , 4 1 7 2 9 , 5 8 – – – ) 5 6 2 , 2 ( – ) 5 6 2 , 2 ( – – – 9 3 3 , 2 5 – – – 2 5 7 , 2 8 8 1 , 0 4 4 3 4 3 , 3 3 4 4 2 5 , 1 9 3 2 6 4 , 8 9 3 8 5 2 , 0 3 4 3 7 , 9 7 3 6 , 5 1 3 0 2 , 9 2 6 2 , 6 1 5 1 2 ) 6 6 0 , 7 1 ( ) 1 3 1 , 0 2 ( – – ) 5 0 9 , 3 1 ( 0 2 3 , 9 1 0 9 6 , 4 1 6 2 9 , 8 ) 6 6 1 ( – 1 0 1 ) 6 8 4 , 6 1 ( 3 9 7 , 6 1 1 2 0 , 4 1 – – – – 6 1 3 – – – 0 2 0 , 4 2 ) 5 8 6 ( ) 8 8 0 , 3 ( ) 7 3 6 , 3 ( 3 7 3 7 – – – – – ) 3 7 ( 3 4 3 , 3 3 4 0 0 3 , 9 2 5 2 6 4 , 8 9 3 3 6 0 , 7 6 4 0 2 3 , 9 1 5 8 3 , 6 2 1 2 0 , 4 1 9 1 7 , 3 3 – – – – – – – – – – 3 4 3 , 3 3 4 0 0 3 , 9 2 5 2 6 4 , 8 9 3 3 6 0 , 7 6 4 0 2 3 , 9 1 5 8 3 , 6 2 1 2 0 , 4 1 9 1 7 , 3 3 – – 3 4 1 , 7 4 5 6 8 6 , 0 6 6 2 6 4 , 8 9 3 3 6 0 , 7 6 4 8 0 8 , 4 2 1 3 5 2 , 6 4 1 4 4 2 , 8 1 0 0 8 , 1 4 9 8 0 , 4 9 2 4 , 3 ) 0 0 8 , 3 1 1 ( ) 6 8 3 , 1 3 1 ( – – ) 8 8 4 , 5 0 1 ( ) 8 6 8 , 9 1 1 ( ) 3 2 2 , 4 ( ) 1 8 0 , 8 ( ) 9 8 0 , 4 ( ) 9 2 4 , 3 ( – – – – – – – – – – – – – – – – – – – – – 2 4 6 ) 8 ( ) 1 4 ( – – 0 4 5 1 , 0 4 5 1 , 0 4 5 1 , 0 4 5 1 , 0 4 5 1 , 0 4 5 1 , – – – – – – – – – – – – 3 9 5 0 4 5 1 , 0 4 5 1 , 1 0 6 0 4 5 1 , 0 4 5 1 , I S E L B G N A T N I . 1 1 n o i t a s i t r o m a d e t a u m u c c A l y r a u n a J 1 t A t s o C r a e y f o t r a t s t a e c n a a b g n n e p O l i s n o i t i s u q c A i s n o i t i d d A ) 1 ( l a s o p s D i r a e y f o d n e t a e c n a a b g n s o C l l i n o i t a s i t r o m A r e b m e c e D 1 3 t A t s o C ) l 1 ( n o i t a s n a r t y c n e r r u c n g e r o F i t n e m r i a p m I ) 8 ( – – n o i t a s i t r o m a d e t a u m u c c A l 3 9 5 0 4 5 1 , 0 4 5 1 , . n o i t a s i t r o m a d e t a u m u c c a l f o t e n f o t s o C ) 1 ( ANNUAL REPORT 2015 / 55 – – – – – 4 1 0 2 0 0 0 ’ $ 0 4 5 , 1 – – – – – 5 1 0 2 0 0 0 ’ $ 0 4 5 , 1 0 4 5 , 1 0 4 5 , 1 4 1 0 2 0 0 0 ’ $ 9 7 1 , 5 1 1 0 0 , 9 8 7 0 , 3 1 5 1 0 2 0 0 0 ’ $ 0 7 6 , 7 1 8 6 4 , 8 9 5 3 , 1 1 8 3 6 , 4 7 2 2 5 0 , 5 1 3 – 6 6 5 , 6 8 2 6 4 , 8 9 3 4 3 7 , 2 2 0 8 7 , 1 9 3 6 0 , 7 6 4 E S A B A T A D I L L W D O O G s U G C o t s e v i l l u f e s u e t i n fi e d n i h t i w s t e s s a e b g n a t n i l i d n a l l i w d o o g f o n o i t a c o l l A ) ( 1 t n e m e g a n a m h t l a e w Z N A a c i r f A h t u o S a d a n a C ) ( 2 t n e m e g a n a m h t l a e w K U ) ( l 3 s t e k r a m a c n a n fi K U i i g n d n e l e s i r p r e t n e K U i . n o i t i s u q c a n o U G C s h t o t d e t a c o i l l a s a w l l i w d o o g i g r e n n I ) 1 ( i . n o i t i s u q c a n o U G C s h t o t d e t a c o i l l a s a w l l i w d o o g e s u P l ) 2 ( i . n o i t i s u q c a n o U G C s h t o t d e t a c o i l l a s a w l l i w d o o g e t o u q o r P ) 3 ( 56 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 11. INTANGIBLES (CONTINUED) Impairment The Groups impairment testing identified that the recoverable amounts of each CGU exceeded their carrying values and as a result no impairment has been recognised. There has been no reversal of previously recognised impairment. (2014: an impairment loss of $2.3m was recognised in Asia). The recoverable amount was determined through a value in use calculation. The value-in-use was determined by discounting future cash flow forecasts based on the following assumptions: Cash flow forecasts Based on the most recent four year financial plan approved by the Board. Cash flow forecasts in foreign currency are forecast in that currency and discounted using the applicable regional discount rates. Long term growth rates Cash flow forecasts beyond a four-year period use a growth rate of 2.7% Australia and 2.7% United Kingdom, 1.0% Canada and 4.7% South Africa (2014: 2.7% Australia and 2.7% United Kingdom, 1.0% Canada and 4.7% South Africa). Discount rate A post-tax discount rate has been applied to post-tax cash flows reflecting the Group’s post tax weighted average cost of capital. IRESS used the following post- tax discount rates; 9.6% Australia, 7.8% United Kingdom, 7.4% Canada and 13.6% South Africa (2014: 10.9% Australia, 7.9% United Kingdom, 9.2% Canada and 13.2% South Africa). Sensitivity analysis A new version of an existing product is being rolled out within the UK enterprise lending CGU. The financial performance of the UK enterprise lending CGU is sensitive to the success of this product. A change in financial performance may cause the recoverable amount of the CGU to fall below carrying value resulting in an impairment to the Group. 12. PROVISIONS Current provisions Employee benefits Deferred consideration Restructuring costs Dividends Operating lease Non-current provisions Employee benefits Deferred consideration Restructuring costs Operating lease Total provisions Movements in Provisions Balance 1 January 2015 Provisions made Unwinding of discount Unused amounts reversed Provisions utilised Balance 31 December 2015 2015 $’000 6,332 2,085 133 44 119 8,713 3,994 3,078 – 508 7,580 2014 $’000 5,616 – 763 157 47 6,583 3,930 – 368 565 4,863 16,293 11,446 RESTRUCTURING COSTS $’000 DIVIDENDS $’000 OPERATING LEASES $’000 DEFERRED CONSIDERATION $’000 1,131 – – (637) (361) 133 157 66,175 – – (66,288) 44 612 72 – – (57) 627 – 5,142 21 – – 5,163 Deferred consideration Deferred consideration has been recognised in relation to the acquisitions of Pulse Software Systems Limited and Innergi Pty Ltd (refer to note 21). Restructuring costs Restructuring provisions are recognised when a detailed plan for the restructure has been developed and implementation commenced. The restructuring provision relates to the restructure of European subsidiaries of the Group. Dividends Represents the aggregate amount of dividends declared, determined or publicly recommended on or before the reporting date. The balance represents unpresented dividends. Operating leases The Group is required to restore operating lease premises to their original condition at the end of a lease term. A provision has been recognised for the estimated expenditure. 13. BORROWINGS AND DERIVATIVE LIABILITIES Current Trade facilities Non-Current Borrowings Borrowing costs capitalised Accrued interest Derivatives – Current Derivatives – Non-current ANNUAL REPORT 2015 / 57 2015 $’000 2014 $’000 2,133 – 202,370 (1,883) 416 200,903 10,069 11,055 21,124 180,495 (2,710) 1,325 179,110 – 12,910 12,910 Trade facilities Trade facilities relate to a supplier contract entered into during the year by the Group. Borrowings During the year the Group refinanced existing debt facilities bringing total borrowing capacity to $300m, with an expanded banking group on enhanced pricing terms. New Borrowings include a 3 year facility of $181m expiring August 2018 and a 5 year facility of $119m expiring August 2020. (2014: 3 year facility of $90m expiring September 2016, and a 5 year facility of $90m expiring September 2018). Borrowing costs of $2.1m relating to the new facility have been capitalised and allocated to both the three year and five year facilities and will be amortised over the term of these facilities. Capitalised borrowing costs relating to the previous debt facilities were expensed to the profit or loss. The Group has complied with the financial covenants of its borrowing facilities. Derivatives Consists of the fair value of a 3 year swap liability of GBP 33m maturing 2016 and a 5 year swap liability of GBP 33m maturing 2018. 14. FINANCIAL INSTRUMENTS This note explains the Group’s exposure to capital and financial risks and how these risks could affect the Group’s future financial performance. Capital risk management The Group manages its capital to ensure it will be able to continue as a going concern while maximising the return to stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group is not subject to any regulatory capital requirements. Management reviews the capital structure of the Group on a regular basis. As part of this review, the cost of capital and the risks associated with each class of capital is considered. The Group’s year end gearing ratio is outlined below. Net debt (1) Net debt plus total equity Gearing ratio 2015 $’000 184,927 524,238 35.3% 2014 $’000 117,106 447,890 26.1% (1) Measured as borrowings and derivatives liabilities less cash and cash equivalents Financial risk factors The Group 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. (a) Foreign currency risk The Group is exposed to movements in foreign currency being; • Translation foreign currency risk arises on consolidation of Group entities with different functional currencies to the Group. Translation foreign exchange exposure results in volatility of full year earnings due to changes in exchange rates. • Transaction foreign currency risk arises when the Group enters into transactions which are denominated in a foreign currency. 58 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 14. FINANCIAL INSTRUMENTS (CONTINUED) The Group is exposed to foreign currency through loans to foreign subsidiaries predominately with the following currencies CAD, NZD, ZAR, HKD, SGD and GBP. The table below shows the reported exchange rates at 31 December. AUD/GBP AUD/CAD AUD/NZD AUD/HKD AUD/SGD AUD/ZAR 2015 0.4947 1.0086 1.0677 5.6502 1.0340 11.2570 2014 0.5245 0.9490 1.0475 6.3338 1.0825 9.4403 The Group has entered into derivative contracts to limit its exposure to foreign exchange risk associated with the 2013 acquisition of Avelo in the UK. Foreign currency sensitivity analysis The Group is primarily exposed to changes in the AUD/GBP exchange rate risk. The following table details the Group’s sensitivity to a 1% increase and decrease in the Australian dollar against the Pound Sterling. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 1% change in foreign currency rates. Foreign currency derivative GBP/AUD exchange rate – increase 1% GBP/AUD exchange rate – decrease 1% (b) Interest rate risk The Group is predominately exposed to interest rate risk on borrowings, derivatives and cash and cash equivalents as outlined below. Financial assets Cash and cash equivalents Financial liabilities Derivatives(1) Borrowings % 1.3 1.4 2.9 2015 $’000 39,233 21,124 200,903 2015 $’000 (207) 207 % 0.8 1.6 4.3 2014 $’000 (127) 127 2014 $’000 74,914 12,910 179,110 (1) Represents net interest income rate of 5.3% on income leg less 3.9% on expense leg of swap (2014: 5.4% and 3.8% respectively). Sensitivity to movements in interest rates are demonstrated below to show the impact on the profit or loss if the interest rates moved by 1%. Profit / (loss) before tax Interest rate increase of 1% Interest rate decrease of 1% 2015 $’000 1,839 (1,839) 2014 $’000 1,191 (1,191) Interest rate risk is managed by the Group by reviewing terms of agreements and adjusting the ratio between fixed interest debt and variable interest debt. (c) Credit risk Credit risk refers to the risk a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The maximum exposure to credit risk is the carrying value of the receivables. The Company actively manages this exposure by dealing only with counterparties with good credit standing and not having any significant credit risk with any single counterparty. ANNUAL REPORT 2015 / 59 (d) Liquidity risk Liquidity risk includes the risk that the Group will not be able to meet its financial obligations as and when they fall due. The following table details the Group’s exposure to liquidity risk as at 31 December. 2015 Financial liabilities Trade and other payables Derivatives Trade facilities Borrowings Total 2014 Financial liabilities Trade and other payables Derivatives Borrowings Total LESS THAN 1 YEAR $’000 33,466 10,069 2,133 – 45,668 26,604 – – 26,604 1-2 YEARS $’000 4,266 – – – 4,266 – 6,455 – 6,455 2-5 YEARS $’000 OVER 5 YEARS $’000 CARRYING AMOUNT $’000 3,734 11,055 – 200,903 215,692 – 6,455 179,110 185,565 – – – – – – – – – 41,466 21,124 2,133 200,903 265,626 26,604 12,910 179,110 218,624 The Group manages liquidity risk by maintaining sufficient cash reserves, banking facilities and standby borrowing facilities, spreading of maturity dates of long term facilities and by monitoring forecast and actual cash flows. Facilities available and the amounts undrawn at 31 December are outlined below. Committed arrangements/facilities available to the Group Loan facilities available Amounts utilised 2015 $’000 2014 $’000 300,495 (202,370) 98,125 180,495 (180,495) – (e) Fair value Financial assets and financial liabilities are carried at fair value and recognised according to the fair value measurement hierarchy. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group only holds level 2 derivative financial instruments which are valued using discounted cash flows. Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of various counterparties. 15. ISSUED CAPITAL Ordinary shares Movements in issued capital Balance at 1 January 2015 Shares issued under the Employee Share Plan(1) Employee share plan payments Treasury Shares(2) Total Contributed equity (1) New shares issued to meet obligations in relation to Performance Rights, Deferred Shares and Deferred Share Rights for employees. (2) Movement from 2,209,000 (2014) to 2,217,000 treasury shares relates to shares vested under the employee share plan. 2015 $’000 2014 $’000 275,983 275,315 Number of shares ‘000 159,097 977 – 160,074 (2,217) 157,857 $’000 275,315 – 668 275,983 – 275,983 60 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 16. DIVIDENDS Dividends recognised and paid during the year Final dividend for 2014 25.5 cents per share franked to 40% (2013: 24.5 cents per share franked to 80%) Interim dividend for 2015 16.0 cents per share franked to 50% (2014: 16.0 cents per share franked to 40%) Dividends declared after balance date Since the end of the year, the directors declared a final dividend of 26.7 cents per share franked at 60% (2014: 25.5 cents per share franked to 40%) Franking credit balance Franking credits available for subsequent reporting periods based on a tax rate of 30% (2014: 30%) 17. SHARE-BASED PAYMENTS To assist in the attraction, retention and motivation of employees, the Group operates the following share based payment plans: • General Employee Share Plan / UK Share Incentive Plan (UK SIP). • Executive LTI Plan. • Employee Deferred Share Plan / Employee Deferred Share Rights Plan. 2015 $’000 2014 $’000 40,570 25,605 66,175 38,979 25,455 64,434 42,740 40,570 5,673 2,347 PLAN - NUMBER OF SHARES Executive LTI Plan Employee Deferred Share Plan Employee Deferred Share Rights Plan YEAR 2015 2014 2015 2014 2015 2014 OPENING BALANCE 1,469,390 1,464,110 2,211,466 2,004,717 1,235,460 528,439 NUMBER OF SHARES GRANTED FORFEITED 340,002 389,150 600,092 657,604 262,544 1,084,549 (230,627) (383,870) (132,159) (170,358) (81,648) (112,105) VESTED (420,132) – (651,569) (280,497) (36,790) (265,423) CLOSING BALANCE 1,158,633 1,469,390 2,027,830 2,211,466 1,379,566 1,235,460 General Employee Share Plan/ UK Share Incentive Plan Eligible participants are invited to acquire IRESS shares, IRESS matches this participation to a set value. Shares are subject to a restriction period, if the participant resigns from the Group prior to the end of the restricted period matched shares forfeited under the UK share incentive plan and granted under the general employee share plan. Unvested shares at 31 December 2015 are outlined below. PLAN - NUMBER OF SHARES General Employee Share Plan UK SIP UNVESTED BALANCE 20,914 5,407 Executive LTI Plan Eligible participants receive performance rights at no cost. Shares are subject to the achievement of performance conditions, being Total Shareholder Return of the Company against a peer group of selected companies and are subject to a restriction period. Shares are forfeited if the participant ceases employment with the Group prior to the end of the performance period, however the Board has discretion over this. No dividends on shares are payable to participants prior to vesting. The grant date fair value of the plan shares is independently determined 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. The likely achievement of performance hurdles of the share rights (where applicable) has been taken into account. ANNUAL REPORT 2015 / 61 Details of shares issued under this plan is outlined below. NUMBER OF SHARES GRANT DATE EXPIRY DATE OPENING BALANCE GRANTED FORFEITED VESTED CLOSING BALANCE GRANT DATE SHARE PRICE FAIR VALUE RISK FREE INTEREST RATE SHARE PRICE VOLATILITY ANNUAL DIVIDEND YIELD 7/5/11 7/5/11 7/5/12 7/5/12 7/5/12 7/5/13 7/5/13 7/5/13 7/5/14 7/5/14 7/5/14 7/5/15 7/5/15 7/5/15 7/5/15 7/5/15 7/5/15 7/5/16 7/5/16 7/5/16 7/5/17 7/5/17 7/5/17 7/5/18 7/5/18 7/5/18 7/5/19 7/5/19 150,000 150,000 330,700 80,000 80,000 195,430 65,000 65,000 227,260 63,000 63,000 – – – – – – – – – – – – – – 220,002 60,000 60,000 (150,000) (18,900) (41,668) – – (4,763) – – (15,296) – – – – – – (131,100) (289,032) – – – – – – – – – – – – – – 80,000 80,000 190,667 65,000 65,000 211,964 63,000 63,000 220,002 60,000 60,000 $9.23 $9.23 $6.18 $6.18 $6.18 $8.51 $8.51 $8.51 $8.27 $8.27 $8.27 $10.15 $10.15 $10.15 $5.87 $5.79 $3.76 $3.64 $3.56 $5.03 $5.03 $4.76 $4.18 $4.05 $3.89 $5.30 $5.17 $5.13 5.2% 5.2% 2.8% 5.8% 2.8% 2.5% 2.5% 2.7% 2.8% 3.1% 3.1% 2.1% 2.2% 2.2% 30.0% 30.0% 30.0% 30.0% 30.0% 27.5% 27.5% 27.5% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 4.3% 4.3% 5.5% 5.5% 5.5% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.0% 4.0% 4.0% Total shares 1,469,390 340,002 (230,627) (420,132) 1,158,633 Employee Deferred Share Plan/Employee Deferred Share Rights Plan Eligible participants receive deferred shares or deferred rights at no cost. The shares are subject to the satisfaction of individual performance criteria and a restriction period. Shares are generally forfeited if the participant ceases employment with the Group prior to the end of the restriction period. Under the Employee Deferred Share plan participants are eligible to receive dividends during the restricted period, however under the Deferred Shares Rights plan participants are not. GRANT DATE EXPIRY DATE Employee Deferred Share Plan 7/5/12 7/5/12 7/5/13 7/5/14 7/5/15 7/5/15 7/5/16 7/5/16 7/5/17 7/5/18 Total shares Employee Deferred Share Rights Plan 7/5/12 7/5/12 7/5/13 7/5/12 30/9/13 1/1/14 7/5/14 7/5/15 7/5/15 7/5/16 7/5/16 7/5/16 30/12/16 1/1/17 7/5/17 7/5/18 Total shares OPENING BALANCE 651,036 225,620 729,550 605,260 – 2,211,466 39,840 108,559 45,930 110,306 51,540 601,565 277,720 – 1,235,460 NUMBER OF SHARES GRANTED FORFEITED VESTED CLOSING BALANCE FAIR VALUE – – – – 600,092 600,092 – – – – – – – 262,544 262,544 (1,480) – (51,900) (44,460) (34,319) (132,159) (3,050) – (9,400) – (2,580) (40,967) (20,541) (5,110) (81,648) (649,556) (2,013) – – – (651,569) (36,790) – – – – – – – (36,790) – 223,607 677,650 560,800 565,773 2,027,830 – 108,559 36,530 110,306 48,960 560,598 257,179 257,434 1,379,566 $6.18 $6.18 $8.51 $8.27 $10.15 $5.26 $5.26 $7.35 $4.99 $7.75 $7.73 $7.25 $9.02 62 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 18. RELATED PARTY TRANSACTIONS Parent entity The ultimate controlling party of the Group is IRESS Limited. Key management personnel Key Management Personnel compensation is set out below: Short-term employee benefits Long-term employee benefits Post employment benefits Share based payments 2015 $’000 5,449,030 563,378 307,479 2,071,028 2014 $’000 4,674,434 – 223,035 2,254,045 8,390,915 7,151,514 Detailed remuneration disclosures are provided in the remuneration report. Transactions with related parties ASX Limited (“ASX”) owns 19.21% ordinary shares in IRESS. ASX is a major supplier of Australian equity market data to the Group. All transactions with the ASX are conducted on an arm’s length basis. Fees charged to ASX $8,556,525 (2014: $8,261,927), outstanding balances at the end of the year $1,101,029 (2014: $1,118,375). 19. COMMITMENTS Leasing arrangements Operating leases relate to office facilities with lease terms of between 2 to 10 years of which some are supported by bank guarantees of $3.024m (2014: $3.453m). On renewal, the terms of the leases are renegotiated. Non-cancellable operating leases Commitments for minimum lease payments in relation to non-cancellable with operating leases are payable as follows: Within one year Later than one year, no later than five years Later than five years Capital commitments No capital expenditure has been contracted or provided for (2014: Nil). 20. CONTINGENCIES Other than as noted below, there are no contingent liabilities that need to be disclosed at the reporting date. 2015 $’000 6,525 23,575 4,438 34,538 2014 $’000 5,230 16,053 8,235 29,518 A move to a new location in Canada has resulted in a potential exposure. IRESS is in discussions with the owner to discontinue its interest in the site. The owner has asserted a claim; IRESS disputes the claim. A supplier of market data has asserted a claim against IRESS for additional royalty payments; IRESS disputes the claim. ANNUAL REPORT 2015 / 63 21. BUSINESS COMBINATIONS Proquote Limited On 30 October 2015 the Group acquired Proquote Limited, a leading provider of trading, market and connectivity solutions in the United Kingdom, owned by the London Stock Exchange Group since 2003. Details of the purchase consideration, the net assets acquired and goodwill are as follows: CONSIDERATION Cash Net cash acquired Total consideration The assets and liabilities recognised as a result of the acquisition are as follows: Trade and other receivables Plant and equipment Intangibles Trade and other payables Deferred tax liability Current tax payable Deferred tax asset Net identifiable assets acquired Goodwill on acquisition Net assets acquired FAIR VALUE $’000 39,883 (555) 39,328 4,673 343 18,838 (5,648) (3,074) (377) 257 15,012 24,316 39,328 Goodwill on acquisition is attributable to the minimum benefits to be derived from integrating this business with the Group. The acquired business contributed revenues of $3.4m and net profit of $0.4m to the Group from acquisition date. If the acquisition had occurred on 1 January 2015, revenue contributed would have been $26.8m and net profit $11.0m. As part of the Proquote acquisition the Group acquired the FIX Hub business a FIX order routing business which provides trade and order connectivity between institutional investors and brokers. The FIX Hub business was acquired for a total cash consideration of $7.6m in recognition of a software asset of $0.3m and goodwill of $7.3m. Goodwill on acquisition is attributable to the minimum benefits to be derived from integrating this business with the Group. Acquisition related costs of the above acquisitions $2.9m are included within other expenses in the profit or loss. 64 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 21. BUSINESS COMBINATIONS (CONTINUED) Pulse Software Limited On 31 October 2015 the Group acquired Pulse Software Limited, a leading provider of portfolio management software for private asset managers who manage investment for clients on a discretionary basis. Details of the purchase consideration, net assets acquired and goodwill are as follows: CONSIDERATION Cash Deferred consideration Net cash acquired Total consideration The assets and liabilities recognised as a result of the acquisition are as follows: Trade and other receivables Plant and equipment Intangibles Deferred tax liabilities Other financial assets Trade and other payables Provisions Net identifiable assets acquired Goodwill on acquisition Net assets acquired FAIR VALUE $’000 30,270 3,244 (6,987) 26,527 1,477 94 14,177 (2,835) 2 (4,348) (297) 8,270 18,257 26,527 Goodwill on acquisition is attributable to the minimum benefits to be derived from integrating this business with the Group. The acquired business contributed revenues of $1.9m and net profit of $1.0m to the Group from acquisition date. If the acquisition had occurred on 1 January 2015, revenue contributed would have been $10.8m and net profit $2.3m. Acquisition related costs of $0.6m are included within other expenses in the profit or loss. Innergi Pty Ltd On 1 July 2015 the Group acquired Innergi Pty Ltd for a total consideration of $2.8m consisting of $0.7m cash and $2.1m contingent consideration, in recognition of net assets of $0.3m and goodwill of $2.5m. Contingent consideration recognised represents the fair value of the contingent consideration which also represents the maximum possible payout. Innergi is a business that enables financial advice practices and superannuation funds to better engage with their clients and members with timely and relevant content and a digital delivery platform. Innergi’s content is being combined with XPLAN to further strengthen the Group’s offer to clients. The acquired business contributed revenues of $0.2m and net profit of $0.1m to the Group from acquisition date. If the acquisition had occurred on 1 January 2015, revenue contributed would have been $0.4m and net profit $0.2m. Acquisition related costs of $0.1m are included within other expenses in the profit or loss. Goodwill on acquisitions will not be deductible for tax purposes. The acquisition accounting for these transactions has not been finalised. 22. SUBSIDIARIES Details of the Group’s wholly owned subsidiaries at the end of the year are as follows: NAME OF ENTITY Apollo I Australia Pty Ltd (1) Apollo II Australia Pty Ltd (1) PlanTech Holdings Pty Ltd (2) VisiPlan Pty Ltd (2) TransActive System Pty Ltd (2) Dealer Management Systems Pty Ltd (2) FundData Pty Ltd (2) Innergi Pty Ltd IRESS (AUS) Limited Partnership IRESS Data Pty Ltd (1) IRESS Information Pty Ltd IRESS Spotlight Wealth Management Solutions (RSA) Pty Ltd (1) IRESS Wealth Management Pty Ltd (1) IRESS South Africa (Australia) Pty Ltd (1) Planning Resources Group Pty Ltd (1) IRESS (LP) Holdings Corp. IRESS (Ontario) Limited IRESS Canada Holdings Limited IRESS Market Technology Canada LP KTG Technologies Corp IRESS Asia Holdings Limited Peresys Software Limited IRESS Malaysia Holdings Sdn Bhd IRESS (NZ) Limited IRESS Market Technology (Singapore) Pte Ltd Advicenet Advisory Services (Proprietary) Limited IRESS Financial Markets (Pty) Ltd IRESS Wealth MNGT(Pty) Ltd IRESS Wealth Management (RSA) (Proprietary) Ltd Apollo III (UK) Limited Apollo III UK Holdings Limited IRESS (UK) Limited IRESS FS Group Limited IRESS FS Limited IRESS Mortgage Services Limited IRESS Portal Limited IRESS Solutions Limited IRESS Technology Limited IRESS UK Holdings Limited IRESS Web Limited Proquote Limited Pulse Software Limited Pulse Software Management Ltd TrigoldCrystal Limited ANNUAL REPORT 2015 / 65 COUNTRY OF INCORPORATION / REGISTRATION EQUITY HOLDING 2015 % 2014 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada Canada Canada Canada Hong Kong Ireland Malaysia New Zealand Singapore South Africa South Africa South Africa South Africa United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom 100 100 – – – – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – 100 (1) IRESS Limited and its Australian subsidiaries entered into an ASIC Class Order and Deed of Cross Guarantee with IRESS Limited on December 2014 (2) Deregistered during 2015 66 / IRESS LIMITED Notes to the consolidated financial statements (continued) For the year ended 31 December 2015 23. DEED OF CROSS GUARANTEE IRESS Limited, and its wholly-owned subsidiaries as specified in the Subsidiaries note, are party to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned subsidiaries have been relieved from the requirement to prepare the financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. (a) Consolidated income statement and retained earnings Profit before tax Income tax expense Net profit after tax Retained earnings at beginning of the year Transfer from reserves External dividends Retained earnings at end of year (b) Consolidated statement of financial position Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Plant and equipment Intangibles Deferred tax assets Other financial assets Total non-current assets Total assets Current liabilities Trade facilities Trade and other payables Derivative liabilities Current tax payables Provisions Total current liabilities Non-current liabilities Borrowings Trade and other payables Derivative liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2015 $’000 55,094 (16,084) 39,010 61,813 12,659 (66,175) 47,307 2014 $’000 62,824 (20,988) 41,836 33,312 50,935 (64,270) 61,813 2015 $’000 2014 $’000 12,325 227,558 239,883 4,052 13,975 17,228 323,120 358,375 598,258 2,133 12,098 10,069 5,512 7,055 36,867 200,404 8,000 11,055 4,306 2,211 225,976 262,843 335,415 275,983 12,125 47,307 335,415 28,436 258,532 286,968 4,463 8,810 11,016 259,391 283,680 570,648 – 14,808 – 4,309 4,240 23,357 177,859 – 12,910 4,334 2,529 197,632 220,989 349,659 275,315 12,531 61,813 349,659 24. PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity, IRESS Limited, show the following aggregate amounts: Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Profit for the year Total comprehensive income (b) Contingent liabilities The parent entity did not have any contingent liabilities as at 31 December 2015. ANNUAL REPORT 2015 / 67 2015 $’000 2014 $’000 72,075 600,707 672,782 81,482 236,045 317,527 355,255 275,983 8,617 70,655 355,255 25,550 25,550 88,417 526,071 614,488 25,053 197,632 222,685 391,803 275,315 10,524 105,964 391,803 28,854 28,854 25. SUBSEQUENT EVENTS There has been no matter or circumstances which has arisen since the end of the financial year which have significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent year. 68 / IRESS LIMITED Directors’ Declaration 31 December 2015 In the directors’ opinion: (a) the financial statements and notes set out on pages 41 to 67 are in accordance with the Corporations Act 2001, including: (i) complying with the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 23 will be able to meet any obligations or liabilities to which they are, or may become subject by virtue of the deed of cross guarantees described in note 23. Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors made pursuant to s295(5) of the Corporations Act 2001(Cth). On behalf of the Directors. ANDREW WALSH CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR Melbourne 25 February 2016 Independent Auditor’s Report ANNUAL REPORT 2015 / 69 70 / IRESS LIMITED Independent Auditor’s Report (continued) Shareholder Information The shareholder information set out below was applicable as at 31 December 2015 DISTRIBUTION OF MEMBERS AND THEIR HOLDINGS HOLDING 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total SUBSTANTIAL SHAREHOLDERS ASX Limited Hyperion Asset Management Limited Challenger Limited Greencape Capital Pty Ltd Total substantial shareholders Balance of register Total ANNUAL REPORT 2015 / 71 NO. OF SHAREHOLDERS 3,669 3,230 678 424 37 NO. OF SHARES 1,735,233 7,791,609 4,750,493 9,594,865 136,201,575 8,038 160,073,775 % OF ISSUED CAPITAL 1.08% 4.87% 2.97% 5.99% 85.09% 100.00% NUMBER HELD 30,828,472 20,584,245 15,289,451 12,430,400 79,132,568 80,941,207 % 19.26% 12.86% 9.55% 7.77% 49.44% 50.56% 160,073,775 100.00% 72 / IRESS LIMITED Shareholder Information (continued) TWENTY LARGEST SHAREHOLDERS OF QUOTED EQUITY SECURITIES RANK NAME NUMBER HELD % OF ISSUED SHARED 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 ASX Ltd JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Citicorp Nominees Pty Limited RBC Investor Services Australia Nominees Pty Limited Pacific Custodians Pty Limited BNP Paribas Noms Pty Ltd RBC Investor Services Australia Nominees Pty Limited Australian Foundation Investment Company Limited BNP Paribas Nominees Pty Ltd Citicorp Nominees Pty Limited Mirrabooka Investments Limited Argo Investments Limited Smallco Investment Manager Ltd Navigator Australia Ltd RBC Investor Services Australia Nominees Pty Limited Nulis Nominees (Australia) Limited Avanteos Investments Limited HSBC Custody Nominees (Australia) Limited - A/C 3 Total top twenty shareholders Balance of register Total 30,752,355 29,580,572 18,056,138 17,038,162 8,991,607 6,118,685 4,720,309 4,162,679 3,049,050 2,709,412 1,771,677 1,358,646 840,000 791,884 675,806 630,137 627,013 506,449 477,841 409,156 19.21% 18.48% 11.28% 10.64% 5.62% 3.82% 2.95% 2.60% 1.90% 1.69% 1.11% 0.85% 0.52% 0.49% 0.42% 0.39% 0.39% 0.32% 0.30% 0.26% 133,267,578 26,806,197 83.25% 16.75% 160,073,775 100.00% Corporate Directory DIRECTORS A D’Aloisio - Chairman N Beattie (appointed 1 February 2015) J Cameron J Hayes J Seabrook G Tomlinson (appointed 1 February 2015) A Walsh – Chief Executive Officer and Managing Director COMPANY SECRETARY P Ferguson REGISTERED OFFICE Level 18, 385 Bourke Street Melbourne VIC 3000 Phone: +61 3 9018 5800 Fax: +61 3 9018 5844 SHARE REGISTRY Link Market Services Limited Level 4, 333 Collins Street Melbourne VIC 3000 STOCK EXCHANGE LISTINGS IRESS Limited shares are quoted on the Australian Securities Exchange under the code: IRE AUDITOR Deloitte Touche Tohmatsu ANNUAL REPORT 2015 / A A n n u a l R e p o r t 2 0 1 5