Annual Report 2016
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
6
About Us
1,790
PEOPLE
OFFICES17
COUNTRIES6
VISION1
To be the most innovative, reliable
and respected technology partner,
regarded by our clients as
essential and desirable.
Highlights
Chairman and CEO’s Letter
Principal Activities
Operating and Financial Review
Board of Directors
Directors’ Report
4
6
8
10
14
16
Auditor’s Independence Declaration
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
41
42
69
70
75
77
AGM DETAILS
Thursday 4th May 2017
11:30am AEST
RACV Club
501 Bourke Street
MELBOURNE VIC 3000
IRESS Limited
ABN 47 060 313 359
IRESS LIMITED
We design, develop and deliver software solutions
for the financial services industry in Asia, Australia,
Canada, New Zealand, South Africa and the
United Kingdom.
Whether our clients trade on global financial markets,
manage investments, provide mortgages or help
people plan their financial future; they rely on our
software and our team, to deliver commercial
outcomes for their business and clients.
Our complete end-to-end solutions allow our
clients to engage and service their clients
across all channels, achieve operational
efficiencies, make considered decisions,
and monitor and manage risk.
Our proven track record means that
businesses of all sizes choose to
partner with us – from the world’s most
iconic financial services brands to
small businesses.
A start-up 23 years ago, today we
have over 1,700 highly valued and
exceptionally talented people across
five continents delivering financial
solutions to our growing client base.
Above all else, we have
an unwavering focus on
what’s most important:
deliver outcomes today,
develop for tomorrow and
design for the future.
ANNUAL REPORT 2016 1
ANNUAL REPORT 2016 1
About Us (Continued)
2 IRESS LIMITED
Delivering outcomes today
Digitising mortgage lending for a
digital only bank
In December 2016, we successfully completed the
implementation of our latest Mortgage Sales and
Originations (MSO) solution for Atom Bank, the UK’s
first digital-only bank. This has enabled Atom’s Digital
Mortgages proposition, providing an enterprise class
omni-channel platform for lending.
Developed using the very latest technologies, MSO
V2 delivers a highly configurable and functionally
rich solution to support efficient end-to-end
mortgage workflow for the full mortgage sales
and origination process.
Operated as a managed service, MSO V2 releases
Atom Bank from the requirements of ongoing
maintenance and support whilst providing their
intermediaries and customers with the best possible
service and ability to engage at the time and in the
manner that suits them.
Simplify IT architecture and deliver
a multi-channel capability
Following a period of significant growth, Tilney Group
was operating across a broad national network
with manual processes, legacy technologies and
inconsistencies between the online and offline client
experiences. During 2016, Tilney Group acquired
established national financial planning and wealth
advice business Towry, resulting in a network of more
than 30 offices and over 300 financial planners.
Working closely with Tilney Group, within 12 months
we delivered a single wealth technology platform
to meet their needs across financial planning,
portfolio management, trading and market data,
client engagement and reporting. The solution also
incorporates integration to third-party platforms and
executing custodians.
Manual processes have been unified and automated
which will both improve efficiency and enhance the
services provided to Tilney Group clients; the business
has a centrally managed investment process to reduce
risk and a technology platform that provides a single
client view across channels.
Developing for tomorrow
Tomorrow’s superannuation fund
technology
With the acquisition of Financial Synergy in October
2016, we are developing solutions for the evolving
needs of the Australian superannuation fund sector.
Leveraging IRESS technology we are connecting
the market leading Acurity fund registry administration
software with XPLAN’s wealth management and
advice capability, enabling a superannuation fund to
meet the spectrum of their members’ advice needs
from an integrated platform.
Deep integration between the core registry and
advice components provides substantial benefits to
superannuation funds, without the need to manage
significant integration.
Continued investment in development
IRESS continues to invest in technology that
maintains the relevance and efficiency of its trading
and market data solutions. ViewPoint is the next
generation of IRESS’ retail online trading platform
and delivers a platform that supports rapid and
incremental deployment options; modular enablement
of third-party components; and the utmost focus on
user experience.
Testament to IRESS’ focus on developing market
leading technologies is the investment we place
in product and development. Our product and
development teams are highly skilled people
in critical roles which include UX designers,
software engineers, system architects,
systems testers, product and implementation
managers. 2016 saw a continued increase in
our product and development teams, now
accounting for 49% of our people.
Designing for the future
Power, passion and purpose
2016 saw IRESS’ second annual Global Hackathon
take place where, for 24 hours, IRESS’ engineers,
testers, designers and business people came together
to collaborate intensively on projects and bringing
ideas to life.
In the lead-up, 268 ideas to deliver a demonstrable
benefit to either clients or the IRESS business were
proposed by 840 contributors. Teams formed around
99 of those ideas and for 24 hours, 412 people worked
on designing the future.
Since then, 32 of those projects have been sponsored
by business and product owners and 11 are now
in production.
Hackathon is a celebration of IRESS’ innovation
culture. Collaboration has emerged as the defining
characteristic of creativity and growth in nearly
all sectors and industries. Today, the biggest
breakthroughs happen when groups of self-motivated
people with a collective vision join and share ideas,
information and work together – the exact environment
the Global Hackathon creates.
The people who make it happen
IRESS’ talented and passionate people are our greatest asset and they are the
ones who make it happen for our business and our clients.
However, our people are more than skilled software engineers, client relationship
professionals and business managers - they are passionate about making a
difference in the communities in which we operate.
A program of corporate social responsibility activities featured heavily again on the
IRESS calendar in 2016, supporting organisations such as Seeds of Africa, Oxfam,
Myton Hospice, Blessings in a Backpack, St.Vincents and a host of others across
Australia, Canada, New Zealand, Singapore, South Africa and the United Kingdom.
Most importantly, whilst supported by IRESS, these programs are driven entirely by
our people.
ANNUAL REPORT 2016 3
Highlights
Another year
of sustainable
growth in revenue
and earnings
Asia Pacific (53% of Group revenue)
The result was underpinned by continuing resilience of financial markets revenue,
strong demand for XPLAN, and the contribution of the recently acquired Financial
Synergy (FS) business. The acquisition of FS extends the range of services and
solutions IRESS provides to the superannuation industry.
United Kingdom (35% of Group revenue)
Revenue growth reflects strong underlying demand for XPLAN and IRESS’
integrated wealth management platforms as well as a full year’s contribution from
businesses acquired in 2015. The integration of these businesses is progressing
well and unlocking new client opportunities. Transition of the lending business
to a subscription revenue model is progressing well. The first delivery of the next
generation mortgage solution was completed in 2016.
Operating Revenue
(AUD)
Segment Profit
(AUD)
+8%
+4%
+10%
+5%
South Africa (7.5% of Group revenue)
Strong demand across the IRESS product suite continued in 2016. The acquisition
of INET BFA expands IRESS’ market data offering and client base in South Africa.
+8%
+15%
Canada (4.5% of Group revenue)
Challeging conditions in Canadian financial markets continued in 2016.
Diversification into wealth continues with focus on 2017 client deliveries.
Margin impacted in 2016.
-13%
-71%
Total Group
+8%
+4%
4 IRESS LIMITED
4 IRESS LIMITED
2016 – Revenue growth driven by continuing strong demand
for IRESS Wealth Management solutions in Australia and
the United Kingdom; strong growth in South Africa across
the entire product suite; and the contribution of recent
acquisitions. FX had a significant adverse impact.
Operating revenue (AUD)
$390m
2015 – Revenue underpinned by resilient financial
markets revenue in Australia and strong growth in
wealth management in South Africa and Australia.
Strong revenue momentum in UK wealth management.
Acquisitions and FX made significant contributions.
Operating revenue (AUD)
$362m
2014 – 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
reflected continued strong demand for key products,
particularly XPLAN.
Operating revenue (AUD)
$329m
4
1
0
2
2013 – Acquisition of Avelo established a new
platform for growth in the UK. Continued high
demand for XPLAN in Australia to address
FoFA initiatives.
13
0
2
Operating revenue (AUD)
$251m
6
1
0
2
5
1
0
2
10%
10%
ANNUAL REPORT 2016 5
Chairman and CEO’s Letter
IRESS delivered a strong financial result in 2016,
underpinned by strategic, diversified growth.
We are committed to further, sustained growth and will achieve
this by being innovative and reliable, and the respected technology
partner of choice, regarded by our clients as both essential
and desirable.
IRESS performed strongly in 2016, reflecting the
strategic focus and investment in prior periods and
in 2016. During the year we delivered major client
projects across our geographies and market segments.
revenue model, our differentiated products, and wealth
management trends (regulatory complexity, change
and sector growth) continue to drive IRESS’ growth in
the United Kingdom.
We continued to diversify our business, including
through acquisition. During 2016, we acquired two new
businesses: South African market data provider INET
BFA and superannuation software provider Financial
Synergy in Australia. Forty seven per cent of IRESS
revenue is from outside Australia & New Zealand.
IRESS’ business continues to reflect the broad range
of participants and needs of the financial services
industry in the markets we operate: from small,
boutique providers to large global companies.
We also continued to strengthen our business with
focused ongoing investment in solutions for clients,
users, our core systems and our people.
Strong financial result
For the full year to 31 December 2016, IRESS revenue
was up 8% on 2015 to $389.7 million. Statutory net
profit was $59.5 million, also up 7%.
Segment Profit, a measure of core underlying business
performance, was up 4% to $123.5 million. On a
constant currency basis, this is an increase of 7%
on 2015 (6% excluding 2016 acquisitions).
Our strong financial performance reflects our continued
strategic and focused approach to service and growth.
Growth in the Asia-Pacific (Australia, New Zealand and
Asia) was strong with pleasing, ongoing performance in
delivery in wealth management and continued resilience
in financial markets. South Africa’s strong performance
reflected strong client delivery in 2016.
We are very pleased with progress and delivery in
the United Kingdom. The results reflect strong sales
and delivery, particularly in wealth management. IRESS
is well positioned for continued strong performance
and growth in this market.
The reported results of South Africa and the United
Kingdom were negatively impacted by foreign
exchange movements during 2016. Aside from
the impact of the weakening British pound, IRESS’
revenue has not been impacted to date by the United
Kingdom’s decision in 2016 to leave the European
Union (Brexit). The nature of our client base and its
largely domestic focus, our recurring subscription
Despite slower-than-expected diversification in
Canada, we continue to progress a number of wealth
implementations in that market.
Delivering value through innovation is an important,
ongoing focus for IRESS. The 2016 result positively
reflects past investments we have made in designing,
developing and delivering solutions to meet our clients’
needs. We are committed to ongoing investment and
innovation to ensure the solutions we offer continue to
lead the markets we operate in and offer clients greater
opportunities to support their businesses.
The result was also positively impacted by the first
full-year of results following two acquisitions in the
United Kingdom in 2015, and the 2016 acquisitions
in Australia and South Africa. The reported results of
South Africa and the United Kingdom were negatively
impacted by foreign exchange movements during
2016, although we do not rely on these as indicators
of underlying performance.
Dividend and capital management
In respect of second half earnings, directors
determined to pay a final dividend of 28.0 cents per
share franked to 60% at a 30% corporate tax rate.
This represents a total dividend for the year ended
31 December 2016 of 44.0 cents per share, an
increase from 2015 of 3%.
IRESS’ net debt balance(1) at 31 December 2016
decreased to $154.6 million (2015: $184.9 million),
equal to 1.3 times annualised Segment Profit, and
reflecting a conservative balance sheet position.
Business activity
During 2016, there were a number of key business
highlights including:
•
Successful delivery in the United Kingdom.
Delivery of IRESS’ Mortgage Sales and
Originations (MSO) solution to Atom Bank, the
United Kingdom’s first all-digital bank. In addition,
IRESS reached a major milestone under its long-
term strategic partnership with leading United
Kingdom financial planning and investment
management group Tilney.
6 IRESS LIMITED
6 IRESS LIMITED
(1)
Calculated as
borrowings and net
derivatives liabilities/
assets less cash and
cash equivalents.
Page Heading Our leading solution XPLAN was voted the
number one financial planning software in Australia
for the ninth consecutive year. It achieved a 94.3%
score, the highest in the eleven year history of the
report by Investment Trends.
INET BFA delivers terminals, data feeds and analysis
tools covering South African, African and global,
pricing, company financial information and research
to investment managers, auditors, corporations and
government institutions.
•
•
•
•
Acquisitions completed. The acquisitions
of superannuation software provider Financial
Synergy in Australia and leading market data
provider INET BFA in South Africa strongly
complement and extend IRESS’ existing
capabilities and the range and scale of
services and solutions IRESS can provide.
Financial Markets growth. Our financial markets
business in Australia grew 2.1% in revenue in 2016
reflecting increased sales of portfolio solutions
to existing and several new buy-side clients,
and resilient sell-side revenue despite continuing
market pressures.
South Africa delivery. Our business delivered
major financial markets and wealth management
projects, including the ongoing migration of high
net worth retail clients from our Trader to ViewPoint
product. A prominent tier-one bank announced it
will replace its proprietary premium online trading
solution with ViewPoint.
INET BFA and Financial Synergy
IRESS acquired two new businesses in late 2016, in
line with our diversification and growth strategy. The
acquisitions of Financial Synergy in Australia and INET
BFA in South Africa were completed on 31 October
and 10 November respectively. The Financial Synergy
acquisition was funded by a fully underwritten
institutional placement and a non-underwritten share
purchase plan. The placement raised $85 million and
the share purchase plan raised $15.1 million.
Financial Synergy is a leading and established provider
of software to the Australian superannuation industry.
Financial Synergy’s flagship product, Acurity, is the
core registry system for leading industry and retail
super funds and third party administrators. The
acquisition strongly complements IRESS’ existing
business in Australia, and also increases the range and
scale of services and solutions IRESS can provide to
clients of both businesses. Integration is progressing
well with an initial focus on incorporating IRESS’
advice capability into Acurity Online that is used by
superannuation funds as a primary member portal.
The acquisition of INET BFA further strengthens
IRESS’ capability in South Africa, adding to its existing
operations providing trading, market data, portfolio and
wealth management solutions. The addition of INET
BFA’s solutions will see IRESS able to offer clients a
broader and deeper range of complementary solutions,
supported by an expanded and experienced on-the-
ground team. The integration is proceeding well.
Our focus in 2017
We remain confident of our positioning for opportunities
that stem from regulatory and structural change. We
believe that ongoing successful client delivery and an
environment of technology demand will translate to
strong revenue and segment profit growth in 2017 on a
constant currency basis. The key drivers underpinning
this are momentum in wealth management, resilient
financial markets performance and the full year impact
of, and opportunities from, recent acquisitions.
Executive team
During 2016, we announced the appointment of
Andrew Todd as IRESS’ new Chief Technology
Officer. Andrew succeeds David Walker, who stood
down from the executive team to continue at IRESS
as Chief Architect. We thank David for his significant
contribution during his 15 years in this role.
We also announced the appointment of Coran Lill
as our new Group Executive for Communications
& Marketing.
Andrew and Coran commenced their roles in
January 2017.
Our people, clients and shareholders
Thank you to our people for their dedication and
efforts. Your commitment and focus as we continue
to deliver to our clients, end users and shareholders
is greatly appreciated by the board and the
executive team.
And thank you to our clients and users, and to you, our
shareholders. Without your support, IRESS would not
be as strongly positioned for the future as it is today.
ANNUAL REPORT 2016 7
ANNUAL REPORT 2015 7
Tony D’AloisioChairmanAndrew WalshManaging Director & Chief Executive Officer Principal Activities
The acquisitions of Financial Synergy and INET BFA
in 2016 expand the range of solutions IRESS offers
its clients.
IRESS was founded in Australia and the continued
strength of its Australian business remains central to its
success. Over time, IRESS has diversified and grown
by geography, and a material financial contribution now
comes from overseas operations.
The acquisition of Financial Synergy will increase the
range and scale of services and solutions IRESS can
provide to superannuation clients in Australia. The
INET acquisition expands the Group’s market data
and trading offering in South Africa.
In October 2016 and November 2016 the Group
acquired Financial Synergy and INET BFA respectively.
IRESS’ revenue is primarily recurring and
subscription based.
Financial
Markets
Wealth
Management
Integrated wealth
management platform
offering client management,
business automation,
portfolio management,
research, financial planning
tools, digital engagement
portal and scaled advice.
Lending
Multi-channel
mortgage sales
and origination
platform including
automated workflow
and mortgage
intermediary advice
solution.
Private Wealth
Management
Integrated software
solution offering
market data,
order management,
portfolio management,
CRM and wealth
management.
Superannuation
Superannuation
administration
including fund flow,
member management
and online member
engagement.
Institutional and independent
advisory, wealth managers,
mortgage intermediaries.
Lenders, mortgage
intermediaries.
Discretionary retail
fund managers, private
client advisers, wealth
managers.
Superannuation funds
and administrators,
wealth advisors and
financial institutions.
Solutions
Clients
Global market data
and trading software
including market data,
order and execution
management, smart
order routing, FIX
services, portfolio
management,
securities lending,
analytical tools and
connectivity.
Sell-side and buy-
side institutions, retail
advisory, online brokers
and platforms.
8 IRESS LIMITED
Material business risks
The material business risks that have the potential to
impact the Group are outlined below, together with
mitigating actions undertaken to minimise these 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 error
or malicious attack.
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.
Dedicated information security functions across jurisdictions.
Board oversight through the Audit & Risk Committee and executive oversight via
information security governance committee.
Controls, audit and governance provides a framework for actively identifying 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 internal and critical 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 organization and by exploring the potential utilization
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.
ANNUAL REPORT 2016 9
Operating and Financial Review
IRESS reported strong results in 2016, driven
by ongoing momentum in wealth markets
globally and the resilience of the Australian
financial markets business.
AUD (m)
Operating Revenue
Constant currency basis1
Segment Profit
Constant currency basis
Segment Profit after share based payment expense
Reported Profit (Net profit after tax)
Basic earnings per share (cents)
Dividend per share (cents)
2016
389.7
409.9
123.5
127.8
112.7
59.5
37.0
44.0
2015
361.5
361.5
119.2
119.2
109.3
55.4
35.2
42.7
Movement from
2015 %
7.8
13.4
3.7
7.2
3.1
7.3
5.1
3.0
9.7
8
1.5 3
6
3
15
16
7.8%
OPERATING REVENUE
1.
Constant currency basis assumes FY2015 and FY2016 results are converted at the average foreign currency exchange rate used for
FY2015. This allows comparison of Group operating performance in Australian dollars before the impact of changes in foreign currency rates.
•
The acquisition of Financial Synergy, which
contributed $4.4 million to revenue in 2016.
Growth in the United Kingdom was also driven by
demand for IRESS wealth solutions, underpinned
by consistent themes in the wealth management
segment. In addition, increasing consolidation of
participants in the United Kingdom is driving strong
demand for technology to solve business issues such
as consolidated reporting, compliance and technology
simplification.
In South Africa, revenue growth was driven by
continuing strong demand for IRESS’ suite of trading
solutions and market data (particularly from existing
large corporate clients) and a part-year contribution
from recently acquired INET BFA. The continued
rollout of XPLAN to new and existing clients also drove
growth, notably the completion of an XPLAN migration
for a tier one institution.
3.5
2
1
9.2
1
1
15
16
3.7%
SEGMENT PROFIT
9.5
5.4 5
5
15
16
7.3%
REPORTED PROFIT
Operating revenue
On a reported basis, revenue from ordinary activities
grew 7.8% to $389.7 million in 2016 (2015:
$361.5 million). This outcome was impacted by
adverse foreign currency fluctuations (particularly the
depreciation of the British Pound against the Australian
dollar) which reduced the group’s revenue expressed in
Australian dollars by approximately $20.1 million.
On a constant currency basis, revenue grew 13.4% to
$409.9 million which reflects strong growth in Australia,
the United Kingdom and South Africa, in addition to a
full year revenue contribution from businesses acquired
in 2015 (Pulse and Proquote). There was also part year
revenue contribution from the two businesses acquired
in October and November 2016 (Financial Synergy in
Australia and INET BFA in South Africa respectively).
In Australia, revenue growth was driven by:
•
•
•
Continuing strong underlying demand for IRESS’
XPLAN wealth management platform. The sector
globally continues to balance the demands and
opportunity of technology in order to meet client
service and value and expectations, while reducing
the cost of doing business, and managing risk in
an increasingly complex regulatory environment.
Implementation of XPLAN Prime, IRESS’ scaled
advice solution.
Increased demand for IRESS’ portfolio management
solution to new and existing buy-side financial
markets clients. Despite continuing market pressures
on sell-side participants, revenue in this area of our
financial markets business remains resilient.
10 IRESS LIMITED
Review of segment results
Movement from 2015
Movement from 2015
Operating revenue
Local
Currency(1)
Segment
Profit
Local
Currency(1)
2016
113.5
93.8
207.3
110.8
26.0
136.8
28.7
16.9
2015
111.1
80.3
191.5
91.1
32.8
123.9
26.6
19.5
389.7
361.5
%
2.1
16.8
8.3
21.6
(20.7)
10.4
7.8
(13.0)
7.8
%
2016
2015
–
–
–
35.5
(13.0)
22.7
23.6
(10.3)
13.4
41.7
42.7
84.4
27.1
1.3
28.5
9.9
0.8
42.5
38.3
80.8
19.9
7.3
27.2
8.6
2.6
123.5
119.2
%
(2.0)
11.7
4.5
36.3
(81.6)
4.6
15.3
(70.8)
3.7
%
–
–
–
53.2
(84.8)
15.7
30.5
(70.2)
7.3
AUD (m)
Financial Markets – APAC
Wealth Management – ANZ
Total APAC
UK
UK Lending
Total UK
South Africa
Canada
Group(2)
(1) Local currency movement reflects the change in operating revenue and segment profit in the local currency of the segment before translation to Australian dollars.
(2) The Group ‘local currency’ movement is calculated on a constant currency basis.
Segment Profit
IRESS uses Segment Profit as a measure of underlying
earnings to aid inter-period comparability of results.
APAC
Operating Revenue grew 8.3% to $207.3 million (2015:
$191.5 million) and Segment Profit increased 4.5% to
$84.4 million (2015: $80.8 million). Operating Revenue
growth reflects continuing strong performance in
Wealth Management and the acquisition of Financial
Synergy during the year. Segment Profit growth reflects
revenue growth partially offset by IRESS’ continuing
investment in its solutions and people.
FINANCIAL MARKETS – APAC
As a reflection of its materiality to group financial
results, Asia is now included in Financial Markets.
Financial Markets revenue grew 2.1% in 2016 which
reflects increased sales of portfolio solutions to existing
and new buy-side clients, and resilient sell-side
revenue despite continuing market pressures.
Revenue from Asia in 2016 (largely sales of IRESS’
CFD solution) remained in line with the prior year. During
2016, the business in Asia successfully delivered an
end-to-end equity solution for leading investment
bank Maybank Kim Eng. This solution will generate
visible revenue growth in 2017 and adds an important
credential for IRESS in the Singapore broking market.
Segment Profit declined from $42.5 million in 2015 to
$41.7 million in 2016 which reflects wage cost increases
and continuing investment in product development which
is also deployed across IRESS’ international businesses.
WEALTH MANAGEMENT – ANZ
Momentum in ANZ Wealth Management remained
strong in 2016 with Operating Revenue and Segment
Profit growth of 16.8% and 11.7% respectively.
Growth was driven primarily by increased revenue from
existing customers as they continue to turn to IRESS,
solutions in response to business challenges and
opportunities, as well as regulatory complexity.
Also contributing to revenue growth were significant
client projects and the contribution from Financial
Synergy, which was acquired on 31 October 2016.
Financial Synergy is a leading provider of software
to the Australian superannuation industry. Financial
Synergy’s flagship product, Acurity, is the core registry
system for industry and retail super funds and third
party administrators. Acurity complements IRESS’
existing product capability and increases the range
and scale of services and solutions that IRESS can
offer superannuation industry participants. Integration
is progressing well with an initial focus on integrating
advice capabilities into Acurity’s online portal. Financial
Synergy contributed revenue of $4.4 million and
Segment Profit of $0.9 million in 2016.
7.3
0
1.5 2
9
1
During 2016, IRESS successfully re-signed a number
of top 10 clients to multi-year contracts, in many cases
with an expanded service offering.
15
16
In 2016, XPLAN was voted the number one
financial planning software in Australia for the ninth
consecutive year. It achieved a 94.3% score, the
highest score in the eleven year history of the report
by Investment Trends.
8.3%
APAC OPERATING
REVENUE
AUD (MILLION)
ANNUAL REPORT 2016 11
Operating and Financial Review (continued)
United Kingdom
Aside from impact of the weakening British pound,
the United Kingdom’s decision to leave the European
Union (Brexit) has, to date, had no direct impact
on IRESS’ business in the United Kingdom. The
client need and wealth management industry trends
underpinning IRESS’ strategy, including regulatory
complexity, change and growth demands in the
sector, continued to drive growth in 2016.
UK(1)
In local currency, revenue increased 35.5% from 2015
to 2016. The depreciation of the British Pound against
the Australian dollar reduced revenue growth to 21.6%
when expressed in Australian dollars.
Revenue growth in 2016 was driven largely by a
number of XPLAN implementation projects in 2016,
additional delivery to existing clients and a full year
revenue contribution from the 2015 acquisitions
of Proquote and Pulse. Client retention across our
United Kingdom businesses remains strong.
During 2016, IRESS successfully delivered a major
milestone under a long-term partnership with
prominent wealth manager Tilney Group to deliver
an integrated private wealth technology platform that
replaces a number of existing systems and processes
with a unified technology solution.
The integration of Pulse and Proquote into the UK
business, both acquired in 2015, is progressing well
with client retention remaining high. IRESS’ ability to
offer integrated solutions to new and existing clients
continues to be sought after in this market.
In July, IRESS was appointed strategic wealth
technology partner to an existing Pulse client, Close
Brothers Asset Management, which is a leading
financial advice and investment services provider.
The partnership will see IRESS deliver its integrated
and flexible private wealth solution, including a leading
and new digital client portal.
Segment Profit margins improved from 21.8% in 2015
to 24.5% in 2016, which reflects changing revenue
composition and scaled revenue growth as client
projects come on line and begin generating licence fees.
UK LENDING(2)
As previously signalled, UK Lending operating revenue
and segment profit (in local currency) decreased
substantially in 2016 as the business continues
its transition from a one-off licence fee model to
a recurring subscription revenue.
The financial results do not reflect the momentum built
in the lending business in 2016. The first implementation
of the latest version of IRESS’ Mortgage Sourcing
and Origination (MSO V2) solution was successfully
completed for Atom Bank, the United Kingdom’s first
digital-only bank. IRESS also secured a contract with
TSB Bank, a leading retail and commercial bank in the
United Kingdom to implement MSO V2 in 2017. These
client wins demonstrate the opportunity for this solution
in the United Kingdom and its flexibility to meet the
needs of a broad range of businesses.
South Africa
In local currency, Operating Revenue grew 23.6% to
R311.8 million and segment profit increased 30.5% to
R107.7 million. In AUD, revenue grew 7.8% to $28.7 million
and segment profit increased 15.3% to $9.9 million.
Revenue growth was driven by strong demand across the
product suite from existing large corporate clients and the
revenue contribution from recently-acquired INET BFA.
Financial markets revenue growth was underpinned by
increased sales of trading solutions to existing customers
and new market entrants and demand for market data
and SmartHub connectivity.
The migration of clients from Trader to IRESS
ViewPoint is progressing well and expected to be
complete in 2017. ViewPoint continues to receive
positive feedback in the South African market. In
October, prominent tier one bank Standard Bank
announced it will offer ViewPoint to its premium
customers which is a strong endorsement for this
product in the South African market.
Wealth management revenue growth was underpinned
by increased uptake in services from large corporates
including the completion of a significant XPLAN
migration at a tier one institution.
The integration of INET BFA, acquired on
10 November 2016, is progressing well. INET
contributed approximately R21.0 million of revenue
and R3.3 million of segment profit in 2016.
Segment profit growth reflects margin improvement
from 32.3% in 2015 to 34.5% in 2016, driven by
increasing scale, product mix and pricing.
Canada
In local currency, Operating Revenue was 10.3%
lower than prior year, which reflects ongoing challenges
in the institutional sell side market and slower than
anticipated progress in diversifying the revenue base
into retail wealth.
Towards the end of 2016, a wealth implementation at MD
Financial was discontinued. While this is a disappointing
outcome, IRESS continues to actively pursue a number
of wealth opportunities in Canada. The investment in
the wealth management business adversely impacted
Canada’s segment profit margin in 2016.
Net Profit after tax (NPAT)
IRESS’ reported NPAT for the year was $59.5 million
(2015: $55.4 million) an increase of $4.1 million (7.3%)
on the prior year. IRESS’ financial performance is
underpinned by a focus on client service and support,
ongoing investment in products and technology, and a
recurring subscription revenue model.
The cost of issuing share based remuneration to
employees is amortised to the income statement
over the vesting period (generally three years). The
9.8% increase in share based payments expense
reflects an increase in share based awards as a result of
higher IRESS employee numbers and higher earnings.
6.8
3
1
3.9
2
1
15
16
10.4%
TOTAL UK
OPERATING REVENUE
AUD (MILLION)
8.7
2
6.6
2
15
16
7.8%
SOUTH AFRICA
OPERATING REVENUE
AUD (MILLION)
9.5
1
6.9
1
15
16
(13.0%)
CANADA
OPERATING REVENUE
AUD (MILLION)
Non-operating expenses are primarily in relation to:
•
Transaction and integration costs associated
with the acquisition of Proquote and Pulse in 2015
and INET BFA and Financial Synergy in 2016; and
(1)
Previously UK ex-
Lending.
(2) Previously UK Enterprise
Lending.
12 IRESS LIMITED
The table below shows the reconciliation between Segment Profit and Reported Net profit after tax.
AUD (m)
Segment Profit
Share based payment expenses
Segment Profit after share based payment expenses
Non-operating expenses
Unrealised foreign exchange gain/(loss)
Earnings before interest, tax, depreciation and amortisation
Depreciation and amortisation – Operational
Depreciation and amortisation – Acquisition Related
Earnings before interest and tax
Net Interest and Financing Costs
Profit before tax
Tax
Reported net profit after tax
•
One-off costs associated with the implementation
of new corporate core systems.
Foreign exchange loss of $0.7 million (2015: gain of $2.3
million) relate predominately to the funding arrangements
associated with the Group’s investment into the UK.
Depreciation and amortisation – Operational represents
depreciation of operating fixed assets and has remained
in line with the prior year.
Depreciation and amortisation – Acquisition Related
declined by $5.6 million in 2016 largely as a result of
software acquired as part of the Peresys acquisition in
South Africa in 2010 being fully written off in 2015, partially
offset by increased amortisation of intangible assets
acquired with businesses purchased in 2015 (Proquote
and Pulse) and 2016 (INET and Financial Synergy).
The decrease in net interest and financing costs is
due primarily to the improved pricing and terms of the
debt facilities established in 2015 and the repayment
of borrowings from positive operating cash flows.
In addition, 2015 costs included the write-off of
approximately $1.8 million in capitalised debt costs
relating to the debt facilities that were refinanced.
These costs were not repeated in 2016.
The effective tax rate of 22.8% reflects the jurisdictions
in which the business operates and deductions
associated with previous acquisitions.
Dividends
The IRESS dividend policy is to maintain a payout ratio
of not less than 80% of underlying earnings on an
Interim dividend franked to 60% (2015: 50%)
Final dividend declared after balance date franked to
60% (2015: 60%)
Total
Results
2016
123.5
(10.8)
112.7
(8.5)
(0.7)
103.5
(10.7)
(10.4)
82.4
(5.5)
77.0
(17.5)
59.5
2015
119.2
(9.9)
109.3
(6.7)
2.3
104.9
(10.3)
(16.0)
78.6
(9.7)
68.9
(13.5)
55.4
Movement from
2015 %
3.7%
9.8%
3.1%
27.5%
(129.6%)
(1.3%)
3.7%
(34.9%)
4.9%
(43.6%)
11.7%
29.6%
7.3%
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.
Balance Sheet
External borrowings decreased to $179.1million
(2015: $202.4million) as a result of excess cash from
strong operating cash flow generation and additional
capital raised in association with the Financial Synergy
acquisition being used to repay debt. Foreign currency
movements also reduced the value of GBP loans.
The Group remains conservatively geared with a
net debt(1) at 31 December 2016 of $154.6 million
(2015: $184.9 million).
Due to movements in foreign currency between
the AUD and GBP, the derivative liability position of
$21.1 million at 31 December 2015 became a small
derivative asset position of $0.2 million as at
31 December 2016. The income statement impact
was a fair value gain of $21.1 million which offset a
foreign currency loss of $21.0 million on GBP loans
associated with UK acquisitions.
4.0
4
2.7
4
Intangibles increased $29.2 million during the year to
$558.8 million (2015: $529.6 million). This increase
predominantly relates to $109.3 million of intangibles
acquired from INET BFA and Financial Synergy, offset
by a reduction of $70.0 million relating to the translation
of UK intangibles held in GBP to AUD and current year
amortisation of $14.6 million.
15
16
44.0
DIVIDENDS
CENTS PER SHARE
$m
2016
25.8
47.6
$m
2015
25.6
42.7
73.3
68.3
Cents per
share
2016
Cents per
share
2015
16.0
28.0
44.0
16.0
26.7
42.7
(1)
Calculated as
borrowings excluding
capitalised borrowing
costs, and net of
derivative liabilities/
assets less cash and
cash equivalents.
ANNUAL REPORT 2016 13
Board of Directors
TONY D’ALOISIO
NIKI BEATTIE
JOHN CAMERON
JOHN HAYES
MR J CAMERON
INDEPENDENT NON-EXECUTIVE
DIRECTOR SINCE MARCH 2010
John is one of the pioneers of electronic trading.
He was a key member of the team that first
automated the trading floor of the Australian
Securities Exchange, one of the first in the world.
He has designed and developed information systems
for major financial institutions in the UK, France,
USA and Australia. In 1997, John created what
was to become the world’s leading FIX solution,
CameronFIX. It was acquired by Orc Software in
2006 where John served as CTO. John left Orc
in 2009 and created the Cameron Foundation.
MR J HAYES
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE JUNE 2011, CHAIR OF THE AUDIT & RISK
COMMITTEE SINCE JUNE 2011
John has been a Non-Executive Director since
June 2011 and the Chair of the Audit & Risk
Committee. He is 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.
MR A D’ALOISIO
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE JUNE 2012, CHAIR SINCE AUGUST 2014
Tony has 35 years’ experience as a senior executive
in government, corporate and legal roles. He was
appointed as a Commissioner for the Australian
Securities and Investments Commission (ASIC) in late
2006 and then as Chairman in 2007 for a four-year
term. He was Chairman of the (International) Joint
Forum of the Basel Committee on Banking Supervision
from 2009 to 2011. Prior to ASIC, he was Managing
Director and Chief Executive Officer at the Australian
Securities Exchange (ASX) from 2004 to 2006. Tony
was Chief Executive Partner at Mallesons Stephen
Jaques between 1992 and 2004, having first joined
the firm in 1977. Tony has a depth of experience in
executive and non-executive roles, which are directly
relevant as we grow our international footprint in
financial markets and wealth management.
MS N BEATTIE
INDEPENDENT NON-EXECUTIVE
DIRECTOR SINCE FEBRUARY 2015
Niki has more than 25 years’ experience working in
financial technology and capital markets in management,
board and advisory capacities. She currently runs
Market Structure Partners, a strategic consulting firm
that advises capital markets participants on the impact
of regulation, technology and competition in financial
markets. Prior to that Niki spent 14 years in senior
positions at Merrill Lynch International, based in Europe.
In addition to her consulting work, she undertakes a
number of Board roles. She 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 Borsa Istanbul, the
Turkish stock exchange. She was previously on the Board
of MOEX, the Moscow Exchange during the period it
went through an IPO and became the largest free float
stock in Russia. She also serves on two regulatory
committees; as a member of the Regulatory Decisions
Committee of the UK Financial Conduct Authority (FCA)
and as a member of the Secondary Markets Advisory
Committee to the European Securities Markets Authority
(ESMA).
14 IRESS LIMITED
14 IRESS LIMITED
JENNY SEABROOK
GEOFF TOMLINSON
ANDREW WALSH
PETER FERGUSON
MR A WALSH
CHIEF EXECUTIVE OFFICE AND EXECUTIVE
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 SINCE JUNE 2011
Peter joined IRESS in 2011 and 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
INDEPENDENT NON-EXECUTIVE
DIRECTOR SINCE 2008, CHAIR OF THE
PEOPLE & PERFORMANCE COMMITTEE
Jenny has more than 30 years’ experience as a
chartered accountant, investment banker and capital
markets adviser. She is highly experienced in mergers
and acquisitions and has extensive public company
board experience. She is a special advisor to Gresham
Partners and a Non-Executive Director of Iluka
Resources Limited, MMG Limited (a Hong Kong listed
entity) and Western Australian Treasury Corporation.
Jenny was recently appointed to the board of the
Federal Government corporation Australian Rail Track
Corporation. Former directorships include Alinta Gas,
Amcor Limited, Australia Post, Edith Cowan University,
Export Finance and Insurance Corporation, Bankwest,
MG Kailis, Princess Margaret and King Edward
Hospital, West Australian Newspapers and Western
Power. Jenny has been a member of ASIC’s external
advisory group and was a member of the Takeovers
Panel from 2000 to 2012.
MR G TOMLINSON
INDEPENDENT NON-EXECUTIVE
DIRECTOR SINCE FEBRUARY 2015
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. He was a Non-Executive Director of National
Australia Bank (NAB) from March 2000 to December
2014, including Chairman of its wealth management
division MLC. Other companies he has been a director
of include Amcor Limited, Suncorp Limited, Dyno
Nobel Limited, Programmed Maintenance Services
Limited and Neverfail Springwater Limited. Geoff is
Chairman of Growthpoint Properties Australia Limited,
Calibre Limited and Wingate Asset Management,
and a Director of Wingate Group Holdings.
ANNUAL REPORT 2016 15
ANNUAL REPORT 2015 15
Directors’ Report
For the Year Ended 31 December 2016
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 2016, and the number of meetings attended by each Director.
Director
Tony D’Aloisio
Niki Beattie
John Cameron
John Hayes
Jenny Seabrook
Geoff Tomlinson
Andrew Walsh
BOARD MEETINGS
AUDIT & RISK
PEOPLE & PERFORMANCE
Eligible
Attended
Eligible
Attended
Eligible
Attended
10
10
10
10
10
10
10
10
9
10
10
10
9
10
4
–
–
4
4
4
–
4
–
–
4
4
4
–
7
7
7
–
7
–
–
7
7
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.
CHANGES IN STATE OF AFFAIRS
Significant changes in the state of affairs of the Group during the
financial year are outlined below:
Acquisitions
During the period, the Group undertook the following acquisitions:
i) On 31 October 2016, IRESS completed the acquisition of
Financial Synergy (FS) for $90.0 million. FS was a privately-owned
Australian company providing fund administration software to the
superannuation and wealth management industries. FS software and
online solutions are core to the operations of its clients, helping them
service members efficiently, address ongoing legislative change and
to deliver superior services to their members.
ii) On 10 November 2016, IRESS completed the acquisition of INET
BFA for $14.8 million (R149.6 million) from Media 24. INET BFA
is a long-standing provider of market data, analysis tools, pricing,
company financial information and research covering South Africa,
African and global markets. INET BFA delivers data feeds and
financial analysis solutions to South Africa’s investment managers,
corporations and government institutions.
Share issue
During the year, the Group successfully undertook a $100.2 million
capital raising via an $85.0 million institutional placement and
$15.1 million share purchase plan. Net proceeds received of
$98.2 million were used to fund the acquisition of Financial
Synergy, with the excess used to repay outstanding borrowings.
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 generally the Directors of the Company will incur no
monetary loss as a result of defending actions taken against them as
a Director. 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 1.5 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:
• 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.
AUDITOR’S 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 41.
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 Corporations (Rounding in Financial / Directors’ Reports)
Instrument 2016/191, issued by the Australian Securities and
Investments Commission.
CORPORATE GOVERNANCE
The Corporate Governance Statement is located on the IRESS website
https://www.iress.com/global/company/corporate-governance/
corporate-governance-statement/.
16 IRESS LIMITED
AUDITED REMUNERATION REPORT
This remuneration report provides detail of IRESS’ remuneration policy and practice for Key Management Personnel (KMP) for the 2016 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 Directors’ Report.
CONTENTS
Section 1
Overview
Section 2
Key Management Personnel
Section 3
Remuneration approach
Section 4
Remuneration components in detail
Section 5
Actual remuneration realised
Section 6
Remuneration awarded and the link between performance and reward
Section 7
Executive KMP service agreements
Section 8
Remuneration governance
Section 9
Non-Executive Director fees
Section 10
Additional required disclosures
18
20
21
23
27
29
33
34
35
36
ANNUAL REPORT 2016 17
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 1 Overview
1.1 REMUNERATION APPROACH
IRESS’ remuneration objectives are to attract, retain and reward the people needed to deliver its strategy and to align the interests of
shareholders and employees. There are three key aspects to IRESS’ remuneration approach:
•
•
•
IRESS offers total remuneration (comprised of fixed remuneration and ‘at risk’ incentive opportunity) at market rates to attract and retain individuals
who collectively possess the capability IRESS requires to succeed (see Section 3.1);
IRESS establishes financial and strategic objectives for the Group and individual executives at the start of the year, which are used at the end of the
year to assess Group and individual performance and to determine incentive outcomes based on performance (see Section 3.2); and
IRESS delivers a significant proportion of remuneration in equity (IRESS shares and rights to IRESS shares subject to satisfaction of conditions)
to further align the interests of executives and staff with shareholders’ long-term interests (see Section 3.3).
1.2 PERFORMANCE AND REMUNERATION OUTCOMES
Section 6 of this report details the Board’s assessment of the Group’s performance in 2016 against the financial and strategic objectives it
established at the beginning of the year. In summary, performance against financial and strategic objectives was in line with targets set by the
Board at the start of the year.
The Board’s assessment of the performance of Executive KMP (as listed in Section 2) and their future value to the Group has translated into
the following remuneration outcomes:
Fixed remuneration
Base salary, superannuation,
and non-monetary benefits
Short-term incentive (STI)
An incentive delivered in cash
and equity based on the
Group’s performance against
financial and strategic goals
and performance against
individual objectives
Long-term Incentive (LTI)
An incentive delivered as
performance rights that
vest subject to a relative
Total Shareholder Return
(TSR) performance
Total fixed remuneration paid to Executive KMP in 2016 was $5,005,625 (2015: $4,259,742). The increase
of 18% reflects a full-year contribution from J Harris and S New, as well as the addition of A Knowles to the
Executive KMP (Group Executive Product).
Executive KMP STI awarded for 2016 performance (see Section 6.4) totalled $2,476,281 (2015: $2,119,643),
including:
• Cash STI to be paid following annual results in February 2017 of $843,765 (2015: $684,643); and
• Deferred STI of $1,632,517 (2015: $1,435,000) to be delivered in Deferred Share Rights in May 2017 that could
vest in May 2020 subject to ongoing service and satisfactory performance (Deferred STI award is subject to
Shareholder approval for the MD/CEO).
• The increase was primarily the result of an expanded KMP group.
a) It is proposed that Executive KMP be awarded, for performance in 2016, performance rights with a face
value of $2,335,968 (2015: $2,376,968), inclusive of $1,340,000 (2015: $1,422,000) for the MD/CEO
(subject to shareholder approval). The performance rights may or may not vest in future years, subject to the
conditions described in Section 4.3.
b) In 2016, Executive KMP LTI awards from prior years vested as outlined in Section 6.3.
18 IRESS LIMITED
Page HeadingPage Subheading 1.3 KEY CHANGES TO REMUNERATION STRUCTURE
As noted in the 2015 remuneration report, the following changes to the Executive LTI plan became effective for grants made in 2016:
Change
Rationale
In granting awards, IRESS now primarily considers their ‘face value’
(number of units that may vest multiplied by the current share price),
rather than ‘fair value’ (discounted for factors such as dividends
foregone and the likelihood of performance conditions being met).
Performance period for the relative TSR measure now reflects
financial years (e.g. the performance period for the 2016 award
commences 1 January 2016 rather than the grant date of 5 May 2016
as would have been used in previous years). The vesting period
continues to be measured from grant date (e.g. 5 May 2016 for the
2016 awards).
The comparator peer group used to measure IRESS’ relative TSR
performance no longer removes companies that were in the S&P/
ASX200 Index at grant date, but subsequently exit the Index.
Franking credits are now excluded from TSR calculations.
To simplify the presentation to employees and shareholders of the full
potential value of the award. The number of units awarded for any given
performance outcome has not changed nor has the security awarded
changed. Accordingly, there is no change to the underlying benefit being
awarded to Executive KMP.
To align the performance period on which executives are measured and
rewarded with the period most relevant to shareholders.
To measure returns relative to all comparable companies in which
shareholders could have invested at the start of the performance period.
To remove complexity, align with prevailing market practice and reflect
the increasingly global nature of IRESS’ business.
ANNUAL REPORT 2016 19
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 2 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 2016, the KMP were:
KMP
Position
Term as KMP
Non-executive Directors
A D’Aloisio
N Beattie
J Cameron
J Hayes
J Seabrook
G Tomlinson
Executive Director
A Walsh
Executives
S Barnes
P Ferguson
J Harris
A Knowles
J McNeill
S New
M Rady
D Walker
Non-executive Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Managing Director and CEO (MD/CEO)
Chief Operating Officer
Group General Counsel and Company Secretary
Chief Financial Officer
Group Executive Product (1)
Group Executive, Human Resources
Group Executive, Strategy
Group Executive, Financial Markets
Chief Technical Officer (2)
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
(1) Aaron Knowles was appointed Group Executive Product and become a KMP on 1 January 2016.
(2)
David Walker moved to the part-time role of Chief Architect and ceased to be KMP effective 1 January 2017. Andrew Todd is the incoming Chief Technical
Officer, effective January 2017.
20 IRESS LIMITED
Page HeadingPage Subheading Section 3 Remuneration approach
3.1 APPROACH TO SETTING REMUNERATION
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 fixed remuneration and ‘at risk’ remuneration opportunity. IRESS believes that the fixed and total remuneration it offers executives
is competitively positioned against comparable companies (based on sector and market capitalisation).
In determining ‘at risk’ remuneration outcomes IRESS considers the individual’s value to the business (based on individual performance and
future potential), policy remuneration mix, total remuneration and the value of unvested equity held by the individual.
3.2 HOW IRESS LINKS ‘AT RISK’ REMUNERATION TO PERFORMANCE
IRESS’ variable remuneration process is underpinned by rigorous performance objectives and performance assessment, with active Board
involvement and judgement, as outlined below:
Targets supporting IRESS’
business strategy are set at
the commencement of the
financial year…
…with performance against
targets assessed at year end to
inform remuneration decisions…
…resulting in STI and LTI
delivered after year end
• Executive KMP receive any cash STI after the
Group’s full-year results have been finalised
and are subject to revision in the event of
material change to company performance.
• The MD/CEO’s STI equity and LTI grants are
subject to shareholder approval at the AGM
in May each year.
• STI Equity and LTI grants for other
Executive KMP are subject to Board
approval immediately following the AGM
in May each year.
• STI equity and LTI are issued after the AGM.
• LTI grants from prior years are tested against
the vesting conditions in May (with the portion
not vesting eligible for select re-testing until
November – see Section 4.3 (j)).
• The Board sets financial targets for the
Group (and each business segment) having
regard to business strategy and prior year
performance (see Section 4.2 (g)).
• The Board adjusts the final STI pools
considering a range of measures, but
primarily, financial performance against
targets (see Section 4.2 (d)).
• The Board confirms strategic goals and
specific objectives for the Group in key focus
areas (Clients, Growth, People, Products/
Technology and Group/Corporate) (see
Section 4.2 (g)).
• The STI pool is allocated by the MD/CEO
to different parts of the business based on
performance against financial and strategic
targets (see Section 6.2). The PPC reviews
and confirms the pool allocation.
• The Board sets the targeted STI (Cash
• The Board assesses the MD/CEO’s
performance against the agreed targets
and on this basis, determines his
remuneration outcomes.
• The individual performance assessment and
remuneration outcomes for other Executive
KMP are submitted by the MD/CEO to the
PPC for ratification and recommendation
to the Board.
• The Board reviews the allocation of STI
pools between executives and employees
to confirm they are appropriately and
fairly distributed (2).
and Deferred) and LTI pools for the year
(see Section 4.2 (d)). The Board considers
the size of the pools in the context of
financial performance to ensure that the
value of employee incentives is appropriate
in the context of IRESS’ projected financial
performance (1).
• The Board determines a set of individual
objectives for the MD/CEO and retains
flexibility to adjust objectives during the year,
where required, to adapt to the changing
business environment.
• Executive KMP’s individual objectives are
set by the MD/CEO and are reviewed by
the People & Performance Committee
(PPC). Achievement of the Group’s financial
targets is a specific objective for all Executive
KMP and, where appropriate, Executive KMP
will have additional financial targets for the
business for which they are responsible.
(1) The size of the combined STI (Cash and Deferred) pools relative to segment profit has remained stable over time.
(2) The proportion of STI pools (Cash and Deferred) awarded to executives has remained stable over time.
ANNUAL REPORT 2016 21
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 3 Remuneration approach (continued)
3.3 REMUNERATION FRAMEWORK AND MIX
As shown in the diagram below: IRESS uses a mix of fixed and ‘at risk’ remuneration to reward employees and drive performance. IRESS’
Executive remuneration framework (applying to Executive KMP and other senior executives) consists of fixed remuneration, short term and long
term incentives (STI and LTI).
FIXED
(see 4.1)
100% of fixed pay
awarded in a cash
during the year
~ 1/3 awarded
in cash
Paid March
STI
(see 4.2)
LTI
(see 4.3)
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
~ 2/3 of total STI award deferred in the form of share rights
(subject to a three-year service period and satisfactory
performance requirement)
Vests May
50% of performance rights have a one-year deferred start
and a three-year relative TSR hurdle.
50% of performance rights have a four-year relative TSR hurdle.
Vests May
Performance rights subject to a three-year relative TSR hurdle.
Vests May
:
O
E
C
/
D
M
R
E
H
T
O
I
S
E
V
T
U
C
E
X
E
Year 0
2016
Year 1
2017
Year 2
2018
Year 3
2019
Year 4
2020
Year 5
2021
IRESS also encourages employee share ownership through the award of deferred shares or deferred share rights to high performing employees,
and by offering an employee share ownership plan to all employees in Australia and the UK (see Section 4). The objective of the broad reach
of IRESS’ equity programs is to retain employees, motivate their long-term commitment to the company and align their interests with those
of shareholders.
The diagram below shows the mix of total remuneration that would typically be awarded to Executive KMP for a target level of performance
(“policy remuneration mix”). A significant portion of total Executive KMP remuneration is variable and at-risk:
• MD/CEO: Two-thirds (66%) of total remuneration is at risk (i.e. will not be received if service and performance criteria are not met) and 58% is
delivered in deferred equity; and
• Other Executive KMP: Nearly half (48%) is at risk and 39% is delivered in deferred equity.
The Board believes that this remuneration mix is effective in aligning the interests of Executive KMP with shareholders.
O
E
C
/
D
M
R
O
F
E
G
A
R
E
V
A
I
P
M
K
E
V
T
U
C
E
X
E
Fixed
34%
STI Cash
9% of Total
28% of Fixed
STI Deferred
19% of Total
55% of Fixed
Fixed
34%
Cash
43%
LTI
38% of Total
113% of Fixed
At Risk
66%
Equity
57%
Fixed
52%
STI Cash
9% of Total
18% of Fixed
STI Deferred
19% of Total
36% of Fixed
LTI
20% of Total
38% of Fixed
Fixed
52%
Cash
61%
At Risk
48%
Equity
39%
The remuneration mix depicted in the 2015 Annual Report had a lower proportion of LTI (and higher Fixed/STI) as the LTI was included at fair
value; whereas the above chart includes LTI at face value, which is higher. The underlying benefit of the LTI and the policy remuneration mix has
not changed. If the LTI had been included at face value in 2015, the mix would have been the same as depicted above.
22 IRESS LIMITED
Page HeadingPage Subheading
Section 4 Remuneration components in detail
4.1 FIXED REMUNERATION
a. What is fixed
remuneration?
b. How is fixed
remuneration
determined?
Base salary, superannuation, and other benefits (e.g. health insurance)
As noted in Section 3.1, the following factors are considered when setting fixed remuneration:
• The size and complexity of the role;
• Skills and experience of the individual; and
• Market pay levels for comparable roles.
Any decision to increase fixed remuneration is considered in the context of the resulting change in total
remuneration.
4.2 SHORT-TERM INCENTIVES
a. What is the STI plan?
The STI is an ‘at-risk’ incentive awarded annually, subject to performance against pre-set financial and strategic
targets (refer to (g) below).
b. Who participates
in the STI plan?
The MD/CEO, other Executive KMP and high performing employees are eligible to participate in the STI plan.
c. How are STI awards
delivered?
The STI is delivered in a combination of cash and deferred equity, which for Executive KMP, as shown in
Section 3.3, is typically as follows:
• One-third of the STI award is made in cash; and
• Two-thirds of the award is made in deferred share rights. A deferred share right (DSR) is a deferred right issued
by IRESS to acquire one fully paid ordinary share in IRESS (subject to adjustment for certain capital actions)
for a nominal exercise price of $1 for all DSRs exercised on a particular day. DSRs vest subject to a three-year
continuing service requirement and achievement of a satisfactory level of individual performance.
d. How is the STI plan
The STI plan is funded by a Group-wide bonus pool.
funded and allocated?
e. What is the target
and maximum STI
opportunity?
f. Why does the Group
consider the STI
an appropriate
incentive plan?
The target Cash and Deferred STI pools are determined at the beginning of each financial year, taking into
consideration expected financial performance.
At the end of the financial year, the actual Cash and Deferred STI pools available for allocation are determined
primarily with reference to the Group’s financial performance relative to target. The primary financial measure
used to determine the STI pools is segment profit, which is a measure of underlying operating performance.
The measure (as shown in Note 1.1 to the financial statements) excludes items that may fluctuate year-on-year
for reasons not related to core business performance in the current year. Consideration is also given to other
financial targets such as Earnings Before Interest, Tax, Amortisation and Depreciation (EBITDA) and Net Profit
After Tax (NPAT). The Board also considers the Group’s performance against strategic targets (see 4.2(g)) and
the impact of foreign exchange rate movements on financial performance (given such movements are outside
the control of executives).
The pools are then allocated to business segments and functions, based on financial performance,
achievement towards strategic goals of the Group throughout the year, and relative performance by segment
and function.
The factors considered in determining STI to be awarded to Executive KMP are outlined in Section 4.1(g) below.
As described in Section 3.3, the Board has established a policy remuneration mix for target performance for
the MD/CEO and for other Executive KMP.
There is no policy maximum STI opportunity. However, STI outcomes for Executive KMP and employees are
constrained by the size of the STI pools, which are directly linked to financial performance.
The STI pool available at the end of the financial year directly reflects Group performance for that financial year.
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 STI component recognises ongoing contribution, enables retention of key employees and
provides continuing alignment with shareholder interests.
ANNUAL REPORT 2016 23
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 4 Remuneration components in detail (continued)
g. What are the
performance measures?
STI awards are delivered subject to performance against financial targets (segment profit, NPAT) and strategic
targets (see table below).
Strategic focus area
Performance goals
Clients
Growth
People
Maintain resilient leadership in existing markets.
Grow revenue organically and pursue inorganic opportunities
where appropriate.
Position IRESS as an employer of choice globally.
Products / Technology
Anticipate trends and innovate to maintain product leadership.
Group / Corporate
Enhance IRESS’ brand through strong stakeholder relationships
and communication.
Enhance and scale internal systems to support client service,
delivery and growth.
Performance in each of the strategic focus areas are used to adjust the STI pool and allocate it to business
segments and functions (see Section 4.2(d)). Section 6.2 outlines how the Group performed against these
goals in 2016.
Targets in each of the focus areas are cascaded from the MD/CEO to other Executive KMP, and to all
employees. Weightings are tailored to the scope and focus of the individual’s role. The resulting individual
targets are used when assessing individual performance and determining individual STI outcomes (as
discussed for Executive KMP in Section 6.4).
h. How is performance
assessed?
At the end of the financial year, the Board assesses the Group’s performance and that of individual Executive
KMP against objectives set at the start of the year. The Board retains discretion in its assessment of
performance 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.
j. How will shares to
satisfy deferred share
rights be sourced?
The Board assesses annually whether to issue new shares or buy shares on market based on which would
deliver a better outcome for shareholders. The Board considers a range of factors such as share price, balance
sheet capacity and debt funding rates.
k. Is there a clawback
provision?
The Board may exercise discretion to determine that the deferred equity component of STI will be forfeited
where there has been unsatisfactory individual performance.
l. Are participants
entitled to dividends
and voting rights?
m. How are Deferred STI
awards treated upon
termination?
DSRs do not carry any voting rights or entitle the holder to dividends. Shares allocated upon the vesting of
DSRs carry the same rights as any other IRESS share.
Deferred Shares carry voting rights and receive dividends in the same manner as any other IRESS share.
If less than six months of the vesting period has elapsed at the date of cessation of employment: any unvested
deferred share rights will lapse.
If six months or more of the vesting period 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.
n. How are Deferred STI
awards treated upon
a change of control?
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.
24 IRESS LIMITED
Page HeadingPage Subheading 4.3 LONG-TERM INCENTIVES
a. What is the purpose of
The purpose of the Executive LTI plan at IRESS is to:
the LTI plan?
• Closely link executives’ interests with those of shareholders; and
• Promote the delivery of sustainable returns to shareholders.
b. Who participates in
LTI grants are limited to the MD/CEO and Executives who are most able to influence shareholder value.
the LTI plan?
c. How are LTI awards
delivered?
d. How does IRESS
determine the amount
of the LTI opportunity
awarded?
LTI awards are granted in the form of performance rights (PRs). 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,
for a nominal exercise price of $1 for all PRs exercised on a particular day.
The factors considered in determining LTI to be awarded to KMP (which apply for all LTI participants) are
outlined in Section 6.4.
e. How does IRESS
determine how many
rights to grant?
The number of PRs granted to each executive is calculated using a face value approach – total LTI amount
divided by the five-trading-day volume weighted average share price in the week up to and including the
grant date.
f. What are the vesting
conditions?
Vesting of performance rights is determined based on relative TSR performance over the performance period.
Relative TSR provides an objective assessment of the returns from an investment in IRESS (share price growth
and dividends), relative to other companies in which shareholders could have invested.
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 and represent alternative investment options
available to shareholders.
Prior to 2016 grants, the comparator group was adjusted to exclude companies that exited the S&P/ASX200
Index during the performance period.
While there are few ASX companies directly comparable to IRESS, the Board 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.
The TSR calculation for IRESS and companies in the comparator group includes franking credits for grants
prior to 2015. Effective for the 2016 grants, franking credits will be excluded from calculations.
g. What is the vesting
Performance rights vest on the following basis:
schedule?
IRESS’ relative TSR ranking
Percentage of performance rights to vest
Below 50th percentile
50th percentile
Nil.
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.
h. What is the performance
and vesting period?
MD/CEO
The LTI grant for the MD/CEO consists of two tranches:
1) 50% of performance rights are assessed over a four-year period, commencing at the start of the financial
year (e.g. 1 January 2016 to 31 December 2019 for the 2016 grant). The vesting period begins on the
date of grant, which commences on the date of the Annual General Meeting (AGM) (e.g. 5 May 2016 to
5 May 2020 for the 2016 grant).
2) 50% of performance rights have a one-year deferred start and are assessed over a three-year period (e.g.
1 January 2017 to 31 December 2019 for the 2016 grant); with vesting over the three-year period following
grant (e.g. 5 May 2016 to 5 May 2019 for the 2016 grant).
The purpose of the two tranches is to extend the performance measurement period consistent with shareholder
feedback, while still retaining alignment with Other Executive KMP, who have a three-year performance period.
Other Executive KMP
Performance is assessed over a three-year performance period commencing at the start of the financial year
(e.g. 1 January 2016 to 31 December 2018 for the 2016 grant); the vesting period begins on the date of grant,
which commences on the date of the Annual General Meeting (AGM) (e.g. 5 May 2016 to 5 May 2019 for the
2016 grant).
For all grants prior to 2016 the Group performance period was aligned with the vesting period.
ANNUAL REPORT 2016 25
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 4 Remuneration components in detail (continued)
i. 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 based on which would deliver a better outcome for shareholders. The Board
considers a range of factors such as share price, balance sheet capacity and debt funding rates.
j. Are awards subject to
re-testing if they do not
vest on initial testing?
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.
k. What happens to
unvested LTI grants
if an executive leaves
the Group?
Reason other than resignation, termination for cause or gross misconduct: Unvested LTI grants 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 of the plan.
Resignation, termination for cause or gross misconduct: All unvested LTI awards at the time of cessation of
employment will lapse.
l. How are unvested LTI
awards treated upon a
change of control?
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.
m. Are participants
entitled to dividends
and voting rights?
n. Are there restrictions on
dealing with securities
allocated under the
LTI plan?
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.
Consistent with the Corporations Act 2001, participants are prohibited from hedging their unvested
performance rights.
4.4 EMPLOYEE SHARE PLAN
a. How does IRESS
encourage share
ownership for
employees?
IRESS has an employee share plan covering the two major employee populations of Australia and the UK.
Eligible participants are invited to acquire IRESS shares by salary sacrifice and IRESS provides approximately
one share for every two shares the employee acquires up to a maximum value (share matching).
b. How many shares were
issued under this plan
in 2016?
The Australian plan has been operating since 2013. In 2016, 290 employees participated (55% of eligible
employees), subscribing to 25,230 shares including 7,540 matched shares. The UK plan was established
in 2015. In 2016, 272 employees participated (47% of eligible employees), subscribing to 40,382 shares
including 5,299 matched shares.
4.5 SPECIAL ACQUISITION-RELATED INCENTIVES (‘AVELO AWARDS’)
a. Does IRESS have any
other equity plans with
awards outstanding?
As disclosed in the 2013 Annual Report, a special set of deferred share rights awards were made in
September 2013 in relation to the acquisition of Avelo FS Holdings Limited and its subsidiaries in the
United Kingdom.
b. Who participated in the
Avelo awards and what
are the vesting criteria?
A core group of former Avelo Senior Management (including J McNeill: 54,981 DSRs) and staff to secure their
retention and to ensure ongoing support of the integration and development of the business opportunity in the
United Kingdom.
Vesting is subject to commercially sensitive performance criteria over the four-year period 1 January 2014 –
31 December 2017 (including the 1-year extension disclosed in the 2014 Annual Report).
Select IRESS employees (including P Ferguson: 5,160 DSRs) whose roles and responsibilities increased during
and after the acquisition.
These DSRs vested subsequent to the date of this report.
26 IRESS LIMITED
Page HeadingPage Subheading Section 5 Actual remuneration realised
Actual remuneration is provided in addition to statutory remuneration (refer to Section 10) to increase transparency of the remuneration actually
received by executives during the year. Actual remuneration realised by IRESS’ Executive KMP increased by 4% on 2015. The components
included in actual remuneration and the reasons for this increase are summarised below:
Component
2016 Inclusions
Change on 2015
Key driver of change
Fixed remuneration
Base salary, superannuation, and
non-monetary benefits paid in 2016.
STI
LTI
2016 Cash STI (which has been
earned and is scheduled for payment
in March 2017 following the release
of financial results), plus Deferred
STI that was granted May 2013
and vested May 2016 in relation to
2012 performance.
LTI awards that vested in 2016
relating to the May 2012 grants (MD/
CEO) and May 2013 grants (Other
Executive KMP).
Increase
• Addition of A Knowles to the Executive KMP
• J Harris and S New joined the Group in 2015
and pro-rated remuneration was disclosed in
2015 reporting
Increase
• Addition of A Knowles to the Executive KMP
Slight decrease
• Full-year contributions from J Harris and S New
• Change in policy remuneration mix in 2012 (smaller
LTI grants and larger Deferred STI grants), resulting
in the May 2013 Deferred STI grants (that vested in
2016) being larger than those vesting in 2015
• While the 2016 vesting LTI grants were smaller than
those vesting in 2015 due to the above-mentioned
policy remuneration mix change, the decrease on
2015 was offset by a higher proportion of the 2013
awards vesting in 2016 based on performance
(see Section 6.3)
Other
Not applicable.
Decrease
• No termination payments in 2016
ANNUAL REPORT 2016 27
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 5 Actual remuneration realised (continued)
Position
MD/CEO
A Walsh
Other Executive KMP
S Barnes
S Bland (2)
P Ferguson (3)
J Harris (4)
A Knowles (5)
J McNeill (6)
S New (6),(7)
M Rady
D Walker
Total Executive KMP
Financial
Year
Fixed
remuneration
$
Cash STI
earned
$
Deferred STI
vested
$(1)
LTI vested
$ (1)
Termination
payments
$
Total
remuneration
realised
$
2016
2015
2016
2015
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
1,030,000
1,095,373
300,000
300,000
647,900
661,700
1,746,772
1,330,665
445,000
445,000
443,361
367,123
345,824
552,429
413,928
536,398
389,927
365,122
600,962
106,395
530,000
527,625
553,785
517,114
5,005,625
4,259,742
60,000
54,000
–
55,000
40,000
70,000
55,000
75,000
63,950
40,429
54,815
20,214
80,000
75,000
85,000
100,000
843,765
684,643
191,072
206,248
143,623
124,632
131,240
–
–
195,195
–
–
–
–
–
–
207,930
222,661
418,891
129,906
141,674
–
–
205,919
–
–
–
–
–
–
235,364
157,122
1,394,163
1,299,933
259,812
458,374
2,550,339
2,572,265
–
–
–
–
3,724,672
3,387,738
904,002
927,909
563,378
1,569,253
–
–
–
–
–
–
–
–
–
–
–
–
–
–
563,378
676,661
658,738
622,429
468,928
1,012,512
453,877
405,551
655,777
126,609
610,000
602,625
1,133,962
1,232,610
9,793,892
9,379,961
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The value of equity that vested is calculated as the share price at vesting date of $11.78 multiplied by the number of shares/rights that vested. There was no
clawback of awards in 2016, i.e. no awards eligible for vesting in 2016 were forfeited due to unsatisfactory individual performance during the vesting period.
A number of executive KMP who joined the Group since 2013 did not hold DSRs or PRs that were eligible for vesting in 2016.
S Bland ceased employment with the Group on 1 October 2015 (termination payment: $563,378).
P Ferguson’s salary was overstated in the 2015 report by $27,500. 2015 Fixed remuneration and total remuneration have been restated to correct this.
J Harris joined the Group 20 April 2015 and became KMP on 11 May 2015.
A Knowles changed role and became a KMP on 1 January 2016.
Fixed remuneration and Cash STI of J McNeil and S New is denominated in British Pounds and is subject to foreign exchange movements. The Australian dollar
amounts shown in the table have been converted at an average exchange rate of 0.5473 (2015: 0.4919).
S New joined the group and became KMP on 1 November 2015.
28 IRESS LIMITED
Page HeadingPage Subheading Section 6 Remuneration awarded and the link between performance and reward
6.1 OVERVIEW OF GROUP PERFORMANCE
The table below provides summary information on the Group’s earnings for the five years to 31 December 2016.
Measure
2016
2015
2014
2013
2012
Company Performance
Net Profit After Tax (NPAT) ($’000s)
Segment profit ($’000s) (1)
Statutory EPS – basic (cents)
Dividends per share – ordinary (cents) (2)
Share price at 31 December ($)
Annual TSR (3)
Annual TSR ASX200 (3)
59,452
123,531
37.0
44.0
11.87
22.97%
6.99%
55,385
119,175
35.2
42.7
10.00
(2.79%)
(2.15%)
50,671
111,444
32.3
41.5
10.71
16.33%
1.09%
24,241
88,201
17.5
38.0
9.44
19.97%
14.09%
39,228
83,404
30.6
38.0
8.24
21.76%
13.63%
(1)
(2)
(3)
Segment profit (calculation as set out in Note 1.1 to the Consolidated Financial Statements) is a measure of core underlying business performance and the basis
on which the Cash STI Pool is determined.
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.
TSR calculations exclude franking credits. TSR used for LTI vesting for grants made pre-2016 includes the impact of franking credit.
6.2 TRANSLATION OF GROUP PERFORMANCE INTO STI AWARDS
The Board’s assessment of the Group’s performance against 2016 financial and strategic objectives is summarised in the table below.
This assessment formed the basis for the determination of STI awards for the year, consistent with the process outlined in Section 3.2:
• Financial performance is the gateway to and the primary driver of the Cash and Deferred STI pools (see Section 4.2(d))
• Allocation of the STI pools to different parts of the business is based on Financial & Strategic Performance (see Section 4.2(g)).
Result
At target
Key focus area Performance target
Performance outcome
Financial
measures
Financial
Achievement of the Board
approved budget for the
year. The 2016 budget was
based on 2015 actuals and
an appropriate growth target
that reflects the momentum
of the business and the
group’s strategic goals.
Group Segment Profit
performance is the primary
financial measure for
determining STI funding
and outcomes. However,
in addition, the Board
considers a range of financial
metrics including divisional
performance, EBITDA
and NPAT.
In assessing performance
against budget the board
also considers the impact
of FX rates at which offshore
earnings are translated to
Australian dollars (which
are outside the control
of management).
In 2016 the consolidated financial performance of the company was in line with
segment profit growth targets set at the beginning of the year on a constant
currency basis. As a result, the final STI pools determined by the Board were also
in line with budget.
EBITDA and NPAT performance was below target as a result of acquisition related
costs. Both acquisitions were closely aligned to the strategy. The impact of 2016
acquisitions on short term EBITDA and NPAT was considered by the Board as
part of their approval of the transactions.
Excluding the impact of foreign exchange rates on the translation of offshore
earnings (“constant currency basis”), segment profit grew 7%, EBITDA grew 3%
and NPAT grew 16% compared to 2015.
Although consolidated results were in line with budget, some divisional results
were below budget. This was considered in the allocation of the Group STI pools.
In 2015, the STI pools were reduced because the financial performance of the
company was below the targets set by the board at the start of the year. This
assessment was made excluding the positive impact that FX rates had on
2015 results.
ANNUAL REPORT 2016 29
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 6 Remuneration awarded and the link between performance and reward (continued)
Result
At target
Key focus area Performance target
Performance outcome
Strategic
measures
Clients
Maintain resilient
leadership in existing
markets, client service
excellence, new client
implementations and
retention of existing clients
In Australia, the contracts of several existing wealth management clients were
successfully renegotiated and extended. In addition, client retention rates in
the financial markets business remained strong despite cost pressure on the
industry generally.
The UK business continued to grow strongly with significant implementations to
new and existing clients and the full year impact of 2015 acquisitions. The financial
success of this business in 2016 was underpinned by a portfolio of successful
wealth and PWM client implementations and retention of existing customers in line
with expectations. Although the UK financial markets business under performed,
the overall result for the UK was in line with expectations.
The UK Lending business completed the implementation of MSO V2 at
Atom Bank and built its pipeline of positive prospective engagement leading to
negotiating agreements for implementations.
In South Africa, new wins and strong retention of existing clients also drove a
positive revenue outcome.
The Canadian and Asian businesses performed below target against this focus
area. In Canada, this was driven by ongoing attrition in the institutional equities
business and a project with MD Financial being discontinued. In Asia, this
outcome was driven by project delays. The below target financial performance
and the relevant contribution by IRESS’ people were considered in the allocation
of the final STI pools. However, the size of these businesses meant that the
consolidated group target was still met.
Growth
Grow revenue
organically and pursue
inorganic opportunities
where appropriate
IRESS successfully completed the acquisitions of INET BFA in South Africa and
Financial Synergy in Australia during the year. Both acquisitions are closely aligned
with existing strategy and will accelerate progress towards strategic goals in these
markets. The financial metrics of both transactions were in line with the Board’s
acquisition criteria.
Above
target
The Operating and Financial Review (page 11) contains detail on the financial
performance of each segment. Overall revenue grew 13% on a constant currency
basis, which was ahead of the target set by the board at the start of the year.
Excluding the impact of the Financial Synergy and INET acquisitions, revenue
growth was 12%.
Double digit revenue growth was delivered in the key markets of UK wealth
management, Australian wealth management and South Africa, driven by new
client implementations and retention of existing clients. This outcome was at or
above the targets set at the beginning of the year.
The resilience of the Australian financial markets revenue and wins with buy side
customers led to 2% revenue growth in 2016 which was above target.
Revenue growth in Canada and Asia was below expectations for the reasons
noted above. This was considered in the allocation of the STI pools.
People
Position IRESS
as an employer of
choice globally
The acquisitions of Financial Synergy and INET BFA led to the successful
integration of over 200 new people to the IRESS team in Australia and
South Africa.
At target
The Board has set multi-year goals focussed on the development of leadership
capability, capacity and scalability across the group, and increasing diversity.
Good progress was made towards these goals in 2016 with the roll-out of a
diversity awareness program and the development of new global leadership
program. Several other activities were undertaken in 2016 to strengthen the
People foundation at IRESS; including, successful graduate programs, the delivery
of a unified HR platform; an improved on-boarding process for new employees;
commercial awareness training; and improvements to the succession planning
and performance feedback processes. There has also been a significant focus
on internal communications and collaboration.
Over 80% of recruitment is now undertaken directly by IRESS which has
significantly reduced external recruitment costs for the group.
30 IRESS LIMITED
Page HeadingPage Subheading Key focus area Performance target
Performance outcome
Products /
Technology
Anticipate trends and
innovate to maintain
product leadership
IRESS responded quickly to regulatory and market changes through regular
product updates and releases throughout 2016. Ongoing architectural
enhancements continued in 2016 to ensure that IRESS technology remains
relevant in a fast changing environment.
Result
At target
In addition, material progress was made towards the successful development
and deployment of XPLAN Prime, ViewPoint, MSO V2, XPLAN Mortgage and
the IRESS Private Wealth Management (PWM) solution along with meaningful
enhancements to connectivity and content services with third-parties. These are
market leading solutions that drove positive revenue outcomes in 2016 and are
expected to underpin client attraction and retention in future years.
In many cases product and technology development involves multiyear projects
and the board’s assessment is based on progress delivered in 2016 towards
longer term objectives.
Group /
Corporate
Enhance IRESS
brand through strong
stakeholder relationships
and communication.
Internal and external communication and engagement was enhanced during the
year. Specific initiatives included social media engagement, trade shows and other
client focussed events, an investor day, internal communications and the relaunch
of IRESS’ website.
At target
Enhance and scale
internal systems to
support client service,
delivery and growth.
Significant enhancements were made to the technology and tools used to manage
global software development and implementation projects and to collaborate across
geographically dispersed teams.
During 2016, IRESS teams across the globe donated their time, talent and
money to initiatives that support their local communities and through their efforts
enhanced the IRESS brand.
6.3 TRANSLATION OF GROUP PERFORMANCE INTO LTI AWARDS
IRESS’ dividends and share price performance directly affect the vesting of LTI awards as all performance rights granted under the Executive LTI
plan are subject to a relative TSR performance measure.
The table below illustrates the vesting outcomes for those LTI grants eligible to vest in 2016 based on the Group’s relative TSR performance.
LTI Award
Performance Period
Relative TSR Performance (1)
Vesting Outcome
MD/CEO – 2012 Four-year
performance rights
MD/CEO – 2012 Deferred
three-year performance rights
Other Executives – 2013
performance rights Issued
to executives including
Executive KMP
7 May 2012 to 7 May 2016
Percentile rank: 79th percentile
100% of performance rights vested
7 May 2013 to 7 May 2016
Percentile rank: 68th percentile
85% of performance rights vested
7 May 2013 to 7 May 2016
Percentile rank: 68th percentile
85% of performance rights vested
(1) Based on maximum relative TSR performance as measured on 7 May 2016 and subsequent retest dates.
6.4 TRANSLATION OF GROUP AND INDIVIDUAL PERFORMANCE INTO REMUNERATION AWARDED TO EXECUTIVE
KMP FOR 2016
The following table shows the proposed 2016 STI and LTI outcomes for each of the Executive KMP in relation to their performance in 2016 (as
compared to the actual amounts awarded for 2015). Cash STI amounts have been accrued but not paid as at the time of release of this report.
Deferred STI and LTI are subject to shareholder approval in May 2017 for the MD/CEO and Board approval for Other Executive KMP. The Board
retains the discretion to increase or decrease these amounts up to that day should the performance of the Group or of individual KMP vary materially.
In awarding STI and LTI to Executive KMP, the Board considers the following:
• The performance of the Group against financial and strategic targets.
• The performance of each executive against their individual targets (refer 4.2 (g)) and their contribution to the Group outcomes described in Section 6.2;
• Policy remuneration mix (see Section 3.3);
• Total remuneration of each executive; and
• The value of unvested equity for each executive to ensure sufficient exposure to IRESS equity and resulting shareholder alignment. Their potential to
create long term value is also considered.
As noted in section 4.2(e), there is no maximum STI opportunity for individual executives; although STI outcomes are constrained by the size of
the STI pools, which are directly linked to financial performance. As there are no STI maximums, IRESS is unable to state the proportion of total
STI opportunity that was awarded versus foregone(1).
(1)
Exception for S New, who, due to market practice in his location and the particulars of his employment, has a higher fixed remuneration and lower, capped ‘at
risk’ opportunity. In 2016, he was awarded 94% of his maximum STI and 93% of his maximum LTI due to meeting his stretch targets. Due to the capped nature
of his ‘at risk’ opportunity, S New does not receive incentive above the capped amount for out-performance.
ANNUAL REPORT 2016 31
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 6 Remuneration awarded and the link between performance and reward (continued)
Position
MD/CEO
A Walsh (1)
Other Executive KMP
S Barnes
S Bland (2)
P Ferguson (3)
J Harris (4)
A Knowles (5)
J McNeill (6)
S New (6),(7)
M Rady
D Walker (8)
Total Executive KMP
Fixed
remuneration
paid
$
Financial
Year
Cash STI
awarded
$
Deferred STI
awarded at fair
value $(9)
LTI awarded
at face value
$
Total
remuneration
awarded
$
2016
2015
2016
2015
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
1,030,000
1,095,373
300,000
300,000
510,000
615,000
1,340,000
1,422,000
3,180,000
3,432,373
445,000
445,000
443,361
367,123
345,824
552,429
413,928
536,398
389,927
365,122
600,962
106,395
530,000
527,625
553,785
517,114
5,005,625
4,259,742
60,000
54,000
–
55,000
40,000
70,000
55,000
75,000
63,950
40,429
54,815
20,214
80,000
75,000
85,000
100,000
843,765
684,643
150,000
145,000
–
115,000
100,000
175,000
100,000
175,000
76,258
60,000
76,258
60,000
180,000
170,000
175,000
185,000
152,778
153,351
–
118,056
118,500
180,556
167,298
180,556
82,378
69,702
94,146
55,766
187,500
188,202
–
202,149
1,632,517
1,435,000
2,335,968
2,376,968
807,778
797,351
443,361
655,179
604,324
977,985
736,226
966,954
612,513
535,253
826,181
242,375
977,500
960,827
813,785
1,004,263
9,817,874
8,607,683
(1)
(2)
(3)
(4)
(5)
(6)
A Walsh’s 2015 Deferred STI awarded has been restated from the 2015 Annual Report to reflect that the share price increased after the date of the Annual
Report and thus, so did the fair value of the 60,000 Deferred Share Rights approved at the AGM.
S Bland ceased employment with the Group on 1 October 2015.
P Ferguson’s salary was overstated in the 2015 report by $27,500. 2015 Fixed remuneration and total remuneration have been restated to correct this.
J Harris joined the Group 20 April 2015 and became KMP on 11 May 2015.
A Knowles changed role and became a KMP on 1 January 2016.
Fixed remuneration and Cash STI 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 0.5473 (2015: 0.4919).
S New joined the group and became KMP on 1 November 2015.
(7)
(8) David Walker moved to a new role in January 2017 and was not eligible for a LTI award.
(9) The fair value of a DSR approximates face value but reflects the DSRs ineligibility to receive dividends.
The table below shows the actual mix of remuneration awarded for 2016 and 2015 performance compared to the policy remuneration mix
(see Section 3.3). For Other Executive KMP, actual remuneration shows a higher weighting to fixed remuneration because of the:
• Lower weighting to STI (2015 and 2016) – This is due to market practice for higher weighting to fixed remuneration for the two UK-based executives
(J McNeill and S New),
• Lower weighting to LTI (2016) – This is due to D Walker moving to the part-time role of Chief Architect effective January 2017, and thus, no longer
being eligible for LTI.
MD/CEO
Policy remuneration mix
Actual remuneration mix
Average of other Executive KMP
Policy remuneration mix
Actual remuneration mix
2016
2015 (1)
Fixed
34%
32%
52%
60%
STI
28%
26%
28%
25%
LTI
Fixed
STI (2)
38%
42%
20%
15%
34%
31%
52%
55%
28%
27%
28%
25%
LTI
38%
42%
20%
20%
(1)
(2)
2015 policy and actual remuneration mix have been restated from the 2015 Annual Report to reflect LTI face values.
A Walsh’s 2015 Deferred STI awarded has been restated from the 2015 Annual Report to reflect that the share price increased after the date of the Annual
Report and thus, so did the fair value of the 60,000 Deferred Share Rights approved at the AGM.
32 IRESS LIMITED
Page HeadingPage Subheading
Section 7 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
Arrangements
Term of contract
Ongoing.
Notice period
Resignation
Retirement
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.
Termination on notice
by IRESS
IRESS may terminate the employment agreement by providing six months’ written notice, or payment in lieu
of the notice period.
Redundancy
Termination for serious
misconduct
Non-compete
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, considering matters such
as statutory requirements, the executive’s contribution, position and length of service.
IRESS may terminate the employment agreement at any time without notice.
A non-compete arrangement exists during the MD/CEO’s employment and for a period of six months following
his employment with the Group.
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
Arrangements
Notice period
Six months, except for A Knowles and M Rady whose notice period is a minimum of three months.
Non-compete
In addition to all executive KMP having non-compete arrangements during employment, J Harris, J McNeill and
S New have non-compete clauses for the 12-months following employment.
ANNUAL REPORT 2016 33
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 8 Remuneration governance
The Board and People & Performance Committee (PPC) work closely to apply the Group’s remuneration philosophy
and ensure the company’s remuneration strategy supports he creation of 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 PPC 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.
34 IRESS LIMITED
Page HeadingPage Subheading Section 9 Non-Executive Director fees
To ensure objective and independent oversight of the Group, Non-executive Directors (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 considers the
responsibilities of NEDs and the time spent by NEDs on IRESS matters.
NED fees are reviewed at appropriate intervals 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.
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 $1,200,000 per annum was approved at the Annual General Meeting held on 5 May 2016. The total
amount of remuneration paid to NEDs in 2016 was $800,096.
NED FEE POLICY
The table below contains the fee policy for NEDs during 2016. No changes to fees were made from 2015 to 2016. Fees include statutory
superannuation contributions or fees in lieu of statutory superannuation contributions paid by the Group.
Role
IRESS Limited Board
Board Chair
Board member
Audit & Risk Committee
Chair
Member
People and Performance Committee
Chair
Member
The Chairman is entitled to the Board Chair fee only (no additional Committee fees).
NON-EXECUTIVE DIRECTOR STATUTORY REMUNERATION
The total statutory remuneration paid to NEDs during 2016 and 2015 is as set out in the table below.
Non-Executive Directors
A D’Aloisio
N Beattie (1),(2)
J Cameron
J Hayes
J Seabrook
G Tomlinson (2)
Total Non-Executive Director fees
SHORT-TERM
BENEFITS
POST-
EMPLOYMENT
ENTITLEMENTS
Financial year
Fees
$
Superannuation
$
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
182,648
182,648
110,000
100,833
100,457
100,457
120,548
120,548
120,548
120,548
100,457
92,085
734,658
717,119
17,352
17,352
6,096
8,957
9,543
9,543
11,452
11,452
11,452
11,452
9,543
8,748
65,438
67,504
Fee ($)
200,000
110,000
22,000
Nil
22,000
Nil
Total
$
200,000
200,000
116,096
109,790
110,000
110,000
132,000
132,000
132,000
132,000
110,000
100,833
800,096
784,623
(1)
(2)
NED fees are paid inclusive of superannuation for all NEDs except for N Beattie. N Beattie is paid superannuation on-top of fees based on the percentage of
total fees relating to work performed in Australia.
N Beattie and G Tomlinson were appointed 1 February 2015.
ANNUAL REPORT 2016 35
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 10 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 2016.
Deferred share rights and performance rights are granted for no consideration and have a total exercise price of $1 for all deferred share rights
or performance rights exercised on a particular day.
Executive
A Walsh
S Barnes
A Knowles
P Ferguson
J Harris
J McNeill
S New
M Rady
D Walker
Vehicle
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Deferred share rights
Performance rights
Grant date
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
05–May–16
Number
of rights
granted
Fair value at
grant date
($)
Vesting
date (1)
Expiry
date (1)
60,000
60,000
60,000
14,146
12,941
9,756
10,000
9,756
14,118
17,073
14,118
5,854
5,882
5,854
4,706
16,585
15,882
18,049
17,059
10.25
8.00
6.24
10.25
8.50
10.25
8.50
10.25
8.50
10.25
8.50
10.25
8.50
10.25
8.50
10.25
8.50
10.25
8.50
05–May–19
05–May–20
05–May–20
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–May–19
05–Nov–20
05–Nov–20
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
05–May–19
05–Nov–19
(1)
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 5 May 2021.
36 IRESS LIMITED
Page HeadingPage Subheading 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
A Walsh
S Barnes
P Ferguson
A Knowles
D Walker
Deferred share
rights
Performance
rights
Performance
rights
Deferred share
rights
Performance
rights
Deferred share
rights
Performance
rights
Deferred share
rights
Performance
rights
Deferred share
rights
Performance
rights
Grant
date
Number
of rights
granted
Fair value
at grant
date
($)
Vesting
date
Expiry
date
Number
of rights
vested (1)
Number of
rights
lapsed/
forfeited
Proportion
rights
vested
Proportion
forfeited
07–May–13
55,000
8.51 06–May–16 06–May–16
55,000
07–May–12
80,000
3.64 06–May–16 06–Nov–16
80,000
–
–
100.0%
0.0%
100.0%
0.0%
07–May–12
80,000
3.56 06–May–16 06–Nov–16
68,283
11,717
85.4%
14.6%
07–May–13
16,220
8.51 06–May–16 06–May–16
16,220
–
100.0%
0.0%
07–May–13
20,680
5.03 06–May–16 06–Nov–16
17,651
3,029
85.4%
14.6%
07–May–13
10,580
8.51 06–May–16 06–May–16
10,580
–
100.0%
0.0%
07–May–13
12,920
5.03 06–May–16 06–Nov–16
11,028
1,892
85.4%
14.6%
07–May–13
16,570
8.51 06–May–16 06–May–16
16,570
–
100.0%
0.0%
07–May–13
20,480
5.03 06–May–16 06–Nov–16
17,480
3,000
85.4%
14.6%
07–May–13
19,980
8.51 06–May–16 06–May–16
19,980
–
100.0%
0.0%
07–May–13
25,840
5.03 06–May–16 06–Nov–16
22,055
3,785
85.4%
14.6%
(1) 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.
There were no share rights and performance rights that had vesting determinations during the year year for J Harris, J McNeil, S New or M Rady.
ANNUAL REPORT 2016 37
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 10 Additional required disclosures (continued)
EXECUTIVE KMP STATUTORY REMUNERATION
The table below presents details of Executive KMP remuneration prepared in accordance with statutory requirements and AASB 2 accounting
standards. Under this standard deferred share rights and performance rights are expensed based on the grant date fair value over the
vesting period.
SHORT-TERM BENEFITS
POST-
EMPLOY-
MENT
ENTITLE-
MENTS
Salary
and
Fees
$ (1)
Financial
Year
Non-
Monetary
Cash
incentive
Super-
annuation
$ (2)
$ (3)
$ (4)
LONG-TERM BENEFITS
Share
based
payments
– Deferred
Shares
Rights $
Share
based
payments –
Perform-
ance
Rights
$
Long-
service
Leave
accrual
$
Termination
payments
$
Total
Remun-
eration
$
Perform-
ance-
related
remun-
eration as
% of total
remun-
eration
Position
MD/CEO
A Walsh
2016 1,000,000
2015 1,000,000
–
65,373
300,000
300,000
30,000
30,000
494,892
450,149
629,786
681,230
16,759
10,048
– 2,471,437
– 2,536,800
Executive KMP
S Barnes
S Bland
P Ferguson (5)
J Harris
A Knowles
J McNeill (6)
S New (6)
M Rady
D Walker
Total
2016
2015
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
410,000
410,000
420,000
330,000
310,000
520,000
350,641
500,000
319,021
330,226
548,145
106,127
500,000
500,000
520,000
485,000
–
–
1,449
2,123
2,099
529
29,976
2,123
43,526
6,661
5,311
268
–
–
2,123
1,948
2016 4,647,166
2015 3,911,994
55,735
107,774
60,000
54,000
–
55,000
40,000
70,000
55,000
75,000
63,950
40,429
54,815
20,214
80,000
75,000
85,000
100,000
843,765
684,643
35,000
35,000
21,913
35,000
33,725
31,900
33,311
34,275
27,380
28,235
47,506
–
30,000
27,625
31,663
30,166
137,869
134,201
(71,782)
106,370
102,123
21,918
–
158,139
183,313
163,908
13,151
–
82,301
29,289
106,233
102,753
44,203
72,542
66,192
66,339
26,035
109,983
22,631
11,641
8,767
–
72,961
28,204
175,378
161,728
138,611
141,154
302,723 1,373,330 1,227,853
969,616 1,101,412
239,975
6,253
–
–
–
755,355
735,954
–
563,378
979,161
7,043
4,870
–
–
25,528
–
–
–
–
–
–
9,884
7,663
65,467
22,581
–
–
–
–
–
–
–
–
–
–
–
–
–
608,078
559,009
710,686
494,963
905,048
659,821
581,100
677,696
126,609
765,262
660,118
962,659
927,659
– 8,516,039
563,378 7,601,373
58%
56%
40%
40%
N/A
38%
37%
22%
16%
38%
41%
37%
11%
16%
31%
20%
41%
43%
40%
36%
(1)
(2)
(3)
(4)
(5)
(6)
Includes short-term compensated absences during the 2015 or 2016 financial years.
Non-Monetary benefits relate to health insurance subsidies received, 2015 reflects A Walsh UK secondment allowance and relocation costs; and J Harris
relocation costs.
There were no other short term profit sharing and other bonuses, or other short term employee benefits, provided to the Executive KMP during the 2015
or 2016 financial years.
There were no pension benefits or other post-employment benefits provided to the Executive KMP in the 2015 or 2016 financial years.
P Ferguson’s salary was overstated in the 2015 report by $27,500. 2015 Salary and total remuneration have been restated to correct this.
Remuneration of J McNeill and S New are denominated in British Pounds and are subject to FX movements. The Australian dollar amounts shown in the table
were converted at an average foreign exchange rate of 0.5473 (2015: 0.4919).
38 IRESS LIMITED
Page HeadingPage Subheading SHAREHOLDINGS
The number of ordinary shares held in the Company during the financial year by each KMP is set out below. Included are shares held on their
behalf by the trustee of the IRESS Limited Equity Plans Trust and their personally related parties is set out below.
NEDs
A D’Aloisio
N Beattie
J Cameron
J Hayes
J Seabrook
G Tomlinson
Executive KMP
A Walsh
S Barnes
P Ferguson
J Harris
J McNeill
A Knowles
S New
M Rady
D Walker
Total
Balance as at
1 January 2016 (1)
Shares
acquired
during
the year (2)
Other
changes
Balance as at
31 December
2016
35,534
–
36,668
12,467
36,667
–
323,521
20,320
12,930
–
–
–
–
–
508,477
986,584
1,321
–
–
1,321
1,321
–
320,660
53,047
33,840
–
–
31,316
–
–
83,745
526,571
–
–
–
–
–
–
(275,000)
(42,257)
(17,788)
–
–
(22,000)
–
–
(184,019)
(541,064)
36,855
–
36,668
13,788
37,988
–
369,181
31,110
28,982
–
–
9,316
–
–
408,203
972,091
(1)
(2)
Opening balances have been restated for A Walsh, S Barnes, P Ferguson and D Walker as Performance Rights that vested in 2015 were not exercised
until 2016. A portion of performance rights vesting in 2016 have not been included as they have not yet been exercised.
Shares acquired by Executive KMP during the year were acquired on the vesting of deferred shares, exercise of deferred share rights and exercise of
performance rights (including those that vested in 2015 that were exercised in 2016).
OPTIONS
There were no listed options held in the Company by KMP during the financial year ended 31 December 2016.
ANNUAL REPORT 2016 39
Page HeadingPage Subheading Directors’ Report (continued)
For the Year Ended 31 December 2016
Section 10 Additional required disclosures (continued)
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.
Performance Rights
MD/CEO
A Walsh
Executive KMP
S Barnes
P Ferguson
J Harris
A Knowles
J McNeill
S New
M Rady
D Walker
Total
Balance as at
1 January 2016
Granted as
compensation
Vested during
the year (1)
Forfeited
during
the year
Balance as at
31 December
2016 (2)
536,000
120,000
(148,283)
(11,717)
496,000
65,355
42,381
22,642
66,355
8,370
–
24,528
84,555
12,941
10,000
14,118
14,118
5,882
4,706
15,882
17,059
(17,651)
(11,028)
–
(17,480)
–
–
–
(22,055)
(3,029)
(1,892)
–
(3,000)
–
–
–
(3,785)
57,616
39,461
36,760
59,993
14,252
4,706
40,410
75,774
850,186
214,706
(216,497)
(23,423)
824,972
(1)
(2)
All performance rights that vested during the financial year are exercisable. No shares that vested during the year are not yet exercisable.
No performance rights were, as at 31 December 2016 vested (or vested and exercisable) and not yet exercised; or vested and not yet exercisable.
Deferred Shares / Deferred Share Rights
MD/CEO
A Walsh
Executive KMP
S Barnes
A Knowles
P Ferguson
J Harris
J McNeill
S New
M Rady
D Walker
Total
Balance as at
1 January 2016
Granted as
compensation
Vested
during
the year (1)
Forfeited
during
the year
Balance as at
31 December
2016 (2)
168,000
60,000
(55,000)
–
173,000
49,671
54,863
38,682
–
65,354
–
14,967
62,696
14,146
9,756
9,756
17,073
5,854
5,854
16,585
18,049
(16,220)
(16,570)
(10,580)
–
–
–
–
(19,980)
454,233
157,073
(118,350)
–
–
–
–
–
–
–
–
–
47,597
48,049
37,858
17,073
71,208
5,854
31,552
60,765
492,956
(1)
(2)
All deferred share rights that vest during the financial year are exercisable. No shares that vested during the year are not yet exercisable.
No deferred share rights were, as at 31 December 2016 vested (or vested and exercisable) and not yet exercised; or vested and not yet exercisable.
TRANSACTIONS WITH KMP
No transactions involving an equity instrument (excluding share based payment compensation) occurred between KMP and the Company
during 2016.
LOANS TO KMP OR RELATED PARTIES
No loans to KMP or related parties were provided during 2016.
Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001 (Cth).
TONY D’ALOISIO
CHAIRMAN
21 February 2017
40 IRESS LIMITED
ANDREW WALSH
CHIEF EXECUTIVE OFFICER
AND MANAGING DIRECTOR
Section X. Section NamePage HeadingPage Subheading Auditor’s Independence Declaration
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
21 February 2017
The Board of Directors
IRESS Limited
Level 18, 385 Bourke Street
MELBOURNE VIC 3000
Dear Board Members
IRESS Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of IRESS Limited.
As lead audit partner for the audit of the financial statements of IRESS Limited for the financial
year ended 31 December 2016, I declare that to the best of my knowledge and belief, there
have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
G J McLean
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
ANNUAL REPORT 2016 41
Financial Statements
For the Year Ended 31 December 2016
This is the financial report for IRESS Limited (the ‘Company’) and its controlled entities (collectively referred
to as the ‘Group’ or ‘IRESS’) for the year ended 31 December 2016.
IRESS has enhanced the disclosures within this report compared to the previous year to improve
the relevance and readability for users of the financial report. As a result:
• Certain line items within the primary financial statements have been combined and re-stated in the
comparative period
•
Information that was considered by the directors to be immaterial has been removed, as its inclusion may
undermine the usefulness of this report by obscuring important information
• The notes to the financial statements have been rearranged into sections to assist users in understanding
IRESS’ performance.
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
SECTION 1. FINANCIAL RESULTS
1.1 Segment information
1.2 Earnings per share and dividends per share
1.3 Employee benefit expenses
1.4 Share based payments
1.5 Other expenses
1.6 Notes to the consolidated statement of cash flows
SECTION 2. CORE ASSETS AND WORKING CAPITAL
2.1
Intangibles
2.2 Receivables and other assets
2.3 Payables and other liabilities
2.4 Provisions
2.5 Commitments and contingencies
SECTION 3. DEBT AND EQUITY
3.1 Debt facilities and derivatives
3.2
Issued capital
3.3 Managing financial risks
SECTION 4. OTHER DISCLOSURES
4.1 Taxation
4.2 Businesses acquired
4.3 Change in presentation
4.4
IRESS Limited – parent entity financial information
4.5 Subsidiaries
4.6 Deed of cross guarantee
4.7 Basis of preparation
4.8 Transactions with related parties
4.9 Subsequent events
42 IRESS LIMITED
43
44
45
46
47
48
49
49
51
52
53
54
55
56
56
57
59
59
60
62
63
64
65
65
67
68
68
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the Year Ended 31 December 2016
Revenue
Customer data fees
Communication and other technology expenses
Employee benefit expenses
Other expenses
Profit before depreciation, amortisation, interest and income tax
Depreciation and amortisation expense
Profit before interest and income tax expense
Interest revenue
Financing costs
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
Tax impact of exchange differences recognised in other comprehensive income
Total other comprehensive income for the period
Total comprehensive income for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Notes
1.3
1.5
1.5
3.1
4.1
4.1
2016
$’000
389,737
(31,385)
(23,026)
(202,428)
(29,389)
103,509
(21,063)
82,446
937
(6,406)
(5,469)
76,977
(17,525)
59,452
(38,931)
(1,610)
(40,541)
18,911
2015
$’000
361,464
(29,192)
(17,601)
(185,062)
(24,731)
104,878
(26,267)
78,611
849
(10,554)
(9,705)
68,906
(13,521)
55,385
8,782
–
8,782
64,167
Cents per
share
Cents per
share
1.2
1.2
37.0
36.4
35.2
34.7
The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2016 43
Consolidated Statement of Financial Position
As at 31 December 2016
Assets
Current assets
Cash and cash equivalents
Receivables and other assets
Total current assets
Non-current assets
Intangibles
Plant and equipment
Deferred tax assets
Derivative assets
Total non-current assets
Total assets
Liabilities
Current Liabilities
Payables and other liabilities
Provisions
Derivative liabilities
Total current liabilities
Non-current liabilities
Payables and other liabilities
Provisions
Borrowings
Derivative liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Notes
2016
$’000
2015
$’000
2.2
2.1
1.5
4.1
3.1
2.3
2.4
3.1
2.3
2.4
3.1
3.1
4.1
3.2
22,951
50,103
73,054
558,759
12,096
18,127
205
589,187
662,241
44,169
10,979
–
55,148
7,517
8,040
177,805
–
12,905
206,267
261,415
400,826
375,287
6,403
19,136
400,826
39,233
37,358
76,591
529,552
9,998
26,197
–
565,747
642,338
41,541
8,713
10,069
60,323
8,000
7,580
200,488
11,055
15,581
242,704
303,027
339,311
275,983
45,093
18,235
339,311
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
44 IRESS LIMITED
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2016
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
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners in their capacity as owners:
Shares issued during the year (2)
Share raising costs
Dividends declared
Share-based payment expense (3)
Transfer share-based payments reserve (1)
Balance at 31 December 2016
Retained
earnings
$’000
23,709
55,385
–
55,385
(66,175)
–
–
5,316
(60,859)
18,235
59,452
–
59,452
–
–
(68,439)
–
9,888
(58,551)
19,136
Share based
payments
reserve
$’000
16,604
–
–
–
–
9,867
–
(5,316)
4,551
21,155
–
–
–
–
–
–
11,739
(9,888)
1,851
23,006
Foreign
currency
translation
reserve
$’000
15,156
–
8,782
8,782
–
–
–
–
–
23,938
–
(40,541)
(40,541)
–
–
–
–
–
–
(16,603)
Total
equity
$’000
330,784
55,385
8,782
64,167
(66,175)
9,867
668
–
(55,640)
339,311
59,452
(40,541)
18,911
101,214
(1,910)
(68,439)
11,739
–
42,604
400,826
Issued
capital
$’000
275,315
–
–
–
–
–
668
–
668
275,983
–
–
–
101,214
(1,910)
–
–
–
99,304
375,287
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
(1)
The movement from share-based payment reserves to retained earnings represents the fair value of share based payments that have vested in May 2016 or lapsed
during the year. This amount has been recognised as a share based payment expense over the vesting period which ranged from May 2012 to May 2016. Details of
share based payment arrangements are provided in Note 1.4.
(2) Shares issued during the year from institutional placement, share purchase plan and vesting of employee share based payments. Refer Note 3.2.
(3) Share-based payment expense includes the tax impact of $0.6 million (2015: nil)) on vesting of employee share based payments.
ANNUAL REPORT 2016 45
Consolidated Statement of Cash Flows
For the Year Ended 31 December 2016
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
Cash flows from investing activities
Net payments for plant and equipment
Payments for intangibles
Acquisition of subsidiaries & businesses, net of cash acquired
Business acquisition and restructure costs paid
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments to borrowings
Proceeds from employee share plan repayments
Proceeds from share issue
Share issue costs paid
Dividends paid
Net cash outflow from financing activities
Net decrease 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
2016
$’000
2015
$’000
1.6
2.1
4.2
1.5
428,672
(123,322)
(189,940)
937
(6,080)
(19,699)
90,568
(7,240)
(4,575)
(101,692)
(7,656)
(121,163)
48,084
(65,313)
591
100,623
(1,910)
(68,376)
13,699
(16,896)
39,233
614
22,951
403,176
(111,836)
(175,404)
1,776
(10,921)
(16,045)
90,746
(5,889)
(4,557)
(70,880)
(3,500)
(84,826)
250,849
(224,805)
668
–
–
(66,288)
(39,576)
(33,656)
74,914
(2,025)
39,233
46 IRESS LIMITED
Page Heading
Notes to the Consolidated Financial Statements
Page Subheading
For the Year Ended 31 December 2016
Section 1. Financial Results
1.1 SEGMENT INFORMATION
IRESS has a global presence, with the Managing Director and Chief
Executive Officer, who is IRESS’ Chief Operating Decision Maker,
receiving internal reporting split by the following segments: Any
transactions directly between segments are charged on an arm’s
length basis.
Wealth Management – ANZ
Provides financial planning systems and related tools to Wealth
Management professionals located in Australia and New Zealand.
And with the acquisition of Financial Synergy, will also provide
fund administration software to the superannuation and wealth
management industries.
The Group’s operating segments have been updated from those
presented at 31 December 2015 as follows:
(1) As a reflection of its materiality to group financial results, Asia is
now included with ANZ Financial Markets and the new segment
referred to as Financial Markets – APAC.
(2) UK Financial Markets and Wealth Management are combined and
called “UK” to reflect the increasing convergence of our financial
markets and wealth management businesses in the UK.
2015 comparatives have been re-presented to provide
better comparability.
The Group’s segments are outlined below:
Financial Markets – APAC
Provides information, trading, compliance, order management,
portfolio systems and related tools to financial markets participants
in Australia, New Zealand and Asia.
UK
Incorporates the financial markets business which provides information,
trading, compliance, order management, portfolio systems and related
tools to cash equity participants; and the wealth management business
which provides financial planning systems and related tools to Wealth
Management professionals located in the United Kingdom.
UK Lending
The Lending segment operates in the United Kingdom to provide mortgage
origination software and associated consulting services to banks.
South Africa
Provides information, trading, compliance, order management,
portfolio systems and related tools to financial markets participants
and provides financial planning systems and related tools to Wealth
Management professionals located in South Africa.
Canada
Provides information, trading, compliance, order management, portfolio
systems and related tools to financial markets participants in Canada.
The revenue, segment profit and reconciliation to the Group results are shown below.
S
T
L
U
S
E
R
T
N
E
M
G
E
S
S
T
L
U
S
E
R
P
U
O
R
G
Financial Markets – APAC (1)
Wealth Management – ANZ (2)
Total APAC
UK
UK Lending
Total UK
South Africa (3)
Canada
Total Group
Group Segment Profit
Share based payments (SBP)
Segment Profit after SBP
Other non-operating expenses (4)
Profit before interest and tax, depreciation and amortisation
Depreciation and amortisation
Profit before interest and tax
Net interest and financing costs
Tax expense
Net profit after tax
OPERATING REVENUE
SEGMENT PROFIT
2016
$’000
113,457
93,825
207,282
110,830
25,994
136,824
28,687
16,944
389,737
2015
$’000
111,134
80,322
191,456
91,144
32,768
123,912
26,614
19,482
361,464
2016
$’000
41,666
42,732
84,398
27,131
1,348
28,479
9,895
759
2015
$’000
42,514
38,260
80,774
19,900
7,323
27,223
8,580
2,598
123,531
119,175
2016
$’000
123,531
(10,836)
112,695
(9,186)
103,509
(21,063)
82,446
(5,469)
(17,525)
59,452
2015
$’000
119,175
(9,867)
109,308
(4,430)
104,878
(26,267)
78,611
(9,705)
(13,521)
55,385
(1)
(2)
(3)
(4)
As a reflection of its materiality to the Group, the Asia segment which was previously disclosed as a separate segment has now been aggregated into the Australia
Financial Markets segment. Going forward, the Australia and Asia Financial Market segments will be referred to as Financial Markets – APAC. Asia segment
contributed operating revenue of $2.6 million (2015:$2.5 million), and segment loss of $4.5 million (2015: loss of $4.0 million).
Financial Synergy has been included in the Wealth Management – ANZ segment. Revenue contribution for the period since acquisition was $4.4 million with
segment profit contribution of $0.9 million.
INET BFA has been included in South Africa. Revenue contribution for the period since acquisition was $2.0 million with segment profit contribution of $0.3 million.
Other non-operating expenses comprise business acquisition expenses, restructure costs, project related expenses and other unrealised foreign exchange
gains and losses. Refer Note 1.5.
ANNUAL REPORT 2016 47
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 1. Financial Results (continued)
1.1 SEGMENT INFORMATION (CONTINUED)
The below table outlines revenue and non-current assets by geographical area, being Australia and New Zealand, United Kingdom, South Africa,
Canada and Asia:
Australia and New Zealand
Asia
Total APAC
United Kingdom
South Africa
Canada
Grand total
(1) Excludes financial instruments and deferred taxes.
EXTERNAL REVENUES
NON-CURRENT ASSETS (1)
2016
$’000
204,671
2,611
207,282
136,824
28,687
16,944
389,737
2015
$’000
188,915
2,541
191,456
123,912
26,614
19,482
361,464
2016
$’000
170,932
56
170,988
377,207
12,072
10,588
570,855
2015
$’000
59,709
76
59,785
457,538
12,172
10,055
539,550
1.2 EARNINGS PER SHARE AND DIVIDENDS PER SHARE
(a) Basic and diluted earnings per share, and dividends per share for the period are:
Earnings per share
Diluted Earnings per share
Dividends per share:
Interim dividend franked to 60% (2015: 50%)
Final dividend declared after balance sheet date franked to 60% (2015: 60%)
Cents
per share
2016
Cents
per share
2015
37.0
36.4
16.0
28.0
35.2
34.7
16.0
26.7
(b) The weighted average number of shares used to calculate earnings per share is as follows:
Weighted average number of ordinary shares used in basic earnings per share
Effect of potentially dilutive shares
Weighted average number of ordinary shares used in diluted earnings per share
(c) Dividends recognised during the year and after the balance sheet date were as follows:
Dividends recognised and paid during the year
Final dividend for 2015 of 26.7 cents per share franked to 60% (2014: 25.5 cents per share franked to 40%)
Interim dividend for 2016 of 16.0 cents per share franked to 60% (2015: 16.0 cents per share franked to 50%)
Dividends declared after balance sheet date
Since the end of the year, the directors declared a final dividend of 28.0 cents per share franked at 60%
(2015: 26.7 cents per share franked to 60%)
Franking credit balance
Franking credits available for subsequent reporting periods based on a tax rate of 30% (2015: 30%)
NUMBER OF
SHARES
NUMBER OF
SHARES
2016
0$’000
160,777
2,543
163,320
2016
$’000
42,664
25,775
68,439
2015
$’000
157,462
2,332
159,794
2015
$’000
40,570
25,605
66,175
47,588
42,740
4,771
5,673
48 IRESS LIMITED
1.3 EMPLOYEE BENEFIT EXPENSES
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 services provided by the employee and the
obligation can be estimated reliably.
Contributions to defined contribution superannuation plans are expensed when incurred.
Short term and other employee benefits
Post employment benefits
Termination benefits
Share-based payment expense
Employee administration expense
Notes
1.1
Key management personnel
Key Management Personnel compensation included in total employee benefits for the year is set out below:
Short term employee benefits
Long term employee benefits
Post employment benefits
Share based payments
Detailed remuneration disclosures are provided in the Remuneration report.
2016
$’000
169,236
11,988
1,427
10,836
8,941
202,428
2016
$’000
6,281
65
368
2,601
9,315
2015
$’000
152,398
10,715
2,078
9,867
10,004
185,062
2015
$’000
5,422
586
307
2,071
8,386
1.4 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.
(a) Details of share plans
To assist in the attraction, retention and motivation of employees, the Group operates the following share based payment plans:
Plan
Key terms
Performance
condition
Performance /
Restriction period
Dividends received
before vesting
Executive LTI Plan –
CEO
CEO receives
performance rights
at no cost.
Total shareholder
return (TSR) against
peer group
3 years and 4 years
No
Executive LTI Plan
Employee Deferred
Share Plan
Employee Deferred
Share Rights Plan
General Employee
Share Plan/ UK Share
Incentive Plan
Eligible participants
receive performance
rights at no cost.
Eligible participants
receive deferred
shares at no cost.
Eligible participants
receive deferred rights
at no cost.
Nil
Eligible participants are
invited to acquire IRESS
shares, IRESS matches
this participation to a
set value.
3 Years
Individual
performance criteria
3 years
3 years
3 years
No
Yes
No
Yes
If participant leaves
before end of
performance period
Rights forfeited
(Board discretion
may apply)
Generally forfeited
Matched shares are
forfeited under the UK
share incentive plan
and granted under
the general employee
share plan.
As at 31 December 2016, the total unvested shares in the General Employee Share Plan/ UK Share Incentive Plan were 24,273 (2015: 26,321).
ANNUAL REPORT 2016 49
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 1. Financial Results (continued)
1.4 SHARE BASED PAYMENTS (CONTINUED)
(b) Grant date fair value
The grant date fair value of the Executive LTI Plans and the Employee Deferred Share Rights Plan shares are 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. Key inputs are summarised below:
Key inputs in determining grant date fair value
Model used
Risk free rate
Share price volatility
Dividend yield
Executive
LTI Plan
Employee Deferred
Share Rights Plan
Monte Carlo
2 – 3%
25 – 30%
4 – 5%
Monte Carlo
2 – 3%
25 – 30%
4 – 5%
As the Employee Share Plan grants are based on non-market vesting conditions and dividends received during the vesting period, the grant
date fair value approximates the share price at the date of grant.
(c) Details of shares or rights on issue during the year is shown below:
Grant
Date
Vesting
date
Opening
Balance
Granted
Forfeited
Vested
Closing
Balance
Fair value
$
NUMBER OF SHARES
Type
Executive LTI Plan – CEO
2012 Grant – 3 year
2012 Grant – 4 year
2013 Grant – 3 year
2013 Grant – 4 year
2014 Grant – 3 year
2014 Grant – 4 year
2015 Grant – 3 year
2015 Grant – 4 year
2016 Grant – 3 year
2016 Grant – 4 year
Executive LTI Plan
2013 Grant
2014 Grant
2015 Grant
2016 Grant
7/5/12
7/5/12
7/5/13
7/5/13
7/5/14
7/5/14
7/5/15
7/5/15
7/5/16
7/5/16
7/5/13
7/5/14
7/5/15
5/5/16
Employee Deferred Share Plan
2012 Grant(1)
2013 Grant
2014 Grant
2015 Grant
2016 Grant
7/5/12
7/5/13
7/5/14
7/5/15
5/5/16
Employee Deferred Share Rights Plan
2012 Grant(2)
7/5/12
2012 Grant(2)
7/5/12
7/5/13
2013 Grant
30/9/13
2013 Grant – Special
1/1/14
2014 Grant – Special
7/5/14
2014 Grant
7/5/15
2015 Grant
5/5/16
2016 Grant
7/5/16
7/5/16
7/5/17
7/5/17
7/5/18
7/5/18
7/5/19
7/5/19
7/5/19
7/5/20
7/5/16
7/5/17
7/5/18
5/5/19
7/12/16
7/5/16
7/5/17
7/5/18
5/5/19
7/12/17
7/12/17
7/5/16
2/1/17
1/1/17
7/5/17
7/5/18
5/5/19
80,000
80,000
65,000
65,000
63,000
63,000
60,000
60,000
–
–
536,000
190,667
211,964
220,002
–
622,633
223,607
677,650
560,800
576,677
–
2,038,734
108,559
110,306
36,530
51,540
560,598
257,179
257,434
–
1,382,146
–
–
–
–
–
–
–
–
60,000
60,000
120,000
–
–
–
161,413
161,413
–
–
–
–
595,523
595,523
–
–
–
–
–
–
–
270,272
270,272
–
(11,717)
–
–
–
–
–
–
–
–
(11,717)
(27,926)
–
–
–
(27,926)
–
(5,580)
(19,240)
(20,307)
(21,407)
(66,534)
(5,769)
–
–
(1,290)
(17,250)
(1,400)
(114)
–
(25,823)
(80,000)
(68,283)
–
–
–
–
–
–
–
–
(148,283)
(162,741)
–
–
–
(162,741)
(62,575)
(672,070)
–
–
–
(734,645)
(18,270)
–
(36,530)
–
–
(9,989)
–
–
(64,789)
–
–
65,000
65,000
63,000
63,000
60,000
60,000
60,000
60,000
496,000
–
211,964
220,002
161,413
563,379
161,032
–
541,560
556,370
574,116
1,833,078
84,520
110,306
–
50,250
543,348
245,790
257,320
270,272
1,561,806
$3.64
$3.56
$5.03
$4.76
$4.05
$3.89
$5.17
$5.13
$8.00
$6.24
$5.03
$4.18
$5.30
$8.50
$6.18
$8.51
$8.27
$10.15
$11.87
$5.26
$4.99
$7.35
$7.75
$7.73
$7.25
$9.02
$10.25
The weighted average remaining contractual life of the above grants is 1.2 years (2015:1.2 years).
(1)
(2)
Although the vesting period ended 7/12/16, the non-market vesting conditions of 161,032 units are still to be tested in order to determine the number of shares
that vest or are forfeited.
The vesting date was extended from 7/5/16 to 7/12/17. Under the accounting standards, an extension of a vesting date does not result in a change in the fair
value of the instrument nor a re-measurement of the share based payment expense.
50 IRESS LIMITED
1.5 OTHER EXPENSES
(a) Included in other operating and other non-operating expenses are the following items:
Other operating expenses
General operating expenses
Provision for doubtful debts
Rental expense relating to operating leases
Fees to auditors
Other non-operating expenses
Unrealised losses/(gains) on foreign balances
Business acquisition and restructure expenses
Other project related expenses(1)
(1) Comprises project related expenses from the implementation of corporate core systems.
(b) Depreciation and amortisation:
Depreciation and amortisation expense
Amortisation
Depreciation – Computer Equipment (1)
Depreciation – Other Plant and equipment (2)
Notes
1.5(c)
Notes
2.1
2016
$’000
14,061
(1,499)
6,899
742
20,203
666
7,656
864
9,186
2016
$’000
14,628
3,910
2,525
21,063
2015
$’000
11,259
1,077
6,804
1,161
20,301
(2,251)
3,500
3,181
4,430
2015
$’000
20,131
4,081
2,055
26,267
Computer and other 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 of between 3 to 10 years.
(1)
(2)
Cost of computer equipment as at 31 December 2016 was $34.9 million (2015:$27.5 million) and accumulated depreciation was $27.1 million (2015: $21.3 million).
Cost of other plant and equipment as at 31 December 2016 was $18.8 million (2015:$15.4 million) and accumulated depreciation was $14.5 million (2015: $11.6 million).
(c) Fees to auditors, Deloitte Touche Tohmatsu, for services rendered are as follows:
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)
Total fees to auditors
(1) Other services comprise assurance and other compliance reviews.
2016
$
2015
$
346,037
22,769
368,806
373,316
–
373,316
742,122
343,151
288,070
631,221
331,476
198,394
529,870
1,161,091
ANNUAL REPORT 2016 51
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 1. Financial Results (continued)
1.6 NOTES TO THE CONSOLIDATED 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
Adjustments for non-cash and non-operating cashflow items
Depreciation and amortisation
Share based payment expense
Foreign exchange gain
Amortisation of prepaid loan establishment fees
Business combination and restructure expenses
Loss on sale of assets
Change in working capital and tax balances, net of effects from acquisition of controlled entities
(Decrease)/increase in receivables
(Increase) in payables
Net change in derivatives
Net change in tax balances
Decrease/(increase) in provisions
Net cash inflow from operating activities
2016
$’000
2015
$’000
59,452
55,385
21,063
10,836
21,925
579
7,656
–
(4,804)
(3,321)
(21,124)
(2,170)
476
90,568
26,267
9,867
(9,831)
827
3,500
167
2,362
(2,452)
8,214
(3,062)
(498)
90,746
52 IRESS LIMITED
Section 2. Core Assets and Working Capital
2.1 INTANGIBLES
Intangibles for the Group comprise goodwill arising from business combinations, customer relationships, computer software and other intangibles
(mainly acquired databases and brands). Intangible assets with finite lives are carried at cost less accumulated amortisation and accumulated
impairment losses.
Goodwill recognised arose from business combinations where the fair value of the consideration paid exceeded the fair value of the net
assets acquired. Goodwill is considered to have an indefinite life and is not amortised as it represents the synergistic benefits of bringing
the businesses together.
Customer relationships, some computer software and other intangibles were acquired as part of a business combination. These intangible
assets are initially recognised at their fair value at the acquisition date.
Some of the computer software was separately acquired, and initially recognised at cost. Subsequent to initial recognition, intangible assets
other than goodwill are amortised over the expected useful lives noted below.
Internally generated assets can only be recognised if the cost of actual development can be reliably measured and clearly separated from
research and daily operating activities. Given the development and research phases inherent in software development occur contemporaneously,
the separation of these phases is imprecise, other than on an arbitrary basis. During the period, no internally generated intangible assets have
been recognised.
(a) The carrying value of intangibles is shown below:
GOODWILL
CUSTOMER
RELATIONSHIPS
COMPUTER SOFTWARE OTHER INTANGIBLES
TOTAL
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
440,448
467,315
52,484
41,800
201,671
146,253
6,236
5,570
700,839
660,938
Cost
Accumulated
impairment and
amortisation
Carrying value
440,448
467,315
40,048
33,719
75,994
26,385
–
–
(12,436)
(8,081)
(125,677)
(119,868)
(3,967)
2,269
(3,437)
(142,080)
(131,386)
2,133
558,759
529,552
Opening
carrying value
Separately acquired
Acquired
through business
combinations
Disposal
Amortisation
Foreign currency
translation
Closing
carrying value
Expected useful
life (years)
467,315
–
398,462
–
33,719
–
14,021
–
26,385
4,575
19,320
14,690
2,133
–
1,540
–
529,552
4,575
433,343
14,690
36,283
–
–
52,591
–
–
17,070
–
(5,981)
24,020
–
(3,637)
55,639
–
(8,586)
8,926
(166)
(16,486)
(63,150)
16,262
(4,760)
(685)
(2,019)
101
284
–
(61)
(87)
642
–
(8)
109,276
–
(14,628)
86,179
(166)
(20,131)
(41)
(70,016)
15,637
440,448
467,315
40,048
33,719
75,994
26,385
2,269
2,133
558,759
529,552
1 to 15
3 to 20
1 to 10
(b) Impairment testing for goodwill
Goodwill is tested for impairment annually or more frequently whenever indicators for impairment are indentified. In testing for impairment, the
carrying amount of each Cash Generating Unit (CGU) is compared against the recoverable amount.
The recoverable amount has been calculated based on the value in use, using a discounted cash flow (DCF) approach. The DCF uses post-tax
cashflow projections that are based on the most recent five year financial plan approved by the Board, and is discounted at appropriate after tax
discount rates taking into account the Group’s weighted average cost of capital adjusted for any risks specific to the CGU.
Terminal growth rates applied in the DCF take into account historic growth trends, future strategy and long term outlook of the business.
ANNUAL REPORT 2016 53
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 2. Core Assets and Working Capital (continued)
2.1 INTANGIBLES (CONTINUED)
(b) Impairment testing for goodwill (continued)
The allocation of goodwill to each cash generating unit and assumptions applied in calculating the recoverable amounts of the goodwill in testing
for impairment are as follows:
ALLOCATED GOODWILL
AFTER-TAX DISCOUNT RATES
LONG TERM GROWTH RATES
Cash generating unit
Wealth Management – ANZ
UK
UK Lending
South Africa
Canada
2016
$’000
51,416
287,302
77,760
15,146
8,824
440,448
2015
$’000
17,670
338,038
91,780
11,359
8,468
467,315
2016
%
9.0
8.7
8.7
15.4
10.6
2015
%
9.6
7.8
7.8
13.6
7.4
2016
%
2.7
2.7
2.7
4.7
0.5
2015
%
2.7
2.7
2.7
4.7
1.0
SIGNIFICANT ESTIMATES MADE
UK Lending
A new version of an existing product is being rolled out within the UK Lending CGU. The financial performance of the UK 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.
SENSITIVITY ANALYSIS
The recoverable amount supported the carrying value of the goodwill for each cash generating unit. Other than as noted for Canada below,
there are no other reasonably possible changes in the assumptions applied that would result in an impairment of goodwill.
Canada
The continued profitability and growth of the Canada business is dependent on securing large-scale clients in the financial markets business
and introducing wealth products to Canadian clients. If either of these initiatives is stalled or unsuccessful, this is likely to result in the
impairment of the goodwill of $8.8 million allocated to the Canada segment.
2.2 RECEIVABLES AND OTHER ASSETS
Receivables arise from revenue that has been billed, but not yet settled by the customer. Unbilled income arises where revenue has been earned
but the invoice has not been issued.
Revenue arises from providing access to IRESS software, rendering of services or recharging for access to capital markets data. Revenue
is measured at the fair value of the consideration received or receivable. Where services rendered spans more than one accounting period,
revenue is only recognised based on a percentage of completion basis with reference to specific milestones.
IRESS credit terms are generally 30 days from the date of invoice. As such, the carrying amount of receivables approximates their fair value.
(a) Receivables and other assets comprises:
Trade receivables
Allowance for doubtful debts
Unbilled income
Prepayments
Other assets
2016
$’000
32,303
(1,086)
31,217
3,722
11,913
3,251
50,103
2015
$’000
25,300
(2,275)
23,025
5,017
6,164
3,152
37,358
(b) Credit risk and allowance for doubtful debts
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.
The credit risk exposure arising from customers is monitored on a monthly basis. Where an event of default is identified, a provision is
raised against the amount owed by the customer to the estimated amount not considered recoverable in the normal course of business.
The movement in the allowance for doubtful debts during the period is as follows:
Balance 1 January
Allowances (written back)/made
Balance 31 December
54 IRESS LIMITED
2016
$’000
2,275
(1,189)
1,086
2015
$’000
1,974
301
2,275
(c) Quality of trade receivables
The quality of debtors is best monitored by the ageing of open invoices in accounts receivable. The ageing at the end of the year is as follows:
Neither past due nor impaired – less than 30 days
Past due but not impaired:
+31 to 90 days
+91 days
Impaired
2016
$’000
2015
$’000
23,010
13,550
7,039
1,168
1,086
6,708
2,767
2,275
32,303
25,300
Receivables that are neither past due nor impaired comprise customers with a long term record of timely payments and/or no recent history
of default arising from financial difficulty.
Receivables that are past due but not impaired comprise customers which do not have any objective evidence that the receivable may be
impaired. IRESS has actively engaged these customers and reasons for the invoices remaining outstanding are being actively resolved.
An allowance for doubtful debts is recognised where IRESS has identified objective evidence that an amount owing may not be recoverable,
mainly arising from observed financial difficulty of a customer.
2.3 PAYABLES AND OTHER LIABILITIES
Payables and other liabilities are initially measured at fair value. Subsequent to initial measurement, these are recognised at amortised cost.
Deferred revenue represents amounts received from customers for which revenue has not been earned nor recognised.
Finance arrangements relate to certain funding arrangements relating to software licences.
Liabilities are classified as current where IRESS does not have an unconditional right to defer settlement beyond 12 months.
Due to the short term nature of current liabilities, the carrying amount approximates fair value.
Current
Trade payables
Accruals
Deferred revenue
Current tax payable
GST Payable
Finance arrangements
Other
Non-current
Finance arrangements
2016
$’000
9,876
12,735
6,256
4,915
4,005
3,076
3,306
44,169
7,517
7,517
2015
$’000
10,086
11,945
5,080
5,275
3,645
2,133
3,377
41,541
8,000
8,000
The Group’s exposure to foreign currency risk arising from translating payables and other liabilities to a Group entity’s functional currency is not
considered material. The exposure is monitored on a net working capital basis as disclosed in Note 3.3.
Liquidity risk arising from current payables and other liabilities that are payable in less than one year, as well as the Finance arrangements with
certain software providers that have an average annual contractual payment of $3.1 million per annum, over the life of the arrangements of 3 to
5 years. The Group manages this liquidity risk by maintaining sufficient cash and current assets to meet the contractual obligations as they arise.
ANNUAL REPORT 2016 55
Page HeadingPage Subheading
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 2. Core Assets and Working Capital (continued)
2.4 PROVISIONS
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.
Employee benefits comprise mainly annual leave and long service leave entitlements to employees.
Deferred consideration are purchase consideration payable for acquisition once certain conditions are met as stipulated in the contracts.
These are measured at the discounts value of the best estimate of the cash payable based on conditions existing at the balance sheet date.
Current provisions
Employee benefits
Deferred consideration
Other provisions
Non-current provisions
Employee benefits
Deferred consideration
Other provisions
2016
$’000
8,161
2,362
456
10,979
5,137
1,884
1,019
8,040
2015
$’000
6,332
2,085
296
8,713
3,994
3,078
508
7,580
The decrease in deferred consideration is from the payment of $0.8 million relating to the acquisition of Innergi upon certain conditions being
satisfied, as well as foreign currency movements from the deferred consideration held in relation to the Pulse acquisition.
2.5 COMMITMENTS AND CONTINGENCIES
(a) Operating lease commitments
IRESS leases office facilities with lease terms of between 2 to 10 years of which some are supported by bank guarantees of $3.0 million
(2015: $3.0 million). On renewal, the terms of the leases are renegotiated. The below summarises IRESS’ commitments for minimum lease
payments in relation to non-cancellable operating leases.
Payable within one year
Payable later than one year, no later than five years
Payable later than five years
The adoption of AASB 16 Leases will have an impact on the accounting for operating leases. Refer Note 4.7.
(b) Capital commitments
No Capital expenditure has been contracted or provided for at balance date (2015: Nil).
(c) Contingencies
There are no material contingent liabilities that need to be disclosed at the reporting date.
2016
$’000
8,520
21,782
6,165
36,467
2015
$’000
6,525
23,575
4,438
34,538
56 IRESS LIMITED
Section 3. Debt and Equity
3.1 DEBT FACILITIES AND DERIVATIVES
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 statement of profit or loss in the event the borrowings are derecognised.
(a) Details of borrowings held by the Group are as follows:
Non-current
3 year $181.25 million bank facility to September 2018
AUD
GBP
5 year $118.75 million bank facility to September 2020
AUD
GBP
3 year $0.5 million facility to August 2018
Total amount drawn
Borrowing costs capitalised
Total borrowings
2016
$’000
2015
$’000
48,000
59,086
27,000
44,528
495
89,700
39,419
48,500
24,257
495
179,109
202,371
(1,304)
(1,883)
177,805
200,488
The facilities allow multi-currency drawdowns and are at variable interest rates based on LIBOR and BBSY benchmark rates plus a market
margin. As such, the amount drawn approximates fair value.
Not included in the table above is a $10 million multi-currency guarantee facility that is available in September 2018, and is used for any bank
guarantees required by the Group.
The borrowings are unsecured, and the Group has complied with the financial covenants of its borrowing facilities during the year.
(b) Derivatives
Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently revalued to fair value at the
end of each reporting period.
The AUD and GBP borrowings were utilised to fund acquisitions in the UK. To minimise the risk of loss due to unfavourable foreign exchange
rate movements that arises from funding a foreign acquisition with AUD debt, the Group entered into cross currency swaps as follows:
Assets at fair value
5 year receive AUD / pay GBP to September 2018
Liabilities at fair value
3 year receive AUD / pay GBP to September 2016
5 year receive AUD / pay GBP to September 2018
2016
$’000
2015
$’000
205
–
–
–
10,069
11,055
The fair value of the derivatives is determined by first calculating the future cash flows estimated based on forward interest rates (from
observable yield curves at the end of the reporting period) and contract interest rates, and then discounting the future cash flows at a rate
that reflects the credit risk of various counterparties.
The fair value is classified as Level 2 as the calculation is based on observable inputs.
The change in the fair value during the year is due to the impact of the depreciation of the British pound against the Australian dollar and the
maturity of the three year cross currency swap.
The fair value of the derivatives includes credit risk adjustments of $0.02 million credit (2015: $0.42 million debit).
ANNUAL REPORT 2016 57
Page HeadingPage Subheading
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 3. Debt and Equity (continued)
3.1 DEBT FACILITIES AND DERIVATIVES (CONTINUED)
(c) Contractual maturity analysis
Contractual cash outflow maturity analysis is shown based on undiscounted cashflows. An estimate – based on forward interest rates and
foreign currency rates – has been applied in determining interest and foreign cash outflows/(inflows). The actual contractual outflow may vary
to the amounts disclosed.
31 December 2016
Outflows/(inflows)
3 year facilities – principal
3 year working capital facilities – principal
5 year facilities – principal
Interest on borrowings
5 year cross currency swap – principal exchange (1)
5 year cross currency swap – interest (1)
31 December 2015
Outflows/(inflows)
3 year facilities – principal
3 year working capital facilities – principal
5 year facilities – principal
Interest on borrowings
3 year and 5 year cross currency swap – principal exchange (1)
3 year and 5 year cross currency swap – interest (1)
within 1 year
$’000
1-3 years
$’000
Greater than
3 years
$’000
–
–
–
3,887
–
313
107,085
495
–
9,721
(14)
834
–
–
71,528
3,467
–
–
within 1 year
$’000
1-3 years
$’000
Greater than
3 years
$’000
–
–
–
6,354
10,139
(295)
129,119
495
–
12,709
16,115
791
–
–
72,757
4,569
–
–
(1)
Represents expected net cash exchange in AUD that occurs at settlement. Under the terms of the swap, the settlements are on a gross basis where IRESS
receives AUD and pays GBP.
(d) Interest expense and financing costs
Interest expense is recognised using the effective interest rate method. Interest expense includes exchange differences arising from foreign
currency borrowings to the extent they are regarded as adjustments to interest costs.
Net interest expense and financing costs for the year comprised the following:
Interest revenue
Interest expense
Other financing costs comprising:
Amortisation of borrowing costs
Foreign currency translation of intercompany borrowings
Fair value changes on cross currency swaps
Net interest expense and financing costs
2016
$’000
937
(5,897)
(579)
(20,994)
21,064
(5,469)
2015
$’000
849
(6,998)
(3,149)
7,580
(7,987)
(9,705)
58 IRESS LIMITED
3.2 ISSUED CAPITAL
The number of ordinary shares outstanding at the end of the year is as follows:
Balance at 1 January
Shares issued under the Employee Share Plan (1)
Shares issued (2)
Less Treasury Shares (3)
Number of shares on issue
2016
Number of
shares
‘000
2015
Number of
shares
‘000
160,074
1,059
8,824
169,957
(1,933)
168,024
159,097
977
–
160,074
(2,217)
157,857
(1) New shares issued to meet obligations in relation to Performance Rights, Deferred Shares and Deferred Share Rights for employees.
(2) Shares issued during the year for the Institutional Placement and Share Offer Plan.
(3) Movement relates to shares vested under the Employee Share Plan.
3.3 MANAGING FINANCIAL RISKS
(a) Market risks
INTEREST RATE RISK
The Group’s exposure to interest rate risk mainly arises from its variable rate borrowings and cross currency swaps. A decrease in the
benchmark interest rates of 50 basis points (0.5%), with all other factors held constant, would result in a decrease in the annual interest cost
of the Group by $0.9 million (2015: $1.8 million). This should not be considered a prediction.
FOREIGN CURRENCY RISK
GBP borrowings do not give rise to foreign currency risk to the Group as they are held in entities that have a GBP functional currency.
However, the Group is also exposed to foreign currency risk mainly from intercompany loans denominated in foreign currency, the majority
of which is mitigated by cross currency derivatives. Additional foreign currency risk arises from cash balances, receivables and payables
denominated in foreign currency.
The Group’s exposures to foreign currency arise from monetary balances in a currency other than the functional currency of each of the Group’s
subsidiary (assessed from the context of that subsidiary). The material exposure to foreign currency movements arises from working capital
balances as summarised below:
Working capital denominated in foreign currency
AUD impact on profit or loss of a 1% change in foreign currency rates
GBP
‘000
24,956
(423)
ZAR
‘000
66,040
(66)
The above excludes the exposure of the Group from translating its foreign operations to the Group presentation currency.
(b) 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
2016
$’000
154,649
555,678
27.8%
2015
$’000
184,927
524,238
35.3%
(1) Calculated as borrowings excluding capitalised borrowing costs, and net of derivative liabilities/assets less cash and cash equivalents.
ANNUAL REPORT 2016 59
Page HeadingPage Subheading Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 4. Other Disclosures
4.1 TAXATION
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.
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 recognised on all temporary differences other than those not permitted
by accounting standards.
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, which is usually based on projected taxable profits.
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.
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.
(a) Income tax for the year including current and deferred tax is as follows:
2016
$’000
2015
$’000
Income tax expense recognised in profit or loss
Current income tax
Current income tax charge
Adjustments in respect of current income tax of the previous year
Deferred income tax
Origination and reversal of temporary differences
Adjustments in respect of deferred income tax of the previous year
Total income tax expense recognised in profit or loss
Income tax expense recognised in other comprehensive income
Arising from gains or losses on long term monetary intercompany balances
Income tax expense recognised directly in equity
Arising from the vesting of share based payments and share raising costs
Total income tax expense recognised in other comprehensive income and equity
22,190
(1,991)
20,199
(3,424)
750
(2,674)
17,525
1,610
(1,463)
147
(b) The reconciliation of income tax expense at the Australian tax rate to total tax payable is as follows:
20,475
(848)
19,627
(6,106)
–
(6,106)
13,521
–
–
–
2015
$’000
68,906
20,672
751
(4,013)
(848)
(1,391)
(1,650)
2016
$’000
76,977
23,093
(534)
(2,411)
(1,241)
(623)
(759)
17,525
13,521
Profit from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2015: 30%)
Income tax adjustments:
Effect of different tax rates in foreign jurisdictions
Effect of non-assessable income and non-deductible expenses
Adjustments for current and deferred tax of prior periods
Employee share plan
Previously unrecognised tax losses
Income tax expense
60 IRESS LIMITED
(c) Deferred income tax assets and liabilities recognised in the statement of financial position are as follows:
Opening
Balance
$’000
Charged to
income
$’000
Charged to
OCI/Equity
$’000
From business
combinations
$’000
Exchange
differences
$’000
Closing
balance
$’000
For the year ended 31 December 2016
Deferred tax assets
Trade and other receivables
Plant and equipment
Computer Software
Trade and other payables
Provisions and accruals
Derivative Liabilities
Carry forward tax losses
Capital transaction costs
Share based payments
Other
Total deferred tax assets
Deferred tax liabilities
Computer software
Intangibles
Other financial assets
Total deferred tax liabilities
For the year ended 31 December 2015
Deferred tax assets
Trade and other receivables
Plant and equipment
Computer Software
Trade and other payables
Provisions and accruals
Derivative Liabilities
Carry forward tax losses
Capital transaction costs
Share based payments
Other
Total deferred tax assets
Deferred tax liabilities
Computer software
Intangibles
Employee share plan
Other financial assets
Total deferred tax liabilities
733
6,859
1,614
359
3,075
6,337
4,700
1,633
883
4
26,197
(2,206)
(7,038)
(6,337)
(15,581)
(582)
(1,318)
(132)
220
406
(6,276)
(1,863)
1,451
1,107
62
(6,925)
1,234
2,089
6,276
9,599
–
–
–
–
–
–
–
(603)
(860)
–
(1,463)
–
–
–
–
–
(111)
(1,482)
244
744
–
1,719
–
–
–
1,114
(2,961)
(5,159)
(18)
(8,138)
8
(309)
–
–
24
–
(520)
–
–
1
(796)
281
934
–
159
5,121
–
823
4,249
61
4,036
2,481
1,130
67
18,127
(3,652)
(9,174)
(79)
1,215
(12,905)
Opening
Balance
$’000
Charged to
income
$’000
Charged to
OCI/Equity
$’000
From business
combinations
$’000
Exchange
differences
$’000
Closing
balance
$’000
–
4,596
1,746
4,416
5,085
–
3,180
2,363
–
–
21,386
–
(4,950)
(2,528)
(3,873)
(11,351)
733
2,263
(132)
(4,057)
(2,010)
6,337
1,520
(730)
883
4
4,811
(2,206)
3,436
2,528
(2,464)
1,294
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,524)
–
–
(5,524)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
733
6,859
1,614
359
3,075
6,337
4,700
1,633
883
4
26,197
(2,206)
(7,038)
–
(6,337)
(15,581)
2015
$’000
15,548
3,110
ANNUAL REPORT 2016 61
(d) Unused tax losses incurred during the year for which no deferred tax asset has been recognised
are outlined below:
United Kingdom (Tax rate 19%, 2015: 20%)
Potential tax benefit
2016
$’000
7,964
1,513
Subject to satisfying the various tax loss continuity rules per UK tax legislation, these unrecognised tax losses do not expire.
Page HeadingPage Subheading
Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 4. Other Disclosures (continued)
4.2 BUSINESSES ACQUIRED
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.
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.
(a) Acquisition during the period
(I) FINANCIAL SYNERGY
On 26 September 2016, IRESS announced the agreement to purchase Financial Synergy (and its subsidiary companies) (FS) for $90.0 million.
FS was a privately-owned Australian company providing fund administration software to the superannuation and wealth management industries.
FS software and online solutions are core to the operations of its clients, helping them service members efficiently, and address ongoing
legislative change and to deliver superior services to their members. The acquisition was formally completed on 31 October 2016.
(II) INET BFA
On 14 September 2016, IRESS announced the agreement to purchase INET BFA (and its subsidiary company, EDM Solutions) for $14.8 million
(ZAR 149.6 million) from Media 24. INET BFA is a long-standing provider of market data, analysis tools and financial data feeds, covering
South Africa, African and global markets, pricing and company financial information and research. INET BFA delivers data feeds and financial
analysis solutions to South Africa’s investment managers, corporations and government institutions. The acquisition was formally completed on
10 November 2016.
(b) Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Consideration transferred
Cash paid for software (1)
Cash paid or payable for shares
Total cash consideration paid
Net cash acquired
Total consideration transferred
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)/assets
Trade and other payables
Provisions
Net identifiable assets acquired (2)
Goodwill on acquisition (3)
Net assets acquired
Financial
Synergy
$’000
–
90,018
90,018
(2,181)
87,837
6,454
699
63,042
(8,653)
(3,016)
(4,417)
54,109
33,728
87,837
INET
$’000
9,950
4,823
14,773
(918)
13,855
1,690
866
9,950
1,629
(2,614)
(220)
11,301
2,554
13,855
(1)
(2)
(3)
The acquisition of INET BFA was structured as an acquisition of the intangibles and a separate acquisition of shares of the underlying business which occurred
contemporaneously and therefore are accounted for as a single business combination.
The accounting for the above business combinations are provisional as the amounts for tax and deferred tax balances are to be finalised. Any changes to the fair
value of the recognised assets and liabilities will result in a change to the goodwill recognised.
Goodwill on acquisition is attributable to the expected revenue growth and cost synergies to be derived from integrating the businesses with the Group.
Goodwill is not deductible for tax.
(c) Contributions of revenues and net profit of the acquisitions are as follows:
Revenues
Segment profit
Net Profit
62 IRESS LIMITED
Since
acquisition
completed
$’000
If acquisition
had completed
at on
1 January 2016
$’000
6,436
1,250
722
37,302
7,500
3,727
(d) Acquisition costs
Capital raising costs
Business combination expenses
Recognised in
profit or loss
$’000
Recognised in
equity
$’000
–
6,179
6,179
1,910
–
1,910
(e) Prior year acquisitions
The acquisition accounting for 2015 acquisitions was finalised in the year. There were no further material changes to the assets and liabilities
recognised as previously disclosed on the 2015 annual report.
4.3 CHANGE IN PRESENTATION
The presentation of items in the financial statements for certain comparative information has been reclassified with the aim of providing more
relevant information to users of the financial report and in particular a better understanding of the effect of the derivatives and intergroup
financing arrangements on the Group’s net interest and financing costs.
The change in presentation has no impact on the net profit or net position of the Group.
The reclassifications have affected the following line items in the consolidated statement of profit or loss and other comprehensive income for the
year ended 31 December 2015:
Revenue
Other income (1)
Customer data fees
Communication and other technology expenses
Employee benefit expenses
Other expenses (1), (2), (3)
Foreign exchange gains (2)
Profit before depreciation, amortisation, interest and income tax
Depreciation and amortisation expense
Profit before interest and income tax expense
Interest revenue (3)
Interest expense (3), (4)
Financing expenses (4)
Net interest and financing costs
Profit before income tax
Income tax expense
Profit after income tax
Before
Reclass
$’000
361,464
242
361,706
(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
Finance
arrangements
reclass
$’000
–
–
–
–
–
–
–
(7,580)
(7,580)
–
(7,580)
(927)
927
7,580
7,580
–
–
–
Other
reclass
$’000
–
(242)
(242)
–
–
–
2,493
(2,251)
–
–
–
–
–
–
–
–
–
–
After
Reclass
$’000
361,464
–
361,464
(29,192)
(17,601)
(185,062)
(24,731)
–
104,878
(26,267)
78,611
849
(9,920)
(634)
(9,705)
68,906
(13,521)
55,385
(1)
(2)
(3)
(4)
Other income which related to sundry rebates received has been reclassified to Other expenses.
Foreign exchange gains, relating to the groups financing arrangements denominated in foreign currency of $7,580 thousand, have been reclassified to Financing costs. The
remaining foreign exchange gains of $2,251 thousand relating to other monetary items in foreign currency (mainly cash) has been reclassified to Other expenses. This amount
is separately disclosed in Note 1.5. The Foreign exchange gains line has now been removed from the face of the consolidated statement of comprehensive income.
Of the $2,493 thousand change in Other expenses $242 thousand is Other income reclassified, $2,251 thousand are other foreign exchange (fx) gains from
trading accounts reclassified from Foreign exchange gains. The remaining interest revenue is interest received on cash balances with banks.
The line items Interest expense and Financing expenses have been combined and renamed as Financing costs. This now comprises the net impact of the
reclassification of foreign exchange gains on the intergroup financing arrangements denominated in foreign currency ($7,580 thousand); interest revenue
($927 thousand); interest expense ($10,847 thousand) and Financing expenses – which represent the fair value loss on the cross currency swap ($8,214 thousand).
ANNUAL REPORT 2016 63
Page HeadingPage Subheading Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 4. Other Disclosures (continued)
4.4 IRESS LIMITED – PARENT ENTITY FINANCIAL INFORMATION
The ultimate controlling party of the Group is IRESS Limited, which is a for profit entity listed on the Australian Securities Exchange.
(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
Profit for the year
Total comprehensive income
(b) Contingent liabilities
The parent entity did not have any contingent liabilities as at 31 December 2016.
2016
$’000
2015
$’000
26,723
615,736
642,459
25,360
193,222
218,582
423,877
375,287
3,205
45,385
423,877
33,281
33,281
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
64 IRESS LIMITED
4.5 SUBSIDIARIES
Details of the Group’s wholly owned subsidiaries at the end of the year are as follows:
Australia
Apollo I Australia Pty Ltd (1)
Apollo II Australia Pty Ltd (1)
Financial Synergy Pty Ltd (2)
Financial Synergy Actuarial Pty Ltd (2)
Financial Synergy Holdings Pty Ltd (2)
Innergi Pty Ltd
IRESS (AUS) Limited Partnership
Canada
IRESS (LP) Holdings Corp.
IRESS (Ontario) Limited
IRESS Canada Holdings Limited
South Africa
Advicenet Advisory Services (Proprietary) Limted
EDM Solutions Pty Ltd (3)
INET BFA Pty Ltd (3)
United Kingdom
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
Other countries
IRESS Asia Holdings Limited (Hong Kong)
Peresys Software Limited (Ireland)
IRESS Malaysia Holdings Sdn Bhd (Malaysia)
IRESS Data Pty Ltd (1)
IRESS Information Pty Ltd
IRESS Wealth Management Pty Ltd (1)
IRESS South Africa (Australia) Pty Ltd (1)
IRESS Spotlight Wealth Management Solutions (RSA) Pty Ltd (1)
Planning Resources Group Pty Ltd (1)
Top Quartile Management Pty Ltd (2)
IRESS Market Technology Canada LP
KTG Technologies Corp
IRESS Financial Markets (Pty) Ltd
IRESS Wealth MNGT (Pty) Ltd
IRESS Wealth Management (RSA) (Proprietary) Ltd
IRESS Technology Limited
IRESS UK Holdings Limited
IRESS Web Limited
Proquote Limited
Pulse Software Limited
Pulse Software Management Ltd
TrigoldCrystal Limited
IRESS (NZ) Limited (New Zealand)
IRESS Market Technology (Singapore) Pte Ltd (Singapore)
IRESS Limited and its Australian subsidiaries entered into an ASIC Class Order and Deed of Cross Guarantee with IRESS Limited on December 2014.
(1)
(2) Acquired during the year and added to the ASIC Class Order and Deed of Cross Guarantee on 30 December 2016.
(3) Acquired during the year.
4.6 DEED OF CROSS GUARANTEE
IRESS Limited, and some Australian 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 ASIC Corporations (Wholly owned companies) Instrument
2016/785 issued by the Australian Securities and Investments Commission.
(a) Consolidated statement of profit or loss and retained earnings
Profit before tax
Income tax expense
Net profit after tax
Retained earnings at beginning of the year
Transfers from reserves
Dividends declared
Retained earnings at end of the year
2016
$’000
76,899
(19,966)
56,933
44,384
9,888
(68,439)
42,766
2015
$’000
55,094
(16,084)
39,010
59,880
5,316
(59,822)
44,384
ANNUAL REPORT 2016 65
Page HeadingPage Subheading Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 4. Other Disclosures (continued)
(b) Consolidated statement of financial position
2016
$’000
2015
$’000
9,770
140,310
150,080
4,016
129,281
13,289
205
368,890
515,681
665,761
24,323
–
3
11,094
35,420
177,541
7,517
–
5,904
12,267
203,229
238,649
427,112
375,287
9,059
42,766
427,112
12,324
227,558
239,882
4,052
23,273
17,228
–
310,900
355,453
595,335
12,098
10,069
5,512
7,055
34,734
200,404
8,000
11,055
6,439
2,211
228,109
262,843
332,492
275,983
12,125
44,384
332,492
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Plant and equipment
Intangibles
Deferred tax assets
Derivative assets
Other financial assets
Total non-current assets
Total assets
Current liabilities
Trade payables and other liabilities
Derivative liabilities
Current tax payables
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Other financial arrangements
Derivative liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
66 IRESS LIMITED
4.7 BASIS OF PREPARATION
This is the general purpose financial report for IRESS Limited (the ‘Company’) and its subsidiaries collectively referred to as the ‘Group’ or
‘IRESS’ for the year ended 31 December 2016. It:
• has been prepared in accordance with the Corporations Act 2001 (Cth), Australian Accounting Standards and Interpretations, and International
Financial Reporting Standards (IFRS);
• was authorised for issue by the Directors on 21 February 2017;
• 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;
• has all amounts presented in Australia dollars, unless otherwise stated;
• has amounts rounded off to the nearest thousand dollars, unless otherwise stated, as allowed under ASIC Corporations (Rounding in Financial /
Directors Reports) Instrument 2016/191 dated 24 March 2016 (ASIC guidance).
(a) Adoption of new 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 2016. None of these standards have had
a material impact on IRESS in the current or future reporting periods or on foreseeable future transactions. The Group does not intend to early
adopt any of the above pronouncements.
(b) Standards on issue but not yet effective
At the date of authorisation of the financial report, certain new accounting standards and interpretations have been published that are not
mandatory for 31 December 2016 reporting periods and have not yet been applied by IRESS within this financial report.
With the exception of AASB 16 Leases and AASB 15 Revenue as discussed below, IRESS does not believe these Accounting Standards and
Interpretations in issue but not effective will have a material impact in future periods on the financial statements of the Group.
AASB 15 REVENUE
IRESS anticipates that the adoption of AASB15 may have an impact on the Group’s financial statements. The impact is not expected to be
material, however this impact is still being assessed and it is impracticable at this stage to provide a reasonable estimate of such impact.
AASB 16 LEASES
AASB 16 is effective for years commencing 1 January 2019. AASB 16 eliminates the classification of leases as either operating leases or finance
leases as is required by IAS 17 and instead, introduces a single lessee accounting model. Applying that model, a lessee is required to recognise:
• assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and
• amortisation of lease assets separately from interest on lease liabilities in the income statement.
At IRESS, operating leases with terms of more than 12 months relate to leases of our office facilities.
The adoption of AASB 16 will result in the accounting for any operating leases that have a lease end date of 31 December 2019 or later (as per
the transition periods). The estimated impact on the opening balance sheet as at 1 January 2017 would be as follows:
Balance sheet impact
Increase in non current asset (recognition of lease assets)
Increase in deferred tax asset
Increase in liabilities from recognition of lease liabilities
Decrease in retained earnings (higher expense recognized under AASB 16)
The estimated impact to the FY2017 income statement would be as follows:
Income statement impact
Decrease in rent expense resulting in an increase in segment profit
Increase in interest expense
Increase in depreciation expense
Decrease in net profit before tax
$’000
12,294
379
(13,561)
(888)
$’000
3,834
(1,331)
(3,008)
(505)
ANNUAL REPORT 2016 67
Page HeadingPage Subheading Notes to the Consolidated Financial Statements (continued)
For the Year Ended 31 December 2016
Section 4. Other Disclosures (continued)
(c) Summary of general accounting policies
The following significant accounting policies have been adopted in the preparation and presentation of the financial report:
I) CONSOLIDATION
The consolidated financial statements include the financial statements of the company, and 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.
II) 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.
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.
4.8 TRANSACTIONS WITH RELATED PARTIES
ASX Limited (“ASX”) owns 18.94% 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 $9,082,629 (2015: $8,556,525), outstanding balances
at the end of the year $1,437,780 (2015: $1,101,029).
4.9 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 2016
In the directors’ opinion:
(a) the financial statements and notes set out on pages 43 to 68 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 2016 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 4.5 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 4.6.
Note 4.7 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.
This declaration is made in accordance with a resolution of the directors.
TONY D’ALOISIO
CHAIRMAN
Melbourne
21 February 2017
A WALSH
CHIEF EXECUTIVE OFFICER
AND MANAGING DIRECTOR
ANNUAL REPORT 2016 69
Page HeadingPage Subheading Independent Auditor’s Report
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
DX: 111
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report
Independent Auditor’s Report to the Members of IRESS Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of IRESS Limited (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 31
December 2016, the consolidated statement of profit or loss and other comprehensive
income, the consolidated statement of changes in equity and the consolidated statement of
cash flows for the year then ended, notes to the consolidated financial statements, and the
directors’ declaration.
In our opinion:
the accompanying financial report of IRESS Limited, is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December
2016 and of its financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Report section of our report. We are independent of the
Group in accordance with the auditor independence requirements of the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have fulfilled our other ethical
responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if given
to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
70 IRESS LIMITED
Key Audit Matter
How the scope of our audit responded
to the Key Audit Matter
Carrying value of Goodwill
– impairment assessment
As disclosed in Note 2.1 of the financial
report Goodwill amounted to $440.4 million
at 31 December 2016.
Our procedures included but were not
limited to:
The determination of the “Value in Use” of
each cash generating unit (CGU) and
whether or not an impairment charge is
necessary, involved judgements by
management about the future growth rates
of the business in each CGU, discount rates
applied to future cash flow forecasts for
each CGU and sensitivities of inputs and
assumptions used in the cash flow models.
Obtaining an understanding of the key
controls associated with the
preparation of the “Value in Use”
models and critically evaluating
management’s methodologies and
their documented basis for key
assumptions which are described in
Note 2.1 of the financial report.
With the assistance of Deloitte valuation
experts we:
challenged key assumptions, including
forecast growth rates by comparing
them to historical results, business
trends, economic and industry
forecasts and comparable
organisations
evaluated discount rates used by
assessing the cost of capital for each
CGU, the company and comparable
organisations by comparison to market
data and industry research
assessed the consistency of the cash
flows used with the latest Board
approved five year financial plan for
each CGU
tested on a sample basis the
mathematical accuracy of the cash flow
models
assessed the net present value of each
CGU in local currency to their
respective carrying values in local
currency.
We also performed sensitivity analysis to
stress test the key assumptions used in
the “Value in Use” models, including
revenue growth, terminal growth rates and
discount rates used.
We have also assessed the
appropriateness of the disclosures included
in Note 2.1 of the financial report.
ANNUAL REPORT 2016 71
Page HeadingPage Subheading
Independent Auditor’s Report (continued)
Key Audit Matter
How the scope of our audit responded
to the Key Audit Matter
Acquisition Accounting
– Financial Synergy
As disclosed in Note 4.2 of the financial
report during the year IRESS acquired
Financial Synergy for a cash purchase price
of $90.0 million (including $5.0 million of
contingent consideration).
The audit of the acquisition accounting is a
key audit matter due to the extent of
judgement and complexity involved in
assessing the determination of the fair
value of identifiable intangible assets and
the final purchase price which included
contingent deferred consideration.
Our procedures included but were not
limited to:
reviewing the purchase contract to
understand the entities being acquired
and the consideration payable for the
acquisition, and
obtaining a copy of the external
valuation report to critically assess the
determination of the fair values of the
identifiable intangible assets associated
with the acquisition.
With the assistance of Deloitte valuation
experts we:
assessed the identification of intangible
assets acquired including software,
customer contracts and relationships
and brands along with the valuation
methodologies used to value those
assets
challenged the associated underlying
forecast cash flows for the software
and customer assets intangible asset
valuations and compared key
assumptions, including forecast growth
rates and royalty rates applied, by
comparing them to historical results,
business trends, economic and
industry forecasts and comparable
transactions
evaluated discount rates used by
assessing the cost of capital applied in
each valuation by comparing them to
market data and industry research
tested on a sample basis the
mathematical accuracy of the cash flow
models.
We have also assessed the
appropriateness of the disclosures of the
acquisitions included in Note 4.2 of the
financial report.
72 IRESS LIMITED
Other Information
The directors are responsible for the other information. The other information comprises
the information in the Company’s annual report for the year ended 31 December 2016, but
does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The directors of the Company are responsible for the preparation of the financial report
that gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary
to enable the preparation of the financial report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Company’s
and Group’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company and Group or to cease operations, or has
no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a
whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the financial report,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material
ANNUAL REPORT 2016 73
Page HeadingPage Subheading
Independent Auditor’s Report (continued)
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report,
including the disclosures, and whether the financial report represents the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group to express an opinion on the
financial report. We are responsible for the direction, supervision and performance
of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were
of most significance in the audit of the financial report of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 17 to 40 of the directors’
report for the year ended 31 December 2016.
In our opinion, the Remuneration Report of IRESS Limited, for the year ended 31
December 2016, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
G J McLean
Partner
Chartered Accountants
Melbourne 21 February 2017
74 IRESS LIMITED
Shareholder information
The shareholder information set out below was applicable as at 31 December 2016.
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
No. of
shareholders
No. of
shares
% of Issued
capital
3,378
3,048
668
387
38
1,565,078
7,344,178
4,661,036
9,029,115
147,357,498
7,519
169,956,905
Number
held
32,181,994
20,751,152
12,144,543
8,778,308
73,855,997
96,100,908
0.92%
4.32%
2.74%
5.31%
86.71%
100.00%
%
18.94%
12.21%
7.15%
5.16%
43.46%
56.54%
169,956,905
100.00%
ANNUAL REPORT 2016 75
Page HeadingPage Subheading Shareholder information (continued)
20 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
HSBC Custody Nominees (Australia) Limited
ASX Ltd
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Australian Foundation Investment Company Limited
Pacific Custodians Pty Limited
Citicorp Nominees Pty Limited
Mirrabooka Investments Limited
Argo Investments Limited
Pacific Custodians Pty Limited
Avanteos Investments Limited
Avanteos Investments Limited
Navigator Australia Ltd
AMP Life Limited
Nulis Nominees (Australia) Limited
Amcil Limited
Total top twenty shareholders
Balance of register
Total
35,510,288
32,181,994
26,713,877
10,213,679
9,494,897
7,087,245
5,488,463
4,032,009
3,442,333
3,428,258
1,747,783
840,000
791,884
689,808
628,986
507,556
451,844
373,398
360,464
338,685
144,323,451
25,633,454
169,956,905
20.89
18.94
15.70
6.01
5.59
4.17
3.23
2.37
2.03
2.02
1.03
0.49
0.47
0.41
0.37
0.30
0.27
0.22
0.21
0.20
84.92
15.08
100.00
76 IRESS LIMITED
Corporate directory
Directors
A D’Aloisio – Chairman
A Walsh – Chief Executive Officer and Managing Director
N Beattie
J Cameron
J Hayes
J Seabrook
G Tomlinson
P Ferguson
Level 18, 385 Bourke Street
Melbourne VIC 3000
Phone: +61 3 9018 5800
Fax: +61 3 9018 5844
Link Market Services Limited
Level 4, 333 Collins Street
Melbourne VIC 3000
Company Secretary
Registered Office
Share Registry
Stock Exchange Listings
IRESS Limited shares are quoted on the Australian Securities Exchange under the code: IRE
Auditor
Deloitte Touche Tohmatsu
ANNUAL REPORT 2016 77
Page HeadingPage Subheading A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
6
www.iress.com