2019
Annual Report
2,011 people
18 offices
9 countries
500,000+ users
9,000+ clients
500+ integrations
IRESS LIMITED ANNUAL REPORT 2019 We believe
technology should
help people
perform better,
every day.
We are a global team of
2,011 people building software
that helps the financial services
industry perform at its best.
More than 9,000 businesses
and 500,000 people use our
software to help them perform
better and deliver more.
Contents
About us
2019 snapshot
Financial highlights
Chair and CEO’s letter
Iress leadership
Iress Foundation
Principal activities
Operating & financial review
Board of Directors
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
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AGM details
Thursday 7 May 2020
11.30am AEST
RACV Club
501 Bourke Street
Melbourne, Australia
2019 snapshot
At Iress we’re focused on finding
better ways to work, building
better software and making
improvements to better service
our clients and users. Here are
some highlights from 2019.
Improvements to better support our
clients and users
Recognised as one of the industry’s
best innovators
Throughout 2019 we sought feedback from clients and users
to understand how to better support them. Based on that direct
feedback, we made improvements to support processes which
have driven better resolution times.
Changes to how we work have also resulted in noticeable
improvements in software quality and a smoother
upgrade process.
We continue to seek feedback from our clients in a structured
manner at key interactions in our relationships and have
introduced formalised methods to ensure this feedback is
a driver of improvement.
Helping our users make better use
of our software
In 2019 we launched the Iress Community — a dedicated, secure
online community providing a single source of information for
users about our software. It helps users get the best out of our
software and includes searchable help, software release notes,
real-time service updates and best practice articles. It also
provides users with direct access to our software experts as well
as tips from other software users.
The Iress Community was rolled out in 2019 to all users of our
financial advice software globally and is now being opened to
users of other Iress software.
Our CTO, Andrew Todd, was recognised as one of Australia’s top
‘technology and digital chiefs.’
Andrew received this prestigious accolade from one of the most
influential titles for senior IT professionals in the region, CIO Australia.
Each year, CIO Australia selects top C-suite executives who have
driven technology-led innovations and significant change in the way
organisations operate.
Andrew made the list based on Iress’ enhancements to the speed,
scale and quality of our delivery to clients, including through delivery
of Iress’ cloud program.
Named in the top 50 best places to work
Glassdoor, a website that allows employees to post online reviews
about their employer and one of the world’s largest recruitment sites,
named Iress in its ‘50 best places to work’ list in the UK.
The award takes into account ratings across eight workplace
categories including overall company rating, career opportunities,
compensation and benefits, culture and values, senior management,
work-life balance, likelihood to recommend as an employer
and six-month business outlook.
2
IRESS LIMITED ANNUAL REPORT 2019 3
Financial highlights
Revenue growth and improving
operating leverage driving earnings
South Africa
5%
9%
North America
Operating Revenue
$508.9m
^10%
^8%
on 2018
on a constant
currency basis
APAC
52%
UK & Europe
34%
APAC
52%
UK & Europe
34%
– Underlying Xplan growth
driven by ongoing demand
amidst industry change and
increased regulatory focus.
– Financial Markets
revenue resilient.
– Demand for data
analytics ongoing.
– Revenue growth reflects
successful key client
deliveries and product uptake.
– Positive contribution from
QuantHouse.
– Mortgages client momentum
is increasing.
South Africa
North America
9%
5%
– Revenue growth reflects
– Revenue growth driven
continuing demand across
product suite.
by QuantHouse acquisition
combined with stable
underlying client base.
The percentages above represent the geographical segment’s share of the Group’s total operating revenue.
4
IRESS LIMITED ANNUAL REPORT 2019
Strong track record of producing sustainable return for shareholders
Operating revenue
AUD (m)
508.9
Segment Profit
AUD (m)
Net Profit After Tax
AUD (m)
65.1
152.1
80
70
60
50
40
30
20
10
0
200
150
100
50
0
09
19
09
19
09
19
Operating cash flow
AUD (m)
104.7
Dividend per share
AUD (cents)
46.0
Earnings per share
AUD (cents)
37.9
50
40
30
20
10
0
50
40
30
20
10
0
09
19
09
19
09
19
600
500
400
300
200
100
0
120
100
80
60
40
20
0
Unless otherwise stated all comparisons are with the prior corresponding
period on a constant currency basis. Financial information in this report
is extracted or calculated from the half-year and annual financial
statements which have been subject to review or audit.
(1) Segment Profit represents earnings before interest, tax, depreciation, amortisation, share-based payments, non-operating items and realised
and unrealised FX gains/losses – see page 48 for a full reconciliation.
5
Chair and CEO’s letter
Tony D’Aloisio
Andrew Walsh
One of Iress’ strengths is our ability to
anticipate the needs of clients, and to build
the necessary software and services to meet
these needs.
In 2019, we continued to anticipate and deliver to meet growing
and changing demand. Iress announced its automated super
offering to the Australian superannuation industry, underpinned by
a major foundation client. Our regtech software, Lumen, has seen
increased demand and, as advisers in the UK seek ways to deliver
advice at scale, our Xplan Prime software is exceeding expectations.
We are also meeting the demands of disruptive neo-banks with our
mortgage software.
At the heart of this innovation is our belief that technology should help
people perform better every day. In financial services, performance is
a critical measure and we are ever mindful of our role in helping our
clients and users achieve this.
Financial results
Our financial performance for the year to 31 December 2019 reflected
the continuing demand for our software and services, as financial
services businesses globally seek expertise in transitioning to more
efficient, data-driven ways of working.
Group operating revenue was $508.9 million, up 10% on 2018 (up 8%
on a constant currency basis). Segment Profit was $152.1 million,
up 10% on 2018 (also up 10% on a constant currency basis). Reported
NPAT was $65.1 million, up 2% on 2018. Excluding the impact of
changes in accounting standards and the acquisition of QuantHouse,
NPAT was up 11% on 2018.
Revenue growth reflects underlying performance in Australia and the
United Kingdom, as well as the acquisition of international market data
business QuantHouse.
In Australia, New Zealand & Asia, revenue growth was solid. We’ve seen
continued growth in demand for our financial advice software, against
a backdrop of significant industry change. Our private wealth software
continues to gain momentum with two major retail firms selecting Iress
in 2019. And we’re seeing positive momentum in our superannuation
business, with two significant client wins for our super administration
offer. In Asia we have seen continued strong revenue growth following
the successful rollout of online trading software, ViewPoint, to two
leading institutions.
6
In the UK, revenue growth was stronger in the second half, with the
continued rollout of our Xplan software among advice businesses
and the take up of our private wealth software by two large
investment managers.
We also saw strong momentum in our mortgages business
with increasing diversification within the mortgage industry for
our software.
South Africa’s results were driven by continued demand across our
software range, as well as successful client deployments. In North
America, the contribution from QuantHouse saw increased revenue,
balanced against reduced non-recurring revenue from reduced
client project activity.
QuantHouse
In May 2019, we announced the acquisition of market data provider,
QuantHouse. QuantHouse operates internationally, with a focus on
Europe, North America and Asia, providing more than 145 data feeds
from exchanges and other data providers to clients globally.
The provision of accurate, timely and cost-effective market data
through our software and to a range of clients is an important
part of Iress’ current and future business and our growth strategy.
QuantHouse is highly complementary and strategically aligned to
our existing and future activities and to our increasing focus on data.
The acquisition further strengthens our international market data
business and provides opportunities to achieve cost synergies and
scale, which are underway.
Importantly, the acquisition expands our offering to clients globally.
In particular, the acquisition allows us to provide clients with real-time
access to additional services, including international exchanges,
with global MSCI coverage increasing from 52% to 75%. It also meets
client demand for increased channels for data beyond desktops. Our
business integration efforts are proceeding smoothly.
Your dividend
The Board has confirmed a final dividend of 30 cents per share,
franked at 40%. This takes the total dividend payable for 2019 to
46 cents per share, franked at 30%.
Iress continues to maintain a conservative balance sheet at a leverage
ratio of 1.28x Segment Profit.
IRESS LIMITED ANNUAL REPORT 2019 Change and innovation
We are well positioned as financial services changes and transforms
and in 2019 we have continued to realise the benefits of our medium
to long term investment focus.
Areas of change we are anticipating and leading in are:
– Traders seeking greater access to data and electronic tooling,
– Advisers needing more scaled, automated and quality ways to
meet demand for advice,
– Retail stockbrokers expanding their services to include other asset
classes and client propositions,
– Superannuation funds seeking improved member experience and
returns, and
– Traditional and new mortgage providers seeking greater
automation and efficiency.
All of this is underpinned by a global financial services industry that is
increasingly alive to the need for technology-led data management for
compliance, efficiency and client experience. 2019 saw Iress deliver
to clients to meet these needs and in 2020 we anticipate ongoing,
strong demand.
Director changes
We recently welcomed two new non-executive directors to the Iress
Board, effective 1 February 2020. Trudy Vonhoff and Michael Dwyer
are accomplished professionals and their experience in retail banking,
financial markets, investments, operations and superannuation, and
more broadly, will be invaluable as Iress continues to grow.
Ms Vonhoff is currently a director of Credit Corp Group and Cuscal
Limited. Past directorships include AMP Bank, Ruralco Holdings
Limited, Tennis NSW and the Westpac Staff Superannuation Fund.
Mr Dwyer was recently CEO of First State Super for 14 years. He is
currently a director of TCorp (New South Wales Treasury Corporation),
WSC Group, the Global Advisory Council of Tobacco Free Portfolios
and the Sydney Financial Forum.
These appointments are part of the Board’s succession and renewal
plan as outlined at the Annual General Meeting in May 2019.
At the AGM in May, Jenny Seabrook will step down from the Board.
Jenny has been a non-executive director since 2008, and chair of the
People & Performance Committee since 2011. On behalf of the Board
and Iress, we thank Jenny for the strong and consistent impact she
has had over the last twelve years on Iress’ strategic, financial and
operational performance.
Thank you
Your Board and our people at Iress continue to focus unrelentingly on
delivering to our clients, users and, you, our shareholders. Thank you
for your support.
Tony D’Aloisio
Chair
Andrew Walsh
Managing Director &
Chief Executive Officer
Executive remuneration
Board assessment
In last year’s report, I outlined changes the Board made to Iress’
executive remuneration framework effective 1 January 2019. These
changes, in combination with the introduction of a new non-executive
remuneration model in 2018, are to ensure Iress can continue to
attract and retain the people it needs globally as well as further
strengthen alignment between shareholders’ and executives’ interests.
As part of the transition to the new framework, a one-off grant of
Transition Equity Rights was granted to executives other than the
CEO to offset the negative cash flow impact of moving to a framework
with a higher proportion of deferred equity and no cash incentives.
Excluding this one-off item, Total Remuneration awarded in 2019 was
comparable to 2018.
Recap of key changes
More detail of the changes made in 2019 are set out in the Directors’
Report on page 23. In summary, the key changes were:
– Removal of cash short-term incentive, which the Board did not
believe was aligned with the long-term nature of Iress’ strategy,
– An increase in the proportion of remuneration delivered in deferred
equity and introduction of a minimum shareholding requirement to
enhance the alignment between shareholders and executives, and
– Absolute Total Shareholder Return replaced Relative Total
Shareholder Return as the measure for vesting of long-term
incentives to ensure that executives are only rewarded when
shareholders have achieved positive returns.
The changes were accompanied by additional safeguards enabling
the Board to reduce the grant value of equity and clawback unvested
and restricted equity in the event of significant underperformance
or misconduct.
The Board view is that the changes are working as intended with a
greater degree of focus on medium to longer term performance from
our executives both on an individual and group basis. This is supported
by our pleasing financial results and our other key performance
measures which are detailed in the Directors’ Report on page 29. The
Board is satisfied that the new arrangements should be allowed to
continue to apply as intended and the Board does not see the need
to exercise its discretion to clawback unvested equity granted for
financial year 2019 or to adjust any forward grant of equity for the
next financial year.
Tony D’Aloisio, Chair
7
Iress leadership
Our greatest asset at Iress is
our people. Supporting them
is a leadership team committed
to Iress’ goals, clients and people.
8
IRESS LIMITED ANNUAL REPORT 2019
Standing (left to right)
Coran Lill
Group Executive – Communications
& Marketing
Andrew Walsh
Managing Director and Chief Executive Officer
John Harris
Chief Financial Officer
Simon New
Group Executive – Client Solutions
Phil Quin-Conroy
Managing Director – United Kingdom
Ray Pretorius
Managing Director – South Africa
Tizzy Vigilante
Managing Director – Australia &
New Zealand (Wealth Management)
Seated (left to right)
Aaron Knowles
Group Executive – Product
Kirsty Gross
Managing Director – Australia &
New Zealand (Financial Markets)
Peter Ferguson
Group General Counsel and Company Secretary
Andrew Todd
Chief Technology Officer
Julia McNeill
Group Executive – Human Resources
Jason Hoang
Managing Director – Asia
9
Iress Foundation
What IF two letters and you
could change the world?
In 2017, the Iress Foundation was set up to make
a bigger impact on the communities in which
we live and work, and to formally recognise and
support the valuable efforts of our people.
We understand that real change comes when people get behind
common causes, understand why they matter and how they can make
a difference. Since its launch, the Iress Foundation has amplified the
community support and charity activities our people around the world
were already championing.
This year, the Iress Foundation has gone one step further and
implemented a Workplace Giving Program called the Iress Foundation
Giving Platform. The platform provides our people with a central
information source of Foundation initiatives and an easy way to get
involved in Foundation activities and donate to Foundation causes.
Its comprehensive analytics and reporting provides us with a deeper
understanding of how our people get involved and which causes
matter to them most.
Iress Opportunity Initiatives
Our people understand a safe family, a home, good health and access
to quality food and education are all foundations for making the most
of the opportunities that we all hope life will bring.
Through Iress Opportunity Initiatives we have established long-term
relationships with 26 regional charitable organisations focused on
initiatives where family, health, education, welfare or communities
are at risk.
Iress Matching Initiatives
Through the Iress Matching Initiatives, we support people at Iress
who want to focus beyond the current Iress Opportunity Initiatives,
on causes that are close to their hearts.
Iress Volunteer Opportunities
We give eligible members of our team three days of Iress Foundation
Leave each year to help them give back to Iress Foundation supported
charitable organisations.
In 2019, our people used 274 days of their Foundation Leave
to support charitable organisations; and this doesn’t include
all of the time so generously donated outside of work hours.
10
“Do not think only about the anguish of the sore
and exhausted hikers. Keep in your mind the
people in support of whom we hiked – everything
lost, dignity stripped away, the misery of life as
a refugee. Thanks to everyone who got involved
as a participant or supporter of the 3 Peaks hike
for Talent Beyond Boundaries! We have raised
almost £38,000.”
Peter Ferguson, Iress Group General Counsel & Company Secretary
“Just wanted to send you a quick note to let
you know how much we appreciate you coming
in to volunteer with enthusiasm, passion and
open hearts.”
Shannon Chaplin, Coordinator, Community Partnerships,
Holland Bloorview Kids Rehabilitation Hospital, Canada
IRESS LIMITED ANNUAL REPORT 2019 In 2019:
26 registered
charitable
organisations
focusing on initiatives where health, education, welfare
and/or the community is at risk, were supported through
our Opportunity Initiatives.
$139,731
in donations was gifted through
our Opportunity Initiatives.
$80,739
of funds raised by our people
was matched.
274
248
Iress Foundation Leave workdays
were used in supporting Volunteer
Opportunities.
of our people engaged with the
Iress Foundation Giving Platform
since its launch in November.
“Since 2017 we’ve been supporting children through The Pebbles
Project, helping them successfully progress through school.
Recently our sponsorship has grown to ten deserving children.”
Klee Barris, Iress Marketing, Johannesburg
Listing of Iress Opportunity partners
Beyond Blue (APAC)
Birthday Angels (Canada)
Caring for Communities and People
(United Kingdom)
Cancer Council Australia (APAC)
Cobalt Health (United Kingdom)
Daily Bread Food Bank (Canada)
Evangel Hall (Canada)
Foundation for National Parks &
Wildlife (APAC)
Helping Hands Community Project
(United Kingdom)
Holland Bloorview Kids Rehabilitation
Hospital Foundation (Canada)
Hope’s Children & Young Peoples Support
Services (United Kingdom)
iThemba Lethu (South Africa)
James Hopkins Trust (United Kingdom)
Josiah Trust (South Africa)
Macmillian Cancer Support (United Kingdom)
Rural Aid (APAC)
Seeds of Africa (South Africa)
St Kilda Gatehouse Incorporate (APAC)
Talent Beyond Boundaries (APAC)
The Grange Centre for People with
Disabilities (United Kingdom)
The Indigenous Literacy Foundation (APAC)
The Myton Hospices (United Kingdom)
The Pebbles Project Trust (South Africa)
The Redwood (Canada)
Two Good Foundation (APAC)
Whitelion Youth Agency (APAC)
11
Principal activities
Iress is a leading technology company,
providing software to the financial
services industry.
It was founded in Melbourne in 1993 and now operates in
Asia-Pacific, the UK & Europe, Africa and North America.
Iress’ revenue is primarily subscription-based and recurring.
Software and clients
Our clients range from small retail to large institutional businesses
across the financial services industry. Our technology sits at the
centre of our clients’ businesses, supporting their core operations,
providing essential functionality and helping them connect through
their back, middle and front offices and to their clients and customers.
SOFTWARE
CLIENTS
Trading and
market data
Investment
management
Financial advice
Superannuation
Mortgages
Global market data and trading
software including:
– market data,
–
– order and execution management,
–
smart order routing,
trading interfaces,
– FIX services,
– portfolio management,
securities lending,
–
– analytical tools, and
– connectivity.
Trading and market data clients:
institutional sell-side brokers,
–
–
retail brokers, and
– online brokers.
Global investment management
and trading software including:
– portfolio management,
– order and execution management,
– FIX services,
– analytical tools, and
– connectivity.
Integrated software solution offering:
– market data,
– order management,
– portfolio management,
– client relationship management,
and
– wealth management.
Investment management clients:
investment managers,
–
–
investment platforms,
– discretionary retail fund
managers,
– private client advisers, and
– wealth managers.
Integrated financial advice
software offering:
– client management,
– business automation,
– portfolio data,
research,
–
Superannuation administration
software offering:
–
fund registry,
– digital member portal,
–
financial planning tools,
scaled advice journeys,
–
– digital client solutions, and
– data-driven compliance
and analytics.
Financial advice clients:
–
–
institutional advisory, and
independent advisory.
– digital advice solutions, and
–
fund administration services.
Superannuation clients:
–
superannuation funds.
Multi-channel mortgage sales and
origination software including:
– automated workflow,
– application processing, and
– connectivity.
Mortgage intermediary software,
including:
– mortgage comparison,
– mortgage advice, and
lender connectivity.
–
Mortgage clients:
– mortgage lenders, and
– mortgage intermediaries.
Life and
pensions
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Insurance and pension sourcing
software including:
– quoting,
– comparison, and
– application processing.
Life and pensions clients:
institutional advisory,
–
independent advisory, and
–
– mortgage intermediaries.
IRESS LIMITED ANNUAL REPORT 2019 Material business risks
The material business risks that have the potential to impact Iress are outlined
below, together with mitigating actions undertaken to minimise these risks.
RISK
NATURE OF RISK
MITIGATION
Iress has increased its investment in information security in recent years in
response to several factors including the increased sophistication of cyber
terrorists, the increased reliance on our solutions by our clients and increased
regulatory pressure from government agencies. We have a dedicated
information security function across jurisdictions, Board oversight through
the Audit & Risk Committee and executive oversight via the Executive Risk
Committee and Chief Information Security Officer. Iress’ controls, audit and
governance provide a framework for actively identifying gaps, new exposures
and the development of appropriate treatment plans and include:
– Network and malware scanning and mandatory information security
awareness training across the business.
– Comprehensive disaster recovery procedures.
– Focus on redundancy for internal and critical systems.
Iress’ Global Information Security Management System (ISMS) is certified by
independent audit to meet the global ISO 27001 standard.
This risk is mitigated by Iress’ diverse geographic presence and diverse
product portfolio.
Iress mitigates the foreign exchange risk associated with investments in
international operations by funding these investments in the local currency.
Foreign currency transaction risks are hedged where appropriate. Iress does
not hedge translation risk on foreign currency earnings. However, Iress reports
the financial performance of its offshore operations in local currency and
AUD in order to enable investors to better understand the performance of the
underlying business and the exposure to different currencies inherent in Iress’
international operations.
Iress’ risk management strategy includes the close monitoring of regulatory
developments globally. In Australia over 2019 this has included developments
emerging from the Hayne Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry. Iress is proactively engaged
in the development of new and existing relationships with relevant regulatory
stakeholders, policy makers, and media groups to monitor the regulatory
landscape. This strategy is focused on limiting potential impacts of regulatory
development so that Iress may continue to service its global markets and
efficiently respond to compliance requests.
Iress endeavours to manage this risk by maintaining a highly skilled and
educated technology organisation and by exploring the potential utilisation
or impact of emerging technologies. In the same way, Iress endeavours
to manage market change by maintaining a high degree of engagement
with its clients. In that regard Iress is fortunate that its client base, being
distributed geographically and being comprised of highly sophisticated
industry representatives, is likely to be at the forefront of industry change
and evolution.
Mitigation of technology risk lies at the heart of Iress’ information security
function (refer to comments above under Information Security) and software
development practices. The latter includes rigour in architecture, code
development and testing. Iress does not outsource development of core
technology, maintaining direct oversight and control.
Due to the nature of Iress’ business, Iress
could be impacted significantly by the
failure of critical systems, whether caused
by error or malicious attack.
Information
security
breach
and failure
of critical
systems
Economic
climate
Economic conditions, domestically
and internationally, can impact client
expenditure and accordingly, client
demand for Iress’ systems.
Foreign
exchange
Iress is exposed to foreign exchange
movements, which may affect the value of
profits repatriated to Australia.
Regulation
Regulation can impact Iress and its clients
because regulation increases the cost of
doing business. Regulation may have the
effect of structural changes, including
consolidation or fragmentation, both of
which can negatively impact Iress’ client
engagements.
Market or
technology
risk
The risk that a pronounced shift in
technology or a pronounced change in the
way market segments organise themselves
and make use of Iress’ technology.
Reputation
risk
Iress provides solutions to the financial
services industry. The financial services
industry is subject to significant public
focus, media attention and government
review, as has been the case in Australia
through the Hayne Royal Commission.
The use of technology within financial
services businesses, and especially its
role in processing and storing sensitive
personal information, can expose both the
financial services provider and providers of
technology such as Iress, to reputational
risk where there is a failure in a critical
system or process or the release by error
or mischief of personal data.
13
Operating & financial review
Iress’ financial performance is underpinned by a focus on
client service and support, ongoing investment in products
and technology, increasing product and geographical
diversification and a recurring subscription revenue model.
Operating revenue
Reported
Constant currency basis
Reported
Constant currency basis
Segment Profit
Segment Profit after
share-based payments
EBITDA
Reported NPAT
Earnings and dividends per share
Basic earnings per share
Dividends per share
2018
$M
464.6
464.6
137.7
137.7
127.3
117.9
64.1
2019
$M
508.9
503.5
152.1
150.9
134.4
133.9
65.1
2018 VS 2019
10%
8%
10%
10%
6%
14%
2%
2018
CENTS PER SHARE
2019
CENTS PER SHARE
2018 VS 2019
37.6
46.0
37.9
46.0
1%
0%
Constant currency basis assumes the 2019 financial results are converted at the same average foreign exchange rates used to convert the
2018 financial results.
OPERATING REVENUE
DIRECT CONTRIBUTION
2018
$m
252.0
119.0
28.6
46.5
18.5
2019
$m 2018 VS 2019
264.5
142.7
29.0
48.3
24.5
5%
20%
1%
4%
32%
10%
464.6
508.9
2018
$m
182.3
78.4
21.6
35.3
9.6
327.2
(114.1)
(39.7)
(35.6)
137.7
2019
$m 2018 VS 2019
191.1
91.9
19.2
37.5
10.4
350.1
(118.6)
(42.7)
(36.7)
152.1
5%
17%
(11%)
6%
8%
7%
4%
8%
3%
10%
APAC
UK & Europe
Mortgages
South Africa
North America
Client Contribution
Product and Technology
Operations
Corporate
Segment Profit
14
IRESS LIMITED ANNUAL REPORT 2019 Operating revenue
Mortgages
On a reported basis, revenue from ordinary activities grew 10% from
2018 to 2019 which reflects underlying revenue growth across the
business particularly in Australia and the UK, and contribution from
recently acquired QuantHouse. On a constant currency basis, revenue
grew 8% from 2018 to 2019.
Segment Profit(1)
On a reported basis, Segment Profit increased 10% from $137.7m
in 2018 to $152.1m in 2019, driven by revenue growth in the key
markets of Australian Financial Advice and the UK and further
increases in operating leverage as the business continues to scale
globally. On a constant currency basis, Segment Profit grew 10% from
2018 to 2019.
On a reported basis, revenue increased 1% from 2018 to 2019, while
direct contribution fell 11%. In local currency, revenue and direct
contribution fell 2% and 14% respectively over the same period,
reflecting the timing and mix of client projects.
The Mortgages business continued to exhibit strong operational
momentum in 2019 with a large tier two lender going live with Iress’
Mortgage Sourcing and Origination platform (MSO), while four other
client deployments are progressing well, including a new client won
in late 2019.
The Mortgages business continues to make good progress
transitioning to a subscription revenue model with recurring licence
fees contributing approximately 31% of total revenue in 2019, up from
20% in 2018.
APAC
South Africa
On a reported basis, revenue increased 4% from 2018 to 2019 while
direct contribution increased 6% during the same period. In local
currency, revenue grew 6% and direct contribution increased 9%
from 2018, reflecting ongoing underlying demand across trading and
wealth, the successful delivery of a Private Wealth solution to a tier
one financial services business, and deployment of ViewPoint to the
largest online broker in South Africa. The JSE went live with its trading
and clearing platform (ITaC) in April 2019 which also contributed to
revenue growth during 2019.
Margin accretion reflects ongoing improvements in operational
leverage and scale as the business grows.
North America
On a reported basis, revenue increased 32% from 2018 to 2019
while direct contribution increased 8% over the same period. In local
currency, revenue increased 26% while direct contribution increased
3% from 2018 to 2019, which reflects the contribution from recently
acquired QuantHouse, and a small increase in recurring revenue
driven primarily by strong client retention and increased product
uptake by existing clients. Underlying revenue was down marginally
due to a decline in non-recurring revenue from lower client project
activity in 2019 when compared to 2018.
A project to deliver a comprehensive retail trading system to a tier
one bank is on track for delivery in 2020.
APAC revenue grew 5% from $252.0m in 2018 to $264.5m in 2019,
reflecting strong underlying revenue growth in Australian Financial
Advice and Asia, a small contribution from recently acquired business
QuantHouse, a flat result in Australian Trading and Market Data, and
a marginal decline in Superannuation revenue.
Across the APAC region, Trading and Market Data revenue grew 3%
in 2019 reflecting contribution from recently acquired QuantHouse
and growth in Asia. Interest from Australian retail broking clients for
an integrated solution across wealth and trading continued, with two
major retail firms selecting Iress in 2019. In Asia, underlying revenue
was up 34% from 2018 to 2019 driven primarily by the rollout of retail
trading solutions to leading regional brokers.
Financial Advice & Superannuation revenue increased 6% in 2019
reflecting strong growth in the Financial Advice business. New client
implementations and ongoing demand for Xplan and compliance
data analytics platform Lumen drove 2019 growth in Financial Advice
revenue with clients focused on data, risk management, efficiency
and compliance following increased regulatory scrutiny and market
change. Superannuation revenue declined from 2018 to 2019
reflecting the focus of superannuation funds on addressing legislative
change, which impacted the timing of a number of discretionary
client projects. In the second half, Iress secured two clients for its
technology-led super administration offering which is expected to
contribute visibly to revenue growth in future periods.
Direct contribution was up 5% in 2018 reflecting revenue growth.
UK & Europe
On a reported basis, revenue increased 20% from 2018 to 2019. In local
currency, revenue increased 16% during the same period, reflecting
strong revenue growth in the second half, from the ongoing deployment
of Iress’ integrated wealth and trading solution to key clients, including
existing and new clients in 2019 and continued solid growth in Sourcing.
On a reported basis, direct contribution increased 17% from 2018 to
2019. In local currency, direct contribution was up 13% over the same
period reflecting revenue growth, contribution from QuantHouse, and
increased operating leverage as the business continues to scale.
On an underlying basis (excluding the impact of QuantHouse and
currency) client contribution margin improved 2% from 2018.
(1) Iress uses Segment Profit as a measure of underlying earnings to aid inter-period comparability of results.
15
Operating & financial review (continued)
Product and Technology
Corporate
Investment in product and technology is at the heart of Iress’ success,
supporting client retention and future recurring revenue growth.
On a reported basis, costs increased 4% from $114.1m in 2018 to
$118.6m in 2019. On an underlying basis (excluding the impact of the
acquisition of QuantHouse, the adoption of AASB 16 for the first time
in 2019 and currency movements), costs were also up 4% with the
impact of the QuantHouse acquisition and movements in currency
offset by adjustments required to adopt AASB 16 for the first
time in 2019.
Cost increases in 2019 reflect investment in people and capability,
through headcount additions and remuneration increases in addition
to the full year impact of recruiting in 2018. Software and support
costs also increased as a result of investment to enhance the design
and deployment process including costs associated with migrating
some server infrastructure to cloud infrastructure. In 2019, on a
reported basis, Product and Technology costs represented 23%
of operating revenue.
Operations
Operations’ costs include core business infrastructure and people,
such as internal and external communications technology,
information security, operating hardware and software, and client
support teams.
Reported costs increased 8% from $39.7m in 2018 to $42.7m in 2019
which reflects an increase in people costs, and investment in software
used internally by the business to increase business efficiency and
enhance collaboration and communication. On an underlying basis
(excluding the impact of the QuantHouse acquisition, the adoption
of AASB 16 for the first time in 2019, and currency movements)
costs were largely flat with higher people costs (headcount and
remuneration increases) and higher software costs offset by savings
in communication costs and savings from the consolidation of offices
in Melbourne. On a reported basis, Operations costs represented 8%
of operating revenue in 2019.
Corporate’s costs include Iress’ central business functions including
human resources, finance, communications & marketing, legal and
other general corporate costs.
On a reported basis, costs increased 3% from $35.6m in 2018 to
$36.7m in 2019. However, on an underlying basis, costs were flat
from 2018 to 2019, with higher people and insurance costs offset by
the reduction in executive cash bonuses (the result of the change in
executive remuneration structure) and lower non-wage costs. In 2019,
on a reported basis, Corporate costs represented 7% of operating
revenue (8% in 2018).
Net Profit After Tax (NPAT)
Iress’ reported NPAT increased 2% from 2018 to 2019 which reflects
the growth in Segment Profit, partially offset by an increase in
share-based payments and higher depreciation and amortisation,
interest and tax charges, all of which are discussed in more
detail below.
Share-based payments expense increased from $10.4m in 2018 to
$17.7m in 2019, as a result of the previously disclosed changes in
both executive and non-executive remuneration structures which
increases the proportion of remuneration paid as equity and brings
forward the accounting expense recognition of equity remuneration.
These changes in remuneration structures are described in the
Remuneration Reports included in the 2017, 2018 and 2019
Annual Reports.
Other non-operating expenses are primarily one-off costs in relation to:
– Costs associated with the acquisition of QuantHouse and
BC Gateways (mainly external advisors),
–
Integration of Financial Synergy (largely product integration costs),
– The migration of some server infrastructure to cloud infrastructure,
– Uplift of corporate core and information security software and
infrastructure.
In addition to:
– Sub-lease income separately recognised following the adoption
of AASB 16 for the first time in 2019, and
– Revaluation of earn-outs associated with the acquisition
of QuantHouse in 2019 and Innergi in 2015. This is discussed
in more detail in note 2.6 in the 2019 Financial Report.
16
IRESS LIMITED ANNUAL REPORT 2019 Net Profit After Tax (NPAT)
Segment Profit
Share-based payment expense
Segment Profit after share-based payments
Other non-operating expenses
Profit before depreciation and amortisation, interest and income tax expense
Depreciation and amortisation expense
Profit before interest and income tax expense
Net interest and financing costs
Income tax expense
Net profit after income tax expense
2018
$m
137.7
(10.4)
127.3
(9.5)
117.9
(26.8)
91.1
(6.1)
(20.9)
64.1
2019
$m
152.1
(17.7)
134.4
(0.5)
133.9
(37.2)
96.6
(8.2)
(23.3)
65.1
2018 VS 2019
10%
(71%)
6%
95%
14%
(39%)
6%
(33%)
(12%)
2%
Statement of financial position
Net debt (measured as borrowings excluding capitalised borrowing
costs, net of derivatives, and less cash and cash equivalents)
increased by $20.3 million mainly due to the acquisition of
QuantHouse in May 2019. As a result, the leverage ratio (defined
in these financial statements as the ratio of net debt to last
twelve months’ Segment Profit) increased marginally, but remains
conservative at 1.28x at the end of the period. Iress continues to
actively manage cash holdings to reduce interest costs.
Current liabilities increased by $27.5 million during the period
to 31 December 2019. This was primarily due to the impact of
the QuantHouse acquisition with $16.3 million of payables and
other liabilities being consolidated from the QuantHouse Group
at 31 December 2019 and $1.3 million of current provisions being
recognised for deferred and contingent consideration. In addition,
current liabilities as at 31 December 2019 include a current lease
liability of $9.2 million as a result of the adoption of AASB 16.
Depreciation and amortisation expense increased from $26.8m
in 2018 to $37.2m in 2019 which reflects the adoption of AASB 16,
increased depreciation charges in relation to newly refurbished offices
(Melbourne and Johannesburg) and the amortisation of intangible
assets acquired as part of the QuantHouse business in May 2019.
The increase in net interest and financing costs from $6.1m in 2018
to $8.2m in 2019 reflects the adoption of AASB 16 for the first time
in 2019 which requires a notional interest charge against the value of
capitalised leases. Underlying net interest and financing costs in 2019
remained in line with 2018.
The Group’s tax rate of approximately 26% (25% in 2018) is a function
of the tax rates in the jurisdictions in which the business operates
and the various tax adjustments impacting the business in the period,
including employee share plan deductions, R&D tax concessions and
recognition of carry forward tax losses.
Dividends
Iress’ dividend policy is to maintain a payout ratio of not less than 80%
of underlying earnings(1) on an annualised basis, subject to accounting
limitations. The dividend policy may be modified by the Board in the
future, where it is felt appropriate. Dividends continue to be franked to
the greatest extent possible, while reflecting the geographical context
of the business and timing of tax payments.
In respect of 2019 earnings, the Directors determined to pay a final
dividend of 30.0 cents per share franked to 40% at a 30% corporate
tax rate bringing the full year 2019 dividend to 46.0 cents per share,
franked to 30% at a 30% corporate tax rate.
(1) Segment Profit less operating depreciation and amortisation and tax at 30%.
17
Board of Directors
Tony D’Aloisio
Andrew Walsh
Chair since August 2014 and Independent Non-Executive Director
since June 2012
Tony has 45 years’ experience as a senior executive in government,
corporate and legal roles, including Chairman and independent
non-executive director of Perpetual, Chairman and Commissioner
for the Australian Securities and Investment Commission (ASIC),
Chairman of the International Joint Forum of the Basel Committee on
Banking Supervision, managing director and chief executive officer at
the Australian Securities Exchange (ASX) and chief executive partner
at Mallesons Stephen Jaques between 1992 and 2004, having first
joined the firm in 1977.
Managing Director and Chief Executive Officer since October 2009
After a career as an actuarial consultant, Andrew co-founded and
spearheaded the development of market-leading financial planning
software Xplan and joined Iress when it acquired Xplan Technology
in 2003. Andrew became Iress’ CEO in 2009 and has since led the
growth of the group. Since Andrew became CEO, Iress has expanded
organically and made several local and international acquisitions
and now has 2,011 people designing, developing and delivering
software solutions for the financial services industry in Asia-Pacific,
the UK & Europe, Africa and North America.
Geoff Tomlinson
Jenny Seabrook
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 from March 2000 to December 2014, including
Chairman of its wealth management division MLC. Other companies
he has been a director of include Amcor, Suncorp, Dyno Nobel,
Programmed Management Services and Neverfail Springwater.
Geoff is Chairman of Growthpoint Properties Australia and a director
of Wingate Group Holdings.
Independent Non-Executive Director since 2008 and Chair of the
People & Performance Committee from May 2011
Jenny has more than 30 years’ experience as a chartered accountant,
investment banker and capital markets adviser. She is experienced in
mergers and acquisitions and has public company board experience.
She is a senior advisor to Gresham Advisory Partners and a non-executive
director of listed entity Iluka Resources, of federal government
corporation Australian Rail Track Corporation and privately-held
entities BGC (Australia) Pty Ltd and Esther Investment Pty Ltd. Former
directorships include Alinta Gas, Amcor, Australia Post, Bankwest,
Edith Cowan University, Export Finance and Insurance Corporation,
MG Kailis, MMG, Princess Margaret and King Edward Hospital, West
Australian Newspapers, Western Power and Western Australian Treasury
Corporation. Jenny has been a member of ASIC’s external advisory group
and was a member of the Takeovers Panel from 2000 to 2012.
Company Secretary
Peter Ferguson
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 in Sydney. In addition to
his role as Group General Counsel & Company Secretary, Peter
is responsible for the Iress Foundation. Peter has been a Board
member of the Schizophrenia Fellowship of NSW (trading as
One Door) since 2012.
18
IRESS LIMITED ANNUAL REPORT 2019 John Cameron
John Hayes
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 United Kingdom, France, the United States 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 until 2009. In 2007 John created the Cameron
Foundation. John now works pro bono for the global refugee initiative
Talent Beyond Boundaries and serves as Vice Chair of its board.
Independent Non-Executive Director since June 2011 and Chair of the
Audit & Risk Committee since June 2011
John is a Fellow of CPA Australia with over 45 years’ experience in
financial services. His senior roles have included CFO of both ASX and
Advance Bank Australia and Vice President Financial Services with BT
Australia. John’s previous directorships include ASX Perpetual Registry
(now Link Market Services) and Orient Capital as well as executive
director roles with the Australian Clearing House, ASTC (CHESS) and
ASX Operations. He was also previously a member of the Advisory
Council of Comcover, a federal government entity, for six years.
Julie Fahey
Niki Beattie
Independent Non-Executive Director since October 2017
Independent Non-Executive Director since February 2015
Julie has over 30 years of experience in technology, including in
major organisations such as Western Mining, Exxon, Roy Morgan,
General Motors and SAP, covering consulting, software vendor and
chief information officer roles. In addition to her industry experience,
Julie spent 10 years at KPMG as a partner with the firm, during which
time she held roles as national lead partner telecommunications,
media and technology, and national managing partner – markets.
Julie was also a member of the KPMG National Executive Committee.
Julie is a non-executive director of SEEK, Datacom Group, CenITex,
Vocus Group, The Australian Red Cross Blood Service and non-profit
disability services organisation Yooralla, and a member of the
La Trobe University board.
Niki has more than 25 years’ experience in financial technology
and capital markets. She currently runs Market Structure Partners,
a strategic consulting firm. Niki spent more than a decade in senior
positions at Merrill Lynch International. She is currently non-executive
Chairman of listed entity Acquis Exchange Limited, which operates
a pan-European share trading venue, and of privately owned XTX
Markets, a quantitative-driven, electronic global market-maker. She
is also a non-executive Director of Kepler Cheuvreux UK Ltd, a French
brokerage firm. She was previously on the boards of MOEX, the Moscow
Exchange, and of Borsa Istanbul, the Turkish Exchange. She serves on
the Secondary Markets Advisory Committee to the European Securities
Markets Authority and between 2012 and 2018 she was on the
Regulatory Decisions Committee of the UK Financial Conduct Authority.
Michael Dwyer
Trudy Vonhoff
Independent Non-Executive Director since February 2020
Independent Non-Executive Director since February 2020
Michael has over 35 years’ experience in superannuation and
investment, including 14 years as CEO of First State Super. He is
currently a director of TCorp (New South Wales Treasury Corporation),
WSC Group, the Global Advisory Council of Tobacco Free Portfolios
and the Sydney Financial Forum. Since 1998 Michael has also been
a director and subsequently Chair of Australia for UNHCR, the private
sector partner of the UN Refugee Agency. He is a life member of
ASFA (Australia’s superannuation industry association) and the Fund
Executives Association.
Trudy has over 20 years’ experience in retail banking, financial
markets and investment. She is currently a director of Credit Corp
Group and Cuscal Limited. Previous directorships include AMP
Bank, Ruralco Holdings Limited, Tennis NSW and the Westpac Staff
Superannuation Fund. For 13 years Trudy held senior executive roles
at Westpac and AMP across retail banking, finance, risk, technology
& operations, and agribusiness.
19
Directors’ Report
For the year ended 31 December 2019
The Directors of Iress Limited and its subsidiaries (“the Group”) submit the annual financial report for the year ended 31 December 2019.
Directors’ meetings
The following table sets out the number of meetings of the Group’s Board of Directors and of each Board Committee held during the year ended
31 December 2019, and the number of meetings attended by each Director.
Director
Tony D’Aloisio
Niki Beattie
John Cameron
Julie Fahey
John Hayes
Jenny Seabrook
Geoff Tomlinson
Andrew Walsh
BOARD MEETINGS
AUDIT & RISK
PEOPLE & PERFORMANCE
Eligible
Attended
Eligible
Attended
Eligible
Attended
12
12
12
12
12
12
12
12
12
12
11
12
12
12
12
12
4
*
*
4
4
4
4
*
4
*
*
4
4
4
4
*
*
6
6
6
*
6
*
*
*
6
5
6
*
6
*
*
* Not a member of this committee.
Events subsequent to the Statement of Financial Position date
On 7 January 2020, Iress completed the acquisition of 100% of the share capital of BC Gateways (BCG), a blockchain platform provider
incorporated in Hong Kong.
BC Gateways’ blockchain platform allows data to be published and distributed in a timely, accurate and auditable way using a ‘shared source
of truth’. The workflow that exists today between many parties in financial services is distributed and disconnected, which lends itself to a
meaningful application of blockchain technology. The acquisition will, therefore, assist the Group in meeting demand from financial institutions
for cost-effective, automated and compliant technology.
Initial cash consideration of $1.525 million was paid with further potential payments of up to $2.5 million in 2020 contingent on the achievement
of sustained and recurring revenue. The purchase agreement allows for further payments that reflect a multiple of recurring revenue achieved by
the business in the 2021 and 2022 financial years if the amount is above the level of consideration already paid to the sellers. At this point the
estimated range of outcomes for these further payments cannot be determined as the business is still in the start-up phase.
On 1 February 2020, Trudi Vonhoff and Michael Dwyer were appointed as non-executive directors of Iress Limited.
On 19 February 2020, the Directors declared a final dividend of 30.0 cents per share franked to 40% totaling $52.5 million.
Other than the events above, there has been no other matter or circumstance which has arisen since the end of the financial year which 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 subsequent years.
Changes in operations during the year
During the year, the operations of the Group were not modified in any material way.
20
IRESS LIMITED ANNUAL REPORT 2019 Changes in state of affairs
On 31 May 2019, Iress acquired a 100% interest in QuantHouse, a leading international provider of market data and trading infrastructure.
QuantHouse operates internationally with a focus on UK & Europe, North America and Asia, providing data feeds from exchanges and other
data providers to clients globally. QuantHouse is highly complementary and strategically aligned to Iress’ existing and future activities and
to its international offering, including Iress’ increasing focus on data. The acquisition will further strengthen Iress’ international market data
business and provide opportunities to achieve cost synergies and scale. For details on the QuantHouse acquisition please refer to Note 4.2
in the Notes to the Consolidated Financial Statements.
Iress acquired the holding company, QH Holdco, via Iress Euro Holdings Pty Ltd which is a company incorporated in Australia and ultimately
100% owned by Iress Limited.
Other than the above, there was no significant change in the state of affairs of the Group during the financial year.
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 any related body corporate against a liability or expense
incurred in their capacity as 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 a Director or an officer of the Company will generally incur
no monetary loss as a result of defending actions taken against them as a Director or an officer. Certain actions are specifically excluded, for
example, 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 are outlined in Note 1.6(b) to the financial statements.
During the year, the Company’s auditor 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/trust/corporate-governance/corporate-governance-statement/.
21
Remuneration Report
Directors’ Report continued
For the year ended 31 December 2019
Remuneration Report
This remuneration report provides detail of Iress’ remuneration policy and practice for Key Management Personnel (KMP) for the 2019 financial
year. The information presented in this report has been audited as required under section 308(3C) of the Corporations Act 2001 and forms part
of the Director’s report.
For the year ended 31 December 2019, the KMP were:
KMP
Position
Term as KMP
Non-executive Directors (NEDs)
A D’Aloisio
N Beattie
J Cameron
J Fahey
J Hayes
J Seabrook
G Tomlinson
Executive Director
A Walsh
Non-executive Chair
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Managing Director and CEO
Executives
P Ferguson
J Harris
A Knowles
J McNeill
S New
A Todd
Group General Counsel and Company Secretary
Chief Financial Officer
Group Executive, Product
Group Executive, People@Iress
Group Executive, Client Solutions1
Chief Technology Officer
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 S New was appointed to the newly created leadership role of Group Executive, Client Solutions on 30 September 2019. In this role, S New is responsible for leading a
global cross-functional team dedicated to client solution design and strategic projects. From 1 January 2019 to 29 September 2019, S New was in the Group Executive,
Strategy role which was also KMP.
Contents
Section 1
Section 2
Section 3
Section 4
Section 5
Overview of remuneration
Remuneration framework
Relationship between performance and remuneration outcomes
Non-executive director fees
Additional required disclosures
23
25
28
33
34
22
IRESS LIMITED ANNUAL REPORT 2019 Section 1 Overview of remuneration
1.1 Executive Summary
In order to align Iress’ executive remuneration structures with the Board’s goal of delivering sustainable long term growth in shareholder
returns, the Board made changes to Iress’ executive remuneration framework effective 1 January 2019, which are detailed in Section 1.2.
The changes included:
– Removal of cash short-term incentive (STI) which the Board did not believe was aligned with the long-term nature of the company’s strategy;
– An increase in the proportion of remuneration delivered in deferred equity and introduction of a Minimum Shareholding Requirement (MSR) to
enhance the alignment between shareholders and executives; and
– Replacement of Relative Total Shareholder Return (RTSR) with Absolute Total Shareholder Return (ATSR) as the measure for vesting of
long-term incentives to ensure that executives are only rewarded when shareholders have achieved positive returns.
The changes were accompanied by additional safeguards enabling the Board to reduce the grant value of equity and clawback unvested/
restricted equity in the event of significant underperformance or misconduct.
On a total remuneration basis, the new framework had the impact of reducing cash remuneration and proportionately increasing the value
of equity awarded. To offset the negative cash flow impact of this change, a one-off grant of Transition Equity Rights (TER) was granted to
executives other than the CEO in 2019.
On an accounting basis, the combination of changes to the executive remuneration framework provide a reduction in annual executive
remuneration expense from FY22. In the short-term, an increase in share-based payment expense is expected as a result of the TER, the
recognition of Equity Rights (ER) expense over two years and the recognition of CEO Performance Rights (PR) over three years, which increases
annual expense from FY19 to FY21 inclusive.
The Board’s view is that the changes to the remuneration model are working as intended with a greater degree of focus on medium to longer-term
performance from executives, both on an individual and group basis. As further detailed in Section 1.3 and 3.2, the Board assessed individual and
group performance in 2019 and progress towards the company’s longer-term strategic goals. The Board is satisfied that the new arrangements
should be allowed to continue to apply as intended and the Board does not see the need to exercise its discretion to clawback unvested equity
granted for financial year 2019 or adjust any forward grant of equity for the next financial year.
1.2 Changes to the remuneration framework in 2019
Since its founding in 1993, Iress has grown from an Australian business to an international business with substantial offshore operations. Central
to Iress’ success is a focus on sustainable long-term growth in shareholder returns built on enduring client relationships, engagement of our
people and high-quality recurring revenue. It was within this context that the Board reviewed executive remuneration in 2018 and introduced a
new framework effective 1 January 2019. The key changes were:
– Removal of cash STI which, in the Board’s view, was too focused on short-term individual objectives whereas Iress’ strategy and business
model are long-term and global in nature.
– An increased proportion of remuneration delivered in deferred equity to further enhance the alignment between the interests of shareholders
and the executives.
– A material minimum shareholding requirement for the CEO and other executives, again ensuring strong alignment with shareholders.
– Moving from RTSR to ATSR as the measure for vesting of long-term performance-based incentives to ensure that executives are only rewarded
when shareholders have achieved positive returns. ATSR also makes the vesting conditions clear and transparent to executives and aligns
with the shareholder value they deliver.
– Additional safeguards enable the Board to decline to make an equity grant, lapse unvested equity and clawback equity subject to a holding
lock to support robust performance and risk management.
23
Remuneration Report
Section 1 Overview of remuneration
Directors’ Report continued
For the year ended 31 December 2019
1.2 Changes to the remuneration framework in 2019 continued
The new framework applies to the CEO and other executives, of which the Executive Key Management Personnel (KMP) are a subset. Under the
new framework, equity is awarded up-front, with service and performance measured from grant as per the below diagram:
To be the most innovative, reliable, respected technology partner regarded by our clients as essential and desirable
Our goal is supported by our remuneration principles and performance framework
OUR GOAL
Remuneration
principles
Attract, motivate and
retain talent
Reward for
value creation
Simple and transparent
Aligned with shareholder
interests
Annual performance
measurement
Remuneration
components
Long-term
performance
measurement
Robust performance management incorporating the ‘what’ and the ‘how’
Base salary
Equity Rights
Performance Rights
Minimum Shareholding
Requirement
Market-based reward
for role
Equity to reward
shareholder returns and
retain talent
Equity to reward
exceptional shareholder
returns
A material minimum
shareholding requirement
to be met within 5 years
Individual performance
Share price movement
Any increases in Base
salary will consider
the market and
individual contribution
and experience
Over the 4-year aggregate
ER holding period,
executives will be directly
exposed to the same
share price movements as
shareholders
Absolute Total Shareholder
Return (ATSR)
Shareholder wealth
ATSR over a 3-year period,
relative to a pre-determined
benchmark, will determine
vesting for PR awards
granted from 2019
Over time, executives will
see a direct increase or
decrease in their wealth
in the same way that
shareholders do
1.3 Performance and remuneration outcomes
The Board assessed the Group’s performance in 2019 against the financial and non-financial objectives it established at the beginning of the
year and viewed that collectively Iress’ performance was tracking to achieve its strategic outcomes (see Section 3.2). While growth performance
was marginally short of the target set by the Board at the beginning of the year, revenues grew by 10% (8% constant currency). Accordingly, the
Board does not intend to make any performance adjustments to unvested equity or equity allocations to be granted in early 2020.
The remuneration framework, together with the Board’s assessment of company and individual performance has translated into the following
remuneration outcomes for Executive KMP (see Section 3.3 and 3.4 for more details):
Base salary
Base salary paid to Executive KMP in 2019 was $4,187,740 (2018: $4,008,916). This represents an increase of 4.4%, which is due to salary
increases averaging 7% for Executive KMP other than the CEO midway through the year. The increases align the salaries with the market and
recognise changes in the scope and complexity of the roles since the previous increase.
Equity granted
Following its 2018 year-end assessment of performance at a Group level and performance and conduct at an individual level, the Board
determined it was fair and appropriate that the 2019 equity grants proceed in line with the remuneration mix disclosed in Section 2.2. Executive
KMP were awarded ER of $2,387,085 and PR of $2,387,085 in total. Additionally, a one-off grant of TER was granted to Executive KMP other than
the CEO ($898,925 in total) to offset the negative cash flow impact of moving to a framework with a higher proportion of equity and no cash
incentives. Excluding this one-off item, Total Remuneration awarded in 2019 was $8,961,910.
In 2018, no PR were awarded. The 2018 PR would have been granted in May 2019 based on retrospective performance had the old
framework continued, increasing 2018 Total Remuneration to $8,769,702. Instead PR were awarded under the new framework bringing
the total remuneration in 2019, excluding TER, to $8,961,910. When compared on a like-for-like basis as described above, the increase to
Total Remuneration in 2019 was 2.2%.
Equity vested
The Board was satisfied that there were no Group or individual performance or conduct factors which would justify a clawback of unvested equity.
Hence, vesting was approved to proceed as scheduled in 2019.
– Based on RTSR performance, the CEO 4-year and 3-year PR granted in 2015 vested at 82.6% and 67.0% respectively and the Executive 3-year
PR granted in 2016 vested at 100%.
– The value of equity vested in 2019 (deferred equity and PR totaling $3,473,720) is higher than the amount vested in 2018 ($2,023,989)
primarily due to superior RTSR results and thus a higher proportion of PR vesting.
24
IRESS LIMITED ANNUAL REPORT 2019 Section 2 Remuneration framework
2.1 Our remuneration structure
Component
Description
Executive
remuneration
framework
effective
from 1
January
2019
Base salary
Equity Rights
(ER)
✓ A market-related reward for performing a leadership role at Iress.
✓ An up-front grant of Rights1 to facilitate immediate, collective alignment of executives with shareholders.
✓ Vesting after two years is subject to continued service. A further two-year restriction period applies2,
supporting retention and sustainable value creation over a total of four years.
Performance
Rights (PR)
Minimum
shareholding
requirement
(MSR)
✓ Performance is reflected in share price movements and dividends earned which collectively impact the value
of ER. Executives will share in the same price movements and dividends3 as shareholders over the entire
vesting and holding period.
✓ If employment ceases due to resignation, termination for cause or gross misconduct, unvested equity
lapses. If employment ceases for other reasons, ER will continue to be held subject to original terms
(subject to Board discretion)4.
✓ A grant of Performance Rights1, with vesting subject to Iress’ ATSR performance over three financial years and
ongoing service.
✓ ATSR is aligned to Iress’ business objectives as ATSR focuses on growth of Iress and value to shareholders,
regardless of the broader market and other companies’ movements. Awards to executives will not vest unless
substantial Iress shareholder value has been created over the measurement period.
✓ ATSR is preferred over other measures as it is simple and transparent to both executives and shareholders.
It also enables consideration of a range of benchmarks for performance.
✓ In setting the three-year ATSR target for each PR grant, the Board will reference a vesting range which
reflects business strategy but is informed by benchmarks such as recent performance of the All Ordinaries
Accumulation index, Iress’ cost of equity, market practice for companies with ATSR targets and historical
performance of Iress and its peers.
✓ After considering internal and external benchmarks for performance, the Board determined that a
three-year ATSR of 6.5% per annum over FY19 – FY21 would be required for 50% of the 2019 PR to vest,
with maximum vesting requiring an ATSR of 10.0% per annum.
✓ If employment ceases due to resignation, termination for cause or gross misconduct, unvested PR lapse.
If employment ceases for other reasons, PR continue to be held subject to original terms on a pro rata basis
(subject to Board discretion)4.
✓ The CEO will be required to accrue and hold Iress equity equivalent to 400% of base salary within five years
(by 31 December 2023).
✓ Executives, other than the CEO, will be required to accrue and hold Iress equity equivalent to 225% of their
base salary within five years.
✓ Unvested ER/TER will count towards meeting the requirement; unvested PR, which are subject to an additional
ATSR hurdle, will not.
✓ The value of each holding will be calculated as the maximum of
– Share price at the time of the measurement, or
– Share price at the time when equity is acquired (i.e., when ER/TER is granted, when PR vests and/or when
fully-paid shares are purchased).
Clawback
✓ For both ER and PR, significant underperformance or misconduct can lead to reduced vesting at Board’s
discretion. In addition, the Board may decline to make future grants in such cases.
Transition
arrangements
(2019 only)
Transition
Equity Rights
(TER)
✓ An annual cash short-term incentive was removed upon the introduction of the new framework. Until the ER
begin to be released from restrictions in 2023, executives have negative cash flow impact. To offset this, a
one-off additional grant of TER valued at 30% of an executive’s 31 December 2018 base salary was provided to
executives (excluding the CEO) in 2019.
✓ TER have the same vesting conditions and holding restrictions as the annual ER allocations. However, for
circumstances such as redundancy, TER will be retained on a pro rata basis (subject to Board discretion)4.
✓ The CEO did not receive a one-off transition grant. Under the changes to the remuneration framework, the vesting
period for the CEO PR was reduced from 4 years to 3 years, which is expected to partially offset the reduction in
cash flow.
1 Right is the right to receive one Iress share (or cash of equivalent value) upon vesting and exercise of that Right at no cost, subject to adjustment for certain capital
actions. Performance Rights do not carry any dividend entitlements or voting rights. Shares allocated upon exercise carry the same rights as any other Iress share.
2 Depending on the tax rules of the relevant jurisdiction, the restriction will either be in the form of a holding lock (preventing the share received on exercise from being
sold) or an exercise restriction (preventing the Right being converted to a share). Australian tax residents have the option of choosing an additional 6–month voluntary
holding lock period.
3 Participants are eligible for dividend equivalents during the service period (in the form of additional ER on vesting), and dividends (or cash dividend equivalents for
some jurisdictions) during the restriction period.
4 Board discretion also applies on a change in control. The Board will consider time elapsed and performance achieved when exercising this discretion.
25
Remuneration Report
Section 2 Remuneration framework
Directors’ Report continued
For the year ended 31 December 2019
2 .1 Our remuneration structure continued
Under the new framework, remuneration is delivered over a 4–year timeframe as shown below:
2019
2020
2021
2022
2023
2024
New Framework
Base salary
Cash
ER*
PR*
MSR
Transition arrangements
Vesting period (Rights)
Holding lock period
Measurement period^
Vesting period^
Performance Rights
(Absolute TSR)
Minimum shareholding requirement to be met within five years (ongoing requirement)
Transition ER (excludes CEO)
Vesting period (Rights)
Holding lock period
*
The Executive grants were awarded on 28 February 2019 with the measurement period for PR starting from 1 January 2019. The CEO grants were awarded post
shareholder approval at the AGM on 9 May 2019.
^ Subject to performance, vesting occurs after the vesting period has ended (28 February 2022).
2.2 Our approach to setting remuneration
Iress offers executives a Total Remuneration package and each remuneration component (Base Salary, ER and PR) is calculated as a proportion
of Total Remuneration, using the remuneration mix disclosed below. In determining Total Remuneration, Iress considers the skills, experience,
performance and value to Iress of the individual and market pay levels of comparable roles. Total Remuneration is reviewed annually and
approved by the Board for the CEO and by the People and Performance Committee (PPC) for other executives. Any decision to increase total
remuneration is considered in the context of the resulting change to Base Salary, ER and PR.
Iress serves multiple sophisticated client segments internationally, faces a range of competitors, and is exposed to global technology and
regulatory influences. As a result, Iress competes for the best people on a global basis, with nearly half of the company’s executives based
outside Australia. The challenges and opportunities faced by Iress reflect the international nature of its business, its size and the industries
in which it operates. Recognising this, Iress considers two main comparator groups when assessing executive remuneration: ASX-listed technology
companies with complex multinational operations of a similar size (assessed by market capitalisation); and, overseas-listed technology companies
operating in a closely comparable industry segment with comparable scale.
The executive remuneration framework delivers a large proportion of remuneration in equity which is deferred for three to four years. Equity
represents 64% of Total Remuneration for the CEO and 50% of Total Remuneration for other executives in 2019, as shown in the diagram below.
The proportions of equity represent both a target and a maximum allocation at grant date with performance impacting value at vesting rather
than value at grant. No allocations are made above target unless the Board exercises discretion.
Nonetheless, the Board can decline to make an equity grant in the case of significant underperformance or misconduct and as such, the
minimum equity allocation is nil.
CEO1
Base Salary 36%
Cash 36%
0
Executive KMP
Base Salary 50%
Cash 50%
0
1
PR 32%
ER 32%
Equity 64%
40
40
60
60
ER 25%
Equity 50%
80
100
PR 25%
80
100
20
20
In 2020, cash and equity will comprise 32% and 68% of Total remuneration respectively.
The number of ER and PR granted to each executive is calculated using a face value approach. Total Remuneration is multiplied by the percentages
shown above (32% for the CEO and 25% for other executives in 2019). This amount is divided by the twenty-trading-day volume weighted average
share price to 31 December of the year prior to when grant is made.
The 2019 remuneration outcomes for each Executive KMP are shown in Section 3.3.
26
IRESS LIMITED ANNUAL REPORT 2019 2.3 Our remuneration principles
Iress’ executive remuneration framework aligns with the following remuneration principles:
Our remuneration
principles
Alignment with
Iress’ overall
strategy for medium
to long-term value
creation.
Alignment with our principles
✓ To support Iress’ focus on sustainable long-term growth, deferred equity that rewards multi-year performance is
used in lieu of traditional cash incentives that reward current year performance.
✓ A focus on medium to long-term outcomes is reinforced by delivering a large proportion of remuneration in equity,
requiring that equity be held for three to four years and by having a minimum shareholding requirement. This further
enhances the alignment between executive and shareholder long-term interests.
✓ By linking PR vesting to ATSR, the Board seeks to ensure that rewards are available for collective progress against
the business strategy, which focuses the executives on generating substantial returns for shareholders.
Alignment of
executives with
shareholders.
✓ A significant portion of remuneration is granted in equity, providing considerable ‘skin in the game’. Equity represents
64% of total remuneration for the CEO and 50% of total remuneration for executives in 2019. With the addition of the
minimum shareholding requirement, executives will see a direct increase or decrease in their wealth over the equity
holding period in the same way that shareholders do.
Ensure that Iress
can attract,
motivate and retain
the leadership
talent needed to
succeed on an
international basis.
✓ Executives are prohibited from hedging unvested equity and ER that are subject to restrictions.
✓ PR which make up half of the equity awarded are subject to an additional ATSR hurdle, which vests only if substantial
returns are delivered to shareholders.
✓ In setting the ATSR target for each PR grant, the Board will reference a vesting range which reflects business strategy
but is informed by benchmarks such as recent performance of the All Ordinaries Accumulation index, Iress’ cost of
equity, market practice for companies with ATSR targets and historical performance of Iress and its peers.
✓ The simplicity and transparency of the framework increases its perceived value for executives.
✓ The design of the executive remuneration framework incorporated a review of market practices for global technology
peers and consultation with the executives.
✓ Total remuneration quantum is reviewed against the remuneration offered to executives performing comparable roles
in other similarly-sized listed technology companies with dynamic international operations.
✓ The minimum shareholding requirement will result in equity being held for longer periods encouraging increased
executive tenure.
✓ ATSR performance is a quantified target which is within the executive’s control, thereby maximising the perceived
value of the PR grant by an individual.
✓ Substantial equity exposure allows executives to share appropriately in the value they generate for shareholders.
This will enhance Iress’ ability to attract and retain the executives needed to execute Iress’ strategy.
Simple to
understand and
transparent for all
stakeholders.
✓ There are only two incentive instruments used, and equity exposure is real and in the hands of executives.
✓ By establishing a Total Remuneration (TR) approach, with the quantum of each component of remuneration at a set
percentage of Total Remuneration, the remuneration and value available is clearly communicated to the executives
and shareholders.
✓ The value of unvested equity is easily assessed by stakeholders, based on current share price and ATSR performance.
✓ The absence of traditional STI removes the complexity and lack of transparency about performance measurement,
target setting, pool funding and adjustments.
Support robust
performance
management.
✓ The Board sets financial and non-financial objectives and reviews Iress’ performance and the performance of each
executive on an ongoing basis and intervenes where required.
✓ By having a significant proportion of remuneration delivered in equity held for long periods, the impact of individual
and collective performance is measured over multiple years.
✓ Remuneration outcomes are capped, with grant values a set percentage of Total Remuneration and PR only vesting if
shareholders have made substantial returns over three years.
✓ The framework has safeguards that give the Board discretion over remuneration outcomes if company or individual
performance is significantly below expectations. In particular, the Board may reduce or decline to make an equity
grant (either as both ER and PR) and can clawback unvested equity and restricted ER if the participant has engaged
in fraud, misrepresentation, dishonesty, gross misconduct; poor risk practices or reputational issues or any other
matters the Board determines is relevant. See Section 3.2 for the outcome of the Board discretion in 2019.
27
Remuneration Report
Section 3 Relationship between performance and remuneration outcomes
Directors’ Report continued
For the year ended 31 December 2019
Section 3 Relationship between performance and remuneration outcomes
3.1 Mechanisms that link remuneration to performance
The Board sets the strategy for the Group with a three to five year outlook. The Strategy is reviewed and adjusted each year in the context of
business progress, achievement, and the external environment. Executive remuneration is aligned to the Board’s medium to long-term strategic
outlook through equity instruments that have a three or four-year holding period and a material Minimum Shareholding Requirement. In this way,
the Board incentivises executives to deliver sustainable long-term shareholder value.
The Board sets annual financial and non-financial objectives in areas that progressively and collectively support the Group’s medium to long-term
strategy. Performance against these objectives is reviewed by the Board at the Group and individual level every six months.
Review of performance against short and medium-term objectives is a key consideration for direct adjustments to individual remuneration.
Group and individual performance impacts executives’ remuneration in four ways:
–
–
–
–
Impact 1: Individual and Group performance against the annual objectives set by the Board is a key consideration when the Board determines
the Base Salary and Total Remuneration package of an executive.
Impact 2: Share price movements and dividends impact the value of equity over the three to four-year period and aligns reward with
shareholder outcomes.
Impact 3: PR vesting is subject to a three-year ATSR measure that aligns reward with shareholder outcomes. PR vesting for awards made
prior to 2019 are subject to a RTSR measure.
Impact 4: The Board has discretion to reduce, cancel or clawback equity remuneration if group or individual performance is significantly below
expectations, or in the event of individual misconduct. The discretion can be applied at grant, vesting, or during the equity holding period.
The Board has a rigorous process to assess performance and where necessary, adjust remuneration, as described below.
Before the start of the year
During the year
End of the year
Group performance objectives set
Performance assessed against objectives
Performance assessed against objectives
✓ The Board approves the financial and
non-financial objectives and specific
targets for the Group to achieve its
medium-term strategy.
✓ The Board considers a range of financial
and non-financial metrics as summarised
in Section 3.2.
✓ In addition to monitoring throughout the
year, at mid-year, the Board formally
assesses the Group’s progress against
the objectives and company strategy.
✓ At mid-year, the PPC reviews the CEO’s
assessment of individual executive’s
progress against objectives and
company strategy.
✓ The Board assesses the performance of the
Group and the CEO against the objectives
and company strategy.
✓ The CEO’s assessment of the performance
of other executives against their individual
objectives is reviewed by the PPC.
Individual performance objectives set
Determination of remuneration outcomes
Determination of remuneration outcomes
✓ The Group’s financial and non-financial
objectives are cascaded to individual
objectives for each executive. The targets
and weighting of the objectives are specific
to each executive’s role, but include
financial and non-financial objectives
in all cases. The Board approves the
CEO’s objectives and the PPC reviews the
objectives for other executives.
✓ At each scheduled vesting date, the
PPC reviews Iress’ TSR performance and
confirms the maximum PR eligible to vest
(Impact 3). With consideration also to
any group and individual performance or
conduct factors at any time during the
equity holding period, the PPC determines
the final number of ER and PR to vest
(Impact 4).
✓ At half-year, the CEO reviews the
remuneration packages of his direct reports
taking their individual performance into
consideration (Impact 1). Any recommended
changes are reviewed by PPC.
✓ The Board reviews the CEO’s remuneration
package (Impact 1) for the subsequent year.
✓ The Board (for the CEO) and the PPC (for
other executives) determines if there were any
group or individual performance or conduct
factors which would justify a reduction in
value of ER and PR to be granted in the
subsequent cycle (Impact 4).
✓ During the equity holding period, each
executive’s equity is subject to the same
share price movements as other Iress
shareholders (Impact 2).
The sections below outline Iress’s performance and the resulting remuneration outcomes in 2019.
28
IRESS LIMITED ANNUAL REPORT 2019 3.2 Group performance against objectives
The table below provides summary information on the Group’s earnings for the five years to 31 December 2019. Iress’ shareholders received a
TSR of 23.5% in 2019 and 9.3% per annum over the last 3 years.
Measure
2019
2018
2017
2016
2015
Net Profit After Tax ($’000s)
Segment profit ($’000s) (a)
Operating revenue ($’000s)
Basic Earnings per share (cents)
Annual ATSR (b)
Annualised 3–year ATSR (b)
3-year RTSR target for PR grant
3-year ATSR target for PR grant
65,128
152,062
508,943
37.9
23.5%(c)
9.3%
n/a
64,096
137,702
464,624
37.6
2.7%
8.7%
59,452
59,755
123,531
125,383
389,737
429,952
37.0
35.4
21.7%
2.8%
7.8%
10.6%
50th–75th percentile
6.5–10% p.a.
n/a
55,385
119,175
361,464
35.2
0.2%
11.6%
(a) Segment profit (calculation as set out in Note 1.1 to the Consolidated Financial Statements) is a measure of core underlying business performance
(b) All share prices and the TSR calculation are based on the twenty-trading-day volume weighted average share price on the relevant dates.
(c) Iress’ share price (twenty-trading-day volume weighted average share price) was $11.10 at 31 December 2018 and $13.21 at 31 December 2019. As a result,
shareholders received a return of 19.0% on all equity held during the year. With the addition of dividends paid to shareholders this reflects an ATSR for the same period
of 23.5%.
Iress’ 2019 financial and non-financial objectives and performance are summarised below. When determining whether to make (and the extent of)
adjustments to remuneration, the Board considers the following areas of performance collectively and in context of achieving the company’s
medium-term strategy.
Focus area
Performance goal
Financial objectives
Financial
Non-financial objectives
Achievement of the Board approved budget for Segment Profit, Net Profit After Tax
and Earnings per Share.
Clients
Relationships with clients and users based on oneIress.
Materially improved resolution times.
Actions to improve advocacy the responsibility of all.
Result
At target
At target
Growth
Revenue growth meeting shareholder expectations.
Below target
Quality revenue growth from new strategic initiatives.
Lending projects successful with full pipeline.
People
More and clearer opportunities for our people to progress.
Iress is able to attract higher volumes of quality candidates.
Outcomes are the focus for how people at Iress work together.
Products/Technology
User experience improves, driven by labs.
Deliver to clients at materially higher level of quality.
Data strategies a primary goal for design and growth.
Company
Each team contributes to efficiency and scale.
Achieve cloud infrastructure milestones, with benefits for clients.
Simpler brand positioning increasing attraction.
At target
At target
At target
For 2019, the Board assessed achievement of these objectives and viewed that collectively Iress’ performance was tracking to achieve its
strategic outcomes. While growth performance was marginally short of target set by the Board at the beginning of the year, revenues grew
by 10% (8% constant currency). Accordingly, the Board does not intend to make any performance adjustments to unvested equity or equity
allocations to be granted in early 2020.
Iress’ key achievements in 2019 are further described in pages 2 to 7 of the Annual Report.
29
Remuneration Report
Section 3 Relationship between performance and remuneration outcomes
Directors’ Report continued
For the year ended 31 December 2019
3.3 Remuneration awarded in relation to the current year
Base salary – Executive KMP other than the CEO
In 2019, the CEO benchmarked executive remuneration for his direct reports against the ASX-listed and/or overseas-listed technology
comparator groups described in Section 2.2.
Effective 1 August 2019, the Executive KMP (excluding the CEO) received an average increase of 7% to base salary as shown below. The increases
were determined in the context of the resulting change to Total Remuneration, with consideration to:
–
–
the individual’s skills, experience, performance and value to Iress,
the market pay levels of comparable roles (using the external market data), and
– changes to the scope of individual roles and the nature of Iress’ operations since previous adjustments, which in some cases had been two or
more years ago.
No changes to base salary were made as a result of changes to the executive remuneration framework on 1 January 2019. On a total remuneration
basis, the new framework had the impact of reducing executive’s cash remuneration and increasing remuneration expense over FY19–21, followed by
a net reduction to remuneration expense from FY22.
Executive
Total of Base salaries
at 1 January 2019 (a)
Executive KMP (other than the CEO)
$3,093,806
Increase
$225,440
Total of Base salaries
at 31 December 2019 (a)
$3,319,245
(a) For UK-based executives the Australian dollar amounts shown in the table have been converted at an average exchange rate of 0.5300.
Total remuneration – CEO
The Board reviews CEO performance and remuneration each year as it does for other executives. From time-to-time, it supplements an internal
review of remuneration considering achievement of objectives with market data for comparable roles. In December 2019, the Board reviewed
the CEO’s performance and remuneration and assessed his remuneration against the market considering the comparator groups described in
Section 2.2, with particular emphasis to the ASX-listed Technology group.
The Board concluded that considering both demonstrated achievement and market data, it was not only appropriate but important for Iress’
future plans, that the CEO’s remuneration should be increased by $300,000. However, consistent with the new executive remuneration framework
and the Board’s emphasis on sustained long-term performance, the Board viewed that this increase should be delivered in equity with a higher
weighting to PR (which are subject to the ATSR hurdle).
Hence the Board determined to maintain the CEO’s current base salary of $1,000,000 and apply an increase of $300,000 to his Total
Remuneration in 2020 with the increase weighted 40% ($120,000) to ER and 60% ($180,000) to PR. This change is intended to appropriately
position the CEO’s 2020 Total Remuneration in the market, and reward sustained long-term performance. This change represents an 11% increase
to his potential total remuneration as shown below. The final value of equity to be granted is subject to shareholder approval at the 2020 AGM
and ongoing Board discretion as described in Section 3.1.
2019
2020
Remuneration Package
Base Salary
Equity Rights
Performance Rights
Total
Amount
($)
% of Total
remuneration
Amount
($)
% of Total
remuneration
Increase
%
1,000,000
888,889
888,889
2,777,778
1,000,000
1,008,889
1,068,889
32%
33%
35%
100%
0%
13%
20%
11%
100%
300,000
3,077,778
Increase
($)
0
120,000
180,000
36%
32%
32%
Executive KMP equity grants
Following its 2018 year-end assessment of performance at a Group level and performance and conduct at an individual level, the Board
determined it was fair and appropriate that the 2019 equity grants proceed in line with the remuneration mix disclosed in Section 2.2.
The face value of equity granted to Executive KMP in 2019 (and 2018) is shown below. Executive KMP had an increase in their remuneration
awarded in 2019 as compared to 2018, which was primarily driven by the transition to the new remuneration model and minor adjustments
to base salary. The impact of the transition to the new remuneration model in 2019 was:
– An annual cash short-term incentive was removed upon the introduction of the new framework. Until the ER begin to be released from
restrictions in 2023, executives have a negative cash flow impact. A one-off grant of TER was awarded in 2019 to provide a fair and
equitable transition to the new model, and
– No PR were awarded in relation to 2018 performance (which would have been granted May 2019 had the old framework continued). Instead
PR were delivered under the new framework and are thus included in 2019 remuneration.
30
IRESS LIMITED ANNUAL REPORT 2019 Both of these factors lead to a higher reported total remuneration in 2019 compared to 2018. Without the effect of these factors, the total
remuneration in 2019 would have been $8,961,910 (excluding TER), compared to $8,769,702 (including 2019 PR) in 2018, representing
an increase of 2.2%. The value of equity awarded is not realised unless and until the equity vests (subject to the satisfaction of vesting
conditions) and is released from restrictions.
Executive
CEO
A Walsh
Other Executive KMP
P Ferguson
J Harris
A Knowles (c)
J McNeill (c)
S New (c)
A Todd
Total Executive KMP
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Base Salary
$
Cash STI
$
Deferred
Equity (a)
$
ER (b)
$
TER (b)
$
PR (b)
$
Total
remun-
eration
$
1,000,000
1,000,000
–
246,583
–
550,000
888,894
–
–
–
888,894
–
2,777,788
1,796,583
375,417
365,000
573,333
540,000
611,636
571,435
422,956
392,861
589,623
535,720
614,775
603,900
4,187,740
4,008,916
–
61,000
–
92,000
–
98,215
–
66,072
–
89,287
–
102,000
–
–
129,000
–
192,000
–
213,329
–
136,886
–
181,329
–
216,000
182,511
–
270,001
–
283,320
–
194,786
–
265,613
–
301,960
–
109,507
–
162,005
–
169,992
–
116,871
–
159,372
–
181,178
–
182,511
–
270,001
–
283,320
–
194,786
–
265,613
–
301,960
–
849,946
555,000
1,275,340
824,000
1,348,268
882,979
929,399
595,819
1,280,221
806,336
1,399,873
921,900
–
2,387,085
898,925
2,387,085
9,860,835
755,157
1,618,544
–
–
–
6,382,617
(a) Deferred equity accompanied cash STI in the prior executive remuneration framework (see Section 5.4) and is shown at grant value. The number of Deferred Share
Rights (DSR) granted to each executive is based on the five-trading-day volume weighted average share price in the week up to and including the grant date, adjusted
for ineligibility to receive dividends.
(b) ER, TER and PR are shown at face value which includes the value of dividends. The number of rights granted to each executive in 2019 was based on the
twenty-trading-day volume weighted average share price up to and including 31 December 2018.
(c) Salary and Cash STI of J McNeil, S New and A Knowles are denominated in British Pounds. The Australian dollar amounts shown in the table have been converted
at an average exchange rate of 0.5300 (2018: 0.5600).
Based on group and individual performance to grant date, the Board determined that the full value of ER and PR as calculated using the
remuneration mix would be granted. At year-end, following assessment of performance and conduct at an individual level, the Board determined
not to clawback any equity granted in 2019.
31
Remuneration Report
Section 3 Relationship between performance and remuneration outcomes
Directors’ Report continued
For the year ended 31 December 2019
3.4 Remuneration realised from equity granted in previous years
Equity vested
In May 2019, based on Iress’ superior RTSR performance in the preceding three and four year periods, there was partial vesting of PR granted to
the CEO in 2015 and full vesting of PR granted to other executives in 2016.
Award
Initial measurement period (a)
RTSR percentile
Final vesting
CEO 2015 4–yr
CEO 2015 3–yr
7 May 2015 to 7 May 2019
7 May 2016 to 7 May 2019
Executive 2016 3–yr
1 Jan 2016 to 31 Dec 2018
66.3rd
58.5th
76.0th
82.6%
67.0%
100%
AT END OF MEASUREMENT PERIOD (A,B)
(a) PR granted prior to 2019 had one re-test 6 months after the initial measurement period. The final outcomes above are thus based on maximum performance as
measured on 7 May 2019 and 7 November 2019 for the CEO grants; and as measured on 31 December 2018 and 30 June 2019 for other executives.
(b) TSR amounts are calculated as per the terms of each PR offer, which provide for a 20-day volume weighted average share price at the start and end, and the inclusion
of franking credits for grants made prior to 2016.
In addition to the RTSR vesting criteria that applied to PR, equity granted prior to 2019 required satisfactory individual performance to vest.
Following its assessment of performance and conduct at an individual level at the end of the year, the Board determined not to clawback any
of the above awards and that the full value of PR as determined by RTSR performance would vest.
The value of equity vested to Executive KMP in 2019 (and 2018) is shown below. Executive KMP had an increase in their realised remuneration
in 2019 as compared to 2018, which was primarily driven by superior RTSR results and thus a higher proportion of PR vesting.
Position
CEO
A Walsh
Other Executive KMP
P Ferguson
J Harris
A Knowles (b)
J McNeill (b)(c)
S New (b)
A Todd
Total Executive KMP
Financial
Year
Base
Salary
$
Cash STI
earned
Deferred
Equity
vested (a)
PR
vested (a)
$
Total
remuneration
$
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1,000,000
1,000,000
–
246,583
831,836
592,900
1,244,426
552,820
3,076,262
2,392,303
375,417
365,000
573,333
540,000
611,636
571,435
422,956
392,861
589,623
535,720
614,775
603,900
4,187,740
4,008,916
–
61,000
–
92,000
–
98,215
–
66,072
–
89,287
–
102,000
0
755,157
135,256
113,535
135,256
n/a
236,699
197,199
140,993
567,535
81,159
n/a
n/a
n/a
136,837
–
193,187
–
193,187
–
80,488
n/a
64,396
n/a
n/a
n/a
647,510
539,535
901,776
632,000
1,041,522
866,849
644,437
1,026,468
735,178
625,007
614,775
705,900
1,561,199
1,471,169
1,912,521
7,661,460
552,820
6,788,062
(a) The value of equity that vested is based on the twenty-trading-day volume weighted average share price up to and including the vesting date. Where not applicable
(n/a) is stated, the executive started with the Group after the eligibility date for this award.
(b) Salary and Cash STI of A Knowles, J McNeil and S New are denominated in British Pounds. The Australian dollar amounts shown in the table have been converted at an
average exchange rate of 0.5300 (2018: 0.5600).
(c) J McNeill’s deferred equity vesting in 2018 and 2019 includes Tranches 1 and 2 of her Avelo award respectively (see Section 5.4). She was not eligible for the PR vesting
in 2018 due to her inclusion in the Avelo award.
Other unvested equity held during the year
In its 2019 half-year and year-end assessments, the Board did not identify any individual or company performance or conduct factors that would
warrant clawback at future vesting dates. The Board will continue to monitor such factors until the relevant vesting date for each grant of equity.
32
IRESS LIMITED ANNUAL REPORT 2019 Section 4 Non-executive director fees
4.1 Fee policy
NEDs receive fees for their services plus the reimbursement of reasonable expenses. 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. The fee levels
that applied during 2019 were:
Role
Chair
Member
FEE ($)
Iress Ltd Board
Audit & Risk committee
People & Performance Committee
240,000 (a)
130,000
24,000
Nil
24,000
Nil
(a) The Chair is entitled to the Board Chair fee only (no additional Committee fees).
NED fees are reviewed at appropriate intervals and are determined by the Board in consideration of fees paid to NEDs of comparable companies.
4.2 Maximum aggregate NED fee pool
The maximum aggregate pool available for NED fees is approved by the shareholders at the Annual General Meeting in accordance with the
Group’s Constitution. The maximum pool 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 fee pool of $1,500,000 per annum was approved at the Annual General Meeting held on 2 May 2019. The total amount
of remuneration paid to NEDs in 2019 was $1,080,350 (2018: $1,080,351).
For the NED statutory remuneration details, please see Section 5.3
33
Remuneration Report
Section 5 Additional required disclosures
Directors’ Report continued
For the year ended 31 December 2019
Section 5 Additional required disclosures
5.1 Remuneration governance
The Board and the People & Performance Committee (PPC) work closely to apply the Group’s remuneration philosophy and ensure the company’s
remuneration strategy supports the creation of sustainable shareholder value.
The Board oversees remuneration for Iress and approves remuneration for NEDs and the CEO. The PPC reviews remuneration taking into account
a wide variety of information including business strategy and culture, stakeholder interests, market practice and corporate governance principles
and also approves remuneration arrangements of Directors. More information about the Board’s role in remuneration governance can be found at
https://www.iress.com/trust/corporate-governance/governance-documents/board-charter/.
No remuneration recommendations (as defined by the Corporations Act 2001) were provided to the Iress Board during the reporting period.
5.2 Executive KMP statutory remuneration
The table below presents details of Executive KMP remuneration prepared in accordance with statutory requirements and accounting standards.
Under this standard DSR, ER, TER and PR are expensed based on the grant date fair value over the vesting period.
SHORT-TERM BENEFITS
($)
POST-
EMPLOYMENT
BENEFITS
($)
LONG-TERM
BENEFITS
($)
Executive
Year
Salary
and fees (a)
Non-
monetary
benefits (b)
Super-
annuation
STI
Share-
based
payments
DSR/ER/TER
Share-
based
payments
PR
Long-
service
leave
Total
remun-
eration
$
Perform-
ance
related
remun-
eration
MD/CEO
A Walsh (b)
2019
2018
1,000,000
1,000,000
21,971
13,258
–
246,583
25,000
25,000
931,879
540,762
744,050
683,125
16,112
13,319
2,739,012
2,522,047
Other Executive KMP
2019
P Ferguson
2018
J Harris
2019
2018
A Knowles (b,c,d) 2019
2018
J McNeill (c)
S New (c)
A Todd (e)
Total
2019
2018
2019
2018
2019
2018
2019
2018
375,417
365,000
573,333
540,000
611,636
616,078
438,239
407,326
589,623
535,720
614,775
603,900
2,535
2,419
2,535
2,202
3,611
3,264
12,077
8,453
5,062
4,581
–
61,000
–
92,000
–
98,215
–
66,072
–
89,287
–
–
–
102,000
25,990
25,000
25,000
25,000
26,250
25,000
38,066
35,358
58,962
53,572
25,000
25,000
250,695
109,376
366,637
130,718
387,711
173,829
246,671
37,654
317,106
80,987
512,339
44,397
82,644
75,782
123,256
112,714
123,352
110,423
75,195
49,634
90,594
51,415
80,739
24,913
9,728
15,419
24,379
–
14,786
–
–
–
–
–
5,445
–
747,009
653,996
1,115,140
902,634
1,167,346
1,026,809
810,248
604,497
1,061,347
815,562
1,238,298
800,210
4,203,023
4,068,024
47,791
34,177
–
224,268
3,013,038
1,319,830
70,450
8,878,400
755,157
213,930
1,117,723
1,108,006
28,738
7,325,755
61%
58%
45%
38%
44%
37%
44%
37%
40%
25%
38%
27%
48%
21%
49%
41%
(a) Salary includes allowances and short-term compensated absences paid during the 2018 and 2019 years.
(b) Non-monetary benefits include health and life insurance subsidies. For A Walsh, this also includes the market value of his/Iress’ ongoing arrangement for settling
UK tax and insurance obligations on equity awards that were on foot during his 2013–2015 secondment to the UK. Excluded from non-monetary benefits for
A Knowles is the cost of Visa processing and filing tax returns in the UK ($6,061). Also excluded from non-monetary benefits for A Walsh is the cost of filing tax
returns in the UK($3,336).
(c) Remuneration of A Knowles, J McNeill and S New is denominated in British Pounds and is subject to FX movements. The Australian dollar amounts shown in the table
were converted at an average foreign exchange rate of 0.5300 (2018: 0.5600).
(d) In 2018, A Knowles’ salary included a $20,534 secondment allowance related to his relocation in 2017.
(e) Share-based payments for A Todd includes DSR granted in 2019, that due to administration error, was not granted in 2017. This grant was on the same terms as other
DSR awarded to executives in 2017, but due to the grant not being made in that year, the majority of the share-based payment expense has been incurred in 2019.
34
IRESS LIMITED ANNUAL REPORT 2019 5.3 Non-executive Director statutory remuneration
The total statutory remuneration paid to NEDs during 2019 and 2018 is as set out in the table below.
Non-Executive Director
A D’Aloisio
N Beattie (a)
J Cameron
J Fahey
J Hayes
J Seabrook
G Tomlinson
Total Non-Executive Director fees
SHORT-TERM
BENEFITS
POST-
EMPLOYMENT
ENTITLEMENTS
Fees
($)
219,178
219,178
130,000
130,000
118,721
118,721
118,721
118,722
140,639
140,639
140,639
140,639
118,721
118,721
986,619
986,620
Super-
annuation
($)
20,822
20,822
12,350
12,350
11,279
11,279
11,279
11,279
13,361
13,361
13,361
13,361
11,279
11,279
93,731
93,731
Total
($)
240,000
240,000
142,350
142,350
130,000
130,000
130,000
130,001
154,000
154,000
154,000
154,000
130,000
130,000
1,080,350
1,080,351
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
(a) 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.
5.4 Terms of equity grants
2019 Performance Rights
The 2019 PR were granted consistent with the terms described in Section 2.1. The number of PR that will vest will depend on Iress’ ATSR
performance over the measurement period, measured using a twenty-trading-day volume weighted average share price at the start and end of
the measurement period. The vesting schedule for the 2019 PR award is given below:
Iress’ annualised ATSR over the 3-year
measurement period
% of PR that will vest
Below 6.5%
6.5%
Between 6.5% and 10%
10% or higher
0%
50%
Pro–rata portion will vest on a straight–line basis between 50% (at 6.5%) and 100% (at 10%)
100%
This vesting schedule was set with consideration to the benchmarks outlined in Section 2.3. The above are stretch targets against those benchmarks.
35
Remuneration Report
Section 5 Additional required disclosures
Directors’ Report continued
For the year ended 31 December 2019
5.4 Terms of equity grants continued
Performance Rights granted prior to 2019
PR granted prior to 2019 had similar terms to the 2019 PR grant. The main difference was that vesting was based on RTSR performance over
the measurement period. Iress’ TSR performance was measured against a comparator group consisting of companies listed in the S&P/ASX 200
index, excluding mining and resource companies, and listed property trusts. The comparator group companies were determined as at 1 January of
the year of grant. For grants made prior to 2016 (the last of which vested in 2019), the comparator group was adjusted to exclude companies that
exited the S&P/ASX 200 index during the measurement period. For all PR granted prior to 2019, 0% of the rights vested for RTSR performance
below the 50th percentile and 100% of the rights vested for RTSR performance of 75th percentile with pro-rata vesting on a straight-line basis in
between. Iress allowed for one re-test, six months after the initial test date, for any portions of awards that do not vest on the initial test date.
Deferred Share Rights
Under the previous remuneration framework, executives were eligible for a cash short-term incentive and deferred equity, as well as PR.
Deferred Equity was delivered in the form of Deferred Share Rights (DSR). A grant under this plan was made in May 2019 in relation to
performance in the 2018 financial year. A grant was also made under this plan to A Todd in December 2019. This was granted in lieu of a grant
he should have received in May 2017 after joining Iress, which in error, had been missed. A DSR is a right to acquire one fully paid ordinary share
in Iress (subject to adjustment for certain capital actions) at no cost. Vesting is conditional on three-years’ continued service and achievement
of a satisfactory level of individual performance during these three years.
Employee share plans
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 supplements this with approximately one share for every two shares the employee acquires
up to a maximum value of $300 (share matching).
The Australian plan has been operating since 2013. In 2019, 462 employees participated (58% of eligible employees), subscribing to 39,960
shares including 11,088 matched shares. The UK plan was established in 2015. In 2019, 272 employees participated (41% of eligible employees),
subscribing to 33,953 shares including 5,152 matched shares. Equity is granted in the form of Deferred Shares (DS).
Special acquisition related incentives (‘Avelo awards’)
As disclosed in the 2013 Annual Report, a special set of DSR awards were made in September 2013 in relation to the acquisition of
Avelo FS Holdings Limited and its subsidiaries in the United Kingdom.
A core group of former Avelo Senior Management and staff were granted equity under this plan (including J McNeill: 54,981 DSR) to secure their
retention and to ensure ongoing support for the integration and development of the business opportunity in the United Kingdom. Vesting is
subject to commercially sensitive performance criteria over two tranches:
Tranche 1: 1 January 2014 – 31 December 2017. The performance conditions were assessed in February 2018 and 89% of the DSR vested and the
remainder were forfeited.
Tranche 2 (former Avelo Senior Management only): 1 January 2014 – 31 December 2018. The performance conditions were assessed in
February 2019 and 90% of the DSR vested and remainder were forfeited.
36
IRESS LIMITED ANNUAL REPORT 2019 5.5 Unvested equity
The table below presents the ER, DSR (Deferred equity and Avelo awards) and PR held during the financial year by each Executive KMP. No rights
are granted to NEDs or related parties. Any rights that vest will be automatically exercised on or around the time Iress notifies the participant that
their rights have vested. ER, DSR and PR are granted for no consideration, and upon vesting, can be exercised at no cost.
Name
A Walsh(b,c)
P Ferguson(b)
J Harris
A Knowles
Type
of
equity
ER
PR
DSR
PR(c)
DSR
PR(c)
DSR
PR(c)
DSR
PR
PR
Grant
date
10–May–19
10–May–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
7–May–15
7–May–15
Number
granted
80,020
80,020
42,736
91,210
51,707
109,478
47,575
120,000
60,000
60,000
60,000
Total of ER, TER and DSR
Total of PR
ER
PR
TER
DSR
PR
DSR
PR
DSR
PR
DSR
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
16,430
16,430
9,858
9,966
12,770
12,772
9,646
10,728
10,000
9,756
Total of ER, TER and DSR
Total of PR
ER
PR
TER
DSR
PR
DSR
PR
DSR
PR
DSR
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
24,306
24,306
14,584
14,861
19,154
18,666
14,752
16,325
14,118
9,756
Total of ER, TER and DSR
Total of PR
ER
PR
TER
DSR
PR
DSR
PR
DSR
PR
DSR
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
25,505
25,505
15,303
16,473
18,242
18,175
14,752
16,325
14,118
17,073
Total of ER, TER and DSR
Total of PR
Fair value
at grant
date (a)
Vesting
date
Expiry
date
Number
vested (a)
%
vested
Number
lapsed
%
lapsed
Number
unvested (e)
9.58
14.22
8.60
12.73
26–Feb–21 28–Feb–21
28–Feb–22 28–Feb–22
10–May–22 10–May–22
5.75/5.78 10–May–22 10–May–22
10–May–21 10–May–21
11–May–23
11–May–20 11–May–21
6.24/8.00 5–May–20 5–May–23
5–May–20
5–May–19
7–May–22
7–May–19
7–May–22
7–May–19
6.64/7.05 11–May–21
10.25
5.13
5.17
10.86
12.00
5.54
12.00
12.73
5.79
9.58
7.13
10.86
8.50
10.25
12.00
5.54
12.00
12.73
5.79
9.58
7.13
10.86
8.50
10.25
12.00
5.54
12.00
12.73
5.79
9.58
7.13
10.86
8.50
10.25
26–Feb–21 28–Feb–21
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
11–May–20 11–May–24
11–May–20 11–May–21
5–May–20
5–May–19
5–May–20
5–May–19
26–Feb–21 28–Feb–21
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
11–May–20 11–May–24
11–May–20 11–May–21
5–May–20
5–May–19
5–May–20
5–May–19
26–Feb–21 28–Feb–23
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
11–May–20 11–May–24
11–May–20 11–May–21
5–May–20
5–May–19
5–May–20
5–May–19
–
–
–
–
–
–
–
–
60,000
40,200
49,560
–
–
–
–
–
–
–
–
10,000
9,756
–
–
–
–
–
–
–
–
14,118
9,756
–
–
–
–
–
–
–
–
14,118
17,073
–
–
–
–
–
–
–
–
100.0%
67.0%
82.6%
–
–
–
–
–
–
–
–
100.0%
100.0%
–
–
–
–
–
–
–
–
100.0%
100.0%
–
–
–
–
–
–
–
–
100.0%
100.0%
–
–
–
–
–
–
–
–
–
19,800
10,440
–
–
–
–
–
–
–
–
–
33.0%
17.3%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80,020
80,020
42,736
91,210
51,707
109,478
47,575
120,000
–
–
–
222,038
400,708
16,430
16,430
9,858
9,966
12,770
12,772
9,646
10,728
–
–
59,754
38,846
24,306
24,306
14,584
14,861
19,154
18,666
14,752
16,325
–
–
88,742
58,212
25,505
25,505
15,303
16,473
18,242
18,175
14,752
16,325
–
–
91,781
58,499
37
Remuneration Report
Section 5 Additional required disclosures
Directors’ Report continued
For the year ended 31 December 2019
5.5 Unvested equity continued
Name
J McNeill (b)
S New (b)
A Todd
Type
of
equity
Grant
date
Number
granted
Fair value
at grant
date (a)
Vesting
date
Expiry
date
Number
vested (a)
%
vested
Number
lapsed
%
lapsed
Number
unvested (e)
ER
PR
TER
DSR
PR
DSR
PR
DSR
PR
DSR
DSR
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
1–Sep–13
17,535
17,535
10,521
10,567
13,682
13,731
6,731
7,114
5,882
5,854
5,498
Total of ER, TER and DSR
Total of PR
ER
PR
TER
DSR
PR
DSR
PR
DSR
PR
DSR
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
11–May–17
11–May–17
5–May–16
5–May–16
23,911
23,911
14,347
13,520
15,962
17,164
7,692
7,114
4,706
5,854
Total of ER, TER and DSR
Total of PR
DSR(d)
ER
PR
TER
DSR
PR
DSR
13–Dec–19
28–Feb–19
28–Feb–19
28–Feb–19
10–May–19
10–May–18
10–May–18
15,932
27,183
27,183
16,310
16,784
20,067
21,614
Total of ER, TER and DSR
Total of PR
12.00
5.54
12.00
12.73
5.79
9.58
7.13
10.86
8.50
10.25
7.73
12.00
5.54
12.00
12.73
5.79
9.58
7.13
10.86
8.50
10.25
13.17
12.00
5.54
12.00
12.73
5.79
9.58
26–Feb–21 28–Feb–23
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
11–May–20 11–May–24
11–May–20 11–May–21
5–May–20
5–May–19
5–May–19
5–May–20
31–Dec–18 31–Dec–21
26–Feb–21 28–Feb–23
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
11–May–20 11–May–24
11–May–20 11–May–21
5–May–20
5–May–19
5–May–20
5–May–19
11–May–20 11–May–24
26–Feb–21 28–Feb–21
28–Feb–22 28–Feb–22
26–Feb–21 28–Feb–21
10–May–22 10–May–22
10–May–21 10–May–21
10–May–21 10–May–21
–
–
–
–
–
–
–
–
5,882
5,854
4,949
–
–
–
–
–
–
–
–
4,706
5,854
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100.0%
100.0%
90.0%
–
–
–
–
–
–
–
–
100.0%
100.0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
549
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,535
17,535
10,521
10,567
13,682
13,731
6,731
7,114
–
–
–
59,468
37,948
23,911
23,911
14,347
13,520
15,962
17,164
7,692
7,114
–
–
76,056
47,565
15,932
27,183
27,183
16,310
16,784
20,067
21,614
97,823
47,250
(a) All DSR and PR that vested during the year were exercisable. A Knowles has 49,484 vested DSR and PR which have not been exercised.
(b) In addition to the above unvested awards, P Ferguson has 84 restricted shares, J McNeill has 1,012 restricted shares and S New has 608 restricted shares which were
acquired under the Australian and UK Employee Share Plans respectively. Under those plans, P Ferguson and A Walsh also had 87 shares vest each in 2019 (acquired
in August 2016).
(c) A Walsh’s PR were granted in two equal tranches (one tranche having a one year deferred start to the measurement period) with each tranche having a different fair value.
(d) A Todd was awarded an additional grant of DSRs in 2019 in lieu of a grant that should have been awarded in 2017. This award has a service period of 11 May 2017 to
11 May 2020 as per other DSR awarded in 2017.
(e) This includes equity instruments held by the individual and in a nominated trust.
The maximum value of the grants yet to vest has been determined as the fair value of awards at the grant date. The minimum value is zero as no
rights vest if the conditions are not satisfied.
38
IRESS LIMITED ANNUAL REPORT 2019 5.6 Shareholdings
The number of ordinary shares held in the Company during the financial year by each KMP is set out below for NEDs and Executive KMP
respectively. Included for each individual are shares held on their behalf by the trustee of the Iress Limited Equity Plans Trust and their personally
related parties.
NED
A D’Aloisio
N Beattie
J Cameron
J Fahey
J Hayes
J Seabrook
G Tomlinson
Total
Balance as at
1 Jan 2019
Shares
acquired
during the
year (a)
Other
changes
Balance as at
31 Dec 2019
49,402
6,000
36,668
–
13,788
40,053
8,000
153,911
–
–
–
2,584
–
1,496
–
4,080
–
–
–
–
–
–
–
–
49,402
6,000
36,668
2,584
13,788
41,549
8,000
157,991
The Board acknowledges the importance of aligning the interests of non-executive directors with the interests of shareholders and, to that end,
the Board has adopted a policy effective 1 January 2020 according to which all non-executive directors, by 31 December 2022 or within three
years of their appointment, are required to accrue and hold Iress equity equivalent to 100% of the base fee for being a Member of the Board,
unless otherwise determined by the Board.
Iress executives have a Minimum Shareholding Requirement (MSR) to be met by December 2023, or within five years of commencing. The CEO is
required to accrue and hold Iress equity equivalent to 400% of base salary. Other executives are required to hold 225% of their base salary. Until
December 2023, the MSR only applies to equity granted under the new remuneration framework implemented in 2019. Unvested ER and TER
count towards the requirement but unvested PR do not.
EXECUTIVE
PRIOR REMUNERATION FRAMEWORK AWARDS
(PRE 2019) AND DIRECTLY ACQUIRED SHARES
MINIMUM SHAREHOLDING REQUIREMENT
NEW REMUNERATION FRAMEWORK AWARDS
(2019 AND AFTER)
Balance as at
1 Jan 2019
Shares
acquired
during the
year (a)
Other
changes
Balance as at
31 Dec 2019 (d)
Balance as at
1 Jan 2019
ER/TER
granted
during the
year
Value of
Holding as %
of base
salary (b)
Balance as at
31 Dec 2019 (d)
VALUE
OF TOTAL
HOLDINGS AS
% OF BASE
SALARY (C)
A Walsh
P Ferguson
J Harris
A Knowles
J McNeill
S New
A Todd
Total
376,867
10,171
–
13,164
29,118
608
–
149,760
19,756
23,874
–
16,685
10,560
–
(120,000)
(8,330)
–
–
(42,121)
–
–
429,928
220,635
(170,451)
406,627
21,597
23,874
13,164
3,682
11,168
–
480,112
–
–
–
–
–
–
–
–
80,020
26,288
38,890
40,808
28,056
38,258
43,493
80,020
26,288
38,890
40,808
28,056
38,258
43,493
295,813
295,813
106%
89%
83%
87%
85%
81%
91%
643%
162%
134%
115%
97%
105%
91%
(a) Shares acquired by Executive KMP during the year were acquired on the exercise of DSR and PR. A Knowles had awards that vested in 2019 but these were not
exercised in 2019.
(b) The value of ER for the purpose of the MSR calculation is the higher of the grant price and share price at 31 December 2019, in both cases using the
twenty-trading-day volume weighted average share price.
(c) For equity awarded under pre 2019 remuneration frameworks and directly acquired shares, the share price at 31 December 2019 (twenty-trading-day volume
weighted average share price up to and including 31 December 2019) was used to calculate the value.
(d) This includes equity instruments held individually and in trusts.
39
Remuneration Report
Section 5 Additional required disclosures
Directors’ Report continued
For the year ended 31 December 2019
5.7 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 CEO and other Executive KMP are summarised below. Executive KMP termination entitlements
are limited to 12 months’ base salary unless shareholder approval is received.
MD/CEO
Criterion
Arrangements
Term of contract
Ongoing.
Notice period
Resignation
Retirement
Termination on
notice by Iress
Redundancy
Termination for
serious misconduct
Non-Compete
Six months (from the employee and Group).
The CEO may resign by giving six months’ written notice.
There are no additional financial entitlements due from Iress on retirement.
Iress may terminate the employment agreement by providing six months’ written notice, or payment in lieu
of the notice period.
If Iress terminates employment for reasons of bona fide redundancy, a severance payment will be made.
The quantum of the payment will be determined subject to the Board’s discretion, 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 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 CEO, with the exception
that J Harris, J McNeill, S New and A Todd have non-compete clauses for the 12-months following employment (in addition to the non-compete
arrangements during employment).
5.8 Transactions with KMP
No transactions (excluding share-based payment compensation) occurred between KMP and the Company during 2019.
5.9 Loans to KMP or related parties
No loans to KMP or related parties were provided during 2019.
This Directors’ Report has been verified by Management and reviewed by the Company’s Board of Directors and its Audit and Risk Committee.
Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001 (Cth).
TONY D’ALOISIO
CHAIR
Melbourne
19 February 2020
ANDREW WALSH
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
40
IRESS LIMITED ANNUAL REPORT 2019
Auditor’s Independence Declaration
41
Financial Statements
For the year ended 31 December 2019
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 2019.
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
1.2
1.3
1.4
1.5
1.6
1.7
1.8
SEGMENT INFORMATION
EARNINGS PER SHARE AND DIVIDENDS PER SHARE
REVENUE FROM CONTRACTS WITH CUSTOMERS
EMPLOYEE BENEFIT EXPENSES
SHARE-BASED PAYMENTS
OTHER EXPENSES
DEPRECIATION AND AMORTISATION
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
SECTION 2. CORE ASSETS AND WORKING CAPITAL
2.1
2.2
2.3
2.4
2.5
2.6
2.7
INTANGIBLE ASSETS
PLANT AND EQUIPMENT
LEASES
RECEIVABLES AND OTHER ASSETS
PAYABLES AND OTHER LIABILITIES
PROVISIONS
COMMITMENTS AND CONTINGENCIES
SECTION 3. DEBT AND EQUITY
3.1
3.2
3.3
DEBT FACILITIES AND DERIVATIVES
ISSUED CAPITAL
MANAGING FINANCIAL RISKS
SECTION 4. OTHER DISCLOSURES
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
TAXATION
BUSINESSES AND INVESTMENTS ACQUIRED AND DIVESTED
IRESS LIMITED – PARENT ENTITY FINANCIAL INFORMATION
SUBSIDIARIES
DEED OF CROSS GUARANTEE
BASIS OF PREPARATION
TRANSACTIONS WITH RELATED PARTIES
EVENTS SUBSEQUENT TO THE STATEMENT OF FINANCIAL POSITION DATE
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
42
IRESS LIMITED ANNUAL REPORT 2019
43
44
45
46
47
47
49
50
53
54
56
56
57
58
58
59
60
64
66
67
68
69
69
71
71
72
72
75
76
77
77
79
84
84
85
86
91
92
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2019
Revenue from contracts with customers
Customer data fees
Communication and other technology expenses
Employee benefit expenses
Net other expenses
Share of loss of equity accounted investments, net of tax
Profit before depreciation, amortisation, interest and income tax expense
Depreciation and amortisation expense
Profit before interest and income tax expense
Interest income
Interest expense
Net interest and financing costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Tax related to exchange differences recognised directly in foreign currency translation reserve(¹)
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(a)
1.4
1.6
1.7
3.1(e)
4.1
2019
$’000
508,943
(42,952)
(43,339)
(269,075)
(19,713)
–
133,864
(37,244)
96,620
547
(8,716)
(8,169)
88,451
(23,323)
65,128
10,775
39
10,814
75,942
2018
$’000
464,624
(35,127)
(28,653)
(241,652)
(40,871)
(459)
117,862
(26,773)
91,089
370
(6,490)
(6,120)
84,969
(20,873)
64,096
9,765
(20)
9,745
73,841
Notes
1.2(a)
1.2(a)
Cents
per share
Cents
per share
37.9
37.6
37.6
37.3
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.
(1) Relates to the tax effect on the exchange differences arising from intercompany monetary items that are treated as part of a net investment in a foreign operation.
Under AASB121, the foreign exchange gains or losses on these monetary items are recognised directly in other comprehensive income rather than the profit or loss.
43
Financial Statements
Consolidated Statement of Financial Position
As at 31 December 2019
ASSETS
Current assets
Cash and cash equivalents
Receivables and other assets
Current taxation receivables
Total current assets
Non-current assets
Intangible assets
Plant and equipment
Right-of-use assets
Deferred tax assets
Derivative assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables and other liabilities(¹)
Lease liabilities
Provisions(¹)
Current taxation payables
Total current liabilities
Non-current liabilities
Payables and other liabilities
Lease liabilities
Provisions
Borrowings
Deferred tax liabilities
Derivative liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Share-based payments reserve
Foreign currency translation reserve
Retained earnings
Total equity
Notes
2019
$’000
2018
$’000
1.8(a)
2.4(a)
2.1(a)
2.2(a)
2.3(b)
4.1(c)
3.1(c)
2.5
2.3(c)
2.6(a)
2.5
2.3(c)
2.6(a)
3.1(a)
4.1(c)
3.1(c)
3.2
33,386
81,710
200
115,296
619,748
27,547
51,901
22,479
–
721,675
836,971
64,525
9,179
6,669
5,253
85,626
–
48,356
30,560
225,914
9,789
1,820
316,439
402,065
434,906
383,083
30,990
14,133
6,700
434,906
30,190
59,570
2,082
91,842
555,190
30,851
–
17,800
783
604,624
696,466
50,972
–
7,155
–
58,127
1,600
–
5,222
204,389
7,697
–
218,908
277,035
419,431
378,577
24,683
3,319
12,852
419,431
The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
(1) A prior year reclassification was made to reclassify $8.8 million of annual leave accruals from current provisions to “employee liabilities” within current payables
and other liabilities.
44
IRESS LIMITED ANNUAL REPORT 2019 Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Balance at 1 January 2018
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners in their capacity as owners:
Shares issued during the year(²)
Dividends declared(³)
Share-based payment expense, net of tax(4)
Transfer of share-based payments reserve(5)
Balance at 31 December 2018
Balance at 1 January 2019
Impact of change in accounting policy(6)
Adjusted balance at 1 January 2019
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners in their capacity as owners:
Shares issued during the year(²)
Dividends declared(³)
Share-based payment expense, net of tax(4)
Transfer of share-based payments reserve(5)
Balance at 31 December 2019
Share-based
payments
reserve
$’000
Foreign
currency
translation
reserve
$’000
24,213
–
–
–
–
–
11,519
(11,049)
470
24,683
Share-based
payments
reserve
$’000
24,683
–
24,683
–
–
–
–
–
16,976
(10,669)
6,307
30,990
(6,426)
–
9,745
9,745
–
–
–
–
–
3,319
Foreign
currency
translation
reserve
$’000
3,319
–
3,319
–
10,814
10,814
–
–
–
–
–
14,133
Issued
capital(¹)
$’000
376,309
–
–
–
887
1,381
–
–
2,268
378,577
Issued
capital(¹)
$’000
378,577
–
378,577
–
–
–
448
4,058
–
–
4,506
383,083
Retained
earnings
$’000
13,451
64,096
–
64,096
–
(75,744)
–
11,049
(64,695)
12,852
Retained
earnings
$’000
12,852
(2,110)
10,742
65,128
–
65,128
–
(79,839)
–
10,669
(69,170)
6,700
Total
equity
$’000
407,547
64,096
9,745
73,841
887
(74,363)
11,519
–
(61,957)
419,431
Total
equity
$’000
419,431
(2,110)
417,321
65,128
10,814
75,942
448
(75,781)
16,965
–
(58,357)
434,906
The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
(1) During the period, the total number of ordinary shares in issue increased from 173,250,207 to 174,923,447 arising from the vesting of share rights and performance
rights mainly relating to the vesting of 2015, 2016 and Avelo grants and the issue of 2019 deferred shares granted to employees as part of the 2019 equity
participation scheme and employee share plans for nil consideration. These issues do not adjust the total value of Issued Capital as they relate to equity-settled
share-based payments.
(2) Shares issued to satisfy Employee Share Plan obligations. Refer to Note 3.2.
(3) Shares issued under the Dividend Reinvestment Plan. Refer to Note 3.2 and for dividends declared refer to Note 1.2(c).
(4) Share-based payment expense includes a favourable tax impact of $0.7 million (2018: $1.2 million tax expense) on vesting of employees’ share-based payments.
(5) The movement from share-based payment reserves to retained earnings represents the grant date fair value of share-based payments that have vested or lapsed
during the year. The amount has been recognised as a share-based payment expense over the vesting period. Details of share-based payment arrangements are
provided in Note 1.5.
(6) Impact of adopting AASB 16’s modified retrospective approach under which the cumulative effect of initial application is recognised in retained earnings
at 1 January 2019. The impact is disclosed in Note 4.6 (a)(iii).
45
Financial Statements
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Cash generated from operating activities
Interest received
Interest and borrowing costs paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Net payments for intangible assets
Net payments for plant and equipment
Proceeds from sale of plant and equipment
Payment of deferred consideration(¹)
Payments for acquisition of subsidiaries and businesses, net of cash acquired
Acquisition and integration costs paid
Net cash outflow from investing activities
Cash flows from financing activities
Payment of lease liability and interest(²)
Consideration paid towards an equity accounted investment(³)
Proceeds from employee share plan repayments
Dividends paid
Proceeds of borrowings
Repayment of borrowings
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
Notes
1.8(b)
2.1(a)
2.2(a)
2.2(a)
2.6(b)
4.2
3.1(b)
3.1(b)
2019
$’000
2018
$’000
131,762
538
(5,911)
(21,696)
104,693
(2,487)
(10,480)
1,313
(1,436)
(20,411)
–
(33,501)
(12,275)
–
448
(75,882)
123,645
(107,022)
(71,086)
106
30,190
3,090
33,386
129,721
370
(5,726)
(23,104)
101,261
(2,610)
(22,814)
–
(1,905)
–
(87)
(27,416)
–
(1,308)
1,235
(75,359)
89,000
(82,500)
(68,932)
4,913
28,615
(3,338)
30,190
The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
(1) Deferred consideration paid in the current year relates to the 2015 acquisition of Innergi as the required conditions were partially fulfilled and to the 2019 acquisition
of QuantHouse in relation to additional consideration paid that was subject to a post acquisition condition that was satisfied.
(2) Prior year operating leases were treated in terms of AASB 117 and the operating lease payments were included in cash generated from operating activities.
(3) Advances paid towards an equity accounted investment. The equity accounted investment is now a wholly-owned subsidiary of the Group.
46
IRESS LIMITED ANNUAL REPORT 2019 Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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 segments listed below. Any transactions directly between segments are charged on an arm’s length basis.
Iress segments comprise:
(a) Client segments
Client segments, which include the revenue less the direct costs of customer facing teams that oversee this revenue generation, are:
APAC
Consists of:
– The APAC Financial Markets business which provides market data, trading, compliance, order management, portfolio systems and related
tools to financial markets participants in Australia, New Zealand and Asia; and
– The ANZ Wealth Management business which provides financial planning systems and related tools to wealth management professionals
located in Australia and New Zealand, and fund administration software to the superannuation and wealth management industries.
UK & Europe (previously referred to as 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. In addition, as a result of the QuantHouse acquisition, market data services are
provided to customers throughout UK & Europe.
Mortgages (previously referred to as Lending)
The Mortgages segment operates in the United Kingdom and Australia to provide mortgage origination software and associated consulting
services to mortgage lenders.
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.
North America (previously referred to as Canada)
Provides information, trading, compliance, order management, portfolio systems and related tools to financial markets and wealth management
participants in Canada. In addition, as a result of the QuantHouse acquisition, market data services are provided to customers in the United
States of America.
(b) Cost segments
Product and Technology
All costs associated with product and technology are reported under this segment giving a clear view of the quantum of investment made
by Iress in maintaining and enhancing its products.
Operations
Includes costs to run client facing and corporate operations activity, including hosting and networks, information security, client help desks
and property infrastructure.
47
Section 1. Financial results
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1.1 Segment information continued
(b) Cost segments continued
Corporate
All other corporate functions including legal, strategy, finance and administration, human resources, communications and marketing,
Board of Directors and Chief Executive Officer.
The revenue, segment profit and reconciliation to the Group results are shown below:
OPERATING REVENUE (¹)
DIRECT CONTRIBUTION
CLIENT SEGMENTS
COST SEGMENTS
APAC
UK & Europe
Mortgages
South Africa
North America
Total Group
Product and Technology
Operations
Corporate
Total indirect costs
GROUP RESULTS
Segment profit
Share-based payment expense
Segment profit after share-based payment expense
Other non-operating expenses(²)
Profit before depreciation, amortisation, interest and
income tax expense
Depreciation and amortisation
Profit before interest and income tax expense
Net interest and financing costs
Income tax expense
Net profit after income tax expense
2019
$’000
264,475
142,686
29,026
48,304
24,452
508,943
2018
$’000
251,996
118,960
28,639
46,522
18,507
464,624
2019
$’000
191,113
91,949
19,151
37,503
10,364
350,080
(118,635)
(42,707)
(36,676)
(198,018)
152,062
(17,701)
134,361
(497)
133,864
(37,244)
96,620
(8,169)
(23,323)
65,128
2018
$’000
182,329
78,370
21,591
35,311
9,557
327,158
(114,149)
(39,671)
(35,636)
(189,456)
137,702
(10,365)
127,337
(9,475)
117,862
(26,773)
91,089
(6,120)
(20,873)
64,096
(1) Operating revenue is recognised ‘over time’ in accordance with AASB 15.
(2) Predominately relates to office move costs, non-operating income, business acquisition and integration expenses, and realised and unrealised foreign exchange gains
and losses (refer to Note 1.6).
The below table outlines operating revenue and non-current assets by geographical area, being Australia and New Zealand, Asia, United Kingdom
and Europe, South Africa and North America:
Australia and New Zealand
Asia
Total APAC
United Kingdom and Europe
South Africa
North America
Grand total
OPERATING REVENUE
NON-CURRENT ASSETS (¹)
2019
$’000
257,397
7,078
264,475
171,712
48,304
24,452
508,943
2018
$’000
248,565
3,431
251,996
147,599
46,522
18,507
464,624
2019
$’000
128,247
343
128,590
491,685
17,631
9,389
647,295
2018
$’000
145,133
100
145,233
415,190
15,950
9,668
586,041
(1) Excludes right-of-use assets, financial instruments and deferred taxes, and predominantly relates to intangible assets (refer to Note 2.1).
48
IRESS LIMITED ANNUAL REPORT 2019 1.2 Earnings per share and dividends per share
(a) Basic and diluted earnings per share, and dividends per share for the year are:
Earnings per share
Diluted earnings per share
Dividends per share:
Interim dividend franked to 10% (2018: 60%)
Final dividend declared after the Statement of Financial Position date franked to 40% (2018: 40%)
(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 Statement of Financial Position date were as follows:
Dividends paid during the year
Final dividend for 2018 30.0 cents per share franked to 40% (2017: 28.0 cents per share franked to 60%)(¹)
Interim dividend for 2019 16.0 cents per share franked to 10% (2018: 16.0 cents per share franked to 60%)
Cents
per share
2019
Cents
per share
2018
37.9
37.6
16.0
30.0
Number
of shares
2019
‘000
171,980
1,457
173,437
2019
$’000
51,915
27,924
79,839
37.6
37.3
16.0
30.0
Number
of shares
2018
‘000
170,467
1,494
171,961
2018
$’000
48,074
27,670
75,744
Dividends declared after balance date
Since the end of the year, the Directors declared a final dividend of 30.0 cents per share franked to 40% (2018:
30.0 cents per share franked to 40%)
Franking credit balance
52,477
51,975
Franking credits available for subsequent reporting periods based on a tax rate of 30% (2018: 30%)
2,055
23
(1) Dividends declared at the end of 2018 were based on the number of shares on issue as at 31 December 2018, while the dividends paid in 2019 were based on the
number of shares on issue as at 28 February 2019.
49
Section 1. Financial results
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1.3 Revenue from contracts with customers
Iress designs, develops and delivers technology solutions for the financial services industry in Australia, New Zealand, the United Kingdom &
Europe, South Africa, North America and Asia.
From these activities, Iress generates the following streams of revenue:
– Software licence revenue
–
Implementation and consulting revenue
– Royalties revenue from provision of financial market information
– Other ancillary fees such as hosting and support service fees
Each of the above services delivered to customers are considered separate performance obligations, even though for practical expedience they
may be governed by a single legal contract with the customer.
Revenue recognition for each of the above revenue streams is as follows:
Revenue stream
Performance obligation
Timing of recognition
Software licence revenue
Access to software.
Implementation and
consulting revenue
As defined in the contract.
For implementation revenue
– typically completion of data
conversions, completion of
user acceptance testing,
provision of functional
environments.
Royalties revenue
Provision of financial market
information.
Other ancillary fees
Provision of hosting services,
cloud services, support and
maintenance services.
Software license revenue is recognised over time as the customer
simultaneously receives and consumes the benefit of accessing the software.
Revenue is calculated based on the number of licences used and rate per
licence, or as a negotiated package for large customers. Changes in these
factors over time may impact the revenue recognised over the life of
the contract.
Software license revenue is recognised as the amount to which the Group
has a right to invoice.
Customers are typically invoiced monthly and consideration is payable when
invoiced, which corresponds directly with the performance completed to date
in respect of this stream.
Revenue is recognised over time as services are delivered.
Revenue from providing services is recognised in the accounting period
in which the services are rendered.
Revenue is calculated based on time and materials usage.
For fixed-price contracts, revenue is recognised based on the actual service
provided to the end of the reporting period.
Recognition is determined based on the actual labour hours spent as
a proportion of total expected hours. This requires judgment of the forecast
expected hours and changes in implementation timing.
If contracts include the installation of hardware, revenue for the hardware
is recognised at a point in time when the hardware is delivered, the legal title
has passed, and the customer has accepted the hardware.
Royalties revenue is recognised over time as the customer simultaneously
receives and consumes the benefit of accessing the information.
Royalties revenue is recognised as the amount to which the Group has the
right to invoice.
Customers are typically invoiced monthly and consideration is payable when
invoiced, which corresponds directly with the performance completed to date
in respect of this stream.
Over time, depending on circumstances.
Some contracts include multiple deliverables, such as implementation services and software licences. Because the implementation services do
not include material software customisation that are specific to the client and could be performed by another party, the implementation service
and software licences are accounted for as separate performance obligations. In these cases, the transaction prices are allocated to each
performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected
cost plus a margin.
In fixed-price contracts, the customer pays the fixed amount based on an agreed payment schedule. If the services rendered by the Group
exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised.
If the contract includes an hourly fee, revenue is recognised at the amount to which the Group has the right to invoice (i.e. based on hours
actually incurred in providing the service to the client). Customers are invoiced monthly and consideration is payable when invoiced.
50
IRESS LIMITED ANNUAL REPORT 2019 (a) Revenue by client segment is summarised below:
Revenue stream
For the year ended 31 December 2018
Software licence revenue
Implementation and consulting revenue
Royalties revenue
Other ancillary fees
Total revenue
Revenue stream
For the year ended 31 December 2019
Software licence revenue
Implementation and consulting revenue
Royalties revenue
Other ancillary fees
Total revenue
Revenue
recognition
APAC
$’000
Over time
Over time
Over time
Over time
204,217
14,358
22,986
10,435
251,996
Revenue
recognition
APAC
$’000
Over time
Over time
Over time
Over time
218,490
11,268
23,930
10,787
264,475
UK &
Europe
$’000
100,997
1,903
3,191
12,869
118,960
UK &
Europe
$’000
118,042
2,407
5,893
16,344
142,686
Mortgages
$’000
South
Africa
$’000
North
America
$’000
4,605
22,086
–
1,948
28,639
Mortgages
$’000
7,562
19,630
–
1,834
29,026
43,512
–
1,828
1,182
46,522
South
Africa
$’000
45,305
9
1,896
1,094
48,304
13,517
–
1,797
3,193
18,507
North
America
$’000
19,890
–
2,849
1,713
24,452
Total
$’000
366,848
38,347
29,802
29,627
464,624
Total
$’000
409,289
33,314
34,568
31,772
508,943
(b) Receivables, contract assets and contract liabilities from contracts with customers by client segment are summarised below:
For the year ended 31 December 2018
Trade receivables
Contract assets
Contract liabilities
For the year ended 31 December 2019
Trade receivables
Contract assets
Contract liabilities
APAC
$’000
19,861
2,447
(883)
APAC
$’000
14,309
3,398
(653)
UK &
Europe
$’000
11,892
3,009
(3,023)
UK &
Europe
$’000
17,325
8,256
(11,282)
Mortgages
$’000
2,066
2,467
(950)
Mortgages
$’000
557
5,189
(145)
South
Africa
$’000
3,917
379
(55)
South
Africa
$’000
3,075
380
(3)
North
America
$’000
1,426
–
(4)
North
America
$’000
1,522
–
–
Total
$’000
39,162
8,302
(4,915)
Total
$’000
36,788
17,223
(12,083)
(c) Revenue recognised in relation to contract assets and liabilities
The following table shows the revenue recognised in the current reporting period in relation to the contact assets and contract liabilities:
CONTRACT ASSETS
CONTRACT LIABILITIES
Balance at the beginning of the year
Transfer from contract assets to receivables
Revenue raised for work performed but not yet billed
Decrease due to revenue recognised from performance obligations satisfied
Increase due to cash received, excluding amount recognised during the year
Acquired from business combinations
Foreign currency translation
Balance at the end of the year
2019
$’000
8,302
(8,302)
16,997
–
–
–
226
17,223
2018
$’000
11,459
(11,459)
7,933
–
–
–
369
8,302
2019
$’000
(4,915)
–
–
4,915
(3,601)
(8,201)
(281)
(12,083)
2018
$’000
(6,228)
–
–
6,228
(4,661)
–
(254)
(4,915)
51
Section 1. Financial results
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1.3 Revenue from contracts with customers continued
(d) Transaction price allocated to the remaining performance obligations
The following table includes the revenue on existing contracts expected to be recognised in the future which relates to performance obligations
that are unsatisfied (or partially satisfied) at the reporting date:
Year in which
transaction price
is expected to be
realised
2020
2021
2022
2023
2024
Total
Revenue stream
Software licence
revenue
Implementation and
consulting revenue
Other ancillary fees
Total revenue
Software licence
revenue
Implementation and
consulting revenue
Total revenue
Software licence
revenue
Total revenue
Software licence
revenue
Total revenue
Software licence
revenue
Total revenue
Software licence
revenue
Implementation and
consulting revenue
Other ancillary fees
Total revenue
Revenue
recognition
APAC
$’000
UK &
Europe
$’000
Mortgages
$’000
South
Africa
$’000
North
America
$’000
Over time
Over time
Over time
Over time
Over time
Over time
Over time
Over time
2,943
5,023
–
7,966
–
1,185
1,185
–
–
–
–
–
–
628
5,399
3,268
–
3,896
9,580
1,094
16,073
608
–
608
620
620
632
632
809
809
518
–
518
–
–
–
–
–
–
Over time
2,943
3,297
5,917
Over time
Over time
6,208
–
9,151
3,268
–
6,565
9,580
1,094
16,591
3
–
–
3
–
–
–
–
–
–
–
–
–
3
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$’000
8,345
18,499
1,094
27,938
518
1,793
2,311
620
620
632
632
809
809
8,863
22,353
1,094
32,310
The Group applies the practical expedient in the revenue standard and does not disclose information about the remaining performance obligation
on contracts that have an original expected duration of one year or less or where the Group has the right to consideration from a customer in an
amount that corresponds directly with the value to the customer of the Group’s performance to date.
The table above, therefore, does not include revenue expected to be recognised in future years on software licence, royalties and other ongoing
contracts where the Group will recognise revenue in the amount to which the entity has a right to invoice.
52
IRESS LIMITED ANNUAL REPORT 2019 1.4 Employee benefit expenses
Short-term employee benefits, mainly comprising of base salary and annual leave costs are expensed as the employee renders services.
Post-employment benefits which comprise Iress’ contribution to a defined contribution retirement plans are expensed as the service is received
from the employee.
Termination benefits are amounts paid to employees when their employment is terminated. These are expensed when Iress can no longer
withdraw the offer of the termination benefit.
Short–term and other employee benefits
Post–employment benefits
Termination benefits
Share–based payment expense
Employee administration expense
Notes
1.5(c)
2019
$’000
(222,906)
(17,081)
(833)
(17,701)
(10,554)
(269,075)
2018
$’000
(207,816)
(15,291)
(68)
(10,365)
(8,112)
(241,652)
Key Management Personnel
Executive and non-executive Director Key Management Personnel compensation included in total employee benefits for the year is set out below:
Short-term and other employee benefits
Long–term employee benefits
Post–employment benefits
Share–based payment expense
2019
$’000
(5,237)
(70)
(318)
(4,333)
(9,958)
2018
$’000
(5,844)
(29)
(308)
(2,226)
(8,407)
Detailed remuneration disclosures are provided in the Audited Remuneration Report including a description of the new executive remuneration
framework effective 1 January 2019.
53
Section 1. Financial results
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1.5 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 Equity
Rights – From 2019
Executive Transition
Equity Rights –
In 2019
Eligible participants
receive equity rights
at no cost.
Eligible participants
receive equity rights
at no cost.
Individual
performance criteria
Individual
performance criteria
2 year vesting
followed by 2 year
holding lock
2 year vesting
followed by 2 year
holding lock
No but dividend
equivalent “top–up”
on vesting
No but dividend
equivalent “top-up”
on vesting
Executive PR Plan –
CEO – From 2019
Executive PR Plan –
From 2019
Executive PR Plan –
CEO – Prior to 2019
Executive PR Plan –
Prior to 2019
Employee Deferred
Share Plan – From
2019
Employee Deferred
Share Plan – Prior
to 2019
Employee Deferred
Share Rights Plan –
From 2019
Employee Deferred
Share Rights Plan –
Prior to 2019
General Employee
Share Plan/ UK
Share Incentive Plan
CEO receives
performance rights
at no cost.
Eligible participants
receive performance
rights at no cost.
CEO receives
performance rights
at no cost.
Eligible participants
receive performance
rights at no cost.
Eligible participants
receive deferred
shares at no cost.
Eligible participants
receive deferred
shares at no cost.
Eligible participants
receive deferred
rights at no cost.
Eligible participants
receive deferred
rights at no cost.
Eligible participants
are invited to
acquire Iress shares,
Iress matches this
participation to a
set value.
Absolute total
shareholder return
(ATSR) against
hurdles
3 years
Total shareholder
return (TSR) against
peer group
Individual
performance criteria
3 years and 4 years
3 years
3 years (Vesting
in equal portions
annually)
3 years
3 years (Vesting
in equal portions
annually)
3 years
No
No
No
No
Yes
Yes
Yes
No
Nil
3 years
Yes
If participant leaves
before end of
performance period
Generally forfeited
(Board discretion
may apply)
Pro-rata portion of
equity generally
held subject to
original terms (Board
discretion may apply)
Generally forfeited
(Board discretion
may apply)
Generally forfeited
(Board discretion
may apply)
Generally forfeited
(Board discretion
may apply)
Generally forfeited
(Board discretion
may apply)
Matched shares
are forfeited under
the UK Share
Incentive Plan and
granted under the
General Employee
Share Plan
As at 31 December 2019, the total unvested shares in the General Employee Share Plan were 28,958 (2018: 39,089).
(b) Grant date fair value
The grant date fair value of the Executive LTI Plans and the Employee Deferred Share Rights Plan are independently determined using a Monte
Carlo simulation option pricing model using standard option pricing inputs such as the underlying share price, exercise price, expected dividends,
expected risk free rates and expected share price volatility. Key inputs are summarised below:
54
IRESS LIMITED ANNUAL REPORT 2019 Grant date fair value
Key inputs in determining grant date fair value
Executive LTI Plan
Model used
Risk free rate
Share price volatility
Dividend yield
Monte Carlo
1.6 – 3%
22.5 – 27.5%
3.25 – 4.25%
Employee Deferred Share
Rights Plan
Monte Carlo
1.6 – 3%
22.5 – 27.5%
3.25 – 4.25%
As the vesting conditions of the Employee Deferred Share Plan grants are not linked to company performance and participants receive dividends
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 and the amount expensed during the year is shown below:
NUMBER OF SHARES
AT GRANT DATE
Type
Executive Plans – CEO
2015 Grant – 3 year
2015 Grant – 4 year
2016 Grant – 3 year
2016 Grant – 4 year
2017 Grant – 3 year
2017 Grant – 4 year
2018 Grant – 3 year
2018 Grant – 4 year
2019 Grant – PR pre 19
2019 Grant – ER
2019 Grant – PR
Executive Plans – Non-CEO
2016 Grant
2017 Grant
2018 Grant
2019 Grant – PR pre 19
2019 Grant – ER & TER
2019 Grant – PR
Employee Deferred Share Plan
2016 Grant(¹)
2017 Grant – Special
2017 Grant(¹)
2018 Grant(¹)
2019 Grant – EAG
Grant
date
Vesting
date
At 1 Jan
2019
Granted Forfeited
Vested
At 31 Dec
2019
7/5/15
7/5/15
5/5/16
5/5/16
11/5/17
11/5/17
10/5/18
10/5/18
10/5/19
10/5/19
10/5/19
7/5/19
7/5/19
5/5/20
5/5/20
11/5/21
11/5/21
10/5/22
10/5/22
10/5/22
26/2/21
28/2/22
60,000
60,000
60,000
60,000
54,739
54,739
45,605
45,605
–
–
–
–
–
–
–
–
–
–
–
42,736
80,020
80,020
(10,440)
(19,980)
–
–
–
–
–
–
–
–
–
(49,560)
(40,020)
–
–
–
–
–
–
–
–
–
–
–
60,000
60,000
54,739
54,739
45,605
45,605
42,736
80,020
80,020
440,688 202,776
(30,420)
(89,580) 523,464
5/5/16
11/5/17
10/5/18
10/5/19
28/2/19
28/2/19
5/5/19
11/5/20
10/5/21
10/5/22
26/2/21
28/2/22
143,087
116,758
194,919
–
–
–
–
–
–
133,502
372,509
240,289
(1,482)
(11,297)
(24,449)
–
–
–
(141,605)
–
–
–
–
–
–
105,461
170,470
133,502
372,509
240,289
454,764
746,300
(37,228)
(141,605) 1,022,231
5/5/16
11/5/17
11/5/17
10/5/18
28/2/19
5/5/19
11/5/19
11/5/20
10/5/21
28/2/22
480,199
44,181
568,527
863,357
–
–
–
–
–
916,425
(8,999)
–
(21,465)
(44,448)
(32,948)
–
(471,200)
(44,181)
–
(2,376) 544,686
817,527
(1,382)
883,477
–
1,956,264 916,425 (107,860)
(519,139) 2,245,690
Employee Deferred Share Rights Plan
2014 Grant – Special
2016 Grant
2017 Grant
2018 Grant
2019 Grant – EAG
1/1/14
5/5/16
11/5/17
10/5/18
28/2/19
Total
31/12/17
5/5/19
11/5/20
10/5/21
28/2/22
57,244
231,798
223,739
289,664
–
–
–
15,392
–
42,031
(5,723)
–
(18,033)
(33,605)
(7,078)
(51,521)
(231,798)
–
–
–
–
–
221,098
256,059
34,953
802,445
57,423
(64,439) (283,319)
512,110
3,654,161 1,922,924 (239,947) (1,033,643)4,303,495
The weighted average remaining contractual life of the above grants is 1.4 years (2018: 1.6 years).
(1) The opening balances have been restated to correct an error in the 2018 closing balance.
Share
price
$
10.15
10.15
11.87
11.87
12.24
12.24
10.86
10.86
14.22
14.22
14.22
11.87
12.24
10.86
14.22
12.00
12.00
11.87
12.24
12.24
10.86
12.00
8.27
11.87
12.24
10.86
12.00
Fair
value
$
5.17
5.13
8.00
6.24
6.64
7.05
5.75
5.78
12.73
14.22
8.60
8.50
7.13
5.79
12.73
12.00
5.54
11.87
12.39
12.39
10.86
12.00
7.73
10.25
10.86
9.58
12.00
2019
$’000
(27)
(27)
(120)
(94)
(91)
(96)
(66)
(66)
(117)
(407)
(158)
(1,269)
(126)
(206)
(298)
(366)
(1,877)
(380)
(3,253)
(612)
(98)
(2,122)
(2,868)
(5,429)
(11,129)
–
(271)
(815)
(748)
(216)
(2,050)
(17,701)
55
Section 1. Financial results
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
1.6 Other expenses
(a) Included in other operating and other non-operating expenses are the following items:
Other operating income/(expenses)
Fees to auditors
Irrecoverable trade debtors written off
Credit loss allowances released to the profit and loss
Rental expense relating to operating leases
Other operating expenses
Other non-operating income/(expenses)
Unrealised gains/(losses) on foreign balances
Non-operating income
Business acquisition, integration and restructuring expenses
Remeasurement of deferred acquisition consideration
Release of deferred consideration provision
Release of onerous loss provision
Release of severance pay provision
Other non-operating expenses(¹)
Net other expenses
(1) Comprises all other project related expenses.
(b) 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.
Notes
1.6(b)
2.6(b)
2.6(b)
2.6(b)
2.6(b)
2019
$’000
2018
$’000
(845)
(807)
392
(184)
(17,772)
(19,216)
533
1,634
(5,088)
3,203
576
300
315
(1,970)
(497)
(746)
(1,002)
–
(10,872)
(18,776)
(31,396)
(670)
836
(2,660)
–
–
–
–
(6,981)
(9,475)
(19,713)
(40,871)
2019
$
2018
$
(356,927)
(74,449)
(431,376)
(363,619)
–
(363,619)
(413,788)
–
(363,991)
(18,495)
(413,788)
(382,486)
(845,164)
(746,105)
1.7 Depreciation and amortisation
Depreciation and amortisation is calculated on a straight line basis over the expected useful life of the respective assets.
Depreciation and amortisation expense
Amortisation – intangible assets
Depreciation – plant and equipment
Depreciation – right-of-use assets
56
Notes
2.1(a)
2.2(a)
2.3(b)
2019
$’000
2018
$’000
(14,825)
(11,118)
(11,301)
(37,244)
(17,557)
(9,216)
–
(26,773)
IRESS LIMITED ANNUAL REPORT 2019
1.8 Notes to the Consolidated Statement of Cash Flows
(a) Cash and cash equivalents comprise cash at bank held in the following currencies:
Australian dollar
Euro
British pound
United States dollar
South African rand
Other currencies
Total cash and cash equivalents
2019
$’000
14,325
1,666
5,781
1,716
5,746
4,152
33,386
2018
$’000
10,972
42
8,382
517
7,243
3,034
30,190
(b) Reconciliation of profit attributable to members of the parent entity to cash generated from operating activities:
Profit for the financial year
Adjustments for non-cash items and non-operating cash flow items:
Depreciation and amortisation
Net credit loss allowances reversed on trade receivables
Net provision recognised on employee benefits
Net provision reversed on deferred payments
Net provision reversed on onerous loss
Net provision reversed for other provisions
Share-based payment expense
Foreign exchange (gains)/losses
Amortisation of financing charges
Fair value of cross currency swap
Fair value of investment on acquisition
Net losses on sale of assets
Net gains on derecognition of lease asset and liability
Interest expensed in relation to property leases
Interest recognised in relation to finance lease liability
Share of losses of equity-accounted investees, net of tax
Tax on share-based payment
Interest received
Interest paid
Taxation
Changes in working capital, net of effects from acquisition of controlled entities:
Increase in receivables and other assets
(Decrease)/increase in payables and other liabilities
(Decrease)/increase in provisions
Cash generated from operating activities
Notes
1.7
2.4(c)
2.6(b)
2.6(b)
2.6(b)
2.6(b)
1.5(c)
3.1(e)
2019
$’000
2018
$’000
65,128
64,096
37,244
(392)
1,071
(3,779)
(300)
(315)
17,701
(533)
651
11
–
74
(405)
2,086
(9)
–
(725)
(538)
5,968
24,048
(9,486)
(4,821)
(917)
26,773
(1,002)
–
–
–
–
10,365
670
651
110
(897)
–
–
–
–
459
1,156
(370)
5,726
19,718
(2,627)
2,388
2,505
131,762
129,721
57
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
Section 2. Core assets and working capital
2.1 Intangible assets
Intangible assets 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 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, a proportion of computer software and other intangibles were acquired as part of business combinations. These
intangible assets are initially recognised at their fair value at the acquisition date. The remainder 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 will be recognised where the cost of actual development can be reliably measured and clearly distinguished
from research and ongoing operating and maintenance activities. Given software development occurs contemporaneously with the research
phase and operating and maintenance activities, the separation of the cost of development can be imprecise and difficult to reliably measure.
Accordingly, where the expenditure related to the development activity cannot be reliably measured, the Group expenses the amounts in the
period they are incurred. During the year, $0.4 million (2018: Nil) of internally generated computer software assets have been recognised.
(a) The carrying value of intangible assets is shown below:
GOODWILL
CUSTOMER
RELATIONSHIPS
COMPUTER
SOFTWARE
OTHER
INTANGIBLES
TOTAL
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Cost
Accumulated amortisation
528,676
–
458,144
–
57,419
(31,274)
54,368
(24,882)
207,664
(146,527)
210,756
(147,266)
Net carrying value
528,676
458,144
26,145
29,486
61,137
63,490
Opening carrying value
Separately acquired
Acquired through business
combinations(¹)(²)
Transfers(³)
Disposal
Amortisation(4)
Foreign currency translation
458,144
–
442,802
–
29,486
–
34,005
–
63,490
2,510
66,783
3,660
54,822
–
–
–
15,710
395
–
–
–
14,947
1,618
–
–
(5,446)
487
–
–
–
(5,256)
737
10,455
(6,218)
(23)
(9,086)
9
4,700
–
–
(12,062)
409
2019
$’000
8,399
(4,609)
3,790
4,070
–
–
–
–
(293)
13
2018
$’000
2019
$’000
2018
$’000
8,257
(4,187)
802,158
(182,410)
731,525
(176,335)
4,070
619,748
555,190
3,695
597
555,190
2,510
547,285
4,257
–
–
–
(239)
17
66,895
(6,218)
(23)
(14,825)
16,219
5,095
–
–
(17,557)
16,110
Closing carrying value
528,676
458,144
26,145
29,486
61,137
63,490
3,790
4,070
619,748
555,190
Expected useful life (years)
1 to 10
3 to 20
1 to 10
(1) Acquisition of QuantHouse Group on 31 May 2019. Refer to Note 4.2.
(2) Acquisition of Lucsan Capital Pty Ltd on 18 April 2018.
(3) Third party computer software held under finance lease arrangements was previously presented within intangible assets. As a result of the adoption of AASB 16 Leases
the software asset was derecognised within intangible assets and re-recognised as a prepayment within trade and other receivables. There has been no change in the
expense recognised.
(4) The amortisation expense decreased from the previous year primarily due to the transfer of assets out of intangible assets referred to in the note above. The impact
is a $3.8 million reduction in amortisation expense with an offsetting increase in communication and other technology expenses.
(b) Impairment testing for goodwill
Goodwill is tested for impairment annually or more frequently whenever indicators of impairment are identified. 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 cash
flow projections that are based on the most recent five-year financial plan updated for current performance and is discounted at an appropriate
after-tax discount rate 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 the long term outlook of the business.
58
IRESS LIMITED ANNUAL REPORT 2019 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:
Cash generating unit
APAC Financial Markets
ANZ Wealth Management
International Market Data
UK
UK Mortgages
South Africa
Canada
ALLOCATED GOODWILL
POST-TAX DISCOUNT RATES
LONG-TERM GROWTH RATES
2019
$’000
30,856
45,841
5,447
333,154
82,608
15,542
15,228
2018
$’000
–
45,767
–
311,751
79,511
12,423
8,692
528,676
458,144
2019
%
8.6
8.6
11.8
9.3
9.3
18.3
9.2
2018
%
n/a
9.1
n/a
9.6
9.6
16.5
8.6
2019
%
2018
%
2.7
2.7
2.0
2.7
2.7
4.7
2.0
n/a
2.7
n/a
2.7
2.7
4.7
0.5
International Market Data
International Market Data is a new CGU resulting from the acquisition of QuantHouse during the year. A proportion of the goodwill arising from
the acquisition of QuantHouse was allocated to this CGU based on future cost synergies expected to arise from combining the QuantHouse
business with Iress.
The CGU was loss making in 2019. The cashflows included in the DCF model used for impairment testing assume that it will be profitable from 2020
onwards thus supporting the current carrying value of goodwill. A 5% risk premium has been included in the post-tax discount rate used in the
DCF model to reflect the risk inherent in the revenue growth rate assumed in the DCF model for this CGU. The appropriateness of the cashflow and
discount rate assumptions used in the DCF model will continue to be assessed as part of the impairment assessment in future periods.
Canada
During the year the Canada goodwill carrying amount of $15.2 million was tested for impairment as part of the annual testing for impairment
for all CGUs described above.
The post-tax discount rates and terminal growth rates applied were 9.2% (2018: 8.6%) and 2.0% (2018: 0.5%), respectively. The discount rate
increased in line with market movements and the long-term growth rate increased from 0.5% to 2% to reflect OECD forecasts of Canadian
inflation and the midpoint of the Bank of Canada’s inflation target range (1% to 3%). There was no change to the impairment outcome from
changing these assumptions.
Significant estimate made
The continued profitability and growth of the Canada business is dependent on retained client revenue and future growth from Iress’ products
deployed to Canadian clients and prospects in the financial markets business. If either of these initiatives are unsuccessful or delayed, it will
result in reduced headroom or impairment of the goodwill allocated to the Canada CGU.
2.2 Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and any impairment losses. The estimated useful lives, residual values
and depreciation method are reviewed at the end of each annual reporting period.
The depreciation charge for each period is recognised in profit or loss.
59
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.2 Plant and equipment continued
(a) The carrying value of plant and equipment is shown below:
As at 31 December 2018
Cost
Accumulated depreciation
Carrying value
Movement for the year
Balance at 1 January 2018
Transfer(¹)
Additions
Disposal
Depreciation
Foreign currency translation
Balance at 31 December 2018
Expected useful life (years)
As at 31 December 2019
Cost
Accumulated depreciation
Carrying value
Movement for the year
Balance at 1 January 2019
Transfer(¹)(²)
Acquired through business combinations
Additions
Disposal
Depreciation
Foreign currency translation
Balance at 31 December 2019
Expected useful life (years)
Leasehold
improvement
$’000
Furniture
& fittings
$’000
Office
equipment
$’000
Computer
equipment
$’000
Work in
progress
$’000
14,283
(4,484)
9,799
703
–
10,151
(37)
(1,030)
12
9,799
15,002
(5,538)
9,464
8,743
–
4,250
(1,781)
(1,798)
50
9,464
3 to 10
3 to 10
1,943
(540)
1,403
136
–
1,485
1
(284)
65
1,403
3
44,751
(34,566)
10,185
10,062
128
6,237
(95)
(6,104)
(43)
10,185
3
–
–
–
128
(128)
–
–
–
–
–
Leasehold
improvement
$’000
Furniture
& fittings
$’000
Office
equipment
$’000
Computer
equipment
$’000
Work in
progress
$’000
13,184
(5,265)
7,919
9,799
(1,523)
163
1,241
(494)
(1,291)
24
7,919
15,771
(8,022)
7,749
9,464
–
34
532
(6)
(2,307)
32
7,749
3 to 10
3 to 10
1,943
(853)
1,090
1,403
–
19
24
–
(357)
1
1,090
3
61,624
(51,383)
10,241
10,185
–
1,576
6,387
(887)
(7,163)
143
10,241
3
548
–
548
–
(1,748)
–
2,296
–
–
–
548
Total
$’000
75,979
(45,128)
30,851
19,772
–
22,123
(1,912)
(9,216)
84
30,851
Total
$’000
93,070
(65,523)
27,547
30,851
(3,271)
1,792
10,480
(1,387)
(11,118)
200
27,547
(1) Work-in-progress are transferred to plant and equipment asset classes as brought into use.
(2) An amount of leasehold improvements previously presented within plant and equipment are now presented as a component of the right-of-use assets. There has been
no change in the amount recognised.
(b) Plant and equipment pledged as security
The Group does not have any plant and equipment that have been pledged to secure borrowings of the Group. In addition, the Group does not
have any obligations under finance leases, or any restrictions on title or items pledged as security for liabilities.
2.3 Leases
(a) Iress Group lease portfolio
The Group leases real estate and data servers in the ordinary course of its business. The Group’s real estate leases comprise office building
leases in the countries in which the Group operates. Data servers are leased in South Africa. The Group previously classified these as operating
leases under AASB 117.
60
IRESS LIMITED ANNUAL REPORT 2019 The Group’s regional lease portfolio is presented below:
Region
Lease characteristic features
Australia
The Group leases office buildings in numerous Australian cities, with its head office in Melbourne and an office in Sydney
being the most significant. The non-cancellable period of the leases range from 2 to 12 years with variable options to
extend the lease terms. The lease payments are adjusted every year, based on contractual fixed percentage increases and in
certain instances additionally increased by the prevailing consumer price index (“CPI”) at the lease review date.
South Africa
Provision for make-good
The Group is required to make-good (rehabilitate) the installed interconnecting stairs as part of its fit-out to connect floors at
its head office in Melbourne. A leasehold improvement and provision for make-good was raised in the previous year. On the
adoption of AASB 16, the net leasehold improvement asset and provision for make-good liability were transferred to the
right-of-use asset and lease liability respectively.
Real estate sub-leases
The Group leases an office building in Sydney through a lease (the head lease) that commenced on 1 January 2013.
The head lease terminates in February 2020. The Group has entered into a sub-lease that covers the period to the end of the
head lease term. Under AASB 17, the Group classified the head lease and the sub-lease as operating leases. Under AASB 16,
the Group continues to account for the sub-lease as an operating lease.
Real estate leases
The Group leases office buildings in a number of cities. The non-cancellable period of these leases range from 5 to 7 years with
options to extend the lease terms up to 5 years. The lease payments are adjusted every year by a fixed percentage increase
at the lease review date.
In March 2019, the Group substantially re-negotiated one of its leases, which effectively terminated its existing lease
17 months ahead of its lease term and replaced it with a new 7 year lease. The previously recognised right-of-use asset and
lease liability of the terminated lease were derecognised.
Data servers
The Group leases data servers which are principally used to host Iress software on client premises. Lease terms are 5 years.
United Kingdom Real estate leases
The Group leases office buildings in the UK. The non-cancellable period of these leases range from 5 to 8 years. The lease
payments are fixed with no increases over the lease terms.
Sub-leases
The Group leases an office building on a 10 year lease (the head lease) that commenced on 1 January 2016. The Group has
entered into a sub-lease that leases part of the office building for the next 3 years. Under AASB 117, the Group classified the head
lease and the sub-lease as operating leases. Under AASB 16, the Group continues to classify the sub-lease as an operating lease.
Other
The Group leases other office buildings in other countries. The non-cancellable period of these leases range from 3 to 8 years. The
lease payments are fixed with no increases over the lease terms.
During the period, office building leases were acquired through the QuantHouse acquisition. Refer to Note 4.2.
(i) Group as a lessee
Right-of-use asset
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the
site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same
basis as those of plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted
for certain remeasurements of the lease liability.
Lease liability
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using
the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group
uses its incremental borrowing rate as the discount rate. The Group’s average incremental borrowing rate used is 3.45%.
Lease payments included in the measurement of the lease liability comprise the following:
–
–
–
–
fixed payments, including in-substance fixed payments less any lease incentives receivable;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option; and
– payment of penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
61
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.3 Leases continued
(a) Iress Group lease portfolio continued
(i) Group as a lessee continued
Lease liability continued
The lease liability is presented as a separate line in the Consolidated Statement of Financial Position.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease
payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under
a residual value guarantee or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or
is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of office and information technology
equipment that have a lease term of 12 months or less or for leases of low-value assets. The Group recognises the lease payments associated
with these leases as an expense on a straight-line basis over the lease term.
(ii) Group as a lessor
When the Group acts as a lessor, which is generally when it sub-leases property on which it has entered a head lease as a lessee, it determines
at the sub-lease inception whether each sub-lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental
to ownership of the underlying asset. If this is the case then the lease is a finance lease. If not, then it is accounted for as an operating lease.
As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately.
The Group assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference
to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-
lease as an operating lease.
If an arrangement contains a lease and non-lease component, the Group applies AASB 15 to allocate the consideration in the contract.
The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of
‘non-operating income’.
(b) Carrying value of right-of-use assets
The Group’s right-of-use assets comprise real estate and data server leases. Right-of-use assets have finite lives and are carried at cost less
accumulated depreciation.
The carrying value of right-of-use assets is presented below:
Cost
Accumulated depreciation
Carrying value
Opening carrying value
Change in accounting policy(¹)
Acquired through business combinations
Additions
Disposal
Depreciation
Foreign currency translation
Closing carrying value
Expected useful life (years)
OFFICE BUILDINGS
DATA SERVERS
TOTAL
2019
$’000
90,538
(38,688)
51,850
–
52,192
4,881
6,744
(792)
(11,247)
72
51,850
2018
$’000
–
–
–
–
–
–
–
–
–
–
2019
$’000
274
(223)
51
–
107
–
1
–
(54)
(3)
51
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
2019
$’000
90,812
(38,911)
51,901
–
52,299
4,881
6,745
(792)
(11,301)
69
51,901
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
2 to 12
5
(1) Impact of adopting AASB 16’s modified retrospective approach under which the cumulative effect of initial application is recognised in retained earnings at
1 January 2019. The impact is disclosed in Note 4.6 (a)(iii).
62
IRESS LIMITED ANNUAL REPORT 2019 (c) Lease liabilities
(i) Lease liabilities included in the Statement of Financial Position at the end of the period:
Current
Non-current
Total
2019
$’000
9,179
48,356
57,535
2018
$’000
–
–
–
The Group’s liquidity risk with regard to its lease liabilities is managed by the inclusion of lease liability cashflows in the cashflow forecasts
regularly monitored by the Group in line with the Group’s treasury policy.
(ii) Reconciliation of the movement of the lease liabilities:
Opening carrying value
Change in accounting policy(¹)
Lease liabilities assumed in business combinations
Lease liabilities raised from the negotiation of new lease contracts
Lease liabilities raised from changes to existing lease contracts
Lease liabilities reversed from early termination of lease contracts
Lease liabilities incurred from rent free periods
Settlement of lease liabilities
Foreign currency translation
Closing carrying value
2019
$’000
–
(56,880)
(5,060)
(6,532)
(119)
1,178
(132)
10,189
(179)
(57,535)
2018
$’000
–
–
–
–
–
–
–
–
–
–
(1) Impact of adopting AASB 16’s modified retrospective approach under which the cumulative effect of initial application is recognised in retained earnings at
1 January 2019. The impact is disclosed in Note 4.6 (a)(iii).
(iii) Maturity analysis – contractual undiscounted cash flows:
Less than one year
More than one year and not more than 5 years
More than five years
Total undiscounted lease liabilities at the end of the period
2019
$’000
11,026
38,996
14,114
64,136
2018
$’000
11,317
33,925
14,946
60,188
(d) Amounts recognised in the Statement of Profit or Loss and Other Comprehensive Income
The table below shows the amounts recognised in the Statement of Profit or Loss affected by the application of the AASB 16 for the current
and prior year:
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Property lease expense
Expenses relating to short term or low value assets leases
Gain on the de-recognition of right-of-use assets and lease liabilities
Income from the sub-leasing of right-of-use assets
Notes
1.7
3.1(e)
2019
$’000
(11,301)
(2,086)
–
(184)
387
1,501
2018
$’000
–
–
(10,740)
(132)
–
836
63
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.3 Leases continued
(e) Operating lease arrangements
Operating leases, in which the Group is the lessor, relates to sub-leased office buildings with lease terms between 1 to 5.5 years. The lease
contracts do not include extension or early termination options. The cash outflows relating to the head leases on these buildings are included
in the amounts disclosed in Note 2.3(c)(i) above. The Group is not significantly exposed to foreign currency risk as a result of the lease
arrangements, as the sub-leases are denominated in the same currency as those of the head leases. The lessee does not have the option to
purchase the property at the expiry of the lease period.
Maturity analysis of the operating lease payments are presented below:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6 and onwards
Total
2019
$’000
690
617
617
617
617
–
3,158
2018
$’000
1,044
1,470
677
604
604
1,207
5,606
2.4 Receivables and other assets
Trade receivables arise from revenue that has been billed, but not yet settled by the customer.
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.
Revenue is recognised over time as the relevant performance obligations identified in a customer contract are satisfied. Refer to Note 1.3 for
further details of revenue recognition.
Where revenue recognised exceeds billings it results in a contract asset as disclosed in the table below, and where cash amounts are received
in advance of revenue recognition it results in a contract liability as disclosed in Note 1.3(b).
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 as at the end of the year comprises of:
Trade receivables
Credit loss allowance
Contract assets
Prepayments
Deposits
VAT receivables
Other assets
Notes
2.4(d)
2.4(b)
1.3(b)
2019
$’000
36,788
(1,718)
35,070
17,223
22,861
1,043
687
4,826
81,710
2018
$’000
39,162
(1,553)
37,609
8,302
9,116
685
–
3,858
59,570
(b) Credit Loss Allowance
The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.
Expected credit losses are measured by grouping trade receivables and contract assets based on shared credit risk characteristics and the days
past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for
the same types of contracts.
A provision matrix is then determined based on the historic credit loss rate for each group of customers, adjusted for any material expected
changes to the future credit risk for that customer group.
64
IRESS LIMITED ANNUAL REPORT 2019 The credit loss allowance as at 31 December 2018 is determined as follows:
Provision matrix
As at 31 December 2018
1 to 30 days
31 to 60 days
61 to 90 days
Over 90 days
Contract assets
Ageing of receivables
As at 31 December 2018
1 to 30 days
31 to 60 days
61 to 90 days
Over 90 days
Total receivables
Contract assets
Allowance based on historic credit losses
Adjustment for expected changes in credit risk(¹)
Credit loss allowance
APAC
0.3%
0.6%
1.4%
1.5%
0.1%
UK &
Europe
$’000
9,410
2,427
314
1,806
13,957
5,476
112
714
826
UK &
Europe
0.4%
0.8%
1.9%
2.0%
0.1%
South
Africa
$’000
2,143
386
361
1,027
3,917
379
27
331
358
APAC
$’000
17,267
1,072
854
669
19,862
2,447
87
140
227
(1) Adjustment to reflect the higher credit risk and probability of default relating to customers that are over 90 days past due.
The credit loss allowance as at 31 December 2019 is determined as follows:
Provision matrix
As at 31 December 2019
1 to 30 days
31 to 60 days
61 to 90 days
Over 90 days
Contract assets
Ageing of receivables
As at 31 December 2019
1 to 30 days
31 to 60 days
61 to 90 days
Over 90 days
Total receivables
Contract assets
Allowance based on historic credit losses
Adjustment for expected changes in credit risk(¹)
Credit loss allowance
APAC
0.2%
0.5%
1.1%
1.1%
0.1%
UK &
Europe
$’000
14,394
1,893
595
1,000
17,882
13,445
135
940
1,075
UK &
Europe
0.5%
0.6%
2.1%
2.1%
0.2%
South
Africa
$’000
2,117
152
125
680
3,074
380
18
374
392
APAC
$’000
13,499
659
86
66
14,310
3,398
36
81
117
(1) Adjustment to reflect the higher credit risk and probability of default relating to customers that are over 90 days past due.
South
Africa
0.3%
0.5%
1.3%
1.3%
0.1%
North
America
$’000
984
155
70
217
1,426
–
22
120
142
South
Africa
0.3%
0.6%
1.3%
1.3%
0.1%
North
America
$’000
1,275
119
25
103
1,522
–
18
117
135
North
America
0.7%
1.5%
3.7%
3.8%
0.3%
Group
$’000
29,804
4,040
1,599
3,719
39,162
8,302
248
1,305
1,553
North
America
1.0%
1.5%
2.2%
2.2%
0.3%
Group
$’000
31,285
2,823
831
1,849
36,788
17,223
207
1,511
1,718
65
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.4 Receivables and other assets continued
(c) Movement in credit loss allowance
The movement in the credit loss allowance during the year is as follows:
Balance at the beginning of the year
Credit loss allowances recognised during the year
Credit loss allowance utilised during the year against irrecoverable trade debtors
Acquired through business combinations
Foreign currency translation
Balance at the end of the year
Notes
2.4(a)
2019
$’000
(1,553)
(415)
807
(520)
(37)
(1,718)
2018
$’000
(668)
(1,887)
1,002
–
–
(1,553)
(d) Quality of trade receivables
The quality of trade receivables is monitored by the ageing of invoiced amounts yet to be received. 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
Notes
2019
$’000
21,681
11,741
1,648
1,718
2.4(a)
36,788
2018
$’000
29,696
5,581
2,332
1,553
39,162
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. A credit
loss allowance 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, or
–
Iress has identified a risk of expected credit loss based on historical trend of credit losses.
2.5 Payables and other liabilities
Payables and other liabilities are initially measured at fair value. Subsequent to initial measurement, these are recognised at amortised cost.
Liabilities are classified as current where Iress does not have an unconditional right to defer settlement beyond 12 months.
Employee related liabilities primarily comprise of the annual leave liability and other employee related entitlements. The annual leave liability is
measured as current leave accrued multiplied by current salary plus statutory charges.
Contract liabilities represent amounts received from customers for which revenue has not been earned or recognised. Finance arrangements
relate to the acquisition of software licences.
Due to the short term nature of current liabilities, the carrying amount approximates their fair value.
Current
Trade payables
General accruals
Audit fee accruals
Contract liabilities
GST/VAT payable
Finance arrangements
Employee related liabilities(1)
Dividend payable
Accrued interest
Other liabilities
Notes
1.3(b)
2019
$’000
4,958
17,700
518
12,083
6,729
1,600
17,605
75
325
2,932
64,525
2018
$’000
3,407
15,884
923
4,915
3,976
2,605
17,013
176
276
1,797
50,972
(1) A prior year reclassification was made to reclassify $8.8 million of annual leave accruals from current provisions to current employee related liabilities.
66
IRESS LIMITED ANNUAL REPORT 2019 Non-current
Finance arrangements
2019
$’000
–
–
2018
$’000
1,600
1,600
The Group’s exposure to foreign currency risk arising from translating payables and other liabilities to the Group’s functional currency is
considered insignificant. The exposure is monitored on a net working capital basis as disclosed in Note 3.3.
Liquidity risk arises from current payables and other liabilities that are payable in less than one year. The Group manages this liquidity risk by
maintaining sufficient cash and current assets to meet the contractual obligations as they arise.
2.6 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 mainly comprise long service leave entitlements of employees.
Deferred consideration represents purchase consideration payable for acquisitions once certain conditions are met as stipulated in the contracts.
These are measured at the discounted value of the best estimate of the cash payable based on conditions existing at the balance date.
Significant estimate made
Non-current provisions contain $27.1 million of deferred consideration in relation to the acquisition of QuantHouse during 2019.
The measurement of deferred consideration at fair value at each reporting date requires estimates to be made about expected revenue and
expenses over the measurement period to which the deferred consideration relates. In respect of the deferred consideration arising from the
QuantHouse acquisition, estimates have been established for expected revenue and certain costs in the 2020 financial year and revenue in the
2021 financial year. If actual revenue and costs differ from these estimates the amounts of deferred consideration paid will change. The minimum
and maximum amounts payable under these arrangements are $0 and $31.8 million respectively.
Onerous losses represent the expected losses on non-cancellable property lease commitments which the Group no longer utilises. These leases
will expire in 2020. The amount provided for represents the present value of the future payments on the leases, net of expected income from
sub-leasing the properties.
The make good provision relates to restoration expenses which will be incurred upon termination of property leases in order to reinstate the
leased properties to their original condition.
(a) Provisions as at the end of the year comprises of:
Current provisions
Employee benefits(¹)
Deferred consideration(²)
Onerous losses provision(³)
Make good provision(4)
Other provisions(5)
Non-current provisions
Employee benefits
Deferred consideration(²)
Make good provision(4)
Other provisions(5)
2019
$’000
5,210
1,235
192
–
32
6,669
2019
$’000
3,484
27,076
–
–
30,560
2018
$’000
5,074
1,360
611
109
1
7,155
2018
$’000
2,387
–
1,647
1,188
5,222
(1) A prior year reclassification was made to reclassify $8.8 million of annual leave accruals from current provisions to employee related liabilities included within current
payables and other liabilities.
(2) The current year deferred consideration relates to the QuantHouse acquisition (refer to note 4.2). A payment of $1.2 million (€0.8 million) is expected to be paid in the
first quarter of 2020 should the required conditions be attained. The prior year deferred consideration relates to the Innergi acquisition and was settled in 2019 as
the conditions were partially fulfilled and a payment of $0.7 million made during 2019.
(3) Part of the provision for onerous operating lease contracts required under AASB 117 was derecognised upon the application of AASB 16 Leases.
(4) The provision for make good was previously presented as a provision. Upon the application of AASB 16 Leases, the amount was transferred to lease liabilities.
There was no change in the amount recognised.
(5) The current year provision relates to a potential litigation severance claim. The prior year provisions include straight-line lease and incentive liabilities of $1.2 million
which were previously recognised with respect to operating leases. Upon the application of AASB 16 Leases, the amounts were derecognised and factored in the
measurement of the right-of-use assets and lease liabilities.
67
Section 2. Core assets and working capital
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.6 Provisions continued
(b) The carrying value of provisions are reconciled as follows:
As at 31 December 2018
Opening carrying value
Transfer to payables and other liabilities(1)
Provision raised during the year
Provision utilised during the year
Foreign currency translation
Closing carrying value
As at 31 December 2019
Opening carrying value
Change in accounting policy(2)
Assumed in business combination
Provision raised during the year
Provision reversed during the year
Provision utilised during the year
Foreign currency translation
Closing carrying value
Employee
benefits
$’000
Deferred
consideration
$’000
Onerous
losses
provision
$’000
Make good
provision
$’000
Other
provisions
$’000
15,033
(8,791)
1,239
–
(20)
7,461
3,265
–
–
(1,905)
–
1,360
–
–
822
(211)
–
611
–
–
1,755
1
–
1,756
1,449
(176)
672
(727)
(29)
1,189
Employee
benefits
$’000
Deferred
consideration
$’000
Onerous
losses
provision
$’000
Make good
provision
$’000
Other
provisions
$’000
7,461
–
288
1,367
(296)
(130)
4
8,694
1,360
–
32,527
–
(3,779)
(1,436)
(361)
28,311
611
(119)
–
–
(300)
–
–
192
1,756
(1,756)
–
–
–
–
–
–
1,189
(1,199)
348
–
(315)
–
9
32
Total
$’000
19,747
(8,967)
4,488
(2,842)
(49)
12,377
Total
$’000
12,377
(3,074)
33,163
1,367
(4,690)
(1,566)
(348)
37,229
(1) A prior year reclassification was made to reclassify $8.8 million of annual leave accruals from current provisions to current payables and other liabilities.
(2) Impact of adopting AASB 16 Leases’ modified retrospective approach whereby amounts as at 1 January 2019 were either derecognised or transferred to lease liabilities.
2.7 Commitments and contingencies
(a) Capital commitments
No capital expenditure has been contracted or provided for at balance date (2018: Nil).
(b) Contingencies
There are no material contingent liabilities or capital expenditure that have been contracted or provided for at the reporting date (2018: Nil).
68
IRESS LIMITED ANNUAL REPORT 2019 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
4 year $300 million bank facility to November 2021
AUD
GBP
EUR
Total amount drawn
Borrowing costs capitalised
Total borrowings
2019
$’000
2018
$’000
87,500
113,377
25,623
96,500
109,126
–
226,500
205,626
(586)
(1,237)
225,914
204,389
The bank facilities allow multi-currency drawdowns and are at variable interest rates based on BBSY, LIBOR and EURIBOR benchmark rates plus
a market margin. Amounts can be repaid at the discretion of the Group. As such, the amounts drawn approximates their fair value.
Not included in the table above is a $10 million multi-currency guarantee facility that is used for any bank guarantees required by the
Group. At year end, $5.8 million (2018: $5.9 million) was utilised. The borrowings are unsecured, and the Group has complied with the financial
covenants of its borrowing facilities during the year.
(b) Reconciliation of the movement in borrowings to the financing cash flows is shown as follows:
Opening balance
Proceeds from borrowings
Repayments of borrowings
Net borrowing costs amortised
Foreign exchange rate movements
Closing balance
2019
$’000
204,389
123,645
(107,022)
651
4,251
225,914
2018
$’000
192,865
89,000
(82,500)
651
4,373
204,389
69
Section 3. Debt and equity
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
3.1 Debt facilities and derivatives continued
(c) 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 fair value of the derivatives is determined by first calculating the future cash flows that are 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.
Iress has the following cross currency swaps:
Assets at fair value
3 year receive AUD/pay GBP to September 2021
Liabilities at fair value
3 year receive AUD/pay GBP to September 2021
2019
$’000
2018
$’000
–
783
1,820
–
The cross currency swaps minimise unfavourable foreign exchange rate movements and also reduce the Group’s cost of funding.
The fair value of the swaps 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 appreciation of the British pound against the Australian dollar. No credit risk adjustments have been recognised on the
fair value of the derivative as these are not material.
(d) Contractual maturity analysis
Contractual cash outflow maturity analysis is shown based on undiscounted cash flows. An estimate, based on forward interest rates and foreign
currency rates, has been applied in determining interest and foreign cash outflows and inflows. The actual contractual outflow may vary to the
amounts disclosed.
31 December 2018
Outflows/(inflows)
4 year facilities – principal
Interest on borrowings
3 year cross currency swaps – principal exchange (¹)
3 year cross currency swaps – interest (¹)
31 December 2019
Outflows/(inflows)
4 year facilities – principal
Interest on borrowings
3 year cross currency swaps – principal exchange (¹)
3 year cross currency swaps – interest (¹)
Within 1 year
$’000
1–3 years
$’000
Greater than
3 years
$’000
–
5,943
–
(823)
205,626
11,390
(462)
(1,440)
–
–
–
–
Within 1 year
$’000
1–3 years
$’000
Greater than
3 years
$’000
–
4,938
–
(164)
226,500
4,526
1,856
(123)
–
–
–
–
(1) Represents expected net cash exchange in AUD that occurs at settlement. Under the terms of the cross currency swaps, the settlements are on a gross basis where
Iress receives AUD and pays GBP.
(e) Interest expense and financing costs
Interest expenses are 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 comprise the following:
Interest income
Interest expense
Other financing costs comprising:
Interest expense of lease liabilities
Amortisation of borrowing costs
Translation gains/(losses) on intra-group financing arrangements
Fair value changes on cross currency swaps
Net interest expense and financing costs
70
Notes
2.3(d)
2019
$’000
547
(5,968)
(2,086)
(651)
2,592
(2,603)
(8,169)
2018
$’000
370
(5,729)
–
(651)
(561)
451
(6,120)
IRESS LIMITED ANNUAL REPORT 2019 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
NUMBER OF SHARES
2019
‘000
173,251
1,346
327
174,924
2018
‘000
171,507
1,615
129
173,251
(2,442)
(2,183)
172,482
171,068
(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 current year for the Dividend Reinvestment Plan.
(3) The change is due to the net movement in shares issued and 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
$1.1 million (2018: $1.0 million decrease).
Foreign currency risk
GBP and EUR borrowings do not give rise to foreign currency risk to the Group as they are ultimately held in entities that have a GBP or EUR
functional currency respectively.
The Group is exposed to foreign currency transaction risk mainly from intercompany balances denominated in foreign currency, the majority of
which is mitigated by internal GBP/AUD cross currency derivatives. Additional foreign currency risk arises from cash balances, receivables and
payables held within each subsidiary but denominated in a currency different to the functional currency of that subsidiary.
The material exposure to foreign currency movements arising from foreign currency working capital balances held within the Group is
summarised below:
Working capital denominated in foreign currency
GBP
ZAR
AUD impact on profit or loss of a 1% reduction in foreign currency rates
GBP
ZAR
2019
‘000
2018
‘000
(12,041)
31,280
47,289
5,758
(226)
32
845
6
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 shareholders.
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
(1) Measured as borrowings and net derivatives liabilities/assets less cash and cash equivalents.
2019
$’000
194,934
629,840
30.9%
2018
$’000
174,653
594,084
29.4%
71
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
Section 4. Other disclosures
4.1 Taxation
Total income tax expense or revenue comprises current and deferred tax recognised in the Statement of Profit or Loss in the year. Current
and deferred tax is also recognised directly in equity, and not in the Statement of Profit or Loss, to the extent it is attributable to amounts and
movements which have also been recognised directly in equity.
Current tax
Current tax comprises expected tax payable/receivable on business taxable income/loss which is recognised in the Statement of Profit or Loss in
the current year, as well as any adjustments to tax payable/receivable recognised in the current year which relate to taxable income/loss recognised
in the Statement of Profit or Loss in prior years.
Current tax is measured using the applicable income tax rates which are enacted, or substantively enacted, at the reporting date in the countries
where the company’s subsidiaries and associates operate.
Deferred tax
Deferred tax represents the movements in deferred tax assets and liabilities which have been recognised during the year and which are
attributable to amounts recognised in the Statement of Profit or Loss in the current year, as well as amounts recognised in the Statement of
Profit or Loss in prior years. Deferred tax assets and liabilities are attributable to temporary timing differences between the carrying amount
of assets and liabilities recognised for financial reporting purposes and the tax base of assets and liabilities recognised for tax purposes.
Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent it is probable
that future taxable profits will be available against which they can be realised.
Deferred tax liabilities are recognised for all the assessable temporary differences as required by accounting standards.
Deferred tax is determined using tax rates which are expected to apply when the deferred tax asset/liability is expected to be realized/settled
based on laws which have been enacted or substantively enacted at the reporting date. The measurement of deferred tax also reflects the tax
consequences flowing from the manner in which the Group expects, at the reporting date, to realise or settle the carrying amount of its assets
and liabilities.
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 of the tax consolidated group. Tax expense, tax revenue, deferred tax assets and deferred tax liabilities arising from temporary
differences of the members of the tax consolidated group are recognised in the separate financial accounts of the members of the tax consolidated
group using the ‘stand-alone taxpayer’ approach. Current and deferred tax assets and liabilities arising from unused tax losses and tax credits of
the members of the tax consolidated group are recognised by the Company (as head entity of 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.
72
IRESS LIMITED ANNUAL REPORT 2019 (a) Income tax expense for the year including current and deferred tax is as follows:
Income tax expense recognised in profit or loss
Current income tax expense
Current income tax charge
Adjustments in respect of current income tax of the previous year
Deferred income tax expense
Origination and reversal of temporary differences
Adjustments in respect of deferred income tax of the previous year
2019
$’000
2018
$’000
24,819
3,416
28,235
(685)
(4,227)
(4,912)
23,748
(2,093)
21,655
204
(986)
(782)
Total income tax expense recognised in Statement of Profit or Loss
23,323
20,873
Income tax expense recognised in other comprehensive income
Arising from gains or losses on long term monetary intercompany balances
39
(20)
Income tax expense recognised directly in equity
Current tax credited directly to other reserves
Deferred tax credited directly to other reserves
Total income tax expense recognised in Other Comprehensive Income and Equity
(b) The reconciliation of income tax expense at the Australian tax rate to total income tax expense is as follows:
Profit from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2018: 30%)
Income tax expense 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
Unrecognised tax losses
Income tax expense
809
(775)
73
2019
$’000
88,451
26,535
(3,441)
(617)
(811)
127
1,530
(1,255)
99
(1,176)
2018
$’000
84,969
25,491
(2,806)
1,727
(3,079)
(637)
177
23,323
20,873
73
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.1 Taxation continued
(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
90
3,934
1,787
995
4,760
31
4,073
1,712
462
493
18,337
(510)
(8,262)
(109)
(8,881)
87
790
(480)
1,050
189
139
(1,717)
(458)
(118)
(35)
(553)
149
1,325
(139)
1,335
–
–
–
–
–
–
–
(121)
22
–
(99)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
129
–
–
(18)
–
6
–
–
(1)
115
(19)
(132)
–
(151)
176
4,853
1,307
2,045
4,931
170
2,362
1,133
366
457
17,800
(380)
(7,069)
(248)
(7,697)
Opening
balance
$’000
Charged
to income
$’000
Charged to
OCI/Equity
$’000
From business
combinations
$’000
Exchange
differences
$’000
Closing
balance
$’000
176
4,853
1,307
2,045
4,931
170
2,362
1,133
366
–
457
17,800
–
(380)
(7,069)
(248)
–
(7,697)
(30)
(612)
1,240
(877)
4,057
(700)
(124)
(434)
771
345
(26)
3,610
(990)
217
1,361
761
(47)
1,302
–
–
–
–
–
–
–
(121)
77
819
–
775
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,174)
–
–
(3,174)
–
195
1
(94)
11
–
120
–
58
–
3
294
–
(28)
(192)
–
–
(220)
146
4,436
2,548
1,074
8,999
(530)
2,358
578
1,272
1,164
434
22,479
(990)
(191)
(9,074)
513
(47)
(9,789)
For the year ended 31 December 2018
Deferred tax assets
Receivables and other assets
Plant and equipment
Computer software
Payables and other liabilities
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
Intangible assets
Other financial assets
Total deferred tax liabilities
For the year ended 31 December 2019
Deferred tax assets
Receivables and other assets
Plant and equipment
Computer software
Payables and other liabilities
Provisions and accruals
Derivative liabilities
Carry forward tax losses
Capital transaction costs
Share-based payments
Leases
Other
Total deferred tax assets
Deferred tax liabilities
Other receivables
Computer software
Intangible assets
Other financial assets
Employee share plan
Total deferred tax liabilities
74
IRESS LIMITED ANNUAL REPORT 2019
(d) Unused tax losses incurred during the year for which no deferred tax asset has been recognised are outlined below:
Singapore (Tax rate 17.0%, 2018: 17.0%)
Hong Kong (Tax rate 16.5%, 2018: 16.5%)
France (Tax rate 28.0%)
Potential tax benefit
2019
$’000
1,539
135
66,707
18,962
2018
$’000
1,143
128
–
215
4.2 Businesses and investments acquired and divested
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.
Acquisition of subsidiary
On 31 May 2019, Iress acquired a 100% interest in QuantHouse, a leading international provider of market data and trading infrastructure.
QuantHouse operates internationally with a focus on UK & Europe, North America and Asia, providing data feeds from exchanges and other data
providers to clients globally.
Iress acquired the holding company, QH Holdco, via Iress Euro Holdings Pty Ltd which is a company incorporated in Australia and ultimately
100% owned by Iress Limited.
QuantHouse is highly complementary and strategically aligned to Iress’ existing and future activities and to its international offering, including
Iress’ increasing focus on data. The acquisition will further strengthen Iress’ international market data business and provide opportunities to
achieve cost synergies and scale.
The earnouts are payable to the sellers on the achievement of specific cost and revenue targets in the 2019, 2020 and 2021 financial years.
The range of possible outcomes for the earnout payments in total are $0 to $34.7 million.
The earnouts have been individually measured at the acquisition date based on the discounted present value of the expected payment achieved
under the respective earnout formulae. In order to assess the expected outcome, management made assumptions as to the probability of
achieving the specific earnout targets and the range of possible outcomes. These probability assumptions were made on the basis of financial
forecasts available at the date of the acquisition.
Acquisition costs of $2.5 million relating to the QuantHouse acquisition were incurred during 2019 and are included in ‘Business acquisition,
integration and restructuring expenses’ (refer to Note 1.6).
75
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.2 Businesses and investments acquired and divested continued
Acquisition of subsidiary continued
The following table summarises consideration paid and payable and the fair value of net assets acquired at the date of acquisition:
Consideration
Cash consideration
Post-acquisition cash consideration
Fair value of contingent consideration (‘the earnouts’)
Total fair value of consideration
Assets acquired
Cash and cash equivalents
Trade and other receivables
Intangible assets
Plant and equipment
Right-of-use assets
Payables and other liabilities
Lease liabilities
Provisions
Deferred tax liabilities
Fair value of assets acquired
Goodwill recorded on acquisition
31 May
2019
$’000
25,571
660
31,862
58,093
5,160
6,341
12,072
1,792
4,881
(18,421)
(5,060)
(320)
(3,174)
3,271
54,822
The revenue resulting from the operations of QuantHouse since acquisition and included in the Group’s Consolidated Statement of Profit or Loss
for the year ended 31 December 2019 was $21.9 million. QuantHouse’s loss after tax since acquisition included in the Group’s Consolidated
Statement of Profit or Loss for the year ended 31 December 2019 was $4.1 million.
Had the acquisition of QuantHouse been effected at 1 January 2019, the revenue of the Group for the year ended 31 December 2019 would have
been $524.1 million and the profit after tax of the Group for the year ended 31 December 2019 would have been $60.2 million.
4.3 Iress Limited – parent entity financial information
The ultimate controlling entity 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:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Profit for the year(1)
Total comprehensive income
(1) Included within profit for the year is dividend income from subsidiaries of $87.0 million (2018: $130 million).
2019
$’000
214,482
759,879
974,361
166,566
238,989
405,555
568,806
383,083
31,021
154,702
568,806
46,421
46,421
2018
$’000
185,566
733,700
919,266
119,700
217,940
337,640
581,626
378,577
24,714
178,335
581,626
102,615
102,615
(b) Capital commitments and contingent liabilities
There are no material contingent liabilities or capital expenditure that have been contracted or provided for at the reporting date (2018: Nil).
76
IRESS LIMITED ANNUAL REPORT 2019
4.4 Subsidiaries
Details of the Group’s wholly-owned subsidiaries at the end of the year are as follows:
Australia
Iress International Holding Pty Ltd(¹)
Apollo II Australia Pty Ltd(¹)(4)
Financial Synergy Pty Ltd(¹)
Financial Synergy Actuarial Pty Ltd(¹)
Financial Synergy Holdings Pty Ltd(¹)
Lucsan Capital Pty Ltd
Innergi Pty Ltd
Iress (AUS) Limited Partnership(5)
Canada
Iress (LP) Holdings Corp.
Iress (Ontario) Limited
Iress Canada Holdings Limited
South Africa
Advicenet Advisory Services (Pty) Ltd
Iress Hosting (Pty) Ltd
Iress MD RSA (Pty) Ltd
United Kingdom
Iress FS Group Limited
Iress FS Limited
Iress Mortgage Services Limited
Iress Portal Limited
Iress Solutions Limited
Iress Technology Limited
Iress (UK) Limited
Other countries
Iress Asia Holdings Limited (Hong Kong)
Iress Malaysia Holdings Sdn Bhd (Malaysia)
Iress (NZ) Limited (New Zealand)
Iress Market Technology (Singapore) Pte Ltd (Singapore)
Peresys Software Limited (Ireland)
QH Hold Co(³)
Iress Data Pty Ltd(¹)
Iress Euro Holdings Pty Ltd(¹)(²)
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(¹)
Iress Market Technology Canada LP
KTG Technologies Corp.
Iress Financial Markets (Pty) Ltd
Iress Wealth MNGT (Pty) Ltd
Iress Wealth Management (RSA) (Pty) Ltd
Iress UK Holdings Limited
Iress Web Limited
Proquote Limited
Pulse Software Systems Limited
Pulse Software Management Limited
TrigoldCrystal Limited
QuantHouse SAS(³)
QuantHouse Sàrl(³)
QuantHouse Singapore Pte Ltd(³)
QuantHouse UK Limited(³)
QuantHouse Inc.(³)
(1) Iress Limited and its Australian subsidiaries entered into an ASIC Class Order
and Deed of Cross Guarantee with Iress Limited in December 2014.
(2) Company was incorporated on 17 May 2019 and entered into the Deed of
Cross Guarantee with Iress Limited in December 2019.
(3) Group acquired these entities on 31 May 2019.
(4) The entity was deregistered on 15 May 2019
(5) The entity was deregistered on 19 June 2019.
4.5 Deed of Cross Guarantee
Iress Limited and a number of Australian wholly-owned subsidiaries as specified in Note 4.4 are party to a Deed of Cross Guarantee under which
each company guarantees the debts of the others. By entering into the deed, the relevant 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 the beginning of the year
Impact of change in accounting policy(¹)
Transfers from reserves
Dividends declared
Retained earnings at the end of the year
2019
$’000
66,878
(16,399)
50,479
7,081
(955)
10,669
(79,839)
(12,565)
2018 (²)
$’000
68,744
(16,525)
52,219
19,557
–
11,049
(75,744)
7,081
(1) Impact of adopting AASB 16’s modified retrospective approach under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019.
(2) The prior year was restated due to the inclusion of Iress South Africa (Australia) Pty Ltd’s branch, resident in South Africa, which had not been treated as a member of
the Deed of Cross Guarantee in prior years but would provide financial assistance to its parent to the limit of its net assets.
77
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.5 Deed of Cross Guarantee continued
(b) Consolidated Statement of Financial Position
ASSETS
Current assets
Cash and cash equivalents
Receivables and other assets
Receivables from Iress Group companies outside the Deed
Current taxation receivables
Total current assets
Non-current assets
Intangible assets
Plant and equipment
Right-of-use assets
Deferred tax assets
Investment in subsidiaries
Other financial assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables and other liabilities
Lease liabilities
Provisions
Current taxation payables
Total current liabilities
Non-current liabilities
Payables and other liabilities
Lease liabilities
Provisions
Payables to Iress Group companies outside the Deed
Borrowings
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Share-based payments reserve
Foreign currency translation reserve
(Accumulated losses)/retained earnings
Total equity
2019
$’000
2018(¹)
$’000
15,645
27,546
–
208
43,399
106,250
18,760
33,204
12,984
414,149
175,109
760,456
803,855
28,655
5,330
6,634
1,684
42,303
50,851
31,374
30,244
20,053
225,914
692
359,128
401,431
402,424
383,083
30,990
916
(12,565)
402,424
17,378
17,609
24,853
6,825
66,665
112,834
24,406
–
10,793
345,490
168,336
661,859
728,524
27,660
–
2,279
1,285
31,224
52,451
–
10,089
17,806
204,389
2,028
286,763
317,987
410,537
378,577
24,683
196
7,081
410,537
(1) The prior year was restated due to the inclusion of Iress South Africa (Australia) Pty Ltd’s branch, resident in South Africa, which had not been treated as a member of
the Deed of Cross Guarantee in prior years but would provide financial assistance to its parent to the limit of its net assets.
78
IRESS LIMITED ANNUAL REPORT 2019 4.6 Basis of preparation
Iress Limited (the ‘Company’) is a for profit company domiciled in Australia. The full year financial report is a general purpose financial report
comprising the Company and its subsidiaries (collectively referred to as the ‘Group’ or ‘Iress’) for the year ended 31 December 2019. 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 19 February 2020;
– 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 Australian dollars, unless otherwise stated; and
– 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 2019.
None of these standards have had a material impact on the Group in the current or future reporting periods or on foreseeable future transactions.
In the current year, the Group has applied a number of amendments to AASBs issued by the AASB that are mandatorily effective for an accounting
period that begins on or after 1 January 2019. Other than AASB 16 Leases, their adoption has not had any material impact on the disclosures or on
the amounts reported in these financial statements. The impact of adopting AASB 16 Leases on the Group is described in detail below.
(i) AASB 16 Leases overview
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 required by AASB 117 and instead introduces a single lessee accounting model.
Applying the 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 Statement of Profit or Loss.
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred
significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under AASB 16, the Group recognises
right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet.
The Group adopted AASB 16 Leases from 1 January 2019 and elected to apply the modified retrospective approach to their real estate and data
server leases. For these leases, which were classified as operating leases under AASB 117, the Group has recognised right-of-use assets and
lease liabilities as at the transition date (1 January 2019).
The Group elected to apply the recognition exemption for leases of low-value assets or short term leases including office equipment such as
printers, coffee machines and other information technology related equipment for use by staff in its offices.
At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental
borrowing rate as at 1 January 2019. Right-of-use assets are measured at either:
–
–
their carrying amount as if AASB 16 had been applied since the commencement date, discounted using the lessee’s incremental borrowing
rate at the date of initial application – the Group applied this approach to its largest property leases; or
an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments – the Group applied this approach
to all other leases.
The Group used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:
– applied a single regional discount rate to a portfolio of leases with similar characteristics;
– adjusted the right-of-use assets by the amount of any recognised AASB 137 onerous contract provision immediately before the date of initial
application, as an alternative to an impairment review;
– applied the exemption not to recognise right-of-use assets and liabilities for leases with lease terms less than 12 months;
– excluded initial direct costs from measuring the right-of-use asset at the date of initial application; and
– used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
The net effect on 1 January 2019 of the recognition of the new right-of-use assets and lease liabilities, adjusted for deferred tax and the reversal of
the existing straight-line lease and incentive liability, were recognised against retained earnings. The impact is disclosed below in Note 4.6 (a)(iii).
79
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.6 Basis of preparation continued
(a) Adoption of new standards continued
(ii) Significant accounting policies resulting from the adoption of AASB 16 Leases
The Group has applied AASB 16 using the modified retrospective approach and therefore the comparative information has not been restated
and continues to be reported under AASB 117 and IFRIC 4.
The policy applicable from 1 January 2019
This policy is applied to contracts entered into, or changed, on or after 1 January 2019.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the Group assesses whether:
–
–
–
the contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
the Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and
the Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant
to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used
is predetermined, the Group has the right to direct the use of the asset if either:
•
•
the Group has the right to operate the asset; or
the Group designed the asset in a way that predetermines how and for what purpose it will be used.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each
lease component on the basis of their relative stand-alone prices. However, for leases of buildings in which it is a lessee, the Group has elected
not to separate non-lease components and instead accounts for the lease and non-lease components as a single lease component.
Policy applicable before 1 January 2019
For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based on the
assessment of whether:
–
–
fulfilment of the arrangement was dependent on the use of a specific asset or assets; and
the arrangement had conveyed a right to use the asset. An arrangement conveys the right to use the asset if one of the following were met:
•
•
•
the Group had the ability or right to operate the asset while obtaining or controlling more than an insignificant amount of the output;
the Group had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount
of the output; or
facts and circumstances indicated that it was remote that other parties would take more than an insignificant amount of the output,
and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.
Refer to Note 2.3 for disclosures on the leases currently held by the Group.
80
IRESS LIMITED ANNUAL REPORT 2019 (iii) Impact on the financial statements
Group as a lessee
The table below summarises the impacts of the adoption application of AASB 16 for each line item on the Group’s consolidated financial statements:
Impact on assets, liabilities and equity in the Statement of Financial Position as at 1 January 2019:
Balances as at 1 January 2019
Intangible assets(¹)
Plant and equipment(²)
Right-of-use assets(³)
Receivables and other assets(¹)
Lease liabilities non-current(³)
Provisions current liabilities(4)
Provisions non-current liabilities(3,5)
Payables and other liabilities current(6)
Deferred tax assets(7)
Deferred tax liabilities(7)
Retained earnings(8)
IMPACT OF CHANGES IN
AASB 16 ACCOUNTING POLICY
Balances prior
to adoption
$’000
Accounting
policy
adjustments
$’000
Balance as
restated
$’000
555,190
30,851
–
59,570
–
(7,155)
(5,222)
(50,972)
17,800
(7,697)
(12,852)
(6,218)
(1,523)
52,299
6,218
(56,880)
119
2,955
118
13,325
(12,523)
2,110
548,972
29,328
52,299
65,788
(56,880)
(7,036)
(2,267)
(50,854)
31,125
(20,220)
(10,742)
(1) Third party computer software held under finance lease arrangements previously presented within intangible assets was de-recognised and is now presented as
prepayments included in trade and other receivables. There has been no change in the expense recognised.
(2) Leasehold improvements previously presented within plant and equipment are now presented as the right-of-use assets. There has been no change in the amount
recognised.
(3) The application of AASB 16 to leases previously classified as operating leases under AASB 117 resulted in the recognition of right-of-use assets and lease
liabilities. It resulted in a decrease in other expense and an increase in depreciation and interest expense.
(4) Provision for onerous operating lease contracts required under AASB 117 was derecognised.
(5) The provision for recognising operating lease expenses on a straight-line basis as required under AASB 117 was derecognised.
(6) The lease incentive liability previously recognised with respect to operating leases was derecognised and the amount factored in the measurement of the right-of-use
assets and lease liabilities.
(7) Impact of the deferred tax assets and liabilities as a result of the recognition of the right-of-use-assets and the lease liabilities.
(8) Impact of adopting the modified retrospective approach under AASB 16 in which the cumulative effect of initial application is recognised in retained earnings at
1 January 2019.
Impact on the Group’s consolidated statement of cash flows:
Under AASB 117, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, the net
cash generated by operating activities has increased by $12.3 million for the year ended 31 December 2019 whilst net cash used in financing
activities increased due to payments of $10.2 million and $2.1million which represent repayment of lease liabilities and lease interest
payments respectively.
The adoption of AASB 16 did not have an impact on overall net cash flows for the Group.
Group as lessor
The Group, as lessor, continued to classify its sub-lease agreements as operating leases and there were no changes to the accounting treatment. The Group
recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘Other Income’.
81
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.6 Basis of preparation continued
(b) Standards on issue but not yet effective
At the date of authorisation of the financial statements, the following new accounting standards and interpretations have been published that
are not mandatory for 31 December 2019 reporting periods and have not yet been applied by the Company within this financial report:
– AASB 3 Business combinations (amendments)
– Definition of a business (1)
– AASB 10 and AASB 128 (amendments)
– Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture (1)
– AASB 17 Insurance contracts
– Measurement of insurance liabilities (2)
– AASB101 and AASB 108 (amendments)
– Definition of Material (1)
– Conceptual Framework for Financial Reporting (updated 2018)
– Amendments to and reference to the Conceptual Framework in IFRS
(1) Effective for annual periods beginning on or after 1 January 2020, with earlier application permitted.
(2) Effective for annual periods beginning on or after 1 January 2021.
Standards(1)
Management have assessed the impact of the adoption of these Accounting Standards and Interpretations in future periods on the financial
statements of the Company.
Management does not believe these Accounting Standards and Interpretations will have a material impact in future periods on the financial
statements of the Company at this point in time.
(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 in line with the Group’s
accounting policies.
In reporting the consolidated financial statements, all intercompany balances and transactions, and unrealised profits or losses 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 the 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 are 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.
82
IRESS LIMITED ANNUAL REPORT 2019 (iii) Financial instruments
Financial assets and financial liabilities are recognised in the Company’s Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
If the transaction price differs from fair value at initial recognition, the Group will account for such difference as follows:
–
–
if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses
only data from observable markets, then the difference is recognised as a gain or loss on initial recognition (i.e. day 1 profit or loss);
in all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 profit or loss will be deferred by including
it in the initial carrying amount of the asset or liability).
After initial recognition, the deferred gain or loss will be released to profit or loss such that it reaches a value of zero at the time when the
entire contract can be valued using active market quotes or verifiable objective market information. Depending on the type of financial
instrument, the Group can adopt one of the following policies for the amortisation of day 1 gain or loss:
–
calibrate unobservable inputs to the transaction price and recognise the deferred gain or loss as the best estimates of those unobservable
inputs change based on observable information; or
–
release the day 1 gain or loss in a reasonable fashion based on the facts and circumstances (i.e. using either straight-line or non-linear amortisation).
Financial assets
The Company’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are initially recognised
at fair value plus transaction costs, when the Company becomes a party to the contractual provisions of the instrument. Interest resulting from
holding financial assets is recognised in the statement of comprehensive income on an accruals basis.
Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for
impairment. Provision for impairment of trade and other receivables is made when objective evidence is received that the Company will not be
able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment is determined as the
difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective rate computed
at initial recognition. Any change in value through impairment or reversal of impairment is recognised in the statement of comprehensive income.
A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred,
and that transfer qualifies for de-recognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have
been transferred or the Company retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay
the cash flows to one or more recipients. A financial asset that is transferred qualifies for de-recognition if the Company transfers substantially
all the risks and rewards of ownership of the asset.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and on-demand deposits, and other short-term highly liquid investments that are readily
convertible into a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments
issued by the Company are recorded at the proceeds received, net of direct issue costs.
Share capital represents the nominal value of equity shares issued. Share premium represents the excess over nominal value of the fair value
of the consideration received for equity shares, net of direct issue costs.
Retained earnings include all current and prior year results as disclosed in the statement of comprehensive income. Retained earnings include
realised and unrealised profits. Profits are considered unrealised where they arise from movements in the fair value of investment properties that
are considered to be temporary rather than permanent.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the fair value of proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the statement of
comprehensive income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that
they are not settled in the period in which they arise.
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
83
Section 4. Other disclosures
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4.7 Transactions with related parties
The Group previously disclosed its transactions with ASX Limited (“ASX”) as it was a substantial holder of shares in the Group (2018: 18.58%).
In February 2019 ASX divested its entire holding in Iress. As a result, ASX is no longer considered a related party and therefore no disclosure
of transactions with the Group has been made.
There are no other shareholders with substantial holdings that materially transacted with the Group during the year.
4.8 Events subsequent to the Statement of Financial Position date
On 7 January 2020, Iress completed the acquisition of 100% of the share capital of BC Gateways (BCG), a blockchain platform provider
incorporated in Hong Kong.
BC Gateways’ blockchain platform allows data to be published and distributed in a timely, accurate and auditable way using a ‘shared source
of truth’. The workflow that exists today between many parties in financial services is distributed and disconnected, which lends itself to a
meaningful application of blockchain technology. The acquisition will, therefore, assist the Group in meeting demand from financial institutions
for cost-effective, automated and compliant technology.
Initial cash consideration of $1.525 million was paid with further potential payments of up to $2.5 million in 2020 contingent on the achievement
of sustained and recurring revenue. The purchase agreement allows for further payments that reflect a multiple of recurring revenue achieved by
the business in the 2021 and 2022 financial years if the amount is above the level of consideration already paid to the sellers. At this point the
estimated range of outcomes for these further payments cannot be determined as the business is still in the start-up phase.
On 19 February 2020, the Directors declared a final dividend of 30.0 cents per share franked to 40% totaling $52.5 million.
Other than the events above, there has been no other matter or circumstance which has arisen since the end of the financial year which 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 subsequent years.
84
IRESS LIMITED ANNUAL REPORT 2019 Directors’ Declaration
31 December 2019
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 42 to 84 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 2019 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 4.4
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 4.5.
Note 4.6 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
Chair
Melbourne
19 February 2020
ANDREW WALSH
Managing Director and Chief Executive Officer
85
Independent Auditor’s Report
86
IRESS LIMITED ANNUAL REPORT 2019 87
Independent Auditor’s Report continued
88
IRESS LIMITED ANNUAL REPORT 2019 89
Independent Auditor’s Report continued
90
IRESS LIMITED ANNUAL REPORT 2019 Shareholder Information
The shareholder information set out below was applicable as at 31 December 2019.
Distribution of members and their holdings
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
HYPERION ASSET MANAGEMENT LIMITED
GREENCAPE CAPITAL PTY LIMITED
SELECTOR FUNDS MANAGEMENT
Total substantial shareholders
Balance of register
Total
20 largest shareholders of quoted equity securities
Rank
Name
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
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD (AGENCY LENDING DRP)
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
BNP PARIBAS NOMS PTY LTD (DRP)
PACIFIC CUSTODIANS PTY LIMITED (EQUITY PLANS TST)
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (NT-COMNWLTH SUPER CORP)
PACIFIC CUSTODIANS PTY LIMITED (IRE PLANS)
AMP LIFE LIMITED
CITICORP NOMINEES PTY LIMITED (COLONIAL FIRST STATE INV)
NETWEALTH INVESTMENTS LIMITED (WRAP SERVICES)
NATIONAL NOMINEES LIMITED
ARGO INVESTMENTS LIMITED
DJERRIWARRH INVESTMENTS LIMITED
MIRRABOOKA INVESTMENTS LIMITED
AVANTEOS INVESTMENTS LIMITED
WARBONT NOMINEES PTY LTD
AMCIL LIMITED
Total top twenty shareholders
Balance of register
Total
Number of
shareholders
Number of
shares
% of issued
capital
3,551
2,959
535
281
40
7,366
1,559,414
6,892,007
3,815,896
6,487,661
156,168,469
174,923,447
Number held
19,827,778
10,700,119
6,687,524
37,215,421
137,708,026
174,923,447
0.89
3.94
2.18
3.71
89.28
100.00
%
11.34
6.12
3.82
21.28
78.72
100.00
Number held
% of issued
shares
63,336,227
31,389,827
16,916,133
10,498,669
6,178,395
5,471,523
3,300,847
2,828,332
2,144,715
1,611,762
1,184,430
1,091,816
1,059,908
928,000
891,884
878,327
866,324
736,682
569,708
545,498
152,429,007
22,494,440
36.21
17.94
9.67
6.00
3.53
3.13
1.89
1.62
1.23
0.92
0.68
0.62
0.61
0.53
0.51
0.50
0.50
0.42
0.33
0.31
87.14
12.86
174,923,447
100.00
91
Corporate Directory
Directors
Tony D’Aloisio – Chair
Andrew Walsh – Managing Director and Chief Executive Officer
Niki Beattie
John Cameron
Julie Fahey
John Hayes
Jenny Seabrook
Geoff Tomlinson
Trudy Vonhoff(¹)
Michael Dwyer(¹)
Company Secretary
Peter Ferguson
Registered Office
Level 16, 385 Bourke Street
Melbourne VIC 3000
Phone: +61 3 9018 5800
Fax: +61 3 9018 5844
Share Registry
Link Market Services Limited
Level 13, Tower 4
727 Collins Street
Melbourne VIC 3000
Stock Exchange Listing
Iress Limited shares are quoted on the Australian Securities Exchange under the code: IRE
Auditor
Deloitte Touche Tohmatsu
(1) Appointed on 1 February 2020.
92
IRESS LIMITED ANNUAL REPORT 2019 www.iress.com