Iress Ltd
Annual Report 2020

Plain-text annual report

2020 Annual Report What do we do? We provide technology to power financial services. What’s our purpose? We believe technology should help people perform better every day. What are we trying to do? Make it easy for people to love financial services. If we get there, what will we become? The essential partner for forward-thinking financial services businesses. Our strategic focus for investors, clients, users and employees The quality, competitiveness and relevance of our technology have successfully driven Iress’ long-term growth. The current drivers of industry growth, including regulatory requirements, automation and data, mean Iress is well placed for continued success. Key drivers of growth Increasing regulatory requirements. Increasing business complexity and industry change. Demand for inter-connected software and services. Demand for data solutions for compliance, intelligence and growth. Demand for efficiency through automation. Strategic priorities Attract and retain the best people. A continued focus on operational efficiency and quality. Targeted investment in data services, cloud technology and connectivity. Service clients exceptionally. Deliver a compelling user experience. Cover image credit: Ketut Subiyanto 01 In this report 2020 highlights Business overview Chair & CEO’s letter Iress leadership Wellbeing & technology assume centre stage Iress Foundation Board of directors Material business risks Impact of COVID-19 on Iress Operating & Financial Review Directors’ Report Auditor’s Independence Declaration Financial Statements Directors’ declaration Independent Auditor’s Report Shareholder information Corporate directory 02 04 06 08 10 12 14 16 17 18 22 45 46 94 95 100 101 AGM details Subject to COVID-19 requirements, the AGM will be a hybrid event, with the option to attend online or in person on: Thursday 6 May 2021 11.30am AEST RACV Club 501 Bourke Street Melbourne, Australia Image credit: Yan, from Pexels 02 Iress Limited Annual Report 2020 2020 highlights Financial Shareholder Operating revenue AUD (m) Sustainable return for shareholders $542.6 7% 7% On a constant currency basis v 2019 On a reported currency basis v 2019 Segment Profit AUD (m) Earnings per share AUD (cents) Net Profit After Tax AUD (m) $152.9 32.3c $59.1 $542.6 Dividend per share AUD (cents) 46.0c 2019 2020 $508.9 $542.6 2018 2019 2020 Operating cash flow AUD (m) Sustainable return Strong track record of producing sustainable returns for shareholders $124.9 2019 2020 $102.6 $124.9 03 Moving to the cloud Employee rating score 1,000 90% Client sites migrated to AWS Favourable rating of support given by Iress during the pandemic (June 2020) Integrations New team members by acquisition 228 People welcomed to Iress, following the acquisitions of BC Gateways, O&M Systems and OneVue in 2020 550 Iress Community 12,500+ Active users Increased digital connection for clients Iress Foundation 7x Increase in Client Portal users $373,873 Contributed by Iress Foundation and Iress people to charitable initiatives 04 Business overview Iress is a leading technology company, designing and developing software and services for the financial services industry. Iress operates across Asia Pacific, the United Kingdom & Europe, Africa and North America. Software & 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 with essential infrastructure and functionality, helping them deliver to their clients, members and customers. Financial advice Trading and market data Investment management Software Integrated financial advice software offering: • client management • business automation • portfolio data • research Global market data and trading software including: • market data • trading interfaces • order and execution management • smart order routing • FIX services • portfolio management Global investment management and trading software including: • portfolio management • order and execution management services • FIX services • analytical tools • connectivity Superannuation Mortgages Superannuation administration software including: • fund registry • digital member portal Multi-channel mortgage sales and origination software including: • automated workflow • application processing • connectivity Life and pensions Insurance and pension sourcing software including: Clients • institutional and independent advisory • institutional sell-side brokers • retail brokers • online brokers • financial planning tools • scaled advice journeys • digital client solutions • data-driven compliance and analytics • consent infrastructure-as-a-service • securities lending • analytical tools • algorithmic trading • market making • CFD clearing • post trade solutions • trading and market data APIs Integrated software offerings, including: • market data • order management • portfolio management • client relationship management • wealth management • investment managers • investment platforms • fund managers • private client advisers and managers • wealth managers • retail platforms • Funds administration services including: • funds registry • retail platform licensing and technology • digital advice solutions • superannuation funds • fund administration services Mortgage intermediary software, including: • mortgage comparison • mortgage advice • lender connectivity • quoting • comparison • application processing • mortgage lenders • mortgage intermediaries • institutional and independent advisory • mortgage intermediaries Iress Limited Annual Report 202005 52% 30% 9% 9% Our locations Where our people focus Asia Pacific UK & Europe Africa North America Product & technology Client service & support Corporate Operations People across the globe Revenue $542.6m 2,333 Clients 9,000 Users 500,000 1,215 Asia Pacific 772 290 56 UK & Europe Africa North America 06 Chair & CEO’s letter 2020 was a year like no other—for individuals and for the world. Never before has our purpose—we believe technology should help people perform better every day—been as relevant. As the world’s financial services professionals started working from their homes, Iress’ technology demonstrated again how essential it is. Faced with a global pandemic, Iress management and the Board set two core priorities to guide our response: uninterrupted service delivery to clients and the health and wellbeing of our people. We have delivered on these two priorities throughout the past year. While some of the countries we operate in are experiencing periods of relief from government restrictions, others remain under heavy lockdowns and as a business we remain vigilant. Our technology investments in prior periods— including workplace technology, and cloud services and digital tools for clients—have ensured we have been able to meet rapidly changing client demand. This includes record trading volumes, heightened demand for tools such as digital signatures and urgent software changes such as those needed to facilitate early release of superannuation. While the pandemic is not over, Iress has demonstrated the value of its resilient business model, the essential nature of what it offers to clients and users, and its strong collaborative culture. The Board and Management are proud of how our people have responded and adapted through this period—to help each other and our clients and users. Strategic priorities The pandemic accelerated some trends but slowed other areas of demand as clients re-prioritised. Our strategic priorities continued to be critical to achieving our goal of being the essential partner for forward-thinking financial services businesses. We continue to make strong progress against each of our strategic priorities: • To attract and retain the best people. • A continued focus on operational efficiency and quality. • Targeted investment in data services, cloud technology and connectivity. • Service clients exceptionally. • Deliver a compelling user experience. Attracting and retaining the best people sits at the core of successful technology companies. Iress’ employee engagement rates have continued to improve in recent years, and our current and former employees rate us highly versus technology competitors on sites such as Glassdoor. Operational efficiency and leverage is critical to all aspects of our business, including financial outcomes, but also increasingly for client and user experience. We are seeing this in our financial performance, and in client and user feedback, where investment in our technology platforms are driving consistent, high quality deployment at scale. Our progress in migrating clients to cloud is strong with approximately 1,000 client sites migrated during the year. Servicing clients exceptionally and delivering a compelling user experience is at the heart of Iress. The addition of two executives during 2020, Joydip Das as Chief Product Officer and Michael Blomfield as Chief Commercial Officer, will continue to drive a client and user-centred culture. Financial results We are pleased to report 2020 results ahead of reinstated guidance, aided by good momentum in the fourth quarter. 2020 pro forma Segment Profit was $155.6m, 5% ahead of 2019. A year into the pandemic, these results highlight the strength of Iress’ businesses and the improving returns on our growth investments. Recurring revenue, which underpins our group, increased by 8%, making up over 90% of total revenue. Cash conversion moved up to 108% (87% in pcp) and pro forma return on invested capital remains strong at 10%. The group generated $114m of free cash flow allowing us to continue to invest in technology and product development to sustain long-term growth. Including the successful capital raise in May, net debt fell by 36%. APAC was a stand-out performer with revenue up 10%. Our strong Australian businesses continue to deliver growth with consistently high returns. We made good progress in executing our growth strategies including turning QuantHouse to monthly profitability and in providing Australian super funds with a highly efficient, outsourced administration solution. In the UK though, we have been affected by restrictions relating to the pandemic. While our significant growth opportunity remains intact, project timing and new business development have been delayed with revenue growth deferred. 2021 has started well for Iress and we have a positive outlook. For 2021 we expect to deliver Segment Profit in constant currency between the range of $164m and $168m including OneVue and ROIC of between 9% and 10%. Guidance assumes organic growth and improving returns on growth investments, underpinned again by 90%+ levels of recurring revenue. Your dividend The final dividend is 30 cents per share, franked to 40% bringing the full year 2020 dividend to 46.0 cents per share, franked to 38% (average weighted). Iress continues to maintain a conservative balance sheet at a leverage ratio of 0.8x Segment Profit. Iress Limited Annual Report 2020Tony D’Aloisio (left) and Andrew Walsh (right) 07 2020 acquisitions During 2020, alongside organic growth, Iress completed three acquisitions: • BC Gateways (Australia, January 2020). BC Gateways has provided Iress with an end-to-end blockchain platform that enables financial services to exchange information in a secure, trusted, and streamlined way. This is being deployed in Australia to help the industry meet new advice fee consent requirements. • O&M Systems (United Kingdom, March 2020). O&M Systems provides pension and investment data and comparison tools to financial advisers. The acquisition has further strengthened Iress’ already comprehensive advice offering in the United Kingdom. • OneVue (Australia, November 2020). With OneVue, Iress will be able to offer clients an open, seamless and highly efficient investment infrastructure that does not currently exist in Australia. In 2020, Iress completed a successful $175 million equity raising to further strengthen its balance sheet and increase the flexibility for opportunities in the current environment, including the OneVue acquisition. We thank those investors who participated. Annual General Meeting Subject to any government restrictions relating to the pandemic, it is the Board’s intention to have a hybrid annual general meeting via video conferencing and in person. The meeting is scheduled for 11.30 am, 6 May 2021 at the RACV City Club in Melbourne. Thank you On behalf of the Board and Management, thank you to our shareholders, our clients and users and to Iress’ 2,333 people. While 2021 is unlikely to see the end of this pandemic, we hope it is a more predictable and manageable year for everyone. Tony D’Aloisio Andrew Walsh Chair Managing Director & CEO Chair and Board succession At the May 2019 Annual General Meeting, I outlined the Board’s succession and renewal plan. In line with this we welcomed two new non-executive directors: Michael Dwyer and Trudy Vonhoff at the beginning of 2020. At the AGM in May 2020, Jenny Seabrook stepped down from the Board following twelve years of service. At the 2021 AGM, two long-serving directors John Hayes and Geoff Tomlinson will not be seeking re-election. On behalf of my fellow directors, I thank John and Geoff for their commitment as directors. With these changes Iress will have a Board of seven made up of Roger Sharp, John Cameron, Julie Fahey, Trudy Vonhoff, Michael Dwyer, Niki Beattie and Andrew Walsh. Niki and Julie along with Roger are subject to election and re-election at this year’s AGM. At Iress’ Annual General Meeting in May, I will step down as chair and director. 2021 will mark more than eight years as an Iress director and more than six years as Chair. During this time, Iress has continued to adapt and grow. Iress is a strong company, whose strength comes from its ability to predict trends and lead clients ahead of those trends. Its strength also comes in its diversity including by geography, segment and product. I am pleased to welcome Roger Sharp as non-executive director and chair-elect. Roger brings 35 years’ experience in markets, technology and governance. He has broad international experience in Australia, New Zealand, Hong Kong, Singapore, the United Kingdom and the United States. He is currently chair of ASX-listed Webjet, the deputy chair of Tourism New Zealand, the chair of the Lotteries Commission of New Zealand and the founder of boutique technology investment bank, North Ridge Partners. His past executive roles have included Global Head of Technology at ABN AMRO Bank and CEO of ABN AMRO Asia Pacific Securities. Tony D’Aloisio, Chair 08 Iress leadership At Iress, our greatest asset is our people. Supporting them through an unprecedented time is a leadership team committed to achieving Iress’ goals. Iress Limited Annual Report 202009 Left to right Andrew Todd Chief Technology Officer Andrew Walsh Chief Executive Officer Coran Lill Chief Communications & Marketing Officer John Harris Chief Financial Officer Joydip Das Chief Product Officer Julia McNeill Chief People Officer Michael Blomfield Chief Commercial Officer Peter Ferguson Chief Legal Officer & Company Secretary Simon New Chief Client Solutions Officer 10 Wellbeing & technology assume centre stage During the unexpected events of 2020, Iress focused on two things: the health and wellbeing of its people and uninterrupted delivery to its clients and users. Image credit: Zen Chung Iress Limited Annual Report 202011 It was the year no-one was expecting. While governments grappled with economies and millions dealt with the fallout of lockdowns, employers transitioned swiftly to a new, digital way of working. At Iress, prior investments and current strategies meant the transition to working from home was smooth, and clients benefitted from our digital focus, cloud technology and expert service. Supporting our people With cloud-based technology well embedded into the workplace, our transition to remote work was seamless. Collaboration tools such as Slack and Zoom kept us agile and working effectively together. Supporting our people has been at the forefront of how we’ve navigated this year. With a pragmatic yet supportive approach, we prioritised our people’s health and wellbeing through: • Flexible leave arrangements: Including the temporary addition of Emergency Childcare Leave to support parents during lockdown. • Employee Assistance Program: Our free, confidential 24/7 counselling service for all people was expanded to include immediate family members. • Increased regularity of leadership sessions and all people webinars: To keep our people informed and help those in leadership to support their people. • Resilience webinars: Internal webinars featuring professionals with tangible tips to help people build their resilience. • Regular surveys: We continue to survey people on how effectively they are working and their wellbeing. The feedback from our people has been overwhelmingly positive at the support they have received during 2020 with a 90% favourability rating of how Iress has supported them during the pandemic. Supporting our clients Financial services businesses rely on Iress to stay connected and be productive. With financial services needing to adapt quickly in response to the pandemic, our technology was even more critical. How clients needed to respond to their clients, members and customers shifted overnight and the need for digital interaction was a must. Many of our clients have adopted financial technologies like digital signatures and client portals, and others have brought forward strategies to digitise and automate further. Client and user survey results show that remote access capabilities from Iress were a huge benefit during COVID-19, helping them to deliver better outcomes for their clients, and make their job easier. We have not experienced any serious negative impact on operations or productivity as a result of the pandemic. Looking to the future Employees have been returning to offices in Asia Pacific in select locations in line with local guidelines, however, returning to the office remains a personal decision for each employee for the foreseeable future. We believe that during and beyond the pandemic there will continue to be a permanent shift in how people work. Rather than prescribe whether someone can or can’t work from home, or how many days they must work in the office, we will move to a flexible system driven by the needs of each team. Each employee will ask themselves: “What do I need to achieve today”, “Who do I need to achieve it with” and therefore “Where am I best to be”. Zoom meetings held 357,233 Slack messages sent 19m Slack activity Average 99 minutes per person every day Zoom webinars 1,069 Living alone during lockdown in 2020 my anxiety and loneliness steadily increased. Through the employee assistance program (EAP) offered by Iress, I was able to reach out for some much needed support. I was introduced to cognitive behavioural therapy, a short-term treatment which focuses on how thoughts, beliefs, and attitudes affect feelings and behaviours. In these sessions I learned techniques for coping with this undeniably stressful situation that we were all thrust into. In addition to EAP, Iress hosted a number of sessions to build resilience throughout the year. Mental wellbeing is often a hidden struggle, and can be uncomfortable to talk about. It was such a relief to be in a safe environment where it was ok not to be ok and to reach out for help. Klee Barris Iress – South Africa 12 Iress Foundation Making a difference in tough times. For most around the world, 2020 has been a year of challenges—making the work of the Iress Foundation more important than ever. Social distancing has meant that our normal giving methods weren’t always possible, however, that wasn’t going to stop us. Our people still volunteered their time where they were able to, or found alternative ways to fundraise and support the causes close to their hearts. • A garden triathlon: After the sad passing of a UK colleague to an incurable brain tumour, one of our data engineers Steve Mitchell took up the challenge of a lockdown-style triathlon to raise funds for the family. Steve’s triathlon comprised of a 1500m swim in a child-sized 4m paddle pool, a 40km cycle using a 12-year-old’s bike (on rollers) and a 10km run in a 6m garden. Supported by the Iress Foundation and generous colleagues, Steve raised £14,000. Iress fundraising highlights • The Australian bushfire relief effort: January saw devastating bushfires rage through parts of Australia. The Iress Foundation raised over $28,500 to help support those affected. • Tackling food poverty: With the number of people facing food insecurity on the rise, this is a cause we continue to support. Due to the scaled-back hands-on help this year, we opted to donate to these charities in Australia and the UK. • Getting behind Talent Beyond Boundaries: With their Middle East base in Beirut, Talent Beyond Boundaries was in the centre of a powerful explosion this year where over 200 people perished and around 5,000 were injured. A financial contribution of $15,000 was made to support Talent Beyond Boundaries and the important work they do, especially during times like these. • Helping at-risk youth reach their potential: Before lockdown hit in March, a group of intrepid hikers from our Melbourne and Sydney offices took on the Whitelion Three Peaks Challenge climbing three Australian mountains, in three states, over 33 hours and raised $48,394. These funds will go towards helping at-risk youth to reach their potential. • Giving children a better start: We’ve donated and fundraised for our education partner charities in South Africa who provide food and resources to help make learning more accessible for disadvantaged children. “I just wanted to do something that would make things easier for Liam’s family. I saw that someone had done a marathon in their garden during the lockdown, and it gave me the idea. Colleagues came together to help raise a staggering amount.” Steve Mitchell, Iress – UK “Projects that help childhood development are loved by the team here in South Africa. Helping make an impact that sets kids up for a better future makes me really proud.” Kelisha Panday, Iress – South Africa “We are driven by the continued resilience of our refugee candidates and the support of companies like Iress, which keep us inspired to push for a better tomorrow. We will always consider Iress part of the Talent Beyond Boundaries family, and we hope to continue changing lives together for many years to come.” Noura Ismail, Middle East Director, Talent Beyond Boundaries 1,646 donations contributed via Iress Giving Platform $241,713 contributed by Iress Foundation $132,160 contributed by Iress people Iress Limited Annual Report 202013 $241,713 33 charities supported Organisations the Iress Foundation was proud to support during 2020 are available on iress.com/iressfoundation2020. 14 Board of directors Tony D’Aloisio AM, Chair of the Board Andrew Walsh Independent Non-Executive Director since June 2012 and Chair since August 2014 Managing Director and Chief Executive Officer since October 2009 Tony has 45 years’ experience as a senior executive in government, corporate and legal roles, including Chair and independent Non-Executive Director of Perpetual, Chair and Commissioner for the Australian Securities and Investment Commission (ASIC), Chair 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. 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, with a focus on designing, developing and delivering software for the financial services industry in Asia Pacific, UK & Europe, Africa and North America. Julie Fahey Niki Beattie Independent Non-Executive Director since October 2017 and Chair of the People & Performance Committee since February 2020 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. Independent Non-Executive Director since February 2015 Niki has more than 30 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 Chair of listed entity Aquis Exchange Limited, which operates a pan-European stock exchange and technology business, 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 and of FMSB, Fixed Income, Currencies and Commodities Standards Board, a standard setting body for wholesale markets. She was previously on the board of MOEX, the Moscow Exchange and of Borsa Istanbul, the Turkish Exchange. She also spent 12 years on the Secondary Markets Advisory Committee to the European Securities Markets Authority and 6 years on the Regulatory Decisions Committee of the UK Financial Conduct Authority. Iress Limited Annual Report 202015 Geoff Tomlinson John Cameron John Hayes Independent Non-Executive Director since February 2015 Independent Non-Executive Director since March 2010 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 Chair 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 Chair of Growthpoint Properties Australia and a director of Wingate Group Holdings. 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 (ASX), 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 co-founded the global refugee initiative Talent Beyond Boundaries and now works for them pro bono 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. Trudy Vonhoff Michael Dwyer AM Independent Non-Executive Director since February 2020 Independent Non-Executive Director since February 2020 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, A2B (Cabcharge), 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. Michael has over 35 years’ experience in superannuation and investment, including 14 years as CEO of First State Super. He is a director of 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. After serving as a director, on 31 August 2020 Michael was appointed as the Chair of TCorp (New South Wales Treasury Corporation). On 22 October 2020 Michael was appointed as a director of Bennelong Funds Management. 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 management of Iress’ compliance and risk functions. He also carries oversight of the Iress Foundation. Peter has been a Board member of the Schizophrenia Fellowship of NSW (trading as One Door) since 2012. 16 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 Information security breach and failure of critical systems 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. 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 customers 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 data loss prevention systems. • 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. Economic climate Economic conditions, domestically and internationally, can impact client expenditure and accordingly, client demand for Iress’ systems. This risk is mitigated by Iress’ diverse geographic presence and diverse product portfolio. The impact of COVID-19 is mitigated by the recurring revenue base and cash generative nature of the Group. Foreign exchange Iress is exposed to foreign exchange movements, which may affect the value of profits repatriated to Australia. 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. 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. Iress’ risk management strategy includes the close monitoring of regulatory developments globally. Iress is pro-actively engaged in the development of new and existing relationships with relevant regulatory stakeholders, policy makers, and media groups to monitor the regulatory landscape. This strategy is focused on limiting potential impacts of regulatory development so that Iress may continue to service its global markets and efficiently respond to compliance requests. Industry 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. 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. Iress endeavours to manage this risk by maintaining a highly skilled and educated technology organisation and by exploring the potential utilisation or impact of emerging technologies. In the same way, Iress endeavours to manage market change by maintaining a high degree of engagement with its customers. In that regard Iress is fortunate that its customer base, being distributed geographically and being comprised of highly sophisticated industry representatives, is likely to be at the forefront of industry change and evolution. 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. Iress Limited Annual Report 202017 Impact of COVID-19 on Iress Subsequent to 31 December 2019, there was a global outbreak of a novel strain of coronavirus (COVID-19), and on 11 March 2020, the World Health Organisation declared the coronavirus outbreak a pandemic. The global and domestic responses, including mandates from federal, state, and/or local authorities, to mitigate the spread of the virus continues to evolve rapidly and has impacted global commercial activity and contributed to significant volatility in financial markets. Iress’ key focus during this time has been the health and wellbeing of its people, and ensuring that they have been able to work safely and effectively on a remote basis, as well as providing service continuity for clients and users. While some people and teams in certain locations have started returning to the office as government restrictions have lifted, the majority of Iress’ people continue to work from home. For those offices that have reopened, Iress’ focus has been on ensuring that workplaces are safe. Operations have not been interrupted by COVID-19 and Iress continues to deliver all services and support to clients and users. Iress’ teams, including business-critical teams, have been working well remotely and the business can continue to operate effectively in this manner for an extended period of time if required. Regular updates regarding business continuity are published on Iress’ website. Iress operates a subscription model and most of Iress’ revenue is recurring in nature. Iress has a history of strong cash conversion and low debtor defaults. These features of Iress’ commercial model have continued throughout the COVID-19 pandemic. The majority of client implementation projects have continued since the onset of the COVID-19 pandemic, notwithstanding a short period of adjustment to the new environment. However, some projects, particularly in the UK Mortgages business were temporarily delayed. In addition, Iress is exposed to the broader economic uncertainty evident in all of Iress’ markets as a result of COVID-19. This makes it difficult to forecast short-term financial performance. At the date of this report, due to the resilience of Iress’ business, Iress has not been eligible for, nor applied for, significant government COVID-19 related support other than the deferral of certain VAT and payroll tax payments that were offered to all companies in the UK and NSW respectively. Iress settled the deferred payroll tax payments during the second half of 2020 and expects to settle the UK VAT liabilities within the next twelve months and as such they remain presented in the financial statements as current liabilities. Key risk areas identified by Management and the Board where COVID-19 may impact financial reporting for the Group are: • The impact of COVID-19 on Iress’ clients and, as a result, on Iress’ revenue, • The carrying value of non-financial assets (primarily goodwill) and the forward looking assumptions made about future performance in the models used to test for impairment, • The assumptions utilised in determining the level of the Group’s credit loss provisioning including expectations of future credit losses from client default, and • The assumptions around future performance used to determine the fair value of contingent consideration relating to the QuantHouse and BC Gateways acquisitions that are recorded as provisions on Iress’ balance sheet as at 31 December 2020. 18 Operating & Financial Review Operating & Financial Review For the year ended 31 December 2020 Operating & Financial Review Operating revenue Segment Profit Reported Constant Currency Basis Reported Constant Currency Basis Segment Profit after share-based payments EBITDA Reported NPAT Earnings & dividends per share Basic earnings per share Dividends per share 2019 $m 508.9 508.9 152.1 152.1 134.4 133.9 65.1 2020 $m 542.6 546.0 152.9 155.4 131.9 125.5 59.1 2020 vs 2019 7% 7% 1% 2% (2%) (6%) (9%) 2019 Cents per share 2020 Cents per share 2020 vs 2019 37.9 46.0 32.3 46.0 (15%) 0% Constant currency basis assumes the 2020 financial results are converted at the same average foreign exchange rates used to convert the 2019 financial results. Operating Revenue Direct Contribution APAC UK & Europe Mortgages South Africa North America Client Contribution Product and Technology Operations Corporate Segment Profit Acquisition of OneVue 2019 $m 264.5 142.7 29.0 48.3 24.5 508.9 2020 $m 289.8 154.6 26.9 42.9 28.4 542.6 2020 vs 2019 10% 8% (7%) (11%) 16% 7% 2019 $m 191.1 91.9 19.2 37.5 10.4 350.1 (118.6) (42.7) (36.7) 152.1 2020 $m 204.0 94.4 18.1 33.9 11.0 361.4 (128.4) (42.6) (37.4) 152.9 2020 vs 2019 7% 3% (5%) (10%) 6% 3% 8% 0% 2% 1% On 6 November 2020, Iress acquired OneVue for $115m. OneVue is Australia’s largest third-party fund registry as well as providing online investment solutions and third-party superannuation administration services. The combination of Iress’ technology footprint and OneVue’s market leading managed fund administration business provides a unique opportunity to deliver seamless, automated and efficient end-to-end investment infrastructure in Australia. Due to the timing of transaction completion, OneVue did not make a material contribution to the 2020 financial result. Operating Revenue On a reported basis, revenue from ordinary activities grew 7% from $508.9m in 2019 to $542.6m in 2020. The increase in revenue was primarily driven by strong growth in Australia, the full year impact from acquiring QuantHouse in 2019 and contributions from the recent acquisitions of OneVue and O&M. On a constant currency basis, revenue grew 7% for the same period. Iress Limited Annual Report 202019 Segment Profit(1) On a reported basis, Segment Profit increased 1% from $152.1m in 2019 to $152.9m in 2020. On a constant currency basis Segment Profit grew 2% for the same period. The result was driven by growth in operating revenue partly offset by recent acquisitions which currently operate at a lower margin than the rest of the group or are loss making; and cost investments to capitalise on emerging revenue opportunities or to improve the way Iress designs, engineers and deploys software. In constant currency, excluding the impact of acquisitions and staff transfers, Operations and Corporate costs decreased 1% from 2019 to 2020 with all organic cost growth focussed on the Product and Technology teams. APAC On a reported basis, APAC revenue grew 10% from $264.5m in 2019 to $289.8m in 2020 which reflects strong growth in Financial Advice and Superannuation, continued growth in Asia, and ongoing resilience in Trading and Market Data. The result also benefited from the full year impact from QuantHouse (acquired in May 2019) and contribution from the recently acquired OneVue business. Across the APAC region, Trading & Market Data revenue grew 5% reflecting the full year contribution from QuantHouse, project fees from the implementation of a Private Wealth solution for a leading Australian institution and organic growth of 15% in Asia, reflecting the full year revenue impact of successful client implementations in 2019 and new sales momentum in 2020. Financial Advice revenue grew 7% from 2019 to 2020 reflecting ongoing demand for Iress’ financial advice software (Xplan) as advisers continued to focus on risk, data and compliance following the Royal Commission into financial services in Australia. As expected, financial advice revenue declined in the second half of 2020 versus the first half of 2020 due to the timing impact of advisers migrating from large institutions to independent advice firms. Superannuation revenue grew 12% from 2019 to 2020, reflecting heightened client project activity and fees, particularly from the deployment of automated super administration solutions to two large clients. Excluding acquisitions and staff transfers, direct contribution was up 5% in 2020 reflecting revenue growth and a 9% increase in costs as the business invests in super administration. UK & Europe On a reported basis, revenue grew 8% from $142.7m in 2019 to $154.6m in 2020 (local currency revenue also increased 8%) which reflects the contribution from the recently acquired businesses of QuantHouse and O&M. Excluding these acquisitions, revenue was down 2% in 2020 reflecting the impact of COVID-19 on the timing of key client projects and new business tendering activity. Revenue growth in local currency, returned in the second half with revenue up 2% versus the first half of 2020. On a reported basis, direct contribution grew 3% from $91.9m in 2019 to $94.4m in 2020. In local currency, direct contribution increased by 2%. The 2020 contribution margin was lower than 2019 in part due to recent acquisitions operating at lower margins. Excluding acquisitions, the contribution margin improved in the second half from 65% to 69% as a result of organic revenue growth returning. During 2020, the UK business achieved a number of important client project milestones including: • Private Wealth deployment to a large financial adviser completed • Successful proof of concept delivered and a subsequent large enterprise wealth deployment under way. • Successful Xplan implementation project milestones at three large enterprise wealth management clients. • First market making client commenced billing and two further clients signed for implementation in 2021. Mortgages On a reported basis, revenue decreased 7% from $29.0m in 2019 to $26.9m in 2020. In local currency, revenue was also down 7% over the same period. At the end of 2019, the Mortgages business ceased support of the original version of the Mortgage Sales and Originations (“MSO”) software product. 2020 revenue in local currency from MSO Version 2 increased 3% from 2019. A number of key client projects were delayed or paused in the first half of 2020 due to the onset of COVID-19. However, these projects recommenced in the second half resulting in revenue increasing 35% in local currency compared to the first half of 2020. The Mortgages business continues to grow recurring subscription licence revenue which contributed approximately 46% of total revenue in 2020, up from 31% in 2019 as a result of two clients going live in the second half of the year. All non recurring revenue relates to the implementation of MSO and will drive recurring revenue growth at the conclusion of the implementation project. In May 2020, Iress announced the withdrawal from the Australian mortgage market following a strategic review. The impact of this closure on the 2020 financial results was minimal. In local currency, direct contribution decreased 5% from 2019 to 2020 reflecting revenue decline, partially offset by cost control. The contribution margin increased by 2% in 2020 compared to 2019. South Africa Political and economic uncertainty was heightened in 2020, exacerbated by the onset of COVID-19. In local currency, revenue in 2020 remained in line with 2019. However, as a result of the depreciation of the South African Rand relative to the Australian Dollar revenue decreased 11% on a reported currency basis from $48.3m in 2019 to $42.9m in 2020. A broad private wealth solution was successfully delivered in 2020 to a Tier 1 financial services institution. Interest in Iress’ retail trading product continues following the roll out of Viewpoint to South Africa’s largest online share trading broker. In local currency, direct contribution increased 2% from 2019 to 2020, resulting in a 1% improvement in contribution margin. (1) Iress uses Segment Profit as a measure of underlying earnings to aid inter-period comparability of results. 20 Operating & Financial Review Operating & Financial Review cont. For the year ended 31 December 2020 North America On a reported basis, revenue increased 16% (17% in local currency) from $24.5m in 2019 to $28.4m in 2020 reflecting the full year contribution from QuantHouse and strong client retention. In local currency, direct contribution increased 7% from 2019 to 2020 which reflects the full year impact of the QuantHouse acquisition and ongoing cost discipline, offset by the transfer of people from other segments. Product and Technology Investment in product and technology is at the heart of Iress’ success and market position, supporting client retention and future recurring revenue growth. Product and Technology cost is primarily made up of people costs and reflects Iress’ ongoing investment in existing and new technology. On a reported basis, costs increased 8% from $118.6m in 2019 to $128.4m in 2020. Cost increases in 2020 reflect recent acquisition as well as investments in people and capability to pursue emerging revenue opportunities and continue to improve the way Iress designs, engineers and deploys software. In constant currency, excluding acquisitions and staff transfers, Product and Technology costs increased by 4% compared to 2019. Operations On a reported basis, Operations costs of $42.6m were in line with 2019. Operations costs include core business infrastructure and people, such as internal and external communications technology, information security, operating hardware and software, and client help desk. In constant currency, excluding acquisitions and staff transfers, Operations costs decreased by 3% in 2020 reflecting increasing scale and operating leverage. Corporate On a reported basis, costs increased 2% from $36.7m in 2019 to $37.4m in 2020. Corporate costs include Iress’ central business functions including human resources, finance, communications & marketing, legal and other general corporate costs. In constant currency, excluding the impact of acquisitions and staff transfers, Corporate costs increased 1%. 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 2019 $m 152.1 (17.7) 134.4 (0.5) 133.9 (37.2) 96.6 (8.2) (23.3) 65.1 2020 $m 152.9 (21.0) 131.9 (6.4) 125.5 (39.4) 86.2 (8.0) (19.1) 59.1 2020 vs 2019 1% (19%) (2%) large (6%) (6%) (11%) 2% 18% (9%) Iress Limited Annual Report 202021 Net Profit After Tax (NPAT) Iress’ reported NPAT decreased 9% from $65.1m in 2019 to $59.1m in 2020 which reflects increases in share-based payments, other non-operating expenses and depreciation and amortisation. Share-based payments increased 19% from $17.7m in 2019 to $21.0m in 2020 as a result of the previously announced changes in both executive and non-executive remuneration structures. These changes brought forward accounting expense recognition for non-executive equity remuneration and, for executives, resulted in cash bonuses being replaced by 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 one-off costs primarily in relation to: • Costs associated with the acquisitions of BC Gateways, O&M and OneVue (largely external adviser costs), • Integration costs in relation to the acquisition of QuantHouse, • The migration of some server infrastructure to Amazon Web Services, • Uplift of certain corporate core infrastructure including information security and restructuring activities, and • Revaluation of deferred contingent consideration (“earn-outs”) associated with the acquisition of QuantHouse in 2019 and BC Gateways in 2020. This is discussed in more detail in Note 2.6 in the 2020 Financial Statements. Depreciation and Amortisation increased from $37.2m in 2019 to $39.4m in 2020 as a result of assets added to the balance sheet by recent acquisitions and office refurbishments in the UK, Singapore and South Africa. The Group’s effective tax rate of approximately 24% (2019: 26%) is a function of the tax rates in the jurisdictions in which the business operates and the taxable earnings within those jurisdictions. Dividends Iress’ dividend policy is to maintain a payout ratio of not less than 80% of underlying earnings(2) on an annualised basis, subject to accounting limitations. 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 2020 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 2020 dividend to 46.0 cents per share, franked to 38% at a 30% corporate tax rate. Statement of Financial Position Net debt (measured as borrowings excluding capitalised borrowing costs, net of derivatives, and less cash and cash equivalents) decreased by $69.8m mainly due to the successful $175m equity raise in June 2020 offset by the $115.2m cash consideration paid to acquire OneVue in November 2020. As a result, the leverage ratio (defined in these financial statements as the ratio of net debt over the last twelve months Segment Profit) decreased to 0.82x at the end of the period. Iress continues to maintain a conservative level of gearing and to actively manage cash holdings to reduce interest costs. Current liabilities increased by $16.6m during the period to 31 December 2020. This was primarily due to the impact of the OneVue acquisition with $14.2m of payables and other liabilities being consolidated from the OneVue Group at 31 December 2020. Lease liabilities (both current and non-current) increased in total by $27.0m primarily due to the commencement of new office leases in the UK and the impact of the acquisitions of OneVue and O&M Systems during the year. As a result of these changes right-of-use assets increased by $23.4m. Intangible assets increased by $114.4m primarily due to the acquisitions of BC Gateways, O&M Systems and OneVue during 2020. Refer to notes 2.1 and 4.2 to the Financial Statements for more details. Issued capital increased by $175.3m was primarily due to the equity issued as part of the Share Placement and Share Purchase Plans launched in June 2020. See note 3.2 to the Financial Statements for more details. (2) Segment Profit less operating depreciation and tax at 30%. 22 Directors’ Report Directors’ Report For the year ended 31 December 2020 The Directors of Iress Limited and its subsidiaries (“the Group”) submit the annual financial report for the year ended 31 December 2020. 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 2020, and the number of meetings attended by each Director. Director A D’Aloisio N Beattie J Cameron M Dwyer J Fahey J Hayes J Seabrook(1) G Tomlinson T Vonhoff A Walsh Board Meetings Audit & Risk People & Performance Eligible Attended Eligible Attended Eligible Attended 17 17 17 17 17 17 6 17 17 17 17 17 16 17 17 17 6 15 17 17 1 * * 3 4 4 2 4 3 * 1 * * 3 4 4 2 4 3 * * 8 8 6 8 * 4 * 6 * * 8 8 6 8 * 4 * 6 * * Not a member of this committee. (1) Independent Non-Executive Director since August 2008, fourth and final term as a Director ended at the AGM in May 2020. Events subsequent to the Statement of Financial Position date On 17 February 2021, the Directors declared a final dividend of 30.0 cents per share franked to 40% totalling $58.0 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. Changes in state of affairs On 7 January 2020, Iress acquired 100% of the share capital of BC Gateways and on 17 March 2020 Iress acquired 100% of the share capital of O&M Systems (O&M). On 29 April 2020, Iress refinanced its unsecured bank facilities totalling $300m that were due to expire in November 2021. The amount of the unsecured bank facilities was increased to $405m and the expiry date extended to April 2024. The covenant requirements remained unchanged. On 1 June 2020, Iress announced the proposed issue of 14,395,394 ordinary fully paid shares through an equity placement and 1,919,386 ordinary fully paid shares under a Share Purchase Plan for total gross proceeds of $170m. The issuance of the shares under the equity placement was completed on 4 June 2020 and total proceeds, before fees, of $150m were received. The Share Purchase Plan closed on 29 June 2020 and was oversubscribed. The issue was increased by 479,844 shares and 2,399,230 shares were issued on 8 July 2020 for total proceeds of $25m. On 6 November 2020 Iress acquired 100% of the outstanding shares of OneVue (OneVue) via a Scheme Implementation Agreement with OneVue Holdings (OVH.ASX). For details on the BC Gateways, O&M and OneVue acquisitions refer to Note 4.2 to the Consolidated Financial Statements. Other than the above, there was no significant change in the state of affairs of the Group during the financial year. Iress Limited Annual Report 202023 Indemnification of Officers & 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 45. 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/ 24 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 REMUNERATION REPORT This remuneration report provides details of Iress’ remuneration policy and practice for Key Management Personnel (KMP) for the 2020 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. There were two key Leadership team changes in 2020: a change in the Chief Product Officer and the introduction of a new Chief Commercial Officer role. Effective 1 September 2020, a review of the Leadership team structure was conducted and the Chief Commercial Officer role was introduced to consolidate responsibility for clients and revenue across Iress. As a result of the strategic and operational decision making undertaken by the Leadership team, the list of KMP has been updated. For the year ended 31 December 2020, the KMP were: KMP Position Term as KMP Non-executive Directors (NED) A D’Aloisio N Beattie J Cameron M Dwyer(a) J Fahey J Hayes J Seabrook(b) G Tomlinson T Vonhoff(a) Executive Director A Walsh Executive M Blomfield(c) J Das(d) P Ferguson J Harris A Knowles(d) C Lill(e) J McNeill S New A Todd Non-executive Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Full year Full year Full year Partial year Full year Full year Partial year Full year Partial year Managing Director and Chief Executive Officer (CEO) Full year Chief Commercial Officer Chief Product Officer Chief Legal Officer Chief Financial Officer Chief Product Officer Chief Communications & Marketing Officer Chief People Officer Chief Client Solutions Officer Chief Technology Officer Partial year Partial year Full year Full year Partial year Partial year Full year Full year Full year (a) M Dwyer and T Vonhoff were appointed to the Board as NED on 1 February 2020. (b) J Seabrook ceased to be a NED on 7 May 2020. (c) M Blomfield was appointed to the newly created role of Chief Commercial Officer on 19 October 2020. (d) J Das was appointed to the role of Chief Product Officer on 15 September 2020. The previous incumbent in this role (A Knowles) changed his role effective 31 August 2020 and ceased to be KMP. (e) C Lill became KMP upon changes to the Leadership Team structure on 1 September 2020. Contents Section 1 Overview of remuneration Section 2 Remuneration framework Section 3 Relationship between performance and remuneration outcomes Section 4 Non-executive Director fees Section 5 Additional required disclosures 25 28 31 37 38 Iress Limited Annual Report 202025 SECTION 1 OVERVIEW OF REMUNERATION 1.1 Executive summary Iress’ executive remuneration framework applies to executive members of the KMP (Executive KMP) and selected other executives. Under the framework, equity is awarded up-front as a set percentage of remuneration (subject to Board discretion), with service and performance measured over three to five years from grant as per the below diagram: Remuneration principles Annual performance measurement Remuneration components Long-term performance measurement Our goal To be the essential partner for forward-thinking financial services businesses Our goal is supported by our remuneration principles and performance framework Attract, motivate and retain talent Reward for value creation Simple and transparent Aligned with shareholder interests 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 substantial 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 This framework was introduced in 2019 when the Board made a number of changes to Iress’ executive remuneration framework which included removal of cash short-term incentives, increasing the proportion of remuneration delivered through equity and replacing the Relative Total Shareholder Return (RTSR) performance hurdle with an Absolute Total Shareholder Return (ATSR) hurdle. These changes were made to enhance the alignment of executives and shareholders. The framework is 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. In the Board’s view, notwithstanding the impact of COVID-19, these changes are working as intended with a greater focus on medium to long-term performance from executives, both at an individual and group level. 26 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 Impact of COVID-19 In light of the COVID-19 pandemic, Iress’ clients across the world, who rely on Iress to stay connected and productive, have had to rapidly adapt to a digital interaction model. Iress responded quickly and effectively to this by prioritising service continuity and providing practical technology related support to help clients stay connected with their people and business. Iress continues to deliver all services and support to clients and users. Iress’ financial performance in 2020 was impacted by the pandemic. While most of Iress’ revenue is recurring in nature, some client projects, particularly in the UK mortgages business, were temporarily delayed in the context of economic uncertainty. Iress’ 2020 revenue of $543m was 7% higher than in 2019, but fell short of the internal target set for 2020 as a result of the more challenging macro environment. Management responded to lower than expected revenue through rigorous cost control which delivered a Segment Profit outcome, excluding the impact of currency fluctuations, of $155m, 2% higher than in 2019. Pro forma Segment Profit(1), a measure of performance that removes the impact of currency fluctuations and the timing of acquisitions, grew 5% compared to 2019. The Board and Management made a considered decision to focus on sustainable business outcomes. Iress takes a medium to long term view when assessing strategic investment decisions and, in this context, the Board and Management maintained a number of important investment initiatives that formed part of the 2020 cost base. No employees were stood down or asked to reduce their hours or pay and no roles were made redundant as a direct impact of COVID-19. Iress’ key focus during this time has been the health and wellbeing of its people, and ensuring that they have been able to work safely and effectively on a remote basis, as well as providing service continuity for clients and users. In addition, Iress completed the acquisition of OneVue in November 2020. This strategic acquisition opened a material new growth opportunity for Iress, allowing Iress to participate in a revenue pool of more than $3 billion. With OneVue, Iress is able to offer clients an open, seamless and highly efficient investment infrastructure that does not currently exist in Australia. As a result of these decisions, the 2020 Segment Profit result is less than it would have been if only short term financial outcomes had been the focus. The Board and Management believe that this approach was, and is, in the best medium to long term interests of shareholders. The Board views the Segment Profit result to be a steady outcome in the context of the volatile macroeconomic environment and the impact it has had on top-line growth. Iress did not access direct government support in any jurisdiction in relation to COVID-19. As mentioned above, measures were taken to support the health and wellbeing of our people. Iress’ entire workforce worked remotely from home for many months of the year, even ahead of government advice in each jurisdiction. Additional leave, at full pay was also provided to all employees with dependents at school age and below and additional annual leave could be purchased or sold to support individual circumstances. While some people and teams in certain locations have started returning to the office as government restrictions have lifted, the majority of Iress’ people continue to work from home. For those offices that have reopened, Iress’ focus has been on ensuring that workplaces are safe. The Board and Management are extremely proud of the resilience shown by our people and the successful adaptation to significant change in their daily working lives. While the pandemic brought significant uncertainty and disruption, Iress was in a strong position to respond given its adoption of collaborative tools and ways of working in line with Iress’ strategic objectives over previous years. Remuneration outcomes As further detailed in Section 1.2 and 3.2, the Board assessed individual and group performance in 2020 and Iress’ progress towards the Company’s longer-term strategic goals. The Board’s view is that the executive remuneration framework continues to provide strong alignment between performance and remuneration, which is clearly demonstrated in this year’s difficult market circumstances. Under Iress’ executive remuneration framework, performance is measured over the equity holding period and impacts the amount and value of equity that vests. Iress does not have a short-term incentive under which annual performance determines the value of cash/equity incentive awarded. In line with delivering shareholder value, the key performance metric impacting the value of equity vested is Total Shareholder Return. In 2020, executives saw a reduction in the value of their equity, which forms a significant portion of their total remuneration, due to the reduced likelihood of Performance Rights (PR) vesting, and declined value of current equity holdings (see Section 3.5). This decline in the value of exposure to Iress equity, and thus the personal wealth of individual executives, is directly aligned with shareholder experience. The Board reviewed the impact of the share price movements on executives and determined that the framework was working as intended. (1) For a reconciliation of pro forma to reported results refer to the table in Section 3.2 of this report. Iress Limited Annual Report 202027 Under Iress’ executive remuneration framework, the Board also has discretion to consider other measures of performance. The Board reviewed Iress’ 2020 performance against the agreed non-financial performance measures (see Section 3.2), which for 2020 were at target in most areas, above target for Company/People-Quality and below target for Client-Growth. Progress towards medium term strategic goals was on target in all areas, including Growth, due to acquisitions such as OneVue. After due consideration, the Board concluded that the below target performance in Client-Growth in the short term did not materially impact overall performance, which remains on track over the medium-term. With additional consideration to the sustainable approach with which Management responded to COVID-19 and the degree to which executives had already been impacted by share price movements, the Board viewed that applying discretion to further alter outcomes was not warranted or appropriate. Accordingly in 2020, no equity granted in prior years lapsed or was clawed back, a portion of the 2016 CEO PR and 2017 Executive PR awards vested (see Section 1.2) and the Board intends to grant equity for 2021 in line with the target remuneration mix (see Section 2.2). 1.2 Performance and remuneration outcomes The Board assessed the Group’s performance in 2020 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) in the medium to long term. Although financial and growth performance in 2020 was below target, the Board is of the opinion that the executives performed exceptionally well in limiting the impact of COVID-19 on financial performance, whilst supporting both Iress’ clients and people, and continuing to invest in future growth opportunities. In addition, the executives made substantial progress towards the Group’s medium term growth objectives in 2020 with the acquisitions of BC Gateways, O&M Systems, and OneVue. 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 No increases in base salary were given to Executive KMP in 2020. Base salary paid to Executive KMP in 2020 was $4,446,090 (2019: $4,187,740). This represents an increase of 6.2% which is due to the part-year inclusion of the Chief Commercial Officer and Chief Communications & Marketing Officer in KMP and the full-year impact of the base salary increases awarded to Executive KMP during 2019. The 2019 increases aligned salaries with the market and recognised the change in scope and complexity of the roles since previous adjustments. Equity granted Following its 2019 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 2020 equity grants proceed in line with the target remuneration mix disclosed in Section 2.2 (i.e. discretion was not applied to adjust grant values). Executive KMP were awarded Equity Rights (ER) of $2,675,066 and PR of $2,735,065 in total in February 2020. Total Remuneration awarded in 2020 was $9,856,221, which was comparable to the prior year (2019: $9,860,835). As above, following its assessment of 2020 performance, the Board intends to grant the equity for 2021 in line with the target remuneration mix shown in Section 2.2. Equity vested The previous remuneration framework included deferred equity and PR (see Section 5.4 for more detail). Some equity granted under the previous remuneration framework vested in May 2020. The performance metric for PR granted before 2019 was on a RTSR basis. The Board was satisfied that there were no other performance or conduct factors which would justify a clawback of equity scheduled to vest in May 2020. Hence, vesting was approved to proceed as follows: • Based on RTSR performance, the CEO 4-year and 3-year PR granted in 2016 vested at 82.0% and 64.0% respectively and the Executive 3-year PR granted in 2017 vested at 63.4%. The performance period for these awards was prior to the impact of COVID-19. • The value of equity vested in 2020 (deferred equity and PR totalled $2,536,412) was lower than the value that vested in 2019 ($3,473,720). This is primarily due to lower RTSR results (and thus a lower proportion of PR vesting) and a lower share price at vesting compared to 2019. 28 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 SECTION 2 REMUNERATION FRAMEWORK 2.1 Our remuneration structure, effective 1 January 2019 Component Base salary Equity rights (ER) Description • A market-related reward for performing a leadership role at Iress. • An up-front grant of Rights(1) to facilitate immediate, collective alignment of executives with shareholders. • Vesting after two years is subject to continued service. A further two-year restriction period applies(2), supporting retention and sustainable value creation over a total of four years. • 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 dividends(3) 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). Performance rights (PR) • A grant of PR(1), 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 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 FY20 - FY22 would be required for 50% of the 2020 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 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 Minimum shareholding requirement (MSR) > Share price at the time when equity is acquired (i.e., when ER is granted, when PR vests and/or when fully-paid shares are purchased). • Progress towards the MSR is shown in Section 5.6. 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. (1) A 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. Iress Limited Annual Report 202029 Under the framework, remuneration is delivered over a five year timeframe as shown below: 2020 2021 2022 2023 2024 2025 Base salary Cash ER(1) PR(2) MSR Vesting period (Rights) Holding lock period Measurement period(1) Vesting period(2) Minimum shareholding requirement to be met within five years (ongoing requirement) Performance Rights (Absolute TSR) (1) The Executive grants were awarded on 28 February 2020 with the measurement period for PR starting from 1 January 2020. The CEO grants were awarded post shareholder approval at the AGM on 8 May 2020. (2) Subject to performance, vesting occurs after the vesting period has ended (28 February 2023). 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 target remuneration mix shown in the diagram 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. 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 KMP 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 held for three to five years. Equity represents 68% of Total Remuneration for the CEO and 50% of Total Remuneration for other executives in 2020, as shown in the diagram below. The proportions of equity represent both a target and a maximum grant value with performance impacting value at vesting rather than value at grant. Allocations do not vary from target unless the Board exercises discretion. 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. Target remuneration mix CEO Base salary (32%) ER (33%) PR (35%) Cash (32%) Equity (68%) Executive Base salary (50%) Cash (50%) ER (25%) PR (25%) Equity (50%) The number of ER and PR granted to each executive is calculated using face value. Total Remuneration is multiplied by the percentages shown above. 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 2020 remuneration outcomes for each member of the Executive KMP are shown in Section 3.3. 30 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 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 up to five years. 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 68% of total remuneration for the CEO and 50% of total remuneration for executives in 2020. 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. ✓ Equity is held for three to five years 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 2020. Iress Limited Annual Report 202031 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 holding period of up to five years. In this way, the Board incentivises executives to deliver sustainable long-term shareholder value. The Board sets annual and multi-year financial and non-financial objectives in areas that progressively and collectively support the Group’s medium to long-term strategy and align with the Group’s risk appetite. 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 five-year holding 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 is 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 consistent with the Group’s risk appetite 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 and risk 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 sections below outline Iress’ performance and the resulting remuneration outcomes in 2020. ✓ 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 and risk 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). 32 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 3.2 Group performance against objectives The table below provides summary information on the Group’s earnings for the five years to 31 December 2020. Measure Net Profit After Tax ($’000s) Segment Profit ($’000s)(a) Operating revenue ($’000s) Segment Profit on a constant currency basis ($’000s)(a) Operating revenue on a constant currency basis ($’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 2020 59,066 152,918 542,630 2019 65,128 152,062 508,943 2018 64,096 137,702 464,624 2017 59,755 125,383 429,952 2016 59,452 123,531 389,737 155,339 152,062 138,743 127,875 124,425 546,022 32.3 –18.0%(c) 1.3% n/a 6.5–10% p.a. 508,943 37.9 23.5% 9.3% n/a 469,617 37.6 2.7% 8.7% 443,967 35.4 2.8% 7.8% 393,329 37.0 21.7% 10.6% 50th – 75th percentile n/a (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 $13.21 at 31 December 2019 and $10.39 at 31 December 2020. As noted earlier in this report, Iress’ 2020 operating revenue of $543m was 7% higher than in 2019, but fell short of the target set for 2020 as a result of the more challenging macro environment. Pro forma (see table below for a reconciliation of reported results to pro forma results) revenue growth was 2%. Management responded to lower than expected revenue through rigorous cost control which delivered a Segment Profit outcome, excluding the impact of currency fluctuations, of $155m, 2% higher than in 2019. Pro forma Segment Profit grew 5% and pro forma NPAT grew 7% compared to 2019. The Board views this to be a steady outcome in the context of the volatile macroeconomic environment and the impact it has had on top-line growth. Also noted earlier in this report, Iress takes a medium to long term view when assessing strategic investment decisions. In this context, the Board and Management maintained a number of important investment initiatives that form part of the 2020 cost base and impacted Segment Profit outcome for the year. As a result, the 2020 Segment Profit result is less than it would have been if only short term financial outcomes had been the focus. The Board and Management believe that this approach was, and is, in the best medium to long term interests of shareholders. Iress’ 2020 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. Reconciliation: Reported to pro forma results Operating Revenue Segment Profit NPAT Reported result Add: QuantHouse results for 1st five months of 2019 (1) Remove: BC Gateways post acquisition results in 2020(2) Remove: O&M Systems post acquisition results in 2020(2) Remove: OneVue Holdings post acquisition results in 2020 (2) Remove: Impact of currency movements in 2020(3) Pro forma result 2019 $AUDm 508.9 15.2 524.1 2020 $AUDm 542.6 0.0 (2.7) (7.9) 3.4 535.5 2019 $AUDm 152.1 (3.5) 148.5 2020 $AUDm 152.9 1.5 (0.2) (1.0) 2.4 155.6 2019 $AUDm 65.1 (4.9) 60.2 2020 $AUDm 59.1 (1.4) 0.4 4.3 1.8 64.3 (1) Adjustment to include five months pre-acquisition QuantHouse trading in 2019 (business was purchased end of May 2019) which provides a full twelve month comparative. (2) Adjustments to remove the impact of 2020 acquisitions. (3) Adjustment to remove the impact of currency movements in 2020 so that 2020 results are translated at the same currency rates as 2019. Iress Limited Annual Report 202033 Focus area Performance goal FY20 achievement Strategic progress FY20–21 Clients & Users Quality Ease Growth Product & Technology Quality Ease Growth Company & People Quality Ease Growth To grow strategic relationships Clients experience ease with interactions with Iress Iress achieves budgeted growth goals, through existing and new clients At target At target Below target Iress continues to improve in quality delivery and speed Software useability is improved for end users Data and innovation is delivered in new products for growth Iress is an employer of choice and known for the best people A consistent approach to describe and achieve work across teams is a driver of efficiency Automation is a primary driver of scale across Iress At target At target At target Above target At target At target At target At target At target At target At target At target At target At target At target As shown above, 2020 non-financial performance was at target in most areas, above target for Company/People-Quality and below target for Client-Growth. Progress towards medium term strategic goals was on target in all areas, including Growth, due to acquisitions such as OneVue. After due consideration, the Board concluded that the below target performance in Client-Growth in the short-term did not materially impact overall performance, which remains on track in the medium term. While financial and Client-Growth performance was below the targets set by the Board at the beginning of the year, the Board is of the opinion that the Executive Team have performed exceptionally well under the current circumstances by: • Limiting the impact on financial performance by managing cost growth effectively; • Continuing to invest in medium to long term growth opportunities; • Delivering seamless service delivery to clients through a period of lockdown and remote working while also helping clients to transition their own businesses to remote working; • Continuing to increase the client base and maintaining service continuity for clients despite economic uncertainty; • Prioritising the health and wellbeing of our people and long term relationships of clients over short term financial performance; and • Creating opportunities for future growth through strategic acquisitions. With consideration to the sustainable approach with which Management responded to COVID-19 and the degree to which executives had already been impacted by share price movements (see Section 3.5), the Board viewed that applying discretion to further alter outcomes was not warranted or appropriate. Iress’ key achievements in 2020 are further described in pages 2 to 7 of the Annual Report. 34 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 3.3 Remuneration awarded in the current year Following its 2019 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 2020 equity grants proceed in line with the remuneration mix disclosed in Section 2.2. The remuneration awarded to Executive KMP in 2020 (and 2019) is shown below. Total Remuneration awarded in 2020 was $9,856,221, which was comparable to the prior year (2019: $9,860,835). Base salary awarded to Executive KMP in 2020 was higher than in 2019 due to the part-year inclusion of new roles in KMP and the full-year impact of the base salary increases disclosed in 2019. The increases aligned salaries with the market and recognised the change in scope and complexity of the roles since previous adjustments. Equity was awarded in line with the target remuneration mix disclosed in Section 2.2, which resulted in higher values than 2019 for ER and PR due to the changes to base salary and the higher equity grant values approved by shareholders in May 2019. 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. No Transition ER was awarded in 2020, as this was a one-off award in 2019 to compensate executives for the negative impact of the one-off transition to the new remuneration framework. Executive KMP A Walsh M Blomfield(c) J Das(c) P Ferguson J Harris A Knowles(c,d) C Lill(c) J McNeill(d) S New(d) A Todd Total Executive KMP Year 2020 2019 2020 2020 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 Base salary $ 1,000,000 1,000,000 123,077 162,885 390,000 375,417 620,000 573,333 386,795 611,636 133,333 410,714 422,956 589,286 589,623 630,000 614,775 4,446,090 4,187,740 ER(a) $ Transition ER(a,b) $ PR(a) $ Total remuneration $ 1,008,901 888,894 n/a n/a 195,006 182,511 310,012 270,001 313,738 283,320 n/a 218,665 194,786 313,738 265,613 315,006 301,960 2,675,066 2,387,085 0 0 0 0 0 109,507 0 162,005 0 169,992 0 0 116,871 0 159,372 0 181,178 0 898,925 1,068,900 888,894 n/a n/a 195,006 182,511 310,012 270,001 313,738 283,320 n/a 218,665 194,786 313,738 265,613 315,006 301,960 2,735,065 2,387,085 3,077,801 2,777,788 123,077 162,885 780,012 849,946 1,240,024 1,275,340 1,014,271 1,348,268 133,333 848,044 929,399 1,216,762 1,280,221 1,260,012 1,399,873 9,856,221 9,860,835 (a) ER, Transition ER and PR are shown at face value which includes the value of dividends. This differs from fair value expensed in 2020, which has been used to calculate remuneration in Section 5.2. The number of rights granted to each executive KMP in 2020 and 2019 was based on the twenty-trading-day volume weighted average share price up to and including 31 December 2019 and 31 December 2018 respectively. Where not applicable (n/a) is stated, the individual became KMP after the eligibility date for this award. (b) Transition ER were a one-off equity grant in 2019 to offset the reduction in cash flow as a result of changes to the executive remuneration framework. (c) Amounts shown reflect the part of the year the individual was KMP as per the introduction to this Remuneration Report. (d) Salary of A Knowles, J McNeill and S New is denominated fully or partly 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 0.56 (2019:0.53). Iress Limited Annual Report 202035 3.4 Remuneration realised from equity granted in previous years Equity vested In May 2020, based on Iress’ RTSR performance in the preceding three and four year periods, there was partial vesting of PR granted to the CEO in 2016 and PR granted to other executives in 2017. Award CEO 2016 4-yr CEO 2016 3-yr deferred start Executive 2017 3-yr Initial measurement period(a) RTSR percentile Final vesting At end of measurement period (a,b) 1 Jan 2016 to 31 Dec 2019 1 Jan 2017 to 31 Dec 2019 1 Jan 2017 to 31 Dec 2019 66.0th 57.0th 56.7th 82.0% 64.0% 63.4% (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 31 Dec 2019 and 30 June 2020. (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. Due to a slight methodology change, percentiles were rounded to zero decimal places for the 2016 awards and one decimal place for the 2017 award. In addition to the RTSR vesting criteria, equity granted prior to 2019 also required satisfactory individual performance. 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 2020 (and 2019) is shown below. In addition to the 2016 and 2017 PR, it includes deferred equity granted in 2017 under the previous remuneration framework (see Section 5.4 for more details). Executive KMP had a decrease in their realised remuneration in 2020 as compared to 2019, which was primarily driven by lower RTSR results and thus a lower proportion of PR vesting, lower share price at vesting and a lower number of deferred shares due to vest in 2020 for the CEO compared to 2019. Executive KMP A Walsh M Blomfield(b) J Das(b) P Ferguson J Harris A Knowles(b,c) C Lill(b) J McNeill(c) S New(c) A Todd Total Executive KMP Financial Year 2020 2019 2020 2020 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 Base salary $ 1,000,000 1,000,000 123,077 162,885 390,000 375,417 620,000 573,333 386,795 611,636 133,333 410,714 422,956 589,286 589,623 630,000 614,775 4,446,090 4,187,740 Deferred equity vested(a) $ 498,262 831,836 n/a n/a 112,356 135,256 170,975 135,256 170,975 236,699 n/a 74,506 140,993 74,506 81,159 161,203 n/a 1,262,783 1,561,199 PR vested(a) $ 917,722 1,244,426 n/a n/a 64,084 136,837 98,001 193,187 98,001 193,187 n/a 44,720 80,488 51,101 64,396 n/a n/a 1,273,629 1,912,521 Total remuneration $ 2,415,984 3,076,262 123,077 162,885 566,440 647,510 888,976 901,776 655,771 1,041,522 133,333 529,940 644,437 714,893 735,178 791,203 614,775 6,982,502 7,661,460 (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. This differs from fair value expensed in 2020, which has been used to calculate remuneration in Section 5.2. (b) Amounts shown reflect the part of the year the individual was KMP as per the introduction to this Remuneration Report. (c) Salary of A Knowles, J McNeill and S New is denominated fully or partly 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 0.5600(2019:0.5300). Total salary awarded to executives in 2020 was higher than in 2019 due to the full-year impact of the base salary increases disclosed in 2019, which was offset by the value of equity vested in 2020 being lower than in 2019, resulting in a decrease to total realised remuneration. 36 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 3.5 Change in value of equity held Iress’ remuneration framework directly links shareholder and executive outcomes. Executive KMP saw a reduction in the value of their equity in 2020 due to the reduced likelihood of future PR vesting, and declined value of their equity holdings due to the share price. This is aligned with shareholder experience in 2020. As shown in Section 5.6, Executive KMP have accumulated shares from previous vestings voluntarily. These shareholdings were also exposed to share price changes during the year. Shareholder outcome Executive outcome(1) Estimated $ impact(2) Equity type Shares Deferred equity (previous remuneration framework) ATSR –18.0% ATSR –21.3% (due to no dividends) Unvested equity rights ATSR –18.0% ATSR –18.0% Unvested performance rights 2019 and 2020 awards not tracking to vest due to ATSR of 0.6% and –18.0% respectively (1) Where equity was held all of 2020. (2) This estimate is based on the equity held at 31 December 2020 (which approximates the average balance throughout the year), and the value of equity holdings at the beginning and end of the year using a twenty-trading-day volume weighted average share price ($13.21 at 31 December 2019 and $10.39 at 31 December 2020). In its 2020 half-year and year-end assessments, the Board did not identify any individual or company performance or conduct factors that would warrant clawback of currently unvested equity at future vesting dates. The Board will continue to monitor such factors until the relevant vesting date for each grant of equity. The 1.5m shares/rights held by executive KMP decreased in value by $4.2m in 2020, of which $2.2m is for the CEO. After offsetting the value of dividends (and potential dividend equivalents), the difference in value for Executive KMP was –$3.6m (–$1.9m for the CEO). As of 31 December 2019, 100% of the 2019 Performance Rights were on track to vest. The loss in the potential value in 2020 is $3.0m, of which $1.1m is for the CEO. Iress Limited Annual Report 202037 SECTION 4 NON-EXECUTIVE DIRECTOR FEES 4.1 Fee policy NED receive fees for their services plus the reimbursement of reasonable expenses. To ensure objective and independent oversight of the Group, NED do not participate in performance-based incentives or receive post-employment benefits. The fee levels that applied during 2020 were: Role Chair Member Fee ($) Audit & Risk Committee 24,000 Nil People & Performance Committee 24,000 Nil Iress Ltd Board 240,000(a) 130,000 (a) The Chairman of the Iress Ltd Board 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 NED 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 pool was increased in 2019 to ensure that there was flexibility to provide an orderly succession process, with an overlap between new directors and directors who are in their final term. Accordingly, two NED were appointed to the Board in 2020. The total amount of remuneration paid to NED in 2020 was $1,234,691 (2019: $1,080,350) with the increase being driven by the new appointments. For the NED statutory remuneration details, please see Section 5.3. 38 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 SECTION 5 ADDITIONAL REQUIRED DISCLOSURES 5.1 Remuneration governance The Board and the People & Performance Committee 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 NED 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 executives (excluding the CEO). 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 Board during the reporting period. 5.2 Executive KMP remuneration The table below presents details of Executive KMP remuneration prepared in accordance with statutory requirements and accounting standards. Under this standard, equity is expensed based on the grant date fair value over the vesting period. Total remun- eration $ Performance related remun- eration Short-term benefits $ Post- employment benefits $ Salary & fees(a) Non- monetary benefits(b) Super- annuation 1,000,000 1,000,000 123,077 162,885 390,000 375,417 620,000 573,333 386,795 611,636 133,333 425,179 438,239 589,286 589,623 630,000 614,775 4,460,555 4,203,023 17,104 21,971 0 0 2,369 2,535 2,369 2,535 2,235 3,611 0 8,683 12,077 4,798 5,062 0 0 37,558 47,791 25,000 25,000 11,692 15,474 25,198 25,990 25,000 25,000 6,519 26,250 12,667 36,830 38,066 29,464 29,481 25,000 25,000 212,844 Long-term benefits $ Share- based payments DSR/ER 1,366,056 931,879 0 0 329,161 250,695 495,435 366,637 281,009 387,711 88,474 349,631 246,671 470,477 317,106 545,716 512,339 3,925,959 Share- based payments PR 687,411 744,050 0 0 79,124 82,644 119,715 123,256 69,573 123,352 19,450 82,342 75,195 107,050 90,594 114,538 80,739 1,279,203 Long- service leave 32,101 16,112 0 0 9,273 9,728 16,300 24,379 0 14,786 2,274 3,127,672 2,739,012 134,769 178,359 835,125 747,009 1,278,819 1,115,140 746,131 1,167,346 256,198 n/a 902,665 n/a n/a n/a 9,010 5,445 68,958 70,450 810,248 1,201,075 1,031,866 1,324,264 1,238,298 9,985,077 8,848,919 66% 61% 0% 0% 49% 45% 48% 44% 47% 44% 42% 48% 40% 48% 40% 50% 48% 52% 49% Executive KMP A Walsh M Blomfield(c) J Das(c) P Ferguson J Harris A Knowles(d) C Lill(e) J McNeill(d) S New(d,f) A Todd Total Year 2020 2019 2020 2020 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 194,787 3,013,038 1,319,830 (a) Salary and fees includes allowances and short-term compensated absences paid during the 2019 and 2020 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 Walsh is the cost of filing tax returns in the UK ($2,648). (c) M Blomfield and J Das joined Iress in September and October 2020 respectively and have not received any Iress equity to date. (d) Remuneration of A Knowles, J McNeill and S New is denominated fully or partly in British Pounds and is subject to Fx movements. The Australian dollar amounts shown in the table were converted at an average foreign exchange rate of 0.5600 (2019:0.5300). The amounts included under Superannuation refer to Pension for these individuals. (e) C Lill became KMP in September 2020 and his remuneration from that date has been included including the share-based payment expense for September to December 2020 in relation to awards he was granted prior to becoming KMP. (f) Simon New’s 2019 superannuation has been restated to correct an error in the 2019 report. Iress Limited Annual Report 20205.3 Non-executive Director remuneration The total remuneration for NED during 2020 and 2019 is set out in the table below. Non-executive Director A D’Aloisio N Beattie J Cameron M Dwyer(d) J Fahey(b) J Hayes J Seabrook(c) G Tomlinson(a) T Vonhoff(d) Total Non-executive Director fees Short-term benefits Fees ($) 219,178 219,178 130,000 130,000 118,721 118,721 108,828 140,639 118,721 140,639 140,639 44,894 140,639 127,180 118,721 108,828 1,138,907 986,619 Post- employment entitlements Super- annuation ($) 20,822 20,822 12,350 12,350 11,279 11,279 10,339 13,361 11,279 13,361 13,361 1,113 13,361 2,820 11,279 10,339 95,784 93,731 Year 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 39 Total(a) ($) 240,000 240,000 142,350 142,350 130,000 130,000 119,167 154,000 130,000 154,000 154,000 46,007 154,000 130,000 130,000 119,167 1,234,691 1,080,350 (a) NED fees are paid inclusive of superannuation for all NEDs except for N Beattie, who is paid superannuation on-top of fees based on the percentage of total fees relating to work performed in Australia. (b) J Fahey was appointed as the Chair of the PPC in February 2020. (c) J Seabrook ceased to be a Non-executive Director of the Board on 7 May 2020. (d) M Dwyer and T Vonhoff were appointed to the Board as NED on 1 February 2020. 5.4 Terms of equity grants 2019 & 2020 Performance Rights The 2019 and 2020 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 and 2020 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. 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 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. 40 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 2019 Transition Equity Rights (Transition ER) In 2019, the annual cash short-term incentive was removed upon the introduction of the new executive remuneration framework. Until the ER begin to be released from restrictions in 2023, executives have a negative cash flow impact. To offset this, a one-off additional grant of Transition ER valued at 30% of an executive’s 31 December 2018 base salary was provided to executives (excluding the CEO) in 2019. Transition ER have the same vesting conditions and holding restrictions as the annual ER allocations. However, for circumstances such as redundancy, Transition ER will be retained on a pro rata basis (subject to Board discretion). Deferred equity delivered as Deferred Share Rights (DSR) 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. 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 The previous employee share plans offered to Australian and UK employees were expanded globally in 2020. Under the 2020 OneIress Equity award, permanent employees were invited to acquire Iress shares either by: • salary sacrificing up to specified limits with Iress supplementing this with shares up to a value of $300, or • receiving free Iress shares or share rights worth $300 with the tax obligations being borne by the participant. Equity is granted in the form of shares or share rights. In 2020, 836 employees (44% of eligible employees) participated in the plan, subscribing to 92,100 shares and 29 share rights. 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 NED 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. Executive KMP(a) Type of equity Grant date Number granted Fair value at grant date Vesting date Expiry date Number vested(e) % vested Number lapsed % lapsed Number unvested(b) A Walsh ER PR ER PR DSR PR PR DSR PR PR DSR PR PR 8-May-20 8-May-20 9-May-19 9-May-19 9-May-19 10-May-18 10-May-18 10-May-18 11-May-17 11-May-17 11-May-17 5-May-16 5-May-16 76,374 80,916 80,020 80,020 42,736 45,605 45,605 51,707 54,739 54,739 47,575 60,000 60,000 11.86 2.61 14.22 8.6 12.73 5.75 5.78 9.58 6.64 7.05 10.86 6.24 8.00 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 10-May-22 10-May-22 10-May-22 10-May-21 11-May-21 11-May-21 11-May-20 5-May-20 5-May-20 28-Feb-22 28-Feb-23 28-Feb-21 28-Feb-22 10-May-22 10-May-22 10-May-22 10-May-21 11-May-23 11-May-23 11-May-21 5-May-23 5-May-23 – – – – – – – – – – 47,575 38,400 49,200 – – – – – – – – – – 100.00% 64.00% 82.00% – – – – – – – – – – 0 21,600 10,800 – – – – – – – – – – 0.00% 36.00% 18.00% Total of ER and DSR Total of PR 76,374 80,916 80,020 80,020 42,736 45,605 45,605 51,707 54,739 54,739 0 0 0 250,837 361,624 Iress Limited Annual Report 202041 Expiry date Number vested(e) % vested Number lapsed % lapsed Number unvested(b) Executive KMP(a) Type of equity Grant date Number granted Fair value at grant date P Ferguson ER PR ER PR TER DSR PR DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 11-May-17 11-May-17 J Harris Total of ER and DSR Total of PR ER PR ER PR TER DSR PR DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 11-May-17 11-May-17 Total of ER and DSR Total of PR A Knowles ER PR ER PR TER DSR PR DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 11-May-17 11-May-17 C Lill Total of ER and DSR Total of PR ER PR ER PR TER DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 Total of ER and DSR Total of PR 14,762 14,762 16,430 16,430 9,858 9,966 12,770 12,772 9,646 10,728 23,468 23,468 24,306 24,306 14,584 14,861 19,154 18,666 14,752 16,325 23,750 23,750 25,505 25,505 15,303 16,473 18,242 18,175 14,752 16,325 13,059 13,059 12,379 12,379 7,427 8,392 9,577 9,825 11.86 3.81 12 5.54 12 12.73 5.79 9.58 7.13 10.86 11.86 3.81 12 5.54 12 12.73 5.79 9.58 7.13 10.86 11.86 3.81 12 5.54 12 12.73 5.79 9.58 7.13 10.86 11.86 3.81 12 5.54 12 12.73 5.79 9.58 Vesting date 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 11-May-20 11-May-20 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 11-May-20 11-May-20 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 11-May-20 11-May-20 28-Feb-22 28-Feb-23 28-Feb-21 28-Feb-22 28-Feb-21 10-May-22 10-May-21 10-May-21 11-May-24 11-May-21 28-Feb-22 28-Feb-23 28-Feb-21 28-Feb-22 28-Feb-21 10-May-22 10-May-21 10-May-21 11-May-24 11-May-21 28-Feb-22 28-Feb-23 28-Feb-23 28-Feb-22 28-Feb-21 10-May-22 10-May-21 10-May-21 11-May-24 11-May-21 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 28-Feb-22 28-Feb-23 28-Feb-21 28-Feb-22 28-Feb-23 10-May-22 10-May-21 10-May-21 – – – – – – – – 6,116 10,728 – – – – – – – – 9,353 16,325 – – – – – – – – 9,353 16,325 – – – – – – – – – – – – – – – – 63.40% 100.00% – – – – – – – – 63.40% 100.00% – – – – – – – – 63.40% 100.00% – – – – – – – – – – – – – – – – 3,530 0 – – – – – – – – 5,399 0 – – – – – – – – 5,399 0 – – – – – – – – – – – – – – – – 36.60% 0.00% – – – – – – – – 36.60% 0.00% – – – – – – – – 36.60% 0.00% – – – – – – – – 14,762 14,762 16,430 16,430 9,858 9,966 12,770 12,772 0 0 63,788 43,962 23,468 23,468 24,306 24,306 14,584 14,861 19,154 18,666 0 0 95,885 66,928 23,750 23,750 25,505 25,505 15,303 16,473 18,242 18,175 0 0 99,206 67,497 13,059 13,059 12,379 12,379 7,427 8,392 9,577 9,825 51,082 35,015 42 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 Executive KMP(a) Type of equity Grant date Number granted Fair value at grant date J McNeill S New A Todd ER PR ER PR TER DSR PR DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 11-May-17 11-May-17 Total of ER and DSR Total of PR ER PR ER PR TER DSR PR DSR PR DSR 28-Feb-20 28-Feb-20 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 11-May-17 11-May-17 Total of ER and DSR Total of PR ER PR DSR(c) ER PR TER DSR PR DSR 28-Feb-20 28-Feb-20 13-Dec-19 28-Feb-19 28-Feb-19 28-Feb-19 10-May-19 10-May-18 10-May-18 Total of ER and DSR Total of PR 16,553 16,553 17,535 17,535 10,521 10,567 13,682 13,731 6,731 7,114 23,750 23,750 23,911 23,911 14,347 13,520 15,962 17,164 7,692 7,114 23,846 23,846 15,392 27,183 27,183 16,310 16,784 20,067 21,614 11.86 3.81 12 5.54 12 12.73 5.79 9.58 7.13 10.86 11.86 3.81 12 5.54 12 12.73 5.79 9.58 7.13 10.86 11.86 3.81 13.17 12 5.54 12 12.73 5.79 9.58 Vesting date 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 11-May-20 11-May-20 28-Feb-22 28-Feb-23 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 11-May-20 11-May-20 28-Feb-22 28-Feb-23 11-May-20 26-Feb-21 28-Feb-22 26-Feb-21 10-May-22 10-May-21 10-May-21 Expiry date Number vested(e) % vested Number lapsed % lapsed Number unvested(b) 28-Feb-24 28-Feb-23 28-Feb-23 28-Feb-22 28-Feb-23 10-May-22 10-May-21 10-May-21 11-May-24 11-May-21 28-Feb-22 28-Feb-23 28-Feb-23 28-Feb-22 28-Feb-21 10-May-22 10-May-21 10-May-21 11-May-24 11-May-21 28-Feb-22 28-Feb-23 11-May-24 28-Feb-21 28-Feb-22 28-Feb-21 10-May-22 10-May-21 10-May-21 – – – – – – – – 4,268 7,114 – – – – – – – – 4,877 7,114 – – 15,392 – – – – – – – – – – – – – – 63.41% 100.00% – – – – – – – – 63.40% 100.00% – – 100.00% – – – – – – – – – – – – – – 2,463 0 – – – – – – – – 2,815 0 – – 0 – – – – – – – – – – – – – – 36.59% 0.00% – – – – – – – – 36.6% 0.00% – – 0.00% – – – – – – 16,553 16,553 17,535 17,535 10,521 10,567 13,682 13,731 0 0 68,907 47,770 23,750 23,750 23,911 23,911 14,347 13,520 15,962 17,164 0 0 92,692 63,623 23,846 23,846 0 27,183 27,183 16,310 16,784 20,067 21,614 105,737 71,096 (a) M Blomfield and J Das have not received any Iress equity to date. (b) This includes equity instruments held by the individual and in a nominated trust. (c) 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 had a service period of 11 May 2017 to 11 May 2020 as per other DSR awarded in 2017. (d) 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. 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. Iress Limited Annual Report 202043 5.6 Shareholdings The number of ordinary shares held in Iress Limited during the financial year by each KMP is set out below for NED 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 have a Minimum Shareholding Requirement to be met by 31 December 2022, or within three years of their appointment. They 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. NED A D’Aloisio N Beattie J Cameron M Dwyer J Fahey J Hayes J Seabrook(a) G Tomlinson T Vonhoff Total Balance as at 1 Jan 2020 49,402 6,000 36,668 0 2,584 13,788 41,549 8,000 0 157,991 Shares acquired during the year 2,879 5,185 5,758 – – 1,438 1,059 – 13,879 30,198 Other changes Balance as at 31 Dec 2020 Value of Total Holdings as % of base fees 0 0 0 0 0 0 0 0 0 0 52,281 11,185 42,426 0 2,584 15,226 42,608 8,000 13,879 188,189 226% 89% 339% 0% 17% 103% n/a 64% 121% (a) J Seabrook’s closing balance is at 7 May 2020, when she ceased to be KMP. Iress executives have a Minimum Shareholding Requirement 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. This requirement 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. Prior remuneration framework awards (pre 2019) and directly acquired shares New remuneration framework awards (2019 and after) Executive KMP(a) A Walsh(f) P Ferguson J Harris A Knowles(g) C Lill J McNeill S New(f) A Todd Total Balance as at 1 Jan 2020 Shares acquired during the year(b) Other changes Balance as at 31 Dec 2020(c) Balance as at 1 Jan 2020 ER granted during the year Balance as at Value of Holding as % of base Value of Total Holdings as % of base 31 Dec 2020(c) salary(d) salary(e) 406,714 21,597 23,874 13,164 – 3,682 5,402 – 139,807 16,844 28,557 25,678 – 11,382 11,991 15,561 474,433 249,820 – (3,700) (28,013) (11,414) – (6,215) (6,547) (15,392) (71,281) 546,521 34,741 24,418 27,428 – 8,849 10,846 169 80,020 26,288 38,890 40,808 19,806 28,056 38,258 43,493 76,374 14,762 23,468 23,750 13,059 16,553 23,750 23,846 652,972 315,619 215,562 156,394 41,050 62,358 64,558 32,865 44,609 62,008 67,339 531,181 190% 125% 120% n/a 98% 129% 125% 127% 758% 217% 161% n/a 98% 152% 143% 127% (a) M Blomfield and J Das do not hold any Iress Limited shares. They are eligible to receive equity in 2021. (b) Shares acquired by Executive KMP during the year were acquired on the exercise of DSR and PR or directly acquired. (c) This includes equity instruments held individually and in trusts. (d) The value of ER for the purpose of the MSR calculation is the higher of the grant price and share price at 31 December 2020, in both cases using the twenty trading day volume weighted average share price. (e) For equity awarded under pre 2019 remuneration frameworks and directly acquired shares, the share price at 31 December 2020 (twenty-trading-day volume weighted average share price up to and including 31 December 2020) was used to calculate the value. (f) Opening balances have been restated for A Walsh (to correct error in indirect holding disclosed in the 2 September 2020 Change of Director’s Interest Notice) and S New (to include disposals of 5,766 shares in the prior year). (g) A Knowles ceased to be subject to the MSR on 31 August 2020 due to the change in his role. 44 Directors’ Report Remuneration Report Directors’ Report cont. For the year ended 31 December 2020 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. Criterion Term of contract Notice period Resignation Arrangements Ongoing. Six months (from the employee and Group). The executive may resign by giving six months’ written notice. Termination on notice by Iress Iress may terminate the employment agreement by providing six months’ written notice, or payment in lieu of the notice period. Redundancy 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. Termination for serious misconduct Iress may terminate the employment agreement at any time without notice. Non-compete A non-compete arrangement exists for a period of six months following employment with the Group(1). (1) The non-compete period is up to 12 months for other members of the Executive KMP. 5.8 Transactions with KMP No transactions (excluding share-based payment compensation) occurred between KMP and the Group during 2020. 5.9 Loans to KMP or related parties No loans to KMP or related parties were provided during 2020. 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). On behalf of the Directors. Tony D’Aloisio Andrew Walsh Chair Melbourne 17 February 2021 Managing Director and Chief Executive Officer Iress Limited Annual Report 2020 45 Auditor’s Independence Declaration Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au 17 February 2021 The Board of Directors Iress Limited Level 16, 385 Bourke Street MELBOURNE VIC 3000 Dear Board Members AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo IIrreessss LLiimmiitteedd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of IRESS Limited. As lead audit partner for the audit of the financial statements of Iress Limited for the financial year ended 31 December 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Tom Imbesi Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 46 Financial Statements Contents Financial Statements For the year ended 31 December 2020 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 2020. CONTENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Section 1. Financial results 1.1 Segment information 1.2 Earnings per share and dividends per share 1.3 Revenue from contracts with customers 1.4 Employee benefit expenses 1.5 Share-based payments 1.6 Other expenses 1.7 Depreciation and amortisation 1.8 Notes to the Consolidated Statement of Cash Flows Section 2. Core assets and working capital 2.1 Intangible assets 2.2 Plant and equipment 2.3 Leases 2.4 Receivables and other assets 2.5 Payables and other liabilities 2.6 Provisions 2.7 Commitments and contingencies Section 3. Debt and equity 3.1 Debt facilities and derivatives 3.2 Issued capital 3.3 Managing financial risks Section 4. Other disclosures 4.1 Taxation 4.2 Businesses and investments acquired and divested 4.3 Iress Limited – Parent entity financial information 4.4 Subsidiaries 4.5 Deed of cross guarantee 4.6 Basis of preparation 4.7 The impact of the COVID-19 pandemic on these financial statements 4.8 Transactions with related parties 4.9 Events subsequent to the Statement of Financial Position date Directors’ declaration Independent Auditor’s Report Shareholder information Corporate directory 47 48 49 50 51 51 51 53 54 57 58 61 62 62 63 63 65 66 70 74 75 76 77 77 79 80 81 81 84 87 88 89 91 93 93 93 94 95 100 101 Iress Limited Annual Report 2020Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2020 Revenue from contracts with customers Customer data fees Communication and other technology expenses Employee benefit expenses Net other expenses 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 (loss)/income for the period Total comprehensive income for the period 47 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 Notes 1.3(a) 1.4 1.6 1.7 3.1(e) 4.1 2020 $’000 542,630 (48,024) (54,654) (285,250) (29,213) 125,489 (39,356) 86,133 438 (8,422) (7,984) 78,149 (19,083) 59,066 (19,150) (76) (19,226) 39,840 Earnings per share Basic earnings per share Diluted earnings per share Cents per share Cents per share 1.2(a) 1.2(a) 32.3 32.0 37.9 37.6 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 Effects of Changes in Foreign Exchange Rates, the foreign exchange gains or losses on these monetary items are recognised directly in other comprehensive income rather than the profit or loss. 48 Financial Statements Consolidated Statement of Financial Position Consolidated Statement of Financial Position As at 31 December 2020 ASSETS Current assets Cash and cash equivalents Receivables and other assets Current taxation receivables Derivative assets Total current assets Non-current assets Intangible assets Plant and equipment Right-of-use assets Deferred tax 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 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 (Accumulated losses)/retained earnings Total equity Notes 1.8(a) 2.4(a) 3.1(c) 2.1(a) 2.2(a) 2.3(c) 4.1(c) 2.5 2.3(d) 2.6(a) 2.3(d) 2.6(a) 3.1(a) 4.1(c) 3.1(c) 3.2 2020 $’000 2019 $’000 63,141 66,113 2,845 1,739 133,838 734,098 32,740 75,307 29,289 871,434 1,005,272 82,457 13,383 5,914 486 102,240 71,125 43,517 188,433 12,095 – 315,170 417,410 587,862 558,416 35,020 (5,093) (481) 587,862 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 The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. Iress Limited Annual Report 2020Consolidated Statement of Changes in Equity For the year ended 31 December 2020 Balance at 1 January 2019 Impact of change in accounting policy(2) 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(3) Dividends declared(4) Share-based payment expense, net of tax(5) Transfer of share-based payments reserve(6) Balance at 31 December 2019 Balance at 1 January 2020 Profit for the year Other comprehensive loss Total comprehensive (loss)/income Transactions with owners in their capacity as owners: Shares issued during the year(3)(7) Share issue costs, net of tax(8) Dividends declared(4) Share-based payment expense, net of tax(5) Transfer of share-based payments reserve(6) Balance at 31 December 2020 Share-based Payments Reserve $’000 Foreign Currency Translation Reserve $’000 24,683 – 24,683 – – – – – 16,976 (10,669) 6,307 30,990 Share-based Payments Reserve $’000 30,990 – – – – – – 21,177 (17,147) 4,030 35,020 3,319 – 3,319 – 10,814 10,814 – – – – – 14,133 Foreign Currency Translation Reserve $’000 14,133 – (19,226) (19,226) – – – – – – (5,093) Retained Earnings $’000 12,852 (2,110) 10,742 65,128 – 65,128 – (79,839) – 10,669 (69,170) 6,700 Retained Earnings/ (Accumulated Losses) $’000 6,700 59,066 – 59,066 – – (83,394) – 17,147 (66,247) (481) Issued Capital(1) $’000 378,577 – 378,577 – – – 448 4,058 – – 4,506 383,083 Issued Capital(1) $’000 383,083 – – – 175,604 (2,933) 2,662 – – 175,333 558,416 49 Total Equity $’000 419,431 (2,110) 417,321 65,128 10,814 75,942 448 (75,781) 16,976 – (58,357) 434,906 Total Equity $’000 434,906 59,066 (19,226) 39,840 175,604 (2,933) (80,732) 21,177 – 113,116 587,862 The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. (1) For details of shares issued during the period please refer to Note 3.2. (2) 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. (3) Shares issued to satisfy Employee Share Plan obligations. Refer to Note 3.2. (4) Shares issued under the Dividend Reinvestment Plan. Refer to Note 3.2. For dividends declared refer to Note 1.2(c). (5) The share-based payment expense includes the tax impact of $0.157 million (2019: $0.68 million) on vesting of employee share-based payments. (6) 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. (7) Shares issued during the year from a share placement and share purchase plan. Refer to Note 3.2. (8) Capitalised share issue costs incurred during the year. 50 Financial Statements Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows For the year ended 31 December 2020 Cash flows from operating activities Cash generated from operating activities Interest received Interest and borrowing costs paid Interest on lease liabilities(1) Income tax paid(2) Net cash inflow generated from operating activities Cash flows from investing activities Payments for purchase of intangible assets Payments for purchase of plant and equipment Proceeds from sale of plant and equipment Payment for deferred consideration Payments for acquisition of subsidiaries & businesses, net of cash acquired Net cash outflow utilised by investing activities Cash flows from financing activities Proceeds from issue of share capital Share issue costs paid Proceeds from employee share plan repayments Payment of lease liabilities(1) Repayment of borrowings within acquired entities Dividends paid Proceeds from borrowings Repayment of borrowings Net cash inflow generated from/(outflow utilised by) 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 end of the year Notes 1.8(b) 2.3(e) 2.1(a) 2.2(a) 2.2(a) 2.6(b) 4.2 3.2 3.2 3.2 2.3(d) 4.2(c) 3.1(b) 3.1(b) 2020 $’000 165,565 438 (7,314) (2,227) (31,588) 124,874 (6,465) (17,046) 43 (1,620) (114,208) (139,296) 175,000 (4,108) 604 (10,334) (6,482) (80,722) 142,039 (172,239) 43,758 29,336 33,386 419 63,141 2019 $’000 131,762 538 (5,911) (2,086) (21,696) 102,607 (2,487) (10,480) 1,313 (1,436) (20,411) (33,501) – – 448 (10,189) – (75,882) 123,645 (107,022) (69,000) 106 30,190 3,090 33,386 The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. (1) In the prior period interest on lease liabilities was previously disclosed within cash flows from financing activities. To be consistent with other types of interest, the interest on lease liabilities is now disclosed within cash flows from operating activities. (2) The increase in income tax paid during the current period compared to the corresponding prior period is as a result of changes in the timing of income tax instalment payments primarily in the UK and Australia. Iress Limited Annual Report 202051 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 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 trading & market data business which provides market data, trading, compliance, order management, portfolio systems and related tools to financial markets participants in Australia, New Zealand and Asia, • The financial advice & superannuation 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, and • The operations of the recently acquired OneVue which provides administration platforms for managed funds, superannuation and investments. UK & Europe 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, market data services are provided to customers throughout the UK & Europe. Mortgages The mortgages segment operates in the United Kingdom to provide mortgage origination software and associated consulting services to banks. South Africa Provides information, trading, compliance, order management, portfolio systems and related tools to financial markets participants and provides financial planning systems and related tools to wealth management professionals located in South Africa. North America Provides information, trading, compliance, order management, portfolio systems and related tools to financial markets and wealth management participants in Canada. In addition, market data services are provided to customers in the United States of America. (b) Cost segments Product & Technology All costs associated with product and technology will be 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. 52 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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. Any transactions directly between segments are charged on an arm’s length basis. 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 2020 $’000 289,843 154,590 26,925 42,931 28,341 542,630 2019 $’000 264,475 142,686 29,026 48,304 24,452 508,943 2020 $’000 203,977 94,363 18,102 33,928 11,009 361,379 (128,407) (42,619) (37,435) (208,461) 152,918 (21,020) 131,898 (6,409) 125,489 (39,356) 86,133 (7,984) (19,083) 59,066 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 (1) Operating revenue is recognised ‘over time’ in accordance with AASB 15 Revenue from Contracts with Customers. (2) Predominately relates to office move costs, non-operating income, business acquisition and integration expenses, revaluation of financial liabilities relating to deferred contingent consideration and realised and unrealised foreign exchange gains and losses. Refer to Note 1.6. Iress Limited Annual Report 202053 The below table outlines operating revenue and non-current assets by geographical area, being Australia and New Zealand, Asia, UK & Europe, South Africa and North America: Australia & New Zealand Asia Total APAC UK & Europe South Africa North America Grand total Operating Revenue Non-Current Assets(1) 2020 $’000 279,976 9,867 289,843 181,515 42,931 28,341 542,630 2019 $’000 257,397 7,078 264,475 171,712 48,304 24,452 508,943 2020 $’000 266,125 777 266,902 475,559 15,022 9,355 766,838 2019 $’000 128,247 343 128,590 491,685 17,631 9,389 647,295 (1) Excludes right-of-use assets, financial instruments and deferred taxes, and predominantly relates to intangible assets. Refer to Note 2.1. 1.2 Earnings per share and dividends per share (a) Basic and diluted earnings per share, and dividends per share for the year are: Cents per share 2020 Cents per share 2019 Earnings per share Diluted earnings per share Dividends per share: Interim dividend franked to 35% (2019: 10%) Final dividend declared after the Statement of Financial Position date franked to 40% (2019: 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 2019 30.0 cents per share franked to 40% (2018: 30.0 cents per share franked to 40%) Interim dividend for 2020 16.0 cents per share franked to 35% (2019: 16.0 cents per share franked to 10%) 32.3 32.0 16.0 30.0 Number of shares 2020 ‘000 182,995 1,411 184,406 2020 $’000 52,477 30,917 83,394 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 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% (2019: 30.0 cents per share franked to 40%) Franking credit balance 57,998 52,477 Franking credits available for subsequent reporting periods based on a tax rate of 30% (2019: 30%) 7,921 2,055 54 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 1.3 Revenue from contracts with customers Iress designs, develops and delivers technology solutions for the financial services industry in Australia, Asia, New Zealand, UK & Europe, South Africa and North America. 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. Software licence 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 licence 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. Implementation and consulting revenue As defined in the contract. Revenue is recognised over time as services are delivered. For implementation revenue – typically completion of data conversions, completion of user acceptance testing, provision of functional environments. 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 Provision of financial market information. Royalties revenue is recognised over time as the customer simultaneously receives and consumes the benefit of accessing the information. Other ancillary fees Provision of hosting services, cloud services, support and maintenance services. 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. Iress Limited Annual Report 202055 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. (a) Revenue by client segment is summarised below: Revenue stream For the year ended 31 December 2019 Software licence revenue Implementation and consulting revenue Royalties revenue Other ancillary fees Total revenue Revenue stream For the year ended 31 December 2020 Software licence revenue Implementation and consulting revenue Royalties revenue Other ancillary fees Total revenue Revenue recognition APAC $’000 UK & Europe $’000 Mortgages $’000 South Africa $’000 North America $’000 Total $’000 Over time 218,490 118,042 7,562 45,305 19,890 409,289 Over time Over time Over time 11,268 23,930 10,787 2,407 5,893 16,344 264,475 142,686 19,630 – 1,834 29,026 9 1,896 1,094 – 2,849 1,713 33,314 34,568 31,772 48,304 24,452 508,943 Revenue recognition APAC $’000 UK & Europe $’000 Mortgages $’000 South Africa $’000 North America $’000 Total $’000 Over time 238,552 129,499 11,773 39,817 23,074 442,715 Over time Over time Over time 14,651 25,178 11,462 2,317 8,439 14,335 289,843 154,590 14,568 – 584 26,925 54 1,696 1,364 42,931 – 3,254 2,013 31,590 38,567 29,758 28,341 542,630 (b) Receivables, contract assets and contract liabilities from contracts with customers by client segment are summarised below: APAC $’000 UK & Europe $’000 Mortgages $’000 South Africa $’000 North America $’000 Total $’000 For the year ended 31 December 2019 Trade receivables Contract assets Contract liabilities 14,309 3,398 (653) 17,325 8,256 (11,282) 557 5,189 (145) 3,075 380 (3) 1,522 – – APAC $’000 UK & Europe $’000 Mortgages $’000 South Africa $’000 North America $’000 For the year ended 31 December 2020 Trade receivables Contract assets Contract liabilities 18,445 6,789 (787) 9,364 5,827 (11,584) 557 3,432 (797) 1,597 349 – 758 – (245) 36,788 17,223 (12,083) Total $’000 30,721 16,397 (13,413) 56 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 1.3 Revenue from contracts with customers (continued) (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 2020 $’000 17,223 (17,154) 15,891 – – – 437 2019 $’000 8,302 (8,302) 16,997 – – – 226 Balance at the end of the year 16,397 17,223 2020 $’000 (12,083) – – 12,340 (13,902) – 232 (13,413) 2019 $’000 (4,915) – – 4,915 (3,601) (8,201) (281) (12,083) (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: UK & Europe $’000 Mortgages $’000 South Africa $’000 North America $’000 Year in which transaction price is expected to be realised 2021 2022 2023 2024 Total Revenue stream Software licence revenue Implementation and consulting revenue Other ancillary fees Total revenue Revenue recognition Over time Over time Over time Software licence revenue Over time Over time Over time Total revenue Software licence revenue Total revenue Software licence revenue Total revenue Software licence revenue Implementation and consulting revenue Other ancillary fees Total revenue APAC $’000 1,279 1,604 – 2,883 – – – – – – 2,755 1,012 – 3,767 610 610 622 622 635 635 207 1,977 – 2,184 – – – – – – Over time 1,279 4,622 207 Over time Over time 1,604 – 2,883 1,012 – 5,634 1,977 – 2,184 – – – – – – – – – – – – – – – – 489 489 – – – – – – – – 489 489 Total $’000 4,241 4,593 489 9,323 610 610 622 622 635 635 6,108 4,593 489 11,190 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. Iress Limited Annual Report 202057 1.4 Employee benefit expenses Short-term employee benefits, mainly comprising 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) 2020 $’000 (237,930) (19,189) (484) (21,020) (6,627) (285,250) 2019 $’000 (222,906) (17,081) (833) (17,701) (10,554) (269,075) 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 Notes 2020 $’000 (5,637) (69) (309) (5,205) (11,220) 2019 $’000 (5,237) (70) (289) (4,333) (9,929) Detailed remuneration disclosures are provided in the Audited Remuneration Report including a description of the executive remuneration framework. 58 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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 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. Performance condition Performance/ Restriction period Dividends received before vesting Individual performance criteria 2 year vesting followed by 2 year holding lock Individual performance criteria 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 OneIress Equity award/ 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 No No 3 years and 4 years No Total shareholder return (TSR) against peer group 3 years Individual performance criteria 3 years (Vesting in equal portions annually) 3 years 3 years (Vesting in equal portions annually)  3 years Nil 3 years No Yes Yes Yes No 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 2020, the total unvested shares in the OneIress Equity award were 106,225 (2019: 28,958). In addition there were 29 unvested share rights (2019:0). Iress Limited Annual Report 202059 (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: Grant date fair value Key inputs in determining grant date fair value Model used Risk free rate Share price volatility Dividend yield Executive LTI Plan Employee Deferred Share Rights Plan Monte Carlo 0.22% – 3% 22.5% – 27.5% Monte Carlo 0.22% – 3% 22.5% – 27.5% 3.25% – 4.25% 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: Type Grant date Vesting date Executive Plans – CEO 05 May 2020 2016 Grant – 3 year 05 May 2016 05 May 2020 2016 Grant – 4 year 05 May 2016 11 May 2021 2017 Grant – 3 year 11 May 2017 11 May 2021 2017 Grant – 4 year 11 May 2017 11 May 2020 2017 Grant 11 May 2017 10 May 2022 2018 Grant – 3 year 10 May 2018 10 May 2022 2018 Grant – 4 year 10 May 2018 11 May 2021 10 May 2018 2018 Grant 09 May 2022 2019 Grant – PR pre 19 09 May 2019 26 Feb 2021 09 May 2019 2019 Grant – ER 09 May 2019 2019 Grant – PR 28 Feb 2022 08 May 2020 28 Feb 2022 2020 Grant – ER 08 May 2020 28 Feb 2023 2020 Grant – PR Number of shares At grant date Expenses At 1 Jan 2020 60,000 60,000 54,739 54,739 47,575 45,605 45,605 51,707 42,736 80,020 80,020 – – Granted Forfeited Vested – – – – – – – – – – – 76,374 80,916 (10,800) (21,600) – – – – – – – – – – – (49,200) (38,400) – – (47,575) – – – – – – – – At 31 Dec 2020 – – 54,739 54,739 – 45,605 45,605 51,707 42,736 80,020 80,020 76,374 80,916 Share price $ 11.87 11.87 12.39 12.39 12.39 10.86 10.86 10.86 14.22 14.22 14.22 11.86 7.17 Fair value $ 8.00 6.24 6.64 7.05 10.86 5.75 5.78 9.58 12.73 14.22 8.60 11.86 2.61 2020 $’000 (41) (32) (91) (97) (62) (66) (66) (165) (182) (632) (245) (325) (49) 622,746 157,290 (32,400) (135,175) 612,461 (2,053) 60 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 1.5 Share-based payments (continued) (c) Details of shares or rights on issue during the year and the amount expensed during the year is shown below (continued): Number of shares At grant date Expenses Type Grant date Vesting date At 1 Jan 2020 Granted Forfeited Vested At 31 Dec 2020 Share price $ Executive Plans – Non-CEO 11 May 2017 2017 Grant 2018 Grant 10 May 2018 2019 Grant – PR pre 19 09 May 2019 2019 Grant – ER & TER 28 Feb 2019 28 Feb 2019 2019 Grant – PR 28 Feb 2020 2020 Grant – PR 28 Feb 2020 2020 Grant – ER Employee Deferred Share Plan 2017 Grant(1) 11 May 2017 10 May 2018 2018 Grant 28 Feb 2019 2019 Grant – EAG – A 28 Feb 2019 2019 Grant – EAG – B 28 Feb 2019 2019 Grant – EAG – C 28 Feb 2020 2020 Grant – EAG – A 2020 Grant – EAG – B 28 Feb 2020 2020 Grant – EAG – C 28 Feb 2020 11 May 2020 10 May 2021 09 May 2022 26 Feb 2021 28 Feb 2022 28 Feb 2023 28 Feb 2022 105,461 170,470 133,502 372,509 240,289 – – – – – – – 220,643 220,643 (38,706) – – – – – – (66,755) – – – – – – – 170,470 133,502 372,509 240,289 220,643 220,643 1,022,231 441,286 (38,706) (66,755) 1,358,056 11 May 2020 10 May 2021 28 Feb 2020 26 Feb 2021 28 Feb 2022 26 Feb 2021 28 Feb 2022 28 Feb 2023 546,901 817,527 294,018 294,018 295,441 – – – – – – – – 366,938 366,938 367,803 (9,626) (59,588) (2,519) (21,966) (22,842) (16,313) (16,313) (16,348) (537,275) (5,218) (291,499) (2,295) (1,537) – – – – 752,721 – 269,757 271,062 350,625 350,625 351,455 2,247,905 1,101,679 (165,515) (837,824) 2,346,245 Employee Deferred Share Rights Plan 11 May 2017 2017 Grant 10 May 2018 2018 Grant 28 Feb 2019 2019 Grant – EAG – A 28 Feb 2019 2019 Grant – EAG – B 28 Feb 2019 2019 Grant – EAG – C 2020 Grant – EAG – A 28 Feb 2020 2020 Grant – EAG – B 28 Feb 2020 2020 Grant – EAG – C 28 Feb 2020 11 May 2020 10 May 2021 28 Feb 2020 26 Feb 2021 28 Feb 2022 26 Feb 2021 28 Feb 2022 28 Feb 2023 173,523 204,352 11,631 11,631 11,691 – – – – 412,828 – – – – – 12,619 12,619 12,653 – 37,891 (1,400) (2,337) – (817) (822) – – – – (172,123) – (11,631) – – – – – – – 202,015 – 10,814 10,869 12,619 12,619 12,653 – (5,376) (183,754) 261,589 Total 4,305,710 1,738,146 (241,997) (1,223,508) 4,578,351 The weighted average remaining contractual life of the above grants is 0.9 years (2019: 1.4 years). (1) The opening balance has been restated to correct an error in the 2019 closing balance.. 12.39 10.86 14.22 12.00 12.00 7.17 11.86 12.39 10.86 12.00 12.00 12.00 11.86 11.86 11.86 12.39 10.86 12.00 12.00 12.00 11.86 11.86 11.86 – Fair value $ 7.13 5.79 12.73 12.00 5.54 3.81 11.86 12.39 10.86 12.00 12.00 12.00 11.86 11.86 11.86 10.86 9.58 12.00 12.00 12.00 11.86 11.86 11.86 – 2020 $’000 (91) (330) (568) (2,282) (469) (235) (1,099) (5,074) (734) (2,414) (545) (1,539) (1,029) (3,507) (1,746) (1,168) (12,682) (216) (640) (23) (61) (41) (126) (63) (41) – (1,211) (21,020) Iress Limited Annual Report 2020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(¹) Other non-operating income/(expenses) Realised/unrealised (losses)/gains on foreign balances Non-operating income Business acquisition, integration and restructuring expenses(²) Remeasurement of deferred acquisition consideration Release of deferred consideration provision Release of onerous loss provision Release of severance pay provision Other non-operating expenses(3) Notes 1.6(b) 2.6(b) 2.6(b) 2.6(b) 2020 $’000 (895) (637) 50 (170) (21,152) (22,804) (1,041) 1,281 (10,012) 5,128 – 128 23 (1,916) (6,409) 61 2019 $’000 (845) (807) 392 (184) (17,772) (19,216) 533 1,634 (5,088) 3,203 576 300 315 (1,970) (497) Net other expenses (29,213) (19,713) (1) Includes office related expenses, insurance premiums, professional and legal fees and marketing expenses. (2) Includes $0.3 million of BC Gateway acquisition costs and $5.5 million of OneVue acquisition costs. Refer to Note 4.2(a) and Note 4.2(c). (3) Comprises all other non-operating project related expenses. (b) Fees to auditors, Deloitte Touche Tohmatsu and other audit firms, 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 audit firms Audit or review of subsidiary financial statements Total fees to auditors (1) Other services comprise assurance and other compliance reviews. 2020 $ 2019 $ (432,115) (8,000) (440,115) (363,116) (363,116) (91,691) (91,691) (895,056) (356,927) (74,449) (431,376) (357,277) (357,277) (56,511) (56,511) (845,164) 62 Notes to the Consolidated Financial Statements Section 1. Financial results Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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 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 Notes 2.1(a) 2.2(a) 2.3(c) 2020 $’000 (16,072) (10,807) (12,477) (39,356) 2020 $’000 32,634 1,735 11,699 3,634 8,565 4,874 63,141 (b) Reconciliation of profit attributable to members of the parent entity to cash generated from operating activities: Profit for the financial year Adjustment for non-cash and non-operating cash flow items Depreciation and amortisation Net credit loss allowances recognised on trade receivables Net provision reversed on employee benefits Net provision recognised on deferred payments Net provision recognised on the onerous losses Net provision recognised on other provisions Share-based payment expense Foreign exchanges losses/(gains) Losses on sale of plant and equipment Gains on derecognition of right-of-use-assets and lease liabilities Losses on the fair value recognition of the right-of-use-assets and lease liabilities Interest income Interest expense Income tax expense Change in working capital, net of effects from acquisition of controlled entities Decrease/(increase) in receivables and other assets Decrease in payables and other liabilities Decrease in provisions Net cash inflow 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) 2.3(e) 2.3(e) 2020 $’000 59,066 39,356 (50) 1,294 (5,128) (128) (23) 21,020 1,041 33 (751) 788 (438) 8,422 19,083 24,301 (2,321) – 165,565 2019 $’000 (14,825) (11,118) (11,301) (37,244) 2019 $’000 14,325 1,666 5,781 1,731 5,746 4,137 33,386 2019 $’000 65,128 37,244 (392) 1,071 (3,779) (300) (315) 17,701 (533) 74 (386) – (538) 8,707 23,323 (9,486) (4,840) (917) 131,762 Iress Limited Annual Report 202063 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, $3.6 million (2019: $0.4 million) of internally generated computer software assets have been recognised. (a) The carrying value of intangible assets is shown below: As at 31 December 2019 Cost Accumulated amortisation Net carrying value Balance at 1 January 2019 Acquired through business combinations(1) Reclassified between asset categories(3) Separately acquired Disposal Amortisation Foreign currency translation Closing carrying value Expected useful life (years) As at 31 December 2020 Cost Accumulated amortisation Net carrying value Balance at 1 January 2020 Acquired through business combinations(2) Separately acquired Internally generated development costs Amortisation Foreign currency translation Closing carrying value Expected useful life (years) Goodwill $’000 528,676 – 528,676 458,144 54,822 – – – – 15,710 528,676 605,440 – 605,440 528,676 102,102 – – – (25,338) 605,440 Customer Relationships $’000 Computer Software $’000 Other Intangibles $’000 57,419 (31,274) 26,145 29,486 1,618 – – – (5,446) 487 26,145 1 to 10 68,067 (34,639) 33,428 26,145 12,977 – – (5,081) (613) 33,428 1 to 10 207,664 (146,527) 61,137 63,490 10,455 (6,218) 2,510 (23) (9,086) 9 61,137 3 to 20 243,210 (151,743) 91,467 61,137 34,866 2,832 3,633 (10,681) (320) 91,467 3 to 20 8,399 (4,609) 3,790 4,070 – – – – (293) 13 3,790 1 to 10 8,187 (4,424) 3,763 3,790 300 – – (310) (17) 3,763 1 to 10 Total $’000 802,158 (182,410) 619,748 555,190 66,895 (6,218) 2,510 (23) (14,825) 16,219 619,748 924,904 (190,806) 734,098 619,748 150,245 2,832 3,633 (16,072) (26,288) 734,098 (1) Acquisition of QuantHouse Group on 31 May 2019. (2) Acquisitions of BC Gateways, O&M Systems and OneVue during 2020. Refer to Note 4.2. (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. 64 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.1 Intangible assets (continued) (b) Impairment testing for goodwill In accordance with the accounting standard AASB 136 Impairment of Assets, the Group has conducted a review of indicators of impairment during the year for each of the cash generating units (CGUs) to which goodwill has been allocated. 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. For each CGU tested, 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 are based on estimates of long term inflation and GDP growth in the country in which the CGU primarily operates. The allocation of goodwill to each cash generating unit and assumptions applied in calculating the recoverable amounts of the goodwill in testing for impairment are as follows: Allocated Goodwill Post-Tax Discount Rates Long Term Growth Rates Cash generating unit APAC Financial Market ANZ Wealth Management International Market Data UK UK Mortgages South Africa Canada Goodwill tested for impairment during 2020 Provisional goodwill arising from the OneVue acquisition Total goodwill 2020 $’000 43,246 48,060 5,384 317,792 78,052 13,939 15,153 2019 $’000 30,855 45,841 5,448 333,154 82,608 15,542 15,228 521,626 528,676 83,814 605,440 – 528,676 2020 % 7.2 7.2 10.5 8.2 8.2 17.6 8.6 2019 % 8.6 8.6 11.8 9.3 9.3 18.3 9.2 2020 % 2.7 2.7 2.0 2.7 2.7 4.7 2.0 2019 % 2.7 2.7 2.0 2.7 2.7 4.7 2.0 Based on the impairment testing performed, it was concluded that no impairment was required to be booked in the year to 31 December 2020. As reported in Note 4.2(c) the provisional goodwill arising from the acquisition of OneVue on 6 November 2020 is $83.8 million. Due to the timing of the acquisition and the fact that the acquisition accounting is only provisional, the OneVue goodwill has not been included in the annual goodwill impairment test during 2020. Iress will allocate the goodwill to one or more CGUs for the purposes of testing for impairment once the acquisition accounting is completed during the 2021 financial year. Significant estimates made The cash flow projections included in the value in use models for each CGU assume that any delays in revenue as a result of COVID-19 are recovered in future periods. This assumption is based on the impact of COVID-19 observed during the 2020 financial year which has been limited to project delays. If COVID-19 does have a longer term material impact on revenue within a CGU, then it will result in reduced headroom or impairment of the goodwill allocated to that CGU. 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. The UK Mortgages cash flow projections included in the value in use model have been adjusted for client projects that have been delayed as a result of COVID-19 and assumes that this revenue is recovered in future periods. The cash flow projections also assume an increased number of clients using the software provided by the business over the forecast period. If the business is not able to achieve the increased revenue from new client sales then it will result in reduced headroom or impairment of the goodwill allocated to the UK Mortgages CGU. Iress Limited Annual Report 202065 Total $’000 93,070 (65,523) 27,547 30,851 1,792 (3,271) 10,480 (1,387) (11,118) 200 27,547 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. (a) The carrying value of plant and equipment is shown below: Leasehold Improvement $’000 Furniture & Fittings $’000 Office Equipment $’000 Computer Equipment $’000 Work In Progress $’000 As at 31 December 2019 Cost Accumulated depreciation Carrying value Movement for the year Balance at 1 January 2019 Acquired through business combinations(1) Reclassified between asset classes(3)(4) Separately acquired Disposal Depreciation Foreign currency translation Balance at 31 December 2019 Expected useful life (years) As at 31 December 2020 Cost Accumulated depreciation Carrying value Movement for the year Balance at 1 January 2020 Acquired through business combinations(2) Reclassified between asset classes(3) Separately acquired Disposal Depreciation Foreign currency translation Balance at 31 December 2020 Expected useful life (years) 13,184 (5,265) 7,919 9,799 163 (1,523) 1,241 (494) (1,291) 24 7,919 3 to 10 17,445 (6,207) 11,238 7,919 – 535 4,844 – (1,634) (426) 11,238 3 to 10 15,771 (8,022) 7,749 9,464 34 – 532 (6) (2,307) 32 7,749 3 to 10 16,492 (8,042) 8,450 7,749 39 52 2,831 (68) (1,924) (229) 8,450 3 to 10 548 – 548 – – (1,748) 2,296 – – – 548 1,943 (853) 1,090 1,403 19 – 24 – (357) 1 1,090 3 2,361 (1,470) 891 61,624 (51,383) 10,241 10,185 1,576 – 6,387 (887) (7,163) 143 10,241 3 64,551 (52,397) 12,154 7 – 7 100,856 (68,116) 32,740 1,090 10,241 548 27,547 60 95 23 – (362) (15) 891 3 214 1,821 7,172 (8) (6,887) (399) 12,154 3 – (2,503) 2,176 – – (214) 7 313 – 17,046 (76) (10,807) (1,283) 32,740 (1) Acquisition of QuantHouse Group on 31 May 2019. (2) Acquisitions of O&M Systems and OneVue during 2020. Refer to Note 4.2. (3) Work-in-progress are transferred to plant and equipment asset classes as brought into use. (4) Leasehold improvements previously disclosed within plant and equipment are now disclosed as a component of the right-of-use assets. (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. 66 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.3 Leases (a) Summary of leasing amounts recognised in the Statement of Profit or Loss and Statement of Cash Flows (i) The table below discloses the principle amounts recognised in the Statement of Profit or Loss as well as contractual lease payments: Contractual rental payments Depreciation expense on right-of-use assets Interest expense on lease liabilities (ii) The table below discloses the total cash flow relating to leases recognised in the Statement of Cash Flows: Settlement of lease liabilities Interest expense on lease liabilities Total cash outflows for leases 2020 $’000 (12,561) (12,477) (2,227) 2020 $’000 (10,334) (2,227) (12,561) 2019 $’000 (12,275) (11,301) (2,086) 2019 $’000 (10,189) (2,086) (12,275) (b) 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’s regional lease portfolio is presented below: Region Australia Lease characteristic features 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 two to twelve 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. 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. Real estate sub-leases The Group leased an office building in Sydney through a lease (the head lease) that commenced on 1 January 2013. The head lease terminated in February 2020. The Group has entered into a sub-lease that covers the period to the end of the head lease term. The sub-lease was accounted for as an operating lease. South Africa Real estate leases The Group leases office buildings in South Africa. The non-cancellable period of these leases range from two to seven years with options to extend the lease terms up to five years. The lease payments are adjusted every year by a fixed percentage increase at the lease review date. Data servers The Group leases data servers which are principally used to host Iress software on client premises. Lease terms are five years. United Kingdom Real estate leases The Group leases office buildings in the UK. The non-cancellable period of these leases range from five to eight years. The lease payments are fixed with no increases over the lease terms. Sub-leases The Group leases an office building on a ten year lease (the head lease) that commenced on 1 January 2016. The Group had entered into a sub-lease that leased part of the office building. The sublease arrangement was terminated during the year along with the head lease. The sub-lease was accounted for as an operating lease. Other The Group leases other office buildings in other countries. The non-cancellable period of these leases range from three to eight. The lease payments are fixed with no increases over the lease terms. Iress Limited Annual Report 202067 (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 separately disclosed in the Consolidated Statement of Financial Position. 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 2.83% (2019: 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. The lease liability is separately disclosed 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. 68 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.3. Leases (continued) (b) Iress Group lease portfolio (continued) (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 Revenue from Contracts with Customers 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’. (c) 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: Office Buildings Data Servers Total Cost Accumulated depreciation Carrying value Opening carrying value Change in accounting policy(1) Acquired through business combinations New leases entered into contract Expenses capitalised to right-of-use assets Disposal of leases from early termination Fair value adjustments from modified leases Depreciation Foreign currency translation Closing carrying value Expected useful life (years) 2020 $’000 107,195 (31,898) 75,297 51,850 – 5,681 33,881 797 (1,720) (1,201) (12,442) (1,549) 75,297 2 to 12 2019 $’000 90,538 (38,688) 51,850 – 52,192 4,881 6,744 – (792) – (11,247) 72 51,850 2020 $’000 124 (114) 10 51 – – – – – – (35) (6) 10 5 2019 $’000 274 (223) 51 – 107 – 1 – – – (54) (3) 51 2020 $’000 107,319 (32,012) 75,307 51,901 – 5,681 33,881 797 (1,720) (1,201) (12,477) (1,555) 75,307 2019 $’000 90,812 (38,911) 51,901 – 52,299 4,881 6,745 – (792) – (11,301) 69 51,901 (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. Iress Limited Annual Report 202069 2020 $’000 (13,383) (71,125) (84,508) 2019 $’000 (9,179) (48,356) (57,535) (d) Lease liabilities (i) Lease liabilities included in the Statement of Financial Position at the end of the period: Current Non-current Total 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 reversed from early termination of lease contracts Lease liabilities raised from changes to existing lease contracts Lease liabilities raised from changes in subsequent lease payments Lease liabilities incurred from rent free periods Settlement of lease liabilities Foreign currency translation Closing carrying value 2020 $’000 (57,535) – (8,100) (33,881) 2,471 – 413 – 10,334 1,790 (84,508) 2019 $’000 – (56,880) (5,060) (6,532) 1,178 (119) – (132) 10,189 (179) (57,535) (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. (iii) Maturity analysis – contractual undiscounted cash flows: Less than one year More than one year and not more than five years More than five years Total undiscounted lease liabilities at the end of the period 2020 $’000 15,051 53,803 21,551 90,405 2019 $’000 11,026 38,996 14,114 64,136 70 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.3. Leases (continued) (e) 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: Depreciation expense on right-of-use assets Interest expense on lease liabilities Expenses relating to short term or low value assets leases Loss on the fair value recognition of the right-of-use-assets and lease liabilities as a result of incremental lease payments 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) 2020 $’000 (12,477) (2,227) (170) (788) 751 566 2019 $’000 (11,301) (2,086) (184) – 386 1,501 (f) Operating lease arrangements As at 31 December 2020 the Group had no outstanding sublease arrangements for which the Group was the lessee under a head lease arrangement. The one outstanding sublease arrangement was terminated during the year along with the head lease. 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 Financial assets at fair value through profit or loss VAT receivables Other assets Notes 2.4(d) 2.4(b) 1.3(b) 2020 $’000 30,721 (1,720) 29,001 16,397 15,642 901 396 447 3,329 66,113 2019 $’000 36,788 (1,718) 35,070 17,223 22,861 1,043 26 687 4,800 81,710 Iress Limited Annual Report 202071 Included within receivables and other assets are financial assets categorised as financial assets at fair value through profit or loss. Iress has assessed its investments held at fair value through profit and loss and these investments are held for trading, where they are acquired for the purpose of selling in the short term with an intention of making a profit. These investments primarily comprise holdings in ASX listed equities that are held for operational purposes. Regular purchase and sales of investments are recognised on trade date, the date on which Iress commits to purchase or sell the asset. Investments are initially recognised at fair value with any transactions costs expensed through the statement of profit and loss and other comprehensive income. Subsequent movements in fair value of financial assets are recognised in the statement of profit and loss and other comprehensive income. These instruments, which are categorised as Level 1 in the ‘Fair Value Hierarchy’, are valued using the quoted price in active markets. (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. 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 trade receivables Contract assets Allowance based on historic credit losses Adjustment for expected changes in credit risk(1) Credit loss allowance APAC UK & Europe South Africa North America 0.2% 0.5% 1.1% 1.1% 0.1% APAC $’000 13,498 659 86 66 14,309 3,398 36 80 116 0.5% 0.6% 2.1% 2.1% 0.2% 0.3% 0.6% 1.3% 1.3% 0.1% 1.0% 1.5% 2.2% 2.2% 0.3% UK & Europe $’000 South Africa $’000 North America $’000 14,394 1,893 595 1,000 17,882 13,445 135 940 1,075 2,118 152 125 680 3,075 380 18 374 392 1,275 119 25 103 1,522 – 18 117 135 Group $’000 31,285 2,823 831 1,849 36,788 17,223 207 1,511 1,718 (1) Adjustment to reflect the higher credit risk and probability of default relating to customers that are over 90 days past due. 72 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.4 Receivables and other assets (continued) (b) Credit Loss Allowance (continued) The credit loss allowance as at 31 December 2020 is determined as follows: Provision matrix As at 31 December 2020 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days Contract assets Ageing of receivables As at 31 December 2020 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total trade receivables Contract assets Allowance based on historic credit losses Adjustment for expected changes in credit risk(1) Credit loss allowance APAC 0.2% 0.4% 0.9% 0.9% 0.1% APAC $’000 17,525 511 22 387 18,445 6,789 46 814 860 UK & Europe 0.4% 0.6% 1.8% 1.9% 0.2% UK & Europe $’000 8,483 630 54 754 9,921 9,259 71 603 674 South Africa 0.3% 0.6% 1.2% 1.3% 0.1% South Africa $’000 1,362 34 54 147 1,597 349 7 116 123 North America 1.1% 1.9% 2.4% 2.4% 0.2% North America $’000 710 16 12 20 758 – 9 54 63 Group $’000 28,080 1,191 142 1,308 30,721 16,397 133 1,587 1,720 (1) Adjustment to reflect the higher credit risk and probability of default relating to customers that are over 90 days past due. Significant estimate made The adjustment for material expected changes to credit risk for each client group requires judgment about future events and as such a significant increase in actual credit losses from that expected would lead to a significant impact on financial performance. To date, COVID-19 has not had a material impact on the credit risk profile of Iress’ clients. However, the broader economic uncertainty as a result of COVID-19 could lead to a deterioration in the credit profile within the client base. Iress continues to monitor credit exposures closely and carefully. Iress Limited Annual Report 202073 (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) 2020 $’000 (1,718) (587) 637 (242) 190 (1,720) 2019 $’000 (1,553) (415) 807 (520) (37) (1,718) (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 2.4(a) 2020 $’000 27,164 1,043 794 1,720 30,721 2019 $’000 21,681 11,741 1,648 1,718 36,788 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 • A risk of expected credit loss based on the historical trend of credit losses. 74 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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 Taxation fee accruals Contract liabilities GST/VAT payable Finance arrangements Employee related liabilities Dividend payable Accrued interest Other liabilities Notes 1.3(b) 2020 $’000 9,120 23,191 559 290 13,413 13,606 – 19,174 86 437 2,581 82,457 2019 $’000 4,958 17,700 518 604 12,083 6,729 1,600 17,605 75 325 2,328 64,525 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. Iress Limited Annual Report 202075 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 estimates made Non-current provisions contain $33.6 million (2019: $27.1 million) of deferred contingent consideration in relation to the acquisitions of QuantHouse in 2019 and BC Gateways in 2020. 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 in the 2021 and 2022 financial years. If actual revenue differs from these estimates, including as a result of future disruption from the COVID-19 pandemic on current and prospective clients, the amounts of deferred consideration paid will change. The fair value of acquisition deferred consideration recorded as non-current at 31 December 2020 was $21.1 million based on a probability weighted assessment of likely revenue outcomes for the periods in question. The minimum and maximum amounts payable under these arrangements are $0 and $27.5 million respectively. In respect of the deferred consideration arising from the BC Gateways acquisition, estimates have been established for expected client acquisitions and revenue in the 2021, 2022 and 2023 financial years. If actual client acquisitions and revenue differ from these estimates, including as a result of future disruption from the COVID-19 pandemic on prospective clients, the amounts of deferred consideration payable will change. The fair value of acquisition deferred consideration recorded at 31 December 2020 was $12.5 million based on a probability weighted assessment of likely revenue outcomes for the periods in question. The estimated potential range of likely outcomes of amounts payable under these arrangements is between $0 and $20 million. Onerous losses represent the expected losses on non-cancellable property lease commitments which the Group no longer utilises. The amount provided for represents the present value of the future payments on the leases, net of expected income from sub-leasing the properties. These leases have expired in late 2020 and the provision is expected to be utilised in 2021. 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 Deferred consideration(1) Onerous losses provision Other provisions Non-current provisions Employee benefits Deferred consideration(1) 2020 $’000 1,610 4,230 64 10 5,914 2020 $’000 9,926 33,591 43,517 2019 $’000 5,210 1,235 192 32 6,669 2019 $’000 3,484 27,076 30,560 (1) The deferred consideration relates to the QuantHouse and BC Gateways acquisitions. The current provision balance of $4.2m has been settled since 31 December 2020. 76 Notes to the Consolidated Financial Statements Section 2. Core assets and working capital Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 2.6 Provisions (continued) Significant estimate made (continued) (b) The carrying value of provisions are reconciled as follows: As at 31 December 2019 Opening carrying value Change in accounting policy(1)(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 As at 31 December 2020 Opening carrying value 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 Considerations $’000 Onerous Loss Provision $’000 Make Good Provision $’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) – – – – – – Other Provisions $’000 1,189 (1,199) 348 – (315) – 9 32 Employee Benefits $’000 Deferred Considerations $’000 Onerous Loss Provision $’000 Make Good Provision $’000 Other Provisions $’000 8,694 1,552 1,294 – – (4) 11,536 28,311 16,158 – (5,128) (1,620) 100 37,821 192 – – (128) – – 64 – – – – – – – 32 – – (23) – 1 10 Total $’000 12,377 (3,074) 33,163 1,367 (4,690) (1,566) (348) 37,229 Total $’000 37,229 17,710 1,294 (5,279) (1,620) 97 49,431 (1) 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) The provision for make good was previously disclosed 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. 2.7 Commitments and contingencies (a) Capital commitments No capital expenditure has been contracted or provided for at balance date (2019: Nil). (b) Contingencies There are no material contingent liabilities that have been contracted or provided for at the reporting date (2019: Nil). Iress Limited Annual Report 202077 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. On 29 April 2020, Iress refinanced its unsecured bank facilities totalling $300 million that were due to expire in November 2021. The amount of the unsecured bank facilities was increased to $405 million and the expiry date extended to April 2024. The covenant requirements remain unchanged. (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 4 year $405 million bank facility to April 2024 AUD GBP EUR Total amount drawn Borrowing costs capitalised Total borrowings 2020 $’000 – – – 48,500 107,123 34,403 190,026 (1,593) 188,433 2019 $’000 87,500 113,377 25,623 – – – 226,500 (586) 225,914 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. As at 31 December 2020, $6.5 million (2019: $5.8 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 (capitalised)/amortised Foreign exchange rate movements Closing balance 2020 $’000 225,914 142,039 (172,239) (1,008) (6,273) 188,433 2019 $’000 204,389 123,645 (107,022) 651 4,251 225,914 78 Notes to the Consolidated Financial Statements Section 3. Debt and equity Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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: CURRENT Assets at fair value 3 year receive AUD/pay GBP to September 2021 NON-CURRENT Liabilities at fair value 3 year receive AUD/pay GBP to September 2021 2020 $’000 2019 $’000 1,739 – – 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 Australian dollar against the British pound. No credit risk adjustments have been recognised on the fair value of the derivatives 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 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) 31 December 2020 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 – 4,938 – (164) 1–3 years $’000 226,500 4,526 1,856 (123) Within 1 year $’000 1–3 years $’000 – 3,420 (1,554) (108) – 6,841 – – Greater than 3 years $’000 – – – – Greater than 3 years $’000 190,026 1,140 – – (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. Iress Limited Annual Report 202079 (e) Interest expense and financing costs Interest expense 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 (losses)/gains on intra-group financing arrangements Fair value changes on cross currency swaps Fair value changes on managed investment Net interest expense and financing costs 3.2 Issued capital Notes 2.3(e) 2020 $’000 438 (5,294) (2,227) (1,042) (3,397) 3,508 30 (7,984) 2019 $’000 547 (5,968) (2,086) (651) 2,592 (2,603) – (8,169) On 1 June 2020, Iress announced the proposed issue of 14,395,394 ordinary fully paid shares through an Equity Placement and 1,919,386 ordinary fully paid shares under a Share Purchase Plan for total gross proceeds of $170 million. The issuance of the shares under the equity placement was completed on 4 June 2020 and total proceeds, before fees, of $150 million were received. The Share Purchase Plan closed on 29 June 2020 and was oversubscribed. The issue was increased by 479,844 shares and 2,399,230 shares were issued on 8 July 2020 for total proceeds, before fees, of $25 million. The number of ordinary shares outstanding at the end of the year is as follows: Balance at 1 January New shares issued to employees in relation to employee share schemes Shares issued to meet obligations under the Dividends Reinvestment Plan Shares issued under the Equity Placement(1) Shares issued under the Share Purchase Plan Shares issued under employee Share Purchase Plan Less Treasury Shares(2) Number of shares on issue Amount Number of shares 2020 $’000 383,083 – 2,662 147,227 24,840 604 558,416 – 2019 $’000 378,577 – 4,058 – – 448 383,083 – 558,416 383,083 2020 ‘000 2019 ‘000 174,924 173,251 1,370 238 14,395 2,399 – 193,326 (2,514) 190,812 1,308 327 – – 38 174,924 (2,442) 172,482 (1) Shares issued during the year net of issue cost and tax. (2) The change is due to the net movement in shares issued and shares vested under the Employee Share Plans. 80 Notes to the Consolidated Financial Statements Section 3. Debt and equity Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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. An increase in the benchmark interest rates of 50 basis points (0.5%), with all other factors held constant, would result in an increase in the annual interest cost of the Group of $0.9 million (2019: $1.1 million increase). 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% increase in foreign currency rates GBP ZAR 2020 ‘000 (1,222) 44,374 (22) 40 2019 ‘000 (12,041) 31,280 (226) 32 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 significant 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 as well as the impact on the Group’s leverage ratio. The Group’s year end leverage ratio is outlined below: Net debt(1) Segment Profit for the last twelve months Leverage ratio (1) Measured as borrowings and net derivatives liabilities/assets less cash and cash equivalents. Notes 1.1(a) 2020 $’000 125,146 152,918 0.82 2019 $’000 194,934 152,062 1.28 Iress Limited Annual Report 202081 SECTION 4. OTHER DISCLOSURES 4.1 Taxation Total income tax expense 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 realised/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 Australian tax consolidated group. Tax expense, 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 Australian 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 Australian 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 Australian tax consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the Australian tax consolidated group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the Australian tax consolidated group in accordance with the arrangement. 82 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 4.1 Taxation (continued) (a) Income tax expense for the year including current and deferred tax is as follows: INCOME TAX EXPENSE RECOGNISED IN STATEMENT OF 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 Total income tax expense recognised in Statement of Profit or Loss Income tax expense recognised in other comprehensive income Arising from gains or losses on long term monetary intercompany balances Income tax expense recognised directly in equity 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% (2019: 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 2020 $’000 2019 $’000 25,529 (521) 25,008 (5,759) (166) (5,925) 19,083 (76) (158) (819) (1,053) 2020 $’000 78,149 23,445 (2,761) (1,402) (687) 312 176 19,083 24,819 3,416 28,235 (685) (4,227) (4,912) 23,323 39 809 (775) 73 2019 $’000 88,451 26,535 (3,441) (617) (811) 127 1,530 23,323 Iress Limited Annual Report 202083 (c) Deferred income tax assets and liabilities recognised in the Statement of Financial Position are as follows: 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 Trade and other payables Computer software Intangible assets Other financial assets Employee share plan Total deferred tax liabilities For the year ended 31 December 2020 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 Trade and other payables Computer software Intangible assets Other financial assets Employee share plan Total deferred tax liabilities 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) Opening balance $’000 Charged to income $’000 Charged to OCI/Equity $’000 From business combinations $’000 Exchange differences $’000 Closing balance $’000 146 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) 153 228 28 2,191 (1,101) 1,052 91 (462) 2,250 327 (433) 4,324 990 (202) 1,827 (1,061) 47 1,601 – – – – – – – 819 – – – 819 – – – – – – – (8) (572) 128 2,064 – – 201 – 546 – 2,359 – – (4,226) (9) – (4,235) (12) (259) – (16) (31) – (243) – (110) (21) – (692) – 16 312 – – 328 287 4,397 2,004 3,377 9,931 522 2,206 1,136 3,412 2,016 1 29,289 – (377) (11,161) (557) – (12,095) 84 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 4.1 Taxation (continued) (d) Unused tax losses to carry forward for which no deferred tax asset has been recognised are outlined below: Singapore (Tax rate 17.0%, 2019: 17.0%) Hong Kong (Tax rate 16.5%, 2019: 16.5%) France (Tax rate 28.0%, 2019: 28.0%) Potential tax benefit 2020 $’000 – 121 73,214 20,520 2019 $’000 1,539 135 66,707 18,962 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 subsidiaries (a) BC Gateways On 7 January 2020, Iress acquired a 100% interest in BC Gateways Limited, a blockchain communication platform provider based in Hong Kong and Australia. Iress acquired the holding company, BC Gateways Limited via Iress International Holding Pty Ltd which is a company incorporated in Australia and ultimately 100% owned by Iress Limited. The acquisition of BC Gateways will assist Iress in meeting the demand from financial institutions for cost-effective, automated and compliant technology. Initial cash consideration of $1.5 million was paid with further milestone and earnout payments to be made to the sellers on the achievement of specific customer and revenue targets in the 2020, 2021 and 2022 financial years. The range of estimated possible outcomes for the milestone and earnout payments in total are $0 to $20 million. The milestone payments and earnouts have been individually measured at the acquisition date based on the discounted present value of the expected payment achieved under the respective milestone and earnout formulae. In order to assess the expected outcome, Management made assumptions as to the probability of achieving the specific 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. The following table summarises consideration paid and payable and the fair value of net assets acquired at the date of acquisition: Consideration Cash consideration Fair value of contingent consideration (‘the milestone payments and earnouts’) Total fair value of consideration Assets acquired Cash and cash equivalents Trade and other receivables Intangible assets Deferred tax liabilities Fair value of assets acquired Goodwill recorded on acquisition 7 January 2020 $’000 1,525 16,158 17,683 1 1 2,929 (572) 2,359 15,324 Acquisition costs of $0.2 million are included in ‘Business acquisition, integration and restructuring expenses’. Refer to Note 1.6. The financial results of BC Gateways for the period since the acquisition date and included in the Group’s Consolidated Statement of Profit or Loss for the year ended 31 December 2020 are not material to the Group’s revenue and profit after tax. Iress Limited Annual Report 202085 (b) O&M Systems On 17 March 2020, Iress completed the acquisition of 100% of the share capital of O&M Systems Limited (O&M). O&M provides pension and investment data and comparison tools to financial advisers in the UK. Established in 1992, O&M has over 2,000 clients comprising pension and platform providers and advice businesses. O&M software will further strengthen Iress’ already comprehensive advice offering in the UK. It will integrate directly into Iress’ Xplan software and is immediately available to Iress’ clients, as well as continuing as a stand alone research service. The following table summarises consideration paid and payable and the fair value of net assets acquired at the date of acquisition: Consideration Cash consideration 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 Deferred tax liabilities Fair value of assets acquired Goodwill recorded on acquisition 17 March 2020 $’000 6,757 6,757 2,161 229 3,770 21 512 (1,623) (552) (725) 3,793 2,964 The financial results of O&M for the period since the acquisition date and included in the Group’s Consolidated Statement of Profit or Loss for the year ended 31 December 2020 are not material to the Group’s revenue and profit after tax for the year ended 31 December 2020. In addition, the financial results of O&M for the period from 1 January 2020 to the acquisition date would not be material to the Group’s revenue and profit after tax for the year ended 31 December 2020 if they had been consolidated into the results of the Group. 86 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 4.2 Businesses and investment acquired and divested (continued) Acquisition of subsidiaries (continued) (c) OneVue On 6 November 2020 Iress acquired 100% of the outstanding shares of OneVue (OneVue) via a Scheme Implementation Agreement with OneVue Holdings (OVH.ASX). OneVue is an ASX listed administration platform for managed funds, superannuation and investments. The business operates through two core divisions: Fund Services and Platform Services. OneVue has scale in Fund Services managed funds administration as the largest single third-party fund registry in Australia and third in Superannuation Member Administration. Iress’ strategy is to continue to generate long-term growth opportunities, leveraging technology and automation while helping clients achieve efficiency, compliance and growth. The combination of OneVue’s position in administration in funds, super and investment, and Iress’ strength in software and data will drive innovation through technology. This includes the development of software and services that connects advice and investments closer together, resulting in greater efficiency and productivity for professional advisers and businesses in Australia. The following table summarises consideration paid and payable and the fair value of net assets acquired at the date of acquisition: Consideration Cash consideration Total fair value of consideration Assets acquired Cash and cash equivalents Trade and other receivables Intangible assets Plant and equipment Right-of-use assets Deferred tax assets Interest-bearing loan Payables and other liabilities Lease liabilities Provisions Deferred tax liabilities Fair value of assets acquired Goodwill recorded on acquisition 6 November 2020 $’000 115,210 115,210 7,122 6,043 41,444 292 5,169 2,939 (6,482) (14,229) (6,988) (395) (3,518) 31,397 83,813 The allocation of the purchase consideration outlined above remains provisional in relation to the fair valuation of certain intangible assets and tax accounting. Acquisition costs of $5.5 million were incurred during 2020 and are included in ‘Business acquisition, integration and restructuring expenses’. Refer to Note 1.6. The revenue resulting from the operations of OneVue since acquisition and included in the Group’s Consolidated Statement of Profit or Loss for the year ended 31 December 2020 was $7.9 million. OneVue’s loss after tax since acquisition included in the Group’s Consolidated Statement of Profit or Loss for the year ended 31 December 2020 was $0.3 million. Had the acquisition of OneVue been effected at 1 January 2020, the revenue of the Group for the year ended 31 December 2020 would have increased by $40.3 million and the profit after tax of the Group for the year ended 31 December 2020 would have been reduced by $12.5 million. Iress Limited Annual Report 202087 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 $85.0 million (2019: $87.0 million). 2020 $’000 168,790 867,073 1,035,863 111,111 188,555 299,666 736,197 558,416 35,051 142,730 736,197 54,275 54,275 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 (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 (2019: Nil). 88 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 4.4 Subsidiaries Details of the Group’s wholly-owned subsidiaries at the end of the year are as follows: Australia BC Gateways Pty Ltd(2) Diversa Funds Management Pty Ltd(4) Diversa Pty Ltd (formerly Diversa Ltd)(4) Canada Iress Canada Holdings Ltd Iress (LP) Holdings Corp. Iress Market Technology Canada LP FUND.eXchange Pty Ltd (formerly OneVue Private Clients Pty Ltd)(4) Iress (Ontario) Ltd Financial Synergy Pty Ltd(1) Financial Synergy Actuarial Pty Ltd(1) Financial Synergy Holdings Pty Ltd(1) Glykoz Pty Ltd(4) KTG Technologies Corp. South Africa Advicenet Advisory Services (Pty) Ltd Iress Hosting (Pty) Ltd Group Insurance & Superannuation Concepts Pty Ltd(4) Iress Financial Markets (Pty) Ltd Innergi Pty Ltd Iress MD RSA (Pty) Ltd Investment Gateway Pty Ltd (formerly MAP Financial Planning Pty Ltd)(4) Iress Wealth MNGT (Pty) Ltd Iress Data Pty Ltd(1) Iress Euro Holdings Pty Ltd(1) Iress Information Pty Ltd Iress International Holding Pty Ltd(1) Iress South Africa (Australia) Pty Ltd(1) United Kingdom Iress FS Group Ltd Iress FS Ltd Iress Mortgage Services Ltd O&M Systems Ltd(3) Iress Spotlight Wealth Management Solutions (RSA) Pty Ltd(1) O&M Life & Pensions Ltd(3) Iress Wealth Management Pty Ltd(1) Lucsan Capital Pty Ltd Map Funds Management Pty Ltd(4) No More Practice Education Pty Ltd(4) No More Practice Holdings Pty Ltd(4) OneVue Financial Pty Ltd(4) OneVue Fund Services Pty Ltd(4) OneVue Holdings Ltd(4) OneVue Pty Ltd(4) OneVue Services Pty Ltd(4) OneVue Super Member Administration Pty Ltd(4) OneVue Super Services Holdings Pty Ltd(4) OneVue Super Services Pty Ltd(4) OneVue UMA Pty Ltd(4) OneVue Unit Registry Pty Ltd(4) OneVue Wealth Services Ltd(4) Iress Portal Ltd Iress Solutions Ltd Iress Technology Ltd Iress (UK) Ltd Iress UK Holdings Ltd Iress Web Ltd Proquote Ltd Pulse Software Systems Ltd Pulse Software Management Ltd TrigoldCrystal Ltd Other countries BC Gateways Ltd (Hong Kong)(2) Iress Asia Holdings Ltd (Hong Kong) Iress Malaysia Holdings Sdn Bhd (Malaysia) Iress Market Technology (Singapore) Pte Ltd (Singapore) Iress (NZ) Ltd (New Zealand) OneVue Wealth Solutions Pty Ltd (formerly OneVue Wealth Services Pty Ltd)(4) Peresys Software Ltd (Ireland) Planning Resources Group Pty Ltd(1) Top Quartile Management Pty Ltd(1) Tranzact Consulting Pty Ltd(4) Tranzact Financial Services Pty Ltd(4) Tranzact Superannuation Services Pty Ltd(4) Waysun Technology Development Ltd (Hong Kong)(²) QH Hold Co (Luxembourg) QuantHouse SAS (France) QuantHouse Sàrl (Tunisia) QuantHouse Singapore Pte Ltd (Singapore) QuantHouse UK Ltd (United Kingdom) QuantHouse Inc. (United States of America) (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) Group acquired these entities on 7 January 2020. (3) Group acquired these entities on 17 March 2020. (4) Group acquired these entities on 6 November 2020. Iress Limited Annual Report 202089 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) Dividends declared Transfers from SBP reserve Retained earnings at the end of the year 2020 $’000 103,507 (16,477) 87,030 (12,565) – (83,394) 17,163 8,234 2019 $’000 66,878 (16,399) 50,479 7,081 (955) (79,839) 10,669 (12,565) (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. 90 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 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 Retained earnings/(accumulated losses) Total equity 2020 $’000 2019 $’000 27,593 28,856 7,975 935 65,359 113,879 15,311 26,913 17,761 548,579 165,465 887,908 953,267 28,285 5,512 4,777 – 38,574 50,846 25,443 42,833 5,321 188,433 577 313,453 352,027 601,240 558,416 35,020 (430) 8,234 601,240 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 Iress Limited Annual Report 202091 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 2020. The full year financial statements: • have been prepared in accordance with the Corporations Act 2001 (Cth), Australian Accounting Standards and Interpretations, and International Financial Reporting Standards (IFRS); • were authorised for issue by the Directors on 17 February 2021; • have been prepared on a historical cost basis, except for derivative financial instruments and investments in financial assets which have been measured at fair value; • have all amounts presented in Australian dollars, unless otherwise stated; and • have 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 In the current period, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for annual reporting periods commencing on or after 1 January 2020 including the following: AASB 3 Business combinations (amendments) AASB 101 and AASB 108 (amendments) – Definition of a business – Definition of material Conceptual Framework for Financial Reporting (updated 2018) – Amendments to and reference to the Conceptual Framework in IFRS Standards AASB 2019–3 Amendments to Australian Accounting Standards – Interest rate benchmark reform AASB 2019–5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards not yet issued in Australia AASB 2020–4 Amendments to Australian Accounting Standards – COVID-19 related rent concessions None of these standards have had a material impact on the Group in the current period and are not expected to have a material impact in future reporting periods or on foreseeable future transactions. (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 2020 reporting periods and have not yet been applied by the Company within this financial report: AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates (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) AASB 2020–1 Amendments to Australian Accounting Standards – Classification of liabilities as current or non-current(3) AASB 2020–3 Amendments to Australian Accounting Standards – Annual improvements 2018–2020 and other amendments(3) (1) Effective for annual periods beginning on or after 1 January 2021, with earlier application permitted. (2) Effective for annual periods beginning on or after 1 January 2021. (3) Effective for annual periods beginning on or after 1 January 2022. Iress does not believe these new accounting standards, amendments and interpretations will have a material impact on the financial statements of the Group in future periods. (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. 92 Notes to the Consolidated Financial Statements Section 4. Other disclosures Notes to the Consolidated Financial Statement cont. For the year ended 31 December 2020 4.6 Basis of preparation (continued) (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. (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, derivatives, listed shares and trade and other receivables. Classification and subsequent measurement of financial assets Financial assets that meet the following conditions are subsequently measured at amortised cost: • the financial asset is held within a business model whose objective is to collect contractual cash flows; and • the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All other financial assets are subsequently measured at fair value. Amortised cost and interest income Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. Impairment of financial assets The Group performs impairment assessment under the expected credit losses model on financial assets (including trade and other receivables, receivables from related parties and bank balances) which are subject to impairment under AASB 9 Financial Instruments. The amount of expected credit losses is updated at the end of each reporting period to reflect changes in credit risk since initial recognition. Refer to notes 2.4(b) on the Group’s approach to the credit loss allowance. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. 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. Iress Limited Annual Report 202093 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. (d) Significant sources of estimation uncertainty The following assets and liabilities recognised in the Consolidated Statement of Financial Position as at 31 December 2020 are subject to estimates made about future performance and as such require significant judgment: (i) Goodwill Significant judgment is required in the assumptions used in the value-in-use models used in impairment testing. Refer to Note 2.1 for more detailed information. (ii) Credit Loss Allowance Significant judgment is required in the assumptions made in calculating the Group’s credit loss allowance included within trade and other receivables. Refer to Note 2.4 for more detailed information. (iii) Provision for deferred consideration The Group’s provision for deferred contingent consideration is recognised within ‘Provisions’ in the Consolidated Statement of Financial Position. Deferred contingent 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. Refer to Note 2.6 for more detailed information. 4.7 The impact of the COVID-19 pandemic on these financial statements Subsequent to 31 December 2019, there was a global outbreak of a novel strain of coronavirus (COVID-19), and on 11 March 2020, the World Health Organisation declared the coronavirus outbreak a pandemic. The global and domestic responses, including mandates from federal, state, and/or local authorities, to mitigate the spread of the virus continues to evolve rapidly and has impacted global commercial activity and contributed to significant volatility in financial markets. Iress’ key focus during this time has been the health and wellbeing of its people, and ensuring that they have been able to work safely and effectively on a remote basis, as well as providing service continuity for clients and users. While some people and teams in certain locations have started returning to the office as Government restrictions have lifted, the majority of Iress’ people continue to work from home. For those offices that have reopened, Iress’ focus has been on ensuring that workplaces are safe. Operations have not been interrupted by COVID-19 and Iress continues to deliver all services and support to clients and users. Iress’ teams, including business-critical teams, have been working well remotely and the business can continue to operate effectively in this manner for an extended period of time if required. Regular updates regarding business continuity are published on Iress’ website. Iress operates a subscription model and most of Iress’ revenue is recurring in nature. Iress has a history of strong cash conversion and low debtor defaults. These features of Iress’ commercial model have continued throughout the COVID-19 pandemic. The majority of client implementation projects have continued since the onset of the COVID-19 pandemic, notwithstanding a short period of adjustment to the new environment. However, some projects, particularly in the UK Mortgages business, were temporarily delayed. In addition, the Group is exposed to the broader economic uncertainty evident in all of Iress’ markets as a result of COVID-19. This makes it difficult to forecast short-term financial performance. At the date of this report, due to the resilience of Iress’ business, Iress has not been eligible for, nor applied for, significant Government COVID-19 related support other than the deferral of certain VAT and payroll tax payments that were offered to all companies in the UK and NSW respectively. Iress settled the deferred payroll tax payments during the second half of 2020 and expects to settle the UK VAT liabilities within the next twelve months and as such they remain presented in the financial statements as current liabilities. 4.8 Transactions with related parties There are no shareholders with substantial holdings that materially transacted with the Group during the year. 4.9 Events subsequent to the Statement of Financial Position date On 17 February 2021, the Directors declared a final dividend of 30.0 cents per share franked to 40% totalling $58.0 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. 94 Directors’ declaration 31 December 2020 In the Directors’ opinion: (a) the financial statements and notes set out on pages 46 to 93 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 2020 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. A D’Aloisio Chair Melbourne 17 February 2021 A Walsh Managing Director and Chief Executive Officer Iress Limited Annual Report 2020 Independent Auditor’s Report Independent Auditor’s Report 95 Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au IInnddeeppeennddeenntt AAuuddiittoorr’’ss RReeppoorrtt ttoo tthhee mmeemmbbeerrss ooff IIrreessss LLiimmiitteedd RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt OOppiinniioonn We have audited the financial report of Iress Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 31 December 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. BBaassiiss ffoorr OOppiinniioonn We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KKeeyy AAuuddiitt MMaatttteerrss Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 96 Independent Auditor’s Report Independent Auditor’s Report cont. KKeeyy AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr CCaarrrryyiinngg vvaalluuee ooff ggooooddwwiillll iinn tthhee UUKK MMoorrttggaaggeess bbuussiinneessss Our procedures included, but were not limited to: Refer to Note 2.1 - Impairment assessment. As at 31 December 2020, the Group’s goodwill totalled $605.4 million which is allocated across the seven to the relevant Cash Generating Units (CGUs). Goodwill is required to be assessed for impairment on an annual basis or when any indicators of impairment exist. The UK Mortgages CGU was identified as having a heightened risk of impairment due to their dependency on securing key contracts and the achievement of forecast growth rates which require Included within the UK Mortgages CGU at 31 December 2020 is goodwill of $78.1 million. judgement. The Group has prepared value in use models to determine the recoverable amount of the UK Mortgages CGU. • Obtaining an understanding of the key controls associated with the preparation of the value in use models and assessing management’s methodologies. With the assistance of our valuation specialists, we: • • • • • • Assessed key assumptions, including forecast growth rates by comparing to economic and industry growth rates Challenged the forecasted revenue for the UK Mortgages CGU with reference to: - - review of the historical accuracy of forecasting of the Group evaluation of current pipeline and historical pipeline conversion rate Evaluated discount rates used to assess the cost of capital for the UK Mortgages CGU against comparable organisations Agreed the cash flow forecast with the latest Board approved four year financial plan for the UK Mortgages CGU Recalculated the cash flow models for mathematical accuracy Assessed the net present value of the UK Mortgages CGU in local currency to the carrying values in local currency. We also performed a sensitivity analysis to stress test the key assumptions used in the value in use models, including revenue growth, terminal growth rates and discount rates used. We have assessed the appropriateness of the disclosures included in Note 2.1 to the financial statements. Iress Limited Annual Report 2020 97 AAccqquuiissiittiioonn aaccccoouunnttiinngg ooff OOnneeVVuuee HHoollddiinnggss LLiimmiitteedd Refer to Note 4.2 – Businesses and investment acquired and divested. With respect to the accounting for the OneVue acquisition, we performed the following procedures in conjunction with our valuation specialists: On the 6th November 2020, the Group acquired 100% interest in OneVue Holdings Limited for a total consideration of circa $115 million by way of a Scheme Implementation Agreement. OneVue Holdings Limited is an administration platform for and managed investments. superannuation funds, Accounting for this transaction is a complex and judgemental exercise, requiring management to determine the fair value of acquired assets and liabilities, in particular determining the allocation of purchase consideration to goodwill. Due to the timing of the acquisition, the purchase price accounting for OneVue Holdings Limited will be provisional within the Iress Limited 31 December 2020 financial statements. Determination of purchase price: • • Reviewed the Board approved purchase contract to understand the contractual terms concerning assets acquired, liabilities assumed and the purchase price Reviewed the actual year-to-date performance of the OneVue business since the date of acquisition Determination of fair value of assets and liabilities acquired: • • • Reviewed a copy of the external valuation report and assessed the underlying assumptions used to determine the fair values of the assets acquired and liabilities assumed as part of the acquisition Assessed the objectivity and competence of the external valuation specialist used by management Evaluated and challenged management’s methodology for the identification of, and the determination of fair values of the assets acquired and liabilities assumed, including any fair value adjustments. As part of this we considered the valuation method used, underlying forecast cashflow, comparable transactions, discount rates and tax rates. We have also assessed the appropriateness of the disclosures included in Note 4.2 of the financial statements. OOtthheerr IInnffoorrmmaattiioonn The directors are responsible for the other information. The other information comprises the information in the Company’s annual report for the year ended 31 December 2020, but does not include the financial report and our auditor’s report thereon. 98 Independent Auditor’s Report Independent Auditor’s Report cont. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RReessppoonnssiibbiilliittiieess ooff tthhee DDiirreeccttoorrss ffoorr tthhee FFiinnaanncciiaall RReeppoorrtt The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. AAuuddiittoorr’’ss RReessppoonnssiibbiilliittiieess ffoorr tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Iress Limited Annual Report 2020 99 • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 24 to 44 of the Directors’ Report for the year ended 31 December 2020. In our opinion, the Remuneration Report of Iress Limited, for the year ended 31 December 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Tom Imbesi Partner Chartered Accountants Melbourne 17 February 2021 100 Shareholder information Shareholder information The shareholder information set out below was applicable as at 31 December 2020. 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: GREENCAPE CAPITAL PTY LIMITED FIRST SENTIER INVESTORS 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] PACIFIC CUSTODIANS PTY LIMITED [IRE PLANS] HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED [NT-COMNWLTH SUPER CORP] ARGO INVESTMENTS LIMITED MIRRABOOKA INVESTMENTS LIMITED CITICORP NOMINEES PTY LIMITED [COLONIAL FIRST STATE INV] DJERRIWARRH INVESTMENTS LIMITED NAVIGATOR AUSTRALIA LTD AVANTEOS INVESTMENTS LIMITED AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED AMCIL LIMITED POWERWRAP LIMITED NETWEALTH INVESTMENTS LIMITED [WRAP SERVICES] Total top twenty shareholders Balance of register Total Number of shareholders 4,829 4,019 770 454 48 Number of shares 2,137,244 9,369,780 5,469,556 9,488,229 166,861,654 % of issued capital 1.11 4.85 2.83 4.91 86.30 10,120 193,326,463 100.00 Number held 16,012,570 10,282,718 26,295,288 167,031,175 193,326,463 Number held 65,589,104 28,271,651 21,945,654 12,534,618 6,664,582 5,471,523 3,645,127 2,937,000 2,115,892 1,827,621 1,417,413 1,220,000 1,160,223 1,069,000 869,542 806,957 662,023 645,000 604,363 584,608 160,041,901 33,284,562 193,326,463 % 8.28 5.32 13.60 86.40 100.00 % of issued shares 33.93 14.62 11.35 6.48 3.45 2.83 1.89 1.52 1.09 0.95 0.73 0.63 0.60 0.55 0.45 0.42 0.34 0.33 0.31 0.30 82.78 17.22 100.00 Iress Limited Annual Report 2020101 Chair since August 2014 and Independent Non-Executive Director since June 2012 Managing Director and Chief Executive Officer since October 2009 Independent Non-Executive Director since February 2015 Independent Non-Executive Director since March 2010 Independent Non-Executive Director since February 2020 Independent Non-Executive Director since October 2017 and Chair of the People & Performance Committee since February 2020 Independent Non-Executive Director since June 2011 and Chair of the Audit & Risk Committee since June 2011 Independent Non-Executive Director since August 2008, fourth and final term as a Director ended at the AGM in May 2020 Independent Non-Executive Director since February 2015 Independent Non-Executive Director since February 2020 Corporate directory Directors Company Secretary Registered Office Share Registry Stock Exchange Listing A D’Aloisio A Walsh N Beattie J Cameron M Dwyer(1) J Fahey J Hayes J Seabrook(2) G Tomlinson T Vonhoff(1) P Ferguson Level 16, 385 Bourke Street Melbourne VIC 3000 Phone: +61 3 9018 5800 Fax: +61 3 9018 5844 Computershare Investors Services Pty Limited 452 Johnston Street Abbotsford VIC 3067 www.computershare.com Iress Limited shares are quoted on the Australian Securities Exchange under the code: IRE Auditor Deloitte Touche Tohmatsu (1) Appointed on 1 February 2020. (2) Final term ended on 7 May 2020. A n n u a l R e p o r t 2 0 2 0 www.iress.com A n n u a l R e p o r t 2 0 2 0 

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