2011 Annual Report
S I N E S S TOGETHER IN T
H
E C
L
O
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BRINGIN G B
SME’s
Bookkeepers
Accountants
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BankData
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Learning
GovConnect
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Training
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Government
Reckon Limited Annual Report
ABN 14 003 348 730
for the Financial Year Ended 31 December 2011
Contents
Our results at a glance
Message to shareholders from the Chairman and the Group CEO
Directors’ Report
Remuneration Report
Corporate Governance Report
Auditor’s Independence Declaration
Auditor’s Report
Financial Report
Directors’ Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Additional Information
2
3
6
10
18
22
23
25
25
26
27
28
29
30
31
65
Our results at a glance
2005
2006
2007
2008
2009
2010
2011
90.1
90.2
8%
23%
8%
42%
6%
-%
30.2
33.1
29%
26%
15%
32%
20%
10%
22.4
24.6
19%
21%
14%
18%
26%
10%
Operating Revenue
Operating revenue was
up marginally to $90.2
milliion from $90.1 million.
$m
% Growth
EBITDA
Group EBITDA was up
10% to $33.1 million*
from $30.2 million.
NPBT
Group NPBT was up
10% to $24.6 million*
from $22.4 million.
$m
% Growth
$m
% Growth
90
80
70
60
50
40
30
20
10
-
35
30
25
20
15
10
5
-
28
24
20
16
12
8
4
-
*Non-IFRS
2
Message to shareholders from
the Chairman and Group CEO
Overview
We are pleased to present the financial results for Reckon Limited for the year ending 31 December 2011.
The company has once again reported an excellent result for the year. This is despite a lack of consumer confidence and difficult
economic conditions globally that have contributed to what has been perceived by many to be a difficult year.
In these conditions, the company performed remarkably well reporting a 10% increase in EBITDA and a consequent improvement in
EBITDA margins from 33% in 2010, to 37% in 2011. This is based on growth in core business revenue and a focus on cost control.
Reckon Limited’s performance pedigree over the last 5 years, as can be seen in “Our results at a glance” on the adjoining page,
demonstrates stability and quality in service, products and financial management of the business. In fact, since 2001, all key performance
areas for the company have trended upwards.
It is our belief that Reckon Limited has consistently delivered good results based on a measured yet flexible strategy with a view to
maintaining a sustainable business to ensure returns for shareholders.
On that note, please find the full year financial results for 2011 herein, as well as details on Reckon Limited’s plans for the future, especially
in relation to how the company is continuing to expand into the cloud.
Key metrics
Performance
The table below sets out some key performance indicators for 2011 compared to 2010, firstly the non-IFRS reported results and
secondly as IFRS results.
Non-IFRS Revenue*
Revenue
2011
$91.3 million
EBITDA (Non IFRS, excluding relocation)
$33.1 million
NPAT (Non IFRS, excluding relocation)
$18.3 million
EPS (Non IFRS, excluding relocation)
13.4 cents
IFRS Revenue
Revenue
EBITDA
NPAT
EPS
2011
$91.3 million
$31.3 million
$16.7 million
12.1 cents
2010
% Change
$90.3 million
$30.2 million
$17.2 million
12.4 cents
1% up
10% up
6% up
8% up
2010
% Change
$90.3 million
$30.2 million
$17.2 million
12.4 cents
1% up
4% up
3% down
2% down
* Accounting standards require that provision be made for the expected shortfall in the sub-lease of Pyrmont premises.
The net savings from the move to the new North Sydney premises will more than offset this cost over the period of the lease.
3
Message to shareholders from
the Chairman and Group CEO continued
Dividend
On 6 February 2012, the Board declared a final dividend of 4.5 cents per share (4.5 cents per share in 2010).
The dividend was 90% franked. The interim dividend announced on 8 August 2011 was 3.5 cents per share, franked to 90%.
Divisional Performance
The table below sets out the reported performance of each division compared to 2010.
Operating Revenue
Business Division
$55.8 million
Professional Division
$25.6 million
% change on
2010 Revenue
- flat
3% up
EBITDA
$20.6 million
$12.3 million
nQueue Billback Division
$8.8 million
6% down
$3.5 million
% change on
2010 EBITDA
1% down
20% up
8% down
The group was adversely impacted by foreign exchange rates during the year. The table below sets out the reported performance of
each division compared to 2010, excluding the impacts of foreign exchange.
Operating Revenue
Business Division
$55.8 million
Professional Division
$25.6 million
% change on
2010 Revenue
- flat
5% up
EBITDA
$20.6 million
$12.3 million
nQueue Billback Division
$8.8 million
5% down
$3.5 million
% change on
2010 EBITDA
- flat
21% up
3% up
In the Business Division it was encouraging to see the growth in enterprise and online/hosted products sales. We are also pleased
to see a significant growth in market share in the retail channel. Predictably the Business Division was negatively impacted by a
weaker retail channel, however, revenue growth for the year in direct sales grew in Australia by 6%. The division’s results were also
somewhat impacted by the very strong result for New Zealand in 2010 as a consequence of significant changes to the tax system,
which were not repeated in 2011.
The Professional Division’s performance was highlighted by a particularly good result in Australia for the year, growing EBITDA by
24% and combined with substantially improved performances in the second half in both New Zealand and United Kingdom. A key
factor in this division is the excellent returns delivered by strong new product sales to both new clients and existing clients, which in
turn adds to the maintenance revenue base each year.
For the nQueue Billback Division a substantially improved second half performance in the UK mitigated some of the negative impact
of foreign exchange rates. As with the Professional Division, encouraging signs are found in sales to new customers and increasing
market share.
... but our story is about much more than just the numbers.
4
We are already garnering interest from large accounting firms
looking to exploit the efficiency of the Reckon ecosystem by
taking what we have to offer, and through a white label portal,
passing this on directly to their clients.
It has been very pleasing for the Board to witness the evolution
of the business to where it is today. We have a unique offering
where one supplier can deliver all the needs of accountants,
bookkeepers, small to medium sized enterprises as well as
larger businesses.
This success is premised on superior technology, ingrained
customer focus, award winning development, excellent
financial management, the commitment of our employees, and
the support of our network of partners and customers.
We announced on 22 March 2012 that as a consequence
of the gradual divergence of Reckon’s and Intuit’s ambitions
for the online or cloud world we had entered into a notice
period for the termination of our licence agreement with Intuit
by February 2014. Thereafter we still derive the benefit of
having access to the source code of the then latest version of
QuickBooks and Quicken.
We have enjoyed a strong and successful relationship with
Intuit but the end of the licence agreement is not something
that came out of the blue. It is rather the end result of several
years of diversification and growth of our business into the
Reckon ecosystem that extends revenue sources beyond the
traditional products supplied by Intuit.
We look forward with confidence to the rest of 2012 and the
years ahead.
John Thame
Chairman
Clive Rabie
Group CEO
Towards Integration
For several years we have emphasised that Reckon Limited’s
integrated product offering is one of our distinguishing features
that sets us apart in the competitive landscape.
Reckon Limited’s traditional range of products, we think,
tick all the boxes when it comes to reliability, ease of use,
integration, and collaboration both with QuickBooks and
Reckon Elite accounting products in the Business Division,
and with APS products in the Professional Division. Plus, that
integration also happens across the divisions with the ability
to seamlessly send data from QuickBooks into APS practice
management solutions, for example. Thereby providing clients
with significant efficiency gains.
In recent years, we have seen a growing demand for mobile/
remote access to services and a demand to shift the supply of
all services, including infrastructure, platforms, solutions and
applications to the cloud. It is worth noting that the concept
of the cloud is nuanced and carries different meanings in
different technological contexts, including references to SaaS
(Software as a Service) and IaaS (Infrastructure as a Service).
In the Business Division, in late 2010 we first met the demand
for cloud solutions with the introduction of QuickBooks, hosted
by Reckon Online. Subsequently, we introduced a second
online solution, CashBook Online. Right now our focus is
on an online practice management solution, Reckon Elite
Online, as well as an online point of sale solution, Reckon
Retail POS Online.
In 2011, the Professional Division completed the development
of the APS Private Cloud product. The release of APS Private
Cloud is an important addition to our range of online solutions,
and demonstrates Reckon Limited’s commitment to delivering
products and services that meet the changing expectations of
our clients today and in the years ahead.
And in the nQueue Billback Division the 2012 development
roadmap includes plans for taking cost recovery and expense
management solutions into the cloud.
What is significant, way beyond the individual development of
online or cloud products that add to the stable of our products,
is the fact that we have been using a common development
platform with close collaboration between the various product
management and development teams to ensure that all
products fit into what we term the Reckon “ecosystem”.
The Reckon ecosystem brings together all our traditional and
new applications, whether on a desktop, on premises or in the
cloud, in a single environment where they integrate to improve
collaboration between businesses, accountants, banks,
government agencies and other stakeholders.
5
Clive Rabie
Group Chief Executive Officer
Clive was Chief Operating Officer of Reckon from 2001 until
February 2006 and in that time played a pivotal role in its
turn-around. In February 2006 Clive was appointed to the
position of Group Chief Executive Officer. He has extensive
management and operational experience in the IT and retail
sectors as both an owner and Director of companies.
Myron Zlotnick LLM, GCertAppFin
General Counsel and Company Secretary
Myron Zlotnick has over 20 years experience as a legal
practitioner, general and corporate counsel, and as a
Director of companies in the information, communications
and technology sector. Myron also assumes responsibility
for some aspects of the management and operations of the
ReckonDocs and nQueue Billback businesses. He is also a
member of the Business Advisory Committee of ASIC’s “Real
Economy”.
Marianne Kopeinig LLM, GDipApplCorpGov
Legal Counsel and Assistant Company Secretary
Marianne has over 15 years experience as a private
practitioner and corporate counsel for private and ASX listed
companies and broad industry experience in commercial, risk
management and compliance functions.
Current directors' and officers' interest in the company are set
out in Note 26.
directors' Report
The Directors of Reckon Limited submit these financial
statements for the financial year ended 31 December 2011
BOARd Of diRECtORs
John Thame AAIBF FCPA
Non-Executive Chairman
John Thame has a lifetime of experience in the retail financial
services industry. He was Managing Director of Advance
Bank Limited from 1986 until it merged with St George Bank
Limited in January 1997 and held a variety of senior positions
in his career with Advance. John was Chairman of St George
Bank Limited from 2005 to 2008 and a member of the St
George Bank Limited board until 1 July 2008. He is also
Chairman of Abacus Property Trust Group Limited, where he
has been a Director since 2002. John was appointed to the
Board on 19 July 1999.
Ian Ferrier AM FCA
Non-Executive Director
Ian Ferrier is a Fellow of the Institute of Chartered
Accountants in Australia. He has extensive experience in
company corporate recovery and turnaround practice. He is
also a Director of a number of private and public companies.
Ian was appointed Chairman of InvoCare Limited in 2001. Ian
is also Chairman of Australian Vintage Limited having been
a Director since 1991 and Chairman of Goodman Group
Limited having been appointed Director since 2003, and a
Director of Energy One Limited. He has significant experience
in property and development, tourism, manufacturing, retail,
hospitality and hotels, infrastructure and aviation and service
industries. Ian joined the Board on 17 August 2004.
Greg Wilkinson
Founder, Deputy Non-Executive Chairman
Greg Wilkinson has over 30 years experience in the computer
software industry. Greg entered the industry in the early
1980s in London where he managed Caxton Software, which
became one of the UK’s leading software publishers. Greg
co-founded Reckon in 1987 and was the Chief Executive
Officer until February 2006. He was appointed to the position
of Deputy Chairman in February 2006 and became a member
of the Board of the listed entity on 19 July 1999 and was
appointed to the Audit & Risk Committee in February 2010.
6
Principal Activities
Reckon Limited conducts business predominantly across
three areas: (1) the sales and support of small to medium
and enterprise sized business accounting software and
personal wealth management software under the Reckon,
QuickBooks and Quicken brands; the sales and support of
corporate services such as company incorporations, SMSF
documentation and ASIC compliance management under the
ReckonDocs brand, (2) the sales and support of accounting
practice management and allied software under the APS
brand to larger professional accounting firms, and to smaller
professional accounting firms under the Elite brand; (3)
supplying software solutions to legal firms and corporations
in the main areas of revenue management, expense
management, print solutions, business process automation,
business intelligence, document service automation, and
document management.
Through strategic development and acquisition of businesses
and technology, Reckon aspires to broaden its scope of
operations to provide complementary products and services
across these business areas. The main products and
services are principally organised into three operating units:
the Business Division, the Professional Division and nQueue
Billback Division.
In the Business Division, under the Reckon, QuickBooks
and Quicken brands, Reckon develops, localises, distributes
and provides after sales technical support for the accounting
software needs of small to medium sized and enterprise
businesses and in the personal finance and wealth
management sector. In addition, Reckon independently
develops and distributes a payroll and point of sale solution.
Under the Reckon Tools brand, Reckon develops applications
that enhance these products, for example: electronic data
interchange (“EDI”) functionality, bill payment solutions,
super choice management solutions, on-line backup, and
on-line trading.
Reckon has co-ordinated its group product development
efforts to meet the growing demand for remote and mobile
access to solutions and applications, and cloud based
products. This includes co-ordination across the Business
Division and Professional Division to meet a longer term goal
of integrated and collaborative solutions for accountants,
bookkeepers, small to medium sized enterprises as well as
larger businesses.
Overall Reckon is developing its range of products within what
is known as the Reckon ecosystem which brings together all
its traditional and new applications, whether on a desktop,
on premises or in the cloud, in a single environment where
they integrate to improve collaboration between businesses,
accountants, banks, government agencies and other
stakeholders.
Reckon has also developed QuickBooks, hosted by Reckon
Online. This offers end users and accountants a convenient
secure online product that is accessible from anywhere that
very closely mimics the QuickBooks desktop package.
Reckon has recently added to the Reckon ecosystem by
releasing (1) CashBook Online, a simple cloud-based product
that links to banks; (2) Reckon BankData which allows
connections with banks and other financial institutions to
permit customers to directly download bank statement data
into online products such as QuickBooks, hosted by Reckon
Online; (3) Reckon GovConnect which delivers and lodges
relevant reports from QuickBooks, seamlessly to government
agencies such as the ATO and ASIC; as well as (4) an online
version of Reckon’s POS product which will be made
available soon.
Reckon localises QuickBooks and Quicken software for the
Australian and New Zealand markets, enjoying the benefit of
Intuit’s annual research and development budget that exceeds
US$600 million. Reckon is able to continue to leverage off this
extensive research and development spend without the usual
associated development risk, whilst Intuit and Reckon have
entered a notice period. After the Intuit licence agreement
terminates in 2014, Reckon will continue to have ongoing
access to the source code of the then latest version.
The Reckon Elite business develops and distributes tax return
preparation tools, practice management tools and related
solutions for accountants and tax agents in public practice,
with some recent sales in other markets. Reckon Elite focuses
on sales to smaller accounting firms compared to APS which
focuses on the larger firms.
Reckon Elite will soon be made available in an online version,
as part of the company’s overall strategy to offer integrated
online solutions for small business owners and accountants.
Through its New Zealand subsidiary Reckon distributes
QuickBooks and Quicken products as well as iBankData and
IBackup solutions and supports Intrepid Payroll.
ReckonDocs is a corporate services business, part of the
Business Division, comprising a services and data business.
7
directors' Report continued
Principal Activities continued
The ReckonDocs services business comprises technology for
the registration and compliance management of companies
and other business structures through an easy to use web
based ordering system. This business provides clients with
an on-line company registration service available 24 hours
a day, seven days a week. It also provides documentation
and services for the establishment of a range of entities,
especially trusts for self managed superannuation funds. It also
provides services for constitution updates and domain name
registrations.
The ReckonDocs data business provides comprehensive
accredited business name and ASIC information electronically
combined with a highly personalised client relationship. A full
range of sophisticated information services to assist customers
with the provision of financial, corporate and statutory
information is also offered.
ReckonDocs also offers a desktop utility call ReckonDocs
Desktop (RDD) that is a simple and convenient desktop
application for company registration, searches, and ASIC
compliance management. The same product has been
developed for integration into the Practice Management suite of
APS, known as Advance Company Registers (ACR).
In the Professional Division, the APS business develops,
distributes and supports a suite of solutions for professional
service firms in Australia, New Zealand and the United
Kingdom. For professional accountants these solutions also
include tax and accounts production. APS also delivers a wide
range of complementary applications to practice management.
The Professional Division has joined with the Business Division
to co-ordinate development to meet the group’s overall strategy
of delivering integrated solutions, on the desktop, on premises,
and in the cloud, to businesses and accountants.
The APS business continues to be considered a market leader
in the provision of its products and services to professional
accounting firms. This is reflected in the market share that APS
enjoys in Australia and New Zealand.
APS has committed several years of research and development
to delivering unique integrated practice software to work off
a single platform, offering all its solutions under the collective
“Advance” suite.
The Advance suite comprises several integrated modules for
several business critical functions in professional firms: Practice
Management (PM); Reporting (PIQ); Document and E-mail
Management (DM); Taxation (Tax); Client Accounting (XPA);
Client Relationship Management (CRM); Resource Planning
(RP); Superannuation (DS); Corporate Secretarial (ACR)
Workpaper Management (WM); and others.
8
The nQueue Billback division provides software and support
services in the revenue management, expense management,
print solutions, document service automation, and document
management markets. It operates in the United Kingdom
and the United States of America. APS is also progressively
integrating these solutions into its practice management suite.
The nQueue Billback business assists law firms and commercial
and government clients, by enhancing the automation and
processing of any operational and administrative expenses,
including print, copy, scan, telephone, online searches, emails,
court fees, car services, credit card charges, courier costs and
more. nQueue Billback’s software offerings can be embedded
directly into multi-function devices or reside on tablet
computers or terminals to provide clients with the knowledge
required to run their businesses more profitably.
Review of Operations
Overview of financial performance
• Revenue was up 1% to $91.3 million from $90.3 million.
• Group EBITDA (IFRS) was up 4% to 31.3 million from
$30.2 million.
• Group EBITDA (excluding relocation costs, non-IFRS
amount) was up 10% to $33.1 million from $30.2 million.
• Group NPAT (IFRS) was down 3% to $16.7 million from
$17.2 million.
• Group NPAT (excluding relocation costs, non-IFRS amount)
was up 6% to $18.3 million from $17.2 million.
• Basic EPS (IFRS) was down 2% to 12.1 cents per share
from 12.4 cents per share.
• Basic EPS (excluding relocation costs, non-IFRS amount)
was up 8% to 13. 4 cents per share from 12.4 cents per
share.
• Final dividend of 4.5 cents per share – 90% franked with a
full year dividend payout ratio of 66%.
• The company had zero debt at 31 December 2011.
For 2011, direct revenue in the Business Division continued to
trend upwards, growing by 6%, with strong performances in
sales of enterprise versions of QuickBooks and QuickBooks
Hosted. The division was, however, impacted by a substantially
weaker retail channel in 2011 and fewer tax changes in New
Zealand in 2011 compared to 2010 which dampened upgrade
revenue (down by 33%). Market share growth in the retail
channel has continued and the business continues to add
substantial numbers of new customers through both the retail
channel and online offerings sold direct.
The Professional Division had a particularly good result in
Australia for the year, with EBITDA growing by 24%. The
performance of the Professional Division was aided by
improved performances in the second half in both New Zealand
and United Kingdom. The division continued its
Review of Operations continued
historically strong new product sales growth from both new
clients and existing clients, which adds to the maintenance
revenue base for each subsequent year.
A substantially improved second half performance in the
United Kingdom has meant that the nQueueBillback Division
was able to reduce some of the effect of exchange rates on
this division. A high proportion of revenue in this division is
also made up of sales to new customers, as it continues to
increase market share.
A combination of growth in core business revenue and a focus
on constraining costs has allowed the group to mitigate impact
on some revenue channels, resulting in EBITDA growth of 10%
(before relocation costs) and corresponding improvement in
EBITDA margins from 33% to 37%.
Dividends
On 6 February 2012, the Board declared a final dividend of
4.5 cents per share (90% franked) payable to shareholders
recorded on the Company’s Register as at the record date
of 17 February 2012. Reckon does not have a dividend re-
investment plan currently in operation. On 8 August 2011,
the Board declared an interim dividend of 3.5 cents per share
(90% franked) payable to shareholders recorded on the
Company’s Register at record date of 23 August 2011.
Significant Changes in State of Affairs
There were no significant changes in state of affairs.
Matters Subsequent to the End of
the Financial Year
On 8 August 2011 the company announced a buy-back of
shares which permits the Company to buy back up to 10% of
its shares on the open market. As at 14 March 2012, 557,054
shares have been bought back for an average price of $2.45
per share. It is anticipated to keep the buy back in place until
31 December 2012, subject to the normal ASIC requirements.
The company continues to pursue its strategy of including web
hosting, domain name re-sales, e-commerce enablement and
allied services as part of its offering to small businesses, but
has decided that the strategic equity investment in Melbourne
IT Limited is not key to this strategy and since year end had
sold 3,104,958 shares in Melbourne IT Limited for
$4,992 thousand. These shares were originally acquired for
$5,641 thousand.
On 22 March 2012, Reckon announced as a consequence
of the gradual divergence of the respective online ambitions
of Reckon and Intuit Inc, that they have entered a notice
period ending on 10 February 2014, when Reckon’s licensing
agreement with Intuit will be formally terminated.
From a Reckon Limited perspective it is business as usual
until 10 February 2014, whereafter Reckon will enjoy royalty
free rights to continue selling, and may independently develop
the then current Intuit desktop technology and QuickBooks
Hosted technology for a 100 year period, using its own
brands.
In the online market, Reckon continues to develop products
which will be rolled out over the coming months. The strategy
remains to provide fully localised products specifically for
Reckon’s markets hosted locally, to achieve ambitions of
providing integrated solutions to achieve greater efficiency for
accountants, bookkeepers, and their business clients.
A final dividend for 2011 was declared on 6 February 2012 as
disclosed above.
Other Matters
Other than as disclosed in this Directors’ Report no other
matter or circumstance has arisen since 31 December 2011
that has significantly affected, or may significantly affect:
• the consolidated entity’s operations in future financial years,
or
• the results of those operations in future financial years, or
• the consolidated entity’s state of affairs in future financial
years.
Future Developments
The company will continue to pursue its historically well
tested strategies of expanding its product offering; pursuing
recurring revenue; selling across divisions; maintaining and
enhancing relationships with its network of partners, including
retailers and professional partners; and striving for operational
efficiency.
While traditional business will remain important, the group
will also continue to pursue its cloud strategy focusing on
developing products that fit into the Reckon ecosystem to
provide solutions for small businesses and accountants that
are integrated, allow for collaboration, and are connected to
financial institutions and government agencies.
Other than as outlined above, disclosure of information
regarding likely developments in the operations of the
consolidated entity in future financial years and the expected
results of those operations is likely to result in unreasonable
prejudice to the consolidated entity. Accordingly, this
information has not been disclosed in this report.
Directors’ Shareholdings
As at the date of this report, the Directors held shares and
options in Reckon Limited as set out in Note 26 to the
accounts.
9
Remuneration Report
(Audited)
Key management
The key management personnel include the directors
and those people who have authority and responsibility
for planning, directing and controlling the activities of the
consolidated entity. Key management personnel details are
set out on page 13 below.
Policy for determining remuneration of key
management personnel
Policy for determining remuneration of key management personnel,
including the directors, the deputy Chairman, Group CEO, Group
CFO, Divisional CEOs and other Company officers is the ultimate
responsibility of a remuneration committee comprising the
Chairman of the Board and one other independent non-executive
director. The Chairman of the remuneration committee is Ian Ferrier.
There is no formal charter for the remuneration committee. Policy
is set with due consideration for the need to motivate directors and
management to pursue the long-term growth and success of the
Company as well as to tie remuneration in with performance as
contemplated in the ASX Corporate Governance Principles and
Recommendations (“ASX Guidelines”). It is the view of the Board
that the Company complies with the substance of the aims and
aspirations of the ASX Guidelines in the context of the size of the
company, the size of the Board, the size of the senior management
team and the size of the business.
Policy for determining remuneration of other management
personnel has been delegated to the Group CEO, Group CFO
and Divisional CEOs by the Board to be exercised in accordance
with the same broad principles as apply for the Group CEO,
Group CFO, other company officers and Divisional CEOs.
The Board reviews all remuneration in its consideration of the
Company’s annual budget process. The Board, through the
remuneration committee will consider for approval the levels of
remuneration set in the annual budgeted, taking into account the
relevant performance budgeted as well as compared with historical
performance.
The policy is to pay the relevant officers and employees’
remuneration consistent with applicable market comparisons suited
to the unique features of the company, the competitive landscape,
the scale of the business, the responsibilities of the individual
directors and employees, internal relativities and performance.
The Board is conscious of the need to attract and retain talent.
The remuneration policy takes account of striking the right
balance between short term benefits and long term incentives.
All remuneration is reviewed annually. Generally increases, if
justified, will not exceed comparable market increases.
10
Terms of employment for key management
personnel
Executive directors and group executives are all appointed on
standard employment terms that are not fixed term contracts.
These contracts include a notice period of between 1 – 3 months
to be provided by either the executive or the company. No contract
provides for termination payments except where the employee is to
receive payment in lieu of notice.
For 2011, remuneration for key management personnel including
the Group CEO, Group CFO, other company officers, Divisional
CEOs, and other senior executives, comprises a fixed element, a
short-term incentive element and a long-term incentive element.
Fixed component
The fixed component of remuneration is determined in preparing
the annual budget for the year and then subjected to the approval
of the Board through the remuneration committee.
Short term incentive payments
The short-term incentive component of remuneration is dependent
on satisfaction of performance conditions. Each annual budget fixes
a pool representing the total potential amount in which the relevant
employees can share if the performance conditions are met. There
are three weighted elements to the performance conditions, viz: a
revenue target, an earnings before interest, tax, depreciation and
amortisation (EBITDA) target, and earnings per share (EPS) target
measured against the budgeted performance of the Company.
The Board retains a discretion regarding the allocation of the pool
between employees as well as regarding weightings. Short term
incentives are paid in cash as bonuses usually in about February
or March of the following year. If the relevant performance targets
are exceeded, then the amount of short term incentive can be
increased by an amount not exceeding 10% of the total pool.
Long term incentive payments
The long-term incentive component is the last of the mix of the
components comprising remuneration packages. It is aimed at
retaining the long term services of the key management personnel
to whom it applies and to align their remuneration with the longer
term performance of the Company. The substance of the long-term
incentive component for key management was approved by Special
General Meeting on 20 December 2005. In general terms, the
long-term incentive component comprises several possible methods
of participation: an option plan, a performance share plan (which
includes a long term retention incentive) and a share appreciation
plan. The Board has discretion to approve the making of offers to
applicable employees to participate in any of these plans. Options
granted and/or performance shares awarded (all in respect of the
Company’s ordinary shares) and/or share appreciation rights do
not vest before three years after their grant date or at least seven
years in the case of the long term retention incentive. Vesting is
also conditional upon the Company achieving defined performance
criteria. The performance criteria for all plans except for the long term
retention incentive are based upon a total shareholder return (TSR)
target. A TSR is the return to shareholders over a prescribed period,
based upon the growth in the Company's share price plus dividends
or returns of capital for that period. The Company's initial TSR target
will be the Company achieving a median or higher ranking against
the TSR position of individual companies within a 'comparator group'
of companies (i.e. a group of comparable ASX listed companies pre-
selected by the Board) over the same period. The mechanism and
detailed criteria to achieve the Board’s objectives was designed by an
independent consultant and offers were made under the rules of the
company’s original performance share plan approved by shareholders
at the Special General Meeting on 20 December 2005.
The Board will review the suitability of the comparator group on an
ongoing basis. Some of the entities comprising the comparator group
have been delisted either as part of merger and acquisition activity
or for other reasons. This was factored into the calculation of the
Company’s performance by the independent valuers who undertook
the exercise on behalf of the Company. Where companies were de-
listed for example, it was assumed that the Company out-performed
that company. The comparator group of companies used in the
performance period for assessment included (1) Adacel Technologies
Limited, (2) Firstfolio Limited (previously listed as AFS), (3) Altium
Limited, (4) Amcom Telecommunications Limited, (5) ASG Group
Limited, (6) CPT Global Limited, (7) Eftel Limited, (8) Eservglobal
Limited, (9) Hansen Technologies Limited, (10) Infomedia Ltd, (11)
Integrated Research Limited, (12) Melbourne IT Limited, (13) Lifestyle
Communities Limited (previously listed as NMB), (14) MYOB Limited
(no longer listed), (15) Newsat Limited, (16) Objective Corporation
Limited, (17) Oakton Limited, (18) Powerlan Limited, (19) Queste
Communications Limited, (20) Rea Group Ltd, (21) Sirius Corporation
Limited, (22) Sonnet Corporation Limited (no longer listed),
(23) Asian Pacific Limited (previously listed as TMO, no longer listed),
(24) Technology One Limited, (25) Talent2 International Limited, (26)
Chariot Limited (no longer listed), (27) Citect Corporation Limited (no
longer listed).
Only 50 percent of options or performance shares become
exercisable or vest if the initial performance criterion is satisfied.
The extent to which the balance of options or performance shares
become exercisable or vest will depend on the extent to which the
initial performance criterion is exceeded (i.e. the extent to which the
Company exceeds a median ranking against the TSR position of the
comparator group of companies).
The share appreciation right plan represents an alternative
remuneration component (to offering options or performance shares)
under which the Board can invite relevant employees to apply for
a right to receive a cash payment from the Company equal to the
amount (if any) by which the market price of the Company's shares
at the date of exercise of the right exceeds the market price of the
Company's shares at the date of grant of the right. The right may only
be exercised if performance criteria are met. The performance criteria
are fixed by the Board in the exercise of its discretion. At present
these are the same as the TSR target set for the right to exercise
options or for performance shares to vest.
On 24 May 2011 the remuneration committee approved and recom-
mended to the board an extension to the long term incentive plan.
The genesis of the idea to extend the plan and offer additional
performance shares was to provide a reward and an incentive for
senior level employees who have a long employment history and
good performance record.
It was also intended that these performance shares could be used
to provide an incentive for employees with potential for a longer term
contribution to the success of the company to participate in the
growth of equity value of the company.
Part of the company’s success as an organisation is premised on
human domain expertise and the consistency and longevity of service
of key management.
The offer of these additional performance shares is designed to
encourage and reward employees to commit to longevity as well as
to complement other traditional forms of executive remuneration.
By rewarding those executives who commit to the company over
a very long period and thereby providing management stability
as the business grows and matures the Board believes long term
shareholder benefits will result.
Other aspects of the remuneration strategy deal with fixed
remuneration, short term and long term incentives and are measured
against customary key indicators such as revenue growth, EBITDA,
EPS and TSR. This strategy has now been enhanced to provide a
measure of equity rewards for very long and consistent performance
by executives considered key.
The independent consultant did not make any remuneration
recommendation in relation to the key management personnel for the
company.
These performance shares are offered to selected employees
with the principal vesting condition that participants must remain
employed for the term specified. The shares offered remain at risk of
forfeiture until the relevant period of service has been satisfied. There
is no entitlement to dividends during the relevant period of service.
Offers made in 2011 are staggered in such a way that for 100% of
the shares to vest, the employee must remain in employment for 10
years from the date of the initial offer, with a minimum of 7 years.
In the context of the overall remuneration strategy of the company,
the history of the performance of the company, and the relative value
of the shares offered, the remuneration committee is of the view that
the addition of this incentive to remuneration offered is appropriate
and ‘fair and reasonable’, a view supported by the independent
consultant.
It is the remuneration committee’s belief that the addition of these
performance shares has added to the balance and overall mix of
11
Remuneration Report continued
(Audited)
remuneration to the applicable employees in a positive way. If the exacting service requirements are not satisfied then any costs incurred under
AASB 2 will be recouped and any forfeited shares will be available for reallocation or to fund other employee equity entitlements.
Balance between salary, short term and long term incentives
It is the Board’s opinion that an adequate balance is struck between the three components comprising the relevant remuneration. For short
term incentives, the performance targets reflect, in part, the key factors that the Company pursues in measuring its performance: volume
of sales; earnings generated; and value returned to shareholders in terms of EPS. The targets also represent a measure of an incentive
to encourage commitment to the business and to its growth. The audited financial results for the year are used to assess whether the
performance conditions are satisfied. Audited results represent an independent accurate method of determining the attainment of the
conditions. For long-term incentives, the additional targets comprising TSR reflect a further assessment of value to shareholders before the
remuneration is earned. As stated above the comparator group to which reference will be had will be subject to review.
The remuneration committee is satisfied that to date, the remuneration of the relevant employees accords with the general upward trend of the
performance of the Company and returns to shareholders, as set out in the table below; and also takes into account the imperative to retain
their services so as to avoid the business and opportunity costs associated with replacing them as well as the need to be commensurate with
market rates.
Consequence of performance on shareholder wealth
NPAT
EPS
Dividend
Changes in Share Price
between the beginning and
the end of the year
Beginning of
January
End of
December
2007
2008
2009
2010
2011
(reported)
Premises
relocation costs*
2011
Before premises
relocation costs
(Non-IFRS)
$’000
9,893
11,312
13,602
17,248
16,693
1,646
(cents per share)
(cents)
7.5
8.5
9.9
12.4
12.1
5.5
6.0
7.0
8.0
8.0
102
139
105
184
234
139
105
184
234
234
18,339
13.4
8.0
234
234
* Accounting standards require that provision be made for the expected shortfall in the sub-lease of Pyrmont premises. The net
savings from the move to the new North Sydney premises will more than offset this cost over the period of the lease.
The Company’s Trading Policy prohibits directors, key management personnel and employees from entering into a transaction
with securities which limit the economic risk of any unvested entitlements awarded under any Reckon equity-based remuneration
scheme. Prior to presenting full-year results Reckon equity plan participants are required to confirm that they have not entered into
any transactions which would contravene the Company’s Trading Policy.
12
Remuneration 2011
Fixed
Short term incentive
Other
component
component
compensation
Long term incentive component
Office
Salary
Bonus1
term benefits2 Superannuation
Other short
Equity settled
Cash settled
share based
share based
payments-
payments-
Performance
shares3 8
Appreciation
rights4 6
Total
remuneration
Directors7
John Thame
Chairman, Non-
executive Director
$100,000
Greg Wilkinson
Deputy Chairman,
Non-executive Director
$85,000
$0
$0
Clive Rabie
Ian Ferrier
Executives7
Group CEO,
Executive Director
Non-executive
Director
$575,000
$206,052
$85,000
$0
Brian Armstrong5
CEO,
Professional Division
$370,000
$114,751
Chris Hagglund
CFO
$350,000
$92,050
Myron Zlotnick
General Counsel &
Company Secretary
$288,000
$61,367
Brian Coventry
CEO, Professional
Division
$321,000
$74,837
Gavin Dixon
CEO, Business
Division
$388,500
$99,783
$0
$0
$0
$0
$0
$0
$0
$0
$0
$9,000
$7,650
$51,750
$7,650
$0
$0
$0
$0
$0
$0
$109,000
$92,650
$338,360
$1,171,162
$0
$92,650
$33,300
$44,911
$31,500
$74,488
$25,920
$51,206
$12,308
$18,813
$34,965
$75,392
$0
$0
$0
$0
$0
$0
$562,962
$548,038
$426,493
$426,958
$598,640
$320,738
Richard Hellers
President and CEO,
nQueue Billback
Division
$228,967
$72,604
$9,970
9,197
$0
TOTAL
$2,791,467 $721,444
$9,970
$223,240
$264,810
$338,360
$4,349,291
4. The dollar value of the share appreciation incentive in the above table is
determined using a model that adapts the Monte Carlo simulation approach
allocated over each year of the 3 year performance period for 2009 to 2011.
The fair value of the rights offered for the performance period 2011to 2013 was
$0.620 valued according to the Monte Carlo simulation approach. 282,258
rights were issued under the plan on 1 January 2011 for the performance
period 2011 to 2013. The fair value of appreciation rights which vested or were
forfeited during the 2011 financial year are set out in the table below.
5. Employment ended on 31 December 2011. No termination benefit paid.
6. For the share appreciation incentive, the amount is calculated based on the
difference between the company share price at vesting and the share price at
date of issue spread over the three year performance period.
7. To the extent that any of the above are directors of any wholly owned
subsidiaries of the Company no additional remuneration is paid.
8. No options were granted to any person during the year as part of their
remuneration. No options vested during the financial year. All options issued
in previous years were fully vested in prior years. No options were exercised
during 2011.
1. The potential amounts payable for the short term cash performance
bonuses are determined at the beginning of the year and are earned based
upon the performance criteria for the year. The amounts paid include a portion
for 2010 effectively requiring the employee to remain employed for a further one
year period to 31 December 2011 before being paid the remaining short term
bonus for performance in 2010. The short term bonus for Mr Hellers is based
on specific performance targets for the nQueue Billback Division.
2. For Mr Hellers this represents an allowance for a motor vehicle as well as a
contribution to medical and life insurance.
3. The dollar value of the long term incentive and retention component in
the above table is the fair value using a model that adapts the Monte Carlo
simulation approach: (1) allocated over each year of the 3 year performance
period for 2009 to 2011 and (2) allocated over the 7 year period from 2011
to 2017 for shares offered as a long term retention incentive. The fair value of
the performance shares offered in 2011 for the performance period 2011 to
2013 at grant date was $1.912 per share valued according to the Monte Carlo
simulation approach. The fair value of the shares offered in 2011 for the long
term retention incentive for the period 2011 to 2017 at 1 January 2011 was
$1.84 per share valued according to the Monte Carlo simulation approach.
For the performance period 2011 to 2013 performance shares were offered
as follows: Mr Hagglund (32,268 shares), Mr Zlotnick (21,160 shares), Mr
Coventry, (10,580 shares) and Mr Dixon (35,971 shares). The date of grant for
each of these participants was 1 January 2011. If the performance criteria are
met, then the shares are released at no consideration on 31 December 2013.
For the long term retention incentive period 2011 to 2017 performance shares
were offered as follows: Mr Hagglund (25,000 shares), Mr Zlotnick (25,000
shares) and Mr Coventry (12,500 shares). These shares vest on 31 December
2017 at zero cents subject to the employees remaining in employment for the
period. The fair value of performance shares which vested or were forfeited
during the 2011 financial year are set out in the table below.
13
Remuneration Report continued
(Audited)
Remuneration 2011 continued
Percentage
of total
remuneration
that is
performance
related
Percentage
of available
bonus which
vested in the
year
Percentage
of available
bonus which
was forfeited
during the
year
No of
performance
shares
vested in
2011
Value of
Performance
shares vested
in 20111
Value of
Performance
shares
forfeited in
2011
Value of
Appreciation
rights vested
in 2011
Value of
Appreciation
rights forfeited
in 2011
Directors
John Thame
Greg Wilkinson
Clive Rabie
Ian Ferrier
Executives
Brian Armstrong
Chris Hagglund
Myron Zlotnick
Brian Coventry
Gavin Dixon
Richard Hellers
TOTAL
0%
0%
46%
0%
20%
30%
26%
22%
29%
23%
n/a
n/a
91%
n/a
91%
91%
91%
91%
91%
75%
n/a
n/a
9%
n/a
9%
9%
9%
9%
9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$1,017,042
n/a
n/a
111,583
$134,734
$22,666
72,619
$80,197
47,619
$52,588
13,333
$14,724
80,952
$89,400
n/a
n/a
n/a
n/a
n/a
n/a
$0
$0
$0
$0
n/a
25%
n/a
n/a
326,106
$371,643
$22,666
$1,017,042
n/a
n/a
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$0
1. For Mr Armstrong the $134,734 includes $44,911 being the value of 30,631 shares which represent two thirds of 45,946 performance shares offered in 2010 and
released to Mr Armstrong by the board upon the termination of Mr Armstrong’s employment at the end of 2011.
Options and shareholding for directors and relevant employees can be found at Note 26 to the accounts.
14
Remuneration 2010
Fixed
component
Short term incentive
component
Other
compensation
Long term incentive
component
Office
Salary
Bonus1
benefits2 Superannuation
Other
short term
Equity settled
share based
payments-
Performance
shares3 8
Cash settled
share based
payments-
Appreciation
rights4 6
Total
remuneration
$0
$0
Directors7
John Thame
Chairman, Non-
executive Director
$95,000
Greg Wilkinson
Clive Rabie
Deputy Chairman,
Non-executive
Director
Group CEO,
Executive Director
$82,000
$550,000
$180,041
Ian Ferrier
Non-executive
Director
$80,000
$0
Executives7
Brian Armstrong
CEO, Professional
Division
$370,000
$103,934
Chris Hagglund
CFO
$335,000
$78,447
$0
$0
$0
$0
$0
$0
$8,550
$7,380
$49,500
$7,200
$0
$0
$0
$0
$0
$0
$103,550
$89,380
$980,269
$1,759,810
$0
$87,200
$33,300
$76,797
$30,150
$68,355
Paul James5
GM, Professional
$182,358
$40,560
$71,269
$20,123
$6,172
Myron Zlotnick
Brian Coventry
Gavin Dixon
Grant Linton
Nigel Boland
Richard Hellers
General Counsel
& Company
Secretary
MD, Professional
Division United
Kingdom
CEO, Business
Division
GM, Professional
Division New
Zealand
GM Development,
Professional
Division
President and
CEO, nQueue
Billback Division
$275,000
$51,440
$179,832
$13,200
$370,000
$87,449
$0
$0
$0
$24,750
$42,070
$9,652
$8,642
$33,300
$76,037
$116,627
$19,608
$28,430
$15,259
$6,172
$169,323
$16,471
$2,243
$16,215
$8,642
$217,628
$108,814
$9,546
$10,055
Russell Scott
GM, Reckon Docs
$200,500
$0
$0
$18,045
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$584,031
$511,952
$320,482
$393,260
$211,326
$566,786
$186,096
$212,894
$346,043
$218,545
TOTAL
$3,223,268
$699,964 $111,488
$283,479
$292,887
$980,269
$5,591,355
1. The potential amounts payable for the short term cash performance bonuses are determined
at the beginning of the year and are earned based upon the performance criteria for the year. The
short term bonus for Mr Hellers is based on specific performance targets for nQueue Billback LLC.
2. For Mr James this represents a redundancy termination payment. For Mr Linton this represents
sales commission of $26,187 and a car park allowance of $2,243. For Mr Boland this represents a
car park allowance. For Mr Hellers this represents a contribution to life and medical insurance..
3. Mr Armstrong (45,946 shares), Mr Hagglund (41,216 shares), Mr James (5,405 shares), Mr
Zlotnick (27,027 shares), Mr Coventry, (7,568 shares), Mr Dixon (45,946 shares), Mr Linton (5,405
shares) and Mr Boland (7,568 shares) are participants in the 2010 performance share plan. The
date of grant for each of these participants was 1 January 2010. The value of the long term
incentive is the fair value using a model that adopts the Monte Carlo simulation approach allocated
over each year of the 3 year performance period. If the performance criteria are met, then the
shares are released at no consideration. The fair value of the performance shares at grant date
was $1.48. The performance shares are exercisable on 31 December 2012 at zero cents. The fair
value of performance shares which vested and were forfeited during the financial year are set out in
the table below.
4. Mr Rabie is a participant in the share appreciation plan. 357,873 rights were issued under the
plan on 1 January 2010. The value of the rights was $0.489 determined using a model that
adapts the Monte Carlo simulation approach to determine the value as at hurdle dates.
The fair value of appreciation rights which vested and were forfeited during the financial year
are set out in the table below.
5. Employment ended on 31 Decmeber 2010.
6. The amount is calculated based on the difference between the company share price at vesting
and the share price at date of issue spread over the three year performance period. The share based
remuneration earned by Mr Rabie relative to share price movement is as follows:
Share based remuneration
Share price movements
2008
2009
2010
$34,088
$661,843
$980,269
-24%
+75%
+27%
7. To the extent that any of the above are directors of any wholly owned subsidiaries of the Company
no additional remuneration is paid.
8. No options were granted to any person during the year as part of their remuneration. No options
vested during the financial year. All options issued in previous years were fully vested in prior years. No
options were exercised during 2010.
15
Remuneration Report continued
(Audited)
Remuneration 2010 continued
Percentage
of total
remuneration
that is
performance
related
Percentage
of available
bonus which
vested in the
year
Percentage
of available
bonus which
was forfeited
during the year
No of
performance
shares
vested in
2010
Value of
Performance
shares
vested in
2010
Value of
Performance
shares
forfeited in
2010
Value of
Appreciation
rights vested
in 2010
Value of
Appreciation
rights
forfeited in
2010
n/a
n/a
6%
n/a
6%
6%
0%
6%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$497,585
n/a
n/a
58,656
$72,990
51,324
$63,867
0%
0%
15,482
$18,801
$8,836
27,018
$33,621
67%
7,332
$9,124
6%
0%
56,823
$70,710
0
$0
50%
7,332
$9,124
0%
0%
n/a
n/a
n/a
n/a
0%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
223,967
$278,237
$8,836
$497,585
n/a
n/a
$0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$0
Directors
John Thame
Greg Wilkinson
Clive Rabie
Ian Ferrier
Executives
Brian Armstrong
Chris Hagglund
Paul James
Myron Zlotnick
Brian Coventry
Gavin Dixon
Grant Linton
Nigel Boland
Richard Hellers
Russel Scott
TOTAL
0%
0%
66%
0%
31%
29%
15%
24%
10%
29%
14%
12%
31%
0%
n/a
n/a
94%
n/a
94%
94%
100%
94%
33%
94%
100%
50%
100%
0%
16
directors' Report continued
Indemnification of Directors and Officers and Auditors
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company (as named
above), the Company Secretary and all executive officers of the Company, and of any related body corporate, against a liability
incurred as a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance
prohibits disclosure of the nature of the liability and the amount of the premium.
In addition, Rule 12 of the Company’s constitution obliges the Company to indemnify on a full indemnity basis and to the full extent
permitted by law, every director, officer or former officer for all losses or liabilities incurred by the person as an officer. This obligation
continues after the person has ceased to be a director or an officer of the Company or a related body corporate, but operates only
to the extent that the loss or liability is not covered by insurance.
The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the
Company, or any related body corporate, against a liability incurred as an officer or auditor.
Directors’ Meetings
The following table sets out the number of directors’ meetings held during the financial year and the number of meetings attended
by each director.
Directors
Board
Audit & Risk Committee
Remuneration Committee
Reckon Limited – Attendance Tables
Meetings
A
10
10
10
10
B
10
9
9
10
A
2
2
2
n/a
B
2
2
2
n/a
A
2
2
n/a
n/a
B
2
2
n/a
n/a
Key: A – number of meetings eligible to attend; B - number of meetings attended
JM Thame
I Ferrier
GJ Wilkinson
C Rabie
Non-Audit fees
Details of the non-audit services can be found in Note 4 to the financial statements.
The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on
the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.
The directors are of the opinion that the services as disclosed in Note 4 to the financial statements do not compromise the external
auditor’s independence, based on advice received from the Audit & Risk Committee, for the following reasons:
• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of
the auditor, and
• none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct
APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board,
including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the
Company, acting as advocate for the company or jointly sharing economic risks and rewards.
On behalf of the directors
Mr J Thame
Chairman
Sydney, 28 March 2012.
17
Corporate Governance Report
The Company is committed to a system of relationships,
policies and processes which align with the ASX Corporate
Governance Principles and Recommendations, 2nd Edition
(“the ASX Governance Principles”) and the recent 2010
Amendments. It is a priority of the Board to ensure the
Company’s governance framework and support processes
uphold these principles.
The Board is of the opinion that the Company’s existing
policies and processes effectively achieve the objectives of
the relevant Recommendations. The few departures from
the Recommendations in the ASX Governance Principles are
generally justified on the basis that the formal requirements
of the Recommendations are not applicable to the size of the
Company and the resources available. Where appropriate, the
Board seeks opportunities to adopt these Recommendations
to suit the circumstances of the Company and continue to
improve the Company’s governance policies and processes.
The Board’s Corporate Governance policies can be viewed on
the company website www.reckon.com.au/Investor-Relations
1. Management and Oversight
The Company is governed on behalf of the shareholders by
its board of directors who in turn oversee the Company’s
management team. The responsibilities and duties of the
Board are set out in the Constitution. The Board is responsible
for ensuring appropriate risk management, accountability and
control mechanisms. The Board also provides advice and
input into development of the businesses generally, overall
corporate strategy, performance objectives, and appointment
of senior executives. The Board monitors and reviews
the performance of the Company, financial reporting and
implementation of strategy. The Board approves the annual
budget, material capital expenditure and large acquisitions.
The Company has adopted each of the Recommendations
relating to Principle 1 of the ASX Governance Principles,
except for the requirement in Recommendation 1.1, only to
the extent that there is no formal charter. The Board is of the
opinion, given the relatively small size of the composition of
the board, the relatively flat structure of management, the size
of the management team and open and frequent channels of
communication between management and the Board, that
there is adequate definition and understanding of the functions
and responsibilities of the board and management. The
Board maintains sufficiently close oversight of operations and
has close input to material decisions to ensure compliance
with principles of good corporate governance. The Board
recognises that with the growth and evolution of the
Company, it is important to review the division of matters and
responsibilities reserved to the Board.
The Board is able to efficiently deal with issues which, in other
larger enterprises, may normally be delegated to committees
18
because of the size of the Company and the management
team. The Audit & Risk Committee and Remuneration
Committee are the only committees of the Board.
The Company undertakes an annual performance evaluation
of key management personnel. The nature of the review
process is as follows:
• In the case of key management personnel other than head
of divisions the review process is managed and administered
by the Group Human Resources Manager. It generally
involves a 360 degree feedback review in which selected
peers and reporting staff assess the performance of relevant
executives and managers according to a set of questions
benchmarked against key performance indicators. The
process also includes a series of reviews with the Divisional
CEO’s in which the 360 degree feedback review is discussed
with the relevant executive or manager and remedial steps
and coaching, if applicable, are implemented. There may be
further additional reviews undertaken through the year
if necessary.
• In the case of head of divisions and head office management
(CFO, General Counsel and Company Secretary) the review
process is managed and administered by the Group Chief
Executive Officer. The review involves a one-on-one interview
in which performance against key performance indicators is
assessed and discussed and feedback from peers (where
relevant) is reviewed. Where necessary remedial steps are
identified and coaching is implemented. There may be
additional reviews undertaken through the year if necessary.
In addition, a portion of remuneration for key management
personnel is tied into the financial performance of the Company
as set out in more detail in the Remuneration Report.
Performance evaluation for key management personnel was
undertaken in 2011 and it was in accordance with the processes
disclosed in this report.
The independent non-executive directors also generally
informally monitor and review the ongoing performance of
senior executives.
The Group Human Resources Manager is also responsible for
managing and administering an induction process for newly
appointed senior executives. In addition the Group CEO and
divisional CEO’s undertake a rigorous process of briefing new
senior executives.
2. The Board
At present, the Board comprises four members: John Thame, Ian
Ferrier, Greg Wilkinson and Clive Rabie. Mr Thame is Chairman
of the Board and he, together with Mr Ferrier, are independent
non-executive directors. Further details of the directors, including a
summary of their skills and experience and period of office, are set
out in the Directors’ Report.
The Company has adopted each of the Recommendations relating
to Principle 2 of the ASX Governance Principles, except for the
requirement in Recommendation 2.1 and 2.4 due to the size
and circumstances of the Board. However in the opinion of the
Board, the existing structure and processes are appropriate for the
Company and still meet the objectives of the Recommendations
and Principle 2. While there is not strictly an independent majority
in the sense described in Recommendation 2.1, as there are only
four directors, the non-executive directors ensure that all issues
that come before the Board are considered in an impartial manner
and from a variety of perspectives and meet the objectives of
Recommendation 2.1. Mr Wilkinson, although still a substantial
shareholder, has occupied a non-executive position for more
than three years since he resigned from the management of the
Company. The Chairman, who is independent, has a casting vote
where necessary. The independent non-executive directors oversee
the nomination of any potential directors.
The criteria for directorship and the election process are set out
in the Company’s constitution. The size of the Board dictates that
there is no efficiency obtained in establishing a formal nomination
committee. Accordingly, the Company departs from this requirement
in Recommendation 2.4.
The directors periodically review the composition of the Board to
ensure that members have the desired breadth of experience, skills
and expertise to govern the Company effectively. When considering
nominees for any future candidates for the Board, the directors will
take appropriate steps to ensure that it considers a broad range
of candidates to ensure that the Company has the benefit of the
appropriate mix of experience, skills and diversity in its decision
making for the best interests of the Company as a whole.
Directors are entitled to seek independent professional advice at the
Company’s expense to assist them in fulfilling their duties in order to
comply with all applicable laws and regulations. There is no formal
procedure for the Board to agree when to take independent advice
at the expense of the Company, but given the size of the Board
there is no efficiency to be obtained in formalising this process. The
independent non-executive directors exercise their judgment to call
for such advice when they deem appropriate. The Chairman also
has frequent contact with internal legal counsel to assess the need
for external advice.
The Board met ten times during 2011. The details of attendance
at these meetings are set out in the Directors’ Report. The
independent non-executive directors monitor and review the ongoing
performance of the executive directors and key executives. The
independent non-executive directors occasionally meet informally
without management being present to generally discuss the affairs of
the Company and the overall performance of key executives.
The independent non-executive directors are subject to the
Company’s constitution and their continuity of tenure is dependent
on re-election by shareholders in accordance with the constitution.
Any decision regarding the appointment of new directors is taken
cognisant of the need to appoint someone who, taking into account
the mix of skills, experience and perspective of the other directors,
is appropriately qualified and as far as possible familiar with the
Company’s market sector.
While there is no formal induction process in place, the Chairman,
Deputy Chairman and Group CEO undertake a rigorous process of
briefing new board members.
Given the size of the Company there is also direct informal
communication on a regular basis between the Chairman and the
Company Secretary on governance matters.
3. Ethical and Responsible Decision Making
The Company’s governance policies and processes incorporate
all the Recommendations relating to Principle 3 of the ASX
Governance Principles.
The Board’s policy is that the Company, the directors and
employees in addition to their legal obligations must maintain
high ethical standards in their dealings with the public and other
members of the industry.
The Company’s Human Resources Policy and Procedures,
binding on all employees, also collectively embraces the substance
of the ASX Governance Principles in a Code of Conduct, including
expectations regarding behaviour in the workplace, disciplinary
processes, grievance processes, discrimination and harassment,
occupational health and safety, ethical business practices, conflict
of interest and corporate opportunity.
The Company is committed to training employees and maintain-
ing employees’ relevant technical expertise and understanding
of their ethical and legal obligations, for example by way of trade
practices training from time to time for relevant staff.
The Company recognises that diversity and inclusiveness is a
critical aspect of effective management of its people and their
contributions to the success of the Company. This diversity
is reflected in the differences in gender, race, age, culture,
education, family or carer status, religion and disability which
is found across the Company, its employees, consultants,
contractors and visitors.
The Company created a profile of executive, management and
employees to benchmark the the current status of diversity,
as to gender, in the Company as at December 2011. Women
19
Corporate Governance Report continued
represent 29% of the employees in the Company. There are
no female members of the Board or female senior executive
managers.
To promote the objectives of diversity in the Company,
particularly as to gender, the Board has set the following key
measurable objectives and KPIs:
1. To achieve greater representation of females in the Reckon
Group, particularly in technical and supervisor/manager
roles.
2. To review policies and internal procedures to ensure they
provide equitable, fair and flexible work practices, including
consistency with the Company’s commitment to diversity,
particularly gender diversity, in the organisation.
3. To implement training (in-house or external where relevant)
to support a culture of diversity, for example: appropriate
behaviour, harassment etc.
4. Development of a mentoring/succession program for all
employees to encourage females to remain in the business.
The Company’s performance against these objectives will be
measured annually by measuring the percentage increase of
females in technical roles, with the objective of achieving a 5%
increase by December 2012.
The Company’s Diversity & Inclusion Policy Statement as
approved by the Board on 15 December 2011 is published on
the Company’s website.
objectives of Principle 4 and that the Company has fully adopted
Recommendation 4.2.
Deloitte Touche Tohmatsu, the Company’s auditors, report directly
to the Audit & Risk Committee on the appropriateness of the
Company’s internal accounting policies and practices. The Board
reviews the adequacy of existing external audit arrangements each
year, with particular emphasis on the scope and quality of the audit.
The Audit & Risk Committee provides written advice to the Board
on the standard of independence of the auditors in light of any
non-audit services during 2011 and which is reported in the
Directors' Report.
At each Audit & Risk Committee meeting, the independent non-
executive directors meet separately with the auditors without
management being present to review any concerns that the
auditors may have regarding the financial management of the
Company.
The Audit & Risk Committee met twice during 2011. The Audit
& Risk Committee reports back to the Board after each Audit
& Risk Committee meeting. The details of attendance at these
meetings are set out in the Directors’ Report. The Board is aware
of its obligations to ensure the appropriate selection and rotation of
external auditors and the external audit engagement partners and
closely monitors and reviews the engagement of the Company’s
external auditors.
4. Integrity in Financial Reporting
5. Timely and Balanced Disclosure
The Board assumes the responsibility to ensure the integrity of
the Company’s financial reporting and has established the Audit &
Risk Committee to focus on the issues relating to the integrity of
the financial reporting of the Company and oversight and review
of the Company’s risk management. The terms of reference for
the Audit & Risk Committee, to review and monitor all financial,
risk management and compliance policies, were formalised in a
Charter in 2003 to meet the requirements of the ASX Governance
Principles. The Audit & Risk Committee consists of John Thame
and Ian Ferrier, independent, non-executive directors, as well as
the non-executive director Greg Wilkinson, to ensure independent
review of financial reporting over and above formal audit processes.
Details of their experience and qualifications are set out in the
Directors’ Report.
The Audit & Risk Committee also meets informally to discuss
matters including risk management and reporting.
With the appointment of Greg Wilkinson to the Audit & Risk
Committee in February 2010, the Board is of the opinion that the
structure of the Committee, together with its considerable technical
expertise in the market sector of the Company and financial
literacy, enables it to discharge it functions effectively and meet the
20
The Company has adopted each of the Recommendations
relating to Principle 5 of the ASX Governance Principles.
The Board remains conscious of the Company’s disclosure
obligations under the Corporations Act, the ASX listing rules
and the ASIC guidance principles. These obligations are
reflected in the Continuous Disclosure Policy. All required
disclosures are also made in accordance with the Continuous
Disclosure policy which is accessible to the public at the
Company website. A review of operations and commentary on
the financial results is provided in the Directors' Report and the
Financial Report.
6. Rights of Shareholders
The Board is conscious of the requirements of Principle 6
of the ASX Governance Principles and takes into account
the rights and needs of shareholders to balanced and
understandable information about the Company and acts in
accordance with this Principle. The Company communicates
with shareholders through its ASX disclosures to the market.
The Company also communicates with shareholders through
the posting of statutory notices to shareholders and at the
general and special meetings of the Company. The Company
keeps recent announcements and general Company
information on its web site with a dedicated investor relations
section which is accessible to the public. The web site
contains a link to the ASX web site for older announcements.
Given the size and circumstances of the Company, there is
no formally documented communications strategy, and in this
respect the Company has not adopted Recommendation 6.1.
The Company’s auditor attends the Annual General Meeting
and is available to answer shareholder questions about the
conduct of the audit and the preparation and content of the
Auditor’s Report at the meeting.
7. Recognise and Manage Risk
As stated above in paragraph 1, the Board is responsible for
ensuring appropriate risk management, accountability, and
control mechanisms. It constantly monitors the operational
and financial aspects and material risks of the Company’s
activities and, through the Audit & Risk Committee, considers
the recommendations and advice of the auditors and other
external advisers on the operational and financial risks that
face the Company. The Group CEO and Group CFO monitor
and review the financial performance of the Company and
monitor any potential risk virtually on a daily basis. The Board
has received assurance from the CEO and the CFO that the
S295A Declaration provided in the Financial Report is founded
on a sound system of risk management and internal control
and that the system is operating effectively in all material
respects in relation to financial reporting risks. The Board is of
the opinion that there is substantial compliance with the ASX
Governance Principle 7 although Recommendations 7.1 and
7.2 have not yet been fully adopted.
As described above, the size of the Company and the
management team enables the Board to have effective
oversight of the overall risk management of the Company. In
the Board’s opinion, especially with the existence of an Audit
& Risk Committee, there is no efficiency for the Company to
establish a separate risk management committee.
The Board is provided with a declaration from the Group CEO
and the Group CFO under section 295A of the Corporations
Act, that due consideration is given to budgets, cash flows,
realisation of current assets, continuity of terms of trade, and
consideration of contingencies in the day to day operations
of the Company and in the monthly management financial
reporting and statutory reporting of the Company.
At present the nature of operations and scope of the
business is reasonably well established and understood
by management and the Board. The decision making
and reporting processes in the Company incorporate an
assessment of the relevant material risks, for example in the
planning, budget, HR, product development, R&D, legal and
compliance activities and, where relevant, any material risk
issues are reported to and considered by the Board. The
planning and budget process involves both the executive and
senior management, which means all of these employees have
a more than adequate understanding of the issues, activities
and opportunities across the Company. In turn this enables
them to manage operational, planning, strategic and risk
issues in the Company. In addition, the Company regularly
conducts reviews of the material risks in the context of the
annual insurance renewals and, in relation to acquisitions
through due diligence. Relevant risk factors are included in the
various management and financial reports to the Board and
are then considered by the Board. The reporting, identification
and management of risk are now effectively a standing board
agenda item.
Due to the effectiveness of the existing processes and the size
of the business, business risk management systems, policies
and procedures have not been comprehensively formalised.
With a view to fully adopting Recommendations 7.1 and
7.2, the Company’s risk management systems, policies and
processes are under consideration to be formalised and
documented, if necessary.
8. Remunerate Fairly and Responsibly
The Company remunerates directors and key executives
in accordance with the aspirations set out in ASX
Governance Principle 8. Accordingly, the Board has adopted
a remuneration policy designed to attract and maintain
talented and motivated directors and senior employees so
as to encourage enhanced performance of the Company.
There is a clear relationship between performance and
remuneration and a desire to strike the correct balance
between the various components making up remuneration.
The Remuneration Committee consists of the independent,
non-executive directors, John Thame and Ian Ferrier. Details of
their experience and qualification are set out in the Directors’
Report. The Remuneration Committee ensures independent
review of financial reporting over and above formal audit
processes. The Remuneration Committee supervises
the development and implementation of the Company’s
remuneration policy including the operation of option plans,
and reviews the performance of the executive directors
and senior executives. There is no formal charter for the
Remuneration Committee, but it does fix policy and reward in
accordance with ASX Governance Principle 8. The full detail of
the policy and remuneration is contained in the Remuneration
Report.The Remuneration Committee met twice during 2011.
The details of attendance at these meetings are set out in the
Directors’ Report.
21
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
28 March 2012
The Board of Directors
Reckon Limited
Level 12
65 Berry Street
North Sydney NSW 2060
Dear Board Members
RECKON LIMITED
In accordance with section 307C of the Corporations Act 2001, I am pleased to
provide the following declaration of independence to the directors of Reckon Limited.
As lead audit partner for the audit of the financial statements of Reckon Limited
for the financial year ended 31 December 2011, I declare that to the best of my
knowledge and belief, there have been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Michael Kaplan
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
22
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
independent Auditor’s Report to
the Members of Reckon Limited
Report on the Financial Report
We have audited the accompanying financial report of Reckon Limited, which comprises
the consolidated statement of financial position as at 31 December 2011, the consolidated
statement of comprehensive income, the consolidated statement of cash flows and the
consolidated statement of changes in equity for the year ended on that date, notes comprising a
summary of significant accounting policies and other explanatory information, and the directors’
declaration of the consolidated entity comprising the company and the entities it controlled at the
year’s end or from time to time during the financial year as set out on pages 25 to 64.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control, relevant
to the entity’s preparation of the financial report that gives a true and fair view, in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
23
Auditor's Report continued
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001. We confirm that the independence declaration required by the
Corporations Act 2001, which has been given to the directors of Reckon Limited, would be in
the same terms if given to the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Reckon Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31
December 2011 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001; and
(b) the financial statements also comply with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 10 to 16 of the directors’ report
for the year ended 31 December 2011. 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.
Opinion
In our opinion, the Remuneration Report of Reckon Limited for the year ended 31 December
2011, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Michael Kaplan
Partner
Chartered Accountants
Sydney, 28 March 2012
24
financial Report
Directors’ Declaration
The Directors of the company declare that:
1. the financial statements and notes as set out on pages 26 to 64, are in
accordance with the Corporations Act 2001, and:
• comply with Accounting Standards; and
•
•
comply with International Financial Reporting Standards, as stated in Note 1 to the
financial statements; and
give a true and fair view of the financial position as at 31 December 2011 and of
the performance for the year ended on that date of the consolidated group;
2. the Chief Executive Officer and the Chief Finance Officer have each declared that:
•
•
the financial records of the company for the financial year have been properly
maintained in accordance with s 286 of the Corporations Act 2001;
the financial statements and notes for the financial year comply with the
Accounting Standards, and
•
the financial statements and notes for the financial year give a true and fair view;
3. in the Directors’ opinion there are reasonable grounds to believe that the company
will be able to pay its debts as and when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors
pursuant to Section 295(5) of the Corporations Act 2001.
On behalf of the Directors
Mr J Thame
Chairman
Sydney, 28 March 2012
25
Consolidated income statement
for the year ended 31 December 2011
Continuing operations
Revenue
Product and selling costs
Royalties
Employee benefits expenses
Share-based payments expenses
Marketing expenses
Premises and establishment expenses
Depreciation and amortisation of other non-current assets
Telecommunications
Legal and professional expenses
Finance costs
Other expenses
Net costs associated with premises relocation – consolidation of Business and
Professional Divisions into North Sydney premises
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Owners of the parent
Non-controlling interest
Earnings per share
Basic Earnings per Share
Diluted Earnings per Share
Alternative earnings per share (excluding after tax effect of relocation cost)
Basic Earnings per Share
Diluted Earnings per Share
Consolidated
2011
$’000
2010
$’000
Note
2
91,272
90,273
(14,617)
(14,588)
(4,783)
(4,786)
(27,349)
(27,461)
(702)
(2,197)
(2,261)
(8,552)
(958)
(707)
(168)
(1,300)
(2,471)
(2,685)
(7,769)
(920)
(981)
(161)
(4,397)
(4,752)
2
3
(2,352)
-
22,229
(5,536)
22,399
(5,151)
16,693
17,248
21
16,062
16,478
631
770
16,693
17,248
Cents
12.1
12.0
Cents
13.4
13.3
Cents
12.4
12.4
Cents
12.4
12.4
22
22
22
22
The above consolidated income statement should be read in conjunction with the accompanying notes.
26
Consolidated statement of Comprehensive income
for the year ended 31 December 2011
Profit for the year
Other comprehensive income
Fair value adjustment of financial assets
Exchange difference on translation of foreign operations
Consolidated
2011
$’000
2010
$’000
Note
16,693
17,248
20
20
(1,067)
(12)
15,614
-
(294)
16,954
Prior year exchange differences on translation of foreign operations (relating to goodwill)
20
(863)
-
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest
14,751
16,954
14,120
16,184
631
770
14,751
16,954
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
27
Consolidated statement of financial Position
as at 31 December 2011
Consolidated
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total Current Assets
Non-Current Assets
Receivables
Financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Total Non-Current Assets
Total Assets
LIABILITIES
Current Liabilities
Trade and other payables
Borrowings
Current tax payables
Provisions
Deferred revenue
Deferred rent contribution
Total Current Liabilities
Non-Current Liabilities
Deferred tax liabilities
Provisions
Deferred rent contribution
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interest
Total Equity
Note
27
6
5
7
6
8
9
10
11
12
13
14
16
14
19
20
21
28
2011
$’000
4,703
6,730
1,181
1,763
14,377
777
6,257
3,401
86
45,966
56,487
70,864
5,470
-
2,365
3,502
6,287
8
17,632
1,089
1,641
6
2,736
20,368
50,496
15,752
(2,080)
36,621
50,293
203
50,496
2010
$’000
8,095
6,756
831
1,320
17,002
236
56
3,760
56
46,438
50,546
67,548
5,838
2
920
2,007
5,742
233
14,742
1,607
1,337
721
3,665
18,407
49,141
18,048
(63)
31,156
49,141
-
49,141
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
28
Consolidated statement of Changes in Equity
for the year ended 31 December 2011
Consolidated
Issued
capital
Foreign
currency
translation
reserve
Share-
based
payments
reserve
AFS asset
revaluation
reserve
Retained
earnings
Attributable
to owners
of the
parent
Non-
controlling
interest
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$'000
Balance at 1 January 2011
18,048
(694)
631
Profit for the year
Other comprehensive income:
Fair value adjustment of financial assets
Exchange differences on translation of
foreign operations
Prior year exchange differences on
translation of foreign operations
Total comprehensive income
Share based payments expense
Share buyback
Dividends paid
Treasury shares vested/lapsed
Treasury shares acquired
Contributions of equity, net of
transaction costs
-
-
-
-
-
-
-
(1,366)
-
450
(1,389)
9
-
-
(12)
(12)
(863)
(875)
-
-
-
-
-
-
-
-
-
-
-
-
375
-
-
(450)
-
-
-
-
31,156
16,062
(1,067)
-
-
-
49,141
16,062
(1,067)
(12)
-
49,141
631
16,693
-
-
(1,067)
(12)
(1,067)
16,062
14,983
631
15,614
-
-
(863)
-
(863)
(1,067)
16,062
14,120
631
14,751
-
-
-
-
-
-
-
-
375
(1,366)
-
-
375
(1,366)
(10,597)
(10,597)
(428)
(11,025)
-
-
-
-
(1,389)
9
-
-
-
-
(1,389)
9
Balance at 31 December 2011
15,752
(1,569)
556
(1,067)
36,621
50,293
203
50,496
Balance at 1 January 2010
18,037
Profit for the year
Other comprehensive income:
Exchange differences on translation
of foreign operations
Total comprehensive income for the year
Share based payments expense
Dividends paid
Treasury shares vested/lapsed
Transfer to share capital
Treasury shares acquired
Contributions of equity, net of
transaction costs
-
-
-
-
-
314
18
(370)
49
(400)
-
(294)
(294)
-
-
-
-
-
-
639
-
-
-
324
-
(314)
(18)
-
-
-
-
-
-
-
-
-
-
-
-
24,625
16,478
42,901
16,478
374
770
43,275
17,248
-
(294)
-
(294)
16,478
16,184
770
16,954
-
324
-
324
(9,947)
(9,947)
(1,144)
(11,091)
-
-
-
-
-
-
(370)
49
Balance at 31 December 2010
18,048
(694)
631
-
31,156
49,141
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
(370)
49
49,141
29
Consolidated statement of Cash flows
for the year ended 31 December 2011
Consolidated
Inflows/(Outflows)
Note
Cash Flows From Operating Activities
Receipts from customers
Payments to suppliers and employees
Dividends received
Interest received
Interest paid
Income taxes paid
Net cash inflow from operating activities
27(b)
Cash Flows From Investing Activities
Payments for purchase of intellectual property
Payment for capitalised development costs
Payment for property, plant and equipment
Payment for investment
Proceeds/(payments) for security deposits
Net cash outflow from investing activities
Cash Flows From Financing Activities
Proceeds from issues of equity securities
Proceeds from/(repayment of) borrowings
Payment for share buyback
Payment for treasury shares
Dividends paid to owners of the parent
Non-controlling interest dividends paid
Net cash outflow from financing activities
Net Increase/(Decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
27(a)
2011
$’000
99,864
(68,724)
280
206
(168)
(4,639)
26,819
(35)
(7,350)
(1,756)
(7,268)
-
(16,409)
9
(2)
(1,366)
(1,389)
(10,597)
(428)
(13,773)
(3,363)
8,095
(29)
4,703
2010
$’000
101,523
(68,461)
-
158
(161)
(4,879)
28,180
(61)
(7,568)
(1,387)
-
8
(9,008)
49
(2,396)
-
(370)
(9,947)
(763)
(13,427)
5,745
2,350
-
8,095
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
30
Notes to the financial statements
for the year ended 31 December 2011
1 Summary of Significant Accounting Policies
The principal accounting policies adopted in the preparation of
the financial report are set out below. Unless otherwise stated,
the accounting policies adopted are consistent with those of the
previous year. The financial report includes the consolidated entity
consisting of Reckon Limited and its subsidiaries.
Basis of preparation
This general purpose financial report has been prepared
in accordance with Australian Accounting Standards and
Interpretations and the Corporations Act 2001, and complies with
the other requirements of the law.
Australian Accounting Standards include Australian equivalents to
International Financial Reporting Standards (AIFRS). Compliance
with AIFRS ensures that the consolidated financial statements
and notes of Reckon Limited, comply with International Financial
Reporting Standards (IFRSs).
The financial statements were authorised for issue by the directors
on 28 March 2012.
The financial report has been prepared in accordance with the
historical cost convention, except for the revaluation of certain non-
current assets and financial instruments.
Significant Accounting Policies
(a) Trade Payables
These amounts represent liabilities for goods and services
provided to the consolidated entity prior to the end of the financial
year and which are unpaid. These amounts are unsecured and are
usually paid within 30 days of the month of recognition.
(b) Acquisition of Assets
Assets acquired are recorded at the cost of acquisition, being
the fair value of the purchase consideration determined as at the
date of acquisition. Where equity instruments are issued in an
acquisition, the value of the instruments is the fair value on the
acquisition date. Acquisition related costs are recognised in the
profit or loss as incurred.
In the event that settlement of all or part of the consideration
given in the acquisition of an asset is deferred, the fair value of
the purchase consideration is determined by discounting the
amounts payable in the future to their present value as at the date
of acquisition. However, where the deferred component is subject
to certain criteria being met, the amount deferred is recognised
based on an estimate where it is probable that the relevant criteria
will be met. If the amount is not probable or cannot be reliably
measured, no amount is recognised.
(c) Depreciation and Amortisation
Depreciation is provided on plant and equipment. Depreciation
is calculated on a straight-line basis. Leasehold improvements
are amortised over the period of the lease or the estimated useful
life, whichever is the shorter, using the straight-line method. The
following estimated useful lives are used in the calculation of
depreciation and amortisation:
Plant and equipment
Leasehold improvements
3 - 5 years
3 - 7 years
(d) Employee Benefits
Provision is made for benefits accruing to employees in respect of
wages and salaries, annual leave and long service leave, when it is
probable that settlement will be required and they are capable of
being measured reliably.
Provisions made in respect of wages and salaries, annual leave,
and other employee entitlements expected to be settled within 12
months are measured at the amounts expected to be paid when
the liabilities are settled.
Provisions made in respect of long service leave which are not
expected to be settled within 12 months are measured as the
present value of the estimated future cash outflows to be made
by the consolidated entity in respect of services provided by
employees up to the reporting date. Consideration is given to
expected future wage and salary levels, experience of employee
departures and periods of service.
The Group recognises a liability and an expense for the long-term
incentive plan for selected executives based on a formula that
takes into consideration the ranking of total shareholder return
measured against a comparator group of companies.
Contributions are made by the Group to defined contribution
employee superannuation funds and are charged as expenses
when incurred.
(e) Contributed Equity
Transaction Costs on the Issue of Equity Instruments
Transaction costs arising on the issue of equity instruments are
recognised directly in equity as a reduction of the proceeds of the
equity instruments to which the costs relate. Transaction costs are
the costs that are incurred directly in connection with the issue of
those equity instruments and which would not have been incurred
had those instruments not been issued.
(f) Foreign Currency Translation
Functional and presentation currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the
functional currency”). The consolidated financial statements
are presented in Australian dollars, which is Reckon Limited’s
functional and presentation currency.
Transactions and balances
All foreign currency transactions during the financial year have
been brought to account in the functional currency using the
exchange rate in effect at the date of the transaction. Foreign
currency monetary items at reporting date are translated at the
31
Notes to the financial statements continued
exchange rate existing at that date. Exchange differences are
brought to account in the profit or loss in the period in which
they arise.
Group companies
The results and financial position of all the Group entities (none of
which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency of the consolidated entity
as follows:
• Assets and liabilities are translated at the closing rate at the date
of the statement of financial position;
• Income and expenses are translated at average rates (unless this
is not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions);
and
• All resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation
of monetary items forming part of the net investment in foreign
entities, and of borrowings and other currency instruments
designated as hedges of such investments, are taken directly to
reserves. When a foreign operation is sold, a proportionate share of
such exchange differences are recognised in profit or loss as part
of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
at the closing rate.
(g) Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount
of goods and services tax (GST), except:
i.
where the amount of GST incurred is not recoverable from
the taxation authority, it is recognised as part of the cost of
acquisition of an asset or as part of an item of expense; or
ii. for receivables and payables which are recognised inclusive
of GST.
The net amount of GST recoverable from, or payable to, the
taxation authority is included as part of receivables or payables.
(h) Intangible assets
Goodwill
Where an entity or operation is acquired, the identifiable net assets
acquired are measured at fair value. Goodwill represents the
excess of the fair value of the cost of acquisition over the fair value
of the identifiable net assets acquired. Goodwill is not amortised,
and is tested for impairment annually or more frequently if events
or changes in circumstances indicate that it might be impaired.
Following initial recognition goodwill is measured at cost less
any accumulated impairment losses. If an impairment has been
identified, the goodwill is written down and an expense recognised
in profit or loss. Impairment losses recognised for goodwill are not
subsequently reversed.
Intellectual Property
Acquired Intellectual Property is recognised at cost, less
accumulated amortisation and any impairment losses, and is
amortised on a straight line basis between 3-10 years.
Research and development costs
Research and development expenditure is recognised as an
expense when incurred, except in the undernoted instances.
Development costs in respect of enhancements on existing
Professional Division, nQueue Billback Division and Elite suites of
software applications are capitalised and written off over a 3 to 4
year period. Development costs on technically and commercially
feasible new Professional Division, nQueue Billback Division and
Elite products are capitalised and written off on a straight line
basis over a period of 3 to 4 years commencing at the time of
commercial release of the new product.
Development costs include cost of materials, direct labour and
appropriate overheads.
At each balance date, a review of the carrying value of the
capitalised development costs being carried forward is undertaken
to ensure the carrying value is recoverable from future revenue
generated by the sale of that software.
(i) Income Tax
The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on the
national income tax rate for each jurisdiction adjusted by changes
in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities, and their
carrying amounts in the financial statements, and to unused tax
losses.
Deferred tax assets and liabilities are recognised for temporary
differences at the tax rates expected to apply when the assets
are recovered or liabilities are settled, based on those tax rates
which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of
deductible and taxable temporary differences to measure the
deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset
or liability. No deferred tax asset or liability is recognised in relation to
those temporary differences if they arose in a transaction, other than
a business combination, that at the time of the transaction did not
affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary
differences and losses. All deferred tax liabilities are recognised.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in equity.
32
(j) Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs are assigned to inventory on hand on a weighted average
cost basis.
(k) Leased Assets
A distinction is made between finance leases which effectively
transfer from the lessor to the lessee substantially all the risks and
benefits incident to ownership of leased assets, and operating
leases under which the lessor effectively retains substantially all the
risks and benefits.
Operating lease payments are recognised on a straight line basis
over the lease term, except where another systematic basis is more
representative of the time pattern in which economic benefits from
the leased assets are consumed. Contingent rentals arising under
operating leases are recognised as an expense in the period in
which they are incurred. Lease incentives are initially recognised as
a liability and are amortised over the term of the lease on a straight
line basis.
(l) Principles of Consolidation
The consolidated financial statements have been prepared by
combining the financial statements of all the entities that comprise
the consolidated entity, being the Company (the parent entity) and
its subsidiaries. Subsidiaries are all entities over which the Group
has the power to govern the financial and operating policies.
The consolidated financial statements include the information and
results of each subsidiary from the date on which the Company
obtains control and until such time as the Company ceases to
control the entity.
In preparing the consolidated financial statements, all inter-
company balances and transactions, and unrealised profits arising
from transactions within the consolidated entity are eliminated in full.
(m) Receivables
Trade receivables and other receivables are recorded at amortised
cost, less impairment.
(n) Impairment of assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash generating units).
(o) Revenue Recognition
Sale of Goods and Disposal of Assets
Revenue from the sale of goods and disposal of other assets is
recognised when the consolidated entity has passed control of the
goods or other assets to the buyer, the fee is fixed or determinable
and collectability is probable.
Professional Division software licence fee revenue is recognised at
the point of “go live” (i.e. when all users can use the system on a
fully functional basis).
Rendering of Services
Revenue from a contract to provide services is recognised by
reference to the stage of completion of the contract or on a time
and materials basis depending upon the nature of the contract.
Support and maintenance revenue is recognised on a straight-line
basis over the period of the contract, unless the cost of providing
the technical support is insignificant. Under those circumstances
the revenue and the associated cost of providing the technical
support is accrued upon delivery of the goods.
In multiple element arrangements where goods and services
are sold as a bundled product, the fair value of the services
component is recognised as revenue over the period during
which the service is performed, unless the cost of providing those
services is insignificant. Under those circumstances the revenue
and the associated cost of providing the services is accrued upon
delivery of the goods.
Interest and Other Revenue
Interest revenue is recognised on a time proportional basis taking
into account the effective interest rates applicable to the financial
assets. Other revenue is recognised when the right to receive the
revenue has been established.
(p) Deferred Revenue
Revenue earned from maintenance and support services provided
on sales of certain products by the consolidated entity are deferred
and then recognised in profit or loss over the contract period as
the services are performed, normally 12 months. Refer Note 1(o)
for further detail.
(q) Earnings per share
Basic earnings per share is determined by dividing net profit
after income tax attributable to members of the Company by the
weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares
issued during the year.
Diluted earnings per share adjusts the figures in the determination
of basic earnings per share by taking into account the after
income tax effect of interest and other financing costs associated
with dilutive potential ordinary shares and the weighted average
number of dilutive potential ordinary shares.
33
Notes to the financial statements continued
Revenue recognition – in multiple element arrangements where
goods and services are sold as a bundled product, the fair
value of the services is recognised as revenue over the period
during which the service is performed.
Significant accounting estimates and assumptions
The carrying amount of certain assets and liabilities are often
determined based on estimates and assumptions of future
events. The key estimates and assumptions that have a
significant risk of causing material adjustment to the carrying
amounts of certain assets and liabilities are:
Impairment of goodwill – the Group determines whether
goodwill is impaired on an annual basis. This requires an
estimation of the recoverable amount of the cash-generating
unit to which the goodwill is allocated. The assumptions used in
this estimation, and the effect if these assumptions change, are
disclosed in Note 11.
Share based payments – the Group measures the cost of
equity-settled transactions with employees by reference to
the fair value of the equity instruments at the date on which
they are granted. The fair value has been determined using a
model that adopts Monte Carlo simulation approach, and the
assumptions related to this can be found in Note 18.
Product life and amortisation – The Group amortises capitalised
development costs based on a straight line basis over a period
of 3 – 4 years commencing at the time of commercial release of
the new product. This is the assessed useful life.
(x) New accounting standards not yet effective
At the date of authorisation of the financial report, a number
of Standards and Interpretations were in issue but not yet
effective.
Initial application of the following Standards is not expected to
affect any of the amounts recognised in the financial report, but
may change the disclosures presently made in relation to the
financial report.
(r) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held
at call with financial institutions and bank overdrafts.
(s) Other financial assets
Available–for–sale financial assets are initially measured at cost
at date of acquisition, which include transaction costs, and
subsequent to initial recognition, they are carried at fair value.
Unrealised gains and losses from changes in fair value are
recognised in equity in the available-for-sale revaluation reserve.
When available-for-sale assets are impaired, the accumulated
fair value adjustments are included in the
income statement.
Security deposits held as rental guarantees are recognised at
amortised cost.
(t) Provisions
Provisions are recognised when the Group has a legal or
constructive obligation, as a result of past events, for which it
is probable that an outflow of economic benefits will result and
that the outflow can be reliably measured.
(u) Fair Value estimation
The fair value of financial instruments and share based
payments that are not traded in an active market is determined
using appropriate valuation techniques. The Group uses a
variety of methods and assumptions that are based on existing
market conditions. The fair value of financial instruments traded
on active markets (quoted shares), are based on balance date
bid prices.
The directors consider that the nominal value less estimated
credit adjustments of trade receivables and payables
approximate their fair values.
(v) Rounding of amounts
The parent entity has applied the relief available to it under ASIC
Class Order 98/100, and accordingly, amounts in the financial
report have been rounded off to the nearest thousand dollars,
except where otherwise indicated.
(w) Significant accounting judgments, estimates
and assumptions
Significant accounting judgments
In applying the Group’s accounting policies, management has
made the following judgments which have the most significant
effect on the financial statements:
Capitalisation of development costs – the Group has adopted
a policy of capitalising development costs only for products for
which an assessment is made that the product is technically
feasible and will generate definite economic benefits for the
Group going forward. The capitalised costs are subsequently
amortised over the expected useful life of the product.
34
Standard/Interpretation
o AASB 9 Financial Instruments, AASB 2009-11 and AASB
2010-7 Amendments to Australian Accounting Standards
arising from AASB 9
o AASB 2010-6 Amendments to Australian Accounting
Standards – Disclosures on Transfers of Financial Assets
o AASB 2010-8 Amendments to Australian Accounting
Standards – Deferred Tax: Recovery of Underlying Assets
Effective for annual
reporting periods
beginning on or after
Expected to be initially
applied in the financial year
ending
1 January 2013
31 December 2013*
1 July 2011
31 December 2012
1 January 2012
31 December 2012
o AASB 1054 Australian Additional Disclosures
1 July 2011
31 December 2012
o AASB 2011-1 Amendments to Australian Accounting Standards
arising from the Trans-Tasman Convergence Project
o AASB 2011-5 Amendments to Australian Accounting Standards
– Extending Relief from Consolidation, the Equity Method and
Proportionate Consolidation
1 July 2011
31 December 2012
1 July 2011
31 December 2012
o AASB 10 Consolidated Financial Statements
1 January 2013
31 December 2013
o AASB 11 Joint Arrangements
1 January 2013
31 December 2013
o AASB 12 Disclosure of Involvement with Other Entities
1 January 2013
31 December 2013
o AASB 13 Fair Value Measurement
1 January 2013
31 December 2013
o AASB 119 Employee Benefits
1 January 2013
31 December 2013
o AASB 127 Separate Financial Statements (2011)
1 January 2013
31 December 2013
o AASB 128 Investments in Associates and Joint Ventures
1 January 2013
31 December 2013
o AASB 2011-7 Amendments to Australian Accounting Standards
arising from the Consolidation and Joint Arrangement Standards
1 January 2013
31 December 2013
o AASB 2011-8 Amendments to Australian Accounting Standards
arising from AASB 13
1 January 2013
31 December 2013
o AASB 2011-9 Amendments to Australian Accounting Standards
– Presentation of Items of Other Comprehensive Income
1 July 2012
31 December 2013
o AASB 2011-10 Amendments to Australian Accounting Standards
arising from AASB 119 (September 2011)
1 January 2013
31 December 2013
o AASB 2011-13 Amendments to Australian Accounting Standard
– Improvements to AASB 1049
1 July 2012
31 December 2013
o AASB Interpretation 20 Stripping Costs in the Production Phase
of a Surface Mine
1 January 2013
31 December 2013
*The IASB has amended IFRS 9 to defer the mandatory effective date to annual periods beginning on or after 1 January 2015.
It is expected that the AASB will issue similar amendments shortly.
35
Notes to the financial statements continued
2 Profit for the year
Consolidated
2011
$’000
2010
$’000
Profit before income tax includes the following items of revenue and expense:
Revenue
Sales revenue
Sale of goods and rendering of services
90,244
90,115
542
280
206
1,028
91,272
19,400
25
168
2
(165)
(62)
1,034
477
989
6,052
26
-
-
158
158
90,273
19,374
51
161
(158)
891
332
915
422
1,332
5,100
(83)
Other Revenue
Espreon litigation settlement
Dividend income
Interest revenue – Bank deposits
Expenses
Cost of Sales
Bad debt expense:
Other Entities
Finance costs expensed:
Bank loans and overdraft
Net transfers to/(from) provisions:
Sales returns and rebates
Employee benefits
Allowance for doubtful debts
Depreciation of non-current assets:
Property, plant and equipment
Amortisation of non-current assets:
Leasehold improvements
Intellectual property
Development costs
Foreign exchange losses/(gains)
36
2 Profit for the year continued
Consolidated
Expenses continued
Employee benefits expense:
Post employment benefits – defined contribution plans
Termination benefits
Share based payments:
Equity-settled share-based payments
Cash-settled share-based payments
Research and Development costs
Operating lease rental expenses:
Minimum lease payments
Net costs associated with premises relocation, including (i):
o Estimated sub-lease rent shortfall
o Leasehold improvement amortisation
(i) Accounting standards require that a provision be made for the expected
shortfall in the sub-lease of Pyrmont premises. The net savings from the
move to the new North Sydney premises will more than offset this cost over
the period of the lease.
2011
$’000
2,198
306
375
327
702
2,328
1,949
1,796
556
2,352
2010
$’000
2,175
127
324
976
1,300
2,339
2,425
-
-
-
37
Notes to the financial statements continued
3 Income Tax
Consolidated
2011
$’000
6,390
(548)
(306)
5,536
22,229
6,669
42
(162)
(608)
(99)
5,842
-
(306)
5,536
-
2,295
2,295
2010
$’000
5,114
165
(128)
5,151
22,399
6,720
86
(231)
(787)
(79)
5,709
(430)
(128)
5,151
-
2,295
2,295
(a) Income tax expense
Current tax
Deferred tax
Under/(over) provided in prior years
(b) The prima facie income tax expense on pre-tax accounting profit
reconciles to the income tax expense/(income tax revenue) in the
financial statements as follows:
Profit before income tax
Income tax expense calculated at 30% of profit
Tax Effect of:
Effect of higher tax rates on overseas income
Tax effect of non-deductible/non-taxable items:
Non-taxable income
Research and development claims
Sundry items
Reversal of withholding tax on pre-acquisition dividend
Under/(over) provision in prior years
Income tax expense attributable to profit
(c) Deferred tax asset not brought to account as an asset:
not probable of recovery
Tax losses:
Revenue
Capital
38
4 Remuneration of Auditors
(a) Deloitte Touche Tohmatsu
During the year, the auditors of the parent entity earned the following
remuneration:
Consolidated
2011
$
2010
$
Auditing and reviewing of financial reports
Tax compliance and consulting services
(b) Other Auditors
Auditing and reviewing of financial reports
Tax compliance services
5 Inventories
Finished goods:
At lower of cost and net realisable value
202,784
82,587
285,371
37,494
26,199
63,693
349,064
2011
$’000
1,181
194,153
98,765
292,918
32,078
24,085
56,163
349,081
2010
$’000
831
Consolidated
39
Notes to the financial statements continued
6 Trade and Other Receivables
Consolidated
2011
$’000
6,520
(455)
6,065
665
6,730
427
100
250
777
1,512
388
979
2,879
542
(25)
(62)
455
2010
$’000
6,652
(542)
6,110
646
6,756
-
-
236
236
1,468
520
1,058
3,046
261
(51)
332
542
Current:
Trade receivables (i)
Allowance for doubtful debts
Other receivables
Non current:
Trade receivables
Other receivables
Other receivables: non-controlling interest holder
(i) The ageing of past due receivables at year end is detailed as follows:
Past due 0 – 30 days
Past due 31 – 60 days
Past due 61+ days
Total
The movement in the allowance for doubtful accounts in respect of
trade receivables is detailed below:
Balance at beginning of the year
Amounts written off during the year
Increase/(reduction) in allowance recognised in the profit and loss
Balance at end of year
40
7 Other Assets
Consolidated
2011
$’000
780
983
1,763
6,201
56
6,257
2010
$’000
970
350
1,320
-
56
56
Prepayments
Other
8 Other Financial Assets
Available-for-sale financial assets: quoted shares (i)
Security deposits
(i) The Group held 5% of the ordinary share capital of Melbourne IT
Limited, an Australian listed company. Since year end the Group had
sold 3,104,958 shares in Melbourne IT Limited for $4,992 thousand.
These shares were originally aquired for $5,641 thousand.
41
Notes to the financial statements continued
9 Property, Plant And Equipment
Consolidated
Leasehold Improvements
At cost
Less: Accumulated amortisation
Total leasehold improvements
Plant and equipment
At cost
Less: Accumulated depreciation
Total plant and equipment
Reconciliations
Reconciliations of the carrying amounts of each class of property, plant and
equipment at the beginning and end of the financial year are set out below.
2011
$’000
3,490
2,267
1,223
5,963
3,785
2,178
3,401
2010
$’000
2,464
1,234
1,230
5,591
3,061
2,530
3,760
Leasehold
Improvements
Plant and Equipment
Total
$’000
1,230
1,026
(1,033)
1,223
$’000
2,530
730
(1,082)
2,178
$’000
3,760
1,756
(2,115)
3,401
Leasehold
Improvements
Plant and Equipment
Total
$’000
1,614
38
(422)
1,230
$’000
2,154
1,349
(973)
2,530
$’000
3,768
1,387
(1,395)
3,760
Consolidated
Carrying amount at 1 January 2011
Additions
Depreciation/amortisation expense
Balance at 31 December 2011
Consolidated
Carrying amount at 1 January 2010
Additions
Depreciation/amortisation expense
Balance at 31 December 2010
42
10 Deferred Tax Asset
Consolidated
The balance comprises temporary differences attributable to:
Doubtful debts
Employee benefits
Deferred revenue
Other provisions
Details of unrecognised deferred tax assets can be found in Note 3(c)
Reconciliation:
Opening balance at 1 January
Credited/(charged) to profit or loss
Balance at 31 December
11 Intangibles
Intellectual property – at cost
Accumulated amortisation
Development costs – at cost
Accumulated amortisation
Goodwill – at cost
2011
$’000
17
27
-
42
86
56
30
86
12,596
(8,987)
3,609
38,131
(23,549)
14,582
27,775
45,966
2010
$’000
3
29
-
24
56
586
(530)
56
11,950
(7,387)
4,563
30,732
(17,496)
13,236
28,639
46,438
43
Notes to the financial statements continued
11 Intangibles continued
Consolidated
Impairment test for goodwill
Goodwill is allocated to the Group’s cash generating units (CGUs)
identified according to the business entities acquired, as follows:
Professional Division Australia
Professional Division New Zealand
Professional Division United Kingdom
nQueueBillback
Elite
Corporate Services
2011
$’000
10,361
1,742
313
1,698
2,536
11,125
27,775
2010
$’000
10,361
1,742
426
2,449
2,536
11,125
28,639
The recoverable amount of a CGU is determined based on value-in-use calculations. Management has based the value in use
calculations on the most recently completed Board approved budget for the forthcoming one year (2012) period.
Subsequent cash flows are projected using constant growth rates of 3% per annum. An average post-tax discount rate of 12.2%
(2010: 13.4%) (pre-tax rate: 16%) reflecting assessed risks associated with CGU’s have been applied to determine the present
value of future cash flow projections. No impairment write-offs have been recognised during the year (2010: nil). Should the
projected growth rates reduce to 0%, an impairment would still not arise.
Goodwill
Intellectual
Property
Development
Costs
$’000
$’000
$’000
28,639
4,563
-
(864)
-
27,775
28,639
-
-
28,639
35
-
(989)
3,609
5,921
(26)
(1,332)
4,563
13,236
7,398
-
(6,052)
14,582
10,710
7,626
(5,100)
13,236
Total
$’000
46,438
7,433
(864)
(7,041)
45,966
45,270
7,600
(6,432)
46,438
Consolidated movements in intangibles
At 1 January 2011
Additions
Effect of foreign currency exchange differences
Amortisation charge
At 31 December 2011
At 1 January 2010
Additions
Amortisation charge
At 31 December 2010
44
12 Trade and Other Payables
Consolidated
2011
$’000
4,184
1,286
5,470
-
-
-
2010
$’000
4,420
1,418
5,838
-
2
2
Current:
Trade payables and sundry accruals (i)
Employee benefits (Note 18)
(i) The credit period for the majority of goods purchased is 30 days.
No interest is charged. The Group has policies in place to ensure payables
are paid within the credit periods.
13 Borrowings
Current:
Bank overdraft (i)
Other borrowings
i) Effective 31 December 2011 the consolidated entity renewed bank
facilities totaling $14.5 million. The facility comprises a bank overdraft
facility, and a multi option facility (which includes a bill facility and bank
guarantee/transactional facility). The facility covers a 1 year term, and then
will be subject to annual review. The facility is secured over the Australian
net assets of the Group ($48.3 million at 31 December 2011). The facilities,
apart from the bank guarantee, are undrawn as at balance date.
Bank
overdraft
Bill facility
Bank
guarantee
facility
2011
$’000
$’000
$’000
The available, used and unused components of the facility at
year end is as follows:
Available
Used
Unused
1,000
-
1,000
10,000
-
10,000
3,500
1,121
2,379
The remaining contractual maturity for the facility (including both interest
and principal) is as follows:
0-12 months
-
-
1,121
Weighted average interest rate
8.10%
6.43%
-
45
Notes to the financial statements continued
14 Provisions
Consolidated
Current:
Sales returns, volume rebates
Employee benefits (Note 18)
Surplus premises
Commissions and sundry provisions
Non-current:
Employee benefits (Note 18)
Surplus premises
Movement in provisions
Movements in each class of provision during the financial
year, excluding employee benefits, are set out below:
2011 Consolidated
Carrying amount at the start of the year
Amounts paid
Additional provisions recognised
Carrying amount at the end of the year
2011
$’000
182
2,087
590
643
3,502
594
1,047
1,641
2010
$’000
181
1,377
-
449
2,007
1,337
-
1,337
Surplus
Premises
Sales returns,
volume
rebates
Commissions
and sundry
Total
$’000
$’000
$’000
$’000
-
(715)
2,352
1,637
181
-
1
182
449
-
194
643
630
(715)
2,547
2,462
46
15 Working capital deficiency
Consolidated
The consolidated statement of financial position indicates an excess of current liabilities over current assets of $3,255 thousand
(December 2010: excess of current assets over current liabilities of $2,260 thousand). This arises due to the cash management
structure adopted by management, whereby surplus funds are used to repay debt and make investments. Available bank
overdraft and bill facilities at balance date total $11 million. Furthermore, included in current liabilities is deferred revenue of $6,287
thousand (December 2010: $5,742 thousand), settlement of which will involve substantially lower cash flows.
16 Deferred Tax Liabilities
Consolidated
The temporary differences are attributable to:
Doubtful debts
Employee benefits
Sales returns and volume rebates
Deferred revenue
Difference between book and tax value of non-current assets
Other provisions
Details of unrecognised deferred tax assets can be found in Note 3(c)
Reconciliation:
Opening balance at 1 January
Charged (credited) to profit or loss
Balance at 31 December
2011
$’000
(112)
(1,235)
(55)
(574)
4,467
(1,402)
1,089
1,607
(518)
1,089
2010
$’000
(137)
(1,220)
(54)
(641)
4,307
(648)
1,607
1,972
(365)
1,607
47
Notes to the financial statements continued
17 Parent Entity Disclosures
Parent
Financial position
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
Equity
Share capital
Available-for-sale revaluation reserve
Share based payments reserve
Retained earnings
Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
2011
$’000
6,172
62,130
68,302
9,566
8,842
18,408
15,752
(1,067)
556
34,653
49,894
15,855
(1,067)
14,788
2010
$’000
9,054
55,534
64,588
12,918
3,596
16,514
18,049
-
631
29,394
48,074
17,205
-
17,205
Capital commitments for the acquisition of property, plant and equipment
Not longer than 1 year
Other
-
1,042
Reckon Limited assets have been used as security for the bank facilities set out in Note 13.
The parent entity has no contingent liabilities.
48
18 Employee Benefits
Consolidated
The aggregate employee benefit liability recognised and included in the
financial statements is as follows:
Accrued annual leave:
Current (Note 12)
Long term incentive:
Current (Note 14)
Non-current (Note 14)
Provision for long service leave:
Current (Note 14)
Non-current (Note 14)
Long-term incentive plan
2011
$’000
1,286
1,073
211
1,014
383
3,967
2010
$’000
1,418
526
892
851
445
4,132
The long-term incentive plan was approved at the Special General Meeting on 20 December 2005, and comprises three possible
methods of participation: an option plan, a performance share plan and a share appreciation plan. The Board has discretion to
make offers to applicable employees to participate in any of these plans. Options granted and/or performance shares awarded (all
in respect of the Company’s ordinary shares) and/or share appreciation rights do not vest before three years after their grant date
and are conditional on the participant remaining employed at vesting date, subject to board discretion. Vesting is also conditional
upon the Company achieving defined performance criteria. The performance criteria are based upon a total shareholder return (TSR)
target. A TSR is the return to shareholders over a prescribed period, being the growth in the Company's share price plus dividends
or returns of capital for that period. The Company's initial TSR target will be the Company achieving a median or higher ranking
against the TSR position of individual companies within a 'comparator group' of companies (i.e. a group of comparable ASX listed
companies pre-selected by the Board) over the same period. The initial comparator group was determined by independent advisers
and was set out in the Chairman’s speech at the Special General Meeting on 20 December 2005. The Board reviews the suitability
of the comparator group on an ongoing basis. Only 50% of options or performance shares become exercisable or vest if the initial
performance criterion is satisfied. The extent to which the balance of options or performance shares become exercisable or vest will
depend on the extent to which the initial performance criterion is exceeded (i.e. the extent to which the Company exceeds a median
ranking against the TSR position of the comparator group of companies).
In 2011 performance shares were also awarded with longer term vesting periods as a long term incentive. The principal vesting
condition is that participants must remain employed for the term, in this case, to achieve 100% vesting employees must remain in
employment for 10 years from the date of initial offer, with a portion vesting after 7 years.
The share appreciation rights plan represents an alternative remuneration element (to offering options or performance shares) under
which the Board can invite relevant employees to apply for a right to receive a cash payment from the Company equal to the amount
(if any) by which the market price of the Company's shares at the date of exercise of the right exceeds the market price of the
Company's shares at the date of grant of the right. The right may only be exercised if performance criteria are met. The performance
criteria are fixed by the Board in the exercise of its discretion. At present these are the same as the TSR target set for the right to
exercise options or for performance shares to vest.
No options were issued during the year (2010: Nil).
282,258 (2010: 357,873) appreciation rights and 269,204 (2010:214,190) performance shares, were issued during the year. The
fair value of these rights was 62 cents (2010: 48.9 cents) and the shares were $1.912 (2010: $1.48), using a model that adopts the
Monte Carlo simulation approach. The assumptions used in this model are: grant date share price of $2.38; expected volatility of
32.9%; dividend yield of 3.2%; and a risk free rate of 5.2%. The expense recognised in 2011 for appreciation rights/performance
shares was $701,914 (2010: $1,299,810).
49
Notes to the financial statements continued
18 Employee Benefits continued
Set out below are summaries of performance shares and appreciation rights granted under the long-term incentive plan:
Performance Shares
Grant Date
Vesting
Date
Shares
Granted
Shares lapsed
during the year
Shares vested
during the year
Shares available at
the end of the year
2011
2010
2011
2010
2011
2010
Jan’08
Jan’09
Jan’10
Jan’11
Jan’11
Dec’10
252,477
Dec’11
375,475
-
-
Dec’12
214,190
15,315
Dec’13
156,704
Dec’17
112,500
-
-
-
3,175
3,604
-
-
-
245,145
365,951
30,631
6,349
1,801
-
-
-
365,951
162,839
208,785
-
-
-
-
156,704
112,500
-
-
312,815 additional shares have been acquired for future grants.
Appreciation Rights
Grant Date
Expiry
Date
Rights
Granted
Rights lapsed during
the year
Rights vested during
the year
Rights available at
the end of the year
2011
2010
2011
2010
2011
2010
Jan’08
Jan’09
Jan’10
Jan’11
Dec’10
495,356
Dec’11
888,324
Dec’12
357,873
Dec’13
282,258
-
-
-
-
-
-
-
-
-
495,356
888,324
-
-
-
-
-
-
-
888,324
357,873
357,873
282,258
-
Reckon Limited Employee Option Plans
The Company has previously had two ownership-based remuneration schemes:
Executive share option plan
The executive share option plan has been terminated.
Executive share option plan No. 2
The Reckon Limited Executive Share Option Plan No. 2 was established on 19/7/2000. Under the provisions of the plan, the
directors may grant options over unissued shares in the Company to executives and directors of the Company (or their associates)
or subsidiaries of the Company selected by the directors from time to time, subject to the ASX Listing Rules and the Corporations
Act 2001.
Options are granted for a five-year period and 50% of each new tranche becomes exercisable after each of the first two
anniversaries of the grant date. The entitlements are vested as soon as they are exercisable (i.e. they are not conditional on future
employment). Each option entitles the holder to one ordinary share.
Amounts receivable on exercise of any options are recognised as share capital. Options exercised during the year were exercised
with an average exercise price of $0.72 (2010: $0.75).
50
18 Employee Benefits continued
Set out below are summaries of options granted under the Executive Share Option Plan No. 2.
Grant
date
Expiry
date
Exercise
Price
Options
Initially
Granted
Options lapsed
during the year
Options exercised
and shares issued
during the year
Options vested and
available at the end
of the year
2011
2010
2011
2010
2011
2010
Sep 03
Dec 03
Jan 04
Dec 04
Mar 05
Jul 05
Sep 05
Dec 05
Sep 08
Dec 08
Jan 09
Dec 09
Mar 10
Jul 10
Sep 10
Dec 10
$0.505
$0.619
115,002
48,890
$0.551
1,061,159
$0.796
250,554
$0.743
$0.741
$0.779
$0.722
75,555
79,999
113,887
144,445
-
-
-
-
-
-
-
-
-
-
-
-
-
41,166
30,349
39,319
55,421
166,255
-
-
-
-
-
-
-
12,666
12,666
950
1,419
633
171
16,361
19,527
13,722
13,722
66,505
Number of shares that can be issued for unexercised options
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,666
12,666
12,666
19 Issued Capital
Fully Paid Ordinary Share Capital
Balance at beginning of financial year
Transfer from share-based payments reserve for options
exercised during the year
Share buyback
Issue of shares
2011
2010
No.
$’000
No.
$’000
133,384,060
18,833
133,317,555
18,766
-
(557,054)
12,666
-
(1,366)
-
-
9
66,505
18
-
49
Balance at end of financial year
132,839,672
17,476
133,384,060
18,833
Less Treasury shares
Balance at beginning of financial year
Shares purchased in current period
Shares lapsed
Lapsed shares utilised
Shares vested
Balance at end of financial year
574,736
559,926
(15,315)
22,093
(396,582)
744,858
785
1,389
(28)
38
(460)
1,724
620,620
197,030
(6,779)
17,160
(253,295)
574,736
729
370
(10)
20
(324)
785
Balance at end of financial year net of treasury shares
132,094,814
15,752
132,809,324
18,048
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Changes to the then Corporations Law abolished the authorised capital and par value concepts in relation to share capital from
1 July 1998. Therefore the company does not have a limited amount of authorised capital and issued shares do not have a par value.
The shares bought back in the current year were cancelled immediately.
12,666 (2010: 66,505) options were exercised during the year with an average exercise price of $0.72. Details of the options that
were exercised and further details in respect of the share option plans are contained in Note 18 to the financial statements. Total
consideration for options exercised during the year is $9,145 (2010: $49,793).
51
Notes to the financial statements continued
20 Reserves
Consolidated
Foreign currency translation reserve
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
Available-for-sale asset revaluation reserve
Balance at beginning of financial year
Fair value adjustments of financial assets
Balance at end of financial year
Share-based payments reserve
Balance at beginning of financial year
Share-based payment expense
Treasury shares vested/lapsed
Transfer to share capital (options exercised)
Balance at end of financial year
2011
$’000
(694)
(875)
(1,569)
-
(1,067)
(1,067)
631
375
(450)
-
556
(2,080)
2010
$’000
(400)
(294)
(694)
-
-
-
639
324
(314)
(18)
631
(63)
Nature and purpose of reserves
(a) Foreign currency translation reserve
Exchange differences arising on translation of the financial reports of foreign subsidiaries are taken to the foreign currency
translation reserve, as described in Note 1(f).
(b) Available-for-sale asset revaluation reserve
Fair value adjustments of financial assets are taken to the available-for-sale asset revaluation reserve.
(c) Share-based payments reserve
The share-based payments reserve is for the fair value of options granted and recognised to date but not yet exercised, and
treasury shares purchased and recognised to date which have not yet vested.
21 Retained Earnings
Consolidated
Balance at beginning of financial year
Net profit
Dividends
Balance at end of financial year
52
2011
$’000
31,156
16,062
(10,597)
36,621
2010
$’000
24,625
16,478
(9,947)
31,156
22 Earnings Per Share
Consolidated
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares used in the calculation of
basic earnings per share
Weighted average number of ordinary shares and potential ordinary
shares used in the calculation of diluted earnings per share
Alternative earnings per share is based on profit for the year, adjusted for
the after tax impact of relocation costs of $1,646 thousand (i.e. adjusted
profit of $17,708 thousand).
23 Contingent Liabilities
There are no material contingent liabilities as at 31 December 2011 (2010: Nil).
24 Commitments For Expenditure
(a) Capital Expenditure Commitments
The consolidated entity has capital expenditure commitments
of $nil as at 31 December 2011 (2010: $1,042 thousand).
(b) Lease Commitments
Operating Leases
Within 1 year
Later than 1 year and not longer than 5 years
Later than 5 years
2011
cents
12.1
12.0
2010
cents
12.4
12.4
132,586,637
132,779,303
133,331,495
133,354,038
Consolidated
2010
$’000
2,520
10,907
2,127
15,554
2011
$’000
2,559
8,332
1,767
12,658
Operating leases relate to office and warehouse premises with lease terms of between 1 to 7 years. All operating lease contracts
contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does
not have an option to purchase the leased asset at the expiry of the lease period.
53
Notes to the financial statements continued
25 Subsidiaries
Name of Entity
Country of Incorporation
Ownership Interest
2011
%
2010
%
Parent Entity
Reckon Limited
Subsidiaries
Reckon.com.au Pty Limited
Reckon Australia Pty Limited
Reckon Investment Centre Limited
Reckon Online Holdings Pty Limited
Reckon Pacrim Pty Limited*
Reckon Training Pty Limited*
Reckon Limited Performance Share Plan Trust
Reckon New Zealand Pty Limited
Advanced Professional Solutions Pty Limited
Advanced Professional Solutions Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
New Zealand
Advanced Professional Solutions Limited
United Kingdom
Reckon Docs Pty Limited
Independent Corporate Services Pty Limited*
Quickdocs.com.au Pty Limited
Recount Expense Management Pty Limited
Australia
Australia
Australia
Australia
nQueue Billback Limited (formerly Billback Systems (UK) Limited)
United Kingdom
Billback LLC
nQueue Billback LLC
United States of America
United States of America
* Deregistered on 16 February 2012.
All shares held are ordinary shares.
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
75
100
74
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
67
54
26 Related Party Disclosures
Consolidated
(a) Key Management Personnel Remuneration
Short term benefits
Post-employment benefits
Share based payments
2011
$
3,522,881
223,240
603,170
4,349,291
2010
$
3,963,451
354,748
1,273,156
5,591,355
The names of and positions held by the key management are set out in Note 26(d). Further details of the remuneration of key
management are disclosed in the Directors’ Report.
(b) Other Transactions with Key Management Personnel
There were no transactions with directors apart from those disclosed in this note.
(c) Other Related Party Transactions
Intuit Inc
Intuit Inc is a related party of Intuit Ventures Inc which is a significant shareholder (11.2%) in Reckon Limited. Intuit Inc provides
the rights for Reckon to market and distribute Intuit software throughout Australia and New Zealand. In return for this, Intuit receives
a royalty payment based on sales made throughout the territory. These royalties amounted to $4,733,481 (2010: $4,714,664)
which is expensed in the month that the associated product was sold. The balance due at 31 December 2011 is $158,786 (2010:
$167,898).
On 22 March 2012, Reckon announced as a consequence of the gradual divergence of the respective online ambitions of Reckon
and Intuit Inc, that they have entered notice period ending on 10 February 2014, when Reckon’s licensing agreement with Intuit will
be formally terminated.
From a Reckon Limited perspective it is business as usual until 10 February 2014, whereafter Reckon will enjoy royalty free rights to
continue selling, and may independently develop the then current Intuit desktop technology and QuickBooks Hosted technology for
a 100 year period, resulting in an annualised royalty saving of about $6 million. After 10 February 2014 Reckon will not have access
to the Intuit brands.
In the online market, Reckon continues to develop products and will be rolled out over the coming months. The strategy remains
to provide fully localised products specifically for Reckon’s markets hosted locally, to achieve ambitions of providing integrated
solutions to achieve greater efficiency for accountants, bookkeepers, and their business clients.
55
Notes to the financial statements continued
26 Related Party Disclosures continued
d) Directors’ and Key Management Equity Holdings
Options and Shareholding 20111
Shareholding
Shareholding
Performance
Performance
Performance
Performance
at start of
at end of
shares at start of
shares vested in
shares issued in
shares held at end
Office
2011
20112
2011
2011
2011
of 2011
Greg
Wilkinson
Deputy Chairman,
Non-executive
Director
7,450,000
7,450,000
Clive Rabie
CEO, Executive
Director
10,508,000
10,508,000
0
0
0
0
776,107
550,025
216,798
111,583
0
0
0
0
0
0
Brian
Armstrong3
Brian
Coventry
CEO, Professional
Division
CEO, Professional
Division
John Thame Chairman,Non-
executive Director
Myron
Zlotnick
General Counsel &
Company Secretary
Ian Ferrier
Non-executive
Director
Chris
Hagglund
Chief Financial
Officer
Gavin Dixon CEO Business
Division
Richard
Hellers
President & CEO
nQueue Billback
Division
109,589
50,000
20,901
13,333
23,080
30,648
19,000
19,000
0
0
0
0
50,215
95,974
107,084
47,619
46,160
105,625
0
0
0
0
0
0
162,454
255,073
155,749
72,619
57,268
140,398
124,362
290,284
126,898
80,952
35,971
81,917
0
0
0
0
0
0
1 No options were issued in 2011.
2 Shareholdings at the date of the Director’s Report remain unchanged.
3 Mr. Armstrong’s employment ended on 31 December 2011 (15,315 performance shares lapsed).
56
26 Related Party Disclosures continued
d) Directors’ and Key Management Equity Holdings continued
Options and Shareholding 2010
Shareholding
Shareholding
Performance
Performance
Performance
Performance
at start of
at end of
Options at start
Options at end
shares at start
shares vested
shares issued
shares held at
2010
2010
of 2010
of 20101
of 2010
in 2010
in 2010
end of 2010
Greg
Wilkinson
Office
Deputy
Chairman,
Non-executive
Director
7,450,000
7,450,000
Clive Rabie
CEO, Executive
Director
10,508,000 10,508,000
Brian
Armstrong
CEO,
Professional
Division
768,673
776,107
Brian
Coventry
John
Thame
Myron
Zlotnick
MD,
Professional
Division United
Kingdom
Chairman,
Non-executive
Director
General Counsel
& Company
Secretary
297,589
109,589
19,000
19,000
28,204
50,215
Ian Ferrier
Non-executive
Director
0
0
Chris
Hagglund
Nigel
Boland
Paul
James2
Gavin
Dixon
Grant
Linton
Russell
Scott
Richard
Hellers
Chief Financial
Officer
GM,
Development
Professional
Division
GM
Professional
Division
Australia
CEO Business
Division
GM,
Professional
Division New
Zealand
GM Reckon
Docs
President &
CEO nQueue
Billback Division
111,130
162,454
13,039
20,371
0
15,482
67,539
124,362
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
229,508
58,656
45,946
216,798
20,665
7,332
7,568
20,901
0
0
0
0
107,075
27,018
27,027
107,084
0
0
0
0
165,857
51,324
41,216
155,749
20,665
7,332
7,568
20,901
16,856
15,482
5,405
0
137,775
56,823
45,946
126,898
9,524
0
0
0
0
0
5,405
14,929
0
0
0
0
1 No options were issued in 2010.
2 Mr. James’ employment ended on 31 December 2010 (6,779 performance shares lapsed).
57
Notes to the financial statements continued
27 Notes to the Statement of Cash Flows
Consolidated
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on
hand and in banks and investments in money market instruments, net of
outstanding bank overdrafts. Cash at the end of the financial year as shown
in the statement of cash flows is reconciled to the related items in the
statement of financial position as follows:
Cash (i)
(i) Cash balance is predominantly in the form of short-term money market
deposits, which can be accessed at call.
(b) Reconciliation of Profit After Income Tax To Net Cash
Flows From Operating Activities
Profit after income tax
Depreciation and amortisation of non-current assets
Non-cash employee benefits expense – share based payment
Increase/(decrease) in current tax liability/asset
Increase/(decrease) in deferred tax balances
Unrealised foreign currency translation amount
(Increase)/decrease in assets:
Current receivables
Current inventories
Other current assets
Non-current receivables
Increase/(decrease) in liabilities:
Current trade payables
Other current liabilities
Other non-current liabilities
Net cash inflow from operating activities
2011
$’000
4,703
4,703
16,693
9,108
375
1,445
(548)
18
26
(350)
(443)
(541)
(368)
1,815
(411)
26,819
2010
$’000
8,095
8,095
17,248
7,769
324
107
165
(294)
2,396
328
36
-
11
(323)
413
28,180
58
28 Non-Controlling Interest
Consolidated
Interest in:
Share Capital
Accumulated profits
29 Dividends – Ordinary Shares
Final dividend for the year ended 31 December 2010 of 4.5 cents (2009: 4.0
cents) per share franked to 90% paid on 4 March 2011
IInterim dividend for the year ended 31 December 2011 of 3.5 cents per
share franked to 90% (2010: 3.5 cents) paid on 9 September 2011
Franking credits available for subsequent financial years based on a tax rate
of 30% (2010: 30%)
2011
$’000
-
203
203
5,968
4,629
10,597
1,957
2010
$’000
-
-
-
5,307
4,640
9,947
1,441
30 Financial Instruments
(a) Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and
equity instrument are disclosed in note 1 to the financial statements.
(b) Financial Risk Management Objectives
The Board of Directors has overall responsibility for the establishment and oversight of the company and Group’s financial
management framework.
The Board of Directors oversees how Management monitors compliance with risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to the risks. The main risk arising from the company and
Group’s financial instruments are currency risk, credit risk, equity price risk, liquidity risk and cash flow interest rate risk.
(c) Interest Rate Risk
The Group is exposed to interest rate risk on the cash held in bank deposits and on bank borrowings. Cash deposits of $4,703
thousand were held by the consolidated entity at the reporting date, attracting an average interest rate of 3.3% (2010: 4.2%). If
interest rates had been 50 basis points higher or lower (being the relevant volatility considered relevant by management) and all
other variables were held constant, the Group’s net profit would increase/decrease by $23 thousand (2010: $40 thousand).
Borrowings by the consolidated entity at the reporting date were $nil. Borrowings during the year attracted an average interest rate
of 8.10% (2010: 8.26%) on overdraft facilities and 6.43% on bank bill facilities (2010: 6.14%).
The Board of Directors monitors these exposures and does not presently hedge against these risks.
The maturity profile for the consolidated entity’s cash ($4,703 thousand) and borrowings ($0) that are exposed to interest rate risk is
less than 1 year.
59
Notes to the financial statements continued
30 Financial Instruments continued
(d) Credit Risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the consolidated
entity. The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient
collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults.
The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties
having similar characteristics.
The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the
consolidated entity’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained.
(e) Equity Price Risk
The consolidated entity is exposed to equity price risk as a consequence of its investments classified as available-for-sale assets,
comprising quoted shares.
The sensitivity analysis below has been calculated based upon the consolidated entity’s exposure to market prices at reporting date
and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. At
the reporting date, if market prices had been 5% higher or lower (being the volatility considered relevant by management), and all
other variables were held constant, the consolidated entity’s equity position would increase/decrease by $310 thousand (2010: nil).
(f) Foreign Currency Risk
The consolidated entity and company undertakes certain transactions denominated in foreign currencies that are different to the
functional currencies of the entities undertaking the transactions, hence exposures to exchange rate fluctuations arise. The Board
of Directors monitors these exposures and does not presently hedge against this risk.
The carrying amount of the consolidated entity’s foreign currency denominated monetary assets and liabilities at the reporting date
that are denominated in a currency that is different to the functional currency of respective entities undertaking the transactions is
as follows:
Liabilities
2011
$’000
-
Consolidated
2010
$’000
-
Assets
2011
$’000
129
2010
$’000
21
Euro
At 31 December 2011, if the Euro weakened against the UK Sterling by 10% (being the relevant volatility considered relevant by
Management), with all other variables held constant the net profit of the consolidated entity would increase by $18 thousand (2010:
$2 thousand). At 31 December 2011, if the New Zealand Dollar, US Dollar and UK Sterling weakened against the Australian Dollar
by 10% (being the relevant volatility considered relevant by Management), with all other variables held constant the net profit of the
consolidated entity would increase by $95 thousand (2010: $37 thousand). This latter sensitivity relates to inter-group loan balances
denominated in Australian Dollars, which are eliminated on consolidation.
In Management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year-
end exposure does not necessarily reflect the exposure during the course of the year. The consolidated entity includes certain
subsidiaries whose functional currencies are different to the consolidated entity presentation currency. The main operating entities
outside of Australia are based in New Zealand, United States of America and the United Kingdom. These entities transact primarily
in their functional currency and, aside from inter-group loan balances, do not have significant foreign currency exposures due
to outstanding foreign currency denominated items. As stated in the consolidated entity’s accounting policies per Note 1, on
consolidation the assets and liabilities of these entities are translated into Australian Dollars at exchange rates prevailing at year end.
The income and expenses of these entities is translated at the average exchange rates for the year. Exchange differences arising
are classified as equity and are transferred to a foreign exchange translation reserve. The consolidated entity’s future reported profits
could therefore be impacted by changes in rates of exchange between the Australian Dollar and the New Zealand Dollar, and the
Australian Dollar and the US Dollar and the Australian Dollar and the UK Sterling.
60
30 Financial Instruments continued
(g) Liquidity
The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously monitoring forecast
and actual cash flows.
(h) Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure
of the Group consists of cash, other financial assets, debt and equity attributable to equity holders of the parent. The Board
reviews the capital structure on a regular basis. Based upon this review, the Group balances its overall capital structure through
borrowings, the payment of dividends, issues of shares, share buy backs and returns of capital. This strategy remains unchanged
since the prior year.
(i) Fair Value
The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets,
is determined with reference to quoted market prices. The fair value of other financial assets and liabilities is determined in
accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable market
transactions. The carrying amount of financial assets and financial liabilities recorded in the financial report approximates their
respective fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.
All financial instruments that are measured subsequent to initial recognition at fair value, being available-for-sale quoted shares
totaling $6,201 thousand at balance date, are classified as Level 1 assets, being assets whose fair value measurements are
derived from quoted prices in active markets for identical assets.
61
Notes to the financial statements continued
31 Segment Information
Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the
chief operating decision maker in order to allocate resources to the segment and to assess its performance.
(a) Business segment information
The consolidated entity is organised into three operating divisions:
• Business Division • Professional Division • nQueueBillback Division
These divisions are the basis upon which the consolidated entity reports its financial information to the chief operating decision
maker, being the Board of Directors.
The principal activities of these divisions are as follows:
• Business Division – development, distribution and support of personal financial and accounting software, as well as related
products and services to professional partners. Products sold in this division include QuickBooks, Quicken, ReckonDocs and
Reckon Elite.
• Professional Division – development, distribution and support of practice management, tax, client accounting, cost
management and related software under the APS and BillBack brands.
• nQueue Billback Division – distribution and support of cost recovery, cost management and related software predominately to the
legal market.
Segment revenues and results
Business Division
Professional
Division
nQueue Billback
Division
Total
2011
$’000
2010
$’000
2011
$’000
2010
$’000
2011
$’000
2010
$’000
2011
$’000
2010
$’000
Operating revenue
55,849
56,050
25,611
24,753
8,784
9,312
90,244
90,115
Other revenue
Total revenue
1,028
158
91,272
90,273
Segment EBITDA
20,613
20,720
12,252
10,182
Depreciation and amortisation
(2,205)
(2,017)
(5,475)
(5,021)
3,475
(872)
3,764
36,340
34,666
(731)
(8,552)
(7,769)
Total segment profit before tax
18,408
18,703
6,777
5,161
2,603
3,033
27,788
26,897
Central administration costs
Premises relocation costs
Other revenue
Finance costs
Profit before income tax
Income tax expense
Profit for the year
(4,067)
(4,495)
(2,352)
1,028
(168)
-
158
(161)
22,229
22,399
(5,536)
(5,151)
16,693
17,248
The revenue reported above represents revenue generated from external customers.
Segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs and income
tax expense, all of which are allocated to Corporate head office. This is the measure reported to the chief operating decision maker for the
purposes of resource allocation and assessing performance.
The Professional Division in the 2010 annual report, included Billback UK. Effective 1 January 2011 25% of Billback Systems (UK) Limited
was sold to nQueue Inc in return for an additional 7% of nQueue Billback LLC, and management responsibility transferred to the nQueue
Billback Division. The 2010 results have been restated to include Billback UK in the nQueue Billback Division in line with 2011.
62
31 Segment Information continued
Segment assets and liabilities
Assets
Liabilities
Business Division
Professional Division
nQueueBillback Division
Corporate Division
2011
$’000
32,799
34,239
11,316
-
2010
$’000
29,308
36,052
8,760
-
2011
$’000
2010
$’000
18,677
15,794
5,148
4,033
-
6,215
2,970
-
Additions to
non-current assets
2011
$’000
2,679
5,340
1,170
7,268
2010
$’000
2,196
5,461
1,330
-
Total of all segments
78,354
74,120
27,858
24,979
16,457
8,987
Eliminations
Consolidated
(7,490)
(6,572)
(7,490)
(6,572)
-
-
70,864
67,548
20,368
18,407
16,457
8,987
(b) Geographical information
Revenues from external
customers
Non-current assets
Australia
Other countries (i)
2011
$’000
74,291
15,953
90,244
2010
$’000
73,199
16,916
90,115
2011
$’000
42,703
13,784
56,487
2010
$’000
37,137
13,409
50,546
(i) No single country outside of Australia is considered to generate revenues which are material to the Group.
(c) Segment revenues
External sales
Business and wealth management products
Accounting industry products
Legal industry products
2011
$’000
49,859
29,199
11,186
90,244
2010
$’000
49,694
28,298
12,123
90,115
63
Notes to the financial statements continued
32 Subsequent Events
Subsequent to the end of the financial year:
Share buyback
On 7 February 2012 the Board of Directors recommended to continue the on-market share buyback of not more than 10% of the
shares in the company.
Dividend
The Board has declared a dividend of 4.5 cents per share to shareholders on 7 February 2012. The dividend will be 90% franked.
The record date for the dividend is 17 February 2012. The aggregate amount of the proposed dividend paid on 2 March 2012 out of
retained profits at 31 December 2011, but not recognised as a liability at the end of the year is $5,943 thousand. The impact on the
franking account balance of unrecognised dividends is $2,292 thousand.
Available-for-sale financial assets
3,104,958 shares in Melbourne IT Limited have been sold for $4,992 thousand. These where originally acquired for $5,641 thousand.
Intuit licence
On 22 March 2012, Reckon announced that it had entered a notice period ending on 10 February 2014, when Reckon’s licensing
agreement with Intuit will be formally terminated.
In the period between 22 March 2012 and 10 February 2014, royalties continue to be paid in the normal course.
From 10 February 2014 Reckon will enjoy royalty free rights to continue selling, and may independently develop, the then current
Intuit desktop technology and QuickBooks Hosted technology for a 100 year period, utilising its own brands.
33 Company information
Reckon Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 12, 65 Berry Street
North Sydney
Sydney NSW 2060
A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations
and activities in the Directors’ Report, which is not part of this financial report.
The financial report was authorised for issue by the directors on 28 March 2012.
64
Additional information as at 14 March 2012
(Unaudited)
Twenty Largest Holders of Quoted Equity Securities
Ordinary Shareholder
National Nominees Limited
Intuit Ventures Inc
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Gregory John Wilkinson
Cogent Nominees Pty Limited
DJZ Investments Pty Limited
UBS Nominees Pty Limited
Australian Executor Trustees NSW Ltd
Mr Clive Rabie and Mrs Kerry Rose Rabie
RBC Dexia Investor Services Australia Nominees Pty Ltd[BKCUST A/C]
RBC Dexia Investor Services Australia Nominees Pty Ltd[PIPOOL A/C]
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited [Colonial First State Inv A/c]
Mr Stephen James Rickwood
Mr Clive Alan Rabie
Rawform Pty Ltd
Mr Philip Ross Hayman
Reckon Australia Pty Ltd
Graymatter Enterprises Pty Ltd
Number
Percentage
17,880,686
14,828,304
11,822,928
10,198,220
6,147,800
4,986,927
4,690,000
4,549,803
4,547,687
4,285,611
3,911,167
3,640,399
2,899,757
1,836,672
1,601,062
1,532,389
1,302,200
1,073,636
744,679
625,001
13.46
11.16
8.90
7.68
4.63
3.75
3.53
3.43
3.42
3.23
2.94
2.74
2.18
1.38
1.21
1.15
0.98
0.81
0.56
0.47
103,104,928
77.62
Number of Holders of Equity Securities
Ordinary Share Capital
132,839,672 fully paid ordinary shares are held by 3,779 individual shareholders as at 14 March 2012.
All issued ordinary shares carry one vote per share.
Shareholdings less than marketable parcels
The number of shareholdings held in less than marketable parcels is 71.
65
Additional information as at 14 March 2012 continued
(Unaudited)
Distribution of Holders of Equity Securities
As at 14 March 2012
Number of Ordinary Shares
Number of Shareholders
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
922
1,752
557
498
50
3,779
Substantial Shareholders
As at 14 March 2012
Ordinary
Shares
(Number)
Ordinary
Shares
(Percentage)
National Nominees Limited
17,880,686
Intuit Ventures Inc
14,828,304
13.46
11.16
HSBC Custody Nominees
(Australia) Limited
11,822,928
8.90
Mr Clive Rabie and Mrs Kerry
Rose Rabie
10,508,000
7.91
JP Morgan Nominees
Australia Limited
10,198,220
7.68
Gregory John Wilkinson
7,450,000
5.61
66
Principal Registered Office
Level 12, 65 Berry Street
North Sydney NSW 2060
Tel: (02) 9577 5000
Share Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000
Tel: (02) 8234 5000
Auditors
Deloitte Touche Tohmatsu
225 George Street
Sydney NSW 2000
Principal Administration Office
Level 12, 65 Berry Street
North Sydney NSW 2060
Tel: (02) 9577 5000
Stock Exchange Listings
Reckon Limited’s ordinary shares are listed on the Australian Securities Exchange Limited under the symbol ‘RKN’
Company Secretary
Mr Myron Zlotnick
67
Additional information as at 14 March 2012 continued
(Unaudited)
Annual General Meeting
The Annual General Meeting for Reckon Limited will be held
on 22 May 2012 at 10am at Level 12, 65 Berry Street, North
Sydney, NSW. If you are unable to attend, you are invited to
complete the Proxy Form included with your Notice of Meeting.
The completed Proxy Form must be received no later than 48
hours before the Annual General Meeting.
Important Information – Corporate Notices
Securityholders will be aware that recent legislative changes
have impacted the options to receive statutory corporate
notices and reports. In the interest of cost saving and the
environment (every little bit helps), we encourage you to opt in
to receive all notices and reports electronically. Please go to:
www.computershare.com.au and follow the prompts to register
your opting in to receive ALL NOTICE AND REPORTS IN
ELECTRONIC FORMAT.
To register to be notified by email when the Annual Report and
other Announcements are available online:
• Visit the share registry at www.computershare.com
• Click on ‘Investor Centre’
• Select ‘Update my details’ tab and click on
'eCommunications Options'
• Type ‘RKN’ in the Company Code field
• You will need to enter your personal security information:
Holder Identification Number (HIN) or Securityholder
Reference Number (SRN); family or company name,
postcode or country (if outside Australia); and click ‘Submit’
• After you have entered your email address and selected the
publications you wish to receive, a confirmation email will be
sent to you
Should you have any further enquiries, contact the Registry on
1300 855 080 or +61 3 9415 4000 (if outside Australia).
For web enquiries, select the 'Contact Us' tab on the top of the
'Investor Centre' page.
Alternatively, email your full name and address of the
securityholder to shareholders@reckon.com.au to receive the
Annual Report, corporate and statutory notices electronically.
68