2012 | Annual Report
Reckon Limited Annual Report
for the Financial Year Ended 31 December 2012
ABN 14 003 348 730
3
Contents
04 Our results at a glance
05 Message to shareholders from the Chairman and the Group CEO
08 Directors’ Report
14 Remuneration Report
24 Corporate Governance Report
30 Auditor’s Independence Declaration
31
Independent Auditor’s Report
33 Financial Report
33 Directors’ Declaration
34 Consolidated Income Statement
35 Consolidated Statement of Comprehensive Income
36 Consolidated Statement of Financial Position
37 Consolidated Statement of Changes in Equity
39 Consolidated Statement of Cash Flows
40 Notes to the Financial Statements
88 Additional Information
Our Results at a Glance
Operating Revenue
Operating revenue was up 7% to $96.6 million from $90.2 million.
2006
2006
2006
2007
2007
2007
2008
2008
2008
2009
2009
2009
2010
2010
2010
2011
2011
2011
2012
2012
2012
100
100
90
100
90
80
90
80
70
80
70
60
70
60
50
60
50
40
50
40
30
40
30
$m
$m
% Growth
$m
% Growth
30
EBITDA
% Growth
23%
23%
23%
8%
8%
8%
42%
42%
42%
6%
6%
6%
90.2
90.2
90.2
-%
-%
-%
96.6
96.6
96.6
7%
7%
7%
Group EBITDA was up 9% to $34 million from $31.3 million.
35
35
30
35
30
25
30
25
20
25
20
15
20
15
10
15
10
5
10
5
0
5
0
$m
$m
% Growth
$m
% Growth
0
NPBT
% Growth
2006
2006
2006
2007
2007
2007
2008
2008
2008
2009
2009
2009
2010
2010
2010
2011
2011
2011
2012
2012
2012
26%
26%
26%
15%
15%
15%
32%
32%
32%
20%
20%
20%
31.3
31.3
31.3
4%
4%
4%
34.0
34.0
34.0
9%
9%
9%
Group NPBT was up 8% to $23.9 million from $22.2 million.
28
28
24
28
24
20
24
20
16
20
16
12
16
12
8
12
8
4
8
4
0
4
0
$m
$m
% Growth
$m
% Growth
0
4
% Growth
2006
2006
2006
2007
2007
2007
2008
2008
2008
2009
2009
2009
2010
2010
2010
2011
2011
2011
2012
2012
2012
21%
21%
21%
14%
14%
14%
18%
18%
18%
26%
26%
26%
22.2
22.2
22.2
-%
-%
-%
23.9
23.9
23.9
8%
8%
8%
Message to Shareholders from the
Chairman and Group CEO
Overview
2012 marked an important year in the evolution of Reckon Limited.
The growing diversity of our business and depth of our product suite has driven us to realign all our products under a
single Reckon brand name. Consequently, we have commenced implementing significant changes to elevate
awareness of the Reckon brand name and re-position our products in the market.
Our market comprises micro to larger sized businesses covering most industries, accountancy practices ranging in
size from sole practitioners to the Big 4, bookkeepers, tax agents, and legal practices in multiple countries.
We are unique in our markets, offering our solutions as either desktop, hosted or cloud and provide our clients with
options that suit them best.
We have also made organisational changes to ensure we have the development skills, energy and skilled talent for
our desktop, hosted and cloud solutions. Reckon is thus well positioned to meet the specific needs of our broad
range of customers and partners.
We have achieved a lot in terms of integrating our operations and products across our key businesses.
The financial performance for the company in 2012 was once again very good and builds on the momentum over
previous years to position us well in 2013 and beyond.
Key Performance Metrics
5
2012
2011
% Change
Amount Change
$96.8 million
$90.7 million
7% increase
$6.1 million
$34.0 million
$31.3 million
9% increase
$2.7 million
$17.8 million
$16.7 million
6% increase
$1.1million
13.4 cents per share 12.1 cents per share 11% increase
1.3 cents per share
Revenue
EBITDA
NPAT
EPS
Dividend
On 5 February 2013, the Board declared a final dividend of 4.75 cents per share (4.5 cents per share in 2011). The
dividend was 90% franked. The interim dividend announced on 7 August 2012 was 3.75 cents per share, also
franked to 90%.
Message to Shareholders from the
Chairman and Group CEO continued
Divisional Performance
Business division
Professional division
nQueue Billback division
Virtual Cabinet division
Operating
Revenue
$58.3 million
$25.1 million
$10.8 million
$2.4 million
% change on
2011 Revenue
+ 4%
+ 8%
- 3%
n/a
EBITDA
$21.3 million
$12.4 million
$4.6 million
$0.5 million
% change on
2011 EBITDA
+ 4%
+ 16%
-9%
n/a
Business Division
Revenue growth in the Business division was 4%, the result was however mixed. Despite the division being impacted
by a declining retail channel, there were encouraging growth signs in the non-retail channels. Direct revenue grew by
8%, based on 18% unit sales growth offset by a net price/mix reduction of 10%. Revenue from hosted products grew
by 67%; and revenue from enterprise products grew by 16%. The negative impact of the retail channel and the price/
mix is expected to reduce over time. The Reckon Docs business grew revenue by a significant 17%. We plan to
continue focussing on our direct sales effort to professional accountancy firms which contributed to market share
growth in 2012. The establishment and growth of a direct sales team especially for online/hosted products, enterprise
products and Reckon Docs has had a positive impact on the Business division.
From March 2014 we will no longer be paying any royalties to Intuit Inc. This is the outcome of the re-negotiation of
our licensing agreement with Intuit Inc. We have also secured a 100 year licence to the latest version of the Intuit
source code for QuickBooks and Quicken products from Intuit Inc. As a result we are changing the QuickBooks
and Quicken product names. This has already been done for Quicken, which is now known as the Reckon
Accounts personal range, and QuickBooks products will be renamed the Reckon Accounts business range
from April 2013.
On top of the reliability and growth of our existing products in the Business division, we are particularly excited
about the impending launch of our cloud accounting solution, Reckon One, planned for the second quarter of
2013. The new solution has been developed with a “designed by you” philosophy, aimed at meeting the specific
needs of the customer with a cost-effective outcome. This product will be highly scalable and transportable.
Professional Division
The Professional division (APS product range) strengthened its position as supplier of choice to top professional
accountancy firms. The division achieved strong results in Australia and New Zealand and overall revenue grew
8%. Through the continued acquisition of new clients the division has grown market share. APS is now pursuing a
stepped up product roll out targeted to increase the average number of modules used by the existing customer
base. Newer modules that are expected to help achieve this strategy include Company Secretarial, Workpaper
Management and Virtual Cabinet document management.
As with the Business division, the Professional division is expanding its addressable market through APS Private
Cloud which allows accounting practices to access all their software products (not just APS products) as a hosted
solution, providing our clients with improved efficiency opportunities and tremendous cost savings.
Effective from 31 December 2012 the APS UK business was sold to the previous managing director. Reckon
continues to own the intellectual property in the APS technology and will receive an ongoing revenue stream from
royalties on sales under the new licensing agreement. There is not expected to be any material change to the profit
generated under the new arrangements.
6
nQueue Billback Division
Reckon’s nQueue Billback business experienced strong growth in the United Kingdom and continues to add new
clients in the USA. We have moved management control over our Australian legal business to the nQueue Billback
management team, and anticipate that their domain expertise will positively impact on future results for this
business. We also consolidated our shareholding in this business by acquiring the minority shareholdings effective
at 31 July 2012.
Virtual Cabinet Division
The Virtual Cabinet business which develops and distributes document management and document portal
technology was acquired in July 2012. This is an exciting addition to our product suite. So far it has performed
according to expectations. We now have the opportunity to continue growth in its traditional United Kingdom
markets, as well in Australia, New Zealand and potentially also in the USA.
Focus
In the Business division we aim to build on our customer growth successes in past years. We will also enjoy the
benefit of the profit uplift from no longer paying royalties to Intuit from 2014 onwards. This year we will launch
Reckon One, our new cloud accounting solution, and we will look to expand this product beyond our traditional
markets. We are well underway in rebranding the business and re-naming the products. QuickBooks will be
renamed Reckon Accounts in April 2013. We aim to continue growing sales by building out our direct sales force.
In the APS business we see incremental revenue opportunities from APS Private Cloud and Virtual Cabinet.
nQueue Billback’s focus remains on expanding our existing customer base and evaluating Virtual Cabinet’s
opportunities in their market.
For Virtual Cabinet there is focus on long term sales targets in the United Kingdom and expanding the market to
include Australia and New Zealand and re-sellers in other parts of the world.
The business as a whole has been very successful since its listing in July 1999 and we have consistently delivered
according to our strategies, and developed and adapted over time.
Also, we have built businesses based on our strong relationships with SMEs, accountants, lawyers, and our
network of partners to deliver solutions designed to meet the specific needs of our customers.
On top of that we offer high quality technology and domain expertise across the diverse areas that we service.
Reckon’s financial strength and proven track record gives our customers and partners confidence that we can
continue to lead the market in delivering innovative and high quality products and solutions now and into the future.
We would like to acknowledge the continued support of our network of partners that include accountants and
bookkeepers, as well as business and IT consultants, from across Australia and New Zealand. We also thank
Reckon staff, our customers, our suppliers and fellow directors for their contribution in 2012, and look forward to
working with them this year.
John Thame
Chairman
Clive Rabie
Group CEO
7
Directors’ Report
The Directors of Reckon Limited submit these financial
statements for the financial year ended 31 December 2012
Board of Directors
The Directors of Reckon Limited submit these financial statements for the financial year ended 31 December 2012.
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 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 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
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. He was appointed to the Audit & Risk Committee in February 2010 and Remuneration
Commitee in December 2011.
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 Reckon Docs 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.
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Principal Activities
Reckon Limited conducts business predominantly across four areas:
(1) the sales and support of small to larger sized business accounting software and personal wealth
management software under the Reckon Accounts business range and Reckon Accounts personal
range brands; the sales and support of company secretarial services such as company incorporations,
SMSF documentation and ASIC compliance management under the Reckon Docs 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 under the nQueue Billback brand; and
(4) sales and support of document management and document portal products to a wide variety of clients
under the Virtual Cabinet brand.
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 four operating units: the Business division, the Professional division, the
nQueue Billback division and the Virtual Cabinet division.
Business division
In the Business division, under the QuickBooks brand range (which will be known as the Reckon Accounts business
range from April 2013), and Reckon Accounts personal brand range (previously known as Quicken), Reckon
develops, localises, distributes and provides after sales technical support for the accounting software needs of small
to medium sized and enterprise businesses as well as in the personal finance and wealth management sector. In
addition, Reckon independently develops and distributes a payroll and point of sale solution. Reckon also 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 and small to larger sized enterprises.
Overall Reckon is developing its range of products which bring together all its traditional and new applications,
whether on a desktop, hosted, or in the cloud, in a single environment where they integrate to improve collaboration
between businesses, accountants, banks, government agencies and other stakeholders. To this end, Reckon also
independently develops, sells and supports:
(1) QuickBooks Hosted (will be named Reckon Accounts Hosted in April 2013). This offers end users and
accountants a convenient secure online product that is accessible from anywhere that very closely
mimics the Reckon Accounts business range desktop package;
(2) CashBook Online, a simple cloud-based product that links to banks;
(3) Reckon BankData which allows connections with banks and other financial institutions to permit
customers to directly download bank statement data into CashBook Online;
(4) Reckon GovConnect which delivers and lodges relevant reports from QuickBooks (to be renamed
Reckon Accounts), seamlessly to government agencies such as the ATO; and
(5) an online version of Reckon’s POS product which will be made available at the end of April 2013.
In the second quarter of 2013 Reckon will launch Reckon One, a more versatile and flexible cloud accounting
9
Directors’ Report continued
solution for small businesses. The program will be modular based on the concept “designed by you” allowing users
to tailor the solution to their needs wherever they are “anytime, anywhere”, unlike other offerings which are ‘one size
fits all’.
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, in the Professional division, which
focuses on the larger firms. An online version of Reckon Elite will soon be made available as part of the company’s
overall strategy to offer integrated online solutions for small business owners and accountants.
The Reckon Docs 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 online company registration service available 24 hours a day, seven days a week;
documentation and services for the establishment of a range of entities, especially trusts for self managed
superannuation funds; constitution updates and domain name registrations; and other documentation for human
resources needs.
The Reckon Docs 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.
Reckon Docs also offers a desktop utility called Reckon Docs Desktop (RDD) that is a simple and convenient
desktop application for company registration, searches, and ASIC compliance management. This product is also
integrated into the Practice Management suite of APS, known as Advance Corporate Registers (ACR).
Professional division
In the Professional division, the APS business develops, distributes and supports a suite of solutions for
professional service firms in Australia, New Zealand and, via a reseller arrangement, in the United Kingdom. For
professional accountants these solutions also include tax and accounts production. The division also delivers a
wide range of complementary applications for practice management.
Together the Professional and Business divisions co-ordinate development to meet the Group’s overall strategy of
delivering integrated solutions, on the desktop, in a hosted environment, 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.
Reckon through 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); Business Intelligence and 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.
nQueue Billback division
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 currently
operates in Australia, the United Kingdom and the USA, and has reseller arrangements in other parts of the world.
The division 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.
10
Virtual Cabinet division
The Virtual Cabinet division enables companies to control all documents in a secure document management
system. Virtual Cabinet document management fully integrates with back office systems and has the ability to link
all forms of electronic files back to client records. Linked with the document portal it also provides a secure and
audit trailed method to send documents to selected recipients, and provides an efficient method for professionals
to collaborate with their clients.
Review of Operations
Reckon’s financial performance can be summarised as follows:
• Revenue was up 7% to $96.8 million from $90.7 million.
• Group EBITDA was up 9% to $34.0 million from $31.3 million.
• Group NPAT was up 6% to $17.8 million from $16.7 million.
• Basic EPS was up 11% to 13.4 cents per share from 12.1 cents per share.
•
Final dividend of 4.75 cents per share and an interim dividend of 3.75 cents (a total of 8.5 cents), compared to
a total dividend of 8 cents in 2011 – 90% franked.
• The Group had $9.1 million net debt at 31 December 2012 arising out of acquisitions during the year.
For 2012, direct revenue in the Business division continued to trend upwards, growing by 8%, with strong
performances in sales of enterprise versions of QuickBooks (soon to be named Reckon Accounts business range
in April 2013) and QuickBooks Hosted (soon to be named Reckon Accounts Hosted in April 2013). The division was
again however impacted by a weak retail channel in 2012. Hosted products revenue grew 67% while enterprise
products revenue grew 16%. Both these products are expected to contribute to future growth. Reckon Docs
products grew by a significant 17%.
The Professional division had a particularly good result in Australia and New Zealand for the year, with revenue
growing by 8%. In the APS business, incremental revenue opportunities are present from APS Private Cloud and
Virtual Cabinet Document Management.
The nQueue Billback business displayed strong growth in the United Kingdom and continued to add new clients in
the USA. Reckon also consolidated its shareholding in this business by acquiring the minority shareholders
effective at the end of July 2012. nQueue Billback has refreshed its product so as to present a cross selling
opportunity in its existing customer base/markets and plans to investigate the feasibility of selling document
management in the wider USA market.
On 1 July 2012 Reckon acquired an initial interest in Linden House Software Limited (Virtual Cabinet) for $9.2
million with an option to acquire 100% based upon the performance of the business over the next 3 years. The
Virtual Cabinet business has performed according to expectations in the first 6 months. For Virtual Cabinet there is
focus on long term sales targets and expanding the market to include Australia, New Zealand and other parts of
the world.
Effective 31 July 2012 Reckon acquired the outstanding minority investments in the nQueue Billback companies in
the United Kingdom (25%) and the United States (26%) for $4.5 million.
On 11 April 2012 Reckon acquired a strategic minority investment in Connect2Field Holdings Pty Ltd for $0.7
million. This company develops, sells and supports field job management and scheduling software with integration
into the Reckon Accounts business range of products.
Effective from 31 December 2012 the APS UK business was sold to the previous managing director. Reckon will
receive an ongoing revenue stream from royalties on sales under a licensing agreement. There is not expected to
be any material change to the profit generated under the new arrangement.
11
Directors’ Report continued
While Reckon 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, it decided to dispose of its strategic
equity investment in Melbourne IT Limited. So, commencing on 22 February 2012 and ending on 30 March 2012,
Reckon sold its minority interest (less than 5%) in Melbourne IT Limited. The company sold 4,000,897 shares for
$6.4 million.
On 22 March 2012, Reckon announced that as a consequence of the gradual divergence of the respective online
ambitions of Reckon and Intuit Inc, they have entered a notice period ending on 10 February 2014, when Reckon’s
licensing agreement with Intuit will be formally terminated. An important impact of this is that from March 2014
Reckon will no longer be required to pay a royalty to Intuit on sales of the Reckon Accounts business and personal
product ranges. Reckon will still continue to have access to the then latest version of the source code for these
products to continue selling and to independently develop the desktop and hosted technology for a 100 year period.
Reckon has already commenced a product re-naming exercise with Reckon Accounts personal range (formerly
known as Quicken range), and QuickBooks will be renamed Reckon Accounts business range from April 2013.
The combination of businesses, development roadmaps and marketing strategies means Reckon now occupies a
unique position in the market. The company will be in the position of being able to supply desktop, hosted and
cloud solutions across its suite of solutions for all clients.
Reckon is aiming to supply products right for the customer not just in software design but also to ensure the
platform is suited best to the customer.
Also, the businesses are based on strong relationships with SMEs, professional accountants, lawyers and a
network of partners to deliver solutions designed to meet the specific needs of the markets into which the
company sells.
Buyback 2012
Pursuant to the announcement of a share buy-back on 7 August 2012, 3.4 million shares were purchased at an
average price of $2.27 per share during 2012.
Dividends
On 5 February 2013, the Board declared a final dividend of 4.75 cents per share (90% franked) payable to
shareholders recorded on the company’s register as at the record date of 15 February 2013. Reckon does not
have a dividend re-investment plan currently in operation. On 7 August 2012, the Board declared an interim
dividend of 3.75 cents per share (90% franked) payable to shareholders recorded on the company’s register at
record date of 22 August 2012.
Significant Changes in State of Affairs
There were no significant changes in state of affairs.
12
Matters Subsequent to the End of the Financial Year
On 5 February 2013 Reckon 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 8 March 2013, zero shares have been bought back. It is anticipated to keep
the buy back in place until 4 February 2014 subject to the normal ASIC requirements.
Other Matters
Other than as disclosed in this Directors’ Report no other matter or circumstance has arisen since 31 December
2012 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
Reckon 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 integrated product suite to provide solutions for small to larger
businesses, accountants and lawyers that are integrated, allow for collaboration, and are connected to financial
institutions and government agencies.
13
Key to future plans is the development philosophy to design by the user, so that the user is able to decide how
much of the product is applicable to its business and consequently need only pay for what it needs and thereby
achieve a cost effective outcome.
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 as set out in Note 28 to the
financial statements.
Directors’ Report continued
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 18 below.
Policy for Determining Remuneration of
Key Management Personnel
The 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 the other independent non-executive
directors. 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.
The 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.
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 2012, 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.
14
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.
The amounts paid include a portion effectively requiring the employee to remain employed for further one year
before being paid the remaining short term bonus for performance in that year.
Long-Term Incentive Payments
15
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 or suspended, 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
Directors’ Report continued
Remuneration Report continued
(Audited)
Limited, (12) Melbourne IT Limited, (13) Lifestyle Communities Limited (previously listed as NMB), (14) MYOB Limited
(no longer listed), (15) Newsat Limited (suspended from trading), (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 (no longer listed), (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 recommended 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 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.
16
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 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 might 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.
17
NPAT
EPS
Dividend
Change in share price between
beginning and end of year
Beginning of
End of
January
December
2008
2009
2010
2011
2012
$’000
11,312
13,602
17,248
16,693
17,767
(cents per shares)
(cents)
8.5
9.9
12.4
12.1
13.4
6.0
7.0
8.0
8.0
8.5
139
105
184
234
234
105
184
234
234
236
Total shareholder return for the period 2010 to 2012 was 54%. For the same period the index return for the ASX All
Ordinaries was negative 4.5% and the index return for the S&P/ASX 200 was 9.3%.
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.
Directors’ Report continued
Remuneration Report continued
(Audited)
Remuneration
2012
Directors5
John Thame
Greg Wilkinson
Clive Rabie
Ian Ferrier
Executives5
Sam Allert6
Chairman,
Non-executive
Director
Deputy
Chairman,
Non-executive
Director
Group CEO,
Executive
Director
Non-executive
Director
CEO,
Professional
Division
Myron Zlotnick
Brian Coventry4
Gavin Dixon7
Richard Hellers
General Counsel
& Company
Secretary
CEO,
Professional
Division
CEO, Business
Division
President and
CEO, nQueue
Billback division
Fixed
component
Short term incentive
component
Other
compen-
sation
Office
Salary
Bonus1
Other short
term
benefits
Super-
annuation
Long term incentive
component
Equity
settled
share
based
payments
Performance
shares2
Cash
settled
share
based
payments
Appreciation
rights3
Total
remuneration
$105,000
$90,000
$0
$0
$0
$0
$9,450
$8,100
$0
$0
$0
$0
$114,450
$98,100
$614,500
$241,137
$0
$39,500
$0
$105,560
$1,000,697
$90,000
$0
$0
$8,100
$0
$0
$98,100
$313,540
$74,723
$13,243
$26,540
$23,551
Chris Hagglund
CFO
$371,537
$111,176
$0
$29,037
$73,854
$303,090
$74,145
$0
$26,090
$52,968
$332,368
$74,723
$0
$29,487
$0
$413,860
$116,204
$0
$30,860
$19,739
$0
$0
$0
$0
$0
$451,597
$585,604
$456,293
$436,578
$580,663
$253,378
$48,263
$12,844
$13,328
$0
$0
$327,813
TOTAL
$2,887,273
$740,371
$26,087
$220,492
$170,112
$105,560
$4,149,895
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 2011 effectively requiring the employee to remain employed for a
further one year period to 31 December 2012 before being paid the
remaining short term bonus for performance in 2011. The short term bonus
for Mr Hellers is based on specific performance targets for the nQueue
Billback division.
2. The dollar values of the long term incentive and retention component 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
2010 to 2012 and (2) allocated over the 7 year period from 2012 to 2018 for
shares offered as a long term retention incentive. The fair value of the
performance shares offered in 2012 for the performance period 2012 to
2014 at grant date was $1.785 per share valued according to the Monte
Carlo simulation approach. The fair value of the shares offered in 2012 for
the long term retention incentive for the period 2012 to 2018 at 1 January
2012 was $1.772 per share valued according to the Monte Carlo simulation
approach. For the performance period 2012 to 2014 performance shares
were offered as follows: Mr Hagglund (33,226 shares), Mr Zlotnick (21,787
shares), Mr Allert (10,894 shares), Mr Coventry, (10,894 shares) and Mr
Dixon (37,039 shares). The date of grant for each of these participants was
1 January 2012. If the performance criteria are met, then the shares are
released at no consideration on 31 December 2014. For the long term
retention incentive period 2012 to 2018 performance shares were offered as
follows: Mr Hagglund (25,000 shares), Mr Zlotnick (25,000 shares), Mr Allert
(12,500 shares) and Mr Coventry (12,500 shares). These shares vest on 31
December 2018 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 2012 financial year is set out in the table
below. 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 2012.
3. 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 2010 to 2012.
The fair value of the rights offered for the performance period 2012 to 2014
was $0.441 valued according to the Monte Carlo simulation approach.
396,825 rights were issued under the plan on 1 January 2012 for the
performance period 2012 to 2014. The fair value of appreciation rights which
vested or were forfeited during the 2012 financial year is set out in the table
below. For the share appreciation plan, the amount ultimately paid to the
employee 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, multiplied by the number of rights granted.
4. Employment ended on 31 December 2012. No termination benefit paid.
5. To the extent that any of the above are directors of any wholly owned
subsidiaries of the Company no additional remuneration is paid.
6. Promoted to the position on 1 October 2012. This represents
remuneration for 12 months.
7. Resigned effective from 31 March 2013.
18
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
2012
Value of
Performance
shares
vested in
2012
Value of
Performance
shares
forfeited in
2012
Value of
Appreciation
rights
vested in
2012
Value of
Appreciation
forfeited in
2012
Remuneration
2012 continued
Directors
John Thame
Greg Wilkinson
0%
0%
n/a
n/a
n/a
n/a
Clive Rabie
35%
88%
12%
Ian Ferrier
0%
n/a
n/a
Executives
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
$185,557
n/a
n/a
Sam Allert
25%
88%
12%
7,568
$13,086
Chris Hagglund
32%
88%
12%
41,216
$71,266
Myron Zlotnick
28%
88%
12%
27,027
$46,732
$0
$0
$0
Brian Coventry
17%
88%
12%
12,573
$38,482
$72,224
Gavin Dixon
23%
88%
12%
39,514
$68,323
$89,039
Richard Hellers
15%
60%
40%
n/a
n/a
$0
n/a
n/a
n/a
n/a
n/a
n/a
TOTAL
127,898
$237,889
$161,263
$185,557
Options and shareholding for directors and relevant employees can be found at Note 28 to the financial statements.
n/a
n/a
$0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$0
19
Directors’ Report continued
Remuneration Report continued
(Audited)
Fixed
component
Short term incentive
component
Other
compen-
sation
Office
Salary
Bonus1
Other short
term
benefits2
Super-
annuation
Long term incentive
component
Equity
settled
share
based
payments
Performance
shares3 8
Cash
settled
share
based
payments
Appreciation
rights4 6
Total
remuneration
Chairman,
Non-executive
Director
Deputy
Chairman,
Non-executive
Director
Group CEO,
Executive
Director
Non-executive
Director
$100,000
$85,000
$0
$0
$0
$0
$9,000
$7,650
$0
$0
$0
$0
$109,000
$92,650
$575,000
$206,052
$0
$51,750
$0
$338,360
$1,171,162
$85,000
$0
$0
$7,650
$0
$0
$92,650
Remuneration
2011
Directors7
John Thame
Greg Wilkinson
Clive Rabie
Ian Ferrier
Executives7
Brian Armstrong5
CEO,
Professional
Division
$370,000
$114,751
$0
$33,300
$44,911
Chris Hagglund
CFO
$350,000
$92,050
$0
$31,500
$74,488
Myron Zlotnick
Brian Coventry
Gavin Dixon8
Richard Hellers
General Counsel
& Company
Secretary
CEO,
Professional
Division
CEO, Business
Division
President and
CEO, nQueue
Billback division
$288,000
$61,367
$0
$25,920
$51,206
$321,000
$74,837
$0
$12,308
$18,813
$388,500
$99,783
$0
$34,965
$75,392
$228,967
$72,604
$9,970
9,197
$0
$0
$0
$0
$0
$0
$0
$562,962
$548,038
$426,493
$426,958
$598,640
$320,738
TOTAL
$2,791,467
$721,444
$9,970
$223,240
$264,810
$338,360
$4,349,291
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.
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 2011 to 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.
20
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
2011
Value of
Performance
shares
forfeited in
2011
Value of
Appreciation
rights vested
in 2011
Value of
Appreciation
forfeited in
2011
Remuneration
2011 continued
Directors
John Thame
Greg Wilkinson
0%
0%
n/a
n/a
n/a
n/a
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
n/a
$1,017,042
n/a
n/a
Clive Rabie
46%
91%
Ian Ferrier
0%
n/a
Executives
Brian
Armstrong
20%
91%
9%
111,583
$134,734
$22,666
Chris Hagglund
30%
91%
Myron Zlotnick
26%
91%
Brian Coventry
22%
91%
Gavin Dixon
29%
91%
9%
9%
9%
9%
72,619
$80,197
47,619
$52,588
13,333
$14,724
80,952
$89,400
$0
$0
$0
$0
Richard Hellers
23%
75%
25%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
TOTAL
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
21
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 28 to the financial statements.
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.
Reckon Limited – Attendance Tables
Directors
Meeting
Board
Audit & Risk Committee
Remuneration Committee
JM Thame
I Ferrier
GJ Wilkinson
C Rabie
A
11
11
11
11
B
11
11
9
11
A
2
2
2
n/a
B
2
2
2
n/a
A
2
2
2
n/a
B
2
2
2
n/a
22
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, 25 March 2013.
23
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 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 by clicking the ‘Investor Relations’ link from the
Company’s website www.reckon.com.au
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 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 review and assessment of the
performance of relevant executives and managers against key performance indicators. This process may also
take into include feedback from peers where relevant and the Division CEOs and the relevant executive or
manager. Where applicable, remedial steps and coaching are implemented. There may be further additional
reviews undertaken through the year if necessary.
24
•
In the case of heads 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 2012 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 CEOs are also involved in the briefing
of 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.
25
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
Corporate Governance Report continued
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 eleven times during 2012. 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 maintaining 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 and contractors.
Based on the profile of executive, management and employees in 2011 used to benchmark the current status of
diversity as to gender, women continue to represent 29% of the employees in 2012. There are no female members
of the Board or female senior executive managers.
As reported in 2011, the Board set key measurable objectives and KPIs, to promote diversity in the Company,
particularly as to gender: The Company continues to be committed to those objectives, which are:
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.
26
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 has measured its performance against these objectives in 2012. There has not been any significant
percentage increase of females in technical roles. This is consistent with the Company’s overall recruiting needs for
technical roles in 2012. The Company will again continue to seek a 5% increase on the 2011 numbers by
December 2013.
The Company’s Diversity & Inclusion Policy Statement as approved by the Board on 15 December 2011 is published
on the Company’s website.
4. Integrity in Financial Reporting
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.
27
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 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 2012 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 2012. 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.
Corporate Governance Report continued
5. Timely and Balanced Disclosure
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.
28
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 and non-executive director Greg Wilkinson.
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 2012. The details of attendance at these meetings are set out in
the Directors’ Report.
29
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
25 March 2013
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 2012, 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
30
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 2012, the consolidated income
statement, 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
33 to 87.
Directors’ Responsibility for the Financial Report
31
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
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 2012 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 14 to 21 of the directors’ report
for the year ended 31 December 2012. 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
2012, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Michael Kaplan
Partner
Chartered Accountants
Sydney, 25 March 2013
32
Financial Report
Directors’ Declaration
The Directors of the company declare that:
1. the financial statements and notes as set out on pages 34 to 87, are in
acc ordance with the Corporations Act 2001, and:
• comply with Accounting Standards; and
•
•
comply with International Financial Reporting Standards, as stated in Note 1 to the
fina ncial statements; and
give a true and fair view of the financial position as at 31 December 2012 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, 25 March 2013
33
Consolidated Income Statement
for the year ended 31 December 2012
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
Business acquisition costs
Recovery of costs/Litigation settlement
Net costs associated with premises relocation:
Estimated sub-lease rent shortfall
Leasehold improvement amortisation
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
The above consolidated income statement should be read in conjunction with the accompanying notes.
34
Note
Consolidated
2012
$’000
2011
$’000
2
96,765
90,730
(17,109)
(14,617)
(5,322)
(4,783)
(28,520)
(27,349)
(304)
(702)
(2,175)
(2,197)
(2,146)
(2,261)
(9,824)
(8,552)
(907)
(798)
(311)
(958)
(707)
(168)
(4,745)
(4,397)
(173)
-
(492)
-
-
542
(1,796)
(556)
23,939
22,229
3
(6,172)
(5,536)
17,767
16,693
23
17,342
16,062
425
631
17,767
16,693
Cents
Cents
24
24
13.4
13.3
12.1
12.0
Consolidated Statement of
Comprehensive Income
for the year ended 31 December 2012
Profit for the year
Other comprehensive income, net of income tax
Fair value adjustment of equity instruments
Exchange difference on translation of foreign operations
Total other comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest
Note
Consolidated
2012
$’000
2011
$’000
17,767
16,693
22
22
247
186
433
(1,067)
(875)
(1,942)
18,200
14,751
17,775
14,120
425
631
18,200
14,751
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
35
Consolidated Statement of Financial Position
as at 31 December 2012
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total Current Assets
Non-Current Assets
Receivables
Financial assets
Investment in joint venture entity
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
Total Current Liabilities
Non-Current Liabilities
Borrowings
Other financial liabilities
Deferred tax liabilities
Provisions
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
Consolidated
2012
$’000
2011
$’000
29
6
5
7
6
8
9
10
11
12
13
14
16
14
15
18
16
21
22
23
30
1,926
8,795
1,244
2,695
4,703
6,730
1,181
1,763
14,660
14,377
1,391
56
660
3,415
141
777
6,257
-
3,401
86
68,032
45,966
73,695
88,355
56,487
70,864
4,922
10,994
1,119
3,341
8,674
4,184
-
2,365
4,788
6,295
29,050
17,632
136
10,608
2,949
1,194
14,887
43,937
44,418
16,878
(14,839)
42,379
44,418
-
-
-
1,089
1,647
2,736
20,368
50,496
15,752
(2,080)
36,621
50,293
203
44,418
50,496
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
36
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Issued
capital
Share
buyback
reserve
Foreign
currency
translation
reserve
Share-
based
payments
reserve
Asset
revaluation
reserve
Retained
earnings
Acquisition
of non-
controlling
interest
reserve
Attributable
to owners
of the
parent
Non-
controlling
interest
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$'000
$’000
$’000
(1,569)
556
(1,067)
36,621
Consolidated
Balance at 1
January 2012
Profit for the year
Other
comprehensive
income:
Fair value
adjustment of
financial assets
Exchange
differences on
translation of
foreign
operations
Total compre-
hensive income
Share based
payments
expense
Share buyback
(Note 21)
Dividends paid
Treasury shares
vested/lapsed
Treasury shares
acquired
Transfer to
retained
earnings
Transfer to
acquisition of
non-controlling
interest reserve
Payment for
non-controlling
interest in
nQueue Billback
subsidiaries
(Note 29(d))
Remeasurement
of Linden House
option liability
(Note 15)
Transfer of prior
year buyback
Balance at 31
December 2012
15,752
-
-
-
-
-
-
-
301
(541)
-
-
-
-
-
-
-
-
-
-
(7,612)
-
-
-
-
-
-
-
1,366
(1,366)
-
-
186
186
-
-
-
-
-
-
-
-
-
-
-
-
-
-
248
-
-
(301)
-
-
-
-
-
-
-
17,342
247
-
-
-
247
17,342
-
-
-
-
-
-
-
(10,764)
-
-
820
(820)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,293
203
50,496
17,342
425
17,767
247
247
186
-
186
17,775
425
18,200
248
(7,612)
-
-
248
(7,612)
(10,764)
(549)
(11,313)
-
(541)
-
-
-
-
-
(541)
-
-
79
79
(79)
(4,496)
(4,496)
-
(4,496)
(564)
(564)
-
-
-
-
-
(564)
-
44,418
37
16,878
(8,978)
(1,383)
503
42,379
(4,981)
44,418
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Changes in Equity
continued
for the year ended 31 December 2012
Issued
capital
Share
buyback
reserve
Foreign
currency
translation
reserve
Share-
based
payments
reserve
Asset
revaluation
reserve
Retained
earnings
Attributable
to owners
of the
parent
Non-
controlling
interest
Total
$’000
$’000
$’000
$’000
$’000
$’000
$'000
$’000
$’000
Consolidated
Balance at 1
January 2011
Profit for the year
Other compre-
hensive income:
Fair value
adjustment of
financial assets
Exchange
differences on
translation of
foreign
operations
Total compre-
hensive income
Share based
payments
expense
18,048
-
-
-
-
-
Share buyback
(1,366)
Dividends paid
Treasury shares
vested/lapsed
Treasury shares
acquired
Contributions of
equity, net of
transaction costs
Balance at 31
December 2011
-
450
(1,389)
9
15,752
-
-
-
-
-
-
-
-
-
-
-
-
(694)
631
-
-
(875)
(875)
-
-
-
-
-
-
-
-
-
-
375
-
-
(450)
-
-
-
-
31,156
49,141
-
49,141
16,062
16,062
631
16,693
(1,067)
-
-
-
(1,067)
(875)
-
-
(1,067)
(875)
(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
(1,569)
556
(1,067)
36,621
50,293
203
50,496
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
38
Consolidated Statement of Changes in Equity
continued
for the year ended 31 December 2012
Consolidated Statement of Cash Flows
for the year ended 31 December 2012
Cash Flows From Operating Activities
Receipts from customers
Payments to suppliers and employees
Dividends received
Interest received
Interest paid
Income taxes paid
Note
Consolidated
Inflows / (outflows)
2012
$’000
2011
$’000
104,956
99,864
(74,288)
(68,724)
100
59
280
206
(311)
(168)
(6,488)
(4,639)
Net cash inflow from operating activities
29(b)
24,028
26,819
Cash Flows From Investing Activities
Payment for purchase of business, net of cash acquired
Payment for non-controlling interest (net)
Payment for investment in joint venture entity
Payments for purchase of intellectual property
Payment for capitalised development costs
Payment for property, plant and equipment
Payment for investment
Proceeds from sale of investment
Net cash outflow from investing activities
Cash Flows From Financing Activities
Proceeds from issues of equity securities
Proceeds from/(repayment of) borrowings
Payment for other financial liabilities
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
39
29(c)
29(d)
(8,511)
(4,496)
9
(660)
-
-
-
-
(35)
(9,616)
(7,350)
(1,371)
(1,756)
-
(7,268)
6,448
-
(18,206)
(16,409)
8
8
-
10,484
(124)
9
(2)
-
21 / 22
(7,612)
(1,366)
21
31
(541)
(1,389)
(10,764)
(10,597)
(549)
(428)
(9,106)
(13,773)
(3,284)
(3,363)
4,703
8,095
13
(29)
Cash and cash equivalents at the end of the financial year
29(a)
1,432
4,703
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Notes to the Financial Statements
for the year ended 31 December 2012
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. For the purposes of preparing the
consolidated financial statements, the company is a for-profit entity.
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 25 March 2013.
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. Historical cost is generally based on the fair values of the
consideration given in exchange for assets. All amounts are presented in Australian dollars unless otherwise noted.
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.
Early adoption of Accounting Standards
The directors have elected under s.334(5) of the Corporations Act 2001 to apply Accounting Standard AASB 9
‘Financial Instruments’ for this financial year, even though the Standard is not required to be applied until annual
reporting periods beginning on or after 1 January 2015. Investments in equity instruments, which were previously
classified as available for sale financial assets, are from 1 January 2012 irrevocably classified as equity instruments
revalued through other comprehensive income. They continue to be valued at fair value with changes to value being
recognised in asset revaluation reserve (previously available for sale asset revaluation reserve). Realised gains/losses
are not recycled to net profits as was previously required under AASB 139. The adoption of AASB 9 has no effect on
the comparative Statement of Financial Position, Statement of Comprehensive Income or Income Statement.
Significant Accounting Policies
(a)
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
(including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the
Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from
its activities.
Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of comprehensive income from the effective date of acquisition and up to the effective date of
disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the
Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit
balance.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies into line with those used by other members of the Group.
All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.
40
1 Summary of Significant Accounting Policies continued
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are
accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling
interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between
the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or
received is recognised directly in equity and attributed to owners of the Company.
(b) Business Combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values
of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the
equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities
assumed are recognised at their fair value, except that:
•
•
deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are
recognised and measured in accordance with AASB 112 ‘Income Taxes’; and
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-
based payment arrangements of the Group entered into to replace share-based payment arrangements of
the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the
acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and
liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the
excess is recognised immediately in profit or loss as a bargain purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of
the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-
controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The
choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling
interests are measured at fair value or, when applicable, on the basis specified in another Standard.
Where the consideration transferred by the Group in a business combination includes assets or liabilities
resulting from a contingent consideration arrangement, the contingent consideration is measured at its
acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments against
goodwill. Measurement period adjustments are adjustments that arise from additional information obtained
during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and
circumstances that existed at the acquisition date.
Where a business combination involves the issuance of a put option granted to the vendor in respect of an
equity interest not owned by the parent, the present value of the put exercise price is recognised as a financial
liability in the consolidated accounts of the parent entity. The recognition of this liability effectively treats the
option as if it has been exercised, constituting a transaction between owners as owners which is recorded in
equity. Any subsequent re-measurement is considered to be part of the equity transaction and is recorded in
equity via an “acquisition of non-controlling interest reserve”.
41
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is
incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional
assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that
existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
(c)
Investments in Joint Ventures
A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other
entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a
contractual arrangement between the venturers establishes joint control over the economic activity of the entity.
The results and assets and liabilities of the jointly controlled entity are incorporated in these financial statements
using the equity method of accounting, except when the investment is classified as held for sale, in which case it
is accounted for in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
Under the equity method, an investment in a jointly controlled entity is initially recognised in the consolidated
statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss
and other comprehensive income of the jointly controlled entity. When the Group’s share of losses of a jointly
controlled entity exceeds the Group’s interest in that jointly controlled entity (which includes any long-term
interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group
discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the
Group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets,
liabilities and contingent liabilities of the jointly controlled entity recognised at the date of acquisition is
recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the
Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of
acquisition, after reassessment, is recognised immediately in profit or loss.
The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment
loss with respect to the Group’s investment in the jointly controlled entity. When necessary, the entire carrying
amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136
‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair
value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying
amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to
the extent that the recoverable amount of the investment subsequently increases.
Upon disposal of a jointly controlled entity that results in the Group losing significant influence over that jointly
controlled entity, any retained investment is measured at fair value at that date and the fair value is regarded as
its fair value on initial recognition as a financial asset in accordance with AASB 139. The difference between the
previous carrying amount of the jointly controlled entity attributable to the retained interest and its fair value is
included in the determination of the gain or loss on disposal of the jointly controlled entity. In addition, the Group
accounts for all amounts previously recognised in other comprehensive income in relation to that jointly
controlled entity on the same basis as would be required if that jointly controlled entity had directly disposed of
the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income
by that jointly controlled entity would be reclassified to profit or loss on the disposal of the related assets or
liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment)
when it loses significant influence over that jointly controlled entity.
When a Group entity transacts with the jointly controlled entity, profits and losses resulting from the transactions
with the jointly controlled entity are recognised in the Group’s consolidated financial statements only to the
extent of interests in the jointly controlled entity that are not related to the Group.
42
1 Summary of Significant Accounting Policies continued
(d) 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
(e)
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.
(f) 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.
(g) 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 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.
43
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
(h) 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.
(i)
Intangible assets
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of
the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or
groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or
loss in the consolidated income statement. An impairment loss recognised for goodwill is not reversed in
subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Intellectual Property
Intangible assets acquired in a business combination and recognised separately from goodwill are initially
recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are
acquired separately.
Customer contracts are amortised on a straight line basis over their useful life to the Group of ten years.
Brand names are not amortised but are subject to annual impairment testing. The Group has committed to
continually use, invest in and promote acquired brands, therefore brands have been assessed to have an
indefinite life.
Research and development costs
Research expenditure is recognised as an expense when incurred.
An internally-generated intangible asset arising from development is recognised if, and only if, all of the following
have been demonstrated:
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
•
•
the availability of adequate technical, financial and other resources to complete the development and to
use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
44
1 Summary of Significant Accounting Policies continued
Development costs in respect of enhancements on existing suites of software applications are capitalised and
written off over a 3 to 4 year period. Development costs on technically and commercially feasible new 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.
(j)
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.
The company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are
therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Reckon
Limited. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences
of the members of the tax-consolidated group are recognised in the separate financial statements of the
members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to
the carrying amounts in the separate financial statements of each entity and the tax values applying under tax
consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and
relevant tax credits of the members of the tax-consolidated group are recognised by the company (as head
entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in
the tax-consolidated group, amounts are recognised as payable to or receivable by the company and each
member of the group in relation to the tax contribution amounts paid or payable between the parent entity and
the other members of the tax-consolidated group in accordance with the arrangement.
The tax sharing agreement entered into between members of the tax-consolidated group provides for the
determination of the allocation of income tax liabilities between the entities should the head entity default on its
tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing
agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount
payable to the head entity under the tax funding arrangement.
45
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
(k)
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.
(l) 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.
(m) 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.
(n) Receivables
Trade receivables and other receivables are recorded at amortised cost, less impairment.
(o)
Impairment of assets
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
46
1 Summary of Significant Accounting Policies continued
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in
which case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognised for
the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
(p) 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.
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.
47
Support and maintenance revenue is recognised on a straight-line basis over the period of the contract.
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.
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.
(q) 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(p) for further detail.
(r) 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.
(s) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and bank
overdrafts.
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
(t) Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual
provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately
in profit or loss.
Financial assets are classified into the following specified categories: financial assets at amortised cost
(including loans and receivables), financial assets ‘at fair value through profit or loss’ (FVTPL), and financial
assets at ‘fair value through other comprehensive income’. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or
sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or
sales are purchases or sales of financial assets that require delivery of assets within the time frame established
by regulation or convention in the marketplace.
Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated
as at FVTPL. A financial asset is classified as held for trading if:
•
•
it has been acquired principally for the purpose of selling it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
•
it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial
recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency
that would otherwise arise.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or
interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the statement of
comprehensive income/income statement.
Investments in equity instruments, which were previously classified as available for sale financial assets, are
from 1 January 2012 irrevocably classified as equity instruments revalued through other comprehensive
income. Quoted shares held by the Group that are traded in an active market are classified as fair value through
other comprehensive income and are stated at fair value. Gains and losses arising from changes in fair value
are recognised in other comprehensive income and accumulated in the asset revaluation reserve. They
continue to be valued at fair value with changes to value being recognised in the asset revaluation reserve
(previously available for sale asset revaluation reserve). Realised gains/losses are not recycled to net profits as
was previously required under AASB 139.
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in
an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised
cost using the effective interest method, less any impairment. Interest income is recognised by applying the
effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
48
1 Summary of Significant Accounting Policies continued
estimated future cash receipts (including all fees on points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt
instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is
designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any
interest paid on the financial liability and is included in the statement of comprehensive income/income
statement.
Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value,
net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective yield basis. The effective interest
method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net
carrying amount on initial recognition.
(u) 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.
49
(v) 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.
(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.
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.
Consolidation of Linden House – Linden House has been consolidated on the basis of the existence of a
substantive call option, which is exercisable at acquisition date, and which enables Reckon Limited to
acquire the remaining interest in the company.
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
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 12.
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 20.
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.
Surplus lease space – The Group provides for surplus lease space based on an estimate of the income
expected to be generated taking into consideration market conditions relating to rental yields and vacancy
periods. Further details are set out in Note 16.
Other financial liabilities – The Group has recognised as a liability the fair value of an option instrument arising in
connection with a business acquisition. Fair value determination is based on assumptions relating to future
profitability of the acquired business and market discount rates. The chosen valuation techniques and
assumptions used are believed to be appropriate in determining the fair value of financial instruments. Further
details are set out in Notes 15 and 29.
50
1 Summary of Significant Accounting Policies continued
(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 will not affect any of the amounts recognised in the financial report,
but may change the disclosures presently made in relation to the financial report.
Standard/Interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
AASB 5 ‘Non-current Assets Held for Sale and Discontinued
Operations’
1 July 2012
31 December 2013
AASB 7 ‘Financial Instruments: Disclosures’
1 July 2012
31 December 2013
AASB 10 ‘Consolidated Financial Statements’, AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the
Consolidation and Joint Arrangements Standards’
AASB 11 ‘Joint Arrangements’, AASB 2011-7 ‘Amendments to
Australian Accounting Standards arising from the Consolidation
and Joint Arrangements Standards’
AASB 12 ‘Disclosure of Interests in Other Entities’, AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the
Consolidation and Joint Arrangements Standards’
AASB 13 ‘Fair Value Measurement’ and AASB 2011-8
‘Amendments to Australian Accounting Standards arising from
AASB 13’
AASB 119 ‘Employee Benefits’(2011) and AASB 2011-10
‘Amendments to Australian Accounting Standards arising from
AASB 119 (2011)’
1 January 2013
31 December 2013
1 January 2013
31 December 2013
51
1 January 2013
31 December 2013
1 January 2013
31 December 2013
1 January 2013
31 December 2013
AASB 120 ‘Accounting for Government Grants and Disclosure of
Government Assistance’
1 July 2012
31 December 2013
AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’
1 July 2012
31 December 2013
AASB 127 ‘Separate Financial Statements’ (2011), AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the
Consolidation and Joint Arrangements Standards’
AASB 128 ‘Investments in Associates and Joint Ventures’(2011),
AASB 2011-7 ‘Amendments to Australian Accounting Standards
arising from the Consolidation and Joint Arrangements Standards’
1 January 2012
31 December 2013
1 January 2013
31 December 2013
AASB 132 ‘Financial Instruments: Presentation’
1 July 2012
31 December 2013
AASB 133 ‘Earnings per Share’
1 July 2012
31 December 2013
Notes to the Financial Statements continued
1 Summary of Significant Accounting Policies continued
Standard/Interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
AASB 134 ‘Interim Financial Reporting’
1 July 2012
31 December 2013
AASB 2011-4 ‘Amendments to Australian Accounting Standards to
Remove Individual Key Management Personnel Disclosure
Requirements’
1 July 2013
31 December 2013
AASB 2011-9 ‘Amendments to Australian Accounting Standards
– Presentation of Items of Other Comprehensive Income’
1 July 2012
31 December 2013
AASB 2012-2 ‘Amendments to Australian Accounting Standards
– Disclosures – Offsetting Financial Assets and Financial Liabilities’
1 January 2013
31 December 2013
AASB 2012-3 ‘Amendments to Australian Accounting Standards
– Disclosures – Offsetting Financial Assets and Financial Liabilities’
1 January 2014
31 December 2014
AASB 2012-5 ‘Amendments to Australian Accounting Standards
arising from Annual Improvements 2009-2011 Cycle’
1 January 2013
31 December 2013
AASB 2012-10 ‘Amendments to Australian Accounting Standards
– Transition Guidance and Other Amendments’
1 January 2013
31 December 2013
Interpretation 20 ‘Stripping Costs in the Production Phase of a
Surface Mine’ and AASB 2011-12 ‘Amendments to Australian
Accounting Standards arising from Interpretation 20’
1 January 2013
31 December 2013
At the date of authorisation of the financial statements, the following IASB was also in issue but not effective,
although an Australian equivalent Standard has not yet been issued:
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
1 January 2014
31 December 2014
52
Consolidated
2012
$’000
2011
$’000
2 Profit for the Year
Profit before income tax includes the following items of revenue and expense:
Revenue
Sales revenue
Sale of goods and rendering of services
96,606
90,244
Other Revenue
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
100
59
159
280
206
486
96,765
90,730
22,431
19,400
53
48
25
311
168
(121)
(917)
23
2
(165)
(62)
996
1,034
527
1,018
7,282
477
989
6,052
Notes to the Financial Statements continued
2 Profit for the Year continued
Foreign exchange losses/(gains)
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 written off
Operating lease rental expenses:
Minimum lease payments
Consolidated
2012
$’000
2011
$’000
69
26
2,283
2,198
25
306
248
56
304
375
327
702
1,190
2,328
1,906
1,949
54
3 Income Tax
(a) Income tax expense recognised in profit and loss
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:
Consolidated
2012
$’000
2011
$’000
5,470
6,390
930
(548)
(228)
(306)
6,172
5,536
23,939
22,229
7,182
6,669
55
Effect of higher tax rates on overseas income
25
42
Tax effect of non-deductible/non-taxable items:
Non-controlling interest component
Research and development claims
Sundry items
Under/(over) provision in prior years
Income tax expense attributable to profit
(c) Future income tax benefits not brought to account as an asset:
not probable of recovery
Tax losses:
Revenue
Capital
(81)
(162)
(595)
(608)
(131)
(99)
6,400
5,842
(228)
(306)
6,172
5,536
-
-
2,507
2,295
2,507
2,295
Notes to the Financial Statements continued
4 Remuneration of Auditors
(a) Deloitte Touche Tohmatsu
During the year, the auditors of the parent entity earned the following remuneration:
Auditing and reviewing of financial reports
Tax compliance and consulting services
(b) Other Auditors
Auditing and reviewing of financial reports
Tax compliance services
Consolidated
2012
$
2011
$
211,624
202,784
75,126
82,587
286,750
285,371
53,126
37,494
25,136
26,199
78,262
63,693
365,012
349,064
Consolidated
2012
$’000
2011
$’000
5 Inventories
Finished goods:
At lower of cost and net realisable value
1,244
1,181
56
6 Trade and Other Receivables
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
Consolidated
2012
$’000
2011
$’000
8,270
6,520
(430)
(455)
7,840
6,065
955
665
8,795
6,730
1,301
90
-
1,391
427
100
250
777
1,652
1,512
962
798
388
979
3,412
2,879
455
(48)
23
430
542
(25)
(62)
455
57
Notes to the Financial Statements continued
7 Other Assets
Prepayments
Other
8 Other Financial Assets
Investments: quoted shares at fair value
Security deposits
Consolidated
2012
$’000
2011
$’000
1,104
1,591
780
983
2,695
1,763
-
56
56
6,201
56
6,257
During the year Reckon Limited disposed of its interest in Melbourne IT Ltd for
$6,448 thousand.
9 Investment in Joint Venture Entity
Investment in Connect2Field Holdings Pty Ltd
660
-
On 11 April 2012 the Group acquired a 30% interest in Connect2Field Holdings Pty Ltd,
a company incorporated in Australia and engaged in the development and distribution of
a cloud based job management and scheduling application, for consideration of $660
thousand. All key decisions relating to the company require unanimous agreement of the
controlling shareholders, including Reckon Limited.
The company has total assets of $1,618 thousand, total liabilities of $53 thousand, and
net assets of $1,565 thousand. Reckon Limited’s share of net assets is $470 thousand.
Total revenue for the year since Reckon Limited acquired its interest was $181 thousand,
and total losses were $217 thousand. Reckon Limited’s share of the losses was $65
thousand.
58
10 Property, Plant And Equipment
Leasehold Improvements
At cost
Less: Accumulated amortisation
Total leasehold improvements
Plant and equipment
At cost
Less: Accumulated depreciation
Total plant and equipment
Consolidated
2012
$’000
2011
$’000
3,388
3,490
2,692
2,267
696
1,223
6,816
5,963
4,097
3,785
2,719
2,178
3,415
3,401
59
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.
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
Total
$’000
Consolidated
Carrying amount at 1 January 2012
1,223
2,178
3,401
Additions
Acquisitions through business combinations
-
-
1,371
1,371
208
208
Depreciation/amortisation expense
(527)
(1,038)
(1,565)
Balance at 31 December 2012
696
2,719
3,415
Consolidated
Carrying amount at 1 January 2011
Additions
Depreciation/amortisation expense
Balance at 31 December 2011
1,230
2,530
3,760
1,026
730
1,756
(1,033)
(1,082)
(2,115)
1,223
2,178
3,401
Notes to the Financial Statements continued
11 Deferred Tax Asset
The balance comprises temporary differences attributable to:
Doubtful debts
Employee benefits
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
Consolidated
2012
$’000
2011
$’000
7
55
79
141
86
55
141
17
27
42
86
56
30
86
60
12 Intangibles
Intellectual property – at cost (i)
Accumulated amortisation
Development costs – at cost
Accumulated amortisation
Goodwill – at cost
Consolidated
2012
$’000
2011
$’000
14,984
12,596
(10,005)
(8,987)
4,979
3,609
49,119
38,131
(31,174)
(23,549)
17,945
14,582
45,108
27,775
68,032
45,966
(i) The intellectual property carrying amount comprises of customer contracts of $4,417
thousand (2011: $3,609 thousand) and brand names of $562 thousand (2011: $nil).
61
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
nQueue Billback
Elite
Reckon Docs (formerly Corporate Services)
Virtual Cabinet
10,361
10,361
1,742
1,742
1,965
2,011
2,536
2,536
11,125
11,125
17,379
-
45,108
27,775
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
(2013) period. Subsequent cash flows are projected using constant growth rates of 3% per annum for all CGU’s
apart from Virtual Cabinet. Constant growth rates of 8% have been used for Virtual Cabinet to reflect the early
stage of the evolution of this CGU, which is expected to experience high growth over the next few years. An
average post-tax discount rate of 12.2% (2011: 12.2%) (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 (2011: nil). With the exception of Virtual Cabinet, should the
projected growth rates reduce to 0%, no material impairment would arise. In the case of Virtual Cabinet, the
projected growth rates would need to reduce to below 5% for an impairment to arise.
Notes to the Financial Statements continued
12 Intangibles continued
Consolidated movements in intangibles
At 1 January 2012
Additions
Goodwill
Intellectual
Property
Development
Costs
$’000
$’000
$’000
Total
$’000
27,775
3,609
14,582
45,966
-
-
9,658
9,658
Acquisitions through business combinations (note 29)
17,204
2,388
987
20,579
Effect of foreign currency exchange differences
Amortisation charge
At 31 December 2012
At 1 January 2011
Additions
Effect of foreign currency exchange differences
Amortisation charge
At 31 December 2011
129
-
45,108
-
(1,018)
4,979
-
129
(7,282)
(8,300)
17,945
68,032
28,639
4,563
13,236
46,438
-
(864)
-
27,775
35
-
(989)
3,609
7,398
-
7,433
(864)
(6,052)
(7,041)
14,582
45,966
Consolidated
2012
$’000
2011
$’000
13 Trade and Other Payables
Current:
Trade payables and sundry accruals (i)
4,922
4,184
(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.
62
14 Borrowings
Current:
Bank borrowings (i)
Other borrowings
Non-current:
Hire purchase liabilities
Consolidated
2012
$’000
2011
$’000
10,994
-
10,994
136
-
-
-
-
i) The consolidated entity has existing bank facilities totaling $23.75 million. The facility
comprises a variable rate bank overdraft facility, and a multi option facility (which includes
a bill facility and bank guarantee/transactional facility). The facility covers an 18 month
term expiring on 31 December 2013. The facility is secured over the Australian net
assets of the Group ($44.4 million at 31 December 2012).
63
The available, used and unused components of the facility at year
end is as follows:
Available
Used
Unused
Bank
overdraft
Bill
Facility
Bank
Guarantee
facility
$’000
$’000
$’000
1,000
494
506
20,000
10,500
9,500
2,750
1,846
904
The remaining contractual maturity for the facility (including both
interest and principal) is as follows:
0-12 months
494
10,500
1,846
Weighted average interest rate
7.5%
5.1%
-
Notes to the Financial Statements continued
Consolidated
2012
$’000
2011
$’000
15 Other Financial Liabilities
Linden House option liability (i)
10,608
-
(i) This balance represents the present value of expected future payments arising in connection with the
acquisition of the non-controlling interest in Linden House Software Limited (refer Note 29(c)), including
future profit entitlements over the next 3 years and the redemption price of put option instruments
issued in respect of their remaining equity interest in the company. A discount rate of 12.4% has been
applied to future cash flow estimates to derive the outstanding liability. Recognising the present value
of the redemption price effectively treats the option as if it has been exercised, which is an equity
transaction. Any re-measurement of this liability is therefore treated as an equity transaction processed
through an “ acquisition of non-controlling interest reserve”. Within the context of AASB 7, this is
classified as a level 2 fair value measurement, being derived from inputs other than quoted share prices
that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). The gross
amount of $13.2 million is payable between one and three years after balance date.
16 Provisions
Current:
Sales returns, volume rebates
Employee benefits
Surplus premises
Commissions and sundry provisions
Non-current:
Employee benefits
Surplus premises
64
61
182
2,425
3,373
516
339
590
643
3,341
4,788
625
569
594
1,053
1,194
1,647
16 Provisions continued
Movement in provisions
Movements in each class of provision during the financial year, excluding employee benefits, are set out below:
Surplus
premises
Sales returns,
volume
rebates
Commissions
and sundry
$’000
$’000
$’000
Total
$’000
2012 Consolidated
Carrying amount at the start of the year
Amounts paid
Additional provisions recognised/(utilised)
Carrying amount at the end of the year
1,643
(1,050)
492
1,085
182
-
(121)
61
643
2,468
-
(1,050)
(304)
67
339
1,485
The provision for surplus premises represents the present value of the future lease payments on the Pyrmont
premises that the Group is presently obligated to make under the operating lease contract, less revenue expected
to be earned on the lease, including estimated future sub-lease revenue, where applicable. The estimate may vary
as a result of changes in the utilisation of the leased premises and sub-lease arrangements where applicable. The
lease expires in February 2015.
65
17 Working Capital Deficiency
The consolidated statement of financial position indicates an excess of current liabilities over current assets of
$14,390 thousand (December 2011:$3,255 thousand). This arises due to the cash management structure adopted
by management, whereby surplus funds are used to repay debt and make investments. Furthermore, borrowings
obtained during the current year to finance business acquisitions are shown as a current liability at year end due to
the expiry of the existing bank facility agreement on 31 December 2013. The Group expects to refinance the existing
facility during the course of the 2013 financial year. Unused bank overdraft and bill facilities at balance date total $10
million. Also, included in current liabilities is deferred revenue of $8,674 thousand (December 2011:$6,295
thousand), settlement of which will involve substantially lower cash flows.
Notes to the Financial Statements continued
18 Deferred Tax Liabilities
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
Acquisition of business (Note 29)
Charged (credited) to profit or loss
Balance at 31 December
Consolidated
2012
$’000
2011
$’000
(102)
(112)
(1,109)
(1,235)
(18)
(55)
(598)
(574)
5,802
4,467
(1,026)
(1,402)
2,949
1,089
1,089
1,607
875
985
-
(518)
2,949
1,089
66
19 Parent Entity Disclosures
Financial position
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
Equity
Share capital
Share buyback reserve
Available-for-sale revaluation reserve
Share based payments reserve
Acquisition of non-controlling interest reserve
Retained earnings
Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
Parent
2012
$’000
2011
$’000
2,756
6,172
76,551
62,130
79,307
68,302
18,384
9,566
14,138
8,842
32,522
18,408
16,878
15,752
(8,978)
-
-
(1,067)
503
(485)
556
-
38,867
34,653
46,785
49,894
15,752
15,855
247
(1,067)
15,999
14,788
67
Capital commitments for the acquisition of property, plant and equipment
-
-
Other
Reckon Limited assets have been used as security for the bank facilities set out in Note 14.
The parent entity has no contingent liabilities.
Notes to the Financial Statements continued
20 Employee Benefits
The aggregate employee benefit liability recognised and included in the financial
statements is as follows:
Accrued annual leave:
Current (Note 16)
Long term incentive:
Current (Note 16)
Non-current (Note 16)
Provision for long service leave:
Current (Note 16)
Non-current (Note 16)
Consolidated
2012
$’000
2011
$’000
1,272
1,286
196
1,073
91
211
957
534
1,014
383
3,050
3,967
Long-term incentive plan
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).
From 2011 performance shares were also awarded with longer term vesting periods. 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.
68
20 Employee Benefits continued
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 (2011: Nil).
396,825 (2011: 282,258) appreciation rights and 277,940 (2011:269,204) performance shares, were issued during the
year. The fair value of these rights was 44 cents (2011: 62 cents) and the shares were $1.785 (2011: $1.912), using a
model that adopts the Monte Carlo simulation approach. The assumptions used in this model are: grant date share
price of $2.26; expected volatility of 27.7%; dividend yield of 3.5%; and a risk free rate of 3.3%. The expense
recognised in 2012 for appreciation rights/performance shares was $304,092 (2011: $701,914).
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
2012
2011
2012
2011
2012
2011
Jan’09
Jan’10
Jan’11
Jan’12
Jan’11
Jan’12
Dec’11
375,475
-
-
-
365,951
Dec’12
214,190
7,568
15,315
155,271
30,631
-
-
-
162,839
Dec’13
156,704
Dec’14
150,440
Dec’17
112,500
Dec’18
127,500
23,981
54,033
16,250
16,250
-
-
-
-
7,053
-
-
-
-
-
-
-
125,670
156,704
96,407
-
96,250
112,500
111,250
-
382,500 additional shares have been acquired for future grants.
Appreciation Rights
Grant
Date
Vesting
Date
Rights
Granted
Rights lapsed
during the year
Rights vested
during the year
Rights available at
the end of the year
2012
2011
2012
2011
2012
2011
Jan’09
Jan’10
Jan’11
Jan’12
Dec’11
888,324
Dec’12
357,873
Dec’13
282,258
Dec’14
396,825
-
-
-
-
-
-
-
-
-
888,324
357,873
-
-
-
-
-
-
-
-
357,873
282,258
282,258
396,825
-
69
Notes to the Financial Statements continued
20 Employee Benefits continued
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 July 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. No options were exercised during
the year. In 2011 options were exercised with an average exercise price of $0.72.
Set out below are summaries of options granted under the Executive Share Option Plan No. 2.
Performance Shares
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
2012
2011
2012
2011
2012
2011
Dec 05
Dec 10
$0.722
144,445
-
-
-
-
-
-
12,666
12,666
Number of shares that can be issued for unexercised options
-
-
-
-
-
-
70
2012
2011
No.
$’000
No.
$’000
21 Issued Capital
Fully Paid Ordinary Share Capital
Balance at beginning of financial year
132,839,672
17,476 133,384,060
18,833
Share buyback
(3,351,657)
-
(557,054)
(1,366)
Prior year share buyback transferred to reserves
Issue of shares
-
-
1,366
-
-
12,666
-
9
Balance at end of financial year
129,488,015
18,842 132,839,672
17,476
Less Treasury shares
Balance at beginning of financial year
744,858
1,724
574,736
785
Shares purchased in current period
235,127
541
559,926
1,389
71
Shares lapsed
Lapsed shares utilised
Shares vested
(5,584)
-
-
-
(15,315)
22,093
(28)
38
(162,324)
(301)
(396,582)
(460)
Balance at end of financial year
812,077
1,964
744,858
1,724
Balance at end of financial year net of treasury shares
128,675,938
16,878 132,094,814
15,752
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.
During the year 3,351,657 (2011: 557,054) shares were bought back at an average price of $2.27 (2011: $2.45). The shares
bought back in the current year were cancelled immediately.
No options were exercised during the year. In 2011 12,666 options were exercised 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 20 to the
financial statements. Total consideration for options exercised during 2011 was $9,145.
Notes to the Financial Statements continued
22 Reserves
Foreign currency translation reserve
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
Asset revaluation reserve
Balance at beginning of financial year
Transfer to retained earnings
Fair value adjustment of financial assets
Balance at end of financial year
Share buyback reserve
Balance at beginning of financial year
Share buyback
Prior year share buyback
Balance at end of financial year
Acquisition of non-controlling interest reserve
Balance at beginning of financial year
Transfer from non-controlling interest
Increase in interest in nQueue Billback subsidiaries (note 29(d))
Fair value adjustment of Linden House option liability (note 15)
Balance at end of financial year
Share-based payments reserve
Balance at beginning of financial year
Share based payment expense
Treasury shares vested/lapsed
Balance at end of financial year
72
Consolidated
2012
$’000
2011
$’000
(1,569)
186
(694)
(875)
(1,383)
(1,569)
(1,067)
820
247
-
-
(7,612)
(1,366)
(8,978)
-
79
(4,496)
(564)
(4,981)
-
-
(1,067)
(1,067)
-
-
-
-
-
-
-
-
-
556
248
631
375
(301)
(450)
503
556
(14,839)
(2,080)
22 Reserves continued
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(g).
(b) Asset revaluation reserve
Fair value adjustments of financial assets are taken to the asset revaluation reserve.
(c) Share buyback reserve
The value of shares bought back are allocated to this reserve.
(d) 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.
(e) Acquisition of non-controlling interest reserve
The acquisition of non-controlling interest reserve represents an equity account to record transactions between
equity holders.
23 Retained Earnings
Balance at beginning of financial year
Net profit
Transfer from the asset revaluation reserve
Dividends (Note 31)
Balance at end of financial year
73
Consolidated
2012
$’000
2011
$’000
36,621
31,156
17,342
16,062
(820)
-
(10,764)
(10,597)
42,379
36,621
Notes to the Financial Statements continued
24 Earnings Per Share
Basic earnings per share
Diluted earnings per share
Consolidated
2012
Cents
2011
Cents
13.4
13.3
12.1
12.0
Weighted average number of ordinary shares used in the calculation of basic
earnings per share
129,533,443 132,586,637
Weighted average number of ordinary shares and potential ordinary shares used in
the calculation of diluted earnings per share
130,345,520 133,331,495
25 Contingent Liabilities
There are no material contingent liabilities as at 31 December 2012 (2011: Nil).
Consolidated
2012
$’000
2011
$’000
26 Commitments For Expenditure
Capital Expenditure Commitments
(a)
The consolidated entity has capital expenditure commitments of $nil as at 31 December 2012 (2011: $nil).
(b) Lease Commitments
Operating Leases
Within 1 year
Later than 1 year and not longer than 5 years
Later than 5 years
2,697
2,559
7,274
8,332
342
1,767
10,313
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.
74
Country of
Incorporation
Ownership Interest
2012 %
2011 %
Name of Entity
27 Subsidiaries
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
Reckon Accountable Technology Limited
United Kingdom
Reckon Docs Pty Limited
Independent Corporate Services Pty Limited*
Quickdocs.com.au Pty Limited
nQueue Billback Australia Pty Limited
Australia
Australia
Australia
Australia
nQueue Billback Limited
United Kingdom
Billback LLC
United States of America
nQueue Billback LLC
United States of America
Linden House Software Limited (refer Note 29)
United Kingdom
Reckon Accounts Pte Limited
Singapore
* Subsidiaries deregistered in 2012
All shares held are ordinary shares.
75
100
100
100
100
-
-
100
100
100
100
100
100
-
100
100
100
100
100
50
100
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
75
100
74
-
-
Notes to the Financial Statements continued
28 Related Party Disclosures
(a) Key Management Personnel Remuneration
Short term benefits
Post-employment benefits
Share based payments
Consolidated
2012
$
2011
$
3,653,731 3,522,881
220,492
223,240
275,672
603,170
4,149,895 4,349,291
The names of and positions held by the key management are set out in Note 28(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 and other key management personnel apart from those disclosed in this
note and in Note 29(e).
(c) Other Related Party Transactions
Intuit Ventures Inc
Intuit Ventures Inc, a significant shareholder (11.5%) in Reckon Limited, 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 $5,322,372 (2011: $4,733,481) which is
expensed in the month that the associated product was sold. The balance due at 31 December 2012 is $186,993
(2011: $158,786).
On 22 March 2012, Reckon announced as a consequence of the gradual divergence of the respective online
ambitions of Reckon Limited 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 persepective, it is business as usual until 14 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 that 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.
76
28 Related Party Disclosures continued
d) Directors’ and Key Management Equity Holdings
Options and Shareholding 20121
Greg Wilkinson
Clive Rabie
Office
Deputy Chairman,
Non-executive
Director
CEO, Executive
Director
Brian Coventry3
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 Dixon5
CEO Business
Division
Sam Allert4
Richard Hellers
CEO Professional
Division
President & CEO
nQueue Billback
division
Shareholding
at start of
2012
Shareholding
at end of
20122
Performance
shares at
start of 2012
Performance
shares vested
in 2012
Performance
shares issued
in 2012
Performance
shares held at
end of 2012
7,450,000
7,450,000
10,508,000 10,508,000
0
0
0
0
0
0
50,000
12,573
30,648
12,573
23,394
19,000
19,000
0
0
0
0
0
-
0
95,974
123,001
105,625
27,027
46,787
125,385
0
0
0
0
0
0
255,073
296,289
140,398
41,216
58,226
157,408
290,284
264,724
81,917
39,514
37,039
0
11,429
7,568
30,648
7,568
23,394
46,474
0
0
0
0
0
0
1. No options were issued in 2012.
2. Share holdings at the date of the Director’s Report remain unchanged.
3. Mr Coventry’s employment terminated on 31 December 2012 (41,469 performance shares lapsed).
4. Mr Allert commenced as CEO Professional Division effective from 1 October 2012 (previously MD APS Australia).
5. Mr Dixon’s employment terminated on 31 March 2013 (79,442 performance shares lapsed).
77
Notes to the Financial Statements continued
28 Related Party Disclosures continued
Options and Shareholding 20111
Office
Deputy Chairman,
Non-executive
Director
CEO, Executive
Director
CEO, Professional
Division
Greg Wilkinson
Clive Rabie
Brian
Armstrong2
Brian Coventry
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
Richard Hellers
CEO Business
Division
President & CEO
nQueue Billback
division
Shareholding
at start of
2011
Shareholding
at end of
20112
Performance
shares at
start of 2011
Performance
shares vested
in 2011
Performance
shares issued
in 2011
Performance
shares held at
end of 2011
7,450,000
7,450,000
10,508,000 10,508,000
0
0
0
0
776,107
550,025
216,798
111,583
0
0
0
0
0
0
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. Mr. Armstrong’s employment ended on 31 December 2011 (15,315 performance shares lapsed).
78
29 Notes to the Statement of Cash Flows
(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)
Bank overdraft
Balance at end of financial year
Consolidated
2012
$’000
2011
$’000
1,926
4,703
(494)
-
1,432
4,703
(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 net of acquisitions:
Current receivables
Current inventories
Other current assets
Non-current receivables
Increase/(decrease) in liabilities net of acquisitions:
Current trade payables
Other current liabilities
Other non-current liabilities
Net cash inflow from operating activities
79
17,767
16,693
9,823
9,108
248
375
(1,246)
1,445
930
(548)
44
18
(400)
26
(63)
(350)
(932)
(443)
(614)
(541)
153
(368)
(1,229)
1,815
(453)
(411)
24,028
26,819
Notes to Financial Statements continued
29 Notes to the Statement of Cash Flows continued
Consolidated
2012
$’000
2011
$’000
(c) Business acquired – Linden House
Cash consideration
Less net cash acquired
Fair value of option liability
Fair value of assets acquired:
Receivables
Intellectual property – customer contracts
Intellectual property – development of solution
Intellectual property – brand
Fixed assets
Payables
Hire purchase liabilities
Deferred tax liabilities
Deferred revenue
Goodwill
80
9,168
(657)
8,511
10,262
18,773
1,665
1,826
987
562
208
(492)
(151)
(875)
(2,161)
1,569
17,204
18,773
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29 Notes to the Statement of Cash Flows continued
On 3 July 2012 Reckon Limited acquired an initial 50% interest in Linden House Software Limited together with
options to take its total holding to 100%. The purchase consideration is made up of an initial payment of 6 million
Pounds, with expected additional payments of 8 million Pounds. The additional payments are based on the
performance of the business over the next 3 years. The total consideration of 14 million Pounds would equate to an
approximate 5x multiple of forecast 2015 EBITDA. The acquisition was funded from existing cash reserves and debt
facilities. Linden House develops and distributes a document management and portal solution under the brand
Virtual Cabinet. Linden House Software Limited is incorporated in the United Kingdom. Refer Note 15 for disclosure
relating to the recognition of the associated option liability. This is a non-cash transaction.
Goodwill in Linden House arose because the consideration paid/to be paid for the company effectively included
amounts in relation to the benefit of expected revenue growth, future market development and the assembled
workforce. These benefits are not recognised separately from goodwill because they do not meet the recognition
criteria for identifiable tangible assets.
Linden House has been consolidated on the basis of the existence of a substantive call option, which is effective at
acquisition date, and which enables Reckon Limited to acquire the remaining interest in the company.
The initial accounting for the acquisition of Linden House has only been provisionally determined at the end of the
reporting period.
Revenue and profit included in the Reckon Limited results from Linden House for the year is as set out in Note 33.
Had this business been acquired on 1 January 2012, the revenue and profit would have been approximately double.
Business acquisition costs amounting to $173 thousand have been excluded from the consideration paid and have
been recognized as an expense.
81
(d) nQueue Billback division minority interest acquired
Effective from 31 July 2012 Reckon Limited acquired the 26% remaining interest in the nQueue Billback division in
the USA and the remaining 25% interest in nQueue Billback UK that it did not previously hold for cash consideration
of $4,496 thousand.
(e) APS UK Division sold
Effective from 31 December 2012 the APS UK business has been sold to the previous managing director, Brian
Coventry. Reckon will receive an ongoing revenue stream from royalties on sales under a licensing agreement.
Revenue generated by the APS UK business in 2012 was $1,951 thousand, and a profit after tax of $502k. There is
not expected to be any material change to the profit generated under the new arrangements.
30 Non-Controlling Interest
30 Non Controlling Interest
Interest in:
Accumulated profits
Consolidated
2012
$’000
2011
$’000
-
-
203
203
Notes to Financial Statements continued
Consolidated
2012
$’000
2011
$’000
31 Dividends – ordinary shares
Final dividend for the year ended 31 December 2011 of 4.5 cents (2010: 4.5 cents) per
share franked to 90% paid on 2 March 2012
5,945
5,968
Interim dividend for the year ended 31 December 2012 of 3.75 cents per share franked
to 90% (2011: 3.5 cents) paid on 7 September 2012
4,819
4,629
Franking credits available for subsequent financial years based on a tax rate of 30%
(2011: 30%)
Refer to Note 34 for details of dividends declared post year end.
10,764
10,597
1,697
1,957
32 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 $1,926 thousand were held by the consolidated entity at the reporting date, attracting an average
interest rate of 0.8% (2011: 3.3%). Interest bearing borrowings by the consolidated entity at the reporting date were
$10,994 thousand (2011:$nil). These variable rate borrowings during the year attracted an average interest rate of
7.5% (2011: 8.10%) on overdraft facilities and 5.1% on bank bill facilities (2011: 6.43%). 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 $45 thousand (2011: $23 thousand).
The Board of Directors monitors these exposures and does not presently hedge against these risks.
The maturity profile for the consolidated entity’s cash ($1,926 thousand) and interest bearing borrowings ($10,994
thousand) that are exposed to interest rate risk is less than 1 year.
82
32 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.
The average credit period on sale of goods is 45 days. Interest is generally not charged. The Group recognises an
allowance for doubtful debts comprising a specific component for expected irrecoverable amounts, and a general
provision calculated as a % of outstanding balances based upon the historical experience.
(e) 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:
83
Consolidated
Liabilities
Assets
2012
$’000
2011
$’000
2012
$’000
2011
$’000
Euro
-
-
60
129
At 31 December 2012, if the Euro weakened against the UK Pound 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 $6 thousand (2011: $18 thousand). At 31 December 2012, 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 $271
thousand (2011: $95 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.
Notes to Financial Statements continued
32 Financial Instruments continued
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.
(f) Liquidity
The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously
monitoring forecast and actual cash flows.
(g) 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.
(h) 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.
33 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 four operating divisions:
Business division
nQueue Billback division
Professional division
Virtual Cabinet 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 Reckon Accounts,
(which includes the product range formerly named Quicken and the QuickBooks range which will be renamed
Reckon Accounts in April 2013), Reckon Docs and Reckon Elite.
Professional division – development, distribution and support of practice management, tax, client accounting and
related software under the APS brand.
•
• nQueue Billback division – distribution and support of cost recovery, cost management and related software.
•
Virtual Cabinet division – development, distribution and support of document management and documentt portal
products.
84
Consolidated
2012
$’000
2011
$’000
58,280
55,849
25,095
23,209
10,855
11,186
2,376
-
96,606
90,244
159
486
96,765
90,730
33 Segment Information continued
Segment revenues and results
Operating revenue
Business division
Professional division
nQueue Billback division
Virtual Cabinet division
Other revenue
Total revenue
Business division
Professional division
Consolidated
2012
$’000
EBITDA
2012
$’000
D&A
2012
$’000
NPBT
2011
$’000
2011
$’000
2011
$’000
EBITDA
D&A
NPBT
85
21,337
(2,478)
18,859
20,613
(2,205)
18,408
nQueue Billback division
4,596
(1,698)
2,898
5,052
(1,459)
Virtual Cabinet division
499
(301)
198
-
-
12,361
(5,347)
7,014
10,675
(4,888)
5,787
3,593
-
Central administration costs
Premises relocation costs
Acquisition costs
Litigation settlement
Other revenue
Finance costs
Profit before income tax
Income tax expense
Profit for the year
38,793
(9,824)
28,969
36,340
(8,552)
27,788
(4,213)
(492)
(173)
-
159
(311)
23,939
(6,172)
17,767
(4,067)
(2,352)
-
542
486
(168)
22,229
(5,536)
16,693
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.
EBITDA above means earnings before interest, depreciation and amortisation, D&A means depreciation and
amortisation, and NPBT means net profit before tax.
Notes to Financial Statements continued
as at 31 December 2012
33 Segment Information continued
The Professional division in the 2011 annual report, included nQueue Billback Australia. Following the acquisition of
the remaining minority interest in the rest of the nQueue Billback division in the current year, management
responsibility for the Australian business has been transferred to the nQueue Billback division management team.
The 2011 results have been restated to reflect this change.
No single country outside of Australia contributed more than 10% of Group revenue for either 2012 or 2011.
Assets
2011
$'000
2012
$'000
Liabilities
Additions to
non-current assets
2012
$'000
2011
$'000
2012
$'000
2011
$'000
Segment assets and liabilities
Business division
25,511
32,799
20,724
18,677
3,713
2,679
Professional division
27,554
34,239
4,908
5,148
5,015
5,340
nQueue Billback division
15,291
11,316
7,019
4,033
1,566
1,170
Virtual Cabinet division
Corporate division
23,341
-
-
-
14,628
-
-
-
21,522
-
-
7,268
Total of all segments
91,697
78,354
47,279
27,858
31,816
16,457
Eliminations
Consolidated
(3,342)
(7,490)
(3,342)
(7,490)
-
-
88,355
70,864
43,937
20,368
31,816
16,457
(b) Geographical information
Australia
Other countries (i)
Revenue from
external customers
Non-current assets
2012
$'000
2011
$'000
2012
$'000
2011
$'000
77,223
74,291
38,826
42,703
19,383
15,953
34,869
13,784
96,606
90,244
73,695
56,487
(i) No single country outside of Australia is considered to generate revenues which are material to the Group.
86
33 Segment Information continued
(c) Segment revenues
External sales
Business and wealth management products and services
Accounting industry products and services
Legal industry products and services
34 Subsequent Events
Subsequent to the end of the financial year:
Share buy back
Consolidated
2012
$'000
2011
$'000
52,152
49,859
33,599
29,199
10,855
11,186
96,606
90,244
87
On 5 February 2013 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 4.75 cents per share to shareholders on 5 February 2013. The dividend will be
90% franked. The record date for the dividend is 15 February 2013. The aggregate amount of the proposed dividend
expected to be paid on 1 March 2013 out of retained profits at 31 December 2012, but not recognised as a liability
at the end of the year is $6,112 thousand. The impact on the franking account balance of unrecognised dividends is
$2,357 thousand.
35 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 25 March 2013.
Additional information as at 8 March 2013
(Unaudited)
Twenty Largest Holders of Quoted Equity Securities
Ordinary Shareholder
1. National Nominees Limited
2. Intuit Ventures Inc
3. RBC Investor Services Australia Nominees Pty Limited
4. HSBC Custody Nominees (Australia) Limited
5. Gregory John Wilkinson
6. DJZ Investments Pty Limited
7. Aust Executor Trustees SA Ltd
8. UBS Nominees Pty Ltd
9. Mr Clive Rabie & Mrs Kerry Rose Rabie
10. Citicorp Nominees Pty Ltd
11. J P Morgan Nominees Australia Limited
12. Citicorp Nominees Pty Limited
13. BNP Paribas Noms Pty Ltd
14. Mr Stephen James Rickwood
15. Mr Clive Alan Rabie
16. Rawform Pty Ltd
17. Mr Philip Ross Hayman
18. UBS Nominees Pty Ltd
19. Reckon Australia Pty Ltd
20. Equity Trustees Limited
Number
Percentage
16,400,431
14,828,304
13,980,368
10,471,831
6,147,800
4,690,000
4,513,690
4,349,615
4,285,611
3,849,651
3,525,457
2,452,859
1,976,028
1,601,062
1,532,389
1,302,200
1,053,636
1,001,441
960,241
957,911
12.67
11.45
10.80
8.09
4.75
3.62
3.49
3.36
3.31
2.97
2.72
1.89
1.53
1.24
1.18
1.01
0.81
0.77
0.74
0.74
99,880,525
77.13
Number of Holders of Equity Securities
Ordinary Share Capital
129,488,015 fully paid ordinary shares are held by 3,593 individual shareholders as at 8 March 2013.
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 78.
88
Distribution of Holders of Equity Securities
As at 8 March 2013
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
Substantial Shareholders
As at 8 March 2013
(a) From Twenty Largest Holders of Quoted Equity Securities
National Nominees Limited
Intuit Ventures Inc
RBC Investor Services Australia Nominees Pty Limited
Mr Clive Rabie & Mrs Kerry Rose Rabie
HSBC Custody Nominees (Australia) Limited
Gregory John Wilkinson
(b) As Disclosed to ASX
862
1,690
523
470
48
3,593
89
Ordinary Shares
Ordinary Shares
(Number)
(Percentage)
16,400,431
14,828,304
13,980,368
10,508,000
10,471,831
7,450,000
12.67
11.45
10.80
8.11
8.09
5.76
Perpetual Limited and Subsidiaries
National Nominees as Custodian for Unisuper Ltd
Ordinary Shares
Ordinary Shares
(Number)
(Percentage)
16,496,090
6,488,557
12.74
5.01
Additional information as at 8 March 2013
(Unaudited)
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.
90
Annual General Meeting
The Annual General Meeting for Reckon Limited will be held on Thursday 23 May 2013 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.
TO RECEIVE ALL NOTICES AND REPORTS IN ELECTRONIC FORMAT, please go to www.computershare.com.au
and follow the prompts to register.
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 ‘Communications 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.
91
Reckon Limited ABN 14 003 348 730 | Level 12, 65 Berry Street North Sydney NSW 2060 Australia
T +61 2 9577 5000 | F +61 2 9577 5555 | info@reckon.com.au | www.reckon.com.au