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Descartes Systems Group Inc.2020 | Annual Report
Reckon Limited Annual Report
For the Financial Year Ended 31 December 2020
ABN 14 003 348 730
Contents
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6
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41
42
47
48
49
50
51
53
54
Message to Shareholders from the Chairman and Group CEO
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated Statement of Profit or Loss
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
103 Additional Information as at 23 February 2021
3
Message from the Chairman
It is my pleasure to present to you Reckon Limited’s 2020 Annual Report and financial statements for the year ended
31 December 2020 (CY2020). The board and management team continued to execute on a series of goals, which
saw the Company advancing its digital transformation, from a desktop-focused business towards a cloud-first
operation.
As COVID-19 impacted businesses and communities, Reckon put in place strategies to support its customer base
and maintain the continuity and high quality of its offerings. Reckon’s leadership team, led by CEO Mr Sam Allert and
CFO Mr Chris Hagglund, responded strongly to support staff during the pandemic and ensured that the Company
had a number of contingencies in place to navigate through the uncertainty and maintain focus, productivity, morale
and business growth.
Adapting to the unprecedented events, and a rapidly decentralised work environment, was made possible by the
dedication of our internal technology support teams. Morale also became a large focus for our human resources
division. Both departments were instrumental in ensuring appropriate work environments were implemented, which
has allowed Reckon to continue its growth trajectory.
Despite the limitations put in place by the onset of COVID-19, the Company was able to merge its Legal Group with
US-based start-up Zebraworks. This key development will enable the Company’s entry into the USA’s large legal
practice management industry and help establish a platform for future growth. At present, our Legal Group is one of
the smaller contributors to the broader group, but we expect this milestone to help the Company expand its smallest
operating division into a larger contributor of top-line growth through organic sales and cross-selling opportunities.
Elsewhere in the business, Reckon continued to grow its other core operating divisions, whilst at the same time
maintaining investments in cloud-based product development. The Company’s financial results were very pleasing,
with both top and bottom line growth remaining strong. Pleasingly, Reckon was able to introduce capital management
initiatives and reduced its debt position. In addition, Reckon continued to maintain a strong level of shareholder
return, declaring a $0.05 fully franked dividend for the period.
The Company remains well positioned for growth both in the current year and beyond. The board and management
team will continue to work diligently to challenge the current growth strategies, progress the development of cloud-
based products, and reduce its debt position.
I would like to take this opportunity to again thank the Company’s management team, the entire Reckon workforce,
and shareholders for their ongoing support. We look forward to continuing this successful journey with you.
Greg Wilkinson
Chairman
4
Message from the Group CEO
CY2020 was certainly a disruptive year for communities and businesses all over the world. Whilst there are signs of a
recovery, a volatile environment remains, which has led to ongoing health and economic concerns. Despite this,
Reckon’s operations and strategies have continued to deliver strong returns and ensure our customer base can continue
to operate, notwithstanding broader uncertainty.
The Company’s focus remains clear and we are executing goals successfully. Reckon’s ongoing investment into
cloud-based products has assisted its ongoing digital transformation and will provide an ample platform for future
progress.
During the period, Reckon achieved strong growth through its Business Group, with revenue and EBITDA climbing 7%
and 13% on the previous corresponding period respectively. What is particularly pleasing, is the ongoing upward trend
that the Company is witnessing towards cloud-based users in this division. Cloud revenue was up 29% and accounted
for 56% of the division’s available revenue.
We have made great progress in our APS cloud development, with the release of Workflow+ complimenting other APS
cloud modules. We also have other exciting cloud-based releases of further Practice Management modules scheduled
for 2021.
The Company continued to invest in its US business, merging its Legal Group operations with legal practice management
specialist Zebraworks. The merger has added a new and experienced management team with an in-country presence,
as well as a suite of complimentary solutions. We are confident that this move holds significant future potential and we
look forward to delivering cloud practice management technology into the ever-growing legal market.
Echoing the comments of the Chairman, the execution of our plans during 2020 has allowed the Company to set a solid
foundation for growth during the current period and beyond. A number of cross-selling and distribution opportunities are
available in all areas of the business and we remain laser-focused on providing accounting and payroll solutions for small
business, and practice management systems for the accounting and legal professions.
2021 promises to be another exciting year of progression for Reckon and I would like to take this opportunity to thank our
shareholders, the board, the entire Reckon team, our partners and our customers for their dedication and loyalty to the
Company.
Sam Allert
Group CEO
5
Directors’ Report
The Directors of Reckon Limited submit these financial statements for
the financial year ended 31 December 2020
Greg Wilkinson
Independent Non-Executive Deputy Chairman until 30 June 2018, Chairman from 1 July 2018
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
Committee in December 2011. He is also an investor and mentor to a number of cloud-based start-up companies.
Greg was appointed Chairman on 1 July 2018. Greg resigned from the board of GetBusy PLC on 5 May 2020.
Philip Hayman
Independent Non-Executive Director from 1 July 2018
Phil Hayman was appointed to the board on 1 July 2018. He was a co-founder of Reckon in 1987. He resigned from
Reckon in 2004 but has maintained his interest in Reckon through his ongoing shareholding. Phil has had varied
general entrepreneurial and commercial experience through his investments in companies in start-up and first round
capital raising phases. Phil is presently a director of an unlisted public company with manufacturing interests in China
and sales in Australia and New Zealand. He also consults to an agricultural company with extensive holdings in
southern NSW. He currently owns and manages an accommodation company.
Clive Rabie
Group Chief Executive Officer until 30 June 2018, Group Managing Director from 1 July 2018
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 and was
appointed Group MD on 1 July 2018. He has extensive management and operational experience in the IT and retail
sectors as both an owner and director of companies. Clive is a director of GetBusy PLC.
6
Samuel Allert
Group Chief Executive Officer and Director from 1 July 2018
Sam Allert was appointed as a director on 1 July 2018. Sam was one of the first employees in the Australian Reckon
APS business in 1999. He has held numerous roles in that business from National Sales Manager, Managing Director
AU/NZ, eventually becoming CEO of Reckon APS in 2013. Taking on more responsibility Sam got involved with the
Business Division in a newly formed position of MD AU/NZ for the Reckon Group in 2015. In July 2018 Sam stepped
into the Group Chief Executive Officer position and was appointed to the board on 1 July 2018.
Myron Zlotnick LLM, GCertAppFin
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.
7
Directors’ Report (continued)
Review of Operations and Statement of Principal Activities
For the year reported the Company is structured in three Groups, a Business Group, an Accountant Practice
Management Group and a Legal Practice Management Group.
The focus has been to grow each Group independently, and where possible implement integrations, seek out
opportunities to cross sell, and to explore synergies across the Groups. From an internal operations point of view, within
Australia and New Zealand, the Accountant Practice Management Group and Business Group centralised their Sales,
Support, Marketing, and Client Success teams in 2020 to manage the across-Group opportunities more efficiently.
The Business Group undertakes the development, sales and support of business accounting and payroll software for
small to larger sized businesses and personal wealth management software branded as Reckon One, Reckon Accounts
Hosted, Better Clinics and Better Bookings (cloud products), Reckon Accounts Business, and Reckon Accounts
Personal respectively. It is operational predominantly in Australia and New Zealand with a presence in the United
Kingdom.
The Accountant Practice Management Group undertakes the development, sales and support of practice management,
compliance and efficiency tools for professional accounting firms under the Reckon APS and Reckon Elite brands. This
business also supplies corporate services such as company registration, company secretarial tools and supply of
relevant content under the Reckon Docs brand. It is operational predominantly in Australia, New Zealand with a re-seller
presence in the United Kingdom. The Reckon Docs business was sold to Class Limited effective 1 March 2021. The
purchase consideration was $13 million.
The Legal Practice Management Group supplies software and workflow solutions to legal firms and corporations for
document scanning and routing, print management and cost recovery solutions under the Reckon nQueue and Reckon
Billback brands. It is operational predominantly in the USA and United Kingdom, with re-sellers in other parts of the
world. In August 2020 (and completed in February 2021) the Company announced the merger of its Legal Practice
Management Group with the business of Zebraworks Inc (USA) into a 70/30 venture now known as nQueue Zebraworks
Inc. The team from Zebraworks Inc brings a history and pedigree of success in the development of practice management
solutions for the cloud. The merged business presents a platform for technology development and new markets.
All Groups are supported by shared services teams which include IT, finance, marketing, and human resources.
All the Groups have a loyal client base that run products and solutions based on desktop technology with very rich
functions and features. Reckon has been on a transformation process for the last 3 years developing or enhancing all
products with a “cloud first” focus. The process is to provide an upgrade path for existing clients to the cloud, as well
as providing new products that can attract and grow a new client base. The Business Group is furthest progressed on
this strategy with the Accountant Practice Management Group and the Legal Practice Management Group also well
poised for growth in the future.
Business Group
The Business Group distributes and supports a range of software products under the Reckon brand. These products
are generally used by small to larger businesses in Australia and New Zealand and in the United Kingdom. Alongside
cloud, hosted and desktop accounting software the range includes payroll, point of sale, online practice management
for allied health professionals (branded as Better Clinics) and scheduling software (branded as Better Bookings), as
well as personal finance software.
A key focus in the Business Group is to grow the Reckon One cloud-based business accounting software. Reckon
One cloud-based accounting software is based on a “designed by you” concept that allows users to tailor the
solution to their needs by choosing modules their business will use. The current modules available are: Core (which
includes payments and receipts, budgets and reporting); Invoices; Payroll; BankData (automatic bank statement
import into accounts and reconciliation); Projects (manage revenue, costs and forecasts by project); Time (timesheets);
and Employee Expenses (expense management module); and an open API for third party applications.
8
Users can select which modules they need and only pay for those they use, making Reckon One a very cost-effective
solution for small businesses.
The Payroll module includes the ability for small businesses to lodge their Single Touch Payroll reporting requirements,
which is part of an overall strategy to integrate small business accounting with regulatory reporting under the Reckon
GovConnect product brand.
Reckon One is also available as a “white label” version. The Institute of Public Accountants provides a white label
product to IPA members under the IPA Books+ brand. IPA members have reach into approximately 1 million small
business clients across Australia and United Kingdom. This partnership with the IPA continues to strengthen the
recommender channel, with over 1200 IPA practices trained and certified as Cloud Advisors. Reckon now provides
every IPA member with five cloud accounting Books+ licences to help them better cater the needs of Australian small
business. The company has also entered in a while label arrangement with the Queensland government bringing
Reckon One to Indigenous communities branded as Deadly Digits.
2020 has seen the ongoing release of new mobile suites of applications (or apps) complimenting Reckon One. The
first mobile solution released was a free Single Touch Payroll reporting application, which has been taken up by over
37,000 new users since May 2019, with over 780,000 pay runs processed via this app. 2020 saw the release of a
more feature rich paid Payroll App, which is an ideal upgrade path for the free STP app users. Reckon Mate, a new
employee facing mobile app was also released at the end of 2020. 2021 will see the continued roll out of new mobile
apps including Mobile invoicing, Timesheets and Expenses.
Reckon Accounts Hosted is a convenient secure online accounting software solution using the very same feature
rich source code of the Reckon Accounts business range desktop package. It is a simple and efficient upgrade to
“cloud accounting” for our many Reckon Accounts desktop clients. It is hosted in an AWS environment.
Reckon Accounts products include: (1) Reckon BankData, a bank feed solution which allows connections with banks
and other financial institutions to download bank transaction information directly into accounting software; and (2)
Reckon GovConnect, an SBR-enabled solution for lodging reports to government agencies such as the ATO.
Open Banking is a new government driven initiative in both Australia and the United Kingdom. The company obtained
certification in late 2020 and is operational for Open Banking in the UK. Open Banking gives consumers greater
access to and control over their financial information with the potential for faster processing and movement of funds.
The Company is also exploring strategic partnerships with suppliers who can meet the feature demands of small
business for their diverse needs.
Since 2017 the Company has partnered with Prospa in the “Fintech“space to bring small business loans to its
customer base under the Reckon Loans brand.
Better Clinics and Better Booking is a fledgling cloud-based practice management and scheduling software solution
for health, medical and fitness professionals. This business presently focusses on the allied health services market
that includes physiotherapists, chiropractors and personal trainers. This comprises a market of an estimated 120,000
customers.
Accountant Practice Management Group
The Accountant Practice Management Group develops, distributes and supports the APS 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 include Practice Management, Tax and Accounts production. It also
delivers a wide range of complementary integrated modules for business-critical functions in professional firms:
Practice Management (PM); Business Intelligence and Reporting (PIQ); Taxation (Tax); Client Accounting (XPA); Client
Relationship Management (CRM); Workpaper Management (WM); Sync Direct and others.
All the above modules are available in a hosted version called APS Private Cloud, if a client so requires.
9
Directors’ Report (continued)
Consistent with the Group-wide philosophy, the Accountant Practice Management Group enhances products and
develops new products under the “cloud first” concept. These products can and will integrate with existing Accountant
Practice Management Group solutions and also provide an entirely new cloud-based suite that new clients can take on.
New cloud products released in 2020, include: Workflow and Contacts. Timesheets, Fees and Accounting are under
development. From a branding point of view these cloud products are marketed as APS+, Workflow+, Contacts+, etc.
The BankData product is also targeted at accountants and bookkeepers. The module enables accountants and
bookkeepers to efficiently download and process bank transactions and provide reporting and analysis to their
clients. This is also undergoing an integration with Open Banking.
Sync Direct is a cloud-based system that allows accountants to upload financial transaction data from virtually any
source and automatically enter it into their practice management system for accounts and tax return preparation
purposes. It is an extremely beneficial tool for professional accounting firms as it creates a “single ledger” experience
for them without being required to use the same software as their clients.
The Reckon Elite product suite includes tax return preparation tools, practice management tools and related solutions
mostly used by accountants and tax agents. Reckon Elite is predominantly used in small to medium sized accounting
firms compared to Reckon APS which is used by larger firms.
The Reckon Docs corporate 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; 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. This business was sold effective 1 March 2021.
Legal Practice Management Group
In August 2020 (and completed in February 2021) the Company announced the merger of its Legal Practice
Management Group with the business of Zebraworks Inc (USA) into a 70/30 venture now known as nQueue
Zebraworks Inc. The deal concluded in February 2021. The team from Zebraworks Inc brings a history and pedigree
of success in the development of practice management solutions for the cloud. The merged business presents a
platform for technology development and new markets.
The Legal Practice Management Group, under the various nQueue, Billback and Zebraworks brands, supplies
software solutions for document scanning and routing, print management and cost recovery solutions that assist law
firms and commercial and government clients.
These solutions enhance 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. The scan solution also presents an opportunity to expand to non-legal client markets.
These solutions 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.
Key focus of this Group is to reposition itself from a cost recovery provider to become a workflow expert in the areas
of Print Management, Uniform Advanced Scanning and Cost Recovery and to continue moving to a subscription
revenue model. It is also pursuing a wider channel sales network including manufacturers of multi-purpose office
machines. In addition, the merged nQueue Zebraworks Inc business will be exploring opportunities to cross sell
products and solutions from the Australian based Accountant Practice Management Group.
Cloud Practice management modules will be progressively added to the suite of products.
10
Results of Operations
Results Headlines
Revenue
EBITDA
2020 Result
2019 Result
%Change
Amount
Change
$75.6 million
$75.4 million
0.3%
$0.2 million
$32.6 million
$30.6 million
6.6%
$2.0 million
NPAT attributable to owners of the parent from
continuing operations
$9.7 million
$8.1 million
19.8%
$1.6 million
The profitability of the Group has increased, with EBITDA and NPAT up 6.6% and 19.8% respectively.
Debt has been reduced by $5.8 million in the year.
A fully franked final dividend of 2 cents per share has been declared, taking the total dividend to 5 cents per share in
respect of the 2020 year (2019: 5 cents).
Cash spend on development increased with a focus on cloud products across the groups. Development spend in
2020 was $19.5 million (2019: $16.3 million).
Business Group
• The Business Group continues to be a subscription business with strong online growth. Total revenue growth in
this Group is up 7% on 2019. This represents three consecutive half years of consistent growth.
• Subscription revenue now represents 96% of available revenue in this Group.
• Cloud revenue (from Reckon One and Reckon Accounts Hosted) has continued to grow strongly, up by 29% and
now represents 56% (up 9% on 2019) of this Group’s available revenue. The number of cloud users now has
reached 101,000 users, with growth of 35% in 2020. This growth excludes growth generated by customer take
up of the free STP mobile app.
• The free payroll app for Single Touch Payroll launched in late May 2019 now has 37,000 users.
• The paid payroll app launched in May 2020 now has 2,000 users.
• The partnership with the IPA for Reckon One continues to strengthen the recommender channel, with over 1,200
IPA practices trained and certified as Cloud Advisors.
• A white label initiative for distribution of Reckon One was signed with the Queensland Government and represents
an early foray into this strategy for Reckon One growth. This endeavour, known as Deadly Digits, is aimed at
financial literacy in the indigenous community. Other similar opportunities with a wide range of partners will be
sought and pursued.
Accountant Practice Management Group
• The business remains entrenched as the product of choice amongst the major accounting firms.
• Subscription income is 99% of available revenue in this Group and this is the foundation of the stability of this business.
• Revenue in the Accountant Practice Management Group was down on the previous year, partially attributable to
the impact of COVID 19 limitations.
11
Directors’ Report (continued)
• The content business had a strong start to the year, then felt the impact of the repercussions of COVID 19 from
March to May, but recovered from June onwards resulting in overall revenue being down 3% on 2019. This business
was sold to Class Limited effective 1 March 2021.
•
Focus on cost management in the COVID 19 environment resulted in a 2% increase in EBITDA over 2019, a
pleasing outcome given the impact of COVID 19.
• Development of our new cloud suite is progressing well, with the release of Workflow+ and Contacts+ in 2020 and
the expected release of cloud solutions for Time sheets, Fees and Accounting in 2021.
• The cloud product is expected to widen the addressable market for the Accountant Practice Management Group.
Legal Practice Management Group
• This Group had a strong start to 2020, but was impacted by COVID-19 especially in the USA where implementation
of new sales was rendered impossible by restrictions on in person attendance at client premises.
• Revenue was down 11% on 2019.
• Subscription revenue is 84% of the Group’s revenue and this represents a stable base for the business which is
now poised to take advantage of the formation of the nQueue Zebraworks Inc business.
• The team has been increased following the merger as the business readies itself for the launch of the new cloud
practice management products.
• As a consequence of COVID 19 conditions, doubtful debt provisioning was increased.
COVID-19 Impact
The Reckon Limited business transitioned smoothly to working from home when COVID 19 hit.
The infrastructure and business interruption processes were well designed to deal these sorts of situations.
The Reckon Group has displayed its resilience, by posting growth in these challenging times. This is despite revenue
growth being hampered by COVID-19 in the Accountants and Legal Groups where there is a reliance on on-site sales
and installation activity.
The expected credit loss assessment has been reviewed in the current period, and a decision has been made to
increase these provisions by $0.6 million in this financial year. No impairment of assets is considered necessary.
The impact of the COVID-19 pandemic is ongoing and it is not practicable to estimate the potential impact, positive
or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by
the Australian Government and other countries, such as maintaining social distancing requirements, quarantine,
travel restrictions and any economic stimulus that may be provided.
Significant Changes in State of Affairs
There were no significant changes to the Company’s state of affairs during the year.
12
Future Developments, Business Strategies and Prospects
for Future Financial Years
The Company strategy is to bring together a suite of solutions that deliver business efficiency tools for small to
medium sized businesses – an ecosystem for business, together with practice efficiency tools for professional firms
– a platform for accountants and lawyers. The goal is to ultimately make it easy for small businesses to operate and
perform, and accountants, bookkeepers and legal firms to collaborate with their clients and ensure their compliance
obligations are met.
Key to understanding the Company’s strategy over the next 2 to 3 years is to appreciate the following:
•
•
there are untapped opportunities in targeted and niche products that complement and diversify the traditional
efficiency software offered to businesses and professional firms.
investment will also be focused on maintaining, refining and improving existing assets and acquiring or developing
solutions to complement or differentiate our offerings, especially in the cloud.
•
the businesses have a stable and loyal customer base.
For 2021 and beyond in the Business Group the intention is to pursue cloud growth across the small business
accounting and payroll market, complimented with new mobile apps. In the Accountant Practice Management
Group, cloud products have and are being developed for APS and Elite clients and pursuing a larger addressable
market is the goal. For the Legal Practice Management Group, recently fortified by the creation of nQueue Zebraworks
Inc, the plan is to build on the existing market, explore new markets, develop new products, and collaborate on
cross-selling practice management solutions to the legal market.
The Company continues to assess appropriate corporate transactions.
13
Remuneration Report (Audited)
1 Persons Covered by this Report
The Remuneration Report sets out, in accordance with section 300A of the Corporations Act: (i) the Company’s
governance relating to remuneration, (ii) the policy for determining the nature and amount or value of remuneration of
key management personnel; (iii) the various components or framework of that remuneration; (iv) the prescribed
details relating to the amount or value paid to key management personnel, as well as a description of any performance
conditions; (v) the relationship between the policy and the performance of the Company.
Key management personnel (KMP) are the non-executive directors, the executive directors and employees who have
authority and responsibility for planning, directing and controlling the activities of the consolidated entity. On that
basis, the following roles/individuals are addressed in this report:
Non-executive Directors
• Mr Greg Wilkinson, director since 19 July 1999
• Deputy Chairman since 1 February 2006
• Chairman of the Board since 1 July 2018
• Risk and Audit Committee member since 1 February 2010
• Remuneration Committee member since 1 December 2011
• Mr Philip Hayman, independent non-executive director since 1 July 2018
• Remuneration Committee Chair since 1 July 2018
• Risk and Audit Committee Chairman since 1 July 2018
Senior Executives Classified as KMP
• Mr Clive Rabie
• Chief Operating Officer from 1 January 2001
•
Executive Director since 24 May 2005
• Group Chief Executive Officer from 22 February 2006
• Group Managing Director since 1 July 2018
• Mr Sam Allert
•
Executive Director since 1 July 2018
• Group Chief Executive Officer since 1 July 2018
• Mr Chris Hagglund
• Group Chief Financial Officer (CFO) since 1 October 2004
• Mr Myron Zlotnick
• General Counsel from 1 October 2002 until 2 July 2018
• Company Secretary since 19 November 2002
14
2 Context of KMP Remuneration
The Remuneration Committee and the board remain mindful of the historical context of the governance of
remuneration matters for the Company. At the 2020 Annual General Meeting there was a vote of approval of 99.75%
for remuneration practices. The board continues to endeavour to balance the idiosyncrasies of the Company with
generally accepted governance practices for remuneration.
3 Overview of Reckon’s Remuneration Governance Framework
& Strategy
The Company is influenced in the governance of KMP remuneration by a wide range of sources, including:
• Remuneration Committee Members,
• External remuneration consultants (ERCs),
• Stakeholder groups including shareholders and proxy advisors, and
• Company management to understand roles and issues facing the Company.
The following outlines Reckon’s remuneration governance framework.
3.1 Remuneration Committee
Authority for remuneration matters rests with the Remuneration Committee which reports to the board and makes
recommendations regarding remuneration to the board which has ultimate responsibility for signing of on remuneration
policies, practices and outcomes.
The Remuneration Committee was comprised of two non-executive directors:
•
•
Mr Philip Hayman (independent non-executive director)
Mr Greg Wilkinson (independent, Chairman of the Board).
The Remuneration Committee operated substantially in accordance with the aims and aspirations of Principle 8 of
the ASX Corporate Governance Principles and Recommendations (“ASX Principles and Recommendations”),
including that the majority of the committee should be composed of independent non-executive directors.
The role and responsibilities of the committee are outlined in the Reckon Remuneration Committee Charter (the
Charter), available on the Company Website. The role of the Remuneration Committee is to ensure that appropriate
remuneration policies are in place which are designed to meet the needs of the Company and to enhance corporate
and individual performance. That is, the development, maintenance and application of the Remuneration Governance
Framework for the purposes of making recommendations to the Board regarding KMP remuneration matters, as well
as advising the Board on procedures that must be undertaken in relation to the governance of remuneration, and
communicating such matters to the market (such as the calculation of grants of incentives, review of performance
conditions and receipt of independent advice, etc.).
Under the Charter, the Remuneration Committee is to be composed of at least three non-executive members with
the majority being independent directors. It should be noted that given the size of the Company and the board, the
Remuneration Committee presently is comprised of only two members. Consideration will be given when relevant
decisions need to be made to appointing a third independent member.
The charter of the Remuneration Committee is available on the company’s website at https://www.reckon.com/au/
investors/governance/.
15
Remuneration Report (Audited) (continued)
3.2 Trading Policy
The Trading Policy of the Company is available on the Company website. It contains the customary references to
insider trading restrictions that are a legal requirement under the Corporations Act, as well as conditions associated
with good corporate governance. To this end the policy specifies trading blackout periods during which officers of
the Company may not trade in the securities of the Company. Officers must seek permission from the Chairman of
the Company before trading in any periods outside blackout periods. The Trading Policy also requires officers to
notify the Company Secretary of the transaction once it is completed and prohibits trading at all other times unless
an exception provided by the Chairman following an assessment of the circumstances (e.g. financial hardship).
Trading black outs operate in the period commencing one day before the end of a financial reporting period and end
one day after the reporting for the relevant financial period has been announced to the public.
Officers generally includes directors and Senior Executives of the Company.
The policy also restricts employees from short-term trading or from hedging etc. and gives the Board the power to
suspend all dealing in Company securities by employees at any time, should it be appropriate.
3.3 Executive Remuneration Policy
The following outlines the policy that applies to executive KMP (and does not apply to non-executive directors):
•
Remuneration should be composed of:
•
•
•
Base Package (inclusive of superannuation, allowances, benefits and any applicable fringe benefits tax
(FBT) as well as any salary sacrifice arrangements)
Short term incentive (STI) which provides a reward for performance against annual objectives
Long term incentive (LTI) which provides an equity-based reward for performance against indicators of
shareholder benefit or value creation, over a three-year period
•
In total the sum of the elements will constitute a total remuneration package (TRP)
•
Both internal relativities and external market factors should be considered
• TRPs ought to be structured with reference to market practices and the circumstances of the Company at the time
•
•
•
•
That the Base Package policy mid-points should be set with reference to P50 (the median or the middle) of the
relevant market practice subject to the circumstances of the Company at the time
That TRPs at Target (being the Base Package plus incentive awards intended to be paid for targeted levels of
performance) should be set between P50 and P75 (the upper quartile, the point at which 75% of the sample lies
below) of the relevant market practice so as to create a strong incentive to achieve targeted objectives in both
the short and long term
Remuneration will be managed within a range so as to allow for the recognition of individual differences such as
the calibre of the incumbent and the competency with which they fulfil a role (a range of +/- 20% is used, in line
with common market practices)
Exceptions will be managed separately such as when particular talent needs to be retained or there are
individuals with unique expertise that need to be acquired (“Red circle” exceptions) and
• Termination benefits will generally be limited to the default amount that may be provided for without shareholder
approval, as allowed for under the Corporations Act.
Taking account of the above, generally, remuneration structures are driven by the budget setting process and cost
to company as well as the particular circumstances of the relevant KMP, their skill set, experience, and value to the
Company.
16
Market capitalisation is one of the factors that influences external assessments of the appropriateness of remuneration;
it is understood that external groups tend to see it as the primary indication of the size and status of the Company,
and the field in which the Company is competing for talent. While Reckon does not subscribe to this view exclusively
and instead considers a broad range of factors that drive competition for talent in different parts of the Company, it
is acknowledged that it must be a consideration when communicating with stakeholders.
The Company will also take into account the impact of corporate transactions on incentives designed to retain talent
for the longer term.
3.4 Non-executive Director Remuneration Policy
The Non-executive Director Remuneration Policy applies to non-executive directors (NEDs) of the Company in their
capacity as directors and as members of committees, and may be summarised as follows:
•
Remuneration may be composed of:
•
•
•
Board fees inclusive of superannuation
Other benefits (if appropriate) and
Equity (if appropriate at the time, currently not applicable)
•
•
•
•
Committee fees do not form part of the NED remuneration policy because at present the workload of the Board
is shared equitably amongst its members
Remuneration will be managed within the aggregate fee limit (AFL) or fee pool approved by shareholders of the
Company – currently $400,000 in accordance with shareholder approval in 2005
Termination benefits will not be paid to NEDs by the Company
A policy level of Board Fees (being the fees paid for membership of the Board, inclusive of superannuation) will
be set with reference to the P50 (median or middle) of the market of comparable ASX listed companies.
During the FY20 reporting period the following fees were applicable:
Function
Main Board
Audit & Risk Committee
Nomination & Remuneration Committee
Other Committee
Role
Chair
Member
Chair
Member
Chair
Member
Chair
Member
Fee Including Super
$134,028
$89,352
n/a
n/a
n/a
n/a
n/a
n/a
17
Remuneration Report (Audited) (continued)
As at the commencement of FY21 the following fees apply:
Function
Main Board
Audit & Risk Committee
Nomination & Remuneration Committee
Other Committee
Role
Chair
Member
Chair
Member
Chair
Member
Chair
Member
Fee Including Super
$136,705
$91,139
n/a
n/a
n/a
n/a
n/a
n/a
3.5 Short Term Incentive (STI) Policy
Currently the short term incentive policy of the Company is that an annual component of executive remuneration
should be at-risk tested over a single financial year, and allow the Company to modulate the cost of employment to
align with individual and Company performance while motivating value creation for shareholders. In addition:
•
STI should be settled in part or whole in the form of cash, and if appropriate at the time, a portion may be
specified as being settled in the form of equity
• The target cash component of the STI at target should have a weighting in the remuneration mix that is no
greater than the sum of LTI at target and any equity component of the STI at target, to ensure that executives are
focused on long term value creation via equity ownership
•
If part of the STI is to be settled in the form of equity:
• STI deferral is to apply to contribute to the long-term alignment of executives and shareholders, and to
facilitate retention of senior executive talent, and
•
For FY20 approximately one third to one half of any STI award will be settled provided the incumbent has
remained employed for 12 months following the end of the STI Measurement Period in order to receive the
full award.
3.6 Long Term Incentive (LTI) Policy
Currently the long term incentive policy of the Company is that an annual component of remuneration of executives
should be at-risk and based on equity in the Company to ensure that executives hold a stake in the Company, to align
their interests with those of shareholders, and that executives share risk with shareholders.
Further:
•
The LTI should be based on Performance Rights that vest based on assessment of performance against
objectives
•
The Measurement Period should be three years
• There should be two measures of long-term performance, one which best reflects internal measures of
performance and one which best reflects external measures of performance
18
•
•
•
The measure that has strongest alignment with shareholders is total shareholder return (TSR), however it is
recognised that absolute TSR is influenced by overall economic movements. Therefore, the TSR component of
LTI is based on relative TSR which removes broad market movements from assessments of the Company’s TSR
performance and avoids windfall gains from broad market movements. Vesting only when the performance of
the Company meets or exceeds the performance of the broader market
Senior Executives are faced with significant and long-term business development and project-based challenges.
Therefore the LTI should also be linked to the achievement of earnings growth objectives that will lead to value
creation for shareholders, and the earnings per share (EPS) growth measure is considered the best measure of
long term performance and value creation from an internal perspective, by the Board and by many stakeholders
When an executive owns a substantial portion of the Company’s issued capital, they are ineligible for employee
share scheme (ESS) tax treatment, and the consequences of participating in the plan are punitive. In order to
address this there is a separate plan (not presently in operation) which is effectively the same as the Rights LTI
plan but allows for the LTI instrument to be replaced with Share Appreciation Rights (SARs) which are settled in
cash, when this circumstance arises. Such payments are treated the same way as a cash STI in terms of tax.
This treatment also applies to any deferred component of STI that would otherwise be awarded in the form of
share-based rights. Whilst it is recognised that the settling of incentive rights in the form of cash is unusual, it is
trusted that shareholders understand the need to do so in these limited cases
•
The SAR plan operates in a similar way to an option, in that the participant only receives a benefit to the extent
of growth in value over the market value of a share at the time of calculation/granting. This requires that they be
valued differently, as their value is not the whole value of a Company share.
19
Remuneration Report (Audited) (continued)
3.7 Variable Executive Remuneration – The Short Term Incentive (STI)
Short Term Incentive (STI)
Aspect
Purpose
Measurement
Period
Award
Opportunities
Key Performance
Indicators (KPIs),
Weighting and
Performance
Goals
Plan, Offers and Comments
The STI Plan’s purpose is to give effect to an element of Senior Executive Remuneration. This
element of remuneration constitutes part of a market competitive total remuneration package and
aims to provide an incentive for Senior Executives to deliver and outperform annual business plans
that will lead to sustainable superior returns for shareholders. Target-based STI’s are also intended
to modulate the cost to the Company of employing Senior Executives, such that risk is shared with
the executives themselves and the cost to the Company is reduced in periods of poor performance.
The Company’s financial year i.e. from 1 January to the following 31 December.
FY20 Offers
The CEO was offered a target-based STI equivalent to roughly 29% of the Base Package for
target performance, with a stretch opportunity of up to 110% of the target.
Other Senior Executives who are KMP were offered a target-based STI equivalent to 29% of the
Base Package for target performance with a stretch opportunity of up to 110% of the target.
Comments
The incentive levels offered in FY20 were consistent with the proportional opportunities
(proportional to Base Package) offered in previous years.
FY21 Offer
The FY21 offers are substantially similar to the FY20 offers.
FY20 Offers
KPIs may vary to some extent between participants and reflect the nature of their roles, while
creating shared objectives where appropriate. KPIs used for FY20 included:
• Revenue
• EBITDA
• EPS
Weightings are applied to the KPIs selected for each participant to reflect the relative importance
of each KPI. Information on this aspect and specific KPIs is given in detail elsewhere in this
report.
Comments
The Board selected KPI’s that were identified as having the strongest links with long term value
creation for shareholders at the Company level, and those objectives over which individuals had
most control that would also be expected to contribute to long term value creation and
sustainability for shareholders within a 12 month period, as well as KPIs to recognise individual
role related objectives and business plans for FY20.
FY21 Offers
The FY21 offers are substantially similar to the FY20 offers.
20
Award
Determination and
Payment
Calculations are performed following the end of the Measurement Period and the audit of
Company accounts.
Payments are in cash with PAYG tax deducted, paid following the completion of the Measurement
Period and completed audited full year accounts. A portion of the STI (between one third and
one half) is only paid a year later provided the KMP is still employed.
Performance was determined following audit sign-off of the FY20 accounts.
Change of Control
The Board has discretion to terminate the STI for the Measurement Period and make pro-rata
awards having regard to performance or make pro-rata awards based on performance and
allow the plan to continue for the. Measurement Period or make no interim awards and allow the
Plan to continue for the Measurement Period.
Plan Gate and
Board Discretion
If the Company’s overall performance during the Measurement Period is substantially lower than
expectations and resulted in significant loss of value for shareholders, the Board may abandon
the STI Plan for the Measurement Period or adjust STI payouts downward. The Board also has
discretion to increase payouts, however, it has been determined that such discretion will only be
applied in future when it would be substantially inappropriate not to do so, due to an anomaly
during the Measurement Period, or because of exceptional circumstances, which would be
explained in detail as part of the Remuneration Report.
Fraud, Gross
Misconduct etc
Clawback and
Malus
If the Board forms the view that a Participant has committed fraud, defalcation or gross
misconduct in relation to the Company then all entitlements in relation to the Measurement
Period will be forfeited by that participant.
A clawback policy is in place for cases of material misstatement or misconduct. The Remuneration
Committee has the power to withdraw offers that have not vested or to clawback short-term
incentives paid in the case of serious misconduct or material misstatement in the financial
statements respectively.
3.8 Variable Executive Remuneration – Long Term Incentive (LTI) – Performance Rights Plan
Long Term Incentive (LTI)
Aspect
Purpose
Plan, Offers and Comments
The LTI Plan’s purpose is to give effect to an element of Senior Executive remuneration. This
element of remuneration constitutes part of a market competitive total remuneration package and
aims to provide an incentive for Senior Executives to deliver Company performance that will lead
to sustainable superior returns for shareholders. Other purposes of the LTI Plan is to act as a
retention mechanism so as to maintain a stable team of performance focused Senior Executives,
to create alignment with the interests and experiences of shareholders and to modulate the cost
to the Company of employing executives such that in periods of poor performance the cost is
lesser (applies to non-market measures under AASB 2). Currently the Company operates two
performance rights plans, one which is settled in the form of Company shares (equity-based
Rights), and one which is settled in the form of cash, but based on growth/change in the
Company’s share price (SARs), similar to an option (necessary to avoid potentially adverse tax
treatment of certain executive KMP due to personal shareholdings.
21
Remuneration Report (Audited) (continued)
Measurement
Period
Normally three years.
FY20 Offers
For offers made during FY20, no rights will vest until the completion of the third year following the
making of the offer.
Comments
Three-year Measurement Periods combined with annual grants will produce overlapping cycles
that will promote a focus on producing long term sustainable performance/value improvement
and mitigates the risk of manipulation and short-termism.
FY21 Offers
FY21 offers have not been made to KMP, pending the Remuneration Committee’s review of the
LTI plan.
Form of Equity
LTI is in the form of Performance Rights, which are either rights to:
•
•
ordinary Company shares, under the regular LTI plan,
or to a cash value equivalent to growth in the market value of a share in respect of each
vested Performance Right, since the date of grant/calculation, under the share
appreciation rights plan (SARs),
both of which vest subject to the satisfaction of conditions related to long term performance and/
or service on an identical basis i.e. the form of equity has no bearing on the setting of vesting
conditions etc.
There is no entitlement to dividends during the Measurement Period.
LTI Value
The Board retains discretion to determine the value of LTI to be offered each year, subject to
shareholder approval in relation to Directors, when the Rights are to be settled in the form of a
new issue of Company shares. The Board may also seek shareholder approval for grants to
Directors in other circumstances, at its discretion.
FY20 Offers
In relation to the CEO, Performance Rights with a target/maximum value equivalent to 28% of the
cash Base Package when target vesting applies.
For other Senior Executives who are KMP the LTI granted was equivalent to 20% of Base
Packages when target vesting applies. A stretch level is not available for performance that
exceeds the targets.
22
Vesting Conditions
The Board has discretion to set vesting conditions for each offer. Performance Rights that do
not vest will lapse. The vesting conditions are TSR relative to the ASX 300, with a 50%
weighting, and EPS Growth relative to target, with a 50% weighting. Adjustment of the TSR
vesting scale will occur to remove any vesting at below-market (index) performance.
FY20 Offers
The vesting scales for prior offers are:
Performance Level
Annualised EPS Growth
Vesting
Below Threshold
< Budget
Threshold
=Budget
0%
75%
Between Threshold and Target
>Budget, <110% of Budget
Pro-rata
Target
110% of Budget
100%
Performance Level
Relative TSR of the
Company as % of the S&P
ASX 300 Accumulation
Index
Below Threshold
< Index
Threshold
=Index (100%)
Vesting
0%
75%
Between Threshold and Target
>100%, <110%
Pro-rata
Target
110% of Index
125%
23
Remuneration Report (Audited) (continued)
FY21 Offers
FY21 offers have not been made to KMP, pending the Remuneration Committee’s review of the
LTI plan.
Comments
The Board of Reckon recognises that it is important that shareholders understand why the LTI
vesting conditions selected are appropriate to the circumstances of the Company, and therefore
seeks to be transparent in this regard.
A form of total shareholder returns (TSR) was selected as it recognises the total returns (share
price movement and dividends assuming they are reinvested into company shares) that accrue
to shareholders over the Measurement Period. This measure creates the most direct alignment
between the experience of shareholders and the scaling of rewards realised by Senior Executives.
Relative TSR has been selected to ensure that participants do not receive windfall gains from
broad market movements unrelated to the performance of the Senior Executives (which is the
key feature that has led many companies to use relative TSR). Relative TSR achieves this by
modulating the required TSR outcome of the Company based on indicators of overall market
movements, and assessing performance in excess of broad market movements unrelated to the
activities of the Company.
While ranked TSR was considered, it was not possible to identify a comparator group of
companies that was statistically robust enough to be meaningful and the Board was concerned
that this would undermine the link between executive performance and reward outcomes. In
addition, the comparator group used until very recently is no longer appropriate as several
entities have failed or are no longer listed on the ASX. TSR relative to a robust indicator of market
movements/performance will therefore apply to future grants of LTI.
The relative TSR vesting scale requires that the Company deliver a TSR to shareholders that is
at least as good or better than the market over the Measurement Period before any vesting may
occur. Full vesting becomes available when the TSR of the Company reaches 100% of the TSR
of the index over the Measurement Period. The Target of 110% of the index is considered by the
Board to be challenging, but achievable, should the Board’s assumptions in making that
assessment prevail. While, under such a TSR LTI approach, the market indicator is generic, the
vesting scale reflects the expectations of the Board, management, shareholders and other
stakeholders given the particular circumstances of the Company, relative to the broader market.
This new measure is, in the view of the Board and based on advice, likely to better align the
outcomes of the LTI plan with Company performance and shareholder interests than selecting a
tailored but largely irrelevant comparator group of companies to which a generic vesting scale is
then applied, which is the approach adopted by the vast majority of companies that use ranked
TSR.
Based on advice received by the Board from its independent remuneration advisor in 2016, it is
understood to be good practice to have both an external (TSR) and internal measure of long-
term Company performance in relation to the LTI. The internal measures that will most clearly
align with shareholder value creation at this stage will be the achievement of the earnings growth
targets specified by the Board in consideration of business plans and economic circumstances
each year. Therefore, earnings per share growth (EPSG) is used as the second condition.
Retesting
The Plan Rules do not contemplate retesting and therefore retesting is not a feature of the
Company’s current LTI offers.
24
Plan Gate and
Board Discretion
A gate applies to the TSR component of the LTI such that no vesting will occur if the Company’s
TSR is not positive. If the movement of the index is low over the Measurement Period, at less
than 5%, then the Board will exercise its discretion to limit vesting to the threshold level, or an
even lesser level.
The Board has the power to exercise discretion to decline to allow an award to vest, for example
in the circumstances of a “bad leaver”.
Amount Payable
for Performance
Rights
Exercise of Vested
Performance
Rights
Dealing
Restrictions on
Shares
Cessation of
Employment
During a
Measurement
Period
No amount is payable for Performance Rights.
The value of Rights is included in assessments of remuneration and policy.
Under the plan rules, vested Performance Rights will be available to be exercised, subject to
the payment of any Exercise Price, until the last exercise date. Exercised Rights will be satisfied
in the form of ordinary Company shares, except where the participant necessarily participates
in the cash Rights (SAR) plan to address the tax issues faced by them as significant
shareholders in the Company (see earlier discussion of this aspect).
No amount is payable by participants to exercise vested Performance Rights.
Shares that result from the exercise and vesting of Performance Rights will be subject to
dealing restrictions as per the Company’s trading policy applicable to officers of the Company.
In the event of cessation of employment due to dismissal for cause all unvested Performance
Rights are forfeited.
In the event of cessation of employment due to resignation or dismissal all unvested
Performance Rights are forfeited.
Change of Control
of the Company
The Board retains discretion under the rules of the plans to over-rule the automatic vesting of
incentives in the event of “capital events” such as takeovers or restructures.
Fraud, Gross
Misconduct etc
Clawback and
Malus
If the Board forms the view that a Participant has committed fraud, defalcation or gross
misconduct in relation to the Company then all entitlements in relation to the Measurement
Period will be forfeited by that participant.
A clawback policy is in place for cases of material misstatement or misconduct. The
Remuneration Committee has the power to withdraw offers that have not vested or to
clawback short-term incentives paid in the case of serious misconduct or material
misstatement in the financial statements respectively.
In previous years the Company also operated a Retention Rights scheme which allowed for vesting based on service
only. On 24 May 2011 the Remuneration Committee approved and recommended to the Board an extension to the
long-term incentive plan by adding a long-term retention incentive. 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 (i.e. beyond the KMP).
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 KMP and other senior employees. 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 employees who commit to the company over a very
long period and thereby providing stability as the business grows and matures, the board believes long term
shareholder benefits will result for shareholders.
25
Remuneration Report (Audited) (continued)
The long-term retention incentives are offered to selected employees with the principal vesting condition that
participants must remain employed for the term specified (typically 7-10 years). 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.
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.
However, no grants were made to KMP under that plan during FY20, and in response to feedback from some
shareholders and stakeholders, the Board does not contemplate making further grants such as this to executive
KMP again unless exceptional circumstances arise. This legacy arrangement is being grandfathered and is phasing
out, with the final tranche vesting at the end of FY20 in respect of KMP.
3.9 Securities Holding Policy
The Board currently sees a securities holding policy as unnecessary since executives receive a significant component
of remuneration in the form of equity and that a number of key executives already hold significant numbers of shares,
voluntarily. Given that the outcome is effectively already being achieved, it was determined that such a policy was
currently unnecessary.
3.10 Clawback Policy
Reckon has adopted a clawback policy which is activated in cases of material misstatements in the Company’s
financial reports, or in cases of misconduct by executives.
26
4 Remuneration Records for FY20 – Statutory Disclosures
4.1 Senior Executive Remuneration
The following table outlines the remuneration received by Senior Executives of the Company during FY20 prepared
according to statutory disclosure requirements and applicable accounting standards:
Name
Role(s)
Year
Salary
Superannuation
Contributions
Other
Benefits
Base Package
STI1
LTI2
Amount
% of
TRP
Amount
% of
TRP
Amount
% of
TRP
Total
Remuneration
Package (TRP)
Mr Clive
Rabie
Mr Sam
Allert
Mr Chris
Hagglund
Mr Myron
Zlotnick3
Group MD
2020
$687,845
$25,000
Group MD
2019
$853,190
$25,000
$0
$0
$712,845
100%
$878,190
100%
$0
$0
0%
0%
$0
$0
0%
$712,845
0%
$878,190
Group CEO
2020
$588,795
$25,009
$1,018
$614,822
67%
$127,919
14% $172,000
19%
$914,741
Group CEO
2019
$577,250
$25,000
$2,092
$604,342
75%
$98,423
12% $106,484
13%
$809,249
Group CFO
2020
$500,650
$24,100
Group CFO
2019
$491,550
$23,400
Company
Secretary
Company
Secretary
2020
2019
$0
$0
$0
$0
$0
$0
$0
$0
$524,750
68%
$142,186
18% $107,028
14%
$773,964
$514,950
71% $149,884
21%
$57,061
8%
$721,895
$0
$0
0%
0%
$0
$0
0%
0%
$0
$0
0%
0%
$0
$0
2020
$1,777,290
$74,109
$1,018
$1,852,417
$270,105
$279,028
$2,401,550
TOTALS
2019
$1,921,990
$73,400
$2,092
$1,997,482
$248,307
$163,545
$2,409,334
1 Note that the STI value reported in this table is the STI that was paid during the reporting period, being the award earned during the previous
period. Incentive outcomes for the current and previous period are outlined elsewhere in this report.
2 Note that the LTI value reported in this table is the amortised accounting charge of all grants that have not lapsed or vested as at the start of the
reporting period.
3 Mr Zlotnick’s services as Company Secretary are provided on an independent contractor basis at an annual fee of $160,745 (2019: $160,745).
Both target and awarded values of STI and LTI remuneration are outlined in the relevant sections of the Remuneration
Report to assist shareholders to obtain a more complete understanding of remuneration as it relates to senior
executives.
27
Remuneration Report (Audited) (continued)
4.2 Non-executive Director Remuneration
Non-executive director fees are managed within the current annual fees limit (AFL or fee pool) of $400,000 which was
approved by shareholders at the 2008 AGM.
Remuneration received by non-executive directors in FY19 and FY20 is disclosed below:
Name
Role(s)
Year
Board
Fees
Committee
Fees
Superannuation
Other
Benefits
Equity
Grant
Termination
Benefits
Total
Independent,
non-executive
2020
$122,400
$0
$11,628
$0
$0
$0
$134,028
Mr Greg
Wilkinson
Chairman
Independent,
non-executive
Deputy
Chairman
Independent,
2019
$120,000
$0
$11,400
$0
$0
$0
$131,400
non-executive
2020
$81,600
$0
$7,752
$0
$0
$0
$89,352
Mr Philip
Hayman
director
Independent,
non-executive
2019
$80,000
$0
$7,600
$0
$0
$0
$87,600
director
TOTALS
2020
$204,000
$0
$19,380
$0
$0
$0
$223,380
2019
$200,000
$0
$19,000
$0
$0
$0
$219,000
28
5 Planned Executive Remuneration for FY20
The disclosures required under the Corporations Act and prepared in accordance with applicable accounting standards
attempt to match remuneration reported with the services provided to earn that revenue in the relevant year. The table
below, on the other hand, indicates remuneration offered to KMP to be earned in the current and future periods. For
example, the LTI disclosed is not reflective of the offer made in the year being reported on due to the requirements of AASB
2. It should be noted that the table presents target incentive opportunities for achieving a challenging but achievable target
level of performance. In the case of STI, the maximum incentive may be up to 10% higher (i.e. 110% of the target). It should
be noted that the table presents target incentive opportunities for achieving a challenging but achievable target level of
performance. In the case of STI, the maximum incentive may be up to 10% higher (i.e. 110% of the target).
Position
Incumbent
Group MD
Group CFO
Group CEO
Mr Clive
Rabie
Mr Chris
Hagglund
Mr Sam
Allert
Company
Secretary
Mr Myron
Zlotnick
Base
Package
Including
Super
Fixed
%
TRP
STI
LTI
Target
% of
Base
Package
Target
STI
Amount
STI
%
TRP
Target %
of Base
Package
Target
LTI
Amount
LTI
%
TRP
Total
Remuneration
Package at
Target
Performance
$712,845
100%
0%
$0
0%
0%
$0
0%
$712,845
$524,750
67%
29%
$151,500
19%
20%
$107,028
14%
$783,278
$614,822
64%
29%
$180,000
19%
28%
$172,000
18%
$966,822
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
The incentives presented in the table above is the target level of STI offered for FY20, valued at the time of the grant.
The intended value for STI and LTI will flow to participants when performance targets are achieved.
29
Remuneration Report (Audited) (continued)
6 Actual/Realised Remuneration Relevant to FY20 Completion
The statutory disclosure requirements do not provide clear information on value obtained by KMP during the current year
as the statutory information attempts to match the disclosed remuneration with when the services are provided. The
following table outlines the non-deferred component of STI achieved during the financial year, and the LTI, if any, and/or any
deferred STI that vested during the financial year in relation to the completion of the performance or vesting period at the
end of the specified financial year:
Name
Role(s)
Year
Base Package
Including Super
Non-deferred
STI paid for the
Financial Year
Deferred cash STI
paid out for the
FY
Grant Value of
Previous Equity
Grants that
Vested for the
FY1
Actual Total
Remuneration
Package
(TRP)
Amount
% of
TRP
Amount
% of
TRP
Amount
% of
TRP
Amount
Group MD
2020
$712,845
100%
Group MD
2019
$878,190
100%
$0
$0
% of
TRP
0%
0%
$0
$0
Group CFO
2020
$524,750
78%
$82,505
12%
$63,182
Group CFO
2019
$514,950
65%
$73,562
9%
$68,624
Group CEO
2020
$614,822
78%
$121,480
15%
$54,156
Group CEO
2019
$604,342
73%
$108,312
13%
$19,607
Company
Secretary**
Company
Secretary
2020
n/a
n/a
n/a
n/a
2019
n/a
n/a
n/a
n/a
n/a
n/a
0%
0%
9%
9%
7%
2%
n/a
$0
$0
$3,948
0%
0%
1%
$712,845
$878,190
$674,385
$130,933
17%
$788,069
$0
0%
$790,458
$92,630
11%
$824,891
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2020
$1,852,417
$203,985
$117,338
$3,948
$2,177,688
2019
$1,997,482
$181,874
$88,231
$223,563
$2,491,150
Mr Clive
Rabie
Mr Chris
Hagglund
Mr Sam
Allert
Mr Myron
Zlotnick2
TOTALS
**Company secretarial services contracted from 1 July 2018.
1 This is the value as at grant of any equity that vested in relation to the completion of the specified financial year.
2 Mr Zlotnick’s services as Company Secretary are provided on an independent contractor basis at an annual fee of $160,745 (2019: $160,745).
30
7 Performance Outcomes for FY20
7.1 Company Performance
The following highlights the major achievements, milestones and areas where value was created during FY20.
From a short-term perspective 2020 posed particular challenges in the context of the COVID 19 pandemic. This was
especially the case in the Accountant Practice Management Group and the Legal Practice Management Group.
Nonetheless the Business Group performed very well despite the adverse conditions. Efficient cost management
resulted in what in the opinion of The Remuneration Committee is a satisfactory overall result. Especially in the
competitive market in which the Business Group operates.
In any event any incentives (STI and LTI) paid for the period under review are measured strictly against the targets set.
The following outlines the performance of the Company over the FY20 period and the previous 4 financial years in
accordance with the requirements of the Corporations Act:
Date
Revenue ($m)
Profit After Tax
attributable to
owners of the parent
($m)
Share Price
Change in Share
Price
Dividends
31-Dec-20
31-Dec-19
$75.6
$75.4
31-Dec-18
$75.4*
31-Dec-17
$90.3*
$9.7
$8.1
$7.7**
$7.6**
$0.78
$0.01
$0.77
$0.10
$0.67
-$0.90
$0.05
$0.05
$0.03
$1.57
-$0.02
$0.23***
31-Dec-16
$97.8*
$11.0**
$1.59
-$0.81
$0.05
* Note change in reporting of ASIC pass through revenue and costs impact, and in 2017 the Document Management Group was only included in
the results for 7 months, and none for 2018.
** Note impact of investment in new markets, and in 2017 the Document Management Group was only included in the results for 7 months, and none
for 2018, and these results also include transaction costs incurred.
***The dividend in specie paid to shareholders in the Document Management de-merger was $0.23 per share.
31
Remuneration Report (Audited) (continued)
7.2 Links Between Performance and Reward
The remuneration of executive KMP is intended to be composed of three parts as outlined earlier, being:
•
•
Base Package, which is not intended to vary with performance but which tends to increase as the scale of the
business increases (i.e. following success)
STI which is intended to vary with indicators of annual Company and individual performance, including a deferred
component to encourage retention and
•
LTI which is also intended to deliver a variable reward based on long-term measures of Company performance.
The STI achieved in relation to the FY20 period was paid after the end of the period (during FY21) in February 2021.
On average 101.23% of the target award opportunity or approximately 92% of the maximum award opportunity
(being 110% of the target) available was paid. This level of award was considered appropriate under the STI scheme
since the objectives were set and offers made in relation to the achievement of each KPI at the beginning of the
financial year, and the majority of those objectives were met. During the FY20 period the objectives that were linked
to the payment of STI included:
Name
Position
Held at
Year End
FY20 Company Level KPI Summary
Weighting
Target
Achievement
Award
Outcomes
Total
Award1
KPI
Summary
Revenue
40%
40%
20%
40%
40%
20%
40%
40%
20%
40%
40%
20%
n/a
n/a
n/a
$79.3m
$32.0m
7.7cps
$79.3m
$32.0m
7.7cps
95%
102%
112%
95%
102%
112%
$82,505
$121,480
n/a
n/a
n/a
Mr Clive Rabie
Group MD
EBITDA
EPS
Revenue
Mr Chris
Hagglund
Group CFO
EBITDA
EPS
Revenue
Mr Sam Allert
Group CEO
EBITDA
Mr Myron
Zlotnick
Company
Secretary
EPS
Revenue
EBITDA
EPS
32
The STI paid during the FY19 period related to performance during the FY18 period and was paid in cash in February
2019. On average 91% of the target award opportunity or 81% of the maximum award opportunity (being 110% of
the target) available was paid. This level of award was considered appropriate under the STI scheme that was in
place during FY18, which is summarised in the table below. Therefore, there were strong links between internal
measures of Company performance and the payment of short-term incentives:
Name
Position
Held at
Year End
FY19 Company Level KPI Summary
KPI
Summary
Weighting
Original
Target
Achievement
Award
Outcomes
Total
Award
Mr Clive Rabie
Group MD
EBITDA
Revenue
EPS
Revenue
Mr Chris
Hagglund
Group CFO
EBITDA
EPS
Revenue
Mr Sam Allert
Group CEO
EBITDA
Mr Myron
Zlotnick
Company
Secretary
EPS
Revenue
EBITDA
EPS
40%
40%
20%
40%
40%
20%
40%
40%
20%
40%
40%
20%
n/a
n/a
n/a
$77.9m
$33.8m
9.4cps
$77.9m
$33.8m
9.4cps
97%
91%
77%
97%
91%
77%
$73,562
$108,312
n/a
n/a
n/a
This value is accounted for in the realised remuneration table presented earlier.
33
Remuneration Report (Audited) (continued)
There was no vesting of LTI incentives in FY 2020, as no offers were made in FY18.
The Board is confident in stating that the links between Company performance and executive reward, both internally
and externally measured, and over both the short and long term, are well aligned and appropriate to the Company.
However, the Board will continue to make improvements and adjustments to these links as stakeholder expectations
and Company circumstances evolve.
7.3 Links Between Company Strategy and Remuneration
The Company intends to attract and retain the superior talent required to successfully implement the Company’s
strategies at a reasonable and appropriately variable cost by:
• positioning Base Packages (the fixed element) around P50 of relevant market data benchmarks when they are
undertaken
•
•
•
supplementing the Base Package with at-risk remuneration, being incentives that motivate executive focus on
short to mid-term objectives linked to the strategy via KPIs and annual performance assessments, and the
imposing of deferral periods for part of STI awards, and
long term value creation for shareholders by linking a material component of remuneration to those factors that
shareholders have expressed should be the long-term focus of executives and the Board.
Key strategies remain: investment in new technology; investment in new markets; and sustaining existing profitable
businesses. It is important to fix remuneration mindful of maintaining morale and retaining talent.
34
8 Employment Terms for Key Management Personnel
A summary of contract terms in relation to executive KMP is presented below:
Name
Position Held
at Close of
FY19
Employing
Company
Duration of
Contract
Period of Notice
Termination
Payments
Mr Clive
Rabie
Mr Chris
Hagglund
Group MD
Group CFO
Reckon
Limited
Reckon
Limited
Mr Myron
Zlotnick
Company
Secretary
Reckon
Limited
From
Company
From KMP
Open ended
1 month
1 month
Open ended
3 months
3 months
Up to 12
months*
Up to 12
months*
3 years
-
3 months
n/a
Mr Sam
Allert
Group CEO
Reckon
Limited
Open ended
1 month
1 month
Up to 12
months*
* Under the Corporations Act the Termination Benefit Limit is 12 months average Salary (last 3 years) unless shareholder approval is obtained.
On appointment to the Board, all non-executive directors enter into a service agreement with the Company in the
form of a letter of appointment. The letter summarises the Board policies and terms, including compensation relevant
to the office of the director. Non-executive directors are not eligible to receive termination payments under the terms
of the appointments.
A summary of the appointment terms in relation to non-executive KMP is presented below:
Name
Position Held at Close of
FY19
Employing
Company
Duration of
Contract
Period of Notice
From
Company
From
KMP
Termination
Payments
Mr Greg
Wilkinson
Mr Phillip
Hayman
Independent non-executive
Chairman
Independent Non-executive
Director
Reckon
Limited
Reckon
Limited
Open ended
None
None
None
Open ended
None
None
None
35
Remuneration Report (Audited) (continued)
9 Changes in KMP Held Equity
The following table outlines the changes in the amount of equity held by executives over the financial year
Number
Held at
Open 2020
Granted
FY20
Forfeited
Vested
Purchased /
Disposed /
DRP
Number Held
at Close
2020
Name
Instrument
Number
Number
Number Number
Number
Number
Mr Clive
Rabie
Mr Chris
Hagglund
Mr Myron
Zlotnick
Shares
10,597,141
Rights/
Options
-
Shares
744,833
-
-
-
205,000
350,000
Rights/
Options*
Shares
Rights/
Options
-
-
Mr Sam
Allert
Shares
200,279
Rights/
Options
1,300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,000
5,000
-
-
-
-
-
10,597,141
-
-
-
-
-
-
-
-
749,833
550,000
-
-
200,279
1,300,000
* The shares noted above exclude any Get Busy shares released or granted. Get Busy shares were issued to KMPs as part of the de-merger of the
Document Management business in 2017. This was done to ensure that Reckon shares offered as part of the long-term incentive plan were
recognised in the dividend in specie paid in the form of GetBusy shares.
36
The following table outlines the changes in the amount of equity held by non-executive directors over the financial year:
Name
Instrument
Number
Held at
Open 2020
Granted
FY20
Forfeited
Vested
Purchased /
DRP
Number Held at
Close 2020
Number
Number
Number
Number
Number
Number
Mr Greg
Wilkinson
Mr Philip
Hayman
Shares
8,019,374
Rights/Options
n/a
Shares
1,397,460
Rights/Options
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
0
n/a
0
n/a
8,019,374
n/a
1,397,460
n/a
The following table outlines the value of equity granted during the year that may be realised in the future:
2020 Equity Grants
Tranche
Total Value at
Grant
Value
Expensed in
FY20
Max Value to
be Expensed in
Future Years
Min Value to be
Expensed in
Future Years
Name
Role
Mr Clive Rabie
Group CEO
TSR
EPS
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Service
Must be employed at end of performance period
Mr Chris
Hagglund
Group CFO
TSR
EPS
$106,750
$35,583
$106,750
$35,583
$71,167
$71,167
$71,167
Mr Myron
Zlotnick
Company
Secretary
Mr Sam Allert
MD Business &
Accounting
ANZ
Service
Must be employed at end of performance period
TSR
EPS
Service
TSR
EPS
n/a
n/a
$0
$0
n/a
n/a
n/a
n/a
Must be employed at end of performance period
$0
$0
$0
$0
Service
Must be employed at end of performance period
$0
n/a
n/a
$0
$0
TOTALS
$213,500
$71,166
$142,334
$71,167
37
Remuneration Report (Audited) (continued)
10 Other Remuneration Related Matters
The following outlines other remuneration related matters that may be of interest to stakeholders, in the interests of
transparency and disclosure:
• Other than as disclosed, there were no loans to Directors or other KMP at any time during the reporting period and
• There were no relevant material transactions involving KMP other than compensation and transactions
concerning shares, performance rights/options as discussed in this report.
Mr Clive Rabie acquired surplus Get Busy PLC shares from the employee share scheme (Reckon Australia Pty Ltd) in
March 2020. This was the purchase of 154,429 shares at 63 pence per share, being the market price on 9 March 2020.
The rules state that in all cases save as the rules provide otherwise, the Board has an over-riding discretion in relation
to any of its powers under the Rules.
38
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’ Meeting
The following table sets out the number of directors’ meetings held during the financial year and the number of
meetings attended by each director.
Directors
Meeting
Reckon Limited – Attendance Tables
Board
Audit & Risk Committee
Remuneration Committee
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Greg
Wilkinson
Clive Rabie
Phil Hayman
Sam Allert
12
12
12
12
12
12
12
12
2
n/a
2
n/a
2
n/a
2
n/a
3
n/a
3
n/a
3
n/a
3
n/a
39
Non-Audit Fees
Details of the non-audit services can be found in note 6 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 6 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.
Subsequent Events
In the Reckon Legal Group, the merger agreement between Billback Systems LLC and Zebraworks Inc into NQ
Zebraworks Inc, announced in August 2020, was completed in February 2021.
On 16 February 2021, the company announced the sale of its ReckonDocs business to NowInfinity Pty Limited, a
wholly owned subsidiary of Class Limited. The transaction was completed on 1 March 2021.
For further details of these events, refer to Note 29.
Auditor’s Independence Declaration
The auditor’s independence declaration is included after this report on page 41.
Rounding Off of Amounts
The company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the
directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise
indicated.
On behalf of the directors,
Mr G Wilkinson
Chairman
Sydney 26 March 2021
40
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
The Board of Directors
Reckon Limited
Level 2
100 Pacific Highway
North Sydney NSW 2060
26 March 2021
Dear Board Members
AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo RReecckkoonn LLiimmiitteedd
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Reckon Limited.
As lead audit partner for the audit of the financial report of Reckon Limited for the year ended 31
December 2020, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
TTaarraa HHiillll
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
41
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to the Members of Reckon
Limited
RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt
Opinion
We have audited the financial report of Reckon Limited (the “Company”) and its subsidiaries (the “Group”) which
comprises the consolidated statement of financial position as at 31 December 2020, the consolidated income
statement, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory information, and the
directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
Giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial
performance for the year then ended; and
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We
are independent of the Group in accordance with the auditor independence requirements of the Corporations Act
2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report for the current period. These matters were addressed in the context of our audit of the financial report
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
42
KKeeyy AAuuddiitt MMaatttteerr
HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr
CCaappiittaalliissaattiioonn ooff ddeevveellooppmmeenntt ccoossttss
As at 31 December 2020, the Group has
capitalised development costs totalling $36.6m
as disclosed in Note 12.
The Group capitalises certain costs that are
directly attributable to the development of
intangible assets.
As set out in Note 1(w), significant judgement is
involved in assessing whether the criteria for
capitalisation of such costs has been met,
including:
i)
ii)
the appropriateness of the costs that
have been capitalised and whether
these costs were directly attributable
to relevant products developed; and
the extent to which these capitalised
development costs will generate
sufficient economic benefit to support
their carrying values.
IImmppaaiirrmmeenntt ooff ggooooddwwiillll
As at 31 December 2020 the Group has
recognised goodwill of $29.1m as a
consequence of past acquisitions as disclosed in
Note 12. Of this goodwill balance, $2.6m has
been allocated to the Legal Group cost
generating unit (CGU).
In determining the recoverable amount of the
Legal Group CGU, the Group has adopted a fair
value less cost of disposal method. A valuation
of the Legal Group CGU was completed by
management’s expert in preparation for its
acquisition of Zebraworks which occurred in
February 2021 as disclosed in Note 29.
As set out in Note 1(w), the directors’
assessment of the recoverability of goodwill
requires significant judgement including
identifying the CGUs to which goodwill is to be
allocated.
Other key judgments specific to the Legal Group
CGU included:
Estimation of the key underlying
assumptions adopted by management’s
expert in determining fair value such as the;
future growth rates applied;
discount rate applied; and
calculation of expected cash flows
of Legal Group CGU; and
Estimation of cost of disposal.
Our procedures included, but were not limited to:
Discussing with management, the products for which
development costs have been capitalised to develop an
understanding of the nature and feasibility of the products at 31
December 2020;
Obtaining an understanding of the key controls in place over the
process for recording and identifying qualifying costs to be
capitalised;
Assessing the appropriateness of costs capitalised with reference
to internal documentation, including, on a sample basis, agreeing
payroll costs capitalised to supporting payroll and time records
and cost allocation calculations; and
Evaluating the appropriateness of the carrying value of the
capitalised development costs by major product, with reference
to historical and forecast cash flows, and analysis of sales trends.
We also assessed the appropriateness of the disclosures in Note 12 to
the financial statements.
Our procedures included, but were not limited to:
Assessing the Group’s categorisation of the CGU and the
allocation of goodwill to the carrying value of the CGU based on
our understanding of the Group,
In respect of the Legal Group CGU:
Assessing the cashflow forecasts and assumptions used by
management’s expert, including the reliability of the Group’s
historical cashflow forecasts and our knowledge of the
business;
Comparing forecast cash flows in management’s expert’s
valuation report to the latest Board approved budget;
Engaging our valuation specialists to assist with:
-
-
-
-
-
Assessed the competency, objectivity and
independence of management’s expert;
Assessing the valuation technique used by
management’s expert;
Evaluating the appropriateness of discount and
terminal growth rates applied;
Evaluating the mathematical accuracy of
computations provided in the valuation report; and
Performing sensitivity analyses on the growth and
discount rates.
Assessing management’s estimation of costs of disposal for
reasonableness; and
Assessing the appropriateness of the disclosures in Note 12 to
the financial statements.
43
KKeeyy AAuuddiitt MMaatttteerr
HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr
RReevveennuuee rreeccooggnniittiioonn iinn rreessppeecctt ooff bbuunnddlleedd
ggooooddss aanndd sseerrvviicceess iinn BBuussiinneessss GGrroouupp
As at 31 December 2020 the Group has
reported Sales Revenue of $75.6m from its
continuing operations including $38.5m from
the Business Group segment as disclosed in
Note 4. The statement of financial position also
reflects contract liabilities of $5.6m.
The Group is required to recognise revenue
when (or as) the Group satisfies a performance
obligation by transferring a promised good or
service (i.e. an asset) to a customer. An asset is
transferred when (or as) the customer obtains
control of that asset.
For bundled goods or services in Business
Group, significant judgement is required by
management in determining the fair value
attributable to each element of the bundled
product when allocating the transaction price to
each performance obligation.
Our procedures included, but were not limited to:
Testing relevant controls over the recognition and measurement
of revenue transactions;
Assessing the appropriateness of the Group’s revenue
recognition accounting policies for bundled goods and services
and their compliance with the relevant accounting standards;
and
Recalculating the fair value attributed to each element of the
bundle, including;
-
-
Confirming the appropriateness of the logic used by
management in the underlying allocation model;
Evaluating the data inputs into the model for
reasonableness, including assessing, on a test basis,
revenue information has been appropriately extracted from
underlying data sources; and
- Creating an independent expectation of the margin to be
applied and comparing this to management’s margin.
We also assessed the appropriateness of the disclosures in Notes
1(m), 1(n), 1(w) and 4 to the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the information included in
the Group’s annual report for the year ended 31 December 2020 but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial report or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
When we read the annual report, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to the directors and use our professional judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view
in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as
the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view
and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
44
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian
Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and
whether the financial report represents the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the financial report. We are responsible for the direction,
supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we determine those matters that were of most significance in
the audit of the financial report of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors’ Report for the year ended 31 December 2020.
In our opinion, the Remuneration Report of Reckon Limited, for the year ended 31 December 2020, complies with
section 300A of the Corporations Act 2001.
45
Auditor’s Report (continued)
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
TTaarraa HHiillll
Partner
Chartered Accountants
SSyyddnneeyy,, 2266 MMaarrcchh 22002211
46
Directors’ Declaration
The directors of the company declare that:
1. 1.
the financial statements and notes as set out on pages 48 to 102, are in accordance with the Corporations
Act 2001, and:
• Comply with Accounting Standards; and
• give a true and fair view of the financial position as at 31 December 2020 and of the performance for the year
ended on that date of the consolidated group;
2.
3.
in the directors opinion, the attached financial statements are in compliance with international financial reporting
standards, as stated in note 1 to the financial statements,
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, and
4.
the directors have been given the declarations required by Section 295A of the Corporations Act 2001.
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 G Wilkinson
Chairman
Sydney, 26 March 2021
47
Consolidated Statement of Profit or Loss
for the year ended 31 December 2020
Continuing operations
Revenue
Product costs
Employee benefits expenses
Marketing expenses
Premises and establishment expenses
Telecommunications
Legal and professional expenses
Other expenses
Transaction costs
Other income - Cares Act loan forgiveness
Depreciation and amortisation of other non-current assets
Finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to owners of the parent
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.
Note
Consolidated
2020
$’000
2019
$’000
3, 4
75,588
75,369
3
(8,703)
(9,340)
(24,944)
(23,761)
(3,397)
(4,083)
(753)
(511)
(848)
(676)
(505)
(1,179)
(4,212)
(5,209)
(794)
1,210
-
-
(19,100)
(18,934)
(1,163)
(1,602)
12,373
10,080
(2,637)
(1,955)
9,736
8,125
Cents
Cents
8.6
8.4
7.2
7.1
3
3
3
5
22
22
48
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
for the year ended 31 December 2020
Note
Consolidated
2020
$’000
2019
$’000
Profit for the year
9,736
8,125
Other comprehensive income/(loss), net of income tax
Items that may be reclassified subsequently to profit or loss:
Exchange difference on translation of foreign operations
Fair value movement on interest rate swap
Total other comprehensive income/(loss), net of income tax
21
21
120
(281)
(161)
61
(40)
21
Total comprehensive income for the year attributable to the owners of the
parent
9,575
8,146
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
49
Consolidated Statement
of Financial Position
as at 31 December 2020
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Current tax receivables
Other assets
Total Current Assets
Non-Current Assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Other assets
Right of use assets
Total Non-Current Assets
Total Assets
LIABILITIES
Current Liabilities
Trade and other payables
Provisions
Contract liabilities
Lease liabilities
Total Current Liabilities
Non-Current Liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Provisions
Other financial liabilities
Lease liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
EQUITY
Issued capital
Reserves
Retained earnings
Total Equity
Note
Consolidated
2020
$’000
2019
$’000
26
7
14
8
7
14
9
11
12
8
10
15
17
10
13
16
15
14
10
20
21
1,134
4,315
131
1,075
865
1,629
9,149
45
-
1,922
50
65,732
186
5,960
73,895
83,044
4,213
2,902
5,551
1,831
1,124
6,604
1,195
1,733
207
1,782
12,645
126
24
2,353
94
62,158
259
7,761
72,775
85,420
4,239
2,725
6,012
1,709
14,497
14,685
1,093
31,788
4,963
278
257
4,789
43,168
57,665
25,379
20,524
(49,653)
54,508
25,379
1,050
37,539
4,280
193
-
6,603
49,665
64,350
21,070
20,524
(49,626)
50,172
21,070
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
50
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2020
Issued
capital
$’000
Share
buyback
reserve
$’000
Foreign
currency
translation
reserve
Share-
based
payments
reserve
Swap
hedging
reserve
Retained
earnings
Acquisition
of non
controlling
interest
reserve
Attributable
to owners
of the
parent
$’000
$’000
$’000
$’000
$’000
$’000
20,524
(42,018)
(2,025)
545
24
50,172
(6,152)
21,070
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120
-
120
-
-
-
-
-
-
-
-
-
-
270
-
(136)
-
-
-
-
-
(281)
9,736
-
-
(281)
9,736
-
-
-
-
-
-
-
(5,665)
136
129
-
-
-
-
-
-
-
-
-
-
-
-
9,736
120
(281)
9,575
270
(5,665)
-
129
-
-
Other comprehensive income:
Consolidated
Balance at
1 January 2020
Profit for the year
Exchange
differences on
translation of foreign
operations
Fair value movement
on interest rate swap
Total comprehensive
income
Share based
payments expense
Dividends paid
(note 27)
Vested shares
released to retained
earnings
Surplus treasury
shares released to
retained earnings
Treasury shares
acquired
Treasury shares
vested/lapsed
Balance at
31 December
2020
20,524
(42,018)
(1,905)
679
(257)
54,508
(6,152)
25,379
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
51
Consolidated Statement
of Changes in Equity (continued)
for the year ended 31 December 2020
Issued
capital
$’000
Share
buyback
reserve
$’000
Foreign
currency
translation
reserve
Share-based
payments
reserve
Swap
hedging
reserve
Retained
earnings
Acquisition
of non-
controlling
interest
reserve
Attributable
to owners
of the
parent
$’000
$’000
$’000
$’000
$’000
$’000
19,712
(42,018)
(2,086)
169
64
45,910
(6,152)
15,599
Consolidated
Balance at 1
January 2019 (as
previously
reported)
Adjustment
-
-
-
-
-
(78)
-
(78)
Balance at 1
January 2019
19,712
(42,018)
(2,086)
169
64
45,832
(6,152)
15,521
Profit for the year
-
Other comprehensive income:
Exchange
differences on
translation of
foreign operations
Fair value
movement on
interest rate swap
Total
comprehensive
income
Share based
payments expense
Dividends paid
(note 27)
Surplus reserve
reallocated to
retained earnings
Long term
incentive provision
reallocated to
reserves
-
-
-
-
-
-
-
Treasury shares
vested/lapsed
812
-
-
-
-
-
-
-
-
-
-
61
-
61
-
-
-
-
-
-
-
-
-
252
-
391
545
(812)
-
-
(40)
8,125
-
-
(40)
8,125
-
-
-
-
-
-
(3,394)
(391)
-
-
-
-
-
-
-
-
-
-
-
8,125
61
(40)
8,146
252
(3,394)
-
545
-
Balance at
31 December
2019
20,524
(42,018)
(2,025)
545
24
50,172
(6,152)
21,070
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
52
Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Cash Flows From Operating Activities
Receipts from customers
Payments to suppliers and employees
Payment for capitalised development costs
Interest paid
Income taxes paid
Note
Consolidated
Inflows/(Outflows)
2020
$’000
2019
$’000
85,517
83,567
(49,660)
(52,964)
(19,495)
(16,286)
(944)
(1,306)
(2,505)
(2,705)
Net cash inflow from operating activities
26(b)
12,913
10,306
Cash Flows From Investing Activities
Proceeds from sale in business
Loan repayments received
Payment for property, plant and equipment
Net cash inflow from investing activities
Cash Flows From Financing Activities
Repayment of borrowings
Payments for lease liabilities capitalised under AASB 16
-
1,064
(496)
568
253
1,275
(529)
999
(5,751)
(7,023)
(2,040)
(1,925)
Dividends paid to owners of the parent
27
(5,665)
(3,394)
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
(13,456)
(12,342)
25
(1,037)
1,124
2,145
(15)
16
Cash and cash equivalents at the end of the financial year
26(a)
1,134
1,124
The above consolidated statement of cash flows should be read in conjunction with the accompanying note.
53
Notes to the Financial Statements
for the year ended 31 December 2020
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.
Compliance with Australian Accounting Standards ensures that the consolidated financial statements and notes of
Reckon Limited comply with International Financial Reporting Standards (IFRSs). Consequently, this financial report
has been prepared in accordance with and complies with IFRSs as issued by the International Accounting Standards
Board.
The financial statements were authorised for issue by the directors on 26 March 2021.
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. The company is a company of the kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that
Corporations Instrument amounts in the financial report are rounded to the nearest thousand dollars, unless
otherwise indicated.
COVID-19 Impact
The Reckon Limited business transitioned smoothly to working from home when COVID hit. The infrastructure and
business interruption processes were well designed to deal with these sorts of situations.
The Reckon Group has displayed its resilience, by posting growth in these extraordinary times. This is despite
revenue growth being hampered by COVID-19 in the Accountant and Legal Groups where there is a reliance on on-
site sales and installation activity.
Doubtful debt provisioning has been reviewed in the current period, and a decision has been made to increase these
provisions by $0.6 million in this financial year. No impairment of assets is considered necessary.
The impact of the COVID-19 pandemic is ongoing and it is not practicable to estimate the potential impact, positive
or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by
the Australian Government and other countries, such maintaining social distancing requirements, quarantine, travel
restrictions and any economic stimulus that may be provided.
Significant Accounting Policies
(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company:
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee;
and has the ability to use its power to affect its returns.
•
•
•
54
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the
year are included in profit or loss from the date the company gains control until the date when the company ceases
to control the subsidiary.
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.
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 and share-
based payment arrangements are recognised and measured in accordance with the relevant accounting
standards.
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.
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.
55
Notes to the Financial Statements (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) 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
Right of use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset.
(d) 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.
(e) 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 in other comprehensive income and accumulated in a foreign
exchange translation reserve.
56
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.
(f) 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.
57
Notes to the Financial Statements (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.
(g) 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.
The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit
or loss because it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
The provisions are measured at the best estimate of the amount expected to become payable. The assessment is
based on the judgement of finance professionals within the Company and on specialist independent tax advice.
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.
The Group uses the standalone approach by reference to the carrying amounts in the separate financial statements
of each entity in applying the accounting for tax consolidation.
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.
(h) 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.
58
(i) Share-based payments
Equity settled share-based payments to employees are measured at the fair value of the equity instruments at the grant
date. Details regarding the determination of the fair value of equity settled shared-based transactions are set out in note
19.
The fair value determined at grant date of the equity settled share-based payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of the number of equity instruments that will eventually vest. At
each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact off
the revision is recognised in the profit or loss.
(j) Employee Benefits
A liability is recognised 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.
Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated
future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.
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.
(k) Financial Instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial
assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets
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.
All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value,
depending on the classification of the financial assets.
Foreign exchange gains and losses
The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the end of each reporting period.
See hedge accounting policy regarding the recognition of exchange differences where the foreign currency risk
component of a financial asset is designated as a hedging instrument for a hedge of foreign currency risk.
59
Notes to the Financial Statements (continued)
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on trade receivables. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective
financial instrument.
The Group always recognises lifetime ECL (expected credit losses) for trade receivables. The expected credit losses
on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience,
adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the
current as well as the forecast direction of conditions at the reporting date, including time value of money where
appropriate.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected
life of a financial instrument.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the
Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a
default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Group
considers both quantitative and qualitative information that is reasonable and supportable, including historical
experience and forward-looking information that is available without undue cost or effort.
In particular, the following information is taken into account when assessing whether credit risk has increased
significantly since initial recognition:
•
existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a
significant decrease in the debtor’s ability to meet its debt obligations;
•
an actual or expected significant deterioration in the operating results of the debtor;
The Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition
if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is
determined to have low credit risk if:
1.
the financial instrument has a low risk of default;
2.
the debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and
3.
adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfil its contractual cash flow obligations.
(ii) Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes
as historical experience indicates that financial assets that meet either of the following criteria are generally not
recoverable:
•
information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its
creditors, including the Group, in full.
iii) Write-off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has
entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under
the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are
recognised in profit or loss.
60
(iv) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the
magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default
and loss given default is based on historical data adjusted by forward-looking information as described above. As for
the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that
are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive,
discounted at the original effective interest rate.
(v) Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to
control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for
amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing
for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable is recognised in profit or loss.
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost or at FVTPL.
Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of
each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the
instruments. These foreign exchange gains and losses are recognised in the ‘other gains and losses’ line item in
profit or loss (note 13) for financial liabilities that are not part of a designated hedging relationship. For those which
are designated as a hedging instrument for a hedge of foreign currency risk, foreign exchange gains and losses are
recognised in other comprehensive income and accumulated in a separate component of equity.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or have expired. The difference between the carrying amount of the financial liability derecognised and the
consideration paid and payable is recognised in profit or loss.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign
exchange rate risks, including foreign exchange forward contracts, options and interest rate swaps.
61
Notes to the Financial Statements (continued)
Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of
the recognition in profit or loss depends on the nature of the hedge relationship.
Further details of derivative financial instruments are disclosed in notes 1(u) and 14.
(l) 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.
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.
(m) Revenue Recognition
Sale of goods and services
The Group applies the following 5-step model for revenue recognition related to contracts with customers:
a.
Identify the contract(s) with customer
b.
Identify the performance obligation in the contract
c. Determine the transaction price
d. Allocate the transaction price to the performance obligation in the contract
e. Recognise revenue when or as the entity satisfied in performance obligations.
The Group recognises sales revenue related to the transfer of promised goods or services when a performance
obligation is satisfied and when control of the goods or services passes to the customer, which is when the customer
receives the product upon delivery. The amount of revenue recognised reflects the consideration to which the Group
62
is or expects to be entitled in exchange for those goods or services. If the consideration promised includes a variable
amount, the Group estimates the amount of consideration to which it will be entitled and only to the extent that it is
highly probable that a significant reversal of revenue will not occur.
Contracts with customers can include various combinations of products and services, which are in certain
circumstances bundled and in other circumstances are capable of being distinct and accounted for as separate
performance obligations. Where a contract with multiple performance obligations that is not bundled, the revenue
associated with each obligation is calculated based on its stand-alone selling price.
Revenue is recognised over time if:
•
•
•
the customer simultaneously receives and consumes the benefits as the entity performs;
the customer controls the asset as the entity creates or enhances it; or
the seller’s performance does not create an asset for which the seller has an alternative use and there is a right
to payment for performance to date.
Where the above criteria is not met, revenue is recognised at a point in time.
The Group recognises revenue predominantly from the following sale of software and services:
Business Group desktop products
Business Group desktop products are sold with post-sale technical support services. These can be sold as a once-
off package, or on an annual subscription basis. For all Business Group desktop products contracts that contain the
sale of a licence, three distinct performance obligations are:
i.
Sale of a software/upgrade licence; and
ii. The provision of minor maintenance updates which may be made available over the period of the contracts; and
iii. Post-sale technical support for a specified period of time.
Revenue is recognised for a Business Group desktop licence at the point of sale. This is because customers purchase
a specific version of the software that exists at the time the licence is granted.
Revenue is recognised for the customer’s entitlement to access additional maintenance updates and the provision
of post-sale technical support over the time of the contract with the customer. This is due to the fact that Reckon may
provide minor maintenance updates to which the customer may be entitled over the term of the contract. In relation
to the post-sale technical support, the customer is deemed to simultaneously receive and consume the benefits
provided by Reckon’s performance of the post-sale technical support services as it is performed.
The price allocated to each performance obligation is based on the determined stand-alone selling prices of each
obligation. The price allocated to the sale of the software licence has been determined by using the adjusted market
assessment approach. The price allocated to the post-sale technical support has been determined on management’s
assessment by using an expected cost plus margin approach. The relative standalone selling price has been
apportioned to each performance obligation based on these methods.
The revenue stream forms part of “Subscription revenue” and “Other recurring revenue” as outlined in Note 4.
Reckon One (Business Group)
Reckon One is a cloud software as a service (sold on a monthly subscription basis) that is accessible to a customer
through their web browser and is sold with post-sale technical support services. Within these contracts, the contract
promises generally are:
i.
Sale of a licence;
ii. Ongoing maintenance of the cloud platform to ensure that it is accessible; and
iii. Post-sale technical support for a specified period of time.
63
Notes to the Financial Statements (continued)
As the customer is not able to benefit from the licence if the cloud is not accessible, two distinct performance
obligations generally are:
i.
Sale of a licence and ongoing maintenance for access to the cloud; and
ii. Post-sale technical support.
The transaction price is fixed in the contract entered into by the customer dependent on the specific modules
purchased.
Revenue for the licence and ongoing maintenance for the Reckon One product is recognised over the time of the
contract with the customer. Reckon is providing a continuous service of making the online portal available during the
contract period and the customer simultaneously receives and consumes the benefits provided by Reckon’s
performance as Reckon delivers the service.
Revenue for the post-sale technical support provided is also recognised over time. This is due to the fact that the
customer simultaneously receives and consumes the benefits provided by the Reckon’s performance of the post-
sale technical support services. The services are made available to the customer throughout the term of the contract.
Although there are two distinct performance obligations, both currently maintain the same contractual billing period
and are recognised over time. Accordingly, Reckon have deemed it unnecessary to allocate the transaction price
allocated to each performance obligation separately.
The revenue stream forms part of “Subscription revenue” as outlined in Note 4. Subscription revenue relates to
streams where customers use the services over the life of the contract.
Reckon Accounts Hosted (Business Group)
Reckon Accounts Hosted is a hosted software where software is accessible via a web browser or through a desktop
icon, and allows the customer to store data on the customer’s device or an external server. Reckon Accounts Hosted
can be sold as on an annual or monthly subscription basis. For all Reckon Accounts Hosted contracts that contain
the sale of a licence, the goods and services provided are:
i.
Sale of a software licence;
ii. Post-sale technical support for a specified period of time; and
iii. Hosting services for a specified period of time.
Each of the contract promises are considered as a distinct performance obligation because the customer can
benefit from the use the software without the provision of the technical support and/or hosting services and they are
distinct within the context of the contract.
Revenue is recognised for a Reckon Accounts Hosted licence at the point of sale. This is because customers
purchase a specific version of the software that exists at the time the licence is granted.
Revenue for the hosting services and ongoing support is recognised over the time of the contract with the customer.
Reckon is providing a continuous service of hosting the customer’s data and providing post-sale technical support
over the contract period and the customer simultaneously receives and consumes the benefits provided by Reckon’s
performance as Reckon performs. The services are made available to the customer throughout the term of the
contract.
The price allocated to each performance obligation is determined based on the determined stand-alone selling
prices of each performance obligation. The price allocated to the sale of the software licence has been determined
by using the adjusted market assessment approach. The price allocated to the hosting services and post-sale
technical support has been determined on management’s assessment by using an expected cost plus a margin
approach. The relative standalone selling price has been apportioned to each performance obligation based on
these methods.
64
This revenue stream forms part of “Subscription Revenue” as outlined in Note 4. Subscription revenue relates to
streams where customers pay for the services over the life of the contract, rather than upfront at the commencement
of the contract.
Membership fees (Business Group)
Membership revenue relates to fees obtained as part of the Reckon’s Partner Program. Memberships are sold on an
annual basis. For all Membership contracts, the goods and services provided include:
i.
The provision of software licences;
ii. Access to a dedicated partner support team;
iii. A partner resource kit;
iv.
Invitations to exclusive events and training;
v. Marketing tool kits; and
vi. Annual partner awards.
Each of the contract promises above are considered to be a distinct performance obligations because the customer
can benefit from the use the software without the provision of the other contract promises listed above and they are
distinct within the context of the contract.
Revenue is recognised for a software licence at the point of sale. This is because customers purchase and obtain a
specific version of the software that exists at the time the licence is granted.
Revenue for the remaining benefits of joining the membership is recognised over time. Reckon provides a range of
different services which are delivered to the customer over the life of the contract. The nature of the services are such
that the customer simultaneously receives and consumes the benefits provided by Reckon’s performance as Reckon
performs.
The price allocated to each performance obligation is determined based on the determined stand-alone selling
prices of each performance obligation. The price allocated to the software licence has been determined based on
the adjusted market assessment approach. The price allocated to the remaining performance obligations has been
determined on management’s assessment by using an expected cost plus a margin approach. The relative
standalone selling price has been apportioned to each performance obligation based on these methods.
This revenue stream forms part of “Other Revenue” as outlined in Note 4.
Practice Management Accountant Group
APS is a desktop/cloud hybrid software as a service (sold on a subscription basis) that is accessible to a customer
for download through their web browser. This is sold with implementation services and the promise of specific
upgrades to the software modules. Without the required upgrades, the software would not be functional for the
customer. Technical support is also provided over the contract period.
The following generally are the contract promises:
i.
Sale of a licence;
ii.
Implementation services;
iii. Specific upgrades for the functionality of the software;
iv. Ongoing maintenance of the hosted platform to ensure that the software is accessible; and
v. Post-sale technical support for a specified period of time.
A customer is not able to benefit from the software without the implementation services and the specific upgrades,
as they are critical to the functioning of the software in its intended use. Knowledge of how to implement the software
and pass on the upgrades is proprietary to Reckon and therefore only Reckon can perform this. Therefore, the
65
Notes to the Financial Statements (continued)
customer is not able to use readily available resources to perform the implementation or pass on upgrades. Therefore,
one distinct performance obligation has been identified for the bundle of the sale of a licence, implementation
services, upgrades, and maintenance.
Post-sale technical support has been identified as a separate performance obligation. This is because the customer
can benefit from the use the software without the provision of the technical support and:
i.
The licence and technical support do not significantly modify or customise each other.
ii. The licence and technical support are not highly interdependent or highly interrelated as one does not significantly
affect the other.
Revenue for the performance obligation (being the bundled licence, implementation services, upgrades and
maintenance) is recognised over time. Reckon is providing a continuous service of making the software, upgradesand
the online portal available during the contract period and the customer simultaneously receives and consumes the
benefits provided by Reckon’s performance as Reckon performs.
Accordingly, revenue is recognised for Practice Management Accountant Group post-sale technical support over the
time of the contract with the customer.
As both performance obligations are recognised over the same period of time, Reckon has deemed it unnecessary
to allocate the transaction price attributed to each performance obligation separately.
This revenue stream forms part of “Subscription Revenue” as outlined in Note 4. Subscription revenue relates to
streams where customers pay for the services over the life of the contract, rather than upfront at the commencement
of the contract.
Elite (Practice Management Accountant Group)
Elite is a desktop/cloud hybrid software licence that is accessible to a customer for download through their web
browser.
Revenue is recognised for this software licence at the point of sale. This is because customers purchase and obtain
a specific version of the software that exists at the time the licence is granted.
Revenue is recognised as and when the performance obligation is transferred which is generally when the software
has been delivered to the client.
Corporate Services (Practice Management Accountant Group)
Corporate Services revenue relates to the provision of services including the registration of companies, provision of
template trust deeds and provision of company search information. These services are sold as once-off products on
an ad-hoc basis as required by a customer and deemed to have one distinct performance obligation for the services
provided.
Revenue is recognised for corporate services at the point of sale. This is because the services are provided to the
customer immediately once payment is made and there is not further obligation linked to this good.
This revenue stream forms part of “Other Revenue” as outlined in Note 4.
Practice Management Legal Group
The Practice Management Legal Group sells nQueue software and some hardware to the customer. nQueue’s
product is a cost recovery software which allows customers to track the costs associated with printing, photocopying,
and other disbursements and allocate these costs to their clients. nQueue also provides scanning and print solutions
to its clients. nQueue licences are sold with implementation and post-sale technical support services. nQueue
licences are sold either as a bundle including post-technical support services, but with implementation services sold
separately (subscription model) or the software, support and implementation services are all sold separately (upfront
model).
66
For Practice Management Legal Group upfront model, three distinct performance obligations have been identified:
i.
The provision of the software licence; and
ii. The provision of implementation services; and
iii. The provision of support services over the life of the contract.
Revenue is recognised for the licence at the point of sale. This is because customers purchase a specific version of
the software that exists at the time the licence is granted.
Revenue is recognised for the implementation services at point at which the services have been provided. These
services are sold on an ad-hoc basis as required by a customer and deemed to have one distinct performance
obligation for the services provided.
The support services have been deemed to be a separately distinct performance obligation. These services are
provided to customers who have existing contracts with nQueue. Customers can choose to purchase the support
services on a yearly basis. As such, the customer can benefit from support services on their own. It is noted that
support services are all separately identifiable within the context of the contract because support services do not
significantly modify the software.
The price allocated to the provision of the software licence and implementation services, and well as the price
allocated to the support services is based upon a price list and is separately identifiable.
Revenue for the software licence and implementation services is recognised as and when the performance obligation
is transferred which is generally when installation is completed.
Conversely, revenue for the provision of support services is recognised over the life of the contact as the benefits
from any support is simultaneously consumed by the customer as it is provided. The services are made available to
the customer throughout the term of the contract.
Revenue for the performance obligation related to the subscription model (being the bundled licence and support) is
recognised over time. Reckon is providing a continuous service of making the software and support available so long
as the customer continues to pay for the service. As the customer is not able to benefit from the software and
support if Reckon does not grant continuous access, the performance obligation is transferred over the term of the
contract. The customer simultaneously receives and consumes the benefits provided by Reckon’s performance as
Reckon performs.
This software licence and implementation services revenue above forms part of “other revenue” and revenue from
the sale of subscription products and the provision of support services forms part of “subscription revenue” as
described in Note 4.
Cost of obtaining a customer contract
AASB 15 requires that incremental costs associated with acquiring a customer contract, such as sales commissions,
are recognised as an asset and amortised over a period that corresponds with the period of benefit.
An assessment of commissions paid by the Group was performed in connection with the sale of all products. The
contracts for which commissions are paid vary in length however commissions are expensed over a maximum of 12
months.
There are no other costs incurred that are considered to be incremental.
The following table summarises the revenue recognition of major sale of software and services:
67
Notes to the Financial Statements (continued)
Revenue stream
Performance obligation
Timing of recognition
Business Group desktop
products
Sale of a software licence
At the point of sale.
Maintenance updates
Over the time of the contract with the
customer.
Post-sale technical support for a specified
period of time
Over the time of the contract with the
customer.
Reckon One
Sale of licence and ongoing maintenance for
access to the cloud
Over the time of the contract with the
customer.
Post-sale technical support for a specified
period of time
Over the time of the contract with the
customer.
Reckon Accounts Hosted
Sale of a software licence
At the point of sale.
Post-sale technical support for a specified
period of time
Over the time of the contract with the
customer.
Hosting services for a specified period of
time
Over the time of the contract with the
customer.
Membership fees – sale of
license
Sale of a software licence
At the point of sale.
Membership fees – support
Additional membership benefits
Over the time of the contract with the
customer.
Practice Management
Accountant Group
Sale of a bundled licence, implementation
services, upgrade and maintenance.
Over the time of the contract with the
customer.
Post-sale technical support
Over the time of the contract with the
customer.
Corporate Services Revenue
Provision of corporate services
At the point of sale.
Practice Management Legal
Group
The provision of the software licence and
implementation services
At the point of sale.
The provision of support services (upfront
model) and software and support services
(subscription model) over the life of the
contract
Over the time of the contract with the
customer.
Interest
Interest revenue relates to revenue recognised from the provision of loans to customers and is accounted for per the
requirements of AASB 9 Financial Instruments. Interest revenue is recognised as interest accrues using the effective
interest method, which is a method of calculating the amortised cost of a financial asset and allocating the interest
income over the relevant period using the effective interest rate, which is the rate the exactly discounts estimated
future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
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(n) Contract liabilities
Contract liabilities relate to payments received from customers for performance obligations which have not yet been
fulfilled. Contract liabilities arise when payment for performance obligations do not match the timing of when the
performance obligations are satisfied. Contract liabilities are recognised at the inception of the contract and unwound
as the performance obligation is satisfied over the life of the contract.
(o) 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.
(p) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and bank overdrafts.
(q) Borrowings
Borrowings are initially measured at fair value, net of transaction costs and 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.
(r) 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.
(s) 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.
(t) Government Grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the
conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group
recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government
grants whose primary condition is that the Group should continue to develop its range of software products, are
69
Notes to the Financial Statements (continued)
offset against development costs in the statement of financial position and transferred to profit or loss on a systematic
and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose
of giving immediate financial support to the Group with no future related costs are recognised as other income in
profit or loss in the period in which they become receivable.
Government assistance which does not have conditions attached specifically relating to the operating activities of
the entity is recognised in accordance with the accounting policies above.
(u) Hedge Accounting
The Group enters into derivative financial instruments to manage its exposure to interest rate risk, including interest
rate swaps which is designated as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and
the hedged item, along with its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether
the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item
attributable to the hedged risk, which is when the hedging relationship meets all of the following hedge effectiveness
requirements:
•
•
•
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that
the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that
quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk
management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio
of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in other comprehensive income and accumulated under the heading of swap hedging reserve. The
gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other
gains and losses’ line item.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit
or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.
However, when the hedged forecast transaction that is hedged results in the recognition of a non-financial asset or
a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated
in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or
nonfinancial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument
expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss
recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
Note 14 sets out details of the fair values of the derivative instruments used for hedging purposes.
70
(v) Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a
right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee,
except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets.
For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the
term of the lease unless another systematic basis is more representative of the time pattern in which economic
benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted by using the Group’s incremental borrowing rate. This rate has been determined by considering the
nature of the leased assets, the Group’s credit rating and the borrowing rate of funds in similar economic environments.
Lease payments included in the measurement of the lease liability compromise:
•
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use assets)
whenever:
• The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which
case the lease liabilities is remeasured by discounting the revised lease payments using a revised discount rate.
• The lease payments change due to changes in an index or rate or a change in expected payment under
guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised leased
payments using the initial discount rate (unless the lease payments change is due to a change in a floating
interest rate, in which case a revised discount rate is used).
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case
the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made
at or before the commencement day and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a
lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects
to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.
The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies AASB 136 Impairment of Assets to determine whether a right-of-use asset is impaired and
accounts for any identified impairment loss as described in the ‘Property, plant and equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and
the right-of-use asset. The related payments are recognised as an expense in the period in which the event or
condition that triggers those payments occurs and are included in the line ‘premises expenses or other expenses’ in
the statement of profit or loss.
71
Notes to the Financial Statements (continued)
(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 – The Group has made judgements in relation to the bundling of contract promises into a single
distinct performance obligation by determining whether the contract promises are separately identifiable in the
context of the contract. The Group has also used judgement in allocating the transaction price to revenue streams
which have more than one performance obligation and where the stand-alone selling price is not directly observable.
The Group has applied the expected cost plus a margin approach in estimating these prices as described in Note
1(m) above.
ECL on impairment of financial assets – An allowance for doubtful debts is recognised based on the expected credit
loss (ECL) from the time the receivable is initially recognised. The ECL is based on a provision matrix that reflects the
Group’s historical credit loss experience, adjusted for management’s knowledge of specific customers’ circumstances,
as well as current collection trends and business conditions.
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 19.
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.
Deferred consideration - the Group assesses the likelihood of the payment of deferred consideration based on
budgeted and forecast performance.
(x) New Accounting Standards
The Group has adopted all of the new and revised Accounting Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current reporting
period.
None of the new standards or revisions that are mandatory for the first time materially affected any of the amounts
recognised in the current period or any prior period and are not likely to significantly affect future periods.
72
The Group has not early adopted any new or revised Accounting Standards and Interpretations issued by AASB
which are not yet effective during the year.
(y) Working capital deficiency
The consolidated statement of financial position indicates an excess of current liabilities over current assets of
$5,348 thousand (2019: $2,040 thousand). This arises partly due to the adoption of AASB 16, whereby the right of
use assets are treated as non-current assets, whereas a portion of the lease liabilities are treated as current liabilities.
Net cash inflows from operating activities for the year were $12,913 thousand (2019: $10,306 thousand). Unused
bank facilities at balance date was $16,309 thousand. Also, included in current liabilities are contract liabilities of
$5,551 thousand (2019: $6,012 thousand), settlement of which will involve substantially lower cash outflows.
Given the above, the Directors believe that preparation of the financial report on a going concern basis is appropriate.
2 Segment Information
Operating segments are identified on the basis of internal reports about components of the Group that are regularly
reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its
performance.
(a) Business segment information
The consolidated entity is organised into three operating divisions:
• Business Group
• Practice Management Group, Accountant
• Practice Management Group, Legal
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 Group - development, distribution and support of business accounting and personal financial software,
as well as related products and services. Products sold in this division include Reckon Accounts and Reckon One.
• Practice Management Group, Accountant - development, distribution and support of practice management,
tax, client accounting and related software under the APS brand as well as the ReckonDocs and Reckon Elite
products.
• Practice Management Group, Legal - development, distribution and support of cost recovery, scan and cloud-
based integration platforms under the nQ Zebraworks brand predominantly to the legal market.
73
Notes to the Financial Statements (continued)
2 Segment Information (continued)
Segment revenues and results
Operating revenue
Business Group
Practice Management Group, Accountant
Practice Management Group, Legal
Total revenue
2020
$’000
2019
$’000
38,546
36,185
26,568
27,438
10,474
11,746
75,588
75,369
2020
$’000
2020
$’000
2020
$’000
2019
$’000
2019
$’000
2019
$’000
Segment results
Business Group
EBITDA1
D&A2
EBIT3
19,670
(8,010)
11,660
EBITDA1
17,430
D&A2
(8,887)
EBIT3
8,543
Practice Management Group,
Accountant
Practice Management Group,
Legal
14,482
(7,433)
7,049
14,194
(6,621)
7,573
1,111
(3,657)
(2,546)
2,207
(3,426)
(1,219)
Central administration costs
(3,043)
-
(3,043)
(3,215)
-
(3,215)
32,220
(19,100)
13,120
30,616
(18,934)
11,682
Transaction costs4
Other income - Cares Act
loan forgiveness (refer note 3)
Finance costs
Profit before income tax
Income tax expense
Profit for the year
(794)
1,210
(1,163)
12,373
(2,637)
9,736
-
-
(1,602)
10,080
(1,955)
8,125
1 EBITDA means earnings before interest tax, depreciation and amortisation.
2 D&A means depreciation and amortisation.
3 EBIT means earnings before tax and interest.
4 Transaction costs relate to merger of the Legal Group and Zebraworks.
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, new market expenditure, 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.
No single customer contributed 10% or more of Group revenue for either 2020 or 2019.
74
2 Segment Information (continued)
Assets
Liabilities
Additions to non-
current assets
Segment assets and liabilities
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
Business Group
18,957
19,994
11,445
11,798
7,999
2019
$’000
6,753
Practice Management Group, Legal
13,362
15,706
5,027
5,969
4,014
2,983
Practice Management Group, Accountant
47,114
46,788
4,498
4,591
9,002
7,950
Corporate Division
3,610
2,932
36,695
41,992
-
-
83,044
85,420
57,665
64,350
21,014
17,686
(b) Geographical information
Australia
United States of America
Other countries (i)
Revenue from external
customers
Non-current assets
2020
$’000
2019
$’000
2020
$’000
2019
$’000
58,441
56,684
61,303
60,132
8,508
8,639
9,387
9,298
7,382
5,210
6,873
5,770
75,588
75,369
73,895
72,775
(i) No other country outside of Australia and the United States of America are considered to generate revenues which are material to the group.
75
Notes to the Financial Statements (continued)
3 Profit for the Year
Profit before income tax includes the following items of revenue and expense:
Revenue
Sales revenue
Subscription revenue
Other recurring revenue
Loans revenue
Other revenue
Sale of goods and rendering of services
Expenses
Product costs
Expected credit losses:
Other Entities
Depreciation of non-current assets:
Property, plant and equipment
Amortisation of non-current assets:
Leasehold improvements
Right of use assets
Intellectual property
Development costs
Total depreciation and amortisation
Foreign exchange losses/(gains)
Employee benefits expense:
Consolidated
2020
$’000
2019
$’000
64,213
60,990
1,403
370
9,602
75,588
2,616
851
10,912
75,369
8,703
9,340
525
344
985
980
382
1,172
25
16,536
19,100
95
377
1,191
25
16,361
18,934
26
Post employment benefits – defined contribution plans
2,556
2,441
Termination benefits
Equity settled share based payments
Finance costs:
Loans/overdrafts
Leases
Other
Operating lease rental expenses:
Minimum lease payments
Other income - Cares Act loan forgiveness
97
270
944
176
43
97
252
1,306
226
70
1,163
1,602
543
1,210
466
-
The Legal Group in the USA received a loan under the “CARES“ Act. This was received as part of the USA stimulus
package to assist small businesses during the COVID-19 crisis. The loan was able to be forgiven if the use of the loan
met certain criteria, which included retaining our USA employees. The criteria have been met and so the loan has
been forgiven.
76
4 Revenue
Primary
segments
2020
Product Description
Revenue
recognition
Busines
Group
$’000
Practice
Management
Accountant
Group
$’000
Practice
Management
Legal Group
$’000
Consolidated
Group
$’000
Subscription
revenue
Bundled licence, support,
hosting and implementation
Over time
-
21,782
-
21,782
Licence, support and
hosting
Over time
9,669
Licence
Point in time
23,944
Other recurring
revenue
Support
Over time
44
Licence
Point in time
1,359
Loan income
Interest and commission
Over time
Other revenue Membership support
Over time
370
429
Membership fees - license
Point in time
2,164
Corporate services
Point in time
Licence and implementation Point in time
-
-
Other
Point in time
567
-
-
-
-
-
-
-
4,512
274
-
8,818
18,487
-
-
-
-
-
-
-
1,656
-
23,944
44
1,359
370
429
2,164
4,512
1,930
567
Total revenue
2019
38,546
26,568
10,474
75,588
Subscription
revenue
Bundled licence, support,
hosting and implementation
Over time
-
22,356
-
22,356
Licence, support and
hosting
Over time
7,887
Licence
Point in time
21,743
Other recurring
revenue
Support
Over time
123
Licence
Point in time
2,493
-
-
-
-
Loan income
Interest
Over time
851
-
Other revenue Membership support
Over time
446
-
Membership fees - license
Point in time
2,316
Corporate services
Point in time
Licence and implementation Point in time
-
-
Other
Point in time
326
-
4,644
438
-
9,004
16,891
-
-
-
-
-
-
-
2,742
-
21,743
123
2,493
851
446
2,316
4,644
3,180
326
Total revenue
36,185
27,438
11,746
75,369
77
Notes to the Financial Statements (continued)
5 Income Tax
(a) Income tax expense recognised in profit and loss
Current tax
Deferred tax
Over provided in prior years
(b) The prima facie income tax expense on pre-tax accounting profit
reconciles to the income tax expense in the financial statements as follows:
Profit before income tax
Income tax expense calculated at 30% of profit
Tax Effect of:
Effect of lower tax rates on overseas income
Utilisation of prior period tax losses not previously brought to account
Tax effect of non-deductible/non-taxable items:
Research and development claims
Sundry items
Over provision in prior years
Income tax expense attributable to profit
The tax rate used for the 2020 and 2019 reconciliations above is the corporate tax
rate of 30% payable by Australian corporate entities on taxable profits under
Australian tax law.
(c) Future income tax benefits not brought to account as an asset:
Tax losses:
Revenue
Capital
78
Consolidated
2020
$’000
2019
$’000
1,961
2,034
727
(51)
3
(82)
2,637
1,955
12,373
10,080
3,712
3,024
40
-
(792)
(272)
2,688
(51)
2,637
34
(197)
(720)
(104)
2,037
(82)
1,955
-
3,106
3,106
165
3,237
3,402
6 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 other consulting services
(b) Other Auditors
Auditing and reviewing of financial reports
Tax compliance and other consulting services
Consolidated
2020
$
2019
$
243,000
243,149
101,150
62,150
344,150
305,299
60,155
76,677
21,536
22,927
81,691
99,604
79
Notes to the Financial Statements (continued)
7 Trade and Other Receivables
Current:
Trade receivables (i)
Allowance for Expected Credit Loss (ECL)
Other receivables
Non-current:
Trade receivables
Other receivables
(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 ECL in respect of trade receivables is detailed below:
Balance at beginning of the year
Amounts written off during the year
Increase in ECL recognised in the profit and loss
Balance at end of year
80
Consolidated
2020
$’000
2019
$’000
4,213
6,821
(463)
(683)
3,750
6,138
565
466
4,315
6,604
35
10
45
106
20
126
951
186
1,013
350
1,559
2,109
2,696
3,472
683
469
(714)
(130)
494
463
344
683
7 Trade and Other Receivables (continued)
To determine the expected credit loss of trade receivables, a provision matrix is determined based on historic credit
loss rates for each group of customers, adjusted for any material expected changes to the customers’ future credit
risk. On that basis, the credit loss allowance as at 31 December 2020 was determined as follows:
2020
Receivables
Current
Past due 1 to 30 days
Past due 30 to 60 days
Past due over 60 days
Total receivables
Allowance based on historic credit losses
Adjustment for expected changes in credit risk1
Credit loss allowance
Business
Group
$’000
Legal Practice
Management
Group
$’000
Accountant
Practice
Management
Group
$’000
418
569
52
1,098
999
327
118
290
Group
$’000
1,517
951
186
1,559
2,137
1,734
4,213
100
276
376
5
66
71
108
355
463
100
55
16
171
342
3
13
16
Net carrying amount
326
1,761
1,663
3,750
1 Adjustment to reflect the expected change in the probability of default relating to customers that are over 60 days
past due and those customers specifically identified.
81
Notes to the Financial Statements (continued)
7 Trade and Other Receivables (continued)
2019
Receivables
Current
Past due 1 to 30 days
Past due 30 to 60 days
Past due over 60 days
Business
Group
$’000
Legal Practice
Management
Group
$’000
Accountant
Practice
Management
Group
$’000
Group
$’000
360
1,842
1,147
3,349
58
37
62
470
157
1,614
485
156
433
1,013
350
2,109
Total receivables
517
4,083
2,221
6,821
Allowance based on historic credit losses
Adjustment for expected changes in credit risk1
Credit loss allowance
Net carrying amount
3
9
12
505
125
375
500
6
165
171
134
549
683
3,583
2,050
6,138
1 Adjustment to reflect the expected change in the probability of default relating to customers that are over 60 days
past due.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators
that there are no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the Group.
82
8 Other Assets
Current:
Prepayments
Other
Non current:
Prepayments
Other
Consolidated
2020
$’000
2019
$’000
1,597
1,754
32
28
1,629
1,782
47
139
186
26
233
259
83
Notes to the Financial Statements (continued)
9 Property, Plant and Equipment
Consolidated
2020
$’000
2019
$’000
3,805
3,817
(3,092)
(2,898)
713
919
11,394
(10,185)
1,209
1,922
11,253
(9,819)
1,434
2,353
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
Total
$’000
919
2
(7)
181
(382)
713
1,434
2,353
494
(50)
-
(669)
1,209
496
(57)
181
(1,051)
1,922
Leasehold Improvements
At cost
Less: Accumulated amortisation
Total leasehold improvements
Plant and equipment
At cost
Less: Accumulated depreciation
Total plant and equipment
Consolidated
Carrying amount at 1 January 2020
Additions
Effect of foreign currency exchange differences
Capitalised lease incentive reallocated
Depreciation/amortisation expense
Balance at 31 December 2020
Consolidated
Carrying amount at 1 January 2019
2,173
1,918
4,091
Additions
Effect of foreign currency exchange differences
Capitalised lease incentive reallocated
Depreciation/amortisation expense
Balance at 31 December 2019
84
240
1
(1,118)
(377)
919
289
14
-
(787)
1,434
529
15
(1,118)
(1,164)
2,353
10 Right of Use Assets/Lease liabilities
Right of use assets
At cost
Less: Accumulated amortisation
Lease liabilities
Current
Non-current
Lease liabilities maturity profile
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Consolidated Right of Use Assets
Carrying amount at 1 January
Adoption of AASB 16
Additions
Effect of foreign currency exchange differences
Depreciation/amortisation expense
Balance at 31 December
Leases relate to office premises with lease terms of between 1 to 7 years.
Consolidated
2020
$’000
2019
$’000
11,136
11,286
(5,176)
(3,525)
5,960
7,761
1,831
4,789
6,620
1,831
1,603
1,460
1,474
252
-
1,709
6,603
8,312
1,709
1,798
1,616
1,463
1,474
252
6,620
8,312
7,761
-
-
9,339
143
(40)
225
15
(1,904)
(1,818)
5,960
7,761
85
Notes to the Financial Statements (continued)
11 Deferred Tax Assets
The balance comprises temporary differences attributable to:
Expected credit loss
Employee benefits
Other provisions
Details of unrecognised deferred tax assets can be found in Note 5(c)
Reconciliation:
Opening balance at 1 January
(Charged) / credited to profit or loss
Balance at 31 December
12 Intangibles
Intellectual property – at cost (i)
Accumulated amortisation
Development costs – at cost
Accumulated amortisation
Goodwill – at cost
(i) The intellectual property carrying amount comprises of customer contracts.
86
Consolidated
2020
$’000
2019
$’000
4
3
43
50
94
(44)
50
6
27
61
94
103
(9)
94
14,962
14,962
(14,923)
(14,898)
39
64
174,757
154,382
(138,171)
(121,635)
36,586
32,747
29,107
29,347
65,732
62,158
12 Intangibles (continued)
Impairment test for goodwill
Goodwill is allocated to the Group’s cash generating units (CGUs) identified based on how
the businesses are managed and reported on and taking into account the use of shared
resources, as follows
Business Group
Accountants Group
Legal Group
Consolidated
2020
$’000
2019
$’000
730
730
25,765
25,765
2,612
2,852
29,107
29,347
The recoverable amount of a CGU is the higher of its fair value less costs of disposal or its value in use. The Group has used
both assessment methods in the current year. In assessing impairment using 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 GCU for which the estimates of future cash flows have not been adjusted. Value in use
calculations utilise the most recently completed approved budgets for the forthcoming year. Where a fair value less cost of
disposal assessment has been performed, the Group has determined the fair value with reference to current and future trading
modelling and consideration as to the fair value on an arm’s length transaction basis. At year end the Business Group and
Accountant Group CGUs were tested for impairment using the value in use method and the Legal Group CGU through a fair
value less cost of disposal model. No impairment write-offs have been recognised during the year.
Consolidated movements in intangibles
At 1 January 2020
Additions
Effect of foreign currency exchange differences
Amortisation charge
At 31 December 2020
At 1 January 2019
Additions
Effect of foreign currency exchange differences
Amortisation charge
At 31 December 2019
Goodwill
$’000
29,347
-
(240)
-
29,107
29,318
-
29
-
29,347
Intellectual
Property
$’000
Development
Costs
$’000
Total
$’000
64
-
-
(25)
39
89
-
-
(25)
64
32,747
62,158
20,375
20,375
-
(240)
(16,536)
(16,561)
36,586
65,732
34,951
61,358
17,157
17,157
-
29
(16,361)
(16,386)
32,747
62,158
87
Notes to the Financial Statements (continued)
13 Borrowings
Current:
Bank overdraft (i)
Non-current
Bank borrowings (i)
Consolidated
2020
$’000
2019
$’000
-
-
31,788
37,539
(i) The consolidated entity has decreased its bank facilities to $50 million during the year (2019 : $60 million). The facility
comprises variable rate bank overdraft facilities, loan facilities, and bank guarantee and transactional facilities. The facilities
expire in August 2022. The facility is secured over the Australian, New Zealand and United Kingdom net assets. Reckon has
partially hedged the bank borrowings – refer note 14.
2020
The available, used and unused components of the facility at year end is as follows:
Available
Used
Unused
Bank
overdraft
$’000
Loan
facility
$’000
Bank
guarantee &
transaction
facility
$’000
2,000
46,000
-
31,788
2,000
14,212
2,000
1,903
97
The remaining contractual maturity for the facility (including both interest and
principal) is as follows:
1-2 years
-
31,788
1,903
Weighted average interest rate
2.30%
2.87%
-
88
14 Other financial assets/(liabilities)
Current:
Loans receivable (ii)
Non-current:
Other investments
Derivative that is designated and effective as a hedging instrument carried at fair value (i)
Consolidated
2020
$’000
2019
$’000
131
1,195
-
(257)
(257)
-
24
24
(i) This balance represents an interest rate swap. To reduce the fair value risk of changing interest rates, the Group has entered
into a pay-floating receive-fixed interest rate swap. The swap’s notional principal is $15 million and represents 47% of the bank
borrowings outstanding at 31 December 2020. The swap reduces to $13 million in August 2021 and then matures in August
2022. The fixed interest rate is 3.48%, and interest rate swaps are settled monthly or quarterly. Within the context of AASB 7,
this is classified as a level 2 fair value measurement being derived from inputs, other than quoted prices included within level 1,
that are observable for the asset or liability, either directly or indirectly.
(ii) The loan receivable is net of an expected credit loss allowance of $21 thousand (2019: $138 thousand).
15 Provisions
Current:
Employee benefits – annual leave
Employee benefits – long service leave
Consolidated
2020
$’000
2019
$’000
1,196
1,706
2,902
1,169
1,556
2,725
Non-current:
Employee benefits – long service leave
278
193
89
Notes to the Financial Statements (continued)
16 Deferred Tax Liabilities
The temporary differences are attributable to:
Expected credit loss
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 5(c)
Reconciliation:
Opening balance at 1 January
Charged / (credited) to profit or loss
Balance at 31 December
17 Contract liabilities
The unsatisfied performance obligations are as set out below:
Subscription revenue
Other recurring revenue
Other revenue
Consolidated
2020
$’000
2019
‘$’000
(27)
(1,104)
4
(495)
7,111
(94)
(975)
(9)
(529)
8,637
(526)
(2,750)
4,963
4,280
4,280
4,286
683
(6)
4,963
4,280
Consolidated
2020
$’000
2019
‘$’000
5,385
5,805
-
166
36
171
5,551
6,012
Management expects that 100% of the transaction price allocated to the unsatisfied contracts as of the year ended
31 December 2020, will be recognised as revenue during the year ended 31 December 2021.
90
18 Parent Entity Disclosures
Financial position
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
Equity
Share capital
Share buyback reserve
Swap hedging reserve
Share based payments reserve
Acquisition of non-controlling interest reserve
Foreign currency translation reserve
Retained earnings
Financial performance
Total comprehensive income
Capital commitments for the acquisition of property, plant and equipment
Not longer than 1 year
Other
Reckon Limited assets have been used as security for the bank facilities set out in note 13.
The parent entity has no contingent liabilities.
Working capital deficiency - refer note 1(y).
Parent
2020
$’000
2019
$’000
4,437
77,888
82,325
8,778
38,793
47,571
5,933
74,067
80,000
8,758
39,789
48,547
20,524
20,524
(42,018)
(42,018)
(257)
679
24
545
(1,657)
(1,657)
(476)
57,959
34,754
(438)
54,473
31,453
8,701
8,005
–
–
91
Notes to the Financial Statements (continued)
19 Employee Benefits
Long-term incentive plan
The long-term incentive plan presently comprises two possible methods of participation: the grant of equity under a
performance share plan; or cash payments under a share appreciation plan. The board has discretion to make offers
to applicable employees to participate in these plans. Performance shares offered (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.
From 2011 onwards performance shares were also offered with longer term vesting periods. The single vesting
condition is that participants must remain employed for the term required. To achieve 100% vesting employees must
remain in employment for an effective 10 years from the date of the initial offer. Participation in this programme is no
longer offered.
The share appreciation rights plan represents an alternative remuneration element (to offering 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 the share price at the end of the performance period is greater than at the beginning of the performance period.
The performance criteria for the rights to vest are fixed by the board in the exercise of its discretion. At present these
are the same as the TSR target set for performance shares to vest and the same sliding scale applies.
There are two performance criteria that must be met. The first is achievement of budgeted earnings per share growth
(EPS) over the performance period. The second is a comparison of the company’s total shareholder return over the
performance period measured against the change in the S&P/ASX 300 over the performance period. The criteria
carry equal weighting. Vesting against both criteria occurs on a sliding scale. In the case of EPS 75% of entitlements
vest if the target EPS is achieved and 100% of entitlement will vest on achievement of 110% of target EPS, on a
sliding scale capped at 100% of entitlement. In the case of TSR, 75% of entitlements vest if the target TSR is
achieved, 100% of entitlements will vest on achievement of 100% of target TSR, and a prorata vesting occurs
between 100% and 110% of target TSR capped at 110%.
No options were issued during the year (2019: Nil).
737,500 (2019: 1,860,000) senior executive rights, nil (2019: nil) appreciation rights and nil (2019: nil) performance
shares, were issued during the year. The fair value of senior executive rights issued in 2020 was $0.61, using a model
that adopts the Monte Carlo simulation approach. The assumptions used in this model for the tranches issued in
2020 are: grant date share price of $0.77; expected volatility of 32.0%; dividend yield of 3.9%; and a risk-free rate of
0.9%. The expense recognised in 2020 for the rights/performance shares was $227 thousand (2019: $29 thousand).
92
19 Employee Benefits (continued)
Set out below are summaries of performance shares and appreciation rights granted under the long-term incentive plan:
Performance Shares
Grant
Date
Vesting
Date
Shares
Granted
Shares lapsed
during the year
Shares vested
during the year
Shares available at
the end of the year
2020
2019
2020
2019
2020
2019
Jan’13
Dec’19
296,250
-
11,000
Jan’14
Dec’20
101,250
8,250
Jan’15
Dec’21
37,500
-
-
-
-
-
-
121,500
-
-
-
-
25,625
33,875
8,250
8,250
Nil shares have been acquired for future grants
Senior Executive Rights
Grant
Date
Expiry
Date
Rights
Granted
Rights lapsed
during the year
Rights vested
during the year
Rights available at
the end of the year
2020
2019
2020
2019
2020
2019
Jan’16
Dec’18
1,087,500
Jan’17
Dec’19
1,135,000
-
-
135,632
290,461
Jan’19
Dec’21
860,000
25,000
12,500
Sep’19
Dec’22
1,000,000
Jan’20
Dec’22
737,500
-
-
-
-
-
-
-
-
-
222,868
106,539
-
-
-
-
-
-
-
822,500
847,500
1,000,000
1,000,000
737,500
-
Short-term incentive plan
Each annual budget fixes a pool of cash representing a total potential amount in which the relevant employees can
share if short term performance conditions are met.
The performance period for the short-term incentive plan is one-year. However, approximately one third of the
payment will only be made if the employee remains in employment for a further one year period after the performance
period.
The performance conditions are budgeted targets set for revenue, EBITDA and earnings per share. Actual
performance is the measured on a sliding scale from 90% to 110% against the budgeted performance of the group
to determine the extent to which incentives are paid. The incentive is paid on a sliding scale. Below 90% no incentive
is paid. Between 90% and 110% a pro rata increase is paid, capped at 110%. There is an overlap of earnings per
share as a performance condition for the long-term incentive and the short-term incentive.
93
Notes to the Financial Statements (continued)
20 Issued Capital
Fully Paid Ordinary Share Capital
2020
2019
No.
$’000
No.
$’000
Balance at beginning of financial year
113,294,832
20,524 113,294,832
20,524
Dividend re-investment plan
-
-
-
-
Balance at end of financial year
113,294,832
20,524 113,294,832
20,524
Less Treasury shares
Balance at beginning of financial year
Shares purchased in current period
Lapsed shares utilised
Shares vested
Balance at end of financial year
-
-
-
-
-
-
-
-
-
-
358,744
-
(237,244)
(121,500)
-
812
-
(493)
(319)
-
Balance at end of financial year net of treasury shares
113,294,832
20,524 113,294,832
20,524
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 nil shares were bought back.
No options were exercised during the year.
The Group implemented a dividend re-investment plan in 2016.
94
21 Reserves
Nature and purpose of reserves
(a) Foreign currency translation reserve
Exchange differences arising on translation of the financial reports of foreign subsidiaries are taken to the foreign
currency translation reserve, as described in note 1(f).
(b) Swap hedging reserve
The swap hedging reserve represents the cumulative gains or losses arising on changes in the fair value of hedging
instruments entered into. These gains or losses will be reclassified to profit or loss only when the hedged transaction
affects profit or loss.
(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.
22 Earnings per Share
Basic earnings per share – continuing operations
Diluted earnings per share – continuing operations
Consolidated
2020
cents
8.6
8.4
2019
cents
7.2
7.1
Weighted average number of ordinary shares used in the calculation of basic earnings
per share
113,294,832 113,294,832
Weighted average number of ordinary shares and potential ordinary shares (in relation to
employee performance shares) used in the calculation of diluted earnings per share
115,888,707 115,511,832
Earnings used in the calculation of earnings per share is $9,736 thousand (2019: $8,125 thousand).
23 Contingent Liabilities
There are no material contingent liabilities as at 31 December 2020 (2019: Nil).
95
Notes to the Financial Statements (continued)
24 Commitments for Expenditure
(a) Capital Expenditure Commitments
The consolidated entity has capital expenditure commitments of $nil as at 31 December 2020 (2019: $nil).
(b) Other Commitments including Lease Commitments
Within 1 year
Later than 1 year and not longer than 5 years
Later than 5 years
Consolidated
2020
$’000
420
1,019
-
2019
$’000
436
1,400
41
1,439
1,877
25 Subsidiaries
Name of Entity
Country of Incorporation
Ownership Interest
Parent Entity
Reckon Limited
Subsidiaries
Reckon Australia Pty Limited
Reckon Limited Performance Share Plan Trust
Reckon New Zealand Limited
Reckon Accountants Group Pty Limited
Reckon Holdings NZ Pty Limited
Reckon One Limited
Reckon Docs Pty Limited
nQueue Zebraworks Inc.
nQueue Pty Limited
nQueue Billback Limited
Billback Systems LLC
nQ Zebraworks LLC
Australia
Australia
Australia
New Zealand
Australia
New Zealand
United Kingdom
Australia
United States of America
Australia
United Kingdom
United States of America
United States of America
Reckon Accounts Pte Limited
Singapore
All shares held are ordinary shares.
96
2020
%
2019
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
26 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
(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
Payment for capitalised development costs
Non-cash interest
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
Non-current other
Increase/(decrease) in liabilities net of acquisitions:
Current trade payables
Other current liabilities
Other non-current liabilities
Consolidated
2020
$’000
2019
$’000
1,134
1,124
-
-
1,134
1,124
9,736
8,125
19,100
18,934
(19,495)
(16,286)
219
399
296
252
(658)
(787)
727
392
2,289
303
153
81
73
(207)
(284)
85
37
(6)
499
(4)
(189)
162
(207)
(142)
(143)
(235)
Net cash inflow from operating activities
12,913
10,306
97
Notes to the Financial Statements (continued)
26 Notes to the Statement of Cash Flows (continued)
(c) Assets and liabilities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be,
classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.
Note
Cash
Non-cash
Borrowings
Interest rate swap fair value
hedge or economically hedging
financing liabilities
Total liabilities from financing
activities
13
14
Balance at
1 Jan 2020
$’000
Financing cash
flows (i)
$’000
Fair value
adjustment
$’000
Balance at 31
Dec 2020
$’000
37,539
(5,751)
-
31,788
(24)
-
37,515
(5,751)
281
281
257
32,045
(i) The cash flows from bank loans, and other borrowings make up the net amount of proceeds from borrowings and
repayments of borrowings in the statement of cash flows.
Note
Cash
Non-cash
Balance at
1 Jan 2019
$’000
Financing cash
flows (i)
$’000
Fair value
adjustment
$’000
Balance at 31
Dec 2019
$’000
Borrowings
Interest rate swap fair value
hedge or economically hedging
financing liabilities
Total liabilities from financing
activities
13
14
44,562
(7,023)
(64)
-
44,498
(7,023)
-
40
40
37,539
(24)
37,515
(i) The cash flows from bank loans, and other borrowings make up the net amount of proceeds from borrowings and
repayments of borrowings in the statement of cash flows.
27 Dividends – Ordinary Shares
A fully franked final dividend for the year ended 31 December 2019 of 2 cents (2018: nil) per
share was paid on 20 March 2020.
A fully franked interim dividend for the year ended 31 December 2020 of 3 cents (2019: 3
cents) per share was paid on 23 September 2020.
Franking credits available for subsequent financial years based on a tax rate of 30% (2019:
30%)
98
Consolidated
2020
$’000
2,266
2019
$’000
-
3,399
3,394
5,665
3,394
4,138
4,181
28 Financial Instruments
(a) 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, liquidity risk and cash flow
interest rate risk.
(b) 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 $1,134 thousand were held by the consolidated entity at the reporting date, attracting an average interest rate of
0.22% (2019: 0.38%). Interest bearing borrowings by the consolidated entity at the reporting date were $31,788
thousand (2019:$37,539 thousand). Interest rate risk is managed by maintaining an appropriate mix between fixed
and floating rate borrowings, and by the use of interest rate swap contracts. Variable rate borrowings during the year
attracted an average interest rate of 2.30% (2019: 4.34%) on overdraft facilities and 2.87% on loan facilities (2019:
3.43%). 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 $159
thousand (2019: $182 thousand).
Hedging activities are evaluated to align with interest rate views and defined risk appetite, ensuring the most cost-
effective hedging strategies are applied.
The maturity profile for the consolidated entity’s cash ($1,134 thousand) that is exposed to interest rate risk is one
year, and interest-bearing borrowings ($31,788 thousand) that are exposed to interest rate risk, and the interest rate
swap is two years. On the assumption that interest bearing borrowings and variable interest rates remain at the
current level, the annual interest costs are expected to be $912 thousand.
Further details are set out in note 12.
c) 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 has assessed the
expected credit loss on receivables and have used a provision matrix to measure the Group’s estimated impairment
losses (refer note 7).
99
Notes to the Financial Statements (continued)
(d) Foreign Currency Risk
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.
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.
(e) Liquidity
The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously
monitoring forecast and actual cash flows.
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.
Further details are set out in notes 1 and 13.
(f) 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 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.
100
29 Subsequent Events
Legal Group merger
Reckon announced in August 2020 that it would merge the Reckon Legal Group with Zebraworks Inc.
Zebraworks is a SaaS start-up building an integration platform to move legal practices to the cloud. Reckon Limited
owns 70% of the new venture, with Zebraworks shareholders (mainly management) owning 30%. Management have
the opportunity to progressively increase their shareholding by 15% if certain KPI’s are met by 2027.
Closing conditions were completed on 6 February 2021, and the merger has now concluded.
The three material closing conditions were:
•
Foreign Investment Review Board approval of the merger and related transactions as may be required by
applicable law. This condition was fulfilled on 5 November 2020.
• The obtaining of necessary approval from Reckon Limited’s lenders to consummate the merger and related
transactions. This condition was fulfilled on 18 December 2020.
• The forgiveness of a USA Paycheck Protection Program loan paid to Billback Systems LLC, a wholly owned
subsidiary of Reckon Limited, under Coronavirus Aid, Relief, and Economic Security Act (USA) as administered
by the USA Small Business Administration. This condition was fulfilled on 20 January 2021.
Other non-material completion conditions were fulfilled on 6 February 2021.
The conditions having been fulfilled, the parties proceeded to formal completion and implementation of the merger
and related transactions in February 2021.
ReckonDocs Sale
Reckon Limited announced on 16 February 2021 that it had reached agreement with NowInfinity Pty Ltd (a wholly
owned subsidiary of Class Ltd) and Class Ltd (the Class Buyer Group), to sell the assets comprising the ReckonDocs
Business to the Class Buyer Group.
The purchase consideration is $13 million dollars.
The transaction completed on 1 March 2021 and is effective from this date.
The intended use of the funds received will be to reduce Reckon’s debt, and to provide additional development funds
for Reckon’s “cloud first“ development strategy for small business accounting and payroll, and practice management
for accountants and lawyers.
The ReckonDocs Business contributed revenue of $5 million and EBITDA of $3 million to the 2020 Reckon Group results.
The ReckonDocs Business was part of Reckon’s Accountant Practice Management Group and is a provider of
company formations, trust deeds and other related documents and services.
The sale of this business will enable a stronger focus in Reckon’s core cloud software initiatives with the added
benefit of a tighter integration of our Accountants Group products with Class products over time.
101
Notes to the Financial Statements (continued)
30 Related Party Disclosures
(a) Key Management Personnel Remuneration
Short term benefits
Post-employment benefits
Share based payments
Consolidated
2020
$
2019
$
2,252,413
2,372,389
93,489
92,400
279,028
163,545
2,624,930
2,628,334
The names of and positions held by the key management are set out on page 14 of the Remuneration Report. Further
details of the remuneration of key management are disclosed in the Directors’ Report.
(b) Other Transactions with Key Management Personnel
Mr Clive Rabie acquired surplus Get Busy PLC shares from the employee share scheme (Reckon Australia Pty Ltd) in
March 2020. This was the purchase of 154,429 shares at 63 pence per share, being the market price on 9 March 2020.
There were no transactions with Directors and other key management personnel apart from those disclosed in this note.
(c) Directors’ and Key Management Equity Holdings
Refer to the tables on pages 36 and 37 of the Remuneration Report.
31 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 2, 100 Pacific Highway
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 26 March 2021.
102
Additional Information as at
23 February 2021 (Unaudited)
Corporate Governance Statement
The Reckon Limited Corporate Governance Statement is available on our website in the section titled Corporate
Governance (https://www.reckon.com/au/investors/governance)
Twenty Largest Holders of Quoted Equity Securities
Ordinary Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
GREGORY JOHN WILKINSON
DJZ INVESTMENTS PTY LTD
CITICORP NOMINEES PTY LIMITED
MR CLIVE RABIE + MRS KERRY RABIE
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