iSelect Ltd Annual Report 2013

Plain-text annual report

Driven by data, powered by people Since our launch in 2000, iSelect has grown to become a leading Australian online-driven comparison service1 that compares insurance, household utilities and ﬁnancial products. The Group operates nationally and employs more than 415 talented individuals. www.iselect.com.au Contents 1 2013 Financial Summary 2 Executive Chairman’s Message 4 Group Performance 5 Review of Operations 7 The Year Ahead 8 Board Members 10 Executive Team 12 Financial Report 85 Corporate Directory IMPORTANT NOTICE AND DISCLAIMER All references to FY12, FY13 and FY14 appearing in this Annual Report are to the ﬁnancial years ended or ending 30 June 2012, 30 June 2013 or 30 June 2014, respectively, unless otherwise indicated. All references to 1H FY13, 2H FY13 and 1H FY14 appearing in this Annual Report are to the half ﬁnancial years ended or ending 31 December 2012, 30 June 2013 and 31 December 2013, respectively, unless otherwise indicated. All references to CY12 and CY13 appearing in this Annual Report are to the calendar years ended or ending 31 December 2012 and 31 December 2013 respectively. Calendar year (CY) is not the annual reporting cycle of the Company and accordingly is unaudited. References to results for the quarter ended 30 September 2013 are management estimates and accordingly are unaudited. This Annual Report contains (and the prospectus dated 06 June 2013 contained) forward-looking statements. The words “anticipate”, “believe”, “expect”, “project”, “forecast”, “estimate”, “outlook”, “upside”, “likely”, “intend”, “should”, “could”, “may”, “target”, “plan” and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and ﬁnancial position and performance are also forward-looking statements. The statements in this Annual Report are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, at the date of this update, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the Company, the Directors and management. Forward-looking statements should therefore be read in conjunction with, and are qualiﬁed by reference to, sections 4 and 5 of the prospectus dated 06 June 2013, and other information in the prospectus and announcements since listing. The Company cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this Annual Report or the prospectus will actually occur and investors are cautioned not to place undue reliance on these forward-looking statements. NON-IFRS INFORMATION Throughout this Annual Report, certain non-IFRS information, such as EBITDA, EBIT, Conversion Ratio, Leads and Revenue Per Sale (RPS) are used. The information is presented to assist in making appropriate comparisons with prior periods and to assess the operating performance of the business. iSelect uses these measures to assess the performance of the business and believes this information is useful to investors. Earnings (proﬁt) before interest, income tax expense, depreciation and amortisation (EBITDA) are deﬁned in the Financial Report in note 2(c) to the ﬁnancial statements. EBIT is a similar measure to EBITDA, but it takes into account depreciation and amortisation. The individual components of EBITDA and EBIT are included as line items in the Consolidated Statement of Comprehensive Income in the Financial Report. Non-IFRS information is not audited. Any and all monetary amounts quoted in this 2013 Annual Report are in Australian dollars (AUD). Any references to “Group” in this Annual Report refer to iSelect Limited and its controlled entities. ABN: 48 124 302 932 Health Car Life Broadband Home Loans Energy 1Based on web visit data sourced from Hitwise, April 2013. iSelect Annual Report 2013 iSelect Annual Report 2013 1 1 201,000 2013 Financial Summary Net Product Sales2 2012: 169,000 2011: 92,000 Revenue 2012: $111.9 million 2011: $72.4 million EBITDA 2012: $24.1 million 2011: $17.4 million NPAT 2012: $12.9 million 2011: $10.7 million Operating Cash Flow 2012: ($0.4) million 2011: ($3.3) million Cash Balance 2012: $20.0 million 2011: $17.5 million 2Excluding Money Business Unit 3Excluding IPO costs $118.0 million $26.5 million3 $14.4 million3 $4.2 million $85.3 million 22 Executive Chairman’s Message iSelect is a company with big ambitions. Like many high-growth companies with aspirations to grow larger do, we ran into some turbulence this year. The good news is that we have a plan to overcome the current challenges. Our long term strategy is consistent. The structure of the industries we operate in and the demand from both consumers and providers alike remains strong. The Board and I are very conﬁdent that we have the right business model and the right people to realise the growth potential of our business. As the company’s largest shareholder, I was as disappointed as anyone to see iSelect’s value being impacted by a series of events related to the IPO and during the months directly following. Having said that, I am as convinced today as I was on the day we listed, that we will deliver the returns that all shareholders expect from us. We are focused on and conﬁdent that we can deliver results that will please our shareholders. We ﬁrmly believe that the fundamentals of the business remain strong and that recent headwinds will dissipate over time as the business continues to perform. Our recent update regarding the ﬁrst full three months of trading since we listed conﬁrmed that we are on track to achieve the EBITDA guidance we issued in June and August. Revenue is lower than we expected because of the softness we experienced at the tail end of FY13, but is now trending back to where we want it to be. The outlook for the ﬁrst half of the current ﬁscal year is encouraging. Based on our results for the quarter just ended 30 September 2013*—with revenue up 11% and EBITDA up 52% on the prior comparative period—we are on track to deliver an 18% lift in revenue in the half year to December and close to double EBITDA compared to the same period a year before. We acknowledge that in order to restore conﬁdence, we need to deliver on our numbers in the short term and then keep delivering on expectations over the long term. Our latest forecast reﬂects a positive outlook for the business that should provide comfort for investors concerned about the company’s 2H FY13 performance. SOLID YEAR ON YEAR GROWTH In the ﬁnancial year to 30 June 2013 and in the current ﬁnancial year to date we have been weathering some challenges generated by regulatory changes in the private health insurance market. Despite this, we posted solid year on year growth with our volume of product sales up 18.9% to just over 201,000 for the year. Our investment in new businesses is certainly delivering results, and I am especially excited about the future of our high growth Life and Energy businesses. * Results for the quarter ended 30 September 2013 are an estimate and are unaudited. “Our long term strategy is consistent.” “We ﬁrmly believe the fundamentals of the business remain strong.” “Our latest forecast reﬂects a positive outlook for the business.” iSelect Annual Report 2013 iSelect Annual Report 2013 3 3 “ iSelect is a robust business. We are tackling the challenging economic conditions as well as regulatory changes. We are confident that we have the right business fundamentals in place to deliver results.” Damien Waller, Executive Chairman and co-founder We are very encouraged by the resilience of the Group over the last 12 months, underpinned by the growing diversity of our revenue streams and the mix of established and new businesses that are driving growth. Over the FY13 period; sales leads, conversion of those leads into sales and operating cash ﬂow continued their strong upward trajectory. Our continued market share gains in private health insurance were very pleasing, with leads and conversion ahead of our prospectus forecast. It was disappointing to see group revenue per sale below expectation, primarily due to the ﬂow on effects of FY12 regulatory changes, however it is my ﬁrm view that we are well placed to capitalise on a return to more stable market conditions when they occur. Our Household Utilities and Financial segment recorded very pleasing growth, with revenue and proﬁtability ahead of expectation. DIVERSITY As foreshadowed in our prospectus, the Board has developed a formal diversity policy which was adopted on 28 August 2013. My Board colleagues and I are strongly committed to achieving our diversity objectives and ensuring diversity remains a core focus in FY14. INITIAL PUBLIC OFFERING As co-founder of the Company, it was very pleasing to see iSelect mature to the point where we could list on the ASX. I would like to congratulate management and the Board for the exceptional effort and commitment that was required to see this milestone achieved and would like to especially thank our shareholders for their support. LEADERSHIP CHANGES I was very pleased to announce the appointment of Bridget Fair to the iSelect Board as independent Non-executive Director on 30 September, 2013. I was also pleased to see David Christie join the iSelect Executive Team as General Counsel on 30 September, 2013 and his appointment as Company Secretary on 15 October 2013. It was with sadness that I accepted Matt McCann’s resignation as CEO and as a Director of iSelect Limited on 13 October, 2013. David Chalmers, CFO, has been appointed as acting CEO as we commence a worldwide search and selection process for Matt’s replacement. I was also sad to see Roger McBride resign as Marketing Director on 18 October, 2013. I am pleased however to report that Roger will be succeeded by Geraldine Davys who joins iSelect as Marketing Director, effective 21 October, 2013. THE YEAR AHEAD We view FY14 with optimism. We expect to see continued year on year growth as a result of the investments made in data analytics and our newer business units during FY13. We also look forward to a return to more stable conditions within the private health insurance market in FY14. With our strong net cash position we will continue to assess acquisition opportunities over the coming year. iSelect is a robust business. We are tackling the challenging economic conditions as well as regulatory changes. We are conﬁdent that we have the right business fundamentals in place to deliver results. I would be delighted if you could join me at the iSelect Limited Annual General Meeting at 11am on Monday 18 November at the Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Victoria. I would like to take this opportunity to sincerely thank our shareholders for their support over the last year. I look forward to sharing the ongoing journey with you as a fellow iSelect shareholder in FY14. Damien Waller Executive Chairman 21 October, 2013 4 Group Performance The Group achieved total revenue of $118.0 million, representing a 5.5% increase versus FY12, but 2.9% below expectation. The revenue shortfall versus prospectus forecast was primarily due to a decline in the average price of private health insurance policies sold in 2H FY13. It was pleasing however to see the Group achieve EBITDA of $26.5 million (excluding IPO costs), 1.7% ahead of prospectus forecast. Underpinning this EBITDA result was a strong earnings contribution from our Household Utilities and Financial (HU&F) segment. Our focus on efﬁciency in FY13 saw our EBITDA margin increase to 22.4% (excluding IPO costs), versus 21.5% in FY12. Net proﬁt after tax (excluding IPO costs) was in line with expectation at $14.4 million, 11.4% up on previous year. Signiﬁcant improvement in operating cash ﬂow was achieved over the period, reaching $4.2 million in FY13 due to a change in product provider mix and increasing contribution from our newer business units. We ﬁnished the FY13 period with a very strong balance sheet, reporting a 30 June cash balance of $85.3 million. It was pleasing to see the Group achieve EBITDA of $26.5 million (excluding IPO costs), 1.7% ahead of prospectus forecast iSelect Annual Report 2013 5 Review of Operations The iSelect Group achieved both revenue and EBITDA growth year on year, despite challenging conditions in the private health insurance market. The Group maintained its focus on earnings diversiﬁcation, bearing fruit in the form of a strong contribution from the Household Utilities and Financial segment. PRIVATE HEALTH INSURANCE (PHI) It was a year of record sales volume for the iSelect Health business, with sales volume performance during 2H broadly in line with expectations. There were however several regulatory changes in FY12 and FY13 that affected the PHI market including but not limited to means testing of the Australian Government PHI rebate, changes to the Medicare levy surcharge and removal of the rebate on Lifetime Health Cover Loading. These all created a turbulent dynamic for the industry. iSelect experienced a year on year decline in average revenue per sale due to a mix shift toward lower priced private health insurance policies, with many consumers choosing to purchase these lower priced products late in June. We also observed an increase in the proportion of singles (versus couples and family) policies being purchased in FY13 versus the previous year. The majority of the Company’s PHI sales continue to be new to PHI, as opposed to customers switching between products/ providers. The fundamentals of the private health insurance market remain strong however, underpinned by positive membership trends. Solid performance despite challenging 2H dynamics in Health Providing a strong platform for growth in FY14 HEALTH AND CAR INSURANCE The Health and Car Insurance segment performed solidly during FY13, despite challenging 2H dynamics in Health. Revenue and EBITDA were both below expectation, however underlying ﬁnancial sales volumes in Health were up approximately 5% versus the previous year. We also observed an encouraging year on year improvement in the underlying proﬁtability of our Car Insurance business. HOUSEHOLD UTILITIES AND FINANCIAL The performance of our Household Utilities and Financial segment has provided a strong platform for growth in FY14 and has clearly demonstrated the ability of the iSelect business model to be applied to new markets. Our ﬁrst full year contribution from Energy and Money was very encouraging, and we are very excited about the FY14 potential of these two businesses. Margin improvements in Life and Money were responsible for a substantial out performance of the HU&F segment’s EBITDA forecast. Health and Car Insurance segment results Household Utilities and Financial segment results $m Revenue EBITDA Margin A = Actual. P = Prospectus Forecast FY13A FY13P (cid:86) FY12A (cid:86) $m FY13A FY13P (cid:86) FY12A (cid:86) 93.1 36.5 97.3 37.3 (4%) (2%) 98.0 40.4 (5%) (10%) 39.2% 38.4% 2% 41.3% (5%) Revenue EBITDA Margin A = Actual. P = Prospectus Forecast 24.9 3.1 24.3 3% 0.8 279% 12.3% 3.3% 269% 13.9 (5.6) n.m 79% n.m n.m Health Car Life Broadband Home Loans Energy 6 Review of Operations continued CUSTOMER EXPERIENCE Management undertook a refresh of the successful “Mr iSelect” creative platform in FY13, which resonated strongly with consumers. Brand awareness continued to be a key strength for the Group over the period, none more so than in Health Insurance. The product development team continued to roll out enhancements to the iSelect web experience during the period. Mobile and tablet-speciﬁc enhancements planned for the year ahead are a key opportunity for the Group and promise to deliver a new experience for our customers in FY14. An ongoing focus on our data analytics capability delivered ongoing sales lead conversion improvements over the year. We continued to roll out the iConnect platform to drive speciﬁc conversion improvements in Health and Car Insurance, with great success. The rollout of the iConnect platform to other business units will continue in FY14. FY13 Key Performance Highlights Leads (‘$000) FY12A FY13A FY13P Leads 2,945 3,317 3,306 – 12.6% YoY lead growth – FY13A in line with prospectus forecast – Lead volumes driven by brand and organic search positions – Over 60% of FY13 web visits came direct to website or from organic search Conversion (%) FY12A FY13A FY13P Conversion 5.7% 6.1% 6.1% – 5.5% YoY uplift in conversion rate – FY13A in line with prospectus forecast – Conversion improvement has continued with the ongoing rollout of iConnect platform – HU&F segment converting above expectations Sales (‘$000) FY12A FY13A FY13P Sales 169 201 201 – 18.9% YoY sales volume growth – FY13A in line with prospectus forecast FY12A FY13A FY13P Revenue Per Sale $642 $564 $581 – 12.1% YoY decrease in RPS Revenue Per Sale (RPS – $) YoY = Year on Year – Record year, driven by growth in lead generation and conversion ratio, as well as full year Energy contribution – Signiﬁcant growth in HU&F sales volumes YoY – Underlying ﬁnancial sales in Health up ~5% YoY – Contribution from new (typically higher volume, lower RPS) businesses is increasing, lowering average RPS across the group – RPS trends in business units are generally positive – Health impacted by product mix shift in 2H FY13 iSelect Annual Report 2013 7 We are on track to achieve EBITDA of $30.0 million for CY13 The Year Ahead Our recent CY13 trading update confirmed that we are on track to achieve EBITDA of $30.0 million for CY13, representing a 51% increase on CY12. Forecast revenue for CY13 is $126.5 million, and would represent a 10% increase on CY12. The September quarter of CY13 has been strong, notwithstanding the normal seasonal factors, with revenue up 11% and EBITDA up 52% compared to the same quarter in 2012. New business leads, the conversion of those leads into sales and our operating cash flow are all on encouraging and positive trajectories. In Car Insurance, we have decided to delay some marketing initiatives to 2H FY14, enabling the team to focus on other projects in the intervening period. This means Car Insurance revenue is down, but profitability is in line with where we wanted it to be and business leads are trending upwards as we enter the second quarter. In the Household Utilities and Financial segment, we are seeing revenue and profitability trending ahead of expectations for Life Insurance and a stronger revenue per sale performance, while in Energy revenue is in line with prospectus forecasts and we are re-investing some of our gross profit in staff training to capitalise on an expected increase in activity in early 2014. Close management of costs remains a focus, with planned investment in additional resources re-aligned to business requirements and our current growth trajectory. Creating an exceptional end-to-end customer experience remains a key focus for iSelect 8 Board Members Damien Waller Executive Chairman and co-founder Damien is one of Australia’s leading online entrepreneurs and is the Executive Chairman and co- founder of iSelect. Under Damien’s leadership over the past 13 years the Company has grown to become a leading Australian online-driven comparison service. In recent years, Damien spearheaded the expansion of the Company into new underlying markets including Home Loans, Money and Energy. Damien’s position within iSelect has evolved over the years and has included Managing Director, CEO and now, Executive Chairman. Prior to iSelect, Damien was recruited by JB Were & Son via its elite graduate program. Damien is a Fellow of FINSIA (the Financial Services Institute of Australasia) and a member of the Australian Institute of Company Directors (AICD). Matt McCann Chief Executive Officer (resigned 13 October, 2013) Appointed as Chief Executive Officer of iSelect in January 2012 and to the iSelect Board of Directors in February 2012. Joining iSelect in 2008 as Corporate Development Director, to drive iSelect’s group strategy, mergers and acquisitions (M&A) and corporate finance. In this role, Matt was responsible for expanding the iSelect consumer offering via the launch of new business categories and for attracting additional investment to support the continued growth of the Company. Since 2011, Matt has also led the successful acquisition and integration of InfoChoice. Matt was appointed as Company Secretary in September 2010 and held that position until February 2012. Matt holds an LLB and trained at the international law firm Allens Arthur Robinson. He is admitted to practice in the Supreme Court of Victoria and the Federal and High Courts of Australia. Greg Camm Non-Executive Director and Deputy Chairman Greg joined the iSelect Board in August 2012 and has nearly 40 years experience in the financial services industry in Australia and New Zealand. Greg spent 16 years in senior roles at Australia and New Zealand Banking Group Limited, including Managing Director of the Mortgage Division, Managing Director of ANZ New Zealand and Managing Director of the Australian Retail Banking Division of ANZ. Following ANZ, he served as Managing Director of AMP Financial Services (New Zealand). He then served as CEO of Superpartners Pty Ltd for five years. Greg retired from executive management roles in 2012. Greg holds an MBA from The University of Melbourne and a BBus (Accounting & Finance) from Monash University. He is a Certified Practising Accountant and a Senior Fellow of FINSIA. He serves on the boards of mecu Ltd (trading as bankmecu) and Bottlecyclers Pty Ltd. He is a trustee of the Australian Cancer Research Foundation. iSelect Annual Report 2013 9 Leslie Webb Non-Executive Director Leslie was appointed to the iSelect Board of Directors in February 2001. He brings legal expertise to the Board, given his experience as a barrister and solicitor. Leslie has consulted extensively to both publicly listed and unlisted public companies in the information technology (IT) and biotechnology industries on corporate and financial planning, intellectual property, corporate governance and strategic planning issues. In his role as a consultant, he has been actively involved in advising on the globalisation of Australian companies Previously, Leslie was a director of the ASX-listed biotechnology company Gradipore Ltd, Non-Executive Chairman of Stem Cell Sciences (Australia) and a non-executive director of Stem Cell Sciences PLC (previously listed on the London Alternative Investment Market). Leslie is currently a Non-Executive Director of Generic Health and is Non-Executive Chairman of Nimble Money Pty Ltd. Leslie is a member of the AICD. Shaun Bonètt Non-Executive Director Shaun was appointed to the iSelect Board of Directors in May 2003. Shaun founded and is the Chief Executive Officer of Precision Group, an investor, developer and financier of retail and commercial property across Australia. Precision Group owns over A$1 billion of commercial assets in Australia and has diversified its business into financial services and private equity investments, primarily in the IT and health sectors. Shaun is a qualified lawyer and barrister and solicitor of the High Court of Australia and previously held various corporate advisory roles with publicly listed and private companies. He is also a member of the AICD and Young Presidents’ Organisation. Shaun is also a Director and Chairman of Litigation Lending Services Ltd. Shaun is founder and trustee of the Heartfelt Foundation, an Australian charitable trust. Pat O’Sullivan Non-Executive Director Pat was appointed to the iSelect Board of Directors in September 2010. Pat brings over 30 years of international commercial and business management experience to the iSelect Board. Pat’s prior professional experience includes Chief Financial Officer of Nine Entertainment Co. between 2007 and 2012. Prior to that he was Chief Operating Officer of Publishing and Broadcasting Ltd (PBL), a position he had held since February 2006. Before joining PBL, Pat was the Chief Financial Officer of SingTel Optus Pty Ltd, a position he held for over five years with responsibility for the company’s financial affairs including corporate finance, taxation, treasury, risk management, procurement and property. Previously, Pat held a number of positions at Goodman Fielder, Burns, Philp & Company, and PwC. Pat is also a Non-Executive Director of carsales.com Limited and Little Company of Mary Health Care Ltd., and Chairman and Non-Executive Director of Health Engine Pty Limited. Pat is currently a member of The Institute of Chartered Accountants in Ireland and The Institute of Chartered Accountants in Australia, and is a graduate of the Harvard Business School’s Advanced Management Program. 10 Executive Team Matt McCann Chief Executive Officer (resigned 13 October, 2013) Appointed as Chief Executive Officer of iSelect in January 2012 and to the iSelect Board of Directors in February 2012. Joining iSelect in 2008 as Corporate Development Director, to drive iSelect’s group strategy, mergers and acquisitions (M&A) and corporate finance. In this role, Matt was responsible for expanding the iSelect consumer offering via the launch of new business categories and for attracting additional investment to support the continued growth of the Company. Since 2011, Matt has also led the successful acquisition and integration of InfoChoice. Matt was appointed as Company Secretary in September 2010 and held that position until February 2012. Matt holds an LLB and trained at the international law firm Allens Arthur Robinson. He is admitted to practice in the Supreme Court of Victoria and the Federal and High Courts of Australia. David Chalmers Chief Financial Officer and Company Secretary David joined iSelect in February 2012 and held the role of Corporate Development Director until being promoted to the role of Chief Financial Officer later that year. In his current role, David maintains overall responsibility for iSelect’s finance and administration functions. David has over 15 years’ experience across corporate finance, strategy, investment banking and M&A. Before joining iSelect, David led the corporate M&A and strategy function for DuluxGroup. Prior to this, he held corporate finance and private equity management roles of increasing responsibility with Macquarie Capital. During his time at Macquarie Group, David took a lead role in developing Macquarie Capital’s private equity business in Asia. David holds a BComm (Hons) from The University of Melbourne and a MBA from INSEAD. Following the resignation of Matt McCann on 13 October 2013, David Chalmers was appointed acting Chief Executive Officer pending the appointment of a new Chief Executive Officer. He resigned as Company Secretary on 15 October 2013. Jo Thomas Operations Director Jo joined iSelect in 2008 to lead the Consumer Advice Team and following increasing levels of responsibility was promoted to the role of Operations Director in 2012. Jo maintains responsibility for iSelect’s end-to-end consumer experience, including the Consumer Advice Centre, e-commerce and online technology platform. With over a decade of experience in leading large sales teams, Jo has worked with, and on behalf of, some of Australia’s largest companies including Telstra, Citibank, Metlife, Aegis Pty Ltd, Vodafone, Westpac and TRUenergy. Jo holds a Bachelor of Communication Studies from The University of Auckland and a MBA from Monash University. iSelect Annual Report 2013 iSelect Annual Report 2013 11 Scott Wilson Commercial Director Scott joined iSelect in February 2013 and holds the position of Commercial Director and maintains overall responsibility for the Company’s individual business units and Product Provider relationships. Scott has over 20 years’ of sales and key account management experience within multinational fast-moving consumer goods and entertainment companies. Prior to joining iSelect, Scott was Sales Director (Australia & New Zealand) for 20th Century Fox Home Entertainment, following senior national sales roles at PZ Cussons and SPC Ardmona. Scott holds a Master of Business and Graduate Certificate of Business Administration from The University of Newcastle. Roger McBride Marketing Director (resigned 18 October, 2013) d Roger joined iSelect in 2004 as Marketing Manager and over the years has been a driving force behind the strategic development of the iSelect brand in Australia. Today, Roger directs all marketing operations at iSelect and brings extensive experience and a record of success in innovative marketing including B2B and B2C across online and integrated media and business landscapes. Prior to iSelect, Roger held various senior marketing and innovation roles across a number of large national and multinational corporations, leading the development and marketing of globally recognised and iconic brands such as Sensis, Thomson Reuters and Ford Motor Company. Roger holds a BBus (Marketing) from Monash University. Elise Morris Human Resources Director Elise joined iSelect in February 2012 and leads iSelect’s human resources function. Prior to this, Elise held human resources roles of increasing responsibility for over a decade within some of Australia’s most well-recognised companies including Seek Limited and Pacific Brands. During her career, Elise has also held senior management positions within the UK-based confectionery manufacturer Cadbury and its parent company Kraft Foods. Elise holds a BBus (Marketing), a Master of Management from Monash University and graduate qualifications in psychology. Chris Billing Chief Innovation Officer Chris joined iSelect in 2009 as Product Director, later leading both product and IT delivery and in 2013 became Chief Innovation Officer. Before coming to iSelect, Chris held various senior management positions with REA Group, Uecomm Pty Ltd and Sensis. He has 18 years’ strategy, product management and marketing experience with online and IT companies. Today, Chris is responsible for business innovation and future growth at iSelect. Chris holds a BBus from Victoria University and a Master of Marketing from The University of Melbourne. 12 Financial Report 13 Directors’ Report 20 Remuneration Report 29 Corporate Governance Statement 34 Auditor’s Independence Declaration 35 Consolidated Financial Statements for the Year Ended 30 June 2013 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Cash Flows 39 Notes to the Consolidated Financial Statements 79 Directors’ Declaration 80 82 ASX Additional Information 84 Guidance versus Reported Results Independent Auditor’s Report iSelect Annual Report 2013 13 Directors’ Report The Directors of iSelect Limited and its controlled entities (the Group) submit herewith the ﬁnancial report of the Group for the ﬁnancial year ended 30 June 2013. . The names of the Directors in ofﬁce during or since the end of the ﬁnancial year are: Damien Waller Executive Chairman Matt McCann Chief Executive Ofﬁcer Greg Camm Non-Executive Director and Deputy Chairman – appointed 20 August 2012 Shaun Bonètt Non-Executive Director Pat O’Sullivan Non-Executive Director Leslie Webb Non-Executive Director Michael McLeod Non-Executive Director – ceased 30 November 2012 The above named Directors held ofﬁce for the whole of the period unless otherwise speciﬁed. COMPANY SECRETARY Trevor Jeffords Appointed 7 February 2012, ceased 5 April 2013 David Chalmers Appointed 5 April 2013 PRINCIPAL ACTIVITIES The principal activities during the ﬁnancial year within the Group were health, life, car insurance sales, mortgage brokerage, energy, broadband and ﬁnancial referral services. There have been no signiﬁcant changes in the nature of these activities during the year. OPERATING AND FINANCIAL REVIEW SUMMARY FINANCIAL REPORTED RESULTS Operating revenue Gross Proﬁt EBITDA Depreciation and amortisation EBIT Net ﬁnance costs Tax NPAT EPS (cents) FY13 $000 118,037 56,882 25,004 5,150 19,854 1,698 4,787 13,369 6.6 FY12 $000 111,928 54,958 24,082 4,054 20,028 895 6,204 12,929 7.8 Change % 5.5 3.5 3.8 27.0 (0.9) 89.7 (22.8) 3.4 (15.4) RESULTS ON A GUIDANCE BASIS VERSUS REPORTED RESULTS1 FY13 Reported Results $000 118,037 25,004 13,369 FY13 Adjust- ments $000 – 1,479 1,035 FY13 Guidance Basis $000 118,037 26,483 14,404 Operating revenue EBITDA NPAT 1 Refer to the guidance versus reported results reconciliation on page 84. This reconciliation forms part of the Operating and Financial Review. Throughout this report, certain non-IFRS information, such as EBITDA, EBIT, Conversion Ratio, Leads and Revenue Per Sale (RPS) is used. Earnings (proﬁt) before interest, income tax expense, depreciation and amortisation (EBITDA) is deﬁned in Note 2(c) to the ﬁnancial statements. EBIT is a similar measure to EBITDA, but it takes into account depreciation and amortisation. The individual components of EBITDA and EBIT are included as line items in the Consolidated Statement of Comprehensive Income. Non-IFRS information is not audited. The Group operates in the online product comparison sector and compares private health insurance, life insurance, car insurance, broadband, energy, home loans and personal ﬁnancial products. The Group maintains two brands, iSelect (www.iselect.com.au) and InfoChoice (www.infochoice.com.au). The Group’s business model is comprised of four key pillars that are linked: brand, lead generation, conversion and Product Providers. The Group derives the majority of its revenue from fees or commissions paid by Product Providers for successful sale of their products. Group Financial Performance and Reported Results Operating revenue in the 2013 ﬁnancial year increased by 5.5% to $118,037,000. The Group recorded strong year-on-year growth in its newer businesses as they gained traction in the market, with an increased number of leads and higher conversion. Our overall sales volumes increased on the prior year, though a decline in revenue per sale in Health, which reﬂected a shift by consumers to less expensive products, offset this growth. Gross proﬁt for the period increased by $1,924,000, or 3.5%. Direct marketing expenditure increased by 5.2% over the previous period, in part due to a refresh of the creative platform in the second half of the 2013 ﬁnancial year. Operating expenses (excluding IPO transaction costs associated with the ASX listing) were down on FY12 by $471,000 or 1.5%, reﬂecting a conscious focus on the management of costs. Reported EBITDA increased by 3.8% to $25,004,000. Excluding IPO transaction costs, EBITDA (on a guidance basis) for the 2013 ﬁnancial year was $26,483,000, representing an increase of 10.0% on the prior year. Net ﬁnance costs increased by 89.7% to $1,698,000. This is as a result of the ﬁnance costs associated with having three consecutive facilities in place during FY13. Reported net proﬁt after tax was $13,369,000, an increase on prior year of 3.4%. NPAT on a guidance basis was $14,404,000, an increase of 11.4%. 14 Directors’ Report (continued) for the year ended 30 June 2013 KEY OPERATING METRICS Leads iSelect categorise a ‘lead’ across the business (except in the Money business unit within the Household Utilities and Financial segment) as a second-page visit to one of its websites, or an inbound phone call from a potential customer to the Consumer Advice Team. This is considered by management to be a more conservative metric than considering all the visits to the homepage as sales leads. Leads for the Money business unit are sourced via the InfoChoice website, which operates under a lead generation model providing a low-cost source of sales leads. On this basis, a lead for the Money business unit is considered a visit to its website. Conversion Ratio Once a lead is generated, iSelect provides purchase advice and information to the consumer. If that purchase advice results in a referral to a Product Provider, then the lead is considered to have been converted. Product sales are subject to claw back provisions and lapses before the enforcement of the policies. The conversion ratio expresses the net number of product sales (adjusted for claw back and lapses before the enforcement of policies) achieved as a percentage of sales leads and is used to measure the efﬁciency in turning sales leads into sales. An increase in the conversion ratio increases iSelect’s earnings, as without the need for additional marketing spend, iSelect has leveraged efﬁciencies from its existing resources to achieve a greater number of sales from the same lead pool. This uplift in efﬁciency creates the margin to enable further spend on advertising and brand investment (where market conditions are appropriate) in order to grow market share. Under the lead generation model operated by the Money business unit, consumers are able to click through to Product Providers via third party afﬁliate arrangements, which do not register as a visit to the InfoChoice website. As a result, the click-through is recorded without registering a corresponding lead as deﬁned above. As such, the conversion ratio metric just described is not meaningful for the Money business unit. Revenue Per Sale Revenue per sale (RPS) measures the average revenue generated from each lead that is converted to a sale. It should be noted the RPS of different products sold by iSelect varies considerably. iSelect Annual Report 2013 15 OPERATING AND FINANCIAL REVIEW (CONTINUED) Consolidated Key Operating Metrics Consolidated (excluding Money) Leads (000s) Conversion ratio (%)1 Average RPS ($)2 Leads growth Money Leads (000s) Conversion ratio (%) Average revenue per click-through ($) Leads growth FY10 FY11 FY12 FY13 1,519 3.6% 791 n.m. n.a. n.a. n.a. n.a. 1,911 4.8% 787 25.8% n.a. n.a. n.a. n.a. 2,945 5.7% 642 54.1% 874 n.m. 5 n.m. 3,317 6.1% 564 12.6% 1,693 n.m. 5 93.7% Conversion ratio is calculated as the number of net sales divided by sales leads (i.e. the average percentage of sales leads that are converted into sales). Average RPS is calculated as revenue divided by the number of sales (net of terminations and sales direct to fund). 1 2 n.m. not meaningful n.a. not applicable Segment Performance The Group reports segment information on the same basis as the Group’s internal management reporting structure at reporting date. Commentary on the performance of the two segments follows. Health and Car Insurance The Health and Car Insurance segment offers comparison and referral services across the private health insurance and car insurance categories. Financial Performance Operating revenue Segment EBITDA1 Key Operating Metrics Leads (000s) Conversion ratio (%) Average RPS ($) FY13 $000 93,090 36,532 FY13 1,942 6.5% 734 FY12 $000 97,983 40,447 FY12 1,972 6.7% 742 Change % (5.0) (9.7) Change % (1.5) (3.0) (1.1) 1 Segment EBITDA excludes certain corporate overhead costs that are not allocated at segment level. Earnings (proﬁt) before interest, income tax expense, depreciation and amortisation (EBITDA) is deﬁned in Note 2(c) to the ﬁnancial statements. Operating revenue declined by 5.0% to $93,090,000, with this revenue shortfall also impacting segment EBITDA. Performance in Health in particular was impacted by consumers selecting lower priced products, especially evident in the key June period. There was improvement in the underlying performance of the Car business unit proﬁtability on the prior year. Discussion of Consolidated Key Operating Metrics for the 2013 Financial Year The consolidated key operating metrics for the 2013 ﬁnancial year are discussed in more detail below. Key operating metrics by segment are also discussed in this Operating and Financial Review, in the section on Segment Results. Leads Growth for the 2013 Financial Year Overall leads for the business (excluding Money) were up 12.6% in the 2013 ﬁnancial year whilst marketing spend was up 5.2% for the same period, indicating greater marketing efﬁciency. The Company’s strong brand and organic search position continues to deliver beneﬁts, with over 60% of web visits to the iSelect and InfoChoice websites in the 2013 ﬁnancial year coming from organic search or direct to site. In addition, the Group refreshed its creative platform during the current year. Conversion Ratio for the 2013 Financial Year The conversion ratio for the overall business (excluding Money) has improved from 5.7% to 6.1%, with the improvement year-on-year being driven by new businesses in the Household Utilities and Financial segment. iConnect has been progressively rolled out in the Car, Life and Energy business units through the year, with the implementation of intelligent lead queueing and allocation providing pleasing results in those businesses. We expect continued improvement in conversion across the group as the iConnect system is further optimised. Revenue Per Sale for the 2013 Financial Year There are three key drivers of RPS: commission rates (either ﬁxed fee or percentage of product value), product mix within business units, and business mix/segment contribution for the total business. The decline in average RPS for the total business from $642 in prior year to $564 in the 2013 ﬁnancial year largely reﬂects a change in business mix/segment contribution. We have experienced growth in the current year in high volume/low RPS value businesses (e.g. Energy), whilst the higher RPS business in Health has seen a small decline in RPS due to a consumer move towards less expensive products. 16 Directors’ Report (continued) for the year ended 30 June 2013 Household Utilities and Financial The Household Utilities and Financial segment offers comparison and lead referral services across a range of household utilities and personal ﬁnancial products, including life insurance, broadband, retail electricity and gas products, home loans, savings accounts, term deposits, credit cards and personal loans. Financial Performance Operating revenue Segment EBITDA1 Key Operating Metrics2 Leads (000s) Conversion ratio (%) Average RPS ($) FY13 $000 24,947 3,063 FY13 1,376 5.4% 274 FY12 $000 13,945 (5,552) FY12 973 3.8% 284 Change % 78.9 n.m. Change % 41.4 42.1 (3.5) 1 2 Segment EBITDA excludes certain corporate overhead costs that are not allocated at segment level. Earnings (proﬁt) before interest, income tax expense, depreciation and amortisation (EBITDA) is deﬁned in Note 2(c) to the ﬁnancial statements. Key operating metrics reported here for the Household Utilities and Financial segment exclude the metrics for the Money business unit. The key operating metrics for the Money business unit are reported above with the consolidated group’s key operating metrics. Operating revenue grew by 78.9% to $24,947,000 and the segment posted its ﬁrst EBITDA proﬁt of $3,063,000. It was the ﬁrst full year contribution from Energy and Money, and all business units within the segment recorded improvements on the prior year. In particular, gross proﬁt improvements in Life and Money exceeded expectations. Financial Position Summary Statement of Cash Flows Net cash provided by operating activities Net cash used in investing activities Net cash used in ﬁnancing activities Net increase in cash and cash equivalents FY13 $000 FY12 $000 Change % 4,209 (362) (4,401) (44,752) 65,495 47,627 n.m. 90.2 37.5 65,303 2,513 2,498.6 Summary Statement of Financial Position FY13 $000 FY12 $000 Change % Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity 138,632 135,629 274,261 25,123 21,412 46,535 227,726 227,726 63,044 111,353 174,397 60,791 20,600 81,391 93,006 93,006 119.9 21.8 57.3 (58.7) 3.9 (42.8) 144.9 144.9 Capital Expenditure and Cash Flow Operating cash ﬂow was $4,571,000 higher than last year which can be attributed to the increasing contribution of the newer business units, as well as a shift in revenue mix towards upfront fees when compared to the prior year. Capital expenditure returned to business-as-usual levels after capital investment on the new campus and the acquisition of InfoChoice in 2012 ($31,348,000). Investment in the current year focused on software development and technology platforms. Financing cash ﬂows for the 2013 ﬁnancial year total $65,495,000, representing an increase of $17,868,000, or 37.5%. The increase is primarily driven by additional capital-raising activities, though is offset by the repayment of borrowings that were outstanding at the end of the prior year. In addition to this, the Group entered into an agreement which provides a secured facility to NIA Health Pty Ltd. The facility creates a deferred payment obligation for which NIA Health provides security and pays interest. One hundred million dollars was raised through the initial public offering. Total costs associated with the initial public offering were $13 million, including both capitalised amounts (before tax effect) and expensed amounts. Part of the funds raised were used to repay outstanding bank facilities in full. Statement of Financial Position Current assets have increased by 119.9% to $138,632,000. Cash and cash equivalents increased primarily as a result of the capital raised through the listing in June. The amount of upfront revenue earned in the business has increased, which has resulted in an increase in trade and other receivables. The trail commission asset has also increased, reﬂecting a higher amount of trail revenue in the current ﬁnancial year as an addition to the trail asset, compared to trailing commissions received. Non-current assets have increased by 21.8% to $135,629,000. The non-current component of the trail commission asset has increased for the same reasons noted above. Trade and other receivables has increased from nil at 30 June 2012, to $15,378,000, reﬂecting a facility established between iSelect Ltd and NIA Health Pty Ltd. Property, plant and equipment declined as the ﬁrst full year of depreciation on the leasehold improvements for the iSelect campus was incurred, and exceeded the level of additions during the year. This was partly offset by an increase in intangible assets as the Group continues to invest in its website platforms. Current liabilities decreased by 58.7% to $25,123,000, mainly due to the repayment of $35 million of borrowings (further discussion in the section following on Debt Position). Non-current liabilities increased by 3.9% to $21,412,000. Net deferred tax liability increased as a result of the increase in the trail asset, which reﬂects an increase in future tax liabilities on the trail commission as it is received. This is partly offset by a deferred tax asset that has arisen in relation to capitalised IPO transaction costs which are deductible over a period of ﬁve years. iSelect Annual Report 2013 17 Debt Position As at 30 June 2013 the Group has no debt, having used part of the proceeds from its ASX listing to repay borrowings in full. This compares with borrowings of $35 million as at 30 June 2012. In September and October 2012, $28.8 million of capital was raised and was used to repay $20.7 million of the $35 million owing to Goldman Sachs at the end of the prior year. On 30 October 2012, a new facility was entered into with Credit Suisse AG for $25 million, and $14.3 million of these funds was used to repay the balance of $35 million. The Credit Suisse AG borrowings were repaid in full in April 2013, using newly established facilities for $40 million with the CBA, and part of the funds raised through listing have repaid all outstanding borrowings under the CBA facility. FUTURE DEVELOPMENTS AND EXPECTED RESULTS Via the Group’s two websites, www.iselect.com.au and www.infochoice.com.au, the Group continues to meet the needs of a growing population of consumers who are migrating online to extend their buying power and to more efﬁciently ﬁnd appropriate products at lower prices. Recent research1 by Nielsen Australia indicates that 46% of Online Australians surveyed are more likely to use an online comparison service now than in the last 12 months. Research also shows that the use of online comparison services in Australia is likely to continue growing strongly over the next reporting period. As the Australian market leader in online-driven comparison, the Group remains uniquely positioned to beneﬁt from the increasing adoption and use of the internet in this regard. To maintain and build the Group’s market-leading position, we have continued to invest in new business lines. Our Household Utilities and Financials segment, which contains our youngest business units, experienced 79% revenue growth for the year ended 30 June 2013. This growth demonstrates the utility of the iSelect model outside of private health insurance and we expect further growth from this segment in FY14. This growth will be underpinned by the strong potential present within each of that segment’s underlying markets, in particular Energy. As a ﬁrst mover and thought leader in the Australian online comparison market, innovation across the Group will be a key focus area in FY14. While the Group’s health insurance website is already optimised for mobile and tablet devices, an observed increase in trafﬁc to our websites from these devices during FY13 presents a clear opportunity for a second iSelect sales experience across all business units in FY14, driving consequential conversion and revenue uplifts to be delivered in subsequent reporting periods. With a view to continuing growth in sales lead conversion, the Group will continue to invest in our people and technology. In order to provide consumers with a better user experience and maximise sales conversion, iSelect has developed processes to optimise information capture and routing to ensure that each consumer is matched with the optimal sales adviser based on an adviser’s demonstrated expertise in providing the solution likely to best suit the consumer’s requirements. This blend of technology with people is known as the iConnect platform. It is expected that the application of the iConnect platform to business units outside of Health Insurance will drive signiﬁcant efﬁciency and conversion improvements within those units over the next period. The capital raising in the ﬁrst half of ﬁnancial year 2013 and subsequent initial public offering gives the Group ﬁnancial ﬂexibility to fund growth into the future. The Group expects the performance of the newer business units to continue over the next period as the iConnect platform continues to improve conversion of leads to sales. With some early signs in ﬁnancial year 2014 of a return to normal private health insurance market conditions, the Group remains cautious and will closely monitor the market with a view to maintaining resilience over the coming period. RPS weakened late in the second half of ﬁnancial year 2013; however, the Group considers it too early to determine whether factors driving this weakening will extend into the ﬁrst half of ﬁnancial year 2014. Notwithstanding this, the Group has demonstrated the ability to manage the business efﬁciently in response to external factors and accordingly is re-afﬁrming its calendar year EBITDA forecast of $30 million (excluding costs associated with the initial public offering). The Group sees strong growth opportunities in its newer businesses; however, the net impact of these on overall revenue growth remains largely dependent upon how consumers respond to the means- tested private health insurance landscape during the ﬁrst half of ﬁnancial year 2014. The Group does remain cognisant of potential risks to its business and will continue to closely monitor and work to mitigate these throughout ﬁnancial year 2014. These risks include potential changes in government policy and legislation with regard to private health insurance, lower than expected cash receipts from future trail commissions, and any adverse decisions taken by product providers currently listed on the Group’s websites. All of these risks have the potential to adversely impact the Group’s revenue and consequent proﬁtability. 1 Research conducted by Nielsen Australia between 18 February 2013 and 25 February 2013 of 2,012 online Australians 18 Directors’ Report (continued) for the year ended 30 June 2013 CHANGES IN THE STATE OF AFFAIRS On 31 May 2013, the shareholders of iSelect resolved to approve a division of issued share capital in accordance with s254H of the Corporations Act on the basis that every existing share becomes ten new shares. On 24 June 2013, iSelect listed on the ASX offering 54,054,054 new shares and 62,351,590 existing shares at a price of $1.85 per share. The purpose of this offering was to: – – Provide funding ﬂexibility to support future growth, including by acquisition; Raise capital to strengthen the Company’s balance sheet and to pay down debt; and – Create liquidity in iSelect shares by listing on the ASX, allowing for existing and new shareholders to sell their shares or buy further shares on market. With $87 million (net of transaction costs) received from the issue of new share capital (after payment of IPO related costs), borrowings have been repaid in full, with the remaining monies to be used to fund working capital and support future growth in the company, including by acquisition. SIGNIFICANT EVENTS AFTER BALANCE DATE On 24 June 2013, iSelect listed on the Australian Securities Exchange. iSelect has adopted a cash management strategy speciﬁcally for funds raised to ensure the best return are obtained whilst strategies for the use of the funds are formulated and implemented. Post-year end, $60 million in rolling-term deposits were set up. No other matters or circumstances have arisen since the end of the ﬁnancial year that have signiﬁcantly affected the Group. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICER During the year the Group paid a premium in respect of a contract insuring the Directors and Ofﬁcer of the Group against a liability incurred as such a Director or 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. The Group has not otherwise, during or since the end of the period, indemniﬁed or agreed to indemnify a Director, Ofﬁcer or Auditor of the company or of any related body corporate against a liability incurred as such a Director, Ofﬁcer or Auditor. DIRECTORS’ MEETINGS The number of meetings of Directors, including meetings of committees of Directors, held during the year and the number of meetings attended by each Director was as follows: DIRECTORS BOARD OF DIRECTORS AUDIT & RISK MANAGEMENT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE D. Waller1 M. McCann G. Camm2 P. O’Sullivan3 L. Webb4 S. Bonètt M. McLeod5 Held^ Attended Held^ Attended Held^ Attended Held^ Attended 16 16 14 16 16 16 6 15 16 14 16 16 16 6 – – 1 3 – 3 2 – – 1 3 – 2 2 – – – 3 6 6 – – – – 3 6 6 – – – – – – – – – – – – – – – ^ The number of meetings held indicates the total number held whilst the director was in ofﬁce during the course of the year. 1 Ceased as chair of Nominations Committee 15 April 2013 but continues as a member. 2 Appointed as director on 20 August 2012 and to the Audit & Risk Management Committee 15 April 2013. 3 Appointed to the Remuneration Committee 15 April 2013. 4 Appointed to Nominations Committee 15 April 2013. 5 Ceased as director on 30 November 2012. iSelect Annual Report 2013 19 Ernst & Young received or are due to receive the following amounts for the provision on non-audit services: Regulatory compliance Tax compliance Assurance related services Equity raising Finance raising $ 36,000 10,000 46,015 1,016,815 105,000 1,213,830 ROUNDING The Group is of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors’ report and the ﬁnancial report are rounded off to the nearest thousand dollars, unless otherwise indicated. DIVIDENDS Dividends paid or declared since the start of the year are $nil (2012: $nil). PROCEEDINGS ON BEHALF OF THE COMPANY In March 2012, Bupa Australia Pty Ltd issued legal proceedings against iSelect in the Federal Court. In October 2012, Bupa Australia joined Directors Damien Waller and Matt McCann to the proceedings. iSelect brought its own claim against Bupa Australia Pty Ltd and its Managing Director for misleading and deceptive conduct. This matter was settled in March 2013 by way of consent orders as follows: – all proceedings commenced by the parties were dismissed; iSelect provided certain undertakings to the Federal Court and to Bupa Australia regarding representations around waiting periods that cannot be made; – – parties bear their own costs of the proceedings; and iSelect paid the sum of $125,000 to a registered charity nominated by Bupa Australia within 30 days of Bupa Australia providing notiﬁcation of the charity. No other proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. ENVIRONMENTAL REGULATION The Group is not subject to signiﬁcant environmental regulation in respect of its operations. The Group has not incurred any liability (including any liability for rectiﬁcation costs) under any environmental legislation. CORPORATE GOVERNANCE In recognising the need for high standards of corporate behaviour and accountability, the Directors have followed the corporate governance statement found on the Group’s website at iSelect.com.au. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the year ended 30 June 2013 is on page 34 of this report. NON-AUDIT SERVICES The following non-audit services were provided by the Group’s auditor, Ernst & Young. The Directors are satisﬁed that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. 20 Remuneration Report (Audited) for the year ended 30 June 2013 This Remuneration Report for the year ended 30 June 2013 outlines the remuneration arrangements of the Group in accordance with the Corporations Act 2001 and its regulations. This information has been audited as required by section 308(3C) of the Act. The Remuneration Report is presented under the following sections: 1. Introduction 2. Remuneration Governance 3. Executive Remuneration Arrangements 4. Executive Remuneration Outcomes for 2013 5. Executive Contracts 6. Non-Executive Director Remuneration 1. INTRODUCTION The Remuneration Report details the remuneration arrangements for key management personnel (KMP) who are deﬁned as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Parent entity. For the purposes of this report, the term “executive” includes the Chief Executive Ofﬁcer (CEO), executive directors and other senior executives of the Group. There were no changes to KMP after the reporting date and before the date the ﬁnancial report was authorised for issue. Executive Directors Non-Executive Directors Senior Executives Former Executives Damien Waller Executive Chairman Greg Camm Director (Non-Executive) – appointed 20 August 2012 David Chalmers Chief Financial Ofﬁcer & Company Secretary – appointed CFO 23 August 2012 and Company Secretary on 5 April 2013 Trevor Jeffords General Counsel & Company Secretary – ceased 5 April 2013 Former Non-Executive Directors Michael McLeod Director (Non-Executive) – ceased 30 November 2012 Matt McCann Chief Executive Ofﬁcer Shaun Bonètt Director (Non-Executive) Chris Billing Chief Innovation Ofﬁcer Chris Brant Chief Financial Ofﬁcer – ceased 23 August 2012 Martin Dalgliesh Director (Non-Executive) – ceased 16 March 2012 Pat O’Sullivan Director (Non-Executive) Roger McBride Marketing Director – appointed 20 August 2012 David May Chief Marketing Ofﬁcer – ceased 31 July 2012 Leslie Webb Director (Non-Executive) Elise Morris People Director Jo Thomas Operations Director Gerald Brown Chief Executive Ofﬁcer Insurance – ceased 14 May 2012 Alla Keogh Human Resources Director – ceased 19 September 2011 Scott Wilson Commercial Director – appointed 4 February 2013 Mark Blackburn Chief Financial Ofﬁcer – ceased 4 October 2011 iSelect Annual Report 2013 21 2. REMUNERATION GOVERNANCE Remuneration Committee The Remuneration Committee comprises three Non-Executive Directors. The role of the Remuneration Committee is to review and make recommendations to the Board on remuneration packages and policies related to the directors and senior executives and to ensure that the remuneration policies and practices are consistent with the Group’s strategic goals and human resources objectives. The Remuneration Committee meets as often as is required by the Remuneration Committee Charter or other policy approved by the Board to govern the operation of the Remuneration Committee. Following each meeting, the Remuneration Committee will report to the Board on any matter that should be brought to the Board’s attention and on any recommendation of the Remuneration Committee that requires Board approval. The CEO attends certain Remuneration Committee meetings by invitation where management input is required. The CEO is not present during any discussions related to his own remuneration arrangements. 3. EXECUTIVE REMUNERATION ARRANGEMENTS Remuneration Principles & Strategy The Group’s executive remuneration strategy is designed to align the interests of executives and shareholders, and attract, motivate and retain high-performing individuals. The following remuneration strategy aligns with the strategic direction and links remuneration outcomes to performance. The guiding principles are outlined below, and afﬁrm the Board’s commitment to communicating KMP remuneration arrangements in a transparent manner. – Align the interests of executives with shareholders – the remuneration framework incorporates “at-risk” components, including short-term incentives and long-term incentives. Performance is assessed against both ﬁnancial and non-ﬁnancial targets and key performance indicators that are relevant to the success of the Group and that will provide acceptable returns for shareholders. – Attract, motivate and retain high performing individuals – remuneration is competitive with companies of a similar size and complexity, and longer-term remuneration encourages retention. Overview of Components of Remuneration The executive remuneration framework for the year ended 30 June 2013 consisted of the components outlined in the table below. Further details of each of the individual components are set out in section 4 of this Remuneration Report. Fixed Annual Remuneration (FAR) 60-75% of Total Remuneration In setting FAR, consideration is given to appropriate benchmark information and individual performance as well as the ability to retain key talent. FAR includes superannuation and other beneﬁts. Short-Term Incentive (STI) Long-Term Incentive (LTI) 25-40% of Total Remuneration Rewards executives for their contribution to achievement of group ﬁnancial outcomes as well as individual key performance indicators. Rewards executives for their contribution to the creation of shareholder value over the longer term. STI is a cash-based incentive, paid quarterly and annually to 30 June 2013. From 1 July 2013, STI will be paid biannually and annually. LTIP shares awarded are subject to long-term performance conditions. Within this framework, the Group aims to reward executives with a level of mix of remuneration appropriate to their position, responsibilities and performance within the Group and aligned with market practice. 22 Remuneration Report (continued) for the year ended 30 June 2013 Details of Executive Remuneration Components Fixed Annual Remuneration Fixed Annual Remuneration (FAR) consists of base salary and statutory superannuation contributions. Executive directors and senior executives may also elect to have a combination of beneﬁts provided out of their FAR, including additional superannuation and the provision of a motor vehicle. The value of any non-cash beneﬁts provided to them includes the cost of any fringe beneﬁts tax payable by iSelect as a result of providing the beneﬁt. Remuneration levels are considered annually through a remuneration review that considers market data, insights into remunerations trends, the performance of the Group and individual, and the broader economic environment. A review was undertaken during the 2013 ﬁnancial year. Fixed remuneration levels for the CEO and a number of senior executives were increased based on individual performance and to align to market remuneration levels. Short-Term Incentives What is the short-term incentive and who participates? What is the amount the executive can earn? SUMMARY OF STI PLAN The short-term incentive (STI) program is a cash-based plan that involves linking speciﬁc ﬁnancial and non-ﬁnancial targets with the opportunity to earn incentives based on a percentage of ﬁxed salary for the CEO and senior executives. All senior executives are eligible to receive an annual incentive. The target STI opportunity is 45% of ﬁxed remuneration for the Executive Chairman, 34% for the CEO, and between 28% and 35% for other senior executives. Actual STI payments granted to each executive depends on the extent to which speciﬁc targets, both ﬁnancial and non-ﬁnancial, are met. STI on non-ﬁnancial measures is awarded based on individual performance. STI on ﬁnancial measures is based on the level of performance compared to target, per below. Financial measures – level of performance Percentage of STI received Below threshold (i.e. < 95% of target) 0% Between threshold and target Pro-rata, up to 100% Target (100%) Above target 100% Up to 200% What were the performance conditions for the 2013 ﬁnancial year? The performance conditions for the short-term incentive are a mix between ﬁnancial and non-ﬁnancial measures. Why were the performance conditions chosen? When are the performance conditions tested? Performance measure EBITDA Gross Proﬁt Agreed Objectives Senior Executive allocation Executive Chairman & CEO allocation 40% 30%–50% 10%–30% 50% 50% – From 1 July 2013, the Gross Proﬁt based component will be replaced by a Revenue based component in order to align performance with the Group’s growth objectives. The allocation will remain unchanged. The Board considers the performance measures to be appropriate, as they are aligned with the Group’s objective of delivering growth and shareholder returns, as well as leadership behaviours aligned with the Group’s corporate philosophy. Incentive payments based on Gross Proﬁt and Agreed Objectives are determined and paid quarterly for the year ended 30 June 2013, and biannually and annually from 1 July 2013. Incentive payments based on EBITDA are determined after the preparation of the ﬁnancial statements each year (in respect of the ﬁnancial measures) and after a review of performance against non-ﬁnancial measures by the CEO (and in the case of the CEO, by the Board). Payments of annual incentives are generally made in September after the reviews are complete. iSelect Annual Report 2013 23 Short-Term Incentives (continued) In addition to the STI program outlined above, selected executives were eligible for discretionary bonuses in relation to: – – The successful capital raise of $28.8 million of equity in September and October 2012; and The successful listing of iSelect Limited on the Australian Securities Exchange. Bonuses paid or accrued in relation to the above are included in the table on Executive Remuneration Outcomes for 2013 on pages 25 and 26. Long-Term Incentives SUMMARY OF LTI PLAN What is the long-term incentive and who participates? How is the LTIP grant determined? What is the performance period? What are the performance conditions? What vesting schedules apply? Why were these performance conditions chosen? The long-term incentive plan (LTIP) has been established as the long-term incentive component of remuneration in order to assist with the attraction, reward and retention of certain employees. The LTIP is designed to link long-term reward with the ongoing creation of shareholder value, through the allocation of LTIP Shares which are subject to satisfaction of long-term performance conditions. All senior executives, including the Executive Chairman and CEO, participate in the plan. The Remuneration sub-committee determines the size and allocation of the LTIP grant in accordance with the LTI plan rules, for recommendation to the Board, who is responsible for ﬁnal approval. The performance period for the 2013 LTIP is the period 1 April 2013 to 30 June 2015. Any LTIP Shares which do not vest following testing of the performance hurdles at the end of the performance period will lapse. LTIP Shares under the 2013 offer may vest in three tranches if the relevant performance condition is met is respect of that period. The ﬁrst testing date was 30 June 2013 in respect of 20% of LTIP Shares. The performance condition for this test was not met, and the ﬁrst tranche did not vest. The remaining LTIP Shares may vest in two equal tranches of 40%, tested at 30 June 2014 and 30 June 2015 respectively, where performance conditions are met. It is the Board’s intention that the performance condition will be tested over the full performance period in respect of any future offers under the LTIP. Where a performance condition is not satisﬁed, any LTIP Shares which remain unvested following testing of tranche 1 and/or tranche 2, will be aggregated and tested on a cumulative basis at subsequent testing dates. The performance condition is a compound annual growth rate (CAGR) in total shareholder return (TSR). TSR measures the total change in the value of the shares over a period, plus the value of any dividends and other distributions being treated as if they were re-invested in shares. CAGR in TSR performance level Less than 12% 12% Greater than 12%, less than 15% 15% or more Percentage of awards vesting 0% 50% Percentage of vesting increases on a straight line basis 100% The Board considers a CAGR in TSR to be an appropriate performance hurdle on the basis that it: (cid:242) ensures alignment between shareholder return and reward for the executive; and (cid:242) provides an external market performance measure to encourage and motivate executive performance. What happens in the event of a change in control? Unless the Board determines otherwise, all LTIP Shares vest upon a change in control. What happens if the executive ceases employment? Where an executive ceases employment, any unvested LTIP Shares will lapse, unless determined and approved otherwise by the Board. 24 Remuneration Report (continued) for the year ended 30 June 2013 The table below sets out details of LTIP Shares held by and granted to executives during the year under the LTIP. Damien Waller Matt McCann David Chalmers Chris Billing Roger McBride Elise Morris Jo Thomas Scott Wilson Trevor Jeffords1 Balance at start of year – – – – – – – – – Granted during year 1,351,350 1,891,890 702,700 621,620 540,540 540,540 621,620 540,540 81,080 Vested during year Forfeited during year – – – – – – – – – – – – – – – – – – Balance at end of year 1,351,350 1,891,890 702,700 621,620 540,540 540,540 621,620 540,540 81,080 Value at grant date 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1 The Board approved Trevor Jeffords’ retention of LTIP Shares post-cessation of his employment on 5 April 2013. Employee Share Option Plans 2010 and 2011 Option Plans These plans are predecessors to the LTIP. No additional offers will be made under these plans, though awards previously granted under these plans will continue to be governed by the respective terms of these plans. Refer to Note 28 for further detail on the 2010 and 2011 option plans. Offer to Director under the 2011 Option Plan A number of options have been granted to Mr Leslie Webb under the 2011 Option Plan in lieu of director’s fees generally in line with the terms of that plan and as follows: Grant date: 1 July 2012 Number: 450,000 Consideration: Nil Exercise price: $2.365 Expiry date: 30 June 2015 Service condition: Must be a director of iSelect or a related body corporate of iSelect Vesting conditions: Options vest monthly in equal instalments during the period 1 July 2012 to 30 June 2013 iSelect Annual Report 2013 25 4. EXECUTIVE REMUNERATION OUTCOMES FOR 2013 The remuneration table below sets out the remuneration information for the executive directors and senior executives who are considered to be the key management personnel of the Group. SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS SHARED-BASED PAYMENTS TERMIN- ATION TOTAL PERFORM- ANCE RELATED Salary $ STI $ Other $ Super $ Other $ Options $ Shares $ Payments $ $ $ Executive Directors Damien Waller (Executive Chairman) 2013 2012 526,995 172,687 495,123 214,725 Matt McCann (Chief Executive Ofﬁcer) 2013 2012 459,763 276,456 397,832 114,750 Senior Executives David Chalmers (Chief Financial Ofﬁcer)1 2013 2012 250,029 191,335 – – Chris Billing (Chief Innovation Ofﬁcer) 2013 2012 238,532 46,248 183,486 94,502 Roger McBride (Marketing Director)2 2013 2012 208,830 15,721 – – Elise Morris (Human Resources Director)3 2013 2012 287,615 36,125 112,914 3,346 Jo Thomas (Operations Director)4 2013 2012 248,820 32,139 9,153 20,112 Scott Wilson (Commercial Director)5 2013 2012 120,833 23,434 – – – – – – – – – – – – – – – – – – 25,000 23,987 25,000 25,324 21,767 – 24,706 25,019 20,012 – 28,754 10,463 23,240 4,703 12,172 – – – – – – – – – – – – – – – – – 58,320 56,132 116,640 – 19,440 38,880 78,585 – – – 29,189 – 15,860 25,821 31,720 – – – – – 22,453 – 22,453 – 9,380 3,127 25,821 – – – 22,453 – – – – – – – – – – – – – – – – – 839,134 287,139 850,475 331,365 859,244 374,481 576,786 153,630 492,320 220,524 – – 351,167 87,929 334,727 126,222 267,016 38,174 – – 374,947 58,578 126,723 3,346 316,414 44,354 60,081 23,239 178,892 45,887 – – 26 Remuneration Report (continued) for the year ended 30 June 2013 SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS SHARED-BASED PAYMENTS TERMIN- ATION TOTAL PERFORM- ANCE RELATED Salary $ STI $ Other $ Super $ Other $ Options $ Shares $ Payments $ $ $ Former Senior Executives Trevor Jeffords(General Counsel)6 2013 2012 215,362 83,325 13,822 14,999 Chris Brant (Chief Financial Ofﬁcer)7 2013 2012 133,790 27,848 209,127 – David May (Chief Marketing Ofﬁcer)8 2013 2012 22,936 24,722 280,287 58,747 Total Current & Former KMP 2013 2012 2,713,505 837,551 1,794,233 521,181 1 Appointed 23 August 2012. 2 Appointed 20 August 2012. 3 Appointed 2 February 2012. 4 Appointed 3 May 2012. 5 Appointed 4 February 2013. 6 Appointed 7 February 2012, ceased 5 April 2013. 7 Appointed 24 October 2011, ceased 23 August 2012. 8 Ceased 31 July 2012. – – – – – – – – 26,926 8,849 10,308 18,821 4,289 25,000 222,174 142,166 – – – – – – – – 6,480 5,400 – – 9,720 12,960 – – – – – 3,368 145,888 411,846 – 112,573 23,670 20,399 23,230 195,176 27,848 – 227,948 – 71,743 133,410 34,442 – 376,994 71,707 119,200 286,275 240,861 4,419,566 1,216,273 208,727 – – 2,666,307 729,908 The total of the KMP in FY2012 as per the audited ﬁnancial statements was $3,854,062 ($3,603,927 for Executive KMP and $250,135 for Non-Executive Directors). The FY2012 total displayed in the main table above ($2,666,307) does not include previous KMP (as noted on page 20) who had nil remuneration in FY2013. Comparison of Total FY2013 to FY2012 Remuneration Report 2013 2012 2,713,505 837,551 2,210,972 790,205 – – 222,174 197,372 – – 119,200 286,275 240,861 4,419,566 1,216,273 238,967 – 166,411 3,603,927 1,029,172 iSelect Annual Report 2013 27 5. EXECUTIVE CONTRACTS Remuneration arrangements for KMP are formalised in employment contracts. All contracts are for unlimited duration. Name Damien Waller Notice Period and Termination Payment (cid:242) 12 months by either party (or payment in lieu) (cid:242) 1 month notice within 6 months of ceasing to hold the position of Executive Chairman or Executive Director or where the scope of responsibilities or authority is materially diminished (cid:242) Immediate for misconduct, breach of contract or bankruptcy Matt McCann (cid:242) 12 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy David Chalmers (cid:242) 6 months by either party (or payment in lieu) Chris Billing Roger McBride Elise Morris Jo Thomas Scott Wilson (cid:242) Immediate for misconduct, breach of contract or bankruptcy (cid:242) 6 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy (cid:242) 3 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy (cid:242) 3 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy (cid:242) 6 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy (cid:242) 3 months by either party (or payment in lieu) (cid:242) Immediate for misconduct, breach of contract or bankruptcy 6. NON-EXECUTIVE DIRECTOR REMUNERATION Non-Executive Director Remuneration Policy The Board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate remuneration is reviewed annually. The Non-Executive Director (NED) fee pool is determined from time to time by a general meeting. The latest determination was on 31 May 2013 where a fee pool of $950,000 per annum was approved. The Board will not seek any increase in the NED pool at the 2013 AGM. Board and committee fees, as well as statutory superannuation contributions made on behalf of the Non-Executive Directors, are included in the aggregate fee pool. The payment of additional fees for serving on a committee recognises the additional time commitment required by the NEDs who serve on those committees. Non-Executive Director Fees The table below provides details of Board and committee fees (inclusive of superannuation) for the 2013 and 2012 ﬁnancial years and current committee membership. The remuneration of Non-Executive Directors does not include any commission or percentage of proﬁts. Main Board Members – non-executive directors1 Deputy Chairman Audit Committee Chairman1 Remuneration Committee Chairman Nomination Committee Chairman 2013 $ 85,000 10,000 10,000 2012 $ 65,000 10,000 – 10,000 10,000 10,000 10,000 1 Prior to 24 June 2013, three of the four Directors received fees. Pat O’Sullivan received no fees for his Board membership nor as Chairman of the Audit & Risk Management Committee. From 24 June 2013, each Non-Executive Director receives fees of $85,000 per annum. The Executive Chairman is not paid any fees in addition to his salary. 28 Remuneration Report (continued) for the year ended 30 June 2013 Non-Executive Director Remuneration for 2013 Non-Executive Director Greg Camm1 Shaun Bonètt Pat O’Sullivan Leslie Webb Former Non-Executive Director Michael McLeod2 Martin Dalgliesh3 Total Fees & Allowances $ Short-Term Beneﬁts^ $ Superannuation $ Other^^ $ 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2012 2013 2012 54,787 – 59,633 59,633 – – 9,174 9,174 71,196 69,633 62,442 194,790 200,882 18,307 – 18,307 – – – 18,307 – – – – 54,921 – 6,624 – 7,060 5,367 – – 2,519 826 6,408 6,267 5,592 22,611 18,052 – – – – – – 50,400 – – – 31,201 50,400 31,201 Total $ 79,718 – 85,000 65,000 – – 80,400 10,000 77,604 75,900 99,235 322,722 250,135 1 Appointed 20 August 2012. 2 Ceased 30 November 2012. 3 Ceased 16 March 2012. ^ Short-term beneﬁts represent one-off cash bonuses upon the successful listing of the Group. ^^ For the 2013 ﬁnancial year, “Other” represents share-based payment expense in relation to options issued under the 2011 Option Plan to Leslie Webb, as described in Note 29 to the Financial Statements. For the prior year, “Other” represents share based payments expense for Martin Dalgliesh. This Directors’ Report and Remuneration Report is signed in accordance with a resolution of the Directors. On behalf of the Directors Damien Waller Director Melbourne 29 August 2013 Matt McCann Director Melbourne 29 August 2013 iSelect Annual Report 2013 29 Corporate Governance Statement This statement explains how the Board of iSelect Limited (the Board) oversees the management of iSelect’s business. The Board is responsible for the overall corporate governance of iSelect, including establishing and monitoring key performance goals. The Board monitors the operational and ﬁnancial position and performance of iSelect and oversees its business strategy including approving the strategic goals of iSelect and considering and approving an annual business plan, including a budget. The Board is committed to maximising performance, generating appropriate levels of shareholder value and ﬁnancial return, and sustaining the growth and success of iSelect. In conducting iSelect’s business with these objectives, the Board seeks to ensure that iSelect is properly managed to protect and enhance shareholder interests, and that iSelect, its Directors, ofﬁcers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has created a framework for managing iSelect including adopting relevant internal controls, risk management processes and corporate governance policies and practices which it believes are appropriate for iSelect’s business and which are designed to promote the responsible management and conduct of iSelect. The ASX Corporate Governance Council has developed and released its ASX Corporate Governance Principles and Recommendations (ASX Recommendations) for Australian listed entities in order to promote investor conﬁdence and to assist companies in meeting stakeholder expectations. The recommendations are not prescriptions, but guidelines. However, under the ASX Listing Rules, iSelect is required to provide a statement in its Annual Report disclosing the extent to which it has followed the ASX recommendations in the reporting period. Where iSelect does not follow a recommendation, it must identify the recommendation that has not been followed and give reasons for not following it. An overview of iSelect’s main corporate governance practices are set out below. The information in this statement relating to the Directors, Board committee memberships and other details is current as at 21 October 2013. Details of iSelect’s key policies and practices and the charters for the Board and each of its committees are available at www.iselect.com.au. 1. THE BOARD OF DIRECTORS The Board of Directors is comprised of the Executive Chairman, and ﬁve Non-Executive Directors. The Board consists of: – Damien Waller – Executive Chairman; – Greg Camm – Non-Executive Director and Deputy Chairman; – – – Pat O’Sullivan – Non-Executive Director; Leslie Webb – Non-Executive Director Shaun Bonètt – Non-Executive Director; and – Bridget Fair – Non-Executive Director. iSelect’s Chief Executive Ofﬁcer, Matt McCann, resigned on 13 October 2013. Mr David Chalmers, iSelect’s Chief Financial Ofﬁcer, has been appointed acting Chief Executive Ofﬁcer until a suitable successor is appointed. Details of the Directors’ skills, experience, expertise, qualiﬁcations, terms of ofﬁce, relationships affecting independence, their independence status and membership of committees are set out within this statement and in the Group’s Annual Report. The Board considers an independent Director to be a Non-Executive Director who is not a member of iSelect’s management and who is free of any business or other relationship that could materially interfere with or reasonably be perceived to interfere with the independent exercise of their judgement. The Board will consider the materiality of any given relationship on a case-by-case basis and has adopted guidelines to assist in this regard. The Board reviews the independence of each Director in light of interests disclosed to the Board from time to time. The iSelect Board Charter sets out guidelines and thresholds of materiality for the purpose of determining independence of Directors in accordance with the ASX Recommendations and has adopted a deﬁnition of independence that is based on that set out in the ASX Recommendations. The Board considers thresholds of materiality for the purpose of determining ‘independence’ on a case-by-case basis, having regard to both quantitative and qualitative principles. Without limiting the Board’s discretion in this regard, the Board has adopted the following guidelines: – – The Board will determine the appropriate base to apply (e.g. revenue, equity or expenses), in the context of each situation. In general, the Board will consider an afﬁliation with a business which accounts for less than 5% of the relevant base to be immaterial for the purpose of determining independence. However, where this threshold is exceeded, the materiality of the particular circumstance with respect to the independence of the particular Director should be reviewed by the Board: and – Overriding the quantitative assessment is the qualitative assessment. Speciﬁcally, the Board will consider whether there are any factors or considerations which may mean that the Director’s interest, business or relationship could, or could be reasonably perceived to, materially interfere with the Director’s ability to act in the best interests of iSelect. The Board considers that each of Greg Camm, Leslie Webb, Shaun Bonètt and Bridget Fair is free from any business or any other relationship that could materially interfere with, or reasonably be perceived to interfere with, the independent exercise of the Director’s judgement and is able to fulﬁl the role of independent Director for the purpose of the ASX Recommendations. Pat O’Sullivan was originally the nominated Board nominee on behalf of ninemsn and upon ninemsn’s sale of its shares in iSelect pursuant to the initial public offering and listing on ASX on 24 June 2013, became an independent Director. Damien Waller is currently considered by the Board not to be independent. Damien Waller is the co-founder of iSelect and Executive Chairman and is also a substantial shareholder of iSelect. Bridget Fair was appointed to the iSelect Board as an independent Non-executive Director on 30 September, 2013. 30 Corporate Governance Statement (continued) Bridget Fair is a senior media executive with over 20 years’ experience in government relations, business strategy, corporate affairs and commercial negotiation. Bridget Fair is currently Group Chief of Corporate and Regulatory Affairs at Seven West Media, following 13 years as Head of Regulatory and Business Affairs at the Seven Network. Between 1995 and 2000, Bridget Fair held the position of General Counsel for SBS. Prior to this, she was legal counsel for the ABC and practiced as a solicitor at law ﬁrm Phillips Fox, now DLA Piper. Bridget Fair holds Board positions at Freeview Australia Limited and Free TV Australia Limited. Bridget Fair holds a BA/LLB from the University of New South Wales (UNSW). The Board consists of a majority of independent Directors. The Board recognises the ASX Corporate Governance Council’s recommendation that the Chairman should be an independent Director and it also recognises that Damien Waller does not meet the deﬁnition of independence. However, the Board believes that Damien Waller is the most appropriate person to lead the Board as Executive Chairman and that he is able to, and does, bring considered and independent judgment to all relevant issues falling within the scope of the role of Chairman and that the Company as a whole beneﬁts from his long standing experience of its operations and business relationships. 2. BOARD CHARTER The Board has adopted a formal Charter that details the functions and responsibilities of the Board. The Board Charter also establishes the functions reserved to the Board and those powers delegated to management. The Board Charter allows the Board to delegate powers and responsibilities to committees established by the Board. The Board retains ultimate accountability to shareholders in discharging its duties. The Board Charter provides that with guidance from the Nominations Committee and, where necessary, external consultants, the Board shall identify candidates with appropriate skills, experience, expertise and diversity in order to discharge its mandate effectively and to maintain the necessary mix of expertise on the Board. The Nominations Committee assesses nominations of new Directors against a range of criteria including the candidate’s background, experience, gender, professional skills, personal qualities and whether their skills and experience will complement the existing Board. The criteria to assess nominations of new Directors is reviewed annually and the Nominations Committee regularly compares the skill base of existing Directors with that required for the future strategy of iSelect to enable identiﬁcation of attributes required in new Directors. A copy of the Board Charter is publicly available in the Governance section of the Company’s website at www.iselect.com.au. 3. BOARD COMMITTEES The Board may from time to time establish appropriate committees to assist in the discharge of its responsibilities. The Board has established an Audit and Risk Management Committee, a Nominations Committee and a Remuneration Committee. Other committees may be established by the Board as and when required. Membership of Board committees will be based on the needs of iSelect, relevant legislative and other requirements and the skills and experience of individual Directors. (3.1) Audit and Risk Management Committee The role of the Audit and Risk Management Committee is to assist the Board in fulﬁlling its responsibilities for corporate governance and overseeing iSelect’s internal control structure and risk management systems. The Audit and Risk Management Committee also conﬁrms the quality and reliability of the ﬁnancial information prepared by iSelect, works with the external auditor on behalf of the Board and reviews non-audit services provided by the external auditor, to conﬁrm they are consistent with maintaining external audit independence. The Audit and Risk Management Committee provides advice to the Board and reports on the status and management of the risks to iSelect. The purpose of the committee’s risk management process is to ensure that risks are identiﬁed, assessed and appropriately managed. The Board has adopted a policy regarding the services that iSelect may obtain from its external auditor. It is the policy of iSelect that its external auditor: – must be independent of iSelect and the Directors and senior executives. To ensure this, iSelect requires a formal conﬁrmation of independence from its external auditor on a six-monthly basis; and – may not provide services to iSelect that are, or are perceived to be, materially in conﬂict with the role of the external auditor. Non-audit or assurance services that may impair, or appear to impair, the external auditor’s judgement or independence are not appropriate. However, the external auditor may be permitted to provide additional services which are, or are not perceived to be, materially in conﬂict with the role of the auditor, if the Board or Audit and Risk Management Committee has approved those additional services. Such additional services may include ﬁnancial audits, tax compliance, advice on accounting standards and due diligence in certain acquisition or sale transactions. Information on the procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners is contained within the Company’s Audit and Risk Management Committee Charter. The Audit and Risk Management Committee must comprise, to the extent practicable given the size and composition of the Board from time to time, at least three Directors, all of whom must be Non- Executive Directors and the majority of which must be independent in accordance with the independence criteria set out in the Board Charter. A member of the Audit and Risk Management Committee, who does not chair the Board, shall be appointed the Chair of the committee. The Board acknowledges the ASX Recommendation that the Audit and Risk Management Committee should be chaired by an independent Director (who is not Chair of the Board) and in recognition of this, Pat O’Sullivan chairs the Audit and Risk Management Committee. iSelect Annual Report 2013 31 The Audit and Risk Management Committee meets as often as is required by the Audit and Risk Management Committee Charter or other policy approved by the Board to govern the operations of the Audit and Risk Management Committee. The chair of the Audit and Risk Management Committee invites members of senior management and representatives of the external auditor to be present at meetings of the committee and may seek advice from external advisors. The Audit and Risk Management Committee regularly reports to the Board about committee activities, issues and related recommendations. A copy of the Company’s Audit and Risk Management Committee Charter is publicly available in the Governance section of the Company’s website at www.iselect.com.au. The committee comprises Pat O’Sullivan (Chair), Shaun Bonètt and Greg Camm. (3.2) Remuneration Committee The role of the Remuneration Committee is to review and make recommendations to the Board on remuneration packages and polices related to the Directors and senior executives and to ensure that the remuneration policies and practices are consistent with iSelect’s strategic goals and human resources objectives. The Remuneration Committee meets as often as is required by the Remuneration Committee Charter or other policy approved by the Board to govern the operation of the Remuneration Committee. Following each meeting, the Remuneration Committee reports to the Board on any matter that should be brought to the Board’s attention and on any recommendation of the Remuneration Committee that requires Board approval. A copy of the Company’s Remuneration Committee Charter is publicly available in the Governance section of the Company’s website at www.iselect.com.au. The committee comprises Leslie Webb (Chair), Shaun Bonètt and Pat O’Sullivan. (3.3) Nominations Committee The Nominations Committee is responsible for reviewing and making recommendations in relation to the composition and performance of the Board and its committees and ensuring that adequate succession plans are in place (including for the recruitment and appointment of Directors and senior management). Independent advice will be sought where appropriate. The Nominations Committee meets as often as is required by the Nominations Committee Charter or other policy approved by the Board to govern the operation of the Nominations Committee. Following each meeting, the Nominations Committee reports to the Board on any matter that should be brought to the Board’s attention and on any recommendation of the Nominations Committee that requires Board approval. A copy of the Company’s Nomination Committee Charter is publicly available in the Governance section of the Company’s website at www.iselect.com.au. The committee comprises Shaun Bonètt (Chair), Leslie Webb and Damien Waller. 4. DIVERSITY The workforce of iSelect is made up of individuals with diverse skills, backgrounds, perspectives and experiences and this diversity is recognised, valued and respected by the Company. The Company has established a Diversity Policy which is publicly available in the Governance section of the Company’s website at www.iselect.com.au. The policy includes requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. The proportion of female employees in senior leadership, executive and Board members are outlined below. Employee Category All employees Board Executive team Senior leadership Total 418 6 7 21 Female Component Change % 193 1 3 6 46% 17% 43% 29% iSelect currently employs 418 staff, 193 of whom are female (representing 46% of the total). iSelect’s Executive leadership team which numbers seven executives includes three females (representing 43% of the total). iSelect’s senior leadership team, numbering 21 managers, includes six female managers (representing 29% of the total). Of iSelect’s 6 Board members, there is currently one female director. Improvement of gender diversity on the Board is a priority. 5. DISCLOSURE AND SHAREHOLDER COMMUNICATION POLICIES As a company listed on ASX, iSelect is required to comply with the continuous disclosure requirements of the ASX Listing Rules and the Corporations Act. iSelect is required to disclose to the ASX any information concerning iSelect which is not generally available and which, if it was made available, a reasonable person would expect to have a material effect on the price or value of iSelect’s securities. The Board aims to ensure that shareholders and stakeholders are informed of all major developments affecting iSelect’s state of affairs. As such, iSelect has adopted a Disclosure Policy and Shareholder Communication Policy, which together establish procedures to ensure that Directors and senior management are aware of, and fulﬁl, their obligations in relation to providing timely, full and accurate disclosure of material information to iSelect’s stakeholders and comply with iSelect’s disclosure obligations under the Corporations Act and Listing Rules. The Disclosure Policy also sets out procedures for communicating with shareholders, the media and the market. iSelect is committed to observing its disclosure obligations under the ASX Listing Rules and the Corporations Act. Information is to be communicated to shareholders through the lodgement of all relevant ﬁnancial and other information with the ASX and continuous disclosure announcements are made available on iSelect’s website, www.iselect.com.au. 32 Corporate Governance Statement (continued) A copy of the Company’s Disclosure Policy is publicly available in the Governance section of the Company’s website at www.iselect.com.au. 6. SHARE TRADING POLICY iSelect has adopted a Share Trading Policy which applies to iSelect and its Directors, ofﬁcers, employees and senior management, including those persons having authority and responsibility for planning, directing and controlling the activities of iSelect (Key Management Personnel), whether directly or indirectly. The policy is intended to explain the types of conduct in relation to dealings in shares that is prohibited under the Corporations Act and establish procedures in relation to Directors, senior management or employees dealing in the shares. Subject to certain exceptions, including exceptional ﬁnancial circumstances, the policy deﬁnes certain ‘closed periods’ during which trading in shares by the Company’s directors, ofﬁcers, employees and Key Management Personnel is prohibited. Those closed periods are currently deﬁned as the following periods: – – the period commencing six weeks prior to the announcement of release of iSelect’s half-year and annual ﬁnancial results to the ASX and ending 24 hours after such release; and the period commencing two weeks prior to the Company’s annual general meeting and ending 24 hours after the annual general meeting. Outside of these periods, Directors, management and iSelect employees must receive clearance for any proposed dealing in shares. In all instances, buying or selling shares is not permitted at any time by any person who possesses price-sensitive information. 7. CODE OF CONDUCT The Board recognises that it has a responsibility for setting and maintaining the ethical tone and standards of the Company and iSelect’s senior management recognise that they have a responsibility to implement practices that are consistent with those standards. The Company has developed a Code of Conduct Policy which has been fully endorsed by the Board and applies to all Directors and employees. The Code of Conduct is designed to identify and encourage: – – – the practices necessary to maintain conﬁdence in the Company’s integrity; the practices necessary to take into account the Company’s legal obligations; and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. A copy of the Company’s Code of Conduct is publicly available in the Governance section of the Company’s website at www.iselect.com.au. 8. BOARD AND COMMITTEE MEETING FREQUENCY AND ATTENDANCE The number of Board and Board committee meetings held during the year along with the attendance by directors is set out in the Directors’ Report under Directors’ Meetings. 9. SENIOR EXECUTIVE PERFORMANCE The Company’s Board Charter details a process for the review of the performance of the Chief Executive Ofﬁcer, the Executive Chair and other executive Directors as may be appointed. The performance of the Company’s Senior Executives is reviewed regularly to ensure that Executive members continue to perform effectively in their roles. Performance is measured against goals and company performance set at the beginning of the ﬁnancial year and reviewed at the half year. The performance of the CEO is reviewed by the Executive Chairman on a six-monthly basis. 10. PERFORMANCE OF THE BOARD, ITS COMMITTEES AND INDIVIDUAL DIRECTORS The Company’s Board Charter details a process for the review of Board, committee and individual directors’ performance. During the reporting period, regular performance evaluations have been undertaken of the Board, Committees and individual Directors to ensure that the Board, Committees and individual directors work effectively and efﬁciently in fulﬁlling their functions. These reviews have included the Board and Committees assessing their own performance and the Chairman of the Board holding discussions with individual directors as to their performance. No formal review, using an external consultant, has been undertaken during the reporting period due to the Company’s key focus on being admitted to the Ofﬁcial List of the ASX Limited. Such admission was successfully achieved on 24 June 2013. The Company expects to conduct a formal review, using an external consultant, within the current reporting period. 11. ACCESS TO INDEPENDENT PROFESSIONAL ADVICE Directors may obtain independent professional advice at iSelect’s expense on matters arising in the course of their Board and committee duties, after obtaining the Executive Chair’s approval. 12. PROCEDURE FOR THE SELECTION OF AND APPOINTMENT OF DIRECTORS A description of the procedure for the selection and appointment of new directors to the Board and the re-election of incumbent directors and the Board’s policy for the nomination and appointment of directors is contained with the Company’s ‘Nomination Committee Charter’ and ‘Board Charter’. 13. REMUNERATION ARRANGEMENTS Board and Non-Executive Director The remuneration policy for the Board and the remuneration of each Director is set out in both the Remuneration report which forms part of the Directors Report, and in Note 29 in the Financial report. The Company’s Share Trading Policy prohibits the Directors and Senior Executives from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements. Senior Executives Information on the performance evaluation and structure of remuneration for the Company’s Senior Executives can be found in the Remuneration Report, which forms part of the Directors’ Report. iSelect Annual Report 2013 33 14. RISK The Company’s Board Charter provides that a function of the Board, with the guidance of the Audit and Risk Management Committee is: – – – approving policies on and overseeing the management of business and ﬁnancial and non-ﬁnancial risks (including foreign exchange and interest rate risks, enterprise risk and risk in relation to occupational health and safety); reviewing and monitoring processes and controls to maintain the integrity of accounting and ﬁnancial records and reporting; and approving ﬁnancial results and reports for release and dividends to be paid to shareholders. The Company’s Audit and Risk Management Charter also provides that the committee’s speciﬁc function with respect to risk management is to review and report to the Board that: – – – – iSelect’s ongoing risk management program effectively identiﬁes all areas of potential risk; adequate policies and procedures have been designed and implemented to manage identiﬁed risks; a regular program of audit is undertaken to test the adequacy of and compliance with prescribed policies; and proper remedial action is undertaken to redress areas of weakness. Both the Board Charter and the Audit and Risk Management Charter are publicly available in the Governance section of the Company’s website at www.iselect.com.au. The Company has also developed a Risk Management Policy which is publicly available in the Governance section of the Company’s website at www.iselect.com.au. The Company seeks to take and manage risk in ways that will generate and protect shareholder value and recognises that the management of risk is a continual process and an integral part of the management and corporate governance of the business. The Company acknowledges that it has an obligation to all stakeholders, including shareholders, customers, employees, contractors and the wider community and that the efﬁcient and effective management of risk is critical to the Company meeting these obligations and achieving its strategic objectives. Written Afﬁrmations The Board has received assurance from the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to ﬁnancial reporting risks. This assurance was given on 29 August 2013 by Matt McCann (who was Chief Executive Ofﬁcer at that time) and David Chalmers (who was Chief Financial Ofﬁcer at that time). Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks. The Board has also received from the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer written afﬁrmations concerning the Company’s ﬁnancial statements as set out in the Director’s Declaration. 34 Auditor’s Independence Declaration to the Directors of iSelect Ltd Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s Independence Declaration to the Directors of iSelect Limited In relation to our audit of the financial report of iSelect Limited for the financial year ended 30 June 2013, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Ashley Butler Partner Melbourne 29 August 2013 iSelect Annual Report 2013 35 Consolidated Statement of Comprehensive Income for the year ended 30 June 2013 Upfront fee revenue Trail commission revenue Operating revenue Cost of sales Gross proﬁt Other income Administrative expenses Share-based payments expense Initial public offering costs Relocation costs Acquisition costs Proﬁt Before Interest, Tax, Depreciation and Amortisation Depreciation and amortisation Proﬁt Before Interest and Tax Finance income Finance costs Proﬁt Before Income Tax Expense Income tax expense Proﬁt for the Period Other comprehensive income Other comprehensive income for the period, net of tax Total Comprehensive Income for the Period Proﬁt attributable to owners of the Group Total comprehensive income attributable to owners of the Group Earnings per share (cents per share) Basic for proﬁt for the year attributable to ordinary equity holders of the parent Diluted for proﬁt for the year attributable to ordinary equity holders of the parent The accompanying notes form part of these ﬁnancial statements. Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 Note 4 4 4 4 4 5 19 19 74,806 43,231 118,037 (61,155) 56,882 89 (29,820) (668) (1,479) – – 25,004 (5,150) 19,854 1,300 (2,998) 18,156 (4,787) 13,369 – 13,369 13,369 13,369 6.6 6.6 57,303 54,625 111,928 (56,970) 54,958 83 (29,955) (557) – 813 (1,260) 24,082 (4,054) 20,028 875 (1,770) 19,133 (6,204) 12,929 – 12,929 12,929 12,929 7.8 7.0 36 Consolidated Statement of Financial Position as at 30 June 2013 Assets Current Assets Cash and cash equivalents Trade and other receivables Trail commission receivable Other assets Total Current Assets Non-Current Assets Trade and other receivables Trail commission receivable Other assets Property, plant and equipment Intangible assets Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables Provisions Borrowings Other Total Current Liabilities Non-Current Liabilities Provisions Net deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Share-based payment reserve Business combination reserve Retained earnings Total Equity The accompanying notes form part of these ﬁnancial statements. Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 Note 6 7 8 9 7 8 9 10 11 12 13 14 13 5 15 16 16 17 85,315 18,692 33,166 1,459 138,632 15,378 73,807 765 6,953 38,726 135,629 274,261 20,201 4,525 – 397 25,123 2,686 18,726 21,412 46,535 227,726 171,313 858 5,571 49,984 227,726 20,012 15,338 26,534 1,160 63,044 – 64,925 – 9,380 37,048 111,353 174,397 21,246 4,232 35,000 313 60,791 2,858 17,742 20,600 81,391 93,006 49,759 2,384 5,571 35,292 93,006 Consolidated Statement of Changes in Equity for the year ended 30 June 2013 Note Issued Capital $’000 Shared-Based Payment Reserves $’000 Business Combination Reserve $’000 Retained Earnings $’000 36,582 1,827 5,571 Balance at 1 July 2011 Proﬁt for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Recognition of share-based payments Issue of share capital Balance at 30 June 2012 Proﬁt for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Transfers of lapsed and exercised options 15,17 Recognition of share-based payments Issue of share capital Capitalised equity raising costs (net of tax) Balance at 30 June 2013 – – – – 13,177 49,759 – – – 871 – 129,864 (9,181) 171,313 – – – 557 – 2,384 – – – (2,194) 668 – – 858 The accompanying notes form part of these ﬁnancial statements. iSelect Annual Report 2013 37 Total $’000 66,343 12,929 – 22,363 12,929 – 12,929 12,929 – – 557 13,177 – – – – – 5,571 35,292 93,006 – – – – – – – 13,369 13,369 – – 13,369 13,369 1,323 – – – – 668 129,864 (9,181) 5,571 49,984 227,726 38 Consolidated Statement of Cash Flows for the year ended 30 June 2013 Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 Note Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Income taxes paid Net cash provided by/(used in) operating activities 6 Cash Flows from Investing Activities Payments for property, plant and equipment and intangible assets Payments for acquisition of business Net cash used in investing activities Cash Flows from Financing Activities Interest paid Interest received Proceeds from borrowings Repayment of borrowings Net proceeds from issue of shares NIA facility Net cash provided by/(used in) ﬁnancing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The accompanying notes form part of these ﬁnancial statements. 109,276 (105,067) – 4,209 (4,401) – (4,401) (4,531) 1,154 50,000 (85,000) 119,250 (15,378) 65,495 65,303 20,012 85,315 80,925 (81,287) – (362) (13,404) (31,348) (44,752) (1,425) 875 35,000 – 13,177 – 47,627 2,513 17,499 20,012 iSelect Annual Report 2013 39 Notes to the Consolidated Financial Statements for the year ended 30 June 2013 1. CORPORATE INFORMATION The ﬁnancial report of iSelect Limited for the year ended 30 June 2013 was authorised for issue in accordance with a resolution of Directors on 29 August 2013. iSelect Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The company was admitted to the ofﬁcial list of the ASX on 24 June 2013. The consolidated ﬁnancial statements of the company as at and for the year ended 30 June 2013 comprise the ﬁnancial statements of the company and its subsidiaries (as outlined in Note 24), together referred to in these ﬁnancial statements as the “Group” and individually as “Group entities”. The nature of the operations and principal activities of the Group are described in the Directors’ Report. 2. SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PREPARATION The ﬁnancial report is a general purpose ﬁnancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The ﬁnancial report has also been prepared on an historical cost basis, except for certain assets, which as noted have been measured at amortised cost. All amounts are presented in Australian dollars unless otherwise noted. The company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the Directors’ report and the ﬁnancial report are rounded off to the nearest thousand dollars, unless otherwise indicated. b) STATEMENT OF COMPLIANCE The ﬁnancial report complies with the Corporations Act 2001, Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board. c) CLARIFICATION OF TERMINOLOGY USED IN THE STATEMENT OF COMPREHENSIVE INCOME AND THE STATEMENT OF CASH FLOWS Under the requirements of AASB 101: “Presentation of Financial Statements”, the Group classiﬁes expenses (apart from any ﬁnance costs) according to either the nature (type) of the expense or function (activity to which the expense relates). The Directors have chosen to classify expenses using the nature classiﬁcation, as it more accurately reﬂects the type of operations undertaken. Earnings (proﬁt) before interest, income tax expenses, depreciation and amortisation (EBITDA) reﬂect proﬁt for the year prior to including the effect of net ﬁnance costs, income taxes, depreciation and amortisation. Depreciation and amortisation are calculated in accordance with AASB 116: “Property, Plant and Equipment” and AASB 138 “Intangible Assets” respectively. In addition to this, the Directors believe that EBITDA is a relevant and useful ﬁnancial measure used by management to measure the Group’s operating performance. Group management uses EBITDA and earnings before interest and income tax expense (EBIT), in combination with other ﬁnancial measures, primarily to evaluate the Group’s operating performance before ﬁnancing, income tax and non-cash capital related expenses. In addition, the Directors believe EBITDA is useful to investors because analysts and other members of the investment community largely view EBITDA as a key and widely recognised measure of operating performance. EBIT is a similar measure to EBITDA, but it takes into account depreciation and amortisation. Free cash ﬂow is deﬁned as the sum of net cash provided by operating activities and net cash used in investing activities. Management and the Directors believe this is useful in understanding cash ﬂows available to the Group before any ﬁnancing cash ﬂows. 40 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS New standards effective from 1 July 2012 The Group has adopted the following new and revised Accounting Standards issued by the AASB that are relevant to its operations. Reference Title AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] This standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassiﬁed subsequently to proﬁt or loss and those that will not. Application date of standard Application date for Group 1 July 2012 1 July 2012 New standards and interpretations issued not yet adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2013 are outlined below. Reference Title Summary and Impact on Group ﬁnancial report AASB 10 Consolidated Financial Statements AASB 12 Disclosure of Interests in Other Entities AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated ﬁnancial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to speciﬁc situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7 and 2012-10. The Group does not expect any material impact as a result of this standard. AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. This amendment is not expected to have a material impact on measurement and disclosure. Application date of standard Application date for Group 1 January 2013 1 July 2013 1 January 2013 1 July 2013 AASB 13 Fair Value Measurement AASB 13 establishes a single source of guidance for determining the fair 1 January 2013 1 July 2013 value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this deﬁnition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. The Group is currently considering the impact of this standard. iSelect Annual Report 2013 41 Application date of standard Application date for Group 1 January 2013 1 July 2013 1 January 2015 1 July 2015 Reference Title Summary and Impact on Group ﬁnancial report AASB 119 Employee Beneﬁts AASB 9 Financial Instruments The main change introduced by the standard is to revise the accounting for deﬁned beneﬁt plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans are recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the deﬁnition of short-term employee beneﬁts. The distinction between short-term and other long-term employee beneﬁts is now based on whether the beneﬁts are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. This amendment is not expected to have a material impact on measurement and disclosure. AASB 9 includes requirements for the classiﬁcation and measurement of ﬁnancial assets. It was further amended by AASB 2010-7 to reﬂect amendments to the accounting for ﬁnancial liabilities. These requirements improve and simplify the approach for classiﬁcation and measurement of ﬁnancial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classiﬁed based on: (1) the objective of the entity’s business model for managing the ﬁnancial assets; (2) the characteristics of the contractual cash ﬂows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in proﬁt or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through proﬁt or loss at initial recognition if doing so eliminates or signiﬁcantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for ﬁnancial liabilities the change in fair value is to be accounted for as follows: (i) The change attributable to changes in credit risk are presented in other comprehensive income; and (ii) The remaining change is presented in proﬁt or loss. If this approach creates or enlarges an accounting mismatch in the proﬁt or loss, the effect of the changes in credit risk are also presented in proﬁt or loss. Further amendments were made by AASB 2012-6 which amends the mandatory effective date to annual reporting periods beginning on or after 1 January 2015. AASB 2012-6 also modiﬁes the relief from restating prior periods by amending AASB 7 to require additional disclosures on transition to AASB 9 in some circumstances. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. These amendments are only expected to affect the presentation of the Group’s ﬁnancial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the ﬁnancial report. 42 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) BASIS OF CONSOLIDATION The consolidated ﬁnancial statements comprise the ﬁnancial statements of the Group. A list of controlled subsidiaries at year end is contained in Note 24. Subsidiaries are all those entities over which the Group has the power to govern the ﬁnancial and operating policies so as to obtain beneﬁts from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. g) SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group’s consolidated ﬁnancial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The ﬁnancial statements of subsidiaries are prepared for the same reporting period of the parent company using consistent accounting policies. Adjustments are made to bring into line any dissimilar policies that may exist. In preparing the consolidated ﬁnancial statements, all intercompany balances and transactions, income and expenses and unrealised gains and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by iSelect Limited are accounted for at cost in the separate ﬁnancial statements of the parent less any impairment charges. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. This method involves recognising at acquisition date, separately from goodwill, the identiﬁable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identiﬁable assets acquired and the liabilities assumed are measured at their acquisition date fair values. The difference between these items and the fair value of the consideration (including the fair value of any pre-existing investment in the acquiree) is goodwill or a discount on acquisition. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date allocated to each of the Group’s cash generating units that are expected to beneﬁt from the combination, irrespective of whether assets or liabilities of the acquiree are assigned to those units. f) BUSINESS COMBINATION RESERVE The internal group restructure performed in the 2007 ﬁnancial year, which interposed the holding Company, iSelect Limited, into the consolidated Group was exempted by AASB 3 Business Combinations as it precludes entities or businesses under common control. The carry-over basis method of accounting was used for the restructuring of the iSelect Group. As such, the assets and liabilities were reﬂected at their carrying amounts. No adjustments were made to reﬂect fair values, or recognise any new assets or liabilities. No goodwill was recognised as a result of the combination and any difference between the consideration paid and the ‘equity’ acquired was reﬂected within equity as an equity reserve titled “Business Combination Reserve”. Signiﬁcant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The key estimate and assumptions that have a signiﬁcant risk of causing a material adjustment to the carrying amount of certain assets and liabilities are described below. Revenue recognition Revenue is recognised at the point in time where the Group has essentially completed its contracted service with its Product Providers and it is probable that the Group will receive the revenue in relation to the underlying consumer. This point in time is where a consumer is referred to a Product Provider. As such, the Group determines a reliable measurement of its revenue on the basis of the probability of a ‘referred’ sale becoming a ‘ﬁnancial’ or paid sale on the basis of extensive historical statistical and trend data. Revenue is recognised on a net basis of the historical percentage of ‘referred’ sales expected to become ‘ﬁnancial’ and is adjusted to actual percentages experienced at each reporting date. Where this information cannot be reliably measured, the Group recognises revenue at the time the consumer makes its ﬁrst payment to the Product Provider. Trail commission receivable The Group has elected to account for trail commission revenue at the time of selling a product to which trail commission attaches, rather than on the basis of actual payments received from the relevant fund or providers involved. This method of revenue recognition requires the Directors and management to make certain estimates and assumptions based on industry data and the historical experience of the Group. In undertaking this responsibility, the Group engages Deloitte Actuaries & Consultants Limited, a ﬁrm of consulting actuaries, to assist in reviewing the accuracy of assumptions for health, general, mortgages and life trail revenue. These estimates and assumptions include, but are not limited to: termination or lapse rates, mortality rates, inﬂation, risk-free and other discount rates, counter party credit risk, forecast fund premium increases and the estimated impact of known Australian Federal and State Government policy. The Directors consider this method of trail commission recognition to be a more accurate representation of the Group’s ﬁnancial results. This method is further detailed in Note 2(h). iSelect Annual Report 2013 43 Clawback provisions Upfront fees received from certain insurance funds and mortgage brokers can be clawed back in the event of early termination of membership. They vary across the insurance industry and insurers and are usually triggered where a referred member terminates their policy. Each relevant Product Provider has an individual agreement and the clawback period ranges between 0 and 12 months, depending on the agreement. The Group provides for this liability based upon historic average rates of attrition and recognises revenue net of these clawback amounts. Provisions for employee beneﬁts Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date using the discounted cash ﬂow methodology. The risks speciﬁc to the provision are factored into the cash ﬂows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reﬂects the time value of money and the risks speciﬁc to the liability. The increase in the provision resulting from the passage of time is recognised as interest expense. Research and development costs Internal project costs are classiﬁed as research or development based on management’s assessment of the nature of each cost and the underlying activities performed. Management performs this assessment against the Group’s development costs policy which is consistent with the requirements of AASB 138 Intangible Assets. Taxation The Group’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax on income, in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of ﬁnancial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufﬁcient future taxable proﬁts. Assumptions about the generation of future taxable proﬁts depend on management’s estimates of future cash ﬂows. These depend on estimates of future sales volumes, operating costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation in respect of the availability of carry forward tax losses. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of ﬁnancial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income in future periods. Share-based payments Accounting judgements, estimates and assumptions in relation to share based payments are discussed in Note 28. h) REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic beneﬁts will ﬂow to the Group and the revenue can be reliably measured. Fee Revenue The Group primarily earns two distinct types of fee-based revenue: upfront fees and trail commission. i. Upfront fees Upfront fees are upfront fees earned upon new members joining a health fund, initiating a life insurance policy, obtaining general (car) insurance products, mortgages, broadband or energy products via iSelect. Upfront fees may trigger a ‘clawback’ of revenue in the event of early termination by customers as speciﬁed in individual Product Provider agreements. These clawbacks are provided for by the Group on a monthly basis by utilising industry data and historical experience. ii. Trail commission Trail commissions are ongoing fees related to customers referred to individual funds or applied for mortgages via iSelect. Trail commission revenue represents commission earned calculated as a percentage of the value of the underlying policy relationship of the expected life and in the case of mortgages a proportion of the underlying value of the loan. The Group is entitled to receive trail commission without having to perform further services. On initial recognition, trail revenue and receivables are recognised at fair value, being the present value of expected future trail revenue receivables discounted to their net present value using discounted cash ﬂow valuation techniques. These calculations require the use of assumptions. Due to the differences in underlying product characteristics and Product Provider circumstances, the discount rates applied in the most recent valuation of the trail commission receivable range between 8.0% and 12.5%. The key assumptions underlying the fair value calculations of trail revenue receivable at reporting date include but are not limited to: lapse and mortality rates, commission term, premium increases and discount rate, incorporating risk free rates and estimates of the likely credit risk associated with the funds and credit providers. It is the Directors’ responsibility to determine the assumptions used and the fair value of trail revenue. In undertaking this responsibility, the Group engages Deloitte Actuaries & Consultants Limited, a ﬁrm of consulting actuaries, to assist in reviewing the accuracy of assumptions and the fair value model utilised to determine the fair value of health, life, mortgages and general fund trail revenue and the accompanying asset. The trail commission is a Director valuation and is based on the same principles as outlined above. Subsequent to initial recognition and measurement, the trail revenue asset is measured at amortised cost. The carrying amount of the trail revenue asset is adjusted to reﬂect actual and revised estimated cash ﬂows by recalculating the carrying amount through computing the present value of estimated future cash ﬂows at the original effective interest rate. The resulting adjustment is recognised as income or expense in the statement of comprehensive income. 44 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 Interest Revenue is recognised as interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁnancial instrument) to the net carrying amount of the ﬁnancial asset. Click-through revenue Revenue is recognised based on the contractual arrangement with the relevant Product Provider. This can occur at one of three points, either when an internet click user clicks on a paying advertiser’s link, submits an application, or a submitted application is approved. Other Business Revenue Revenue for contracted services, including advertising and subscription revenue, is recognised systematically over the term of the contract. Revenue for services provided other than pursuant to a deﬁned period contract is recognised during the month services are provided. i) LEASES The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulﬁlment of the arrangement is dependent on the use of a speciﬁc asset or assets and the arrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks and beneﬁts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the ﬁnance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in proﬁt and loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases where the lessor retains substantially all the risks and beneﬁts of ownership of the asset are classiﬁed as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as the lease income. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Lease incentives are recognised when they are received and amortised over the life of the lease. j) CASH AND CASH EQUIVALENTS Cash and short-term deposits in the statement of ﬁnancial position comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the statement of cash ﬂows, cash and cash equivalents consist of cash and cash equivalents as deﬁned above, net of outstanding bank overdrafts. k) TRADE AND OTHER RECEIVABLES All trade and other receivables recognised as current assets are due for settlement within no more than 30 days for marketing fees and within one year for trail commission. Trade receivables are measured on the basis of amortised cost and trail commission is initially measured at fair value and subsequently at amortised cost. Recoverability of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is raised where some doubt as to collection exists. INCOME TAX l) Tax expense comprises current and deferred tax. Current and deferred tax is recognised in proﬁt or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: – – – – temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable proﬁt or loss temporary differences related to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future taxable temporary differences arising on the initial recognition of goodwill tax beneﬁts acquired as part of a business combination, but not satisfying the criteria for separate recognition, would be subsequently recognised if new information about facts and circumstance changed. The adjustment would be either treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement of or in the proﬁt or loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. iSelect Annual Report 2013 45 Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable proﬁts will be available against which they can be utilised. The Group’s tax advisors, PricewaterhouseCoopers, have provided an opinion on the probability of availability as at 30 June 2013. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised. Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay the related dividend is recognised. The Group does not distribute non-cash assets as dividends to its shareholders. Tax consolidation legislation iSelect Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. Members of the tax consolidated group have entered into a tax funding agreement. Each entity is responsible for remitting its share of the current tax payable (receivable) assumed by the head entity. In accordance with Group accounting policy, the Group has applied UIG 1052, in which the head entity, iSelect Limited, and the controlled entities in the tax consolidated Group continue to account for their own current and deferred tax amounts. In addition to its own current and deferred tax amounts, iSelect Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated Group. The allocation of taxes to the head entity is recognised as an increase/decrease in the controlled entities intercompany accounts with the tax consolidated Group head entity. m) CASH AND CASH EQUIVALENTS OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: – where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and – receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of ﬁnancial position. Cash ﬂows are included in the statement of cash ﬂows on a gross basis and the GST component of cash ﬂows arising from investing and ﬁnancing activities, which is recoverable from, or payable to, the taxation authority, are classiﬁed as operating cash ﬂows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. n) PROPERTY, PLANT AND EQUIPMENT Plant and equipment is stated at cost less accumulated depreciation. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Depreciation is calculated over the estimated useful life of the asset as follows: Computer software/ equipment Useful Life 2 to 5 years Method Straight-line method Furniture, ﬁxtures and ﬁttings 8 years Straight-line method Leasehold improvements 5 to 6.5 years Straight-line method Motor vehicles 3 years Straight-line method An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognised. Impairment The carrying values of plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment 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 an asset that does not generate largely independent cash inﬂows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value. Impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. 46 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 o) INTANGIBLE ASSETS Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is measured at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in proﬁt or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either ﬁnite or inﬁnite. Intangible assets with ﬁnite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a ﬁnite useful life are either reviewed at the end of each reporting period or amortised over the life of the asset. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. Amortisation is calculated over the estimated useful life of the asset as follows: Amortisation of the asset begins when development is complete and the asset is available for use. Any expenditure so capitalised is amortised over the period of expected beneﬁt from the related project. Web site development costs, customer lists and brand names capitalised as an intangible asset are amortised on a straight-line basis with a useful life as detailed above. Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 2(e). Subsequent measurement of goodwill is measured at cost, tested for impairment annually. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash- generating units that are expected to beneﬁt from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit, and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. p) INVESTMENTS Investments in controlled entities are carried at the lower of cost and recoverable amount. q) IMPAIRMENT OF ASSETS The Group monitors throughout the year to see whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset. Unless the asset does not generate cash inﬂows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset. Development costs (including website development) Trademarks and domain names Computer software Goodwill Consumer contracts Useful Life 2 to 5 years Indeﬁnite 2 to 4 years Indeﬁnite 3 months The amortisation expense on intangible assets with ﬁnite lives is recognised in proﬁt or loss in the expense category consistent with the function of the intangible assets. Intangible assets with indeﬁnite useful lives are tested for impairment annually, either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indeﬁnite life is reviewed at each reporting period to determine whether indeﬁnite life assessment continues to be supportable. If not, the change in the useful life assessment from indeﬁnite to ﬁnite is accounted for as a change in an accounting estimate and is made on a prospective basis. Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic beneﬁts, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. iSelect Annual Report 2013 47 An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased, except in relation to goodwill. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods. Such reversal is recognised in the statement of comprehensive income. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. r) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the reporting date that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. s) LOANS AND BORROWINGS Loans and borrowings are recognised initially at fair value plus directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective interest rate method amortisation is included in ﬁnance costs in the income statement. t) PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outﬂow of resources embodying economic beneﬁts will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ﬂows at a pre- tax rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. u) EMPLOYEE BENEFITS Provision is made for employee beneﬁts accumulated as a result of employees rendering services up to the reporting date. These beneﬁts include wages and salaries, annual leave and long-service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee beneﬁts expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee beneﬁt liabilities are measured at the present value of the estimated future cash outﬂow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outﬂows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Employee beneﬁts expenses and revenues arising in respect of wages and salaries, non-monetary beneﬁts, annual leave, long-service leave and other leave beneﬁts, and other types of employee beneﬁts are recognised against proﬁts on a net basis in their respective categories. v) SHARE-BASED PAYMENTS The Group provides beneﬁts to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). During the year there were two plans in place to provide these beneﬁts: – – The Long-Term Incentive Plan (LTIP), which provides beneﬁts to employees and key management personnel; and The Employee Share Option Plan, comprising the 2010 Option Plan and 2011 Option Plan, which provides beneﬁts to employees, including Directors. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they were granted. The fair value was determined by the Directors and management using a Binomial model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulﬁlled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of: (i) the grant date fair value of the award; and, (ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and, (iii) the expired portion of the vesting period. The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. 48 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 y) INTEREST EXPENSE Interest expense comprises interest expense on borrowings and is recognised in proﬁt or loss using the effective interest method. z) CONTRIBUTED EQUITY Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. aa) EARNINGS PER SHARE Basic earnings per share Basic earnings per share is calculated as net proﬁt attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares outstanding during the ﬁnancial year. Diluted earnings per share Diluted earnings per share adjusts the ﬁgures used in the determination of basic earnings per share to take into account: – – the after-tax effect of interest and other ﬁnancing costs associated with dilutive potential ordinary shares; and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. v) SHARE-BASED PAYMENTS (CONTINUED) Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulﬁlled, provided that all other conditions are satisﬁed. If the terms of an equity-settled award are modiﬁed, as a minimum an expense is recognised as if the terms had not been modiﬁed. An additional expense is recognised for any modiﬁcation that increases the total fair value of the share-based payment arrangement, or is otherwise beneﬁcial to the employee, as measured at the date of modiﬁcation. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modiﬁcation of the original award, as described in the previous paragraph. w) COMPARATIVE BALANCES Accounting policies adopted are consistent with those of the previous year. Where expenses have been reallocated between departments or within expense lines, the comparatives for the previous year have been reallocated also to assist comparability between the years. x) ONEROUS CONTRACTS A provision for onerous contracts is recognised when the expected beneﬁts to be derived by the Group from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on assets associated with the contract. iSelect Annual Report 2013 49 3. SEGMENT INFORMATION For management purposes, the Group is organised based on its products and services and has two reportable segments as follows: – Health and Car Insurance segment, which offers comparison services across private health insurance and car insurance categories; and – Household Utilities and Financial segment, which offers comparison services across a range of household utilities and personal ﬁnance products, including life insurance, broadband, retail energy products, home loans, savings accounts, term deposits, credit cards and personal loans. No operating segments have been aggregated to form the above reportable segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating proﬁt or loss in the consolidated ﬁnancial statements. However, Group ﬁnance costs and income, income taxes and certain corporate overhead costs that are not considered to be appropriate to be allocated, are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. The following tables present revenue and results by operating segments for the years ended 30 June 2013 and 30 June 2012. Operating revenue Health and Car Insurance Household Utilities and Financial Consolidated Group operating revenue Proﬁt before interest, tax, depreciation and amortisation Health and Car Insurance Household Utilities and Financial Unallocated (Corporate) Consolidated Group proﬁt before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Net ﬁnance costs Consolidated Group proﬁt before income tax Income tax expense Consolidated Group net proﬁt for the year 30 June 2013 $’000 30 June 2012 $’000 93,090 24,947 97,983 13,945 118,037 111,928 36,532 3,063 (14,591) 25,004 (5,150) (1,698) 18,156 (4,787) 13,369 40,447 (5,552) (10,813) 24,082 (4,054) (895) 19,133 (6,204) 12,929 GEOGRAPHICAL LOCATIONS All revenue and operating assets are attributed to geographic location based on the location of customers, which are entirely in Australia. 4. REVENUE AND EXPENSES Upfront Fee Revenue Upfront fee revenue Click-through revenue Other business revenue Trail Commission Revenue Trail commission revenue – current sales period Trail commission revenue – expected cash ﬂow adjustments to historical trail receivable Trail commission revenue – interest income relating to the unwind of discount on historical trail receivable Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 63,960 2,843 8,003 74,806 36,212 (687) 7,706 43,231 52,602 2,034 2,667 57,303 44,106 3,081 7,438 54,625 50 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 Employee beneﬁts expense Cost of sales and administration expenses include the following employee beneﬁts expenses: Remuneration, bonuses, on-costs and amounts provided for beneﬁts (i) Share based payments Depreciation and amortisation Depreciation Amortisation of previously capitalised development costs Occupancy related expenses Operating lease rental expense Other expenses included in the income statement Initial public offering costs (ii) Doubtful debt expense Relocation costs (iii) Acquisition costs (iv) Finance costs Interest expense Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 40,725 668 41,393 2,818 2,332 5,150 36,498 557 37,055 1,985 2,069 4,054 1,743 1,560 1,479 20 – – 1,499 – 63 (813) 1,260 510 2,998 1,770 Employee beneﬁts expense is net of amounts capitalised as website development costs of $2,543,000 (2012: $2,809,000). (i) (ii) Initial public offering costs include amounts incurred and/or paid to consultants, advisors and other parties in relation to the public listing of iSelect Limited on the Australian Securities Exchange, effective 24 June 2013 that did not meet capitalisation criteria. (iii) Relocation costs relate to the expenditure incurred as a result of moving to premises at Bay Road, Cheltenham. Makegood and onerous contract provisions were reversed in the prior year to the extent no longer required. (iv) Acquisition costs relate to the legal and due diligence costs associated with the acquisition of InfoChoice during the prior year. 5. INCOME TAX Current income tax Current income tax beneﬁt Adjustment in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Adjustments in respect of deferred income tax of previous years Income tax reported in income statement Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 230 (734) (5,360) 1,077 (4,787) 2,054 (298) (7,890) (70) (6,204) iSelect Annual Report 2013 51 Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 18,156 (5,447) (734) 1,077 (200) (43) 500 60 19,133 (5,740) (298) (70) (167) (71) 272 (130) (4,787) (6,204) 367 2,209 708 7,960 3,217 104 768 2,166 – 8,450 – 140 14,565 11,524 (32,092) – (1,100) (99) (33,291) (18,726) (27,438) (7) (1,723) (98) (29,266) (17,742) A reconciliation of income tax beneﬁt/(expense) applicable to account proﬁt before income tax at the statutory income tax rate is as follows: Accounting proﬁt before income tax Statutory income tax rate of 30% Adjustments in respect of current income tax of previous years Adjustments in respect of deferred income tax of previous years Share-based payments Entertainment Research and development concessional deduction Other Total income tax expense Deferred tax assets relate to the following: Deferred tax assets from temporary differences on: Trade and other payables Provisions Fixed assets Carried forward losses Expenditure for initial public offering costs Other Total deferred tax assets Deferred tax liabilities from temporary differences on: Trail commission receivable Accrued interest Development costs Other Total deferred tax liabilities Net deferred tax liabilities TAX CONSOLIDATION The iSelect Group formed an income tax consolidated group as at 30 April 2007. iSelect Limited continues to act as the head entity of this Group. Upon the 100% acquisition of InfoChoice Limited, it became part of the tax consolidated group. Members of the Group entered into a tax-sharing agreement at that time that provided for the allocation of income tax liabilities between the entities, should the head entity default on its tax payment obligations. No amounts are expected to be recognised in the ﬁnancial statements in respect of this agreement on the basis that the probability of default is remote. The head entity and the controlled entities in the likely tax consolidated group continue to account for their own current and deferred tax balances. UNRECOGNISED DEFERRED TAX ASSETS Deferred tax assets of $2.9 million (gross tax loss of $9.6 million) in respect of losses acquired as part of the InfoChoice Limited acquisition have not been recognised as at 30 June 2013. 52 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 6. CASH AND CASH EQUIVALENTS Cash at bank and on hand Term deposits Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 63,173 22,142 85,315 10,870 9,142 20,012 Cash at bank and on hand earns interest at ﬂoating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. RECONCILIATION OF PROFIT AFTER TAX TO NET CASH FLOWS FROM OPERATING ACTIVITIES Net proﬁt after tax Adjustments for non-cash income and expense items: Depreciation and amortisation Share-based payments expense Interest income classiﬁed as ﬁnancing cash ﬂow Interest expense classiﬁed as ﬁnancing cash ﬂow Changes in net assets and liabilities: (Increase)/decrease in trade receivables (Increase)/decrease in trail commission receivable (Increase)/decrease in other assets Increase/(decrease) in trade and other payables Increase/(decrease) in deferred taxes Increase/(decrease) in provisions Increase/(decrease) in other liabilities Net cash ﬂow provided by/(used in) operating activities 7. TRADE AND OTHER RECEIVABLES Current Trade receivables Allowance for credit losses Other receivables Non-Current Trade receivables (secured NIA facility) Allowance for credit losses Refer to Note 20 for information on the credit risk management policy of the Group. Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 13,369 12,929 5,150 668 (1,300) 2,998 (3,354) (15,514) 285 (3,085) 4,787 121 84 4,209 4,054 557 (875) 1,425 (9,173) (29,979) (40) 11,158 6,204 3,396 (18) (362) Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 18,843 (151) – 18,692 15,378 – 15,378 34,070 10,973 (131) 4,496 15,338 – – – 15,338 iSelect Annual Report 2013 53 IMPAIRED TRADE RECEIVABLES As at 30 June 2013, current trade receivables with a nominal value of $151,000 (2012: $131,000) were impaired. Movements in the allowance account for credit losses were as follows: Carrying value and the beginning of the year Allowance for credit losses recognised during the year Receivables written off during the year as uncollectable Unused amount reversed Carrying value at the end of the year Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 131 89 – (69) 151 – 63 68 – 131 TRADE RECEIVABLES PAST DUE BUT NOT IMPAIRED As at 30 June 2013, trade receivables of $1,011,000 (2012: $1,003,000) were past due but not impaired. These relate to customers for whom there is no recent history of default or other indicators of impairment. The ageing analysis of trade and other receivables that were not impaired is as follows: Neither past due nor impaired Past due 1 – 30 days Past due 31 – 90 days Past due 90+ days Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 17,681 14,335 50 385 576 514 338 151 18,692 15,338 With respect to trade receivables that are neither past due nor impaired, there are no indications as of the reporting date that the debtors will not meet their payment obligations. It is the Group’s policy that all key partners who wish to trade on credit terms are subject to credit veriﬁcation procedures. Receivable balances are monitored on an ongoing basis. OTHER RECEIVABLES – CURRENT Other receivables in the prior year represent an amount owing by NIA to iSelect. This receivable amount has now been settled through a draw-down on the NIA facility. This facility is discussed in further detail below. SECURED NIA FACILITY In April 2012, NIA Limited launched health.com.au the ﬁrst major new health insurance fund in Australia for over 20 years. health.com.au has an online-focused marketing strategy and a suite of products that have been designed to appeal to under-serviced consumer segments within online comparison. NIA has appointed the Group as a distributor of health.com.au’s private health insurance products. The Group has provided a secured facility to NIA Health Pty Ltd (NIA Health) for the sole purpose of allowing NIA Health to defer the time at which it is required to make payments under distribution arrangements with the Group. The facility does not allow NIA Health to draw down cash amounts; rather, it creates a deferred payment obligation for which NIA Health provides security and pays interest. The key terms are as follows: i. NIA must pay interest every three months to the group on the amount outstanding under the facility. Interest is payable at variable rates. ii. Unless repaid earlier by NIA, all amounts drawn under the facility shall be ﬁnally repaid by NIA Health on 31 July 2014, unless: a. An extension is requested by NIA Health to 31 July 2015 by NIA Health giving notice that it is unable to reﬁnance the facility; b. An event of default or review event occurs under the facility which will entitle the group to accelerate repayment of the facility. iii. The maximum size of the facility is $75 million. As at 30 June 2013, a further $59.6 million may be drawn down (if the facility is extended to 31 July 2015). iv. NIA Health has provided a ﬁxed and ﬂoating charge over all its present and after-acquired property. In addition, NIA Health’s parent company, NIA, has provided a share of mortgage over all the present and after-acquired shares in NIA Health and a guarantee from NIA to the Group in respect of the facility. 54 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 8. TRAIL COMMISSION RECEIVABLE Current Trail commission receivable Non-Current Trail commission receivable Total trail commission receivable Reconciliation of movement in trail commission receivable: Opening balance Trail commission revenue – current period Trail commission revenue – expected cash ﬂow adjustment to historical trail receivables Trail commission revenue – interest income relating to the unwind of discount on historical trail receivables Cash receipts Closing balance Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 33,166 33,166 73,807 73,807 106,973 91,459 36,212 (687) 7,706 (27,717) 106,973 26,534 26,534 64,925 64,925 91,459 61,480 44,106 3,081 7,438 (24,646) 91,459 SENSITIVITY OF TRAIL COMMISSION RECEIVABLE A combined premium price decrease of 1% and termination rate increase of 1% would have the effect of reducing the carrying value by $8,272,000 (2012: $7,774,000). A combined premium price increase of 1% and termination rate decrease of 1% would have the effect of increasing the carrying value by $9,024,000 (2012: $8,471,000). Individually, the effects of these inputs would not give rise to any additional amount greater than those stated. 9. OTHER ASSETS Current Prepayments – Facility Fees Prepayments – Other Other Assets Non-Current Prepayments – Facility Fees Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 425 766 268 1,459 765 765 – 1,124 36 1,160 – – iSelect Annual Report 2013 55 10. PROPERTY, PLANT AND EQUIPMENT Leasehold Improve- ments $’000 Ofﬁce & Computer Equipment $’000 Motor Vehicles $’000 Computer Software $’000 Furniture, Fixtures & Fittings $’000 As at 30 June 2013 Cost Accumulated depreciation Net carrying amount Net carrying amount at 1 July 2012 Additions Disposals Depreciation expense Net carrying amount at 30 June 2013 As at 30 June 2012 Cost Accumulated depreciation Net carrying amount Net carrying amount at 1 July 2011 Acquired through acquisitions Additions Disposals Depreciation expense Net carrying amount at 30 June 2012 8,462 (3,953) 4,509 5,777 68 – (1,336) 4,509 8,394 (2,617) 5,777 – – 6,625 – (848) 5,777 3,896 (2,558) 1,338 1,837 156 – (655) 1,338 3,740 (1,903) 1,837 909 – 1,438 – (510) 1,837 66 (36) 30 83 – (19) (34) 30 85 (2) 83 – – 85 – (2) 83 3,304 (2,355) 949 1,556 158 – (765) 949 3,146 (1,590) 1,556 1,016 940 214 – (614) 1,556 1,038 (911) 127 127 28 – (28) 127 1,010 (883) 127 44 – 94 – (11) 127 Total $’000 16,766 (9,813) 6,953 9,380 410 (19) (2,818) 6,953 16,375 (6,995) 9,380 1,969 940 8,456 – (1,985) 9,380 56 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 11. INTANGIBLE ASSETS As at 30 June 2013 Cost Accumulated amortisation and impairment Net carrying amount Net carrying amount at 1 July 2012 Additions Amortisation Net carrying amount at 30 June 2013 As at 30 June 2012 Cost Accumulated amortisation and impairment Net carrying amount Net carrying amount at 1 July 2011 Acquired through acquisitions Additions Amortisation Net carrying amount at 30 June 2012 Development Costs $’000 Trademarks & Domain Name $’000 Goodwill $’000 Brand Names $’000 Customer Contracts $’000 14,872 (6,060) 8,812 7,162 3,982 (2,332) 8,812 10,890 (3,728) 7,162 3,477 – 4,948 (1,263) 7,162 229 – 229 201 28 – 229 201 – 201 201 – – – 23,235 – 23,235 23,235 – – 6,450 – 6,450 6,450 – – 23,235 6,450 23,235 – 23,235 – 23,235 – – 6,450 – 6,450 – 6,450 – – 201 23,235 6,450 806 (806) – – – – – 806 (806) – – 806 – (806) – Total $’000 45,592 (6,866) 38,726 37,048 4,010 (2,332) 38,726 41,582 (4,534) 37,048 3,678 30,491 4,948 (2,069) 37,048 DESCRIPTION OF INTANGIBLE ASSETS i) Development costs Development costs relate to the development of the Group’s various websites and customer conversion systems and are carried at cost less accumulated amortisation and accumulated impairment losses. This intangible asset has been assessed as having a ﬁnite life and is amortised using the straight line method over a period of between two to four years. The amortisation has been recognised in the statement of comprehensive income in amortisation. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount. ii) Trademarks and domain names Trademark and domain names are carried at cost and are not amortised. These intangible assets have been determined to have inﬁnite useful lives. These assets were tested for impairment as at 30 June 2013, on a ‘value-in-use’ basis. Also refer Note 2(q) and below. iii) Goodwill Goodwill relates to the acquisition of InfoChoice Limited. Goodwill has been tested for impairment on a value-in-use basis as at 30 June 2013, refer to Note 2(q) and below. iv) Brand Names The brand name acquired as part of the InfoChoice Limited acquisition was initially recognised at fair value. This intangible asset has been determined to have indeﬁnite useful life. These assets were tested for impairment as at 30 June 2013, refer to Note 2(q) and below. v) Customer Contracts The customer contract asset acquired as part of the InfoChoice Limited acquisition is carried at cost less accumulated amortisation and accumulated impairment losses. This intangible asset has been assessed as having a ﬁnite life and is amortised using the straight line method over the remaining period of the contract terms. The amortisation has been recognised in the statement of comprehensive income in amortisation. This asset is fully written down. iSelect Annual Report 2013 57 Growth rate estimates For each CGU, ﬁve years of cash ﬂows have been included in the discounted cash ﬂow models. These are based on projections from 2013 ﬁnancial results and growth rates ranging from 2% to 5% for all CGUs’ other than Home Loans. The Home Loans CGU is an immature business and its operations to-date has incurred losses. However, the performance of the business for the 2013 ﬁnancial was better than expected and management believes signiﬁcant growth will be experienced over the next three years. The cash ﬂows for Home Loans are based on management projections, with a positive net cash ﬂow forecast for the 2014 ﬁnancial year. Substantial growth is projected to continue into the 2015 and 2016 ﬁnancial years, and thereafter more modest growth is expected. A long-term growth rate of 2% into perpetuity has been determined for 2018 onward, and is in line with other assessment for other CGUs. Market share assumptions These assumptions are important because management assesses how the unit’s position, relative to its competitors, might change over the budget period. Management expects the Group’s share of its respective markets to grow over the budget period. IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE LIVES Goodwill acquired through the InfoChoice Limited acquisition has been allocated to the cash generating units (CGUs) for impairment testing as follows: Segment Health and Car Insurance CGU Health Car Household Utilities and Financial Home loans Money Life $’000 4,634 1,659 10,088 6,801 53 23,235 Brand names acquired through the InfoChoice Limited acquisition have an indeﬁnite useful life and are allocated to a Group level. Trademarks and domain names also have an indeﬁnite useful life and are allocated to a Group level. The Group performed its annual impairment test as at 30 June 2013. The recoverable amount of CGUs has been determined based on a value-in-use calculation using a combination of cash ﬂow projections from ﬁnancial year 2013 actual results with a growth rate increment applied for subsequent years, and ﬁnancial year 2014 forecasts approved by senior management with a growth rate increment for subsequent years. A pre-tax discount rate is applied to the cash ﬂow projections. As a result of this analysis, no impairment was identiﬁed for the CGUs for which goodwill or brand names are allocated. KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATION Discount rates Discount rates represent the current market assessment of the risks speciﬁc to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash ﬂow estimates. The discount rate calculation is based on the speciﬁc circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Segment-speciﬁc risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. As a result, the pre-tax discount rate applied is 13.6%. 58 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 11. INTANGIBLE ASSETS (CONTINUED) SENSITIVITY TO CHANGES IN ASSUMPTIONS With regard to the assessment of ‘value-in-use’ of the CGUs other than the Home Loans CGU, management believes that no reasonable change in any of the above key assumptions would cause the carrying value of the units to materially exceed its recoverable amount. For the Home Loans unit, the estimated recoverable amount is $4,030,000 greater than its carrying value and, consequently, any adverse change in a key assumption may result in an impairment loss. The implications of the key assumptions for the recoverable amount are discussed below: – Growth rate assumptions – management recognises that the Home Loans CGU is a new entrant to the market and the possibility of the speed of its growth may have a signiﬁcant impact on growth rate assumptions applied. As an indication of the potential impact on impairment, if conversion and growth rates achieved are in excess of 11% less than projected for ﬁnancial years 2014 and 2015, this would result in impairment. – Discount rate assumptions – to have an adverse impact on the forecasts included in the budget, an increase of the pre-tax discount rate to 16.6% would result in an impairment of the Home Loans CGU. 12. TRADE AND OTHER PAYABLES Trade Payables Other Payables Trade payables and other payables are non-interest bearing and are normally settled on 30-day terms. 13. PROVISIONS Current Employee Beneﬁts – Annual Leave Employee Beneﬁts – Long Service Leave Lease Incentive Clawback Other Non-Current Employee Beneﬁts – Long Service Leave Lease Incentive Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 10,088 10,113 20,201 4,684 16,562 21,246 Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 2,047 334 319 1,825 – 4,525 451 2,235 2,686 1,581 224 319 1,856 252 4,232 304 2,554 2,858 NATURE AND TIMING OF PROVISIONS i) Clawback provision The Group has recognised a provision for expected clawback of marketing fees receivable from health, life and general funds due to early termination of policies by new members. This is based on historical and average industry rates of attrition. Clawback of fees is incurred within two to twelve months of the sale of the relevant policies. ii) Provision for lease incentive Relates to the receipt of lease incentive payments in relation to the Group’s campus. This revenue has been deferred and is being recognised in the statement of comprehensive income over the life of the lease. iSelect Annual Report 2013 59 MOVEMENT IN PROVISIONS Movements in each class of provision during the ﬁnancial year, other than provisions relating to employee beneﬁts, are set out below: Carrying amount at beginning of year Arising during the year Utilised Unused amounts reversed Carrying amount at end of year CLAWBACK LEASE INCENTIVE 2013 $’000 1,856 5,320 (5,351) – 2012 $’000 1,162 5,179 (4,485) – 2013 $’000 2,873 – (319) – 2012 $’000 48 3,192 (367) – 1,825 1,856 2,554 2,873 OTHER 2013 $’000 252 – (42) (210) – 2012 $’000 1,049 252 (235) (814) 252 14. BORROWINGS This Note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 20. Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 – – – 35,000 – 35,000 b) Revolving facility The Group entered into a $40 million facility with the Commonwealth Bank of Australia (CBA). The arrangements include a term debt revolving facility of up to $35 million and a secured letter of credit facility of up to $5 million. The term of the facility is three years, from 18 April 2013 to 17 April 2016. The purpose of the facility is to provide funding for general corporate purposes, including ongoing working capital requirements and to meet the ongoing liquidity requirements of the Group. Interest is payable at a rate calculated as BBSY plus a pre-determined margin. The revolving facility contains ﬁnancial covenants that are required to be met. As at 30 June 2013, the Group has complied with these covenants. A drawdown under the facility agreement was made on 19 April 2013 to repay the $25 million Credit Suisse AG facility. Part of the equity raised through the initial public offering of the Group, effective 24 June 2013, was used to repay the outstanding CBA facility on 26 June 2013. The Group has provided a General Security Deed over all the present and after-acquired property of all entities in the consolidated Group. Current Term loan (a) Revolving facility (b) FUNDING ACTIVITIES During the year, a number of borrowing arrangements were in place; however, overall borrowings reduced to nil as at 30 June 2013. The recent listing on the Australian Securities Exchange and the associated raising of equity has facilitated the extinguishment of all borrowings for the Group. The Group currently maintains a revolving facility with CBA, on the terms outlined in in Note 14 (b) below. a) Term loan The prior year borrowings represent a term loan with Goldman Sachs Lending Partners LLC (Facility Agent) & Goldman Sachs & Partners Australia Capital Markets Limited (Arranger) (“Goldman Sachs”). On 28 September 2012 and 5 October 2012, a total of $28.829 million was raised through the issue of 1,558,351 shares at $18.50 a share to institutional and sophisticated investors. These funds were used to repay $20.729 million of the borrowings with Goldman Sachs. On 30 October 2012, a new $25 million facility was entered into with Credit Suisse AG under normal commercial terms, with an initial repayment date of 20 December 2013. $14.271 million of these funds were used to repay the balance of the amount owing to Goldman Sachs. The facility and drawdown established with Credit Suisse AG was repaid in full on 19 April 2013, using a newly established revolving facility with CBA, the terms of which are noted below in Note 14(b). 60 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 15. CONTRIBUTED EQUITY Issued capital ISSUED CAPITAL – ORDINARY SHARES Opening balance – ordinary fully paid shares – 1 July 2011 Issue of shares Balance at 30 June 2012 Issue of shares – September and October 2012 capital raise1 Issue of shares – ESOP Transfers of exercised options Share split Issue of shares – Initial Public Offering2 Total quoted shares outstanding at 30 June 2013 Issue of shares – Long-term incentive plan3 Share split of LTIP shares Total balance at 30 June 2013 Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 171,313 49,759 Movement in shares on issue Number of Shares Share Capital $’000 14,692,314 4,116,635 18,808,949 1,558,351 133,784 – 184,509,756 54,054,054 259,064,894 888,367 7,995,303 36,582 13,177 49,759 27,716 1,035 871 – 91,932 171,313 – – 267,948,564 171,313 1 Net of transaction costs of $1,459,000 and associated tax of $(346,000). 2 Shares issued as part of Long Term Incentive Plan which are unquoted ordinary shares. Refer to Note 28 for further details. 3 Net of transaction costs of $11,525,000 associated tax of $(3,457,000). ORDINARY SHARES Ordinary shares entitle the holder to the right to receive dividends as declared and, in the event of winding up the Group, to participate in the proceeds from the sale of all surplus assets in proportion to the number and amount paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Group. SHARE SPLIT On 31 May 2013, the Company undertook a share split whereby each share converted on the basis that every one share became ten shares. 16. RESERVES Share-based payment reserve Business combination reserve 30 June 2013 $’000 30 June 2012 $’000 858 5,571 6,429 2,384 5,571 7,955 a) Share-based payment reserve This reserve records the value of shares under the iSelect Long Term Incentive Plan and historical Employee and CEO Share Option plans offered to the CEO, executives and employees as part of their remuneration. Refer to Note 28 for further details of these plans. During the year, the exercised options balance was transferred into issued capital whilst the lapsed options balance was transferred into retained earnings. b) Business combination reserve This reserve records the difference between the consideration paid and the ‘equity’ acquired from the internal group restructure performed in the 2007 ﬁnancial year. Refer to Note 2(f) for further details. iSelect Annual Report 2013 61 30 June 2013 $’000 30 June 2012 $’000 35,292 13,369 1,323 49,984 22,363 12,929 – 35,292 30 June 2013 $’000 30 June 2012 $’000 – – – – – – 17. RETAINED EARNINGS Balance at beginning of period Proﬁt for the period Transfers of lapsed options Balance at end of period 18. DIVIDENDS Dividends provided for or paid during the year Franking credit balance The Group is not in a tax payable position therefore there are no payments of tax to generate franking credits. 19. EARNINGS PER SHARE Basic earnings per share is calculated as net proﬁt attributable to members of the parent by the weighted average number of ordinary shares outstanding during the ﬁnancial year. Diluted earnings per share are calculated as above with an adjustment for the weighted number of ordinary shares that would be issued on conversion of all dilutive ordinary shares. Basic and dilutive earnings per share are calculated as follows: Proﬁt attributable to members of the parent Weighted average number of ordinary shares for basic earnings per share Effect of dilution Weighted average number of ordinary shares adjusted for effect of dilution Earnings per share: Basic for proﬁt for the year attributable to ordinary members of the parent Diluted for proﬁt for the year attributable to ordinary members of the parent 1 Shares numbers at 30 June 2012 have been restated on a 1-for-10 basis so they are comparative with 30 June 2013 share numbers, which are post the 1-for-10 share split that took place on 31 May 2013. CONSOLIDATED 30 June 2013 $’000 30 June 2012 $’000 13,369 12,929 Shares (m) Shares (m)1 201,763 1,709 203,472 Cents 6.6 6.6 165,105 19,697 184,802 Cents 7.8 7.0 62 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 20. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal ﬁnancial instruments comprise receivables, payables, borrowings, bank and other loans, and cash and short-term deposits. The Group does not use derivative ﬁnancial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. It does not operate internationally and is not exposed to either securities price risk or commodity price risk. Foreign exchange risk is limited to minimal transactional currency exposure for some purchases in currencies other than the functional currency. The main risks arising from the Group’s ﬁnancial instruments are: – Market risk (including interest rate risk and foreign currency risk); – Credit risk; and – Liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate risk and assessments of market forecasts for interest rates and exchange rates. Ageing analyses and monitoring of speciﬁc credit allowances are undertaken to manage credit risk, and liquidity risk is monitored through the development of future rolling cash ﬂow forecasts and comprehensive capital management planning. The Board of Directors continues to review the Group’s risk and capital management framework and has an Audit and Risk Management Committee to aid and oversee this process. The Group’s policies in relation to ﬁnancial risks to which it has exposure are detailed below. (a) MARKET RISK Market risk is the risk that the fair value of future cash ﬂows of a ﬁnancial instrument will ﬂuctuate due to changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, trail commission receivables, deposits, available-for-sale investments and derivative ﬁnancial instruments. i) Cash ﬂow and fair value interest rate risk The Group’s main interest rate risk arises from cash and cash equivalents, trail commission receivables and borrowings. Interest on borrowings is denominated in the currency of the borrowing and that are matched by the cash ﬂows generated by the underlying operations of the Group. This provides an economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date: Financial Assets Current Cash and cash equivalents Trade and other receivables Trail commission receivable Non-Current Trade and other receivables Trail commission receivable Financial Liabilities Current Trade and other payables Borrowings Net Exposure 30 June 2013 $’000 30 June 2012 $’000 85,315 18,692 33,166 15,378 73,807 226,358 20,201 – 20,201 206,157 20,012 15,338 26,534 – 64,925 126,809 21,246 35,000 56,246 70,563 iSelect Annual Report 2013 63 At 30 June 2013, if interest rates had moved as illustrated in the table below, with all other variables being held constant, post-tax proﬁt would have been higher/(lower) as follows: TOTAL Consolidated +1% (100 basis points) -1% (100 basis points) CASH AT BANK Consolidated +1% (100 basis points) -1% (100 basis points) 30 June 2013 $’000 30 June 2012 $’000 597 (597) 597 (597) 140 (140) 140 (140) JUDGMENTS OF REASONABLY POSSIBLE MOVEMENTS The movements in proﬁt are due to higher/lower interest income from cash balance. ii) Foreign currency risk The Group has minimal transactional currency exposure. Such exposure arises from purchases by an operating entity in currencies other than the functional currency. No hedging instruments have been or are in place. b) CREDIT RISK Credit risk is managed on a Group basis. Credit risk arises from cash and cash management equivalents, trade and other receivables and trail commission receivable in future periods. The Group’s maximum exposure to credit risk at reporting date in relation to each class of ﬁnancial asset is the carrying amount of those assets as indicated in the balance sheet. Exposure to credit risk The carrying amount of the ﬁnancial assets represents the maximum credit exposure. The maximum credit risk at the reporting date was as follows: Cash and cash equivalents Trade and other receivables NIA receivable Trail commission receivable 30 June 2013 $’000 30 June 2012 $’000 85,315 34,070 15,378 106,973 241,736 20,012 15,338 – 91,459 126,809 Credit risk related to trade receivables and future trail commission The Group has exposure to credit risk associated with the health, life and general funds and mortgage providers, with regard to the calculation of the trail commissions (as discussed in Note 2(e) and outstanding receivables). Estimates of the likely credit risk associated with the health, life and general funds and mortgage providers are incorporated in the discount rates (one of the assumptions used in the fair value and amortised cost calculation). Any risk in relation to other revenue has been reﬂected in allowance for credit losses. The Group’s exposure to credit risk is inﬂuenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an inﬂuence on credit risk, particularly in the current deteriorating economic circumstances. It is the Group’s policy that all key partners who wish to trade on credit terms are subject to credit veriﬁcation procedures. Receivable balances are monitored on an ongoing basis. Note 7 provides an ageing of receivables past due. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a speciﬁc loss component that relates to individually signiﬁcant exposures. The Group otherwise does not require collateral in respect of trade and other receivables. Credit risk related to cash and cash equivalents Investments of surplus funds are made only with approved counterparties and for approved amounts, to minimise the concentration of risks and mitigate ﬁnancial loss through potential counterparty failure. 64 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 c) LIQUIDITY RISK The Group aims to maintain the level of its cash and cash equivalents at an amount to meet its ﬁnancial obligations. The Group also monitors the level of expected cash inﬂows on trade and other receivables together with expected cash outﬂows on trade and other payables through rolling forecasts. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted. Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry. In order to avoid excessive concentrations of risk, the Group’s internal policies and procedures include speciﬁc guidelines to focus on maintaining a diversiﬁed portfolio. Identiﬁed concentrations of credit risks are controlled and managed accordingly. The following are the contractual maturities of ﬁnancial liabilities, including estimated interest payments and excluding the impact of netting agreements: Carrying Amount $’000 Contractual Cash Flows $’000 <3 months $’000 3-12 months $’000 2-5 years $’000 >5 years $’000 As at 30 June 2013 Non-derivative ﬁnancial liabilities Borrowings Trade payables Total As at 30 June 2012 Non-derivative ﬁnancial liabilities Borrowings Trade payables Total – 20,201 20,201 35,000 21,246 56,246 – 20,201 20,201 35,704 21,246 56,950 – 20,201 20,201 35,704 21,246 56,950 – – – – – – – – – – – – – – – – – – The gross inﬂows/(outﬂows) disclosed in the previous table represent the contractual undiscounted cash ﬂows relating to derivative ﬁnancial liabilities held for risk management purposes and which are usually not closed out prior to contractual maturity. As disclosed in Note 14, the Group has a debt facility, which contains a debt covenant. A breach of this covenant may require the Group to repay the loan; however, as at 30 June 2013, iSelect has not drawn down on this facility. As at 30 June 2012 and during the year ended 30 June 2013, the Group held a borrowing facility with Goldman Sachs. On 28 September 2012 and 5 October 2012, a total of $28.829 million was raised through the issue of 1,558,351 shares at $18.50 a share to institutional and sophisticated investors. These funds were used to repay $27.535 million of the current borrowings. The remaining $7.465 million of current borrowings were rolled into a new $25 million facility under normal commercial terms and a repayment date of 31 December 2014 with Credit Suisse AG and the old facility with Goldman Sachs extinguished. In April 2013, facilities totalling $40 million were entered into with the CBA. An initial drawdown of $25 million was used to repay in full the Credit Suisse AG borrowings. $100 million was raised through the initial public offering. Costs associated with the initial public offering were $13 million (including both capitalised amounts (before tax effect) and expensed amounts). Part of the funds raised were used to repay the CBA in full. iSelect Annual Report 2013 65 d) FAIR VALUES The fair values of ﬁnancial assets and liabilities, together with the carrying amounts shown in the statement of ﬁnancial position are as follows. Financial Assets Cash and cash equivalents Trade and other receivables Trail commission receivable Financial Liabilities Trade and other payables Borrowings $’000 CARRYING AMOUNT FAIR VALUE Note 2013 2012 2013 2012 6 7 8 12 14 85,315 34,070 106,973 226,358 20,201 – 20,201 20,012 15,338 91,459 126,809 21,246 35,000 56,246 85,315 34,070 105,382 224,767 20,201 – 20,201 20,012 15,338 91,459 126,809 21,246 35,000 56,246 The methods and assumptions used to estimate the fair value of ﬁnancial instruments are as follows: Cash The carrying amount is fair value due to the liquid nature of these assets. Receivables/payables Due to the short-term nature of these ﬁnancial rights and obligations, their carrying amounts are estimated to represent their fair values. Other ﬁnancial assets/liabilities The fair value of other ﬁnancial assets and liabilities have been calculated by discounting the expected future cash ﬂows at prevailing interest rates using market observable inputs. Interest-bearing liabilities Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held or based on discounting expected future cash ﬂows at market rates. e) CAPITAL MANAGEMENT The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market conﬁdence and to sustain operations and future development of the business. Capital consists of ordinary shares and retained earnings. The Board of Directors monitors the return on capital and seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. 21. COMMITMENTS & CONTINGENCIES Commitments Non-cancellable operating lease commitments Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 2,334 9,310 7,768 19,412 2,181 9,252 10,161 21,594 During the 2012 ﬁnancial year the Group entered into a commercial lease for the current premises which had an initial term of ten years with the option to renew at the end of the contract period. During the 2011 ﬁnancial year the Group also entered into several hire purchase motor vehicles leases with a term of three years. There are no restrictions placed on the lessee by entering into these leases. 66 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 Contingencies Guarantees Trading guarantees Consolidated 30 June 2013 $’000 Consolidated 30 June 2012 $’000 2,193 2,130 The Group has issued a number of bank guarantees and letters of credit for various operational purposes. It is not expected that these guarantees will be called upon. All trading guarantees are issued in the name of iSelect Limited. Other On 24 October 2011, iSelect Life Pty Ltd reported to the Australian Securities & Investment Commission a breach in relation to its Australian Financial Services Licence relating to life insurance policies sold between April 2009 and March 2011. As a result of this breach, an internal review of all life insurance policies sold during that period is being undertaken. The review and remediation work commenced in October 2011 and will continue until completion, which is expected to be by December 2013. As at 30 June 2013, over 72% of policies subject to review and remediation had been completed. The amount, if any, of any liability associated with those policies yet to be reviewed cannot be reliably determined at this time, and accordingly no amounts have been recorded in the ﬁnancial statements for the year ended 30 June 2013. Potential liabilities for the Group, should any obligation be identiﬁed, are expected to be covered by insurance maintained by the Group. In March 2012, Bupa Australia Pty Ltd issued legal proceedings against iSelect in the Federal Court. In October 2012, Bupa Australia joined Directors Damien Waller and Matt McCann to the proceedings. iSelect brought its own claim against Bupa Australia Pty Ltd and its Managing Director for misleading and deceptive conduct. This matter was settled in March 2013 by way of consent orders as follows: – all proceedings commenced by the parties were dismissed; – iSelect provided certain undertakings to the Federal Court and to Bupa regarding representations around waiting periods that cannot be made; – parties bear their own costs of the proceedings; – iSelect paid the sum of $125,000 to a registered charity nominated by Bupa Australia within 30 days of Bupa Australia providing notiﬁcation of the charity. 22. EVENTS AFTER BALANCE SHEET DATE On 24 June 2013, iSelect listed on the Australian Securities Exchange. The Group has adopted a cash management strategy speciﬁcally for funds raised to ensure the best return are obtained whilst strategies for the use of the funds are formulated and implemented. Post-year end, $60 million in rolling term-deposits were set up. No other matters or circumstances have arisen since the end of the ﬁnancial year that have signiﬁcantly affected or may signiﬁcantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future ﬁnancial years. iSelect Annual Report 2013 67 23. PARENT ENTITY INFORMATION The accounting policies of the parent entity, iSelect Limited, which have been applied in determining the ﬁnancial information shown below, are the same as those applied in the consolidated ﬁnancial statements. Refer to Note 2 for a summary of accounting policies relating to the Group. Financial Position Assets Current Assets Non-Current Assets Total Assets Liabilities Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Equity Issued Capital Reserves Retained Earnings Total Equity Financial Performance Proﬁt of the parent entity Total comprehensive income of the parent entity Period to 30 June 2013 $’000 30 June 2012 $’000 74,428 133,218 207,646 349 34,302 34,651 172,995 171,313 858 824 172,995 14,706 82,218 96,924 36,380 7,533 43,913 53,011 49,759 2,384 868 53,011 (1,367) (1,367) (1,312) (1,312) There are no contractual or contingent liabilities of the parent as at reporting date (2012: $nil). iSelect Limited has issued bank guarantees and letters of credit to third parties for various operational purposes. It is not expected these guarantees will be called on. The amount of trading guarantees in place at reporting date is disclosed in Note 21. 68 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 24. SUBSIDIARIES The consolidated ﬁnancial statements include the ﬁnancial statements of iSelect Limited as the ultimate parent, and the subsidiaries listed in the following table: NAME OF SUBSIDIARY iSelect Health Pty Ltd^ iSelect Life Pty Ltd iSelect General Pty Ltd iSelect Media Pty Ltd^ iSelect Mortgages Pty Ltd^ Mobileselect Pty Ltd^ InfoChoice Pty Ltd iSelect Services Pty Ltd^ Tyrian Pty Ltd^ COUNTRY OF INCORPORATION FUNCTIONAL CURRENCY EQUITY INTEREST 30 June 2013 30 June 2012 Australia Australia Australia Australia Australia Australia Australia Australia Australia AUD AUD AUD AUD AUD AUD AUD AUD AUD 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% ^ A Deed of Cross Guarantee has been entered into by iSelect Limited and these entities. Refer to Note 25 for further details 25. DEED OF CROSS GUARANTEE Pursuant to the iSelect Deed of Cross Guarantee (“the Deed”) and in accordance with ASIC Class Order 98/1418, the subsidiaries identiﬁed with a ‘^’ in Note 24 are relieved from the requirements of the Corporations Act 2001 relating to the preparation, audit and lodgement of their ﬁnancial reports. iSelect Limited and the subsidiaries identiﬁed with a ‘^’ in Note 24, together referred to as the “Closed Group”, entered into the Deed on 26 June 2013. The effect of the Deed is that iSelect Limited guarantees to each creditor payment in full of any debt in the event of winding up any of the entities in the Closed Group. The consolidated income statement of the entities that are members of the Closed Group is as follows: Consolidated income statement Proﬁt from continuing operations before income tax Income tax expense Net proﬁt for the year Retained earnings at the beginning of the period Net proﬁt for the year Retained earnings at the end of the year + The iSelect Deed of Cross Guarantee became effective during the year ended 30 June 2013, and accordingly no comparatives are provided. Period to 30 June 2013 Deed $’000 30 June 2012 Deed+ $’000 787 (236) 551 59,493 551 60,044 – – – – – – iSelect Annual Report 2013 69 The consolidated income balance sheet of the entities that are members of the Closed Group is as follows: 30 June 2013 Deed $’000 30 June 2012 Deed+ $’000 Consolidated balance sheet Assets Current assets Cash and cash equivalents Trade and other receivables Net present value of future trail commission Other assets Total current assets Non-current assets Trade and other receivables Other assets Investments Net present value of future trail commission Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Borrowings Total liabilities Non-current liabilities Trade and other payables Provisions Net deferred tax liabilities Total non-current liabilities Total liabilities Net Assets Equity Issued Capital Reserves Retained Earnings Total Equity + The iSelect Deed of Cross Guarantee became effective during the year ended 30 June 2013, and accordingly no comparatives are provided. 80,305 15,303 30,482 1,443 127,533 32,814 765 48,418 63,570 6,816 5,809 158,192 285,725 18,034 3,305 – 21,339 14,742 2,554 14,875 32,171 53,510 232,215 171,313 858 60,044 232,215 – – – – – – – – – – – – – – – – – – – – – – – 70 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 26. RELATED PARTY TRANSACTIONS The following table provides the total amount of transactions that were entered into with related parties for the relevant ﬁnancial year. 30 June 2013 Shareholder related entities – Advertising services 30 June 2012 Shareholder related entities – Advertising services Director related entities – Consultancy fees Sales to Related Parties $ Purchases from Related Parties $ Other Transactions with Related Parties $ Balances at Reporting Date $ – – – 304,412 57,362 28,779 – – – 304,412 57,362 28,779 The related party transactions undertaken during ﬁnancial year related to advertising services provided by ninemsn. As at 30 June 2013, ninemsn is no longer a related party. In the prior year, Director, related entities fees paid relate to advisory services rendered by Martin Dalgliesh in his capacity as a director. The fees paid we completed on an arm’s length basis at normal market prices and on normal commercial terms. Martin Dalgliesh ceased as a Director on 16 March 2012. 27. REMUNERATION OF AUDITORS (a) Ernst & Young Audit and review of ﬁnancial statements Other assurance services (cid:242) Regulatory compliance (cid:242) Tax compliance (cid:242) Assurance-related services (cid:242) Due diligence (cid:242) Equity raising (cid:242) Finance raising Total remuneration of Ernst & Young 30 June 2013 $ 30 June 2012 $ 194,000 194,000 36,000 10,000 46,015 – 1,016,815 105,000 1,407,830 36,000 44,700 13,500 65,000 – 79,000 432,200 28. SHARED-BASED PAYMENTS The recognised expense arising from equity settled share-based payment plans during the period is shown in Note 4. During the year ended 30 June 2013, the Company had the following share-based payment plans in place (described below): – 2013 Long-Term Incentive Plan (LTIP); and – Employee Share Option Plan (ESOP) consisting of the 2011 Option Plan and the 2010 Option Plan. There have been no cancellations or modiﬁcations to any of the plans during the period. iSelect Annual Report 2013 71 (a) DESCRIPTION OF SHARE-BASED PAYMENT PLANS 2013 Long-Term Incentive Plan (LTIP) The 2013 LTIP has been established as the long-term incentive component of remuneration in order to assist in the attraction, reward and retention of certain employees. The LTI Plan is designed to link long-term reward with the ongoing creation of shareholder value, through the allocation of LTIP Shares which are subject to satisfaction of long-term performance conditions. The key terms of the LTI Plan are as follows: – – – – – – Participants are provided with a limited recourse loan from iSelect for the sole purpose of subscribing for LTIP Shares in the Company. Participants are not charged interest on the loan; The LTIP Shares are issued to each participant upfront, with the number of LTIP Shares determined by dividing the ‘loan amount’ by the market value of the LTIP Shares at the time of allocation; The LTIP Shares will only vest upon satisfaction of conditions set by the Board at the time of the offer; If the conditions are met and LTIP Shares vest, the loan becomes repayable and participants have up to ﬁve years from the date of allocation of the LTIP Shares to repay the outstanding balance. The LTIP Shares cannot be dealt with (other than to repay the loan) until the loan in respect of the vested LTIP Shares is repaid in full; Until the LTIP Shares vest, the participant is not entitled to exercise any voting rights attached to the LTIP Shares. Any dividends paid on the LTIP Shares while the loan remains outstanding are applied (on a notional after-tax basis) towards repayment of the loan; and In general, if the conditions are not satisﬁed by the relevant testing date for those conditions, or if the participant ceases employment before the LTIP Shares vest, the participant forfeits all interest in the LTIP Shares in full satisfaction of the loan. 2013 offer under LTI Plan The performance condition for the 2013 offer is a compound annual growth rate (CAGR) in total shareholder return (TSR). TSR measures the total change in the value of the Shares over a period, plus the value of any dividends and other distributions being treated as if they were reinvested in Shares. In relation to the 2013 offer, vesting starts where CAGR over the period is 12%. At this level, 50% of the LTIP Shares will vest. All LTIP Shares will vest if CAGR over the period is 15% or more. Between these points, the percentage of vesting increases on a straight line basis. In respect of the ﬁrst offer made under the LTI Plan, in order to provide for direct LTIP Share ownership by participants and alignment with shareholder interests as soon as possible following establishment of the Plan, LTIP Shares may vest in three tranches if the relevant condition is met in respect of that period. The ﬁrst testing date (in respect of 20% of LTIP Shares under the 2013 offer) was 30 June 2013. The performance condition for this test was not met, and the ﬁrst tranche did not vest. The remaining LTIP Shares may vest in two equal tranches (tested as at 30 June 2014 and 30 June 2015) if the performance condition is met. It is the Board’s current intention that the performance condition will be tested over the full performance period in respect of any future offers under the LTI Plan. If the performance condition is not satisﬁed, any LTIP Shares which remain unvested following testing of Tranche 1 and/or Tranche 2 (as applicable) will be aggregated and tested on a cumulative basis at subsequent testing dates (i.e. subject to the TSR CAGR being met over the period through to ﬁnancial years ending FY14 or FY15 (as applicable)). Any LTIP Shares which remain unvested following testing of Tranche 3 will be forfeited and surrendered in full satisfaction of the loan, in which case participants will have no further interest in the LTIP Shares. In this event, the iSelect Board believes that the loss of any remuneration value from the LTI Plan is sufﬁcient penalty to the participants. Cessation of employment Except where the Board determines otherwise in a speciﬁc instance, where a participant ceases employment with iSelect prior to any conditions attaching to LTIP Shares issued under the LTI Plan being satisﬁed, their LTIP Shares will be forfeited and surrendered (in full satisfaction of the loan) and the participant will have no further interest in the LTIP Shares. However the Board has discretion to approve the reason for a participant ceasing employment before LTIP Shares have vested in appropriate circumstances. Such circumstances may include ill health, death, redundancy or other circumstances approved by the Board. Where the Board has approved the reason for ceasing employment, it has discretion to determine any treatment in respect of the unvested LTIP Shares it considers appropriate in the circumstances – for example, that a pro-rata number of LTIP Shares are eligible to vest, having regard to time worked during the performance period and the extent the performance condition has been satisﬁed at the time of cessation. In relation to vested LTIP Shares that remain subject to the loan, the participant will have 12 months from the date of the cessation of their employment to repay the loan. Once the loan is repaid, the participant may deal in the LTIP Shares. For the purposes of Sections 200B and 200E of the Corporations Act, iSelect Shareholders have approved the giving of any potential beneﬁts under the LTI Plan provided in connection with any future retirement of a participant who holds a ‘managerial or executive ofﬁce’ such that for the purposes of the provisions, those beneﬁts will not be included in the statutory limit. Change in control Unless the Board determines otherwise, all LTIP Shares will vest upon a ‘change of control’ (this excludes the IPO undertaken on 24 June 2013), and participants’ loans will become repayable (including in respect of any outstanding loan where LTIP Shares had already vested prior to the ‘change of control’). If the Share price has fallen, LTIP Shares will be forfeited and surrendered in full satisfaction of the loan. 72 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 CEO Performance Plan (Ceased in 2012 ﬁnancial year) The CEO Performance Plan (CEO Plan) was a contract between the Group and the then Chief Executive Ofﬁcer (CEO), Damien Waller, for the grant of share options in iSelect Limited. The share options under the CEO Plan were granted on 20 December 2005 by iSelect Health Pty Ltd and novated to iSelect Limited on 27 April 2007. The CEO Plan was designed to align the CEO’s interests with those of shareholders by increasing the value of the Group. If all vesting conditions were met and the Group’s valuation was equal to or exceeded $265 million then all options could be exercised. The share options had an exercise price of $2.22 and fully vested to 30 June 2008. During the 2012 ﬁnancial year all CEO performance plan options were exercised and the plan ceased. Ninemsn Pty Ltd Agreement (Ceased in 2012 ﬁnancial year) The Ninemsn Pty Ltd Agreement was an agreement with ninemsn Pty Ltd relating to the purchase of shares in the Group on 31 March 2006 granted ninemsn Pty Ltd share options in the Group. The exercise price of the options was $4.25. The number of exercisable options was calculated, so that ninemsn Pty Ltd had the same equity interest in the Group. During the 2012 ﬁnancial year all ninemsn Pty Ltd options were exercised and the plan ceased. Employee Share Option Plan (ESOP) 2011 Option Plan Under the iSelect ESOP, share options may be granted to Company Directors, Company Secretary, Senior Executives and employees. The ESOP is designed to align participant’s interests with those of shareholders, by increasing the value of the Group’s shares. Under the ESOP, the exercise price of the options is set at or above the market price of the shares on the date of grant. The typical vesting period for options granted under the 2011 Option Plan is the equivalent of two and a half years. The term of the options is typically three years. For all participants, in the event of a change in control or departure from iSelect, after the required service period, the issued options will be pro-rated to determine the applicable qualifying options based on the service term. In addition, all shares have an attached Group performance condition hurdle that needs to be achieved in order for options to be exercisable. Speciﬁc conditions exist in relation to a takeover where more than 90% of the share capital is acquired by another entity. When a participant ceases employment prior to the service period of their share options, the non-vested share options are pro-rated based on the proportion of the service period completed. The vested options will also be forfeited in circumstances where the participant has breached their contract of employment. All ESOP options are forfeited on the insolvency of iSelect Limited. There are no cash settlement alternatives. 2010 Option Plan Under the iSelect ESOP, share options are granted to Company Directors, Company Secretary, senior executives and employees. The ESOP is designed to align participant interest with those of shareholders by increasing the value of the Group’s shares. Under the ESOP, the exercise price of the options is set at or above the market price of the shares on the date of grant. For all participants, excluding Company Directors, and Secretary, 50% of deemed options granted will vest over the prescribed vesting period subject to CEO performance assessment. The typical vesting period for options granted under the 2010 Option Plan varies from three to four years. The term of the options is typically ﬁve years. For all participants, excluding Company Directors and secretary, vested options can be exercised on an Initial Public Offering (IPO) event or trade sale event or within six months prior to their expiry or at the discretion of the board. For all participants, 75% of any unvested options immediately vest on an IPO or trade sale event. When a participant ceases employment prior to the vesting of their share options, the non-vested share options are forfeited. The vested options will also be forfeited in circumstances where the participant has breached their contract of employment. All ESOP options are forfeited on the insolvency of iSelect Limited or iSelect Health Pty Ltd. There are no cash settlement alternatives. iSelect Annual Report 2013 73 (b) SUMMARY OF SHARES ISSUED UNDER THE 2013 LTIP The following table illustrates the number of, and movements in, shares issued under the LTIP during the year: Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Outstanding at the end of the period 2013 Number 2012 Number – 8,883,670 – – 8,883,670 – – – – – (c) SUMMARY OF OPTIONS ISSUED UNDER ESOP The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options during the year. Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period+ Outstanding at the end of the period Exercisable at the end of the year 2013 Number 24,341,350 500,000 (17,822,150) (1,800,000) 5,219,200 5,026,629 2013 WAEP 2012^ Number 1.98 2.39 2.25 1.05 1.43 1.39 67,937,310 349,750 (2,284,980) (41,660,730) 24,341,350 7,033,260 2012^ WAEP 0.98 2.37 2.24 0.34 1.98 1.50 ^ + For comparative purposes 2012 has been re-stated for the 1-for-10 share split that took place on 31 May 2013. During the 2013 ﬁnancial year, after obtaining approval from the Board of Directors and its Remuneration sub-committee, 90,000 options (pre-share split) were exercised on a cashless basis, receiving a number of shares (at fair value at the exercise date) equal in value to the premium of the fair value of the shares at exercise date over the exercise price of the option. There was no additional net beneﬁt to the option holder as a result of this transaction. Further detail is provided in section (d) of this note. The outstanding balance as at 30 June 2013 is represented by: – 1,069,450 options over ordinary shares with an exercise price of – 799,750 options over ordinary shares with an exercise price of $2.37 exercisable upon meeting the ESOP conditions; and $1.00 exercisable upon meeting the ESOP conditions; – 50,000 options over ordinary shares with an exercise price of – 1,500,000 options over ordinary shares with an exercise price of $1.25 exercisable upon meeting the ESOP conditions; – 1,800,000 options over ordinary shares with an exercise price of $0.75 to $2.00 (WAEP of $1.38), exercisable upon meeting the ESOP conditions; $2.65 exercisable upon meeting the ESOP conditions. 74 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 (d) CASHLESS CONVERSION OF OPTIONS GRANTED UNDER ESOP (cid:100)(cid:346)(cid:286)(cid:3)(cid:296)(cid:381)(cid:367)(cid:367)(cid:381)(cid:449)(cid:349)(cid:374)(cid:336)(cid:3)(cid:410)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:393)(cid:396)(cid:286)(cid:400)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:374)(cid:437)(cid:373)(cid:271)(cid:286)(cid:396)(cid:3)(cid:381)(cid:296)(cid:3)(cid:381)(cid:393)(cid:415)(cid:381)(cid:374)(cid:400)(cid:3)(cid:286)(cid:454)(cid:286)(cid:396)(cid:272)(cid:349)(cid:400)(cid:286)(cid:282)(cid:3)(cid:381)(cid:374)(cid:3)(cid:258)(cid:3)(cid:272)(cid:258)(cid:400)(cid:346)(cid:367)(cid:286)(cid:400)(cid:400)(cid:3)(cid:271)(cid:258)(cid:400)(cid:349)(cid:400)(cid:3)(cid:282)(cid:437)(cid:396)(cid:349)(cid:374)(cid:336)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:855) Exercise Date Number of options exercised on a cashless basis Exercise price ($) Fair value of shares at exercise date ($) Premium of fair value of shares over option exercise price ($ per option) Premium of fair value of shares over option exercise price ($) Number of shares 20 December 2012 900,000 0.95 1.85 0.90 810,000 437,840 (e) WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE The weighted average remaining contractual life for the share options outstanding as at 30 June 2013 is 0.97 years. (f) RANGE OF EXERCISE PRICE The range of exercise prices for options outstanding at the end of the period was $0.75 to $2.65. (g) WEIGHTED AVERAGE FAIR VALUE The weighted average fair value of options granted during the year was $0.11 (2012: $0.09). (h) ESOP OPTION PRICING MODEL The fair value of the equity settled share options granted under the ESOP is estimated as at the date of grant using a Binomial Model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the models used for the period ended 30 June 2013 (restated for the 1-for-10 share split that took place on 31 May 2013): ESOP Post-Oct 2012 ESOP Post-Feb 2012 – 30 Sept 2012 ESOP Post-1 July 2010 – Feb 2012 ESOP Pre-1 July 2010 CEO Plan* Dividend Yield (%) Years 0 to 3 Years 4 to 5 Years 6 to 7 Years 8 plus Expected Volatility (%) Expected Life of Options (Years) Option Exercise Price (WAEP) ($) Weighted average share price at measurement date ($) * Inclusive of the ninemsn Pty Ltd agreement – – – – 21.50 2.50 2.65 1.85 – – – – 23.50 2.80 2.37 1.65 – – – – 42.00 3.00 2.25 1.55 – 1.00 1.50 2.00 40.00 4.98 0.63 0.38 – 1.00 1.50 2.00 40.00 5.97 0.27 0.24 The expected volatility was determined by considering volatility for similar sized and industry listed companies. The expected volatility therefore reﬂects the assumption that the comparison volatility is indicative of future trends, which may also not necessarily be the actual outcome. 29. KEY MANAGEMENT PERSONNEL DISCLOSURES For a list of key management personnel and additional disclosures, refer to the Remuneration Report. i) COMPENSATION OF KEY MANAGEMENT PERSONNEL Short-term employee beneﬁts Post-employment beneﬁts Long-term employee beneﬁts Termination beneﬁts iSelect Annual Report 2013 75 30 June 2013 $ 30 June 2012 $ 3,800,767 3,202,058 244,785 455,875 240,861 215,424 270,168 166,412 4,742,288 3,854,062 Detailed remuneration disclosures are provided in the Remuneration Report on pages 20 to 28. ii) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL The number of shares in the company held during the ﬁnancial year (directly and indirectly) by each non-executive director of iSelect Limited and other key management personnel of the Group, including their personally related parties, are set out below. Balance at the start of the year1 Granted as remuneration On exercise of option Other changes3 Balance at the end of the year 30 June 2013 Non-executive directors Ordinary shares Shaun Bonètt Greg Camm Pat O’Sullivan Leslie Webb Michael McLeod* Other key management personnel Ordinary shares Damien Waller Matt McCann David Chalmers^ Chris Billing Roger McBride# Elise Morris@ Jo Thomas~ Scott Wilson& Trevor Jeffords~~ Chris Brant^^ David May## 300,000 – – 2,400,000 149,350 34,471,550 70,350 – 20,000 – – – – – – – – – – – – 1,351,350 1,891,890 702,700 621,620 540,540 540,540 621,620 540,540 81,080 – – – – – – – – – 60,000 – (350,000) (149,350) 300,0004 60,0004 – 2,050,0005,6 – (3,093,890) 32,729,0107 437,8402 (272,960) 2,127,1208 – – – – – – – – – – – – – – 5,406 – – – 702,700 641,620 540,540 540,540 621,620 545,946 81,080 – – 37,411,250 6,891,880 437,840 (3,800,794) 40,940,176 1 Shareholdings, including the opening balance, have been re-stated where appropriate to reﬂect the 1-for-10 share split on 31 May 2013. 2 Converted on a cashless basis (refer Note 28 for further detail). 3 Other changes consist of share purchases, transfers and sales by non-executive directors and key management personnel. 4 Escrowed until the date on which the half year accounts for the period ending 5 6 31 December 2013 are released to the ASX. 850,000 shares owned by ITV Consulting (controlled by Leslie Webb) escrowed until the date on which the full year accounts for the year ended 30 June 2013 to the ASX. 1,200,000 shares escrowed until the date on which the half-year accounts for the period ending 31 December 2013 are released to the ASX. The number of shares for Leslie Webb excludes 3,750,000 which are held by a superannuation fund of which Leslie Webb is a member, and in which he has an indirect interest. These shares are not subject to any escrow arrangements. 7 8 31,377,660 shares escrowed until the date on which the half-year accounts for the period ending 31 December 2013 are released to the ASX. 1,351,350 LTIP shares subject to restrictions disclosed in Note 28. 235,230 shares escrowed until the date on which the half-year accounts for the period ending 31 December 2013 are released to the ASX. 1,891,890 LTIP shares subject to restrictions disclosed in Note 28. * Ceased 30 November 2012 ^ Appointed 23 August 2012 # Appointed 20 August 2012 @ Appointed 2 February 2012 ~ Appointed 3 May 2012 & Appointed 4 February 2013 ~~ Ceased 5 April 2013 ^^ Ceased 23 August 2012 ## Ceased 31 July 2012 76 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 29. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) ii) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL (CONTINUED) Shareholdings in the table below have not been restated for the 1-for-10 share split that took place during the 2013 ﬁnancial year. Balance at the start of the year Granted as remuneration On exercise of option Other changes Balance at the end of the year 30,000 – 240,0001 14,935 – 30,000 – 30,000 – – – – – – – 2,572,074 (285,714) 3,447,155 – – – – – – – – – 93,750 – – 2,000 7,035 2,000 – – – – – – – – – – – – – – – 32,258 100,785 – 2,725,824 (283,714) 4,249,168 30 June 2012 Non-executive directors Ordinary shares Shaun Bonètt Pat O’Sullivan Leslie Webb Michael McLeod* Martin Dalgliesh** Other key management personnel Ordinary shares Damien Waller Matt McCann Chris Billing Elise Morris@ Jo Thomas~ Roger McBride# Trevor Jeffords~~ Chris Brant^^ David May## Mark Blackburn% Gerald Brown%% Alla Keogh%%% – – 210,000 14,935 – 1,160,795 7,035 – – – – – – – 32,258 7,035 – 1,807,058 – – – – – – – – – – – – – – – – – – 1 The number of shares for Leslie Webb excludes 375,000 (before share split) held by a superannuation fund of which Leslie Webb is a member, and in which he has an indirect interest. Ceased 30 November 2012 * Ceased 16 March 2012 ** Appointed 20 August 2012 # Appointed 2 February 2012 @ Appointed 3 May 2012 ~ Ceased 5 April 2013 ~~ Ceased 23 August 2012 ^^ Ceased 31 July 2012 ## Ceased 4 October 2011 % %% Ceased 14 May 2012 %%% Ceased 19 September 2011 iSelect Annual Report 2013 77 iii) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL The number of share options in the company held during the ﬁnancial year (directly and indirectly) by each non-executive director of iSelect Limited and other key management personnel of the Group, including their personally related parties, are set out below. Balance at start of year Granted as remuneration1 Options exercised Options lapsed Balance at end of year Total vested Exercisable Not exerciseable 30 June 2013 Non-executive directors Ordinary shares Shaun Bonètt Greg Camm Pat O’Sullivan Leslie Webb Michael McLeod* Other KMP Ordinary shares Damien Waller Matt McCann David Chalmers^ Chris Billing Roger McBride# Elise Morris@ Jo Thomas~ Scott Wilson& Trevor Jeffords~~ Chris Brant^^ David May## – – – – – – – – 450,000 – – – – – – – – – – – – – – – – – – – – 450,000 450,000 450,000 – – – – – – – – – – – – – (4,500,000) (900,000) (1,500,000) – – – – – – – – – – (1,000,000) 200,000 200,000 200,000 – – 600,000 600,000 600,000 – – – (500,000) 200,000 200,000 200,000 – (500,000) – (600,000) – – – – – – – – – – – – 4,500,000 2,400,000 – 1,200,000 600,000 – 700,000 – 500,000 – 600,000 10,500,000 450,000 (900,000) (9,600,000) 1,450,000 1,450,000 1,450,000 1 Option holdings, including opening balance, have been re-stated where appropriate to reﬂect the 1-for-10 share split on 31 May 2013. * Ceased 30 November 2012 ^ Appointed 23 August 2012 # Appointed 20 August 2012 @ Appointed 2 February 2012 ~ Appointed 3 May 2012 & Appointed 4 February 2013 ^^ Ceased 23 August 2012 ## Ceased 31 July 2012 ~~ Ceased 5 April 2013 – – – – – – – – – – – – – – – – – 78 Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2013 29. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) iv) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL (CONTINUED) Option holdings in the table below have not been restated for the 1-for-10 share split that took place during the 2013 ﬁnancial year. Balance at start of year Granted as remuneration Options exercised Options lapsed Balance at end of year Total vested Exercisable Not exerciseable 30 June 2012 Non-executive directors Ordinary shares Shaun Bonètt Pat O’Sullivan Leslie Webb Michael McLeod* 30,000 – 30,000 – – – – – Martin Dalgliesh** 180,000 34,975 (30,000) – (30,000) – – (2,572,074) – – – – – – – – – – – – – – – – – – – – – – (40,000) (60,000) – – – – – – – – – – – – – – – – 214,975 183,284 180,000 3,284 450,000 240,000 120,000 – 70,000 60,000 50,000 – 60,000 40,000 359,083 209,934 97,016 – 57,037 60,000 39,978 – 60,000 40,000 – 90,000 – – – – – – – – – – 359,803 119,934 97,016 – 57,037 60,000 39,978 – 60,000 40,000 125,000 46,667 3,022,074 240,000 120,000 – 70,000 60,000 50,000 – 100,000 100,000 243,750 100,000 – – – – – – – – – – – – (93,750) (25,000) 125,000 125,000 – (53,333) 46,667 46,667 4,345,824 34,975 (2,725,874) (178,333) 1,476,642 1,278,719 270,000 1,008,719 Other KMP Ordinary shares Damien Waller Matt McCann Chris Billing Elise Morris@ Jo Thomas~ Roger McBride# Trevor Jeffords~~ Chris Brant^^ David May## Mark Blackburn% Gerald Brown%% Alla Keogh%%% Ceased 30 November 2012 Ceased 16 March 2012 Appointed 20 August 2012 Appointed 2 February 2012 Appointed 3 May 2012 Ceased 5 April 2013 Ceased 23 August 2012 Ceased 31 July 2012 Ceased 4 October 2011 * ** # @ ~ ~~ ^^ ## % %% Ceased 14 May 2012 %%% Ceased 19 September 2011 iSelect Annual Report 2013 79 Directors’ Declaration In accordance with a resolution of the Directors of iSelect Limited we state that: 1. In the opinion of the directors: a. the consolidated ﬁnancial statements and notes that are set out on pages 35 to 78 and the Directors’ Report, are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s ﬁnancial position as at 30 June 2013 and of its performance, for the ﬁnancial year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and iii. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. There are reasonable grounds to believe that the Company and the Group entities identiﬁed in Note 24 will be able to meet any obligations or liabilities; The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer for the ﬁnancial year ended 30 June 2013; The directors draw attention to Note 2 to the consolidated ﬁnancial statements, which includes a statement of compliance with International Financial Reporting Standards. As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identiﬁed in Note 24 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. 2. 3. 4. 5. On behalf of the Directors Damien Waller Director Melbourne 29 August 2013 Matt McCann Director Melbourne 29 August 2013 80 Independent Auditor’s Report Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au (cid:4)(cid:17)(cid:10)(cid:11)(cid:19)(cid:11)(cid:17)(cid:10)(cid:11)(cid:17)(cid:22)(cid:2)(cid:7)(cid:23)(cid:10)(cid:14)(cid:22)(cid:18)(cid:20)(cid:3)(cid:21)(cid:2)(cid:20)(cid:11)(cid:19)(cid:18)(cid:20)(cid:22)(cid:2)(cid:22)(cid:18)(cid:2)(cid:22)(cid:13)(cid:11)(cid:2)(cid:16)(cid:11)(cid:16)(cid:8)(cid:11)(cid:20)(cid:21)(cid:2)(cid:18)(cid:12)(cid:2)(cid:14)(cid:6)(cid:11)(cid:15)(cid:11)(cid:9)(cid:22)(cid:2)(cid:5)(cid:14)(cid:16)(cid:14)(cid:22)(cid:11)(cid:10) (cid:3)(cid:6)(cid:14)(cid:13)(cid:15)(cid:16)(cid:2)(cid:13)(cid:12)(cid:2)(cid:16)(cid:8)(cid:6)(cid:2)(cid:7)(cid:9)(cid:12)(cid:4)(cid:12)(cid:5)(cid:9)(cid:4)(cid:10)(cid:2)(cid:15)(cid:6)(cid:14)(cid:13)(cid:15)(cid:16)(cid:2) We have audited the accompanying financial report of iSelect Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company iSelect Limited and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of iSelect Limited 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 controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2(b), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. iSelect Annual Report 2013 81 Opinion In our opinion: a. the financial report of iSelect Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity's financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(b). (cid:3)(cid:6)(cid:14)(cid:13)(cid:15)(cid:16)(cid:2)(cid:13)(cid:12)(cid:2)(cid:16)(cid:8)(cid:6)(cid:2)(cid:15)(cid:6)(cid:11)(cid:17)(cid:12)(cid:6)(cid:15)(cid:4)(cid:16)(cid:9)(cid:13)(cid:12)(cid:2)(cid:15)(cid:6)(cid:14)(cid:13)(cid:15)(cid:16)(cid:2) We have audited the Remuneration Report included in pages 10 to 17 of the directors' report for the year ended 30 June 2013. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of iSelect Limited for the year 30 June 2013, complies with section 300A of the Corporations Act 2001. Ernst & Young Ashley Butler Partner Melbourne, Australia 29 August 2013 82 ASX Additional Information Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as of 22 August 2013. (a) DISTRIBUTION OF SHAREHOLDINGS Size of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Fully paid ordinary shares Number of shares^ 27,364 538,128 1,170,548 8,552,333 249,676,521 ^ The total number of shares on issue as at 30 June was 259,064,894. On 21 August 2013, 900,000 options were exercised and as a result the total number of shares on issue as at 22 August 2013 per the above table is 259,964,894. (b) MARKETABLE PARCEL The number of holders holding parcels of less than $500 was 17 as at 22 August 2013. (c) SHARES SUBJECT TO VOLUNTARY ESCROW As at 22 August 2013, there are shares subject to voluntary escrow, which are detailed in Note 29 (ii) to the ﬁnancial statements. (d) TWENTY LARGEST SHAREHOLDERS The twenty largest shareholders of fully paid ordinary shares as at 22 August 2013 were: Name HSBC Custody Nominees (Australia) Limited National Nominees Limited J P Morgan Nominees Australia Limited Damien Michael Trevor Waller Spectrum VI IS LLC Aurielle Pty Ltd (iSelect Class A/C) Citicorp Nominees Pty Limited BNP Paribas Noms Pty Ltd (DRP) CS Fourth Nominees Pty Ltd George Tauber Management Pty Ltd RBC Investor Services Australia Nominees Pty Limited AMP Life Limited Lambrook Pty Ltd (Raymonde Superfund A/C) RBC Investor Services Australia Nominees Pty Limited (GSAM A/C) Signiﬁcant Other Pty Ltd (The iSelect Class No 2 A/C) Starﬁsh Technology Fund II Nominees A Pty Ltd (Trust A A/C) Starﬁsh Technology Fund II Nominees B Pty Ltd (Trust B A/C) Argo Investments Limited HSBC Custody Nominees (Australia) Limited – A/C 3 Finico Pty Ltd Number of ordinary shares held % of issued capital 40,561,714 36,191,305 25,695,250 23,355,780 13,263,454 8,021,880 6,084,093 6,060,869 5,005,725 4,715,100 4,578,251 4,118,419 3,450,000 3,275,372 3,160,330 3,041,470 3,041,470 3,000,000 2,625,632 2,580,650 15.60 13.92 9.88 8.98 5.10 3.09 2.34 2.33 1.93 1.81 1.76 1.58 1.33 1.26 1.22 1.17 1.17 1.15 1.01 0.99 The percentage holding of the 20 largest shareholders of iSelect Ltd fully-paid ordinary shares was 77.64%. iSelect Annual Report 2013 83 (e) SUBSTANTIAL SHAREHOLDERS AS AT 22 AUGUST 2013 Name Damien Michael Trevor Waller FMR LLC and FIL The Goldman Sachs Group, Inc. and its subsidiaries, and Goldman Sachs Holdings ANZ Pty Limited and its subsidiaries ^ Includes LTIP shares which are subject to restrictions, as per Note 29 (ii) to the ﬁnancial statements. Number of ordinary shares held 32,729,010^ 24,574,933 14,285,898 % of issued capital 12.59 9.45 5.50 84 Guidance versus Reported Results This summarised schedule details adjustments made to the reported results for the current year to reﬂect the guidance we provided in our Prospectus document issued on 6 June 2013. Our earnings guidance excluded costs directly associated with the Initial Public Offering. REPORTED ADJUSTMENTS GUIDANCE BASIS PROSPECTUS FY13 $’000 FY12 $’000 FY13 IPO Costs $000 Operating revenue 118,037 111,928 Cost of sales Gross proﬁt Total expenses (excluding IPO costs) Initial public offering costs EBITDA Depreciation and amortisation EBIT Net ﬁnance costs Proﬁt Before Income Tax Expense Income tax expense Proﬁt for the Period (61,155) 56,882 (30,399) (1,479) 25,004 (5,150) 19,854 (1,698) 18,156 (4,787) 13,369 (56,970) 54,958 (30,876) – 24,082 (4,054) 20,028 (895) 19,133 (6,204) 12,929 – – – – 1,479 1,479 – 1,479 – 1,479 (444) 1,035 FY13 $000 118,037 (61,155) 56,882 (30,399) – 26,483 (5,150) 21,333 (1,698) 19,635 (5,231) 14,404 FY12 $’000 111,928 (56,970) 54,958 (30,876) – 24,082 (4,054) 20,028 (895) 19,133 (6,204) 12,929 FY13 $’000 121,559 (61,766) 59,793 (33,765) – 26,028 (4,894) 21,134 (1,317) 19,817 (5,294) 14,523 Corporate Directory DIRECTORS Damien Waller, Executive Chairman Greg Camm, Deputy Chairman Shaun Bonètt Pat O’Sullivan Leslie Webb Bridget Fair COMPANY SECRETARY David Christie REGISTERED OFFICE 294 Bay Road Cheltenham, Victoria 3192 Australia Phone: +61 3 9276 8000 PRINCIPAL PLACE OF BUSINESS 294 Bay Road Cheltenham, Victoria 3192 Australia Phone: +61 3 9276 8000 SHARE REGISTER Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, Victoria 3067 Australia iSelect Limited shares are listed on the Australian Securities Exchange (ASX: ISU). SOLICITORS Gilbert + Tobin Level 22, 101 Collins Street Melbourne, Victoria 3000 Australia BANKERS Commonwealth Bank of Australia 385 Bourke Street Melbourne, Victoria 3000 Australia AUDITORS Ernst & Young 8 Exhibition Street Melbourne, Victoria 3000 Australia. www.iselect.com.au DISCLAIMER Although care has been taken by iSelect, its related companies and their contractors and agents (iSelect parties) in the preparation of this document to ensure that the information provided is accurate, the contents of the document have not been independently veriﬁed by the iSelect parties (other than to the extent that Ernst & Young have carried out veriﬁcation). No liability other than that which may not be excluded by law is accepted for any damage, loss, injury or expense caused by errors or omissions in this document or arising from any action taken by any person in reliance upon it. The information in this document is subject to variation if changes occur after the document has been prepared. Nothing in the contents (express or implied) of this document will be taken to constitute any warranty or representation by any iSelect party. Any person using the information in this document does so at his or her own risk and should conduct independent enquiries to verify the accuracy of the information. The contents of this document are the conﬁdential information of iSelect and its related companies. This document is provided on the condition that the contents must not, in whole or in part, be disclosed to any person except to the extent that any part of the document is already in the public domain through no breach of this conﬁdentiality obligation. ©2013 All rights reserved. No part of this document may be reproduced, stored on a retrieval system or transmitted in any form or by any means without the prior written consent of iSelect Ltd, other than as permitted under the Copyright Act 1968 (Cth).

Continue reading text version or see original annual report in PDF format above