ANNUAL REPOR T 201 0
CONTENTS
DIRECTORS’ REPORT
CORPORATE GOVERNANCE STATEMENT
STATEMENTS OF COMPREHENSIVE INCOME
STATEMENTS OF FINANCIAL POSITION
STATEMENTS OF CHANGES IN EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDIT REPORT
AUDITOR’S INDEPENDENCE DECLARATION
SHAREHOLDER INFORMATION
1
16
20
21
22
23
24
59
60
63
64
CORPORATE DIRECTORY
Inside front cover
ANNUAL GENERAL MEETING
The Annual General Meeting of the members of McMillan Shakespeare Limited A.B.N. 74 107 233 983
will be held on 19 October 2010 at 10:00am at Hoyts Melbourne Central, Melbourne Central - Level 4,
Cnr Swanston & Latrobe Streets, Melbourne, Victoria.
CORPORATE DIRECTORY
Directors
Ronald Pitcher, AM (Chairman)
Michael Kay (Managing Director)
John Bennetts
Ross Chessari
Graeme McMahon
Anthony Podesta
Company Secretary
Paul McCluskey
Registered Office
Level 19, 360 Elizabeth Street
Melbourne Victoria 3000
Tel: +61 3 9097 3000
Fax: +61 3 9097 3060
Company Auditor
Grant Thornton
Level 2, 215 Spring Street
Melbourne Victoria 3000
Share Registry
Computershare Investor Services
Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
Tel: +61 3 9415 4000
Website
www.mcms.com.au
DIRECTORS’ REPORT
The Directors of McMillan Shakespeare Limited (Company or MSL) present this report on the consolidated entity, consisting of the Company and the
entities that it controlled at the end of, and during, the fi nancial year ended 30 June 2010 (Group or economic entity).
DIRECTORS
As at the date of this Annual Report, the Directors of the Company are Mr Ronald Pitcher AM (independent Chairman), Mr Michael Kay (Managing
Director and Chief Executive Offi cer), Mr John Bennetts (Non-Executive Director), Mr Ross Chessari (Non-Executive Director), Mr Graeme McMahon
(independent Non-Executive Director) and Mr Anthony Podesta (Non-Executive Director) (Directors). Each Director held offi ce as a Director throughout
the fi nancial year ended 30 June 2010. Details of the qualifi cations, experience and special responsibilities of the Directors at the date of this Annual
Report are set out on pages 4 and 5.
The Directors that are noted above as independent Directors, as determined in accordance with the Company’s defi nition of independence, have been
independent at all times throughout the fi nancial year ended 30 June 2010.
DIRECTORS’ MEETINGS
The number of meetings held by the board of Directors (Board) (including meetings of committees of the Board) and the number of meetings attended
by each of the Directors during the fi nancial year ended 30 June 2010 were as follows:
Director
Eligible to Attend
Attended
Eligible to Attend
Attended
Eligible to Attend
Attended
Board Meetings
Audit Committee Meetings
Remuneration Committee Meetings
Mr R. Pitcher, AM (Chairman)
Mr M. Kay (Managing Director and CEO)1
Mr J. Bennetts
Mr R. Chessari
Mr G. McMahon
Mr A. Podesta1
14
14
14
14
14
14
14
14
14
14
13
14
3
-
3
3
3
-
3
-
3
3
2
-
2
-
2
2
2
-
2
-
2
2
2
-
1
Mr Kay and Mr Podesta attend the Audit Committee and Remuneration Committee meetings by invitation.
PRINCIPAL ACTIVITIES
The principal activities of the Company and its controlled entities during the course of the fi nancial year ended 30 June 2010 was the provision of
remuneration, asset management and fi nance services to public and private organisations throughout Australia.
In the opinion of the Directors, there were no signifi cant changes in the nature of the activities of the Company and its controlled entities during the course
of the fi nancial year ended 30 June 2010 that are not otherwise disc losed in this Annual Report.
RESULTS
Details of the results for the fi nancial year ended 30 June 2010 are as follows:
Results
Net profi t after income tax (NPAT)
Basic earnings per share
Earnings per share on a diluted basis
2010
2009
$44,959,784
$20,522,752
66.5 cents/share
66.5 cents/share
30.4 cents/share
30.4 cents/share
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
1
Financial Highlights
35
30
25
20
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NPAT Performance
Revenue performance
17.1
27.9
20.5
17.4
13.2
11.3
5.2
FY05
FY06
FY07
FY08
FY09
FY10
140
120
100
80
60
40
20
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39
Revenue 5-year CAGR of 21.0%
93
77
67
55
49
36
FY05
FY06
FY07
FY08
FY09
FY10
NPAT (continuing Operations)
Acquisition Gain
Revenue pre-acquisition
Revenue Interleasing
Total dividends per share
Normalised earnings per share (EPS) (1)
EPS 5-year CAGR of 39.0%
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
s
t
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e
c
FY04 FY05 FY06 FY07 FY08 FY09 FY10
FY04 FY05 FY06 FY07 FY08 FY09 FY10
McMillan Shakespeare Limited
Share price - June 04 to June 10
Basic EPS
Cash EPS
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
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1
Normalised EPS excludes the profi t recognised on acqusition of Interleasing (Australia) Limited.
2
DIVIDENDS
Details of dividends declared and/or paid by the Company during the fi nancial year ended 30 June 2010 are as follows:
Dividends
Final dividend for the fi nancial year ended 30 June 2009 of 10.5 cents (2008: 9.0 cents) per ordinary
share paid on 16 October 2009 fully franked at the tax rate of 30% (2008: 30%)
Interim dividend for the fi nancial year ended 30 June 2010 of 10.0 cents (2009: 8.5 cents) per ordinary
share paid on 1 April 2010 fully franked at the tax rate of 30% (2009: 30%)
Total
2010
$
2009
$
7,096,261
6,082,508
6,758,343
5,744,592
13,854,603
11,827,100
Subsequent to the fi nancial year ended 30 June 2010, the Directors declared a fi nal dividend of 14.0 cents per ordinary share (fully franked at the tax
rate of 30%) to be paid on 15 October 2010 out of retained profi ts as at 30 June 2010, bringing the total dividend to be paid for the fi nancial year ended
30 June 2010 to 24.0 cents per ordinary share, an increase of 26%.
REVIEW OF OPERATIONS
Building on the foundations set in previous years, the 09/10 year saw many things achieved for the McMillan Shakespeare (MMS) Group, its staff,
customers and shareholders.
In particular:
•
The Henry Review of the taxation system was tabled with the Federal Government’s response. This saw the current salary packaging arrangements
(both for the exempt sector and the FBT concessions on cars) left unchanged. Indeed, for the exempt sector, the Government took the unusual step
of ruling out any changes “at any time”. This result provides great clarity and confi dence for both our customers and shareholders. MMS played a
lead role in representing the views of our customers and the salary packaging industry throughout the 18 months of the review.
• On 31 March 2010, MMS acquired the Interleasing Group (ILA) including Holden Leasing. ILA is a provider of operating and novated leases, and
of vehicle management services. The asset was purchased at a signifi cant discount to net assets. This was due to the global vendor, having been
heavily affected by the global fi nancial crisis, wishing to sell its Australian assets. More importantly, the acquisition cemented MMS’ position as a
leading provider of novated and operating leasing services in Australia and put it in the unique position of being able to solve all customers’ vehicle
needs; i.e. operating leases and management services for tool of trade cars, novated leases and a full FBT administration service. This unique
offering has already resonated with the market; in the fi rst few months since the acquisition took place, MMS has won fi ve new contracts and has
successfully cross-sold additional services to four existing customers.
• MMS again delivered excellent results. On a normalised basis, the MMS business, excluding ILA, delivered revenue growth of 21%, and NPAT
growth of 23%. Growth was driven by new business and improving penetration rates in our existing business. Underpinning this growth was
continuing improvements in our service delivery.
• Our service metrics are now at or above the benchmarks we set ourselves two years ago. We are satisfi ed our service is, by some margin, the best
in our industry. Productivity has improved too.
•
The results in the ILA businesses for our fi rst quarter of ownership were also excellent and exceeded the assumptions incorporated in the model we
built for the acquisition.
Despite the high levels of activity and growth in the businesses, we also invested in the future:
• We successfully launched our new operating brand “Maxxia”. The McMillan Shakespeare brand is now solely investor facing. All business is carried
out through Maxxia, RemServ, Interleasing and Holden leasing.
• We moved our Melbourne operations to Melbourne Central Tower, on time and under budget.
• We rolled out new IT infrastructure complete with “disaster recovery” capability and “warm sites” to accommodate our growth and provide
customers with complete peace of mind. This project was delivered on time and on budget.
•
•
A new telephony system was delivered on time and on budget.
A new CRM system was delivered on time and on budget.
• We continued to strengthen our management team right throughout the structure; but notably with the addition of Abe Tomas (former Australia CEO
and Global CFO of LeasePlan) and Michael Mitrovits (former MD of ILA).
In all, the 09/10 year not only delivered signifi cant shareholder value, but also saw a continuation of proactive and sensible investments in our business
that will accommodate our ongoing profi table growth and ensure our customers are well serviced and well satisfi ed. This will make our business
sustainable as it moves to the next level.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
3
Strategy and Prospects
The MMS Group strategy of providing benefi ts (ie: products and services) in the workplace (a channel that is cost effective and fertile but which is also
invisible and inaccessible to most competitors) has not changed with the acquisition of ILA; indeed it has been enhanced. We have been encouraged
by the reaction of customers to our new value proposition. We believe it is unique; we believe it will give us access to new customers, particularly in
the private sector; it will allow us to increase the rate of cross-sell; it will also enrich our relationship with our customers, thus making them more likely
to stay with us.
2010/11 will be a year of consolidation. We need to ensure the ILA business is integrated successfully into the MMS Group. We may need to moderate
our growth aspirations and opportunities in light of the integration task. Nevertheless, in the absence of unexpected external infl uences we anticipate
another year of solid profi table growth. We will concentrate on selling our enhanced value proposition to new customers and cross-selling products
(particularly novated leasing and salary packaging administration) between the business units. Low participation rates in some sections of the traditional
MMS business remain an ongoing opportunity. The other major focus for 2010/11 will be IT. The Interleasing IT system requires upgrading to the new
version of its current software. This was fully costed, with a contingency, into our acquisition valuation model. The new system will provide a range of
additional capabilities and effi ciencies that will benefi t both customers and the group.
STATE OF AFFAIRS
There were no signifi cant changes in the state of affairs of the Company and its controlled entities that occurred during the fi nancial year ended
30 June 2010 that are not otherwise disclosed in this Annual Report.
EVENTS SUBSEQUENT TO BALANCE DATE
As at the date of this Annual Report, the Directors are not aware of any matter or circumstance that has arisen that has signifi cantly affected or may
signifi cantly affect the operations of the Company and its controlled entities, the results of those operations or the state of affairs of the Company and its
controlled entities in the fi nancial years subsequent to 30 June 2010 that are not otherwise disclosed in this Annual Report.
LIKELY DEVELOPMENTS
Other than the information disclosed in this Annual Report, information as to the likely developments in the operations of the Company and its controlled
entities and the expected results of those operations in subsequent years has not been included in this Annual Report because the Directors believe,
on reasonable grounds, that to include such information would be likely to result in unreasonable prejudice to the Company and its controlled entities.
DIRECTORS’ EXPERIENCE & SPECIAL RESPONSIBILITIES
Ronald Pitcher AM, FCA, FCPA
Name:
Appointed: 4 February 2004
Positions: Chairman of the Board
Chairman of the Audit Committee
Chairman of the Remuneration Committee
71
Age:
Mr Pitcher is a Chartered Accountant with over 45 years experience in the accounting profession and the provision of business advisory services.
Mr Pitcher is also the Chairman of Cellestis Limited (since 2001) and a director of National Can Industries Limited (since 1994) and Reece Australia
Limited (since 2003). Under the Company’s defi nition of independence, Mr Pitcher is considered to be independent.
Michael Kay LLB
Name:
Appointed: 15 July 2008
Positions: Managing Director and Chief Executive Offi cer
Age:
52
Before joining the Company in May 2008, Mr Kay was the Chief Executive Offi cer of Australian Associated Motor Insurers Limited (AAMI). Mr Kay joined
AAMI in 1993, and before rising to the position of Chief Executive Offi cer in 2006, he served as General Manager, Southern Region (comprising Victoria,
Tasmania and South Australia) and Executive Chairman, Corporate Affairs and then, from 2002, as the Chief Operating Offi cer. Before joining AAMI,
Mr Kay practised for 10 years as a solicitor.
Mr Kay is a director of RAC Insurance and a former member of the Commonwealth Consumer Affairs Advisory Council, the Administrative Law Committee
of the Law Council of Australia, the Victorian Government Finance Industry Council and the Committee for Melbourne.
Mr Kay holds a Bachelor of Laws from the University of Sydney.
4
Anthony Podesta B Ed (Bus), MTMA, FTIA, MAICD
Name:
Appointed: 1 December 2003
Positions: Non-Executive Director
Age:
54
Mr Podesta founded the McMillan Shakespeare business in 1988 and has been instrumental in the growth of its operations and the development of the
outsourced salary packaging administration industry in Australia since that time. Mr Podesta is a fellow of the Taxation Institute of Australia, a member of
the Australian Institute of Company Directors and holds a public practice certifi cate with the Association of Taxation. Mr Podesta stepped down from all
of his executive responsibilities effective 17 August 2010 but remains on the Board as a Non-Executive Director.
John Bennetts B Ec, LLB
Name:
Appointed: 1 December 2003
Positions: Non-Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
47
Age:
Mr Bennetts is an experienced investor and a founder and director of a number of companies, including Cellestis Limited (since 2001) and private
equity investment fi rm, Mooroolbark Investments Pty Limited (M-Group). He has also provided advisory services to a range of companies in Australia
and Asia. Prior to the establishment of the M-Group, he was Group Legal Counsel and Company Secretary of Datacraft Limited. Before joining Datacraft
Limited, he practised as a solicitor.
Ross Chessari LLB, M Tax
Name:
Appointed: 1 December 2003
Positions: Non-Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
49
Age:
Mr Chessari is a founder and director of the investment manager, SciVentures Investments Pty Limited (Sciventures). Prior to founding SciVentures,
Mr Chessari was the Managing Director of ANZ Asset Management and the General Manager of ANZ Trustees.
Graeme McMahon FCPA, FRAS, FCIT
Name:
Appointed: 18 March 2004
Positions: Non Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
70
Age:
A member of the Council at La Trobe University, Mr McMahon was formerly a director of SSSR Holdings Pty Limited and Expo Hire (Aust.) Pty Limited,
and a member of the Queensland Australian Football League Commission. Mr McMahon held the position as Chairman of the Essendon Football Club
for seven years and was the Managing Director and Chief Executive Offi cer of Ansett Australia Group until 1996. He is a Fellow of the CPA of Australia,
a Fellow of the Royal Aeronautical Society and a Fellow of the Chartered Institute of Logistics and Transport. Under the Company’s defi nition of
independence, Mr McMahon is considered to be independent.
COMPANY SECRETARY
Mr Mark Cansdale BEc, CA held the position of the Chief Financial Offi cer and Company Secretary of the Company during the year. Mr Cansdale tendered
his resignation to the Board on 26 July 2010 and fi nished with the Group on 31 August 2010. Mr Paul McCluskey CA, B Bus, Grad Dip Bus Admin, has
been appointed Interim Chief Financial Offi cer and Company Secretary while the recruitment of the Chief Financial Offi cer and Company Secretary is
fi nalised. Mr McCluskey previously held this position with the Group from May 2005 to May 2008.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
5
REMUNERATION REPORT
Overview
The Group’s remuneration policies and practices are designed to align staff and shareholder interests and attract and retain staff members who are
critical to its growth and success. The Board maintains a Remuneration Committee whose objectives are to oversee the formulation and implementation
of remuneration policy and make recommendations to the Board on remuneration policies and packages applicable to the Directors and executives. For
further details of the composition and responsibilities of the Remuneration Committee, please refer to the Corporate Governance Statement.
Remuneration Structure – Executives
Overview
In setting its remuneration arrangements, reference is made to the current employment market in which the Group operates.
The components of remuneration for each executive comprise fi xed remuneration (including superannuation and benefi ts) and long-term equity-linked
performance incentives (in the form of options). Some executives are also offered cash based short-term incentives.
The Remuneration Committee reviews the fi xed remuneration component and, if applicable, the short-term cash incentive component of each executive’s
remuneration each year (or on promotion).
The executives specifi ed in the Remuneration Report as key management personnel have, either directly or indirectly, authority and responsibility for
planning, directing and controlling the activities of the Group (and are the only company executives and relevant group executives of the Group as those
terms are defi ned in the Corporations Act 2001 (Cth)). The Directors do not believe that any other employees of the Company or its controlled entities
are required to be identifi ed.
Fixed Remuneration
The fi xed remuneration component comprises salary, superannuation and, in some cases, non-cash benefi ts, such as motor vehicle lease payments,
investment loan repayments, education expenses, travel benefi ts and car parking benefi ts. Retirement benefi ts may be provided by the Company to
executives (including executive directors) from time to time if approved by shareholders (or otherwise provided in accordance with the Corporations Act
2001 (Cth)).
Fixed remuneration refl ects the duties, responsibilities and performance levels of the relevant executive, general market conditions and comparable
remuneration offered in related industry sectors. No element of the fi xed remuneration component is at risk.
Some executives have guaranteed salary increases of not less than a percentage equal to the rise in the consumer price index (all groups) (CPI) over the
preceding fi nancial year. Increases in salary beyond CPI (and increases in salary for executives not entitled to receive the guaranteed CPI increase) are
subject to market conditions and the achievement of Company and individual objectives.
Neither the Chief Executive Offi cer nor the Chief Financial Offi cer are remunerated separately for acting as an offi cer of the Company or any of its
controlled entities.
Short-term Incentives
The Company offers a cash bonus to certain executives primarily responsible for the achievement of the fi nancial targets of the Group. Each applicable
executive becomes entitled to receive a cash bonus only once the targets are met or exceeded, ensuring that a reward is only available once a reward has
been created for shareholders. Any bonus payable can, at the discretion of the executive, be sacrifi ced as superannuation.
The targets are set annually by the Remuneration Committee (and approved by the Board), in consultation with the Chief Executive Offi cer, for the
forthcoming fi nancial year. Satisfaction of the targets is assessed annually by the Remuneration Committee measured against the audited fi nancial
statements for the Group and reports from executive management.
The Remuneration Committee also has the authority to issue discretionary cash bonuses as a reward for outstanding performance. Several such bonuses
were paid to individual executives in relation to the year ended 30 June 2010.
Long-term Incentives
From time to time the Company issues options to certain executives and employees under the McMillan Shakespeare Limited Employee Option Plan
(Plan). The Company has had the Plan in place since 2004 and, as at 30 June 2010, there were 27 participants in the Plan (2009: 25).
Under the Plan, options over unissued ordinary shares in the Company are issued for no consideration and are, other than as disclosed in this Annual
Report, granted at or above market prices prevailing when the Board approved the issue. Options granted under the Plan carry no dividend or voting rights.
Once exercised, each option is converted into one fully paid ordinary share in the Company. The Remuneration Committee determines the number of
options to be granted on the basis of the position, duties and responsibilities of the relevant executive.
6
As at 30 June 2010, the Company had made nine offers under the Plan in March 2004, December 2004, April 2005, August 2005, February 2007,
December 2007, July 2008, November 2008, August 2009 and May 2010.
Options issued in March 2004, December 2004, April 2005 and August 2005 have expired or have been exercised prior to 1 July 2008.
All options in the February 2007 offer were issued subject to the following exercise conditions:
•
•
•
50% of the options vested and are exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and 15 September 2009,
but the entitlement to exercise is subject to continuity of employment.
25% of the options vested and are exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and 15 September 2009,
but the entitlement to exercise is subject to continuity of employment and achievement of predetermined targets. For the fi nancial years ended
30 June 2007, 2008 and 2009 the targets centred on the achievement of budgeted NPAT.
25% of the options vested and are exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and 15 September 2009,
but the entitlement to exercise is subject to continuity of employment and satisfaction of individual performance indicators for the fi nancial years
ended 30 June 2007, 30 June 2008 and 30 June 2009,
other than with respect to 50,000 options that are exercisable on or after 15 September 2009 subject to continuity of employment until that date.
The December 2007 offer was made on varying terms. 165,000 options were issued subject to the following exercise conditions:
•
•
•
50% of those options vested and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and 15 September 2010,
but the entitlement to exercise is subject to continuity of employment.
25% of those options vested and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and 15 September 2010,
but the entitlement to exercise is subject to continuity of employment and achievement of predetermined targets. For the fi nancial years ended
30 June 2008, 2009 and 2010, the targets centred on the achievement of budgeted NPAT.
25% of those options vested and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and 15 September 2010,
but the entitlement to exercise is subject to continuity of employment and satisfaction of individual performance indicators for the fi nancial years
ending 30 June 2008, 30 June 2009 and 30 June 2010.
A further 90,000 options of the December 2007 offer vested and are exercisable on or after 15 September 2009 subject to continuity of employment
until that date.
In July 2008, the Company issued 4,375,000 options.
The entitlement to exercise is subject to continuity of employment and the achievement of predetermined targets, of which 75% is based on earnings per
share (“EPS”) targets over three years, including a cumulative EPS target over three years in the event that the maximum target is not achieved in any one
year. The balance is based on other Company targets established by the Board. The entire issue vests and is exercisable (subject to the achievement of
the conditions) upon the adoption of the Company’s Annual Report for the fi nancial year ended 30 June 2011.
A further 2,600,114 options were issued in November 2008. The entitlement to exercise is subject to continuity of employment and the achievement
of predetermined targets, of which 100% is based on EPS targets over three years, including a cumulative EPS target over three years in the event that
the maximum target is not achieved in any one year. The entire issue vests and is exercisable (subject to the achievement of the conditions) upon the
adoption of the Company’s Annual Report for the fi nancial year ended 30 June 2011.
A further 327,273 options were issued in August 2009. The entitlement to exercise is subject to continuity of employment and the achievement of
predetermined EPS targets over three years, including a cumulative EPS target over three years in the event that the maximum target is not achieved in
any one year. The entire issue vests and is exercisable (subject to the achievement of the conditions) upon the adoption of the Company’s Annual Report
for the fi nancial year ended 30 June 2011.
A further 698,924 options were issued in May 2010. The entitlement to exercise is subject to a further offer by the Company of a 36 month employment
contract following completion of an 18 month fi xed term employment contract. The entitlement is also subject to continuity of employment and
the achievement of predetermined EPS targets over three years, including a cumulative earnings per share target over the three years in the event
that the maximum target is not achieved in any one year. The entire issue vests and is exercisable (subject to the achievement of the conditions) on
1 October 2014.
The Board believes that the use of options is the most appropriate form of long-term equity-based performance incentive to reinforce alignment with
shareholder interests. All options issued have an exercise price (or strike price) and only become valuable to the extent that the share price rises above
the exercise price. Given that options are issued at or above the prevailing market price at the date that the Board approved the grant (other than as
disclosed in this Annual Report), it is implied that increased shareholder wealth is required.
The use of earnings per share growth targets for the option entitlements has been adopted to align the long term interests of the executives with
shareholders and ensure appropriate behaviours are adopted for the long term benefi t of all stakeholders.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
7
Given the size of the Group, the Board believes that it is appropriate for 50% of the options granted under the February 2007 offer and approximately
35% of the options granted under the December 2007 offer not to be subject to performance hurdles (and for no individual performance hurdles to be
imposed on 50,000 options under the February 2007 offer) in order to retain experienced executives critical to the Group’s success and provide the
eligible executives with a sense of ownership in the Company.
No executive can enter into a transaction that is designed or intended to hedge the executive’s exposure to any unvested Company option. Executives
will be required to provide declarations to the Board on their compliance with this policy from time to time.
Remuneration Structure – Non-Executive Directors
The Non-Executive Directors are remunerated for their services from the maximum aggregate amount approved by the shareholders of the Company on
16 October 2007 for that purpose ($450,000 per annum). The Board sets the fees for the Chairman and the other Non-Executive Directors. No additional
fees are paid for participation in Board committees.
The Board’s policy is to remunerate the Chairman and the Non-Executive Directors at market rates for comparable companies for the time and commitment
involved in meeting their obligations.
Neither the Chairman nor the other Non-Executive Directors received any performance related remuneration or options with respect to the fi nancial years
ended 30 June 2009 and 30 June 2010. There is no direct link between the remuneration of the Chairman or any other Non-Executive Director and the
short term results of the Group because the primary focus of the Board is on the long term strategic direction and performance of the Group.
There are no termination payments made to the Chairman or the other Non-Executive Directors on their retirement from offi ce other than payments relating
to the accrued superannuation entitlements included in their remuneration.
Remuneration Details
Details of the remuneration of the Directors, other key management personnel of the Group (as defi ned in AASB124 Related Party Disclosures) and
specifi ed executives of the Company and the Group are set out in the following tables.
The key management personnel of the Group are the Directors of McMillan Shakespeare Limited and the following executives:
• Mr M. Cansdale – Group CFO and Company Secretary (until 31 August 2010)
• Mr G. Kruyt – Group Executive, Fleet and Novated Sales & Service
• Mr P. Lang – Group Executive, Salary Packaging
• Mr M. Salisbury – Managing Director, Remuneration Services (Qld) Pty Ltd
• Mr A. Suckling – Group Executive, Insurance and Emerging Business
• Mr A. Tomas – Group Executive, Fleet and Novated Leasing (commenced 1 April 2010)
8
Short-term benefi ts
Post-employment
benefi ts
Long-term
benefi ts
Share-based
payments
Cash salary/
fees1
$
Cash
Bonus
$
Other
Benefi ts2
$
Super
$
Termination
Benefi ts3
$
Long Service
Leave
$
Options4
$
Total
Remuneration
$
Percentage of
Remuneration
as options
%
2010
Non-Executive Directors
Mr R. Pitcher, AM (Chairman)
124,771
75,000
Mr J. Bennetts (Non-Executive Director)
Mr R. Chessari (Non-Executive Director)
Mr G. McMahon (Non-Executive Director)
Executive Directors
Mr M. Kay (CEO6 and Managing Director)
Mr A. Podesta
Other key management personnel
Mr M. Cansdale (Group CFO and
Company Secretary)7
Mr G. Kruyt (Group Executive, Fleet and
Novated Sales & Service)8
Mr P. Lang (Group Executive, Salary
Packaging)9
Mr M. Salisbury (Managing Director,
Remuneration Services (Qld) Pty Ltd)10
Mr A. Suckling (Group Executive,
Insurance and Emerging Business)11
Mr A Tomas (Group Executive, Fleet and
Novated Leasing.) 12
2009
Non-Executive Directors
Mr R. Pitcher, AM (Chairman)
Mr J. Bennetts (Non-Executive Director)
Mr R. Chessari (Non-Executive Director)
Mr G. McMahon (Non-Executive Director)
Executive Directors
Mr M. Kay (CEO6 and Managing Director)
Mr A. Podesta
Other key management personnel
Mr M. Cansdale (CFO and Company
Secretary)7
Mr G. Kruyt (Group Executive, Novated
Leasing and Fleet Services)8
Mr P. Lang (Group Executive, Salary
Packaging)9
Mr M. Salisbury (General Manager,
Remuneration Services)10
Mr A. Suckling (General Manager,
Insurance Services)11
50,459
50,459
46,147
855,909
130,000
-
-
-
-
-
-
-
75,000
-
4,259
-
11,229
4,541
4,541
36,853
50,000
50,000
269,056
25,000
25,942
14,308
111,715
80,000
165,930
20,442
133,500
25,000
124,356
22,249
170,139
50,000
28,203
16,297
167,650
15,000
-
14,015
95,507
-
18,217
5,480
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
182
-
-
-
-
-
211,000
55,000
55,000
83,000
282,702
1,268,052
-
180,000
59
50,353
384,718
12,125
20,228
410,440
7,673
23,483
336,261
8,827
273,525
17,113
213,799
59
21
10
27,778
146,992
19
Short-term benefi ts
Post-employment
benefi ts
Long-term
benefi ts
Share-based
payments
Cash salary/
fees1
$
Cash
Bonus
$
Other
Benefi ts2
$
Super
$
Termination
Benefi ts3
$
Long Service
Leave
$
Options4
$
Total
Remuneration
$
Percentage of
Remuneration
as options
%
110,000
40,000
40,000
65,000
777,558
120,000
-
-
-
-
-
-
-
-
9,900
3,600
3,600
5,850
50,000
7,066
100,000
-
-
60,000
256,667
20,000
30,583
19,477
60,370
125,872
184,520
24,675
55,011
15,000
188,266
22,192
163,867
25,000
25,348
14,871
52,474
10,000
-
4,471
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
177
-
-
-
-
-
119,900
43,600
43,600
70,850
282,702
1,217,503
-
180,000
50
49,050
375,827
8,537
21,925
425,899
6,458
33,517
320,444
50
16
5,272
234,408
-
66,961
-
-
-
-
22
-
13
5
7
3
8
-
-
-
-
23
-
13
5
10
2
-
9
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
1
2
3
4
5
6
7
8
9
10
11
12
The amounts shown for the Non-Executive Directors refl ect directors’ fees only. The amounts shown for the executives refl ect cash salary and annual leave entitlements.
Other benefi ts refl ect motor vehicle lease payments, investment loan repayments, education expenses, travel benefi ts and/or car parking benefi ts.
Other than as disclosed in this Annual Report, termination benefi ts include all annual leave and, where applicable, long service leave entitlements that accrued during
the fi nancial years ended 30 June 2009 and 30 June 2010.
The equity value comprises the value of options issued. No shares were issued to any Director (and no options were granted to any Director) during the fi nancial
years ended 30 June 2009 and 30 June 2010. The value of options issued to executives (as disclosed above) are the assessed fair values at the date that the options
were granted to the executives, allocated equally over the period from when the services are provided to vesting date. Fair values at grant date are determined using a
binomial option pricing model that takes into account the exercise price, the expected term of the option, the share price at grant date, the expected price volatility of
the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The model inputs for options granted to executives during the fi nancial years ended 30 June 2009 and 30 June 2010 included:
Model input
Consideration payable upon grant
Exercise price
Grant date
Expected life
Share price at grant date
Expected price volatility
Expected dividend yield
Risk-free interest rate
30 June 2009
(July 2008)
Nil
$4.70
1/7/08
4 years
$2.59
34.6%
4.85%
6.73%
30 June 2009
(November 2008)
Nil
30 June 2010
(August 2009)
Nil
$3.40, $4.70
$3.40,$4.70
24/11/08
4 years
$2.10
36%
6.60%
3.78%
14/8/09
3 years
$3.23
37%
6.6%
5.0%
30 June 2010
(May 2010)
Nil
$3.42
28/5/10
4.5 years
$3.42
37%
5.0%
5.47%
The employment agreement entered into between Mr Podesta and the Company dated 10 March 2004, pursuant to which Mr Podesta served as Managing Director
and Chief Executive Offi cer, terminated (by mutual agreement) on 4 May 2008. On 15 July 2008 Mr Podesta entered into an employment agreement with the Company
for a fi xed 12 month term with a commencement date of 5 May 2008, pursuant to which Mr Podesta served as an Executive Director. This contract was extended by
the Board for a further 15 months. The employment agreement may be terminated for poor performance or health on the provision of three months’ written notice
(or, with respect to the Company, payment in lieu) or, in the event of cause (excluding poor performance or health), without notice or any payment. Mr Podesta has
resigned as an executive director with effect from 17 August 2010, but continues in the role of a non-executive director.
The employment agreement between Mr Kay and the Company is for a fi ve year fi xed term, which commenced on 4 February 2008. The agreement provides for
termination of employment by either party without cause on the provision of six months’ written notice (or, with respect to the Company, payment in lieu). The
agreement may also be terminated by the Company for cause without notice or any payment. Mr Kay served as an executive at all times during the fi nancial year ended
30 June 2010.
The employment agreement between Mr Cansdale and the Company was for a 3.5 year fi xed term, commencing on 26 May 2008. The agreement
provided for termination of employment by either party without cause on the provision of three months’ written notice (or, with respect to the
Company, payment in lieu). The employment agreement may also be terminated by the Company for cause without notice or any payment.
Mr Cansdale served as an executive at all times during the fi nancial year ended 30 June 2010. Mr Cansdale resigned from his position effective 31 August 2010.
The employment agreement between Mr Kruyt and the Company is for 18 months fi xed term expiring on 30 September 2011. The agreement provides for termination
of employment by either party on the provision of six months’ written notice (or, with respect to the Company, payment in lieu). The agreement may, however, be
terminated by the Company for cause without notice or any payment. Mr Kruyt served as an executive at all times during the fi nancial year ended 30 June 2010.
The employment agreement between Mr Lang and the Company commenced on 1 October 2006 and is ongoing. The agreement provides for termination of
employment by the Company for poor performance or health on the provision of three months’ written notice or without cause on the provision of six months’ written
notice (or payment in lieu). The agreement may, however, be terminated by the Company for cause (excluding poor performance or health) without notice or any
payment. Mr Lang served as an executive at all times during the fi nancial year ended 30 June 2010.
The employment agreement between Mr Salisbury and the Company commenced on 1 July 2008 and is ongoing. The agreement provides for termination of
employment by either party with 12 weeks’ notice. The agreement may, however, be terminated by the Company for cause without notice or any payment. Mr Salisbury
served as an executive at all times during the fi nancial year ended 30 June 2010.
The employment agreement between Mr Suckling and the Company commenced on 18 February 2009 and is ongoing. The agreement provides for termination
of employment by either party with one month’s notice. The agreement may, however, be terminated by the Company for cause without notice or any payment. Mr
Suckling served as an executive at all times during the fi nancial year ended 30 June 2010.
The employment agreement between Mr Tomas and the Company commenced on 1 April 2010 and is for an initial term of 18 months. The agreement provides for
termination of employment by either party without cause with three month’s notice in writing (in the case of the Company, subject to a termination payment). The
agreement may, however, be terminated by the Company for cause without notice or any payment. Mr Tomas served as an executive at all times during the period
from 1 April 2010 until 30 June 2010.
10
Remuneration at risk
The relevant proportions of remuneration that are linked to performance and those that are fi xed are as follows:
Executive Directors
Mr M. Kay
Mr A. Podesta
Other key management personnel
Mr M. Cansdale
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr A. Suckling
Mr A Tomas
Fixed remuneration
At risk - STI
At risk - LTI
2010
2009
2010
2009
2010
2009
76%
100%
81%
76%
86%
79%
85%
81%
73%
100%
82%
65%
85%
87%
85%
-
-
-
6%
19%
7%
18%
7%
-
4%
-
5%
30%
5%
11%
15%
-
24%
-
13%
5%
7%
3%
8%
19%
23%
-
13%
5%
10%
2%
-
-
Consequences of performance on shareholders’ wealth
In addition to the links between remuneration and shareholder value discussed above, when reviewing the Group’s performance and benefi ts for
shareholder wealth, and the link to the remuneration policy, the following indices are generally considered:
Indices
2010
2009
2008
2007
2006
Net profi t attributable to Company members
$44,959,784
$20,522,752
$17,368,000
$13,237,000
$11,305,000
Dividends paid
Share price as at 30 June
Earnings per share
$13,854,603
$11,827,100
$10,451,000
$7,697,000
$3,240,000
$4.69
$2.92
$2.46
$5.31
$3.35
66.5 cents
30.4 cents
25.8 cents
19.8 cents
17.1 cents
Net profi t is considered as part of the fi nancial performance targets in setting short term incentives. Dividends, changes in share price, return on equity
and earnings per share are all taken into account when setting the ‘at risk’ components of executive remuneration.
The overall level of executive compensation takes into account the performance of the Group over a number of years. The Group’s profi t from ordinary
activities after tax and earnings per share has grown at a compound annual growth rate (CAGR) of 39.9% per annum over the period from 1 July 2005
until 30 June 2010 (excluding the gain on business combination). Over the same period return on equity (RoE) exceeded 20% (and, in the fi nancial
years ended 30 June 2006 to 30 June 2010, RoE actually exceeded 35%).
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
11
Cash Bonus and Option Details
Cash Bonus
No contracted cash based short-term incentives were paid to (or were forfeited by) any Non-Executive Director or executives during the fi nancial year
30 June 2010. Discretionary bonuses have been issued by the Board as reported in the remuneration details shown on page 9.
Options
No options were granted to, exercised by or lapsed with respect to the Directors during the fi nancial years ended 30 June 2009 or 30 June 2010 (the
options granted to Mr Kay were issued prior to his appointment as Managing Director). The terms and conditions of each grant of options to executives
affecting their remuneration in the fi nancial year ended 30 June 2010 and each relevant previous or future fi nancial year are as follows:
Grant Date
Expiry Date
4 February 2007
4 February 2011
4 February 2007
4 February 2011
21 December 2007
21 December 2011
21 December 2007
21 December 2011
21 December 2007
21 December 2011
1 July 2008
30 June 2012
24 November 2008
24 November 2012
24 November 2008
24 November 2012
14 August 2009
14 August 2012
14 August 2009
14 August 2012
28 May 2010
1 October 2015
Share price at
valuation date
Exercise Price
Value per option
at grant date1
Date Exercisable
$3.80
$3.80
$4.00
$4.00
$4.00
$2.59
$2.10
$2.10
$3.23
$3.23
$3.42
$3.80
$3.80
$4.52
$4.52
$4.52
$4.70
$4.70
$3.40
$3.40
$4.70
$3.42
$0.726
$0.726
$0.525
$0.525
$0.525
$0.240
$0.090
$0.180
$0.60
$0.33
$0.93
One third after each of 15 September 2007,
15 September 2008 & 15 September 2009
100% after 15 September 2009
100% after 15 September 2008
One third after each of 15 September 2008,
15 September 2009 & 15 September 2010
100% after 15 September 2010
100% after 16 September 2011
100% after 24 November 2011
100% after 24 November 2011
100% after 14 August 2011
100% after 14 August 2011
100% after 1 October 2014
1
Refl ects the value at grant date for options granted as part of remuneration calculated in accordance with AASB 2: Share-based Payment.
Details of the options granted, vested and exercised during the fi nancial years ended 30 June 2009 and 30 June 2010 with respect to the executives are
set out in the table below. No amounts are unpaid on any shares issued on the exercise of options.
Options granted
Options vested
Ordinary shares issued
on exercise of options
2010
2009
2010
2009
2010
2009
-
-
-
-
-
-
66,667
537,634
3,750,000
-
725,000
625,000
625,000
136,364
-
-
-
-
-
-
64,583
-
-
-
-
-
-
90,000
55,625
-
-
-
-
-
-
94,549
-
-
-
-
-
-
-
-
-
-
Executive Directors
Mr M. Kay
Mr A Podesta
Other key management personnel
Mr M. Cansdale
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr A. Suckling
Mr A. Tomas
12
The percentage of options granted to executives that have vested or were forfeited during the fi nancial year ended 30 June 2010 is set out below:
Financial year granted
Vested
%
Forfeited
%
Financial year(s) in
which options may vest
Executive Directors
Mr M. Kay
Mr A. Podesta
Other key management personnel
Mr M. Cansdale
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr A. Suckling
Mr A. Tomas
2009
-
2009
2008 & 2009
2007, 2008 & 2009
2009
2010
2010
-
-
-
-
7.9
-
-
-
-
-
-
-
2011
-
2011
2010 & 2011
0.25
2009, 2010 & 2011
-
-
-
2011
2011
2014
Details of the value of options granted, exercised and lapsed during the fi nancial year ended 30 June 2010 with respect to the executives are as follows:
Executive Directors
Mr M. Kay
Mr A. Podesta
Other key management personnel
Mr M. Cansdale
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr A. Suckling
Mr A. Tomas
(i)
Value at
grant date1
(ii)
Value at
exercise date2
(iii)
Value at
lapse date3
Minimum
value of option
to vest
Maximum
value of option
to vest
$
-
-
-
-
-
-
40,000
500,000
$
-
-
-
-
$
-
-
-
-
$
-
-
-
-
50,375
1,625
52,000
-
-
-
-
-
-
-
40,000
500,000
$
334,596
-
59,596
23,941
23,941
10,447
22,888
472,222
1
2
3
Refl ects the value at grant date for options granted as part of remuneration during the fi nancial year ended 30 June 2010 calculated in accordance with AASB 2: Share-based Payment.
Refl ects the value at exercise date for options that were granted as part of remuneration and were exercised during the fi nancial year ended 30 June 2010
Refl ects the value at lapse date for options that were granted as part of remuneration and lapsed during the fi nancial year ended 30 June 2010.
DIRECTORS’ INTERESTS
At the date of this Annual Report, the relevant interest of each Director in the securities issued by the Company and its controlled entities, as notifi ed
by the Directors to the Australian Stock Exchange Limited (ASX) in accordance with section 205G(1) of the Corporations Act 2001 (Cth), is as follows:
Director
Mr R. Pitcher, AM (Chairman)
Mr M. Kay (Managing Director)
Mr J. Bennetts
Mr R. Chessari
Mr G. McMahon
Mr A. Podesta
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
Options
Ordinary shares
-
3,750,000
-
-
-
-
105,100
4,164
4,718,025
6,425,063
122,000
11,235,000
13
No Director has, during the fi nancial year ended 30 June 2010, become entitled to receive any benefi t (other than a benefi t included in the aggregate
amount of remuneration received or due and receivable by the Directors shown in the Remuneration Report or the fi xed salary of a full time employee of
the Company) by reason of a contract made by the Company or a controlled entity with the Director or an entity in which the Director has a substantial
fi nancial interest or a fi rm in which the Director is a member.
OPTIONS GRANTED
During or since the end of the fi nancial year ended 30 June 2010, the Company has granted options only to the executives as part of their remuneration
as follows:
Name
Other key management personnel
Mr A. Suckling
Mr A. Tomas
Number granted
Date of grant
Exercise price
Expiry date
66,667
14 August 2009
537,634
28 May 2010
$3.40
$3.42
14 August 2012
1 October 2015
The options will vest subject to satisfaction of the exercise conditions set out on pages 7 and 8.
No person holding an option has or had, by virtue of the option, a right to participate in a share issue of any other corporation.
UNISSUED SHARES
At the date of this Annual Report, unissued ordinary shares of the Company under option are:
Option plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
Employee Option Plan
No. of unissued ordinary shares
Exercise price
95,522
425,001
3,750,000
306,819
1,988,750
133,334
193,939
698,924
$3.80
$4.52
$4.70
$3.40
$4.70
$3.40
$4.70
$3.42
Expiry date
4 February 2011
21 December 2011
1 July 2012
24 November 2012
24 November 2012
14 August 2012
14 August 2012
1 October 2015
ENVIRONMENTAL REGULATIONS
The Directors believe that the Company and its controlled entities have adequate systems in place for the management of relevant environmental
requirements and are not aware of any breach of those environmental requirements as they apply to the Company and its controlled entities.
INDEMNIFICATION AND INSURANCE
Under the Company’s Constitution, the Company indemnifi es the Directors and offi cers of the Company and its wholly-owned subsidiaries to the full
extent permitted by law against any liability and all legal costs in connection with proceedings incurred by them in their respective capacities.
The Company has also entered into a Deed of Access, Indemnity and Insurance with each Director and the Company Secretary (Deed), which protects
individuals acting as offi ceholders during their term of offi ce and after their resignation. Under the Deed, the Company also indemnifi es each offi ceholder
to the full extent permitted by law.
The Company has a Directors & Offi cers Liability Insurance policy in place for all current and former offi cers of the Company and its controlled entities.
The policy affords cover for loss in respect of liabilities incurred by Directors and offi cers where the Company is unable to indemnify them and covers
the Company for indemnities provided to its Directors and offi cers. This does not include liabilities that arise from conduct involving dishonesty. The
Directors have not included the details of premium paid with respect to this policy as such disclosure is not permitted under the terms of the policy.
14
NON-AUDIT SERVICES
Details of the amounts paid or payable to the auditor of the Company, Grant Thornton and its related practices, for non-audit services provided, during
the fi nancial year ended 30 June 2010, is disclosed in Note 4 to the Financial Statements.
The Company’s policy is that the external auditor is not to provide non-audit services unless the Audit Committee has approved that work in advance,
as appropriate.
The Audit Committee has reviewed a summary of non-audit services provided during the fi nancial year ended 30 June 2010 by Grant Thornton.
Given that the only non-audit services related to client contract audits, the Audit Committee has confi rmed that the provision of non-audit services is
compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). This has been formally advised to the
Board. Consequently, the Directors are satisfi ed that the provision of non-audit services during the year by the auditor and its related practices did not
compromise the auditor independence requirements of the Corporations Act 2001 (Cth).
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor’s independence declaration, as required under section 307C of the Corporations Act 2001 (Cth), is set out on page 63 of this
Annual Report.
CORPORATE GOVERNANCE PRACTICES
A Corporate Governance Statement is set out on pages 16 to 19 of this Annual Report.
Signed in accordance with a resolution of the Directors.
Ronald Pitcher, AM
Chairman
6 September 2010
Melbourne, Australia
Michael Kay
Managing Director
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
15
CORPORATE GOVERNANCE STATEMENT
INTRODUCTION
This statement outlines the corporate governance policies and practices formally adopted by the Company. These policies and practices are in accordance
with the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations’ (ASX Principles), unless otherwise stated.
ROLE OF THE BOARD
The role of the Board is to provide strategic guidance for the Group and effective oversight of management. The Board operates in accordance with
the Company’s Constitution, Board Charter and Delegated Authority Matrix, which describe the Board’s composition, functions and responsibilities
and designates authority reserved to the Board and that delegated to management. The charter can be accessed on the Company’s website
(www.mcms.com.au).
COMPOSITION OF THE BOARD
As at the date of this Annual Report, the Directors are as follows:
Name
Mr R. Pitcher, AM
Mr M. Kay
Mr J. Bennetts
Mr R. Chessari
Mr G. McMahon
Mr A. Podesta
Position
Independent Chairman
Managing Director and Chief Executive Offi cer
Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Appointment
4 February 2004
15 July 2008
1 December 2003
1 December 2003
18 March 2004
1 December 2003
Each Director is a senior executive with the skills and experience necessary for the proper supervision and leadership of the Company. As a team, the
Board brings together a broad range of qualifi cations and experience in remuneration services, fi nancial services, fi nance, accounting, law, sales and
marketing and public company affairs. Details of the Directors, their experience and their special responsibilities with respect to the Company are set
out in the Directors’ Report.
The Board considers a Director independent if that person is free of management and other business relationships that could materially interfere, or could
reasonably be perceived to materially interfere, with the exercise of objective and independent judgement. More information can be obtained from the
Group’s Policy on the Independence of Directors which can be accessed on the Company’s website. The Chairman determines the relevant materiality
thresholds on a case by case basis with reference to both quantitative and qualitative bases.
The ASX Guidelines recommend that a listed company should have a majority of directors who are independent. The Board, as currently composed,
does not comply with this recommendation. Mr Chessari and Mr Bennetts currently hold, through their controlled entities, approximately 16.5% of the
shares in the Company. These Directors have participated in the growth and development of McMillan Shakespeare and have a signifi cant interest in the
Company’s continued success. Given their history and skills, the Board believes that it is appropriate for each of these Directors to be appointed to the
Board.
Despite stepping down as CEO in the year ended 30 June 2008 Mr Podesta continues as a Director of the Company. As the founder of the Company, and
with over 20 years experience in the remuneration services industry, Mr Podesta brings a wealth of experience and an in-depth knowledge of the Group’s
operations and customers to the Board. As the Company’s largest shareholder, he also has a signifi cant interest in the Company’s continued success.
As such, the Board believes that it is appropriate for Mr Podesta to remain on the Board as a non-independent Director.
The Company believes that the Board, as currently composed, has the necessary skills and motivation to ensure that it continues to perform strongly,
notwithstanding that its overall composition does not specifi cally meet the ASX Principles. Details of the experience of the Directors is contained in the
Directors’ Report.
The Chairman is responsible for leading the Board ensuring Directors are properly briefed in all matters relevant to their role and responsibilities,
facilitating Board discussions and managing the Board’s relationships with the Company’s senior executives.
The Chief Executive Offi cer is responsible for implementing Group strategies and policies. The Board charter specifi es that these are separate roles to
be undertaken by separate people.
16
BOARD PRACTICES
The Board meets regularly to evaluate, control, review and implement the Company’s operations and objectives. The Directors receive monthly reports
from the Chief Executive Offi cer, the Chief Financial Offi cer and operational managers. A Director, subject to prior approval of the Chairman or, in the
absence of that approval, the Board may seek independent professional advice (including legal advice) at the Company’s expense to assist them in
carrying out their duties and responsibilities.
PERFORMANCE REVIEW
The Board has delegated the responsibility for evaluating the performance of the Board and the Directors to the Chairman. The performance evaluation
includes the examination of the performance of the Board and the individual Directors as against the Board Charter. The evaluation may establish
goals and objectives for the Board and provide any recommendations for improvement to Board performance as it sees fi t. The Chairman undertook the
performance appraisal of the Board with respect to the fi nancial year ended 30 June 2010 in July 2010.
The Board has delegated the responsibility for evaluating the performance of executive management to the Remuneration Committee and CEO.
Given the size of the Company’s operations, the Board has decided against the establishment of a separate nomination committee at this time.
As such, the responsibility for the selection and nomination of new Directors remains with the full Board.
REMUNERATION COMMITTEE
The Board has established a Remuneration Committee, which is structured so that the committee is chaired by an independent director and consists of at
least three members all of whom are non-executive directors. Details of names and relevant qualifi cations of the Directors appointed to the Remuneration
Committee, the number of meetings of the committee held during the year ended 30 June 2010 and the attendance record for each relevant member
can be found in the Directors’ Report.
The Remuneration Committee is empowered to investigate any matter brought to its attention and has direct access to any employee or any independent
expert and adviser as it considers appropriate in order to ensure that its responsibilities can be carried out effectively. The Remuneration Committee has
a documented charter approved by the Board. The charter can be accessed on the Company’s website.
The CEO carries out quarterly performance reviews with each member of the senior executive team, comparing the individual’s performance against their
agreed performance targets. This process was completed for the year ended 30 June 2010 with the CEO’s report to the July meeting of the Remuneration
Committee. The Remuneration Committee has evaluated the performance of the Chief Executive Offi cer for the year ended 30 June 2010, taking account
of the performance of the Group and other non-fi nancial outcomes.
The ASX Principles recommend that the majority of members of the Remuneration Committee should be independent. The Remuneration Committee, as
currently composed, does not comply with this recommendation.
At present, the Remuneration Committee is comprised of four members, two of whom are not independent. Mr Chessari and Mr Bennetts have participated
in the growth and development of McMillan Shakespeare and have a signifi cant interest in the Company’s continued success. Given their management
experience and skills, the Board believes that it is appropriate for each of these Directors to be appointed to the Remuneration Committee.
AUDIT COMMITTEE
The Board has established an Audit Committee, which is structured so that the committee is chaired by an independent director and consists of at
least three members, all of whom are non-executive directors. Details of the names and relevant qualifi cations of the Directors appointed to the Audit
Committee, the number of meetings of the committee held during the year ended 30 June 2010 and the attendance record for each relevant member
can be found in the Directors’ Report.
The Audit Committee is empowered to investigate any matter brought to its attention and has direct access to any employee, the independent auditors
or any other independent experts and advisers as it considers appropriate in order to ensure that its responsibilities can be performed effectively.
The Audit Committee has a documented charter approved by the Board. The charter can be accessed on the Company’s website.
The ASX Principles recommend that the majority of members of the Audit Committee should be independent and that a person who is not the Chairman
of the Board should chair the committee. The Audit Committee, as currently composed, does not comply with these recommendations.
The Audit Committee has appropriate fi nancial expertise and all members are fi nancially literate and have a deep understanding of the industry
in which the Company operates. At present, however, the Audit Committee is comprised of four members, only two of whom are independent.
Mr Chessari and Mr Bennetts have participated in the growth and development of McMillan Shakespeare and have a signifi cant interest in the
Company’s continued success. Given their management experience, skills and the size of their investment in the Company, the Board believes
that it is appropriate for each of these Directors to be appointed to the Audit Committee.
In addition, the Audit Committee is chaired by Mr Pitcher who, while independent, is also the Chairman of the Board. Mr Pitcher is a chartered accountant
with over 45 years experience in the accounting profession and the provision of business advisory services. Given the Company’s highly specialised
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
17
activities and Mr Pitcher’s extensive accounting and business experience, the Board believes that Mr Pitcher is the most appropriate person to chair the
Audit Committee.
The external auditor together with the Chief Executive Offi cer, Chief Financial Offi cer and Mr Podesta are invited to attend the meetings. The Audit
Committee also meets with the external auditor twice a year without management to provide the auditor the opportunity to provide feedback on the
conduct of the audit and management.
The Company has adopted procedures for the selection and appointment of the external auditor, and the rotation of external audit engagement partners,
in line with the Corporations Act 2001 (Cth).
FINANCIAL REPORTING & RISK MANAGEMENT
Given the nature and size of the Company’s operations, the Board has decided against the establishment of a separate Board risk management committee
at this time, and risk management remains a direct responsibility of the full Board. As such, the Board has ultimate responsibility for the integrity of
the Company’s fi nancial reporting. As part of the Group’s risk management processes, senior management attend a monthly Risk and Compliance
Committee, which is supported by internal control processes for identifying, evaluating and managing signifi cant fi nancial, operational and compliance
risks to the achievement of the Company’s objectives, which are subject to Board oversight from time to time. In addition, an independent external party
has been appointed to provide internal audit services as required from time to time.
The Company has reviewed its formal Risk Management Policy and Framework during the year. The Risk Management Policy and Framework are
accessible to all staff on the Group’s intranet and identify the material risks affecting the Company and the manner in which each of those risks will be
managed. A copy of the Company’s Risk Management Policy can be accessed on the Company’s website.
Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clear lines of accountability and
delegation of authority. Adherence to the Director and Employee Codes of Conduct is required at all times and the Board actively promotes a culture of
quality and integrity.
The Directors have received and considered written representations from the Chief Executive Offi cer and the Chief Financial Offi cer in accordance with
the ASX Principles. The written representations confi rmed that:
•
•
the fi nancial reports are complete and present a true and fair view, in all material respects, of the fi nancial condition and operating results of the
Company and its controlled entities and are in accordance with all relevant accounting standards; and
the above statement is founded on a sound system of risk management and internal compliance and control that implements the policies adopted
by the Board and that compliance and control is operating effi ciently and effectively in all material respects.
The Company’s external auditor has been invited to attend the Annual General Meeting and be available to answer questions from the members of the
Company about the conduct of the audit and the preparation and content of the Independent Audit Report.
REMUNERATION POLICY
The Company’s remuneration policy is structured to ensure that the reward for performance is competitive and appropriate for the results delivered.
Further, it aims to ensure that remuneration packages properly refl ect the duties and responsibilities and level of performance of the staff member and
that the remuneration is competitive in attracting, retaining and motivating people of the highest quality.
Non-executive Directors are remunerated by way of fees and do not participate in profi t or incentive schemes and do not receive options, incentive
payments or retirement benefi ts other than statutory superannuation.
Executive remuneration generally comprises the following elements:
•
•
•
fi xed remuneration, including superannuation and benefi ts, which is set at a level that refl ects the marketplace for each position;
short term performance incentives, in the form of cash bonuses, which incorporate eligibility restrictions based on continuity of employment, and
the achievement of certain fi nancial performance hurdles;
long-term equity-linked performance incentives, in the form of share options, which incorporate exercise restrictions based on continuity of
employment and the achievement of certain individual and fi nancial performance hurdles.
Further details of the Company’s remuneration policies and practices in relation to the Directors and executives can be found in the Directors’ Report
under the heading ‘Remuneration Report’.
18
COMMUNICATION WITH SHAREHOLDERS AND THE MARKET
The Company’s commitment to communicating with its shareholders is embodied in its Continuous Disclosure Policy, which contains policies and
procedures on information disclosure that focus on continuous disclosure of any information concerning the Group that a reasonable person would expect
to have a material effect on the price of the Company’s securities. The Company’s Continuous Disclosure Policy can be accessed on the Company’s
website.
In addition to the distribution of the Annual Report, information is communicated to shareholders via the announcements section of the Company’s
website.
Given the size of the Company and the number of shareholders, the Board does not believe that it is appropriate for the Company to adopt a formal
Communications Policy at this time.
ETHICS AND CODES OF CONDUCT
The Company has adopted a Director Code of Conduct that applies to the directors of the Company. The Director Code of Conduct refl ects the commitment
of the Company to ethical standards and practices. The Director Code of Conduct can be reviewed on the Company’s website.
The Company has also adopted an extensive Employee Code of Conduct that applies to all employees of the Company, which acknowledges the need for,
and continued maintenance of, the highest standard of ethics and seeks to ensure that employees act honestly, transparently, diligently and with integrity.
A summary of the Employee Code of Conduct can be accessed on the Company’s website.
The Company has also implemented a policy on securities trading that binds all of the Group’s offi cers and employees. In addition to ensuring that all
offi cers and employees are aware of the legal restrictions on trading in the Company’s securities whilst in possession of unpublished price-sensitive
information, the policy also places restrictions on when Directors and employees can deal in the Company’s securities and requires the Directors and
certain employees to notify the Company Secretary upon dealing in the Company’s securities. The policy can be accessed on the Company’s website.
The Group has adopted a Whistleblower Policy, which is designed to ensure that employees of the Group can raise concerns in good faith regarding actual
or suspected improper conduct or malpractice in the Group, without fear of reprisal or feeling threatened by doing so.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
19
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010
Revenue and other income
Employee and director benefi t expenses
Depreciation and amortisation expenses and
impairment
Vehicle expenses
Consulting expenses
Marketing expenses
Property and corporate expenses
Technology and communication expenses
Other expenses
Finance costs
Note
3
4
4
Profi t before income tax and business combination
29
Gain on business combination
29
Acquisition costs
Profi t before income tax
Income tax (expense)/benefi t
5
Profi t attributable to members of the parent entity
Other comprehensive income
Other comprehensive income/(loss) for the
period after tax
Economic Entity
Parent Entity
2010
$’000
132,022
(41,347)
(19,307)
(13,063)
(1,278)
(2,573)
(2,698)
(3,422)
(5,282)
(3,149)
39,903
20,991
(5,707)
55,187
(10,227)
44,960
2009
$’000
77,259
(34,309)
(1,857)
-
(1,034)
(1,111)
(2,298)
(3,163)
(4,575)
-
28,912
-
-
28,912
(8,389)
20,523
2010
$’000
26,281
(544)
-
-
-
-
(169)
-
-
(791)
24,777
-
(4,430)
20,347
1,623
21,970
2009
$’000
12,826
(484)
-
-
-
-
(93)
-
(2)
-
12,247
-
-
12,247
(14)
12,233
-
-
-
-
Total comprehensive income for the period
44,960
20,523
21,970
12,233
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
6
6
66.5
66.5
30.4
30.4
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
20
STATEMENTS OF FINANCIAL POSITION
AS AT 30 JUNE 2010
Economic Entity
Parent Entity
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Prepayments
Total current assets
Non-current assets
Trade and other receivables
Other fi nancial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Current tax liability
Provisions
Borrowings
Other liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Provisions
Borrowings
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained earnings
TOTAL EQUITY
Note
8
9
9
10
12
13
14
15
16
17
18
13
17
18
19
20
2010
$’000
16,757
10,247
1,809
2,122
30,935
6,269
-
209,829
126
38,905
255,129
286,064
42,544
8,431
3,184
7,949
117
62,225
-
458
133,964
134,422
196,647
89,417
23,066
1,284
65,067
89,417
2009
$’000
28,047
4,353
-
1,380
33,780
-
-
2,007
-
39,018
41,025
74,805
12,325
2,471
2,234
-
122
17,152
82
168
-
250
17,402
57,403
22,637
804
33,962
57,403
2010
$’000
1,405
-
-
-
1,405
-
100,381
-
1,427
-
101,808
103,213
17,194
8,431
-
7,949
-
33,574
-
-
21,866
21,866
55,440
47,733
23,066
1,284
23,383
47,733
The above statements of fi nancial position should be read in conjunction with the accompanying notes.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
2009
$’000
11,764
49
-
17
11,830
-
44,832
-
2
-
44,834
56,664
15,484
2,471
-
-
-
17,955
-
-
-
-
17,955
38,709
22,637
804
15,268
38,709
21
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2010
2010
Equity as at beginning of year
Profi t attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the period
Issue of shares
Transfer on exercise of options
Option expense
Dividends paid
Equity as at 30 June 2010
2009
Equity as at beginning of year
Profi t attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the period
Option expense
Dividends paid
Equity as at 30 June 2009
2010
Equity as at beginning of year
Profi t attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the period
Issue of shares
Transfer on exercise of options
Option expense
Dividends paid
Equity as at 30 June 2010
2009
Equity as at beginning of year
Profi t attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the period
Option expense
Dividends paid
Note
Ordinary Shares
$’000
Retained Earnings
$’000
Option Reserve
$’000
Economic Entity
22,637
-
-
-
360
69
-
-
23,066
22,637
-
-
-
-
-
22,637
33,962
44,960
-
44,960
-
-
-
(13,855)
65,067
25,266
20,523
-
20,523
-
(11,827)
33,962
804
-
-
-
-
(69)
549
-
1,284
304
-
-
-
500
-
804
7
7
Note
Ordinary Shares
$’000
Retained Earnings
$’000
Option Reserve
$’000
Parent Entity
22,637
-
-
-
360
69
-
-
23,066
22,637
-
-
-
-
-
15,268
21,970
-
21,970
-
-
-
(13,855)
23,383
14,862
12,233
-
12,233
-
(11,827)
7
7
804
-
-
-
-
(69)
549
-
1,284
304
-
-
-
500
-
804
Equity as at 30 June 2009
22,637
15,268
The above statements of changes in equity should be read in conjunction with the accompanying notes.
22
Total
$’000
57,403
44,960
-
44,960
360
-
549
(13,855)
89,417
48,207
20,523
-
20,523
500
(11,827)
57,403
Total
$’000
38,709
21,970
-
21,970
360
-
549
(13,855)
47,733
37,803
12,233
-
12,233
500
(11,827)
38,709
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2010
Economic Entity
Parent Entity
Note
2010
$’000
2009
$’000
Cash fl ows from operating activities
Receipts from customers
Payments to suppliers and employees
Proceeds from sale of assets under lease
Payments for assets under lease
Interest received
Interest paid
Dividends received
Income taxes paid
Net cash from operating activities
Cash fl ows from investing activities
Acquisition of subsidiary, net of cash
Acquisition expenses
Payment for contract rights
Payment for capitalised software
Proceeds from sale of plant and equipment
Acquisition of plant and equipment
Net cash used in investing activities
Cash fl ows from fi nancing activities
Equity contribution
Dividends paid by parent entity
Proceeds from borrowings
Proceeds from controlled entities
21
29
14(b)
14(b)
12(b)
7
29
132,863
(74,232)
11,792
(25,261)
1,050
(914)
-
(9,156)
91,356
(55,474)
-
-
1,315
-
-
(8,354)
36,142
28,843
(166,143)
(4,744)
-
(1,629)
30
(3,457)
(175,943)
360
(13,855)
142,006
-
-
-
(5,151)
(740)
-
(1,047)
(6,938)
-
(11,827)
-
-
2010
$’000
-
(119)
-
-
572
(196)
25,758
(14)
26,001
(55,000)
(4,218)
-
-
-
-
(59,218)
360
(13,855)
29,280
7,073
2009
$’000
-
(215)
-
-
683
-
12,200
(8,354)
4,314
-
-
-
-
-
-
-
-
(11,827)
-
8,906
Net cash provided by/(used in) fi nancing activities
Net cash (decrease)/increase in cash and
cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
8
128,511
(11,827)
22,858
(2,921)
(11,290)
28,047
16,757
10,078
17,969
28,047
(10,359)
11,764
1,405
1,393
10,371
11,764
The above statements of cash fl ows should be read in conjunction with the accompanying notes.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
23
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General information
The fi nancial report of McMillan Shakespeare Limited and its controlled entities for the year ended 30 June 2010 was authorised for issue in
accordance with a resolution of the directors on 6 September 2010 and covers McMillan Shakespeare Limited (‘the Company” or the “parent
entity”) as an individual entity as well as “the economic entity”, consisting of McMillan Shakespeare Limited and its subsidiaries (‘the Group”) as
required by the Corporations Act 2001.
The fi nancial report is presented in Australian currency, which is the economic entity’s functional and presentation currency.
McMillan Shakespeare Limited is a company limited by shares and domiciled in Australia, whose shares are publicly traded on the Australian Stock
Exchange.
(b) Basis of preparation
The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with Australian Accounting Standards, other
authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001.
The fi nancial report has been prepared on an accruals basis and is based on historical costs. Cost is based on fair values of the consideration given
in exchange for assets.
The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective 1 January 2009. The revised standard
requires the separate presentation of a Statement of Comprehensive Income and a Statement of Changes in Equity. All non-owner changes in equity
must now be presented in the Statement of Comprehensive Income. As a consequence, the Group had to change the presentation of its fi nancial
statements. Comparative information has been re-presented so that it also conforms with the new standard.
Compliance with IFRS
Australian Accounting Standards include International Financial Reporting Standards as adopted in Australia (AIFRS). Compliance with AIFRS
ensures that the fi nancial report complies with International Financial Reporting Standards (IFRS).
(c) Principles of consolidation
The consolidated fi nancial statements comprise the fi nancial statements of the Company and its subsidiaries as at 30 June each year.
Subsidiaries are entities over which the Group has the power to govern the fi nancial and operating policies, generally accompanying a shareholding
of more than one-half of the voting rights. Potential voting rights that are currently exercisable or convertible are considered when assessing control.
Consolidated fi nancial statements include all subsidiaries from the date that control commences until the date that control ceases. The fi nancial
statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies.
All inter-company balances and transactions, including unrealised profi ts arising from intra-group transactions have been eliminated. Unrealised
losses are also eliminated unless costs cannot be recovered. Investments in subsidiaries are accounted for at cost in the individual fi nancial
statements of the parent entity, adjusted for the value of options expensed.
(d) Business combinations
The purchase method of accounting is used to account for all business combinations. Cost is measured as the fair value of the assets given,
shares issued or liabilities incurred or assumed at the date of exchange. Acquisition costs including advisory, legal, accounting, valuation and
other professional consulting fees directly attributable to the acquisition are expensed. Where equity instruments are issued, the value of the equity
instruments is their published market price on the date of exchange unless, in rare circumstances, it can be demonstrated that the published price
on the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of
fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Identifi able assets acquired and liabilities and contingent liabilities assumed in the business combinations are initially measured at their fair values
at acquisition date. The excess of the cost of acquisition over the fair value of the economic entity’s share of the identifi able net assets acquired is
recorded as goodwill (refer Note 1(g)(i)). If the cost of acquisition is less than the economic entity’s share of the fair value of the net assets acquired,
the difference is recognised in the Statement of Comprehensive Income, but only after a reassessment of the identifi cation and measurement of the
net assets acquired. If the initial accounting for a business combination is incomplete by the time of reporting the period in which the business
combination occurred, preliminary estimates are used for items for which accounting is incomplete. These provisional estimates are adjusted in
a measurement period that is not to exceed 12 months from the date of acquisition to refl ect new information about facts and circumstances that
existed at the date of acquisition that had they been known would have affected the amounts recognised at that date.
Where settlement of any part of the cash consideration is deferred, the amounts payable in the future are discounted to the present value at the date
of the exchange using the entity’s incremental borrowing rate as the discount rate.
24
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(e) Income tax
(i)
Income tax expense
The income tax expense for the period is the tax payable on the current period’s taxable income based on the Australian income tax rate
adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
(ii) Deferred tax
Deferred tax assets and liabilities are recognised for all temporary differences between the carrying amounts of assets and liabilities for
fi nancial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities
settled, based on those rates which are enacted or substantially enacted. Deferred tax assets are only recognised for deductible temporary
differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and
losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amounts and tax bases of
investments in subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable
that the differences will not reverse in the foreseeable future. Current and deferred tax balances relating to amounts recognised directly in
equity are also recognised directly in equity.
(iii) Tax consolidation
The Company and its wholly-owned Australian resident entities are members of a tax consolidated group under Australian taxation law. The
Company is the head entity in the tax consolidated group. Entities within the tax consolidated group have entered into a tax funding agreement
and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, the Company and each of the entities in
the tax consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on current tax liability or current tax
asset of the head entity.
(iv) Investment allowances
Companies within the group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances).
The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense.
A deferred tax asset is recognised for unclaimed tax credits that are carried forward as deferred tax assets.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
Depreciation on assets is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Class of Fixed Asset
Plant and equipment
Software
Motor vehicles under operating lease
Depreciation Rate
20% – 40%
20% – 33%
25% – 33%
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate at each balance sheet date.
Motor vehicles no longer held under an operating lease are classifi ed as inventory.
(g) Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of the business combination over the Group’s share of the net fair value of the identifi able assets,
liabilities and contingent liabilities. Goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill is
reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired
(refer Note 14(c)). Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Any
impairment is recognised immediately in the Statement of Comprehensive Income and cannot be subsequently reversed.
(ii) Capitalised software development costs
Software development costs are recognised when it is probable that future economic benefi ts attributable to the software will fl ow to the entity
and the cost of the development can be measured reliably. Capitalised software development costs are amortised on a straight line basis over
three to fi ve years, during which the benefi ts are expected to be realised. Capitalised software development costs are reviewed annually for
indicators of impairment, and if indicators are identifi ed an impairment test is performed (refer Note 1(h)).
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
25
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(iii) Contract rights
Contract rights acquired and amounts paid for contract rights are recognised at the value of any consideration paid plus any expenditure
directly attributable to the transactions. Contracts are amortised over the life of the contract, and reviewed annually for indicators of impairment
in line with the economic entity’s impairment policy (refer Note 1(h)).
(iv) Intangible assets acquired in a business combination
Any potential intangible assets acquired in a business combination are identifi ed and recognised separately from goodwill where they satisfy
the defi nition of an intangible asset and their fair value can be measured reliably.
(h) Impairment of non-fi nancial assets
At each reporting date, the economic entity reviews the carrying amounts of its tangible (including operating lease assets) and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset being the higher of the asset’s fair value less costs to sell and value in use is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate cash fl ows that are independent from other assets, the economic entity estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
Goodwill is tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not
subsequently reversed. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash fl ows are discounted to their present value using a pretax discount rate that refl ects current market assessments of the time value of
money and the risks specifi c to the asset for which the estimates of future cash fl ows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profi t or loss immediately, unless the relevant
asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease, except where it exceeds a previous revaluation
increment, in which case it is recognised in the profi t or loss.
Where an impairment loss, other than one relating to goodwill, subsequently reverses, the carrying amount of the asset (cash-generating unit) is
increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal
of an impairment loss is recognised in profi t or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the
impairment loss is treated as a revaluation increase.
Operating lease assets are reviewed for impairment on an ongoing basis and at reporting date using both internal and external sources of information.
(i) Financial instruments
Recognition and derecognition
Regular purchases and sales of fi nancial assets and liabilities are recognised on trade date, the date on which the economic entity commits to the
fi nancial assets or liabilities. Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or have
been transferred and the economic entity has transferred substantially all the risks and rewards of ownership.
(i) Cash and cash equivalents
For statement of cash fl ow purposes, cash and cash equivalents includes cash on hand, deposits held at call with fi nancial institutions, other
short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash
which are subject to an insignifi cant risk of changes in value.
(ii) Trade and other receivables
All receivables are classifi ed as ‘loans and receivables’ under the requirements of AASB 139 Financial Instruments: Recognition and
Measurement and are recognised initially at fair value, and subsequently at amortised cost, less provision for impairment. All trade and other
receivables are classifi ed as current as they are due for settlement no more than 30 days from the date of recognition. Cash fl ows relating to
short-term receivables are not discounted if the effect of discounting is immaterial.
The Directors establish an allowance for impairment when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables. The provision consists of allowances for specifi c doubtful amounts.
The allowance account for receivables is used to record impairment losses unless the Group is satisfi ed that there is no possible recovery
of the amount, at which point it is written off directly against the amount owing. The impairment loss and any subsequent reversal thereof, is
recognised in the Statement of Comprehensive Income within other expenses. There have been no amounts recorded for impairment for the
parent entity.
26
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(iii) Other fi nancial assets
Investments in subsidiaries
Investments in subsidiaries are carried at cost and adjusted for any share based payments in the separate fi nancial statements of the Company,
under AASB 127: Consolidated and Separate Financial Statements.
(iv) Other fi nancial liabilities
Trade and other payables
Trade and other payables, including accruals, are recorded initially at fair value, and subsequently at amortised cost. Trade and other payables
are non-interest bearing.
(j) Employee benefi ts
(i) Wages and salaries, annual leave and long service leave
Provision is made for the economic entity’s liability for employee benefi ts arising from services rendered by employees to balance date.
Employee benefi ts expected to be settled within one year together with benefi ts arising from wages and salaries and annual leave which
will be settled after one year, have been measured at amounts expected to be paid when the liability is settled plus related oncosts. Other
employee benefi ts payable later than one year have been measured at the present value of the estimated future cash outfl ows to be made for
those benefi ts. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using interest rates attaching to national government guaranteed securities with terms to maturity
that match, as closely as possible, the estimated future cash outfl ows.
(ii) Superannuation
The amount charged to the Statement of Comprehensive Income in respect of superannuation represents the contributions made by the
economic entity to superannuation funds.
(iii) Bonuses
A liability for employee benefi ts in the form of bonuses is recognised in employee benefi ts. This liability is based upon predetermined
plans tailored for each participating employee and is measured on an ongoing basis during the fi nancial period. The amount of bonuses
is dependent on the outcomes for each participating employee. An additional amount is included where the Board has decided to pay
discretionary bonuses for exceptional performance.
(k) Revenue
Revenue is recognised at the fair value of consideration received or receivable. Amounts disclosed as revenue are shown net of returns, trade
allowances and duties, and taxes paid. The following specifi c criteria must also be met before revenue is recognised:
(i) Rendering of services
Revenue from services provided is recognised when the service is provided to the customer.
(ii)
Interest
Revenue from interest is recognised as interest accrues using the effective interest rate method. The effective interest rate method uses the
rate that exactly discounts the estimated future cash fl ows over the expected life of the fi nancial asset.
(iii) Dividends
Revenue from dividends is recognised when the economic entity’s right to receive payment is established.
(iv) Lease revenue (property, plant and equipment)
Operating lease revenue is made up of operating lease interest and revenue from the principal that forms the net investment in the leased
asset. Interest included in operating lease instalments is calculated on a straight-line basis for each customer contract based on the effective
rate method using the interest rate in the lease contract and the net investment value of the leased asset. The principal portion upon receipt
reduces the net investment in the leased asset.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
27
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(v) Sale of leased assets
Revenue includes the proceeds from the routine sale of motor vehicles previously leased and included within property, plant and equipment
following the cessation of the rental of these assets by a customer.
(vi) Vehicle maintenance services
Revenues from maintenance service contracts are recognised for services rendered when it is probable that economic benefi ts from the
transaction will fl ow to the Group. When amounts are uncollectable or recovery is not considered probable, an expense is recognised
immediately. Revenue is recognised for each reporting period by reference to the stage of completion when the outcome of the service
contracts can be estimated reliably. The stage of completion of service contracts is based on the proportion that costs incurred to date bear
to total estimated costs. When the outcome cannot be measured reliably, revenue is deferred and recognised 60 days after the contract
terminates.
(l) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not
recoverable from the Australian Taxation Offi ce (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or
as part of an item of expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the Statement of Financial Position.
(m) Leasing
Leases are classifi ed as fi nance leases whenever the terms of the contract transfers substantially all the risk and rewards of ownership to the lessee.
All other contracts are classifi ed as operating leases.
(i) Finance lease receivable portfolio
Lease contracts with customers are recognised as fi nance lease receivables at the Group’s net investment in the lease which equals the
net present value of the future minimum lease payments. Finance lease income is recognised as income in the period to refl ect a constant
periodic rate of return on the Group’s remaining net investment in respect of the lease.
(ii) Operating lease portfolio – the Group as lessor
Lease contracts with customers other than fi nance leases are recognised as operating leases. The Group’s initial investment in the lease is
added as a cost to the carrying value of the leased assets and recognised as lease income on a straight line basis over the term of the lease.
Operating lease assets are amortised as an expense on a straight line over the term of the lease based on the cost less residual value of the
lease.
(n) Share-based payments
The fair values of options granted are recognised as an employee benefi t expense with a corresponding increase in equity (share option reserve).
The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.
Fair value is determined using a binomial option pricing model. In determining fair value, no account is taken of any performance conditions other
than those related to the share price of the Company (“market conditions”). The cumulative expense recognised between grant date and vesting
date is adjusted to refl ect the Directors’ best estimate of the number of options that will ultimately vest because of internal conditions attached to
the options, such as the employees having to remain with the Group until vesting date, or such that employees are required to meet internal targets.
No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options
that do not ultimately vest because a market condition was not met.
(o) Contributed equity
Ordinary shares are classifi ed as equity.
Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefi t.
Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the business
combination.
(p) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the economic entity,
on or before the end of the fi nancial year but not distributed at balance date.
28
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(q) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profi t attributable to members of the Company by the weighted average number of ordinary
shares outstanding during the fi nancial year, adjusted for bonus elements in ordinary shares during the year.
Diluted earnings per share
The earnings used to calculate diluted earnings per share is calculated by adjusting the basic earnings by the after-tax effect of interest and any
other fi nancing costs associated with dilutive potential ordinary shares.
(r) Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identifi ed as the
Chief Executive Offi cer.
(s) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and where it is probable that
the Group is required to settle the obligation, and the obligation can be reliably estimated.
Restructurings
A restructuring provision is recognised when the Group has developed a plan for the restructuring and has communicated with those affected that
it will carry out the plan. The provision is measured based on the direct cost arising from and necessary to undertake the restructuring plan and not
with the ongoing activities of the Group.
(t)
Inventories
The inventory of motor vehicles is stated at the lower of cost and net realisable value. Following termination of the lease or rental contract the
relevant assets are transferred from Assets under Operating Lease to Inventories at their carrying amount. Net realisable value is the estimated
selling price in the ordinary course of business, less estimated costs to make the sale.
(u) Operating cash fl ow
All cash fl ows other than investing or fi nancing cash fl ows are classifi ed as operating cash fl ows. As the asset fi nance segment provides operating
and fi nance leases for motor vehicles and equipment, the cash outfl ows to acquire the lease assets are classifi ed as operating cash outfl ows.
Similarly interest received and interest paid in respect of the asset fi nance segment is classifi ed as operating cash fl ows.
(v) Borrowings
Borrowings are initially recorded at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest rate
method. The effective interest rate method exactly discounts the estimated cash fl ows through the expected life of the borrowing.
(w) Derivative fi nancial instruments
The economic entity has not used any derivative fi nancial instruments to manage its interest rate exposure during the year. However, with the
acquisition of Interleasing and the inherent exposure to interest rate volatility and its impact on leasing product margins, the Group will employ
greater use of derivative instruments to mitigate the exposure. The economic entity will balance the spread between interest rates charged to lease
contracts and interest rates and the level of borrowings assumed in its fi nancing as required.
In accordance with the economic entity’s treasury policy, derivative interest rate products that can be entered into include interest rate swaps,
forward rate agreements and options as cash fl ow hedges to mitigate both current and future interest rate volatility that may arise from changes in
the fair value of its borrowings.
Derivative fi nancial instruments are recognised at fair value at the date of inception and subsequently remeasured at fair value at reporting date. The
resulting gain or loss is recognised in profi t or loss unless the derivative or amount thereof is designated and effective as a hedging instrument, in
which case the gain or loss is taken to equity and subsequently recognised in profi t or loss to match the timing and relationship with the amount
that the instrument was intended to hedge.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
29
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(x) Critical judgements and signifi cant accounting estimates
The preparation of fi nancial statements requires the Board to make judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate
is revised and in any future periods affected.
All signifi cant judgements, estimates and assumptions made during the year have been considered for signifi cance. Key assumptions used for
value-in-use calculations to determine the recoverable amount of assets in impairment tests are discussed in Note 14(d).
Estimates of signifi cance are used in determining the residual values of operating lease and rental assets at the end of the contract date and
income from maintenance services, which is recognised on a percentage stage of completion. In determining residual values, critical judgements
include the future value of the asset lease portfolio at the time of sale, economic and vehicle market conditions and dynamics. For income from
maintenance contracts, judgement is made in relation to expected costs that can affect margins. The estimates and underlying assumptions are
reviewed on an ongoing basis.
No other judgements, estimates or assumptions are considered signifi cant.
(y) New accounting standards and interpretations
The following new accounting standards, amendments to standards and interpretations (standards) have been issued, but are not mandatory for
30 June 2010 reporting periods. They may impact the economic entity in the period of initial application. They are available for early adoption, but
have not been applied in preparing this fi nancial report. No other new standards will impact the fi nancial report.
AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from
1 January 2013)
AASB 9 Financial Instruments addresses the classifi cation and measurement of fi nancial assets and is likely to affect the Group’s accounting for its
fi nancial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet to assess its full impact.
However, initial indications are that it may affect the Group’s accounting for its available-for-sale fi nancial assets, since AASB 9 only permits the
recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value
gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profi t or loss. The Group has
not yet decided when to adopt AASB 9.
(z) Changes in accounting policies
In the current year, the economic entity has adopted all of the new and revised Standards and Interpretations issues by the Australian Accounting
Standards Board that are relevant to its operations and effective for the current annual reporting period.
Signifi cant effects on current, prior or future periods arising from the fi rst-time application of the standards discussed above in respect of
presentation, recognition and measurement of accounts are described in the following notes.
AASB 8: Operating Segments
The Group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting. The new standard requires
a management approach, under which segment information is presented on the same basis as that used for internal reporting purposes. This has
resulted in an increase in the number of reportable segments presented. In addition, the segments are reporting in a manner that is consistent with
the internal reporting provided to the chief operating decision maker. There has been no impact on the measurement of the Group’s assets and
liabilities. Comparatives for 2009 have been restated.
AASB 3: Business Combinations
The Group has applied the new standard to the business combination completed during the year. As a result, acquisition-related costs including
advisory, legal, accounting, valuation, and other professional consulting; and costs of registering and issuing debt and equity securities were
expensed in the period in which the costs were incurred and the services received.
(aa) Rounding of amounts
The Company is of a kind referred to in Class order CO98/100, issued by the Australian Securities and Investments Commission, relating to the
“rounding off” of amounts in the fi nancial report. Amounts in the fi nancial report have been rounded off in accordance with that Class Order to the
nearest thousand dollars, or in certain cases, the nearest dollar.
(ab) Parent entity accounts
In accordance with Class order CO10/654 the Group will continue to include parent entity fi nancial statements in the fi nancial report.
30
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
2 FINANCIAL RISK MANAGEMENT
The Group’s overall risk management approach is to identify the risks and implement safeguards which seek to profi t from and minimise potential
adverse effects on the fi nancial performance of the Group. The Board is responsible for monitoring and managing the fi nancial risks of the Group.
The Board monitors these risks through the monthly board meetings, via regular reports from the Risk and Compliance Committee and ad hoc
discussions with senior management, should the need arise. A risk register is presented to the Board at least quarterly and Credit and Treasury
reports are provided by the Group Treasurer and Credit Manager and discussed at Board meetings monthly, along with management accounts. All
exposures to risk and management strategies are consistent with prior year, other than as noted below.
(a) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its fi nancial obligations as they fall due.
Liquidity management strategy
The acquisition of the Interleasing business and the resultant borrowings have heightened the requirement to manage the Group’s exposure to
potential mismatches between the refi nancing of its assets and liabilities. The Group’s objective is to maintain continuity and fl exibility of funding
through the use of revolving bank facilities, asset subordination and surplus cash as appropriate to match asset and liability requirements.
The Group’s policy is to ensure that there is suffi cient liquidity through access to available funds to meet at least six months of average net asset
funding requirements. This level is expected to cover any short term fi nancial market constraint for funds.
The Group monitors monthly positive operating cash fl ows and forecasts cash fl ows for each six month period. Signifi cant cash deposits have been
maintained which enable the Group to settle obligations as they fall due without the need for short term fi nancing facilities. The Chief Financial
Offi cer and the newly appointed Treasurer monitor the cash position of the Group weekly.
Financing arrangements
During the year, the Group secured $215m of borrowing facilities of which $72.3m was left undrawn at 30 June 2010 after the initial drawdown
to fund the acquisition of the Interleasing business. The level and type of funding will be reviewed on an ongoing basis to ensure they meet the
Group’s on-going requirements.
The facilities may be drawn at any time within the following periods from April 2010 and the details of each facility are as follows:
Facility A:
$30m amortising facility, fully drawn; expiry 31 March 2013 with $4m amortisation payments required every six months beginning
December 2010.
Facility B:
$5m revolving facility, undrawn; expiry 31 March 2011.
Facility C:
$180m revolving facility, drawn to $112.7m; expiry 31 March 2012.
Maturities of fi nancial liabilities
The table below analyses the Group’s and the parent entity’s fi nancial liabilities into relevant maturity groupings based on their contractual
maturities and based on the remaining period to the expected settlement date.
The amounts disclosed in the table are the contractual undiscounted cash fl ows. Balances due within 12 months equal their carrying value as the
impact of discounting is not signifi cant.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
31
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Group – at 30 June 2010: Contractual maturities of fi nancial liabilities
Trade payables
Borrowings
Less than
6 mths
$’000
42,544
9,282
51,826
6-12 mths
1-2 years
2-5 years
Over 5 years
Total contractual
cash fl ows
Carrying amount
(assets)/
liabilities
$’000
-
9,048
9,048
$’000
-
128,405
128,405
$’000
-
15,341
15,341
$’000
-
-
-
$’000
42,544
162,076
204,620
$’000
42,544
141,913
184,457
Parent – at 30 June 2010: Contractual maturities of fi nancial liabilities
Less than
6 mths
$’000
17,194
4,157
5,125
26,476
6-12 mths
1-2 years
2-5 years
Over 5 years
Total contractual
cash fl ows
Carrying amount
(assets)/
liabilities
$’000
-
4,089
4,959
9,048
$’000
-
118,913
9,492
128,405
$’000
-
-
15,341
15,341
$’000
-
$’000
17,194
-
-
-
127,159
34,917
179,270
$’000
17,194
-
29,815
47,009
Trade payables
Financial
guarantee
contracts
Borrowings
(b) Credit risk
Credit risk is the risk of fi nancial loss to the Group if a customer or counter-party to a fi nancial instrument fails to meet its contractual obligations.
The Company and economic entity have exposure to credit risk through the receivables balances, customer leasing commitments and deposits with
banks. Credit risk for the economic entity arising from total receivables is $16,516,000 (2009: $4,353,000) and $16,754,000 (2009: $28,045,000)
arising from total deposits with banks. Credit risk for the parent entity arising from total receivables is $nil (2009: $49,000) and $1,405,000 (2009:
$11,764,000) arising from total deposits with banks. Following the acquisition of Interleasing, there is an increased exposure to credit risk from
assets leased to customers, mainly from possible payment defaults as they impact fi nance lease receivables ($9,226,000) and the amortisation of
leased vehicles ($202,471,000) that have yet to be invoiced as future lease rentals.
Credit risk management strategy
Credit risk arises from cash and cash equivalents and deposits with banks as well as exposure from outstanding receivables and unbilled rentals for
leased vehicles. For deposits with banks, only independently rated institutions with a minimum rating of A-1+ are used.
Credit risk relating to the leasing of assets is managed pursuant to the Board approved Credit Policy by the Group CFO and the Group Treasurer
and Credit Manager. The policy is reviewed annually and prescribes minimum criteria in the credit assessment process that includes credit risk of
the customer, type and intended use of the asset under lease and the value of the exposure. A two tiered Credit Committee structure is in place to
stratify credit applications for assessment; a Local Credit Committee and an Executive Credit Committee reviewing applications based on volume
and value of the application. All minutes of Credit Committee meetings are reported to the Board. Additionally, the Board and the Credit Committee
meet at least quarterly to review and set concentration limits to effectively spread the risks as widely as possible across asset classes, client base,
industries and asset manufacturer.
Where customers are independently rated, these ratings are taken into account. If there is no independent rating, management assesses the credit
quality of the customer, taking into account its fi nancial position, business segment, past experience and other factors. The overall debtor aging
position is reviewed monthly by the Board as is the provision for any impairment in the trade receivables balance.
(c) Market risk
(i)
Interest rate risk
In addition to the Group’s surplus cash and new borrowings, the acquisition of Interleasing has increased the Group’s exposure to movements
in interest rates where movements could directly affect the margins from existing contracts for assets leased and income earned from surplus
cash.
Exposure to interest rate volatility is managed via the Group’s Treasury and pricing policies. The policies aim to minimise mismatches
between the amortised value of lease contracts and the sources of fi nancing to mitigate repricing and basis risk. Mismatch and funding graphs
are reported monthly to the Board along with the minutes of the monthly Interest Committee meetings.
32
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Interest rate risk arises where movements in interest rates affect the margins on existing contracts for assets leased. As the Group carries
signifi cant cash and borrowings, movements in interest rates can affect net income to the Group.
The Group’s main interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to repricing
interest rate risk. As at the end of the reporting period, the Group had $142,727,000 (2009: nil) variable rate borrowings under long-term
revolving facilities. The weighted average interest rate was 5.07% which is used as an input to asset repricing decisions. An analysis of
maturities is provided in note 2(a).
The Group’s interest rate risk also arises from cash at bank and deposits, which are at fl oating interest rates.
The Group has an interest rate swap facility which was unused at 30 June 2010.
Sensitivity analysis – fl oating interest rates
At 30 June 2010, the Group’s and parent entity’s cash and cash equivalents give rise to credit interest rate risk. If the Australian interest rate
weakened or strengthened by 50 basis points and all other variables were held constant, the Group’s post-tax profi t for the year would have
been $630,000 (parent entity: $142,975) higher or lower depending on which way the interest rates moved based on the cash and cash
equivalents and borrowings balances at 30 June (2009: Group: $83,443; parent entity: $41,174, higher or lower depending on which way the
interest rates moved based on the cash and cash equivalents balances at 30 June).
(ii) Foreign currency risk
The economic entity does not engage in any transactions that are denominated in a currency other than Australian dollars, the functional and
presentation currency. As such, the economic entity is not exposed to foreign currency risk.
(iii) Other market price risk
The economic entity does not engage in any transactions that give rise to any other market risks.
(d) Asset risk
The Group’s exposure to asset risk is mainly from the residual value of assets under lease and the maintenance and tyre obligations to meet claims
for these services sold to customers. Residual value is an estimate of the value of an asset at the end of the lease and this estimate, which is formed
at the inception of the lease and any subsequent impairment, exposes the Group to potential loss from resale where the market price is lower
than the value as recorded in the books. The risk relating to maintenance and tyre services arises where the costs to meet customer claims over
the contracted period exceed estimates made at inception. Risk mitigation options contractually available are also monitored and utilised where
appropriate.
The Group continuously reviews the portfolio’s residual values via a Residual Value Committee comprising experienced senior staff, who measure
and report all matters of risk that could potentially affect residual values and maintenance costs and matters that can mitigate the Group from these
exposures. The policy sets out a framework to measure and factor into their assessment such critical variables as used car market dynamics,
economic conditions, government policies, the credit market and the condition of assets under lease.
At reporting date, the portfolio of motor vehicles under operating lease of $202,471,000 included a residual value provision of $266,000.
(e) Fair value measurements
The fair value of fi nancial assets and fi nancial liabilities must be estimated for recognition and measurement for disclosure purposes.
Refer to notes 8 to 14 for details of the fair value of assets and 15 to 18 for the fair value of liabilities.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
33
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
92,139
26,656
12,226
-
1,001
132,022
76,000
-
-
-
1,259
77,259
-
-
-
25,758
523
26,281
-
-
-
12,200
626
12,826
7,538
7,781
-
3,149
-
791
14(b)
14(b)
12
12
14(b)
659
1,083
15,723
1,576
266
19,307
-
1,931
341
387
-
1,093
-
1,821
36
1,424
2,557
2,224
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
84,290
20,000
17,500
75,000
83,000
13,000
4,000
-
5,000
-
-
-
5,000
-
-
-
3 REVENUE
Revenue from continuing operations
Remuneration services1
Lease rental services
Proceeds from sale of leased assets
Dividends received
Interest – other persons
Total revenue
1 Included in remuneration services revenue
is fee income derived from the holding of
trust funds
4 EXPENSES
(a) Profi t before income tax includes the
following specifi c expenses
Finance costs
Interest – fi nancial institutions
Depreciation and amortisation
expense
Software development
Contract rights acquired
Assets under operating lease
Plant and equipment
Residual value impairment loss
Impairment
Goodwill
Rental expense on operating leases
Minimum lease payments
Superannuation
Defi ned contribution superannuation
expense
(b) Auditor’s remuneration
Remuneration of the auditor
(Grant Thornton) of the parent entity for:
Auditing the Financial Reports
Audits for customer contracts
Review of subsidiary
Remuneration of other auditors for:
Auditing the Financial Reports
34
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
INCOME TAX EXPENSE/(BENEFIT)
5
(a) Components of tax expense/(benefi t)
Current tax expense/(benefi t)
Deferred tax
Income tax expense/(benefi t)
(b) The prima facie tax payable on profi t before
income tax is reconciled to the income tax
expense/(benefi t) as follows:
Profi t before income tax expense
Prima facie tax payable on profi t before income
tax at 30% (2009: 30%)
Add tax effect of:
- gain on business acquisition
- non-assessable income
- sharebased payments
- non-deductible costs
- investment allowance
- research & development
- (over)/under provision from prior year
Less tax effect of:
- dividends received
Economic Entity
Parent Entity
2010
$’000
14,215
(3,988)
10,227
55,187
16,556
(6,357)
-
159
10
(28)
(110)
(3)
10,227
2009
$’000
7,619
770
8,389
28,912
8,674
-
(15)
150
20
(17)
(338)
(85)
8,389
2010
$’000
2009
$’000
(198)
(1,425)
(1,623)
15
(1)
14
20,347
12,247
6,104
-
-
-
-
-
-
-
6,104
3,674
-
-
-
-
-
-
-
3,674
-
-
(7,727)
(3,660)
Income tax expense/(benefi t)
10,227
8,389
(1,623)
14
6 EARNINGS PER SHARE
Reconciliation of earnings to profi t
Net profi t
Earnings used to calculate basic earnings per
share (EPS)
Weighted average number of ordinary shares
outstanding during the year used in calculation
of basic EPS
Weighted average number of options on issue
outstanding
Weighted average number of ordinary shares
outstanding during the year used in calculation
of diluted EPS
’000
$44,960
’000
$20,523
$44,960
$20,523
67,592
67,583
-
-
67,592
67,583
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
35
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
7 DIVIDENDS
Final fully franked ordinary dividend for the year ended
30 June 2009 of $0.105 (2008: $0.090) per share
franked at the tax rate of 30% (2009: 30%)
Interim fully franked ordinary dividend for the year ended
30 June 2010 of $0.10 (2009: $0.085) per share
franked at the tax rate of 30% (2009: 30%)
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
7,097
6,082
7,097
6,082
6,758
13,855
5,745
11,827
6,758
13,855
5,745
11,827
Franking credits available for subsequent fi nancial
years based on a tax rate of 30% (2009 – 30%)
22,631
13,728
22,631
13,728
The above amounts represent the balance of the franking account at the end of the fi nancial year end adjusted for:
(a)
franking credits that will arise from the payment of the amount of the provision for income tax,
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and
(c)
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profi ts of subsidiaries were paid as
dividends.
The impact on the franking account of the dividends recommended by the Directors since year end, but not recognised as a liability at year end,
will be a reduction in the franking account of $4,060,679 (2009: $3,041,254).
8 CASH AND CASH EQUIVALENTS
Cash on hand
Bank balances
Short term deposits
Economic Entity
Parent Entity
2010
$’000
3
15,844
910
16,757
2009
$’000
2
13,005
15,040
28,047
2010
$’000
-
1,405
-
1,405
2009
$’000
-
1,055
10,709
11,764
Cash and cash equivalents are subject to interest rate risk as they earn interest at fl oating rates. Cash at bank is invested at fl oating rates. In 2010,
the fl oating interest rates for the economic entity and parent entity were between 1.50% and 5.28% (2009: 2.85% and 7.10%). The short term
deposits are also subject to fl oating rates, which in 2010 were between 3.64% and 4.96% (2009: 3.5% and 7.34%). These deposits have an average
maturity of 90 days (2009: 75 days).
36
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
9
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Finance lease receivables
Other receivables
Non-Current
Finance lease receivables
Economic Entity
Parent Entity
2010
$’000
1,948
2,957
5,342
10,247
6,269
2009
$’000
1,678
-
2,675
4,353
-
2010
$’000
2009
$’000
-
-
-
-
-
-
-
49
49
-
The carrying amount of all current receivables are equal to their fair values as they are short term. The fair value of non-current receivable is
$7,160,000. The fair values are based on cash fl ows discounted using a lending rate of 10.5% (2009: nil).
(a) Ageing and impairment losses
The ageing of trade receivables for the economic entity at reporting date was:
Economic Entity
Not past due
Past due 30 days
Past due 31-60 days
Past due 61-90 days
Past due >90 days
Total
(b) Concentration of risk
2010
Amount
impaired
$’000
-
(34)
(86)
(16)
(108)
(244)
Amount not
impaired
$’000
1,735
43
170
-
-
1,948
Total
$’000
1,735
77
256
16
108
2,192
2009
Amount
impaired
$’000
-
-
-
(15)
(123)
(138)
Amount not
impaired
$’000
1,415
191
30
18
24
1,678
Total
$’000
1,415
191
30
33
147
1,816
The Group’s maximum exposure to credit risk at the reporting date by geographic region is limited to Australia only, as the economic entity mainly
trades within the boundaries of the Australian continent.
Approximately 82% (2009: 72%) of the Group’s trade receivables relate to customers for the supply of petroleum products. Management have
assessed this concentration of risk and are satisfi ed with the strategies employed in ensuring the exposure to this risk is minimal. Management
considers that no other signifi cant concentrations of risk within trade receivables exist.
(c) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the economic entity. None of the other current
receivables are impaired or past due.
(d) Doubtful debts policy
Refer Note 1(i).
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
37
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Economic Entity
Parent Entity
Note
2010
$’000
2009
$’000
2010
$’000
2009
$’000
10 OTHER FINANCIAL ASSETS
Non-current
Shares in subsidiaries at cost
11
-
-
100,381
44,832
11 SUBSIDIARIES
The consolidated fi nancial statements incorporate the assets, liabilities and
results of the following subsidiaries in accordance with the accounting policy
described in Note 1(c).
Name
Parent Entity
McMillan Shakespeare Limited
Subsidiaries of Parent Entity
Maxxia Pty Limited (formerly known as McMillan Shakespeare
Australia Pty Ltd)*
Remuneration Services (Qld) Pty Limited *
Easilease Pty Limited
Interleasing (Australia) Ltd *
CARILA Pty Ltd *
TVPR Pty Ltd *
Country of
Incorporation
Percentage Owned
2010
Percentage Owned
2009
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
*These subsidiaries have been granted relief from the necessity to prepare fi nancial reports in accordance with Class Order 98/1418 issued by the
Australian Securities and Investments Commission. For further information refer to Note 28.
12 PROPERTY, PLANT AND EQUIPMENT
(a) Plant and equipment
At cost
Less accumulated depreciation
Assets under operating lease
At cost
Less accumulated depreciation
Total plant and equipment
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
13,130
(5,772)
7,358
218,460
(15,989)
202,471
209,829
11,058
(9,051)
2,007
-
-
-
2,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(b) Movements in cost and accumulated depreciation
Consolidated entity
Year ended 30 June 2010
Balance at the beginning of year
Additions(1)
Assets classifi ed as held for sale
Additions as part of a business combination
Impairment loss
Depreciation expense
Plant and equipment
Assets under
operating lease
$’000
$’000
2,007
6,948
(91)
70
-
(1,576)
-
23,701
(8,560)
203,319
(266)
(15,723)
Total
$’000
2,007
30,649
(8,651)
203,389
(266)
(17,299)
Balance at 30 June
7,358
202,471
209,829
Year ended 30 June 2009
Balance at the beginning of year
Additions
Assets classifi ed as held for sale
Additions as part of a business combination
Depreciation expense
Balance at 30 June
2,053
1,047
-
-
(1,093)
2,007
-
-
-
-
-
-
2,053
1,047
-
-
(1,093)
2,007
1
Net cash outfl ow was $3,457,000 after receiving $3,400,000 as tenancy incentives.
(c) Security
None of the above assets have been pledged as security.
(d) Property, plant and equipment held for sale
Property, plant and equipment no longer held under operating leases are classifi ed as inventory.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
39
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
13 DEFERRED TAX ASSETS
AND LIABILITIES
(a) Asset/(Liability)
The balance comprises temporary differences
attributable to:
Amounts recognised in profi t or loss
Doubtful debts
Provisions
Property, plant and equipment
Accrued expenses
Costs incurred as a result of business combination
Other receivables/prepayments
Finance leases
Other
Contract rights
Deferred tax arising on acquisition
Closing balance at 30 June
(b) Movement
Opening balance at 1 July
Credited/(Charged) to Statement of Comprehensive
Income
Deferred tax arising on acquisition
Closing balance at 30 June
(c) Taxation of Financial Arrangements (TOFA)
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
46
869
(6,644)
1,929
1,263
(442)
7,862
130
(1,107)
(3,780)
126
(82)
3,988
(3,780)
126
41
720
(11)
308
-
(53)
-
-
(1,087)
-
(82)
688
(770)
-
(82)
-
-
-
164
1,263
-
-
-
-
-
1,427
2
1,425
-
1,427
-
-
-
2
-
-
-
-
-
-
2
1
1
-
2
Legislation is in place which changes the tax treatment of fi nancial arrangements. The Group is in the process of assessing the potential impact of
these changes on the Group’s tax position. No impact has been recognised and no adjustments have been made to the deferred tax and income
balances at reporting date.
40
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
14 INTANGIBLE ASSETS
(a) Carrying values
Goodwill
Cost
Impairment loss
Net carrying value
Software development costs
Cost
Accumulated amortisation
Net carrying value
Contract rights
Cost
Accumulated amortisation
Net carrying value
33,328
(36)
33,292
6,299
(4,413)
1,886
7,672
(3,945)
3,727
33,328
(36)
33,292
4,715
(3,753)
962
7,636
(2,872)
4,764
Total Intangibles
38,905
39,018
(b) Reconciliation of net book amount
-
-
-
-
-
-
-
-
-
-
2010
Net book amount
Balance beginning of year
Additions
Amortisation
Balance at end of year
2009
Net book amount
Balance beginning of year
Additions
Impairment loss
Amortisation
Balance at end of year
Economic Entity
Goodwill
$’000
Software
development costs
$’000
Contract rights
$’000
33,292
-
-
33,292
33,328
-
(36)
-
33,292
962
1,583
(659)
1,886
563
740
-
(341)
962
4,764
46
(1,083)
3,727
-
5,151
-
(387)
4,764
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
-
-
-
-
-
-
-
-
-
-
Total
$’000
39,018
1,629
(1,742)
38,905
33,891
5,891
(36)
(728)
39,018
41
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(c) Impairment test for goodwill
Goodwill is allocated to the economic entity’s cash-generating units (CGUs) identifi ed arising from the acquisition of subsidiaries.
The carrying amount of goodwill allocated to each CGU:
Maxxia Pty Limited (formerly McMillan Shakespeare Australia Pty Ltd)
Remuneration Services (Qld) Pty Limited
Economic Entity
2010
$’000
24,190
9,102
33,292
2009
$’000
24,190
9,102
33,292
The recoverable amount of each CGU above is determined based on value-in-use calculations. These calculations use the present value of cash
fl ow projections based on fi nancial budgets approved by management covering a fi ve-year period.
(d) Key assumptions used for value-in-use calculations
Maxxia Pty Limited (formerly McMillan Shakespeare Australia Pty Ltd)
Remuneration Services (Qld) Pty Limited
Discount rate
2010
%
17.8 17.84
17.84
2009
%
19.14
19.14
The budgets use historical average growth rates to project revenue. Costs are determined taking into account historical margins and estimated cost
increases. Cash fl ows beyond the fi ve-year period are extrapolated using a zero growth rate for conservatism. The growth rate does not exceed the
long-term average growth rate for the business in which the CGU operates.
In performing the value-in-use calculations for each CGU, the economic entity has applied pre-tax discount rates to discount the forecast future
attributable pre-tax cash fl ows. The equivalent pre-tax discount rates are disclosed above. The discount rates used refl ect specifi c risks relating to
the relevant business each subsidiary is operating in.
These assumptions have been used for the analysis of each CGU within each subsidiary.
The recoverable amounts of the CGUs exceed the carrying amounts by substantial margins. Consequently, a sensitivity analysis of possible changes
in key assumptions is not considered necessary.
15 TRADE AND OTHER PAYABLES
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Maintenance instalments received in advance
Amounts payable to wholly owned entities
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
10,766
1,129
21,996
8,653
-
42,544
5,364
461
6,500
-
-
12,325
-
-
817
-
16,377
17,194
5
-
462
-
15,017
15,484
Trade and other payables are non-interest bearing. These are short-term liabilities and the carrying value is representative of the fair value.
42
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
16 CURRENT TAX LIABILITY
Income tax
17 PROVISIONS
Current
Employee benefi ts
Non-current
Employee benefi ts
Aggregate employee benefi ts liability
18 BORROWINGS
Current
Bank loans
Non-current
Bank loans
(a) Security
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
8,431
2,471
8,431
2,471
3,184
458
3,642
7,949
133,964
2,234
168
2,402
-
-
-
-
-
7,949
21,866
-
-
-
-
-
The parent entity guarantees a bank loan of a subsidiary of $112,727,000. Fixed and fl oating charges are also provided by the Group in respect to
fi nancing facilities.
(b) Fair value disclosures
The fair value of fi nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash fl ows at the current market
interest rate that is available to the group for similar fi nancial instruments. The fair value of current borrowings approximates the carrying amount,
as the impact of discounting is not signifi cant.
(c) Risk exposures
Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 2.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
43
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
19 CONTRIBUTED EQUITY
(a) Share capital
67,677,977 (2009: 67,538,428) fully paid ordinary
shares
(b) Reconciliation of movement in equity
Balance at 1 July 2009
Options exercised during the year
4 May 2010
Transfer from option reserve
Total shares issued
Balance at 30 June 2010
Balance at 1 July 2008
Balance at 30 June 2009
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
23,066
22,637
23,066
22,637
Number of shares
67,583,428
Issue price
$
Ordinary shares
$’000
22,637
94,549
-
94,549
67,677,977
67,583,428
67,583,428
3.80
360
69
429
23,066
22,637
22,637
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of members’ shares held.
At members’ meetings, each fully paid ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a
show of hands.
(c) Options
At 30 June 2010, there were 8,317,289 (2009: 7,728,145) unissued ordinary shares for which options were outstanding.
The Company issued the following options over ordinary shares to specifi ed executives during the year.
Date of issue
14 August 2009
14 August 2009
28 May 2010
Number of options
133,334
193,939
698,924
Exercise price
$3.40
$4.70
$3.42
Option expiry date
14 August 2012
14 August 2012
1 October 2015
(d) Capital management strategy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns
for shareholders and benefi ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain
or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares
or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated
as long and short term borrowings (excluding derivatives and fi nancial guarantees) less cash and cash equivalents. Total capital is calculated as
equity as shown in the balance sheet plus net debt.
On 1 April 2010 the composition of the Group’s capital structure changed materially from the prior fi nancial year due to the acquisition of
Interleasing (Australia) Ltd as detailed in note 29. The Group’s gearing ratio at 30 June 2010 was 58% (Net debt $125,156,000 divided by
total capital of $214,573,000). The Group’s banking facility agreement includes covenants that require the total equity of the group to exceed
$55,000,000 and the dividend payout to earnings after tax ratio is not to exceed 65%. During the fi nancial year the Group met these requirements.
Total equity of the Group as at 30 June was $89,417,000. No banking facility covenants were breached during the fi nancial year.
The Group’s Risk and Compliance Committee reviews the capital structure of the Group on an ongoing basis. As part of this review the committee
considers the cost of capital and the risks associated with each class of capital.
44
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
20 RESERVES
Option reserve
Movements in the reserve are detailed in the Statements of Changes in Equity. The reserve records amounts for the fair value of options granted
and recognised as an employee benefi ts expense but not exercised.
Economic Entity
Parent Entity
2010
$’000
2009
$’000
2010
$’000
2009
$’000
21 CASH FLOW INFORMATION
Reconciliation of cash fl ow from operations with
profi t from operating activities after income tax
Profi t for the year
Non-cash fl ows in profi t from operating activities
Amortisation
Impairment loss
Depreciation
Option expense
Net loss on disposal of plant and equipment
Gain from business combination
Acquisition expenses
Reclassifi cation of capitalised operating lease asset
payments as operating cash fl ow
Carrying value of operating lease assets
Changes in assets and liabilities, net of the effects of
purchase of subsidiaries
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade payables and accruals
(Decrease)/increase in income taxes payable
Increase/(decrease) in deferred taxes
(Decrease)/increase in deferred revenue
Increase in provisions
44,960
20,523
21,970
12,233
1,742
266
17,299
549
30
(20,991)
5,707
(25,261)
10,386
(6,880)
6,859
(1,298)
2,279
-
495
728
36
1,093
500
-
-
-
-
-
3,103
2,551
(735)
770
(148)
422
-
-
-
-
-
-
4,430
-
-
66
(253)
(212)
-
-
-
Net cash from operating activities
36,142
28,843
26,001
22 COMMITMENTS
(a) Capital expenditure commitments
Capital expenditure commitments contracted for:
Property, plant and equipment
Payable:
Not later than 12 months
1,447
1,447
-
-
-
-
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
-
-
-
-
-
-
-
-
-
77
(7,260)
(735)
(1)
-
-
4,314
-
-
45
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(b) Operating lease commitments
Non-cancellable operating leases contracted for but not capitalised in the fi nancial statements:
Payable - minimum lease payments
- Not later than 12 months
- Between 12 months and 5 years
- Greater than 5 years
Economic Entity
Parent Entity
2010
$’000
3,809
14,773
15,502
34,084
2009
$’000
2,066
8,636
13,893
24,595
2010
$’000
2009
$’000
-
-
-
-
-
-
-
-
The property leases are non-cancellable leases with varying terms, with rent payable monthly in advance. Individual rental agreements specify each
rental adjustment. A new lease was entered into during the prior year securing offi ce premises for 11 years, with an option of a further 5 years. The
equipment leases are non-cancellable leases with varying terms, with rent payable quarterly in arrears.
(c) Financing commitments
During the year, the Group entered into an interest rate swap arrangement for $88m at a fi xed rate of 5.4% to commence on 9 July 2010.
The fl oating interest rates on the swaps is based on the local BBSY rate and the Group will settle the difference between the fi xed and fl oating
interest rate on a net basis.
The interest rate swap arrangements are prospectively designated as cash fl ow hedges to reduce the Group’s cash fl ow exposure resulting from
variable interest rate on borrowings.
23 SEGMENT INFORMATION
Reportable segments
(a) Description of segments
The Group has identifi ed its operating segments based on the internal reports reviewed and used by the Group’s chief decision maker (the CEO) to
determine business performance and resource allocation. Operating segments have been identifi ed after considering the nature of the products and
services, nature of the production processes, type of customer and distribution methods.
Two reportable segments have been identifi ed “Remuneration Services” and “Asset Finance”, in accordance with AASB8 “Operating Segments”
based on aggregating operating segments taking into account the nature of the business services and products sold and the associated business
and fi nancial risks and how they affect the pricing and rates of return.
Remuneration Services - This segment provides administrative services in respect of salary packaging and facilitates the settlement of motor
vehicle novated leases for customers, but does not provide fi nancing. The segment also provides ancillary services associated with motor
vehicle novated lease products.
Asset Finance - This segment provides fi nancing and ancillary management services associated with motor vehicles, commercial vehicles and
equipment.
46
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(b) Segment information provided to the Chief Decision Maker
The following is an analysis of the Group’s revenue and results from operations by reportable segment.
Remuneration Services
Asset Finance
Total for segment operations
Corporate administration and directors’ fees
Net fi nance income
Profi t before tax from continuing operations
Net gain on business combination before tax
Segment revenue
Segment profi t
2010
$’000
92,139
38,882
131,021
2009
$’000
76,000
-
76,000
2010
$’000
35,830
4,573
40,403
(710)
210
39,903
15,284
2009
$’000
28,137
-
28,137
(484)
1,259
28,912
-
Profi t before tax for the year
55,187
28,912
The Group operates in and its customers are located predominantly in Australia.
(c) Other segment information
(i) Segment revenue
Segment revenue is reconciled to the Statement of Comprehensive Income as follows:
Total segment revenue
Interest revenue
Total revenue per Consolidated Statement of Comprehensive Income
2010
$’000
131,021
1,001
132,022
2009
$’000
76,000
1,259
77,259
Segment revenue above represents sales to external customers and excludes inter-segment sales, consistent with the basis by which the
fi nancial information is presented to the Chief Decision Maker.
The accounting policies of the reportable segments are the same as the Group’s policies. Segment profi t includes the segment’s share of
centralised general management and operational support services which are shared across segments based on the lowest unit of measurement
available to allocate shared costs that reasonably measure each segment’s service level requirements and consumption. Segment profi t does
not include corporate costs of the parent entity, including listing and company fees, director’s fees and fi nance costs relating to borrowings
not specifi cally sourced for segment operations or interest revenue not directly attributable to a segment.
Included in the revenue for the Remuneration Services segment are revenues of $33,600,000 (2009: $25,500,000) from the Group’s largest
customer.
The Group operates in and its customers are located predominantly in Australia.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
47
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(ii) Segment assets and liabilities
The segment information with respect to total assets is measured in a consistent manner with that of the fi nancial statements. These assets
are allocated based on the operations of the segment and the physical location of the asset.
The Group’s borrowings are not considered to be segment liabilities.
The reportable segments’ assets and liabilities are reconciled to total assets as follows:
Segment assets
Remuneration Services
Asset Finance
Segment assets
Non-segment assets
Unallocated assets(1)
Consolidated assets per statement of fi nancial position
Segment liabilities
Remuneration Services
Asset Finance
Segment liabilities
Non-segment liabilities
Unallocated liabilities(2)
Consolidated liabilities per statement of fi nancial position
All assets and liabilities are located in Australia.
2010
$’000
63,594
205,587
269,181
16,883
286,064
25,010
133,911
158,921
37,726
196,647
1
2
Unallocated assets comprise cash and bank balances of the Group, maintained as part of the centralised treasury and funding function.
Unallocated liabilities comprise tax liabilities of the Group and corporate loans that are employed by the whole group.
Additions to non-current assets
Remuneration Services
Asset Finance
2010
$’000
8,577
23,701
32,278
2009
$’000
46,758
-
46,758
28,047
74,805
14,931
-
14,931
2,471
17,402
2009
$’000
1,047
-
1,047
Only one comparative period for the statement of fi nancial position was required for the current year, as the application of the new AASB
Operating Segments Accounting Standard did not impact the historical fi nancial position which the Group had previously reported wholly
within the Remuneration Services segment.
48
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
24 CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Estimates of the potential fi nancial effect of contingent liabilities that may become payable:
Guarantees provided for the performance of
contractual obligations. A term deposit supports
the contractual guarantees.
Guarantee provided for the performance of a
contractual obligation not supported by term deposit.
Guarantees provided in respect of property leases.
25 RELATED PARTY TRANSACTIONS
(a) Wholly owned group
Economic Entity
Parent Entity
2010
$’000
573
20
4,118
4,711
2009
$’000
310
20
3,558
3,888
2010
$’000
-
-
380
380
2009
$’000
-
-
380
380
Transactions between the Company and other entities within the wholly owned group during the years ended 30 June 2010 and 2009 consisted of:
(a)
loans advanced to the Company; and
(b)
the payment of dividends to the Company.
Aggregate amounts included in the determination of profi t from ordinary activities before income tax that resulted from transactions with entities
in the wholly owned group:
Dividend revenue
Aggregate amounts payable to entities within the
wholly owned group at balance date:
Current payables
(b) Key management personnel compensation
Compensation
Short-term employment benefi ts
Post-employment benefi ts
Long-term employment benefi ts
Termination benefi ts
Share-based payments
Economic Entity
Parent Entity
2010
$’000
-
-
$
2,917,219
249,955
20,129
-
430,484
2009
$’000
-
-
$
2,422,602
268,637
15,287
-
392,466
2010
$’000
25,578
2009
$’000
12,200
16,377
15,017
$
$
1,657,002
171,472
241
-
333,056
1,516,874
202,427
227
-
331,752
3,617,787
3,098,992
2,161,771
2,051,280
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
49
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(c) Equity instrument disclosures relating to key management personnel
Shareholding
The number of shares in the Company held during the fi nancial year ended 30 June 2010 and 30 June 2009 by each Director and each of the
specifi ed executives of the economic entity, including their personally related parties, are set out below:
Balance at the
start of the year
Shares acquired
through option
exercise
Other changes
during the year
Balance held at
balance date
105,100
100,000
4,718,025
6,425,063
12,935,000
4,164
24,287,352
-
364,348
406,138
-
-
-
770,486
105,100
100,000
5,045,546
6,425,063
12,935,000
4,164
24,614,873
-
359,348
399,138
-
-
758,486
-
-
-
-
-
-
-
-
-
94,549
-
-
-
94,549
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,000
-
-
105,100
122,000
4,718,025
6,425,063
(1,700,000)
-
11,235,000
4,164
(1,678,000)
22,609,352
-
6,000
(399,686)
-
-
-
-
370,348
101,001
-
-
-
(393,686)
471,349
-
-
(327,521)
-
105,100
100,000
4,718,025
6,425,063
-
-
12,935,000
4,164
(327,521)
24,287,352
-
5,000
7,000
-
-
-
364,348
406,138
-
-
12,000
770,486
Year ended 30 June 2010
Non-Executive Directors
R Pitcher
G McMahon
J Bennetts
R Chessari
Executive Directors
A Podesta
M Kay
Other key management personnel
M Cansdale (until 31 August 2010)
G Kruyt
P Lang
M Salisbury
A Suckling
A Tomas (commenced 1 April 2010)
Year ended 30 June 2009
Non-Executive Directors
R Pitcher
G McMahon
J Bennetts
R Chessari
Executive Directors
A Podesta
M Kay
Other key management personnel
M Cansdale
G Kruyt
P Lang
M Salisbury
A Suckling
50
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(c) Equity instrument disclosures relating to key management personnel
Options
The number of options to acquire shares in the Company held during the fi nancial year ended 30 June 2010 and 30 June 2009 by each of the
other key management personnel of the Group, including their personally related parties, are set out below. No options are held by Non-Executive
Directors.
Year ended 30 June 2010
M Kay
M Cansdale (until 31 August 2010)
G Kruyt
P Lang
M Salisbury
A Suckling
A Tomas (commenced 1 April 2010)
Balance at the
start of the year
3,750,000
725,000
715,000
761,634
136,364
-
-
Issued
-
-
-
-
-
66,667
537,634
Exercised
-
-
-
(94,549)
-
-
-
Lapsed
-
-
-
(2,083)
-
-
-
Balance held at
balance date
3,750,000
725,000
715,000
665,002
136,364
66,667
537,634
6,087,998
604,301
(94,549)
(2,083)
6,595,667
64,583 options issued to PA Lang had vested at 30 June 2010.
Year ended 30 June 2009
M Kay
M Cansdale (until 31 August 2010)
G Kruyt
P Lang
M Salisbury
A Suckling
-
-
90,000
137,675
-
-
3,750,000
725,000
625,000
625,000
136,364
-
227,675
5,861,364
-
-
-
-
-
-
-
-
-
-
(1,041)
-
-
3,750,000
725,000
715,000
761,634
136,364
-
(1,041)
6,087,998
55,625 options issued to PA Lang and 90,000 options issued to G Kruyt had vested at 30 June 2009.
26 SHARE-BASED PAYMENTS
The Company established the Employee Option Plan in 2004. The Remuneration Committee determines the number of options to be granted on the
basis of the position, duties and responsibilities of the relevant employees.
Options are granted under the plan for no consideration over unissued ordinary shares in the Company. Options are generally granted for a four year
period and the exercise price is based on prevailing market prices when the issue is approved by the Board, at a minimum.
Options granted under the plan carry no dividend or voting rights.
As at 30 June 2010, the Company had made nine offers under the Plan in March 2004, December 2004, April 2005, August 2005, February 2007,
December 2007, July 2008, November 2008, August 2009 and May 2010.
Options issued in March 2004, December 2004, April 2005 and August 2005 have expired or have been exercised prior to 1 July 2008.
All options in the February 2007 offer were issued subject to the following exercise conditions:
50% of the options would vest and were exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and
15 September 2009, but the entitlement to exercise was subject to continuity of employment.
25% of the options would vest and were exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and
15 September 2009, but the entitlement to exercise was subject to continuity of employment and achievement of predetermined targets. For
the fi nancial years ended 30 June 2007, 30 June 2008 and 30 June 2009 the targets centred on the achievement of budgeted NPAT.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
51
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
25% of the options would vest and were exercisable in equal proportions on or after 15 September 2007, 15 September 2008 and
15 September 2009, but the entitlement to exercise was subject to continuity of employment and satisfaction of individual performance
indicators for the fi nancial years ended 30 June 2007, 30 June 2008 and 30 June 2009, other than with respect to 50,000 options that are
exercisable on or after 15 September 2009 subject to continuity of employment until that date.
The December 2007 offer was made on varying terms. 165,000 options were issued subject to the following exercise conditions:
50% of those options would vest and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and
15 September 2010, but the entitlement to exercise is subject to continuity of employment.
25% of those options would vest and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and
15 September 2010, but the entitlement to exercise is subject to continuity of employment and achievement of predetermined targets. For the
fi nancial year ended 30 June 2010, the targets centred on the achievement of budgeted NPAT.
25% of those options would vest and are exercisable in equal proportions on or after 15 September 2008, 15 September 2009 and
15 September 2010, but the entitlement to exercise is subject to continuity of employment and satisfaction of individual performance
indicators for the fi nancial years ending 30 June 2008, 30 June 2009 and 30 June 2010.
A further 90,000 options of the December 2007 offer would vest and were exercisable on or after 15 September 2009 subject to continuity of
employment until that date.
In July 2008, the Company issued 4,375,000 options.
The entitlement to exercise is subject to continuity of employment and the achievement of predetermined targets, of which 75% is based on
earnings per share targets over three years, including a cumulative earnings per share target over three years in the event that the maximum target
is not achieved in any one year. The balance is based on other Company targets established by the Board. The entire issue vests and is exercisable
(subject to the achievement of the conditions) upon the adoption of the Company’s Annual Report for the fi nancial year ended 30 June 2011.
A further 2,600,114 options were issued in November 2008. The entitlement to exercise is subject to continuity of employment and the achievement
of predetermined targets, of which 100% is based on earnings per share targets over three years, including a cumulative earnings per share target
over three years in the event that the maximum target is not achieved in any one year. The entire issue vests and is exercisable (subject to the
achievement of the conditions) upon the adoption of the Company’s Annual Report for the fi nancial year ended 30 June 2011.
A further 327,273 options were issued in August 2009. The entitlement to exercise is subject to continuity of employment and the achievement
of predetermined targets, of which 100% is based on earnings per share targets over three years, including a cumulative earnings per share target
over three years in the event that the maximum target is not achieved in any one year. The entire issue vests and is exercisable (subject to the
achievement of the conditions) upon the adoption of the Company’s Annual Report for the fi nancial year ended 30 June 2011.
A further 698,924 options were issued in May 2010. The entitlement to exercise is subject to a further offer by the Company of a 36 month contract
following completion of an 18 month fi xed term contract, and is subject to continuity of employment and the achievement of predetermined
targets, based on earnings per share targets over three years, including a cumulative earnings per share target over the three years in the event that
the maximum target is not achieved in any one year. The entire issue vests and is exercisable (subject to the achievement of the conditions) on
1 October 2014.
52
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Set out below are summaries of options granted under the plan:
Economic and Parent Entity - 2010
Grant date
4 February 2007
21 December 2007
1 July 2008
24 November 2008
24 November 2008
14 August 2009
14 August 2009
28 May 2010
Expiry date
4 February 2011
21 December 2011
1 July 2012
24 November 2012
24 November 2012
14 August 2012
14 August 2012
1 October 2015
Exercise
price
$3.80
$4.52
$4.70
$3.40
$4.70
$3.40
$4.70
$3.42
Balance at
start of the
year
289,971
463,063
4,375,000
511,364
2,088,750
-
-
-
Granted
during the
year
-
-
-
-
-
133,334
193,939
698,924
Exercised
during the
year
(94,549)
-
-
-
-
-
-
-
Forfeited
during the
year
(99,900)
(38,062)
(204,545)
-
-
-
-
Balance at
end of the
year
95,522
425,001
4,375,000
306,819
2,088,750
133,334
193,939
698,924
Exercisable
at end of the
year
95,522
136,938
-
-
-
-
-
-
Weighted average exercise price
7,728,148
$4.57
1,026,197
$3.66
(94,549)
$3.80
(342,507)
$3.64
8,317,289
$4.50
232,460
$4.22
Economic and Parent Entity - 2009
4 February 2007
21 December 2007
1 July 2008
24 November 2008
24 November 2008
4 February 2011
21 December 2011
1 July 2012
24 November 2012
24 November 2012
$3.80
$4.52
$4.70
$3.40
$4.70
Weighted average exercise price
304,580
475,000
-
-
-
-
-
4,375,000
511,364
2,088,750
779,580
$4.24
6,975,114
$4.60
-
-
-
-
-
-
(14,609)
(11,937)
-
-
-
289,971
463,063
4,375,000
511,364
2,088,750
149,735
263,063
-
-
-
(26,546)
$4.12
7,728,148
$4.57
412,798
$4.26
Of the forfeited options, 70,851 with a value of $45,404 (2009: none) represented expired options.
The weighted average share price at the date of exercise of options during the year ended 30 June 2010 was $4.22 (2009: $4.26).
The weighted average remaining contractual life of options outstanding at the end of the year was 2.4 years (2009: 3.1 years).
Fair value of options granted
The assessed fair value at grant date of options granted during the year is disclosed in the table below. The fair value at grant date is determined
using a binomial option pricing model that takes into account the exercise price, the term of the option, the share price at the grant date, the
expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
30 June 2010
30 June 2009
Fair value
Exercise price
Grant date
Expiry date
Share price at grant date
Expected price volatility of the Company’s shares
Expected dividend yield
Risk-free interest rate
August
$0.60 and $0.33
$3.40 and $4.70
14 August 2009
14 August 2012
$3.23
37%
6.6%
5.0%
May
$0.93
$3.42
28 May 2010
1 October 2015
$3.42
37%
5.0%
5.47%
July
$0.24
$4.70
1 July 2008
1 July 2012
$2.59
34.6%
4.85%
6.73%
November
$0.18 and $0.09
$3.40 and $4.70
14 November 2008
14 November 2012
$2.10
36%
6.60%
3.78%
The expected price volatility is based on historic volatility (based on the remaining life of the options), adjusted for any expected changes to future
volatility due to publicly available information.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
53
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the year as part of employee and Director benefi ts expense
were as follows:
Options issued under Employee Option Plan
27 EVENTS AFTER THE BALANCE SHEET DATE
Economic Entity
Parent Entity
2010
$’000
549
2009
$’000
500
2010
$’000
-
2009
$’000
-
Since the end of the fi nancial year ended 30 June 2010, the Directors have not become aware of any matter or circumstance not otherwise dealt
with in the fi nancial statements that has signifi cantly affected or may signifi cantly affect the operations of the Company or the economic entity, the
results of those operations or the state of affairs in subsequent fi nancial years.
28 DEED OF CROSS GUARANTEE
McMillan Shakespeare Limited, Maxxia Pty Ltd (formerly known as McMillan Shakespeare Australia Pty Ltd) and Remuneration Services (Qld) Pty
Ltd are parties to a deed of cross guarantee entered into during the year ended 30 June 2009. During the current year, Interleasing (Australia) Ltd,
CARILA Pty Ltd and TVPR Pty Ltd joined the deed of cross guarantee. Under this deed, each company guarantees the debts of the others and is
relieved from the requirement to prepare a fi nancial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian
Securities and Investments Commission.
The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross
Guarantee that are controlled by McMillan Shakespeare Limited, they also represent the ‘Extended Closed Group’.
Set out below is a statement of comprehensive income, statement of fi nancial position and a summary of movements in consolidated retained
profi ts for the year ended 30 June 2010 of the Closed group consisting of McMillan Shakespeare Limited, Maxxia Pty Ltd (formerly known as
McMillan Shakespeare Australia Pty Ltd) and Remuneration Services (Queensland) Pty Ltd, Interleasing (Australia) Ltd, CARILA Pty Ltd and TVPR
Pty Ltd.
54
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(a) Consolidated Statement of Comprehensive Income and summary of movements in consolidated retained profi ts
Statement of Comprehensive Income
Revenue and other income
Employee and director benefi ts expenses
Depreciation and amortisation expenses and impairment
Vehicle expenses
Consulting cost expenses
Marketing expenses
Property and corporate expenses
Technology and communication expenses
Finance costs
Other expenses
Profi t before business combination and income tax
Gain on business combination
Acquisition costs
Profi t before income tax
Income tax expense
2010
$’000
132,016
(41,511)
(19,308)
(13,064)
(1,278)
(2,573)
(2,698)
(3,422)
(3,149)
(5,115)
39,898
20,991
(5,707)
55,182
(10,226)
2009
$’000
77,251
(34,309)
(1,823)
-
(1,033)
(1,111)
(2,298)
(3,163)
-
(4,576)
28,938
-
-
(8,387)
Profi t attributable to members of the parent entity
44,956
20,551
Other comprehensive income
Other comprehensive income/(loss) for the period after tax
Total comprehensive income for the period
Summary of movements in consolidated retained profi ts
Retained profi ts at the beginning of the fi nancial year
Profi t for the year
Dividends provided for or paid
Retained profi ts at the end of the fi nancial year
-
-
44,956
20,551
33,733
44,956
(13,855)
25,009
20,551
(11,827)
64,834
33,733
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
55
2010
$’000
16,562
12,308
1,809
30,679
209,829
38,904
135
6,269
255,137
285,816
42,529
8,431
3,184
7,949
116
62,209
133,964
-
459
134,423
196,632
89,184
23,066
1,284
64,834
89,184
2009
$’000
27,857
5,732
-
33,589
2,007
39,020
-
-
41,027
74,616
11,965
2,479
2,634
-
122
17,200
-
74
168
242
17,442
57,174
22,637
804
33,733
57,174
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
(b) Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Total current assets
Non-current assets
Plant and equipment
Intangible assets
Deferred tax asset
Other assets
Total non-current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Current tax liability
Provisions
Borrowings
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liability
Provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained earnings
TOTAL EQUITY
56
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
29 BUSINESS COMBINATION
The Group acquired 100% of Interleasing (Australia) Limited (“Interleasing”) and its subsidiaries on 1 April 2010, being unlisted companies
based in Australia. The acquisition was made to facilitate brand expansion, cross selling opportunities, increased vehicles under management and
scalability.
Consideration for the acquisition was $208,390,000 (less cash assumed of $1,507,000), funded mainly by a combination of surplus cash
($25,000,000), debt ($142,727,000) and the sale of a portfolio of novated fi nance lease receivables that were acquired as part of Interleasing’s
net assets ($40,740,000).
The value of the consideration was determined based on an 11.3% discount to recorded net assets at the date of acquisition as a result of the
vendor’s global restructuring plans. The assets and liabilities acquired have been fair valued in accordance with AASB 3 “Business Combinations”,
which resulted in a Gain on Business Combination of $20,991,000. Acquisition-related expenses of $5,707,000 were incurred resulting in a
net gain from the acquisition of $17,055,000 after tax. This has been recognised in the Consolidated Income Statement as “Gain on Business
Combination”.
Purchase consideration – cash outfl ow
Cash paid for shares
Cash paid to discharge loan from vendor
Total cash consideration
Cash acquired with Interleasing
Net cash outfl ow for consideration transferred
Reconciliation to the Statement of Cash Flows
Net cash outfl ow transferred to vendor
Cash infl ow from sale of novated lease book on acquisition
Net cash outfl ow for acquisition
There were no acquisitions for the year ended 30 June 2009.
Net assets assumed at the date of acquisition
Cash
Trade and fi nance receivables
Other assets
Inventories
Operating lease assets
Assets acquired
Trade payables and accrued expenses
Maintenance instalments paid in advance
Employee entitlements
Tax liabilities1
Liabilities assumed
Net assets acquired
$’000
1,507
206,883
208,390
(1,507)
206,883
206,883
(40,740)
166,143
Fair value at
acquisition date
Carrying value at
acquisition date
$’000
1,507
48,154
673
1,850
203,319
255,503
12,076
8,622
745
4,679
26,122
$’000
1,507
49,527
854
1,850
203,319
257,057
12,076
8,382
745
901
22,104
229,381
234,953
1
Tax liabilities comprise an income tax liability of $901,000 and the tax effect of temporary differences of $3,778,000.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
57
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010
Trade and fi nance receivables of $49,527,000 acquired with the business have resulted from trade sales with customers and included $42,114,000
of fi nance leases which were sold for $40,740,000. The remaining amounts are considered fair value and their collection and conversion to cash
are expected in full consistent with customer terms.
The net gain arising from the acquisition is as follows:
Total cash consideration
Fair value of net assets acquired
Gain on Business Combination
Acquisition expenses
Net gain on business combination before tax
$’000
208,390
229,381
20,991
(5,707)
15,284
The consolidated Statement of Comprehensive Income includes sales revenue of $39,028,000 and net profi t for the year ended 30 June 2010 of
$3,267,000, as a result of the acquisition of Interleasing. Revenue and profi t for the full year of $143,428,000 and $11,300,000 respectively, would
have been included in the Statement of Comprehensive Income of the Group had the acquisition occurred effective 1 July 2009.
58
DIRECTORS’ DECLARATION
The Directors are of the opinion that:
1.
the fi nancial statements and notes on pages 20 to 58 and the audited remuneration disclosures on pages 6 to 14 are in accordance with the
Corporations Act 2001(Cth) and:
(a)
(b)
comply with Accounting Standards, the Corporations Regulations 2001 (Cth) and other mandatory professional reporting requirements;
give a true and fair view of the consolidated entity’s fi nancial position as at 30 June 2010 and fi nancial performance for the fi nancial year
ended on that date; and
(c)
comply with International Financial Reporting Standards as disclosed in Note 1.
2.
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations by the Chief Executive Offi cer and Chief Financial Offi cer required by section 295A of the Corporations
Act 2001 (Cth).
This declaration is made in accordance with a resolution of the Directors.
Ronald Pitcher, AM
Chairman
6 September 2010
Melbourne, Australia
Michael Kay
Managing Director
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
59
INDEPENDENT AUDIT REPORT
AS AT 30 JUNE 2010
Grant Thornton
ABN 13 871 256 387
Level 2
215 Spring Street
Melbourne
Victoria 3000
GPO Box 4984WW
Melbourne
Victoria 3001
T +61 3 8663 6000
F +61 3 8663 6333
E info.vic@au.gt.com
W www.grantthornton.com.au
Independent Auditor’s Report
To the Members of McMillan Shakespeare Limited
Report on the financial statements
We have audited the accompanying financial statements of McMillan Shakespeare Limited (the company),
which comprises the statement of financial position as at 30 June 2010, and the statement(cid:83) of comprehensive
income, statement(cid:83) of changes in equity and statement(cid:83) of cash flows for the year ended on that date, a
summary of significant accounting policies, other explanatory notes to the financial statements and the
directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the
year’s end or from time to time during the financial year.
s
Directors’ responsibility for the financial statements
The directors of the company are responsible for the preparation and fair presentation of the financial
statements in accordance with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining
internal controls relevant to the preparation and fair presentation of the financial statements that are free
from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the circumstances. The directors also
state, in the notes to the financial statements, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that compliance with the Australian equivalents to International
Financial Reporting Standards ensures that the financial statements, comprising the financial statements and
notes, complies with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our
audit in accordance with Australian Auditing Standards which require us to comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error.
Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited,
together with its subsidiaries and related entities, delivers its services independently in Australia.
Liability limited by a scheme approved under Professional Standards Legislation
60
INDEPENDENT AUDIT REPORT
AS AT 30 JUNE 2010
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation
of the financial statements.
The financial statements have been prepared for distribution to members for the purpose of fulfilling the
directors’ financial reporting requirements under the Corporations Act 2001. We disclaim any assumption of
responsibility for any reliance on this report or on the financial statements to which it relates to any person
other than the members, or for any purpose other than that for which it was prepared.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Electronic presentation of audited financial statements
This auditor’s report relates to the financial statements of McMillan Shakespeare Limited consolidated entity
for the year ended 30 June 2010 included on McMillan Shakespeare Limited’s web site. The company’s
directors are responsible for the integrity of McMillan Shakespeare Limited’s web site. We have not been
engaged to report on the integrity of McMillan Shakespeare Limited’s web site. The auditor’s report refers
only to the statements named above. It does not provide an opinion on any other information which may
have been hyperlinked to/from these statements. If users of this report are concerned with the inherent risks
arising from electronic data communications they are advised to refer to the hard copy of the audited
financial statements to confirm the information included in the audited financial statements presented on this
web site.
Independence
In conducting our audit, we complied with applicable independence requirements of the Corporations Act
2001.
Auditor’s opinion
In our opinion:
a
the financial statements of McMillan Shakespeare Limited is in accordance with the Corporations Act
2001, including:
i
ii
giving a true and fair view of the company’s and consolidated entity’s financial position as at 30
June 2010 and of their performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001; and
b
the financial statements also comply with International Financial Reporting Standards as disclosed in
the notes to the financial statements.
Report on the remuneration report
We have audited the Remuneration Report included in pages (cid:22)(cid:0)(cid:84)(cid:79)(cid:0)(cid:17)(cid:20) of the directors’ report for the year ended
30 June 2010. 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.
Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited,
together with its subsidiaries and related entities, delivers its services independently in Australia.
Liability limited by a scheme approved under Professional Standards Legislation
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
61
INDEPENDENT AUDIT REPORT
AS AT 30 JUNE 2010
Auditor’s Opinion
In our opinion the Remuneration Report of McMillan Shakespeare Limited for the year ended 30 June 2010,
complies with section 300A of the Corporations Act 2001.
GRANT THORNTON
Chartered Accountants
Simon Trivett
Partner
Melbourne, Australia
Dated this 6th day of September 2010
Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited,
together with its subsidiaries and related entities, delivers its services independently in Australia.
Liability limited by a scheme approved under Professional Standards Legislation
62
AUDITOR’S INDEPENDENCE DECLARATION
Grant Thornton
ABN 13 871 256 387
Level 2
215 Spring Street
Melbourne
Victoria 3000
GPO Box 4984WW
Melbourne
Victoria 3001
T +61 3 8663 6000
F +61 3 8663 6333
E info.vic@au.gt.com
W www.grantthornton.com.au
Auditor’s Independence Declaration
To the Directors of McMillan Shakespeare Limited
In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the
audit of McMillan Shakespeare Limited for the year ended 30 June 2010, I declare that, to the best of my
knowledge and belief, there have been:
c
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
d
no contraventions of any applicable code of professional conduct in relation to the audit.
GRANT THORNTON
Chartered Accountants
Simon Trivett
Partner
Melbourne, Australia
Dated this 6th day of September 2010
Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited,
together with its subsidiaries and related entities, delivers its services independently in Australia.
Liability limited by a scheme approved under Professional Standards Legislation
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
63
SHAREHOLDER INFORMATION
Additional information required by the ASX Listing Rules and not disclosed elsewhere in this Annual Report is set out below:
SUBSTANTIAL SHAREHOLDINGS
As at 25 August 2010, the number of shares held by substantial shareholders and their associates is as follows:
Chessari Holdings Pty Ltd
J P Morgan Nominees Australia Limited
National Nominees Limited
Asia Pac Technology Pty Ltd
Percentage of Ordinary Shares1
No. Name
15.96
1. Meddiscope Pty Ltd
9.49
2.
8.64
3.
8.38
4.
6.97
5.
6.07
6. HSBC Custody Nominees (Aust) Ltd
3.85
Cogent Nominees Pty Limited
7.
Meddiscope Pty Limited is a company associated with Mr Anthony Podesta, an executive Director. Meddiscope Pty Limited has a deemed relevant interest in the shares held by Cobax Pty
1
Limited, as both entities are controlled by Mr Podesta.
Number of Ordinary Shares
10,800,000
6,425,063
5,845,997
5,671,538
4,718,025
4,109,800
2,602,677
2
3
Chessari Holdings Pty Limited is a company associated with Mr Ross Chessari, a non-executive Director.
Asia Pac Technology Pty Limited is a company associated with Mr John Bennetts, a non-executive Director.
NUMBER OF SHARE & OPTION HOLDERS
As at 25 August 2010, the number of holders of ordinary shares and options in the Company was as follows:
Class of Security
Fully paid ordinary shares
Options exercisable at $3.80 and expiring on 4 February 2011
Options exercisable at $4.52 and expiring on 21 December 2011
Options exercisable at $4.70 and expiring on 1 July 2012
Options exercisable at $3.40 and expiring on 24 November 2012
Options exercisable at $4.70 and expiring on 24 November 2012
Options exercisable at $3.40 and expiring on 14 August 2012
Options exercisable at $4.70 and expiring on 14 August 2012
Options exercisable at $3.42 and expiring on 1 October 2015
VOTING RIGHTS
Number of Holders
2,687
4
11
2
2
5
2
2
2
In accordance with the Constitution of the Company and the Corporations Act 2001 (Cth), every member present in person or by proxy at a general
meeting of the members of the Company has:
•
•
on a vote taken by a show of hands, one vote; and
on a vote taken by a poll, one vote for every fully paid ordinary share held in the Company.
A poll may be demanded at a general meeting of the members of the Company in the manner permitted by the Corporations Act 2001 (Cth).
DISTRIBUTION OF SHARE & OPTION HOLDERS
As at 25 August 2010, the distribution of share and option holders in the Company was as follows:
Distribution of Shares & Options
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,000+
Number of Holders of Ordinary Shares
723
1,268
394
272
30
As at 25 August 2010 there were 2,687 shareholders who held less than a marketable parcel of 33 fully paid ordinary shares in the Company.
64
TOP 20 SHAREHOLDERS
As at 25 August 2010, the details of the top 20 shareholders in the Company are as follows:
Name
Meddiscope Pty Ltd
Chessari Holdings Pty Ltd
J P Morgan Nominees Australia Limited
National Nominees Limited
Asia Pac Technology Pty Ltd
HSBC Custody Nominees (Aust) Ltd
Cogent Nominees Pty Limited
ANZ Nominees Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Aust Executor Trustees NSW Ltd
Ann Leslie Ryan
Citicorp Nominees Pty Limited
Perpetual Trustees Consolidated Limited
Cobax Pty Ltd
MF Custodians Ltd
Mohl Invest Pty Ltd
Bond Street Custodians Limited
Bond Street Custodians Limited
Thaw Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Totals: Top 20 Holders of Issued Capital
Total Remaining Holders Balance
Number of Ordinary Shares
10,800,000
6,425,063
5,845,997
5,671,538
4,718,025
4,109,800
2,602,677
2,414,517
2,313,292
2,155,132
1,358,418
827,333
773,545
435,000
350,000
345,455
328,958
275,000
271,559
213,790
52,235,099
15,442,878
Percentage of Ordinary Shares1
15.96
9.49
8.64
8.38
6.97
6.07
3.85
3.57
3.42
3.18
2.01
1.22
1.14
0.64
0.52
0.51
0.49
0.41
0.40
0.32
77.18
22.82
1
2
3
4
As at 25 August 2010, 67,677,977 fully paid ordinary shares have been issued by the Company.
Meddiscope Pty Limited is a company associated with Mr Anthony Podesta, an Executive Director. Meddiscope Pty Limited has a deemed relevant interest in the shares held by Cobax Pty
Limited, as both entities are controlled by Mr Podesta.
Chessari Holdings Pty Limited is a company associated with Mr Ross Chessari, a non-executive Director.
Asia Pac Technology Pty Limited is a company associated with Mr John Bennetts, a non-executive Director.
RESTRICTED SECURITIES
As at the date of this Annual Report, there are no securities in the Company subject to voluntary escrow or any other restrictions.
UNQUOTED SECURITIES
As at the date of this Annual Report, the details of unquoted securities in the Company are as follows:
Class
Options exercisable at $3.80 and expiring on 4 February 2011
Options exercisable at $4.52 and expiring on 21 December 2011
Options exercisable at $4.70 and expiring on 1 July 2012
Options exercisable at $3.40 and expiring on 24 November 2012
Options exercisable at $4.70 and expiring on 24 November 2012
Options exercisable at $3.40 and expiring on 14 August 2012
Options exercisable at $4.70 and expiring on 14 August 2012
Options exercisable at $3.42 and expiring on 1 October 2015
ON-MARKET BUY BACK
The Company does not have a current on-market buy-back.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
Number of Securities
95,522
425,001
3,750,000
306,819
1,988,750
133,334
193,939
698,924
Number of Holders
4
11
1
2
4
2
2
2
65
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66
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McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
67
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68
McMi llan Shakespeare Limited
A.B.N. 74 107 233 983
A.F.S.L. No. 299054
Level 19, 360 Elizabeth Street
Melbourne, Victoria 3000
www.mcms.com.au