Maximus Annual Report 2013

Plain-text annual report

McMillan Shakespeare Limited A.B.N. 74 107 233 983 A.F.S.L. No. 299054 Level 21, 360 Elizabeth Street Melbourne, Victoria 3000 www.mmsg.com.au Annual Report 2013 McMillan Shakespeare Limited Australia’s leading provider of workplace benefits. MCMS_MAKG_Rebrand_AnnReport2013.indd 1-2 31/07/13 11:30 AM CONTENTS DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT 1 15 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 20 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 21 22 23 24 61 62 65 66 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 22 October 2013 at 10:00 am at the State Library of Victoria, Ground Floor, 328 Swanston Street, Melbourne, Victoria in the Experimedia room. CORPORATE DIRECTORY Directors Ronald Pitcher, AM (Chairman) Michael Kay (Managing Director) John Bennetts Ross Chessari Graeme McMahon Anthony Podesta Registered Office Level 21, 360 Elizabeth Street Melbourne Victoria 3000 Tel: +61 3 9097 3000 Fax: +61 3 9097 3060 Company Secretary Mark Blackburn Auditor Grant Thornton Audit Pty Ltd The Rialto, Level 30, 525 Collins 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.mmsg.com.au DIRECTORS’ REPORT The directors of McMillan Shakespeare Limited (Company or MMS) 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 2013 (Group or Consolidated Group). 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 2013. 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 2013. 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 2013 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) Mr J. Bennetts Mr R. Chessari Mr G. McMahon Mr A. Podesta PRINCIPAL ACTIVITIES 10 10 10 10 10 10 10 10 9 10 9 10 5 - 5 - 5 - 5 - 5 - 5 - 4 - 4 4 4 - 4 - 4 4 4 - The principal activities of the Company and its controlled entities during the course of the ﬁ nancial year ended 30 June 2013 was the provision of remuneration, asset management and ﬁ nance services to public and private organisations predominantly in 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 2013 that are not otherwise disclosed in this Annual Report. RESULTS Details of the results for the ﬁ nancial year ended 30 June 2013 are as follows: Results Net proﬁ t after income tax (NPAT) Basic earnings per share Earnings per share on a diluted basis 2013 2012 $62,163,519 $54,305,163 83.4 cents 81.9 cents 76.6 cents 74.1 cents McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 1 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 1 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 1 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 1 8/29/2013 9:16:44 AM 3/09/2013 9:59:51 AM 3/09/2013 9:59:51 AM Financial Highlights NPAT performance Revenue performance 60 50 45 40 35 30 25 20 15 10 5 0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 s n o i l l i m $ s t n e c Normalised NPAT 5-year CAGR of 29%(1) 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 s n o i l l i m $ FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Historical Normalised NPAT Acquisition Gain Revenue Group Remuneration Services Revenue Asset Management Total dividends per share Normalised earnings per share (EPS) (2) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 s t n e c Basic EPS 7-year CAGR of 25%(1) FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Note: Due to the uncertainty in relation to the proposed legislation changes to FBT on novated leases, a final dividend has not been declared in respect of the financial year ended 30 June 2013. Basic EPS Cash EPS McMillan Shakespeare Limited Share price - March 04 to June 13 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 2 4 0 - r a M 4 0 - n u J 4 0 - p e S 4 0 - c e D 5 0 - r a M 5 0 - n u J 5 0 - p e S 5 0 - c e D 6 0 - r a M 6 0 - n u J 6 0 - p e S 6 0 - c e D 7 0 - r a M 7 0 - n u J 7 0 - p e S 7 0 - c e D 8 0 - r a M 8 0 - n u J 8 0 - p e S 8 0 - c e D 9 0 - r a M 9 0 - n u J 9 0 - p e S 9 0 - c e D 0 1 - r a M 0 1 - n u J 0 1 - p e S 0 1 - c e D 1 1 - r a M 1 1 - n u J 1 1 - p e S 1 1 - c e D 2 1 - r a M 2 1 - n u J 2 1 - p e S 2 1 - c e D 3 1 - r a M 3 1 - n u J 1 2 NPAT and EPS CAGR is normalised to exclude the proﬁ t recognised on acquisition of Interleasing (Australia) Limited in FY10 ($17M proﬁ t after tax). Normalised EPS excludes the proﬁ t recognised on acquisition of Interleasing (Australia) Limited. Cash EPS includes CAPEX but excludes the investment in Fleet growth. 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 2 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 2 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 2 8/29/2013 9:17:53 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM DIVIDENDS Details of dividends declared and/or paid by the Company during the ﬁ nancial year ended 30 June 2013 are as follows: Dividends 2013 $ 2012 $ Final dividend for the ﬁ nancial year ended 30 June 2012 of 25.0 cents (2011: 22.0 cents) per ordinary share paid on 12 October 2012 fully franked at the tax rate of 30% (2011: 30%). 18,630,991 15,027,150 Interim dividend for the ﬁ nancial year ended 30 June 2013 of 24.0 cents (2012: 22.0 cents) per ordinary share paid on 28 March 2013 fully franked at the tax rate of 30% (2012: 30%). Total 17,885,752 16,395,272 36,516,743 31,422,422 The proposed changes by the Labor government to the treatment of fringe beneﬁ ts tax (FBT) on motor vehicles if enacted are expected to materially and adversely impact the Group Remuneration Services segment and consequently, the Group’s operations and ﬁ nancial circumstances. Under the circumstances, the Directors have not declared a ﬁ nal dividend in respect of the ﬁ nancial year ended 30 June 2013. REVIEW OF OPERATIONS This review is written in a climate of great uncertainty. Investors will be well aware of the Rudd Labor Government’s 16 July 2013 announcement of proposed changes to the treatment of FBT on motor vehicles, see McMillan Shakespeare ASX notice dated 24 July 2013. Until the election is held on September 7 and the winner declared (and perhaps even after that should Labor win), there is no reasonable basis to make any comment on the effect of the 16 July announcement on the novated leasing component of the Group Remuneration Services business and our business more generally. Accordingly, this review will conﬁ ne itself to the 2013 Financial Year. FY13 was another successful year for the McMillan Shakespeare Group: • NPAT increased by 15% to $62.2m. Included in that number is a $410,000 loss posted in the UK joint venture which commenced business on 1 February 2013. • • In the Group Remuneration Services segment, NPAT increased by 16% to $46.8m. Revenue increased by 14% to $156m. The EBITDA margin expanded to 45% and EBIT to 42.7%. The Asset Management segment (ex UK) delivered a 5% increase in proﬁ t to $15m. A pleasing result given the decrease in remarketing proﬁ ts foreshadowed in our August 2012 outlook. Assets under ﬁ nance increased by 17% to $307m. The growth in the second half was fairly ﬂ at. This was driven by a combination of increased competition in panel arrangements and an increase in customers putting vehicles into inertia (i.e. keeping them after the lease has expired) due to ongoing economic uncertainty. • Our UK Joint Venture (announced to the market in February 2013) is making pleasing progress. 2014 will be an important year for the consolidation of this business, the launch of new products and services and the setting of a platform for long term proﬁ table growth. • McMillan Shakespeare has set up a UK ﬁ nance facility, provided in GBP by one of our Australian bankers. The ﬁ nance company is owned 100% by McMillan Shakespeare and will be one of a panel of providers to the UK joint venture. As credit markets remain tight in the UK, we anticipate being able to fund good quality credit risks at margins signiﬁ cantly better than currently available in Australia. • • The new asset management system was successfully delivered. This new platform is expected to support the business for at least 10 years. Phase one of the renewal of our salary packaging systems was also successfully delivered. Phase two will be completed in the second half of FY14. These systems developments are expected simultaneously to improve our service delivery and reduce our expense base. • Headcount increased from 758 to 834. • Our latest staff survey has seen engagement increase from 80% to 84%. This places our business in the ‘high performance’ category. In summary, 2013 was a productive and successful year for the McMillan Shakespeare Group. Our core business performed well, notwithstanding generally adverse economic conditions and falling interest rates materially reducing our interest income. The UK Joint Venture has got off to a pleasing start and is expected to be a productive investment in the long term proﬁ table growth of our Group. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 3 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 3 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 3 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 3 8/29/2013 9:17:54 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM STRATEGY AND PROSPECTS The Labor Government’s surprise announcement on FBT on motor vehicles is having an adverse affect on our business, at least in the short term. If the Coalition wins the election, it would appear from their policy statements, we should be able to move back to business as usual. In the meantime, we will work hard to convince Labor to change its mind. As soon as possible after the declaration of the election winner, we will further update the market on the prospects of the novated leasing component of our Remuneration Services segment and the business more generally. 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 2013 that are not otherwise disclosed in this Annual Report. EVENTS SUBSEQUENT TO BALANCE DATE Subsequent to reporting date, the Federal Government announced proposed legislative changes to the treatment of fringe beneﬁ ts tax (FBT) on motor vehicles. The proposed change is expected to lead to an unknown and unquantiﬁ able decrease in demand for novated leases and an adverse impact to the company’s business overall. The proposed changes require the passing of legislation to become effective and if enacted will have a material adverse impact on the future earnings of the Company. The Company is working through various scenarios, including the potential structural changes to internal departments should the proposed legislation changes be enacted as law. LIKELY DEVELOPMENTS Other than the information otherwise 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, they are wholly dependent on the outcome of the general election on 7 September 2013. DIRECTORS’ EXPERIENCE & SPECIAL RESPONSIBILITIES Name: Ronald Pitcher AM, FCA, FCPA Appointed: 4 February 2004 Positions: Chairman of the Board Member of the Audit Committee Chairman of the Remuneration Committee Age: 74 Mr Pitcher is a Chartered Accountant with over 45 years experience in the accounting profession and the provision of business advisory services. Mr Pitcher was formerly a director of National Can Industries Limited (since 1994) and is a director of Reece Australia Limited (since 2003). Under the Company’s deﬁ nition of independence, Mr Pitcher is considered to be independent. Name: Michael Kay LLB Appointed: 15 July 2008 Positions: Managing Director and Chief Executive Ofﬁ cer Age: 55 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 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 4 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 4 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 4 8/29/2013 9:17:54 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Name: Anthony Podesta B Ed (Bus), MTMA, FTIA, MAICD Appointed: 1 December 2003 Positions: Non-Executive Director Age: 57 Mr Podesta founded the McMillan Shakespeare business in 1988 and has been instrumental in the growth of its operations. Having commercialised the novated lease concept for employees to salary package a motor vehicle, Mr Podesta has been instrumental in the development of the outsourced salary packaging administration industry in Australia. Mr Podesta was named the Ernst & Young 2012 Australian Entrepreneur of the year. Mr Podesta is a fellow of the Taxation Institute of Australia and a member of the Australian Institute of Company Directors. Mr Podesta stepped down from his executive responsibilities effective 17 August 2010. Mr Podesta is the company’s largest shareholder and is on the Board as a Non-Executive Director. Name: John Bennetts B Ec, LLB Appointed: 1 December 2003 Positions: Non-Executive Director Member of the Audit Committee Member of the Remuneration Committee Age: 50 Mr Bennetts is an experienced investor and a founder and director of a number of companies, including being a former director of Cellestis Limited 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. Name: Ross Chessari LLB, M Tax Appointed: 1 December 2003 Positions: Non-Executive Director Member of the Remuneration Committee Age: 53 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. Name: Graeme McMahon FCPA, FRAS, FCIT Appointed: 18 March 2004 Positions: Non Executive Director Chairman of the Audit Committee Member of the Remuneration Committee Age: 73 Mr McMahon has extensive experience from various industries having previously been the Managing Director and Chief Executive Ofﬁ cer of Ansett Australia Group and a director of SSSR Holdings Pty Limited and Expo Hire (Aust.) Pty Limited. Mr McMahon was also previously a member of the Council at La Trobe University, a member of the Queensland Australian Football League Commission and the Chairman of the Essendon Football Club for seven years. He is a Fellow of the CPA of Australia and a Fellow of the Royal Aeronautical Society. Under the Company’s deﬁ nition of independence, Mr McMahon is considered to be independent. COMPANY SECRETARY Mark Blackburn: Chief Financial Ofﬁ cer and Company Secretary Mark Blackburn, Dip Bus (Acct), CPA, GAICD joined McMillan Shakespeare Group as Chief Financial Ofﬁ cer in October 2011. Mr Blackburn commenced as Company Secretary on 26 October 2011. Mr Blackburn has over 30 years experience in ﬁ nance, working across a broad range of industries for companies such as WMC, Ausdoc, Laminex Industries, AAMI/Promina and Olex Cables. In particular, he has public company experience in ﬁ nancial management and advice, management of ﬁ nancial risks, management of key strategic projects, acquisitions and establishing joint ventures. Prior to his employment with McMillan Shakespeare Group, Mr Blackburn was Chief Financial Ofﬁ cer of AUSDOC Group Ltd, IOOF Holdings Ltd and iSelect Pty Ltd. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 5 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 5 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 5 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 5 8/29/2013 9:17:54 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM REMUNERATION REPORT Overview The Group’s remuneration policies and practices are designed to align the interests of staff and shareholders while attracting and retaining 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 – 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 19 October 2010 for that purpose ($600,000 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 or were entitled to any performance related remuneration or options with respect to the ﬁ nancial years ended 30 June 2013 and 30 June 2012. 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 payable 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 Structure – Executive Directors and Senior Executives Overview In setting its remuneration arrangements, reference has been 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). The Remuneration Committee reviews the ﬁ xed remuneration component of each executive’s remuneration each year (or on promotion). For the ﬁ nancial year commencing July 2013 the Remuneration Committee has reviewed remuneration based on an analysis of the Top 500 Report (Director and Senior Executive Remuneration) 2013, and Hewitt The Australian Top Executive Remuneration Reports for organisations with Annual Revenue $251-$500 Million and 301-1,000 employees. Fixed Remuneration The ﬁ xed remuneration component comprises salary, superannuation and, in some cases, non-cash beneﬁ ts, such as motor vehicle lease payments and car parking beneﬁ ts. 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. 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 does not generally offer contracted cash bonuses as part of a short term incentive program. No contracted cash based short-term incentives were paid to (or were forfeited by) any executives during the ﬁ nancial year ended June 2013. The Remuneration Committee also has the authority to issue discretionary (as to both award and amount) cash bonuses as a reward for out-performance compared to budgeted targets. Such bonuses were paid to the majority of individual executives in relation to the year ended 30 June 2012 but not for the ﬁ nancial year ended 30 June 2013. 6 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 6 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 6 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 6 8/29/2013 9:17:54 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Long-term Incentives From time to time the Company issues options to certain executives and employees under the McMillan Shakespeare Limited Employee Option Plan. Two types of options have been granted under this plan, performance options and voluntary options. 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 NPAT or earnings per share growth targets for the performance option entitlements have 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. The use of earnings per share growth targets for the performance option entitlements has historically 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. However, the Board has determined that use of NPAT targets for the options issued in the ﬁ nancial year ended 30 June 2012 and 30 June 2013 is a more appropriate measure than EPS targets. This was due to the high number of options (6,442,155) that vested in the year ended 30 June 2012 which materially reduced the EPS metric. These vesting options represented over 9% of the shares on issue. Recognising that NPAT targets are not an appropriate measure of performance when there is a change in the capital structure of the Company, the NPAT targets may be adjusted to take account of such changes e.g. an increase in NPAT targets would be made for increased earnings derived from option proceeds or an acquisition where additional shares were issued. No executive can enter into a transaction that is designed or intended to hedge the executive’s exposure to any unvested option. Executives will be required to provide declarations to the Board on their compliance with this policy from time to time. Performance Options Performance options over unissued ordinary shares in the Company are granted 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. Performance options carry no dividend or voting rights. Once exercised, each option is converted into one fully paid ordinary share in the Company. The Remuneration Committee recommends to the Board the number of performance options to be granted on the basis of the position, duties and responsibilities of the relevant executive. As at 30 June 2013, the Company had made fourteen offers of performance options in March 2004, December 2004, April 2005, August 2005, February 2007, December 2007, July 2008, November 2008, August 2009 and May 2010, August 2011, October 2011, March 2012 and July 2012. Many of the performance options issued have vested or expired prior to the ﬁ nancial year ended 30 June 2012. No options vested during the ﬁ nancial ended 30 June 2013. Vesting details Entire issue vests and is exercisable (subject to the achievement of the conditions) on 1 October 2014. The entire issue vests upon the adoption of the Company’s Annual Report for the ﬁ nancial year ended 30 June 2014. Details of total current performance options granted but have not vested are as follows. Options & issue date Expiry Conditions 537,634 (May 2010) 1,831,540 (August 2011) and 352,942 (October 2011) and 31,250 (March 2012) The entitlement is subject to the completion of a 36 month contract ending 30 September 2014 and the achievement of predetermined NPAT targets as described below. The options expire four years from the relevant date of issue. The entitlement to exercise these options is subject to continuity of employment and the achievement of predetermined targets, of which 100% is based on NPAT growth targets over three years. The NPAT growth will be based on the actual NPAT achieved for the year ending 30 June 2011 (the ‘Base Year’). The NPAT growth target will be based on compounding growth targets from the Base year. In the event that the NPAT target in any one year is not achieved, at the end of the three year period ending 30 June 2014 the actual compound NPAT over the three year period will be calculated, and if the total exceeds the compound NPAT target for the three year period, then the executives will be entitled to exercise all the options which have not been forfeited. The Board retains the right to adjust the NPAT targets in the event of a change in the capital structure of the Company that impacts earnings per share. Any change to the NPAT targets will be made having regard to the actual NPAT impact of the change to the capital structure. In the event that the executives take unpaid leave for a period exceeding three months during any of the year ending 30 June 2012, 2013 or 2014, the vesting criteria outlined above with respect to the ﬁ nancial performance of the Company and the executives continued employment will be determined on a pro rata basis to reﬂ ect the period of their continuous service during the relevant ﬁ nancial year, unless the Board in its discretion determine otherwise. The performance hurdles are as follows. Performance Hurdles FY2012 NPAT growth not less than 12.5% FY2013 NPAT growth not less than 15.0% FY2014 NPAT growth not less than 15.0% Vesting portion 33.34% 33.33% 33.33% McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 7 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 7 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 7 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 7 8/29/2013 9:17:54 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Vesting details The entire issue vests upon the adoption of the Company’s Annual Report for the ﬁ nancial year ended 30 June 2014. Options & issue date Expiry Conditions 121,331 (July 2012) The options expire three years from the relevant date of issue. The entitlement to exercise these options is subject to continuity of employment and the achievement of predetermined targets, of which 100% is based on NPAT growth targets over two years. The NPAT growth will be based on the actual NPAT achieved for the year ending 30 June 2012 (the ‘Base Year’). The NPAT growth target will be based on compounding growth targets from the Base year. In the event that the NPAT target in any one year is not achieved, at the end of the two year period ending 30 June 2014 the actual compound NPAT over the two year period will be calculated, and if the total exceeds the compound NPAT target for the two year period, then the executive will be entitled to exercise all the options which have not been forfeited. The Board retains the right to adjust the NPAT targets in the event of a change in the capital structure of the Company that impacts earnings per share. Any change to the NPAT targets will be made having regard to the actual NPAT impact of the change to the capital structure. In the event that the executives take unpaid leave for a period exceeding three months during any of the year ending 30 June 2013 or 2014, the vesting criteria outlined above with respect to the ﬁ nancial performance of the Company and the executive continued employment will be determined on a pro rata basis to reﬂ ect the period of their continuous service during the relevant ﬁ nancial year, unless the Board in its discretion determine otherwise. The performance hurdles are as follows. Performance Hurdles FY2013 NPAT growth not less than 15.0% FY2014 NPAT growth not less than 15.0% Vesting portion 50.0% 50.0% No performance options vested during the ﬁ nancial year ended 30 June 2013. In respect of the May 2010, August 2011, October 2011 and March 2012 performance options, actual NPAT performance for the ﬁ nancial years ending 30 June 2012 and 2013 have outperformed the respective applicable NPAT targets using the 2011 base year NPAT of $43.5m. The NPAT targets for FY12, FY13 and FY14 have been increased from their initial targets to reﬂ ect the increased proﬁ t the Group has derived from the change in the capital structure of the Company following the receipt of $29.7m of share capital from the exercise of employee share options and $0.6m of premiums received on the issue of voluntary options. The amount of the increase in NPAT targets is based on the lower interest expense that the Group is beneﬁ ting from compared to if the options exercise proceeds and option premium were not otherwise received. The increase in NPAT target in FY12 is $0.7m and $1.4m for both FY13 and FY14. The following graph illustrates the actual NPAT performance compared to the NPAT performance targets for FY12 and FY13. LTI achievement to date against performance hurdles 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 m ’ $ T A P N 62.2 66.0 54.3 57.6 49.6 NPAT target NPAT actual Voluntary Options 2012 2013 2014 To provide executives with an additional opportunity to invest in MMS the Board ﬁ rst granted voluntary options in the year ended 30 June 2012 when 314,578 options were issued at $1.32 each and expire on 30 September 2015 (the consideration was set at a 25% discount to the fair value of the options on grant date) up to an investment limit of $50,000 per executive. The maximum discount to any one executive is therefore, limited to $16,666. The entitlement to exercise the voluntary options is not contingent upon continued employment with the Company nor are there performance hurdles. However, if the executive leaves employment before 31 August 2014, the executive will forfeit 25% of their entitlement for $1 (the amount forfeited being equal to the 25% discount to the fair market value that applied to the acquisition price of the option at the date of the conditional offer and acceptance). The vesting date of these options is upon adoption of the Company’s FY 2014 Annual Report. No performance hurdles are attached to these options as the executive has paid $50,000 for the purchase of these options (representing 75% of the fair value of the options on grant date). Retirement Beneﬁ ts - Executives No contracted retirement beneﬁ ts are in place with any of the Company’s executives. 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)). 8 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 8 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 8 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 8 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Remuneration Details The senior executives speciﬁ ed in the Remuneration Report as key management personnel (as deﬁ ned in AASB124 Related Party disclosures) have, either directly or indirectly, authority and responsibility for planning, directing and controlling the activities of the Group. The Directors do not believe that any other senior employees of the Company or its controlled entities are required to be identiﬁ ed. Details of the remuneration of the Directors and other key management personnel of 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 executives listed in the table below. Short-term beneﬁ ts Post-employment beneﬁ ts Long-term beneﬁ ts Share-based payments Cash Bonus Other Beneﬁ ts2 Termination Beneﬁ ts3 Long Service Leave Options4 Total Remuneration Percentage of Remuneration as options $ % 2013 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) Mr A. Podesta (Non-Executive Director) Executive Director Cash salary/ fees1 $ 175,560 70,642 70,642 83,021 52,000 Mr M. Kay (CEO and Managing Director)5 1,001,595 Other key management personnel Mr G. Kruyt (Chief Operating Ofﬁ cer)6 Mr P. Lang (Group Executive, Customers and Corporate Affairs)7 Mr M. Blackburn (Group CFO and Company Secretary)10 Mr M. Salisbury (Managing Director, Remuneration Services)8 Mr A. Tomas (Managing Director, Fleet and Financial Products)9 2012 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) Mr A Podesta (Non-Executive Director) Executive Director 377,095 265,743 479,145 278,238 392,863 167,431 64,220 64,220 60,844 7,729 Super $ 15,800 6,358 6,358 20,979 25,000 $ - - - - - 7,895 25,000 4,871 16,470 32,751 16,470 76,336 25,000 17,492 19,581 88,531 25,000 - - - - - 15,069 5,780 5,780 37,635 62,271 $ - - - - - - - - - - - - - - - - Mr M. Kay (CEO and Managing Director)5 970,334 75,000 15,282 50,000 Other key management personnel Mr G. Kruyt (Chief Operating Ofﬁ cer)6 Mr P. Lang (Group Executive, Customers and Corporate Affairs)7 Mr M. Blackburn (Group CFO and Company Secretary)10 Mr M. Salisbury (Managing Director, Remuneration Services)8 Mr A. Tomas (Managing Director, Fleet and Financial Products)9 286,578 85,000 42,264 15,775 252,675 60,000 24,200 15,775 214,474 40,000 181,985 29,851 232,752 50,000 9,040 18,899 437,615 300,000 76,702 25,020 $ - - - - - - - - - - - - - - - - - - - - - - $ - - - - - $ - - - - - 191,360 77,000 77,000 104,000 77,000 73,972 464,239 1,572,701 20,095 85,592 504,123 16,130 81,552 412,646 292 203,460 784,233 21,229 75,830 412,370 4,020 91,869 602,283 - - - - - - - - - - 182,500 70,000 70,000 98,479 70,000 4,328 516,036 1,630,980 24,911 67,893 522,421 11,344 64,864 428,858 32 162,609 628,951 2,073 33,983 346,747 95 114,707 954,139 - - - - - 30% 17% 20% 26% 18% 15% - - - - - 32% 13% 15% 26% 10% 12% In the case of redundancy, the company Redundancy Policy will apply to the extent that the payment is greater than the payment made to an executive on termination. 1 2 3 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 packaging 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 2012 and 30 June 2013. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 9 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 9 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 9 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 9 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 4 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 2013 and 30 June 2012. The value of options issued to executives (as disclosed above) are the assessed fair values (less any payments for the options) 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 2013 and 30 June 2012 included: Model inputs 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 2013 (July 2012) 30 June 2012 (March 2012) 30 June 2012 (October 2011) 30 June 2012 (August 2011) 30 June 2012 (August 2011) (ii) 30 June 2012 (August 2011) (i) Nil $11.42 Nil $9.29 Nil $8.54 Nil $7.31 $1.32 $7.31 Nil $7.31 24 July 2012 14 March 2012 26 October 2011 16 August 2011 16 August 2011 16 August 2011 2.2 years $11.42 40% 4.0% 2.2% 2.8 years 3.0 years 3.2 years 3.2 years 3.2 years $9.29 42% 4.1% 3.7% $8.54 34% 4.4% 3.9% $7.31 40% 5.3% 3.9% $7.31 40% 5.3% 3.9% $8.54 34% 4.4% 3.9% (i) (ii) 5 6 7 8 9 These options were granted to Mr M. Kay in August 2011 and subsequently approved by shareholders at the Annual General Meeting on 25 October 2011. This option issue was for voluntary options whereas the other issues were performance options. The current employment agreement between Mr Kay and the Company commenced on 9 September 2011 and is for a ﬁ xed term ending 31 August 2014. 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 2013. The current employment agreement between Mr Kruyt and the Company commenced on 3 October 2011 and is ongoing. 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 2013. The current employment agreement between Mr Lang and the Company commenced on 12 September 2011 and is ongoing. 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 Lang served as an executive at all times during the ﬁ nancial year ended 30 June 2013. 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 2013. The current employment agreement between Mr Tomas and the Company commenced on 3 October 2011 and is for a ﬁ xed term ending 30 September 2014. The agreement provides for termination of employment by either party without cause with six 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 ﬁ nancial year ended 30 June 2013. Included in the 2012 cash bonus is $250,000 that was paid during the year ended 30 June 2012 pursuant to the completion of the Interleasing STI program which was established to reward certain achievements in relation to the acquisition of Interleasing (Australia) Limited. (see page 6). 10 The employment agreement between Mr Blackburn and the Company commenced on 10 October 2011 and is for a ﬁ ve year ﬁ xed term. 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 Blackburn served as an executive during the ﬁ nancial year ended 30 June 2013. 10 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 10 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 10 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 10 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 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 Key management personnel Mr G. Kruyt Mr P. Lang Mr M. Blackburn Mr M. Salisbury Mr A. Tomas Fixed remuneration At risk - STI At risk - LTI 2013 2012 2013 2012 2013 2012 71% 83% 80% 74% 82% 85% 64% 71% 71% 68% 76% 57% 4% 16% 14% 6% 14% 31% 29% 17% 20% 26% 18% 15% 32% 13% 15% 26% 10% 12% - - - - - 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 2013 2012 2011 2010 2009 Net proﬁ t attributable to Company members $62,163,519 $54,305,163 $43,460,470 $44,959,784 $20,522,752 NPAT growth (1) Dividends paid Share price as at 30 June Earnings per share 14.5% 25.0% 55.7% 36.0% 18.2% $36,516,743 $31,422,422 $20,388,246 $13,854,604 $11,827,100 $16.18 $11.82 $9.58 $4.69 $2.92 83.4 cents 76.6 cents 64.0 cents 66.5 cents 30.4 cents 1 NPAT growth in 2011 and 2010 have excluded the gain on acquisition of Interleasing (Australia) Limited in April 2010 of $17,055,000. 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 29% per annum over the period from 1 July 2008 until 30 June 2013 (excluding the gain on business combination). Over the same period the average return on equity (RoE) exceeded 35%. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 11 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 11 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 11 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 11 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Option Details No options were granted to, exercised by or lapsed with respect to Directors during the ﬁ nancial years ended 30 June 2013 or 30 June 2012. The terms and conditions of each grant of options to executives affecting their remuneration in the ﬁ nancial year ended 30 June 2013 and each relevant previous or future ﬁ nancial year are as follows: Grant Date Expiry Date 28 May 2010 1 October 2015 16 August 2011 30 September 2015 16 August 2011(2) 30 September 2015 25 October 2011 30 September 2015 14 March 2012 30 September 2015 24 July 2012 30 September 2015 Share price at valuation date Exercise Price Value per option at grant date1 Date Exercisable $3.42 $7.31 $8.54 $8.54 $9.29 $11.42 $3.42 $7.31 $7.31 $8.54 $9.29 $11.42 $0.930 $1.759 $2.310 $1.870 $2.400 $2.555 100% after 1 October 2014 100% after 7 September 2014 100% after 7 September 2014 100% after 7 September 2014 100% after 7 September 2014 100% after 7 September 2014 1 2 Reﬂ ects the value at grant date for options granted as part of remuneration calculated in accordance with AASB 2: Share-based Payment. These options were issued to the Managing Director on 16 August 2011 and valued on the day of approval by shareholders at the Annual General Meeting on 25 October 2011. Details of the options over ordinary shares in the Company provided as remuneration to each director and key management personnel of the parent entity and the Group are set out below. When exercisable each option is convertible into one ordinary share of McMillan Shakespeare Limited. Year of grant Type of option Value of options granted during the year 1 Number of options vested during year Vested % Number of options forfeited/ lapsed during the year 2, 3 Number of options granted Forfeited or lapsed % Year in which options may vest 3 Maximum value of options to vest 4 2012 2012 2012 2012 2012 2012 2012 2013 2012 2010 2012 Performance 682,206 Voluntary 37,900 Performance 159,637 Voluntary 37,901 Performance 151,655 Voluntary 37,901 Performance 352,942 Performance Performance 31,311 85,276 Performance 537,634 Voluntary 37,901 - - - - - - - $80,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 $669,119 $15,944 $119,227 $7,078 $113,266 $7,078 $293,932 $47,330 $63,690 $162,927 $7,078 Name Executive Directors Mr M. Kay Mr M. Kay Key management personnel Mr G. Kruyt Mr G. Kruyt Mr P. Lang Mr P. Lang Mr M. Blackburn Mr M. Salisbury Mr M. Salisbury Mr A. Tomas Mr A. Tomas 1 2 3 4 Reﬂ ects the value at grant date for options granted as part of remuneration during the ﬁ nancial year ended 30 June 2012 calculated in accordance with AASB 2: Share-based Payment. 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 2013. 25% of the voluntary options will be forfeited for $1 if the executive leaves employment before 31 August 2014. There is no minimum value attached to the options to vesting date. 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 class Performance Options Performance Options Voluntary Options Performance Options Performance Options Performance Options 12 No. of unissued ordinary shares Exercise price 537,634 1,831,540 314,578 352,942 31,250 121,331 $3.42 $7.31 $7.31 $8.54 $9.29 $11.42 Expiry date 1 October 2015 30 September 2015 30 September 2015 30 September 2015 30 September 2015 30 September 2015 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 12 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 12 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 12 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 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 Options - 720,106 - - - - Ordinary shares 25,100 811,904 3,993,025 6,050,941 122,000 7,235,000 No Director has, during the ﬁ nancial year ended 30 June 2013, 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. 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, each Company Secretary, and each responsible manager under the licenses which the Company holds (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 for the year ended 30 June 2013 as such disclosure is not permitted under the terms of the policy. The details of premium paid with respect to this policy for the 12 months to May 2014 is $71,408. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor of the Company, Grant Thornton Audit Pty Ltd and its related practices, for non-audit services provided, during the ﬁ nancial year ended 30 June 2013, are 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 2013 by Grant Thornton Audit Pty Ltd. Given that the only non-audit services related to client contract audits and review of banking covenant compliance, 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). McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 13 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 13 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 13 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 13 8/29/2013 9:17:55 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 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 65 of this Annual Report. CORPORATE GOVERNANCE PRACTICES A Corporate Governance Statement is set out on pages 15 to 19 of this Annual Report. Signed in accordance with a resolution of the Directors. Ronald Pitcher, AM Chairman 27 August 2013 Melbourne, Australia Michael Kay Managing Director 14 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 14 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 14 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 14 8/29/2013 9:17:56 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 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 Board charter can be accessed on the Company’s website (www.mmsg.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 8.1% and 5.4% respectively 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 remain on the Board. Despite stepping down as CEO in the year ended 30 June 2008, and resigning as an Executive Director on 17 August 2010, 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. 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. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 15 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 15 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 15 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 15 8/29/2013 9:17:56 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM PERFORMANCE REVIEW The Board has delegated the responsibility for evaluating the performance of the Board, the Directors and the Board Committees to the Chairman. The performance evaluation includes the examination of the performance of the Board and the individual Directors 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, the individual Directors and the Board Committees with respect to the ﬁ nancial year ended 30 June 2013 in July 2013. 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 2013 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 half-yearly 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 2013 with the CEO’s report to the July 2013 meeting of the Remuneration Committee. The Remuneration Committee has evaluated the performance of the Chief Executive Ofﬁ cer for the year ended 30 June 2013, 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 remain members of 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 2013 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 Board believes that during the ﬁ nancial year ended 30 June 2013, the Audit Committee had appropriate ﬁ nancial expertise with all members being ﬁ nancially literate and having a deep understanding of the industry in which the Company operates. The external auditor together with the Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer 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. 16 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 16 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 16 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 16 8/29/2013 9:17:56 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM The Company has reviewed its formal Risk Management Policy and Framework during the year, and the Credit Committee and Interest Committee met on a monthly basis 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 generally 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; 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. Cash bonuses may also be issued at the discretion of the Board. The Company does not generally offer contracted cash bonuses as part of a short term incentive program, but may do so in special circumstances. 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’. COMMUNICATION WITH SHAREHOLDERS AND THE MARKET The Company’s commitment to communicating with its shareholders is embodied in its Shareholder Communication Policy and its Continuous Disclosure Policy, which contain policies and procedures on information and disclosure to facilitate 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. While the Company’s commitment to communicating with its Shareholder’s is unchanged, given the uncertainty in respect of proposed changes to the FBT treatment of motor vehicles, the Company has suspended all communication with investment analysts, Shareholders, the press etc until after the election, unless the position becomes clearer beforehand. As soon as possible after the declaration of the election winner, the Company will update the market on the prospects of the novated leasing component of our Group Remuneration Services segment and the business more generally. The Company will, of course, continue to provide updates and guidance to Shareholders and the market on material changes in relation to its operations and ﬁ nancial circumstances. The Company’s Continuous Disclosure Policy and the Shareholder Communication 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 Company’s website on www.mmsg.com.au. 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 17 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 17 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 17 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 17 8/29/2013 9:17:56 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM 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 Company 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. The policy can be accessed on the Company’s website. The Company has an Equal Opportunity & Diversity Policy which assists in conﬁ rming the Company’s commitment to a diverse workforce, ensuring there is ongoing development and implementation of relevant plans, programs and initiatives to recognise and promote diversity, and in establishing the process for appropriate reporting. The policy can be accessed on the Company’s website. The Board encourages and supports the Company’s commitment to ensuring a work environment that provides equal opportunity for all. Equal opportunity protects the principle that every person has the right to be treated fairly. The Company fosters an environment which encourages and values diversity in the workplace. The Company applies merit based policies and practices, and believes that the application of these achieves diversity outcomes. A number of targeted measurable objectives have been approved by the Board in order to assist monitoring and application of the Company’s approved policies. The details of the measureable objectives selected for the ﬁ nancial year ended 30 June 2013 and the report against them is contained below. Objective 1 Appropriate action to be taken on any complaints, breaches or recommendations on issues related to EEO or diversity as set out in the Company’s EEO & Diversity Policy (‘Diversity Recommendations’). The Company will take action within one week of Diversity Recommendation being raised. The Company Diversity related issues, complaints or breaches could be raised by way of the Whistleblower Policy (either as a complaint or a recommendation), the incident and breach reporting policy, under the EEO & Diversity policy, or other related policies (for example, as part of performance management). Objective 2 100% Diversity Recommendations are to be disclosed in summary form to the Risk & Compliance Committee and the Board. Report against Objectives 1 and 2 No complaints relating to gender diversity discrimination or harassment were received during the period (April 2012 to February 2013). Objective 3 Bi-annual review to be conducted by the Risk & Compliance Committee and the Board of the workplace gender proﬁ le: a. b. As part of the lodgement by MMS of its annual report to the Workplace Gender Equity Agency on their workplace program for women; and As part of the annual review by the Board of talent and succession planning. 18 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 18 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 18 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 18 8/29/2013 9:17:56 AM 3/09/2013 10:00:09 AM 3/09/2013 10:00:09 AM Report against Objective 3 The Board conﬁ rms it has considered the workplace gender proﬁ le bi-annually, including reviewing the workplace proﬁ le submitted to the Workplace Gender Equity Agency and as part of the Company’s talent and succession planning process. The Company’s Risk & Compliance Committee has considered the workplace gender proﬁ le. The Company’s workplace gender proﬁ le as at March 2013 is set out below: Senior Executives Senior Management/ Specialists Managers/Specialists Team Leaders Admin/Support Staff Sales Staff Service Staff Total Women Men Casual % Full Time Part Time Full Time Part Time Women Men Total Women 2 8 30 21 81 79 150 371 - - 2 - 15 7 30 54 11 18 51 16 48 116 118 378 - 1 2 - 1 - 9 13 - - - - 4 - 1 5 - - - - 1 - 2 3 13 27 85 37 150 202 310 824 15% 30% 38% 62% 67% 43% 58% 52% Men 85% 70% 62% 38% 33% 57% 42% 48% There are currently no female directors on the Company Board. In Board appointments, the Company is committed to merit based selection. In selecting new Directors, the Board has regard to skills, experience and perspectives represented on the Board. The Board has developed an appointment process which takes diversity of background into account (in addition to skills and experience) to ﬁ t and enhance the Board’s skill mix. Objective 4 There will be an Annual Review by the Board of the EEO & Diversity Policy and the measurable objectives. Reporting against Objective 4 The Board conﬁ rms it has undertaken an annual review of the EEO & Diversity Policy, and to the extent it deems necessary or appropriate, changes have been made. The MMSG Parental Leave and Flexible Working Arrangements policies have also been reviewed and updated to the extent deemed necessary to reﬂ ect legislative changes effective 1 July 2013. The Board has reviewed the measureable objectives for the ﬁ nancial year ended 30 June 2013, and is in the process of reviewing and agreeing measureable objectives for the 2014 ﬁ nancial year. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 19 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 19 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 19 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 19 8/29/2013 9:17:56 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Revenue and other income Employee and director beneﬁ t expenses Depreciation and amortisation expenses and impairment Leasing and vehicle management expenses Consulting expenses Marketing expenses Property and corporate expenses Technology and communication expenses Other expenses Finance costs Share of equity accounted joint venture loss Proﬁ t before income tax Income tax (expense) / beneﬁ t Proﬁ t attributable to members of the parent entity Other comprehensive income Items that may be re-classiﬁ ed subsequently to proﬁ t or loss: Changes in fair value of cash ﬂ ow hedges Exchange differences on translating foreign operations Income tax on other comprehensive income Total other comprehensive proﬁ t / (loss) for the year Consolidated Group Parent Entity Note 3 4(a) 2013 $’000 2012 $’000 330,064 302,030 (74,244) (79,968) (47,396) (2,485) (3,089) (6,470) (7,642) (8,421) (65,676) (71,766) (50,850) (2,523) (3,004) (5,346) (7,319) (7,811) 4(a) (11,042) (10,385) 5(a) (410) 88,897 (26,734) 62,163 - 77,350 (23,045) 54,305 381 (74) (90) 217 (1,135) (3) 339 (799) 2013 $’000 39,736 (549) - - (279) - (196) - (26) - - 38,686 274 38,960 - - - - 2012 $’000 16,884 (557) - - (49) - (262) - - (766) - 15,250 438 15,688 - - - - Total comprehensive income for the year 62,380 53,506 38,960 15,688 Basic earnings per share (cents) Diluted earnings per share (cents) 6 6 83.4 81.9 76.6 74.1 The above statements of proﬁ t or loss and other comprehensive income should be read in conjunction with the accompanying notes. 20 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 20 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 20 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 20 8/29/2013 9:17:56 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2013 Current assets Cash and cash equivalents Trade and other receivables Finance lease receivables Inventory Prepayments Total current assets Non-current assets Finance lease receivables Other ﬁ nancial assets Investment in joint venture Property, plant and equipment Deferred tax assets Intangible assets Total Non-current assets TOTAL ASSETS Current liabilities Trade and other payables Derivative ﬁ nancial instruments Current tax liability Provisions Total current liabilities Non-current liabilities Provisions Borrowings Total Non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Issued capital Reserves Retained earnings TOTAL EQUITY Note 8 9 10 10 11 12 13 14 15 16 17 18 18 19 Consolidated Group Parent Entity 2013 $’000 57,239 18,184 4,195 4,844 4,602 89,064 2012 $’000 54,420 18,914 6,043 1,980 3,238 84,595 2013 $’000 528 403 - - - 2012 $’000 7,319 72 - - - 931 7,391 10,382 9,518 - - 427 - 296,751 367 50,232 358,159 - - 252,966 1,683 42,449 306,616 107,000 102,230 - - 176 - - - 160 - 107,176 102,390 447,223 391,211 108,107 109,781 56,147 1,057 6,487 5,820 69,511 56,333 1,438 4,323 4,830 66,924 552 181,725 182,277 425 155,811 156,236 34,689 42,491 - 6,487 - 41,176 - - - - 4,323 - 46,814 - - - 251,788 223,160 41,176 46,814 195,435 168,051 66,931 62,967 20(a) 56,456 2,311 136,668 56,456 573 111,022 56,456 3,107 7,368 56,456 1,586 4,925 195,435 168,051 66,931 62,967 The above statements of ﬁ nancial position should be read in conjunction with the accompanying notes. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 21 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 21 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 21 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 21 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 2013 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 Transactions with owners in their capacity as owners: Issue of shares and options Transfer on exercise of options Option expense Dividends paid Equity as at 30 June 2013 2012 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 Transactions with owners in their capacity as owners: Issue of shares and options Transfer on exercise of options Option expense Dividends paid 7 7 Note Issued capital $’000 56,456 - - - Consolidated Group Cash ﬂ ow Hedge Reserve $’000 (1,010) - 270 270 Foreign Currency Translation Reserve $’000 (3) - (53) (53) - - - - - - - - Total $’000 168,051 62,163 217 62,380 - - 1,521 (36,517) (740) (56) 195,435 (214) - (796) (796) - - - - - - (3) (3) - - - - 114,512 54,305 (799) 53,506 30,088 - 1,367 (31,422) Option Reserve $’000 1,586 - - - - - 1,521 - 3,107 1,534 - - - - (1,315) 1,367 - Retained Earnings $’000 111,022 62,163 - 62,163 - - - (36,517) - - - - 56,456 136,668 25,053 - - - 30,088 1,315 - - 88,139 54,305 - 54,305 - - - (31,422) Equity as at 30 June 2012 56,456 111,022 1,586 (1,010) (3) 168,051 2013 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 Transactions with owners in their capacity as owners: Option expense Dividends paid Equity as at 30 June 2013 2012 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 Transactions with owners in their capacity as owners: Issue of shares Transfer on exercise of options Option expense Dividends paid Equity as at 30 June 2012 Note 7 7 Issued capital $’000 56,456 - - - Parent Entity Retained Earnings $’000 4,925 38,960 - 38,960 Option Reserve $’000 1,586 - - - Cash ﬂ ow Hedge Reserve $’000 - - - - - - - (36,517) 56,456 7,368 20,659 15,688 - 15,688 - - - (31,422) 25,053 - - - 30,088 1,315 - - 56,456 1,521 - 3,107 1,534 - - - - (1,315) 1,367 - 4,925 1,586 - - - - - - - - - - - - Total $’000 62,967 38,960 - 38,960 1,521 (36,517) 66,931 47,246 15,688 - 15,688 30,088 - 1,367 (31,422) 62,967 The above statements of changes in equity should be read in conjunction with the accompanying notes. 22 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 22 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 22 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 22 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated Group Parent Entity Note 2013 $’000 2012 $’000 2013 $’000 2012 $’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) / received Net cash from operating activities Cash ﬂ ows from investing activities Payment for capitalised software Payments for plant and equipment Proceeds from the sale of plant and equipment Payments for contract rights Payments for joint venture investment / subsidiary investments Payments for joint venture subordinated loans Net cash used in investing activities Cash ﬂ ows from ﬁ nancing activities Equity contribution Dividends paid by parent entity Proceeds from borrowings Repayment of borrowings Payment of borrowing costs (Repayments) / proceeds to / from controlled entities Net cash (used in) / provided by ﬁ nancing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 22 15(b) 7 321,966 276,610 - (134,390) (112,015) (1,459) 46,051 52,343 (174,434) (163,620) - 39,598 (25,517) 20,028 (1) 38,276 2,674 (10,974) - (23,367) 27,526 (8,041) (2,329) 743 (3,446) (337) (500) 1,391 (9,164) (3,370) (1,830) - - - - (13,910) (5,200) - (36,517) 26,000 - (280) - (10,797) 2,819 54,420 30,088 (31,422) 61,000 (35,000) (108) - 24,558 39,386 15,034 - - 138 - - - - - (493) - (493) - (36,517) - - - (8,057) (44,574) (6,791) 7,319 Cash and cash equivalents at end of year 8 57,239 54,420 528 The above statements of cash ﬂ ows should be read in conjunction with the accompanying notes. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES - (785) - - 94 (730) 16,734 1 15,314 - - - - - - - 30,088 (31,422) - (17,000) - 9,833 (8,501) 6,813 506 7,319 23 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 23 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 23 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 23 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 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 2013 was authorised for issue in accordance with a resolution of the directors on 27 August 2013 and covers McMillan Shakespeare Limited (‘the Company” or the “parent entity”) as an individual entity as well as “the Consolidated Group”, 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 dollars, which is the Consolidated Group’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 and Interpretations of the Australian Accounting Standards Board (AASB), and Corporations Act 2001. McMillan Shakespeare Limited is a for-proﬁ t entity for the purpose of preparing the ﬁ nancial statements. Material accounting policies adopted in the preparation of these ﬁ nancial statements are presented below and have been applied consistently unless stated otherwise. Except for cash ﬂ ow information, the ﬁ nancial statements have been prepared on an accruals basis and are based on historical costs, modiﬁ ed, where applicable, by the measurement at fair value of selected non-current assets, ﬁ nancial assets and ﬁ nancial liabilities. Compliance with IFRS Australian Accounting Standards incorporate International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board. Compliance with Australian Accounting Standards ensures that the ﬁ nancial statements and notes also comply with IFRSs. (c) Principles of consolidation (i) Subsidiaries 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 Consolidated 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 are 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, including the value of options issued by the Company on behalf of its subsidiaries in relation to employee remuneration. (ii) Joint ventures The Consolidated Group has an interest in a joint venture, where by contractual agreement, the joint venture partners jointly control the economic activities and key decisions of the joint venture entity. The arrangement requires unanimous consent of the parties for key strategic, ﬁ nancial and operating policies that govern the joint venture. The Consolidated Group’s interest in the joint venture entity is accounted for using the equity method after initially recognising the investment at cost. Under the equity method, the post-acquisition share of proﬁ ts and losses of the joint venture entity is recognised in proﬁ t and loss, and the share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group’s share of losses exceeds its interest in the joint venture entity, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the joint venture entity. The Consolidated Group’s share of intra-group balances, transactions and unrealised gains or losses on such transactions between the Group and the joint venture are eliminated. (d) Business combinations The acquisition 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 related costs are expensed as incurred. 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. 24 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 24 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 24 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 24 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Identiﬁ able assets acquired and liabilities and contingent liabilities assumed in 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 Consolidated Group’s share of the identiﬁ able net assets acquired is recorded as goodwill (refer Note 1(h)(i)). If the cost of acquisition is less than the Consolidated Group’s share of the fair value of the net assets acquired, the gain is recognised in proﬁ t or loss. If the initial accounting for a business combination is incomplete by the time of reporting the period in which the business combination occurred, provisional estimates are used for items for which accounting is incomplete. These provisional estimates are adjusted in a measurement period that is not to exceed one year from the date of acquisition to reﬂ ect the information it was seeking 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. (e) Income tax (i) Income tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the entities in the Group operate and generate taxable income. (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 is not recognised if they arise from the initial recognition of goodwill. 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 on items that are accounted for in other comprehensive income or equity are recognised in other comprehensive income and equity respectively. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and the deferred taxes relate to the same taxable entity and the same taxing authority. (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 the 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) or a tax credit under the Incentive regime in Australia in relation to eligible Research & Development expenditure. The Consolidated Group accounts for such allowances as a reduction in income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits. (f) Non-current assets held for sale and discontinued operations Non-current assets are classiﬁ ed as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for classiﬁ cation as held for sale is satisﬁ ed when the sale is highly probable, the asset is available for immediate sale in its present condition and management is committed to the sale, is expected to successfully complete the sale within one year from the date of classiﬁ cation. A discontinued operation represents a major line of business or geographical area of operations that has been disposed of or is classiﬁ ed as held for sale, or is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. Discontinued operations are excluded from the results of continuing operations and presented as a single amount as proﬁ t or loss after tax from discontinued operations in the income statement. (g) 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. 25 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 25 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 25 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 25 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 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 the end of the reporting period. Motor vehicles no longer held under an operating lease are classiﬁ ed as inventory. (h) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of the business combination over the Consolidated 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 15(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 proﬁ t or loss and other comprehensive income and cannot be subsequently reversed. (ii) Capitalised software development costs Software development costs are capitalised when it is probable that future economic beneﬁ ts attributable to the software will ﬂ ow to the entity through revenue generation and / or cost reduction. Development costs include external direct costs for services, materials and licences and internal labour related costs directly involved in the development of the software. Capitalised software development costs are amortised from the date of commissioning on a straight line basis over three to ﬁ ve years, during which the beneﬁ ts are expected to be realised (iii) Contract rights Contract rights acquired and amounts paid for contract rights are recognised at the value of 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 Consolidated Group’s impairment policy (refer Note 1(i)). (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. (i) Impairment of assets At each reporting date, the Consolidated Group reviews the carrying amount 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 affected assets are evaluated. An impairment loss is recognised in proﬁ t or loss for the amount that the asset’s carrying value exceeds the recoverable amount. The recoverable amount of an asset is determined as the higher of the asset’s fair value less costs to sell and its value in use. For the purpose of assessing fair value, assets are grouped at the lowest levels for which there are separately identiﬁ able cash inﬂ ows which are largely independent of cash inﬂ ows from other assets (cash-generating units). Where the asset does not generate cash ﬂ ows that are independent from other assets, the Consolidated Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. For assets other than goodwill where impairment losses previously recognised no longer exist or have decreased, the amount is reversed to the extent that the asset’s carrying amount does not exceed the recoverable amount, nor the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Goodwill is tested for impairment annually and whenever there is 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 pre-tax 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. Operating lease assets are reviewed for impairment on an ongoing basis and at reporting date using both internal and external sources of information. 26 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 26 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 26 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 26 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (j) Financial instruments Recognition and de-recognition Regular purchases and sales of ﬁ nancial assets and liabilities are recognised on trade date, the date on which the Consolidated Group 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 Consolidated Group 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) Loans and receivables 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 within the agreed credit terms of settlement which are usually 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. Loan receivables Loan receivables are non-derivative ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted on an active market. They are included in current assets, where their maturities are less than 12 months from reporting date and in non-current assets if longer. Loan receivables that have the ability to convert to a speciﬁ ed amount of equity shares of the borrower in restitution for defaulting loan repayments are designated as available-for-sale ﬁ nancial assets. These assets are measured at fair value at inception and subsequently, marked to market at reporting date with the movement taken to reserves. In measuring fair value at reporting date, the net present value of the loan is calculated using market interest rates at reporting date, or if it is probable that the loan receivable will be converted to shares of the borrower, the market value of the underlying shares attributable to the loan receivable is used. (iii) Other ﬁ nancial assets 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) Available-for-sale ﬁ nancial assets Available-for-sale ﬁ nancial assets are non-derivative assets that are designated as available-for-sale or are not classiﬁ ed in any other category of ﬁ nancial assets. They include investments and debt instruments such as subordinated loans that may be convertible to equity. Available-for- sale ﬁ nancial assets are included in non-current assets unless the investment matures or is intended to be disposed of within twelve months of the end of the reporting period. (v) Other ﬁ nancial liabilities Trade and other payables Trade and other payables, including accruals, and borrowings are recorded initially at fair value, and subsequently at amortised cost using the effective interest rate method, with interest expense recognised on an effective yield basis. The effective interest rate method is a method of calculating the amortised cost of a ﬁ nancial liability and that allocates interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future payments through the expected life of the ﬁ nancial liability to the net carrying amount on initial recognition. Trade and other payables are non-interest bearing. Financial liabilities are derecognised when the Group’s obligations are discharged, cancelled or expire pursuant to its commitments. The difference between its carrying amount of the ﬁ nancial liability derecognised and the consideration paid and payable is recognised in proﬁ t or loss. (vi) Impairment of ﬁ nancial assets Financial assets are assessed for indicators of impairment at the end of each reporting period. Impairment conditions are objective evidence of one or more events occurring after the initial recognition of the ﬁ nancial asset that affects estimated future cash ﬂ ows of the investment. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 27 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 27 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 27 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 27 8/29/2013 9:17:57 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (vii) Impairment of trade and other receivables The collectability of receivables is reviewed on an ongoing basis and debts that are determined as not collectable are written off and expensed. An allowance for impairment is provided for when there is objective evidence that the Consolidated 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 Consolidated 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 Proﬁ t or Loss within other expenses. There have been no amounts recorded for impairment for the parent entity. (viii) Impairment of available for sale equity securities In respect of available for sale equity securities, impairment losses previously recognised in proﬁ t or loss are not reversed through proﬁ t or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated in investment revaluation reserve within equity. In respect of available for sale debt securities, impairment losses are subsequently reversed through proﬁ t or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. (k) Employee beneﬁ ts (i) Salaries and wages, annual leave and long service leave Liabilities for employee beneﬁts arising from services rendered by employees to reporting date which are expected to be settled within twelve months after the end of the reporting date have been recognised and are measured at the amounts expected to be paid when the liabilities are settled. Other employee beneﬁts payable later than one year have been measured at the present value of the estimated future cash outﬂ ows to be made for those beneﬁts. 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. Annual leave and long service leave liabilities are included in provisions and other employee liabilities are included in other payables. (ii) Superannuation The amount charged to the Statement of Comprehensive Income in respect of superannuation represents the contributions made by the Consolidated Group to superannuation funds. (iii) Bonuses A liability for employee beneﬁts in the form of bonuses is recognised in employee beneﬁts. This liability is based upon pre-determined 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. (l) Revenue Revenue is recognised at the fair value of consideration received or receivable to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the Consolidated Group and can be reliably measured. Amounts disclosed as revenue are shown net of returns, trade allowances and duties, amortisation of pre-paid fee discounts included in deferred contract establishment costs and taxes paid. The following speciﬁc 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 Consolidated Group’s right to receive payment is established. 28 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 28 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 28 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 28 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (iv) Lease revenue (property, plant and equipment) Operating lease rental revenue is made up of operating lease interest and 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, the net investment value of the leased asset and the residual value. The principal portion upon receipt reduces the net investment in the leased asset. (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 Consolidated Group. When the 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. (m) 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. (n) Leasing Leases are classiﬁed 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 classiﬁed as operating leases. (i) Finance lease receivable portfolio Lease contracts with customers are recognised as ﬁ nance lease receivables at the Consolidated 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 Consolidated 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 Consolidated 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. (o) Share-based payments The fair values of options granted are recognised as an employee beneﬁt 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 Consolidated 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. (p) Issued capital Ordinary shares and premium received on issue of options are classiﬁ ed as issued capital within 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 beneﬁt. 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. (q) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Consolidated Group, on or before the end of the ﬁ nancial year but not distributed at balance date. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 29 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 29 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 29 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 29 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (r) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the proﬁt 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. (ii) Diluted earnings per share Earnings and the weighted average number of shares used in calculating basic earnings per share is adjusted for the following to calculate diluted earnings per share: • • the after-tax effect of interest and any other ﬁ nancing costs associated with dilutive potential ordinary shares; and the weighted average number of additional shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (s) 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. (t) Provisions Provisions are recognised when the Consolidated Group has a present obligation (legal or constructive) as a result of a past event and where it is probable that the Consolidated Group is required to settle the obligation, and the obligation can be reliably estimated. Provisions are measured at the present value of expenditure expected at settlement. The discount rate used to determine the present value reﬂ ects the current pre-tax market rate of the time value of money and the risks speciﬁ c to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Restructurings A restructuring provision is recognised when the Consolidated 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. (u) 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. (v) Operating cash ﬂ ow All cash ﬂ ows other than investing or ﬁ nancing cash ﬂ ows are classiﬁed as operating cash ﬂ ows. As the asset management segment provides operating and ﬁ nance leases for motor vehicles and equipment, the cash outﬂ ows to acquire the lease assets are classiﬁed as operating cash outﬂ ows. Similarly, interest received and interest paid in respect of the asset management segment are classiﬁed as operating cash ﬂ ows. (w) 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 ﬂows through the expected life of the borrowing. Transaction costs comprise fees paid for the establishment of loan facilities and are amortised over the term of the borrowing facilities. (x) Derivative ﬁ nancial instruments The Consolidated Group uses derivative ﬁ nancial instruments to manage its interest rate exposure to interest rate volatility and its impact on leasing product margins. The process to mitigate against the exposure seeks to have more control in balancing 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 Consolidated Group’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. 30 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 30 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 30 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 30 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Derivative ﬁ nancial instruments are recognised at fair value at the date of inception and subsequently re-measured 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 other comprehensive income in the cash ﬂ ow hedging reserve that forms part of equity. Amounts recognised in other comprehensive income are transferred to proﬁ t or loss and subsequently recognised in proﬁ t or loss to match the timing and relationship with the amount that the derivative instrument was intended to hedge. (i) Hedge accounting At the inception of the hedging instrument, the Group documents the relationship between the instrument and the item it is designated to hedge. The Group also documents its assessment at the inception of the hedging instrument and on an ongoing basis, whether the hedging instruments that are used have been and will continue to be highly effective in offsetting changes in the cash ﬂ ows of the hedged items. (ii) Embedded derivatives Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the deﬁ nition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value through proﬁ t or loss. (iii) Non-trading derivatives Non-trading derivative ﬁ nancial instruments include the Group’s irrevocable option to purchase all of the shares owned by the partner in the joint venture entity. The ﬁ nancial instruments are measured at fair value initially and in future reporting dates. Fair value changes are recognised in proﬁ t or loss. (y) Foreign currency translation The consolidated ﬁ nancial statements of the Consolidated Group are presented in Australian dollars which is the functional and presentation currency. The ﬁ nancial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Differences resulting at settlement of such transactions and from the translation of monetary assets and liabilities at reporting date are recognised in proﬁ t or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Translation differences are recognised as part of the fair value change of the non-monetary item. (ii) Group companies On consolidation of the ﬁ nancial results and affairs of foreign operations, assets and liabilities are translated at prevailing exchange rates at reporting date and income and expenses for the year at average exchange rates. The resulting exchange differences from consolidation are recognised in other comprehensive income and accumulated in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in proﬁ t or loss. (z) 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 15(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 realisable margins. The estimates and underlying assumptions are reviewed on an ongoing basis. No other judgements, estimates or assumptions are considered signiﬁ cant. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 31 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 31 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 31 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 31 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (aa) New accounting standards and interpretations None of the new standards and amendments to standards and interpretations that are mandatory for the ﬁ rst time for the ﬁ nancial year beginning 1 July 2012 affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods. However, amendments to AASB 101 Presentation of Financial Statements effective 1 July 2012 now require the statement of comprehensive income to show items of comprehensive income grouped into those that are not permitted to be re-classiﬁ ed to proﬁ t or loss in a future period and those that may have to be re-classiﬁ ed if certain conditions are met. The following new accounting standards, amendments to standards and interpretations (Standards) have been issued and are effective for annual reporting periods beginning after 30 June 2013, but have not been applied in preparing this ﬁ nancial report. None of these are expected to have a signiﬁ cant effect on the ﬁ nancial report of the Consolidated Group unless otherwise noted in the Standards below. The Consolidated Group has not or does not plan to adopt these Standards early and the extent of their impact has not been fully determined unless otherwise noted below. (i) AASB 9 Financial Instruments (effective for annual reporting periods on or after 1 January 2015) AASB 9 to date introduces new requirements for the classiﬁ cation and measurement of ﬁ nancial assets and liabilities and for de-recognition of ﬁ nancial liabilities. It aims to replace AASB 139 Financial Instruments: Recognition and Measurement in its entirety. The changes in AASB 9 are not expected to materially affect the Group’s accounting for ﬁ nancial assets, as there are no ﬁ nancial liabilities designated at fair value through proﬁ t or loss where the changes might have had an impact. The Group will adopt the new standard at the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. (ii) AASB 10 Consolidated Financial Statements (effective for annual reporting periods on or after 1 January 2013), AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Venture Arrangements Standards’. AASB 10 replaces all previous guidance on control and consolidation in AASB 127 ‘Consolidated and Separate Financial Statements’. It revises the deﬁ nition of control and is now focused on having the exposure, or has rights, to variable returns from its involvement in the activities of the investee and has the ability to affect those returns through its power over the investee. The Group does not expect the new standard to have any signiﬁ cant impact on its composition in the context of the various entities that it currently controls. The Group will adopt the new standard from the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. (iii) AASB 11 Joint Arrangements (effective for annual reporting periods on or after 1 January 2013, AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Venture Arrangements Standards’. This Standard replaces AASB 131 ‘Interests in Joint Ventures’ and introduces a principles based approach to accounting for joint arrangements. The emphasis is no longer on the legal structure of the joint arrangement, but rather on how rights and obligations are shared by parties under the contractual agreement and then account for those rights and obligations in accordance with the type of joint arrangement entered into, being either joint operation or joint venture. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way under the current standard. Joint ventures will now be equity accounted and the choice available under the current standard for proportional consolidation will no longer be available. The Group’s investment in a joint venture partnership will be classiﬁ ed as a joint venture under the new rules and equity accounted as it is currently. AASB 11 will not have an impact on the amounts recognised in the ﬁ nancial statements. The Group will adopt the new standard from the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. (iv) AASB 12 Disclosure of Interest in Other Entities (effective for annual reporting periods on or after 1 January 2013) , AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Venture Arrangements Standards’. AASB 12 integrates the required disclosures when applying the two new standards, AASB 10 and AASB 11. The standard requires increased disclosure of the nature and risks associated with interests in other entities and the effects of those interests on its ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows. Application of this standard will not affect the amounts recognised in the ﬁ nancial statements, but will have an impact on the type of information disclosed in relation to the Group’s investments. The Group will adopt the new standard from the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2016. 32 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 32 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 32 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 32 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (v) AASB 128 Investments in Associates and Joint Ventures (2011) (effective for annual reporting periods on or after 1 January 2013), AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Venture Arrangements Standards’. Amendments in this standard supersedes AASB 128 ‘Investments in Associates’ and prescribes the equity method of accounting for investments in associates and joint ventures and also how investments should be tested for impairment. The Group’s investment in a joint venture is currently equity accounted and this standard is not expected to have any signiﬁ cant impact on the amounts recognised in the ﬁ nancial statements. The Group will adopt the new standard from the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. (vi) AASB 13 Fair Value Measurement (effective for annual reporting periods on or after 1 January 2013) and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’. AASB 13 explains how to measure fair value and aims to enhance fair value disclosures. The standard is broad and applies to both ﬁ nancial instruments and non-ﬁ nancial instruments for which other Australian Accounting Standards require or permit fair value measurements and disclosure. The Group does not anticipate the new standard to have a signiﬁ cant impact on the manner in which fair values are currently derived. The Group will adopt the new standard from the operative date and accordingly, its ﬁ rst application will be in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. (vii) AASB 119 Employee Beneﬁ ts (effective for annual reporting periods on or after 1 January 2013), AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from AASB 119’. The most signiﬁ cant changes in AASB 119 relate to the accounting for deﬁ ned beneﬁ t plans for which the Consolidated Group has none. The standard also revised the deﬁ nition of short-term employee beneﬁ ts. The distinction between short-term and long-term employee beneﬁ ts is now based on whether the beneﬁ ts are expected to be settled wholly within twelve months after reporting date, and is likely to affect the measurement of annual leave. The impact on the Consolidated Group’s measurement of annual leave provision is not considered signiﬁ cant given that most employee entitlements are managed for usage within twelve months from reporting date. The Group will adopt the new standard from 1 July 2013. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (ab) Changes in accounting policies In the current year, the Consolidated Group 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. There have been no signiﬁ cant effects on current, prior or future periods arising from the ﬁrst time application of the standards in respect of presentation, recognition and measurement in the current year ﬁ nancial statements. (ac) Parent entity accounts In accordance with Class order CO10/654 the Consolidated Group will continue to include parent entity ﬁnancial statements in the ﬁ nancial report. (ad) 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. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 33 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 33 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 33 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 33 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 FINANCIAL RISK MANAGEMENT The Consolidated Group’s activities expose it to a variety of ﬁ nancial risk: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Consolidated Group’s overall risk management approach is to identify the risk exposures and implement safeguards which seek to manage these exposures and minimise potential adverse effects on the ﬁ nancial performance of the Consolidated Group. The Board is responsible for monitoring and managing the ﬁ nancial risks of the Consolidated Group. The Board monitors these risks through monthly board meetings, via regular reports from the Risk and Compliance Committee and ad hoc discussions with senior management, should the need arise. A top 20 risk report is presented to the Board monthly and the full risk register at least quarterly. The Credit and Treasury reports are provided to the Interest Committee and Credit Committee respectively, by the Group Treasurer and Credit Manager, including sensitivity analysis in the case of interest rate risk and aging / exposure reports for credit risk. These committee reports are 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 Consolidated Group will not be able to meet its ﬁ nancial obligations as they fall due. Liquidity management strategy The Asset Management business and the resultant borrowings exposes the Consolidated Group to potential mismatches between the reﬁ nancing of its assets and liabilities. The Consolidated Group’s objective is to maintain continuity and ﬂ exibility of funding through the use of committed revolving bank club facilities based on common terms, asset subordination and surplus cash as appropriate to match asset and liability requirements. The Consolidated Group’s policy is to ensure that there is sufﬁ cient liquidity through access to committed available funds to meet at least twelve months of average net asset funding requirements. This level is expected to cover any short term ﬁ nancial market constraint for funds. The Consolidated Group monitors monthly positive operating cash ﬂ ows and forecasts cash ﬂ ows for twelve month period. Signiﬁ cant cash deposits have been maintained which enable the Consolidated Group to settle obligations as they fall due without the need for short term ﬁ nancing facilities. The Chief Financial Ofﬁ cer and the Group Treasurer monitor the cash position of the Consolidated Group daily. Financing arrangements During the year the Consolidated Group increased its committed borrowing facilities for the Asset Management segment from $180m to $270m. The increased facility has been provided by the formation of a ﬁ nancing club with common terms and conditions. The Company believes that this initiative has improved liquidity, provides funding diversiﬁ cation and has achieved a lower cost. The maturity date for these facilities have been extended to 20 August 2015. At reporting date, $182m of the committed revolving facilities were drawn down with the balance of $88m that can be drawn down at any time. The level and type of funding will be reviewed on an on-going basis to ensure they meet the Group’s on-going requirements. Maturities of ﬁ nancial liabilities The table below analyses the Consolidated 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. Consolidated Group – at 30 June 2013: Contractual maturities of ﬁ nancial liabilities Less than 6 mths 6-12 mths 1-2 years 2-5 years Over 5 years Total contractual cash ﬂ ows Carrying Amount (assets)/liabilities Trade payables Borrowings $’000 57,204 3,070 60,274 $’000 - 2,735 2,735 $’000 - 5,039 5,039 $’000 - 182,819 182,819 $’000 - - - $’000 57,204 193,663 250,867 $’000 57,204 181,725 238,929 Consolidated Group – at 30 June 2012: Contractual maturities of ﬁ nancial liabilities Less than 6 mths 6-12 mths 1-2 years 2-5 years Over 5 years Total contractual cash ﬂ ows Carrying Amount (assets)/liabilities $’000 57,771 3,235 61,006 $’000 - 2,973 2,973 $’000 - 5,759 5,759 $’000 - 160,212 160,212 $’000 - - - $’000 57,771 172,179 229,950 $’000 57,771 155,811 213,582 Trade payables Borrowings 34 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 34 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 34 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 34 8/29/2013 9:17:58 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Parent – at 30 June 2013: Contractual maturities of ﬁ nancial liabilities Less than 6 mths 6-12 mths 1-2 years 2-5 years Over 5 years $’000 34,689 3,070 - 37,759 $’000 - 2,735 - 2,735 $’000 - 5,039 - 5,039 $’000 - 182,819 - 182,819 $’000 - - - - Total contractual cash ﬂ ows Carrying Amount (assets)/liabilities $’000 34,689 $’000 34,689 193,663 - - - 228,352 34,689 Trade payables Financial guarantee contracts Borrowings Parent – at 30 June 2012: Contractual maturities of ﬁ nancial liabilities Less than 6 mths 6-12 mths 1-2 years 2-5 years Over 5 years Total contractual cash ﬂ ows Carrying Amount (assets)/liabilities $’000 42,491 3,235 45,726 $’000 - 2,973 2,973 $’000 - 5,759 5,759 $’000 - 160,212 160,212 $’000 - - - $’000 42,491 172,179 214,670 $’000 42,491 - 42,491 Trade payables Financial guarantee contracts (b) Credit risk Credit risk is the risk of ﬁnancial loss to the Consolidated Group if a customer or counter-party to a ﬁnancial instrument fails to meet its contractual obligations. The Company and Consolidated Group have exposure to credit risk through the receivables’ balances, customer leasing commitments and deposits with banks. The following carrying amount of ﬁ nancial assets represents the maximum credit exposure at reporting date. Total receivables Deposits with banks Finance lease receivables Operating lease assets Consolidated Group Parent Entity 2013 $’000 18,184 57,236 14,577 287,749 377,746 2012 $’000 18,914 54,416 15,561 244,023 332,914 2013 $’000 87 528 - - 615 2012 $’000 72 7,319 - - 7,391 Lease assets of the Asset Management business represents future lease rentals that have yet to be invoiced. Such assets are secured against underlying assets. 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 future rentals for leased vehicles. For deposits with banks, only independently rated institutions with upper investment-grade ratings are used in accordance with the Board approved Investment Policy. 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, concentration risk parameters, 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, nature and value of the application. All minutes of the Credit Committee meetings are reported to the Board. The Board receives a monthly report from the Credit Committee and periodically reviews concentration limits that effectively spread the risks as widely as possible across asset classes, client base, industries and asset manufacturer. There are no signiﬁ cant concentrations of credit risk through the Consolidated Group’s exposure to individual customers, industry sectors, asset manufacturers or regions. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 35 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 35 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 35 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 35 8/29/2013 9:17:59 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Where customers are independently rated, these ratings are taken into account. If there is no independent ofﬁ cial rating, management assesses the credit quality of the customer using the Group’s internal risk rating, taking into account information from an independent national credit bureau, its ﬁnancial position, business segment, past experience and other factors using an application scorecard or other risk-assessment tools. Collateral is also obtained where appropriate, as a means of mitigating risk of ﬁ nancial loss from defaults. 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 The Consolidated Group’s strong cash ﬂ ow from operations and borrowings exposes the Consolidated Group to movements in interest rates where movements could directly affect the margins from existing contracts and the pricing of new contracts for assets leased and income earned from surplus cash. Exposure to interest rate volatility is managed via the Consolidated Group’s Treasury and pricing policies. The policies aim to minimise mismatches between the amortised value of lease contracts and the sources of ﬁnancing to mitigate repricing and basis risk. Mismatch and funding graphs including sensitivity analysis, which are reported monthly to the Board along with the minutes of the monthly Interest Committee meetings. Interest rate risk arises where movements in interest rates affect the net margins on existing contracts for assets leased. As the Consolidated Group carries signiﬁ cant cash and borrowings, movements in interest rates can affect net income to the Consolidated Group, particularly for the Consolidated Group Remuneration services segment. Borrowings issued at variable rates expose the Consolidated Group to repricing interest rate risk. As at the end of the reporting period, the Consolidated Group had $182,000,000 (2012: $156,000,000) variable rate borrowings under long-term revolving facilities attributable to the Asset Management business and no borrowings for other Consolidated Group requirements. The weighted average interest rate was 4.06% (2012: 5.07%) for the $182,000,000 (2012: $156,000,000) which is used as an input to asset repricing decisions. An analysis of maturities is provided in note 2(a). To mitigate the cash ﬂ ow volatility arising from interest rate movements, the Group has entered into interest rate swaps with counterparties rated as AA- by Standard and Poors, to exchange, at speciﬁ ed periods, the difference between ﬁ xed and variable rate interest amounts calculated on contracted notional principal amounts. The contracts require settlement of net interest receivable or payable on a quarterly basis. These swaps are designated to hedge underlying borrowing obligations and match the interest-repricing proﬁ le of the lease portfolio in order to preserve the contracted net interest margin. At 30 June 2013, the Consolidated Group’s borrowings for the Asset Management business of $182,000,000 (2012: $156,000,000) were covered by interest rate swaps at a ﬁ xed rate of interest of 4.72% (2012: 5.58%). The Consolidated Group’s interest rate risk also arises from cash at bank and deposits, which are at ﬂoating interest rates. At reporting date, the Consolidated Group had the following variable rate ﬁ nancial assets and liabilities outstanding: Cash and deposits Bank loans (Asset Management segment) Interest rate swaps (notional amounts) Net exposure to cash ﬂ ow interest rate risk 30 June 2013 30 June 2012 Consolidated Group Consolidated Group Weighted average interest rate Balance $’000 Weighted average interest rate 4.08% 4.06% 4.72% 57,239 (182,000) 192,000 67,239 5.05% 5.07% 5.58% Balance $’000 54,420 (156,000) 187,000 85,420 Of the $192,000,000 (2012: $187,000,000) of swaps contracted at reporting date, $10,000,000 (2012: $39,000,000) are effective post balance date and designated as hedges against forecast future borrowings. 36 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 36 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 36 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 36 8/29/2013 9:17:59 AM 3/09/2013 10:00:10 AM 3/09/2013 10:00:10 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Sensitivity analysis – ﬂoating interest rates: At 30 June 2013, the Consolidated Group’s and parent entity’s cash and cash equivalents give rise to credit and interest rate risk. If the Australian interest rate weakened or strengthened by 100 basis points, being the Consolidated Group’s view of possible ﬂ uctuation, and all other variables were held constant, the Consolidated Group’s post-tax proﬁt for the year would have been $365,673 (2012: $597,940) higher or lower and the parent entity $3,700 (2012: $51,233) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings balances at reporting date. (ii) Foreign currency risk The Consolidated Group’s transactions are pre-dominantly denominated Australian dollars which is the functional and presentation currency. (iii) Other market price risk The Consolidated Group does not engage in any transactions that give rise to any other market risks. (d) Asset risk The Consolidated 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. This estimate, which is formed at the inception of the lease and any subsequent impairment, exposes the Consolidated Group to potential loss from resale if 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. The Consolidated Group continuously reviews the portfolio’s residual values via a Residual Value Committee comprising experienced senior staff with a balance of disciplines and responsibilities, who measure and report all matters of risk that could potentially affect residual values and maintenance costs and matters that can mitigate the Consolidated Group from these exposures. The asset risk 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 $287,749,000 (2012: $244,023,000) included a residual value provision of $2,018,000 (2012: $1,907,000). (e) Fair value measurements The fair value of ﬁ nancial assets and ﬁ nancial liabilities is estimated for recognition and measurement for disclosure purposes. The following table is an analysis of ﬁ nancial instruments that are measured at fair value subsequent to initial recognition, grouped into three levels based on the degree to which the fair value is observable. • • Level 1: derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: derived from inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: derived from inputs for the asset or liability that are not based on observable market data (unobservable inputs). 30 June 2013 Liabilities Interest rate swap contracts – cash ﬂ ow hedge 30 June 2012 Liabilities Interest rate swap contracts – cash ﬂ ow hedge Level 1 $’000 - - Level 2 $’000 (1,057) (1,438) Level 3 $’000 - - Total $’000 (1,057) (1,438) Refer to notes 8 to 10 for details of the fair value of assets and 16 to 19 for the fair value of liabilities. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 37 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 37 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 37 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 37 8/29/2013 9:17:59 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’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 155,855 129,753 41,782 - 2,674 330,064 137,284 115,758 47,584 - 1,404 302,030 - - - 39,598 138 39,736 1 Included in remuneration services revenue is interest income derived from the holding of trust funds 11,291 12,710 4 EXPENSES (a) Proﬁ t before income tax includes the following speciﬁ c expenses Finance costs Interest – ﬁ nancial institutions 11,042 10,385 Depreciation and amortisation and impairment expense Software development Contract rights acquired Assets under operating lease Plant and equipment Residual value impairment loss Rental expense on operating leases Minimum lease payments Superannuation 1,570 928 74,618 2,741 111 79,968 967 928 66,440 2,827 604 71,766 5,092 4,296 Deﬁ ned contribution superannuation expense 4,740 3,506 (b) Auditor’s remuneration Remuneration of the auditor (Grant Thornton Audit Pty Ltd) of the parent entity for: Audit or review of the ﬁ nancial statements Audits for customer contracts Agreed upon procedures: - review vehicle compliance and payroll systems - review of borrowing covenant and compliance $ $ 167,000 42,200 - 1,900 162,000 26,500 45,000 - - - - - - - - - - - $ - - - - - - - 16,734 150 16,884 - 766 - - - - - - - - $ - - - - 38 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 38 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 38 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 38 8/29/2013 9:17:59 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 5 INCOME TAX EXPENSE/(BENEFIT) (a) Components of tax expense / (beneﬁ t) Current tax expense / (beneﬁ t) Adjustments for current tax of prior years 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 Prima facie tax payable on proﬁ t before income tax at 30% (2012: 30%) Add tax effect of: - share-based payments - non-deductible costs - research & development - overseas tax rate differential of subsidiaries - previously recognised tax losses now unrecognised in deferred tax assets - over-provision for tax from prior year Less tax effect of: - dividends received Income tax expense / (beneﬁ t) 6 EARNINGS PER SHARE Basic earnings per share Basic EPS – cents per share Net proﬁ t after tax Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS Diluted earnings per share Diluted EPS – cents per share Earnings used to calculate basic earnings per share (EPS) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS Weighted average number of options on issue outstanding Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted EPS Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 23,558 (129) 3,305 26,734 88,897 26,793 457 223 (630) 20 - (129) 26,734 - 26,734 23,958 (510) (403) 23,045 (260) (14) - (274) (470) (2) 34 (438) 77,350 23,205 38,686 11,606 15,250 4,575 403 65 (330) 1 211 (510) 23,045 - 23,045 - 13 - - - (14) 11,605 (11,879) (274) - 7 - - - - 4,582 (5,020) (438) Consolidated Group 2013 ’000 83.4 $62,163 74,524 2012 ’000 76.6 $54,305 70,864 81.9 74.1 $62,163 $54,305 74,524 1,406 75,930 70,864 2,416 73,280 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 39 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 39 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 39 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 39 8/29/2013 9:17:59 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 7 DIVIDENDS Final fully franked ordinary dividend for the year ended 30 June 2012 of $0.25 (2011: $0.22) per share franked at the tax rate of 30% (2011: 30%) Interim fully franked ordinary dividend for the year ended 30 June 2013 of $0.24 (2012: $0.22) per share franked at the tax rate of 30% (2012: 30%) Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 18,631 15,027 18,631 15,027 17,886 36,517 16,395 31,422 17,886 36,517 16,395 31,422 Franking credits available for subsequent ﬁ nancial years based on a tax rate of 30% (2012 – 30%) 48,994 37,110 48,994 37,110 The above amounts represent the balance of the franking account at the end of the ﬁ nancial year end adjusted for: (a) (b) (c) franking credits that will arise from the payment of the amount of the provision for income tax; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and 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. 8 CASH AND CASH EQUIVALENTS Cash on hand Bank balances Short term deposits Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 3 17,868 39,368 57,239 4 9,018 45,398 54,420 - 488 40 528 - 781 6,538 7,319 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 2013, the ﬂ oating interest rates for the Consolidated Group and parent entity were between 1.5% and 4.74% (2012: 1.50% and 5.38%). The short term deposits are also subject to ﬂ oating rates, which in 2013 were between 3.78% and 4.77% (2012: 4.71% and 5.18%). These deposits have an average maturity of 90 days (2012: 90 days). 9 TRADE AND OTHER RECEIVABLES Current Trade receivables Other receivables Amounts receivable from wholly owned entities Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 9,335 8,849 - 18,184 8,627 10,287 - 18,914 - 87 316 403 - 72 - 72 The carrying amount of all current receivables are equal to their fair value as they are short term and fully recoverable. 40 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 40 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 40 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 40 8/29/2013 9:17:59 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (a) Ageing and impairment losses The ageing of trade receivables for the Consolidated Group at reporting date was: Consolidated Group 2013 2012 Total Amount impaired Amount not impaired Total Amount impaired Amount not impaired 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 $’000 8,836 336 249 41 271 9,733 $’000 - (116) (9) (11) (262) (398) $’000 8,836 220 240 30 9 9,335 $’000 8,218 93 92 273 224 8,900 $’000 - - - (54) (219) (273) $’000 8,218 93 92 219 5 8,627 The Consolidated Group’s maximum exposure to credit risk at reporting date by geographic region is predominantly in Australia based on the location of trades and economic activity. Approximately 23% (2012: 38%) of the Consolidated Group’s trade receivables relate to customers for the supply of vehicle leasing related services. 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 Consolidated Group. None of the other current receivables are impaired or past due. (d) Doubtful debts policy Refer Note 1(i). 10 FINANCE LEASE RECEIVABLES Current ﬁ nance lease receivables Non-current ﬁ nance lease receivables Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 4,195 10,382 14,577 6,043 9,518 15,561 - - - - - - As current ﬁ nance lease receivables are short term their carrying amount is equal to their fair value. The fair value of non-current ﬁ nance lease receivables is estimated to be $9,998,000 (2012: $9,208,000) using an 7.75% (2012: 8.55%) discount rate. Consolidated Group Minimum lease payments Present value of lease payments Minimum lease payments Present value of lease payments Amounts receivable under ﬁ nance lease receivables Within one year Later than one but not more than ﬁ ve years Less: unearned ﬁ nance income Present value of minimum lease payments 2013 $’000 5,132 12,375 17,507 2,930 14,577 2013 $’000 4,195 10,382 14,577 - 14,577 2012 $’000 6,656 13,686 20,342 4,781 15,561 There were no unguaranteed residual values of assets leased under ﬁ nance leases at reporting date (2012: nil). McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 2012 $’000 6,043 9,518 15,561 - 15,561 41 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 41 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 41 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 41 8/29/2013 9:17:59 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 11 OTHER FINANCIAL ASSETS (a) Investment in subsidiaries Shares in subsidiaries at cost Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 - - 107,000 102,230 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 in Consolidated Group Maxxia Pty Limited * Remuneration Services (Qld) Pty Limited * Easilease Pty Limited Interleasing (Australia) Ltd * CARILA Pty Ltd * TVPR Pty Ltd * Maxxia Limited (NZ) Maxxia Fleet Limited Maxxia (UK) Limited Maxxia Finance Limited Country of Incorporation Percentage Owned 2013 Percentage Owned 2012 Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand United Kingdom United Kingdom 100% 100% 100% 100% 100% 100% 100% 100% 100% 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. (b) Loan receivable Loan receivable Share of losses of equity accounted joint venture Carrying value at end of the ﬁ nancial year Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 500 (73) 427 - - - - - - - - - The loan receivable is made up of advances to the joint venture entity as part of the working capital facility provided pursuant to the Group’s investment arrangement and forms part of the net investment in the joint venture. Its carrying value includes the share of the joint venture’s loss ($73,000) recognised under the equity method that is in excess of the Company’s investment in the joint venture ($337,000, refer note 12). Risk exposure The maximum facility under the arrangement is GBP1.3 million and is an amortising loan facility with scheduled amounts repayable at speciﬁ ed times with the balance fully repayable no later than 31 January 2017. Under certain conditions of default on the repayments, the Group has an option to convert a portion of the amount outstanding to increase the Group’s interest in the joint venture from 50% to 60%. The loan accrues interest at commercial rates and the balance at reporting date approximates to fair value. At reporting date, the fair value of the option was not material. 42 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 42 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 42 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 42 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 12 INVESTMENT IN JOINT VENTURE Acquired during the year Share of losses after income tax Carrying value at end of the ﬁ nancial year Consolidated Group Parent Entity 2013 $’000 337 (337) - 2012 $’000 2013 $’000 2012 $’000 - - - - - - - - - During the year, a subsidiary acquired a 50% interest in Maxxia Limited (UK), a company resident in the UK and the principal activity of which is provider of ﬁ nancing solutions and associated management services on motor vehicles. By contractual agreement, the Group together with the joint venture partner jointly control the economic activities and key decisions of the joint venture entity. The arrangement requires unanimous consent of the parties for key strategic, ﬁ nancial and operating policies that govern the joint venture. By agreement, the Consolidated Group assumes responsibility for key decisions of the joint venture entity when its interest is greater than 75%. The Group has an option to acquire the residual interest in the joint venture entity from the joint venture partner after ﬁ ve years from acquisition and the joint venture partner has an option to sell its interest to the Group during the same period. At reporting date, the fair value of the option is not materially different to the carrying value. The interest in Maxxia Limited (UK) is equity accounted in the ﬁ nancial statements. Information relating to the joint venture investment is set out below. Consolidated Group Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net liabilities Share of joint venture ﬁ nancial results Revenues Expenses Loss before income tax Income tax Loss after income tax Share of joint venture capital commitments 2013 $’000 186 5 191 277 249 526 335 38 (576) (538) 128 (410) - 13 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 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 22,961 (13,959) 9,002 20,161 (11,218) 8,943 423,321 369,707 (135,572) (125,684) 287,749 244,023 296,751 252,966 - - - - - - - - - - - - - - 43 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 43 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 43 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 43 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (b) Movements in cost and accumulated depreciation Consolidated entity Year ended 30 June 2013 Balance at the beginning of year Additions(1) Disposals / transfers to assets held for sale Impairment loss(2) Depreciation expense FX Balance at 30 June Year ended 30 June 2012 Balance at the beginning of year Additions (1) Disposals / transfers to assets held for sale Impairment loss Depreciation expense Balance at 30 June Plant and equipment Assets under operating lease $’000 $’000 8,943 3,755 (955) - (2,741) - 9,002 8,779 3,147 (156) - (2,827) 8,943 244,023 152,992 (34,694) (111) (74,618) 157 287,749 210,661 136,802 (36,396) (604) (66,440) 244,023 Total $’000 252,966 156,747 (35,649) (111) (77,359) 157 296,751 219,440 139,949 (36,552) (604) (69,267) 252,966 (1) Included in additions of $3,755,000 (2012: $3,147,000) were reimbursements by the lessor of $1,426,000 (2012: $1,235,000). (2) Accumulated provision for impairment loss at reporting date is $2,018,000 (2012: $1,907,000). (c) Security The above assets form part of the security supporting the ﬁ xed and ﬂ oating charge pledged to the Consolidated Group’s ﬁ nanciers. (d) Property, plant and equipment held for sale Property, plant and equipment no longer held under operating leases are classiﬁ ed as inventory. 14 DEFERRED TAX ASSETS (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 Other receivables/prepayments Finance leases Other Losses Contract rights Derivatives Closing balance at 30 June Recognised as: Deferred tax asset Deferred tax liability 44 Consolidated Group 2013 $’000 2012 $’000 Parent Entity 2013 $’000 2012 $’000 120 5,148 (8,679) 2,474 (343) 1,343 6 253 (272) 317 367 9,661 (9,294) 367 82 1,925 (7,185) 4,654 (206) 2,249 283 - (550) 431 1,683 9,624 (7,941) 1,683 - 101 - 6 - - 69 - - - 176 176 - 176 - 101 - 25 - - 34 - - - 160 160 - 160 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 44 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 44 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 44 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (b) Movement Opening balance at 1 July Charged to Statement of proﬁ t or loss and other comprehensive income Charged to equity Closing balance at 30 June 15 INTANGIBLE ASSETS (a) Carrying values Goodwill Cost Impairment loss Net carrying value Software development costs Cost (i) Accumulated amortisation Net carrying value Contract rights Cost Accumulated amortisation Net carrying value Total Intangibles (i) Software includes capitalised internal costs (b) Reconciliation of net book amount 2013 Net book amount Balance beginning of year Additions Amortisation Closing Balance 2012 Net book amount Balance beginning of year Additions Amortisation Closing Balance McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES Consolidated Group Parent Entity 2013 $’000 1,683 (1,226) (90) 367 33,328 (36) 33,292 20,412 (7,744) 12,668 12,605 (8,333) 4,272 50,232 Goodwill $’000 33,292 - - 33,292 33,292 - - 33,292 2012 $’000 1,240 104 339 1,683 33,328 (36) 33,292 12,371 (6,174) 6,197 9,472 (6,512) 2,960 42,449 2013 $’000 160 16 - 176 - - - - - - - - - - Consolidated Group Software development costs $’000 Contract rights $’000 6,197 8,041 (1,570) 12,668 3,794 3,370 (967) 6,197 2,960 3,133 (1,821) 4,272 2,763 1,800 (1,603) 2,960 2012 $’000 71 89 - 160 - - - - - - - - - - Total $’000 42,449 11,174 (3,391) 50,232 39,849 5,170 (2,570) 42,449 45 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 45 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 45 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 45 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (c) Impairment test for goodwill Goodwill is allocated to the Consolidated Group’s cash-generating units (CGUs) identiﬁ ed arising from the acquisitions of subsidiaries. The carrying amount of goodwill allocated to each CGU: Maxxia Pty Limited Remuneration Services (Qld) Pty Limited Consolidated Group 2013 $’000 24,190 9,102 33,292 2012 $’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 Discount rate 2013 % 17.76 2012 % 17.54 Remuneration Services (Qld) Pty Limited 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. 17.54 17.76 In performing the value-in-use calculations for each CGU, the Consolidated Group 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. 16 TRADE AND OTHER PAYABLES Unsecured liabilities Trade payables GST payable Sundry creditors and accruals Maintenance instalments received in advance Receivables in advance Amounts payable to wholly owned entities Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 12,043 1,073 32,322 7,626 3,083 - 13,501 827 31,661 6,622 3,722 - 56,147 56,333 - - 46 - - - - 440 - - 34,643 34,689 42,051 42,491 Trade and other payables are non-interest bearing. These are short-term liabilities and the carrying value is representative of the fair value. 46 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 46 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 46 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 46 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 17 CURRENT TAX LIABILITY Income tax 18 PROVISIONS Current Employee beneﬁ ts Non current Employee beneﬁ ts Aggregate employee beneﬁ ts liability 19 BORROWINGS Current Bank loans Non-current Bank loans (a) Security Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 6,487 4,323 6,487 4,323 5,820 4,830 552 6,372 425 5,255 - - 181,725 155,811 - - - - - - - - - - The parent entity guarantees all bank loans of a subsidiary totalling $182,000,000 (2012: $156,000,000). Fixed and ﬂ oating charges are provided by the Consolidated Group in respect to ﬁ nancing facilities provided to it by its club ﬁ nanciers. The Consolidated Group’s loans are also secured by the following ﬁ nancial undertakings from all the entities in the Consolidated Group. (i) Consolidated Group bank borrowings is not to exceed 80% of the sum of the Consolidated Group’s aggregate of the written down value of net operating lease assets and ﬁ nance lease receivables. (ii) Shareholder’s funds of the Consolidated Group is no less than $115,000,000 at all times. (iii) Consolidated Group ratio of consolidated earnings before interest and tax to consolidated interest expense is not less than 3:1. The Consolidated Group’s borrowings are also secured by negative pledges by the Interleasing Group receiving the loans. This imposes certain covenants including a restriction to provide other security over its assets, a cap on its maximum ﬁ nance debt, disposal of a substantial part of its business and reduction of its capital. At all times during the year, the Consolidated Group operated with signiﬁ cant headroom against all of its borrowing covenants. (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 Consolidated 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 Consolidated 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 47 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 47 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 47 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 47 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 20 ISSUED CAPITAL (a) Share capital 74,523,965 (2012: 74,523,965) fully paid ordinary shares 56,456 56,456 56,456 56,456 (b) Reconciliation of movement in issued capital Balance at 1 July 2012 Options exercised during the year No shares were issued nor options exercised during the year Balance at 30 June 2013 Balance at 1 July 2011 Options exercised during the year Fully paid shares issued on the exercise of employee options - Granted in 2007 - Granted in 2008 and 2009 - Options granted in 2008 and 2009 Proceeds from issue of employee options Transfer from option reserve Total shares issued Less: transaction costs Balance at 30 June 2012 Number of shares 74,523,965 74,523,965 68,081,810 69,313 5,932,689 440,153 - - 6,442,155 - 74,523,965 Issue price $ Ordinary shares $’000 56,456 56,456 25,053 313 27,884 1,496 415 1,315 31,423 (20) 56,456 4.52 4.70 3.40 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. 48 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 48 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 48 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 48 8/29/2013 9:18:00 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (c) Options At 30 June 2013, there were 3,189,275 (2012: 3,095,233) unissued ordinary shares for which options were outstanding. The following options over ordinary shares were issued to staff and executives. Date of issue 15 August 2011 15 August 2011 (i) 26 October 2011 14 March 2012 24 July 2012 Total options issued Number of options 2013 Number of options 2012 Exercise price Option expiry date - - - - 2,002,443 314,578 352,942 31,250 $7.31 $7.31 $8.54 $9.29 121,331 121,331 - $11.42 2,701,213 30 September 2015 30 September 2015 30 September 2015 30 September 2015 30 September 2015 (i) Options issued and fully paid at $1.32 each. Details relating to options issued, exercised and lapsed during the year and options outstanding at the end of the reporting period is set out in Note 27 on page 55. (d) Capital management strategy The Consolidated 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 Consolidated Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Consolidated 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 statement of ﬁ nancial position plus net debt. The Consolidated Groups’ gearing ratio was 39% (2012: 38%) calculated as net debt of $124,486,000 (2012: $101,391,000) divided by total debt and equity of $319,921,000 (2012: $269,442,000). The Consolidated Group’s Risk and Compliance Committee reviews the capital structure of the Consolidated Group on an on-going basis. As part of this review the committee considers the cost of capital and the risks associated with each class of capital. 21 RESERVES (a) 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. (b) Cash ﬂ ow hedge reserve Consolidated Group Parent Entity Revaluation - gross Deferred tax Balance at the end of the ﬁ nancial year 2013 $’000 (1,057) 317 740 2012 $’000 (1,441) 431 1,010 2013 $’000 2012 $’000 - - - - - - McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 49 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 49 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 49 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 49 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 22 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 Share of equity accounted joint venture loss Purchase of assets under lease Written down value of assets sold Changes in assets and liabilities, net of the effects of purchase of subsidiaries (Increase) / decrease in trade receivables and other assets Increase / (decrease) in trade payables and accruals Increase / (decrease) in income taxes payable (Decrease) / increase in deferred taxes Increase in provisions Net cash from operating activities 23 COMMITMENTS (a) Capital expenditure commitments Capital expenditure commitments contracted for: Property, plant and equipment (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 Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 62,163 54,305 38,960 15,688 2,498 111 77,359 1,521 410 1,603 604 70,234 1,367 - (174,434) (163,620) 31,512 36,837 (634) 22,423 2,164 1,316 1,117 27,526 (6,632) 27,418 (2,429) (443) 784 - - - - - - - (15) (395) (258) (16) - - - - - - - - 77 473 (808) (116) - 20,028 38,276 15,314 - 2,213 6,539 21,006 13,142 40,687 5,538 20,612 15,084 41,234 - - - - - - - - - - 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 year securing ofﬁ ce premises for 10 years. The equipment leases are non cancellable leases with varying terms, with rent payable quarterly in arrears. 50 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 50 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 50 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 50 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 24 SEGMENT REPORTING Reportable segments (a) Description of Segments The Consolidated Group has identiﬁ ed its operating segments based on the internal reports reviewed and used by the Consolidated 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 “Group Remuneration Services” and “Asset Management”, in accordance with AASB 8 “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. Group 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 Management - This segment provides ﬁ nancing and ancillary management services associated with motor vehicles, commercial vehicles and equipment. (b) Segment information provided to the Chief Decision Maker The following is an analysis of the Consolidated Group’s revenue and results from operations by reportable segment. Segment revenue Segment proﬁ t after tax 2013 $’000 155,855 171,962 327,817 2012 $’000 137,284 163,342 300,626 Group Remuneration Services Asset Management Segment operations Corporate administration and directors' fees Acquisition expenses Interest expense Interest income Tax on unallocated items Proﬁ t after tax from continuing operations for the year (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 2013 $’000 46,793 14,633 61,426 (1,008) (158) - 2,247 (344) 62,163 2012 $’000 40,265 14,268 54,533 (870) - (861) 1,404 99 54,305 2013 $’000 327,817 2,247 330,064 2012 $’000 300,626 1,404 302,030 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 Consolidated 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, costs directly incurred in relation to the acquisition of speciﬁ c acquisition and strategic investment targets or interest revenue not directly attributable to a segment. Included in the revenue for the Group Remuneration Services segment are revenues of $59,159,000 (2012: $52,989,000) from the Consolidated Group’s largest customer. The Consolidated Group’s operations and its customers are located predominantly in Australia. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 51 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 51 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 51 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 51 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (ii) Segment result The following items are included in the segment results. Segment depreciation and amortisation Group Remuneration Services Asset Management Share of loss from joint venture Group Remuneration Services Asset Management (iii) Segment assets and liabilities 2013 $’000 4,412 75,556 79,968 - 410 410 2012 $’000 4,366 67,400 71,766 - - - 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 parent entity’s borrowings are not considered to be segment liabilities. The reportable segments’ assets and liabilities are reconciled to total assets as follows: Segment assets Group Remuneration Services Asset Management Segment assets Non-segment assets Unallocated assets (1) Consolidated assets per statement of ﬁ nancial position Segment liabilities Group Remuneration Services Asset Management Consolidated liabilities per statement of ﬁ nancial position All assets and liabilities are located predominantly in Australia. 2013 $’000 2012 $’000 70,132 322,879 393,011 54,212 447,223 31,627 220,161 251,788 54,467 282,324 336,791 54,420 391,211 38,605 184,555 223,160 (1) Unallocated assets comprise cash and bank balances of Group Remuneration Services that is maintained as part of the centralised treasury and funding function of the Consolidated Group. Additions to non-current assets Group Remuneration Services Asset Management 52 2013 $’000 2012 $’000 9,345 158,576 167,921 5,726 139,393 145,119 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 52 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 52 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 52 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 25 CONTINGENT LIABILITIES Estimates of the potential ﬁ nancial effect of contingent liabilities that may become payable: Guarantee provided for the performance of a contractual obligation not supported by term deposit. Guarantees provided in respect of property leases. 26 RELATED PARTY TRANSACTIONS (a) Wholly owned group Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 10,658 4,553 15,211 10,643 4,275 14,918 50 - 50 50 - 50 Transactions between the Company and other entities within the wholly owned group during the years ended 30 June 2013 and 2012 consisted of: (a) (b) loans advanced to the Company; and 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 Share-based payments Consolidated Group Parent Entity 2013 $’000 2012 $’000 2013 $’000 2012 $’000 - - $ - - $ 39,598 16,734 34,643 42,051 $ $ 3,474,420 3,855,127 2,016,836 1,998,301 202,016 135,738 1,002,542 4,814,716 287,012 43,266 963,608 124,495 74,264 667,699 211,543 4,843 682,161 5,149,013 2,883,294 2,896,848 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 53 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 53 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 53 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 53 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (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 2013 and 30 June 2012 by each Director and each of the Key Management Personnel of the Consolidated Group, including their personally related parties, are set out below: Year ended 30 June 2013 Non-Executive Directors R Pitcher G McMahon J Bennetts R Chessari A Podesta Executive Directors M Kay Other key management personnel G Kruyt P Lang M Salisbury M Blackburn A Tomas Year ended 30 June 2012 Non-Executive Directors R Pitcher G McMahon J Bennetts R Chessari A Podesta (i) Executive Directors M Kay Other key management personnel G Kruyt P Lang M Salisbury M Blackburn (from 26 October 2011) (ii) A Tomas Balance at the start of the year Shares acquired through option exercise (i) Other changes during the year Balance held at balance date 105,100 122,000 4,318,025 6,225,063 11,235,000 1,444,952 23,450,140 168,290 6,452 - 1,250 17,050 193,042 105,100 122,000 4,568,025 6,225,063 11,235,000 - - - - - - - - - - - - - - - - - - (80,000) - (325,000) (174,122) (4,000,000) 25,100 122,000 3,993,025 6,050,941 7,235,000 (633,048) 811,904 (5,212,170) 18,237,970 (95,246) - - - - (95,246) - (250,000) 73,044 6,452 - 1,250 17,050 97,796 105,100 122,000 4,318,025 6,225,063 11,235,000 4,164 22,259,352 3,750,000 3,750,000 (2,309,212) 1,444,952 (2,559,212) 23,450,140 119,172 6,452 - - 17,050 142,674 625,000 625,000 136,364 - - (575,882) (625,000) (136,364) 1,250 - 1,386,364 (1,335,996) 168,290 6,452 - 1,250 17,050 193,042 Includes employee options vested during the year and sold before the exercise for shares. Pre-existing balance of shares held prior to becoming KMP. (i) (ii) 54 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 54 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 54 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 54 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Options The number of options to acquire shares in the Company held during the ﬁ nancial year ended 30 June 2013 and 30 June 2012 by each of the other key management personnel of the Consolidated Group, including their close family members, or entities they control or have signiﬁ cant inﬂ uence over, are set out below. No options are held by Non-Executive Directors. Year ended 30 June 2013 Balance at the start of the year Issued Exercised or sold Lapsed Balance held at balance date M Kay M Blackburn G Kruyt P Lang M Salisbury A Tomas Year ended 30 June 2012 M Kay M Blackburn (commenced 26 October 2011) G Kruyt P Lang M Salisbury A Tomas 27 SHARE-BASED PAYMENTS 720,106 352,942 197,538 189,556 85,276 575,535 - - - - 31,311 - 2,120,953 31,311 - - - - - - - 3,750,000 720,106 (3,750,000) - 625,000 625,000 136,364 537,634 352,942 197,538 189,556 85,276 37,901 - (625,000) (625,000) (136,364) - 5,673,998 1,583,319 (5,136,364) - - - - - - - - - - - - - - 720,106 352,942 197,538 189,556 116,587 575,535 2,152,264 720,106 352,942 197,538 189,556 85,276 575,535 2,120,953 The Company issued options to certain executives and employees under the McMillan Shakespeare Limited Employee Option Plan. Two types of options have been granted under this plan, performance options and voluntary options. No executive can enter into a transaction that is designed or intended to hedge the executive’s exposure to any unvested option. Executives will be required to provide declarations to the Board on their compliance with this policy from time to time. Performance Options Performance options over unissued ordinary shares in the Company are granted 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. Performance options carry no dividend or voting rights. Once exercised, each option is converted into one fully paid ordinary share in the Company. The Remuneration Committee recommends to the Board the number of performance options to be granted on the basis of the position, duties and responsibilities of the relevant executive. As at 30 June 2013, the Company had made fourteen offers of performance options in March 2004, December 2004, April 2005, August 2005, February 2007, December 2007, July 2008, November 2008, August 2009 and May 2010, August 2011, October 2011, March 2012 and July 2012. Many of the performance options issued have vested or expired prior to the ﬁ nancial year ended 30 June 2013. Voluntary Options Voluntary options were ﬁ rst granted during the 2012 ﬁ nancial year when 314,578 options were issued at $1.32 each and expire on 30 September 2015 (the consideration was set at a 25% discount to the fair value of the options on grant date) up to an investment limit of $50,000 per executive. The maximum discount to any one executive is therefore, limited to $16,666. The entitlement to exercise the voluntary options is not contingent upon continued employment with the Company nor are there performance hurdles. However, if the executive leaves employment before 31 August 2014, the executive will forfeit 25% of their entitlement for $1 (the amount forfeited being equal to the 25% discount to the fair market value that applied to the acquisition price of the option at the date of the conditional offer and acceptance). The vesting date of these options is upon adoption of the Company’s FY 2014 Annual Report. No performance hurdles are attached to these options as the executive has paid $50,000 for the purchase of these options (representing 75% of the fair value of the options on grant date). McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 55 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 55 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 55 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 55 8/29/2013 9:18:01 AM 3/09/2013 10:00:11 AM 3/09/2013 10:00:11 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Details for current performance options Options & issue date Expiry Conditions 537,634 (May 2010) (a) Entitlement to exercise conﬁ rmed during the year upon the Company agreeing to a 36 month employment contract following completion of an 18 month ﬁ xed term employment contract. (b) The entitlement is subject to continuity of employment and the achievement of predetermined NPAT targets over three years. * * The targets are established as the same targets for the options issued in August 2011 described immediately below. Vested Entire issue vests and is exercisable (subject to the achievement of the conditions) on 1 October 2014. The options expire four years from the relevant date of issue. 1,831,540 (August 2011) and 352,942 (October 2011) and 31,250 (March 2012) 121,331 (July 2012) The options expire three years from the relevant date of issue. The entitlement to exercise these options is subject to continuity of employment and the achievement of predetermined targets, of which 100% is based on NPAT growth targets over three years. The NPAT growth will be based on the actual NPAT achieved for the year ended 30 June 2011 (the ‘Base Year’). The NPAT growth target will be based on compounding growth targets from the Base year. The entire issue vests upon the adoption of the Company’s Annual Report for the ﬁ nancial year ended 30 June 2014. In the event that the NPAT target in any one year is not achieved, at the end of the three year period ending 30 June 2014 the actual compound NPAT over the three year period will be calculated, and if the total exceeds the compound NPAT target for the three year period, then the executives will be entitled to exercise all the options which have not been forfeited. The Board retains the right to adjust the NPAT targets in the event of a change in the capital structure of the Company that impacts earnings per share. Any change to the NPAT targets will be made having regard to the actual NPAT impact of the change to the capital structure. In the event that the executives take unpaid leave for a period exceeding three months during any of the years ending 30 June 2012, 2013 or 2014, the vesting criteria outlined above with respect to the ﬁ nancial performance of the Company and the executives continued employment will be determined on a pro rata basis to reﬂ ect the period of his continuous service during the relevant ﬁ nancial year, unless the Board in its discretion determine otherwise. The performance hurdles are as follows. Performance Hurdles FY2012 NPAT growth not less than 12.5% FY2013 NPAT growth not less than 15.0% FY2014 NPAT growth not less than 15.0% Vesting portion 33.34% 33.33% 33.33% The entitlement to exercise these options is subject to continuity of employment and the achievement of predetermined targets, of which 100% is based on NPAT growth targets over two years. The NPAT growth will be based on the actual NPAT achieved for the year ending 30 June 2012 (the ‘Base Year’). The NPAT growth target will be based on compounding growth targets from the Base year. In the event that the NPAT target in any one year is not achieved, at the end of the two year period ending 30 June 2014 the actual compound NPAT over the two year period will be calculated, and if the total exceeds the compound NPAT target for the two year period, then the executive will be entitled to exercise all the options which have not been forfeited. The Board retains the right to adjust the NPAT targets in the event of a change in the capital structure of the Company that impacts earnings per share. Any change to the NPAT targets will be made having regard to the actual NPAT impact of the change to the capital structure. In the event that the executives take unpaid leave for a period exceeding three months during any of the year ending 30 June 2013 or 2014, the vesting criteria outlined above with respect to the ﬁ nancial performance of the Company and the executive continued employment will be determined on a pro rata basis to reﬂ ect the period of their continuous service during the relevant ﬁ nancial year, unless the Board in its discretion determine otherwise. The performance hurdles are as follows. Performance Hurdles FY2013 NPAT growth not less than 15.0% FY2014 NPAT growth not less than 15.0% Vesting portion 50.0% 50.0% The entire issue vests upon the adoption of the Company’s Annual Report for the ﬁ nancial year ended 30 June 2014. 56 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 56 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 56 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 56 8/29/2013 9:18:01 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 FOR THE YEAR ENDED 30 JUNE 2013 Set out below are summaries of options granted under the plans: Consolidated Group and parent entity - 2013 Grant date Expiry date 28 May 2010 1 October 2015 16 August 2011(1) 30 September 2015 16 August 2011(2) 30 September 2015 25 October 2011 30 September 2015 14 March 2012 30 September 2015 Exercise price $3.42 $7.31 $7.31 $8.54 $9.29 24 July 2013 30 September 2015 $11.42 Balance at start of the year 537,634 1,858,829 314,578 352,942 31,250 - 3,095,233 $6.79 Granted during the year Exercised or sold during the year Forfeited during the year Balance at end of the year Exercisable at end of the year - 121,331 121,331 $11.42 - - - - - - - - - 537,634 (27,289) 1,831,540 - - - - 314,578 352,942 31,250 121,331 (27,289) 3,189,275 $7.31 $6.97 - - - - - - - - Weighted average exercise price Consolidated Group and parent entity - 2012 Grant date Expiry date 4 February 2007 3 February 2011 21 December 2007 20 December 2011 1 July 2008 30 June 2012 24 November 2008 23 November 2012 24 November 2008 23 November 2012 14 August 2009 13 August 2012 14 August 2009 13 August 2012 28 May 2010 1 October 2015 16 August 2011(1) 30 September 2015 16 August 2011(2) 30 September 2015 25 October 2011 30 September 2015 14 March 2012 30 September 2015 Exercise price Balance at start of the year Granted during the year Exercised or sold during the year Forfeited during the year Balance at end of the year Exercisable at end of the year $3.80 $4.52 $4.70 $3.40 $4.70 $3.40 $4.70 $3.42 $7.31 $7.31 $8.54 $9.29 - 114,688 3,750,000 306,819 1,988,750 133,334 193,939 698,924 - - - - - - - - - - - - 2,002,443 314,578 352,942 31,250 - - (69,313) (45,375) (3,750,000) (306,819) (1,988,750) (133,334) (193,939) - - - - - - - - - - - - - - - - - (161,290) 537,634 (143,614) 1,858,829 - - - 314,578 352,942 31,250 - - - - - - - - - - - - - - 7,186,454 2,701,213 (6,442,155) (350,279) 3,095,233 Weighted average exercise price $4.49 $7.49 $4.61 $5.16 $6.79 (1) (2) Performance options including 682,206 options granted to the Managing Director following approval by shareholders at the Annual General Meeting on 25 October 2011. Voluntary options including 37,900 options granted to the Managing Director following approval by shareholders at the Annual General Meeting on 25 October 2011. None of the forfeited options represented expired options (2012: 16,875). The weighted average remaining contractual life of options outstanding at the end of the year was 2.25 years (2012: 3.2 years). McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 57 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 57 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 57 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 57 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 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. Year ended 30 June 2013 Year ended 30 June 2012 Model input August 2012 March 2012 October 2011 August 2011 August 2011 (2) August 2011 (1) 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 Nil $11.42 Nil $9.29 Nil $8.54 Nil $7.31 $1.32 $7.31 Nil $7.31 24 July 2012 14 March 2012 25 October 2011 16 August 2011 16 August 2011 16 August 2011 2.2 years $11.42 40% 4% 2.2% 3.0 years 3.0 years 3.2 years 3.2 years 3.2 years $9.29 42% 4.1% 3.7% $8.54 34% 4.4% 3.9% $7.31 40% 5.3% 3.9% $7.31 40% 5.3% 3.9% $8.54 34% 4.4% 3.9% (1) (2) These options were granted to Mr M. Kay in August 2011 and subsequently approved by shareholders at the Annual General Meeting on 25 October 2011. This option issue was for voluntary options whereas the other issues were performance options. 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. 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 28 DEED OF CROSS GUARANTEE Consolidated Group Parent Entity 2013 $’000 2012 $’000 1,521 1,367 2013 $’000 - 2012 $’000 - McMillan Shakespeare Limited, Maxxia 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 and Interleasing (Australia) Ltd, CARILA Pty Ltd and TVPR Pty Ltd (Interleasing Group) entered into deeds of cross guarantee in the year ended 30 June 2010. Under the deeds, 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 2013 of the Closed group consisting of McMillan Shakespeare Limited, Maxxia Pty Ltd and Remuneration Services (Qld) Pty Ltd, Interleasing (Australia) Ltd, CARILA Pty Ltd and TVPR Pty Ltd. 58 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 58 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 58 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 58 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (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 Leasing and vehicle management expenses Consulting cost expenses Marketing expenses Property and corporate expenses Technology and communication expenses Finance costs Other expenses Proﬁ t before income tax Income tax expense Proﬁ t attributable to members of the parent entity Other comprehensive income Other comprehensive income / (loss) for the year after tax Total comprehensive income for the year Movements in consolidated retained earnings Retained earnings at the beginning of the ﬁ nancial year Proﬁ ts for the year Dividends paid Retained proﬁ ts at the end of the ﬁ nancial year 2013 $’000 2012 $’000 329,687 301,794 (73,837) (79,783) (47,307) (2,413) (3,076) (6,441) (7,561) (11,042) (8,218) 90,009 (26,912) 63,097 (65,442) (71,766) (50,850) (2,343) (3,000) (5,333) (7,192) (10,385) (7,440) 78,043 (23,043) 55,000 1,752 64,849 (799) 54,201 111,480 63,097 (36,517) 138,060 87,902 55,000 (31,422) 111,480 McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 59 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 59 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 59 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 59 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (b) Consolidated Statement of Financial Position Current assets Cash and cash equivalents Trade and other receivables Finance lease receivables Inventory Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Finance lease receivables Other ﬁ nancial assets Total non-current assets TOTAL ASSETS Current liabilities Trade and other payables Current tax liability Provisions Total current liabilities Non-current liabilities Provisions Borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY 2013 $’000 56,876 23,432 4,195 4,909 89,412 294,165 50,233 365 10,382 3,250 358,395 447,807 56,210 6,661 5,818 68,689 552 181,725 182,277 250,966 196,841 56,456 2,325 138,060 196,841 2012 $’000 54,213 22,423 6,043 1,980 84,659 252,966 42,450 1,691 9,518 - 306.625 391,284 57,386 4,323 4,830 66,539 425 155,811 156,236 222,775 168,509 56,456 573 111,480 168,509 29 SUBSEQUENT EVENTS Subsequent to reporting date, the Federal Government announced proposed legislative changes to the treatment of fringe beneﬁ ts tax (FBT) on motor vehicles. The proposed changes is expected to lead to an unknown and unquantiﬁ able decrease in demand for novated leases and an adverse impact to the company’s business overall. The proposed changes require the passing of legislation to become effective and if enacted will have a material adverse impact on the future earnings of the Company. The Company is working through various scenarios, including the potential structural changes to internal departments should the proposed legislation changes be enacted as law. Due to the uncertainty in relation to the treatment of FBT on novated leasing, a ﬁ nal dividend has not been declared in respect of the ﬁ nancial year ended 30 June 2013. The Company completed a ﬁ nancing arrangement for new borrowing facilities of GBP15 million subsequent to reporting date. The facilities will be used to fund business expansion in the UK. 60 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 60 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 60 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 60 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM DIRECTORS’ DECLARATION The Directors are of the opinion that: 1. the ﬁ nancial statements and notes on pages 20 to 60 are in accordance with the Corporations Act 2001(Cth), including: (a) compliance with Accounting Standards, the Corporations Regulations 2001 (Cth) and other mandatory professional reporting requirements; (b) giving a true and fair view of the consolidated entity’s ﬁ nancial position as at 30 June 2013 and ﬁ nancial performance for the ﬁ nancial year ended on that date; and (c) compliance with International Financial Reporting Standards as disclosed in Note 1. 2. 3. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identiﬁ ed in Note 28 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in the Note 28. 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 27 August 2013 Melbourne, Australia Michael Kay Managing Director McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 61 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 61 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 61 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 61 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM INDEPENDENT AUDIT REPORT AS AT 30 JUNE 2013 Grant Thornton Audit Pty Ltd ACN 130 913 594 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 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 report We have audited the accompanying financial report of McMillan Shakespeare Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of profit and loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The Directors’ responsibility also includes such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 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 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 62 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 62 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 62 8/29/2013 9:18:02 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM INDEPENDENT AUDIT REPORT AS AT 30 JUNE 2013 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a the financial report 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 the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Report on the remuneration report We have audited the remuneration report included in pages 6 to 12 of the Directors’ report for the year ended 30 June 2013. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 63 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 63 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 63 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 63 8/29/2013 9:18:06 AM 3/09/2013 10:00:12 AM 3/09/2013 10:00:12 AM INDEPENDENT AUDIT REPORT AS AT 30 JUNE 2012 Auditor’s opinion on the remuneration report In our opinion, the remuneration report of McMillan Shakespeare Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Simon Trivett Partner - Audit & Assurance Melbourne, 27 August 2013 64 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 64 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 64 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 64 8/29/2013 9:18:08 AM 3/09/2013 10:00:13 AM 3/09/2013 10:00:13 AM AUDITOR’S INDEPENDENCE DECLARATION AS AT 30 JUNE 2013 Grant Thornton Audit Pty Ltd ACN 130 913 594 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 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 2013, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Simon Trivett Partner - Audit & Assurance Melbourne, 27 August 2013 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 65 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 65 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 65 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 65 8/29/2013 9:18:10 AM 3/09/2013 10:00:13 AM 3/09/2013 10:00:13 AM 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 12 August 2013, the number of shares held by substantial shareholders and their associates is as follows: Shareholder National Nominees Limited J P Morgan Nominees Australia Limited Meddiscope Pty Limited (2) Chessari Holdings Pty Limited (3) HSBC Custody Nominees (Aust) Ltd Asia Pac Technology Pty Limited (4) Number of Ordinary Shares Percentage of Ordinary Shares1 9,943,922 9,069,734 7,235,000 6,050,941 5,329,712 3,993,025 13.34 12.17 9.71 8.12 7.15 5.36 1 2 3 4 As at 12 August 2013, 74,523,965 fully paid ordinary shares have been issued by the Company. Meddiscope Pty Limited is a company associated with Mr Anthony Podesta, a Non-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. NUMBER OF SHARE & OPTION HOLDERS As at 12 August 2013, 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 $3.42 and expiring on 1 October 2015 Options exercisable at $7.31 and expiring on 30 September 2015 Options exercisable at $8.54 and expiring on 30 September 2015 Options exercisable at $9.29 and expiring on 30 September 2015 Options exercisable at $11.42 and expiring on 30 September 2015 VOTING RIGHTS Number of Holders 7,389 1 18 1 1 3 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 12 August 2013, the distribution of share and option holders in the Company was as follows: Distribution of Shares & Options Number of Holders of Ordinary Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,000+ 3,960 2,696 419 274 40 As at 12 August 2013 there were 116 shareholders who held less than a marketable parcel of 49 fully paid ordinary shares in the Company. 66 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 66 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 66 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 66 8/29/2013 9:18:12 AM 3/09/2013 10:00:13 AM 3/09/2013 10:00:13 AM TOP 20 SHAREHOLDERS As at 12 August 2013, the details of the top 20 shareholders in the Company are as follows: No. Name Number of Ordinary Shares Percentage of Ordinary Shares1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. National Nominees Limited J P Morgan Nominees Australia Limited Meddiscope Pty Limited (2) Chessari Holdings Pty Limited (3) HSBC Custody Nominees (Aust) Ltd Asia Pac Technology Pty Limited (4) Citicorp Nominees Pty Limited UBS Nominees Pty Ltd BNP Paribas Noms Pty Ltd < DRP> Ann Leslie Ryan BNP Paribas Noms Pty Ltd ACF PENGANA < DRP A/C> Aust Executor Trustees SA Ltd COBAX Pty Ltd (2) Citicorp Nominees Pty Limited AMP Life Limited 16. MAP Capital Pty Ltd 17. MOHL Invest Pty Ltd 18. 19. 20. RBC Investor Services Australia Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Catholic Church Insurance Limited Totals: Top 20 holders of issued Capital Total Remaining Holders Balance 9,943,922 9,069,734 6,590,000 6,050,941 5,329,712 3,993,025 3,096,427 1,892,144 1,367,046 1,008,418 951,898 649,485 645,000 601,623 453,705 400,000 310,000 300,000 286,248 266,000 53,205,328 21,318,637 13.34 12.17 8.84 8.12 7.15 5.36 4.15 2.54 1.83 1.35 1.28 0.87 0.87 0.81 0.61 0.54 0.42 0.40 0.38 0.36 71,.39 28.61 1 2 3 4 As at 12 August 2013, 74,523,965 fully paid ordinary shares have been issued by the Company. Meddiscope Pty Limited is a company associated with Mr Anthony Podesta, a Non-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 Number of Securities Number of Holders Options exercisable at $3.42 and expiring on 1 October 2015 Options exercisable at $7.31 and expiring on 30 September 2015 Options exercisable at $8.54 and expiring on 30 September 2015 Options exercisable at $9.29 and expiring on 30 September 2015 Options exercisable at $11.24 and expiring on 30 September 2015 Options do not carry a right to vote ON-MARKET BUY BACK The Company does not have a current on-market buy-back. McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES 537,634 2,146,118 352,942 31,250 121,331 1 18 1 1 3 67 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 67 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 67 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 67 8/29/2013 9:18:12 AM 3/09/2013 10:00:13 AM 3/09/2013 10:00:13 AM This page has been left intentionally blank 68 916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.indd 68 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 68 PRESS_916CRN1426_McMillan_Shakespeare_AR_2013_Text_v6.pdf 68 8/29/2013 9:18:12 AM 3/09/2013 10:00:13 AM 3/09/2013 10:00:13 AM McMillan Shakespeare Limited A.B.N. 74 107 233 983 A.F.S.L. No. 299054 Level 21, 360 Elizabeth Street Melbourne, Victoria 3000 www.mmsg.com.au Annual Report 2013 McMillan Shakespeare Limited Australia’s leading provider of workplace benefits. MCMS_MAKG_Rebrand_AnnReport2013.indd 1-2 31/07/13 11:30 AM

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