Annual Report 2014 McMillan Shakespeare Limited
CONTENTS
DIRECTORS’ REPORT
CORPORATE GOVERNANCE STATEMENT
1
17
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 21
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
22
23
24
25
63
64
66
67
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 29 October 2014 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
Tim Poole
Ian Elliot
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 2014 (Group or Consolidated Group).
DIRECTORS
The directors during the whole of the fi nancial year and up to the date of this report (Directors) are as follows:
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)
The following directors were appointed during the year and continue in offi ce at the date of this report:
Mr Tim Poole (independent Non-Executive Director) appointed on 17 December 2013
Mr Ian Elliot (independent and Non-Executive Director) appointed on 27 May 2014
Mr Michael Kay announced his retirement as Managing Director and Chief Executive Offi cer and is due to vacate his position on 30 September 2014.
The following were directors from the beginning of the fi nancial year until their retirement during the year:
Mr Graeme McMahon (independent Non-Executive Director) resigned on 26 November 2013
Graeme McMahon retired as Director of McMillan Shakespeare in late 2013. Graeme made an enormous contribution to the success of McMillan
Shakespeare from its listing in 2004. His success and experience as a business leader, together with his strength of character and forthright opinions,
saw our business develop its strengths and face up to its challenges with equal energy and determination. Sadly, Graeme passed away in July 2014.
Graeme was a memorable fi gure at McMillan Shakespeare and in the community, as President of Essendon football club and CEO of Ansett Airways. He
is deeply missed by the McMillan Shakespeare family and all who knew him.
Mr Anthony Podesta (Non-Executive Director) resigned on 18 February 2014
Anthony Podesta announced his retirement as a McMillan Shakespeare Director in February 2014. Our company founder, Anthony worked at McMillan
Shakespeare since its inception in 1988, transitioning from CEO to Board member in 2008. As well as building the McMillan Shakespeare business,
Anthony was instrumental in the creation of the outsourced salary packaging industry in Australia and was named Ernst & Young Australian Entrepreneur
of the year in 2012. Anthony’s contribution to the company has been invaluable. He has left behind a vibrant legacy and successful business that bears
the hallmarks of his energy and infl uence.
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, 5 and 6.
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 period that they held offi ce during the fi nancial year ended 30 June 2014.
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 2014 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 T. Poole
Mr I. Elliot
Mr G. McMahon
Mr A. Podesta
11
11
11
11
6
1
5
7
11
11
11
10
6
1
5
7
3
-
3
-
2
-
1
-
3
-
2
-
2
-
1
-
4
-
4
3
3
1
1
-
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
4
-
3
3
3
1
1
-
1
Financial Highlights
NPAT performance1
Revenue performance
60
50
45
40
35
30
25
20
15
10
5
0
s
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$
60.0
50.0
40.0
30.0
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20.0
10.0
0.0
Profit recognised on ILA business combination
Normalised NPAT last
9 years CAGR of 30%
300
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
s
n
o
i
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i
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$
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY05 FY06 FY07
FY08 FY09
FY10
FY11
FY12
FY13
FY14
Historical Normalised NPAT
Acquisition Gain
Revenue Group Remuneration Services
Revenue Asset Management
Total dividends per share
Normalised earnings per share (EPS)2
Dividend 9 year CAGR 33%
Basic EPS 9-year CAGR of 28%2
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
s
t
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c
FY05
FY06 FY07
FY08 FY09
FY10 FY11
FY12
FY13
FY14
FY05 FY06 FY07 FY08
FY09 FY10 FY11
FY12 FY13 FY14
Basic EPS2
Cash EPS2
McMillan Shakespeare Limited
Share price - March 04 to June 14
$20.00
$18.00
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
4
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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.
1
2
2
PRINCIPAL ACTIVITIES
The principal activities of the Company and its controlled entities during the course of the fi nancial year ended 30 June 2014 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 2014 that are not otherwise disclosed in this Annual Report.
RESULTS
Details of the results for the fi nancial year ended 30 June 2014 are as follows:
Results
Net profi t after income tax (NPAT)
Basic earnings per share
Earnings per share on a diluted basis
DIVIDENDS
2014
2013
$54,969,799
$62,163,519
73.8 cents
72.7 cents
83.4 cents
81.9 cents
Details of dividends declared and/or paid by the Company during the fi nancial year ended 30 June 2014 are as follows:
Dividends
2014
$
2013
$
Final dividend for the fi nancial year ended 30 June 2013 of 18.0 cents (2012: 25.0 cents) per ordinary share paid
on 22 November 2013 fully franked at the tax rate of 30% (2012: 30%).
13,414,314
18,630,991
Interim dividend for the fi nancial year ended 30 June 2014 of 21.0 cents (2013: 24.0 cents) per ordinary share
paid on 28 March 2014 fully franked at the tax rate of 30% (2013: 30%).
Total
15,650,033
17,885,752
29,064,347
36,516,743
Subsequent to the fi nancial year ended 30 June 2014, the Directors declared a fi nal dividend of 31.0 cents per ordinary share (fully franked at the tax rate
of 30%) to be paid on 15 October 2014, bringing the total dividend to be paid for the fi nancial year ended 30 June 2014 to 52.0 cents per ordinary share.
REVIEW OF OPERATIONS
This year’s result was adversely impacted by the Rudd Labor Government’s 16 July 2013 announcement of proposed changes to the treatment of FBT on
motor vehicles. Between that date and the September 2013 Federal election, our ability to sell novated leases was signifi cantly curtailed. The change of
Government saw a reversal of the proposed policy and we began the task of ramping back to business as usual.
The decision by the Board to retain all our staff after the Rudd announcement put pressure on our expense ratio in the fi rst half of FY14, but the support
and faith in our people has been well rewarded in the second half. A highly engaged workforce worked hard on the recovery of our business and through
this engagement and with IT enhancements, we achieved signifi cant productivity gains.
Notwithstanding these headwinds we have produced an excellent result.
Key highlights and activities included:
• Consolidated Group 2nd half FY14 NPAT was 10% higher than PCP (13% ex interest on the fl oat*).
• Group Remuneration Services (GRS) 2nd half FY14 NPAT was 16% higher than PCP (21% ex interest on the fl oat).
• Core operating contribution growth in GRS declined 5% on PCP, but 2HFY increased by 18%. (Core operating contribution – profi t before fi nance, tax
and depreciation derived directly from salary packages managed and novated leasing excluding one-off costs associated with proposed FBT changes.)
Asset Management NPAT was $13.6m, including UK JV losses. The Australian/NZ NPAT excluding remarketing profi ts and new system depreciation
grew by 11% on PCP.
Remarketing profi ts were below expectations due to customers deciding to extend leases rather than buy new assets which presents a delayed profi t
opportunity on eventual asset return.
•
•
• New Australian asset management system successfully delivered in July 2013 (5 year write off period from 1 July 2013; annual depreciation
charge of $1.9m).
Free cash fl ow of $52m (pre fl eet increase), 94% of NPAT notwithstanding the impact of proposed FBT changes and $8.5m of CAPEX, including
systems investment.
Assets under fi nance and management continued to grow ($27m or 9% on PCP) despite patchy economic conditions and a very competitive market.
•
•
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
3
Both segments have a good pipeline of new business opportunities.
•
• Group funding arrangements were extended to March 2017 on improved terms – our club facility now has three of the four tier 1 Australian banks
and provides funds in Australia, NZ and UK.
The UK business originated £22m of assets.
• CLM (UK) was acquired for A$14m in October 2013 (A$12.4m net of cash acquired).
•
• UK performing in line with expectations.
•
Funding of CLM customers commenced January 2014.
* Ex interest on the fl oat growth shows the business’s underlying growth after removing the impact of interest earned on non corporate funds which is impacted by changes in interest rates.
In summary, our staff proved very resilient in the face of the proposed FBT tax changes. As is evident from the second half performance, the business has
returned to its pre-July 16, 2013 condition and is well placed to provide shareholders with profi table growth in FY15. In addition to growth in our core
offerings, shareholders can expect to see a contribution from the UK operations and the extension of our core offerings to customers through the launch
of new products and services. FY15 is set to be another busy and productive year for MMS.
STRATEGY AND PROSPECTS
The business has returned to normal and the Directors are focused on expanding the business into new products and geography that will reduce
regulatory risk.
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 2014 that are not otherwise disclosed in this Annual Report.
EVENTS SUBSEQUENT TO BALANCE DATE
Subsequent to reporting date, the Company granted the following performance and voluntary options to employees.
Option Type
Performance options
Performance options
Voluntary options
LIKELY DEVELOPMENTS
Number
Exercise price
978,417
808,738
23,981
1,811,136
$10.18
$10.18
$10.18
Expiry date
30 September 2019
30 September 2018
30 September 2018
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, that to include such information would likely result in unreasonable prejudice to the Group.
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
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.
4
Name:
Michael Kay LLB
Appointed: 15 July 2008
Positions: Managing Director and Chief Executive Offi cer
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.
Name:
John Bennetts B Ec, LLB
Appointed: 1 December 2003
Positions:
Non-Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
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
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:
Tim Poole CA, B Com
Appointed: 17 December 2013
Positions:
Non-Executive Director
Chairman of the Audit Committee (appointed 17 December 2013)
Member of the Remuneration Committee (appointed 17 December 2013)
Mr Poole is currently a non-executive Director of Newcrest Mining Limited, Japara Healthcare and AustralianSuper, and the non-executive Chairman of
Lifestyle Communities. Mr Poole is also the non-executive director of several unlisted private companies. He was formerly Managing Director of Hastings
Funds Management and non-executive Chairman of Asciano Limited. Mr Poole is considered an independent director under the Company’s defi nition
of independence.
Name:
Ian Elliot
Appointed: 27 May 2014
Positions:
Non-Executive Director
Member of the Remuneration Committee (appointed 27 May 2014)
Mr Elliot is currently a non-executive Director of Salmat Limited, a non-executive Director of Hills Industries Limited and a Commissioner of the Australian
Rugby League. Mr Elliot was formerly Chairman and CEO at Australia’s largest advertising agency George Patterson Bates. Mr Elliot is considered an
independent director under the Company’s defi nition of independence.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
5
Name:
Anthony Podesta B Ed (Bus), MTMA, FTIA, MAICD
Appointed: 1 December 2003
Retirement: 18 February 2014
Positions: Non-Executive Director
Name:
Graeme McMahon FCPA, FRAS, FCIT
Appointed: 18 March 2004
Retirement: 26 November 2013
Positions:
Non Executive Director
Chairman of the Audit Committee (until 26 November 2013)
Member of the Remuneration Committee (until 26 November 2013)
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.
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.
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 2014 and 30 June 2013. 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 2014 the Remuneration Committee has reviewed remuneration based on an analysis of the
Top 500 Report (Director and Senior Executive Remuneration) 2014, and AON Hewitt The Australian Top Executive Data Service for organisations with
Annual Revenue $251-$500 Million.
6
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 any executives during the fi nancial year ended June 2014.
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 2014 and the
fi nancial year ended 30 June 2013, the latter deferred and disbursed in the fi nancial year ended 30 June 2014.
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.
Past targets have been based on NPAT on an accumulated basis. Going forward the targets will be based on earnings per share targets.
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 2014, 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 2014.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
7
Details of total current performance options granted but had not vested at reporting date are as follows.
Options & issue date Expiry
Conditions
537,634
(May 2010)
1,805,957
(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.
Vesting details
Upon the adoption of this Annual
Report, the entire issue qualifi es for
vesting on 31 August 2014.
Upon the adoption of this Annual
Report, the entire issue qualifi es for
vesting on 31 August 2014.
121,331
(July 2012)
The options
expire three
years from the
relevant date
of issue.
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
33.33%
33.33%
33.34%
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 executive 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 2014.
No options from this issue qualify for
vesting as a result of not meeting the
NPAT targets.
8
Performance options NPAT achievement to targets
In respect of the May 2010, August 2011, October 2011 and March 2012 performance options, target NPAT for the three fi nancial years ended
30 June 2012 to 2014 (vesting period) using the fi nancial year ending 30 June 2011 NPAT of $43.5m as the base year and adjusting NPAT target in each
of the years for changes in the capital structure of the Company and excluding acquisition related expenses during the vesting period were excluded from
the actual NPAT performance. Actual NPAT performance for the fi nancial years ending 30 June 2012 and 2013 have outperformed the respective NPAT
targets except for the fi nancial year ending 30 June 2014. However, the actual compound NPAT performance over the three year period out-performed
target by 0.5%.
The following graph illustrates actual NPAT performance compared to target for each of the fi nancial years and the cumulative compound NPAT for the
three year vesting period as they affected the May 2010, August 2011, October 2011 and March 2012 performance options.
LTI achievement against performance hurdles
10.0%
9.6%
54.3
49.4
56.9
62.2
64.3
0.5%
NPAT target
55.0
NPAT actual
Cummulative
NPAT
performance
against target (%)
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
-35.0%
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
2012
2013
2014
On the adoption of the Annual Report for the year ended 30 June 2014, the number of performance options that have met the NPAT targets and qualify
for vesting on 31 August 2014 is 2,727,783 with an average option exercise price of $6.73.
In respect of the July 2012 performance options issue, actual NPAT under-performed against the annual target for FY13 and FY14 as well as the
cumulative compound NPAT target over the two year vesting period and consequently, will not vest.
Voluntary Options
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 31 August 2014. No performance hurdles are attached to these options given that these are purchased options; the
executive has paid $50,000 for the purchase of these options (representing 75% of the fair value of the options on grant date).
On the adoption of the Annual Report for the year ended 30 June 2014, the number of voluntary options expected to vest on having satisfi ed the vesting
conditions is 314,578 with an average option exercise price $7.31.
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)).
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
9
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 ts3
Long-term
benefi ts
Share-based
payments
Long
Service Leave
Options4
Total
Remuneration
Percentage
of
Remuneration
as options
$
%
Cash salary/
fees1
Cash Bonus
FY1311
Cash Bonus
FY14
Other
Benefi ts2
2014
Non-Executive Directors
Mr R. Pitcher, AM (Chairman)
Mr J. Bennetts
Mr R. Chessari
Mr T. Poole (appointed 17 December 2013)
Mr I. Elliot (appointed 27 May 2014)
Mr G. McMahon (from 1 July 2013 to
26 November 2013)
Mr A. Podesta (from 1 July 2013 to
18 February 2014)
Executive Director
$
179,200
72,107
72,107
57,196
16,342
16,342
35,666
$
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
Super
$
16,576
6,670
6,670
5,291
1,512
27,571
16,674
$
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
195,776
78,777
78,777
62,487
17,854
43,913
52,340
Mr M. Kay (CEO and Managing Director)5
1,039,756
75,000
100,000
8,131
25,000
(82,978)
595,440
1,760,349
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
354,728
75,000
75,000
17,162
17,775
12,504
110,005
662,174
289,282
25,000
25,000
(1,257)
17,775
9,383
104,813
469,996
541,406
40,000
40,000
(2,797)
25,000
232
255,108
898,949
278,268
50,000
50,000
30,774
20,886
10,590
22,645
463,163
386,682
40,000
40,000
113,117
25,000
3,748
149,484
758,032
Short-term benefi ts
Post-employment
benefi ts3
Long-term
benefi ts
Share-based
payments
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
10
377,095
265,743
479,145
278,238
392,863
Cash Bonus Other Benefi ts2
Long
Service Leave
Options4
$
-
-
-
-
-
$
-
-
-
-
-
Super
$
15,800
6,358
6,358
20,979
25,000
Total
Remuneration
$
191,360
77,000
77,000
104,000
77,000
$
-
-
-
-
-
7,895
25,000
73,972
464,239
1,572,701
4,871
16,470
20,095
85,592
504,123
32,751
16,470
16,130
81,552
412,646
76,336
25,000
292
203,460
784,233
17,492
19,581
21,229
75,830
412,370
88,531
25,000
4,020
91,869
602,283
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34%
17%
22%
28%
5%
20%
Percentage
of
Remuneration
as options
%
-
-
-
-
-
30%
17%
20%
26%
18%
15%
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
4
5
6
7
8
9
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.
No payments were made in respect of termination of services in FY14.
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 2014. 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.
No options were granted during the year ended 30 June 2014.
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 that was extended to
30 September 2014 during the year. 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 2014 and will retire on 30 September 2014.
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 2014.
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 2014.
During the year Mr Salisbury served under an employment agreement with the Company that commenced on 1 July 2008 on an ongoing basis. The agreement provided for termination of
employment by either party with 12 weeks’ notice. The agreement could, 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 2014 under this agreement. On 27 May 2014, Mr Salisbury entered into a new employment agreement with no fi xed term which provides
that he will serve as the Company’s Chief Executive Offi cer commencing 1 October 2014. The agreement provides for termination of employment by either party without cause on the provision
of nine 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.
The current employment agreement between Mr Tomas and the Company commenced on 1 June 2014 with no fi xed term. 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 2014.
10
The current employment agreement between Mr Blackburn and the Company commenced on 1 June 2014 with no 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 2014.
11
The bonus in respect of FY13 was declared after the release of the annual report for the year ended 30 June 2013 and paid during the current fi nancial year.
Remuneration at risk
The relevant proportions of remuneration that are linked to performance and those that are fi xed are as follows:
Fixed remuneration
At risk - STI
At risk - LTI
2014
2013
2014
2013
2014
2013
Executive Directors
Mr M. Kay
Key management personnel
Mr G. Kruyt
Mr P. Lang
Mr M. Blackburn
Mr M. Salisbury
Mr A. Tomas
56%
61%
67%
63%
73%
70%
71%
83%
80%
74%
82%
85%
10%
22%
11%
9%
22%
10%
4%
16%
14%
6%
14%
31%
34%
17%
22%
28%
5%
20%
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
29%
17%
20%
26%
18%
15%
11
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
2014
2013
2012
2011
2010
Net profi t attributable to Company members
$54,969,799
$62,163,519
$54,305,163
$43,460,470
$44,959,784
NPAT growth (1)
Dividends paid
Dividend payout ratio (2)
Share price as at 30 June
Earnings per share
-11.6%
14.5%
25.0%
55.7%
36.0%
$29,064,347
$36,516,743
$31,422,422
$20,388,246
$13,854,604
52.9%
$9.17
58.7%
$16.18
57.9%
$11.82
46.9%
$9.58
49.6%
$4.69
73.8 cents
83.4 cents
76.6 cents
64.0 cents
66.5 cents
1
2
NPAT growth in 2011 and 2010 have excluded the gain on acquisition of Interleasing (Australia) Limited in April 2010 of $17,055,000.
Dividend payout ratio is calculated based on dividends paid and NPAT for the year.
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 22% per annum over the period from 1 July 2009 until
30 June 2014 (excluding the gain on business combination). Over the same period the average return on equity (RoE) exceeded 36%.
Option Details
No options were granted to, exercised by or lapsed with respect to Directors during the fi nancial years ended 30 June 2014 or 30 June 2013. The terms
and conditions of each grant of options to executives affecting their remuneration in the fi nancial year ended 30 June 2014 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
$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
Date Exercisable
100% after 1 October 2014
100% after 31 August 2014
100% after 31 August 2014
100% after 31 August 2014
100% after 31 August 2014
100% after 31 August 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.
12
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.
Name
Executive Directors
Mr M. Kay
Key Management
Personnel
Mr G. Kruyt
Mr P. Lang
Mr M. Blackburn
Mr M. Salisbury
Mr A. Tomas
Year
of grant
Type
of option
Number
of options
granted
Value of
options
granted
during the
year 1
Number
of options
vested during
year
Number
of options
forfeited/
lapsed during
the year 1, 2
Vested
%
Forfeited
or
lapsed
%
Year
in which
options may
vest 2
Maximum
value of
options yet
to vest 3
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015
2015
$87,565
$2,058
2015
2015
2015
2015
2015
2015
-
2015
2015
$15,386
$913
$14,617
$913
$38,824
$8,219
-
$19,608
$913
1
2
3
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 2014.
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.
Equity instrument details relating to key management personnel
The tables below show the number of options over the ordinary shares in the Company and shares in the Company held during the fi nancial year by each
Director and each of the Key Management Personnel of the Consolidated Group, including their personally related parties.
There were no shares granted during the year as compensation.
Balance at the start
of the year
Shares acquired
through option exercise
Other changes
during the year
Balance at the
end of the year
Share holdings
Non-Executive Directors
Mr R. Pitcher
Mr G. McMahon
Mr J. Bennetts
Mr R. Chessari
Mr T. Poole
Mr I. Elliot
Mr A. Podesta1
Executive Directors
Mr M. Kay
25,100
122,000
3,993,025
6,050,941
-
-
7,235,000
811,904
18,237,970
-
-
-
-
-
-
-
-
-
-
-
-
-
8,000
-
-
-
8,000
25,100
-
3,993,025
6,050,941
8,000
-
-
811,904
10,888,970
13
1
No share interests have been recorded at the end of the fi nancial year following the resignation of Messrs A. Podesta and G. McMahon as directors.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
Other key management personnel
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr M. Blackburn
Mr A. Tomas
UNISSUED SHARES
Balance at the start
of the year
Shares acquired
through option exercise
Other changes
during the year
Balance at the
end of the year
73,044
6,452
-
1,250
17,050
97,796
-
-
-
-
-
-
-
(6,452)
-
-
-
(6,452)
73,044
-
-
1,250
17,050
91,344
Since the end of the fi nancial year and on adoption of the Annual Report for the fi nancial year ending 30 June 2014 by the directors, the performance
options in respect of May 2010, August 2011, October 2011 and March 2012 were considered to have satisfi ed the cumulative NPAT performance target
for the three years ended 30 June 2014. Consequently, the options will qualify for vesting on 31 August 2014 in respect of the August 2011, October
2011 and March 2012 issues and 31 October 2014 in respect of the May 2010 issue. The July 2012 options did not satisfy the option conditions and
will not vest.
All voluntary options will vest on 31 August 2014.
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 Options1
Performance Options1
Voluntary Options1
No. of unissued ordinary shares
Exercise price
537,634
1,805,957
314,578
352,942
31,250
978,417
808,738
23,981
$3.42
$7.31
$7.31
$8.54
$9.29
$10.18
$10.18
$10.18
Expiry date
1 October 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2019
30 September 2018
30 September 2018
1
Performance options granted since the end of the fi nancial year.
Unissued shares of Managing Director and KMPS at the date of this report
Since the end of the fi nancial year, the number of options that qualify to vest to directors and key management personnel on 31 August 2014 and
31 October 2014 are as follows.
Executive Director and key
management personnel
Mr M. Kay
Mr G. Kruyt
Mr P. Lang
Mr M. Salisbury
Mr M. Blackburn
Mr A. Tomas
14
Option class
Performance Options
Voluntary Options
Performance options
Voluntary Options
Performance options
Voluntary Options
Performance Options
Performance Options
Performance Options
Voluntary Options
No. of unissued
ordinary shares
Exercise price
Expiry date
682,206
37,900
159,637
37,901
151,655
37,901
85,276
352,942
537,634
37,901
$7.31
$7.31
$7.31
$7.31
$7.31
$7.31
$7.31
$8.54
$3.42
$7.31
30 September 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2015
30 September 2015
1 October 2015
30 September 2015
Options granted to directors or any of the fi ve highest remunerated offi cers of the Company since the end of the fi nancial year on 19 August 2014 are
as follows.
Executive Director and key
management personnel
Mr M. Salisbury1
Mr G. Kruyt
Mr P. Lang
Mr M. Blackburn
Mr A. Tomas
Number granted
Exercise price
Expiry date
302,158
215,827
105,438
256,248
204,184
$10.18
$10.18
$10.18
$10.18
$10.18
30 September 2019
30 September 2019
30 September 2018
30 September 2019
30 September 2019
1
The options granted to Mr M. Salisbury comprise 105,216 options in his current capacity as Managing Director of Remuneration Services and 196,942 options pursuant to his role as Chief
Executive Offi cer of the Company commencing 1 October 2014.
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. T Poole
Options
-
720,106
-
-
-
Ordinary shares
25,100
811,904
3,993,025
6,050,941
8,000
No Director has, during the fi nancial year ended 30 June 2014, 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
premium paid during the year with respect to this policy was $71,408.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
15
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 2014, 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 2014 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).
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 66 of this
Annual Report.
CORPORATE GOVERNANCE PRACTICES
A Corporate Governance Statement is set out on pages 17 to 20 of this Annual Report.
Signed in accordance with a resolution of the Directors.
Ronald Pitcher, AM
Chairman
29 August 2014
Melbourne, Australia
Michael Kay
Managing Director
16
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 2nd edition’ (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 T. Poole
Mr I. Elliot
Position
Independent Chairman
Managing Director and Chief Executive Offi cer
Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Appointment
4 February 2004
15 July 2008
1 December 2003
1 December 2003
17 December 2013
27 May 2014
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. At the date of this report, the Board comprises an equal number of independent and non-independent directors. This
follows from the appointments of Mr T. Poole and Mr I. Elliot and the resignations of Mr. G McMahon and Mr A. Podesta during the year. 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 be appointed to the Board.
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
17
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 2014 in July 2014.
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 2014 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 2014 with the CEO’s report to the July 2014 meeting of the
Remuneration Committee. The Remuneration Committee has evaluated the performance of the Chief Executive Offi cer for the year ended 30 June 2014,
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 comply with this recommendation.
At present, the Remuneration Committee is comprised of fi ve members, two of whom are not independent.
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. At the end of the fi nancial year and the date of the Annual Report, the Audit Committee
comprised a majority of independent 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 2014 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 2014, 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 the 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).
18
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 and an internal audit resource for identifying, evaluating and managing signifi cant fi nancial,
operational and compliance risks to the achievement of the Company’s objectives, which are subject to Board oversight from time to time. In addition,
an independent external party has been appointed to provide internal audit services as required from time to time.
The Company has reviewed its formal Risk Management Policy and Framework during the year, 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. 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 announcements section of the Company’s website.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
19
ETHICS AND CODES OF CONDUCT
The Company has adopted a Director Code of Conduct that applies to the Directors of the Company. The Director Code of Conduct refl ects the commitment
of the Company to ethical standards and practices. The Director Code of Conduct can be reviewed on the Company’s website.
The Company has also adopted an extensive Employee Code of Conduct that applies to all employees of the Company, which acknowledges the need for,
and continued maintenance of, the highest standard of ethics and seeks to ensure that employees act honestly, transparently, diligently and with integrity.
A summary of the Employee Code of Conduct can be accessed on the Company’s website.
The Company has also implemented a policy on securities trading that binds all of the Group’s offi cers and employees. In addition to ensuring that all
offi cers and employees are aware of the legal restrictions on trading in the Company’s securities whilst in possession of unpublished price-sensitive
information, the policy also places restrictions on when Directors and employees can deal in the Company’s securities and requires the Directors and
certain employees to notify the Company Secretary upon dealing in the Company’s securities. The policy can be accessed on the Company’s website.
The 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 2014 and the report against them is contained below.
Objective
Report against objective
1. Retain and continue to grow the number of women in
• MMSG continues to refl ect gender diversity across leadership and
leadership roles, subject to merit against role
requirements
specialist roles
• Executive Management – 15% women
• Senior Management / Specialist – 38% women
• Other Leadership / Specialist – 53% women
2. Provide development and promotion opportunities
• Attendance at leadership development programs – 50% women
regardless of gender
3. Ensure at least one woman on interview short-list for Senior
and Executive level leadership / specialist roles, subject to
merit against role requirements
4. Ensure an annual review by the Board of the EEO & Diversity
Policy and the gender diversity measurable objectives
• Promotions secured by women - 55%
• Talent / Succession management – 45% women
• Number of vacancies / opportunities – 6
• Women applicants – 35%
• Women on short list – 52%
• Women as successful candidates – 67%
• 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 Board has reviewed the measurable objectives for the fi nancial
year ended 30 June 2014 and has determined to maintain the existing
measurable objectives for the fi nancial year ending 2015.
The new Workplace Gender Equality Agency (WGEA) reporting framework document for 2013-2014 can be accessed on the Company’s website.
20
STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Revenue and other income
Employee 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 for the year
Total comprehensive income for the year
Note
3
4(a)
4(a)
12
5(a)
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
347,457
330,064
(81,038)
(89,116)
(52,692)
(3,446)
(2,739)
(6,869)
(8,141)
(12,215)
(10,872)
(1,120)
79,209
(24,239)
54,970
418
489
(142)
765
(74,244)
(79,968)
(47,396)
(2,485)
(3,089)
(6,470)
(7,642)
(8,421)
(11,042)
(410)
88,897
(26,734)
62,163
381
(74)
(90)
217
2014
$’000
29,124
(646)
-
-
(358)
-
(438)
-
(11)
-
-
27,671
418
28,089
2013
$’000
39,736
(549)
-
-
(279)
-
(196)
-
(26)
-
-
38,686
274
38,960
-
-
-
-
-
-
55,735
62,380
28,089
38,960
Basic earnings per share (cents)
Diluted earnings per share (cents)
6
6
73.8
72.7
83.4
81.9
The above statements of profi t or loss and other comprehensive income should be read in conjunction with the accompanying notes.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
21
STATEMENTS OF FINANCIAL POSITION
AS AT 30 JUNE 2014
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
Other liabilities
Provisions
Borrowings
Total current liabilities
Non current liabilities
Provisions
Deferred tax liabilities
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
19
18
14
19
Consolidated Group
Parent Entity
2014
$’000
71,197
29,185
7,969
5,379
6,568
120,298
16,937
1,726
-
313,205
5,832
66,659
404,359
2013
$’000
57,239
18,184
4,195
4,844
4,602
89,064
10,382
427
-
296,751
367
50,232
358,159
2014
$’000
1,005
473
-
-
20
1,498
-
123,206
-
-
13
-
123,219
2013
$’000
528
403
-
-
-
931
-
107,000
-
-
176
-
107,176
524,657
447,223
124,717
108,107
52,957
639
10,634
14,470
6,137
452
85,289
767
759
213,995
215,521
40,808
1,057
6,487
15,339
5,820
-
69,511
552
-
181,725
182,277
46,737
-
10,283
-
-
-
57,020
-
-
-
-
34,689
-
6,487
-
-
-
41,176
-
-
-
-
300,810
251,788
57,020
41,176
223,847
195,435
67,697
66,931
20(a)
56,456
4,817
162,574
56,456
2,311
136,668
56,456
4,848
6,393
56,456
3,107
7,368
223,847
195,435
67,697
66,931
The above statements of fi nancial position should be read in conjunction with the accompanying notes.
22
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
2014
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 2014
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
Note
20
7
7
Issued
capital
$’000
56,456
-
-
-
Retained
Earnings
$’000
136,668
54,970
-
54,970
-
-
-
(29,064)
56,456
162,574
56,456
-
-
-
111,022
62,163
-
62,163
-
-
-
(36,517)
Equity as at 30 June 2013
56,456
136,668
Consolidated Group
Cash fl ow
Hedge
Reserve
$’000
(740)
-
293
293
Foreign
Currency
Translation
Reserve
$’000
(56)
-
472
472
Total
$’000
195,435
54,970
765
55,735
-
-
-
-
1,741
(29,064)
(447)
416
223,847
(1,010)
-
270
270
-
-
(3)
-
(53)
(53)
-
-
168,051
62,163
217
62,380
1,521
(36,517)
(740)
(56)
195,435
Option
Reserve
$’000
3,107
-
-
-
1,741
-
4,848
1,586
-
-
-
1,521
-
3,107
Parent Entity
2014
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 year
Transactions with owners in their capacity as owners:
Option expense
Dividends paid
Equity as at 30 June 2014
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
Note
7
7
Issued
capital
$’000
56,456
-
-
-
Retained
Earnings
$’000
7,368
28,089
-
28,089
-
-
-
(29,064)
56,456
6,393
56,456
-
-
-
4,925
38,960
-
38,960
-
-
-
(36,517)
56,456
7,368
Option
Reserve
$’000
3,107
-
-
-
Cash fl ow
Hedge Reserve
$’000
-
-
-
-
1,741
-
4,848
1,586
-
-
-
1,521
-
3,107
-
-
-
-
-
-
-
-
-
-
The above statements of changes in equity should be read in conjunction with the accompanying notes.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
Total
$’000
66,931
28,089
-
28,089
1,741
(29,064)
67,697
62,967
38,960
-
38,960
1,521
(36,517)
66,931
23
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Cash fl ows from operating activities
Receipts from customers
Payments to suppliers and employees
Proceeds from sale of assets under lease
Payments for assets under lease
Interest received
Interest paid
Dividends received
Income taxes paid
Net cash from operating activities
Cash fl ows from investing activities
Payments for capitalised software
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payments for contract rights
Payments for subsidiary (net of cash acquired) and joint venture investments
Subsidiaries’ acquisition expenses
Payments for joint venture subordinated loans
Net cash used in investing activities
Cash fl ows from fi nancing activities
Dividends paid by parent entity
Proceeds from borrowings
Repayment of borrowings
Payment of borrowing costs
Proceeds from / (repayments) to from controlled entities
Net cash provided by / (used in) fi nancing activities
Effect of exchange changes on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Consolidated Group
Parent Entity
Note
2014
$’000
2013
$’000
2014
$’000
2013
$’000
22
15(b)
7
341,286
321,966
-
-
(155,944)
(134,390)
(1,453)
(1,459)
36,742
46,051
(150,375)
(174,434)
2,158
2,674
(10,957)
(10,974)
-
-
60
-
-
-
138
-
-
(26,055)
36,855
(5,488)
(3,184)
-
-
(12,418)
(1,177)
(2,419)
-
29,064
39,598
(23,367)
27,526
-
(1)
27,671
38,276
(8,041)
(2,329)
743
(3,446)
(337)
-
(500)
-
-
-
-
-
-
-
-
(14,478)
(493)
-
-
-
-
(24,686)
(13,910)
(14,478)
(493)
(29,064)
33,552
(1,723)
(993)
-
1,772
17
13,958
57,239
(36,517)
26,000
-
(280)
-
(10,797)
-
2,819
54,420
(29,064)
(36,517)
-
-
-
16,348
(12,716)
-
477
528
-
-
-
(8,057)
(44,574)
-
(6,791)
7,319
Cash and cash equivalents at end of year
8
71,197
57,239
1,005
528
The above statements of fi nancial position should be read in conjunction with the accompanying notes.
24
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General information
The fi nancial report of McMillan Shakespeare Limited and its subsidiaries for the year ended 30 June 2014 was authorised for issue in accordance
with a resolution of the directors on 29 August 2014 and covers McMillan Shakespeare Limited (‘the Company” or the “parent entity”) as an
individual entity as well as “the 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 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 which are all entities (including
structured entities) controlled by the Company as at 30 June each year. Control is achieved when the Group is exposed to, or has rights to,
variable returns from its involvement in the entity and has the ability to affect those returns through its power to direct the activities of the
entity. In assessing control, the Group considers all relevant facts and circumstances to determine if the Group’s voting rights in an investee
are suffi cient to give it power, including the following:
•
•
•
•
the size of the Group’s voting rights holding relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Group and other holders;
rights arising from other contractual arrangements; and
facts and circumstances that indicate whether the Group has the ability to direct relevant activities at the time decision need to be made.
The Group reassess whether the Group has control over an entity when facts and circumstances indicate changes that may affect any of
these elements.
Subsidiaries are consolidated from the date is transferred to the Group and deconsolidated from the Group from 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 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 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 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.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
25
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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.
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.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments
in foreign operations where the company 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.
26
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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.
(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.
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%
20% – 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 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 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
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the
acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
The Group’s customer contracts and relationships are amortised over the life of various contract periods.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
27
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(i)
Impairment of assets
At each reporting date, the 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 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.
(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 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 Group has transferred substantially all the risks and rewards of ownership. The Group classifi es fi nancial assets into the following
categories depending on the purpose for which the asset was acquired.
(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) Separate Financial Statements
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: Separate Financial Statements.
28
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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. Gains and
losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments and subordinated
loan reserve, with the exception of impairment losses which is recognised in profi t or loss. 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.
(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 Group will not be able to collect all amounts due
according to the original terms of the receivables. The provision consists of allowances for specifi c doubtful amounts.
The allowance account for receivables is used to record impairment losses unless the Group is satisfi ed that there is no possible recovery
of the amount, at which point it is written off directly against the amount owing. The impairment loss and any subsequent reversal thereof, is
recognised in the Statement of 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
Short term 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.
Long service leave and annual leave liabilities and other employee benefits that are not expected to be settled wholly within 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.
Employee leave liabilities and other obligations are presented as current liabilities in the balance sheet if the Group does not have an
unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected
to occur.
Annual leave and long service leave liabilities are included in provisions and other employee liabilities are included in other payables.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
29
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(ii) Superannuation
The amount charged to the Statement of Comprehensive Income in respect of superannuation represents the contributions made by the 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 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 flows over the expected life of the fi nancial asset.
(iii) Dividends
Revenue from dividends is recognised when the Group’s right to receive payment is established.
(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 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.
30
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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 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 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.
(iii) Operating leases – the Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term except where another systematic basis is
more representative of the time pattern in which economic benefi ts from the lease asset are consumed. Where incentives are received to enter
into operating leases, such incentives are recognised as a liability. The aggregate benefi t of incentives is recognised as a reduction of lease
expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefi ts
from the lease asset are consumed.
(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 Group, on or before
the end of the fi nancial year but not distributed at balance date.
(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.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
31
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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 Group has a present obligation (legal or constructive) as a result of a past event and where it is probable that
the Group is required to settle the obligation, and the obligation can be reliably estimated.
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 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 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 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.
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.
32
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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 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.
(aa) New accounting standards and interpretations
The Group has applied the following standards and amendments that are mandatory for the fi rst time for the fi nancial year beginning 1 July
2013. None of these standards and amendments materially affected any of the amounts recognised in the current period or any prior period.
Some standards, in particular AASB 13, commonly affects the disclosures in the notes to the fi nancial statements but has a lesser impact on the
profi t or loss.
(i) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, AASB 128
Investments in Associates and Joint Ventures, AASB 127 Separate Financial Statements and AASB 2011-7 Amendments to Australian
Accounting Standard arising from the Consolidation and Joint Arrangements Standards.
(ii) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13.
(iii) AASB 119 Employee Benefi ts, AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119
(iv) AASB 2011-4 Amendments to Australian Accounting Standards to remove Individual Key Management Personnel Disclosure Requirements.
(v) AASB 2012-4 Amendments to Australian Accounting Standards – Government Loans.
(vi) AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle, and
(vii) AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
33
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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 2014, 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 2018)
AASB 9 introduces new requirements for the classifi cation and measurement and de-recognition of fi nancial assets and fi nancial liabilities. It
aims to replace AASB 139 Financial Instruments: Recognition and Measurement in its entirety. The new standard also sets out new rules for
hedge accounting and introduces expanded disclosure requirements and changes in presentation.
The Group has not yet assessed how its own hedging arrangements would be affected by the new rules. The other changes in AASB 9 are not
expected to materially affect the Group’s accounting for fi nancial assets and fi nancial liabilities, as none have been 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 2019.
(ii) AASB 2013-3 Recoverable Amount Disclosures for Non-Financial Assets (effective for annual reporting periods on or after 1 January 2014)
The amendments to this standard seek to clarify the original intention of the IASB that the scope of the applicable disclosures is limited to the
recoverable amount of impaired assets that is based on fair value less costs of disposal. AASB 2013-3 makes the equivalent amendments to
AASB 136 Impairment of Assets.
The amendments in this standard is not expected to have any signifi cant impact on the Group given that they are largely of the nature of
clarifi cation of existing requirements.
(iii) AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting (effective for
annual reporting periods on or after 1 January 2014)
AASB 2013-4 makes amendments to AASB 139 Financial Instruments: Recognition & Measurement to permit the continuation of hedge
accounting in circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a
central counterparty as a consequence of laws or regulations.
When these amendments are fi rst adopted for the year ending 30 June 2015, they are unlikely to have any signifi cant impact on the entity.
(iv) AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments (effective for
annual reporting periods on or after 1 January 2015)
These amendments are planned to address the “own credit” issue that were already included in AASB9 to be applied in isolation without the
need to change any other accounting for fi nancial instruments.
The Group has not yet assessed the full impact of these amendments.
(v)
IFRS 15 Revenue from Contracts with Customers (effective for annual reporting periods on or after 1 January 2017)
The revenue-related interpretations in IFRS 15 will include the establishing of a new control-based revenue recognition model, changing the
basis for deciding whether revenue is to be recognised over time or at a point in time, the provision of new and more detailed guidance on
specifi c topics (eg multiple element arrangements, variable pricing, rights of return, warranties, licensing). The new standard will also expand
and improve disclosures about revenue. The Australian Accounting Standards Board (AASB) is expected to issue the equivalent Australian
Standard (AASB 15 Revenue from Contracts with Customers).
The Group has not yet assessed the full impact of this standard.
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.
(bb) Changes in accounting policies
In the current year, the 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.
(ab) Parent entity accounts
In accordance with Class order CO10/654 the Group will continue to include parent entity financial statements in the fi nancial report.
34
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(ac) 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.
2 FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of fi nancial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
The 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 Group. The Board is responsible for monitoring and managing the
fi nancial risks of the 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 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 Group to potential mismatches between the refi nancing of its assets and
liabilities. The Group’s objective is to maintain continuity and fl exibility of funding through the use of committed revolving bank club facilities based
on common terms, asset subordination and surplus cash as appropriate to match asset and liability requirements.
The Group’s policy is to ensure that there is suffi cient liquidity through access to 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 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 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 Group daily.
Financing arrangements
During the year the Group increased its committed borrowing facilities for the Asset Management segment to fi nance its fl eet management portfolio
as follows.
Secured bank borrowings
Maturity dates
AUD’000
AUD’000
GBP’000
Total borrowings (AUD)
31/03/2017(1)
03/04/2017(1)
03/04/2017
(1)
Includes facility to be drawn in NZD10m
Facility
285,000
15,000
25,000
345,167
2014
Used
193,420
-
12,250
215,100
Unused
91,580
15,000
12,750
130,067
Facility
270,000
-
-
270,000
2013
Used
182,000
-
-
182,000
Unused
88,000
-
-
88,000
The increased facilities have been provided by the formation of a fi nancing club of three major Australian banks operating common terms and
conditions. The Group believes that this initiative has improved liquidity, provides funding diversifi cation and has achieved a lower cost. The bank
loans are sourced in local currency of the principal geographical markets to minimise foreign currency exposure. The maturity date for these
facilities have been extended to 31 March 2017 and the new facilities have a maturity date on 3 April 2017.
In addition to the borrowing facilities to fi nance Asset Management’s lease portfolio, the Group has a GBP6 million facility that was fully drawn
down for the acquisition of CLM Fleet Management plc during the year. This borrowing is an amortising facility that matures on 31 August 2018.
The level and type of funding will be reviewed on an on-going basis to ensure they meet the Group’s on-going requirements in the principal
geographical market operated in.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
35
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Maturities of fi nancial liabilities
The table below analyses the Group’s and the parent entity’s fi nancial liabilities into relevant maturity groupings based on their contractual maturities
and based on the remaining period to the expected settlement date.
The amounts disclosed in the table are the contractual undiscounted cash fl ows. Balances due within 12 months equal their carrying value as the
impact of discounting is not signifi cant.
Consolidated Group – at 30 June 2014: Contractual maturities of fi nancial liabilities
Less than 6 mths
$’000
6-12 mths
$’000
1-2 years
$’000
2-5 years
$’000
Over 5 years
$’000
Trade payables
Other creditors
and liabilities
Borrowings
16,222
39,712
4,477
60,411
-
-
4,848
4,848
-
-
-
-
10,121
10,121
220,820
220,820
-
-
-
-
Consolidated Group – at 30 June 2013: Contractual maturities of fi nancial liabilities
Less than 6 mths
$’000
6-12 mths
$’000
1-2 years
$’000
2-5 years
$’000
Over 5 years
$’000
Trade payables
Other creditors
and liabilities
Borrowings
12,043
45,161
3,070
60,274
-
-
2,735
2,735
-
-
5,039
5,039
-
-
182,819
182,819
-
-
-
-
Parent – at 30 June 2014: Contractual maturities of fi nancial liabilities
Total contractual
cash fl ows
$’000
Carrying Amount
(assets)/liabilities
$’000
16,222
16,222
39,712
240,266
296,200
39,712
214,447
270,381
Total contractual
cash fl ows
$’000
Carrying Amount
(assets)/liabilities
$’000
12,043
12,043
45,161
193,663
250,867
45,161
181,725
238,929
Less than 6 mths
$’000
6-12 mths
$’000
1-2 years
$’000
2-5 years
$’000
Over 5 years
$’000
Total contractual
cash fl ows
$’000
Carrying Amount
(assets)/liabilities
$’000
Amounts payable
to wholly owned
entities
Financial
guarantee
contracts
46,540
-
-
-
4,477
51,017
4,848
4,848
10,121
10,121
220,820
220,820
-
-
-
46,540
46,540
240,266
286,806
-
46,540
Parent – at 30 June 2013: Contractual maturities of fi nancial liabilities
Less than 6 mths
$’000
6-12 mths
$’000
1-2 years
$’000
2-5 years
$’000
Over 5 years
$’000
Total contractual
cash fl ows
$’000
Carrying Amount
(assets)/liabilities
$’000
34,643
-
-
-
3,070
37,713
2,735
2,735
5,039
5,039
182,819
182,819
-
-
-
34,643
34,643
193,663
228,306
-
34,643
Amounts payable
to wholly owned
entities
Financial
guarantee
contracts
36
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligations.
The Company and 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.
Trade and other receivables
Deposits with banks
Finance lease & CHP receivables
Operating lease assets
Consolidated Group
Parent Entity
2014
$’000
29,185
71,197
24,906
303,408
428,696
2013
$’000
18,184
57,236
14,577
287,749
377,746
2014
$’000
-
1,005
-
-
1,005
2013
$’000
87
528
-
-
615
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 and counterparty risks associated with interest rate and currency swaps. 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 Head of Credit. 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 is a broad spread of concentration of credit risk
through the Group’s exposure to individual customers, industry sectors, asset manufacturers or regions.
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.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
37
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(c) Market risk
(i)
Interest rate risk
The Group’s strong cash fl ow from operations and borrowings exposes the 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 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 Group carries
signifi cant cash and borrowings, movements in interest rates can affect net income to the Group, particularly for the Group Remuneration
Services segment.
Borrowings issued at variable rates expose the Group to repricing interest rate risk. As at the end of the reporting period, the Group had the
following variable rate borrowings under long-term revolving facilities attributable to the Asset Management business and no borrowings for
other Group requirements.
AUD’000
GBP’000
Total (AUD)
2014
2013
Borrowings
‘000
Weighted average
interest rate
%
193,420
12,250
215,100
3.51
1.95
3.35
Borrowings
‘000
182,000
-
182,000
Weighted average
interest rate
%
4.06
-
4.06
The weighted average interest rate of each borrowing is used as an input to asset repricing decisions for the geographical markets operated
in. 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 & 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 2014, the Group’s borrowings for the Asset Management business of $215,100,000
(2013: $182,000,000) were covered by interest rate swaps at a fi xed rate of interest of 4.29% (2013: 4.72%).
The Group’s interest rate risk also arises from cash at bank and deposits, which are at floating interest rates.
At reporting date, the 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
Sensitivity analysis – floating interest rates:
Consolidated Group
2014
Balance
$’000
71,197
2013
Balance
$’000
57,239
(215,100)
(182,000)
211,679
67,776
192,000
67,239
At 30 June 2014, the 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 Group’s view of possible fl uctuation, and all other variables were held
constant, the Group’s post-tax profit for the year would have been $451,000 (2013: $365,673) higher or lower and the parent entity $471,000
(2013: $3,700) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings
balances at reporting date.
38
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(ii) Foreign currency risk
The Group’s exposure to foreign currency risk arises when fi nancial instruments that are denominated in a currency other than the functional
currency in which they are measured. This includes the Group’s inter-company receivables and payables which do not form part of the net
investment in the UK and New Zealand entities. The Group’s exposure to translation related risks from fi nancial and non-fi nancial items of the
UK and New Zealand entities do not form part of the Group’s risk exposure given that these entities are part of longer term investments and
consequently, their sensitivity to foreign currency movements are not measured.
The 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 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 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 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 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 $303,408,000 (2013: $287,749,000) included a residual value provision
of $2,018,000 (2013: $2,018,000).
(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 on a recurring basis 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).
Financial asset/ (fi nancial liability)
Interest rate swaps – cash fl ow hedge
Fair value at
2014
$000
(639)
2013
$000
(1,057)
Fair value
hierarchy
Valuation technique
and key input
2 Discounted cash fl ow using estimated future
cash fl ows based on forward interest rates (from
observable yield curves at the end of the reporting
period) and contract interest rates, discounted to
refl ect the credit risk of various counterparties.
Except as detailed in the following table, the carrying amounts of fi nancial assets and fi nancial liabilities recognised in the consolidated fi nancial
statements approximate their fair values. The fair value of borrowings is not materially different to their carrying amounts since the interest payable
is close to market rates. The carrying amount of cash, trade and other receivables, trade and other payables are assumed to be the same as their
fair values, due to their short term nature.
Finance lease receivables – non-current
Consolidated Group
2014
Carrying
amount
16,937
Fair value
18,110
2013
Carrying
amount
10,382
Fair value
9,998
Current fi nance lease receivables are short term and their carrying amount is considered to equal their fair value. The fair value of non-current
fi nance lease receivables were calculated based on cash fl ows discounted using an average of current lending rates appropriate for the geographical
markets the leases operate of 5.50% (2013: 7.75%). They are classifi ed as level 3 fair values in the fair values hierarchy due to the inclusion of
unobservable inputs.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
39
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
3 REVENUE
Revenue from continuing operations
Remuneration services1
Lease rental services
Proceeds from sale of leased assets
Dividends received
Interest – other persons
Total revenue
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
157,247
154,732
33,320
-
2,158
347,457
155,855
129,753
41,782
-
2,674
330,064
-
-
-
29,064
60
29,124
-
-
-
39,598
138
39,736
1 Included in remuneration services revenue is interest income
derived from the holding of trust funds
9,844
11,291
4 EXPENSES
(a) Profi t before income tax includes the following specifi c
expenses
Finance costs
Interest – fi nancial institutions
10,872
11,042
Depreciation and amortisation expenses and impairment
Amortisation of software development
Amortisation of contract rights acquired
Depreciation of assets under operating lease
Depreciation of plant and equipment
Residual value impairment loss
Amortisation of intangibles
Rental expense on operating leases
Minimum lease payments
Superannuation
3,501
976
81,475
2,913
-
251
1,570
928
74,618
2,741
111
-
89,116
79,968
5,784
5,092
Defi ned contribution superannuation expense
5,260
4,740
(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
Other compliance
Agreed upon procedures:
$
$
179,000
53,400
167,000
42,200
- review of borrowing covenant and compliance
2,000
1,900
Remuneration of a network fi rm of the parent entity auditor:
Audit or review of the fi nancial statements (UK)
Other compliance
86,420
17,646
-
-
40
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
30,342
(323)
(5,780)
24,239
79,209
23,763
522
540
(346)
12
71
(323)
24,239
-
24,239
23,558
(129)
3,305
26,734
88,897
26,669
457
347
(630)
20
-
(129)
26,734
-
26,734
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% (2013: 30%)
Add tax effect of:
- share based payments
- non-deductible costs
- research & development
- overseas tax rate differential of subsidiaries
- current year losses not brought to account
- 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)
(418)
-
-
(418)
(260)
(14)
-
(274)
27,671
8,301
38,686
11,606
-
-
-
-
-
-
8,301
(8,719)
(418)
-
13
-
-
-
(14)
11,605
(11,879)
(274)
Consolidated Group
2014
’000
2013
’000
73.8
$54,970
74,524
83.4
$62,163
74,524
72.7
81.9
$54,970
$62,163
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
74,524
1,136
75,660
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
74,524
1,406
75,930
41
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
7 DIVIDENDS
Final fully franked ordinary dividend for the year ended 30 June 2013
of $0.18 (2012: $0.25) per share franked at the tax rate of 30%
(2012: 30%)
Interim fully franked ordinary dividend for the year ended 30 June 2014
of $0.21 (2013: $0.24) per share franked at the tax rate of 30%
(2013: 30%)
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
13,414
18,631
13,414
18,631
15,650
29,064
17,886
36,517
15,650
29,064
17,886
36,517
Franking credits available for subsequent fi nancial years based on a tax
rate of 30% (2013 – 30%)
61,992
48,994
61,992
48,994
The above amounts represent the balance of the franking account at the end of the fi nancial year end adjusted for:
(a)
franking credits that will arise from the payment of the amount of the provision for income tax;
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c)
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profi ts of subsidiaries were paid
as dividends.
8 CASH AND CASH EQUIVALENTS
Cash on hand
Bank balances
Short term deposits
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
1
18,361
52,835
71,197
3
17,868
39,368
57,239
-
964
41
1,005
-
488
40
528
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 2014,
the fl oating interest rates for the Group and parent entity were between 0.6% and 3.53% (2013: 1.50% and 4.74%). The short term deposits are
also subject to fl oating rates, which in 2014 were between 2.50% and 3.64% (2013: 3.78% and 4.77%). These deposits have an average maturity
of 90 days (2013: 90 days) and are highly liquid.
9
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other receivables
Amounts receivable from wholly owned entities
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
14,836
14,349
-
29,185
9,335
8,849
-
18,184
-
-
473
473
-
87
316
403
The carrying amount of all current receivables are equal to their fair value as they are short term and fully recoverable.
42
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(a) Ageing and impairment losses
The ageing of trade receivables for the Group at reporting date was:
Consolidated Group
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
2014
Amount
impaired
$’000
-
(11)
(41)
(12)
(427)
(491)
Amount not
impaired
$’000
10,981
2,357
758
614
126
14,836
Total
$’000
10,981
2,368
799
626
553
15,327
2013
Amount
impaired
$’000
-
(116)
(9)
(11)
(262)
(398)
Amount not
impaired
$’000
8,836
220
240
30
9
9,335
Total
$’000
8,836
336
249
41
271
9,733
The Group’s maximum exposure to credit risk at reporting date by geographic region is predominantly in Australia based on the location of
originating transactions and economic activity.
(c) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the 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
Amounts receivable under fi nance lease receivables.
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
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
7,969
16,937
24,906
4,195
10,382
14,577
-
-
-
-
-
-
Consolidated Group
Minimum lease
payments
2014
$’000
Present value of
lease payments
2014
$’000
Minimum lease
payments
2013
$’000
Present value of
lease payments
2013
$’000
9,187
19,741
28,928
4,022
24,906
7,969
16,937
24,906
-
24,906
5,132
12,375
17,507
2,930
14,577
4,195
10,382
14,577
-
14,577
There were no unguaranteed residual values of assets leased under fi nance leases at reporting date (2013: nil)
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
43
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
11 OTHER FINANCIAL ASSETS
(a)
Investment in subsidiaries
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Shares in subsidiaries at cost
107,000
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).
123,206
-
-
Name
Parent entity
McMillan Shakespeare Limited
Subsidiaries in Group
Maxxia Pty Limited 1
Remuneration Services (Qld) Pty Limited 1
Easilease Pty Limited
Interleasing (Australia) Ltd 1
CARILA Pty Ltd 1
TVPR Pty Ltd 1
Maxxia Limited (NZ)
Maxxia Fleet Limited
Maxxia (UK) Limited
Maxxia Finance Limited
CLM Fleet Management plc
Country of Incorporation
Percentage
Owned
2014
Percentage
Owned
2013
Principal activities
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100% Remuneration services provider
100% Remuneration services provider
100% Remuneration services provider
100% Asset management and services
100% Dormant
100% Asset management and services
100% Dormant
100% Asset management and services
100% Investment holding
100% Asset management
-
Fleet management services
1
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
Other expense receivable
Share of losses of equity accounted joint venture
FX
Carrying value at end of the fi nancial year
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2,126
861
(1,193)
(68)
1,726
500
-
(73)
-
427
-
-
-
-
-
-
-
-
-
The loan and expense 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 of $1,120,000 (2013: $73,000) recognised under the equity method that is in excess of the Company’s fully written down carrying value of
its investment (2013:$337,000 - refer note 12).
Risk exposure
The maximum facility under the arrangement is GBP1.3 million together with other expenses agreed between the JV parties incurred to accelerate
growth are 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.
44
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
12 INVESTMENT IN JOINT VENTURE
Acquired
Share of losses after income tax
Carrying value at end of the fi nancial year
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
337
(337)
-
337
(337)
-
-
-
-
-
-
A subsidiary has 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 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 is equity accounted in the fi nancial statements. Information relating to the joint venture investment is set out below.
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net liabilities
The net liabilities of Maxxia Limited (UK) is reconciled to the carrying
amount of the Group’s interest is as follows.
Net liabilities of JV
Group ownership interest (50%)
Carrying amount
Cumulative losses of JV equity accounted
The Group’s share of the JV losses is limited to its carrying value.
Share of joint venture fi nancial results
Revenues
Expenses
Loss before income tax
Income tax
Loss after income tax
2014
$’000
2,205
727
2,932
2,003
3,715
5,718
(2,786)
(2,786)
(1,393)
-
(1,530)
1,001
(3,801)
(2,800)
560
(2,240)
2013
$’000
372
10
382
554
498
1,052
(670)
(670)
(335)
-
(410)
76
(1,152)
(1,076)
256
(820)
Share of joint venture capital commitments
-
-
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
45
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
(b) Movements in cost and accumulated depreciation
Year ended 30 June 2014
Balance at the beginning of year
Additions(1)
Acquisitions through business combination
Disposals / transfers to assets held for sale
Depreciation expense
FX
Balance at 30 June
Year ended 30 June 2013
Balance at the beginning of year
Additions(1)
Disposals / transfers to assets held for sale
Impairment loss
Depreciation expense
FX
Balance at 30 June
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
25,990
(16,193)
9,797
22,961
(13,959)
9,002
458,969
423,321
(155,561)
(135,572)
303,408
313,205
287,749
296,751
-
-
-
-
-
-
Consolidated Group
Plant and
equipment
Assets under
operating lease(2)
$’000
$’000
9,002
2,548
746
348
(2,913)
66
9,797
8,943
3,755
(955)
-
(2,741)
-
9,002
287,749
131,967
1,897
(36,985)
(81,475)
255
303,408
244,023
152,992
(34,694)
(111)
(74,618)
157
287,749
-
-
-
-
-
-
Total
$’000
296,751
134,515
2,643
(36,637)
(84,388)
321
313,205
252,966
156,747
(35,649)
(111)
(77,359)
157
296,751
(1)
(2)
Included in 2013 additions of $3,755,000 were reimbursements by the lessor of $1,426,000.
Accumulated provision for impairment loss at reporting date is $2,018,000 (2013: $2,018,000).
(c) Security
The above assets form part of the security supporting the fi xed and fl oating charge pledged to the 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.
46
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
14 DEFERRED TAX ASSETS / (LIABILITIES)
(a) Asset / (Liability)
The balance comprises temporary differences and tax losses attributed for:
Amounts recognised in profi t or loss
Doubtful debts
Provisions
Property, plant and equipment
Accrued expenses
Other receivables/prepayments
Other
Losses
Contract rights
Customer list and relationships
Derivatives
Closing balance at 30 June
Recognised as:
Deferred tax asset
Deferred tax liability
(b) Movement
Opening balance at 1 July
Charged to profi t or loss
Charged to other comprehensive income
Acquired at acquisition
Closing balance at 30 June
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
147
4,208
(1,584)
2,311
(764)
922
405
-
(764)
192
5,073
5,832
(759)
5,073
367
5,780
(142)
(932)
5,073
120
5,148
(7,336)
2,474
(343)
6
253
(272)
-
317
367
367
-
367
1,683
(1,226)
(90)
-
367
-
-
-
6
-
7
-
-
-
-
13
13
-
13
176
(163)
-
-
13
-
101
-
6
-
69
-
-
-
-
176
176
-
176
160
16
-
-
176
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
47
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
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
Customer list and relationships
Cost
Accumulated amortisation
Net carrying value
Total Intangibles
(i)
Software includes capitalised internal costs
(b) Reconciliation of net book amount
2014
Net book amount
Balance beginning of year
Additions
Acquisition through business combination
Amortisation
FX
Closing balance
2013
Net book amount
Balance beginning of year
Additions
Amortisation
Closing balance
48
46,423
(36)
46,387
25,900
(11,245)
14,655
12,605
(9,555)
3,050
2,818
(251)
2,567
66,659
33,328
(36)
33,292
20,412
(7,744)
12,668
12,605
(8,333)
4,272
-
-
-
50,232
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated Group
Software
development
costs
$’000
Contract
rights
$’000
Customer
list and
relationships
$’000
Goodwill
$’000
33,292
-
12,254
-
841
12,668
5,488
-
(3,501)
-
46,387
14,655
33,292
-
-
33,292
6,197
8,041
(1,570)
12,668
4,272
-
-
(1,222)
-
3,050
2,960
3,133
(1,821)
4,272
-
-
2,637
(251)
181
2,567
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$’000
50,232
5,488
14,891
(4,974)
1,022
66,659
42,449
11,174
(3,391)
50,232
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(c) Impairment test for goodwill
Goodwill is allocated to the 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
CLM Fleet Management plc
Consolidated Group
2014
$’000
24,190
9,102
13,095
46,387
2013
$’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
Remuneration Services (Qld) Pty Limited
Discount rate
2014
%
15.88
15.88
2013
%
17.76
17.76
The budgets use historical average growth rates to project revenue. Costs are determined taking into account historical margins and estimated
cost increases. The average growth rates used in the fi ve year projection is 10%. Cash fl ows beyond the fi ve-year period are extrapolated using a
zero growth rate for conservatism. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.
In performing the value-in-use calculations for each CGU, the Group has applied pre-tax discount rates to discount the forecast future attributable
pre-tax cash fl ows. The 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.
Goodwill acquired with CLM Fleet Management plc during the year was determined from fair value variables. There were no impairment indicators
since acquisition to reporting date.
16 TRADE AND OTHER PAYABLES
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Receivables in advance
Amounts payable to wholly owned entities
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
16,222
1,594
31,543
3,598
-
12,043
1,073
24,609
3,083
-
52,957
40,808
-
-
197
-
46,540
46,737
-
-
46
-
34,643
34,689
Trade and other payables are non-interest bearing. These are short-term liabilities and the carrying value is representative of the fair value.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
49
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
17 OTHER LIABILITIES
Maintenance instalments received in advance
Unearned property incentives
Unearned income
18 PROVISIONS
Current
Employee benefi ts
Non current
Employee benefi ts
Aggregate employee benefi ts liability
19 BORROWINGS
Current
Bank loans – at amortised cost
Non-current
Bank loans – at amortised cost
(a) Security
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
7,529
6,816
125
7,626
7,463
250
14,470
15,339
6,137
5,820
767
6,904
552
6,372
452
-
213,995
181,725
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The parent entity guarantees all bank loans of subsidiaries in the Group, totalling $215,100,000 (2013: $182,000,000).
Fixed and fl oating charges are provided by the Group in respect to fi nancing facilities provided to it by its club of fi nanciers.
The Group’s loans are also secured by the following fi nancial undertakings from all the entities in the Group.
(i)
Group bank loans excluding cash assets, is not to exceed 80% of the sum of the Group’s aggregate of the written down value of net operating
lease assets, fi nance lease receivables and commercial hire purchase receivables.
(ii) Group shareholder’s funds of is not less than $145,000,000 at all times.
(iii) Group ratio of consolidated earnings before interest and tax to consolidated interest expense is not less than 3:1.
The following are other undertakings that have been provided by entities in the Group receiving the loans.
(i)
Negative pledge that imposes certain covenants including a restriction to provide other security over its assets, a cap on its maximum fi nance
debt, do not acquire assets which are non-core business to the Group, disposal of a substantial part of its business and reduction of its capital.
(ii) Maintenance of certain fi nancial thresholds for shareholders’ equity, gearing ratio and fl eet asset portfolio performance.
(iii) The business exposures of the Interleasing Group and CLM Fleet Management plc satisfy various business parameters.
At all times throughout the year, the 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 Group for similar fi nancial instruments. The fair value of current borrowings approximates the carrying amount,
as the impact of discounting is not signifi cant.
(c) Risk exposures
Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in Note 2.
50
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
20 ISSUED CAPITAL
(a) Share capital
74,523,965 (2013: 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 2013
No shares were issued nor options exercised during the year
Balance at 30 June 2014
Balance at 1 July 2012
No shares were issued nor options exercised during the year
Balance at 30 June 2013
Issue price
$
Number of
shares
74,523,965
74,523,965
74,523,965
74,523,965
Ordinary
shares
56,456
56,456
56,456
56,456
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of members’ shares held.
At members’ meetings, each fully paid ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a
show of hands.
(c) Options
At 30 June 2014, there were 3,163,692 (2013: 3,189,275) unissued ordinary shares for which options were outstanding. 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 56.
(d) Capital management strategy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns
for shareholders and benefi ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain
or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares
or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as
long and short term borrowings (excluding derivatives and fi nancial guarantees) less cash and cash equivalents. Total capital is calculated as equity
as shown in the statement of fi nancial position plus net debt.
The Groups’ gearing ratio was 39% (2013: 39%) calculated as net debt of $143,250,000 (2013: $124,486,000) divided by total debt and equity
of $367,097,000 (2013: $319,921,000).
The Group’s Risk and Compliance Committee reviews the capital structure of the 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.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
51
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
2014
$’000
(639)
192
(447)
2013
$’000
(1,057)
317
(740)
2014
$’000
2013
$’000
-
-
-
-
-
-
The hedging reserve is used to record gains and losses on interest rate swaps that are designed and qualify as cash fl ow hedges and that are
recognised in other comprehensive income.
(c) Foreign currency translation reserve
Consolidated Group
Parent Entity
Balance at the end of the fi nancial year
2014
$’000
416
2013
$’000
(56)
2014
$’000
-
2013
$’000
-
The foreign translation reserve account accumulates exchange differences arising on translation of foreign controlled entities which are recognised
in other comprehensive income. The carrying amount is reclassifi ed to profi t or loss when the net investment is disposed of.
Consolidated Group
Parent Entity
2014
$’000
2013
$’000
2014
$’000
2013
$’000
54,970
62,163
28,089
38,960
4,728
-
84,388
1,741
1,120
2,498
111
77,359
1,521
410
(150,375)
(174,434)
26,002
1,177
31,512
-
(12,549)
25,635
3,872
(4,386)
532
36,855
(634)
22,423
2,164
1,316
1,117
27,526
-
-
-
-
-
-
-
-
(90)
(4,287)
3,796
163
-
-
-
-
-
-
-
-
-
(15)
(395)
(258)
(16)
-
27,671
38,276
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
Acquisition expenses
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
52
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
23 COMMITMENTS
(a) 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
2014
$’000
2013
$’000
2014
$’000
2013
$’000
5,584
21,339
8,852
35,775
6,539
21,006
13,142
40,687
-
-
-
-
-
-
-
-
The property leases are non cancellable leases with varying terms, with rent payable monthly in advance. Individual rental agreements specify each
rental adjustment. The equipment leases are non cancellable leases with varying terms, with rent payable quarterly in arrears.
24 SEGMENT REPORTING
Reportable segments
(a) Description of Segments
The Group has identifi ed its operating segments based on the internal reports reviewed and used by the Group’s chief decision maker (the CEO) to
determine business performance and resource allocation. Operating segments have been identifi ed after considering the nature of the products and
services, nature of the production processes, type of customer and distribution methods.
Two reportable segments have been identifi ed “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.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
53
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(b) Segment information provided to the Chief Decision Maker
The following is an analysis of the Group’s revenue and results from operations by reportable segment.
Segment revenue
Segment profi t after tax
Group Remuneration Services
Asset Management
Segment operations
Corporate administration and directors’ fees
Acquisition expenses
Net 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 Profi t or Loss as follows:
Total segment revenue
Interest revenue
Total revenue per Consolidated Statement of Profi t or Loss
2014
$’000
157,247
188,069
345,316
2013
$’000
155,855
171,962
327,817
2014
$’000
41,988
13,557
55,545
(1,436)
(1,177)
1,978
60
54,970
2013
$’000
46,793
14,633
61,426
(1,008)
(158)
2,247
(344)
62,163
2014
$’000
345,316
2,141
347,457
2013
$’000
327,817
2,247
330,064
Segment revenue above represents sales to external customers and excludes inter-segment sales, consistent with the basis by which the fi nancial
information is presented to the Chief Decision Maker.
The accounting policies of the reportable segments are the same as the Group’s policies. Segment profi t includes the segment’s share of centralised
general management and operational support services which are shared across segments based on the lowest unit of measurement available to
allocate shared costs that reasonably measure each segment’s service level requirements and consumption. Segment profi t does not include
corporate costs of the parent entity, including listing and company fees, director’s fees and fi nance costs relating to borrowings not specifi cally
sourced for segment operations, 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 $58,583,000 (2013: $59,159,000) from the Group’s largest
customer.
The Group’s operations and its customers are located predominantly in Australia.
(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
54
2014
$’000
4,655
84,461
89,116
-
1,120
1,120
2013
$’000
4,412
75,556
79,968
-
410
410
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(iii) Segment assets and liabilities
The segment information with respect to total assets is measured in a consistent manner with that of the fi nancial statements. These assets
are allocated based on the operations of the segment and the physical location of the asset.
The 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
2014
$’000
2013
$’000
66,417
393,737
460,154
64,503
524,657
32,332
268,478
300,810
70,132
322,879
393,011
54,212
447,223
31,627
220,161
251,788
All assets and liabilities are located predominantly in Australia.
(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 Group
Additions to non-current assets
Group Remuneration Services
Asset Management
(d) Geographical segment information
2014
$’000
2013
$’000
2,172
155,365
157,537
9,345
158,576
167,921
The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by
location of assets are detailed below.
Australia
United Kingdom
New Zealand
Revenue from external customers
Non-current assets
2014
$’000
2013
$’000
336,420
329,693
9,962
1,075
-
371
347,457
330,064
2014
$’000
376,296
14,251
6,257
396,804
2013
$’000
355,204
-
2,588
357,792
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
55
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
2014
$’000
10,351
4,840
15,191
2013
$’000
10,658
4,553
15,211
2014
$’000
50
-
50
2013
$’000
50
-
50
Transactions between the Company and other entities within the wholly owned group during the years ended 30 June 2014 and 2013 consisted of:
(a) loans advanced to the Company; and
(b) the payment of dividends to the Company.
Aggregate amounts included in the determination of profi t from ordinary activities before income tax that resulted from transactions with entities in
the wholly owned group:
Dividend revenue
Aggregate amounts payable to entities within the wholly
owned group at balance date:
Current payables
(b) Key management personnel compensation
Compensation
Short-term employment benefi ts
Post-employment benefi ts
Long-term employment benefi ts
Share-based payments
27 SHARE-BASED PAYMENTS
Consolidated Group
Parent Entity
2014
$
2013
$
2014
$
2013
$
-
-
$
-
-
$
29,064,347
39,597,743
46,540,031
34,643,905
$
$
4,139,212
3,474,420
2,290,456
2,016,836
212,400
(46,521)
1,237,496
5,542,587
202,016
135,738
1,002,542
4,814,716
130,964
(82,746)
850,548
124,495
74,264
667,699
3,189,222
2,883,294
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.
56
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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 31 August 2014. No performance hurdles are attached to these options given that
these are purchased options; the executive has paid $50,000 for the purchase of these options (representing 75% of the fair value of the options
on grant date).
Vested
Upon the adoption of this
Annual Report the entire
issue qualifi es for vesting
on 31 August 2014.
Upon the adoption of this
Annual Report the entire
issue qualifi es for vesting
on 31 August 2014.
Details for current performance options
Options & issue date Expiry
Conditions
537,634
(May 2010)
1,805,957
(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 ended 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
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
33.33%
33.33%
33.34%
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.
No options from this issue
qualify for vesting for not
meeting the NPAT targets
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 executive 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%
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
57
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
Set out below are summaries of options granted under the plans:
Consolidated Group and parent entity - 2014
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
Balance at
start of the
year
537,634
1,831,540
314,578
352,942
31,250
24 July 2013
30 September 2015
$11.42
121,331
Weighted average exercise price
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
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
537,634
(25,583)
1,805,957
-
-
-
-
314,578
352,942
31,250
121,331
(25,583)
3,163,692
$7.31
$6.96
-
-
-
-
-
-
-
-
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
-
-
-
-
-
-
-
-
3,189,275
$6.97
Balance at
start of the
year
537,634
1,858,829
314,578
352,942
31,250
-
3,095,233
$6.79
Weighted average exercise price
(1)
Performance options including 682,206 options granted to the Managing Director following approval by shareholders at the Annual General Meeting on 25 October 2011.
(2)
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 (2013: Nil).
The weighted average remaining contractual life of options outstanding at the end of the year was 0.25 years (2013: 1.25 years).
Fair value of options granted
No options were granted during the year. The assessed fair value at grant date of options granted in the previous 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.
Model input
Consideration payable upon grant
Exercise price
Grant date
Expected life
Share price at grant date
Expected price volatility
Expected dividend yield
Risk-free interest rate
58
Year ended 30 June 2013
August 2012
Nil
$11.42
24 July 2012
2.2 years
$11.42
40%
4%
2.2%
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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 expense recognised under the Employee Option Plan
1,741,480
1,520,547
2014
$
2013
$
2014
$
-
2013
$
-
Consolidated Group
Parent Entity
28 BUSINESS COMBINATION
(a) Subsidiaries acquired
The Group acquired 100% of CLM Fleet Management plc and its subsidiaries on 22 October 2013, a company incorporated in the UK that provides
fl eet management services in the UK market. The acquisition was made to facilitate the expansion of the Group’s business in integrated asset
fi nance and asset management in the UK.
There were no other acquisitions during the year.
(b) Consideration transferred
Consideration for the acquisition was $14,276,000 less cash assumed of $1,858,000, funded wholly by cash and borrowings.
The assets and liabilities acquired have been fair valued in accordance with AASB 3 “Business Combinations”, and has resulted in goodwill of
$12,254,000. Acquisition-related expenses of $1,082,000 were incurred and expensed on consolidation and included in the “Other expenses” line
in the Statement of Consolidated Profi t or Loss and Other Comprehensive Income for the year.
Purchase consideration – cash outfl ow
Cash paid for shares
Cash acquired with CLM
Net cash outfl ow for consideration transferred
$’000
14,276
(1,858)
12,418
$1,350,000 of the consideration was deferred for settlement twelve months from acquisition date pending the fi nalisation of conditions warranted
in the sale and purchase agreement.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
59
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(c) Assets acquired and liabilities assumed at the date of acquisition
Assets acquired and liabilities assumed at the date of acquisition
Cash
Lease assets
Property, plant & equipment
Trade and other receivables
Assets acquired
Trade payables and accrued expenses
Lease liabilities
Tax provision
Deferred tax liabilities
Liabilities assumed
Identifi able net liabilities acquired
Customer list and relationships
Goodwill
Consideration
Fair Value at
acquisition date
$’000
1,858
1,897
746
4,753
9,254
7,000
1,723
273
873
9,869
(615)
2,637
12,254
14,276
Trade and fi nance receivables of $2,325,000 acquired with the business have resulted from trade sales with customers and are considered fair value
and their collection and conversion to cash are expected in full pursuant to customer terms.
Goodwill arising on acquisition is attributable to the profi tability, quality client base, operating software and competent skill base of the acquired
CLM business and the growth potential when combined with MMSG’s other business for a unique offering of a fully integrated asset management
business and employee benefi ts service. None of the goodwill is expected to be tax deductible.
(d) Impact of acquisition on the results of the Group
The Consolidated Statement of Comprehensive Income for the year includes sales revenue of $7,965,000 and net profi t after tax of $729,000, as
a result of the acquisition of CLM. Had the acquisition occurred effective 1 July 2013, the respective “proforma” revenue and profi t for the year of
$14,489,000 and $941,000 would have been included in the Statement of Comprehensive Income. In determining the proforma revenue and result
of CLM, adjustments have been made to differences in the accounting policies between the Group and CLM and the recognition of the amortisation
of customer list and relationship on the assumption that this asset was acquired at 1 July 2013 at its fair value.
29 DEED OF CROSS GUARANTEE
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 2014 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.
60
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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 earnings at the end of the fi nancial year
2014
$’000
2013
$’000
336,422
329,687
(79,826)
(88,042)
(47,160)
(3,420)
(2,584)
(6,724)
(7,692)
(10,370)
(9,602)
81,002
(24,242)
56,760
(73,837)
(79,783)
(47,307)
(2,413)
(3,076)
(6,441)
(7,561)
(11,042)
(8,218)
90,009
(26,912)
63,097
(2,076)
54,684
1,752
64,849
138,060
56,760
(29,064)
165,756
111,480
63,097
(36,517)
138,060
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
61
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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
2014
$’000
65,034
32,830
4,630
5,294
107,788
303,427
50,997
5,766
8,458
17,715
386,363
494,151
59,560
10,527
6,135
76,222
767
190,549
191,316
267,538
226,613
56,456
4,401
165,756
226,613
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
30 SUBSEQUENT EVENTS
On 19 August 2014, the Company granted the following performance and voluntary options to employees.
Option Type
Performance options
Performance options
Voluntary options
Number
Exercise price
978,417
808,738
23,981
1,811,136
$10.18
$10.18
$10.18
Expiry date
30 September 2019
30 September 2018
30 September 2018
Subsequent to reporting date, a total of 2,727,783 performance options that satisfi ed the NPAT growth targets qualifi ed for vesting. Consequently,
2,190,149 performance options will qualify for vesting on 31 August 2014 and 537,634 options on 31 October 2014, both subject to the continuity
of employment to that date. A total 314,578 voluntary options have qualifi ed for vesting on 31 August 2014.
62
DIRECTORS’ DECLARATION
The Directors are of the opinion that:
1.
the fi nancial statements and notes on pages 21 to 62 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;
and
(b) giving a true and fair view of the consolidated entity’s fi nancial position as at 30 June 2014 and fi nancial performance for the fi nancial year
ended on that date; and
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 29 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 Note 29.
Note 1(b) confi rms that the fi nancial statements also comply with International Financial Reporting Standards as disclosed as issued by the International
Accounting Standards Board.
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
29 August 2014
Melbourne, Australia
Michael Kay
Managing Director
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
63
INDEPENDENT AUDIT REPORT
AS AT 30 JUNE 2014
The Rialto, Level 30
525 Collins St
Melbourne Victoria 3000
Correspondence to:
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 statement of financial position as at 30 June 2014, the
statement of profit or loss and other comprehensive income, statement of changes in equity
and 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 company 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.
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.
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the
context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm
is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and
are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its
Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.
Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current
scheme applies.
64
INDEPENDENT AUDIT REPORT
AS AT 30 JUNE 2014
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
b
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 consolidated entity’s financial
position as at 30 June 2014 and of their performance for the year ended on that
date; and
complying with Australian Accounting Standards and the Corporations
Regulations 2001; and
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 13 of the directors’ report
for the year ended 30 June 2014. 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.
Auditor’s opinion on the remuneration report
In our opinion, the remuneration report of McMillan Shakespeare Limited for the year
ended 30 June 2014, complies with section 300A of the Corporations Act 2001.
GRANT THORNTON AUDIT PTY LTD
Chartered Accountants
B.A. Mackenzie
Partner - Audit & Assurance
Melbourne, 29 August 2014
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
65
AUDITOR’S INDEPENDENCE DECLARATION
AS AT 30 JUNE 2014
The Rialto, Level 30
525 Collins St
Melbourne Victoria 3000
Correspondence to:
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 2014, 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
B.A. Mackenzie
Partner - Audit & Assurance
Melbourne, 29 August 2014
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the
context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm
is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and
are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its
Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.
Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current
scheme applies.
66
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 2014, the number of shares held by substantial shareholders and their associates is as follows:
Shareholder
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Aust) Ltd
Meddiscope Pty Limited
National Nominees Limited
Chessari Holdings Pty Limited(2)
Asia Pac Technology Pty Limited(3)
Number of Ordinary Shares
Percentage of Ordinary Shares1
8,626,465
7,463,824
7,235,000
7,025,317
6,050,941
3,993,025
1
2
3
As at 12 August 2014, 74,523,965 fully paid ordinary shares have been issued by the Company.
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 2014, 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
11.58
10.02
9.71
9.43
8.12
5.36
Number of Holders
8,400
1
17
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 2014, 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+
As at 12 August 2014 there were 208 shareholders who held less than a marketable parcel of 53 fully paid ordinary shares in the Company.
McMILLAN SHAKESPEARE LIMITED AND ITS CONTROLLED ENTITIES
4,600
2,984
466
319
31
67
TOP 20 SHAREHOLDERS
As at 12 August 2014, 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
16
17
18
19
20
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Aust) Ltd
National Nominees Limited
Meddiscope Pty Limited
Chessari Holdings Pty Limited(2)
Asia Pac Technology Pty Limited(3)
Citicorp Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Ltd
BNP Paribas Noms Pty Ltd < DRP>
UBS Nominees Pty Ltd
Ann Leslie Ryan
COBAX Pty Ltd
AMP Life Limited
Citicorp Nominees Pty Limited
MAP Capital Pty Ltd
MOHL Invest Pty Ltd
Catholic Church Insurance Limited
Sandhurst Trustees Ltd
RBC Investor Services Australia Nominees Pty Ltd
Michael Gordon Kay Investments Pty Ltd
Totals: Top 20 holders of issued Capital
Total Remaining Holders .Balance
1
2
3
As at 12 August 2014, 74,523,965 fully paid ordinary shares have been issued by the Company.
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.
8,626,465
7,463,824
7,025,317
6,590,000
6,050,941
3,993,025
3,024,952
2,141,000
2,058,298
1,457,591
1,008,418
645,000
614,956
405,882
325,000
310,000
250,200
211,276
202,704
201,936
52,606,785
21,917,180
11.58
10.02
9.43
8.84
8.12
5.36
4.06
2.87
2.76
1.96
1.35
0.87
0.83
0.54
0.44
0.42
0.34
0.28
0.27
0.27
70.59
29.41
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 exercisable at $10.18 and expiring on 30 September 2019
Options exercisable at $10.18 and expiring on 30 September 2018
Options do not carry a right to vote
ON-MARKET BUY BACK
The Company does not have a current on-market buy-back.
68
537,634
2,120,535
352,942
31,250
121,331
978,417
832,719
1
17
1
1
3
4
18
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