Maximus Annual Report 2015

Plain-text annual report

Annual Report 2015 McMillan Shakespeare Limited Financial calendar Announcement of 2015 Annual Results Annual Report released 2015 Final Dividend Record Date 2015 Annual General Meeting 2016 August 25 September 29 October 1 October 16 October 27 February 23 2015 2015 Final Dividend Ex-Date 2015 Final Dividend Payment Date Announcement of H1 2016 Results 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 27 October 2015 at 10:00 am at the State Library of Victoria, Ground Floor, 328 Swanston Street, Melbourne, Victoria in the Theatrette. Corporate directory Directors Registered Ofﬁce Share Registry Ronald Pitcher, AM (Chairman) Mike Salisbury (Managing Director) John Bennetts Ross Chessari Tim Poole Ian Elliot Company Secretary Mark Blackburn Level 21, 360 Elizabeth Street Melbourne Victoria 3000 Tel: +61 3 9097 3000 Fax: +61 3 9097 3060 Auditor Grant Thornton Audit Pty Ltd The Rialto, Level 30, 525 Collins Street Melbourne Victoria 3000 Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 Tel: +61 3 9415 4000 Website www.mmsg.com.au Financial Calendar AGM Notice Corporate Directory Contents Chair’s Report CEO’s Report 10 year ﬁnancial history Non-Financial Highlights Directors’ Report • Directors • Directors’ Meetings • Principal Activities • Results • Dividends • Review of Operations • Outlook, Strategy and Prospects • State of Affairs • Events Subsequent to Balance Date • Likely Developments inside cover inside cover inside cover 1 2 3 4–5 6 8 8 8 8 9 9 10 11 11 13 13 • Directors’ Experience & Special Responsibilities 14–15 • Remuneration Report • Environmental Regulations • Indemniﬁcation and Insurance • Non Audit Services • Directors Declaration Five Year Summary Financial Report Directors’ Declaration Independent Audit Report Auditors Independence Declaration Shareholder Information 16 38 38 38 39 40 41–84 85 86–87 88 89–90 Contents MMSG Annual Report 2015 1 Chair’s report I am delighted to present this review of MMS’ progress in the 2015 ﬁnancial year which produced a record result and a return to the MMS tradition of delivering strong proﬁtable growth for shareholders. It has been a strong year of growth for the Group following the September 2013 withdrawal of proposed changes to the FBT treatment of motor vehicles. We regained our traditional momentum which accelerated as the year progressed amid continued growth in revenue, proﬁt and customer numbers from our core businesses, and a better- than-expected maiden proﬁt contribution from our recently- acquired Presidian business. This demonstrated the value being created by the execution of our strategy to diversify our core business whilst also improving our customer service. Importantly, MMS’ acquisitions of Presidian and three United Financial Services companies (collectively known as ‘UFS’) in February and July 2015 respectively have enlarged our customer base, strengthened our business, and secured a leadership position for the Group in the used vehicle ﬁnancing market, insurance and warranty market. Our customers remain our highest priority. Throughout the 2015 ﬁnancial year (FY15) our people continued to improve how we interact with our customers both online and ofﬂine, and increase the value we bring to them with our products and services. Our relentless commitment to customer service excellence and innovation was rewarded by higher customer satisfaction levels and salary packaging program participation rates. Against this backdrop of strategic diversiﬁcation and operational excellence, we are delighted to have delivered a 23% increase in net proﬁt to a record $67.5 million for FY15, and a 27 cent fully franked ﬁnal dividend. This brings the full year dividend to 52 cents per share, and slightly increases this years’ payout ratio to 63%. Board composition The Board was pleased to appoint Mike Salisbury as Chief Executive Ofﬁcer following the retirement of Michael Kay in September 2014. During his six-year term as CEO, Michael developed an outstanding working culture at MMS and executed acquisitions that together laid the foundation for sustainable growth in the years to come. Mike came to the role with seven years’ experience with the Group and priceless corporate knowledge which facilitated a seamless transition from old to new CEO. Since then, he has led the execution of our corporate strategy with fresh vigour, including the acquisitions of Presidian and UFS, a range of customer experience improvements, and the development of a new vision for the Group to better guide our business activities in the future. Mike’s leadership prowess and experience with the Group will ensure progress continues apace toward building a stronger business. The board is grateful to Mike, his leadership team and all employees for their signiﬁcant contribution during the year. Our people are outstanding and I would like to thank all 1,035 of them across Australia, New Zealand and the UK for their dedication and ﬂexibility as the MMS family grows. Outlook We have a clear strategy and our focus for the year ahead will be on improving our service for our broadening customer base, integrating Presidian and UFS, and continuing to grow our asset ﬁnancing activities in our participating markets. Your board will consider making more acquisitions depending on market conditions and the value offered to shareholders. In the 2016 ﬁnancial year (FY16) MMS expects the strength in new and second-hand vehicle sales to be sustained amid historically low rates of ﬁnance. Earnings growth will be strengthened by the contribution of Presidian and UFS as new income streams and cross-selling opportunities are realised. We also anticipate our continued investment in IT infrastructure and systems to lift productivity across the business. We believe the environment, MMS’ strategy and the strength of our expanding customer base mean the Group is well positioned to deliver greater value to shareholders over the medium term. We thank you for your loyalty as a shareholder and look forward to your continued support during this new growth phase for MMS. Yours sincerely Ronald Pitcher, AM Chairman 2 MMSG Annual Report 2015 I am proud to be leading your company during this period of growth for the Group and our pursuit of greater value for you, our shareholders. MMS’ performance in FY15 demonstrates the beneﬁts of broadening our focus to the used vehicle ﬁnancing market while still growing our leading share of the salary packaging and novated leasing markets. The Group has now expanded from a business relying on B2B partnerships to one that will also have direct relationships with consumers (B2C). This expansion has already impacted earnings. Presidian’s maiden proﬁt contribution to the Group exceeded our expectations. Presidian is now part of the Group’s Retail Financial Services segment. As this segment takes shape, its contribution to Group earnings will increase. Segment performance During FY15 momentum returned to historic levels for our salary packaging and novated leasing business, with a solid rise in customer numbers fuelled, in part, by more than 50 additional contract wins. Proﬁt for our Group Remuneration Services segment increase by 29% on the FY14 level – a very strong result that was helped by heavy investment in new products and digital communication channels to give our customers high quality service characterised by unrivalled choice. The Group now has more than 2 million visits to our website each year. Of these, one in ﬁve is made using a smartphone or mobile device when our customers are on the go. One in three salary packaging and novated lease claims are lodged online – a proportion that is set to surge this year after the recent launch of our free Maxxia and RemServ Claims Apps. For customers preferring the personal touch for which the Group is renowned, we continued to invest in face-to- face communication channels, and delivered more than 19,800 educational activities to our customers at worksites across Australia. No matter what their service preferences, customers continue to rate us highly. Our Net Promoter Score averaged 50 during FY15. Our Asset Management segment delivered a softer result owing to a higher residual value provision, continuing ﬂeet inertia across the market and some credit losses that can be attributed to the slowdown in the mining sector and related services. This masked new business growth in the UK asset management business which, as expected, delivered its maiden proﬁt in FY15. In addition, by June the Joint Venture’s earnings had edged close to a break-even position. We expect sales of ﬁnance leases to increase in this market, supported by the upcoming launch of our Lifestyle Lease product. CEO’s report Productivity Productivity improvements from IT investment brought greater efﬁciency across the business and better experiences for our customers. The Group now processes 11 million payments each year. Our Melbourne and Brisbane-based Customer Care Centres responded to 826,500 customer calls during FY15 with every call being answered by a real person. These achievements, along with more convenient online self-service for customers, and greater standardisation of processes, will lift productivity in the year ahead. Our people No review of the year would be complete without paying tribute to our own people whose dedication enabled this year’s record earnings result. They continue to demonstrate their passion for our core values both at work and in the community and I thank them for their outstanding effort. For over two decades, the Group has been a trusted workplace beneﬁts services partner to many Not-for-Proﬁt (NFP) health, aged care and charity organisations. Our people demonstrated their creativity and deep engagement with the business during two internal campaigns (dubbed ‘Thought Bubble’) by contributing 124 ideas on ways to better connect with our customers and grow our business. Finally, as we welcome Presidian and UFS employees into the MMS family, our people have rallied behind a new, unifying vision for the Group which broadens our purpose to capture the business activities of all subsidiaries operating across Australia, New Zealand and the UK. ‘Driving what’s possible’ is our vision that will sit at the heart of our business and support greater diversiﬁcation, enhanced customer service and earnings growth in the years to come. I thank you, our shareholders, customers and employees, for your support and encourage you to stay with us on this exciting journey ahead. Yours sincerely Mike Salisbury Managing Director and Chief Executive Ofﬁcer MMSG Annual Report 2015 3 10 year ﬁnancial history NPAT performance1 70 60 50 40 30 20 10 0 s n o i l l i m $ Proﬁt recognised on ILA business combination Normalised NPAT last 10 years CAGR of 29% 17.1 11.3 13.2 17.4 20.5 27.9 43.5 54.3 62.2 55.0 67.5 5.2 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 NPAT from continuing operations Acquisition gain Revenue performance 23.1 158.9 163.3 172.0 188.1 188.1 38.9 35.6 48.2 54.1 65.8 76.0 92.1 111.6 137.3 155.9 157.2 67.5 176.1 s n o i l l i m $ 400 380 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Group Remuneration Services Asset Management Retail Financial Services 4 MMSG Annual Report 2015 10 year ﬁnancial history Normalised earnings per share (EPS)2 Earnings per share 10-year CAGR of 27% s t n e c 100 90 80 70 60 50 40 30 20 10 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Basic EPS Cash EPS Linear (Basic EPS) Dividends per share 60 50 40 30 20 10 0 s t n e c 10-year CAGR of 30% 3.9 9.5 12.5 16.5 19.0 24.0 38.0 47.0 42.0 52.0 50.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Dividends per share MMS Share Price: March 2004 - August 2015 Government proposal to change FBT treatment of motor vehicles $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 4 0 - r a M 4 0 - n u J 4 0 - p e S 4 0 - c e D 5 0 - r a M 5 0 - n u J 5 0 - p e S 5 0 - c e D 6 0 - r a M 6 0 - n u J 6 0 - p e S 6 0 - c e D 7 0 - r a M 7 0 - n u J 7 0 - p e S 7 0 - c e D 8 0 - r a M 8 0 - n u J 8 0 - p e S 8 0 - c e D 9 0 - r a M 9 0 - n u J 9 0 - p e S 9 0 - c e D 0 1 - r a M 0 1 - n u J 0 1 - p e S 0 1 - c e D 1 1 - r a M 1 1 - n u J 1 1 - p e S 1 1 - c e D 2 1 - r a M 2 1 - n u J 2 1 - p e S 2 1 - c e D 3 1 - r a M 3 1 - n u J 3 1 - p e S 3 1 - c e D 4 1 - r a M 4 1 - n u J 4 1 - p e S 4 1 - c e D 5 1 - r a M 5 1 - g u A 1. NPAT and EPS CAGR are normalised to exclude the proﬁt recognised on acquisition of Interleasing (Australia) Limited in FY10 ($17m proﬁt after tax). 2. Normalised EPS excludes the proﬁt recognised on acquisition of Interleasing (Australia) Limited. Cash EPS includes CAPEX but excludes the investment in ﬂeet growth. MMSG Annual Report 2015 5 Non-ﬁnancial highlights Our customers Payments processed Phone calls accepted 11 million p.a. 826,500 p.a. Onsite employee educational activities delivered to clients located across Australia 19,880 Net Promoter Score (NPS)1 (Average monthly score during FY15) 50 Customer complaints resolved by MMS and our Customer Advocate without referral to an external arbitrator 99% Visits to Maxxia and RemServ websites 2 million Maxxia and RemServ website visits originating from mobile devices 20% Claims lodged online (as a % of total claims lodged) 35% Our people Employees across MMS Group 1,035 Employee Engagement High performance work environment ranking 81% Our environment Reduction in greenhouse emissions from car ﬂeet travel 12% (YOY reduction) Carbon neutrality (net zero carbon footprint) achieved from the offset of 100% of CO2 emissions caused by the production of printed material Carbon neutrality (printed material) Reduction in greenhouse emissions from electricity 12% (YOY reduction) 6 MMSG Annual Report 2015 1 NPS of 50 or above is rated as excellent for ﬁnancial services companies Director’s 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 ﬁnancial year ended 30 June 2015 (Group or MMSG). Directors The Directors during the whole of the ﬁnancial year and up to the date of this report (Directors) are as follows: Mr Ronald Pitcher AM (Independent Chairman) Mr John Bennetts (Non-Executive Director) Mr Ross Chessari (Non-Executive Director) Mr Tim Poole (Independent Non-Executive Director) Mr Ian Elliot (Independent Non-Executive Director) Mr Mike Salisbury was appointed to the position of Chief Executive Ofﬁcer on 1 October 2014 and subsequently as Managing Director on 5 February 2015. Mr Michael Kay retired as Managing Director and Chief Executive Ofﬁcer on 30 September 2014. Details of the qualiﬁcations, experience and special responsibilities of the Directors at the date of this Annual Report are set out on pages 14 and 15. The Directors that are noted above as independent Directors, as determined in accordance with the Company’s deﬁnition of independence, have been independent at all times throughout the period that they held ofﬁce during the ﬁnancial year ended 30 June 2015. 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 ﬁnancial year ended 30 June 2015 were as indicated in the table below. Mr Mike Salisbury attended ﬁve meetings in the capacity of CEO from 1 October 2014. He also attended three meetings by invitation from July 2014 until his formal appointment as CEO. Principal activities The principal activities of the Company and its controlled entities during the course of the ﬁnancial year ended 30 June 2015 was the provision of salary packaging, vehicle leasing administration, ﬂeet management and retail ﬁnance services. In the opinion of the Directors, there were no signiﬁcant changes in the nature of the activities of the Company and its controlled entities during the course of the ﬁnancial year ended 30 June 2015 that are not otherwise disclosed in this Annual Report. Director Mr R. Pitcher, AM (Chairman) Mr M. Salisbury (Managing Director and CEO) Mr J. Bennetts Mr R. Chessari Mr T. Poole Mr I. Elliot Mr M. Kay Board Meetings Audit Committee Meetings Remuneration Committee Meetings Eligible to Attend Attended Eligible to Attend Attended Eligible to Attend Attended 15 12 15 15 15 15 3 15 12 14 15 15 13 3 4 - 4 - 4 - - 4 - 4 - 4 - - 9 - 9 9 9 9 - 9 - 8 9 9 9 - 8 MMSG Annual Report 2015 Director’s report Results Details of the results for the ﬁnancial year ended 30 June 2015 are as follows: Results 2015 2014 Net proﬁt after income tax (NPAT) $67,486,611 $54,969,799 Basic earnings per share 87.0 cents Earnings per share on a diluted basis 86.8 cents 73.8 cents 72.7 cents Dividends Details of dividends paid by the Company during the ﬁnancial year ended 30 June 2015 are as follows: Dividends 2015 2014 Final dividend for the ﬁnancial year ended 30 June 2014 of 31.0 cents (2013: 18.0 cents) per ordinary share paid on 15 October 2014 fully franked at the tax rate of 30% (2013: 30%). Interim dividend for the ﬁnancial year ended 30 June 2015 of 25 cents (2014: 21.0 cents) per ordinary share paid on 17 April 2015 fully franked at the tax rate of 30% (2014: 30%). $23,632,463 $13,414,314 $20,279,628 $15,650,033 Total $43,912,091 $29,064,347 Subsequent to the ﬁnancial year ended 30 June 2015, the Directors declared a ﬁnal dividend of 27.0 cents per ordinary share (fully franked at the tax rate of 30%) to be paid on 16 October 2015, bringing the total dividend to be paid for the ﬁnancial year ended 30 June 2015 to 52.0 cents per ordinary share. MMSG Annual Report 2015 9 Director’s report Review of operations This year marked a record result for MMS as we returned to our historically-strong proﬁt growth following last year’s withdrawal of proposed changes to the FBT treatment of motor vehicles. The Group started harnessing the beneﬁts of our integration with Presidian Holdings Pty Ltd (Presidian). Our consolidated Group net proﬁt after tax (NPAT) for the year was $67.5 million, 23% higher than in the 2014 ﬁnancial year (FY14). This pushed our NPAT Compound Annual Growth Rate (CAGR) to 29% for the 11 years since our listing on the ASX in 2004. Several one-off items prevented an even stronger result, including $1.5 million (after tax) in acquisition costs associated with the acquisition of Presidian in February 2015, and a $1.2 million (after tax) onerous contract provision related to vacant ofﬁce space. Adjusting for these one-off items, underlying NPAT (UNPAT) was 26% higher at $70.2 million (FY14 UNPAT was $55.9m). Return on Equity for the year was 25%. Presidian’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the four months to 30 June 2015 was ahead of expectations at $5.5 million on revenue of $23.1 million. The integration of Presidian’s businesses into MMS gained momentum and is tracking ahead of target. A signiﬁcant number of Presidian employees relocated to MMS’ head ofﬁce in Melbourne’s CBD, and some MMS managerial staff joined Presidian to share expertise across the combined organisations, and identify cross-sell opportunities. These developments were the initial steps in streamlining functional areas and back-ofﬁce operations that will help create the capacity for greater scale, additional revenue streams and the standardisation of processes for greater efﬁciency across the business. In time this will deliver a faster, easier and consistent customer experience. The addition of Presidian to the MMS Group strengthens our position in our home market, and leaves us uniquely positioned to meet the needs of customers wanting vehicle ﬁnance and associated products as well as the full range of salary packaging beneﬁts. We will leverage the scale in our business to grow the Presidian retail platform and drive higher returns. As a fully-integrated business our UK operation was proﬁtable for the ﬁrst time in FY15. Enhanced customer experience Productivity improvements from IT investment resulted in greater efﬁciency across the business and more convenient online self-service for our customers. The total number of payments processed reached 11 million in the year. This represents a 2.4% increase on the FY14 level. The Company launched two mobile-optimised websites with self-service platforms for our Maxxia and RemServ brands early in FY15, giving our customers instant access to their packaging account data wherever they are. Visits to the Maxxia and RemServ websites topped 2 million, with approximately 20% originating from smartphones and mobile devices. A live ‘click to chat’ function was embedded into our Maxxia and RemServ websites, providing seamless assistance to customers at their convenience while increasing both customer engagement and our sales conversion rates. Other initiatives included the embedding of an online claims function into our private self-service sites, resulting in 35% of claims being lodged online by year’s end. This initiative was further enhanced with the development and launch of our online Claims App for our Maxxia and RemServ brands in August 2015. In addition, two internal campaigns were implemented to source ideas from our people on innovative ways to better connect with our customers and grow our business. Our employees’ creativity ﬂourished, and more than 780 contributions were made via a web-based platform, with 124 ideas generated. Key highlights and activities included: • Consolidated Group FY15 NPAT was 22.8% higher than the previous corresponding period (25.6% ex interest on the ﬂoat1). • Group Remuneration Services (GRS) FY15 NPAT was 29.3% higher than the previous corresponding period. • Core operating contribution growth in GRS increased 25% on the previous corresponding period (core operating contribution is deﬁned as proﬁt before ﬁnance, tax and depreciation derived directly from salary packages managed and novated leasing). • Asset Management (AM) FY15 NPAT was $11.3 million, representing the Australian, New Zealand and UK businesses. The result was weaker than the FY14 result ($13.6 million) owing to an increase in the residual value provision of $2.3 million (after tax) made for lease assets, and credit losses totalling $0.3 million (after tax), both due to exposure to the mining services sector. Fleet ‘inertia’ remained constant, with customers choosing to extend leases rather than replace vehicles. • As previously ﬂagged to the market, the UK business delivered its maiden proﬁt in FY15. The business originated £60 million of asset ﬁnance business. This drove a signiﬁcantly improved result for the Joint Venture 1 Ex interest on the ﬂoat 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. 10 MMSG Annual Report 2015 Director’s report as it approached a break-even position toward the end of the ﬁnancial year. The expanded ﬂeet book also provides a larger income stream for the UK Finance business. • A stronger second hand vehicle market with stable prices drove vehicle disposal proceeds higher, resulting in improved FY15 remarketing proﬁts from the FY14 level. • Free cash ﬂow (pre increase in operating lease assets) of $65.8 million provided a solid support for investing and ﬁnancing activities. Cash at 30 June 2015 was $85.7 million. • Assets under management grew by $92.0 million during the year, or 21.6% on the FY14 total, amid greater market consolidation. • Across the Group, our pipeline of new business opportunities strengthened during the year. • Group funding facilities have been extended by a further twelve months to March 2018 and on improved terms. The UK facility was increased by £32 million. Term loan facilities totalling $57.5 million were secured with two club members and implemented to fund the Presidian acquisition. This facility will be fully amortised over ﬁve years to March 2020. • By 30 June 2015 headcount across the Group increased from 859 in the prior year to 1,035 following the acquisition of Presidian. • Total shares on issue increased by 4.3 million following the acquisition of Presidian, 40% of which was funded from the issue of MMS scrip to Presidian shareholders. Outlook MMS enjoyed a solid start to the 2016 ﬁnancial year (FY16), with trading activities meeting or exceeding targets. Earnings will be strengthened further with the recent acquisition of United Financial Services Pty Ltd, United Financial Services Network Pty Ltd and United Financial Services (Queensland) Pty Ltd in July 2015 (collectively known as ‘UFS’). Strategy and prospects The Group’s medium term strategic direction is to continue to look selectively to diversify, enhance and reﬁne our core business for the beneﬁt of our shareholders, clients, customers and the community. We will also enhance our client and customer experiences through continued investment in leading edge administration platforms and customer facing technology. In addition, the Board will consider making more value-adding acquisitions depending on market conditions and the value proposition to MMS. MMS’ acquisitions of Presidian and UFS in FY15 and FY16 respectively have strengthened the business by securing a market leading position in the used vehicle ﬁnancing market. It has further diversiﬁed our business and reduced our reliance on an intermediated relationship with clients to reach, and make sales to, their employees (B2B) and ﬂeet managers, to a business that also has direct relationships with consumers (B2C). The composition of our enlarged consumer loan originations has also shifted signiﬁcantly, with 59% of the $1.5 billion (per year) combined loan originations now being originated and brokered by Presidian and UFS. The acquisition of Presidian and UFS will assist the MMS Group deliver earnings growth in FY16. Additional revenue streams from both acquisitions are expected from the sale of new products including warranties, insurances, vehicle ﬁnance, and commercial ﬁnance loans. In addition, the Group will tap the wide range of cross-selling opportunities presented by having access to a broader customer base and launching new products and services tailored to them. State of affairs In FY15 the Group established a strong foothold in the consumer ﬁnance sector and with the UFS acquisition in July 2015 has become a leading arranger of used vehicle ﬁnance. There were no other signiﬁcant changes in the state of affairs of the Company and its controlled entities that occurred during the ﬁnancial year ended 30 June 2015 that are not otherwise disclosed in this Annual Report. MMSG Annual Report 2015 11 12 MMSG Annual Report 2015 Review of operations This acquisition strengthens the platform of our recently- acquired Presidian business. The combined MMS and UFS platform (including Presidian) will result in MMS’ consumer loan originations increasing to $1.5 billion per annum and our position in the used vehicle ﬁnancing market being elevated to a leading position. Revenue growth via ﬁnance synergies and cross-selling in FY16 will be supported by the combined Presidian and UFS network of 4,400 active dealers and 600 ﬁnance brokers, as well as continued growth in sales of commercial ﬁnance loans. Following the integration of UFS, Group headcount across Australia, New Zealand and the UK will surpass 1,150 people. Likely developments Following the acquisitions of Presidian and UFS, the diversiﬁcation of our core business and broadening of our customer base will continue. Over the next 12 months we foresee completing a review of our brand architecture that contemplates a refreshed visual identity for the Group to present a consistent face to our enlarged customer base comprising MMS, Presidian and UFS customers. Events subsequent to balance date In July 2015 MMS unveiled a new vision for the Group to our employees which broadens our purpose to capture the business activities of our recently-acquired subsidiaries. Our online presence was enhanced with the launch in August 2015 of two Apps to support Maxxia and RemServ customers wishing to lodge claims online. On 23 July 2015 MMS announced the acquisition of privately-owned companies United Financial Services Pty Ltd, United Financial Services Network Pty Ltd and United Financial Services (Queensland) Pty Ltd (collectively known as ‘UFS’) for $42 million. Funding for the transaction was debt-free and comprised cash (60%) from existing cash reserves and MMS scrip (40%). The transaction was completed on 31 July 2015, and is expected to be earnings accretive from FY16. UFS is an independent ﬁnancial agency and automotive brokerage services business providing consumer and commercial ﬁnance and insurance products primarily to the used motor vehicle sector. It has a national footprint with 28 ofﬁce locations, 1,900 active dealers and 150 individual ﬁnance brokers. In FY15 UFS originated approximately $370 million in auto and personal loans, and $14 million worth of insurance premiums. MMSG Annual Report 2015 13 Directors’ experience & special responsibilities Ronald Pitcher AM, FCA, FCPA Appointed: Positions: 4 February 2004 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 has previously held a number of public company directorships and is currently a director of Reece Australia Limited (since 2003). Under the Company’s deﬁnition of independence, Mr Pitcher is considered to be independent. Mike Salisbury MBA Appointed: Positions: 1 October 2014 (as Chief Executive Ofﬁcer), 5 February 2015 (as Managing Director) Managing Director and Chief Executive Ofﬁcer Mr Salisbury joined MMS as Managing Director of RemServ in April 2008 and was appointed to the position of Chief Executive Ofﬁcer in October 2014. Before joining the company in April 2008, Mr Salisbury was a member of the senior management team at AAMI. Mr Salisbury held a variety of management positions within the organisation, including a number of state management roles and the position of Product Manager for Compulsory Third Party Insurance. Mr Salisbury is a member of the Australian Institute of Company Directors, and is a Director of the National Automotive Leasing & Salary Packaging Association. Mr Salisbury holds a Masters of Business Administration from Southern Cross University and is a graduate of the Advanced Management Program at Harvard Business School. John Bennetts B Ec, LLB Appointed: Positions: 1 December 2003 Non-Executive Director Member of the Audit Committee Member of the Remuneration Committee Mr Bennetts is an experienced investor and has been the founder and director of many successful Australian companies with businesses in technology, ﬁnance and manufacturing. He is a founder of Cellestis Limited and private equity investment ﬁrm, Mooroolbark Investments Pty Limited (M-Group). He has also previously 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. 14 MMSG Annual Report 2015 Directors’ experience & special responsibilities Ross Chessari LLB, M Tax Appointed: Positions: 1 December 2003 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. Tim Poole CA, B Comm Positions: Appointed: 17 December 2013 Non-Executive Director Chairman of the Audit Committee Member of the Remuneration Committee Mr Poole is currently a non-executive Director of Aurizon Holdings Limited (and will become Chairman from 1 September). He is also the non-executive Chairman of Lifestyle Communities Limited and a Director of Japara Healthcare Limited. Mr Poole was formerly an executive of Hastings Funds Management (1995 to 2007) including as the Managing Director (2005 to 2007). He was also formerly non- executive Chairman of Asciano Limited and a non-executive Director of Newcrest Mining Limited. Mr Poole is considered an independent director under the Company’s deﬁnition of independence. Ian Elliot Appointed: Positions: 27 May 2014 Non-Executive Director Member of the Remuneration Committee 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. He is a Fellow of the Australian Institute of Company Directors and a graduate of the Advanced Management Program at Harvard Business School. Mr Elliot is considered an independent director under the Company’s deﬁnition of independence. Mark Blackburn Dip Bus (Acct), CPA, GAICD Positions: Chief Financial Ofﬁcer and Company Secretary Mr Mark Blackburn joined MMS as Chief Financial Ofﬁcer in October 2011. Mr Blackburn commenced as Company Secretary on 26 October 2011. Mr Blackburn has over 30 years experience in ﬁnance, 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 ﬁnancial management and advice, management of ﬁnancial risks, management of key strategic projects, acquisitions and establishing joint ventures. Prior to his employment with MMS, Mr Blackburn was Chief Financial Ofﬁcer of AUSDOC Group Ltd, IOOF Holdings Ltd and iSelect Pty Ltd. MMSG Annual Report 2015 15 Remuneration Report (Audited) Message from the Board Dear Shareholders We are pleased to present the 2015 Remuneration Report. In response to feedback received on last year’s Remuneration Report, and after receiving a ‘ﬁrst strike’ at last year’s AGM, the Company has revisited the layout, structure and content of this year’s Remuneration Report with a view to meeting the needs and expectations of shareholders and other stakeholders. On behalf of the Committee, I recommend this year’s Remuneration Report to you. Ronald Pitcher, AM Chairman Executive remuneration guide This short guide is intended to provide shareholders with an overview of executive remuneration outcomes for FY15 having regard to the Company’s performance, as well as a brief update on the actions that the Board and Remuneration Company performance The Board undertakes an annual strategic review and sets the strategy agenda for the Company. Three year ﬁnancial plans, annual budgets, forecasts and ﬁnancial and operational targets are prepared by executive management. These are reviewed and approved by the Board. In the approval process the Board considers Company ﬁnancial returns and targets, strategic issues such as markets and competition for its products and businesses, regulatory and operating risks, operating capability and importantly, how these plans measure against stakeholder expectations. Committee have taken to improve the structure and reporting of the Company’s remuneration practices. This guide is audited and is in addition to the audited information set out in the formal Remuneration Report. Current performance is reviewed by the Board through periodic reporting against approved targets. This strategic management framework enables the Board to set Long Term Incentive (LTI) plan targets and its annual expectations that, together with operational performance, determine any annual bonuses for the executive management team. The NPAT and EPS CAGR for the last ﬁve years is 21% and 19% respectively as summarised in the key metrics table below. Indices FY15 FY142 FY13 FY12 FY11 Net proﬁt attributable to Company members $67,486,611 $54,969,799 $62,163,519 $54,305,163 $43,460,470 NPAT growth 1 22.8% (11.6%) 14.5% 25.0% 55.7% Earnings per share 87.0 cents 73.8 cents 83.4 cents 76.6 cents 64.0 cents The Company has historically used Net Proﬁt After Tax (NPAT) and Earnings Per Share (EPS) as key metrics for assessing LTI awarded to executive key management personnel (KMP) and executives to align more closely with Company performance. The Company has chosen to solely apply an EPS hurdle to the FY15 LTI options granted. The EPS growth hurdle requires that the Company’s EPS growth over the performance period is greater than the target set by the Board (see page 25). 1 NPAT growth in 2011 has excluded the gain on business combination of $17,055,000 following the acquisition of Interleasing (Australia) Limited in April 2010. 2 Impacted by the former Government’s announcement on 16 July 2013 of proposed changes to the treatment of FBT on vehicles. 16 MMSG Annual Report 2015 MMSG Annual Report 2015 17 Remuneration Report FY15 Remuneration outcomes Company performance was reﬂected in executive remuneration outcomes for FY15. During the year 2,727,783 or 96% of awarded performance options vested following the out-performance against pre- determined cumulative compound NPAT targets over the vesting period of three years. These were granted in respect of the May 2010, August and October 2011 and March 2012 performance options. The May 2010 options were granted to a KMP that included a vesting condition to complete an 18 month ﬁxed term contract and upon its successful completion to be followed by a 36 month employment contract, where the vesting conditions were dovetailed with other options on-foot that were vesting on 31 August 2014. The August 2011 issue was the primary grant of options to existing executives under the three year programme with the October 2011 issue to facilitate the newly appointed CFO and the March 2012 issue followed from the extension of the programme to an executive. The graph below sets out the LTI achievement against performance hurdles. FY12 - FY14 LTI Programme achievement against performance hurdles 10.0% 9.6% 0.5% 62.2 64.3 54.3 56.9 49.4 ’ m $ T A P N 90 80 70 60 50 40 30 20 10 - 15% 10% 5% 0% 55.0 -5% -10% -15% -20% -25% -30% -35% FY12 FY13 FY14 NPAT target NPAT Actual The annual NPAT targets for FY12 and FY13 were out- performed but FY14 under-performed mainly due to the impact on the Group Remuneration Services (GRS) business from the FBT proposals on novated leasing by the previous Government and other one-time business start-up costs. However, the cumulative NPAT performance over the performance period exceeded the cumulative target by 0.5%. FY15 bonuses were determined taking into consideration a number of company and individual performance metrics that included sales growth, cost to income ratio, customer satisfaction, productivity index, staff engagement, capital management, mergers / acquisitions and group strategy. Annual bonuses are capped at 25% of ﬁxed remuneration. The vesting of current performance options are measured against target EPS. The target for FY15 was based on the MMS budget with annual increases in EPS over the FY15 18 MMSG Annual Report 2015 year of 15% for FY16 and a further 15% for FY17. The performance hurdles are discussed in detail on page 25. The actual EPS performance achieved for FY15 and target EPS for the remaining two years is shown in the chart below. FY15 - FY17 LTI Programme achievement against performance hurdles $1.226 FY15 actual EPS represents 69% vesting entitlement $1.066 $0.927 $0.890 $ S P E $1.267 $1.217 $1.167 $1.117 $1.067 $1.017 $0.967 $0.917 $0.867 FY15 FY16 FY17 Target EPS Actual EPS Directors have assessed FY15 EPS for the purpose of the LTI using NPAT of $69.0m which is based on reported NPAT of $67.5m and adding back $1.5m after-tax of one-off Presidian acquisition costs. On this basis and using the formula as disclosed on page 25, the vesting entitlement for FY15 is 69% of the entitlement for the year. Details of KMP remuneration for FY15, prepared in accordance with statutory obligations and accounting standards, are contained in Section 3 of the Remuneration Report: Details. In addition to this Guide the report now includes: • more detailed disclosure of the Company’s approach to annual bonuses in line with improvement suggestions from shareholders and other stakeholders; • clearer disclosure in relation to LTI opportunities and cycles and the terms and conditions that apply to the FY15 grant; • additional discussion of the Company’s remuneration governance structures and the link between the company’s performance and remuneration outcomes; and • more information about Non-Executive Directors’ fees. Other relevant remuneration initiatives implemented during FY15 are set out below: • earnings per share (EPS) performance hurdle was introduced for the FY15 long term incentive option grant; • scaled reward system for LTI rather than the previous cliff vesting structure; and • a twelve month holding lock applies to options issued to the four KMPs. Remuneration Report Contents Key section 1. Who does this Report cover? 2. Remuneration policy and guiding principles 3. Executive remuneration in detail 4. Non-executive director remuneration in detail 5. Statutory remuneration disclosures 2. Remuneration policy and guiding principles 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 Group’s remuneration structure consists of cash and non-cash components. The table below shows which KMP are eligible for the various components. Page 19 19 20 30 31 1. Who does this Report cover? This Report sets out the remuneration arrangements for the Group’s key management personnel (KMP) (who are listed in the table below) during FY15. Throughout this Remuneration Report, the KMP are referred to as either Executive KMP or Non-Executive Directors. All individuals held their positions for all of FY15 unless otherwise indicated. Non-Executive Directors Name Position Mr R. Pitcher, AM Non-Executive Chairman Mr J. Bennetts Non-Executive Director Mr R. Chessari Non-Executive Director Mr T. Poole Non-Executive Director Mr I. Elliot Non-Executive Director Executive KMP Name Position Mr M. Salisbury CEO and Managing Director (1) Mr G. Kruyt Chief Operating Ofﬁcer Mr M. Blackburn Mr A. Tomas Group CFO and Company Secretary Managing Director, Fleet and Financial Products Mr M. Kay CEO and Managing Director (3) Mr P. Lang Group Executive, Customers and Corporate Affairs (2) (1) Mr Salisbury held the role of Managing Director, Remuneration Services until 30 September 2014 and assumed the role of CEO on 1 October 2014 and Managing Director on 5 February 2015. He was considered to be a member of the KMP for all of FY15. (2) Mr Lang resigned as Group Executive, Customers and Corporate Affairs effective 5 December 2014. (3) Mr Kay retired as CEO and Managing Director on 30 September 2014. (4) There were no changes to KMP after the reporting date and before the Annual Report was authorised for issue. Fixed Remuneration LTI’s – Performance Options (cid:51) (cid:51) x (cid:51) LTI’s-Voluntary Options Annual Bonus x (cid:51) x (cid:51) Non-Executive Directors Executive KMP Non-Executive Directors Executive KMP Non-Executive Director remuneration 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. The Non-Executive Directors are remunerated for their services from the maximum annual aggregate amount approved by the shareholders of the Company on 29 October 2014 (currently $900,000 per annum). The Board sets the fees for the Chairman and the other Non-Executive Directors. Neither the Chairman nor the other Non-Executive Directors are entitled to any performance related remuneration. 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 ofﬁce other than payments relating to the accrued superannuation entitlements included in their remuneration. See key Section 4. Non-Executive Director remuneration in detail section for further information. MMSG Annual Report 2015 19 Remuneration Report Executive KMP remuneration The components of remuneration for Executive KMP consist of ﬁxed remuneration (including superannuation and beneﬁts) and long-term incentives (in the form of options). In addition Executive KMP may also receive an annual bonus based on key performance indicators (KPIs). The Board believes that this is an appropriate mix as it ensures that executives are primarily focused on generating value for shareholders over the long term (based on targeted ﬁnancial metrics), while also being modestly rewarded in the short term for exceeding KPIs that contribute to company performance. Executive KMP are not incentivised to focus on short term goals at the expense of long term goals and business priorities. See key Section 3. Executive remuneration in detail section for further information. Remuneration governance Role of the Remuneration Committee The Board has an established 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 www.mmsg.com.au/about/governance Remuneration consultants and other advisors The Remuneration Committee obtains external independent advice when required, and will use it to guide and inform their considered decision-making. During FY15, no remuneration recommendations (as deﬁned in the Corporations Act) were received. FY14 Annual General Meeting (AGM) ﬁrst strike Post the Company’s FY14 AGM, and the receipt of a ‘ﬁrst strike’ against the FY14 Remuneration Report, the Board undertook to expand the details disclosed in future Remuneration Reports. The Board has taken a number of steps to improve the Company’s reporting practices and enhance understanding. In particular: • The ‘Annual bonus program’ section of this Report has been expanded to provide additional detail how bonuses are determined, value range and other relevant considerations (so that it is clear that there is a structured process for the determination and award of bonuses); and • The ‘Long term incentive’ section of this Report provides further clarity on the timing of LTI offers and the terms and conditions that apply to the FY15 grant. 20 MMSG Annual Report 2015 3. Executive remuneration in detail As outlined above, the key components of Executive KMP remuneration are ﬁxed remuneration and long term incentive grants. However, the Remuneration Committee also has the authority to make, annual bonus awards. Fixed Remuneration Components • Fixed remuneration comprises base salary, superannuation and, in some cases, non-cash beneﬁts, such as motor vehicle lease payments and car parking beneﬁts • It is determined on an individual basis, reﬂecting the duties, responsibilities and performance levels of the relevant executive, general market conditions and comparable remuneration offered in related industry sectors • It does not vary over the course of a year based on performance • Neither the Chief Executive Ofﬁcer nor the Chief Financial Ofﬁcer are remunerated separately for acting as an ofﬁcer of the Company or any entities in the Group • Fixed remuneration is reviewed by the Remuneration Committee annually (or on promotion) to ensure ﬁxed remuneration remains competitive in the market place and reﬂects the individual’s skills, knowledge, accountability and general performance Review • The Company conducts market based reviews • The Company generally positions itself at the median • There is no guarantee that ﬁxed remuneration will be increased as a result of the annual review The Remuneration Committee has reviewed remuneration based on analysis from multiple data sources and taken into consideration factors such as annual revenue, employee numbers and market capitalisation. The Company generally positions itself at the market median. In certain circumstances, for exceptional candidates or positions of high responsibility, the Company positions itself at the seventy-ﬁfth percentile of the market. The Company has sourced additional data through external remuneration consultants to inform Remuneration Committee decision making. Remuneration Report Annual Bonus Program During the year, a total of $205,000 was awarded to Executive KMP under the annual bonus program. No Key Management Personnel have a contractual right to a bonus. However, the Remuneration Committee has the authority to award bonuses based on contribution to operational, individual and ﬁnancial performance. The Remuneration Committee has opted for implementing bonuses rather than adopting the standard STI concept to ensure that the Company/KMP can remain nimble and switch priorities to quickly adapt to dynamic or evolving circumstances. One such instance occurred in FY14, to adapt to the disruption to the business caused by the former Government’s announcement on 16 July 2013 of proposed changes to the treatment of FBT on motor vehicles. The assessment criteria that applied to the annual bonus program in FY15 is set out in the table below Sales Growth Cost to Income Ratio Customer Satisfaction Productivity Index Staff Engagement Capital Management Mergers / Acquisitions Group Strategy CEO and Managing Director CFO and Company Secretary Chief Operating Ofﬁcer Managing Director, Fleet and Financial Products (cid:51) x (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) x x (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) (cid:51) x x 22 MMSG Annual Report 2015 Remuneration Report What is the annual bonus program? A bonus may be awarded by the Remuneration Committee if in their opinion the employee’s contribution to the company’s ﬁnancial performance, operating capability and growth initiatives together with the other metrics mentioned in the FY15 outcomes above, has exceeded expectations. Who is eligible? Executives What is the performance period 1 July - 30 June How and when are bonuses determined? Shortly after the end of the ﬁnancial year, the CEO considers the issue of performance related annual bonuses. Any award of performance related bonuses is based on an assessment of a number of company and individual performance metrics including sales growth, cost to income ratio, customer satisfaction, productivity index, staff engagement, capital management, corporate acquisitions and group strategy. The CEO makes a recommendation about bonuses (excluding his own) to the Chairman of the Remuneration Committee. The CEO’s bonus is determined by the Remuneration Committee. Performance related annual bonuses are capped at 25% of ﬁxed remuneration per employee and have historically not exceeded 11% of total remuneration. In FY15 the highest bonus paid was 10% of that Executive KMP’s total remuneration. The Remuneration Committee makes the ﬁnal determination about payment of all executive bonuses. How is it delivered? In cash. The Executive must be employed at the time the bonus is paid. Why does the Board consider the bonus program appropriate? Recognition of Executive contributions over and above role responsibility and the value created for the business. Company results must meet Board expectations. Individuals must exceed performance KPIs and meet organisational behavioural standards. Measures for Executives for FY14 included contribution to: • Maintaining staff engagement levels during the disruption caused by the former Government’s announcement on 16 July 2013 of proposed changes to the treatment of FBT on motor vehicles; Is there a performance threshold that must be met before bonuses can be paid? • Volume of novated lease sales; • Maintaining sales staff retention levels; and • Achievement of margin improvement from reduced costs. Measures for Executives for FY15 included contribution to: Were bonuses paid in FY15? • Acquisition and integration of acquired companies while minimising disruption to business as usual; • Record levels of novated lease sales; • Successful contract tenders resulting in maintaining clients/new business/increased market share; and • Record low cost to income ratio. Executive KMP bonuses paid in FY15 totalled $205,000 and the highest bonus paid to an Executive represented 10% of their total remuneration. All FY14 bonuses were paid on 11 July 2014 except for the CEO who was paid on 8 August 2014. Total bonuses paid to Executive KMP in relation to FY14 totalled $305,000. Annual bonuses paid to Executive KMPs relative to total remuneration for the last six years have not exceeded 8% per annum and is presented in the chart below. Executive KMP Remuneration 7% 7% 7% 5% 8% 8% Annual bonuses included in remuneration Total remuneration % of annual bonuses to total remuneration 43.5 s n o i l l i m $ 5.0 4.0 3.0 2.0 1.0 - FY10 FY11 FY12 FY13 FY14 FY15 NOTE (1) Total remuneration is based on the amount as disclosed in the “total remuneration” column of the statutory table on page 32. (2) The annual bonuses paid in FY12 do not include $300,000 that was paid to Mr A Tomas under a contractual arrangement as disclosed in the Remuneration Report for that ﬁnancial year. (3) The annual bonuses in respect of FY13 were declared and paid in FY14 and consequently, included in the FY14 results but for the purpose of this graph, have been attributed to FY13 to show the relative proportion to total remuneration. MMSG Annual Report 2015 23 Remuneration Report Long-term Incentives 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. The Company issues options to certain Executives and employees under the McMillan Shakespeare Limited Employee Option Plan (Plan) every three years. Two types of options may be granted under this Plan: 1. Performance options Options that will only vest subject to performance hurdles and continuity of employment. 2. Voluntary option Options that are not subject to performance hurdles, but which: • Executives must purchase; • will only vest if the Executive continue in employment (and thereby contribute to the performance of the Company); and • Executives will only realise value from if the Company’s share price increases above a set ‘strike price’. Voluntary options were granted in FY11 and again in FY14 to provide Executives with an additional opportunity to purchase up to a maximum of $50,000 worth of options per executive. The terms and conditions relevant to these Options were disclosed in prior year’s Remuneration Reports. No Executive can enter into a transaction that is designed or intended to hedge the Executive’s exposure to any unvested option. Executive are required to provide declarations to the Board on their compliance with this policy from time to time. Further details are set out below. Performance Options – FY15 LTI grant During FY15, Performance Options were granted to Executive KMP as their LTI. The number of Performance Options awarded is determined by multiplying the relevant Executive’s ﬁxed remuneration by a pre-determined percentage (which varies depending on the position, duties and responsibilities of the relevant executive between 10% and 40% (i.e. 40% for the CEO and CFO). This ﬁgure is then multiplied by three, recognising that grants are made on a three yearly basis rather than annually. The EPS performance hurdle is subject to the measurement of the Company’s average annual growth in EPS for a three year period. The performance hurdle was derived from the EPS targets put in place in respect of the FY15 – FY17 Three Year Financial Plan. The Remuneration Committee considers this to be a key indicator of the ﬁnancial success of the business. The EPS performance hurdle was designed so that Executives are incentivised to ensure that the Three Year Financial Plan is met or exceeded. The EPS performance hurdle provides the KMP with a sole and unambiguous target which they collectively need to achieve, thereby encouraging a collaborative approach across the business. The Remuneration Committee considers that achieving the EPS target will have a positive impact on total shareholder return. 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, it is implied that increased shareholder wealth is required before the senior executive will receive any value from the options. Details of the key terms and conditions of the FY15 Performance Options are as follows. The vesting conditions for options that were granted prior to FY15 (but that are still on-foot) are outlined in detail in prior years Remuneration Reports. 24 MMSG Annual Report 2015 Remuneration Report What are Performance Options? Do Executives pay for Performance Options? An option to acquire a fully paid ordinary share in the Company (subject to payment of an exercise price), that will only vest and become exercisable if performance hurdles and service conditions are satisﬁed. Performance Options are granted as part of remuneration and therefore there is no payment required for a grant. However, Executives are required to pay an exercise price to exercise them and receive shares. What is the performance period? Three years An EPS hurdle applies to the FY15 grant. An EPS hurdle has been chosen as it provides evidence of the Company’s growth in earnings. The EPS growth hurdle requires that the Company’s EPS growth over the performance period is greater than the target set by the Board. What is the performance hurdle and why was it chosen? Performance conditions (EPS targets) Weighting Achievement of FY15 EPS* target of not less than $0.927 33.3% Achievement of FY16 EPS* target of not less than $1.066 (15% growth from FY15 target Achievement of FY17 EPS* target of not less than $1.226 (15% growth from FY16 target) Maximum Entitlement 33.3% 33.3% 100% How does the EPS performance hurdle work? The EPS performance hurdle is subject to the measurement of the Company’s average annual growth in EPS for a three year period. Basic EPS is determined by dividing the Company’s NPAT before signiﬁcant items by the weighted average number of ordinary shares on issue during the ﬁnancial year. Growth in EPS will be measured by comparing the EPS at the start of the year of issue and the measurement year. The EPS hurdle is a ‘line of sight’ hurdle, as the achievement of the hurdle directly correlates to improved shareholder value. The Remuneration Committee considers it a key indicator of the ﬁnancial success of the business. Achieving the EPS target will have a positive impact on total shareholder return. The EPS target in FY15 is based on the Budgeted EPS for FY15: the Base Year. In the event that the EPS target in any one year is not achieved, at the end of the three year period ending 30 June 2017 the total EPS for the three year period will be calculated, and if the total EPS for the three year period exceeds the sum of EPS targets for each of the three years, the participant will be entitled to exercise all un-forfeited options. The vesting scale is as follows: Financial years 0% vesting FY15 FY16 FY17 EPS less than $0.867 EPS less than $0.997 EPS less than $1.146 50-100% vesting EPS between $0.867 and $0.927 EPS between $0.997 and $1.066 EPS between $1.146 and 1.266 100% vesting EPS at least $0.927 EPS at least $1.066 EPS at least $1.226 Process for assessing performance conditions To determine the extent to which the EPS performance hurdle is satisﬁed, the Remuneration Committee relies on audited ﬁnancial results and vesting is determined in accordance with the Plan Rules. The Remuneration Committee believes this method of assessment provides an appropriate and objective assessment of performance. The Remuneration Committee will take account of capital raisings and acquisitions where necessary or appropriate to do so. MMSG Annual Report 2015 25 Remuneration Report What are the rights attaching to the Performance Options? What is the exercise price and how was it determined? When do the Performance Options expire? What happens on cessation of employment? What happens on a change of control? What Performance Options were granted in FY15? No voting rights or entitlements to dividends are attached to Performance Options. There are multiple prices depending on when the executive joined. The exercise price is normally equal to or higher than the spot price at the date of grant and is based on 5 Day Volume Weighted Average Price of Shares traded in the period immediately prior to grant date of the options. On 30 September 2018 for options without a “holding lock”. In relation to the Performance Options granted to the four Executive KMPs a mandatory 12 month ‘holding lock’ will apply to those Options such that any shares acquired by exercising vested Options cannot be sold until 12 months after the Options vest (the Options vest on 31 August 2017, so the ‘holding lock’ will apply until 31 August 2018 with the options expiring 30 September 2019). If the employee leaves employment with the Group before 31 August 2017 regardless of the circumstances, the options lapse without any payment to the employee. On a change of control, the Board has discretion to bring forward the exercise date of all performance options and to waive or vary the exercise conditions or performance conditions attached to the performance options. These are summarised on page 35. 26 MMSG Annual Report 2015 Remuneration Report Voluntary Options – FY15 LTI grant In FY15, Voluntary Options were offered to Executives. Details of the key terms and conditions of the FY15 Voluntary Options are as follows. The vesting conditions for options that were granted prior to FY15 (but that are still on-foot) are outlined in detail in the Company’s previous Remuneration Reports. What are Voluntary Options? Do Executives pay for Voluntary Options? An option to acquire a fully paid ordinary share in the Company (subject to payment of an exercise price) that may be purchased by Executives. Voluntary Options provide Executives with an additional opportunity to invest in the Company as a LTI. A Voluntary Option may be purchased by the Executive when offered by the Company. The Voluntary Option will only vest if the Senior Executive remains employed at vesting date. Yes. The maximum amount that can be applied towards the purchase of Voluntary Options is $50,000, and the number of options to be granted is determined by dividing the amount invested by the fair value of the option at grant date. The consideration payable per option is based on the fair value of the option at grant date less a 25% discount. In addition, an exercise price is payable when the options are exercised for shares. What is the vesting period? Three years. What is the performance hurdle and why was it chosen? No performance hurdles. The Executive buys the option at grant date. What are the rights attaching to the Voluntary Options? No voting rights or entitlements to dividends are attached to Voluntary Options. What is the exercise price and how was it determined? The exercise price is normally equal to or higher than the spot price at the date of grant and is based on 5 Day Volume Weighted Average Price of shares traded in the period immediately prior to grant date. When do the Voluntary Options expire? 30 September 2018. What happens on cessation of employment? What happens on a change of control? If the Executive leaves employment with the Group before 31 August 2017, the Executive will forfeit 25% (representing the discount) of their entitlement for consideration, paid by the Company, in the amount of $1. On a change of control, the Board has discretion to bring forward the exercise date of all performance options and to waive or vary the exercise conditions or performance conditions attached to the performance options. What Voluntary Options were granted in FY15? These are summarised on page 35. MMSG Annual Report 2015 27 Remuneration Report Fixed vs performance based remuneration The relevant proportions of ﬁxed versus performance based remuneration received in FY15 are set out in the table below. The proportion of performance based remuneration received increased from FY14 to FY15, and the Remuneration Committee will keep the remuneration ‘mix’ under review to ensure that it remains appropriate in the Company’s circumstances. Mr M. Salisbury1 Mr G. Kruyt1 Mr M. Blackburn1 Mr A. Tomas1 Mr M. Kay1 Mr P. Lang1 Fixed remuneration At risk – Annual Bonus At risk – LTI FY15 FY14 74% 70% 72% 76% 77% 91% 73% 61% 63% 70% 56% 67% FY15 5% 10% 5% 4% - - FY14 FY15 FY14 22% 22% 9% 10% 10% 11% 21% 20% 23% 20% 23% 9% 5% 17% 28% 20% 34% 22% 1 The FY14 bonus includes the bonus in respect of FY13 which was declared after the release of the FY13 annual report. Consequences of performance on shareholders’ wealth The table below sets out the Company’s performance over the past ﬁve years in respect of key ﬁnancial and non-ﬁnancial indicators. In addition to the links between remuneration and shareholder value discussed above, when reviewing the Group’s performance and beneﬁts for shareholder wealth, and the link to the remuneration policy, these indicators are generally considered: Indices FY15 FY144 FY13 FY12 FY113 Net proﬁt attributable to Company members NPAT growth1 Dividends paid $67,486,611 $54,969,799 $62,163,519 $54,305,163 $43,460,470 22.8% (11.6%) 14.5% 25.0% 55.7% $43,912,091 $29,064,347 $36,516,743 $31,422,422 $20,388,246 Dividend payout ratio2 Share price as at 30 June 64.3% $12.09 52.9% $9.17 58.8% $16.18 57.4% $11.82 46.9% $9.58 Basic earnings per share 87.0 cents 73.8 cents 83.4 cents 76.6 cents 64.0 cents 1 NPAT growth in FY11 excluded the gain on business combination following the acquisition of Interleasing (Australia) Limited in April 2010 of $17,055,000. 2 Dividend payout ratio is calculated based on dividends paid per share and EPS for the year. 3 Share price at the start of FY11 was $4.69. 4 Impacted by the former Government’s announcement on 16 July 2013 of proposed changes to the treatment of FBT on vehicles. The overall level of executive compensation takes into account the performance of the Group over a number of years. The Group’s proﬁt from ordinary activities after tax and earnings per share has grown at a CAGR of 19.3% per annum over the period from 1 July 2010 until 30 June 2015 (excluding the gain on business combination). Over the same period the average return on equity (RoE) exceeded 33%. MMSG Annual Report 2015 29 Remuneration Report Key terms of Executive KMP service agreements All Executive KMP are party to a written executive service agreement. The key terms are set out below. Key terms of Executive Service Agreement for CEO Duration Ongoing 9 months Periods of notice required to terminate Termination payments The agreement may, however, be terminated by the Company for cause without notice or any payment. The Company has discretion to make a payment in lieu of notice. No contracted retirement beneﬁts are in place with any of the Company's executives. Restraint of trade The Company can elect to invoke a restraint period not exceeding 6 months. Key terms of Executive Service Agreements for other Executive KMP Duration Ongoing Periods of notice required to terminate Termination payments Generally, 6 months written notice, by the Company or the Executive KMP. The agreement may, however, be terminated by the Company for cause without notice or any payment. The Company has discretion to make a payment in lieu of notice. No contracted retirement beneﬁts are in place with any of the Company's Executive KMP. Restraint of trade The Company can elect to invoke a restraint period not exceeding 6 months. 4. Non-Executive Director remuneration in detail The remuneration of Non-Executive Directors comprises Directors’ fees and superannuation contributions, and takes into account the size and complexity of the Company’s operations, their responsibility for the stewardship of the Company and their workloads. As stated in the Executive Remuneration Guide section, total fees are not to exceed the annual limit of $900,000 approved by shareholders in October 2014. Details of the fees paid to the Non-Executive Directors are set out in the table below. Directors Fees Superannuation contributions The annual Directors’ fees (including superannuation contributions) payable to Non-Executive Directors for FY15 were as follows: Position Chairman Fee ($) 203,014 (from 1 January 2015) Audit Committee Chairman 127,364 (from 1 January 2015) Director (base fee) 107,364 (from 1 January 2015) No fees are payable in respect of membership of Board Committees. Contributions required under legislation are made by the Company on behalf of Non-Executive Directors. Retirement beneﬁts There is no scheme for the payment of retirement beneﬁts. 30 MMSG Annual Report 2015 Remuneration Report 5. Statutory remuneration disclosures Non-Executive Director remuneration – statutory disclosures The tables below set out the out the statutory disclosures required under the Corporations Act 2001 (Cth) and in accordance with the Accounting Standards. Short term beneﬁts Post employment beneﬁts Long term beneﬁts Cash Salary/Fees1 Other Beneﬁts Superannuation Long Service Leave Total Remuneration $ $ $ Non-Executive Directors Mr R. Pitcher, AM (Chairman) Mr J. Bennetts (Non-Executive Director) Mr R. Chessari (Non-Executive Director) Mr T. Poole (Non-Executive Director) Mr I. Elliot (Non-Executive Director) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 182,907 179,200 85,322 72,107 85,322 72,107 107,182 57,196 98,050 16,342 - - - - - - - - - - 1. The amounts shown for the Non-Executive Directors reﬂect directors’ fees only. 17,376 16,576 8,106 6,670 8,106 6,670 10,182 5,291 9,315 1,512 $ - - - - - - - - - - $ 200,283 195,776 93,428 78,777 93,428 78,777 117,364 62,487 107,365 17,854 MMSG Annual Report 2015 31 Mr M. Salisbury (CEO and Managing Director) 3 Mr G. Kruyt (Chief Operating Ofﬁcer) Mr M. Blackburn (Group CFO and Company Secretary) Mr A. Tomas (Managing Director, Fleet and Financial Products) Former CEO Mr M. Kay (CEO and Managing Director, resigned on 30 September 2014)5 Former Executive KMP Mr P. Lang (Group Executive, Customers and Corporate Affairs resigned on 5 December 2014)5 Remuneration Report 2. Executive KMP remuneration – statutory disclosures The following table sets out the statutory disclosures required under the Corporations Act 2001 (Cth) and in accordance with the Accounting Standards. Short-term beneﬁts Post- employment beneﬁts Long- term beneﬁts Share- based payments Cash Salary/ Fees Current Year Annual Bonus Fy13 Annual Bonus4 Other Beneﬁts1 Superannuation Long Service Leave Options2 Total Remuneration Percentage Of Remuneration As Options Executive KMP $ $ 2015 554,237 50,000 $ - $ $ $ $ $ 98,023 29,987 47,369 208,035 987,651 2014 278,268 50,000 50,000 30,774 20,886 10,590 22,645 463,163 2015 438,973 75,000 - 76,950 18,783 15,400 159,026 784,132 2014 354,728 75,000 75,000 17,162 17,775 12,504 110,005 662,174 2015 543,165 50,000 - 37,888 35,000 35,087 208,280 909,420 2014 541,406 40,000 40,000 (2,797) 25,000 232 255,108 898,949 2015 379,709 30,000 - 138,124 35,000 37,648 155,547 776,028 2014 386,682 40,000 40,000 113,117 25,000 3,748 149,484 758,031 2015 321,536 - - (60,107) 35,000 - 89,623 386,052 2014 1,039,756 75,000 100,000 8,131 25,000 (82,978) 595,440 1,760,349 % 21% 5% 20% 17% 23% 28% 20% 20% 23% 34% 2015 220,563 - - 380 9,392 (81,298) 15,530 164,567 9% 2014 289,282 25,000 25,000 (1,257) 17,775 9,383 104,813 469,996 22% 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 KMP on termination. 1. Other beneﬁts reﬂect annual leave entitlements, motor vehicle packaging payments, travel beneﬁts and car parking beneﬁts. 2. The equity value comprises the value of options issued. No shares were issued to any Non-Executive Director (and no options were granted to any Non- Executive Director) during the ﬁnancial years ended 30 June 2015 and 30 June 2014. The value of options issued to Executive KMP (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. 3. Mr Salisbury was appointed CEO from 1 October 2014 and Managing Director on 5 February 2015 and was formerly Managing Director, Remuneration Services. 4. The bonus in respect of FY13 was deferred because of the former Government’s 16 July 2013 announcement of proposed changes to the treatment of FBT on motor vehicles and paid in the FY14 ﬁnancial year. 5. No payments were made to any Executive KMP in respect of termination of services in FY15. 32 MMSG Annual Report 2015 Remuneration Report Option Details No options were granted to, exercised by or lapsed with respect to Non-executive Directors during the ﬁnancial year ended 30 June 2015 or 30 June 2014. The terms and conditions of each grant of options to executives affecting their remuneration in the ﬁnancial year ended 30 June 2015 and 2014 and each relevant future ﬁnancial year are as follows: Grant Date Expiry Date Share price at valuation date Exercise Price Value per option at grant date1 Date Exercisable 28 May 2010 1 October 2015 $3.42 $3.42 16 August 2011 30 September 2015 $7.31 $7.31 16 August 20112 30 September 2015 $8.54 $7.31 25 October 2011 30 September 2015 $8.54 $8.54 14 March 2012 30 September 2015 $9.29 $9.29 24 July 2012 30 September 2015 $11.42 $11.42 19 August 2014 30 September 2018 $10.18 $10.18 19 August 20143 30 September 2019 $10.18 $10.18 23 September 2014 30 September 2018 $10.83 $10.83 28 October 2014 30 September 2018 $10.17 $10.17 24 March 2015 30 September 2018 $11.87 $11.87 26 May 2015 30 September 2018 $12.88 $12.88 $0.93 $1.76 $2.31 $1.87 $2.40 $2.56 $2.78 $3.01 $2.91 $2.68 $2.94 $3.18 100% 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 100% after 31 August 2017 100% after 31 August 2017 100% after 31 August 2017 100% after 31 August 2017 100% after 31 August 2017 100% after 31 August 2017 1. Reﬂects the fair value at grant date for options granted as part of remuneration calculated in accordance with AASB 2: Share-based Payment. 2. 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. 3. This tranche of options is subject to a holding lock where any shares acquired by exercising these options cannot be sold until twelve months after the options vest. 34 MMSG Annual Report 2015 Remuneration Report Details of the options over ordinary shares in the Company provided as remuneration to each Executive KMP are set out below. When exercised each option is convertible into one ordinary share of McMillan Shakespeare Limited. Name Date of grant Type of option Number of options granted Value of options granted during the year Number of options vested during year Vested % Number of options forfeited/ lapsed during the year1 Forfeited or lapsed % Year in which options may vest 2 Maximum value of options yet to vest 2 - - FY 2018 709,860 Mr M. Salisbury Mr G. Kruyt Mr M. Blackburn Mr A. Tomas Mr M. Kay Mr P. Lang 19 August 2014 24 July 2012 16 August 2011 19 August 2014 16 August 2011 16 August 2011 19 August 2014 25 October 2011 19 August 2014 28 May 2010 16 August 2011 16 August 2011 16 August 2011 19 August 2014 16 August 2011 16 August 2011 Performance 302,158 909,496 Performance 31,311 Performance 85,276 - - - - - - 85,276 100% Performance 215,827 649,639 - - Performance 159,637 Voluntary 37,901 - - 159,637 100% 37,901 100% Performance 256,248 771,306 - - Performance 352,942 - 352,942 100% Performance 204,184 614,594 - - Performance 537,634 Voluntary 37,901 Performance 682,206 Voluntary 37,900 - - - - 537,634 100% 37,901 100% 682,206 100% 37,900 100% (31,311) 100% - - - - - - - - - - - - - - - - - - - - - - Performance 105,438 293,118 - - (105,438) 100% Performance 151,655 Voluntary 37,901 - - 151,655 100% 37,901 100% - - - - - - - - FY 2018 506,914 - - - - FY 2018 601,850 - - FY 2018 479,568 - - - - - - - - - - - - - - 1. Reﬂects the number at lapse date for options that were granted as part of remuneration and lapsed during the ﬁnancial year ended 30 June 2015. 2. There is no minimum or maximum value attached to the options at the vesting date. MMSG Annual Report 2015 35 Remuneration Report Movement of options granted to Executive KMP The table below reconciles the options held by each Executive KMP from the beginning to the end of FY15. Executive KMP Options Balance at the start of the year1 Granted as compensation Vested during the year Exercised during the year Forfeited Other changes during the year Vested and exercisable at the end of the year Unvested at the end of the year Mr M. Salisbury Performance 116,587 302,158 85,276 (85,276) (31,311) Mr G. Kruyt Performance 159,637 215,827 159,637 (159,637) Mr G. Kruyt Voluntary 37,901 - 37,901 (37,901) Mr. M. Blackburn Performance 352,942 256,248 352,942 (352,942) Mr A. Tomas Performance 537,634 204,184 537,634 (537,634) Mr A. Tomas Voluntary 37,901 Mr M. Kay Performance 682,206 Mr M. Kay Voluntary 37,901 - - - 37,901 (37,901) 682,206 37,901 - - - - - - - - - Mr P. Lang Performance 151,655 105,438 151,655 (151,655) (105,438) Mr P. Lang Voluntary 37,901 - 37,901 (37,901) - 1 There were no unvested options at the start of the year. - - - - - - - - - - - - - - - - 682,206 37,901 - - 302,158 215,827 - 256,248 204,184 - - - - - Shares issued on exercise of performance options Details of fully paid ordinary shares in the Company that were issued following the exercise of performance options by KMPs during the year are set out below. Name Number of ordinary shares issued Value of Option at exercise date $1 Mr M. Salisbury Mr G Kruyt Mr M. Blackburn Mr A. Tomas Mr M Kay Mr P. Lang 85,276 159,637 352,942 537,634 - 151,655 310,501 580,956 868,452 4,639,781 - 544,441 1 Value at exercise date of options that were granted as part of remuneration and were exercised during the year has been determined as the intrinsic value of options at that date 36 MMSG Annual Report 2015 Remuneration Report Equity instrument details relating to Key Management Personnel The tables below show the number of shares in the Company held during the ﬁnancial year by each Director and each of the Executive Key Management Personnel, including their personally related parties. There were no shares granted during the year as compensation. Share holdings Balance at the start of the year Shares acquired through option exercise Other changes during the year Balance at the end of the year Non-Executive Directors Mr R. Pitcher Mr J. Bennetts Mr R. Chessari Mr T. Poole Mr I. Elliot Key Management Personnel Mr M. Salisbury Mr M. Kay1 Mr G. Kruyt Mr M. Blackburn Mr A. Tomas Mr P. Lang1 25,100 3,993,025 6,050,941 8,000 - - 811,904 73,044 1,250 17,050 - 1 Mr Kay and Mr Lang were no longer KMP at reporting date. Unissued shares - - - - - 85,276 - 197,538 352,942 575,535 189,556 - (450,000) - - - (75,000) - (262,629) (352,942) (128,136) (189,556) 25,100 3,543,025 6,050,941 8,000 - 10,276 - 7,953 1,250 464,449 - At the date of this Annual Report, unissued ordinary shares of the Company under option are: Option class No. of unissued ordinary shares Exercise price Expiry date Performance Options Voluntary Options Performance Options Performance Options Performance Options Performance Options Performance Options Performance Options Voluntary Options 682,206 50,801 978,417 543,695 107,877 109,142 294,336 85,692 23,981 $7.31 $7.31 $10.18 $10.18 $10.83 $10.17 $11.87 $12.88 $10.18 30 September 2015 30 September 2015 30 September 2019 30 September 2018 30 September 2018 30 September 2018 30 September 2018 30 September 2018 30 September 2018 No options were granted to the Directors or any of the ﬁve highest remunerated ofﬁcers of the Company since the end of the ﬁnancial year. MMSG Annual Report 2015 37 Remuneration Report 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 notiﬁed 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. Salisbury (Managing Director) Mr J. Bennetts Mr R. Chessari Mr. T Poole Mr I. Elliot Options - 302,158 - - - - Ordinary shares 25,100 10,276 3,543,025 6,050,941 8,000 - No Director has, during the ﬁnancial year ended 30 June 2015, became entitled to receive any beneﬁt (other than a beneﬁt included in the aggregate amount of remuneration received or due and receivable by the Directors shown in the Remuneration Report or the ﬁxed 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 ﬁnancial interest or a ﬁrm in which the Director is a member. End of Remuneration Report. 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 indemniﬁes the Directors and ofﬁcers 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 ofﬁceholders during their term of ofﬁce and after their resignation. Under the Deed, the Company also indemniﬁes each ofﬁceholder to the full extent permitted by law. The Company has a Directors & Ofﬁcers Liability Insurance policy in place for all current and former ofﬁcers of the Company and its controlled entities. The policy affords cover for loss in respect of liabilities incurred by Directors and ofﬁcers where the Company is unable to indemnify them and covers the Company for indemnities provided to 38 MMSG Annual Report 2015 its Directors and ofﬁcers. This does not include liabilities that arise from conduct involving dishonesty. The Directors have not included the details of the premium paid with respect to this policy as this information is conﬁdential under the terms of the policy. 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 ﬁnancial year ended 30 June 2015, 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 ﬁnancial year ended 30 June 2015 by Grant Thornton Audit Pty Ltd. Given that the only non-audit services related to client contract audits, review of banking covenant and trust account compliance, the Audit Committee has conﬁrmed 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 satisﬁed 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 88 of this Annual Report. Directors’ declaration The Directors have received and considered written representations from the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer in accordance with the ASX Principles. The written representations conﬁrmed that: • • the ﬁnancial reports are complete and present a true and fair view, in all material respects, of the ﬁnancial 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 efﬁciently and effectively in all material respects. Corporate governance practices Our full corporate governance statement is available on our website at www.mmsg.com.au/about/governance Signed in accordance with a resolution of the Directors. Ronald Pitcher, AM Chairman Mike Salisbury Managing Director 25 August 2015 Melbourne, Australia MMSG Annual Report 2015 39 Five year summary Five-year summary FY11 – FY15 2015 2014 2013 2012 2011 Financial performance Group Revenue ($m) NPAT ($m) UNPAT ($m)1 Group Remuneration Services segment Segment revenue ($m) Segment NPAT ($m) Asset Management segment Segment revenue ($m) Segment NPAT ($m) Retail Financial Services segment Segment revenue ($m) Segment NPAT ($m) Shareholder value Total return on equity (%)2 Dividends per share (cps) Dividend payout ratio (%) Basic earnings per share (cps) Return on equity (%) Other Employees Employee engagement score (%) 389.6 67.5 70.2 176.1 54.3 188.1 11.3 23.1 3.0 24.9 52.0 62.5 87.0 25 1,035 81 347.5 55.0 55.9 157.2 42.0 188.1 13.6 - - 26.2 52.0 52.9 73.8 26 873 No survey 330.1 62.2 62.2 155.9 46.8 172.0 14.6 - - 34.2 42.0 58.7 83.4 34 700 84 302.0 54.3 54.3 137.3 40.3 163.3 14.3 - - 38.4 47.0 57.9 76.6 38 730 No survey 271.3 43.5 43.5 111.6 31.7 158.9 13.5 - - 46.5 38.0 46.9 64.0 43 608 80 1 Underlying NPAT (UNPAT) is reported NPAT normalised for items considered to be capital in nature or not directly relating to operational performance. UNPAT is likely to better reﬂect maintainable earnings and presents a better comparable measure of performance year on year. UNPAT items included in FY15 are the after-tax adjustments for acquisition expenses relating Presidian of $1.5m after tax and the onerous provision for contracted rental for vacant property $1.25m after tax. The UNPAT adjustment in FY14 was acquisition expenses relating to CLM of $0.9m after tax. 2 Total return to equity is calculated as NPAT over the average of the current and proceeding year’s equity. 40 MMSG Annual Report 2015 Financial Report Statements of Proﬁ t or Loss and Other Comprehensive Income For the year ended 30 June 2015 Consolidated Group Parent Entity Revenue and other income Employee beneﬁ ts expense Depreciation and amortisation expenses and impairment Leasing and vehicle management expenses Brokerage commissions and incentives Net claims incurred Consulting expenses Marketing expenses Property and corporate expenses Technology and communication expenses Other expenses Finance costs Share of equity accounted joint venture loss Acquisition expenses 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 income for the year Total comprehensive income for the year Basic earnings per share (cents) Diluted earnings per share (cents) Note 3 4(a) 12 4(a) 5(a) 6 6 2015 $’000 2014 $’000 389,590 347,457 2015 $’000 68,363 (677) 2014 $’000 29,124 (646) - - - - (213) - (358) - - (507) - - - - - - (358) - (438) - (11) - - - 66,608 517 67,125 27,671 418 28,089 - - - - - - - - (81,038) (89,116) (52,692) - - (3,446) (2,739) (6,869) (8,141) (11,038) (10,872) (1,120) (1,177) 79,209 (24,239) 54,970 418 489 (142) 765 55,735 67,125 28,089 73.8 72.7 (96,856) (92,825) (50,717) (5,535) (2,160) (2,119) (3,477) (10,059) (8,673) (9,350) (10,865) (816) (2,196) 93,942 (26,455) 67,487 (107) 2,338 28 2,259 69,746 87.0 86.8 The above statements of proﬁ t or loss and other comprehensive income should be read in conjunction with the accompanying notes. MMSG Annual Report 2015 41 Financial Report Statements of Financial Position As at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Finance lease receivables Inventory Prepayments Deferred acquisition costs Total current assets Non-current assets Property, plant and equipment Finance lease receivables Intangible assets Other ﬁ nancial assets Deferred tax assets Deferred acquisition costs Total non-current assets TOTAL ASSETS Current liabilities Trade and other payables Unearned premium liability Other liabilities Provisions Current tax liability Borrowings Derivative ﬁ nancial instruments Total current liabilities Non-current liabilities Borrowings Unearned premium liability Provisions Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY Note 8 9 10 13 10 15 11 14 16 17 18 19 19 18 14 Consolidated Group Parent Entity 2015 $’000 2014 $’000 85,729 46,941 35,253 7,165 6,361 2,137 183,586 305,128 89,911 194,671 1,871 1,183 973 593,737 71,197 29,185 7,969 5,379 6,568 - 120,298 313,205 16,937 66,659 1,726 5,832 - 404,359 2015 $’000 2,598 2,413 - - 18 - 5,029 - - - 261,646 105 - 261,751 2014 $’000 1,005 473 - - 20 - 1,498 - - - 123,206 13 - 123,219 777,323 524,657 266,780 124,717 63,862 6,105 16,187 10,591 3,789 5,658 699 106,891 346,046 2,781 2,228 934 351,989 49,359 - 18,068 6,137 10,634 452 639 85,289 213,995 - 767 759 215,521 47,908 - - - 2,182 4,016 - 54,106 53,002 - - - 53,002 458,880 300,810 107,108 318,443 223,847 159,672 20(a) 121,617 10,677 186,149 56,456 4,817 162,574 121,617 8,449 29,606 318,443 223,847 159,672 46,737 - - - 10,283 - - 57,020 - - - - - 57,020 67,697 56,456 4,848 6,393 67,697 The above statements of ﬁ nancial position should be read in conjunction with the accompanying notes. 42 MMSG Annual Report 2015 Statements of Changes in Equity For the Year Ended 30 June 2015 2015 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: Contributions of equity, net of transaction costs Employee share schemes - value of employee services Income tax associated with share based payments recognised in equity Dividends paid Note 20 20(b) 27 7 Issued capital $’000 56,456 - - - 65,161 - Retained Earnings $’000 162,574 67,487 - 67,487 - - - - - (43,912) Equity as at 30 June 2015 121,617 186,149 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: Employee share schemes - value of employee services Dividends paid 56,456 - - - 136,668 54,970 - 54,970 27 7 - - - (29,064) Equity as at 30 June 2014 56,456 162,574 2015 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: Contributions of equity, net of transaction costs Employee share schemes - value of employee services Income tax associated with share based payments recognised in equity Dividends paid Note 20(b) 27 7 Financial Report Consolidated Group Cash ﬂ ow Hedge Reserve $’000 (447) - (79) (79) Foreign Currency Translation Reserve $’000 416 - 2,338 2,338 - - - - - - - - Total $’000 223,847 67,487 2,259 69,746 65,161 1,326 2,275 (43,912) (526) 2,754 318,443 (740) - 293 293 - - (56) - 472 472 195,435 54,970 765 55,735 - - 1,741 (29,064) (447) 416 223,847 Option Reserve $’000 4,848 - - - - 1,326 2,275 - 8,449 3,107 - - - 1,741 - 4,848 Parent Entity Issued capital $’000 56,456 - - - 65,161 - Retained Earnings $’000 6,393 67,125 - 67,125 - - - - - (43,912) Option Reserve $’000 4,848 - - - - 1,326 2275 - Total $’000 67,697 67,125 - 67,125 65,161 1,326 2275 (43,912) Equity as at 30 June 2015 121,617 29,606 8,449 159,672 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: Employee share schemes - value of employee services Dividends paid 27 7 Equity as at 30 June 2014 56,456 - - - 7,368 28,089 - 28,089 - - - (29,064) 56,456 6,393 3,107 - - - 1,741 - 4,848 66,931 28,089 - 28,089 1,741 (29,064) 67,697 The above statements of changes in equity should be read in conjunction with the accompanying notes. MMSG Annual Report 2015 43 Financial Report Statements of Cash Flows For the Year Ended 30 June 2015 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 (used in) / 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 Subsidiaries’ acquisition expenses Payments for joint venture subordinated loans Net cash used in investing activities Cash ﬂ ows from ﬁ nancing activities Proceeds from borrowings Proceeds from share issues Repayment of borrowings Payment of borrowing costs Dividends paid by parent entity (Repayments to) / proceeds from controlled entities Net cash provided by / (used in) ﬁ nancing activities Effect of exchange changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Payments for subsidiary investments (net of cash acquired) 28 Consolidated Group Parent Entity Note 2015 $’000 2014 $’000 2015 $’000 2014 $’000 372,471 341,286 - - (153,766) (155,944) (1,485) (1,453) 47,688 36,742 (243,441) (150,375) 2,158 (10,957) - - 39 - - - 60 - 22 15(b) 2,681 (9,832) - (29,042) (13,241) (4,777) (7,698) 1,921 (512) (63,620) (2,416) (961) - 68,324 29,064 (26,055) 36,855 - - 66,878 27,671 (5,488) (3,184) - - (12,418) (1,177) (2,419) - - - - - - - - (64,450) (2,416) - (14,478) - - (78,063) (24,686) (66,866) (14,478) 7 146,298 15,112 (11,872) (542) (43,912) - 105,084 752 14,532 71,197 33,552 - (1,723) (993) (29,064) - 1,772 17 13,958 57,239 57,500 15,112 (359) (130) (43,912) (26,630) 1,581 - 1,593 1,005 2,598 - - - - (29,064) 16,348 (12,716) - 477 528 1,005 Cash and cash equivalents at end of year 8 85,729 71,197 The above statements of ﬁ nancial position should be read in conjunction with the accompanying notes. 44 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 2015 was authorised for issue in accordance with a resolution of the directors on 25 August 2015 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” or “Consolidated 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 reassesses whether it has control over an entity when facts and circumstances indicate changes that may affect any of these elements. Subsidiaries are consolidated from the date control 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. MMSG Annual Report 2015 45 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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 completion and when control is achieved unless, in rare circumstances, it can be demonstrated that the published price on that day 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 Group’s share of the identiﬁ able net assets acquired is recorded as goodwill (refer Note 1(j)(i)). If the cost of acquisition is less than the 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) Employee Share Trust During the year, the Company established the McMillan Shakespeare Limited Employee Share Plan Trust (EST) to facilitate the distribution of McMillan Shakespeare Limited shares under the Group’s executive option plan. The EST is controlled by McMillan Shakespeare Limited and forms part of the Group. Shares held by the EST are disclosed as treasury shares and are deducted from issued shares. (f) Current versus non-current classiﬁ cation The Group presents assets and liabilities in the statements of ﬁ nancial position based on current / non-current classiﬁ cation. An asset is current when it is: • Expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle, • Held primarily for the purpose of trading, • Expected to be realised within twelve months after reporting date, or • Cash or a cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after reporting date. The Group classiﬁ es all other assets as non-current. A liability is current when: • • • • It is expected to be settled in the Group’s normal operating cycle, It is held primarily for the purpose of trading, It is due to be settled within twelve months after reporting date, or There is an unconditional right to defer the settlement of the liability for at least twelve months after reporting date. The Group classiﬁ es all other liabilities as non-current. (g) 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. 46 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 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. (h) 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. (i) 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 Motor vehicles under operating lease Depreciation Rate 20% – 40% 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. (j) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets acquired in a business combination are recognised at their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at their initial vale less any accumulated amortisation and accumulated impairment losses. Speciﬁ c criteria for various classes of intangible assets are stated below. (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 proﬁ t or loss and cannot be subsequently reversed. MMSG Annual Report 2015 47 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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 Group’s impairment policy (refer Note 1(k)). (iv) Identiﬁ able intangible assets acquired on business combination Amortisation of identiﬁ able intangible assets is calculated on a straight-line basis over the estimated useful lives as follows: Intangible Asset Dealer relationships and networks Customer contracts Useful Life 10 to 13 years 13 years Brand names have indeﬁ nite useful lives and consequently, are not amortised but are subject to annual impairment assessments. (k) 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. (l) 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. 48 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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. (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 collectible 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 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. MMSG Annual Report 2015 49 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (m) 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 high quality corporate bonds 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 statement of ﬁ nancial position 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. (ii) Superannuation The amount charged to the proﬁ t or loss 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. As has been past practice, an additional amount is included where the Board has decided to pay discretionary bonuses for exceptional performance and a provision recognised for this constructive obligation. (n) 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 Group has concluded that it acts as agent in some of its revenue arrangements and principal in other arrangements. The following are speciﬁc criteria that are applied for the recognition of revenue: (i) Rendering of services Revenue from services provided is recognised by reference to the stage of completion of the services provided to the customer. This includes revenue derived from services that the Group has performed mainly as agent and consequently, does not possess any signiﬁ cant credit, carry or residual risks of ownership of the underlying ﬁ nancial arrangement with the customer. Revenue is recognised when the customer accepts delivery or on completion of the contract for the underlying ﬁ nancial arrangement with the ﬁ nancier or insurer, (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. 50 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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 uncollectible 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. (vii) Warranty revenue Warranty revenue comprises product income from direct business, charged to product holders, but excluding stamp duties, GST and other amounts collected on behalf of third parties. Warranty revenue, including that on unclosed business, is recognised when it has been earned, calculated from attachment date over the period of the contract for direct business. Where time does not approximate the pattern of risk, previous claims experience is used to derive the incidence of risk. The proportion of revenue received or receivable not earned in the proﬁ t and loss at reporting date is recognised in the consolidated statement of ﬁ nancial position as an unearned liability. Income on unclosed business is brought to account using estimates based on the previous year’s actual unclosed business with due allowance made for any changes in the pattern of new business and renewals. (o) 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. (p) 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 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. (q) 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 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. MMSG Annual Report 2015 51 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (r) 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 beneﬁ t. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the business combination. (s) 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 reporting date. (t) 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. (u) 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. (v) 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. Provision for rebate and cancellation Speciﬁ c provisions are provided for cancellation of contracts and the consequential clawback of commissions received at the time revenue is recognised. The provision reﬂ ects an obligation to refund commissions received from the ﬁ nancier or insurer for early termination of a loan or policy. Rebate provisions relate to the clawback of commission from ﬁ nanciers, based on the various ﬁ nancier clawback policies. 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. Onerous provision Contractual and unavoidable costs of meeting obligations that exceed the economic beneﬁ ts expected to be received under it are recognised as an onerous provision. The provision is measured on the net cash outﬂ ow and present valued using the pre-tax rate that reﬂ ects current market rates and the time value of money and any speciﬁ c risks to the liability. (w) Deferred acquisition costs (DAC) Acquisition costs incurred in deriving warranty income are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to warranty revenue in subsequent reporting periods. Deferred acquisition costs are amortised systematically in accordance with the expected pattern of the incidence risk under the warranty contracts to which they relate. The pattern of amortisation corresponds to the earning pattern of warranty revenue. 52 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (x) Unearned premium liability The Group assesses the risk attached to unexpired warranty contracts based on risk and earning pattern analysis, to ascertain whether the unearned warranty liability is sufﬁ cient to cover all expected future claims against current warranty contracts. This assessment is performed quarterly, to ensure that there have been no signiﬁ cant changes to the risk and earning pattern and to ensure the liability recorded is adequate. (y) Outstanding claims liability The liability represents claims authorised, prior to reporting date, and paid in the subsequent reporting period. (z) 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. (aa) 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. (ab) 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. (ac) 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. (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. (ad) 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”). MMSG Annual Report 2015 53 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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. (ae) 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. In recognising premium revenue for the direct business is the consequential recognition of unearned premium liability at reporting date. The measurement is based upon the expected future pattern of incidence of risk in relation to warranty contracts. In determining the estimated pattern of incidence of risk, the Group uses a variety of estimation techniques generally based on statistical analysis of the Group and industry experience that assumes that the development pattern of current claims will be consistent with past experience as appropriate. No other judgements, estimates or assumptions are considered signiﬁ cant. (af) 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 2014. None of these standards and amendments materially affected any of the amounts recognised in the current period or any prior period. (i) AASB 2013-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets’ – removes the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indeﬁ nite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosures required by AASB 13 ‘Fair Value Measurements’. The application of these arrangements does not have any material impact on the disclosures in the Group’s consolidated ﬁ nancial statements. (ii) AASB 2014-1 ‘Part A: Annual Improvements 2010-2012 and 2011-2013 Cycle AASB 13 ‘Fair Value Measurement’ and AASB 2011-8’ – includes a number of amendments to various AASBs as follows; • • • Amendment to AASB 2 changes the deﬁ nitions of ‘vesting condition’ and ‘service condition’ that apply to share-based transactions granted after 1 July 2014. Amendment to AASB 8 requires disclosure of the judgements made by management in applying aggregation criteria to operating segments and clariﬁ es that a reconciliation of the total of the reportable segments’ assets to the Group’s total assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. Amendment to AASB 124 clariﬁ es that the deﬁ nition of a ‘related party’ includes a management entity that provides key management personnel services to the Group. (iii) Interpretation 21 ‘Levies’ – which has been applied by the Group for the ﬁ rst time in this period, addresses the issue as to when to recognize a liability to pay a levy imposed by a government. The interpretation deﬁ nes a levy, and speciﬁ es that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identiﬁ ed by legislation. 54 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 The adoption of all the new and revised Standards and Interpretations has not resulted in any changes to the Company’s accounting policies and has no material impact on the disclosures or on the amounts recognised in the consolidated ﬁ nancial statements. 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 2015, 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 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) 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. (ag) 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. (ah) 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. (ai) 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 Credit Committee and Interest Committee respectively, by the Group Treasurer and Head of Credit, 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. MMSG Annual Report 2015 55 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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 daily 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 31/03/2018 03/04/2018(1) 03/04/2018 Total borrowings (AUD) (1) Includes facility to be drawn in NZD20m Facility 250,000 20,000 57,000 386,995 2015 Used 186,000 8,662 43,500 283,947 Unused 64,000 11,338 13,500 103,048 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 The facilities have been provided by 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 with a new maturity date to 31 March 2018 In addition to the borrowing facilities to ﬁ nance Asset Management’s lease portfolio, the Group has a GBP5.75 million facility that was fully drawn down for the acquisition of CLM Fleet Management plc. This borrowing is an amortising facility that matures on 31 August 2018. The Group also secured a new facility of AUD57.5 million which was fully drawn down to fund the acquisition of the Presidian Group. This is an amortising facility that matures on 31 March 2020. 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. 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 2015: 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 19,399 57,282 8,502 85,183 - - 11,603 11,603 - - - - 27,415 27,415 346,136 346,136 - - - - Total contractual cash ﬂ ows $’000 Carrying Amount /liabilities $’000 19,399 19,399 57,282 393,656 470,337 57,282 351,704 428,385 56 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 - - - - 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 Parent – at 30 June 2015: 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 Amounts payable to wholly owned entities and other payables Borrowings Financial guarantee contracts 47,908 2,836 5,666 56,410 - 3,817 7,786 11,603 - - 13,770 44,718 13,645 27,415 301,418 346,136 - - - - 47,908 65,141 47,908 57,018 328,515 441,564 - 104,926 Parent – 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 Total contractual cash ﬂ ows $’000 Carrying Amount (assets)/liabilities $’000 Amounts payable to wholly owned entities Financial guarantee contracts (b) Credit risk 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 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 2015 $’000 46,941 85,729 125,164 293,125 550,959 2014 $’000 29,185 71,197 24,906 303,408 428,696 2015 $’000 - 2,598 - 2,598 2014 $’000 - 1,005 - - 1,005 Lease assets of the Asset Management business represents future lease rentals that have yet to be invoiced. Such assets are secured against underlying assets. MMSG Annual Report 2015 57 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 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 rating 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, regions and asset manufacturer. There is a broad spread of credit risk concentration through the Group’s exposure to individual customers, industry sectors, asset types, 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 tool, taking into account information from an independent national credit bureau, its ﬁnancial position, business segment, past experience and other factors using an application scorecard or other risk-assessment tools. Collateral is also obtained where appropriate, as a means of mitigating risk of ﬁ nancial loss from defaults. The overall debtor aging position is reviewed monthly by the Board, as is the provision for any impairment in the trade receivables balance. (c) Market risk (i) Interest rate risk The 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, 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 and amortising facilities. AUD’000 GBP’000 Total (AUD) 2015 2014 Borrowings ‘000 Weighted average interest rate % Borrowings ‘000 Weighted average interest rate % 251,803 49,250 351,704 3.00 1.36 2.73 193,420 12,250 215,100 3.51 1.95 3.35 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 2015, the Group’s borrowings for the Asset Management business of $295,750,000 (2014: $215,100,000) were covered by interest rate swaps at a ﬁ xed rate of interest of 3.58% (2014: 4.29%). The Group’s interest rate risk also arises from cash at bank and deposits, which are at ﬂoating interest rates. 58 MMSG Annual Report 2015 Notes to the Financial Statements For the Year Ended 30 June 2015 At reporting date, the Group had the following variable rate ﬁ nancial assets and liabilities outstanding: Cash and deposits Bank loans (Asset Management segment)(1) Interest rate swaps (notional amounts) Bank loans (Presidian Group acquisition)(1) Net exposure to cash ﬂ ow interest rate risk Financial Report 2015 Balance $’000 85,729 2014 Balance $’000 71,197 (295,750) (215,100) 275,554 (57,141) 8,392 211,679 - 67,776 (1) Excluding capitalised borrowing costs of $1,064,000 for Asset Management and $123,000 for the bank loan for Presidian. Sensitivity analysis – ﬂoating interest rates: At 30 June 2015, 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 $31,000 (2014: $451,000) higher or lower and the parent entity $544,000 (2014: $471,000) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings balances at reporting date. (ii) Foreign currency risk The 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 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 $293,125,000 (2014: $303,408,000) included a residual value provision of $5,237,000 (2014: $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). MMSG Annual Report 2015 59 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Financial asset / (ﬁ nancial liability) Interest rate swaps – cash ﬂ ow hedge Fair value at 2015 $000 (699) 2014 $000 (639) 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 2015 Carrying amount $000 89,911 Fair value $000 89,589 2014 Carrying amount $000 16,937 Fair value $000 18,110 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 3.96% (2014: 5.50%). They are classiﬁ ed as level 3 fair values in the fair values hierarchy due to the inclusion of unobservable inputs. Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 3 REVENUE Revenue from continuing operations Remuneration services1 Lease rental services Retail ﬁ nancial services Proceeds from sale of leased assets Dividends received Interest – other persons Total revenue 176,096 144,436 23,106 43,270 - 2,682 389,590 157,247 154,732 - 33,320 - 2,158 347,457 1 Included in remuneration services revenue is interest income derived from the holding of trust funds 10,108 9,844 Underwriting premium from direct business included in Retail ﬁ nancial services revenue Gross written premium Movement in deferred income Premium revenue 13,483 (971) 12,512 - - - - - - - 68,324 39 68,363 - - - - - - - - 29,064 60 29,124 - - - - 60 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 4 EXPENSES (a) Proﬁ t before income tax includes the following speciﬁ c expenses 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 4,743 1,061 79,785 3,292 3,219 725 3,501 976 81,475 2,913 - 251 92,825 89,116 6,886 5,784 Deﬁ ned contribution superannuation expense 6,677 5,260 (b) Other individually signiﬁ cant items Contracted property rental payments for vacant space included in property and corporate expense in the proﬁ t or loss Credit losses included in other expenses in the proﬁ t or loss 1,725 448 - - - - - - - - - - - - - - - - - - - - - - - - (c) 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: - review of borrowing covenant Remuneration of a network ﬁ rm of the parent entity auditor: Audit or review of the ﬁ nancial statements (UK) Other compliance Consolidated Group Parent Entity 2015 $ 2014 $ 2015 $ 2014 $ 277,000 46,400 179,000 53,400 1,900 2,000 100,265 - 86,420 17,646 - - - - - - - - - - MMSG Annual Report 2015 61 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 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% (2014: 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 - deductible expenses not previously recognisable Less tax effect of: - dividends received Income tax expense / (beneﬁ t) Amounts recognised directly in equity Expense relating to the setting up of Employee Share Trust for the distribution of employee share-based payments Deductible share-based payments that were not previously recognizable as there was no basis for a tax deduction 22,054 (311) 4,712 26,455 93,942 28,182 121 409 (354) (154) - (311) (1,438) 26,455 - 26,455 67 2,275 2,342 30,342 (323) (5,780) 24,239 (425) - (92) (517) (418) - - (418) 79,209 23,763 66,608 19,982 27,671 8,301 522 540 (346) 12 71 (323) - - - - - - - - - - - - - - - 24,239 19,982 8,301 - 24,239 (20,499) (517) (8,719) (418) - - - 67 2,275 2,342 - - - - Unrecognised temporary differences Foreign currency translation of investments in subsidiaries for which no deferred tax liabilities have been recognised 2,754 416 - 62 MMSG Annual Report 2015 Notes to the Financial Statements For the Year Ended 30 June 2015 6 EARNINGS PER SHARE Basic earnings per share Basic EPS – cents per share Net proﬁ t after tax Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS Diluted earnings per share Diluted EPS – cents per share Earnings used to calculate basic earnings per share (EPS) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS Weighted average number of options on issue outstanding Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted EPS Financial Report Consolidated Group 2015 ’000 2014 ’000 87.0 $67,487 77,537 86.8 $67,487 77,537 211 77,748 73.8 $54,970 74,524 72.7 $54,970 74,524 1,136 75,660 7 DIVIDENDS Final fully franked ordinary dividend for the year ended 30 June 2014 of $0.31 (2013: $0.18) per share franked at the tax rate of 30% (2013: 30%) Interim fully franked ordinary dividend for the year ended 30 June 2015 of $0.25 (2014: $0.21) per share franked at the tax rate of 30% (2014: 30%) Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 23,632 13,414 23,632 13,414 20,280 43,912 15,650 29,064 20,280 43,912 15,650 29,064 Franking credits available for subsequent ﬁ nancial years based on a tax rate of 30% (2014 – 30%) 78,806 61,992 78,806 61,992 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. MMSG Annual Report 2015 63 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 8 CASH AND CASH EQUIVALENTS Cash on hand Bank balances Short term deposits Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 4 47,437 38,288 85,729 1 18,361 52,835 71,197 - 173 2,425 2,598 - 964 41 1,005 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 2015, the ﬂ oating interest rates for the Group and parent entity were between 1.53% and 3.46% (2014: 0.6% and 3.53%). The short term deposits are also subject to ﬂ oating rates, which in 2015 were between 2.42% and 3.39% (2013: 2.50% and 3.64%). These deposits have an average maturity of 90 days (2014: 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 2015 $’000 2014 $’000 2015 $’000 2014 $’000 16,246 30,695 - 46,941 14,836 14,349 - 29,185 - 130 2,283 2,413 - - 473 473 The carrying amount of all current receivables are equal to their fair value as they are short term and fully recoverable. (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 2015 Amount impaired $’000 - (59) (128) (105) (629) (921) Total $’000 13,766 1,747 496 213 944 17,167 Amount not impaired $’000 13,766 1,688 369 108 315 Total $’000 10,981 2,368 799 626 553 16,246 15,327 2014 Amount impaired $’000 - (11) (41) (12) (427) (491) Amount not impaired $’000 10,981 2,357 758 614 126 14,836 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. 64 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (d) Doubtful debts policy Refer Note 1(l). 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 Later than ﬁ ve years Less: unearned ﬁ nance income Present value of minimum lease payments Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 35,253 89,911 125,164 7,969 16,937 24,906 - - - - - - Consolidated Group Minimum lease payments 2015 $’000 Present value of lease payments 2015 $’000 Minimum lease payments 2014 $’000 Present value of lease payments 2014 $’000 39,842 95,551 186 135,579 (10,415) 125,164 35,253 89,727 184 125,164 - 125,164 9,187 19,741 - 28,928 (4,022) 24,906 7,969 16,937 - 24,906 - 24,906 There were no unguaranteed residual values of assets leased under ﬁ nance leases at reporting date (2014: nil) MMSG Annual Report 2015 65 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 11 OTHER FINANCIAL ASSETS (a) Investment in subsidiaries Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Shares in subsidiaries at cost 123,206 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). 261,646 - - Interest in material subsidiaries: Name Parent entity McMillan Shakespeare Limited Subsidiaries in Group Maxxia Pty Limited 1 Remuneration Services (Qld) Pty Limited 1 Interleasing (Australia) Ltd 1 TVPR Pty Ltd 1 Maxxia Limited (NZ) Maxxia Fleet Limited Maxxia (UK) Limited Maxxia Finance Limited CLM Fleet Management plc Presidian Holdings Pty Ltd 1 Davantage Group Pty Ltd 1 Money Now Pty Ltd 1 National Finance Choice Pty Ltd 1 Franklin Finance Group Pty Ltd 1 Australian Dealer Insurance Pty Ltd 1 National Finance Solutions Pty Ltd 1 National Insurance Choice Pty Ltd 1 Country of Incorporation Percentage Owned 2015 Percentage Owned 2014 Principal activities Australia Australia Australia Australia Australia New Zealand New Zealand United Kingdom United Kingdom United Kingdom Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Remuneration services provider 100% Remuneration services provider 100% Asset management and services 100% Asset management and services 100% Dormant 100% Asset management and services 100% Investment holding 100% Asset management and services 100% Fleet management services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial services - Retail ﬁ nancial 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 29. (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 66 MMSG Annual Report 2015 Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 3,211 996 (2,009) (327) 1,871 2,126 861 (1,193) (68) 1,726 - - - - - - - - - Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 The loan and other 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 $816,000 (2014: $1,120,000) recognised under the equity method that is in excess of the Company’s fully written down carrying value of its investment (2014: $nil - refer note 12). Risk exposure The maximum facility under the arrangement is GBP1.8 million together with other expenses agreed between the JV parties to accelerate growth are fully repayable no later than 31 January 2017. Under certain conditions of default on the repayments, the Group has an option to convert a portion of the amount outstanding to increase the Group’s interest in the joint venture from 50% to 60%. The loan accrues interest at commercial rates and the balance at reporting date approximates to fair value. At reporting date, the fair value of the option was not material. 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 2015 $’000 2014 $’000 2015 $’000 2014 $’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. Consolidated Group 2015 $’000 1,649 6,951 8,600 2,397 11,168 13,565 (4,965) (4,965) (2,483) - 2014 $’000 2,205 727 2,932 2,003 3,715 5,718 (2,786) (2,786) (1,393) - (2,346) (1,530) MMSG Annual Report 2015 67 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Joint venture ﬁ nancial results Revenues Expenses Loss before income tax Income tax Loss after income tax Share of joint venture capital commitments 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 2015 Balance at the beginning of year Additions Acquisitions through business combination Transfer to software Disposals / transfers to assets held for sale Depreciation expense Impairment loss FX Balance at 30 June Year ended 30 June 2014 Balance at the beginning of year Additions Acquisitions through business combination Disposals / transfers to assets held for sale Depreciation expense FX Balance at 30 June (1) Accumulated provision for impairment loss at reporting date is $5,237,000 (2014: $2,018,000). 68 MMSG Annual Report 2015 Consolidated Group 2015 $’000 2,644 (4,684) (2,040) 408 (1,632) - 2014 $’000 1,001 (3,801) (2,800) 560 (2,240) - Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 31,393 (19,390) 12,003 25,990 (16,193) 9,797 457,684 458,969 (164,559) (155,561) 293,125 305,128 303,408 313,205 - - - - - - - Consolidated Group Plant and equipment Assets under operating lease(1) $’000 $’000 9,797 7,248 1,075 (1,246) (1,863) (3,292) - 284 12,003 9,002 2,548 746 348 (2,913) 66 9,797 303,408 122,124 - - (49,136) (79,785) (3,219) (267) 293,125 287,749 131,967 1,897 (36,985) (81,475) 255 303,408 - - - - - - - Total $’000 313,205 129,372 1,075 (1,246) (50,999) (83,077) (3,219) 17 305,128 296,751 134,515 2,643 (36,637) (84,388) 321 313,205 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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. 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 Deferred acquisition expenses Intangible assets Unearned income Employee share rights Amounts recognised in equity Derivatives recognised directly in equity 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 FX Closing balance at 30 June Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 185 4,070 (10,021) 6,954 - 389 467 1,356 (3,799) 150 278 29 220 249 1,183 (934) 249 5,073 (3,673) 28 (1,130) (49) 249 147 4,208 (1,584) 2,311 (764) 922 405 - (764) - 4,881 192 5,073 5,832 (759) 5,073 367 5,780 (142) (932) - 5,073 - - - 88 - 17 - - - - 105 - 105 105 - 105 13 92 - - - 105 - - - 6 - 7 - - - - 13 - 13 13 - 13 176 (163) - - - 13 MMSG Annual Report 2015 69 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 15 INTANGIBLE ASSETS (a) Carrying values Goodwill Cost Impairment loss Net carrying value Brands Cost Net carrying value Dealer relationships Cost Accumulated amortisation 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 2015 Net book amount Balance beginning of year Additions Goodwill $’000 46,387 - 134,877 (36) 134,841 22,443 22,443 12,033 (309) 11,724 35,631 (15,988) 19,643 13,070 (10,616) 2,454 4,302 (736) 3,566 194,671 46,423 (36) 46,387 - - - - 25,900 (11,245) 14,655 12,605 (9,555) 3,050 2,818 (251) 2,567 66,659 - - - - - - - - - - - - - - - - - Consolidated Group Brands $’000 Dealer relationships $’000 Software development costs $’000 Contract rights $’000 Customer list and relationships $’000 - - - - - - - - - - - - - - - - - Total $’000 66,659 4,777 Acquisition through business combination 86,672 22,443 12,033 - - - - 14,655 4,312 4,173 1,246 3,050 465 - - - (309) (4,743) (1,061) - - - 2,567 - 1,100 126,421 - (416) 315 1,246 (6,529) 2,097 - - 1,782 - - - 134,841 22,443 11,724 19,643 2,454 3,566 194,671 Transfer from property, plant & equipment Amortisation FX Closing balance 70 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 2014 Net book amount Balance beginning of year Additions Goodwill $’000 33,292 - Acquisition through business combination 12,254 Amortisation FX Closing balance - 841 46,387 (c) Impairment test for goodwill Consolidated Group Brands $’000 Dealer relationships $’000 Software development costs $’000 Contract rights $’000 Customer list and relationships $’000 - - - - - - - - - - - - 12,668 5,488 - 4,272 - - (3,501) (1,222) - 14,655 - 3,050 - - 2,637 (251) 181 2,567 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 Presidian Holdings Pty Ltd and controlled entities Consolidated Group 2015 $’000 24,190 9,102 14,877 86,672 134,841 Total $’000 50,232 5,488 14,891 (4,974) 1,022 66,659 2014 $’000 24,190 9,102 13,095 - 46,387 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 CLM Fleet Management plc Discount rate 2015 % 15.06 15.06 12.08 2014 % 15.88 15.88 - 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 between 5%. 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 Presidian Holdings Pty Ltd during the year was determined from fair value variables. There were no impairment indicators since acquisition to reporting date. MMSG Annual Report 2015 71 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 16 TRADE AND OTHER PAYABLES Unsecured liabilities Trade payables GST payable Sundry creditors and accruals Amounts payable to wholly owned entities Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 19,399 2,046 42,417 - 16,222 1,594 31,543 - 63,862 49,359 - - 599 47,309 47,908 - - 197 46,540 46,737 Trade and other payables are non-interest bearing. These are short-term liabilities and the carrying value is representative of the fair value. 17 OTHER LIABILITIES Maintenance instalments received in advance Receivables in advance Unearned property incentives Unearned other income 18 PROVISIONS Current Employee beneﬁ ts Provision for rebate and cancellations Provision for onerous contracts Other Non current Employee beneﬁ ts Provision for onerous contracts 19 BORROWINGS Current Bank loans – at amortised cost Non-current Bank loans – at amortised cost 72 MMSG Annual Report 2015 6,622 4,379 5,186 - 7,529 3,598 6,816 125 16,187 18,068 7,586 2,174 650 181 6,137 - - - 10,591 6,137 1,139 1,089 2,228 767 - 767 - - - - - - - - - - - - - 5,658 452 4,016 346,046 213,995 53,002 - - - - - - - - - - - - - - - Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (a) Security The parent entity guarantees all bank loans of subsidiaries in the Group, totalling $351,704,000 (2014: $215,100,000). 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 $200,000,000 at all times. (iii) Group ratio of consolidated earnings before interest and tax to consolidated interest expense is not less than 3:1. (iv) Group debt to EBITDA ratio excluding the Asset Management segment does not exceed 2.5:1.0. 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, interest cover 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. Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 20 ISSUED CAPITAL (a) Share capital 81,810,993 (2014: 74,523,965) fully paid ordinary shares 121,617 56,456 121,617 56,456 MMSG Annual Report 2015 73 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (b) Movements in issued capital Balance at 1 July 2014 Shares issued for the acquisition of Presidian Holdings Pty Ltd Shares purchased by the McMillan Shakespeare Limited Share Plan Trust (“EST”) Shares purchased by the EST and distributed to employees Fully paid shares issued pursuant to the exercise of employee options Proceeds from issue of new options Share issue expenses Less: tax effect of expenses Shares issued during the year Total issued capital at 30 June 2015 Treasury shares Shares held by public at 30 June 2015 Balance at 1 July 2013 No shares were issued nor options exercised during the year Balance at 30 June 2014 Issue price $11.66 - $6.53 $7.31 Number of shares 74,523,965 4,285,192 692,482 2,035,301 274,053 - 7,287,028 81,810,993 (692,482) 81,118,511 74,523,965 74,523,965 Ordinary shares $’000 56,456 49,982 - 13,283 2,003 50 (224) 67 65,161 121,617 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. During the year, the Company established the McMillan Shakespeare Limited Employee Share Plan Trust (EST) to facilitate the distribution of MMS shares under the Group’s executive option plan. (c) Treasury shares Treasury shares are shares in McMillan Shakespeare Limited that are held by the EST for the purpose of issuing shares under the EST. Details of the treasury shares during the period are as follows. Acquisition of new shares by the EST from the Company at market value Shares distributed from the exercise of options Balance of treasury shares at 30 June 2015 (d) Options Number of shares 2,727,783 (2,035,301) 692,482 At 30 June 2015, there were 2,876,147 (2014: 3,163,692) 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 80. (e) 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 46% (2014: 39%) calculated as net debt of $267,162,000 (2014: $143,250,000) divided by total debt and equity of $585,605,000 (2014: $367,097,000). 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. 74 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 2015 $’000 (746) 220 (526) 2014 $’000 (639) 192 (447) 2015 $’000 - - - 2014 $’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 2015 $’000 2,754 2014 $’000 416 2015 $’000 - 2014 $’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. 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 Consolidated Group Parent Entity 2015 $’000 2014 $’000 2015 $’000 2014 $’000 67,487 54,970 67,125 28,089 6,529 3,219 83,077 1,326 816 4,728 - 84,388 1,741 1,120 (243,441) (150,375) 34,816 2,196 26,002 1,177 - - - - - - - - - - - - - - - - (Increase) / decrease in trade receivables and other assets (11,722) (12,549) Increase / (decrease) in trade payables and accruals Increase / (decrease) in income taxes payable (Decrease) / increase in deferred taxes Increase in other liabilities (Decrease) in unearned revenue Net cash from operating activities 48,021 (5,816) 1,282 (113) (918) 25,635 3,872 (4,386) 532 - (130) 8,076 (8,101) (92) - - (90) (4,287) 3,796 163 - - (13,241) 36,855 66,878 27,671 MMSG Annual Report 2015 75 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 2015 $’000 2014 $’000 2015 $’000 2014 $’000 8,568 30,738 19,444 58,750 5,584 21,339 8,852 35,775 - - - - - - - - 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. Three reportable segments have been identiﬁ ed, 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. Retail Financial Services - This segment provides retail brokerage services, aggregation of ﬁ nance originations and extended warranty cover, but does not provide ﬁ nancing. (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 Retail Financial Services(1) 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 (1) Retail Financial Services has reported from 27 February 2015 to 30 June 2015. 76 MMSG Annual Report 2015 2015 $’000 176,096 188,061 23,106 387,263 2014 $’000 157,247 188,069 - 345,316 2015 $’000 54,306 11,281 3,027 68,614 (1,250) (2,196) 1,836 483 67,487 2014 $’000 41,988 13,557 - 55,545 (1,436) (1,177) 1,978 60 54,970 Notes to the Financial Statements For the Year Ended 30 June 2015 (c) Other segment information (i) Segment revenue Segment revenue is reconciled to the proﬁ t of loss as follows: Total segment revenue Interest revenue Total revenue per proﬁ t or loss Financial Report 2015 $’000 387,263 2,327 389,590 2014 $’000 345,316 2,141 347,457 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 $61,898,000 (2014: $58,583,000) from the Group’s largest customer. (ii) Segment result Segment depreciation and amortisation Group Remuneration Services Asset Management Retail Financial Services Share of loss from joint venture Group Remuneration Services Asset Management Retail Financial Services 2015 $’000 5,587 86,323 915 92,825 - 816 - 816 2014 $’000 4,655 84,461 - 89,116 - 1,120 - 1,120 MMSG Annual Report 2015 77 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (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 Retail Financial Services Segment assets Non-segment assets Unallocated assets(1) Consolidated assets per statement of ﬁ nancial position Segment liabilities Group Remuneration Services Asset Management Retail Financial Services Consolidated liabilities per statement of ﬁ nancial position Non-segment liabilities Unallocated liabilities(1) Consolidated liabilities per statement of ﬁ nancial position 2015 $’000 2014 $’000 77,080 483,898 141,280 702,258 75,065 777,323 44,149 335,617 27,878 407,644 51,236 458,880 66,417 393,737 - 460,154 64,503 524,657 32,332 268,478 - 300,810 - 300,810 (1) Unallocated assets comprise cash and bank balances of segments other than Asset Management, maintained as part of the centralised treasury and funding function of the Group. Unallocated liabilities comprise borrowings for the acquisition of the Retail Financial Services segment, utilising the Group’s borrowing capacity and equity to fund the initial acquisition and ongoing loan maintenance utilises centralised treasury controlled funds. Additions to non-current assets Group Remuneration Services Asset Management Retail Financial Services 2015 $’000 2014 $’000 5,634 128,189 127,822 261,645 2,172 155,365 - 157,537 (d) Geographical segment information 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 (1) Non-current assets do not include deferred tax asset and subordinated loans. 78 MMSG Annual Report 2015 Revenue from external customers Non-current assets(1) 2015 $’000 374,520 12,628 2,442 389,590 2014 $’000 336,420 9,962 1,075 347,457 2015 $’000 477,521 101,257 11,905 590,683 2014 $’000 376,296 14,251 6,257 396,804 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 2015 $’000 10,050 5,970 16,020 2014 $’000 10,351 4,840 15,191 2015 $’000 50 - 50 2014 $’000 50 - 50 Transactions between the Company and other entities within the wholly owned group during the years ended 30 June 2015 and 2014 consisted of: (a) (b) loans advanced to the Company; and the payment of dividends to the Company. Aggregate amounts included in the determination of proﬁ t from ordinary activities before income tax that resulted from transactions with entities in the wholly owned group: Consolidated Group Parent Entity 2015 $ 2014 $ 2015 $ 2014 $ Dividend revenue Aggregate amounts payable to entities within the wholly owned group at balance date: Current payables - - - - 68,324,463 29,064,347 47,309,114 46,540,031 (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 3,513,224 4,139,212 2,153,525 2,290,456 216,247 54,206 836,041 4,619,718 212,400 (46,521) 1,237,496 5,542,587 153,072 82,456 505,938 130,964 (82,746) 850,548 2,894,991 3,189,222 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. MMSG Annual Report 2015 79 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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). Set out below are summaries of options granted under the plans: Consolidated Group and parent entity - 2015 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 24 July 2012 30 September 2015 19 August 2014 30 September 2019 19 August 2014 30 September 2018 23 September 2014 30 September 2018 28 October 2014 30 September 2018 24 March 2015 30 September 2018 26 May 2015 30 September 2018 Exercise price $3.42 $7.31 $7.31 $8.54 $9.29 $11.42 $10.18 $10.18 $10.83 $10.17 $11.87 $12.88 Balance at start of the year 537,634 1,805,957 314,578 352,942 31,250 121,331 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) (1,123,751) (263,777) (352,942) (31,250) - - - - - - - - - - - - - 978,417 832,719 107,877 109,142 294,336 85,692 - - - - - (121,331) - - 682,206 682,206 50,801 50,801 - - - - 978,417 (265,043) 567,676 - - - - 107,877 109,142 294,336 85,692 - - - - - - - - - 3,163,692 2,408,183 (2,309,354) (386,374) 2,876,147 733,007 Weighted average exercise price $6.96 $10.51 Consolidated Group and parent entity - 2014 28 May 2010 1 October 2015 16 August 2011 30 September 2015 16 August 2011 30 September 2015 25 October 2011 30 September 2015 14 March 2012 30 September 2015 $3.42 $7.31 $7.31 $8.54 $9.29 537,634 1,831,540 314,578 352,942 31,250 24 July 2013 30 September 2015 $11.42 121,331 Weighted average exercise price 3,189,275 $6.97 - - - - - - - - - - - - - - - - - $10.57 $9.73 $7.31 - 537,634 (25,583) 1,805,957 - - - - 314,578 352,942 31,250 121,331 (25,583) 3,163,692 $7.31 $6.96 - - - - - - - - (1) None of the forfeited options represented expired options (2014: Nil). (2) The weighted average remaining contractual life of options outstanding at the end of the year was 2.17 years (2014: 0.25 years). 80 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 Fair value of options granted The assessed fair value at grant date of options granted during the year is disclosed in the table below. The fair value at grant date is determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the share price at the grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Model input August 2014 September 2014 October 2014 March 2015 May 2015 Consideration payable upon grant Exercise price Grant date Expected life Share price at grant date Expected price volatility Expected dividend yield Risk-free interest rate Nil $10.18 Nil $10.83 Nil $10.17 Nil $11.87 Nil $12.88 19 August 2014 23 September 2014 28 October 2014 24 March 2015 26 May 2015 3.5 years $10.18 49% 4.5% 2.2% 3.0 years $10.83 48% 4.5% 2.9% 2.9 years $10.17 48% 4.5% 2.6% 2.4 years $11.87 47% 3.5% 1.8% 2.3 years $12.88 47% 3.5% 2.0% 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 1,326,493 1,741,480 2015 $ 2014 $ 2015 $ - 2014 $ - Consolidated Group Parent Entity 28 BUSINESS COMBINATION (a) Subsidiaries acquired The Group acquired 100% of Presidian Holdings Pty Ltd and its subsidiaries on 27 February 2015, a group of companies incorporated in Australia that is a provider of ﬁ nance, warranty and insurance products to the automotive industry. The acquisition was a complementary extension of the Group’s existing Australian network and auto value chain competencies in the new car market, and brings with it numerous cross selling opportunities across both organisations There were no other acquisitions during the year. The Company acquired United Financial Services Pty Ltd together with two other associated companies subsequent to reporting date, on 31 July 2015. Refer note 30 for further details. (b) Consideration transferred Consideration for the acquisition was $114,432,000, less cash assumed of $830,000, funded wholly by $64,450,000 of cash and borrowings and 4,285,192 of fully paid ordinary shares that were fair valued at $49,982,000 on completion. Fair value has been determined as the volume weighted average of the closing price of MMS’ shares for the 5 days prior to completion date. The shares issued are free from encumbrances but will be held in escrow for various periods up to 48 months. The assets and liabilities acquired have been fair valued in accordance with AASB 3 “Business Combinations”, and has resulted in goodwill of $86,672,000. Acquisition-related expenses of $2,196,000 were incurred and expensed on consolidation and included 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 Net cash outﬂ ow for consideration transferred $’000 64,450 (830) 63,620 MMSG Annual Report 2015 81 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (c) Assets acquired and liabilities assumed at the date of acquisition Assets acquired and liabilities assumed at the date of acquisition Cash Brands Dealer relationships Customer contracts Property, plant & equipment and software Trade, other receivables and prepayments Deferred acquisition costs Assets acquired Trade payables and accrued expenses Unearned revenue Income tax provision Deferred tax liabilities Liabilities assumed Identiﬁ able net assets acquired Goodwill Consideration Fair Value at acquisition date (Provisional) $’000 830 22,443 12,033 1,100 5,248 5,547 3,387 50,588 10,710 9,675 1,313 1,130 22,828 27,760 86,672 114,432 Trade receivables of $1,915,000 acquired with Presidian 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 Presidian 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. Further review is being undertaken on the fair valuation and reﬁ nement of warranty unearned premium income and deferred acquisition costs and other items and this work is contemplated for completion for the next interim ﬁ nancial report. (d) Impact of acquisition on the results of the Group The Consolidated Statement of Comprehensive Income for the year includes sales revenue of $23.1m and net proﬁ t after tax of $3.0m as a result of the acquisition of Presidian. Had the acquisition occurred effective 1 July 2014, the respective “pro-forma” revenue and proﬁ t for the year of $69.3m and $7.5m would have been included in the Statement of Comprehensive Income. In determining the proforma revenue and proﬁ t of Presidian, adjustments have been made for differences in the accounting policies between the Group and Presidian and the recognition of the amortisation of Dealer networks and customer contracts on the assumption that these assets were acquired at 1 July 2014 at their fair value. 82 MMSG Annual Report 2015 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 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 followed by the joining of Interleasing (Australia) Ltd, CARILA Pty Ltd and TVPR Pty Ltd (Interleasing Group) entering into deeds of cross guarantee in the year ended 30 June 2010. Presidian Holdings Pty Ltd and its subsidiaries joined the closed group with deeds of cross guarantees entered into during the year. 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 2015 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 and Presidian Holdings Pty Ltd and its subsidiaries. (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 Brokerage commissions and incentives Net claims incurred Consulting cost expenses Marketing expenses Property and corporate expenses Technology and communication expenses Finance costs Other expenses Acquisition 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 2015 $’000 2014 $’000 374,442 336,422 (91,718) (90,611) (49,438) (5,535) (2,160) (1,580) (2,738) (9,375) (7,964) (9,429) (8,206) (2,196) 93,492 (26,242) 67,250 (79,826) (88,042) (47,160) - - (3,420) (2,584) (6,724) (7,692) (10,370) (9,602) - 81,002 (24,242) 56,760 3,559 70,809 (2,076) 54,684 165,756 67,250 (43,912) 189,094 138,060 56,760 (29,064) 165,756 MMSG Annual Report 2015 83 Financial Report Notes to the Financial Statements For the Year Ended 30 June 2015 (b) Consolidated Statement of Financial Position Current assets Cash and cash equivalents Trade and other receivables Finance lease receivables Deferred acquisition costs Inventory Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Finance lease receivables Other ﬁ nancial assets Deferred acquisition costs Total non-current assets TOTAL ASSETS Current liabilities Trade and other payables Current tax liability Unearned premium liability Provisions Borrowings Total current liabilities Non-current liabilities Provisions Unearned premium liability Borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY 2015 $’000 2014 $’000 80,606 47,869 3,752 973 7,021 141,385 291,177 177,306 1,120 7,882 38,404 2,137 516,862 658,247 71,984 3,552 6,105 10,588 2,451 94,680 2,227 2,781 239,888 244,896 339,576 318,671 121,617 7,960 189,094 318,671 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 30 SUBSEQUENT EVENTS On 31 July 2015, the Company completed the acquisition of United Financial Services Pty Ltd, United Financial Services Network Pty Ltd and United Financial Services (Queensland) Pty Ltd (collectively known as “UFS”) for a consideration of $42 million, funded 60% cash from existing Company cash reserves and 40% MMS shares, to which 1,342,926 fully paid ordinary shares were issued. UFS is a ﬁ nancial services provider specialising in the delivery of consumer and commercial ﬁ nance and insurance products. It will complement the Presidian business acquired in February 2015, presenting numerous cross selling opportunities across both organisations and the realisation of revenue synergies. Given that the acquisition was completed on 31 July 2015 and ﬁ nal adjustment on settlement is still being processed, acquisition accounting for UFS is incomplete for meaningful reporting at the date of this report. 84 MMSG Annual Report 2015 Financial Report Directors’ Declaration The Directors are of the opinion that: 1. the ﬁ nancial statements and notes on pages 41 to 84 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 2015 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 25 August 2015 Melbourne, Australia Michael Salisbury Managing Director MMSG Annual Report 2015 85 Financial Report Independent Audit Report As at 30 June 2015 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 consolidated statement of financial position as at 30 June 2015, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The Directors’ responsibility also includes such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to 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. 86 MMSG Annual Report 2015 Independent Audit Report As at 30 June 2015 Financial Report design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a the financial report of McMillan Shakespeare Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Report on the remuneration report We have audited the remuneration report included in pages 16 to 38 of the directors’ report for the year ended 30 June 2015. 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 2015, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants B.A. Mackenzie Partner - Audit & Assurance Melbourne, 25 August 2015 MMSG Annual Report 2015 87 Financial Report Auditor’s Independence Declaration As at 30 June 2015 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 2015, 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, 25 August 2015 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. 88 MMSG Annual Report 2015 Financial Report 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 6 August 2015, the number of shares held by substantial shareholders and their associates is as follows: Shareholder Chessari Holdings Pty Limited(2) Number of Ordinary Shares Percentage of Ordinary Shares1 6,050,941 7.28 (1) (2) As at 6 August 2015, 83,153,919 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. NUMBER OF SHARE & OPTION HOLDERS As at 6 August 2015, 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 $7.31 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 exercisable at $10.83 and expiring on 30 September 2018 Options exercisable at $10.17 and expiring on 30 September 2018 Options exercisable at $11.87 and expiring on 30 September 2018 Options exercisable at $12.88 and expiring on 30 September 2018 VOTING RIGHTS Number of Holders 6,940 2 4 15 1 1 3 2 In accordance with the Constitution of the Company and the Corporations Act 2001 (Cth), every member present in person or by proxy at a general meeting of the members of the Company has: • • on a vote taken by a show of hands, one vote; and on a vote taken by a poll, one vote for every fully paid ordinary share held in the Company. A poll may be demanded at a general meeting of the members of the Company in the manner permitted by the Corporations Act 2001 (Cth). DISTRIBUTION OF SHARE & OPTION HOLDERS As at 6 August 2015, the distribution of share and option holders in the Company was as follows: Distribution of Shares & Options Number of Holders of Ordinary Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,000+ 3,585 2,422 384 249 26 As at 6 August 2015 there were 154 shareholders who held less than a marketable parcel of 36 fully paid ordinary shares in the Company. MMSG Annual Report 2015 89 Financial Report Shareholder Information TOP 20 SHAREHOLDERS As at 6 August 2015, 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 HSBC Custody Nominees (Aust) Ltd J P Morgan Nominees Australia Limited National Nominees Limited Chessari Holdings Pty Limited(2) Citicorp Nominees Pty Limited Asia Pac Technology Pty Limited(3) NWC Group Pty Ltd BNP Paribas Noms Pty Ltd RBC Investor Services Australia Nominees Pty Ltd Ann Leslie Ryan RBC Investor Services Australia Nominees Pty Ltd Magic Bay Nominees Pty Ltd (Findus Property A/C) CPU Share Plans Pty Ltd (MMS Options Unallocated A/C) AFICO Pty Ltd I-Capital Australia Pty Ltd (Hewtom Family Disc A/C) UBS Nominees Pty Ltd MOHL Invest Pty Ltd (MOHL Family A/C) Citicorp Nominees Pty Ltd (Colonial First State Inv A/C) MAP Capital Pty Ltd (Richmond TCE CAP ARF A/C) MOD Enterprises Pty Ltd Totals: Top 20 holders of issued Capital Total Remaining Holders Balance 1 2 3 As at 6 August 2015, 83,153,919 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. RESTRICTED SECURITIES 16,660,158 12,794,828 9,925,416 6,050,941 3,878,565 3,543,025 2,356,855 1,204,000 1,131,000 1,008,418 907,363 897,105 692,482 683,701 462,399 323,683 310,000 283,768 275,000 259,237 63,647,944 19,505,975 20.04 15,.39 11.94 7.28 4.66 4.26 2.83 1.45 1.36 1.21 1.09 1.08 0.83 0.82 0.56 0.39 0.37 0.34 0.33 0.31 76.54 23.46 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 $7.31 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 exercisable at $10.83 and expiring on 30 September 2018 Options exercisable at $10.17 and expiring on 30 September 2018 Options exercisable at $11.87 and expiring on 30 September 2018 Options exercisable at $12.88 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. 90 MMSG Annual Report 2015 733,007 978,417 567,676 107,877 109,142 294,336 85,692 2,876,147 2 4 15 1 1 3 2 MMSG Annual Report 2015 91 92 MMSG Annual Report 2015 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

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