McMillan
Shakespeare
Limited
Annual Report
2017
Collectively, the McMillan Shakespeare Group’s
business divisions provide expertise in novated leasing,
salary packaging, associated Fringe Benefits Tax
administration and management, operating leases and
asset management for ‘tool of trade’ vehicles
and other business assets, retail finance, insurance
and warranty. No other provider offers this
breadth of service or industry experience.
Financial calendar
2017 A nnual R esults
A nnounce m ent of
23 A u g ust 2017
28 S e pte m b er 2017
2017 Final Dividend
Ex-D ate
29 S e pte m b er 2017
2017 Final Dividend
R ecord D ate
2017 Final Dividend
13 O cto b er 2017
Pay m ent D ate
24 O cto b er 2017
G eneral M eeting
2017 A nnual
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 24 October 2017 at
10am at the State Library of Victoria, Ground Floor, 328 Swanston
Street, Melbourne, Victoria in the Theatrette.
www.mmsg.com.au
MMS
Annual Report 2017
1
Contents
Chairman’s Report
CEO’s Report
Financial History
Non-financial Highlights
Directors’ Report
– Directors
– Directors meetings
– Principal activities
– Results
– Dividends
– Review of operations - Group
– Digital improvements
– Key highlights and activities
– State of affairs
– Outlook
– Strategy and prospects
– Events subsequent to balance date
– Likely developments
– Segment results
> Group Remuneration Services
> Asset Management – Aust/NZ
> Asset Management – UK
> Retail Financial Services
– Directors’ experience and responsibilities
– Company Secretary
– Remuneration Report
– Unissued shares
– Director’s interests
– Environmental regulations
–
– Non-audit services
– Auditor’s independence declaration
– Directors’ declaration
– Corporate governance practices
– Five year summary
Indemnification and insurance
Financial Report
Independent Audit Report
Auditors’ Independence Declaration
Shareholder Information
Corporate Directory
2
4
6
8
10
10
10
10
11
11
12
12
13
13
13
13
13
13
14
16
17
18
20
21
22
39
39
40
40
40
41
41
41
42
43
100
104
105
IBC
Financial calendar
23 A u g ust 2017
A nnounce m ent of
2017 A nnual R esults
28 S e pte m b er 2017
2017 Final Dividend
Ex-D ate
29 S e pte m b er 2017
2017 Final Dividend
R ecord D ate
13 O cto b er 2017
2017 Final Dividend
Pay m ent D ate
24 O cto b er 2017
2017 A nnual
G eneral M eeting
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 24 October 2017 at
10am at the State Library of Victoria, Ground Floor, 328 Swanston
Street, Melbourne, Victoria in the Theatrette.
www.mmsg.com.au
MMS
Annual Report 2017
2
Chairman’s
Report
I am pleased to report McMillan
Shakespeare Limited (MMS) has
continued to build momentum through
the 2017 financial year (FY17) as we
optimise existing business performance,
consolidate our diversification
strategy and further integrate acquired
businesses into the Group.
MMS delivered revenue of $513.0 million for FY17,
an increase of 1.6%, and underlying net profit after
tax and amortisation (UNPATA)1 of $87.2 million,
consistent with the record profit of the previous
year. Adjusted to reflect a full year of trading for
acquisitions completed during FY17, return on equity
was 23.6% and return on capital employed 20.1%.
The final dividend of 35 cents per share brings the
total dividend for the year to 66 cents per share fully
franked, an increase of 4.8% over the previous year.
Group Performance
Our Group Remuneration Services (GRS) business
consolidated its market leading position in FY17
with significant new business wins including the
expansion of our relationship with Local Health
District (LHD) services in New South Wales and
the appointment of RemServ as a novated leasing
provider to the Queensland Government panel.
This was in addition to RemServ’s re-appointment
in FY16 as a provider of salary packaging services.
In Australia and New Zealand our Asset
Management (AM) business returned to growth
with an increase in UNPATA of 5.5% to $13.5
million. The increase in earnings was underpinned
by a 9.0% increase in the number of assets under
management and enhancements to our realisation
of returned assets.
In the United Kingdom, our AM business
performed solidly further increasing its
customer base through new business wins.
CLM’s successes included the appointment
of its largest single fleet contract since 2011.
Our newly-acquired European Vehicle Contracts
Limited (EVC) and Capex Asset Finance Limited
(Capex) businesses performed well in their first
year of contribution, resulting in an overall 62.2%
increase in net amount financed to $506.6 million
and a 60.0% increase in UNPATA to $4.0 million.
Assets under management increased by 17.4% to
18,900 units.
For the first time within our Retail Financial Services
(RFS) business, our net amount financed increased
to in excess of $1.0 billion and during the year
we increased our broker distribution footprint.
However, largely due to changing funding appetite
from our banking partners, UNPATA declined to
$12.4 million which was below our expectations.
Against a backdrop of regulatory and market
uncertainty negatively impacting the volume and
margin of risk products sold, an impairment to the
carrying value of intangibles for the warranty and
insurance business was recognised. We remain
confident that we are building a sustainable,
profitable and market leading business with a
strong distribution footprint for growth.
The Regulatory Environment
The Company’s risk concerning fringe benefits tax
(FBT) arrangements and novated leases remains
unchanged with both major Australian political
parties continuing their bi-partisan support of the
current policy arrangements. With regard to the
Company’s risk products, we look forward to the
Australian Securities and Investments Commission
(ASIC) completing its review of finance and
add-on insurance products. In the meantime, we
are working hard to ensure our operating model
remains flexible and adaptable.
1 UNPATA excludes one off payments in relation to transaction costs incurred in acquisitions, amortisation of acquisition intangibles and
asset impaiment of acquired intangible assets.
Chairman’s Report
MMS
Annual Report 2017
3
FY17
UNPATA
FY17
DIVIDEND
PER SHARE
$87 .2
Million
66.0c
Outlook
The Board and senior leadership team will continue
to focus on five core strategic drivers:
– Broadening the suite of high quality products
and industry leading service to drive organic
growth;
Investing in technology resulting in an
improved customer experience;
–
– Capturing synergy benefits from a fully
integrated business;
– Continuing to deliver high returns on capital
and free cashflow generation; and
– Selectively approaching acquisitions to
complement organic growth.
As the Group continues to expand its digital
transaction channels to customers and streamline
processes, whilst increasing operational efficiencies,
we look forward to further reductions in the average
cost to serve our expanding customer base.
In Australia, the continuation of our recent
successes in our GRS business in building our
customer base, driving increased penetration
rates and the extension of our product offering,
including Bus Travel and Maxxia Plus, will remain
priorities. Within our AM business we will focus
on further leveraging our enhanced funding model
and expansion in the direct car sales segment. The
Group’s RFS division will focus on leveraging scale
and technology to lift performance while ensuring
we develop products and services that enhance
our position in a changing market.
In the UK our approach of strategic and accretive
acquisitions that enhance scale and leverage core
competencies will remain a priority. In addition, the
continued rollout of our innovative Lifestyle Lease
product following the Her Majesty’s Revenue &
Customs (HMRC) introduction of new rules for car
salary sacrifice schemes from April 2017.
Whilst we expect competitive market conditions
and varying consumer confidence to remain, the
markets we operate in continue to be attractive
and offer growth and an ability to generate high
returns on capital employed. When combined with
what we hope will be a more certain regulatory
environment moving forward we anticipate
delivering growth in profits and dividends in the
year ahead.
I would like to thank all our people for their
dedication and hard work during FY17. Our people
are high achievers who are committed to delivering
the best services to our customers and are very well
led by our Managing Director and Chief Executive
Officer Mike Salisbury and his executive leadership
team. We are also grateful to our customers and
shareholders for your ongoing support.
Tim Poole
Chairman
MMS
Annual Report 2017
4
Chief Executive
Officer’s Report
As we enter a new financial year, I am
pleased to report we have matched last
years’ record breaking result, despite
the challenges faced during FY17.
During the year our traditional salary packaging
and novated leasing (GRS) businesses
demonstrated both resilience and capacity for
growth, with significant new business wins and
the renewal and extension of existing contracts.
Both our Asset Management (AM) businesses
in Australia and New Zealand, and in the United
Kingdom enjoyed market share gains and solid
results, whilst the RFS segment has invested
in strengthening the leadership structure, and
redefined the distribution model in preparation for
FY18 and beyond.
During the financial year our efforts continued to
focus on producing organic growth across
all business segments, supported by increased
cross-selling opportunities, new product offerings
and further investment in digital initiatives.
MMS operates in a diverse and complex
environment, impacted by political and regulatory
factors, competitive forces, moving consumer
sentiment and structural industry changes both
in Australia and in the United Kingdom.
This was evident no more so than in FY17. Our RFS
segment experienced uncertainty amid a regulatory
review of the broader financial services industry,
specifically, the review of flex commissions and
add-on insurances. Contractual restraints impacted
our novated lease volumes in the first half, and in
the UK we witnessed the Government’s review of
car salary sacrifice schemes and the challenges of
a material devaluation of the Pound Sterling.
Pleasingly however the resilience of our
businesses has withstood these challenges and
ultimately placed the Group in a positive position
to take advantage of opportunities emanating
from this evolving landscape. Our results this
year demonstrate the value of our consistent
focus on diversification and the resilience and
talent of our people.
Segment performance
At the beginning of FY17, we outlined five key
initiatives for the year to drive growth and build long
term shareholder value. Our business segments
have performed well in delivering on these initiatives.
In Australia our GRS business once again proved
to be a cornerstone of company performance.
An increase in pre-tax profitability was underpinned
by new business wins, increases in participation
rates and improvements in productivity. Our
organic customer growth over the past two years
has been outstanding and confirms our position as
the market leader in this segment.
The appointment of RemServ to the Queensland
Government novated leasing panel further
reinforces our long-standing partnership and the
strength of the RemServ brand in that State. The
initial uptake of RemServ’s new Bus Travel Salary
Packaging Benefit has been encouraging and
we are exploring options to introduce this benefit
in other parts of Australia off the back of its early
success.
Maxxia has also gained significant wins, achieving
more contract renewals and further increasing its
coverage in the New South Wales health sector.
Our point of difference to our customers has long
been our investment in personalised service and
our commitment to education.
This year our people visited worksites in
metropolitan, regional and remote locations and
conducted over 20,000 educational activities. The
rapid expansion of business in New South Wales
has enabled us to establish a dedicated regional
customer education team to better service our
clients’ employees with local Customer Education
Managers.
Chief Executive Officer’s Report
MMS
Annual Report 2017
5
Our AM business in Australia and New Zealand
continued to deliver strong results, with a 5.5%
increase in UNPATA, a 9.5% increase in asset
book value, and a 9.0% increase in assets under
management. The development of the capital light
funding model offered greater flexibility in FY17.
As noted earlier, the RFS segment underwent a
period of change. We have rationalised the number
of customer-facing brands, refocused resources
to better concentrate our marketing efforts and put
in place a new leadership structure. We continue
to work with regulators in regards to their review
of practices in this sector and we remain positive
for the future prospects of our businesses within
this segment.
Synergy and cross-selling opportunities from
further segment integration remains a focus for
FY18. Our Maxxia Plus offering has continued to
gain market acceptance since being introduced
last year, enabling improved integration of our retail
finance business with our core GRS business. In
addition, we incorporated retail finance into our
Just Honk car yard (established in December 2016)
by offering financing and insurance products from
our own RFS businesses, as well as sourcing stock
from our AM business.
This year saw a continuation of growth in the UK,
including the addition of two new businesses in our
asset finance segment. Geographic and product
expansion in that market has been a stated
strategy for several years now. Our businesses
have performed well with our asset values
increasing by 15.6% and key revenue drivers
recording solid increases. Uncertainty in the region
around HMRC regulation has now been resolved,
and all regulatory approvals are now in place for
the roll-out of our Lifestyle Lease product.
Innovation through technology
Our investment in digital solutions has been
a significant factor in our result this year and
provides a solid platform for future productivity
enhancements. Our broker aggregation business
saw the successful introduction of a multi-funder
portal (Horizon 2), which has addressed a clear
need in the market and further cemented our
standing as an industry leader.
For our salary packaging customers we introduced
our new innovative card payment offering, the
Maxxia and RemServ Wallet, which was a key
undertaking for the business. Our people managed
the successful transition of over 70,000 customers
to their new Wallets and will be overseeing the
introduction of a new smartphone application and
discount partner program in FY18.
Providing our customers with more options to
self-service not only enhances the customer
experience, but is central to our strategy to invest
in technology to create productivity gains and
margin growth.
Our success in delivering against a backdrop
of increased challenges has been due to
considerable effort by our people. I am proud of
their accomplishments in FY17, in supporting
our customers and in continually demonstrating
our commitment to delivering on our strategic
initiatives. I thank our people for their hard work
and support throughout the year.
I would also like to thank our Board for their
continued support in enabling us to grow as a
business and I look forward to the future.
Finally, my thanks to our shareholders, for your
continued interest and investment in MMS as we
move into FY18 with positive momentum.
Mike Salisbury
Managing Director and Chief Executive Officer
Financial
History
MMS
Annual Report 2017
6
Revenue
performance
s
n
o
i
l
l
i
m
$
s
n
o
i
l
l
i
m
$
1.6
106.0
1.6
110.0
215.7
204.8
2.3
23.1
188.1
2.2
188.1
2.2
172.0
1.4
163.3
0.8
158.9
35.6
48.2
0.4
54.1
1.0
38.9
0.8
1.3
65.8
76.0
92.1
111.6
137.3
155.9
157.2
176.1
188.3
189.7
FY05
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
FY17
GRS
Asset Management
RFS
Unallocated Revenue
17.1
5.2
11.3
13.2
17.4
20.5
27.9
43.5
54.3
62.2
55.0
67.5
82.5
67.9
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
FY172
NPAT continuing operations
Profit recognised on ILA business
combination (acquisition gain)
s
n
o
i
l
l
i
m
$
NPAT performance 1
100
80
60
40
20
0
UNPATA performance 3
5.2
11.3
13.2
17.4
20.5
27.9
43.5
54.3
62.2
55.9
69.6
87.2
87.2
FY05
FY06
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY17
1 NPAT is normalised to exclude the profit recognised on acquisition of Interleasing (Australia) Limited in FY10 ($17m profit after tax).
2 Includes asset impairment of $15.3 million (after-tax) for the warranty and insurance business.
3 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for intangible
assets, acquisition expenses, amortisation of acquired intangible assets and deferred consideration items).
Financial History
150
120
90
60
30
s
t
n
e
c
Underlying earnings
per share EPS 4
MMS
Annual Report 2017
7
123.7
114.4
81.5
81.4
85.2
70.8
53.4
45.9
28.3
32.4
19.7
21.5
14.3
0
7.9
17.1
19.8
25.8
30.4
41.3
64.0
76.6
83.3
75.3
89.7
105.1
104.8
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Underlying EPS
Cash EPS
Dividends
per share
s
t
n
e
c
3.9
9.5
12.5
16.5
19.0
24.0
38.0
47.0
42.0
52.0
52.0
63.0
66.0
FY05
FY06
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Dividends per share
4 Underlying EPS excludes the profit recognised on acquisition of Interleasing (Australia) Limited, and the after tax acquisition costs and acquired intangibles amortisation.
Cash EPS includes CAPEX but excludes the investment in Fleet growth.
MMS
Annual Report 2017
8
Our customers
Non-financial
Highlights
10.9 million pa
Payments processed
873,409 pa
Phone calls received
50.3
Industry leading Net Promoter Score (NPS)
(Average monthly score during FY17)
20,953
Onsite educational
activities delivered to
clients in Australia
40%
Maxxia and RemServ website
visits originating from smartphones
and mobile devices
2.28 million
Maxxia and RemServ
website visits
72%
GRS claims lodged on-line as
a % of total claims lodged
99%
Customer complaints resolved
by MMS and our Customer
Advocate without referral to an
external arbitrator
91,307
Claims App downloads
since launch (2016)
Non-financial Highlights
MMS
Annual Report 2017
9
Our people
Our environment
1,195
17.9%
(YOY reduction)
Employees (FTE) MMS Group at 30 June
% reduction in greenhouse
emissions from car fleet
76%*
Carbon neutrality
(printed material)
Employee Engagement Score
High performance work environment ranking
* 2017 survey result (survey biennial)
Carbon neutrality
Net zero carbon footprint achieved from the
offset of 100% of CO2 emissions caused by
the production of printed material
249.5 hrs
1.6%
(YOY reduction)
Company sponsored staff
volunteering hours
% reduction in greenhouse
emissions from electricity
MMS
Annual Report 2017
10
Directors’
Report
The Directors of McMillan Shakespeare Limited (Company or MMS)
present this report on the consolidated entity, consisting of the
Company and the entities that it controlled at the end of, and
during, the financial year ended 30 June 2017 (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 Tim Poole
(Independent and Non-Executive Director)
Mr John Bennetts (Non-Executive Director)
Mr Ross Chessari (Non-Executive Director)
Mr Ian Elliot
(Independent and Non-Executive Director)
Ms Sue Dahn
(Independent and Non-Executive Director)
Mr Mike Salisbury (Managing Director and CEO)
Details of the qualifications, experience and special
responsibilities of the Directors at the date of this
Annual Report are set out on pages 20 and 21.
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 2017.
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 2017 were as
indicated in the table below.
Principal activities
The principal activities of the Company and its
controlled entities during the course of the financial
year ended 30 June 2017 was the provision of
salary packaging, vehicle leasing administration,
fleet management and retail financial 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 2017
that are not otherwise disclosed in this Annual
Report.
Director
Mr T. Poole (Chairman)
Mr M. Salisbury (Managing Director and CEO)
Mr J. Bennetts
Mr R. Chessari
Mr I. Elliot
Ms S. Dahn
Board
Meetings
Audit, Risk & Compliance
Committee Meetings 1
Remuneration & Nomination
Committee Meetings
Eligible
to Attend
Attended
Eligible
to Attend
Attended
Eligible
to Attend
Attended
12
12
12
12
12
12
12
12
12
11
10
12
8
-
8
-
-
8
8
-
7
-
-
8
5
-
-
5
5
-
5
-
-
4
4
-
Directors’ Report
MMS
Annual Report 2017
11
Results
Details of the results for the financial year ended 30 June 2017 are as follows:
Results
Net profit after income tax (NPAT)
Underlying net profit after income tax (UNPATA) 1
Basic earnings per share (EPS)
Underlying earnings per share
Earnings per share on a diluted basis (DPS)
2017
$67,901,770
$87,166,863
81.6 cents
104.8 cents
81.5 cents
2016
$82,469,341
$87,172,942
99.4 cents
105.1 cents
99.0 cents
1 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for intangible
assets, acquisition expenses, amortisation of acquired intangible assets and deferred consideration items).
Dividends
Details of dividends paid by the Company during the financial year ended 30 June 2017 are as follows:
Dividends
2017
2016
Final dividend for the financial year ended
30 June 2016 of 34.0 cents (2015: 27.0 cents)
per ordinary share paid on 14 October 2016 fully
franked at the tax rate of 30% (2016: 30%).
Interim dividend for the financial year ended
30 June 2017 of 31.0 cents (2016: 29.0 cents)
per ordinary share paid on 13 April 2017 fully
franked at the tax rate of 30% (2016: 30%).
$28,286,110
$22,462,500
$25,790,278
$24,126,389
Total
$54,076,388
$46,588,889
Subsequent to the financial year ended 30 June 2017, the Directors declared a final dividend of 35.0 cents
per ordinary share (fully franked at the tax rate of 30%) to be paid on 13 October 2017, bringing the total
dividend to be paid for the financial year ended 30 June 2017 to 66.0 cents per ordinary share.
MMS
Annual Report 2017
12
Directors’
Report
Review of operations – Group
FY17 delivered another profitable result for MMS,
matching last year’s record underlying net profit
after tax and amortisation (UNPATA) result of
$87.2 million. The result excludes one-off costs
associated with acquisitions of Capex and EVC,
as well as non-operating amortisation, deferred
consideration items and a one-off asset impairment
adjustment.
Consolidated Group statutory net profit after tax
(NPAT) for FY17 was $67.9 million.
Return on equity was 23.6% adjusted to reflect 12
months trading for acquisitions made during the
FY17 financial year and return on capital employed
was 20.1%.
In the GRS business earnings before interest, tax,
depreciation and amortisation (EBITDA) increased
to $89.5 million. Increasing our foothold in the
health sector and renewal of state government
contracts provided substantial progress in
augmenting penetration and increasing program
participation rates for both the salary packaging
and novated leasing services.
AM operations exhibited solid growth with the
Australia and New Zealand AM operations
contributing EBITDA of $21.9 million and the
UK AM operations contributing $6.1 million.
Further integration of the RFS segment has
continued. RFS EBITDA totalled $19.6 million
which represented a marginal decline compared
to the prior year.
Digital improvements
Our commitment to further enhancing customer
experiences through broadened options has
been effective. The introduction of new digital
channels within the GRS segment for customer
communications and online transactions that
started in FY16 has been a continued success.
The proportion of claims lodged online through
self-service sites grew to 85% for Maxxia
customers and 56% for RemServ customers
by 30 June 2017.
Uptake of our free Maxxia and RemServ Claims
apps continued with 91,300 downloads since
being launched in 2016. This has led to 72% of all
claims being lodged via our Maxxia and RemServ
Claims apps.
We expect the average cost to serve our growing
customer base will continue to reduce. This will be
supported as MMS continues to expand, and as
we improve penetration of our digital transaction
channels to customers, streamline processes and
increase operational efficiencies.
In our RFS segment, investment in digital solutions
has also achieved results, with the launch of a
multi-funder portal, which has been embraced by
the broker network. Following its initial success,
additional capacities and further integration into our
dealer network is planned for FY18.
We are committed to generating ongoing
improvement and innovation in our digital channels.
Looking ahead, several projects are in place
in FY18 and are expected to further enhance
the digital experience MMS has to offer for our
customers and our workforce. This includes
the proposed launch of a digital smartphone
application linked directly to our new payment
card which also features an interactive discount
partnership program.
Directors’ Report
MMS
Annual Report 2017
13
Key highlights and activities included:
– Group revenue of $513.0 million, an increase
of 1.6%.
– Group FY17 UNPATA of $87.2 million.
– Group vehicle assets under management
including novated totalled 101,600 units
as at 30 June 2017.
State of affairs
In FY17 the Group reinforced its entry into broker
aggregation in the UK with further acquisitions in
the region. 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 2017 that are not otherwise
disclosed in this Annual Report.
Outlook
This year’s results demonstrate the resilience of
the Group, which has performed well after an
interrupted first half. We have set the foundations
to continue to drive organic growth and value for
the company in the long-term.
In FY17, the Group won several new business
contracts and renewed and extended some
existing contracts resulting in a record number of
clients. Significant new business wins included the
expansion of our relationship with Local Health
District (LHD) services in New South Wales and
appointment to the Queensland Government
novated leasing panel.
The introduction of a new customer-facing
card payment facility has provided our salary
packaging customers with an innovative product
that increases the capacity for self-servicing and
delivers further operational efficiencies.
The introduction of a flexible funding model via
Principal and Agency (P&A) agreements was
initiated in August 2016, resulting in a less capital-
intensive balance sheet associated with the AM
business segment. We continue to expand the
range of P&A agreements globally to deliver on
our ‘capital light strategy’, and maintain a focus on
enhancing Return on Capital Employed.
Our presence in the UK continues to grow, with
the EVC and Capex acquisitions adding to our
operations in the region. The effect of ‘Brexit’ on
our UK operations appears to have had no material
impact other than the devaluation of the Pound
Sterling and subsequent impact on Australian
denominated profits.
Uncertainty around changes to regulation following
the HMRC (UK) review of salary sacrifice schemes
has been settled effective April 2017. The
continuation of our existing car scheme remains
permitted under new rules around low emission
vehicles. This has not had a significant impact on
our product offering in the UK and we have not
seen a change in the sales and marketing activity
since this time.
Reviews of add-on insurance products and
distribution practices by ASIC are ongoing. We
continue to work with our distribution partners to
ensure our sales practices continue to comply with
regulatory standards and requirements.
Whilst we expect competitive market conditions
and continued varying consumer confidence to
remain, the markets we operate within remain
attractive, are growing and generate a high return
on capital employed. When combined with what we
expect will be a more certain regulatory environment
moving forward, and a diminishing of some of the
challenges experienced in the 2017 financial year,
we look forward to increasing earnings and returns
to shareholders in the year ahead.
Strategy and prospects
The Group’s medium term strategic direction
remains unchanged from recent years, continuing
to refine our core business to drive organic
growth, selectively diversifying revenue streams
through acquisition and product development
and increasing productivity for the benefit of our
shareholders, clients and customers.
The Board will continue to consider strategic
value-adding acquisitions in complementary market
sectors that align with the value proposition of the
business subject to market conditions.
Events subsequent to balance date
Other than matters disclosed in the Annual Report,
there were no material events subsequent to
reporting date.
Likely developments
Other than information disclosed in this
Annual Report, there are no other material
likely developments affecting the operations
of the Group.
MMS
Annual Report 2017
14
Group Remuneration
Services
Group Remuneration Services
GRS consolidated its market leading position in
FY17 through new business wins, organic growth
and further solidifying the existing customer base,
which was partially offset by one-off impacts of the
changed service and pricing arrangements with its
largest contract. This resulted in a modest rise in
revenue to $189.7 million with UNPATA remaining
relatively unchanged at $58.3 million.
GRS secured multiple contract wins during the year
including the appointment as a novated leasing
provider to the Queensland Government panel and
winning a larger share of the LHD services in New
South Wales. Coupled with an increase in existing
client participation rates, total salary packages
under management totalled 317,500 (up from
293,000 in FY16) and novated lease volumes of
59,800 (up from 55,800 in FY16).
The appointment of RemServ to the Queensland
Government novated leasing panel was in addition
to RemServ’s appointment in FY16 as a provider
of salary packaging services. The contract,
effective November 2016, is for three years with
the potential for an extension of a further two
years to November 2021. This secures RemServ’s
position, underscores its commitment to the state
and is a testament to the strength and value of the
RemServ brand.
In FY17, revenue was flat due to a restriction of
marketing activities while negotiating this contract,
however the strength of the RemServ brand and
the investment in activity systems resulted in a
market share increase by year end.
The composition of the client base in the health
sector greatly increased, winning a larger share of
the LHD services in New South Wales. Following
this expansion, a locally-based customer education
team has been established specifically to service
the New South Wales mid-north coast region and
deliver onsite education activities to customers in
the area.
During FY17, product innovation remained a
core initiative, with the successful launch of the
Bus Travel Benefit offering and the Maxxia and
RemServ Wallets incorporating the latest in
payment technology. In addition, Maxxia Plus,
launched in FY16, continued to gain market
traction via an enhanced customer offering.
Driving further improvements in productivity while
maintaining a customer focus continued in FY17,
as evidenced by the increased take up rate of the
on-line claims technology which increased from
61% at June 2016 to 72% at June 2017. Although
the GRS EBITDA margin remained unchanged
at 47.2%, excluding one-off costs of $1.5 million
associated with the transition of
70,000 customers to the new card payment
platform, normalised EBITDA margins increased
by 0.8% to 48.0%.
MMS
Annual Report 2017
15
Key highlights and activities included:
– FY17 UNPATA of $58.3 million in line with last
–
year’s result.
Increased salary packaging units to 317,500
(8.4% increase on FY16) and novated leases to
59,800 (7.2% increase on FY16).
– Major contract wins including appointment to
the Queensland Government novated leasing
panel and New South Wales LHD.
– Reappointment as a panel provider for the
Western Australian Government.
– Successful launch of the Bus Travel Benefits
offering and the Maxxia and RemServ Wallet,
which incorporates the latest in payment
technology.
Improved on-line claims take-up rates via digital
channels (72% of all claims).
–
Directors’ Report
Introduction of improved card
payment facility
A major highlight of the year was the successful
transition of over 70,000 existing Maxxia and
RemServ customers from the previous salary
packaging card payment facility, to the new
innovative card program.
This advanced payment platform, called Maxxia
and RemServ Wallets, is a reloadable, pre-
paid Visa card that provides access to salary
packaging funds at any time through a single
card. It introduces increased functionality for
customer ease of use, by serving as a single point
for customers to store account funds for multiple
salary packaging benefits, and access between
linked accounts to cover a transaction.
It is enabled for Visa PayWave transactions, using
microchip technology, for improved customer
convenience, and hosts a range of security
features, such as merchant blocking and a 24-hour
support hotline, to give cardholders peace of mind.
The new card has been aligned with the launch
of a digital smartphone application linked directly
to the card accounts. This allows customers
further control over their account information to
monitor balances in real-time, view live transaction
details and is enabled for customers to submit
claims through their smartphone. In addition to
providing an enhanced customer experience,
these improvements in self-servicing functionality
translate to improved operational efficiencies.
MMS
Annual Report 2017
16
Asset
Management
Key highlights and activities included:
– FY17 UNPATA of $13.5 million, a 5.5% increase
on the prior year.
– Fleet asset written down value of $335.1 million,
an increase of 9.5% over the FY16 total of
$306.0 million.
– Assets under management totalled 22,900, an
increase of 9.0% over the FY16 total of 21,000.
Initiated a capital light funding model with off-
balance sheet funding (via Principal and Agency
arrangement) of $10.0 million at 30 June 2017.
–
Asset Management –
Australia and New Zealand
The AM business in Australia and New Zealand
maintained its conservative approach to risk and
disciplined approach to cost control resulting in
revenue remaining unchanged at $179.4 million
while UNPATA increased by 5.5% to $13.5 million.
Reducing the capital employed and increasing the
return on assets (4.3% in FY17 compared with
4.1% in FY16) remained a key initiative.
During FY17, the business benefited from the
development of a diversified funding model. The
Australian committed revolving debt facility and
associated costs were reduced and offset by the
initiation of off-balance sheet funding resulting in
a more capital light funding model. At 30 June
2017, off balance sheet funding accounted for
$10.0 million of the $335.1 million asset written
down value with facilities in place to increase this to
$45.0 million.
Another development during the year was the
new venture in direct car sales through the
establishment of a Just Honk branded used car
yard in Victoria, which commenced trading in
December 2016. The business, which represents
an additional sales distribution channel, further
enhances the margins achieved from the sale of
ex-lease vehicles supplied by the business and the
cross sell of finance and insurance products offered
exclusively through the Money Now brand (in the
RFS segment). This cross-brand initiative means
costs can be lowered and margins improved
across the associated brands.
Operations for the car yard have been extended
following its initial success in the first half of the
2017 calendar year, with potential to further grow
the business in more locations across Australia in
coming years.
MMS
Annual Report 2017
17
Key highlights and activities included:
– FY17 UNPATA of $4.0 million, a $1.5 million or
60% increase over the FY16 result. UNPATA
margins also increased to 11.0% (FY16: 9.9%).
– Fleet asset written down value of $149.0 million,
an increase of 15.6% over the FY16 total of
$128.9 million.
– Assets under management totalled 18,900,
an increase of 17.4% over the FY16 total of
16,100.
– Net amount financed of $506.6 million, an
increase of 62.2% over FY16.
– Geographic diversification via the acquisition of
EVC and Capex.
– HMRC approval of the Lifestyle Lease product
in April 2017.
Directors’ Report
Asset Management – United
Kingdom
The AM businesses in the UK have performed well
in FY17, further increasing their customer base and
market presence. During the year all key revenue
drivers recorded solid increases with originations
increasing by 62.2% to $506.6 million, on balance
sheet asset values increasing by 15.6% to $149.0
million and assets managed increasing by 17.4%
to 18,900 units.
This performance resulted in FY17 total revenue
increasing by 43.5% to $36.3 million. UNPATA
reached $4.0 million, a 60.0% increase over the
prior year, however given the devaluation in the
value of the sterling, on a like for like currency
basis, UNPATA totalled $4.7 million.
The previously stated strategy of broker
aggregation and geographic diversification
continued in FY17, with the acquisitions of EVC
in December 2016, and Capex in January 2017.
Expectations are that these businesses will
originate in excess of $170 million on a full year
basis. These acquisitions increased the funding
panel and further strengthened the product
offering. The approach to strategic and accretive
acquisitions that enhance scale and leverage core
competencies remains a priority for FY18.
The HMRC ‘Consultation on salary sacrifice
for the provision of benefits in kind’ review was
completed in November 2016 with car salary
sacrifice schemes to remain in place, subject to
new rules, which came into effect from April 2017.
Maxxia launched its innovative Lifestyle Lease to
this market in April 2017, with the first orders for
vehicles received in June 2017.
This year CLM secured a significant amount of
new business, including the appointment of its
largest single fleet contract since 2011. The
combination of these new contracts provided a
total of nearly 2,800 additional units to the existing
customer base.
MMS’ presence in the UK continues to grow, with
the aim to build a leading provider of fully integrated
financial services offering and to be the aggregator
of choice to the broker and intermediary
community.
MMS
Annual Report 2017
18
Retail Financial
Services
Continuing the Group’s investment in digital
solutions, Horizon 2, a multi-funder portal, was
launched. Developed to help brokers easily
manage finance applications for both consumer
and commercial loans, in its inaugural year, it has
been recognised as a preferred loan origination
platform in the market, rapidly becoming an
essential tool for brokers and is now being licensed
to independent sub-contractors.
The new leadership structure will drive the full
integration of our retail businesses to drive growth,
deliver leading products and services and develop
interactive technologies that cater to the needs of
an evolving market.
Retail Financial Services
Against a backdrop of regulatory and market
uncertainty, the RFS business increased its
distribution footprint resulting in the net amount
financed in excess of $1 billion dollars. This volume
places the RFS business as the market leader in
origination of consumer car finance.
While available capital remains strong, funding
appetite has changed with a number of tier 1
funders reducing their exposure in the market,
replaced by emerging funders at lower margins.
Coupled with stronger growth in the lower margin
aggregation business, revenue decreased by
3.6% to $106.0 million and UNPATA decreased by
11.4% to $12.4 million.
Industry reviews into insurance risk products and
flex commissions are ongoing, and MMS continues
to work with the regulators and industry bodies.
However, this regulatory uncertainty has negatively
impacted the volume of risk products sold resulting
in a reduction in revenue and margins.
These challenges and the resulting impact to the
business going forward in the short to medium
term has necessitated a $15.3 million (after-tax)
impairment to the carrying value of intangibles for
the warranty and insurance business.
The RFS operating model has developed
during the year to adapt to some of the industry
challenges resulting in a rationalisation in the
number of customer-facing brands. Money Now
was established as the customer facing retail
brand, with a number of the United Financial
Services businesses rebranded. This enabled a
refocused approach to marketing.
MMS
Annual Report 2017
19
Directors’ Report
Key highlights and activities included:
– FY17 UNPATA of $12.4 million, a decline from
the previous year of $14.0 million.
– Net amount financed of $1,081.3 million in
FY17, an increase of 15.4% from $936.7 million
in FY16.
– New leadership structure established will drive
the retail business through the next stage of
consolidation.
– Multi-funder portal, Horizon 2, launched.
MMS
Annual Report 2017
20
Directors’ experience
and special responsibilities
Tim Poole CA, B Com
Appointed: 17 December 2013 (Non-Executive Director), 28 October 2015 (Chairman)
Positions:
Chairman of the Board
Member of the Audit, Risk and Compliance Committee
Member of the Remuneration and Nomination Committee
Mr Poole is currently Chairman of Aurizon Holdings Limited and Lifestyle Communities Limited and a
Non-Executive Director of Reece Limited. Previously, Mr Poole was an executive of Hastings Funds
Management (1995 to 2007), and he was appointed the Managing Director in 2005. He was formerly
a Non-Executive Director of Newcrest Mining Limited and Japara Healthcare Limited. Mr Poole is
considered an independent director under the Company’s definition of independence.
Mike Salisbury MBA
Appointed: 1 October 2014 (as Chief Executive Officer), 5 February 2015 (as Managing Director)
Positions: 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 is a graduate of the Advanced Management Program at Harvard
Business School.
John Bennetts B Ec, LLB
Appointed: 1 December 2003
Positions:
Non-Executive Director
Member of the Audit, Risk and Compliance 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.
Ross Chessari LLB, M Tax
Appointed
1 December 2003
Positions:
Non-Executive Director
Member of the Remuneration and Nomination 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.
Directors’ Report
MMS
Annual Report 2017
21
Ian Elliot
Appointed: 27 May 2014
Positions:
Non-Executive Director
Chairman of the Remuneration and Nomination Committee
Mr Elliot is formerly a Non-Executive Director of Salmat Limited, Hills Industries Limited and the Australian
Rugby League Commission. 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.
Sue Dahn BCom, MBA, FCPA, FAICD
Appointed: 1 January 2016
Positions:
Non-Executive Director
Chair of the Audit, Risk and Compliance Committee
Ms Dahn is a partner in Investment Advisory Services at Pitcher Partners and Chair of the firm’s Investment
Committee. She is also a Non-Executive Director of MTAA Super and serves on the Victorian Council of
the Australian Institute of Company Directors. Prior to joining Pitcher Partners Ms Dahn spent 14 years in
senior positions within the Victorian Government including the Departments of Premier and Cabinet and
Treasury and Finance. Before this she was an accountant with big 4 chartered accounting firms. Ms Dahn
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
Mark Blackburn joined McMillan Shakespeare Group 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, Westpac, 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 IOOF Holdings Ltd and
iSelect Pty Ltd.
MMS
Annual Report 2017
22
Remuneration
Report (audited)
Executive Remuneration Guide
This short guide is intended to provide
shareholders with an overview of executive
remuneration outcomes for FY17 having regard
to the Company’s performance, as well as a brief
update on the actions the Board and Remuneration
and Nomination 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.
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.
Current performance is reviewed by the Board
through periodic reporting against approved
targets. This framework of strategic management
and the rollout of plans enable the Board to set
Long Term Incentive (LTI) plan targets and its
annual expectations that, together with operational
performance, determine any annual cash bonuses
for the executive management team.
The NPAT and EPS three year CAGR (FY14–FY17)
is 7.3% and 3.4% respectively as summarised in
the key metrics table below.
The Company has historically used Net Profit After
Tax (NPAT) and Earnings Per Share (EPS) as key
metrics for assessing LTI awarded to executive
management to align more closely with Company
performance. The Company has chosen to solely
apply an EPS hurdle to the FY15 LTI options grant
(being the current, 3-year grant on issue). 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 29).
Indices
FY17 2
FY16
FY15
FY14 1
Net profit attributable to
Company members (NPAT)
Underlying net profit after
income taxt (UNPATA) 3
UNPATA growth
Basic earnings per share (EPS)
Underlying earning per share
Dividend per share (DPS)
$67,901,770
$82,469,341
$67,486,611
$54,969,799
$87,166,863
$87,172,942
$69,570,837
$56,113,781
-
81.6 cents
104.8 cents
66.0 cents
25.3%
99.4 cents
105.1 cents
63.0 cents
24.1%
87.0 cents
89.7 cents
52.0 cents
(9.8%)
73.8 cents
75.3 cents
52.0 cents
1
2
Impacted by the former Government’s announcement on 16 July 2013 of proposed changes to the treatment of FBT on vehicles.
Impacted by the after-tax impairment charge of $15.3 million.
3 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for intangible assets, acquisition expenses,
amortisation of acquired intangible assets and deferred consideration items).
MMS
Annual Report 2017
23
Directors have assessed FY17 EPS for the
purpose of the LTI using underlying NPATA of
$87.2 million which is based on reported NPAT
of $67.9 million and adding back the impairment
charge of $15.3 million after tax, $1.0 million for
the after-tax one-off acquisition costs for Capex
and EVC and after-tax amortisation of intangibles
acquired through acquisitions of $3.0 million.
On this basis and using the formula as disclosed
on page 29 the vesting entitlement for FY17 is nil
(FY16 was 89% and FY15 was 75%) and thus has
resulted in nil option expense in FY17. This results
in total vesting (across the three years) of 55%.
Details of Key Management Personnel (KMP)
remuneration for FY17 and FY16, prepared
in accordance with statutory obligations and
accounting standards, are contained in section 3
of this Report.
In addition to this Guide the report includes:
– more detailed disclosure of the Company’s
approach to annual bonuses;
– clearer disclosure in relation to LTI opportunities
and the terms and conditions that apply to the
current grant;
– additional discussion of the Company’s
remuneration governance structures and the
link between the company’s performance and
remuneration outcomes;
– more information about Non-Executive
Directors’ fees; and
– a description of proposed changes to the
executive remuneration moving forward.
Other relevant remuneration initiatives that apply to
the tranche of options implemented during FY15
are set out below:
– earnings per share (EPS) performance hurdle is
used for long term incentive option grant;
– scaled reward system for LTI rather than a cliff
vesting structure that could apply using a NPAT
hurdle; and
– a twelve month holding lock applies to options
issued to the four KMP.
Remuneration Report
FY17 Remuneration outcomes
Company performance was reflected in executive
remuneration outcomes for FY17.
FY17 bonuses were determined taking into
consideration a number of company and individual
performance metrics that included sales growth,
cost to income ratio, customer satisfaction,
customer acquisition and retention, productivity
index, staff engagement, capital management,
execution of selective acquisitions and group
strategy.
Annual bonuses are capped at 25% of fixed
remuneration. The achievement of individual
performance metrics for FY17 is discussed further
on page 26.
No options vested during FY17. The current
tranche of options granted on 28 August 2014
will vest on 31 August 2017 subject to the
achievement of performance hurdles over the
vesting period and continuity of employment with
the Company.
The vesting of current Performance Options are
measured against target underlying EPS. The
target for FY15 was based on the MMS budget
with annual increases in EPS over the FY15 year
of 15% for FY16 and a further 15% for FY17. The
performance hurdles are discussed in detail on
pages 28 and 30. The actual underlying EPS for
FY17 was 9% below the minimum target, FY16
achieved 89% of target and FY15 achieved 75%
of target. The actual EPS performance achieved
for FY17, FY16 and FY15 and target EPS for the
remaining year in the current programme is shown
in the chart below.
FY15 - FY17 LTI Programme Achievement
against performance hurdles
$
S
P
E
1.267
1.218
1.169
1.120
1.072
1.023
0.974
0.925
0.876
$1.226
Culmulative
actual EPS
55% vesting
$1.066
$1.051
$1.048
$0.927
$0.890
FY15
FY16
FY17
Target EPS
Actual EPS achievment
Remuneration
Report
MMS
Annual Report 2017
24
Contents
Key section
1. Who does this Report cover?
2. Remuneration policy and guiding principles
3. Executive KMP remuneration in detail
4. Non-Executive Director remuneration in detail
5. Statutory remuneration disclosures
6. Proposed changes to incentive plans
Page
24
24
25
33
34
38
1. Who does this Report cover?
This Report sets out the remuneration
arrangements for the Group’s KMP (who are listed
in the table below) during FY17. 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 FY17.
Non-Executive Directors
Name
Position
Mr T. Poole
Non-Executive Chairman
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.
Fixed
LTI’s –
Remuneration
Performance
Non-Executive
Directors
Executive KMP
Options
x
LTI’s-Voluntary
Options
Annual
Cash Bonus
Non-Executive
Directors
Executive KMP
x
x
Mr J. Bennetts
Non-Executive Director
Non-Executive Director remuneration
Mr R. Chessari
Non-Executive Director
Mr I. Elliot
Non-Executive Director
Ms S. Dahn
Non-Executive Director
Executive KMP 1
Name
Position
Mr M. Salisbury
CEO and Managing
Mr G. Kruyt
Chief Operating Officer
Mr M. Blackburn
Group CFO and
Company Secretary
Mr A. Tomas
Managing Director, Fleet
and Financial Products
1 There were no changes to Key Management Personnel
after the reporting date and before the Annual Report was
authorised for issue.
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 for further information.
Remuneration Report
MMS
Annual Report 2017
25
Executive KMP remuneration
The components of remuneration for Executive
KMP have consisted of fixed remuneration (including
superannuation and benefits) and long-term
incentives (LTIs) (in the form of options). In addition
Executive KMP may also have received 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
for further information.
The Board proposes to vary the remuneration
structure for Executive KMP moving forward. See
key section 6. Proposed changes to executive
remuneration for further information.
Remuneration governance
Role of the Remuneration
and Nomination Committee
The Board has established a Remuneration and
Nomination 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 and
Nomination Committee, please refer to the
Corporate Governance Statement www.mmsg.
com.au/overview/#governance.
Remuneration consultants
and other advisors
The Remuneration and Nomination Committee
obtains external independent advice when
required, and will use it to guide and inform their
decision-making. During FY17, no remuneration
recommendations (as defined in the Corporations
Act) were received.
3. Executive KMP remuneration in
detail
As outlined above, the key components
of Executive KMP remuneration are fixed
remuneration and long term incentive grants.
However, the Remuneration and Nomination
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
Review
– Fixed remuneration is reviewed by the
Remuneration and Nomination 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
– 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 and Nomination Committee
has reviewed remuneration based on analysis
from multiple data sources and taken into
consideration factors such as annual revenue,
employee numbers, market capitalisation and
comparable companies. The Company generally
positions itself at the market median. In certain
circumstances, for exceptional candidates or high
responsibility positions, the Company may position
itself up to the seventy-fifth percentile of the
market. The Company has sourced additional data
through external remuneration consultancies to
inform Remuneration and Nomination Committee
decision making.
MMS
Annual Report 2017
26
Remuneration
Report
Annual Bonus Program
In respect of FY17, a total of $230,000 was
awarded to Executive KMP under the annual
bonus program.
No KMP has a contractual right to a bonus.
However, the Remuneration and Nomination
Committee has the authority to award bonuses
based on contribution to operational, individual
and financial performance. The Remuneration
and Nomination Committee opted for implementing
bonuses rather than adopting the standard short
term incentive (STI) concept to ensure that the
Company/KMP could remain nimble and switch
priorities to quickly adapt to dynamic or evolving
circumstances.
The assessment criteria that applied to the annual
cash bonus program in FY17 is set out below.
Annual bonuses were paid to Executive KMP
during the year for their contribution to key
strategic, operational and financial focus areas.
The following were key initiatives by Executive
KMP in FY17.
Mr M. Salisbury (CEO and Managing Director)
– Recontracting of major GRS clients and new
contract wins
– Business development including new products
(Maxxia and RemServ Wallet)
– Acquisitions (EVC and Capex)
– Market share growth in novated lease market
Mr M. Blackburn
(Group CFO and Company Secretary)
– Stakeholder management
– Treasury and credit management including
Principal and Agency Funding
– Acquisitions (EVC and Capex)
– Retail Financial Services integration
– Productivity improvements delivering financial
results and analysis
Mr G. Kruyt (Chief Operating Officer)
– Business development including new products
(Maxxia and RemServ Wallet)
– Retail Financial Services integration
– New business wins
– Recontracting of major GRS clients
– People development focus for senior and future
leaders
Mr A. Tomas
(Managing Director, Fleet and Financial Products)
– Business development including new products
(Just Honk) and margin enhancement
– Acquisitions (EVC and Capex)
–
Implementation of Principal and Agency funding
Sales Growth
Cost to
Customer
Productivity
Staff
Income Ratio
Satisfaction
Index
Engagement
Capital
Manage-
ment
Mergers /
Group
Acquisitions
Strategy
x
x
x
x
x
CEO and
Managing Director
CFO and
Company Secretary
Chief Operating
Officer
Managing Director,
Fleet and Financial
Products
The Board proposes to vary the structure for Executive KMP moving forward as set out in section 6.
Remuneration Report
MMS
Annual Report 2017
27
What is the annual
bonus program?
A bonus may be awarded by the Remuneration and Nomination 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 FY17 outcomes above, has exceeded
expectations.
Who is eligible?
Executives
What is the
performance period
How and when are
bonuses determined?
1 July 2016 - 30 June 2017
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 and Nomination Committee. The CEO’s bonus is determined by the Remuneration and
Nomination Committee.
Performance related annual cash bonuses are capped at 25% of fixed remuneration per employee and
have historically not exceeded 8% of total remuneration. In FY17 the highest bonus paid was 11% of that
Executive’s total remuneration.
The Remuneration and Nomination 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?
Is there a performance
threshold that must be
met before bonuses
can be paid?
Were bonuses paid
in FY17?
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 FY17 included contribution to:
– 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
– Maintaining the record low cost to income ratio in GRS.
Executive KMP bonuses paid in FY17 totalled
$230,000 and the highest bonus paid to an Executive
represented 11% of their total remuneration.
All FY17 bonuses were paid in August 2017.
Total bonuses paid to Executive KMP in relation to
FY16 totalled $230,000.
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 at right.
s
n
o
i
l
l
i
m
$
6
5
4
3
2
1
0
7% 7%
7%
8%
8%
6%
5%
8%
FY10 FY11 FY12 FY13 FY14 FY15 FY16
FY17
Annual cash bonuses included in remuneration
Total remuneration
%
% of annual cash bonuses to total remuneration
NOTE
1 Total remuneration is based on the amount as disclosed in the “total remuneration” column of the statutory table on page 35.
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.
MMS
Annual Report 2017
28
Remuneration
Report
Long-term Incentives
The Company has historically issued options
to certain executives and employees under the
McMillan Shakespeare Limited Employee Option
Plan (EOP) every three years.
Two types of options may be granted
under the EOP:
1. Performance options
Options that will only vest subject to performance
hurdles and continuity of employment
2. Voluntary options
Options that are not subject to performance
hurdles, but which:
– Executives must purchase;
– will only vest if the Executive continues 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 FY15 to
provide Executives with an additional opportunity
to purchase up to a maximum of $50,000 per
executive. The terms and conditions relevant to
these Voluntary 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. Executives 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
No Performance Options were granted during
FY17 to Executives as their LTI.
The value of Performance Options included in the
remuneration of Executive KMP were granted in
FY15.
The number of Performance Options awarded was
determined by multiplying the relevant Executive’s
fixed remuneration by a pre-determined percentage
(which varied depending on the position, duties
and responsibilities of the relevant executive
between 10% and 40%).
This figure was then multiplied by three,
recognising that grants have been made on
a three yearly basis rather than annually. The
EPS performance hurdle was 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
and Nomination Committee considered this to
be a key indicator of the financial success of
the business. The EPS performance hurdle was
designed so that Executives were incentivised
to ensure that the Three Year Financial Plan was
met or exceeded. The EPS performance hurdle
provided the KMP with a sole and unambiguous
target which they collectively needed to achieve,
thereby encouraging a collaborative approach
across the business. The Remuneration and
Nomination Committee considered that achieving
the EPS target has had a positive impact on total
shareholder return.
All Performance 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 Performance 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 these options.
Details of the key terms and conditions of the
current Performance Options are outlined on pages
29 and 30.
Remuneration Report
MMS
Annual Report 2017
29
What are 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.
Do Executives pay for
Performance Options?
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
What is the
performance hurdle and
why was it chosen?
An earnings per share (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.
How does the EPS
performance hurdle
work?
Performance conditions (EPS targets)
Achievement of FY15 EPS target of not less than $0.927
Weighting
33.3%
Achievement of FY16 EPS target of not less than $1.066 (15% growth from FY15 target)
33.3%
Achievement of FY17 EPS target of not less than $1.226 (15% growth from FY16 target)
33.3%
Maximum Entitlement
100%
The EPS performance hurdle is subject to the measurement of the Company’s average annual growth
in EPS for a three year period. EPS is determined by dividing the Company’s NPAT before significant
items and acquisition related 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 and Nomination 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 ended 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
50-100% vesting
100% vesting
FY15
FY16
FY17
EPS less than $0.867
EPS between $0.867 & $0.927
EPS at least $0.927
EPS less than $0.997
EPS between $0.997 & $1.066
EPS at least $1.066
EPS less than $1.146
EPS between $1.146 & $1.266
EPS at least $1.226
Process for assessing
performance conditions
To determine the extent to which the EPS performance hurdle is satisfied, the Remuneration and
Nomination Committee relies on audited financial results and vesting is determined in accordance with
the Plan Rules.
The Remuneration and Nomination Committee believes this method of assessment provides an
appropriate and objective assessment of performance.
The Remuneration and Nomination Committee will take account of capital raisings and acquisitions
where necessary or appropriate to do so.
MMS
Annual Report 2017
30
Remuneration
Report
What are the rights
attaching to the
Performance Options?
No voting rights or entitlements to dividends are attached to Performance Options.
What is the exercise
price and how was it
determined?
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 the 5 Day Volume Weighted
Average Price of Shares traded in the period immediately prior to grant date of the options.
When do the
Performance Options
expire?
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).
What happens
on cessation of
employment?
What happens on a
change of control?
What Performance
Options were granted
in FY17?
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.
No performance options were granted to Executive KMP (or any other employees) during FY17.
Remuneration Report
MMS
Annual Report 2017
31
Voluntary Options – FY15 LTI grant
No Voluntary Options were offered to Executives in FY17.
Details of the key terms and conditions of the FY15 Voluntary Options granted in FY15 are as follows.
What are
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.
Do Executives pay for
Voluntary Options?
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?
What is the exercise
price and how was it
determined?
No voting rights or entitlements to dividends are attached to Voluntary Options.
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?
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 $1.
What happens on a
change of control?
On a change of control, the Board has discretion to bring forward the exercise date of all performance
options and to waive or vary the exercise conditions or performance conditions attached to the
performance options
What Voluntary Options
were granted in FY17?
None.
MMS
Annual Report 2017
32
Remuneration
Report
Fixed vs performance based remuneration
The relevant proportions of fixed versus performance based remuneration received in FY17 based on
actual outcomes are set out in the table below.
The KMP received an LTI allocation in respect of FY17. However, due to the Company not achieving the
required EPS targets, no value was received by the KMP, hence fixed remuneration is a higher percentage
of total remuneration actually received in FY17.
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Mr A. Tomas
Fixed remuneration
At risk – Annual Bonus
At risk – LTI
FY17
92%
89%
93%
95%
FY16
71%
68%
68%
73%
FY17
8%
11%
7%
5%
FY16
FY17 1
6%
9%
6%
4%
-
-
-
-
FY16
23%
23%
26%
23%
1 There was no vesting entitlement in FY17 for the options on-foot (refer page 23).
Consequences of performance on shareholders’ wealth
The table below sets out the Company’s performance over the past five years in respect of key financial
and non-financial indicators. In addition to the links between remuneration and shareholder value
discussed above, when reviewing the Group’s performance and benefits for shareholder wealth, and the
link to the remuneration policy, these indicators are generally considered:
Indices
FY17 4
FY16
FY15
FY143
FY13
Net profit attributable to
Company members
Underlying net profit after
income tax (UNPATA) 5
NPAT growth
UNPATA Growth
Dividends paid
Dividend payout ratio 1
Share price as at
30 June 2
Market capitalisation
(A$m)
Earnings per share
Underlying earnings
per share6
$67,901,770
$82,469,341
$67,486,611
$54,969,799
$62,163,519
$87,166,863
$87,172,942
$69,570,837
$56,113,781
$62,163,519
(17.7%)
-
22.2%
25.3%
22.8%
24.1%
(11.6%)
(9.8%)
14.5%
14.5%
$54,076,388
$46,588,889
$43,912,091
$29,064,347
$36,516,743
63%
$13.40
60%
$13.68
58%
$12.09
1,210.0
1,138.1
973.9
69%
$9.17
683.4
50%
$16.18
1,205.8
81.6 cents
99.4 cents
87.0 cents
73.8 cents
83.4 cents
104.8 cents
105.1 cents
89.7 cents
75.3 cents
83.4 cents
1 Dividend payout ratio is calculated as total dividend for the financial year divided by UNPATA for the financial year.
2 Share price at the start of FY13 was $16.10.
3
Impacted by an announcement on 16 July 2013 of possible changes to the treatment of FBT on vehicles.
4
Impacted by the after-tax impairment charge of $15.3 million.
5 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for
intangible assets, acquisition expenses, amortisation of acquired intangible assets and deferred consideration items).
6 Underlying earnings per share is based on UNPATA.
Remuneration Report
MMS
Annual Report 2017
33
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 Agreements for Executive KMP (other than the CEO)
Duration
Ongoing.
Periods of notice
required to terminate
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.
Termination payments
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.
Key terms of Executive Service Agreement for CEO
Duration
Ongoing.
Periods of notice
required to terminate
9 months written notice by the Company or CEO.
The agreement may, however, be terminated by the Company for cause without notice or any payment.
Termination payments
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.
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 Non-Executive Director Remuneration section, total fees are not to exceed the annual limit
of $900,000 approved by shareholders in October 2014.
Details of the fees paid to the Non-Executive Directors are set out in the table below.
Directors’ Fees
The annual Directors’ fees (including superannuation contributions) payable to Non-executive
Directors for FY17 were as follows:
Position
Chairman
Fee ($)
205,000 (from 1 January 2016)
Audit, Risk and Compliance Committee Chair
150,000 (from 1 January 2017)
Remuneration and Nomination Committee Chairman
130,000 (from 1 January 2016)
Director (base fee)
115,000 (from 1 January 2016)
No fees are payable in respect of membership of Board Committees.
Superannuation
contributions
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.
MMS
Annual Report 2017
34
Remuneration
Report
5. Statutory remuneration disclosures
Non-Executive Director remuneration – statutory disclosures
The tables below set out the statutory disclosures required under the Corporations Act 2001 (Cth) and in
accordance with the Accounting Standards.
Cash
salary/fees 1
Other
Benefits 2
Superannuation
Total
Remuneration
Total value of
remuneration
received
Non-Executive Directors
Mr T. Poole
(Non-Executive Chairman)
Mr J. Bennetts
(Non-Executive Director)
Mr R. Chessari
(Non-Executive Director)
Mr I. Elliot
(Non-Executive Director)
Ms S. Dahn
(Non-Executive Director
Mr R. Pitcher, AM
(Non-Executive Chairman)
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$
187,215
164,852
105,023
101,536
86,455
93,278
118,722
104,037
127,854
39,574
-
61,800
$
-
-
-
-
18,568
8,259
-
-
-
19,787
-
-
$
17,785
14,799
9,977
9,646
9,977
9,646
11,278
9,884
12,146
5,639
-
5,871
$
205,000
179,651
115,000
111,182
115,000
111,183
130,000
113,921
140,000
65,000
-
$
205,000
179,651
115,000
111,182
115,000
111,183
130,000
113,921
140,000
65,000
-
67,671
67,671
1 The amounts shown for the Non-Executive Directors reflect directors’ fees only.
2 Other benefits comprise salary packaging.
3 Ms Dahn commenced 1 January 2016.
Remuneration Report
MMS
Annual Report 2017
35
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-
Long-
employment
term
Share
based
benefits
benefits
payments
Cash
Current
Long
Percentage of
Total value of
salary/
year Cash
Other
Super-
Service
Total
remuneration
remuneration
fees
Bonus
Benefits 1
annuation
Leave
Options 2
remuneration
as options
received 3
FY16
714,022
75,000
77,150
37,635
28,226
270,760
1,202,793
23%
874,039
FY17
540,180
75,000
56,015
19,779
22,698
-
713,672
-
674,393
FY16
497,292
75,000
23,467
19,308
20,886
193,400
829,353
23%
624,615
FY17
580,530
50,000
25,994
33,267
11,073
-
700,864
-
670,240
FY16
557,231
50,000
(11,717)
38,642
10,686
229,621
874,463
26%
657,889
FY17
408,265
30,000
117,675
33,906
10,155
-
600,001
-
586,000
FY16
379,622
30,000
158,287
35,628
9,117
182,967
795,621
23%
574,966
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.
No payments were made to any Executive KMP in respect of termination of services in FY17.
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 2017 and 30 June 2016. 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. There was no option expense in FY17 due to not meeting the performance hurdle for the year.
No options were granted to Executive KMPs during the year ended 30 June 2017.
3 Value of remuneration received comprises salary, benefits and superannuation salary packaged, annual and long service leave used
and bonuses paid in the year.
Non-Executive Directors
$
$
$
$
$
FY17
732,605
75,000
49,270
34,288
16,081
$
-
$
907,244
%
-
$
916,409
Mr M. Salisbury
(CEO and
Managing Director)
Mr G. Kruyt
(Chief Operating Officer)
Mr M. Blackburn
(Group CFO and
Company Secretary)
Mr A. Tomas
(Managing Director, Fleet
and Financial Products)
MMS
Annual Report 2017
36
Remuneration
Report
Option Details
No options were granted to, exercised by or lapsed with respect to Non-Executive Directors during
FY17 or FY16.
The terms and conditions of each grant of options to Executive KMP affecting their remuneration in FY17
or FY16 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 date 1
Date
Exercisable
19 August 2014 2
30 September 2019
$10.18
$10.18
$3.01
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 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.
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
Value of
Number
Number
options
of options
Type of option
of options
granted
vested
granted
during the
during
year
year
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Mr A. Tomas
19 August
2014
19 August
2014
19 August
2014
19 August
2014
Performance
302,158
Performance
215,827
Performance
256,248
Performance
204,184
-
-
-
-
-
-
-
-
Number
of options
Vested
forfeited/
%
-
-
-
-
lapsed
during
the year
-
-
-
-
Year in
Maximum
Forfeited
which
value of
or lapsed
options
options
%
-
-
-
-
may
vest
yet to
vest 1
FY 2018
FY 2018
FY 2018
FY 2018
-
-
-
-
1 There is no minimum or maximum value attached to the options at the vesting date.
Remuneration Report
MMS
Annual Report 2017
37
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 FY17.
Name
Options
Balance at
start of year
Granted as
Vested
Exercised
compen-
during the
during the
Forfeited
sation
year
year
Other
Vested and
changes
exercisable
during
at the end
the year
of the year
Unvested
at the end
of the year
Mr M. Salisbury
Performance
302,158
Mr G. Kruyt
Performance
215,827
Mr. M. Blackburn
Performance
256,248
Mr A. Tomas
Performance
204,184
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
302,158
215,827
256,248
204,184
Shares issued on exercise of Performance Options or Voluntary Options
No ordinary shares in the Company were issued following the exercise of performance options or
voluntary options by KMP during FY17.
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 KMP, including their personally related parties.
There were no shares granted during the year as compensation.
Balance at the
start of the year
Shares acquired
through option exercise
Other changes
during the year
Balance at the
end of the year
Non-Executive Directors
Mr T. Poole
Mr J. Bennetts
Mr R. Chessari
Mr I. Elliot
Ms S Dahn
Key Management Personnel
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Mr A. Tomas
19,000
3,543,025
6,050,941
-
-
10,276
7,953
10,000
464,449
-
-
-
-
-
-
-
-
-
(200,000)
-
-
4,000
-
-
(7,000)
(362,399)
19,000
3,343,025
6,050,941
-
4,000
10,276
7,953
3,000
102,050
MMS
Annual Report 2017
38
Remuneration
Report
The Remuneration and Nomination Committee
considers that these proposed changes: align with
the market practices of comparative companies;
provides a strong alignment between KMP
performance and shareholder outcomes; and is an
attractive scheme to motivate and retain KMP and
other senior executives.
At the upcoming Annual General Meeting (AGM),
the Board will propose that shareholders consider
the adoption of the new LTI Plan. Further
information about the proposed LTI Plan will be
included in the Notice of AGM.
End of the audited
Remuneration Report
6. Proposed changes to
incentive plans
Proposed changes to annual bonus program
During FY17 the Remuneration and Nomination
Committee decided that the annual bonus program
for KMP will cease after the awards are made in
relation to FY17. The average historical level of
short term incentive will be reallocated: 70% to
fixed remuneration and 30% to at risk remuneration
through a LTI.
Proposed changes to LTI Plan
During FY17 the Remuneration and Nomination
Committee undertook a comprehensive review
of the Company’s LTI structure. As a result of this
review, the Company has decided to introduce a
new LTI plan for KMP and other senior executives
from 1 July 2017.
The features of the new plan are:
–
Issues of performance based equity
securities on an annual basis that vest over
a three year period;
– An equal value split of performance based
equity securities between Performance Options,
issued on similar terms to those previously
issued (subject to a change in performance
hurdles flagged below) and Performance Rights;
– Performance Rights will convert to fully paid
ordinary shares under the LTI Plan subject
to performance criteria being satisfied, with
participants not required to pay an exercise
price on vesting;
– 50% of each LTI tranche will be subject to EPS
CAGR targets based on adjusted UNPATA;
– 50% of each LTI tranche will be subject to
average ROCE targets based on adjusted EBIT;
– To ensure the transition to the new LTI plan is
cost neutral to the Company and value neutral
to KMP, there will be an additional two year
transitional award granted during FY18; and
– Certain KMP will be offered Voluntary Options
in annual grants of up to $20,000 vesting over
three years on similar terms to those previously
issued.
Directors’ Report
Directors’
Report
MMS
Annual Report 2017
39
Unissued shares
At the date of this Annual Report, unissued ordinary shares of the Company under option are:
Option class
Performance Options
Performance Options
Performance Options
Performance Options
Performance Options
Performance Options
No. of unissued
ordinary shares
Exercise price
Expiry date
978,417
398,789
107,877
76,048
85,692
33,436
$10.18
$10.18
$10.83
$11.87
$12.88
$13.82
30 September 2019
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.
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. T Poole (Chairman)
Mr M. Salisbury (Managing Director)
Mr J. Bennetts
Mr R. Chessari
Mr I Elliot
Ms S Dahn
Options
Ordinary shares
-
302,158
-
-
-
-
19,000
10,276
3,343,025
6,050,941
-
4,000
No Director during FY17, 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.
MMS
Annual Report 2017
40
Directors’
Report
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 FY17, are disclosed in Note 8 to
the Financial Statements.
The Company’s policy is that the external auditor is
not to provide non-audit services unless the Audit,
Risk and Compliance Committee has approved
that work in advance, as appropriate.
The Audit, Risk and Compliance Committee has
reviewed a summary of non-audit services provided
during the financial year ended 30 June 2017 by
Grant Thornton Audit Pty Ltd. Given that the only
non-audit services related to client contract audits
and review of banking covenant and trust account
compliance, the Audit, Risk and Compliance
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).
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 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.
Directors’ Report
MMS
Annual Report 2017
41
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 104 of this
Annual Report.
Corporate governance practices
Our full corporate governance statement is
available on our website at
www.mmsg.com.au/overview/#governance
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.
Signed in accordance with a resolution of
the Directors.
Tim Poole
Chairman
30 August 2017
Melbourne, Australia
Michael Salisbury
Managing Director
42
Five year summary
2013 – 2017
FINANCIAL PERFORMANCE
Group
Revenue ($m)
NPAT ($m)
UNPATA ($m) 1
Group Remuneration Services segment
Segment revenue ($m)
Segment NPAT ($m)
Segment UNPATA ($m)
Asset Management segment
Segment revenue ($m)
Segment NPAT ($m)
Segment UNPATA ($m)
Retail Financial Services segment
Segment revenue ($m)
Segment NPAT ($m)
Segment UNPATA ($m)
SHAREHOLDER VALUE
Dividends per share (cps)
Dividend payout ratio (%) 2
Basic earnings per share (cps)
Return on equity (%) 3
Underlying earnings per share (cps) 7
Return on capital employed (%) 6
OTHER
Employees (FTE) 4
Employee engagement score (%) 5
2017
2016
2015
2014
2013
513.0
67.9
87.2
189.7
58.3
58.3
215.7
16.6
17.5
106.0
(5.0)
12.4
66.0
63
81.6
24
104.8
20
1,195
76
504.7
82.5
87.2
188.3
58.7
58.7
204.8
14.6
15.3
110.0
11.8
14.0
63.0
60
99.4
26
105.1
21
389.6
67.5
69.6
176.1
54.3
54.3
188.1
11.3
11.6
23.1
3.0
3.3
52.0
58
87.0
26
89.7
20
1,124
No survey
1,087
81
347.5
55.0
56.1
157.2
42.0
42.0
188.1
13.6
13.6
-
-
-
52.0
69
73.8
27
75.3
23
881
No survey
330.1
62.2
62.2
155.9
46.8
46.8
172.0
14.6
14.6
-
-
-
42.0
50
83.4
34
83.4
29
814
84
1 Group underlying NPATA (UNPATA) is reported NPAT normalised for items considered to be capital in nature or not directly relating to operational performance. UNPATA is
likely to better reflect maintainable earnings and presents a better comparable measure of performance year on year. UNPATA items included in FY17 comprise after-tax
adjustments for acquisition expenses from business combination relating to EVC and CAPEX of $1.0m in FY17 (UFS and Anglo Scottish of $1.9m in FY16, Presidian of
$1.5m in FY15, CLM of $0.8m in FY14), after-tax amortisation of intangibles acquired from business combination of $3.0m in FY17 (FY16: $2.8m, FY15: $0.6m), and an
asset impairment of $15.3m in FY17.
2 Dividend payout ratio is calculated as total dividend for the financial year divided by UNPATA for the financial year.
3 Return on equity has been adjusted to reflect 12 months trading for acquisitions made in each financial year.
4 As at 30 June.
5 Employee engagement survey conducted biennially.
6 Return on capital employed has been adjusted to reflect 12 months trading for acquisitions made in the financial year.
7 Underlying earning per share is based on UNPATA.
MMS Annual Report 2017
Financial
Report 2017
MMS
Financial Report 2017
43
MMS
Financial Report 2017
44
Statements of Profit or Loss and
Other Comprehensive Income
For the year ended 30 June 2017
MMS
Financial Report 2017
45
Consolidated Group
Parent Entity
Revenue
Employee benefits expense
Depreciation and amortisation expenses
Leasing and vehicle management expenses
Brokerage commissions and incentives
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
Impairment
Acquisition expenses
Profit before income tax
Income tax (expense) / benefit
Profit attributable to members of the parent entity
Other comprehensive income
Items that may be re-classified subsequently to profit or loss:
Changes in fair value of cash flow 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
7
8(a)
16
8(a)
9(a)
10
10
2017
$’000
2016
$’000
513,032
(121,421)
504,666
(120,206)
(89,046)
(72,082)
(45,746)
(9,392)
(3,265)
(4,102)
(11,371)
(10,560)
(11,011)
(11,353)
(1,260)
(20,000)
(1,076)
101,347
(33,445)
67,902
685
(3,662)
(165)
(3,142)
64,760
81.6
81.5
(91,380)
(60,063)
(46,960)
(7,823)
(3,003)
(3,380)
(11,230)
(11,206)
(13,327)
(12,841)
(1,495)
(2,289)
119,463
(36,994)
82,469
(73)
(8,145)
(16)
(8,234)
74,235
99.4
99.0
2017
$’000
54,220
(884)
-
-
-
-
(337)
-
(335)
-
(2)
(1,507)
-
-
31,155
876
32,031
-
-
-
-
2016
$’000
46,715
(726)
-
-
-
-
(356)
-
(400)
-
-
(1,973)
-
-
-
43,260
734
43,994
-
-
-
-
32,031
43,994
-
(20,000)
The above statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
MMS
Financial Report 2017
46
Statements of
Financial Position
As at 30 June 2017
Note
12
13
14
17
17
14
6
15(b)
9(c)
18
19
20
21
21
22
20
9(c)
23(a)
Consolidated Group
Parent Entity
2017
$’000
59,416
45,922
60,920
6,047
6,564
2,246
75,195
2016
Re-stated
$’000
As at 1 July
2015 Re-stated
$’000
95,583
37,396
46,280
7,282
7,827
2,084
80,081
85,729
46,941
35,253
7,165
6,361
2,137
79,020
2017
$’000
5,835
7,415
-
-
-
-
-
2016
$’000
5,716
6,477
-
-
14
-
-
256,310
276,533
262,606
13,250
12,207
231,536
107,255
250,746
1,583
175
1,375
592,670
848,980
73,301
6,949
14,007
12,997
7,833
88,727
134
203,948
250,877
3,926
10,815
2,900
5,519
274,037
477,985
370,995
141,088
(5,948)
235,855
370,995
222,051
89,279
261,365
1,732
194
964
575,585
852,118
70,561
5,966
16,384
13,023
10,116
12,944
819
129,813
332,626
2,755
6,740
1,705
7,984
351,810
481,623
370,495
144,380
4,086
222,029
370,495
226,108
89,911
201,404
1,871
1,183
973
521,450
784,056
63,862
6,105
16,187
10,591
3,789
5,658
699
106,891
346,046
2,781
-
2,228
7,667
358,722
465,613
318,443
121,617
10,677
186,149
318,443
-
-
-
320,307
-
-
320,307
333,557
133,227
-
-
-
8,951
11,500
-
153,678
30,057
-
-
-
568
30,625
184,303
149,254
141,088
3,200
4,966
149,254
-
-
-
337,900
-
-
337,900
350,107
105,617
-
-
-
9,439
11,500
-
126,556
41,528
-
-
-
540
42,068
168,624
181,483
144,380
10,092
27,011
181,483
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Inventory
Prepayments
Deferred acquisition costs
Assets under operating lease
Total current assets
Non current assets
Property, plant and equipment
Finance lease receivables
Intangible assets
Other financial 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 financial instruments
Total current liabilities
Non-current liabilities
Borrowings
Unearned premium liability
Other financial liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
The above statements of financial position should be read in conjunction with the accompanying notes.
MMS
Financial Report 2017
Statements of
Changes in Equity
For the year ended 30 June 2017
Consolidated Group
Issued
capital
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Cash flow
Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Treasury
Reserve
$’000
2017
Equity as at beginning of year
23 144,380
222,029
10,092
(615)
(5,391)
Profit 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:
-
-
-
67,902
-
67,902
Treasury shares
Dividends paid
24(d)
(3,292)
-
11
-
(54,076)
-
-
-
-
-
-
520
520
-
-
-
(3,662)
(3,662)
-
-
-
-
-
-
(6,892)
(10,184)
-
(54,076)
47
Total
$’000
370,495
67,902
(3,142)
64,760
Equity as at 30 June 2017
141,088
235,855
10,092
(95)
(9,053)
(6,892)
370,995
Consolidated Group
Issued
capital
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Cash flow
Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Treasury
Reserve
$’000
2016
Equity as at beginning of year
23 121,617
186,149
8,449
(526)
2,754
Profit 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
Dividends paid
Equity as at 30 June 2016
-
-
-
82,469
-
82,469
23
30
11
22,763
-
-
-
-
(46,589)
-
-
-
-
1,643
-
-
(89)
(89)
-
-
-
-
(8,145)
(8,145)
-
-
-
144,380
222,029
10,092
(615)
(5,391)
-
-
-
-
-
-
-
-
Total
$’000
318,443
82,469
(8,234)
74,235
22,763
1,643
(46,589)
370,495
The above statements of changes in equity should be read in conjunction with the accompanying notes.
MMS
Financial Report 2017
48
2017
Statements of
Changes in Equity
For the year ended 30 June 2017
Equity as at beginning of year
Profit 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:
Treasury shares
Dividends paid
Note
23
Issued
Capital
$’000
144,380
-
-
-
Retained
Earnings
$’000
27,011
32,031
-
32,031
24(d)
11
(3,292)
-
-
(54,076)
Parent Entity
Option
Reserve
$’000
10,092
-
-
-
-
-
Treasury
Reserve
$’000
-
-
-
-
Total
$’000
181,483
32,031
-
32,031
(6,892)
-
(10,184)
(54,076)
Equity as at 30 June 2017
141,088
4,966
10,092
(6,892)
149,254
2016
Equity as at beginning of year
Profit 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
Dividends paid
Equity as at 30 June 2016
Note
23
Issued
Capital
$’000
121,617
-
-
-
23
30
11
22,763
-
-
Parent Entity
Option
Reserve
$’000
8,449
-
-
-
-
1,643
-
Retained
Earnings
$’000
29,606
43,994
-
43,994
-
-
(46,589)
144,380
27,011
10,092
Treasury
Reserve
$’000
-
-
-
-
-
-
-
-
Total
$’000
159,672
43,994
-
43,994
22,763
1,643
(46,589)
181,483
The above statements of changes in equity should be read in conjunction with the accompanying notes.
Statements of
Cash Flows
For the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Proceeds from sale of assets under lease
Proceeds from sale of lease portfolio
Payments for assets under lease
Interest received
Interest paid
Dividends received
Income taxes paid
Subsidiaries’ acquisition expense
MMS
Financial Report 2017
Consolidated Group
Parent Entity
Note
2017
$’000
2016
$’000
26(b)
570,101
(254,380)
63,587
-
516,531
(226,279)
52,188
32,805
(281,412)
(234,601)
1,410
(10,531)
-
(40,635)
(1,076)
1,855
(11,329)
-
(33,586)
(2,612)
2017
$’000
-
(1,376)
-
-
-
144
(1,507)
54,076
-
-
49
2016
$’000
-
(1,834)
-
-
-
123
(1,947)
46,592
-
-
Net cash from operating activities
26(a)
47,064
94,972
51,337
42,934
Cash flows from investing activities
Payments for capitalised software
Payments for plant and equipment
6(c)
Payments for subsidiary investments (net of cash acquired)
31(c)
Payments for joint venture subordinated loans
(6,888)
(1,353)
(8,919)
(1,220)
(3,396)
(4,468)
(39,000)
(1,356)
-
-
-
-
(2,403)
(57,207)
-
-
Net cash used in investing activities
(18,380)
(48,220)
(2,403)
(57,207)
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment for treasury shares
Proceeds from share issues
Payment of borrowing costs
Dividends paid by parent entity
Proceeds from controlled entities
58,032
(58,042)
(10,184)
-
-
116,360
(111,343)
-
5,358
(184)
11
(54,076)
(46,589)
-
-
-
(11,500)
(10,184)
-
-
(54,076)
26,945
-
(4,016)
-
5,358
-
(46,589)
62,638
Net cash (used in) / provided by financing activities
(64,270)
(36,398)
(48,815)
17,391
Effect of exchange changes on cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
12
(581)
(36,167)
95,583
59,416
(500)
9,854
85,729
95,583
-
119
5,716
5,835
-
3,118
2,598
5,716
The above statements of cash flows should be read in conjunction with the accompanying notes.
50
(c) New accounting standards and interpretations
adopted during the year
The amended accounting standards and interpretations
issued by the Accounting Standards Board during the
year that were mandatory for the year were adopted.
None of these amendments and interpretations
materially affected any of the amounts recognised in the
current period or prior period.
Application of AASB 2015-2 Amendments to
Australian Accounting Standards –
Disclosure Initiative Amendments to AASB 101
The Group has applied the amendments for the first time
in the current year. The amendments as they have been
effected in the financial report may not include a specific
disclosure required by a AASB if the information resulting
from the disclosure is not material. However, additional
information is disclosed when compliance with the
specific requirements in AASB is insufficient to enable
users of the financial statements to understand the
impact of particular transactions, events or conditions on
the Group’s financial performance or financial position.
The notes to the financial statements have been re-
grouped and re-presented in a systematic ordering to
provide prominence on areas of activity to enhance the
understandability of the Group’s operations, resource
deployment and concentration risks.
The application of these amendments has not had a
material impact on the presentation on the financial
performance or financial position of the Group.
(d) New accounting standards and interpretations
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 2017, but have not
been applied in preparing this financial report. The
Consolidated Group has not or does not plan to adopt
these Standards early and the extent of their impact has
not been fully determined unless otherwise noted below.
None of these are expected to have a significant effect
on the financial report of the Consolidated Group unless
otherwise noted below.
1 General information
The financial report of McMillan Shakespeare Limited
and its subsidiaries for the year ended 30 June 2017
was authorised for issue in accordance with a resolution
of the directors on 30 August 2017 and covers
McMillan Shakespeare Limited (‘the Company’ or the
‘parent entity’) as an individual entity as well as ‘the
Group’, consisting of McMillan Shakespeare Limited
and its subsidiaries (‘the Group’) as required by the
Corporations Act 2001.
The financial 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.
2 Significant accounting policies
(a) Basis of preparation
The financial report is a general purpose financial
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-profit entity for the purpose of preparing
the financial statements. Material accounting policies
adopted in the preparation of these financial statements
are presented below and have been applied consistently
unless stated otherwise.
Except for cash flow information, the financial
statements have been prepared on an accruals basis
and are based on historical costs, modified, where
applicable, by the measurement at fair value of selected
non-current assets, financial assets and financial 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 financial statements and notes also
comply with IFRSs.
(b) Rounding of amounts
The Company is of a kind referred to in ASIC
Corporations (Rounding in Financials/Directors’
Reports) Instrument 2016/191, issued by the Australian
Securities and Investments Commission, relating to
the “rounding off” of amounts in the financial report.
Amounts in the financial report have been rounded
off in accordance with that Class Order to the nearest
thousand dollars, or in certain cases, the nearest dollar.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
(i) AASB 9 Financial Instruments (effective for annual
reporting periods on or after 1 January 2018)
AASB 9 introduces new requirements for the
classification and measurement and de-recognition
of financial assets and financial liabilities. The new
standard replaces 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. In relation to the impairment
of financial assets, the new requirement is the use of
an expected credit loss model to replace the current
incurred credit loss model.
The Group is currently undertaking an impact
assessment of AASB 9 but has not completed this
process. However, based on a preliminary assessment,
the Group does not believe that there is any material
impact from adopting AASB 9 based on the financial
position at 30 June 2017. Findings from the
preliminary assessment are commented below.
Principal classifications
There are three new financial asset classifications;
measurement at amortised cost, fair value through
other comprehensive income (FVOCI) and fair value
through profit or loss (FVTPL) to replace the current
classifications in held to maturity, loans and receivables
and available for sale. The new classification if applied
at 30 June 2017 would not have a significant impact
on the accounting for trade receivables which are
accounted for at amortised cost.
Impairment
AASB 9 introduces the expected loss model (ECL) to
replace the incurred loss model in the current standard.
The ECL model requires an assessment of expected
credit losses and changes to those losses at each
reporting date. This effectively means a credit default
event need not have occurred and the assessment will
inherently require considerable judgement for factors
affecting the recoverable rate in a probability-weighted
calculation. The loss allowance will be measured under
the following methods.
– 12 month ECL (simplified approach) as a measure of
possible default within the next 12 months; and
– lifetime ECLs that measure all possible default events
over the life of the financial asset for assets where there
has been or is expected to be a significant change in
credit risk.
51
The Group’s trade receivables (note 13), finance lease
receivables (note 14) and the financial guarantee under
the put option granted to a P&A financier will be subject
to the impairment provisions of AASB 9. The preliminary
results from the application of the new impairment
assessment on the Group’s financial assets are as follows.
– Trade receivables ECL using the simplified approach is
not significantly different to the current provision
for doubtful debts.
– Other impacts of the new impairment model on financial
assets, such as finance lease receivables, are being
assessed by the Group.
– During the year, the Group expanded the procurement
lease financing for customers under principal and
agency (P&A) arrangements where the financier
and customer undertake a direct borrower / lender
relationship. The Group acts as an agent and does
not acquire credit or proprietary risk in providing the
finance but the Group however, provides a financial
guarantee to the financier by way of a put option for
operating leases where the financier can sell the lease
asset at its residual value at the end of the contract. The
impairment calculation under AASB 9 will be similar to
the recoverable amount assessment for residual values
in respect of operating lease assets (note 17(b)). No
material amount is expected given that the residual value
of lease assets under P&A is relatively insignificant.
Hedging
Hedge accounting under AASB 9 introduces greater
flexibility to the type of transactions that can be hedged
and the type of risk components in non-financial items
that qualify as hedging instruments. The effectiveness
test in the current standard has been replaced and now
includes a qualitative approach to the assessment or the
in-principle economic relationship between the hedging
instrument and the hedged item.
The Group uses interest rate swaps to manage its
exposure to the volatility in interest rates as part of
its Asset Management operations and in line with the
Group’s risk management objectives. The hedging
relationship will qualify under the new standard
relatively unchanged as the Group is nearly always
highly effectively hedged.
Future impact
The above assessments are still preliminary and
subject to further review and are based on the Group’s
financial assets and liabilities at 30 June 2017 and
using the circumstances that existed at this date.
As circumstances may change by the time the new
standards are adopted mandatorily in financial year
2019, and given that the Group does not intend to
adopt the standard early, the potential impact from the
adoption of the new standard may change.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
52
(ii) AASB 15 Revenue from Contracts with Customers
(effective for annual reporting periods on or after
1 January 2018)
AASB 15 contains principles to determine the amount
and timing of revenue recognition. The new standard is
based on the principle that revenue is recognised when
control of goods or services transfers to a customer.
The Group is currently assessing the effect of applying
AASB 15 on the consolidated financial statements and
items of significance are discussed below.
Remuneration services
The Group generates revenue from the provision of
remuneration services. Revenue from the administration
of salary packaging services is recognised over the
period that the service is completed. This revenue
stream is stand-alone and separate as it is not linked
to the provision of leases or any other services being
provided as part of a single contractual arrangement.
In respect of commissions, the Group receives this
revenue acting in the capacity of an agent. Fees and
commissions for the procurement of novated leases
are recognised when the customer receives the items
procured. We are still assessing the potential impact,
specifically in the areas of trail commissions, volume
bonuses and upfront fees. Currently, we are recognising
such items progressively and this may be accelerated
under the new standard as we progress our impact
assessment.
Lease rental services
Revenue from lease rental services relate to the
Asset Management segment and include rental and
interest income from operating and finance leasing,
tyre and maintenance services and other in-life asset
management services.
Operating lease rental income is recognised on a
straight line basis over the term of the contract. Interest
from finance leases is recognised over the term of
the lease for a constant periodic return on the amount
invested in the lease asset. Both of these revenue
streams are recognised in accordance with AASB 117
Leases. Revenue from other in-life services such as
tyre and maintenance services revenue are recognised
to the extent that services are completed less a deferral
as an unearned provision for expected future services.
The unearned liability is currently disclosed as a
separate provision to recognise the contractual condition
to meet the costs of future services based on the
services provided up to reporting date. We are still
considering the accounting for maintenance services
associated with leases.
Brokerage commissions and financial services
The Group’s revenue from retail financial services
include fees earned from financiers and insurers for
the origination of financial products as well as volume
based commissions. The Group earns revenue from the
third party distribution of insurance products and the
administration of risk warranty product. The Group acts
in the capacity as agent and does not carry the risk as
underwriter for the sale of warranty products, however
the Group applies its discretion to assist dealers to meet
the cost of customer claims in relation to the dealer
warranty products it administers. The Group does not
expect to be considered as a provider of insurance to be
accounted under AASB 17 Insurance Contracts when it
becomes applicable in 2021.
For the origination business, commission revenue
is currently recognised on completion of the service
provided to the customer or the customer has taken
delivery of the product whichever is later. Where there
is a potential for the commission to be clawed back
by the financial services provider when a policy is
cancelled, a provision is calculated and expensed. It
has been preliminarily assessed that under AASB 15,
revenue from contracts that are variable because of
refunds or rebates are to be measured at their expected
recoverable amount. AASB 15 will require revenue to
be recognised net of estimated clawbacks. We are
assessing our process in accounting for clawbacks.
Revenue from dealer network products is recognised
over the warranty period based on expected claims.
We are still assessing the impact of the new revenue
standard but do not expect this to be significant.
At the date of this report, the Group is not able to
estimate the effect of the new standard and a more
detailed assessment of the impacts will be disclosed in
the interim financial report.
(iii) AASB 16 Leases (effective for annual reporting periods
on or after 1 January 2019)
AASB 16 introduces a single comprehensive on-balance
sheet accounting model for lease arrangements that
apply to lessors and lessees. This effectively removes the
distinction between operating leases (off-balance sheet)
and finance leases (on-balance sheet) with the exception
for short term leases and leases of low value assets.
Lessees will now have to bring operating leases on to
the balance sheet and recognise a right-of-use asset
(ROU) being the asset that is leased and a corresponding
lease liability for the amount used to finance the ROU.
Committed payments that are now recognised as rental
expense will be replaced by the depreciation of the ROU
and the interest expense from the lease liability.
The Group is currently assessing the potential impact
on the consolidated financial statements when the new
standard is mandatorily adopted.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
53
In November 2016, the IFRS Interpretations Committee
(IFRIC) provided guidance to clarify that an intangible
asset with an indefinite useful life is not necessarily a
non-depreciable asset or an asset with an infinite life.
It cannot also be assumed that an asset that does not
amortise will recover the carrying amount only through
sale and not through use. An asset that is expected
to be recovered through sale would normally have
expectations supported by a plan for its sale, the asset
is not relied on in the business, there is a market for
the nature of the asset or the asset has had a history of
being bought or sold.
The Group has re-assessed its use of the Brands
asset and is of the view that it continues to have an
indefinite life and as the carrying value of the asset
will be recovered through its use rather than only
at sale. Accordingly, a deferred tax liability will be
recognised. The effect of this change is considered
a change in accounting policy and has been applied
retrospectively to the date of the acquisition of Presidian
in accordance with AASB 108 Accounting Policies,
Changes in Accounting Estimates and Errors. The effect
of the change has increased Deferred Tax liability by
$6,733,000 with a corresponding increase to Goodwill
in the Statements of Financial Position. There is no
impact on the Statement of Profit and Loss, Other
Comprehensive Income or Cash Flows.
Classification of operating lease assets as current
Operating lease assets included in property, plant and
equipment that were presented as non-current assets
in prior years have been classified between current and
non-current assets in the year ending 30 June 2017
in the Statement of Financial Position. Operating lease
assets held as a current asset represents the written
down value of operating lease assets terminating within
the next twelve months. The change has not resulted
in any changes to the Statement of Profit or Loss. The
change in classification is considered a change in
accounting policy and has been applied retrospectively
in accordance with AASB 108 Accounting Policies,
Changes in Accounting Estimates and Errors. The
change in accounting policy is deemed to provide more
reliable and relevant information to the users of the
financial report.
Accounting for the Group’s operating lease
assets as lessor
The Asset Management segment provides operating
leasing finance to its customers and the investment
in the assets for this business is recognised as assets
under operating leases as disclosed in note 17 to the
financial statements. Income from the leasing of these
assets is disclosed in lease rental service revenue
(note 7). The accounting for lessors is not expected to
notably change.
Accounting the Group’s operating lease
commitments as lessee
All leases will be required to be recognised on the
balance sheet. Historical information about operating
lease commitments that may be required to be
recognised on balance sheet is included in Note 27(a).
The preliminary assessment indicates that these
arrangements meet the definition of a lease under
AASB 16.
The other impacts on the adoption of AASB 16 have
been considered below.
– For reporting periods post-transition, rental expense
currently recognised will be replaced by the depreciation
of the ROU and the interest expense on the lease liability.
This will consequently, increase EBITDA and EBIT
respectively.
– Borrowing arrangements could be affected. Interest
cover ratio will improve and the lease liability will add to
total borrowings and consequently, affects the borrowing
ratio. The Group is in discussion with its bank lenders
and it is not expected that it will have material impact on
the borrowing facilities, capacity or covenants.
– The consolidated statement of cash flows will recognise
changes to the lease liability and interest in the period
as financing activities in contrast to rental expenses
currently recognised as operating activity.
The Group has not completed its assessment of the new
standard and whether it will be adopted early.
(e) Change of accounting policy
Tax effect of acquired assets with an indefinite life
The accounting for the business combination of
Presidian Holdings Pty Ltd that was acquired in financial
year 2015 included Brands of $22,443,000 which were
determined to have an indefinite life. A deferred tax
liability was not recognised on the presumption that the
asset had an indefinite life and was therefore, analogous
to the view that the carrying value of the asset would
be recovered through its sale and consequently, its
capital gains tax cost base would apply. On this basis,
no deferred tax liability was considered necessary in
accordance with AASB 112 Income Taxes, given that
no economic benefit was being consumed from the
asset and therefore, no tax benefits need be attached.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
54
3 Critical judgements and significant
accounting estimates
The preparation of financial 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 for any
future periods affected.
Goodwill and intangible assets
Goodwill and brands that have an indefinite life are
tested for impairment bi-annually and more frequently
if there are indications of impairment and other
intangible assets with a finite life if there are indicators
of impairment. The recoverable amounts of cash
generating units have been determined using the
value-in-use methodology. The variables used in the
calculation requires the use of assumptions that affect
earnings projections and the estimation of a discount
rate that uses a cost of capital and risk premia specific
to the cash generating unit amongst other factors.
Lease assets residual value
The Group has proprietary interest to assets held under
operating leases and accordingly, carry an inherent
risk for the residual value of the asset. Estimates of
significance are used in assessing the residual value
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.
The assessment of residual values include critical
forecast of the future value of the asset lease portfolio
at the time of sale and considers the potential impact,
economic and vehicle market conditions and dynamics.
Tyre and maintenance services
The Group holds the residual risk for the provision of
tyre and maintenance services. Profit is attributable
to contracts over the life of the contract and losses
are provided in full in the period that the loss making
contract is first determined. The assessment of
attributable profit and the loss provision requires
significant estimates in relation to factors that affect
expected realisable margins. Calculations are performed
monthly and key estimates and underlying assumptions
are reviewed on an ongoing basis.
Underwriting premium revenue
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 significant.
4 Financial Risk Management
The Group’s activities expose it to a variety of financial
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 financial performance of the Group. The
Board is responsible for monitoring and managing the
financial 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 risk report is presented to the Audit,
Risk and Compliance Committee at least four times per
year. 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.
(a) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due.
Liquidity management strategy
The Asset Management business and the resultant
borrowings expose the Group to potential mismatches
between the refinancing of its assets and liabilities. The
Group’s objective is to maintain continuity and flexibility
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 sufficient
liquidity through access to committed available funds
to meet at least twelve months of average net asset
funding requirements, augmented with uncommitted
principal and agency facilities. This level is expected
to cover any short term financial market constraint
for funds. The Group monitors daily positive operating
cash flows and forecasts cash flows for a twelve month
period. Significant cash deposits have been maintained
which enable the Group to settle obligations as they fall
due without the need for short term financing facilities.
The Chief Financial Officer and the Group Treasurer
monitor the cash position of the Group daily.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
55
Financing arrangements
The Group’s committed borrowing facilities for the Asset Management segment to finance its fleet management portfolio and other borrowing
requirements are as follows.
Asset Management revolving borrowing
facilities in local currency
2017
2016
Facility
Used
Unused
Facility
Used
Unused
Revolving borrowing facilities (AUD)
344,659
281,972
62,687
398,148
284,654
113,494
Secured bank borrowings
(excluding borrowing costs)
AUD’000
AUD’000
AUD’000
NZD’000
NZD’000
GBP’000
GBP’000
GBP’000
Maturity
dates
31/03/2018
31/03/2019
31/03/2020
31/03/2019
31/03/2020
03/04/2018
31/03/2020
31/03/2019
Facility
Used
Unused
Facility
Used
Unused
50,000
65,000
60,000
10,500
10,500
12,000
42,000
35,000
49,800
41,200
60,000
4,800
9,850
11,550
22,600
35,000
200
165,000
132,000
23,800
-
5,700
650
450
19,400
-
75,000
-
10,000
10,000
42,000
-
35,000
46,200
-
2,000
8,500
37,900
-
15,500
33,000
28,800
-
8,000
1,500
4,100
-
19,500
The revolving borrowing facilities above have been provided by a financing club of three major Australian banks operating under common terms and
conditions. These facilities are further augmented by uncommitted Principal and Agency facilities. The Group believes that this balanced arrangement
improves liquidity, provides funding diversification and provides a lower overall funding cost. The bank loans are denominated in local currency of the
principal geographical markets to remove associated foreign currency cash flow exposure.
The revolving facilities of AUD60 million and GBP42 million that were due to mature on 31 March 2018 were extended for two years with a new
maturity date of 31 March 2020. The drawn down facilities for AUD49.8 million and GBP11.6 million that mature on 31 March 2018 are currently
being re-negotiated as part of an overall review of funding requirements to match the strategic shift to principal and agency financing arrangements.
No liquidity issues are anticipated as the cash flow from the run-off of the existing lease asset portfolio from reporting date to 31 March 2018 will
provide $141 million. The existing headroom from committed facilities and uncommitted principal and agency facilities, together with contractual lease
receivable cash flows, will provide the necessary funding requirements for the next 12 months of forecast new lease additions.
Other amortising borrowing
facilities in local currency
Amortising borrowing facilities (AUD)
2017
2016
Facility
57,993
Used
Unused
57,993
-
Facility
61,701
Used
Unused
61,701
-
Secured bank borrowings
(excluding borrowing costs)
AUD’000
GBP’000
GBP’000
Maturity
dates
31/03/2020
31/03/2018
31/03/2022
Facility
Used
Unused
Facility
Used
Unused
41,625
3,950
5,723
41,625
3,950
5,723
-
-
-
53,125
4,750
-
53,125
4,750
-
-
-
-
The amortising facility of $41.6 million (above) was established to fund the acquisition of the Presidian Group, the facility of GBP3.95m to fund the
acquisition of CLM Fleet Management plc and the facility for GBP5.7 million to fund the acquisition of European Vehicle Contracts Limited and Capex
Asset Finance Limited.
Maturities of financial liabilities
The table below analyses the Group’s and the parent entity’s financial 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 flows. Balances due within 12 months equal their carrying value as the
impact of discounting is not significant.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
56
Consolidated Group – at 30 June 2017: Contractual maturities of financial liabilities
Trade payables
Other creditors and liabilities
Borrowings
Less than 6
months
$’000
19,198
65,728
11,275
96,201
6–12
months
$’000
-
6,315
86,450
92,765
1–2 years
$’000
2–5 years
$’000
-
4,170
85,882
-
10,007
184,850
90,052
194,857
Consolidated Group – at 30 June 2016: Contractual maturities of financial liabilities
Trade payables
Other creditors and liabilities
Borrowings
Less than 6
months
$’000
20,792
64,706
9,733
95,231
6–12
months
$’000
-
176
12,517
1–2 years
$’000
2–5 years
$’000
-
1,481
295,853
-
7,164
129,396
12,693
297,334
136,560
Parent – at 30 June 2017: Contractual maturities of financial liabilities
Less than 6
months
$’000
6–12
months
$’000
1–2 years
$’000
2–5 years
$’000
Over 5
years
$’000
-
-
-
-
Over 5
years
$’000
-
-
-
-
Total
contractual
cash flows
$’000
19,198
86,220
Carrying
Amount /
liabilities
$’000
19,198
85,426
368,457
339,965
473,875
444,589
Total
contractual
cash flows
$’000
20,792
73,527
Carrying
Amount /
liabilities
$’000
20,792
74,618
447,499
345,570
541,818
440,980
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets)/
liabilities
$’000
Amounts payable to
wholly owned entities
and other payables
Borrowings
Financial guarantee contracts
132,952
-
-
-
6,327
4,947
144,226
6,243
80,296
86,539
12,234
73,648
18,960
165,890
85,882
184,850
-
-
-
-
132,952
132,952
43,764
324,781
41,625
298,340
501,497
472,917
Parent – at 30 June 2016: Contractual maturities of financial liabilities
Less than 6
months
$’000
6–12
months
$’000
1–2 years
$’000
2–5 years
$’000
Amounts payable to
wholly owned entities
and other payables
Borrowings
Financial guarantee contracts
105,617
6,561
3,173
-
6,469
6,048
-
-
12,664
283,189
31,287
98,109
115,351
12,517
295,853
129,396
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets)/
liabilities
$’000
-
-
-
-
105,617
105,617
56,981
390,519
53,028
-
553,117
158,645
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
57
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligations.
The Company and Group have exposure to credit risk through the receivables’ balances, customer leasing commitments and deposits with banks.
The following carrying amount of financial assets represent the maximum credit exposure at reporting date.
Trade and other receivables
Deposits with banks
Finance lease & hire purchase receivables
Operating lease assets
Consolidated Group
Parent Entity
2017
$’000
45,922
59,416
168,175
299,189
572,702
2016
$’000
37,396
95,583
135,559
292,825
561,363
2017
$’000
20
5,759
-
-
5,779
2016
$’000
-
5,716
-
-
5,716
Lease assets of the Asset Management business represents future lease rentals that have yet to be invoiced. Such assets are secured against
underlying assets.
Credit risk management strategy
Credit risk arises from cash and cash equivalents and deposits with banks as well as exposure from outstanding receivables and unbilled future rentals
for leased vehicles and counterparty risks associated with interest 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. 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 official 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 financial 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 flow 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.
Interest rate risk arises where movements in interest rates affect the net margins on existing contracts for assets leased. As the Group carries significant
cash and borrowings, movements in interest rates can affect net income to the Group, particularly for the Group Remuneration Services segment.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
58
Borrowings issued at variable rates expose the Group to repricing interest rate risk. As at the end of the reporting period, the Group had the following
variable rate borrowings under long-term revolving facilities attributable to the Asset Management business and other loan facilities drawn on.
AUD’000
GBP’000
Total AUD’000
2017
2016
Borrowings
’000
Weighted average
interest rate %
Borrowings
’000
Weighted average
interest rate %
206,584
78,823
339,604
3.01
1.58
2.62
241,365
58,150
345,570
3.30
1.76
3.00
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 4(a).
To mitigate the cash flow 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 specified periods, the difference between fixed 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 profile of the lease portfolio in order to preserve the contracted net interest
margin. At 30 June 2017, the Group’s borrowings for the Asset Management business of $281,972,000 (2016: $284,654,000) were covered by
interest rate swaps at a fixed rate of interest of 2.61% (2016: 3.38%).
The Group’s interest rate risk also arises from cash at bank and deposits, which are at floating interest rates.
At reporting date, the Group had the following variable rate financial 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 flow interest rate risk
2017
Balance
$’000
59,416
(298,340)
255,818
(41,625)
2016
Balance
$’000
95,583
(293,230)
229,554
(53,125)
(24,731)
(21,218)
1 Excluding capitalised borrowing costs of $293,000 (2016: $785,000) for Asset Management and $68,000 (2016: $97,000) for the bank loan for Presidian.
Sensitivity analysis – floating interest rates:
At 30 June 2017, the Group’s and parent entity’s cash and cash equivalents give rise to credit and interest rate risk. Cash and cash equivalent funds
held by the Group and the parent entity include funds at bank and in deposit net of bank borrowings that are not hedged. The Group also holds cash
and cash equivalent funds in trust to which the Group has contractual beneficial entitlement to the interest. If the Australian interest rate weakened or
strengthened by 25 basis points, being the Group’s view of possible fluctuation, and all other variables were held constant, the Group’s post-tax profit
for the year would have been $528,000 (2016: $649,000) higher or lower and the parent entity $63,000 (2016: $83,000) 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 financial 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 financial and non-financial items of the UK and New Zealand entities
do not form part of the Group’s risk exposure given that these entities are part of longer term investments and consequently, their sensitivity to foreign
currency movements are not measured.
The Group’s transactions are pre-dominantly denominated Australian dollars which is the functional and presentation currency.
(iii) Other market price risk
The Consolidated Group does not engage in any transactions that give rise to any other market risks.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
59
(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 $299,189,000 (2016: $292,825,000) included a residual value provision
of $4,829,000 (2016: $4,381,000).
5 Segment Reporting
Reportable segments
(a) Description of Segments
The Group has identified 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 identified 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 identified, 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 financial 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 financing. The segment also provides ancillary services associated with motor
vehicle novated lease products.
Asset Management - This segment provides financing and ancillary management services associated with motor vehicles, commercial vehicles
and equipment. During the year, the segment acquired European Vehicle Contracts Limited and Capex Asset Finance Limited to complement the
existing business and provide extended geographical coverage in the UK. Anglo Scottish Finance Limited plc was acquired by the segment on
4 November 2015.
Retail Financial services - This segment provides retail brokerage services, aggregation of finance originations and extended warranty cover,
but does not provide financing. The United Financial Services group of companies were added to this segment from 31 July 2015.
(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 profit after tax
Group Remuneration Services
Asset Management 3
Retail Financial Services 1, 2
Segment operations
Corporate administration and directors’ fees
Acquisition expenses
Net interest income
Tax on unallocated items
Profit after tax from continuing operations for the year
2017
$’000
189,709
215,748
106,023
2016
$’000
188,310
204,812
110,037
511,480
503,159
2017
$’000
58,341
16,618
(5,006)
69,953
(1,558)
(1,076)
45
538
67,902
2016
$’000
58,662
14,634
11,827
85,123
(1,398)
(2,289)
(438)
1,471
82,469
1 The UFS entities joined the Retail Financial Services segment from 31 July 2015.
2 RFS result includes an impairment expense of $20,000,000.
3 Asset Management includes EVC from 1 December 2016, CAPEX from 6 January 2017 and Anglo Scottish from 4 November 2015.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
60
(c) Other segment information
(i) Segment revenue
Segment revenue is reconciled to the Consolidated Statement of Profit or Loss as follows:
Total segment revenue
Interest revenue
Total revenue per Consolidated Statement of Profit or Loss
2017
$’000
511,480
1,552
2016
$’000
503,159
1,507
513,032
504,666
Segment revenue above represents sales to external customers and excludes inter-segment sales, consistent with the basis by which the financial
information is presented to the Chief Decision Maker.
The accounting policies of the reportable segments are the same as the Group’s policies. Segment profit 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 profit does not
include corporate costs of the parent entity, including listing and company fees, director’s fees and finance costs relating to borrowings not
specifically sourced for segment operations, costs directly incurred in relation to the acquisition of specific 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 $54,747,000 (2016: $63,714,000) from the Group’s
largest contract.
(ii) Segment result
The following items are included in the segment results.
Segment depreciation and amortisation and impairment
Group Remuneration Services
Asset Management
Retail Financial Services 1
Share of loss from joint venture
Group Remuneration Services
Asset Management
Retail Financial Services
2017
$’000
5,074
79,820
24,152
109,046
-
1,260
-
1,260
2016
$’000
4,782
82,203
4,395
91,380
-
1,495
-
1,495
1 Includes impairment of goodwill and other intangibles of $20 million.
(iii) Segment assets and liabilities
The segment information with respect to total assets is measured in a consistent manner with that of the financial 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.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
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 financial position
Segment liabilities
Group Remuneration Services
Asset Management
Retail Financial Services
Segment liabilities
Non-segment liabilities
Unallocated liabilities 1
Consolidated liabilities per statement of financial position
61
2017
$’000
2016
$’000
89,503
538,717
172,069
800,289
59,067
520,785
191,306
771,158
48,691
80,960
848,980
852,118
56,189
351,691
28,548
436,428
53,680
337,537
45,170
436,387
41,557
45,236
477,985
481,623
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 utilising centralised treasury controlled funds.
Additions to non-current assets
Group Remuneration Services
Asset Management
Retail Financial Services
2017
$’000
2016
$’000
7,175
146,730
168
5,302
154,210
47,328
154,073
206,840
(d) Geographical 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.
Revenue from external customers
Non-current assets 1
2017
$’000
469,693
36,278
7,061
2016
$’000
475,507
25,257
3,902
2017
$’000
569,449
78,962
17,696
2016
$’000
576,704
60,532
9,771
513,032
504,666
666,107
647,007
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
62
6 Intangible Assets
(a) Carrying values
Goodwill
Cost
Impairment loss
Net carrying value
Brands
Brands at cost - indefinite life
Imapirment loss
Sub-total
Brands at cost - finite life
Accumulated amortisation
Net carrying value
Dealer relationships
Cost
Accumulated amortisation
Impairment loss
Net carrying value
Software development costs
Cost 1
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
1 Software includes capitalised internal costs.
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
195,705
(4,519)
191,186
22,443
(12,479)
9,964
6,598
(2,828)
13,734
28,120
(3,973)
(3,038)
21,109
39,774
(20,055)
19,719
13,070
(12,523)
547
6,361
(1,910)
4,451
189,398
(36)
189,362
22,443
-
22,443
6,598
(1,532)
27,509
21,795
(1,881)
-
19,914
38,930
(21,286)
17,644
13,070
(11,541)
1,529
6,713
(1,306)
5,407
250,746
261,365
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
63
(b) Recognition and measurement
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 value less any accumulated amortisation and accumulated impairment losses. Specific criteria for
various classes of intangible assets are stated below.
Intangible assets in software development costs and contract costs, which are not acquired from business combination, are initially measured
at cost and subsequently re-measured at cost less amortisation and impairment.
(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 identifiable assets,
liabilities and contingent liabilities of the acquired entity. 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. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Any impairment is
recognised immediately in the statement of profit or loss.
Identifiable intangible assets acquired from business combination
Identifiable intangible assets with finite lives are amortised over their useful lives and assessed for impairment. Amortisation of identifiable
intangible assets is calculated on a straight-line basis over the estimated useful lives as follows:
(ii)
Intangible asset
Useful life
Dealer relationships and networks
10 to 13 years
Customer contracts
Brand names
13 years
6 years to indefinite
Brand names that have indefinite useful lives will consequently not be amortised but are subject to annual impairment assessments. Brand
names that are restructured or consolidated with other brands and which consequently are considered to have a finite life are amortised over
a useful life that represents the expected run-off of economic benefits expected from them.
Brand names that have an indefinite life is pursuant to the Group’s plan for its continued use into the forseeable future and there is no reasonable
basis to establish a useful life and consequently any amortisation would be random and may not align with the economic benefits it generates.
(iii) Capitalised software development costs
Software development costs are capitalised when it is probable that future economic benefits attributable to the software will flow 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 five years during which the benefits are expected to be realised.
(iv) Contract rights
Contract rights acquired and amounts paid for contract rights are recognised at the value of consideration paid plus any expenditure directly
attributable to the transactions. Contracts are amortised over the life of the contract and reviewed annually for indicators of impairment in line
with the Consolidated Group’s impairment policy.
(c) Reconciliation of written down values
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
2017
Net book amount
Balance beginning of year
189,362
27,509
19,914
5,407
Additions
Acquisition through
business combination
Impairment
Amortisation
Change in foreign currency
-
-
-
8,127
(4,483)
-
(1,820)
-
(12,479)
(1,296)
-
6,451
(3,038)
(2,019)
(199)
Closing balance
191,186
13,734
21,109
-
-
-
(677)
(279)
4,451
17,644
6,888
1,112
-
(5,994)
69
19,719
1,529
-
-
-
(982)
-
547
Total
$’000
261,365
6,888
15,690
(20,000)
(10,968)
(2,229)
250,746
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
64
(c) Reconciliation of written down values
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Total
$’000
2016
Net book amount
Balance beginning of year
141,574
Additions
Acquisition through
business combination
Amortisation
-
52,186
22,443
-
6,598
-
(1,532)
Change in foreign currency
(4,398)
-
Closing balance
189,362
27,509
11,724
-
10,115
(1,585)
(340)
19,914
3,566
-
3,235
(723)
(671)
5,407
19,643
3,396
-
(5,395)
-
17,644
2,454
201,404
-
-
(925)
-
3,396
72,134
(10,160)
(5,409)
1,529
261,365
1 Adjustment to prior year addition from business combination following a change in accounting policy to recognise a deferred tax liability for an indefinite-life asset
(refer Note 2(e)).
(d) Impairment test of goodwill and intangible assets with an indefinite life
At each reporting date, the Group reviews the carrying amount of its intangible assets to determine whether there is any indication of impairment.
If any such indication exists, the recoverable amount of the affected assets are evaluated. An impairment loss is recognised in profit 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 identifiable cash inflows which are largely independent of cash inflows from other assets (cash-generating units). Where the
asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
The carrying amount of goodwill and intangible assets with an indefinite life are allocated to the Group’s cash-generating units (CGUs) below based
on the organisation and management of its businesses.
Maxxia Pty Limited (Maxxia)
Remuneration Services (Qld) Pty Limited (RemServ)
CLM Fleet Management plc (CLM)
Anglo Scottish Finance Limited (Anglo Scottish)
Retail Financial Services segment warranty and insurance business (RFS risk)
Retail Financial Services segment retail finance business (RFS finance)
European Vehicle Contracts Limited (EVC)
Capex Asset Finance Limited (CAPEX)
Consolidated Group
2017
$’000
24,190
9,102
12,264
15,817
53,858
77,725
3,301
4,893
2016
$’000
24,190
9,102
13,086
16,882
70,820
77,725
-
-
201,150
211,805
The carrying value of intangible assets of the RFS warranty and insurance business was adjusted for impairment following the recoverable value
review of goodwill, brands and dealer relationships.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
65
(e) Key assumptions used for value-in-use calculations
In performing the value-in-use calculations for each CGU, the Group has applied pre-tax discount rates to pre-tax cash flow projections. The pre-tax
discount rates discussed below reflect specific risks relating to the relevant business each operates in and have been externally tested with capital
market practitioners. The recoverable value assessment also uses the after-tax model and compares the fair value to the value-in-use calculation.
The growth rate used to evaluate terminal value does not exceed the long-term average growth rate for the business in which the CGU operates in.
Cash flow projections
The cash flow projections are based off the FY18 budget which incorporates Board approved business plans and initiatives. The growth assumptions
used for subsequent years reflect strategic business plans and forecast growth rates. Financial projections also take into account any risk exposures
to changes in the trading, market and regulatory environments. The average growth rates used in the five year projection is between 1% and 5%.
Cash flows beyond the five-year period are extrapolated using conservative growth rates between 0% and 2%.
Sensitivity analysis and discount rates
GRS CGUs
The Maxxia and Remserv CGUs that form the GRS segment operate largely in the same business environment and are exposed to similar risks.
A pre-tax discount rate of 11.5% (2016: 10.5%) was applied to pre-tax cash flows for the value-in-use calculations.
The extent of current GRS segment cash flows comprising Maxxia and RemServ indicate that any reasonable changes to the key assumptions
would not cause an impairment and consequently, no sensitivity assessments have been presented. One of the key assumptions in the GRS
segment is that there is no significant change to Australian tax legislation that could affect the salary packaging and novated businesses however,
the recoverable amounts will have to be re-assessed if there is anything significant to the contrary. RemServ generates a substantial portion of its
salary packaging and novated leasing business from the provision of services to employees of the Queensland Government pursuant to contractual
arrangements that extend to April 2019 and November 2019 respectively plus a two year extension at the option of the client.
Asset Management CGUs
EVC and CAPEX operate largely in the same business environment and are exposed to relatively similar types of risks. A pre-tax discount rate
of 14.0% was applied to pre-tax cash flows for the value-in-use calculation in line with the rate used by an external valuer for the valuation of
intangible assets during the year. The value-in-use assessment for Anglo Scottish and CLM used a pre-tax discount rate of 14.0% (2016: 14.0%).
The EVC and CAPEX CGUs have performed in line with expectations to date since their acquisition during the year and any reasonable change to
the key assumptions is unlikely to cause an impairment and consequently, no sensitivity assessments have been presented. A 5% change to the
key assumptions for CLM and Anglo Scottish is unlikely to cause an impairment.
Retail Financial Services CGUs
The risk and finance CGUs applied a pre-tax discount rates between 13.9% to 14.0% (2016: 10.5%) for the pre-tax value-in-use calculations.
The sensitivity of the RFS risk CGU estimated recoverable amount is calculated to potentially vary by $3.0 million for every 0.50% change to the
discount rate and for a 5% change in earnings growth, the estimated recoverable amount could vary by $2.4 million. The sensitivity of the RFS
finance CGU estimated recoverable amount is calculated to potentially vary by $4.8 million for every 0.50% change to the discount rate and for a
5% change in earnings growth, the estimated recoverable amount could vary by $6.2 million.
The Australian Securities and Investment Commission (ASIC) is currently undertaking a review of commission pricing and add-on insurance products
in the retail financial products industry. It is not currently possible to measure the impact of any potential regulations until they are mandated by
ASIC and accordingly, are not included in the key assumptions. In June 2017, it was reported in the media that a class action was being prepared
for a claim relating to a warranty product operated by RFS risk. Any impact from this action is not incorporated in the key assumptions as there is
insufficient information to identify or measure the impact.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
66
7 Revenue
Revenue from continuing operations
Remuneration services 1
Lease rental services
Proceeds from sale of leased assets
Brokerage commissions and financial services and premiums
Interest
Dividends received
Other
Total revenue
Underwriting premium from direct business
included in Retail Financial Services Revenue
Gross written premium
Movement in deferred income
Premium revenue
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
190,094
136,587
57,724
124,615
1,410
-
2,602
188,483
148,184
47,361
118,295
1,855
-
488
513,032
504,666
31,853
2,155
34,008
31,700
(165)
31,535
-
-
-
-
144
54,076
-
54,220
-
-
-
-
-
-
-
123
46,592
-
46,715
-
-
-
1 Included in remuneration services revenue is interest income derived from the holding of trust funds (refer note 12(b))
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
67
Recognition and measurement
Revenue is recognised at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow
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) Remuneration services
Revenue from remuneration services is recognised for the period that services have been rendered and does not include fees and account operating
costs collected on behalf of customers and third parties. Remuneration services revenue includes interest earned for managing funds held in trust for
clients pursuant to and as part payment for remuneration services rendered.
(ii) Lease rental services
Operating lease rental revenue is made up of operating lease interest and the principal that forms the net investment in the leased asset and is
measured in a straight line basis over the term of the contract. Interest from finance lease receivables is included in lease rental services revenue and
measured using the effective interest method and the principal portion upon receipt reduces the net investment in the leased asset.
Revenues from maintenance service contracts are recognised for services rendered when it is probable that economic benefits from the transaction
will flow to the Group. When the amounts are uncollectable or recovery is not considered probable, an expense is recognised immediately. Revenue is
recognised for each reporting period by reference to the stage of completion when the outcome of the service contracts can be estimated reliably. The
stage of completion of service contracts is based on the proportion that costs incurred to date bear to total estimated costs. When the outcome cannot
be measured reliably, revenue is deferred and recognised 60 days after the contract terminates.
(iii) 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.
(iv) Brokerage commissions
Revenue from the provision of financial services is recognised by reference to the stage of completion of the services provided to the customer.
Brokerage service provided by the Group include acting as agent for the procurement of financial products for the customer where commission
revenue is earned on a transaction basis and a volume based commission from financial product providers where the Group provides a sub-origination
service. Brokerage commission revenue also includes “principal and agency” (P&A) services where the Group has performed mainly as agent for the
procurement of lease asset financing with an external financier. Under a P&A arrangement, the Group does not possess credit risk or carry on risks of
ownership of the underlying financial arrangement with the customer. Where the P&A arrangement with the financier has a put and call option for the
lease asset to be sold / purchased by the Group at the end of the lease, the option is fair valued at reporting date and included in the residual value
provision included in operating lease assets.
Group Revenue is recognised when the customer accepts delivery of the financial product or lease asset or on completion of the contract for the
underlying financial arrangement with the financier or insurer.
(v) Warranty revenue
Warranty revenue included in brokerage and financial services revenue comprises product income from direct business charged to product holders
excluding stamp duties, GST and other amounts collected on behalf of third parties.
Warranty revenue, including the unclosed business, is recognised when it has been earned, calculated from attachment date over the period of the
contract for the direct business. Where time does not reasonably 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 profit and loss at reporting date is recognised in the consolidated statement of
financial position as unearned income.
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.
(vi) 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 financial asset.
(vii) Dividends
Revenue from dividends is recognised when the Group’s right to receive payment is established.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
68
8 Expenses
(a) Profit before income tax includes the
following specific expenses
Depreciation and amortisation expenses
Amortisation of software development
Amortisation of contract rights acquired
Depreciation of assets under operating lease
Depreciation of plant and equipment
Residual value loss provision
Amortisation of intangibles
Impairment of goodwill
Impairment of other intangible assets
Impairment of investment in subsidiaries
Rental expense on operating leases
Minimum lease payments
Superannuation
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
5,994
491
75,544
3,024
-
3,993
89,046
4,483
15,517
-
20,000
5,395
590
78,172
2,998
385
3,840
91,380
-
-
-
-
9,225
9,123
-
-
-
-
-
-
-
-
-
20,000
20,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Defined contribution superannuation expense
7,948
8,259
(b) Auditor’s remuneration
Remuneration of the auditor (Grant Thornton Audit Pty Ltd)
of the parent entity for:
Audit or review of the financial report of the entity and
any other entity in the Consolidated Group
Assurance related
Remuneration of a network firm of the parent entity auditor:
Audit or review of the financial statements (UK)
Assurance related
Consolidated Group
Parent Entity
2017
$
2016
$
2017
$
2016
$
272,000
201,600
278,000
48,300
169,068
139,656
-
4,062
-
-
-
-
-
-
-
-
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
9 Income Tax Expense / (Benefit)
Consolidated Group
Parent Entity
(a) Components of tax expense / (benefit)
Current tax expense / (benefit)
Adjustments for current tax of prior years
Deferred tax
Income tax expense / (benefit)
2017
$’000
37,275
200
(4,030)
33,445
2016
$’000
39,066
668
(2,740)
36,994
2017
$’000
(904)
-
28
(876)
Consolidated Group
Parent Entity
(b) The prima facie tax payable on profit before income tax is
reconciled to the income tax expense / (benefit) as follows:
Profit before income tax
2017
$’000
2016
$’000
101,347
119,463
Prima facie tax payable on profit before income tax at 30% (2016: 30%)
30,404
35,839
Add tax effect of:
– non-deductible costs
– non-deductible impairment expense
– share of joint venture loss
– overseas tax rate differential of subsidiaries
– acquisition expenses
– under-provision of tax from prior year
Less tax effect of:
– dividends received
2017
$’000
31,155
9,347
-
6,000
-
-
-
-
475
1,345
378
(478)
120
1,201
33,445
380
-
448
(341)
-
668
36,994
15,347
-
-
(16,223)
(13,978)
69
2016
$’000
(1,494)
115
645
(734)
2016
$’000
43,260
12,978
150
-
-
-
-
116
13,244
Income tax expense / (benefit)
33,445
36,994
(876)
(734)
Unrecognised temporary differences
Foreign currency translation of investments in subsidiaries
for which no deferred tax assets have been recognised
(9,053)
(5,391)
-
-
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
70
(c) Deferred tax asset / (liability)
The balance comprises temporary differences and tax losses attributed for:
Amounts recognised in profit or loss
Doubtful debts
Provisions
Property, plant and equipment
Accrued expenses
Other receivables/prepayments
Other
Deferred acquisition expenses
Intangible assets1
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
Movements in deferred tax asset / (liability)
Opening balance at 1 July 1
Charged to profit or loss
Charged to other comprehensive income
Acquired from business combination (refer Note 31)
Change in foreign currency
Closing balance at 30 June
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
101
6,305
(5,222)
6,366
(1,753)
(1,745)
1,027
(10,759)
313
51
137
4,290
(8,435)
7,061
467
502
1,708
(14,826)
217
885
-
-
-
-
(831)
-
263
-
-
-
-
-
-
-
(684)
-
144
-
-
-
(5,316)
(7,994)
(568)
(540)
(28)
204
(5,344)
(7,990)
175
(5,519)
(5,344)
(7,790)
4,196
(161)
(1,584)
(5)
(5,344)
194
(7,984)
(7,790)
(6,484)
3,193
(16)
(4,620)
137
(7,790)
-
(568)
-
(568)
(568)
(540)
(28)
-
-
-
-
(540)
-
(540)
(540)
105
(645)
-
-
-
(568)
(540)
1 Adjustment to prior year addition from business combination following a change in accounting policy to recognise a deferred tax liability for an indefinite-life asset
(refer Note 2(e)).
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
71
(d) Recognition and measurement
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.
(i) Deferred tax
Deferred tax assets and liabilities are recognised for all temporary differences between the carrying amounts of assets and liabilities for financial
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 reviewed at each reporting date and the carrying value is reduced to the extent that it is probable future taxable profits will
be available to utilise these temporary differences. Deferred tax assets and liabilities are offset only if certain criteria are met with respect to legal
enforceability and within the same tax jurisdiction.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amounts and tax bases of investments in
subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will
not reverse in the foreseeable future.
Current and deferred tax on items that are accounted for in other comprehensive income or equity are recognised in other comprehensive income and
equity respectively. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and
the deferred taxes relate to the same taxable entity and the same taxing authority.
(ii) 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.
(iii) Investment allowances
Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances) or a tax
credit under the Incentive regime in Australia in relation to eligible Research & Development expenditure. The Consolidated Group accounts for such
allowances as a reduction in income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
72
10 Earnings per Share
Basic earnings per share
Basic EPS – cents per share
Net profit after tax ($’000)
Weighted average number of ordinary shares outstanding during the year used in
the calculation of basic EPS (‘000)
Consolidated Group
2017
2016
81.6
$67,902
99.4
$82,469
83,205
82,927
Basic earnings per share is calculated by dividing the profit attributable to members of the Company by the weighted average number of ordinary
shares outstanding during the financial year.
Diluted earnings per share
Diluted EPS – cents per share
Earnings used to calculate basic earnings per share ($’000)
Weighted average number of ordinary shares outstanding during the year used in
the calculation of basic EPS (‘000)
Weighted average number of options on issue outstanding (’000)
Weighted average number of ordinary shares outstanding during the year used in
the calculation of diluted EPS (‘000)
81.5
99.0
$67,902
$82,469
83,205
132
82,927
335
83,337
83,262
Diluted earnings per share is calculated from earnings and the weighted average number of shares used in calculating basic earnings
per share adjusted for the dilutive effect of all potential ordinary shares from employee options.
11 Dividends
Final fully franked ordinary dividend for the year ended
30 June 2016 of $0.34 (2015: $0.27) per share franked at
the tax rate of 30% (2015: 30%)
Interim fully franked ordinary dividend for the year ended
30 June 2017 of $0.31 (2016: $0.29) per share franked at
the tax rate of 30% (2016: 30%)
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
28,286
22,463
28,286
22,463
25,790
54,076
24,126
46,589
25,790
54,076
24,126
46,589
Franking credits available for subsequent financial years
based on a tax rate of 30% (2016 – 30%)
92,723
90,370
92,723
90,370
The above amounts represent the balance of the franking account at the end of the financial 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 profits of subsidiaries were paid as dividends.
Recognition and measurement
Dividends are brought to account when declared and appropriately authorised before the end of the financial year but not distributed at balance date.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
12 Cash and Cash Equivalents
Consolidated Group
Parent Entity
Cash on hand
Bank balances
Short term deposits
2017
$’000
5
32,566
26,845
59,416
2016
$’000
3
14,992
80,588
95,583
2017
$’000
-
76
5,759
5,835
73
2016
$’000
-
86
5,630
5,716
(a) Cash and cash equivalents
This asset is controlled by the Company and the contractual rights transfer to the Company substantially all of the benefits and risks of ownership.
For statement of cash flow purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial 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 insignificant risk of changes in value.
Cash and cash equivalents are subject to interest rate risk as they earn interest at floating rates. Cash at bank is invested at floating rates. In 2017, the
floating interest rates for the Group and parent entity were between 1.35% and 1.60% (2016: 1.43% and 2.06%). The short term deposits are also
subject to floating rates, which in 2017 were between 1.80% and 2.20% (2016: 2.04% and 3.04%). These deposits have an average maturity of 90
days (2016: 90 days) and are highly liquid.
(b) Cash and cash equivalents held in trust and not recognised in the statement of financial position
Pursuant to contractual arrangement with clients, the GRS segment administers the cash flows on behalf of clients as part of the remuneration benefits
administration service. Cash held in trust for clients are therefore, not available for use in the Group’s operations. For some clients, cash is held in
bank accounts specified in their name and other client monies are held in bank accounts specifically designated as monies in trust for clients. All client
monies are segregated from the Group’s own cash. At reporting date, the balance of monies held in bank accounts in trust for clients representing all
client contributions to operate their accounts were as follows:
Client monies in trust
Client monies in trust free from administration fees
Consolidated Group
Consolidated Group
2017
2016
Average
interest rate %
2.50%
2.34%
Average
interest rate %
2.74%
2.67%
$’000
380,794
29,755
410,549
$’000
373,489
33,077
406,566
The parent entity did not hold any client monies at the end of the current and preceding reporting period.
Pursuant to contractual agreement with clients, the Company received the following interest for managing client monies and as part substitute
for administration service fees and is included in revenue from remuneration services (note 7).
Interest received
Consolidated Group
2017
000
9,489
2016
000
9,587
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
74
13 Trade and Other Receivables
Consolidated Group
Parent Entity
Current
Trade receivables
Other receivables
Amounts receivable from wholly owned entities
2017
$’000
2016
$’000
23,130
22,792
-
45,922
13,998
23,398
-
37,396
2017
$’000
-
20
7,395
7,415
2016
$’000
-
70
6,407
6,477
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:
2017
2016
Consolidated Group
Not past due
Past due 30 days
Past due 31–60 days
Past due 61–90 days
Past due >90 days
Total
Total
$’000
17,006
3,265
1,781
496
953
23,501
Amount
impaired
$’000
Amount not
impaired
$’000
17,006
3,265
1,751
420
688
-
-
(30)
(76)
(265)
(371)
Total
$’000
11,243
2,608
446
201
776
Amount
impaired
$’000
Amount not
impaired
$’000
(451)
(145)
(119)
(65)
(496)
10,792
2,463
327
136
280
23,130
15,274
(1,276)
13,998
(b) Recognition and measurement
Trade receivables represent amounts invoiced to and owing from customers for services rendered or goods delivered and are recognised initially at fair
value, and subsequently at amortised cost, less provision for impairment. All trade and other receivables are classified 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 flows relating to
short-term receivables are not discounted if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
(c) Concentration of risk
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.
(d) 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.
(e) Doubtful debts policy
The recoverability of trade receivables is reviewed on an ongoing basis. Recoverable amounts are calculated using a probability based assessment
of cash flows and takes into account the period that an amount owing is past due from the agreed payment period, payment history and information
about customer financial capacity. Recoverable cash flows are discounted to their present value but short-term receivables are not discounted as they
are not considered material. A provision for impairment is recognised for the difference between the carrying amount and the assessed recoverable
amount or is written off if it is assessed that there is no possible recovery of the amount owing.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
75
14 Finance Lease Receivables
Consolidated Group
Parent Entity
Current finance lease receivables
Non-current finance lease receivables
2017
$’000
60,920
107,255
2016
$’000
46,280
89,279
168,175
135,559
2017
$’000
2016
$’000
-
-
-
-
-
-
Recognition and measurement
Asset Management finance lease contracts entered into with customers are recognised as finance lease receivables. A finance lease arrangement
transfers substantially all the risk and rewards of ownership of the asset to the lessee. The Group’s net investment in the lease equals the net present
value of the future minimum lease payments. Finance lease income is recognised as income in the period to reflect a constant periodic rate of return
on the Consolidated Group’s remaining net investment in respect of the lease.
Amounts receivable under finance lease receivables
Within one year
Later than one but not more than five years
Later than five years
Consolidated Group
Minimum
lease
payments
2017
$’000
65,926
110,898
727
Present value
of lease
payments
2017
$’000
61,061
106,407
707
Minimum
lease
payments
2016
$’000
Present value
of lease
payments
2016
$’000
51,411
94,795
66
44,653
90,841
65
177,551
168,175
146,272
135,559
Less: unearned finance income
(9,376)
-
(10,713)
-
Present value of minimum lease payments
168,175
168,175
135,559
135,559
There were no guaranteed residual values of assets leased under finance leases at reporting date (2016: nil)
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
76
15 Other Financial Assets
(a) Investment in subsidiaries
Shares in subsidiaries at cost
Consolidated Group
Parent Entity
2017
$’000
-
2016
$’000
2017
$’000
2016
$’000
-
320,307
337,900
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting
policy described in Note 33.
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
Presidian Holdings Pty Ltd
Davantage Group Pty Ltd
Money Now Pty Ltd
National Finance Choice Pty Ltd
Franklin Finance Group Pty Ltd
Australian Dealer Insurance Pty Ltd
National Finance Solutions Pty Ltd
National Insurance Choice Pty Ltd
United Financial Services Pty Ltd
United Financial Services Network Pty Ltd
United Financial Services (Queensland) Pty Ltd
Just Honk Pty Ltd
Maxxia (UK) Limited
Maxxia Finance Limited
CLM Fleet Management plc
Anglo Scottish Asset Finance Limited plc
European Vehicle Contracts Limited
Capex Asset Finance Limited
Maxxia Limited (NZ)
Maxxia Fleet Limited
Wuxi McMillan Software Co. Ltd
Country of
Incorporation
% Owned
2017
% Owned
2016
Principal activities
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
New Zealand
New Zealand
Peoples Republic
of China
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
100%
100%
Remuneration services provider
Remuneration services provider
Asset management and services
Asset management and services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Asset management
Investment holding
Asset management
Fleet management services
Fleet management services
Fleet management services
Fleet management services
Dormant
Asset management and services
-
Software development
1 These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with ASIC Corporations (Rounding in Financial / Directors’
Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission. For further information refer to Note 32.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
77
(b) Loan receivable
Loan receivable
Other expense receivable
Share of losses of equity accounted joint venture
Change in foreign currency
Carrying value at end of the financial year
Consolidated Group
Parent Entity
2017
$’000
4,046
1,745
(4,764)
556
1,583
2016
$’000
3,827
1,297
(3,504)
112
1,732
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
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. At reporting date, the fair value of the loan was not materially
different to the carrying value. The carrying value includes the share of the joint venture’s loss of $1,260,000 (2016: $1,495,000) recognised under
the equity method that is in excess of the Company’s fully written down carrying value of its investment (2016: $nil - refer note 16).
Risk exposure
The maximum facility under the arrangement is GBP3.0 million together with other expenses agreed between the JV parties to accelerate growth are
being re-negotiated for an extended term. Under the existing agreement, certain conditions of default on the repayments, will allow the Group 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.
16 Investment in Joint Venture
Consolidated Group
Parent Entity
Acquired
Share of losses after income tax
Carrying value at end of the financial year
(a) Recognition and measurement
2017
$’000
337
(337)
-
2016
$’000
337
(337)
-
2017
$’000
2016
$’000
-
-
-
-
-
-
A subsidiary has a 50% interest in Maxxia Limited (UK, “JV”), a company resident in the UK and the principal activity of which is provider of financing
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, financial 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 five 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 the JV is equity accounted in the financial statements where the Group’s share of the post-acquisition net result after tax is recognised in
the Group’s consolidated profit after income tax. The Group’s share of losses exceeds its investment cost in the JV and accordingly, the excess is applied
to the extent of the loan receivable from the JV that forms part of the net investment until it is reduced to zero, and thereafter 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.
Information relating to the joint venture investment is set out below.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
78
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.
Joint venture financial results
Revenue
Expenses
Loss before income tax
Income tax
Loss after income tax
Group’s share of loss after income tax
Share of joint venture capital commitments
Consolidated Group
2017
$’000
3,820
74
3,894
6,914
6,114
13,028
(9,134)
(9,134)
(4,567)
-
2016
$’000
3,632
-
3,632
5,557
5,124
10,681
(7,049)
(7,049)
(3,524)
-
(5,101)
(3,841)
Consolidated Group
2017
$’000
2,567
(5,087)
(2,520)
-
(2,520)
(1,260)
-
2016
$’000
2,906
(5,896)
(2,990)
-
(2,990)
(1,495)
-
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
79
17 Property, Plant and Equipment
Consolidated Group
Parent Entity
(a) Plant and equipment
At cost
Less accumulated depreciation
Assets under operating lease
At cost
Less accumulated depreciation
Total plant and equipment
Total current
Total non-current
Total plant and equipment
Carrying value of assets under operating lease
Written down value of operating lease assets terminating
within the next 12 months 1
Written down value of operating lease assets terminating
after more than 12 months
2017
$’000
21,738
(14,196)
7,542
2016
$’000
28,667
(19,360)
9,307
461,485
(162,296)
457,722
(164,897)
299,189
306,731
75,195
231,536
306,731
292,825
302,132
80,081
222,051
302,132
75,195
80,081
223,994
299,189
212,744
292,825
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 The classification of the written down value of operating leases terminating within the
next 12 months follows from a change in accounting policy (refer note 2(e)).
Consolidated Group
(b) Movements in cost and accumulated depreciation
Year ended 30 June 2017
Balance at the beginning of year
Additions
Acquisitions through business combination
Disposals / transfers to assets held for sale
Depreciation expense
Change in foreign currency
Balance at 30 June
Year ended 30 June 2016
Balance at the beginning of year
Additions
Acquisitions through business combination
Transfers to software and plant and equipment
Disposals / transfers to assets held for sale
Depreciation expense
Impairment loss
Change in foreign currency
Balance at 30 June
1 Accumulated provision for impairment loss at reporting date is $4,829,000 (2016: $4,381,000).
Plant and
equipment
$’000
Assets under
operating lease 1
$’000
Total
$’000
9,307
1,240
73
131
(3,024)
(185)
7,542
12,003
4,626
283
(2,800)
(1,623)
(2,998)
-
(184)
9,307
292,825
131,882
-
(49,976)
(75,544)
2
299,189
293,125
126,520
-
2,800
(51,953)
(78,172)
(385)
890
292,825
302,132
133,122
73
(49,845)
(78,568)
(183)
306,731
305,128
131,146
283
-
(53,576)
(81,170)
(385)
706
302,132
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
80
(c) Recognition and measurement
Property, plant and equipment is stated at cost less accumulated depreciation and impairment loss provision. Cost includes expenditure that is
directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating as intended.
Assets under operating lease
Assets held under operating leases are for contracts with customers other than finance 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.
Depreciation and impairment
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 useful lives and residual value of assets are reviewed and adjusted for impairment, if appropriate, at the end of the reporting period.
(d) Security
The above assets form part of the security supporting the fixed and floating charge pledged to the Group’s financiers.
(e) Property, plant and equipment held for sale
Property, plant and equipment no longer held under operating leases are classified as inventory.
18 Trade and Other Payables
Consolidated Group
Parent Entity
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Amounts payable to wholly owned entities
2017
$’000
2016
$’000
2017
$’000
2016
$’000
19,198
1,166
52,937
-
73,301
20,792
1,677
48,092
-
-
-
275
132,952
-
-
181
105,436
70,561
133,227
105,617
Recognition and measurement
Trade and other payables are recorded initially at fair value, and subsequently at amortised cost. Given their short term their carrying value is
representative of fair value and undiscounted. Trade and other payables are non-interest bearing are unsecured. Financial liabilities are
derecognised when the Group’s obligations are discharged, cancelled or expire pursuant to its commitments.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
81
19 Other Liabilities
Consolidated Group
Parent Entity
Maintenance instalments received in advance
Receivables in advance
Unearned property incentives
2017
$’000
4,794
3,821
5,392
2016
$’000
5,815
5,300
5,269
14,007
16,384
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
Recognition and measurement
Maintenance instalments received in advance
Maintenance instalments received in advance is income from maintenance service contracts that are unearned using the stage of completion method.
The unearned portion represents costs to complete attributed to the stage of the contract and is measured by reference to the proportion of cumulative
costs to date to estimated total costs to completion.
Receivables in advance
Receivables in advance are receipts from customers for future services to be rendered.
Unearned property incentives
Property Incentives received are amortised over the term of the lease.
20 Provisions
Current
Employee benefit liabilities
Provision for rebate and cancellations
Provision for onerous contracts
Non current
Provision for long service leave
Provision for onerous contracts
2017
$’000
9,276
3,356
365
2016
$’000
9,333
3,337
353
12,997
13,023
1,379
1,521
2,900
717
988
1,705
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Recognition and measurement
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 reflects
the current pre-tax market rate of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of
time is recognised as interest expense.
Employee benefits
Employee entitlements to annual and long service leave have been provided for based on amounts expected to be paid when the leave entitlements are
used. Employee leave provisions are presented as current liabilities in the statement of financial 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 that are not expected to be settled wholly within twelve months have been measured at the present value of the
estimated future cash outflows to be made for those benefits. 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 outflows.
Employee liabilities other than annual leave and long service leave are included in other payables.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
82
Rebate and cancellations
Specific provisions are provided for cancellation of contracts and the consequential clawback of commissions received at the time revenue is
recognised. This provision reflects an obligation to refund commissions received from the financier or insurer for early termination of a loan or policy.
Rebate provisions relate to the clawback of commission from financiers, based on various financier clawback policies.
Onerous contracts
The provision for onerous contracts is for the outstanding property lease commitments for a vacant property. It represents the unavoidable costs of
meeting the lease obligations that exceed the economic benefits expected to be received. The provision is measured on the net cash outflow and
present valued using the pre-tax rate that reflects current market rates to reflect the time value of money and any specific risks to the liability.
21 Borrowings
Current
Bank loans – at amortised cost
Non current
Bank loans – at amortised cost
(a) Recognition and measurement
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
88,727
12,944
11,500
11,500
250,877
332,626
30,057
41,528
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.
Current bank borrowings include revolving facilities of $69,344,000 that mature on 31 March 2018. These facilities are intended to be reduced as
part of the Group’s strategic shift to increase the use of off-balance sheet funding under principal and agency (P&A) arrangements in the Asset
Management segment.
(b) Security
The parent entity guarantees all bank loans of subsidiaries in the Group, totalling $339,965,000 (2016: $345,570,000).
Fixed and floating charges are provided by the Group in respect to financing facilities provided to it by its syndicate of financiers.
The Group’s loans are also secured by the following financial undertakings from most of the entities in the Group.
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
finance debt, acquire assets which are non-core business to the Group, not to dispose of a substantial part of its business and
reduction of its capital.
(ii) Maintenance of certain financial thresholds for shareholders’ equity, gearing ratio and fleet 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 significant headroom against all of its borrowing covenants.
(c) Fair value disclosures
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest
rate that is available to the Group for similar financial instruments. The fair value of current borrowings approximates the carrying amount, as the
impact of discounting is not significant.
(d) Risk exposures
Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in Note 4.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
83
Consolidated Group
Parent Entity
2017
$’000
10,815
2016
$’000
6,740
2017
$’000
-
2016
$’000
-
22 Other Financial Liabilities
Contingent consideration
(a) Recognition and measurement
Contingent consideration arises from business combinations and represents the fair value of future consideration payable upon the achievement
of certain performance targets in relation to acquisitions in the UK.
Movement in contingent consideration
Balance at the beginning of the year
Recognised on business combination
Re-negotiation adjustment in Profit and Loss
Finance expense
Change in foreign currency
Balance at 30 June
23 Issued Capital
(a) Share capital
2017
$’000
6,740
4,656
(349)
188
(420)
10,815
2016
$’000
-
7,690
-
92
(1,042)
6,740
2017
$’000
2016
$’000
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
2017
$’000
2016
$’000
83,204,720 (2016: 83,204,720) fully paid ordinary shares
141,088
144,380
141,088
144,380
(b) Movements in issued capital
Number
of shares
Issue
price
Balance at 1 July 2016
Treasury shares brought forward
Treasury shares acquired by the EST
Shares held by external shareholders at 30 June 2017
83,204,720
(10,276)
(245,476)
82,948,968
Ordinary
shares
$’000
144,380
-
(3,292)
141,088
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
84
Balance at 1 July 2015
Shares issued for the acquisition of the United Financial Services companies
Fully paid shares issued pursuant to the exercise of employee options
Shares distributed from the EST to employees on exercise of options
Total issued capital at 30 June 2016
Treasury shares
Shares held by external shareholders at 30 June 2016
Number of
shares
Issue
price
$12.96
$7.31
-
81,810,993
1,342,926
733,007
(682,206)
1,393,727
83,204,720
(10,276)
83,194,444
Ordinary
shares
$’000
121,617
17,405
5,358
-
22,763
144,380
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of members’ shares held.
At members’ meetings, each fully paid ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a
show of hands.
(c) Treasury shares
The Group maintains 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 Consolidated Group.
Treasury shares are shares in McMillan Shakespeare Limited that are held by the EST for the purpose of issuing shares under the McMillan
Shakespeare Limited Executive Option Plan. Treasury shares are deducted from issued shares to show the number of issued shares held by the
external shareholders. Details of treasury shares during the year are as follows.
Balance of shares at the beginning of the year
Shares acquired by the EST (refer to Note 24(d))
Balance of treasury shares at 30 June 2017
(d) Options
Number of shares
10,276
245,476
255,752
At 30 June 2017, there were 1,680,259 (2016: 1,825,334) unissued ordinary shares for which options were outstanding and exercisable at an
average price of $10.51. 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 30.
These options are subject to two vesting conditions namely, the achievement of financial hurdles and each participating employee’s continuity of
employment at 31 August 2017. Following the adoption of the FY 2017 financial statements, the options will have satisfied a cumulative 55% of
the financial hurdles for vesting.
(e) Equity expenses
Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit.
Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the business
combination.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
Notes to the
Financial Statements
For the year ended 30 June 2017
85
(f) 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 benefits for other stakeholders. 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 debt to equity 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 financial guarantees) less cash and cash equivalents. Total capital is calculated as equity as
shown in the statement of financial position plus net debt.
The Group’s debt to equity ratio was 43% (2016: 40%) calculated as net debt of $280,188,000 (2016: $249,987,000) divided by total debt and
equity of $651,183,000 (2016: $620,482,000). The capital structure of the Group is reviewed on an ongoing basis and considers the allocation and
type of capital and the associated risks and returns.
24 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 benefits expense but not exercised.
(b) Cash flow hedge reserve
Revaluation - gross
Deferred tax
Balance at the end of the financial year
Consolidated Group
Parent Entity
2017
$’000
(134)
(39)
(95)
2016
$’000
(819)
204
(615)
2017
$’000
2016
$’000
-
-
-
-
-
-
The hedging reserve is used to record gains and losses on interest rate swaps that are designed and qualify as cash flow hedges and that are
recognised in other comprehensive income.
(c) Foreign currency translation reserve
Balance at the end of the financial year
Consolidated Group
Parent Entity
2017
$’000
2016
$’000
(9,053)
(5,391)
2017
$’000
-
2016
$’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 reclassified to profit or loss when the net investment is disposed of.
The decline in the foreign currency reserve was a direct result of GBP weakening sharply against the Australian dollar. The Group does not have
plans to realise its investments in the UK in the foreseeable future.
(d) Treasury reserve
During the year, the Company contributed $10,184,000 to the EST to acquire MMS shares for distribution to employees under the Group executive
option plan. At reporting date, 245,476 MMS shares were acquired for $3,292,000 (refer note 23(c)) to leave a balance of $6,892,000 in reserve.
MMS Financial Report 2017
MMS
Financial Report 2017
86
Notes to the
Financial Statements
For the year ended 30 June 2017
25 Fair value measurement
The fair value of financial assets and financial liabilities is estimated for recognition and measurement for disclosure purposes.
The following table is an analysis of financial instruments that are measured at fair value on a recurring basis subsequent to initial recognition,
grouped into three levels based on the degree to which the fair value is observable.
– Level 1: derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: derived from inputs other than quoted prices included in level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
– Level 3: derived from inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial asset/
(financial liability)
Fair value at
2017
$’000
2016
$’000
Fair value
hierarchy
Valuation technique and key input
Interest rate swaps –
cash flow hedge
(134)
(819)
Contingent consideration
(10,815)
(6,740)
2
3
Discounted cash flow using estimated future cash flows
based on forward interest rates (from observable yield curves
at the end of the reporting period) and contract interest rates,
discounted to reflect the credit risk of various counterparties.
Discounted cash flow using a discount rate of 2.8%,
average annual revenues with a range of $3.7m to
$4.3m and EBITDA with a range of $1.3m to $2.9m.
Contingent consideration arises from business combination and is valued at reporting date based on the probable settlements amounts calculated
using revenue and EBITDA projections.
The contingent consideration for Anglo Scottish is based on the achievement of tiered EBITDA targets and the corresponding earnout that forms the
contingent consideration. A 5% change in the probability-adjusted revenues and profits while holding all other variables constant, is not expected to
change the tier for a different earnout and therefore, is not expected to have a significant change to the fair value of the contingent consideration.
Contingent consideration arising from the acquisition of EVC and CAPEX is based on variable earnouts depending on the achievement of EBITDA
targets. When maintaining all other variables constant, a 5% increase in EBITDA would increase fair value by $2,626,000 whilst a 5% decrease in
EBITDA would decrease fair value by $474,000.
Carrying
amount
2017
$’000
Consolidated Group
Fair
value
2017
$’000
Carrying
amount
2016
$’000
Fair
value
2016
$’000
Finance lease receivables – non-current
107,255
106,611
89,279
86,496
Current finance lease receivables are short term and their carrying amount is considered to equal their fair value. The fair value of non-current
finance lease receivables were calculated based on cash flows discounted using an average of current lending rates appropriate for the
geographical markets the leases operate of 3.62% (2016: 3.83%). They are classified as level 3 fair values in the fair values hierarchy due to the
inclusion of unobservable inputs.
Except as detailed in the above, the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial 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.
Notes to the
Financial Statements
For the year ended 30 June 2017
MMS
Financial Report 2017
87
26 Cash Flow Information
Consolidated Group
Parent Entity
(a) Reconciliation of cash flow from operations with
profit from operating activities after tax
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Profit for the year
Non cash flows in profit from operating activities
Amortisation
Impairment
Depreciation
Option expense
Share of equity accounted joint venture loss
Purchase of assets under lease
Written down value of assets sold
Finance lease receivables principal repayments
Changes in assets and liabilities, net of the effects
of purchase of subsidiaries
(Increase) / decrease in trade receivables and other assets
Increase / (decrease) in trade payables and accruals
(Decrease) / increase in income taxes payable
(Decrease) / increase in deferred taxes
Decrease in unearned revenue
Increase in provisions
Net cash from operating activities
67,902
82,469
32,031
43,994
10,477
20,000
78,569
-
1,260
(281,415)
42,882
77,638
(7,023)
43,275
(2,855)
(4,156)
(344)
854
47,064
9,825
385
81,170
1,643
1,495
(234,601)
94,101
33,202
11,898
9,738
5,677
(3,278)
(49)
1,297
94,972
-
20,000
-
-
-
-
-
-
60
(747)
(35)
28
-
-
51,337
-
-
-
1,643
-
-
-
64
(10,669)
7,257
645
-
-
42,934
(b) Proceeds from sale of lease portfolio
Proceeds from a portion of the UK fleet that was moved off balance sheet as part of principal and agency arrangements with a number of funding
providers in the previous year.
(c) Proceeds and repayments of borrowings
Proceeds from and repayments of borrowings were predominantly due to change the mix of funding between syndicate banks together with the
repayment of amortising loans.
27 Commitments
(a) Operating lease commitments
Consolidated Group
Parent Entity
Non cancellable operating leases contracted for but not
capitalised in the financial statements:
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Payable minimum lease payments
– Not later than 12 months
– Between 12 months and 5 years
– Greater than 5 years
9,463
34,136
10,913
54,512
8,891
30,071
14,447
53,409
-
-
-
-
-
-
-
-
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.
88
28 Contingent Liabilities
Consolidated Group
Parent Entity
Estimates of the potential financial 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
2017
$’000
12,050
6,168
18,218
2016
$’000
11,050
5,967
17,017
2017
$’000
2016
$’000
50
-
50
50
-
50
29 Related Party Transactions
(a) Wholly owned group
Transactions between the Company and other entities within the wholly owned group during the years ended 30 June 2017 and 2016 consisted of:
(a) loans advanced to the Company; and
(b) the payment of dividends to the Company.
Aggregate amounts included in the determination of profit from ordinary activities before income tax that resulted from transactions with entities in
the wholly owned group:
Dividend revenue
Aggregate amounts payable to entities within the
wholly owned group at balance date:
Current payables
(b) Key management personnel compensation
Compensation
Short-term employment benefits
Post-employment benefits
Long-term employment benefits
Share-based payments
Consolidated Group
Parent Entity
2017
$
2016
$
2017
$
2016
$
-
-
-
-
54,076,000
46,592,000
132,952,236
105,436,102
3,384,371
3,218,477
2,157,236
2,054,809
182,403
60,007
-
186,698
68,915
876,748
128,718
27,154
-
131,763
38,912
500,381
3,626,781
4,350,838
2,313,108
2,725,865
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
89
30 Share-based Payments
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 and Nomination 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.
Recognition and measurement
The Performance Options are equity-settled share-based payments and the fair value of options granted are recognised as an employee benefit
expense with a corresponding increase in equity (share option reserve). Fair value is measured at grant date and recognised over the period from issue
date to vesting date. Fair value is determined using a binomial option pricing model and incorporate market conditions and does not include any option
conditions that are not market based. The cumulative expense recognised between grant date and vesting date is adjusted to reflect the Directors’
best estimate of the number of options that will ultimately vest because of vesting conditions attached to the options, such as the employees having
to remain with the Consolidated Group until vesting date, or such that employees are required to meet financial targets. No expense is recognised for
options that do not ultimately vest for failing to meet vesting conditions other than market conditions.
Set out below are summaries of options granted under the plans:
Consolidated Group and parent entity - 2017
Grant date
Expiry date
Exercise
price
Balance at
start of the
year
Granted
during the
year
Exercised or
sold during
the year
Forfeited
during the
year 1
Balance at
end of the
year
Exercisable
at end
of the year
19 August 2014
30 September 2019
19 August 2014
30 September 2018
23 September 2014
30 September 2018
24 March 2015
30 September 2018
26 May 2015
30 September 2018
25 August 2015
30 September 2018
$10.18
$10.18
$10.83
$11.87
$12.88
$13.82
Weighted average exercise price
978,417
469,081
107,877
150,831
85,692
33,436
1,825,334
$10.55
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(70,292)
-
(74,783)
-
-
978,417
398,789
107,877
76,048
85,692
33,436
(145,075)
1,680,259
$11.05
$10.51
-
-
-
-
-
-
-
-
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
90
Consolidated Group and parent entity - 2016
Grant date
Expiry date
16 August 2011
30 September 2015
16 August 2011
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
25 August 2015
30 September 2018
Exercise
price
Balance at
start of the
year
Granted
during the
year
Exercised or
sold during
the year
Forfeited
during the
year 1
Balance at
end of the
year
Exercisable
at end
of the year
$7.31
$7.31
$10.18
$10.18
$10.83
$10.17
$11.87
$12.88
$13.82
682,206
50,801
978,417
567,676
107,877
109,142
294,336
85,692
-
-
-
-
-
-
-
-
-
33,436
(682,206)
(50,801)
-
-
-
-
-
-
-
-
-
-
(98,595)
-
(109,142)
(143,505)
-
-
-
-
978,417
469,081
107,877
-
150,831
85,692
33,436
2,876,147
33,436
(733,007)
(351,242)
1,825,334
-
-
-
-
-
-
-
-
-
-
-
Weighted average exercise price
$9.73
$13.82
$7.31
$10.87
$10.55
1 None of the forfeited options represented expired options (2016: Nil).
2 The weighted average remaining contractual life of options outstanding at the end of the year was 1.4 years (2016: 1.9 years).
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 benefits expense
were as follows:
Options expense recognised under the Employee Option Plan
Consolidated Group
Parent Entity
2017
$
-
2016
$
1,643,091
2017
$
-
2016
$
-
No option expense was recognised as a result of achievement targets not having been met in the year. The amount expensed in a period is based on
the cumulative amount at each reporting date less amounts expensed in previous periods.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
Notes to the
Financial Statements
For the year ended 30 June 2017
91
31 Business Combination
(a) Businesses acquired
The Group completed its acquisition of 100% of European Vehicle Contracts Limited (EVC) and Capex Asset Finance Limited (CAPEX) on
1 December 2016 and 6 January 2017 respectively. These entities are incorporated in the UK and specialise in the broker aggregation and fully
integrated financial services financing business in the motor vehicle sector with a strong regional presence. The acquisitions continue MMS’
investment strategy to be a leading provider of a fully integrated financial services provider in the UK. The acquisition of EVC and CAPEX enhances
the product offering of the Group and brings numerous cross selling opportunities across the UK businesses and the realisation of corporate and
operational synergies.
(b) Consideration transferred
Consideration for the EVC and CAPEX acquisitions was $16,451,000 that comprised cash paid of $11,795,000 and contingent consideration of
$4,656,000.
Cash consideration was funded by internal cash of $1,860,000 and new borrowings in the UK of $9,935,000.
The contingent consideration of EVC and CAPEX were based on the probability weighted assessment of projected EBITDA under the acquisition
business cases and present valued using a discount rate of 2.8%.
Under the sale agreement, contingent consideration for the EVC and CAPEX acquisitions have a maximum earnout of $11,500,000. The earnout
amounts are payable in tranches on 31 December 2018, 31 December 2020 and 31 December 2021 based on the achievement against the earnout
EBITDA targets as set out in the agreements. The earnout amount is based on a staggered level of targets and earnout rate for each level. The maximum
amounts payable for each tranche is set out below.
Earnout measurement date
Maximum earnout payment
31 December 2018
31 December 2020
31 December 2021
$3.2 million
$7.1 million
$1.2 million
The assets and liabilities acquired have been fair valued in accordance with AASB 3 “Business Combinations” and, translated at acquisition date
foreign exchange rates, has resulted in goodwill of $8,100,000. Acquisition-related expenses of $1,000,000 were incurred and expensed on
consolidation and included in the Statement of Consolidated Profit or Loss and Other Comprehensive Income for the period.
(c) Reconciliation of consideration to cash flow
The net cash transferred for the EVC and CAPEX acquisitions was $8,919,000 where the cash paid of $11,795,000 was offset by cash assumed
from the acquired entities of $2,876,000.
MMS Financial Report 2017
92
(d) Assets acquired and liabilities assumed at the date of acquisition
The fair value of identifiable net assets acquired with EVC and CAPEX was $8,324,000 and goodwill of $8,127,000 in the following table.
Fair Value at acquisition date (provisional)
Cash
Dealer and customer relationships
Property, plant & equipment and software
Trade, other receivables and prepayments
Assets acquired
Trade payables and accrued expenses
Income tax provision
Deferred tax liabilities
Liabilities assumed
Identifiable net assets acquired
Goodwill
Consideration
$’000
2,876
6,451
1,234
1,334
11,895
1,494
572
1,505
3,571
8,324
8,127
16,451
The fair value of identifiable net assets have been provisionally assessed pending the finalisation of income taxation balances.
Total trade receivables from the acquisitions of $746,000 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 profitability, financial synergies from complementarities in business generation for some products,
operating software and competent skill base of the acquired businesses and growth potential. None of the goodwill is expected to be tax deductible.
(e) Impact of acquisition on the results of the Group
The profit result for the period includes sales revenue of $7,085,000 and net profit after tax of $292,000 for the new acquisitions.
Had the acquisitions occurred effective 1 July 2016, “pro-forma” revenue and net profit after tax adjusted for differences in the accounting policies
between the Group and the acquired entities including the recognition of the amortisation of other intangible assets at their fair value would have been
$13,178,000 and $581,000 respectively.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
93
32 Deed of Cross Guarantee
McMillan Shakespeare Limited, Maxxia Pty Ltd and Remuneration Services (Qld) Pty Ltd are parties to a deed of cross guarantee entered into during
the year ended 30 June 2009 and Interleasing (Australia) Ltd, CARILA Pty Ltd and TVPR Pty Ltd (Interleasing Group) entered into deeds of cross
guarantee in the year ended 30 June 2010. Under the deeds, each company guarantees the debts of the others and is relieved from the requirement
to prepare a financial report and directors’ report under ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191.
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 financial position and a summary of movements in consolidated retained profits
for the year ended 30 June 2016 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.
(a) Consolidated Statement of Comprehensive Income and summary
of movements in consolidated retained profits
2017
$’000
2016
$’000
Statement of Comprehensive Income
Revenue
Employee and director benefits expenses
Depreciation and amortisation expenses and impairment
Leasing and vehicle management expenses
Consulting cost expenses
Marketing expenses
Property and corporate expenses
Technology and communication expenses
Finance costs
Other expenses
Impairment
Acquisition expenses
Profit before income tax
Income tax expense
Profit attributable to members of the parent entity
Other comprehensive income
Other comprehensive income for the year after tax
Total comprehensive income for the year
Movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
De-consolidation of Presidian group no longer supported by deeds of cross guarantee
Profits for the year
Dividends paid
Retained earnings at the end of the financial year
371,488
(89,271)
(80,093)
(57,594)
(2,716)
(2,656)
(7,842)
(8,602)
(8,412)
(4,761)
(20,000)
-
89,541
(31,928)
57,613
370,321
(87,714)
(83,169)
(54,822)
(2,100)
(2,286)
(7,893)
(7,918)
(9,942)
(7,451)
-
(1,387)
105,639
(31,732)
73,907
172
1,643
57,785
75,550
213,385
-
57,613
(54,076)
189,094
(3,027)
73,907
(46,589)
216,922
213,385
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
94
(b) Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Inventory
Total current assets
Non current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Finance lease receivables
Other financial assets
Total non current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Current tax liability
Provisions
Borrowings
Total current liabilities
Non current liabilities
Provisions
Borrowings
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
2017
$’000
34,076
28,427
6,381
5,471
2016
$’000
76,395
26,810
3,337
7,218
74,355
113,760
287,182
49,766
2,976
12,604
285,294
48,985
3,970
3,625
208,447
226,045
560,975
567,919
635,330
681,679
64,579
6,531
8,071
61,300
140,481
2,602
131,125
133,727
63,675
9,672
8,381
11,500
93,228
1,597
219,257
220,854
274,208
314,082
361,122
367,597
141,088
3,112
216,922
144,380
9,832
213,385
361,122
367,597
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
95
33 Summary of Other
Accounting Policies
(a) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements comprise the
financial 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 sufficient to give it power, including
the following:
– the size of the Group’s voting rights holding relative to
the size and dispersion of holdings of the other vote
holders;
– potential voting rights held by the Group and other
holders;
– rights arising from other contractual arrangements; and
– facts and circumstances that indicate whether the Group
has the ability to direct relevant activities at the time
decision need to be made.
The Group reassess whether the Group has control
over an entity when facts and circumstances indicate
changes that may affect any of these elements.
Subsidiaries are consolidated from the date control is
transferred to the Group and deconsolidated from the
Group from the date that control ceases.
The financial 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 profits 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
financial statements of the parent entity, including the
value of options issued by the Company on behalf of its
subsidiaries in relation to employee remuneration.
(b) 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 over the
period representative of the achievement of control the
transfer of the benefits from the achievement of control
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.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in business combinations are initially
measured at their fair values at acquisition date. The
excess of the cost of acquisition over the fair value of the
Consolidated Group’s share of the identifiable net assets
acquired is recorded as goodwill (refer Note 6(b)(i)). If the
cost of acquisition is less than the Consolidated Group’s
share of the fair value of the net assets acquired,
the gain is recognised in profit 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 reflect 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.
Any contingent consideration to be transferred by the
Group will be recognised at fair value at acquisition
date. Contingent consideration that includes an asset
or liability is classified as an asset or liability and is re-
measured for fair value changes. Subsequent changes
to the fair value of contingent consideration that qualify
as measurement period adjustments are retrospectively
adjusted against goodwill. Contingent consideration
that is classified as an equity is not remeasured
at subsequent reporting dates and its subsequent
settlement is accounted for within equity.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
96
(iii) Impairment of available for sale equity securities
In respect of available for sale equity securities,
impairment losses previously recognised in profit
or loss are not reversed through profit 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
profit 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.
(e) Employee remuneration
(i) Superannuation
The amount charged to the profit or loss in respect of
superannuation represents the contributions made by
the Group to superannuation funds.
(ii) 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 financial 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.
(f) 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 Office (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.
(c) Current versus non-current classification
The Group presents assets and liabilities in the
statements of financial position based on current /
non-current classification. 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 classifies 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 classifies all other liabilities as non-current.
(d) Financial instruments
Recognition and de-recognition
Regular purchases and sales of financial assets and
liabilities are recognised on trade date, the date on
which the Group commits to the financial assets or
liabilities. Financial assets are derecognised when the
rights to receive cash flows from the financial assets
have expired or have been transferred and the Group
has transferred substantially all the risks and rewards of
ownership. The Group classifies financial assets into the
following categories depending on the purpose for which
the asset was acquired.
(i) Separate Financial Statements
(ii)
Investments in subsidiaries are carried at cost and
adjusted for any share based payments in the separate
financial statements of the Company, under AASB 127:
Separate Financial Statements.
Impairment of financial 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
financial asset that affects estimated future cash flows
of the investment.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
Notes to the
Financial Statements
For the year ended 30 June 2017
MMS
Financial Report 2017
97
(g) Leasing
(k) Inventories
Leases are classified as finance 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) Operating lease portfolio – the Group as lessor
Lease contracts with customers other than finance
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.
(ii) 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 benefits from
the lease asset are consumed. Where incentives are
received to enter into operating leases, such incentives
are recognised as a liability. The aggregate benefit 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 benefits from the lease asset are consumed.
(h) 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.
(i) 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 sufficient to cover all expected future claims
against current warranty contracts. This assessment is
performed quarterly, to ensure that there have been no
significant changes to the risk and earning pattern and
to ensure the liability recorded is adequate.
(j) Outstanding claims liability
The liability represents claims incurred, prior to reporting
date, and paid in the subsequent reporting period.
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.
(l) Operating cash flow
All cash flows other than investing or financing cash
flows are classified as operating cash flows. As the
asset management segment provides operating and
finance leases for motor vehicles and equipment, the
cash outflows to acquire the lease assets are classified
as operating cash outflows. Similarly, interest received
and interest paid in respect of the asset management
segment are classified as operating cash flows.
(m) Derivative financial instruments
The Group uses derivative financial 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 financing 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 flow hedges to mitigate both current and
future interest rate volatility that may arise from changes
in the fair value of its borrowings.
Derivative financial 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 profit 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 flow hedging reserve that forms part of equity.
Amounts recognised in other comprehensive income are
transferred to profit or loss and subsequently recognised
in profit 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 flows of the hedged items.
98
(ii) Embedded derivatives
(o) Parent entity accounts
In accordance with ASIC Corporations (Rounding in
Financials/Directors’ Reports) Instrument 2016/191 the
Group will continue to include parent entity financial
statements in the financial report.
(p) Issued capital
Ordinary shares and premium received on issue of
options are classified as issued capital within equity.
Costs attributable to the issue of new shares or options
are shown as a deduction from the equity proceeds, net
of any income tax benefit. Costs directly attributable to
the issue of new shares or options associated with the
acquisition of a business are included as part of the
business combination.
34 Events subsequent to the
reporting date
Other than matters disclosed in this report, there were
no material events subsequent to reporting date.
Derivatives embedded in non-derivative host contracts
are treated as separate derivatives when they meet the
definition 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 profit or loss.
(iii) Non-trading derivatives
Non-trading derivative financial instruments include the
Group’s irrevocable option to purchase all of the shares
owned by the partner in the joint venture entity. The
financial instruments are measured at fair value initially
and in future reporting dates. Fair value changes are
recognised in profit or loss.
(n) Foreign currency translation
The consolidated financial statements of the Group are
presented in Australian dollars which is the functional
and presentation currency. The financial statements
of each entity in the Group are measured using the
currency of the primary economic environment in which
the entity operates (“functional currency”).
(i) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing
at the dates of the transactions. Differences resulting at
settlement of such transactions and from the translation
of monetary assets and liabilities at reporting date are
recognised in profit 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 financial 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 profit or loss.
MMS Financial Report 2017Notes to the Financial Statements For the year ended 30 June 2017
Directors’
Declaration
The Directors are of the opinion that:
1.
the financial statements and notes on pages 45 to 98
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
financial position as at 30 June 2017 and financial
performance for the financial year ended on that date;
and
2. there are reasonable grounds to believe that the
Company will be able to pay its debts as and when
they become due and payable.
3. at the date of this declaration, there are reasonable
grounds to believe that the members of the extended
closed group identified in Note 32 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 32.
99
Note 2(b) confirms that the financial 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 Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of
the Directors.
Tim Poole
Chairman
Michael Salisbury
Managing Director
30 August 2017
Melbourne, Australia
MMS Financial Report 2017
MMS
Financial Report 2017
100
Independent
Audit Report
As at 30 June 2017
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 DIRECTORS OF MCMILLAN SHAKESPEARE LIMITED
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
Opinion
We have audited the financial report of McMillan Shakespeare Limited (the Company), and its
subsidiaries (the Group) which comprises the consolidated statement of financial position as at
30 June 2017, 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, and notes to the consolidated financial statements, including a summary of significant
accounting policies, and the directors’ declaration.
In our opinion, the accompanying consolidated financial report of McMillan Shakespeare Limited, is
in accordance with the Corporations Act 2001, including:
a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
performance for the year ended on that date; and
b Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are
relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
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.
Independent
Audit Report
As at 30 June 2017
MMS
Financial Report 2017
101
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the consolidated financial report of the current period. These matters were
addressed in the context of our audit of the consolidated financial report as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Warranty revenue, unearned premium liability and
deferred acquisition costs (Note 7)
The warranty area of the business derives revenues
through the gross wholesale premiums obtained
upon dealers entering into the sale of warranty
products to used vehicle consumers. Revenue is
recognised over the term of the warranty in line with
the profile of expected future claims. This gives rise
to the unearned premium liability.
We consider this a key audit matter due to the
inherent subjectivity over the nature of the
estimations used in determining the unearned
premium liability.
Impairment of goodwill and intangible asset
balance (Note 6)
At 30 June 2017 the Group has $191,186,000 of
goodwill and $59,560,000 in other intangible assets
contained within separate cash generating units
(CGUs).
Management are required to perform an impairment
test on goodwill and other infinite life intangibles at
least annually, and are also required to perform an
impairment test on other intangible assets with finite
useful lives if indicators of impairment are identified.
We consider this a key audit matter due to the nature
of the balances and the judgments required in
preparing the ‘value in use’ models and due to the
judgement in determining CGU's, impairment
indicators and triggers. This involves judgements
about the future results of the business, growth and
the discount rates applied.
The group recognised an impairment against goodwill
and other intangible assets totalling $20,000,000
relating to the Retail Financial Services segment risk
business CGU.
Our procedures included, amongst others:
verified the mathematical accuracy of the unearned
premium liability and warranty revenue calculations to
ensure the revenue profile assumptions had been
correctly applied;
assessed the reasonableness of management’s key
assumptions in relation to the revenue profile which is
based on the profile of future claim costs;
obtained from management available evidence to
support these assumptions in particular historical
claims experience;
performed sensitivity analysis on the key assumptions,
including the rate of claims; and
tested the accuracy of the gross premiums used in the
deferred income calculation by selecting a sample of
gross premiums and agreeing amounts and key terms
to supporting contracts.
Our procedures included, amongst others:
reviewed the model for compliance with AASB 136
Impairment of Assets;
assessed managements determination of CGU’s based
on our understanding of how management monitors the
entity’s operations and makes decisions about groups
of assets that generate independent cash flows;
evaluated management’s process for the preparation
and review of value-in-use models, taking into
consideration the impacts of the sector specific issues;
utilised valuation specialists to review the
appropriateness of the value-in-use model,
appropriateness of benchmarks to external data and its
compliance with the requirements of AASB 136;
verified the mathematical accuracy of the underlying
model calculations and assessed the appropriateness
of the methodologies including evaluating cash flow
projections compared to the historical accuracy of the
budgeting process;
assessed the key growth rate assumptions by
comparing them to historical results, economic or
industry forecasts and the discount rate by reference to
the cost of capital for the Group as well as applying
specific adjustments for the particular CGU where the
CGU had a higher risk of impairment;
performed sensitivity analysis in relation to the cash
flow projections, discount and growth rate assumptions
on CGU’s with a higher risk of impairment. The
impairment analysis considered the individual and
collective impacts; and
MMS
Financial Report 2017
102
Independent
Audit Report
As at 30 June 2017
Key audit matter
How our audit addressed the key audit matter
assessed the adequacy of the Group’s disclosures
within the financial statements.
Maintenance instalments received in advance
(Note 19)
The Group receive fixed payments from customers
for future tyre and maintenance services for which
the Group is liable. The profit or loss on these
contracts is uncertain given the incidence and
amount of tyre and maintenance costs is uncertain.
The profit or loss on these contracts is recognised
each reporting period by reference to the stage of
completion when the outcome of the service
contracts can be estimated reliably.
We consider this a key audit matter due to the
judgement required by management in preparing the
tyre and maintenance provision calculation and the
inherent subjectivity over the nature of the estimation.
Our procedures included, amongst others:
reviewed the contractual arrangements to understand
the types of services and costs to be provided under
the arrangements;
verified the mathematical accuracy of the tyre and
maintenance provision model including the consistency
of the formulas applied;
reviewed the validity of the underlying data used in the
calculation;
evaluated the key assumptions applied in the model for
reasonableness and performed sensitivity on these key
assumptions;
analytically reviewed movements in the provision from
the prior period in the context of understanding the
changes in the businesses operations and the market;
selected a sample of contracts included in the
calculation and agreed details to supporting
documentation; and
verified the key inputs into the provision (including the
cost profile and profit and loss margins) and selected a
sample of contracts and agreed the details included in
the calculation to supporting documentation.
Information Other than the Financial Report and Auditor’s Report Thereon
The Directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 30 June 2017, but does not include the
financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors 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 and for 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.
Independent
Audit Report
As at 30 June 2017
MMS
Financial Report 2017
103
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to liquidate the Group or
to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s
report.
REPORT ON THE REMUNERATION REPORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included the directors’ report for the year ended
30 June 2017.
In our opinion, the Remuneration Report of McMillan Shakespeare Limited, for the year ended
30 June 2017, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
GRANT THORNTON AUDIT PTY LTD
Chartered Accountants
B.A. Mackenzie
Partner - Audit & Assurance
Melbourne, 30 August 2017
MMS
Financial Report 2017
104
Auditor’s Independence
Declaration
As at 30 June 2017
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 2017, I declare that, to
the best of my knowledge and belief, there have been:
a
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b
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, 30 August 2017
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.
Shareholder
Information
MMS
Financial Report 2017
105
Additional information required by the ASX Listing Rules and not disclosed elsewhere in this Annual Report is set out below:
SUBSTANTIAL SHAREHOLDINGS
As at 9 August 2017, the number of shares held by substantial shareholders and their associates is as follows:
Shareholder
Number of Ordinary Shares
Percentage of Ordinary Shares 1
HSBC Custody Nominees (Aust) Ltd
JP Morgan Nominees Australia Limited
Chessari Holdings Pty Limited 2
Citicorp Nominees Limited
32,467,520
6,825,457
6,050,941
5,405,392
39.02
8.20
7.27
6.50
1 As at 9 August 2017, 83,204,720 fully paid ordinary shares have been issued by the Company.
2 Chessari Holdings Pty Limited is a company associated with Mr Ross Chessari, a Non-Executive Director.
NUMBER OF SHARE & OPTION HOLDERS
As at 9 August 2017, 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 $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 $11.87 and expiring on 30 September 2018
Options exercisable at $12.88 and expiring on 30 September 2018
Options exercisable at $13.82 and expiring on 30 September 2018
Number of Holders
6,007
4
12
1
1
2
2
VOTING RIGHTS
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 9 August 2017, 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+
3,506
1,956
302
187
26
As at 9 August 2017 there were 224 shareholders who held less than a marketable parcel of 35 fully paid ordinary shares in
the Company.
ON-MARKET BUY BACK
The Company does not have a current on-market buy-back.
MMS
Financial Report 2017
106
Shareholder
Information
TOP 20 SHAREHOLDERS
As at 9 August 2017, the details of the top 20 shareholders in the Company are as follows:
No.
Name
Number of
Ordinary Shares
Percentage of
Ordinary Shares 1
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
Chessari Holdings Pty Ltd2
Citicorp Nominees Pty Limited
Asia Pac Technology Pty Ltd3
National Nominees Limited
UBS Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Ann Leslie Ryan
CPU Share Plans Pty Ltd
BNP Paribas Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
Milton Corporation Limited
MOHL Invest Pty Ltd
AMP Life Limited
CS Fourth Nominees Pty Limited
AFICO Pty Ltd
MOHL Invest Pty Ltd
Warbont Nominees Pty Ltd
NWC Group Pty Ltd
Totals: Top 20 holders of issued Capital
Total Remaining Holders Balance
68,585,792
14,618,928
1 As at 9 August 2017, 83,204,720 fully paid ordinary shares have been issued by the Company.
2 Chessari Holdings Pty Limited is a company associated with Mr Ross Chessari, a Non-Executive Director.
3 Asia Pac Technology Pty Limited is a company associated with Mr John Bennetts, a Non-Executive Director.
RESTRICTED SECURITIES
As at the date of this Annual Report, the following securities in the Company were subject to voluntary escrow.
39.02
8.20
7.27
6.50
4.02
3.96
3.14
2.55
1.21
1.09
0.96
0.85
0.76
0.50
0.45
0.42
0.41
0.41
0.37
0.34
82.43
17.57
Number of ordinary shares
503,212
279,470
UNQUOTED SECURITIES
Date of escrow expiry
31 July 2017
26 February 2019
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 $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 $11.87 and expiring on 30 September 2018
Options exercisable at $12.88 and expiring on 30 September 2018
Options exercisable at $13.82 and expiring on 30 September 2018
Options do not carry a right to vote
978,417
398,789
107,877
76,048
85,692
33,436
4
12
1
1
2
2
Corporate Directory
McMillan Shakespeare Limited
ABN 74 107 233 983
AFSL No. 299054
Level 21, 360 Elizabeth Street
Melbourne Victoria 3000
www.mmsg.com.au
Registered Office
Level 21, 360 Elizabeth Street
Melbourne Victoria 3000
Tel: +61 3 9097 3000
Fax: +61 3 9097 3060
Company Auditor
Grant Thornton Audit Pty Ltd
The Rialto, Level 30, 525 Collins Street
Melbourne Victoria 3000
Share Registry
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
Tel: +61 3 9415 4000
www.mmsg.com.au