McMillan
Shakespeare
Limited
Annual Report
2018
Collectively, the McMillan Shakespeare Group’s businesses
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.
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 23 October 2018 at 10:00 am at the State
Library of Victoria, Ground Floor, 328 Swanston Street,
Melbourne, Victoria in the Theatrette.
Financial Calendar
22 August 2018
Announcement of 2018 Annual Results
Annual Report Released
13 September 2018
2018 Final Dividend Ex-Date
14 September 2018
2018 Final Dividend Record Date
28 September 2018
2018 Final Dividend Payment Date
23 October 2018
2018 Annual General Meeting
www.mmsg.com.au
2018 A
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Chairman’s Report
CEO’s Report
Financial History
Key Metrics
Directors’ Report
– Directors
– Directors meetings
– Principal activities
– Results
– Dividends
– Review of operations - Group
– Digital innovation
– 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
special responsibilities
– Company Secretary
– Remuneration Report
– Unissued shares
– Directors’ interests
– Environmental regulations
–
– Non-audit services
– Auditor’s independence declaration
– Directors’ declaration
– Corporate governance practices
– Five year summary
Indemnification and insurance
Financial Report
Directors’ Declaration
Independent Audit Report
Auditors’ Independence Declaration
Shareholder Information
Corporate Directory
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MMS Annual Report 2018
1
Chairman’s
Report
I’m pleased to report that the
McMillan Shakespeare Limited
(MMS) Group performed well
during the 2018 financial year
(FY18), delivering another solid
result that demonstrates the
value of our diversified business.
Across the Group we remain committed to leveraging scale,
introducing new technology and pursuing strategic growth
opportunities that consolidate and enhance our position in
a changing, competitive and complex marketplace.
Group revenue for the FY18 period increased 4.2%
to $545.4 million, while we achieved a lift in underlying net
profit after tax and amortisation (UNPATA) of $93.5 million
– up from $87.2 million last year. We were pleased to
deliver a fully franked final dividend of 40 cents per share,
taking the total dividend for the year to 73 cents per share,
a 10.6% increase on the corresponding 2017 financial
year (FY17) period.
Return on equity was 25.2% and return on capital employed
was 21.2%, reflecting the prudent approach to capital
management we have adopted during the past few years,
specifically within our Asset Management (AM) business.
In terms of our commitment to technological innovation,
this report provides an in-depth introduction to the
Group’s Beyond 2020 program. This project is a significant
investment in the future of our business.
73.0c
FY18
DIVIDEND
PER SHARE
$93.5m
FY18 UNPATA
2
MMS Annual Report 2018 Group Performance
Our Group Remuneration Services (GRS) business
delivered another strong performance, with 10%
profit growth recorded for the year, surpassing FY17’s
outstanding result. Pleasingly, this year’s result was
achieved through strong novated lease unit sales, a
combination of further new business wins, improved
participation levels and important contract renewals.
Whilst the salary packaging and novated leasing market in
Australia is increasingly competitive, we are pleased that
our GRS business steadfastly continues to be the Group’s
dominant performer.
New business wins within GRS were achieved primarily
in the private sector, whilst contract renewals with major
not-for-profit (NFP) health employers in Victoria and New
South Wales were highlights. Our market share in major
metropolitan areas, and the strength of our existing
product and service offering, were key factors in attracting
several new clients in regional areas.
In Australia and New Zealand our AM business enjoyed
a solid trading year courtesy of an enhanced funding
model and disciplined cost management initiatives,
contributing to an increase in UNPATA of 17% to $15.8
million. The business achieved an 11% lift in EBITDA,
while our enhanced remarketing capability for returned
vehicles, via our Just Honk retail car yard, was also
an evolving contributor to the result. Importantly, this
initiative also enables us to introduce new products to the
GRS customers, adding further value to broader Group
performance.
The priority for our United Kingdom (UK) business
remained the further expansion of our existing platform,
to generate revenue growth and higher returns on capital.
This includes increasing our geographical footprint and, by
extension, increasing market share. We remain focused on
continual growth of a bespoke broking platform and the
diversified funding panel we have established during the
past few years.
Assets under management in the UK increased by more
than 11% to in excess of 21,000 units, driven by several
new client wins. Growth was also driven by a full year of
returns from both CAPEX and EVC (t/a Eurodrive Motor
Finance), with both acquired midway through FY17.
During FY18 our Retail Financial Services (RFS) segment
was reorganised into two business streams – a retail
brokerage business which operates the warranty,
insurance and retail finance products, and a finance
broker aggregation business.
While our finance broker aggregation business performed
in line with expectations, growing volumes by 2.3%, our
retail brokerage business performed profitably albeit
within a market confronting an ongoing degree of
regulatory change. During the year a reduced volume
of product was written and margin compression in retail
finance originations led to a decrease in RFS segment
UNPATA of 31%.
As a result of the challenges within the RFS segment
and their likely impact upon future earnings, impairment
write-downs to the carrying value of goodwill and other
intangible assets, totalling $39.4 million were recognised
during the year.
The period also saw the establishment of a new business
for the Group, Plan Partners, which provides plan
management and support co-ordination services to
participants of the National Disability Insurance Scheme
(NDIS). We firmly hold the view that for the NDIS to be
successful it needs the active support and investment of
both the public and private sectors. The core capabilities
of our GRS team are highly transferable, in that we are
well equipped to manage a high volume of transactions,
and we have sound experience in managing payments
to a large number of disparate service providers. In all we
bring a high level of professionalism and experience to this
emerging market and we are positive about the outlook
for Plan Partners.
The strategic intent for this new initiative is to build a
market leadership position within the NDIS framework,
providing customers with more choice, greater control
and less complexity.
Our Chief Executive Officer, Mike Salisbury, provides
more in-depth analysis of segment performance in his
accompanying report.
3
Outlook
Your Board and senior management will continue to focus
on the Group’s core strategic directives we have pursued
during the previous few years, with a commitment to drive
long term growth, returns and profitability, whilst aiming to
reduce risks and operating costs.
Those strategic directives include:
–
–
– For the GRS business, long term investment in
our operating platforms, driving novated leasing
sales growth through enhanced pipeline and sales
conversion; and ultimately reducing our cost to serve
via technology driven productivity improvements;
In the AM business, continuing to focus on expanding
our remarketing channels and build off-balance sheet
funding to drive return on capital employed;
In the UK, will we will continue to build scale via
strategic acquisitions and organic growth, while, as in
Australia and New Zealand, maintaining a disciplined
approach to capital management to drive return on
capital employed;
In the RFS business, we will continue to monitor the
regulatory environment, while building a market leading
position with our upgraded warranty products. Our
finance aggregation business will maintain its focus on
the strengthening of relationships with major lenders
and key brokers, consolidating our leading position in a
changing marketplace; and
In our new business initiative, Plan Partners, building
upon the base already established in concert with the
progressive rollout of the NDIS.
–
–
I would like to thank the Executive Team, led by Mike
Salisbury, and the entire MMS team for their hard work
and commitment to the solid FY18 performance, and
I especially appreciate their work in setting the Group
up for a strong future.
Tim Poole
Chairman
The Regulatory Environment
The Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services sector, which
commenced in the second half of FY18, is broad and
accordingly financial services organisations universally
will monitor its progress closely.
The Australian Securities and Investments Commission
(ASIC) review of finance and add-on insurance products
also continued during the year, with findings expected
in FY19, whilst a ban on existing arrangements for flex
commissions for Consumer lending (National Consumer
Credit Protection Act Regulated) will be effective from
1 November 2018.
During the period we initiated a process to review our
motor vehicle warranty products, while a wider Group
review of our insurance products and related distribution
is ongoing. We have a responsibility to ensure our
products and services continue to meet both consumer
and community expectations.
We remain committed to ensuring our products are
market leading in terms of their value for customers.
That ethos and commitment have been the underlying
driver for the review of these products and remain the
central guiding principle of how we take our products and
services to market. Whilst this is an ongoing process, we
are confident that the customer-focused improvements we
have already instigated will leave the Group well placed for
the future.
With respect to our GRS business, we are pleased that
the two major Federal political parties continue their
ongoing support for the current Fringe Benefit Tax (FBT)
arrangements for employer provided motor vehicles and the
broader exemptions provided to the NFP sector.
4
MMS Annual Report 2018Chairman’s Report Chief Executive
Officer’s Report
The MMS Group delivered a
strong year-on-year result,
producing a solid uplift in profit
from last year’s performance.
Against a backdrop of increasing competition and a
complex regulatory environment, the Group continued to
proactively respond and evolve, with strong organic
growth in our customer base, assets under management
and net amount financed. Furthermore, I’m pleased to
report on our strategic growth priorities: the continued
growth in the UK, our investment in the NDIS with Plan
Partners, and our Beyond 2020 program, as we continue
to focus on building a solid platform for the Group’s future
long term growth.
The GRS business was once again our lead performer
across the period, returning a 9.6% increase in revenue
and a 10% increase in UNPATA. As anticipated, following
our success in new customer wins in FY17, packaging
growth was largely driven by increasing participation
levels across the portfolio. New business wins were also a
significant contributor to growth in the segment, delivering
a number of significant new corporate customers.
We maintained a disciplined approach to growth and
capital management in our AM business in Australia and
New Zealand, while our UK business continued to perform
well. We have built upon our UK broker aggregation
platform, established in 2017, generating a 75% increase
in the net amount financed (NAF) from the previous period
to $887 million. Our focus on a more capital light approach
to capital management has delivered improved returns on
capital employed.
Our RFS segment experienced another challenging year,
as market uncertainty continues around regulatory reform.
As I noted in FY17, these reforms are focused on add-on
insurance products and flex commission arrangements.
Whilst we continue to evolve and adapt our approach to
these products and markets in response, the duration of
this uncertainty has seen a continuation of the decline in
the volumes of product written and margins. As part of our
strategic review of the market, a decision was undertaken
during the period to exit the Money Now point of sale motor
vehicle consumer finance business.
In another busy year, the Group has been able to deliver
a result that demonstrates the underlying strength of the
core business, as well as the benefits of diversification.
Our success is driven by our people, through their
commitment, dedication and resilience, and I thank them
all for their contribution.
5
Segment performance
Our GRS result was very pleasing, achieving 10% profit
growth through record novated lease sales, continued
strong client retention, increased customer participation,
new business wins and improved productivity.
Customer satisfaction rates remain ahead of our Net
Promoter Score benchmark, consistent with prior years.
Throughout the year our team delivered 17,715 on site
education activities designed to keep our clients fully
informed as to how they can benefit from our services.
This commitment to on site education has long been
one of our key points of competitive advantage and is
important in driving organic growth.
One of our major initiatives, through an investment in
technology, is aimed at creating an enhanced customer
experience. A key pillar of this is our Beyond 2020
program; one of the most ambitious transformation
programs the Group has undertaken. More detail on this
initiative is provided further in this report, together with our
forthcoming long-term technology investment in our GRS
operational platforms.
Further new initiatives delivered in FY18 included
investment in and the launch of dedicated social media
platforms for Maxxia and RemServ. These platforms allow
us to join customer conversations and better manage
feedback in a social media environment.
We also launched new websites for MMS, Maxxia and
Maxxia NZ, offering refreshed design, improved user
experience and easy to navigate pathways for customers
to better engage with our services.
Our AM Australia and New Zealand business achieved
strong profit growth during the year, within a highly
competitive market. The segment benefitted from a
12% lift in the value of assets funded, improved returns
via principal and agency (P&A) funding and enhanced
remarketing capability from our retail distribution network.
During the year we continued our focus on a less capital-
intensive funding model, designed to deliver improved
returns on capital employed. To that end our P&A funding
continued to grow with a further $30 million in vehicles
financed off-balance sheet for the year, bringing our total
off balance sheet contribution to around 11% of the total
portfolio and on track to achieve our targeted 30% by 2020.
Our UK business continues to perform well, as we
focus on expanding our geographic footprint. During the
year we achieved two notable milestones: in excess of
20,000 assets under management and £500m in finance
originations.
Demonstrating the importance the Group places on the
UK market, and the depth of scale and opportunity we
see in that market a member of the Group executive was
relocated to the UK in 2018.
The challenges for our RFS segment have culminated
in our decision to exit the retail finance market and to
concentrate our focus on broker aggregation, warranty
and insurance businesses.
Notwithstanding the uncertainty in the market and
changes within the funding landscape, aggregation
volumes grew by 2.3% in the year.
Over the past 18 months we have worked hard in the
RFS segment to build a business that will be well placed
to leverage the growth opportunities that will arise within
a changing marketplace. We have focused our attention
on product design, pricing, distribution and customer
outcomes in building sustainable products and services
for the longer term.
6
MMS Annual Report 2018Chief Executive Officer’s Report Beyond 2020 – taking MMS into the future
We were pleased to announce the launch of the Beyond
2020 program during the year. This is one of the largest
transformation projects the Group has undertaken; a
customer focused approach designed to improve the
way we provide our products and services, now and
into the future.
Plan Partners
At our 2017 Annual General Meeting I announced the
establishment of Plan Partners, the newest addition
to the MMS Group. Developed to leverage the core
capabilities within our business, Plan Partners provides
plan management and support services to participants of
the NDIS.
The overall aim is twofold; firstly to reduce operational
costs whilst enhancing both customer and employee
engagement; and secondly to create a sales environment
that can evolve and adapt to stay ahead of consumer
mobility trends, competitor and technology changes
into the future.
Following a successful trial in FY17 Plan Partners has now
established offices in New South Wales, Victoria, South
Australia, and Queensland, and been licensed to provide
services in Tasmania and the Northern Territory. Upon
receipt of our license in Western Australia we will be the
largest national provider of these services in the country.
The Beyond 2020 program will provide customers more
opportunities to self-serve, when they want, and via
the channel of their choice, as part of a shift to a more
digital-focused service model.
The program includes the adoption of new technologies
and systems, designed to streamline the way we operate,
while reducing our operating costs via productivity
improvements.
Delivering the Beyond 2020 program will necessitate
higher capital and operating expenditure within the GRS
segment during FY19 in particular, specifically with
respect to dedicated personnel in design, development
and implementation. Importantly, these investments
will deliver incremental benefits throughout the program
as each component is delivered.
In parallel with the Beyond 2020 program, in FY19 we
will commence making long-term investment in our core
GRS technology platforms.
We note that there has been substantial media coverage
regarding the challenges faced by the National Disability
Insurance Agency (NDIA). However, we remain pleased
with the level of engagement demonstrated by both the
Government and the NDIA and are confident that the
scheme will deliver the significant benefits to those most
in need, and that Plan Partners can play a substantial part
in making the NDIS a success.
I would like to thank the Board for its ongoing support
and in particular its backing of our investments in new
technologies and the Beyond 2020 program. I would also
like to thank our shareholders for your ongoing investment
and I look forward to providing further updates on our
progress during FY19.
Mike Salisbury
Managing Director and
Chief Executive Officer
7
Financial History
1.4
92.5
243.7
1.6
106.0
1.6
110.0
226.1
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
48.2
0.4
54.1
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
207.8
FY05
FY06 FY07 FY08 FY09
FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY17 FY18
GRS
Asset Management
RFS
Unallocated Revenue
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
50.3
FY05
FY06 FY07 FY08 FY09
FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY172 FY183
NPAT continuing operations
Profit recognised on ILA business
combination (acquisition gain)
Revenue
performance
NPAT performance 1
UNPATA performance 4
s
n
o
i
l
l
i
m
$
s
n
o
i
l
l
i
m
$
s
n
o
i
l
l
i
m
$
5.2
11.3
13.2
17.4
20.5
27.9
43.5
54.3
62.2
56.1
69.6
87.2
87.2
93.5
FY05
FY06 FY07 FY08 FY09
FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY17 FY18
8
MMS Annual Report 2018NPAT continuing operations Profit recognised on ILA business combination (acquisition gain)
Underlying
earnings per share5
Dividends
per share
s
t
n
e
c
s
t
n
e
c
7.9
17.1
19.8
25.8
30.4
41.3
64.0
76.6
83.4
75.3
89.7
105.1
104.8
113.2
FY05
FY06 FY07 FY08 FY09
FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY17 FY18
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
73.0
FY05
FY06 FY07 FY08 FY09
FY10 FY11 FY12 FY13 FY14 FY15
FY16
FY17 FY18
1 NPAT is normalised to exclude the profit recognised on acquisition of Interleasing (Australia) Limited in FY10 ($17m profit after tax).
2
3
4 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for intangible assets,
Includes asset impairment of $15.3 million (after-tax) for the warranty and insurance business.
Includes asset impairment and closure of Money Now of $6.9 million and impairment of $38.0 million after-tax.
acquisition expenses, amortisation of acquired intangible assets and deferred consideration items) and disposal of business.
5 Underlying EPS excludes the profit recognised on acquisition of Interleasing (Australia) Limited, and the after tax acquisition costs
and acquired intangibles amortisation.
9
NPAT continuing operations Profit recognised on ILA business combination (acquisition gain) Key Metrics
Our Customers
334,850
Salary packages
5.5%
63,300
Novated leases
5.9%
42,750
Assets managed – units
2.3%
$521m
Assets managed – WDV1
7.6%
$2,850m
Net amount financed
18.7%
$395m
Average salary packaging float
3.9%
49.1
Industry leading Net
Promoter Score (NPS)
(Average monthly score
during FY18)
99%
Customer complaints resolved
by MMS and our Customer
Advocate without referral to
an external arbitrator
Inclusive of on and off balance sheet funding
1
Note: Movements compared to prior corresponding period.
10
MMS Annual Report 2018 Our Environment
Our People
3.1%
(YOY reduction)
1,283
% reduction in greenhouse
emissions from car fleet
Employees (FTE) MMS Group at 30 June 2018
15.1%
(YOY reduction)
76
% reduction in greenhouse
emissions from electricity
Employee Engagement Score
High performance work environment ranking
2017 survey result (survey biennial)
Carbon
neutral
Carbon neutral (net zero carbon footprint)
achieved from the offset of CO2 emissions
caused by the production of printed material
11
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 2018 (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 Non-Executive Director)
Mr John Bennetts (Non-Executive Director)
Mr Ross Chessari (Non-Executive Director)
Mr Ian Elliot (Independent Non-Executive Director)
Ms Sue Dahn (Independent 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 22 and 23.
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 2018.
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 2018
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 2018 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 2018 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
Remuneration & Nomination
Committee Meetings
Eligible to
Attend
Attended
Eligible to
Attend
Attended
Eligible to
Attend
Attended
13
13
13
13
13
13
13
13
12
12
12
13
12
-
12
-
-
12
12
-
11
-
-
12
5
-
-
5
5
-
5
-
-
4
4
-
12
MMS Annual Report 2018 Results
Details of the results for the financial year ended 30 June 2018 are as follows:
Results
2018
2017
Net profit after income tax (NPAT) attributable
to owners of the Company
$50,302,815
$67,901,770
Underlying Net profit after income tax (UNPATA)1
$93,518,774
$87,166,863
Basic earnings per share (EPS)
Underlying earnings per share
Earnings per share on a diluted basis (DPS)
60.9 cents
113.2 cents
60.6 cents
81.6 cents
104.8 cents
81.5 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) and disposal of business.
Dividends
Details of dividends paid by the Company during the financial year ended 30 June 2018 are as follows:
Dividends
2018
2017
Final dividend for the financial year ended
30 June 2017 of 35.0 cents (2016: 34.0 cents)
per ordinary share paid on 13 October 2017
fully franked at the tax rate of 30% (2016: 30%).
Interim dividend for the financial year ended
30 June 2018 of 33.0 cents (2017: 31.0 cents)
per ordinary share paid on 29 March 2018
fully franked at the tax rate of 30% (2017: 30%).
$28,938,343
$28,286,110
$27,278,654
$25,790,278
Total
$56,216,997
$54,076,388
Subsequent to the financial year ended 30 June 2018, the Directors declared a final dividend of 40.0 cents per
ordinary share (fully franked at the tax rate of 30%) to be paid on 28 September 2018, bringing the total dividend to be
paid in respect of the financial year ended 30 June 2018 to 73.0 cents per ordinary share.
13
Director’s Report
Review of operations – Group
FY18 delivered another strong profit result for MMS,
recording improved financial and operating metrics for the
year. The Group outperformed FY17’s UNPATA result of
$87.2 million, returning FY18 UNPATA of $93.5 million.
Return on equity was 25.2% and return on capital
employed was 21.2%.
In the GRS segment, EBITDA increased by 8.4% to $97.0
million. This result incorporates an increase in employee
costs, partly attributable to implementation of the Beyond
2020 program, increased initial investment during the
period in our novated lease sales related processes and
marketing capability, and also includes revenue and
expenses associated with Plan Partners.
Despite the increase in expenditure in the short term,
the Beyond 2020 program is beginning to generate
financial returns, whilst our increased low-cost investment
in novated sales and marketing activity contributed to
immediate improved lead conversions during the period.
GRS revenue and UNPATA (including Plan Partners)
increased by 9.6% and 9.9% respectively. New
business wins particularly in the corporate sector were
a solid contributor to growth. Continued high client
retention rates, off the back of the renewal of relevant
state government contracts in particular, underpinned
record novated lease sales and strong vehicle re-lease
conversions, providing substantial progress in increasing
program participation rates for both salary packaging and
novated leasing services. This strong organic growth,
particularly with regard to novated leasing, was also
driven in part by improved customer engagement rates.
Newly adopted sales processes within novated leasing
have enabled us to engage with customers in a more
insightful and targeted manner, ultimately improving sales
conversions and productivity.
The Group maintained a disciplined approach to growth
in the AM business, continuing to build a less capital-
intensive funding model. The segment delivered 17%
UNPATA growth, through cost management, with P&A
funding now up to $40.5 million. Segment growth was
also supported by the performance of the Just Honk
retail motor vehicle sales channel, which provides for
cross-segment synergies, particularly with respect to
the GRS segment.
In the UK, UNPATA was up 43% to $5.7 million.
Our broker aggregation strategy, which commenced in
FY16, continued to progress well as we expanded our
geographic footprint, and leveraged our asset finance
program to grow market share. We remain focused on
building a sustainable, high quality business that
complements our existing capabilities and increases our
value proposition in the UK market.
The RFS segment continued to face market and regulatory
uncertainty with EBITDA totaling $14.0 million, a decline
on the previous year. During FY18 we undertook a
re-design of our dealer warranty product aimed at creating
enhanced value for our customers. This work has created
a product which in our view is class-leading in relation to
coverage, value proposition and increasing the level of
claims paid to customers. A strategic decision was also
undertaken during the period to exit the provision of point-
of-sale motor vehicle retail finance via the Money Now
brand. NPAT for the segment was negatively impacted by
impairment write-downs recognised during the period.
The finance aggregation business performed well, delivering
an increase in NAF of 2.3% above the previous year.
Profitability was in line with expectations, albeit reduced
from FY17 as a result of changes in the funding landscape.
Plan Partners, a venture with minority interest holder
Disability Services Australia, was successfully launched
during FY18, following a successful trial. The business
leverages core GRS competencies to provide services to
NDIS participants.
At the end of FY18 Plan Partners has established a
network in excess of 3,500 service providers. We expect
the business to become profitable during FY19 as we aim
to build further scale and expand our service provision
within the 460,000 NDIS participant market.
Digital innovation – continuing to
improve the way we do business
We launched our Beyond 2020 program during the year, a
major transformation project designed to change the way
we provide our service. The program aims to improve our
cost to serve ratio via the creation of a more personalised
and user-friendly experience, and encourage customers to
engage with our services via their medium of choice, when
convenient for them.
The program will also strive to improve customer
communications, implement automated systems and
processes to improve sales activity and help us to develop
a better understanding of customer behaviour.
Uptake of our Maxxia and RemServ Claims apps
continued with 142,500 downloads since being launched
in 2016. This has led to 82% of all claims being lodged
online via websites or the Maxxia and RemServ apps.
In parallel with the Beyond 2020 program, during FY19 we
will commence making long-term investment in our core
GRS technology platforms.
14
MMS Annual Report 2018 Key highlights and activities included:
– Group revenue of $545.4 million, an increase of 4.2%.
– Group FY18 UNPATA of $93.5 million.
– Group vehicle assets under management including
novated totalled 106,100 units as at 30 June 2018.
State of affairs
Late in FY18 MMS announced the exit from its Money
Now point of sale motor vehicle consumer finance
business. Accordingly this necessitated MMS writing
off goodwill, capitalised software and other assets of
approximately $5.7 million after-tax. One off costs of
approximately $1.3 million after-tax were also recognised,
including redundancy payments, lease commitments and
other costs. There were no other significant changes in the
state of affairs of the Company and its controlled entities
during the financial year ended 30 June 2018 that are
not otherwise disclosed in this Annual Report.
Outlook
This year’s results are underpinned by organic growth
within our customer base, our investment in sales related
activity processes and digital improvements in the GRS
business. Our investments in the upgrade of core
technology platforms (FY19 to FY20) and the Beyond
2020 program (FY19 to FY21), whilst negatively impacting
short-term results, are expected to deliver medium and
longer-term improved operating ratios and financial returns.
We maintain a strong pipeline of business heading into
FY19 and we expect this positive customer activity to
continue.
In the AM segment, the expansion of our remarketing
channels into New South Wales and the ongoing transition
to a fully flexible funding model via P&A agreements,
remain an important focus.
We continue to expand the range of P&A agreements
globally with a view to a less capital-intensive funding
model, and maintaining a focus on enhancing return on
capital employed.
Our presence in the UK continues to grow, with our
program of strategic acquisitions a continued focus.
In our RFS segment, we continue to focus on product
design and our customer value proposition. We are
confident our dealer warranty products can continue to
provide us with a market leading position. In our finance
aggregation business we will further develop relationships
with lenders and broker partners.
Strategy and prospects
The Group’s strategic direction is focused on
employing practices that reduce our cost to serve while
simultaneously growing revenue.
This includes digital innovations and long-term investment
in technology across core sales and operating platforms
in the GRS segment, continued disciplined balance sheet
management and an increase in remarketing activity in
AM, and improving and refining our product suite in RFS.
In the UK we will continue to assess appropriate
acquisitions that add to and complement our existing
value proposition and help drive further organic growth.
We expect Plan Partners to continue to gather momentum
and to commence becoming profitable during part of
FY19, procuring new clients and service providers as part
of the business’ nationwide expansion in line with the full
rollout of the NDIS.
Events subsequent to balance date
On 14 August 2018, the company was served with a
class action proceeding for a claim relating to a warranty
product business operated by Davantage Group Pty Ltd
(trading as “National Warranty Company” (NWC)) which
is and was at all relevant times a subsidiary of Presidian
Holdings Pty Ltd which the Company acquired in February
2015. The claim is made on behalf of all persons who
entered an NWC warranty between 1 July 2013 and 28
May 2015 (provided it was acquired for domestic/personal
use and they received an NWC PDS). A significant portion
of the relevant period to which the claim relates is in
respect of a time when the “National Warranty Company”
was not owned by the MMS Group. The proceedings
are to seek orders that the NWC warranties are void,
and seek either the restitution or a refund of the premium
paid and interest on that amount. The Company intends
to vigorously defend the proceedings. At the date of this
report the Company is not in a position to estimate the
impact, if any, of this claim.
Other than the above and matters disclosed in this 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.
15
Group Remuneration
Services
Group Remuneration Services
The GRS segment delivered a record result in FY18,
achieving 10% profit growth which consolidated its market
leading position through a combination of new business
wins and a high client retention rate. Revenue and
UNPATA (including Plan Partners) increased by 9.6% and
9.9% respectively. Salary packaging units grew by 5.5%,
mainly through increased participation rates, and novated
lease units grew 5.9%. These included an additional 9,300
salary packages and 200 novated leases signing on for
the full year from new clients acquired during the period.
In Victoria, our market share in both metropolitan and
regional areas, and the strength of our existing product
offering were key factors in securing key new clients,
including several significant new corporate customers.
Pleasingly, these new contracts have performed well
to date.
In New South Wales, the whole-of-government salary
packaging services contract (known as contract 6036)
with the State Government was renewed for a further
two years, with an option included for an additional year.
Both Western Australia and South Australia recorded a
range of small new contract wins throughout the year,
while Tasmania performed very strongly particularly with
regard to novated leasing sales.
Driving further improvements in productivity while
improving customer experience remained a further core
focus in FY18. An increase in the take-up rate of our
online claims technology from 85% for Maxxia and 56%
for RemServ at June 2017 to 91% for Maxxia and 69%
for RemServ at June 2018 was a good reflection of
this core key strategic initiative.
The Maxxia and RemServ wallet programs (new payment
platforms that provide access to salary packaging funds
at any time through a single payments card) which were
rolled out in in FY17, progressed well during FY18. 70,000
customers were initially transferred to the new platforms in
FY17, with that number growing to 73,359 in FY18.
An improved customer retention rate during the year was
assisted by our investment in a data-driven customer
engagement system, part of our transition to a fully
integrated digital engagement platform for our salary
packaging clients. Customer satisfaction rates for FY18
remained strong, with our average monthly Net Promoter
Score hitting 49.1 across the period.
Dedicated social media platforms for both Maxxia
and RemServ were developed and launched during
FY18. These also contributed to improved customer
engagement. Engaging in two-way dialogue with
customers has led to more timely and effective customer
problem resolution.
During the period, we launched new websites for MMS,
Maxxia, and Maxxia NZ, as part of our broader focus on
digital innovation and a customer centric experience. In
keeping with that, the new site’s refreshed design is mobile
optimised, allowing customers the flexibility to engage with
the site via their phone, iPad, laptop or desktop. A new
RemServ website will be delivered in FY19.
Also during FY18, a marketing program was developed
in order to engage with our novated lease customers 12
months prior to their end of lease. The aim is to educate
Maxxia and RemServ customers about the many options
available as they near the end of their lease, such as the
purchase of a new car, financing new or existing vehicles,
or potentially extending their existing lease. Pleasingly, this
work contributed to strong re-lease activity during the period.
In terms of outlook for the segment, the salary packaging
and novated leasing markets remain highly competitive
and as such product differentiation and simplification,
paired with an efficient customer experience, remain core
areas of focus for the business. FY19 will see progression
of our Beyond 2020 program and longer-term investment
in our GRS operational platforms.
An overriding Group focus remains on reducing our cost
to serve while at the same time increasing our revenue.
Product innovation remains central to this focus, which can
be seen in our commitment to enhancing our digital offering.
16
MMS Annual Report 2018 Key highlights and activities included:
– FY18 UNPATA of $64.1 million up 9.9% on FY17.
Increased salary packaging units to 334,850
–
(5.5% increase on FY17) and novated leases to
63,300 (5.9% increase on FY17).
– Several new major business wins in the corporate
sector.
– Strong organic growth and high client retention
via improved customer engagement rates.
– Successful launch and progression of Beyond
–
2020 program to drive margin growth.
Improved on-line claims take-up rates via digital
channels (82% of all claims).
Beyond 2020 – an integrated customer
engagement program taking the Group
into the future
The most significant of our innovation programs is
Beyond 2020; a customer focused program designed to
transform the way we provide our products and services.
The program aims to reduce operational costs through
enhancing the customer and employee experience, while
creating a sales environment that is adaptable and flexible,
in order to embrace future technological changes.
The program completed a concept and enablement
phase in FY18, with delivery and implementation to roll
out over FY19 and FY20. It will create a more mobile and
user-friendly experience, enabling customers to engage
with our services via their channel of choice, when most
convenient for them.
Initially conceived as a three-year business transformation
program that reimagines how MMS currently operates,
Beyond 2020 is designed to drive novated leasing sales
growth and a reduction in operating costs via productivity
improvements.
With a focus on our people, our processes and connected
technology, the program will transition MMS to a
collaborative workstyle; enable simple, consistent and
digital-first customer services, while simultaneously aiming
to drive operating costs down and grow sales.
At the core of the program is developing a culture that
supports a more efficient way of working together; re-
engineering our processes to make them simpler, and
providing our people with enhanced customer-centric
technology tools that support automation, collaboration
and paper-light behaviours. It will also create an adaptable
and flexible sales environment that will leave us well placed
to meet future technology improvements.
17
Group Remuneration
Services
Plan Partners
Plan Partners, our newest business initiative, is an
independent provider of plan management and support
coordination services to NDIS participants.
The NDIS is a generational Australian Government initiative
which aims to provide Australians living with a disability,
aged under 65, with the reasonable and necessary
supports they need to live a fulfilling life.
Plan Partners was formed as a Joint Venture initiative
between MMS and Disability Services Australia in July
2016 to specifically provide plan management services
to NDIS participants. Following a successful trial, the
business is now established in New South Wales, Victoria,
South Australia and Queensland, while we are licensed
in Tasmania and the Northern Territory. On receipt of a
licence in Western Australia, Plan Partners will be the
largest national provider of these services.
The MMS Board has maintained the view that for the NDIS
to be successful it requires the support and investment of
both the public and private sectors, and the capabilities of
our GRS segment were identified as an effective, existing
means of delivering such support.
As such, Plan Partners leverages those competencies
of high volume transactions and funds management
expertise to assist NDIS participants manage their plans,
and administer their funding and payment arrangements,
amongst other assistance.
The aim is to create a compelling market proposition
in order to meaningfully assist a portion of the 460,000
participants who will be part of the scheme once fully
implemented. Plan Partners aims to be the only true
national service provider in this sector with leading
breadth of scale and depth of service.
Whilst the business remains in its infancy, Plan Partners
has to date built a very strong base and support network
across the Eastern-seaboard and is in the process of
expanding the service nationally. As at the end of FY18,
the service has established a network of more than 3,500
service providers.
Plan Partners underwent a rebrand late in FY18,
(from its original name of Plan Management Partners)
which coincided with the business’ release of a new
Customer Charter.
The Charter is designed to provide a level of accountability
and a set of minimum standards for our NDIS customers
to hold the business to.
Late in FY18, Plan Partners were privileged to welcome
Mr Tim Wilson MP, the Federal Member for Goldstein, to
officially open the new headquarters in Richmond, Victoria.
Key activities and highlights
– Plan Partners established to provide NDIS participants
with greater choice, less complexity and more control
over their management plans.
– Leveraging core GRS competencies to deliver service
critical to plan management for NDIS participants.
– National expansion underway, growing a network of
more than 3,500 service providers.
18
MMS Annual Report 2018 Key highlights and activities included:
– FY18 UNPATA of $15.8 million, representing a
17.0% increase on the prior year.
– Fleet asset written down value of $376.7 million, an
increase of 12.4% over the FY17 total of $335 million.
– Continued progression towards off balance sheet
funding, accounting for 10.8% of the total asset value
at period end assisting to drive improved returns.
– Equipment finance opportunities gaining momentum.
Asset
Management
Asset Management – AU/NZ
The Australian and New Zealand AM businesses achieved
robust profit growth during the FY18, with segment
UNPATA increasing by 17% compared with the prior
period, within a highly competitive market.
EBITDA of $24.3 million was up 11.0% from FY17,
with margin improvement driven by disciplined cost
management.
In Australia and New Zealand, total assets managed stood
at 21,800 units at the end of the period, while the segment
benefitted from a 12.4% increase in the value of assets
funded driven by both on and off balance sheet funding.
P&A funding of assets continued to grow, with a further
$30.5 million in vehicles financed off-balance sheet for
the year, driving improvement in return on our capital
employed. As at 30 June 2018 10.8% of assets under
management are funded through P&A agreements.
Our equipment finance business progressed soundly,
writing over $25 million in new business and building a
stronger pipeline for FY19.
A further focus during the year was the diversification and
expansion of our Just Honk retail car yard, a sales and
remarketing channel. This channel allows us to extract
full value from ex-lease vehicles returned from the GRS
segment, and presents opportunities for synergies with
our RFS segment, through offering warranty and insurance
products to customers.
A five-fold increase in returned vehicles during the second
half of the financial year drove positive revenue growth via
this channel.
Given the positive performance of this remarketing channel
we opened a new site in New South Wales in July 2018.
We are also exploring plans to expand the Just Honk
brand into other states.
19
Asset Management – UK
The AM businesses in the UK continues to be an
important growth priority for the Group. They returned
another solid performance in FY18 that continued to build
upon the foundation established in recent years.
During the year we recorded two significant milestones.
Our overall number of assets managed grew by 11.1%
to 21,000 units, with NAF increasing by 75% across the
period to $886.6 million compared with FY17.
Our focus on strategic acquisitions continued, with the
integrations of EVC and CAPEX successfully completed
during FY18, and strong NAF growth recorded in all
brokerage businesses. These acquisitions were designed to
increase the size of the funding panel and further strengthen
our product offering, enhancing scale and leveraging
existing core competencies. This approach to strategic and
accretive acquisitions will remain a priority for FY19.
As in Australia, the UK AM business is focused on prudent
capital management, to drive positive return on capital
employed, with off-balance sheet funding totalling $734.8
million at year end a 73.2% increase on FY17.
During the year, all key revenue drivers recorded solid
increases with originations increasing by 75% to
$886.6 million.
This performance resulted in FY18 total revenue
increasing by 31.5% to $61.4 million. UNPATA reached
$5.7 million, a 43% increase over the prior year.
The strategic focus in the UK remains on further leveraging
of the scale we have built in the region. Across our
product suite we are striving to establish standardised
processes, improve productivity and create a more
streamlined customer experience. Despite a highly
competitive local market, we are confident that the broking
platform and diverse finding panel we have established
provides us with an attractive value proposition in the UK.
Key highlights and activities included:
– FY18 revenue of $61.4 million, a 31.5% increase
on the prior period.
– FY18 UNPATA of $5.7 million, representing a
42.5% increase over the FY17 result.
– Achieved strong NAF of 75.0% over the prior period
to $886.6 million.
– Established bespoke broking platform and diversified
funding panel.
– Appointed senior MMS executive as Managing Director,
reflecting management’s view of the importance of the
region to the Group.
20
MMS Annual Report 2018
Retail Financial
Services
Retail
During the year, the RFS segment was reorganised into
two distinct streams – an aggregation business which
contains our finance brands, and a retail business that
operates our warranty, insurance and retail finance
brokerage products.
Overall RFS UNPATA declined to $8.6 million compared
with the prior year, mainly attributable to reduced volume
and margins in retail finance originations.
During the period we conducted a thorough review
and enhancement of our dealer warranty product and
commission structure, with the specific objective to
improve the customer value proposition and create better
customer outcomes. We are confident that we now have
a best in class warranty product. Redesign of this product
led to an increase in claims ratios within the warranty
business. We anticipate this increased claims experience
to continue into future financial periods.
We also commenced a review of our insurance products
and distribution as part of a Group wide review designed
to maximise value to both the Group and consumers
during a time of significant market and regulatory change.
During the period, a decision was made to exit the
Money Now point of sale motor vehicle consumer finance
business. This resulted in a $5.7 million after-tax write-off
of goodwill, capitalised software, and other assets.
In addition, one-off costs of approximately $1.3 million
after tax were recognised, including redundancy
payments, lease commitments and other costs.
As a result of decreased margins, increased competition
and the uncertain regulatory environment, the segment
recognised after-tax impairment charges totalling
$38 million during the period. These charges were
attributable to the carrying value of goodwill and other
intangible assets within the retail business and have been
excluded for reporting purposes from UNPATA.
Aggregation
The finance aggregation business performed in line with
expectation, generating NAF growth of 2.3% year-on-year.
Profitability was in line with expectations, albeit reduced
on FY17 as a result of changes in the funding landscape,
including changes taking place across the sector ahead
of ASIC’s decision to introduce a cap on flex commissions
in FY19.
While it remains unclear how the impact of the cap on flex
commissions will affect market dynamics overall, and by
extension earnings and revenue, the aggregation business
is well placed to deal with such change.
The business enjoys good relationships with a wide and
deep panel of lenders, and we are confident that our
aggregation service will be of increasing value to brokers,
offering choice and providing stability and continuity, in the
instance of lender withdrawal.
Lenders recognise our value is our ability to deliver
substantial volumes of new business. We have made it a
priority over the course of the year to focus on strengthening
relationships with major lenders and with key brokers to
promote, enhance and improve that value proposition.
We will continue high levels of partner engagement and
monitor the impact of any further regulatory changes closely.
Key highlights and activities included:
– Segment FY18 UNPATA of $8.6 million, down from the
previous year result of $12.4 million.
– Aggregation volumes grew by 2.3% in the year, to a
total net amount financed of $969 million.
– Focus on product design, distribution and customer
value proposition. Redesign of the RFS dealer warranty
product undertaken during the period, creating a product
which leads the sector in terms of customer value.
– The segment continues to operate with market
and regulatory uncertainty with impairment charges
recognised during the period.
21
Directors’ experience
and special responsibilities
Tim Poole 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. Mr Poole was previously an executive of the unlisted
infrastructure and private equity manager, Hastings Funds Management (1995 to 2007), including
being the Managing Director from 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 was 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 a member of the senior executive of
the pioneering Australian multinational IT company, 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.
22
MMS Annual Report 2018
Ian Elliot
Appointed: 27 May 2014
Positions:
Non-Executive Director
Chairman of the Remuneration and Nomination Committee
Mr Elliot is Non-Executive Chairman of Impelus Limited and Chairman of the Dry July Foundation.
Formerly, Mr Elliot was a Non-Executive Director of Salmat Limited (2005-2016), Hills Industries
Limited (2003-2016) and the Australian Rugby League Commission (2012-2016). Mr Elliot was
previously Chairman and CEO at Australia’s largest advertising agency George Patterson Bates,
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.
23
Remuneration Report (audited)
Executive Remuneration Guide
This short guide is intended to provide shareholders with
an overview of executive remuneration outcomes for FY18
having regard to the Company’s performance, as well as a
brief update on the actions the Board and Remuneration
and Nomination Committee (RNC) have taken to improve
the structure 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 quarterly strategic reviews 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) targets.
As noted in last year’s Remuneration Report, during
FY17, the RNC undertook a comprehensive review of the
Company’s LTI structure. As a result of this review, the
Company decided to introduce a new Long Term Incentive
Plan (LTIP) from 1 July 2017. The LTIP was approved by
Shareholders at the AGM held on 24 October 2017.
The RNC determined that from 1 July 2017, the annual
bonus program would cease. The average historical
level of short term incentive for KMP was reallocated:
approximately 70% to fixed remuneration and 30% to
at risk remuneration through LTIs. The LTI component
is made up of a mix of performance options and
performance rights which will be issued on an annual
basis vesting over a three year period (with an additional
initial two year vesting component in FY18), discussed
further below.
The Company historically used Net Profit After Tax (NPAT)
and Earnings Per Share (EPS) as key metrics for assessing
LTI awarded to executive management.
For the FY18 grant of performance rights and performance
options, approximately 54.5% of those incentives were
based on underlying EPS CAGR targets based on
UNPATA and approximately 45.5% based on average
ROCE targets based on Adjusted EBIT (see pages 30 and
33 of the Remuneration Report for further information).
24
MMS Annual Report 2018 The Company’s performance against key metrics for both the FY15 and FY18 LTI grants is summarised in the table below.
Indices
FY182
FY171
FY16
FY15
Net profit attributable to
Company members (NPAT)
Underlying net profit after income
taxt (UNPATA)3
$50,302,815
$67,901,770
$82,469,341
$67,486,611
$93,518,774
$87,166,863
$87,172,942
$69,570,837
UNPATA growth
7.2%
-
25.3%
Basic earnings per share (EPS)
60.9 cents
81.6 cents
99.4 cents
Underlying earning per share
113.2 cents
104.8 cents
105.1 cents
Dividend per share (DPS)
73.0 cents
66.0 cents
63.0 cents
24.1%
87.0 cents
89.7 cents
52.0 cents
Impacted by the after-tax impairment charge of $15.3 million.
Impacted by the after-tax impairment charge of $38.0 million
1
2
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) and disposal of business.
FY18 Remuneration outcomes
538,129 performance options granted to KMP on
28 August 2014 (FY15 Performance Options) vested
on 31 August 2017. These options are exercisable at
$10.18, subject to a 12 month holding lock and expire
on 30 September 2019.
The vesting of the FY15 Performance Options were
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%, 15% for
FY16 and a further 15% for FY17. The performance
hurdles are discussed in detail on pages 28 to 30 of the
FY17 Remuneration Report. As previously disclosed the
vesting entitlement for FY17 was nil (FY16 was 89%
and FY15 was 75%). This results in total vesting for the
FY15 LTIs (across the three years) of 55%.
In respect of the LTI securities issued to KMP in FY18
under both the two-year and three-year vesting tranches,
the performance hurdles are based on targets that are
either aggregate or average outcomes over those time
frames.
Details of KMP remuneration for FY18 and FY17, prepared
in accordance with statutory obligations and accounting
standards, are contained in section 3 (Executive KMP
remuneration in detail) of the Remuneration Report.
In addition to this Guide the report includes:
– 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; and
– more information about Non-Executive Directors’ fees.
25
Remuneration Report
Contents
Key section
26
1. Who does this Report cover?
26
2. Remuneration policy and guiding principles
3. Executive KMP remuneration in detail
27
4. Non-Executive Director remuneration in detail 37
38
5. Statutory remuneration disclosures
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
FY18. 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 FY18.
Non-Executive Directors
Name
Position
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
Executive KMP
Name
Position
Mr M. Salisbury
CEO and Managing Director
Mr G. Kruyt
Managing Director Maxxia UK
Mr M. Blackburn
Group CFO and
Company Secretary
Mr A. Tomas1
Managing Director,
Fleet and Financial Products
1 Mr A.Tomas has resigned and his last day of service was 13 July 2018.
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
Remuneration
LTI’s –
Performance
Options
Non-Executive
Directors
Executive KMP
x
LTI’s-Voluntary
Options
Annual
Cash Bonus
Non-Executive
Directors
Executive KMP
x
x
x
Non-Executive Director remuneration
The Board’s policy is to remunerate the Chairman
and the Non-Executive Directors at market rates for
comparable companies for the time and commitment
involved in meeting their obligations.
The Non-Executive Directors are remunerated for their
services from the maximum annual aggregate amount
approved by the shareholders of the Company on
29 October 2014 (currently $900,000 per annum).
The Board sets the fees for the Chairman and the
other Non-Executive Directors.
Neither the Chairman nor the other Non-Executive Directors
are entitled to any performance related remuneration.
There is no direct link between the remuneration of the
Chairman or any other Non-Executive Director and the
short term results of the Group because the primary
focus of the Board is on the long term strategic direction
and performance of the Group. There are no termination
payments payable to the Chairman or the other Non-
Executive Directors on their retirement from office other
than payments relating to the accrued superannuation
entitlements included in their remuneration.
See key section 4 (Non-Executive Director remuneration
in detail) for further information.
26
MMS Annual Report 2018
Executive KMP remuneration
The components of remuneration for Executive KMP
consist of fixed remuneration (including superannuation
and benefits) and LTIs (in the form of options and
performance rights). As previously stated, on and from
1 July 2017, the previous annual bonus program has
ceased. The average historical level of short term incentive
for Executive KMP has been reallocated: approximately
70% to fixed remuneration (including superannuation and
benefits) and 30% to at risk remuneration through LTIs.
The Board believes that this is an appropriate mix as it
ensures that executives are focused on generating value
for shareholders over the long term (based on targeted
financial metrics).
The RNC considers that the changes to the LTI scheme:
align with the market practices of comparative companies;
provide strong alignment between executive performance
and shareholder outcomes; and is an attractive scheme to
motivate and retain Executive KMP and other executives.
See section 3 (Executive remuneration in detail)
for further information.
Remuneration governance
Role of the Remuneration and Nomination
Committee (RNC)
The Board has established a RNC 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 RNC,
please refer to the Corporate Governance Statement
www.mmsg.com.au/overview/#governance
Remuneration consultants and other advisors
The RNC obtains external independent advice when
required, and will use it to guide and inform their decision-
making. During FY18, no remuneration recommendations
(as defined in the Corporations Act 2001 (Cth)
(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.
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 similar industry
sectors
It does not vary over the course of a year based
on performance
–
–
– No KMP is remunerated separately for acting as an
officer of the Company or any entities in the Group
Review
– Fixed remuneration is reviewed by the RNC 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 RNC 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. The Company has sourced additional
data through external remuneration consultancies to
inform RNC decision making.
27
Remuneration Report
Performance Options – FY18 LTI grant
During FY18 the Company granted Performance Options
that vest after three years to executives as part of their LTI
(3 Year Performance Options). The Company made an
additional grant of Performance Options to executives in
FY18 as part of their LTI that vest after two years
(2 Year Performance Options). This is due to the
intention of the Board, moving forward, to make annual
grants for smaller amounts that will, over time, start to
vest on an annual basis, rather than once every three
years.
Approximately 15% of the total remuneration of Executive
KMP is comprised through the issue of Performance
Options. The number of Performance Options issued
was calculated by dividing the total value assigned to the
Performance Options by the fair value of the underlying
Company’s share at grant. Fair value is determined by the
5 day volume-weighted share price of the Company.
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 the Board approves the
grant, increased shareholder wealth is required before the
senior executive will receive any value from these options.
Long-term incentives
On and from 1 July 2017, the Company has introduced
a new LTIP for certain executives and employees. The
LTIP was approved by shareholders on 24 October 2017.
Two types of LTI may be granted under the LTIP, being
Performance Options and Performance Rights:
Performance options
Options granted for nil consideration, which may be
exercised into ordinary shares subject to satisfaction
of specified performance hurdles and continuity of
employment, with participants required to pay an
exercise price.
Performance rights
Rights granted for nil consideration, which will convert
to ordinary shares subject to satisfaction of specified
performance criteria and continuity of employment,
with participants not required to pay an exercise price.
Voluntary options
The Company has also made offers of Voluntary Options
to select senior managers outside of the LTIP of up to
$20,000 vesting over three years and up to $20,000
vesting over two years, on similar terms to those
previously issued in FY15.
Voluntary Options are not subject to performance
hurdles, but:
– Executives must purchase them and they will only vest
if the Executive continues in employment (and thereby
contributes to the performance of the Company); and
– Executives will only realise value if the Company’s
share price increases above a set ‘strike price’ and
the premium paid for the options.
No Executive can enter into a transaction that is designed
or intended to hedge the Executive’s exposure to any
unvested option or right. Executives are required to
provide declarations to the Board on their compliance
with this policy from time to time.
Further details of the incentive securities are set out
on pages 40 to 41 of this Report.
28
MMS Annual Report 2018 Details of the key terms and conditions of the 3 Year
Performance Options and 2 Year Performance Options
are outlined below.
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?
In respect of the 3 Year Performance Options, three years.
In respect of the 2 Year Performance Options, two years.
What are the
performance
hurdles and why
were they chosen?
In addition to a condition of on-going employment:
(a) approximately 54.5% of the Performance Options offered are subject to
the Company’s underlying EPS achieving a CAGR target of:
(i) 14% for the three financial years FY18 to FY20 in respect of the
3 Year Performance Options; and
(ii) 14% for the two financial years FY18 to FY19 in respect of the
2 Year Performance Options; and
(b) approximately 45.5% of the Performance Options offered are subject to average
ROCE targets of:
(i) 22.5% for the three financial year period FY18 to FY20 (inclusive) in respect of the
3 Year Performance Options; and
(ii) 22% for the two financial year period FY18 to FY19 (inclusive) in respect of the
2 Year Performance Options.
Calculation of CAGR shall be based on the cumulative underlying EPS results for the
relevant financial years using the underlying EPS results for the FY17 as the base year.
The ROCE performance condition is based on the Company’s average ROCE over the
performance period. The Board considers that a ROCE target is best aligned with the
Company’s focus on both earnings and capital optimisation.
The Board considers that the underlying EPS CAGR and ROCE targets are realistic but
challenging.
29
How does the
performance
hurdle work?
3 Year Performance Options
In addition to meeting the condition of ongoing employment, the 3 Year Performance
Options can vest (pro-rata on a straight line basis) upon the lodgement of the Company’s
financial statements with ASX for FY20 as follows:
Metric
0% Vesting
41.66% - 83.34% Vesting
83.34% - 100% Vesting
Underlying EPS CAGR in
the period FY18, FY19
and FY20 (inclusive)
<6%
Between 6% and 10%
Between 10% and 14%
Metric
0% Vesting
50% - 100% Vesting
Average ROCE in the period FY18
to FY20 (inclusive)
<20.6%
Between 20.6% and 22.5%
In the event that the executive takes unpaid leave for a period exceeding three months
during FY18, FY19 or FY20, the vesting criteria outlined above with respect to the financial
performance of the Company and the executive’s continued employment will be deemed on
a pro-rata basis to reflect the period of continuous service during the relevant financial year,
unless the Board in its discretion determines otherwise.
2 Year Performance Options
In addition to meeting the condition of ongoing employment, the 2 Year Performance
Options can vest (pro-rata on a straight line basis) upon the lodgement of the Company’s
financial statements with ASX for FY19 as follows:
Metric
0% Vesting
41.66% - 83.34% Vesting
83.34% - 100% Vesting
Underlying EPS CAGR
in the period FY18 and
FY19 (inclusive)
<6%
Between 6% and 10%
Between 10% and 14%
Metric
0% Vesting
50% - 100% Vesting
Average ROCE in the period
FY18 and FY19 (inclusive)
<20.6%
Between 20.6% and 22%
In the event that the executive takes unpaid leave for a period exceeding three months
during FY18 or FY19, the vesting criteria outlined above with respect to the financial
performance of the Company and the executive’s continued employment will be deemed on
a pro-rata basis to reflect the period of continuous service during the relevant financial year,
unless the Board in its discretion determines otherwise.
Process for assessing
performance conditions
To determine the extent to which the performance hurdles are satisfied, the RNC relies on
audited financial results and vesting is determined in accordance with the LTIP.
The RNC believes this method of assessment provides an appropriate and objective
assessment of performance.
The RNC will take account of capital raisings and acquisitions where necessary or
appropriate to do so.
30
MMS Annual Report 2018Remuneration 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?
In respect of both the 3 Year Performance Options and 2 Year Performance Options issued
in FY18, the exercise price was the 5 day Volume Weighted Average Price of Shares traded
in the period immediately prior to 30 June 2017, being $13.45.
When do the
Performance
Options expire?
3 Year Performance Options
The 3 Year Performance Options cannot be exercised before lodgement of the Company’s
financial statements with ASX for the year ended 30 June 2020 (expected to be in
September 2020) (the 3 Year Lodgement Date), and cannot be exercised after the date
being 12 months following the 3 Year Lodgement Date.
2 Year Performance Options
The 2 Year Performance Options cannot be exercised before lodgement of the Company’s
financial statements with ASX for the year ended 30 June 2019 (expected to be in
September 2019) (the 2 Year Lodgement Date), and cannot be exercised after the date
being 12 months following the 2 Year Lodgement Date.
What happens
on cessation of
employment?
3 Year Performance Options
If the employee leaves employment with the Group before the 3 Year Lodgement Date,
the 3 Year Performance Options lapse without any payment to the employee.
2 Year Performance Options
If the employee leaves employment with the Group before the 2 Year Lodgement Date,
the 2 Year Performance Options lapse without any payment to the employee.
What happens on a
change of control?
On a change of control, the Board has discretion to waive the exercise conditions or
performance conditions attached to the Performance Options.
What Performance
Options were
granted in FY18?
Performance Options were granted to Executive KMP in FY18 as set out in the table
on page 41.
31
Performance Rights – FY18 LTI grant
During FY18 the Company granted Performance Rights
that vest after three years to executives as part of their
LTI (3 Year Performance Rights). The Company also
made an additional grant of Performance Rights to
executives as part of their LTI that vest after two years
(2 Year Performance Rights).
Approximately15% of the total remuneration of
Executive KMP is comprised through the issue of
Performance Rights.
The number of Performance Rights issued was calculated
by dividing the total value assigned to the Performance
Rights by the fair value of each Performance Right.
Performance Rights become valuable to participating
KMPs when they vest. Included in the vesting conditions
are the achievement of performance hurdles that will
outperform earnings and the underlying value of equity
which ultimately, accrue to shareholders.
Details of the key terms and conditions of the 3 Year
Performance Rights and 2 Year Performance Rights are
outlined below.
What are Performance
Rights?
A right to acquire a fully paid ordinary share in the Company for nil consideration,
subject to the achievement of performance hurdles and service conditions being satisfied.
Do Executives pay for
Performance rights?
No amount is payable for the grant of the Performance Rights or on exercise of the
Performance Rights after vesting.
What is the
performance period?
In respect of the 3 Year Performance Rights, three years.
In respect of the 2 Year Performance Rights, two years.
What are the
performance
hurdles and why
were they chosen?
In addition to a condition of on-going employment:
(a) approximately 54.5% of the Performance Rights offered are subject to the
Company’s underlying EPS achieving a CAGR target of:
(i) 14% for the three financial years FY18 to FY20 in respect of the
3 Year Performance Rights; and
(ii) 14% for the two financial years FY18 to FY19 in respect of the
2 Year Performance Rights; and
(b) approximately 45.5% of the Performance Rights offered are subject to average
ROCE targets of:
(i) 22.5% for the three financial year period FY18 to FY20 (inclusive) in respect of the
3 Year Performance Rights; and
(ii) 22% for the two financial year period FY18 to FY19 (inclusive) in respect of the
2 Year Performance Rights.
Calculation of CAGR shall be based on the cumulative underlying EPS results for the relevant
financial years using the underlying EPS results for the FY17 as the base year.
The ROCE performance condition is based on the Company’s average ROCE over the
performance period. The Board considers that a ROCE target is best aligned with the
Company’s focus on both earnings and capital optimisation.
The Board considers that the underlying EPS CAGR and ROCE targets are realistic but
challenging.
32
MMS Annual Report 2018Remuneration Report How does the
performance hurdle
work?
3 Year Performance Rights
In addition to meeting the condition of ongoing employment, the 3 Year Performance Rights
vest (pro-rata on a straight line basis) upon the lodgement of the Company’s financial
statements with the ASX for FY20 as follows:
Metric
0% Vesting
41.66% - 83.34% Vesting
83.34% - 100% Vesting
Underlying EPS CAGR in
the period FY18, FY19
and FY20 (inclusive)
<6%
Between 6% and 10%
Between 10% and 14%
Metric
0% Vesting
50% - 100% Vesting
Average ROCE in the period FY18
to FY20 (inclusive)
<20.6%
Between 20.6% and 22.5%
In the event that the executive takes unpaid leave for a period exceeding three months
during FY18, FY19 or FY20, the vesting criteria outlined above with respect to the financial
performance of the Company and the executive’s continued employment will be deemed on
a pro-rata basis to reflect the period of continuous service during the relevant financial year,
unless the Board in its discretion determines otherwise.
2 Year Performance Rights
In addition to meeting the condition of ongoing employment, the 2 Year Performance Rights
vest (pro-rata on a straight line basis) upon the lodgement of the Company’s financial
statements with the ASX for FY19 as follows:
Metric
0% Vesting
41.66% - 83.34% Vesting
83.34% - 100% Vesting
Underlying EPS CAGR
in the period FY18 and
FY19 (inclusive)
<6%
Between 6% and 10%
Between 10% and 14%
Metric
0% Vesting
50% - 100% Vesting
Average ROCE in the period
FY18 and FY19 (inclusive)
<20.6%
Between 20.6% and 22%
In the event that the executive takes unpaid leave for a period exceeding three months
during FY18 or FY19, the vesting criteria outlined above with respect to the financial
performance of the Company and the executive’s continued employment will be deemed on
a pro-rata basis to reflect the period of continuous service during the relevant financial year,
unless the Board in its discretion determines otherwise.
Process for assessing
performance conditions
To determine the extent to which the performance hurdles are satisfied, the RNC relies on
audited financial results and vesting is determined in accordance with the LTIP.
The RNC believes this method of assessment provides an appropriate and objective
assessment of performance.
The RNC will take account of capital raisings and acquisitions where necessary or
appropriate to do so.
33
What are the rights
attaching to the
Performance Rights?
What is the exercise
price and how was it
determined?
When do the
Performance
Rights expire?
What happens
on cessation of
employment?
No voting rights or entitlements to dividends are attached to Performance Rights.
No amount is payable on exercise of the Performance Rights after vesting.
3 Year Performance Rights
The 3 Year Performance Rights cannot vest before the 3 Year Lodgement Date.
2 Year Performance Rights
The 2 Year Performance Rights cannot vest before the 2 Year Lodgement Date.
3 Year Performance Rights
If the employee leaves employment with the Group before the 3 Year Lodgement Date,
the 3 Year Performance Rights lapse without any payment to the employee.
2 Year Performance Rights
If the employee leaves employment with the Group before the 2 Year Lodgement Date,
the 2 Year Performance Rights lapse without any payment to the employee.
What happens on a
change of control?
On a change of control, the Board has discretion to waive the exercise conditions or
performance conditions attached to the Performance Rights.
What Performance
Rights were granted
in FY18?
Performance Rights were granted to Executive KMP in FY18 as set out in the table
on page 41.
34
MMS Annual Report 2018Remuneration Report Voluntary Options
During FY18 the Company offered Voluntary Options that vest after three years to executives (3 Year Voluntary Options).
The Company also made an additional offer of Voluntary Options that vest after two years to executives (2 Year Voluntary
Options). Details of the key terms and conditions of the Voluntary Options granted in FY18 are as follows.
What are Voluntary
Options?
An option to acquire a fully paid ordinary share in the Company (subject to payment of a
subscription price for the issue and an exercise price for the exercise of the option) that may
be purchased by executives.
Do Executives pay for
Voluntary Options?
Voluntary Options provide executives with an additional opportunity to invest in the Company.
A Voluntary Option may be purchased by the Executive when offered by the Company.
Yes. The maximum amount that can be applied towards the purchase of Voluntary Options
is $20,000 (in multiples of $5,000), and the number of Voluntary Options to be granted is
determined by dividing the amount invested by the discounted 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 Voluntary
Options are exercised for shares.
What is the
vesting period?
In respect of the 3 Year Voluntary Options, three years. In respect of the 2 Year Voluntary
Options, two years.
What is the
performance hurdle and
why was it chosen?
What are the rights
attaching to the
Voluntary Options?
No performance hurdles.
The executive buys the Voluntary Option at grant date.
No voting rights or entitlements to dividends are attached to Voluntary Options.
What is the exercise
price and how was
it determined?
In respect of both the 3 Year Voluntary Options and 2 Year Voluntary Options issued to
Executive KMP, the exercise price is based on the 5 day Volume Weighted Average Price
of Shares traded in the period immediately prior to 30 June 2017, being $13.45.
When do the Voluntary
Options expire?
3 Year Voluntary Options
The 3 Year Voluntary Options cannot be exercised before the 3 Year Lodgement Date,
and cannot be exercised 12 months following the 3 Year Lodgement Date.
2 Year Voluntary Options
The 2 Year Voluntary Options cannot be exercised before the 2 Year Lodgement Date, and
cannot be exercised fter the date being 12 months following the 2 Year Lodgement Date.
What happens
on cessation of
employment?
3 Year Voluntary Options
If the Executive leaves employment with the Group before the 3 Year Lodgement Date, the
Executive will forfeit 25% (representing the discount) of their entitlement for consideration,
for the amount of $1.
2 Year Voluntary Options
If the Executive leaves employment with the Group before the 2 Year Lodgement Date, the
executive will forfeit 25% (representing the discount) of their entitlement for consideration,
for the amount of $1.
What happens on a
change of control?
On a change of control, the Board has discretion to waive the exercise conditions or
performance conditions attached to the Voluntary Options.
What Voluntary Options
were granted in FY17?
Voluntary Options were granted to executives in FY18 as per the table set out on page 44.
35
Fixed vs performance based remuneration
The relevant proportions of fixed versus performance based remuneration received in FY18 based on actual outcomes
are set out in the table below.
The KMP received an LTI allocation in respect of FY18.
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Mr A. Tomas1
Fixed remuneration
At risk – Annual Bonus
At risk – LTI
FY18
76%
82%
78%
100%
FY17
FY18
92%
89%
93%
95%
Nil
Nil
Nil
Nil
FY17
8%
11%
7%
5%
FY18
FY17
24%
18%
22%
0%
-
-
-
-
1 Mr A.Tomas resigned during FY18 and his current LTI was cancelled.
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
FY18
FY17
FY16
FY15
FY142
Net profit attributable to Company members
$50,302,815
$67,901,770
$82,469,341
$67,486,611
$54,969,799
Underlying net profit after income tax (UNPATA)1
$93,518,774
$87,166,863
$87,172,942
$69,570,837
$56,113,781
NPAT growth
UNPATA growth
(25.9%)
(17.7%)
7.2%
-
22.2%
25.3%
22.8%
24.1%
(11.6%)
(9.8%)
Total dividend paid in the FY
$60,346,611
$54,076,388
$46,588,889
$43,912,091
$29,064,347
Dividend payout ratio3
Share price as at 30 June
64.5%
$16.00
63.0%
$13.40
60.1%
$13.68
61.4%
$12.09
Market capitalisation (A$m)
1,331.3
1,210.0
1,138.1
973.9
70.0%
$9.17
683.4
Earnings per share
60.9 cents
81.6 cents
99.4 cents
87.0 cents
73.8 cents
Underlying earnings per share4
113.2 cents
104.8 cents
105.1 cents
89.7 cents
75.3 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).
Impacted by an announcement on 16 July 2013 of possible changes to the treatment of FBT on vehicles.
2
3 Dividend payout ratio is calculated as total dividends declared for the financial year divided by UNPATA for the financial year.
4 Underlying earnings per share is based on UNPATA.
36
MMS Annual Report 2018Remuneration Report Key terms of Executive KMP service agreements
All Executive KMP are party to a written executive service agreement. The key terms are set out below.
Key terms of Executive Service 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 $900,000
approved by shareholders in October 2014.
Details of the fees paid to the Non-Executive Directors are set out in the table below.
Directors’ Fees
The annual Directors’ fees (including superannuation contributions) payable to Non-Executive
Directors for FY18 were as follows:
Position
Chairman
Fee ($)
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 2017)
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.
37
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.
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)
Cash
salary/ fees1
$
Other
Benefits2
$
Superannuation
$
Total
Remuneration
$
Total value of
remuneration
received $
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
187,215
187,215
105,023
105,023
86,130
86,455
118,722
118,722
136,986
127,854
-
-
-
-
18,893
18,568
-
-
-
-
17,785
17,785
9,977
9,977
9,977
9,977
11,278
11,278
13,014
12,146
205,000
205,000
205,000
205,000
115,000
115,000
115,000
115,000
115,000
115,000
115,000
115,000
130,000
130,000
130,000
130,000
150,000
150,000
140,000
140,000
1 The amounts shown for the Non-Executive Directors reflect directors’ fees only.
2 Other benefits comprise salary packaging.
38
MMS Annual Report 2018Remuneration Report 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
Current
year Cash
Bonus
$
-
Cash
salary/
fees
$
FY18
797,700
Post-
employment
benefits
Long-
term
benefits
Share
based
payments
Other
Benefits 1
Super-
annuation
Long
Service
Leave
Options 2
and
Rights3
Total
remuneration
Percentage of
remuneration as
options and rights
Total value of
remuneration
received 4
$
$
$
$
$
93,800
24,989
21,920
288,956 1,227,365
%
24%
-
$
893,016
916,409
FY17
732,605
75,000
49,270
34,288
16,081
-
907,244
FY18
642,255
-
186,717
23,659
24,615
194,099 1,071,345
18%
795,786
FY17
540,180
75,000
56,015
19,779
22,698
-
713,672
-
674,393
FY18
613,271
-
36,492
24,989
13,450
194,544
882,746
22%
654,513
FY17
580,530
50,000
25,994
33,267
11,073
FY18
437,559
-
134,109
24,989
11,363
FY17
408,265
30,000
117,675
33,906
10,155
-
-
-
700,864
608,020
600,001
-
-
-
670,240
576,512
586,000
Non-Executive Directors
Mr M. Salisbury
(CEO and
Managing Director)
Mr G. Kruyt
(Managing Director
Maxia UK)
Mr M. Blackburn
(Group CFO and
Company Secretary)
Mr A. Tomas5
(Managing Director, Fleet
and Financial Products)
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 FY18.
1 Other benefits reflect annual leave entitlements, motor vehicle packaging payments, travel benefits, housing allowance and car parking benefits.
2 The equity value comprises the value of Performance Options issued. No shares were issued to any Non-Executive Director (and no Performance Options were
granted to any Non-Executive Director) during the financial years ended 30 June 2018 and 30 June 2017. The value of Performance Options issued to Executive
KMP (as disclosed above) are the assessed fair values (less any payments for the options) at the date that the Performance 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. Options were granted to Executive KMPs during the year ended 30 June 2018 (as disclosed in this Report).
3 Performance Rights were granted to Executive KMPs during the year ended 30 June 2018 (as disclosed in this Report). The value of Performance Rights issued to
Executive KMP are the assessed fair values at the date that the Performance Rights 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 the share price of the Company at the date grant and discounting it by the
dividend yield of the Company.
4 Value of remuneration received comprises salary, benefits and superannuation salary packaged, annual and long service leave used and bonuses paid in the year.
5 Mr A Tomas resigned and ended service on 13 July 2018.
39
LTI Details
The terms and conditions of each grant of Performance Options, Performance Rights and Voluntary Options to Executive KMP
affecting their remuneration in FY18 and each relevant future financial year are as follows:
Grant
Date1
Type of LTI securities
Expiry Date
Share price at
valuation date
Exercise
Price
Value per option
at grant date2
Date Exercisable
03/07/17
2 Year Performance
Options
12 months following the
2 Year Lodgement Date
$13.45
$13.45
$2.97
03/07/17
2 Year Performance
Rights
12 months following the
2 Year Lodgement Date
$13.45
-
$11.83
24/10/17
2 Year Performance
Options
12 months following the
2 Year Lodgement Date
$15.23
$13.45
$3.13
24/10/17
2 Year Performance
Rights
12 months following the
2 Year Lodgement Date
$15.23
-
$13.92
03/07/17
3 Year Performance
Options
12 months following the
3 Year Lodgement Date
$13.45
$13.45
$3.20
03/07/17
3 Year Performance
Rights
12 months following the
3 Year Lodgement Date
$13.45
-
$11.23
24/10/17
3 Year Performance
Options
12 months following the
3 Year Lodgement Date
$15.23
$13.45
$3.20
24/10/17
3 Year Performance
Rights
12 months following the
3 Year Lodgement Date
$15.23
-
$13.29
2 Year Lodgement Date
(expected to be September 2019)
2 Year Lodgement Date
(expected to be September 2019)
2 Year Lodgement Date
(expected to be September 2019)
2 Year Lodgement Date
(expected to be September 2019)
3 Year Lodgement Date
(expected to be September 2020)
3 Year Lodgement Date
(expected to be September 2020)
3 Year Lodgement Date
(expected to be September 2020)
3 Year Lodgement Date
(expected to be September 2020)
1 The issue to Mr Mike Salisbury occurred on 24 October 2017, after shareholder approval at the Company’s AGM.
2 Reflects the fair value at grant date for options granted as part of remuneration calculated in accordance with AASB 2: Share-based Payment.
40
MMS Annual Report 2018Remuneration Report Details of the LTI securities over ordinary shares in the Company provided as remuneration to each Executive KMP are set
out below. When exercised each Performance Option, Performance Right and Voluntary Option is convertible into one ordinary
share of the Company.
Name
Date of
grant
Type of LTI securities
Value of
securities
granted
during the
year $
Number of
securities
vested
during year
Number of
securities
granted
Vested %
Number of
securities
forfeited/
lapsed
during the
year
Forfeited
or lapsed
%
Year in
which
securities
may vest
Maximum value
of securities yet
to vest1
19/08/14
FY15 Performance Options2
302,158
-
166,187
55%
135,971
45%
FY18
-
Mr M.
Salisbury
24/10/17
2 Year Performance Options
71,140
3.13
24/10/17
2 Year Performance Rights
17,860
13.92
24/10/17
3 Year Performance Options
66,027
3.20
24/10/17
3 Year Performance Rights
18,814
13.29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FY19
140,187
FY19
156,520
FY20
158,899
FY20
188,042
Mr G.
Kruyt
19/08/14
FY15 Performance Options2
215,827
-
118,705
55%
97,122
45%
FY18
-
03/07/17
2 Year Performance Options
52,846
2.97
03/07/17
2 Year Performance Rights
13,266
11.83
03/07/17
3 Year Performance Options
49,047
3.20
03/07/17
3 Year Performance Rights
13,975
11.23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FY19
98,814
FY19
98,804
FY20
118,035
FY20
118,027
19/08/14
FY15 Performance Options2
256,248
-
140,936
55%
115,312
45%
FY18
-
Mr M.
Blackburn
03/07/17
2 Year Performance Options
52,965
2.97
03/07/17
2 Year Performance Rights
13,297
11.83
03/07/17
3 Year Performance Options
49,159
3.20
03/07/17
3 Year Performance Rights
14,007
11.23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FY19
99,036
FY19
99,035
FY20
118,305
FY20
118,297
Mr A.
Tomas3
19/08/14
FY15 Performance Options2
204,184
112,301
55%
91,883
45%
FY18
-
1 There is no minimum value attached to the securities at the vesting date. Maximum value is defined as the fair value at grant less amount expensed.
2 Subject to a holding lock.
3 Mr Tomas resigned and ended service on 13 July 2018 and as a consequence forfeited all unvested options and rights. During the year 89,822 securities were
granted and then forfeited following Mr Tomas’ resignation.
41
Movement of LTI securities granted to Executive KMP
The table below reconciles the Performance Options, Performance Rights and Voluntary Options held by each Executive KMP
from the beginning to the end of FY18.
Name
LTI Securities
Balance
at the
start of
the year
Number
Granted
during
year
Vested
during the
year
Exercised
during the
year
Forfeited
during
year
Other
changes
during
the year
Vested and
exercisable
at the end
of the year
Unvested
at the end
of the year
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Performance Options
302,158
137,167
166,187
Performance Rights
-
36,674
-
Performance Options
215,827
101,893
118,705
Performance Rights
-
27,241
-
Performance Options
256,248
102,124
140,936
Performance Rights
-
27,304
-
Mr A. Tomas
Performance Options
204,184
Performance Rights
-
-
-
112,301
-
-
-
-
-
-
-
-
-
135,971
-
97,122
-
115,312
-
91,883
-
-
-
-
-
-
-
-
-
166,187
137,167
-
36,674
118,705
101,893
-
27,241
140,936
102,124
-
27,304
112,301
-
-
-
42
MMS Annual Report 2018Remuneration Report 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
Executive KMP during FY18. Any shares issued on exercise of options were acquired on market under the terms of the
Company’s Share Trust Plan.
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
3,343,025
6,050,941
-
4,000
10,276
7,953
3,000
102,050
End of the audited Remuneration Report
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(102,050)
19,000
3,343,025
6,050,941
-
4,000
10,276
7,953
3,000
-
43
Directors’ Report
Unissued shares
At the date of this Annual Report, unissued ordinary shares of the Company under option are:
Option class
No. of unissued ordinary shares
Exercise price
Expiry date
Performance Options
Performance Options
Performance Options
Performance Options
Performance Options
Performance Rights
Performance Rights
Voluntary Options
Voluntary Options
538,129
414,909
17,340
385,084
15,920
108,512
114,306
8,979
12,500
$10.18
$13.45
$14.97
$13.45
$14.97
-
-
$13.45
$13.45
30 September 2019
30 September 2020
30 September 2020
30 September 2021
30 September 2021
30 September 2020
30 September 2021
30 September 2020
30 September 2021
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:
Rights
Options
Ordinary shares
Director
Mr. T Poole (Chairman)
Mr M. Salisbury (Managing Director)
36,674
Mr J. Bennetts
Mr R. Chessari
Mr I Elliot
Ms S Dahn
-
303,354
-
-
-
-
19,000
10,276
3,343,025
6,050,941
-
4,000
No Director during FY18, 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.
44
MMS Annual Report 2018
Directors’ Report
Environmental regulations
The Directors believe that the Company and its
controlled entities have adequate systems in place for
the management of relevant environmental requirements
and are not aware of any breach of those environmental
requirements as they apply to the Company and its
controlled entities.
Indemnification and insurance
Under the Company’s Constitution, the Company
indemnifies the Directors and officers of the Company and
its wholly-owned subsidiaries to the full extent permitted by
law against any liability and all legal costs in connection with
proceedings incurred by them in their respective capacities.
The Company has also entered into a Deed of Access,
Indemnity and Insurance with each Director, each
Company Secretary, and each responsible manager under
the licenses which the Company holds (Deed), which
protects individuals acting as officeholders during their
term of office and after their resignation. Under the Deed,
the Company also indemnifies each officeholder to the full
extent permitted by law.
The Company has a Directors & Officers Liability Insurance
policy in place for all current and former officers of the
Company and its controlled entities. The policy affords
cover for loss in respect of liabilities incurred by Directors
and officers where the Company is unable to indemnify
them and covers the Company for indemnities provided
to its Directors and officers. This does not include liabilities
that arise from conduct involving dishonesty. The Directors
have not included the details of the premium paid with
respect to this policy as this information is confidential
under the terms of the policy.
Non-audit services
Details of the amounts paid or payable to the auditor of
the Company, Grant Thornton Audit Pty Ltd and its related
practices, for non-audit services provided, during FY18,
are disclosed in Note 31 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 (ARCC) has approved that work
in advance, as appropriate.
The ARCC has reviewed a summary of non-audit
services provided during the financial year ended
30 June 2018 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 ARCC 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).
Corporate governance practices
Our full corporate governance statement is available on our
website at www.mmsg.com.au/overview/#governance
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 110 of this Annual Report.
Directors’ declaration
The Directors have received and considered written
representations from the Chief Executive Officer and
the Chief Financial Officer in accordance with the ASX
Principles. The written representations confirmed that:
– the financial reports are complete and present a true
and fair view, in all material respects, of the financial
condition and operating results of the Company and
its controlled entities and are in accordance with all
relevant accounting standards; and
– the above statement is founded on a sound system of
risk management and internal compliance and control
that implements the policies adopted by the Board and
that compliance and control is operating efficiently and
effectively in all material respects.
Signed in accordance with a resolution of the Directors.
Tim Poole
Chairman
Mike Salisbury
Managing Director
22 August 2018
Melbourne, Australia
45
Five year summary
FIVE-YEAR SUMMARY 2014 – 2018
2018
2017
2016
2015
2014
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)2
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 (%) 3
Basic earnings per share (cps)
Return on equity (%) 4
Underlying earnings per share (cps) 5
Return on capital employed (%) 6
Other
Employees (FTE) 7
Employee engagement score (%) 8
545.4
50.3
93.5
207.8
64.1
64.1
243.7
25.5
21.6
92.5
(38.5)
8.6
73.0
65
60.9
25
113.2
21
1,283
No survey
523.4
67.9
87.2
189.7
58.3
58.3
226.1
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
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) and disposal of business.
2 Revenue in 2017 has been re-stated to recognise the proceeds from the sale of motor vehicles as revenue to replace profit from the sale of motor vehicles.
3 Dividend payout ratio is calculated as total dividends declared for the financial year divided by UNPATA for the financial year.
4 Return on equity has been adjusted to reflect 12 months trading for acquisitions made in each financial year.
5 Underlying earnings per share is based on UNPATA.
6 Return on capital employed has been adjusted to reflect 12 months trading for acquisitions made in the financial year.
7 As at 30 June.
8 Employee engagement survey conducted biennially.
46
MMS Annual Report 2018 Financial Report
2018
47
48
MMS Annual Report 2018 Statements of Profit or Loss
and Other Comprehensive Income
For the year ended 30 June 2018
Consolidated Group
Parent Entity
Revenue and other income
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
Loss on disposal of business
Contingent consideration fair valuation
Acquisition expenses
Profit before income tax
Income tax (expense) / benefit
Net profit for the year
Profit is attributable to:
Owners of the Company
Non-controlling interests
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
Other comprehensive income / (loss) for the year
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income for the year
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
7
8(a)
16
8(a)
8(a)
22
9(a)
10
10
2018
$’000
2017
$’000
545,404
(132,096)
523,443
(121,421)
(86,036)
(92,894)
(42,018)
(11,103)
(2,396)
(4,930)
(11,130)
(11,909)
(12,353)
(9,644)
(1,365)
(39,388)
(8,559)
5,348
-
84,931
(35,097)
49,834
50,303
(469)
49,834
169
3,457
(37)
3,589
53,423
53,892
(469)
53,423
60.9
60.6
(89,046)
(82,493)
(45,746)
(9,392)
(3,265)
(4,102)
(11,371)
(10,560)
(11,360)
(11,353)
(1,260)
(20,000)
-
349
(1,076)
101,347
(33,445)
67,902
67,902
-
67,902
685
(3,662)
(165)
(3,142)
64,760
64,760
-
64,760
81.6
81.5
2018
$’000
56,449
(962)
-
-
-
-
(201)
-
(336)
-
-
2017
$’000
54,220
(884)
-
-
-
-
(337)
-
(335)
-
(2)
(1,154)
(1,507)
-
-
(44,587)
(20,000)
-
-
-
9,209
783
9,992
9,992
-
9,992
(68)
-
20
(48)
-
-
-
31,155
876
32,031
32,031
-
32,031
-
-
-
-
9,944
32,031
9,944
-
9,944
32,031
-
32,031
The above statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
49
Statements of Financial Position
As at 30 June 2018
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Assets under operating lease
Inventory
Prepayments
Deferred warranty acquisition costs
Derivative financial instruments
Total current assets
Non current assets
Property, plant and equipment
Finance lease receivables
Intangible assets
Other financial assets
Deferred warranty acquisition costs
Deferred tax assets
Total non current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Other liabilities
Provisions
Unearned premium liability
Current tax liability
Borrowings
Contingent consideration
Derivative financial instruments
Total current liabilities
Non current liabilities
Borrowings
Contingent consideration
Unearned premium liability
Provisions
Deferred tax liabilities
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
Note
12
13
14
17(a)
17(a)
14
6
15
9(c)
18
19
20
4, 21
22
4, 21
22
20
9(c)
23(a)
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
99,667
52,402
71,137
70,910
10,896
5,449
2,385
37
59,416
45,922
60,920
75,195
6,047
6,564
2,246
-
3,991
7,258
-
-
-
-
-
-
5,835
7,415
-
-
-
-
-
-
312,883
256,310
11,249
13,250
238,461
100,495
205,939
1,169
2,226
729
549,019
861,902
95,267
12,821
15,406
7,566
2,812
14,505
1,756
-
150,133
323,371
4,402
6,359
2,327
3,933
340,392
490,525
371,377
135,868
5,568
229,941
371,377
231,536
107,255
250,746
1,583
1,375
175
592,670
848,980
73,301
14,007
12,997
6,949
7,833
88,727
-
134
203,948
250,877
10,815
3,926
2,900
5,519
274,037
477,985
370,995
141,088
(5,948)
235,855
370,995
-
-
-
282,246
-
-
282,246
293,495
150,099
-
-
-
6,535
11,500
-
68
168,202
18,583
-
-
-
558
19,141
187,343
106,152
135,868
11,543
(41,259)
106,152
-
-
-
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
50
The above statements of financial position should be read in conjunction with the accompanying notes.
MMS Annual Report 2018
Statements of Changes in Equity
For the year ended 30 June 2018
Consolidated Group
2018
Issued
capital
$’000
Treasury
reserve
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Equity as at beginning of year
23 141,088
(6,892)
235,855
10,092
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:
Share-based expense
Exercise of employee options
Premium from grant of options
Treasury shares
Dividends paid
Equity Contribution
-
-
-
-
4,477
50
-
-
-
-
-
24(d)
(9,747)
6,892
11
-
-
50,303
-
50,303
-
-
-
(56,217)
-
-
-
-
1,499
-
-
-
-
Equity as at 30 June 2018
135,868
Cash
flow
Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Outside
Equity
Interest
$’000
Total
$’000
(95)
-
(9,053)
-
370,995
-
(469)
49,834
132
3,457
-
3,589
132
3,457
(469)
53,423
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
1,499
4,477
50
(2,855)
(56,217)
5
229,941
11,591
37
(5,596)
(464)
371,377
Consolidated Group
2017
Issued
capital
$’000
Treasury
reserve
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Cash
flow
Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Total
$’000
Equity as at beginning of year
23 144,380
222,029
10,092
(615)
(5,391)
370,495
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
-
-
-
67,902
-
67,902
24(d)
(3,292)
(6,892)
-
11
-
-
(54,076)
-
-
-
-
-
-
-
67,902
520
(3,662)
(3,142)
520
(3,662)
64,760
-
-
-
-
(10,814)
(54,076)
-
-
-
-
-
-
-
Equity as at 30 June 2017
141,088
(6,892)
235,855
10,092
(95)
(9,053)
370,995
The above statements of changes in equity should be read in conjunction with the accompanying notes.
51
Statements of Changes in Equity
For the year ended 30 June 2018
Parent Entity
2018
Issued
Capital
$’000
Treasury
Reserve
$’000
Retained
Earnings
$’000
Note
Equity as at beginning of year
23
141,088
(6,892)
Profit attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Share-based expense
Exercise of employee options
Premium from grant of options
Treasury Shares
Dividends paid
Equity as 30 June 2018
-
-
-
-
4,477
50
-
-
-
-
-
-
24(d)
(9,747)
6,892
11
-
135,868
-
-
4,966
9,992
-
9,992
-
-
-
-
(56,217)
Option
Reserve
$’000
10,092
-
-
-
1,499
-
-
-
-
Cash flow
Hedge
Reserve
$’000
-
-
(48)
(48)
-
-
-
-
-
Total
$’000
149,254
9,992
(48)
9,944
1,499
4,477
50
(2,855)
(56,217)
(41,259)
11,591
(48)
106,152
Parent Entity
2017
Issued
Capital
$’000
Treasury
Reserve
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Total
$’000
Note
Equity as at beginning of year
23
144,380
Profit attributable to members of the parent entity
Other comprehensive income after tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
-
-
-
-
-
-
-
27,011
32,031
-
32,031
Treasury Shares
Dividends paid
24(d)
(3,292)
(6,892)
-
11
-
-
(54,076)
10,092
181,483
-
-
-
-
-
32,031
-
32,031
(10,184)
(54,076)
Equity as at 30 June 2017
141,088
(6,892)
4,966
10,092
149,254
52
The above statements of changes in equity should be read in conjunction with the accompanying notes.
MMS Annual Report 2018
Statements of Cash Flows
For the year ended 30 June 2018
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
Consolidated Group
Parent Entity
Note
2018
$’000
2017
$’000
2018
$’000
2017
$’000
26(b)
586,545
(257,172)
86,036
91,601
570,101
(254,380)
63,587
-
(336,694)
(281,412)
1,598
(11,217)
-
(43,037)
-
1,410
(10,531)
-
(40,635)
(1,076)
-
-
(1,463)
(1,376)
-
-
-
43
(1,134)
56,406
-
-
-
-
-
144
(1,507)
54,076
-
-
Net cash from operating activities
26(a)
117,660
47,064
53,852
51,337
Cash flows from investing activities
Payments for capitalised software
Payments for plant and equipment
Payments for subsidiary investments (net of cash acquired)
Payments for joint venture subordinated loans
6(c)
(11,095)
(3,081)
-
(868)
(6,888)
(1,353)
(8,919)
(1,220)
-
-
-
-
(4,929)
(2,403)
-
-
Net cash used in investing activities
(15,044)
(18,380)
(4,929)
(2,403)
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payments for treasury shares
Proceeds from exercise of share options
Dividends paid by parent entity
Proceeds from controlled entities
133,231
(141,408)
(2,855)
4,527
58,032
(58,042)
(10,184)
-
11
(56,217)
(54,076)
-
-
-
(11,500)
(2,489)
4,161
(56,217)
15,278
-
(11,500)
(10,184)
-
(54,076)
26,945
Net cash used in financing activities
(62,722)
(64,270)
(50,767)
(48,815)
Effect of exchange changes on cash and cash equivalents
357
(581)
-
Net increase / (decrease) in cash and cash equivalents
40,251
(36,167)
(1,844)
Cash and cash equivalents at beginning of year
59,416
Cash and cash equivalents at end of year
12
99,667
95,583
59,416
5,835
3,991
-
119
5,716
5,835
The above statements of cash flows should be read in conjunction with the accompanying notes.
53
Notes to the Financial Statements
For the year ended 30 June 2018
1 General information
2 Significant accounting policies
The financial report of McMillan Shakespeare Limited and its
subsidiaries for the year ended 30 June 2018 was authorised
for issue in accordance with a resolution of the directors on
22 August 2018 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 (Cth).
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.
(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 (Cth). 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.
(c) New accounting standards and interpretations adopted
during the year
The amended accounting standards and interpretations issued
by the AASB 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.
54
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
(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 2018, but have not been applied in preparing this
financial report. The Consolidated Group has not adopted
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 in the
Standards below.
(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 for the use of an
expected credit loss model, to replace the current incurred
credit loss model.
The Group has completed its assessment of the impact of
AASB 9 and will adopt the new standard on the required
effective date in the year ending 30 June 2019. Findings from
the assessment are commented below.
Principle 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 2018 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 assets where there has been or is expected
to be a significant change in credit risk.
Trade receivables ECL using the simplified approach is not
significantly different to the current provision for doubtful debts
of $714,000 (note 13) at 30 June 2018.
The Group continues to assess the impact of the new
impairment model on finance lease receivables.
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.
55
Notes to the Financial Statements
For the year ended 30 June 2018
(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 has completed its assessment of AASB 15 and will
adopt the new standard on the required effective date in the
year ending 30 June 2019. Findings from the assessment are
commented 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. Trail commissions are recognised as revenue when
services are rendered and all performance obligations are
fulfilled.
Lease rental service
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.
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 aggregation 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 net of estimated 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.
There is no material impact from AASB 15 on current policies
for the recognition of revenue.
(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 onto 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 ROU and
the interest expense from the lease liability.
The Group has completed a preliminary assessment of the
impact of AASB 16 and is finalising for mandatory adoption in
the year ending 30 June 2020.
56
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
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 in any future periods
affected.
Goodwill and indefinite life intangible assets
Goodwill and brands that have indefinite lives are tested
for impairment bi-annually and more frequently if there are
indications 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 in assets held under
operating leases and accordingly, carry an inherent risk for
the residual value of the asset. Estimates of significance are
used in determining the residual values of operating lease and
rental assets at the end of the contract date and income from
maintenance services, which is recognised on a percentage
stage of completion. The assessment of residual values
includes 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.
Under the Principal and Agency (P&A) financing
arrangement with an external financier, the Group acquires
the lease assets on the termination of the lease contract and
is thereby, exposed to the residual value of the underlying
asset. A provision for residual value risk is recognised and this
assessment similarly includes the forecast of the future value
of these P&A funded assets.
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 lease 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 change.
Accounting for 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 the 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.
(e) Correction of error in accounting for revenue
A subsidiary in the Asset Management segment that provides
brokerage services for financing of motor vehicles is also
engaged in the selling of motor vehicles. In this process, the
entity acquires the cars and receives all of the profit or loss
that results from the ultimate sale of the car. As the entity
assumes ownership of the motor vehicles and all the risk
attached to them, the proceeds from disposal of the motor
vehicles would have been recognised as revenue. In the
previous year, the profit from the sale of motor vehicles was
recorded as revenue and was under-stated accordingly. The
error has been corrected and consolidated revenue of the
Asset Management segment in 2017 has been re-stated
to include the proceeds from the sale of motor vehicles by
$10,411,000 with a corresponding increase to cost of sales.
There was no impact to net profit after tax, equity, assets or
liabilities.
57
Notes to the Financial Statements
For the year ended 30 June 2018
(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
exposes 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 principle 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 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.
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.
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
Underwriting premium revenue is recognised over the period
earned and the unearned position is deferred as unearned
premium in liabilities. 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/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.
58
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
Asset Management revolving borrowing
facilities in local currency
2018
2017
Facility
Used
Unused
Facility
Used
Unused
Revolving borrowing facilities (AUD ‘000)
375,922
293,029
82,893
344,659
281,972
62,687
Secured bank borrowings
(excluding borrowing costs)
Maturity
dates
Facility
Used
Unused
Facility
Used
Unused
AUD’000
AUD’000
AUD’000
AUD’000
NZD’000
NZD’000
GBP’000
GBP’000
GBP’000
GBP’000
31/03/2018
31/03/2020
31/03/2021
31/03/2021
31/03/2020
31/03/2020
03/04/2018
31/12/2019
31/03/2020
31/03/2021
-
65,000
75,000
50,000
10,900
21,800
-
35,000
42,000
12,000
-
65,000
60,000
45,500
10,900
15,600
-
22,300
30,500
3,550
-
-
15,000
4,500
-
6,200
-
12,700
11,500
8,450
50,000
65,000
60,000
-
10,500
10,500
12,000
35,000
42,000
35,000
49,800
41,200
60,000
-
4,800
9,850
11,550
35,000
22,600
35,000
200
23,800
-
-
5,700
650
450
-
19,400
-
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 P&A facilities of $45 million. 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 $50 million that matured on 31 March 2018 were extended for three years with a new maturity date of 31 March 2021.
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 twelve months of forecast new lease additions.
Other amortising borrowing
facilities in local currency
Amortising borrowing facilities (AUD ‘000)
2018
2017
Facility
45,284
Used
Unused
45,284
-
Facility
57,993
Used
Unused
57,993
-
Total Borrowings (AUD ‘000)
421,206
338,313
82,893
402,652
339,965
62,687
Secured bank borrowings
(excluding borrowing costs)
Maturity
dates
Facility
Used
Unused
Facility
Used
Unused
AUD’000
GBP’000
GBP’000
GBP’000
31/03/2020
31/03/2018
31/01/2021
31/03/2022
30,125
30,125
-
3,500
5,015
-
3,500
5,015
-
-
-
-
41,625
41,625
3,950
-
5,723
3,950
-
5,723
-
-
-
-
The above amortising facility of $30.1 million was established to fund the acquisition of the Presidian Group, the facility of GBP3.5 million which
was re-financed by another bank during the year was to fund the acquisition of CLM Fleet Management plc and the facility for GBP5.0 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.
59
Notes to the Financial Statements
For the year ended 30 June 2018
Consolidated Group – at 30 June 2018: Contractual maturities of financial liabilities
Less than 6
months
$’000
Trade payables
Other creditors and liabilities
Borrowings
28,078
80,939
13,416
6–12
months
$’000
-
5,635
13,111
1–2 years
$’000
2–5 years
$’000
-
4,364
-
3,811
143,790
192,490
122,433
18,746
148,154
196,301
Over 5
years
$’000
-
-
-
-
Total
contractual
cash flows
$’000
28,078
94,749
Carrying
Amount /
liabilities
$’000
28,078
94,825
362,807
337,876
485,634
460,779
Trade payables
Other creditors and liabilities
Borrowings
Consolidated Group – at 30 June 2017: Contractual maturities of financial liabilities
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
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
Parent – at 30 June 2018: 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
150,099
6,320
7,096
-
6,203
6,909
-
19,091
124,698
-
-
192,490
163,515
13,112
143,789
192,490
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets)/
liabilities
$’000
-
-
-
150,099
150,099
31,614
331,193
30,083
307,793
512,906
487,975
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
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
60
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(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
2018
$’000
52,402
99,667
171,632
302,128
625,829
2017
$’000
45,922
59,416
168,175
299,189
572,702
2018
$’000
-
3,991
-
-
3,991
2017
$’000
20
5,759
-
-
5,779
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/
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.
61
Notes to the Financial Statements
For the year ended 30 June 2018
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
2018
2017
Borrowings
‘000
Weighted average
interest rate %
Borrowings
‘000
Weighted average
interest rate %
222,836
64,865
338,311
3.36%
1.88%
2.85%
206,584
78,823
339,604
3.01%
1.58%
2.62%
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 2018, the Group’s borrowings for the Asset Management business and the loan of $293,029,000
(2017: $281,972,000) were covered by interest rate swaps at a fixed rate of interest of 3.00% (2017: 2.61%).
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 (financed amounts)
Bank loans (Presidian Group acquisition) 1
Net exposure to cash flow interest rate risk
2018
Balance
$’000
2017
Balance
$’000
99,667
59,416
(308,187)
(298,340)
259,843
(30,125)
255,818
(41,625)
21,198
(24,731)
1. Excluding capitalised borrowing costs of $394,000 (2016: $293,000) for Asset Management and $42,000 (2016 $68,000) for the bank loan for Presidian.
Sensitivity analysis – floating interest rates:
At 30 June 2018, 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 $700,755 (2017: $528,000) higher or lower and the parent entity $45,000
(2017: $63,000) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings
balances at reporting date.
62
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
(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.
(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 $302,128,000 (2017: $299,189,000) included a residual value
provision of $4,654,000 (2017: $4,829,000).
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. In the previous the year, the segment acquired European Vehicle Contracts Limited and Capex Asset Finance Limited to comple-
ment the existing business and provide extended geographical coverage in the UK.
Retail Financial services - This segment provides retail brokerage services, aggregation of finance originations and extended warranty cover,
but does not provide financing.
(b) Segment information managed by the CEO
The CEO uses several bases to measure Segment performance amongst which is Underlying Net Profit After Tax and Amortisation (UNPATA)
that is presented below, being net profit after-tax but before the impact of acquisition-related items and discontinuation and disposal of
busineses. Segment revenue and expenses are reported as attributable to the shareholders of the Company and exclude outside equity
interests share.
63
Notes to the Financial Statements
For the year ended 30 June 2018
2018
Revenue
Underlying net profit after tax and amortisation
(UNPATA)
Reconciliation to statutory net profit after tax
attributable to members of the parent entity
Disposal of business
Amortisation of intangible assets acquired
on business combination
Fair valuation of contingent consideration
Amortisation of contingent consideration
financing charge
Impairment of goodwill and intangible assets
Total UNPATA adjustments
Income tax
UNPATA adjustments after-tax
Statutory net profit after-tax attributable to
members of the parent entity
2017
Group
Remuneration
Services
Asset
Management
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
207,712
243,726
92,547
1,419
545,404
64,148
21,601
8,634
(864)
93,519
-
-
-
-
-
-
-
-
-
(8,559)
(1,620)
5,348
(311)
-
3,417
477
3,894
(3,145)
-
-
(39,388)
(51,092)
3,982
(47,110)
-
-
-
-
-
-
-
-
(8,559)
(4,765)
5,348
(311)
(39,388)
(47,675)
4,459
(43,216)
64,148
25,495
(38,476)
(864)
50,303
Group
Remuneration
Services
Asset
Management1
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
Revenue (re-stated)2
189,709
226,159
106,023
1,553
523,443
Underlying net profit after tax and amortisation
(UNPATA)
Reconciliation to statutory net profit after tax
attributable to members of the parent entity
Amortisation of intangible assets acquired on
business combination
Fair valuation of contingent consideration
Amortisation of contingent consideration
financing charge
Impairment of goodwill and intangible assets
Acquisition expenses
Total UNPATA adjustments
Income tax
UNPATA adjustments after-tax
Statutory net profit after-tax attributable to
members of the parent entity
58,341
17,506
12,379
(1,059)
87,167
-
-
-
-
-
-
-
-
(1,223)
349
(240)
-
-
(1,114)
226
(888)
(2,915)
-
-
(20,000)
-
(22,915)
5,530
(17,386)
-
-
-
-
(1,076)
(1,076)
84
(992)
(4,138)
349
(240)
(20,000)
(1,076)
(25,105)
5,840
(19,265)
58,341
16,618
(5,006)
(2,051)
67,902
1. Asset Management includes EVC from 1 December 2016 and CAPEX from 6 January 2017.
2. Revenue in 2017 has been re-stated to include $10,411,000 for proceeds from sale of motor vehicles when previously profit from the sale was recognised as revenue.
64
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(c) Other segment information
(i) Segment revenue
Segment revenue is reconciled to the Statement of Profit of Loss as follows:
Total segment revenue
2018
$’000
2017
$’000
545,404
523,443
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 $53,139,000 (2017: $54,747,000) from the Group’s
largest contract.
(ii) Other segment information
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. The reportable segments’ assets and liabilities are reconciled to total assets as follows:
2018
Segment assets
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation2
2017
Segment assets
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation2
Group
Remuneration
Services
Asset
Management
$’000
Retail Financial
Services
$’000
Unallocated1
$’000
Consolidated
$’000
74,973
54,136
12,233
6,189
89,503
56,189
7,175
5,074
578,958
373,121
132,075
75,516
538,717
351,691
146,730
79,820
128,228
32,053
-
50,491
172,069
28,548
168
24,152
78,611
30,083
-
-
48,691
41,557
-
-
861,902
490,525
144,308
132,196
848,980
477,985
154,073
109,046
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.
2. RFS depreciation and amortisation includes impairment of goodwill and other intangibles of $39.4 million (2017: $20.0 million) and goodwill and other
intangibles written off in the disposal of Money Now of $6.7 million.
(d) Geographical segment information
The Group’s revenue from continuing operations from external
customers by location of operations and information about its
non-current assets by location of assets are detailed below.
Australia
United Kingdom
New Zealand
1. Non-current assets do not include deferred tax asset and subordinated loans.
Revenue from external customers
Non-current assets1
2018
$’000
476,356
61,396
7,652
545,404
2017
$’000
469,693
36,278
7,061
523,443
2018
$’000
452,856
65,668
25,097
543,621
2017
$’000
569,449
78,962
17,696
666,107
65
Notes to the Financial Statements
For the year ended 30 June 2018
6 Intangible Assets
(a) Carrying values
Goodwill
Cost
Impairment loss
Net carrying value
Brands
Brands at cost - indefinite life
Impairment loss and disposal
Sub-total
Brands at cost - finite life
Impairment loss and disposal
Net carrying value
Dealer relationships
Cost
Accumulated amortisation
Impairment loss and disposal
Net carrying value
Software development costs
Cost 1
Accumulated amortisation and disposal
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.
(b) Recognition and measurement
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
197,616
(42,336)
155,280
22,443
(13,171)
9,272
6,598
(4,319)
11,551
28,566
(9,640)
(5,029)
13,897
47,994
(25,852)
22,142
13,070
(12,985)
85
6,634
(3,650)
2,984
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
205,939
250,746
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
66
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
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.
(ii)
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:
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 foreseeable 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 benefit 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
Consolidated Group
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Total
$’000
2018
Net book amount
Balance beginning of year
191,186
13,734
21,109
Additions
Impairment1
Disposal of business
Amortisation
Changes in foreign currency
-
(34,761)
(3,056)
-
(639)
(209)
-
(1,335)
1,911
-
-
(3,095)
(1,934)
(2,692)
509
4,451
-
(893)
-
(737)
163
19,719
10,332
-
(1,500)
(6,409)
-
547
250,746
-
-
-
10,681
(39,388)
(7,048)
(462)
(11,635)
-
2,583
Closing balance
155,280
11,551
13,897
2,984
22,142
85
205,939
1 Impairment of intangible assets relating to RFS Retail (refer note 8).
67
Notes to the Financial Statements
For the year ended 30 June 2018
(c) Reconciliation of written down values (continued)
Consolidated Group
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Total
$’000
2017
Net book amount
Balance beginning of year
189,362
27,509
19,914
5,407
17,644
1,529
261,365
Additions
-
Acquisition through business combination
8,127
-
-
Impairment
Amortisation
(4,483)
(12,479)
(1,296)
-
Changes in foreign currency
(1,820)
Closing balance
191,186
13,734
(d) Impairment test of goodwill
-
6,451
(3,038)
(2,019)
(199)
21,109
-
-
-
(677)
(279)
4,451
6,888
1,112
-
-
-
-
6,888
15,690
(20,000)
(5,994)
(982)
(10,968)
69
-
(2,229)
19,719
547
250,746
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 is 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)1
Retail Financial Services segment retail finance business (RFS finance) 1
Retail Financial Services segment aggregation business (RFS aggregation) 1
Retail Financial Services segment retail business (RFS retail) 1
European Vehicle Contracts Limited (EVC)
Capex Asset Finance Limited (CAPEX)
Consolidated Group
2018
$’000
24,190
9,102
12,840
16,685
-
-
65,859
17,985
3,473
5,146
2017
$’000
24,190
9,102
12,264
15,817
50,902
70,717
-
-
3,301
4,893
155,280
191,186
1 This change to the carrying value of the RFS CGUs follows from a reorganisation of its businesses (refer note e).
The carrying value of intangible assets of the RFS warranty and insurance business was adjusted for impairment following a revision of the
projected cash flows and the disposal of the Money Now business.
68
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(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 discount 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 FY19 budget that 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 to the trading, market and regulatory environments. The average growth rates used in the five
year projection varies depending on the businesses in the CGU between 1% and 9%. The higher growth rates are assumed by the
newly acquired businesses that are operating from an expanded business platform than previously. 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 13.8% (2017: 11.5%) was applied to pre-tax cash flows for the value-in-use calculation.
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 not significant change to Australian tax legislation that could affect the salary
packaging and novated lease 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. The value-in-
use assessment for Anglo Scottish and CLM used a pre-tax discount rate of 13.0% (2017: 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 assumption sin 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 impairment.
Retail Financial Services CGUs
During the year, the RFS segment re-organised its operations within the Aggregation and Retail business groups; these business
groups now target the wholesale and retail markets respectively. These business groups are now re-organised to new CGUs to
replace Risk and Warranty CGUs identified in prior periods. Goodwill and other intangible assets were re-allocated to these new
CGUs accordingly, using fair values based on prospective contributing cash flows of the businesses.
The Aggregation and Retail CGUs applied a pre-tax discount rate of 14.0% (2017: 13.9% to 14.0%) for the pre-tax value-in-use
calculations.
The sensitivity of the RFS Aggregation CGU estimated recoverable amount is calculated to potentially vary by $3.8 million for every
0.50% change to the discount rate and for a 5% change to the revenue growth assumption, the estimated recoverable amount could
vary by $2.2 million. The sensitivity of the RFS Retail CGU estimated recoverable amount is calculated to potentially vary by $1.1 mil-
lion for every 0.5% change to the discount rate and for a 5% change to the revenue growth assumption, the estimated recoverable
amount could vary by $0.5 million.
The RFS segment is exposed to a range of regulatory risks that may affect the business in originating insurance and consumer
lending products. It is not currently possible to measure the impact of any potential regulations until they are mandated and
accordingly, are not included in the key assumptions. As disclosed in note 34, the Company was served a class action proceeding
relating to a warranty product business operated by Davantage Group Pty Ltd, an entity that is part of the RFS Retail CGU. Any impact
from the action is not incorporated in the key assumptions as there is insufficient information to identify or measure the impact.
69
Notes to the Financial Statements
For the year ended 30 June 2018
7 Revenue
Revenue from continuing operations
Remuneration services1
Lease rental services
Proceeds from sale of leased assets (iii)
Brokerage commissions and financial services
Interest – other persons
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
2018
$’000
2017
$’000
2018
$’000
2017
$’000
207,714
133,100
78,133
123,887
1,598
-
972
190,094
136,587
68,135
124,615
1,410
-
2,602
-
-
-
-
43
56,406
-
-
-
-
-
144
54,076
-
545,404
523,443
56,449
54,220
32,011
3,050
35,061
31,853
2,155
34,008
-
-
-
-
-
-
1 Included in remuneration services revenue is interest income derived from the holding of trust funds (refer note 12(b)).
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.
Revenue in 2017 has been re-stated to include the proceeds from sale of motor vehicles of $10,411,000 (refer note 3(e)).
70
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(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 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.
The Group earns trailing commission and recognises as revenue in the period when services are completed and free from
performance obligations.
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 that on unclosed business, is recognised when it has been earned, calculated from attachment date
over the period of the contract for direct business. Where time does not 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 an 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.
71
Notes to the Financial Statements
For the year ended 30 June 2018
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
Amortisation of intangibles
Impairment1
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
2018
$’000
2017
$’000
2018
$’000
2017
$’000
6,409
462
71,218
3,183
4,764
86,036
34,761
4,627
-
5,994
491
75,544
3,024
3,993
89,046
4,483
15,517
-
39,388
20,000
9,238
9,225
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44,587
44,587
20,000
20,000
-
-
-
-
2018
$
3,056
2,142
1,500
1,471
390
8,559
Defined contribution superannuation expense
8,520
7,948
1 The impairment of intangible assets relate to the RFS Retail businesses.
Loss on disposal of business2
Goodwill written-off
Intangible assets written-off
Redundant assets written-off
Termination costs of contractual arrangements, employees and property
Other closure costs
2 The loss on disposal of business followed from a strategic review of the RFS segment that has resulted in the exit from its Money Now point of sale motor vehicle
finance business. The expense comprises the following items of closure costs and the write-off of redundant assets and acquired intangible assets.
72
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
9 Income Tax Expense / (Benefit)
(a) Components of tax expense / (benefit)
Current tax expense / (benefit)
Adjustments for current tax of prior years
Deferred tax
Income tax expense / (benefit)
(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
Prima facie tax payable on profit before income tax at 30% (2017:
30%)
Add tax effect of:
– non-deductible costs
– non-deductible impairment expense
– contingent consideration fair valuation
– share of joint venture loss
– share-based payments
– overseas tax rate differential of subsidiaries
– acquisition expenses
– under-provision of tax from prior year
Less tax effect of:
– dividends received
Consolidated Group
Parent Entity
2018
$’000
37,237
(190)
(1,950)
35,097
2017
$’000
37,275
200
(4,030)
33,445
2018
$’000
(773)
-
(10)
(783)
Consolidated Group
Parent Entity
2018
$’000
84,931
25,479
344
11,345
(1,040)
410
123
(1,351)
-
(213)
35,097
2017
$’000
101,347
30,404
475
1,345
-
378
-
(478)
120
1,201
33,445
2017
$’000
(904)
-
28
(876)
2017
$’000
31,155
9,347
2018
$’000
9,209
2,763
-
13,376
-
6,000
-
-
-
-
-
-
-
-
-
-
-
16,139
15,347
-
-
(16,922)
(16,223)
Income tax expense / (benefit)
35,097
33,445
(783)
(876)
Unrecognised temporary differences
Foreign currency translation of investments in subsidiaries
for which no deferred tax assets have been recognised
(5,598)
(9,053)
-
-
73
Notes to the Financial Statements
For the year ended 30 June 2018
(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
Losses
Deferred acquisition expenses
Intangible assets
Unearned income
Employee share rights
Amounts recognised in equity
Derivatives recognised directly in equity
Closing balance at 30 June
Recognised as:
Deferred tax asset
Deferred tax liability
Movements in deferred tax asset / (liability)
Opening balance at 1 July
Charged to profit or loss
Charged to other comprehensive income
Acquired from business combination
FX
Closing balance at 30 June
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
168
6,581
(7,680)
8,450
(2,549)
(2,062)
916
806
101
6,305
(5,222)
6,366
(1,753)
(1,926)
181
1,027
(7,644)
(10,759)
(342)
151
313
51
-
-
-
-
(696)
-
-
158
-
-
-
-
-
-
-
(831)
-
-
263
-
-
-
(3,205)
(5,316)
(538)
(568)
1
(28)
(3,204)
(5,344)
729
(3,933)
(3,204)
(5,344)
1,963
(37)
-
214
(3,204)
175
(5,519)
(5.344)
(7,790)
4,196
(161)
(1,584)
(5)
(5,344)
(20)
(558)
-
(558)
(558)
(568)
10
-
-
-
-
(568)
-
(568)
(568)
(540)
(28)
-
-
-
(558)
(568)
74
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
(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.
75
Notes to the Financial Statements
For the year ended 30 June 2018
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
2018
2017
60.9
81.6
$50,303
$67,902
82,616
83,205
Basic earnings per share is calculated by dividing the profit attributable to members of the Company by the weighted average number of
ordinary shares outstanding during the financial year.
Diluted earnings per share
Diluted EPS – cents per share
Earnings used to calculate basic earnings per share ($’000)
Weighted average number of ordinary shares outstanding during the year used in
the calculation of basic EPS (‘000)
Weighted average number of options and rights on issue outstanding (’000)
Weighted average number of ordinary shares outstanding during the year used in
the calculation of diluted EPS (‘000)
60.6
81.5
$50,303
$67,902
82,616
83,205
461
132
83,077
83,337
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 2017 of $0.35 (2016: $0.34) per share franked at
the tax rate of 30% (2016: 30%)
Interim fully franked ordinary dividend for the year ended
30 June 2018 of $0.33 (2017: $0.31) per share franked at
the tax rate of 30% (2017: 30%)
Franking credits available for subsequent financial years
based on a tax rate of 30% (2017 – 30%)
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
28,938
28,286
28,938
28,286
27,279
25,790
27,279
25,790
56,217
54,076
56,217
54,076
111,752
92,723
111,752
92,723
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.
T
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.
76
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
12 Cash and Cash Equivalents
Consolidated Group
Parent Entity
Cash on hand
Bank balances
Short term deposits
2018
$’000
9
69,839
29,819
99,667
2017
$’000
5
32,566
26,845
59,416
2018
$’000
4
3,987
-
3,991
2017
$’000
-
76
5,759
5,835
(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 2018, the floating interest rates for the Group and parent entity were between 1.35% and 1.60% (2017: 1.35% and 1.60%).
The short term deposits are also subject to floating rates, which in 2018 were between 1.80% and 2.20% (2017: 1.80% and 2.20%).
These deposits have an average maturity of 90 days (2017: 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 and not included in the Consolidated
Statement of Financial Position. 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 interest accruing to Company
Client monies in trust interest accruing to clients
Consolidated Group
Consolidated Group
2018
2017
Average
interest rate %
2.30%
2.23%
Average
interest rate %
2.50%
2.34%
$’000
373,485
33,085
406,570
$’000
380,794
29,755
410,549
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.
Interest received
Consolidated Group
2018
000
9,077
2017
000
9,489
77
Notes to the Financial Statements
For the year ended 30 June 2018
13 Trade and Other Receivables
Consolidated Group
Parent Entity
Current
Trade receivables
Other receivables
Amounts receivable from wholly owned entities
2018
$’000
2017
$’000
28,747
23,655
-
23,130
22,792
-
52,402
45,922
2018
$’000
-
-
7,258
7,258
2017
$’000
-
20
7,395
7,415
The carrying amount of all current receivables are equal to their fair value as they are short term and fully recoverable.
(a) Ageing and impairment losses
The ageing of trade receivables for the Group at reporting date was:
Consolidated Group
Not past due
Past due 30 days
Past due 31-60 days
Past due 61-90 days
Past due >90 days
Total
Total
$’000
23,155
4,198
746
301
1,061
29,461
2018
Amount
impaired
$’000
Amount not
impaired
$’000
23,155
4,198
659
199
536
-
-
(87)
(102)
(525)
(714)
Total
$’000
17,006
3,265
1,781
496
953
2017
Amount
impaired
$’000
Amount not
impaired
$’000
-
-
(30)
(76)
(265)
(371)
17,006
3,265
1,751
420
688
23,130
28,747
23,501
(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.
78
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
14 Finance Lease Receivables
Consolidated Group
Parent Entity
Current finance lease receivables
Non-current finance lease receivables
2018
$’000
71,137
100,495
2017
$’000
60,920
107,255
171,632
168,175
2018
$’000
2017
$’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
2018
$’000
Present value
of lease
payments
2018
$’000
81,432
98,253
3,756
74,638
93,357
3,637
Minimum
lease
payments
2017
$’000
Present value
of lease
payments
2017
$’000
65,926
110,898
727
61,061
106,407
707
183,441
171,632
177,551
168,175
Less: unearned finance income
(11,809)
-
(9,376)
-
Present value of minimum lease payments
171,632
171,632
168,175
168,175
There were no guaranteed residual values of assets leased under finance leases at reporting date (2017: nil).
79
Notes to the Financial Statements
For the year ended 30 June 2018
15 Other Financial Assets
(a) Investment in subsidiaries
Shares in subsidiaries at cost
Consolidated Group
Parent Entity
2018
$’000
-
2017
$’000
2018
$’000
2017
$’000
-
282,246
320,307
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
Plan Management Partners 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
2018
% Owned
2017
Principal activities
Australia
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%
75%
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
Asset management
Investment holding
Asset management
Fleet management services
Fleet management services
-
-
Fleet management services
Fleet management services
100%
100%
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.
80
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(b) Loan receivable from joint venture
Loan receivable
Other expense receivable
Share of losses of equity accounted joint venture
Changes in foreign currency
Carrying value at end of the financial year
Consolidated Group
Parent Entity
2018
$’000
4,634
2,599
(6,129)
65
1,169
2017
$’000
4,046
1,745
(4,764)
556
1,583
2018
$’000
2017
$’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 $1,365,000
(2017: $1,260,000) recognised under the equity method that is in excess of the Company’s fully written down carrying value of its investment
(2017: $nil - refer note 16).
Risk exposure
The maximum facility under the arrangement is GBP3.0 million together with other expenses agreed between the joint venture parties to
accelerate growth are being re-negotiated for an extended term. Under the existing agreement, certain conditions of default on the
repayments, provides the Group with 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
2018
$’000
337
(337)
-
2017
$’000
337
(337)
-
2018
$’000
2017
$’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. The contract is being re-negotiated and under the current
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.
81
Notes to the Financial Statements
For the year ended 30 June 2018
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
Consolidated Group
2018
$’000
6,144
81
6,225
11,382
7,233
18,615
(12,390)
(12,390)
(6,195)
-
2017
$’000
3,820
74
3,894
6,914
6,114
13,028
(9,134)
(9,134)
(4,567)
-
Cumulative losses of JV equity accounted
(6,466)
(5,101)
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
2018
$’000
4,040
(6,770)
(2,730)
-
(2,730)
(1,365)
-
2017
$’000
2,567
(5,087)
(2,520)
-
(2,520)
(1,260)
-
82
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
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
2018
$’000
23,278
(16,035)
7,243
2017
$’000
21,738
(14,196)
7,542
458,732
(156,604)
461,485
(162,296)
302,128
309,371
70,910
238,461
299,189
306,731
75,195
231,536
Total plant and equipment
309,371
306,731
Carrying value of assets under operating lease
Written down value of operating lease assets terminating
within the next 12 months
Written down value of operating lease assets terminating
after more than 12 months
70,910
75,195
231,218
223,994
302,128
299,189
(b) Movements in cost and accumulated depreciation
Consolidated Group
Plant and
equipment
$’000
Assets under
operating lease1
$’000
Year ended 30 June 2018
Balance at the beginning of year
Additions
Disposals / transfers to assets held for sale
Depreciation expense
Change in foreign currency
Balance at 30 June
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
1 Accumulated provision for impairment loss at reporting date is $4,654,000 (2017: $4,829,000).
7,542
2,581
-
(3,183)
303
7,243
9,307
1,240
73
131
(3,024)
(185)
7,542
2018
$’000
2017
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$’000
306,731
133,627
(56,163)
(74,401)
(423)
299,189
131,046
(56,163)
(71,218)
(726)
302,128
309,371
292,825
131,882
-
(49,976)
(75,544)
2
302,132
133,122
73
(49,845)
(78,568)
(183)
299,189
306,731
83
Notes to the Financial Statements
For the year ended 30 June 2018
(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
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Amounts payable to wholly owned entities
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
28,078
2,515
64,674
-
19,198
1,166
52,937
-
-
246
-
-
275
-
149,853
132,952
95,267
73,301
150,099
133,227
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.
84
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
19 Other Liabilities
Consolidated Group
Parent Entity
Maintenance instalments received in advance
Receivables in advance
Unearned property incentives
Recognition and measurement
2018
$’000
3,746
3,498
5,577
2017
$’000
4,794
3,821
5,392
12,821
14,007
2018
$’000
2017
$’000
-
-
-
-
-
-
-
-
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
2018
$’000
9,729
5,209
468
2017
$’000
9,276
3,356
365
15,406
12,997
1,391
936
2,327
1,379
1,521
2,900
2018
$’000
2017
$’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.
85
Notes to the Financial Statements
For the year ended 30 June 2018
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.
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
2018
$’000
2017
$’000
2018
$’000
2017
$’000
14,505
88,727
11,500
11,500
323,371
250,877
18,583
30,057
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.
(b) Security
The parent entity guarantees all bank loans of subsidiaries in the Group, totalling $337,876,000 (2017: $339,965,000).
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 all 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.
86
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
22 Contingent consideration
Consolidated Group
Parent Entity
Current
Non-current
Contingent consideration
(a) Recognition and measurement
2018
$’000
1,756
4,402
6,158
2017
$’000
-
10,815
10,815
2018
$’000
2017
$’000
-
-
-
-
-
-
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
Fair value adjustment in Statement of Profit or Loss
Finance expense
Change in foreign currency
Balance at 30 June
2018
$’000
10,815
-
(5,348)
311
380
2017
$’000
6,740
4,656
(349)
188
(420)
6,158
10,815
2018
$’000
2017
$’000
-
-
-
-
-
-
-
-
-
-
-
-
Contingent consideration is initially recorded at fair value on business combination and subsequently, re-assessed at their fair value at each
reporting date. Changes to the carrying value is recognised in the Statement of Profit or Loss.
The fair values assessed at reporting date resulted in an adjustment of $1,117,000 for European Vehicle Contracts Limited (EVC) and Capex
Asset Finance Limited (CAPEX) and $6,465,000 for Anglo Scottish Finance plc (ASF). The contingent consideration originally recognised on
the acquisition of ASF. The contingent consideration originally recognised on the acquisition of ASF was based on the earn-out targets that
were structured for a fixed amount to be payable on the achievement of a minimum agreed EBITDA target plus two higher amounts when the
corresponding EBITDA targets were achieved. Although ASF has achieved strong earnings growth post-acquisition, it has been considered that
the earn-out targets and the periods within which they were being measured did not allow sufficient ramp-up of operations and the deployment
of growth initiatives to meet the growth rates to meet the earn-out targets. Consequently, it has been determined as unlikely that the carrying
amount of contingent consideration of $6,465,000 (2017: valuation increase of $349,000) will be payable and has been adjusted to the
Statement of Profit or Loss. The contract is being re-negotiated and is expected to be finalised in the near term and the fair value of contingent
consideration based on the revised earn-out targets will be brought to account and the impact recognised in the Statement of Profit or Loss.
23 Issued Capital
(a) Share capital
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
83,204,720 (2017: 83,204,720) fully paid ordinary shares
135,868
141,088
135,868
141,088
87
Notes to the Financial Statements
For the year ended 30 June 2018
(b) Movements in issued capital
Balance at 1 July 2017
Proceeds from exercise of options
Premium received from grant of options
Treasury shares acquired on-market
Treasury shares brought forward
Shares distributed to employees on exercise of employee options
Shares held by external shareholders at 30 June 2018
Balance at 1 July 2016
Treasury shares brought forward
Treasury shares acquired by the EST
Shares held by external shareholders at 30 June 2017
Number
of shares
Issue
price
83,204,720
-
-
$10.92
-
(692,369)
$14.08
82,512,351
(255,752)
409,992
82,666,591
Number of
shares
Issue
price
83,204,720
(10,276)
(245,476)
82,948,968
$13.41
Ordinary
shares
$’000
141,088
4,477
50
(9,747)
135,868
-
-
135,868
Ordinary
shares
$’000
144,380
-
(3,292)
141,088
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 Long Term Incentive Plan (LTIP). 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 LTIP. Treasury shares are deducted from issued shares to show the number of issued shares held by 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 note 24(d))
Shares distributed from the EST to employees on exercise of options
2018
Balance
$’000
255,752
692,369
(409,992)
2017
Balance
$’000
10,276
245,476
-
Balance of treasury shares carried forward
538,129
255,752
(d) Options
At 30 June 2018, there were 1,392,861 (2017: 1,680,259) unissued ordinary shares for which options were outstanding and exercisable at
an average price of $11.59 (2017: $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.
88
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
These options are subject to two vesting conditions namely, the achievement of financial hurdles and each employee’s continuity of
employment at vesting date.
(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.
(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 gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is
calculated as long and short term borrowings (excluding derivatives and 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 Groups’ gearing ratio was 39% (2017: 43%) calculated as net debt of $238,209,000 (2017: $280,188,000) divided by total debt
and equity of $609,582,000 (2017: $651,183,000). 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
2018
$’000
36
1
37
2017
$’000
(134)
39
(95)
2018
$’000
(68)
20
(48)
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
2018
$’000
2017
$’000
(5,596)
(9,053)
2018
$’000
-
2017
$’000
-
-
-
2017
$’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 improvement in the foreign currency reserve was a direct result of GBP strengthening 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 $2,855,000 (FY17: $10,184,000) to the EST to acquire MMS shares for distribution to employees
under the Group LTIP. Together with the balance in reserve at the start of the year of $6,892,000, these funds were used to aquire a total of
692,369 treasury shares on-market.
89
Notes to the Financial Statements
For the year ended 30 June 2018
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)
Interest rate swaps –
cash flow hedge
Fair value at
2018
$’000
37
2017
$’000
(134)
Contingent consideration
(6,158)
(10,815)
Fair value
hierarchy
Valuation technique and key input
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
$4.1m and EBITDA with a range of $1.1m to $1.4m.
Contingent consideration arises from business combination and is valued at reporting date based on the probable settlements amounts
calculated using revenue and EBITDA projections.
Contingent consideration arising from the acquisition of EVC and CAPEX is based on variable earnouts depending on the achievement of
EBITDA targets. A 5% increase in EBITDA would increase fair value by $477,000 whilst a 5% decrease in EBITDA would decrease fair value
by $311,000.
Consolidated Group
Carrying
amount
2018
$’000
Carrying
amount
2017
$’000
Fair
value
2018
$’000
Fair
value
2017
$’000
Finance lease receivables – non-current
100,495
107,255
92,267
106,611
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 3.58% (2017: 3.62%). 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.
90
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
26 Cash Flow Information
(a) Reconciliation of cash flow from operations with
profit from operating activities after tax
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
Profit for the year
49,834
67,902
9,992
32,031
Non cash flows in profit from operating activities
Amortisation
Impairment
Depreciation
Option expense
Loss on disposal of businesss
Fair valuation of contingent consideration
Share of equity accounted joint venture loss
Purchase of assets under lease
Written down value of assets sold
Finance lease receivables principle repayments
Changes in assets and liabilities, net of the effects
of purchase of subsidiaries
(Increase) in trade receivables and other assets
Increase / (decrease) in trade payables and accruals
Decrease in income taxes payable
(Decrease) / increase in deferred taxes
Increase / (decrease) in unearned revenue
Increase in provisions
Net cash from operating activities
(b) Proceeds from sale of lease portfolio
11,635
39,388
74,401
1,499
8,559
(5,348)
1,365
10,477
20,000
78,569
-
-
349
1,260
(336,694)
(281,415)
57,214
160,865
(6,354)
64,990
(5,022)
(2,192)
1,684
1,836
117,660
42,882
77,638
(7,023)
42,926
(2,855)
(4,156)
(344)
854
47,064
-
-
44,587
20,000
-
-
-
-
-
-
-
-
1,772
(73)
(2,416)
(10)
-
-
-
-
-
-
-
-
-
-
60
(747)
(35)
28
-
-
53,852
51,337
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.
91
Notes to the Financial Statements
For the year ended 30 June 2018
d) Net debt reconciliation
A summary of the movement in borrowings (excluding capitalised borrowing costs) affecting financing cash flows during the year is
provided below.
Financing cash flow from liabilities
Borrowings (excluding capitalised borrowing costs)
Payable due to wholly owned entities
Consolidated Group
Parent Entity
2018
$’000
2017
$’000
338,312
339,966
-
-
2018
$’000
30,125
149,853
2017
$’000
41,625
132,952
Financing liabilities
338,312
339,966
179,978
174,577
Liabilities at the start of the period
Cash flows relating to borrowings
Cash flows relating to payables due to wholly owned entities
Foreign exchange adjustments
Consolidated Group
Parent Entity
2018
$’000
339,966
(8,176)
-
6,522
2017
$’000
346,355
(10)
-
(6,379)
2018
$’000
174,577
(11,500)
16,901
-
2017
$’000
158,561
(11,500)
27,516
-
Liabilities at the end of the period
338,312
339,966
179,978
174,577
27 Commitments
(a) Operating lease commitments
Non cancellable operating leases contracted for but not capitalised in the financial statements:
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.
Payable minimum lease payments
– Not later than 12 months
– Between 1 and 5 years
– Greater than 5 year
Current payables
Consolidated Group
Parent Entity
2018
$
2017
$
2018
$
2017
$
9,659
25,325
7,498
42,482
9,463
34,136
10,913
54,512
-
-
-
-
-
-
-
-
92
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
28 Contingent Liabilities
(a) 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.
Consolidated Group
Parent Entity
2018
$’000
13,050
6,440
19,490
2017
$’000
12,050
6,168
18,218
2018
$’000
2017
$’000
50
-
50
50
-
50
(b) As disclosed in note 34, a class action proceedings was served on Davantage Group Pty Ltd, a subsidiary of Presidian Holdings Pty Ltd.
Davantage Group Pty Ltd intends to vigorously defend the proceedings. At the date of this report, it is not practical to estimate the effect
of this claim, if any.
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 2018 and 2017 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 receivables
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
2018
$
2017
$
2018
$
2017
$
-
-
-
-
-
-
56,406,000
54,076,000
7,258,226
7,394,985
149,852,525
132,952,236
Consolidated Group
Parent Entity
2018
$
2017
$
2018
$
2017
$
3,594,872
3,384,371
2,194,232
2,157,236
160,657
71,348
677,599
182,403
60,007
-
112,009
35,370
483,500
128,718
27,154
-
4,504,476
3,626,781
2,825,111
2,313,108
93
Notes to the Financial Statements
For the year ended 30 June 2018
30 Share-Based Payments
From 1 July 2017, the Company introduced a new Long Term Incentive Plan (LTIP) for certain executives and employees under the McMillan
Shakespeare Limited Employee Share Plan. Under the LTIP, the Company issued Performance and Voluntary Options and Performance Rights
during the year. Historically, the Company has only issued Performance Options and Voluntary Options and on a tri-ennial basis. Under the new
LITP, the Company intends to issue rights and options annually, each with a three year vesting period. The value of the annual issuance under
the new LTIP is about one-third the value previously issued under the triennial grant.
During the year, the Company issued Performance Options, Voluntary Options and Performance Rights under the new annual LTIP with a three
year vesting period. However, on the changeover from the tri-ennial frequency to annually, two year vesting period options and rights were issued
as a one-off to provide the equivalent annual entitlement in the second year otherwise not provided for in transition. Performance Options and
Performance Rights were issue in the July 2017 and September 2017 grant. The issuance to the Managing Director was granted on 24 October
2017 following shareholders approval on that day. Voluntary Options were issued only in the July 2017 grant.
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 regularly.
Performance Options
Performance Options are granted for nil consideration, and may be exercised into ordinary shares subject to the satisfaction of specified
performance hurdles and continuity of employment. Performance Options carry no dividend or voting rights. On exercise of the option, each
participant will pay the exercise price and receive 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
performance, position, duties and responsibilities of the relevant executive.
Voluntary Options
A Voluntary Option allows the participant to acquire a fully paid ordinary share in the Company by the payment of the exercise price at the
exercise date. The entitlement to exercise the voluntary options is not contingent upon continued employment with the Company nor are there
performance hurdles. Voluntary Options are offered to certain executives for an additional opportunity to invest in the Company, who can acquire
for a consideration up to a maximum of $20,000. The consideration was set at a 25% discount to the face value of the option at the date of
grant. However, if the participant leaves employment before vesting date, the participant will forfeit 25% of their entitlement for $1 (the amount
forfeited being equal to the 25% discount to the face value that applied to the consideration price of the option at the date of the conditional
offer and acceptance).
Performance Rights
A Performance Right is an entitlement to acquire a fully paid ordinary share in the Company for nil consideration at grant or conversion to
a share, subject to the achievement of performance hurdles and service conditions being satisfied. Performance Rights carry no dividend or
voting rights.
Recognition and measurement
The Performance Options and Rights are equity-settled share-based payments and their fair value at grant 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 based on the vesting conditions attached to the
options and rights, 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.
94
MMS Annual Report 2018 Notes to the Financial Statements
For the year ended 30 June 2018
(a) Options
Set out below are summaries of options granted under the plans:
Performance Options Consolidated Group and parent entity - 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exercise
price
Balance at
start of the
year
Granted
during the
year
Exercised or
sold during
the year
Forfeited
during the
year
Balance at
end of the
year
Exercisable
at end
of the year
Grant date
Expiry date
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
3 July 2017
30 September 2020
26 September 2017
30 September 2020
24 October 2017
30 September 2020
3 July 2017
30 September 2021
26 September 2017
30 September 2021
24 October 2017
30 September 2021
$10.18
$10.18
$10.83
$11.87
$12.88
$13.82
$13.45
$14.97
$13.45
$13.45
$14.97
$13.45
978,417
398,789
107,877
76,048
85,692
33,436
-
-
-
-
-
-
-
-
-
-
-
-
390,354
17,340
71,140
362,294
15,920
66,027
-
(440,288)
538,129
(219,334)
(179,455)
(59,332)
(41,826)
(47,131)
(18,390)
-
-
-
-
-
-
(48,545)
(34,222)
(38,561)
(15,046)
(46,585)
-
-
-
-
-
-
-
343,769
17,340
71,140
(43,237)
319,057
-
-
15,920
66,027
Weighted average exercise price
$10.51
$13.50
$10.97
$10.82
$11.56
1,680,259
923,075
(386,013)
(845,939)
1,371,382
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
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
Voluntary Options
19 August 2014
30 September 2018
3 July 2017
3 July 2017
30 September 2020
30 September 2021
$10.18
$13.45
$13.45
Weighted average exercise price
978,417
469,081
107,877
150,831
85,692
33,436
1,825,334
$10.55
23,981
-
-
23,981
$10.18
-
-
-
-
-
-
-
-
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
-
-
-
-
(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
(23,981)
-
-
(23,981)
$10.18
-
-
-
-
-
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
-
-
-
-
-
-
-
-
95
Notes to the Financial Statements
For the year ended 30 June 2018
Fair value of Performance Options granted
The assessed fair value at grant date of options granted in the year is presented in the table below. The fair value at grant date is determined
using a binomial option pricing model that takes into account the exercise price, the term of the option, the share price at the grant date, the
expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
Model input
Fair value of Performance Options
Consideration payable upon grant
Exercise price
Grant date
Expected life
Share price at grant date
Expected price volatility
Expected dividend yield
Risk-free interest rate
July
2017
$2.97
Nil
$13.45
July
2017
September
2017
September
2017
$3.20
Nil
$13.45
$3.14
Nil
$14.97
$3.42
Nil
$14.97
October
2017
$3.13
Nil
$13.45
October
2017
$3.20
Nil
$13.45
3 July 2017
3 July 2017
2.25 years
3.25 years
26 September
2017
2.0 years
26 September
2017
3.0 years
24 October
2017
1.9 years
24 October
2017
2.9 years
$13.30
$13.30
$14.60
$14.60
$15.23
$15.23
41%
5.2%
2.1%
41%
5.2%
2.1%
41%
5.2%
2.1%
41%
5.2%
2.1%
28%
4.7%
2.2%
28%
4.7%
2.2%
Fair value of Voluntary Options granted
Voluntary Options are similarly valued as Performance options but given that Voluntary Options have an acquisition price based on 75% of the
value at grant date, its fair value is made out to be 25% of the fair value of Performance Options. The fair value of Voluntary Options is $0.74
and $0.80 for the two and three year vesting period respectively.
96
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(b) Rights
Set out below is a summary of Performance Rights granted during the year.
Grant date
Exercise date
3 July 2017
30 September 2019
26 September 2017
30 September 2019
24 October 2017
30 September 2019
3 July 2017
30 September 2020
26 September 2017
30 September 2020
24 October 2017
30 September 2020
Granted
during
the year
Exercised or
sold during
the year
97,982
4,365
17,860
100,214
4,598
18,814
243,833
-
-
-
-
-
-
-
Balance
at end of
the year
Distributable
at end of
the year
Forfeited
during
the year1
(11,695)
-
-
(9,320)
-
-
86,287
4,365
17,860
90,894
4,598
18,814
(21,015)
222,818
-
-
-
-
-
-
-
1 The first available exercise date for the two and three year Rights is the date that the Company’s financial statements for the year ended 30 June 2019 and
30 June 2020 respectively is lodged with ASX. For the purpose of this summary it is assumed to be 30 September of that year.
Fair value of Performance Rights granted
The fair value of Performance Rights at grant date was estimated by discounting the Company’s share price at this date by the dividend yield
of the Company as follows.
Grant date
3 July 2017
26 September 2017
24 October 2017
3 July 2017
26 September 2017
24 October 2017
Share price
at grant date
Expected life
(years)
Expected
dividend yield
$13.30
$14.60
$15.23
$13.30
$14.60
$15.23
2.2
2.0
1.9
3.2
3.0
2.9
5.2%
5.2%
5.2%
5.2%
5.2%
5.2%
Fair
value
$11.83
$12.47
$13.92
$11.23
$11.84
$13.29
(c) Expenses arising from share-based payment transactions
Set out below is a summary of Performance Rights granted during the year.
Performance Options issued under the LTIP
Voluntary Options issued under the LTIP
Performance Rights issued under the LTIP
Consolidated Group
Parent Entity
2018
$
2017
$
2018
$
2017
$
682,954
5,994
811,049
1,499,997
-
-
-
-
-
-
-
-
-
-
-
-
The amount expensed in a period is based on the cumulative amount at each reporting date less amounts expensed in previous periods.
97
Notes to the Financial Statements
For the year ended 30 June 2018
31 Auditor’s Remuneration
Consolidated Group
Parent Entity
2018
$
2017
$
2018
$
2017
$
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:
278,000
272,000
202,850
201,600
Audit or review of the financial statements (UK)
166,961
169,068
-
-
-
-
-
-
98
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
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 2018 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
Statement of Comprehensive Income
Revenue and other income
Employee 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
Profit before income tax
Income tax expense
2018
$’000
2017
$’000
386,035
(96,853)
(75,748)
(60,324)
(2,340)
(3,435)
(7,449)
(9,482)
(6,006)
(3,955)
(44,587)
75,856
(34,504)
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)
Profit attributable to members of the parent entity
41,352
57,613
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
Profits for the year
Dividends paid
Retained earnings at the end of the financial year
(22)
172
41,330
57,785
216,922
41,352
(56,217)
213,385
57,613
(54,076)
202,057
216,922
99
Notes to the Financial Statements
For the year ended 30 June 2018
(b) Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Assets under operating lease
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
100
2018
$’000
2017
$’000
69,574
25,626
13,197
67,704
9,740
34,076
28,427
6,381
72,278
5,471
185,841
146,633
214,813
214,904
52,977
3,520
12,820
49,766
2,976
12,604
168,901
208,447
453,031
493,697
638,872
635,330
75,369
1,420
10,144
11,500
64,579
6,531
8,071
61,300
98,433
140,481
2,125
188,819
190,944
2,602
131,125
133,727
289,377
274,208
349,495
361,122
135,868
11,570
202,057
141,088
3,112
216,922
349,495
361,122
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
33 Summary of Other Accounting Policies
(a) Principles of consolidation
(b) Business combinations
(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.
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.
101
Notes to the Financial Statements
For the year ended 30 June 2018
(c) Current versus non-current classification
(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) Other employee benefits
(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.
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
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.
(ii)
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.
102
MMS Annual Report 2018
Notes to the Financial Statements
For the year ended 30 June 2018
(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 authorised, 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.
103
Notes to the Financial Statements
For the year ended 30 June 2018
(ii) Embedded derivatives
(ii) Group companies
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) Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event
and when it is probable that the Group is required to settle the
obligation, and the obligation can be reliably estimated.
(i) Provision for residual value
A residual value provision is established to estimate the
probable diminution in value of operating lease assets and
rental assets at the end of lease contract dates. The estimate
is based on the deficit in estimated recoverable value of the
lease asset from contracted cash flows.
The residual value provision includes the estimated loss in
recoverable value of lease assets which are transferred to the
Group at the end of the lease term pursuant to the put and call
option in the P&A arrangement with the financier.
(o) 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.
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.
(p) 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.
(q) 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
On 14 August 2018, the company was served with a class
action proceeding for a claim relating to a warranty product
business operated by Davantage Group Pty Ltd (trading as
“National Warranty Company” (NWC)) which is and was at
all relevant times a subsidiary of Presidian Holdings Pty Ltd
which the Company acquired in February 2015. The claim is
made on behalf of all persons who entered an NWC warranty
between 1 July 2013 and 28 May 2015 (provided it was
acquired for domestic/personal use and they received an
NWC PDS). A significant portion of the relevant period to
which the claim relates is in respect of a time when the
“National Warranty Company” was not owned by the MMS
Group. The proceedings are to seek orders that the NWC
warranties are void, and seek either the restitution or a
refund of the premium paid and interest on that amount.
The Company intends to vigorously defend the proceedings.
At the date of this report the Company is not in a position to
estimate the impact, if any, of this claim.
Other than the above and matters disclosed in this Annual
Report, there were no material events subsequent to
reporting date.
104
MMS Annual Report 2018
Directors’ Declaration
The Directors are of the opinion that:
1.
the financial statements and notes on pages 49 to 104 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 2018 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.
Note 2(a) 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
Directions.
Tim Poole
Chairman
Michael Salisbury
Managing Director
22 August 2018
Melbourne, Australia
105
Independent Audit Report
As at 30 June 2018
Collins Square, Tower 1
727 Collins Street
Docklands Victoria 3008
Correspondence to:
GPO Box 4736
Melbourne Victoria 3001
T +61 3 8320 2222
F +61 3 8320 2200
E info.vic@au.gt.com
W www.grantthornton.com.au
Independent Auditor’s Report
To the Members of McMillan Shakespeare Limited
Report on the 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 2018, 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 financial report of the Group 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 2018 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 auditor independence requirements of 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
www.grantthornton.com.au
‘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.
106
MMS Annual Report 2018
Independent Audit Report
As at 30 June 2018
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current period. These matters were addressed in the context of our audit of the 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
Impairment of goodwill and intangible asset balance (Note
6)
At 30 June 2018 the Group has $155,280,000 of goodwill and
$50,659,000 in other intangible assets contained within
separate cash generating units (CGUs).
Management is 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 $39,388,000 relating to the
Retail Financial Services Retail business CGU.
Warranty revenue, unearned premium liability and
deferred acquisition costs (Note 3)
Our procedures included, amongst others:
reviewing the model for compliance with AASB 136
Impairment of Assets;
assessing 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;
evaluating management’s process for the preparation and
review of value-in-use models, taking into consideration
the impacts of the sector specific issues;
utilising internal 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;
verifying the mathematical accuracy of the underlying
model calculations and assessing the appropriateness of
the methodologies including evaluating cash flow
projections compared to the historical accuracy of the
budgeting process;
assessing 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;
performing 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
assessing the adequacy of the Group’s disclosures within
the financial statements.
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.
Our procedures included, amongst others:
verifying the mathematical accuracy of the unearned
premium liability and warranty revenue calculations to
check that the revenue profile assumptions have been
correctly applied;
107
Independent Audit Report
As at 30 June 2018
Key audit matter
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.
How our audit addressed the key audit matter
assessing the reasonableness of management’s key
assumptions in relation to the revenue profile which is
based on the profile of future claim costs;
analytically reviewing the actual margins achieved during
the year to determine appropriateness of the percentages
in the deferred income model; and
testing 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.
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:
reviewing the contractual arrangements to understand the
types of services and costs to be provided under the
arrangements;
verifying the mathematical accuracy of the tyre and
maintenance provision model including the consistency of
the formulas applied;
reviewing the validity of the underlying data used in the
calculation;
evaluating the key assumptions applied in the model for
reasonableness and performing sensitivity analysis on
these key assumptions;
analytically reviewing movements in the provision from the
prior period in the context of understanding the changes in
the businesses operations and the market;
selecting a sample of contracts included in the calculation
and agreeing details to supporting documentation; and
considering for changes in key inputs into the provision
through inquiries of management.
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 included in the
Group’s annual report for the 30 June 2018, but does not include the financial report and our 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.
108
MMS Annual Report 2018
Independent Audit Report
As at 30 June 2018
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.
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: http://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 in pages 24 to 43 of the Directors’ report for the year ended 30 June
2018.
In our opinion, the Remuneration Report of McMillan Shakespeare Limited, for the year ended 30 June 2018 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, 22 August 2018
109
Auditor’s Independence Declaration
As at 30 June 2018
Collins Square, Tower 1
727 Collins Street
Docklands Victoria 3008
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 2018, I declare that, to the best of my knowledge and belief, there have
been:
a
b
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
Grant Thornton Audit Pty Ltd
Chartered Accountants
B A Mackenzie
Partner – Audit & Assurance
Melbourne, 22 August 2018
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
www.grantthornton.com.au
‘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.
110
MMS Annual Report 2018
Shareholder Information
Additional information required by the ASX Listing Rules and not disclosed elsewhere in this Annual Report is set out below:
SUBSTANTIAL SHAREHOLDINGS
As at 6 August 2018, 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
National Nominees Limited
28,909,512
11,056,889
6,050,941
5,262,271
4,775,838
34.75
13.29
7.27
6.32
5.74
1 As at 6 August 2018, 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 6 August 2018, 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 $13.45 and expiring on 30 September 2020
Options exercisable at $14.97 and expiring on 30 September 2020
Options exercisable at $13.45 and expiring on 30 September 2021
Options exercisable at $14.97 and expiring on 30 September 2021
Number of Holders
4,733
4
28
1
29
1
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 6 August 2018, 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+
2,842
1,473
239
148
31
As at 6 August 2018 there were 217 shareholders who held less than a marketable parcel of 31 fully paid ordinary shares in the Company.
ON-MARKET BUY BACK
The Company does not have a current on-market buy-back.
111
Shareholder Information
TOP 20 SHAREHOLDERS
As at 6 August 2018, the details of the top 20 shareholders in the Company are as follows:
No.
Name
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
National Nominees Limited
Asia Pac Technology Pty Limited3
BNP Paribas Noms Pty Ltd
UBS Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Ann Leslie Ryan
HSBC Custody Nominees (Australia) Limited
Milton Corporation Limited
BNP Paribas Nominees Pty Ltd
CPU Share Plans Pty Ltd
AFICO Pty Ltd
AMP Life Limited
BNP Paribas Noms Pty Ltd
MOHL Invest Pty Ltd
MOHL Invest Pty Ltd
Citicorp Nominees Pty Limited
Totals: Top 20 holders of issued Capital
Total Remaining Holders Balance
Number of
Ordinary Shares
28,909,512
11,056,889
6,050,941
5,262,271
4,775,838
3,343,025
3,015,218
1,745,517
1,139,479
1,008,418
730,764
662,538
662,000
538,129
439,524
383,690
373,418
340,000
300,000
295,416
71,032,587
12,172,133
1 As at 6 August 2018, 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.
Number of ordinary shares
79,937
279,340
UNQUOTED SECURITIES
Percentage of
Ordinary Shares 1
34.75
13.29
7.27
6.32
5.74
4.02
3.62
2.10
1.37
1.21
0.88
0.80
0.80
0.65
0.53
0.46
0.45
0.41
0.36
0.36
85.37
14.63
Date of escrow expiry
3 January 2018
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 $13.45 and expiring on 30 September 2020
Options exercisable at $14.97 and expiring on 30 September 2020
Options exercisable at $13.45 and expiring on 30 September 2021
Options exercisable at $14.97 and expiring on 30 September 2021
Options do not carry a right to vote
538,129
423,888
17,340
397,584
15,920
4
28
1
29
1
112
MMS Annual Report 2018 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
Collins Square, Tower 1
727 Collins Street
Melbourne Victoria 3008
Share Registry
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
Tel: +61 3 9415 4000
www.mmsg.com.au
113
McMillan
Shakespeare
Limited
Annual Report
2018
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