McMillan
Shakespeare
Limited
Annual Report
2019
b
mmsg.com.au
The McMillan Shakespeare Group is a trusted, market-leading
provider of salary packaging, novated leasing, asset management
and related financial products and services. Through its
subsidiaries, it offers a breadth of services and expertise,
designed to responsibly deliver superior long-term value to its
customers. The Group employs a highly committed team of
over 1,300 people across Australia, New Zealand and the
United Kingdom and domestically manages programs for
some of the largest public, private and charitable organisations.
Financial Calendar
21 August 2019
Announcement of 2019 Annual Results
Annual Report released
28 August 2019
2019 Final Dividend Ex-Date
29 August 2019
2019 Final Dividend Record Date
11 September 2019
2019 Final Dividend Payment Date
22 October 2019
2019 Annual General Meeting
Annual General Meeting
The Annual General Meeting of the members of McMillan
Shakespeare Limited A.B.N. 74 107 233 983 will be held
on 22 October 2019 at 10:00 am at the State Library of
Victoria, Ground Floor, 328 Swanston Street, Melbourne,
in the Theatrette.
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Contents
Chairman’s Report
CEO’s Report
MMS – Driven by our people
Financial History
Key Metrics
Directors’ Report
– Directors
– Directors’ meetings
– Principal activities
– Results
– Dividends
– Review of operations – Group
– 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 – AU/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
– Corporate governance practices
– Auditor’s independence declaration
– Directors’ declaration
– Five year summary
Indemnification and insurance
Financial Report
Directors’ Declaration
Independent Audit Report
Auditors’ Independence Declaration
Shareholder Information
Corporate Directory
2
MMS Annual Report 2019
Chairman’s Report
The McMillan Shakespeare (MMS)
Group performed soundly during the 2019
financial year, delivering revenue of $549.7
million and underlying net profit after tax
and amortisation (UNPATA) of $88.7 million.
While more modest than FY18, this result reflects a period
punctuated by difficult trading conditions, increased
competition and a changing regulatory environment.
Despite these challenges, I am pleased to report that the Group
has been proactive during the year, as we work toward building
a sustainable platform for future growth through leveraging
the scale we have built over recent periods and pursuing our
strategic growth priorities.
We achieved several significant milestones, including the
retention of major clients for the long term in our core Group
Remuneration Services (GRS) business, as well as securing
substantial new contracts in this segment. Additionally, our
commitment to create a more efficient operation through
increased investment in digital innovation progressed well.
For FY19, we were pleased to deliver a fully franked dividend
of 74.0 cents per share, a 1.4% increase on the prior year.
3
Group Performance
While UNPATA declined by 5.1% to $88.7 million, our
respective business units performed well operationally
during the year.
The GRS segment delivered a pleasing operational
performance, with revenue increasing to $221.9 million up
6.8% from $207.8 million in FY18. Our focus on customer
engagement and technological innovation helped deliver
record numbers of salary packages and novated leases.
The operational performance provided evidence that our
investment in technology – our Beyond 2020 program - is
improving the way we operate. We expect that Beyond 2020
will continue to deliver improved performance, by improving
the way we engage with our customers, whilst systematically
lowering our cost to serve.
The retention of our larger clients for extended periods was
a major highlight during the year, along with several significant
new contract wins, in both the corporate and public sectors.
These wins are an excellent reflection of the strength of our
offering, and our capability to consistently deliver customer
value in a highly competitive market.
These highlights are particularly encouraging for the future.
Asset Management (AM) in Australia and New Zealand
(AU/NZ) recorded a decrease in UNPATA of 11.4% to $14.0
million. Pleasingly, new business opportunities in the Group’s
core not-for-profit customer base were identified, which
leverage existing strong relationships held by our GRS and
Plan Partners businesses. These clients are well suited to
our offering and present good potential for organic growth.
Operating Market
Group revenue for FY19 of $549.7 million was in line with
$545.4 million in FY18. This result is considerable in the
context of one of the more challenging periods the industry
has faced.
The Australian new car sales market has been in steady
decline for the past 15 consecutive months with new car
registrations declining by 7.8% for the twelve months to
30 June 2019 compared with the previous period, while
in the United Kingdom (UK) new car registrations declined
by 3.4% during the second half of the period compared
with the second half of FY18, continuing a downward trend
in that market. Low wage growth and a housing market
downturn have contributed to these conditions in Australia,
while uncertainty as Brexit negotiations draw out, along with
regulatory changes to new car emissions standards have
dampened demand in the UK.
In this context our achievements for the year are a positive
reflection of the Group’s resilience, and the quality of
our businesses.
The strong growth we’ve experienced over recent periods
has been a product of the market leading position we have
worked hard to establish, particularly with respect to our core
business. As difficult trading conditions continue, maintaining
that position will be critically important. Ensuring our offering
remains compelling has been an overarching priority, driving
much of the work done this year. Accordingly, your Board is
confident that we are well positioned for FY20 and beyond.
As the regulatory environment continues to undergo
substantial change we remain vigilant in ensuring we meet our
responsibilities to both our customers and the communities in
which we operate.
Additionally, as a result of our ongoing commitment to
increase Principal and Agency (P&A) funding, specifically in our
Asset Management business, and our conservative approach
to gearing and strong operating cash flow, the Group currently
has surplus capital and excess franking credits.
4
MMS Annual Report 2019
Chairman’s Report
The strategy for our UK asset management and broking
businesses remains to create a substantial, profitable
business, and pleasingly we are now established as one
of the top five providers of asset finance in the local market.
Assets under management increased, whilst as a result of a
strategic program to improve return on capital, we disposed
of a number of assets over the period. However, uncertainty
with respect to the political and economical environment, a
significant reduction in asset finance growth in the broader
market and historically low interest rates, along with a
reduction in new vehicle supply as a result of changes to
European vehicle emission standards have contributed to the
reduction in UNPATA to $3.2 million for the period.
In our Retail Financial Services (RFS) segment, the finance
broker aggregation business again performed well, recording
an increase in finance volume of 5.1% to $1,018.2 million,
while our retail business was impacted by the downturn in
the motor vehicle retail sales market and ongoing regulatory
uncertainty. However, we were pleased to introduce a
redesigned suite of warranty and insurance products to
market during the period.
This process is continuing and we are proactively working
to create further enhancements to the design and distribution
of these products. However, given the inherent uncertainty
associated with the current regulatory and market
environment, we decided to write-off the remaining goodwill
and other intangible assets of $18.3 million associated with
the warranty business in our FY19 financial results.
The segment is also subject to the outcome of a class action
claim brought against our warranty business. The claim
concerns the Davantage Group Pty Ltd (a subsidiary of
Presidian Holdings Pty Ltd which was acquired by the MMS
Group in 2015) and relates to allegations concerning warranty
products sold by Davantage Group (trading as NWC) between
1 July 2013 and 28 May 2015. The proceedings are being
vigorously defended.
Our Plan Partners business delivered an encouraging
performance, recording its inaugural positive profit
contribution. This result demonstrates an increasing
awareness of the value of plan management services
to individuals living with disability, and an accordant
recognition of our offering.
We remain optimistic about the future growth and contribution
of Plan Partners to the Group, and the value the private sector
can provide to the National Disability Insurance Scheme
(NDIS) and its participants.
Mergers and Acquisitions
In terms of non-organic growth, acquisitions have been a key
part of delivering shareholder value since inception. During the
year, the Group entered into a Scheme of Arrangement for the
acquisition of Eclipx Group Limited (ASX:ECX) - a provider of,
inter alia, fleet vehicle leasing and management services.
With market consolidation expected to drive shareholder
value, we identified a sound industrial logic in coming together
with Eclipx, including a range of material synergies. However,
in April we agreed with Eclipx to terminate the scheme.
Whilst this acquisition did not proceed, we will continue to
explore opportunities to inorganically add value, create
further scale and enhance our market position.
5
Trading and Regulatory Environment
At the time of writing, recommendations from the Royal
Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry (Royal Commission) have yet
to be implemented.
Priorities and Outlook
In the face of the challenges presented during FY19 we
are committed to ensuring our value proposition remains
compelling. Much of the hard work undertaken by our teams
in FY19 has been done with that overriding priority in mind.
What is clear is that responsible lending practices and
responsible product distribution is now more of a focus
than it has been in the past.
Ensuring that our products and services remain market
leading while also maintaining our responsibility to customers
has been a priority for the Group for some time, well before
this climate of heightened regulatory scrutiny. In FY19 we
introduced several refined products into our RFS business
and we expect more to follow in FY20, with a view to setting
a market-leading benchmark for delivering customer value.
We will continue to review our operations, and our products,
and duly engage with regulators where appropriate, to
ensure that the needs of our customers remains at the
centre of our offering.
Environment, Sustainability and Governance
An important initiative undertaken during the year was the
establishment of our dedicated Environment, Social and
Governance (ESG) steering committee.
While for several years we have taken a formal approach
to our social, environmental and economic responsibilities,
the formation of this committee is designed to provide
strategic direction and a sharp oversight to our sustainability
commitments. It will also ensure we maintain appropriate
disclosure of initiatives designed to meet these responsibilities.
While our annual Sustainability Report provides a
comprehensive review of these activities, this Annual Report
will also provide you with an update as to various initiatives,
programs and indicators that are geared toward ensuring
we meet our obligations to our people, our customers, the
environment, and the community more broadly.
Strategic priorities for the period ahead include:
– For our GRS business, we will continue to invest in
our Beyond 2020 program as a central pillar of the
transformation of our core business into a digitally driven,
highly efficient, customer focused operation. We expect
the program to continue to deliver improved performance,
whilst systematically lowering our cost to serve.
–
– We will also place continued priority on client retention
and increasing engagement in order to drive further
organic growth.
In our AM business, diversifying our client base will
remain a priority, while we will also continue to leverage
synergies with the GRS segment. Increasing return on
capital employed through an increased share of principal
and agency funding will remain a focus – this approach
to capital management will deliver further benefits as the
business grows.
– In the UK, we will continue to assess the current
economic and market conditions as part of an ongoing
strategic review.
– The RFS businesses will maintain vigilance with respect to
changes to the regulatory landscape and continue work to
ensure our products are market leading while maintaining
a very compliant, customer-centric focus.
In our newest business Plan Partners, building scale and
delivering growth through our leading value proposition in
a developing market will remain the highest priority.
–
I would like to acknowledge and thank Chief Executive Mike
Salisbury, the Executive and the wider MMS team for their
hard work in what has been a challenging year. To achieve
all they have in FY19 is a credit to them. That hard work is
particularly important this year given our dedicated focus
on equipping the Group for a bright future.
Tim Poole
Chairman
6
MMS Annual Report 2019
Chief Executive
Officer’s Report
I’m pleased to report that the MMS
Group’s performance in FY19 is a
good reflection of the strength of our
core offering during a year in which we
encountered a number of headwinds.
Strong organic growth in key revenue driving channels, the
retention of major clients, and an increase in assets under
management were particularly pleasing milestones for the
year. Our newest business, Plan Partners, delivered its first
profitable period, while our transformational Beyond 2020
program began to deliver a return on investment and drive
a reduction in our cost base.
Group UNPATA was $88.7 million, and while lower than the
prior year, it is nonetheless encouraging in the context of these
headwinds, which included economic, regulatory and political
factors. While our marketplace will always be competitive, we
are confident that our achievements this year leave us well
placed for FY20 and beyond.
The performance of our core GRS segment was pleasing
from an operational perspective, particularly as the Australian
new car market continued to underperform.
Both salary packages and novated leases grew notably
during the year, by 2.5% and 7.4% respectively. The increase
in salary packages reflected our commitment to value-added
customer engagement, lifting participation rates and attracting
new customers, while novated lease growth was in part
attributable to the Beyond 2020 program, primarily driven
through the commitment, focus and execution of our people.
7
In our AM segment, we continued our disciplined approach
to capital management, increasing our off balance sheet
funding to 18.0% of our overall portfolio, which drove further
improvement in our return on capital employed. The written
down value of assets under management across Australia
and New Zealand remained stable during the period.
In the UK, economic and market uncertainty has impacted
business and consumer confidence which has in turn created
soft trading conditions and led to a segment UNPATA of
$3.2 million, down from $5.7 million for the previous period.
In these market conditions there has been a fall in business
confidence and an increase in the number of insolvencies.
Regrettably, we have experienced this first hand through the
failure of Axis Fleet Management, which went into receivership
in the second half of FY19, resulting in a write down of
$3.7 million in our Net Profit After Tax (NPAT).
Regulatory change in our RFS segment has been a
constant for the past few years. Whilst this was again the
case in FY19, the under-performing car sales market was
an additional headwind for the business. Our aggregation
businesses nevertheless performed well, delivering a 16.4%
improvement in profit after tax. This is a quality performance
given the transition to the new ‘flex commissions’ environment
in November 2018, demonstrating the strength of the
relationships with our brokers and the importance of a
diversified lender panel.
Overall the RFS segment UNPATA was down 26% following
the closure of the Money Now retail finance businesses at
the end of FY18 and a continued lift in claim ratios in our risk
business as a result of proactive changes to product design,
including our dealer warranty product, underpinning an
increase in the level of net warranty claims paid during FY19.
Our newest business, Plan Partners, delivered a profit in
its first full year trading as a national organisation. We have
established a market leading position in what remains a
steadily growing market, while we have also created a
strong capacity for scale as the NDIS is rolled out.
The Group’s performance in the context of these market
factors is underpinned by our core strengths and our
commitment to customer service. Market-leading customer
service is, and will continue to be, an essential differentiator
as price-driven competition increases. In that sense, I thank
all our people for their continued hard work and dedication.
Segment performance
Against the backdrop of a highly competitive environment, our
GRS business performed well. Salary package and novated
lease units both increased, and a high client retention rate and
a series of new business wins were pleasing highlights that
leave us well positioned for FY20 and beyond.
Increased levels of customer salary package participation
were primarily driven by our customer engagement initiatives,
such as 21,627 on-site client education sessions delivered
by our teams over the course of the year. These sessions not
only drive increased participation but are a proven point of
competitive advantage.
A further focus during the period was to develop a better
understanding of customer needs and preferences in order
to deliver improved outcomes. This focus on an improved
value proposition allows us to tailor novated lease and
salary packaging benefits solutions to a customer’s specific
circumstances, which has played an important role in uplifting
sales conversions and customer growth.
The positive influence of these initiatives is reflected in our Net
Promoter Score, which increased to 52.9 on monthly average
(up from 49.1 in FY18), a world class result and well above the
sector benchmark. Customer satisfaction is also reflected in
improved Product Review ratings (on social media platforms)
for both Maxxia and RemServ at 4.3 and 4.4 respectively.
Segment performance was also supported by ongoing
investment in, and development of the Beyond 2020 program.
Mobile applications for both Maxxia and RemServ were
substantially enhanced during the period, primarily to increase
functionality and usability via this platform. This aligns with
our core goal of enabling customers to self-service via the
means of their choice, at their own convenience. This medium
is a key plank of our focus on enhancing our offering and
maintaining a market-leading level of customer service as
a distinct point of competitive difference.
8
MMS Annual Report 2019
Chief Executive
Officer’s Report
Our AM business, in Australia and New Zealand, reported a
UNPATA result of $14.0 million, down from $15.8 million in
FY18, together with a 5.5% decrease in total asset units under
management. It is worth noting the FY18 performance was
bolstered by early termination profits and therefore is not an
accurate reflection of the year-on-year performance. The FY19
result does reflect the highly competitive market place and the
lack of business confidence and commitment to invest in new
assets, the combination of which has led to an increase in the
number of vehicles in inertia. This results in a further aging
of our fleet and a delay in realising end of lease profits from
the sale of these assets.
We also continued to focus on leveraging synergies with the
GRS business through a trade-in program, which provides
novated lease customers with the option of returning their
end-of-lease vehicles to the AM business for remarketing
through the Just Honk retail car channel. This has the benefit
of providing a pipeline of quality stock to Just Honk, which
provides a customer focused end-of-lease solution that also
delivers a new revenue stream for the Group. The business
also undertook a refresh of digital systems and processes
aimed at improved customer service and process efficiencies.
Our commitment to increase the off-balance sheet funding
to around 30% of our assets continues, with $68.6 million
now funded through P&A arrangements, representing
18.0% of our book.
Our UK business has experienced a unique set of factors
including economic uncertainty and increased market
competition which impacted on market growth and margins.
The RFS segment operated in an environment influenced by
a soft retail vehicle market and ongoing regulatory change.
The aggregation businesses nevertheless performed well.
This was particularly pleasing given it followed significant
regulatory change – the removal of flex commissions in
November 2018. The result was driven by a strategic
focus on diversification of the lender panel and a growing
presence in the commercial asset market.
The declining retail car sales market presented a challenge
for our warranty and insurance businesses. The full extent
of implications arising from the Royal Commission and an
Australian Securities and Investment Commission (ASIC)
review into these products are still unclear. Nevertheless,
the business has taken proactive steps to further enhance
its offering through refreshed products and an increased
focus on sales penetration through franchise dealerships.
Pleasingly, our Plan Partners business delivered solid growth
in FY19 underpinned by significant expansion of our customer
base, resulting in an increase in the total value of client plans
under our administration, from $86.3 million in FY18 to
$268.9 million at year end.
The NDIS sector is still growing and the introduction of our
expertise in high volume transactions and funding allocation
administration has been critical to growth. Our investment
in technology, creating a more transparent and user-friendly
experience for participants and a more efficient experience
for providers, was also a strong driver of performance and this
focus will continue in FY20 and beyond. We have established
a market-leading position in this growing sector, aiming to
create scale and generate growth as we help empower
people with disabilities.
9
Beyond 2020 update
In FY18 we were pleased to announce the launch of the
Beyond 2020 program, as well as further investment in
our core business technology platforms.
With a multi-purpose aim of reducing cost and improving
sales conversion, whilst delivering an improved customer
experience, the program began to deliver results in FY19.
A significant achievement for the program in FY19 was the
successful implementation of a dedicated Motor Dealer
Portal, which was rolled out to over 540 preferred dealers
nationwide. This enables us to better track the performance
of our preferred dealer network, monitoring turnaround,
pricing, and win rate, allowing us to better understand and
leverage our network, ensuring both competitive pricing and
faster delivery timeframes. This initiative has contributed to the
increase in novated lease units for both Maxxia and RemServ.
Additionally, part of the aim of the Beyond 2020 program is to
deliver internal efficiencies through improved communications,
and a reduction in customer contact points through process
optimisation and the removal of manual tasks as appropriate.
During the year we introduced several robotic functions to
manage repetitive, high volume tasks, which to date have
completed over 150,000 requests, saving over 19,000
hours of manual processing. These enhancements, whilst
allowing us to redirect team members into other valuable
customer engagement initiatives, have delivered productivity
improvements to the business that have enabled us to
reduce the cost to serve.
Beyond 2020 is a three-year transformational program
that continues in FY20.
In conclusion, I would like to thank the Board for its
commitment and to acknowledge the hard work and
dedication of the MMS team, across all our locations in what
has been a difficult, but at the same time encouraging year.
While the market continues to present numerous challenges,
our teams are hard at work as we prepare the Group for
a profitable future.
Mike Salisbury
Managing Director and Chief Executive Officer
10
MMS Annual Report 2019
McMillan Shakespeare –
Driven by our people
The McMillan Shakespeare Group is made up
of a highly diverse and committed workforce
of more than 1,300 people across Australia,
New Zealand and the United Kingdom.
The Group’s growth in recent years is a direct reflection of
the hard work and talent of our people, and importantly their
drive to succeed. As we continue to grow as a business, our
ongoing investment in the development, growth and wellbeing
of our people remains critical. We cannot achieve one without
the other.
This investment forms part of our focus on the environment
in which we operate, the sustainability of our products and
services and ensuring appropriate levels of governance
are embedded across the organisation. We recognise the
responsibility we have to the communities in which we
operate, and ensuring MMS is a healthy and positive place
to work. Our priority is to cultivate an environment in which
our team members are engaged, empowered and given
every opportunity to be the very best they can be.
The Group had a very positive year in FY19 in terms of staff
engagement and empowerment. Our challenge remains
to continue to focus on the development, enablement and
wellbeing of our team as they lead us forward in future years.
Learning and Development
During FY19 part of our investment in people was reflected
in the implementation of a new Learning Management System
(LMS), which enables us to develop tailored professional
development opportunities to the needs of our employees
and leaders.
Our people participated in more than 43,000 hours of
specialised learning and development programs during the
period, a record number for the Group. This included 177
leaders completing one or more leadership development
related programs.
Pleasingly, the number of employees who experienced a
new internal role/career opportunity as a result of promotion,
secondment, appointment or transfer, totalled 280 during
the year, 56% of whom were female, representing 21% of
the Group’s workforce. This result stands testament to the
quality of our people and strength of our learning programs.
11
Employee Engagement
During FY19 we conducted our biennial Employee
Engagement Survey, which showed a significant
improvement across all aspects of the employee experience.
Our Sustainable Engagement score of 79% represented a 3%
increase on our 2017 result, and most pleasingly represents
an employee experience that is more positive than for
employees in other Australian and Global Financial Services
companies in most areas.
This upward trend was consistent across all business units,
demonstrating that our people feel involved, engaged and
well supported, which positions us well to achieve even
better business and customer outcomes.
Also pleasing was that we achieved a very high level of
participation, with 86% of our employees completing the
survey, demonstrating their level of engagement and trust in
the organisation to ultimately act on the feedback provided.
Key survey findings included:
– Our people are inspired, feel connected to the purpose
of the Group, and are optimistic about their roles and
the future of the business;
– Our people feel they are working in a constructive
environment where they are valued and given the
opportunity to excel and develop at both a personal
and professional level; and
– The Group improved in areas that we know matter to
high performance, such as values, positive working
relationships, and a connection to leaders across the
company who are focused and caring.
The survey also identified areas for improvement which
will be a focus for the Group in FY20 and beyond.
Empowerment
Other people-focused initiatives and policies that
progressed in FY19 included:
– WorkDay and LearnLab – the introduction of intuitive,
cloud-based systems which enable team members
to manage their own working experience, including
applying for and reviewing leave, applying for internal
job opportunities, communicating with other employees
and managers, and accessing a broad suite of
learning programs.
– Workplace volunteering – our teams are encouraged
to contribute to charitable causes through our workplace
volunteering program. In FY19 our teams provided
volunteer support to a range of causes, including
Greenfleet tree-planting in northern Sydney, assistance
to the Royal Flying Doctors service in Queensland and
support of the Salvation Army in Western Australia.
Driving What’s Possible Hero Awards
Driving What’s Possible, launched in 2015, is the Group’s
‘Why’, the reason why the organisation exists for its
customers and people. It provides the Group with a long
term vision, purpose, position and values, supporting day-
to-day actions and decision making, ultimately providing a
platform to drive future engagement, growth and value.
Each year, employees are given the opportunity to recognise
and reward colleagues who embody the Group’s values and
go above and beyond in their contribution to the Group.
Providing opportunities for peer recognition allows team
members to show support for each other and celebrate
the pride in putting the customer at the heart of all that we
do which is central to our positive culture and fostering a
workplace where people can thrive.
Across the period, the Group received a record 101
nominations from team members, with four employees
receiving a Hero Award for their contribution and commitment.
12
MMS Annual Report 2019
Financial History
Revenue
performance
s
n
o
i
l
l
i
m
$
s
n
o
i
l
l
i
m
$
s
n
o
i
l
l
i
m
$
NPAT performance1
UNPATA performance4
1.4
92.5
243.7
1.3
80.7
245.8
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
0.4
54.1
1.0
38.9
0.8
1.3
65.8
76.0
92.1
111.6
137.3
155.9
157.2
176.1
188.3
189.7
207.8
221.9
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
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
63.7
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY172 FY183
FY19
NPAT continuing operations
Profit recognised on ILA business
combination (acquisition gain)
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
88.7
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
NPAT continuing operations Profit recognised on ILA business combination (acquisition gain)
13
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
107.3
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
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
74.0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
1 NPAT is normalised to exclude the profit recognised on acquisition of Interleasing (Australia) Limited in
FY10 ($17m profit after tax).
2
3
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.
4 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. FY19 UNPATA excludes one-off provision for a UK contract
of $3.7m (post tax).
5 Underlying EPS is UNPATA divided by the weighted average number of MMS shares in the respective year.
NPAT continuing operations Profit recognised on ILA business combination (acquisition gain) 14
14
MMS Annual Report 2019
Key Metrics
Our Customers
343,100
Salary packages
Up 2.5%
68,000
Novated leases
Up 7.4%
45,100
Asset pool (units)
Up 5.4%
$500m
Assets managed (WDV)1
$2,950m
Net amount financed
Down 3.9%
Up 3.5%
$269m
Plan partners client funds
under administration
Up over 100%
52.9
Industry leading Net
Promoter Score (NPS)
Average monthly score during FY19
99%
Customer
complaints resolved
By MMS and our Customer
Advocate without referral to
an external complaints authority
86%
Online claims take up rate
At 30 June 2019
MMS Annual Report 2019 1515
Our People
Our Environment2
1,334.7
Employees (FTE) MMS Group
At 30 June 2019
3.2%
% reduction in greenhouse emissions
from the Company’s car fleet
(YOY reduction)
79
Employee Engagement Score. High
performance work environment ranking
7.9%
% reduction in greenhouse emissions
from electricity
2019 survey result (survey biennial)
(YOY reduction) (tonnes CO2 per FTE)
43,049
Staff training & development hours
1 Written Down Value (WDV) inclusive of on and off balance sheet funding
2 Australian operations
Note: Movements compared to prior corresponding period
Carbon Neutral
Carbon neutrality
(net zero carbon footprint)
Achieved from the offset of 100% of CO2 emissions
caused by the production of printed material
16
MMS Annual Report 2019
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
2019 (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)
Mr Mike Salisbury (Managing Director and CEO)
Ms Sue Dahn retired as Independent Non-Executive
Director on 30 September 2018
Ms Helen Kurincic was appointed to the position
of Independent Non-Executive Director effective
15 September 2018.
Details of the qualifications, experience and special
responsibilities of the Directors at the date of this Annual
Report are set out on pages 28 and 29.
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 2019.
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 2019
were as indicated in the table to the right.
Principal activities
The principal activities of the Company and its controlled
entities during the course of the financial year ended 30
June 2019 were the provision of salary packaging, novated
leasing, asset management and related financial products
and 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 2019 that are not otherwise disclosed in
this Annual Report.
17
Directors’ meetings
Director
Mr T Poole
(Chairman)
Mr M. Salisbury
(Managing Director and CEO)
Mr J. Bennetts
Mr R. Chessari
Mr I. Elliot
Ms S. Dahn
Ms H. Kurincic
Board Meetings
Audit, Risk & Compliance
Committee Meetings
Remuneration & Nomination
Committee Meetings
Eligible to
Attend
Attended
Eligible to
Attend
Attended
Eligible to
Attend
Attended
34
34
34
34
34
5
30
34
34
30
33
31
4
29
10
10
10
3
7
8
3
7
6
6
6
5
6
6
6
5
Results
Details of the results for the financial year ended 30 June 2019 are as follows:
Results
2019
2018
Net profit after income tax (NPAT) attributable
to owners of the Company
$63,672,478
$50,302,815
Underlying Net profit after income tax (UNPATA)1
$88,696,719
$93,518,774
Basic earnings per share (EPS)
Underlying earnings per share
Earnings per share on a diluted basis (DPS)
77.0 cents
107.3 cents
76.4 cents
60.9 cents
113.2 cents
60.6 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. FY19 UNPATA excludes one-off provision for a UK
contract of $3.7m (post tax).
Dividends
Details of dividends paid by the Company during the financial year ended 30 June 2019 are as follows:
Dividends
2019
2018
Final dividend for the financial year ended 30 June
2018 of 40.0 cents (2017: 35.0 cents) per ordinary
share paid on 28 September 2018 fully franked
at the tax rate of 30% (2017: 30%).
Interim dividend for the financial year ended 30
June 2019 of 34.0 cents (2018: 33.0 cents) per
ordinary share paid on 22 March 2019 fully franked
at the tax rate of 30% (2018: 30%).
$33,066,636
$28,938,343
$28,106,641
$27,278,654
Total
$61,173,277
$56,216,997
Subsequent to the financial year ended 30 June 2019, 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 11 September 2019, bringing the total dividend to be paid for the financial
year ended 30 June 2019 to 74.0 cents per ordinary share.
18
MMS Annual Report 2019
Directors’ Report
Review of operations – Group
The MMS Group delivered a sound performance in FY19,
pleasing in the context of a challenging operating environment,
punctuated by difficult trading conditions and a highly
competitive market place more broadly.
Across the Group, we continued to focus on enhancing our
value proposition, leveraging scale and pursuing our strategic
growth priorities with a view to creating a sustainable platform
for future growth.
In the AM AU/NZ business, P&A funding increased during
the period by 69.4% to $68.6 million, as our disciplined
approach to capital management continued. Segment
UNPATA reduced to $14.0 million, which again reflected the
competitive market place and the soft vehicle market more
broadly. The performance of our vehicle remarketing team
was pleasing with average returns at or ahead of budget,
the only limitation being the increase in vehicle inertia from
clients electing to extend existing leases over replacing
with new assets.
Return on equity (ROE) was 23.3% and ROCE was 21.2%.
In the GRS business, we achieved record sales results for
both salary packaging and novated leases, reflecting the
impact of both the Beyond 2020 program and our continued
focus on targeted customer engagement.
Earnings before interest, tax, depreciation and amortisation
(EBITDA) increased to $102.6 million, up 5.8%. This in part
reflected an accelerated operational expenditure of $3.1
million during the period in the Beyond 2020 program,
which has begun to deliver a return on investment, in
terms of cost efficiencies, enhanced customer service
and revenue generation.
One of the Beyond 2020 program’s most significant
influences, with respect to operational efficiency during
the year, was the introduction of a dedicated Dealer Portal.
This enables us to better track the performance of our
preferred dealer network, tracking turnaround, pricing and
win rate, thereby ensuring both competitive pricing and faster
delivery timeframes. This initiative has contributed to the
increase in novated lease units for both Maxxia and RemServ.
In the UK, despite recording organic growth through new
client wins, segment UNPATA for the period was $3.2 million,
reflecting the struggling domestic new car sales market and
reduced business confidence.
The RFS segment was led by another strong performance
from our aggregation business which has adapted well
following the implementation of the new flex commission
regulations.
The retail business focused on the redesign and redistribution
of warranty and insurance products with an increased
emphasis on penetration through franchise dealerships.
This initiative was supported by the launch of a dedicated
Presidian retail brand in order to create distinct market
differentiation between the two warranty and insurance
product offerings. Enhancements to our warranty and add-on
insurance products were introduced during the period, with
further new products expected to be introduced in FY20.
19
Key highlights and activities
$549.7m
Group revenue
– Group revenue of $549.7 million,
an increase of 0.8%
– Group FY19 UNPATA of $88.7 million
– Group vehicle assets under
management including novated totalled
113,100 units as at 30 June 2019
– Strong organic growth rates in salary
packaging and novated leasing
– Plan Partners recorded its first
profitable year
The segment continued to operate against a backdrop
of regulatory uncertainty, with implications from the Royal
Commission still not fully understood at the time of writing.
UNPATA was $6.4 million, a reduction from FY18, which
reflected weak conditions in the retail car market.
Our Plan Partners business delivered its first profitable period.
The result was driven by significant growth of our customer
base, and the expansion of our provider network. Building
scale in the still developing NDIS market is a priority and
the introduction of new technology to increase efficiency
has contributed to the establishment of our market leading
position. Awareness within the sector of the value of plan
management services is still relatively low, presenting an
opportunity to grow market share through sector education
and marketing initiatives that support our value proposition.
State of affairs
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 2019 that are not otherwise disclosed in
this Annual Report.
20
MMS Annual Report 2019
Directors’ Report
Outlook
Ongoing investments in the upgrade of core technology
platforms and the Beyond 2020 program (FY19 to FY21),
will continue in FY20 and are expected to further reduce
costs and increase sales outcomes, beyond what the
program delivered in FY19. We expect organic growth
opportunities to present, following a series of new client wins
during the second half of FY19, which will be well supported
by ongoing implementation of the Beyond 2020 program.
In the AM business, retaining our existing customers and
further diversification of our customer base will remain a key
focus, with an emphasis on leveraging existing relationships
held by the broader Group. Improving our return on capital
through increased share of P&A funding will continue.
Strategy and prospects
The Group’s strategic direction remains focused on
systematically reducing our cost to serve while simultaneously
growing revenue. Additionally, reviewing our products and
practices to ensure they remain compelling and market
leading is an important priority, particularly as the regulatory
environment in which we operate continues to evolve at speed.
This includes continuing our program of digital innovations
and long-term investment in technology across core sales
and operating platforms in the GRS business, driving organic
growth from new and existing clients. In the AM business,
continued disciplined balance sheet management, the
diversification of our customer base and an increase in
remarketing activity will remain key priorities.
A strategic review of the UK business is underway to
determine whether our existing strategy continues to
best address this opportunity.
For Plan Partners, we will continue to focus on growing our
market share and increasing profitability as the leading service
provider in plan management.
In the RFS segment, we continue to focus on improved
product design. As various proposed regulatory reforms
remain pending, we continue to actively engage with
regulators. Increasing penetration of both warranty and
insurance products through franchise dealerships will
continue as an important initiative.
In the finance aggregation business, we will focus on
further developing relationships with lenders and broker
partners and explore opportunities to add further diversity
to our lender panel.
The focus for Plan Partners is to continue to build scale and
profit growth through our investment in digital enhancements
to create a market-leading customer experience, and
strategic marketing initiatives aimed at increasing referrals
and raising awareness of the value of private sector plan
management services.
Our disciplined approach to capital management has resulted
in surplus capital and excess franking credits. The MMS Board
will consider the best uses for this capital, including further
acquisitions and other capital management initiatives.
Events subsequent to balance date
On 21 August 2019 MMS announced its intention to return
around $80 million to shareholders through an off-market
ordinary share buy-back (Buy-Back). The Buy-Back will be
funded from existing cash. MMS will maintain a strong
balance sheet following the Buy-Back.
Details about the Buy-Back will be contained in a Buy-Back
booklet, including shareholders’ eligibility and the tender
process. The booklet is expected to be released on 28 August
2019 and will be sent to shareholders shortly after that date.
The Record Date will be Thursday, 29 August 2019.
Likely developments
Other than information disclosed in this Annual Report,
there are no other material likely developments affecting
the operations of the Group.
21
Group Remuneration
Services
Group Remuneration Services
The GRS business performed well in the face of a challenging
operating environment in FY19, with revenue of $221.9 million
representing an increase of 6.8% from FY18, while UNPATA
increased by 3.1% to $66.1 million.
New client wins and a strong client retention rate were
significant highlights for the year, and are central to the
establishment of a platform for future growth.
This financial performance is pleasing, given weak consumer
sentiment in the domestic economy has driven a steady
decline in new car registrations in Australia over the past
15 months, in a market characterised by traditionally high
levels of competition.
While revenue growth was lower than expected, the segment
delivered a strong operational performance, reflecting our
ongoing focus on improving the customer experience and
creating operational efficiencies. Increased participation
rates, driven by focused customer engagement activities,
contributed to the salary package growth, while an increase
in novated lease conversions was attributable to our
investment in enhanced digital platforms and the expertise
and commitment of our people.
With respect to client retention, both Maxxia and RemServ
successfully renewed key contracts with several major public
and private clients, for extended periods.
These renewals also complemented several mid-sized client wins.
We were very pleased to kickstart our FY20 with a significant
new contract win in Victoria, signing Melbourne Health –
a major new cornerstone client in the public healthcare
sector. This client will add more than 7,500 salary packages
to Maxxia from 1 July 2019, with scope for further organic
growth. In New South Wales (NSW), Maxxia retained several
key private sector clients, and was also appointed to the
NSW Health Novated Lease Panel, offering access to
more than 130,000 public sector staff.
In Queensland, RemServ delivered strong year-on-year
growth, and successfully renewed both the Queensland
Government salary packaging and novated leasing contracts
for a further two years.
Western Australia, South Australia and Tasmania all recorded
valuable new business wins.
Our commercial capability and solid industry reputation
for delivering realised value to clients were key contributing
factors to the strong retention rate, the increased participation
rate, and the new contracts wins.
This strong operational performance, combined with our
continuing investment in enhancing our digital capability and
improving the customer experience, helped to consolidate
our market-leading position. The focus continued to be on
creating a strong point of product value and differentiation,
and a sound platform for sustainable and flexible future
growth in a competitive marketplace punctuated by
challenging trading conditions.
Beyond 2020 update – Accelerated
investment driving performance improvements
As indicated in FY18, Beyond 2020 is one of the largest
transformation programs the Group has undertaken.
The program aims to deliver a two-fold impact - reduce
operational costs through enhancing the customer and
employee experience, while at the same time improving
our sales performance. It is also designed to create a sales
environment that allows us to nimbly meet future
technological change and build scale into our operations.
During FY19, this program started to provide efficiencies with
regard to segment operating cost while delivering increases
in efficiency through enhanced digital capabilities.
This was reflected in further increases to the take-up of online
claims (for both salary packages and novated leases), with
Maxxia reaching 92%, up from 90% in FY18, while RemServ
increased to 74%, up from 68% on the previous year.
Cost reduction initiatives included the implementation of
automated processes and robotics to handle more than
ten high volume, repetitive, rules-based processes and
administration tasks that were previously performed manually.
This enables our teams to focus on more value-added
customer engagement activities. Performance figures to date
demonstrate that the robotic functions perform these tasks
up to three times faster and with 100% accuracy.
22
MMS Annual Report 2019
Group Remuneration
Services
Both the Maxxia and RemServ mobile applications were
enhanced during the period. The upgrade provides customers
with additional functionality and information to self-serve their
accounts, while improvements to activity reporting were also
enabled. This has the dual benefit of an improved customer
experience and a further reduction in manual handling.
As of June 2019, app users for both Maxxia and RemServ
totalled more than 130,000.
The impact of these improved customer experience initiatives
is reflected in our Net Promoter Score, which increased to a
monthly average of 52.9, up from 49.1 in FY18, which is well
above the industry benchmark. Customer satisfaction is also
reflected in increased social media ratings.
Other implementation highlights for FY19 included the
introduction of Interactive Voice Response (IVR) technology
to the Maxxia switchboard, delivering a more efficient
customer experience through automation.
These elements of the program are designed solely to
increase flexibility for customers and allow them to self-serve
through the platform of their choice, at their own convenience.
Ultimately, while this performance from an operational
perspective was robust, competition has placed downward
pressure on margins. As such our investment in technology in
order to reduce costs and increase efficiency remains critically
important, aligned with adopting a customer-centric approach
to all our activity.
Plan Partners
Our newest business, Plan Partners, delivered its first
profitable period in FY19.
Formed in 2016, Plan Partners leverages existing
competencies of the GRS segment – including management
of large volumes of financial transactions, and existing
relationships in the disability and not-for-profit sector –
to provide plan management and support coordination
services to participants of the NDIS.
The achievement of the business’ inaugural profit is
particularly pleasing, delivered in what is still an emerging
market as the NDIS rollout progresses and reflects the
emphasis the business has placed on building scale and
creating a market-leading value proposition.
The MMS Board has maintained the view that NDIS
participants should be given every opportunity to extract
full value from their plan entitlement, and creating a service
that delivers that outcome has been a key priority.
The FY19 performance was driven in part by the completion
of our national expansion, following receipt of our NDIS
registration in Western Australia.
Central to the business’ capacity for scale and the creation
of a market-leading value proposition has been an investment
in technology that significantly improves the level of customer
experience the sector had traditionally been accustomed to.
These strategic priorities will enable further enhancements
to the way we operate and continually improve the customer
experience. In an increasingly competitive marketplace,
delivering realised client value and maintaining a high level
of customer service remain central to future growth.
Implementation of these systems progressed well in FY19
and pursuing further enhancements and improving customer
experience remain key priorities as we aim to deliver further
efficiencies, improve the customer value proposition, and
build further scale.
In terms of segment outlook, progression of the Beyond
2020 program will remain a priority for FY20, with a focus
on cost reduction and efficiency improvements. Increasing
participation among existing clients while targeting new
business opportunities will also remain a key focus.
These technological enhancements involved the
implementation of a range of self-service tools in our
Customer and Service Provider Self-Service Dashboards -
designed to improve both ease of access to, and the
quality of, user information. This ultimately provides a greater
degree of transparency for our customers, empowering
them with a greater degree of choice and control of their
plan management finances.
Additionally, these tools create a more efficient experience
for providers and drive operational efficiencies through a
reduction in manual processing workloads.
Raising awareness of the value of private sector involvement
in plan management services for NDIS participants is equally
important in driving further business growth, with strategic
marketing and sector education initiatives undertaken
during the year.
In terms of outlook, the focus for FY20 will be to drive further
growth through scale and increase efficiency through ongoing
development of digital systems in order to create profit and
deliver shareholder return.
The business will also actively explore opportunities to
accelerate growth through market consolidation in FY20-21.
23
Key highlights and activities
343,100
Salary packages
68,000
Novated leases
Group Remuneration Services
– Increased salary packaging units to
343,100 and novated leases to 68,000
– Contract renewal of several major clients
for extended periods, and the signing
of Melbourne Health, a significant new
public healthcare client
– Strong organic growth via improved
customer engagement rates
$268.9m
Client plans
under administration
Plan Partners
– Inaugural profit achieved during the period;
recording UNPATA of $0.58 million
– National expansion completed with
significant new client growth and our
provider network increasing to above
10,000 providers
– Increase in the value of client plans
under administration to $268.9 million
24
MMS Annual Report 2019
Asset
Management
Asset Management – AU/NZ
The total written down value (WDV) of assets increased by
0.9% to $380.2 million during the period, whilst the number of
units under management decreased by 5.5% to 20,600 units.
Segment UNPATA of $14.0 million represented a decrease
on FY18 (which was bolstered by early termination profits).
The FY19 result reflects a highly competitive marketplace,
a fall in business confidence driving an increase in contract
extensions, resulting in delayed end of contract income.
ROCE improved as a result of increased principal and
agency funding – a capital management approach which
commenced during FY17.
In the face of an ongoing competitive marketplace, diversifying
our customer base became an increasing strategic priority
for the year. Encouragingly, this led to an increase in new
business from the previous period, including several new
client wins within the Group’s core customer segment, which
leverage existing relationships held by the GRS and Plan
Partners businesses. These clients have volume requirements
that are well suited to our core capability. Promoting the
strength of our product offering in this sector will remain a
focus for the business.
Several technological enhancements were implemented
during the period in order to create a more efficient customer
experience. These included a new Trade-In Platform that
allows novated lease consultants to assist GRS customers
to quickly organise a trade in value on their vehicle.
This strengthens cross-sell opportunities with our GRS
business and creates a platform for further scale.
Additionally, technological enhancements designed to improve
operational efficiency were introduced during the period.
These included an upgrade to our operating system and
the implementation of an ‘In-Life Services Dashboard’, which
provides ‘real-time’ data to customers, enabling more efficient
fleet management. These enhancements also help to create
operational efficiencies for our team members by reducing
processing workloads.
Our NZ business performed strongly in FY19 achieving a
40.0% increase in total fleet size by maintaining its strong
new business focus in the small-to-medium enterprise market.
A new operating system is being implemented, which provides
additional sales force effectiveness to sustain a growth
outlook for FY20.
A second Just Honk retail car yard was opened on the
NSW Central Coast during the year. Despite a soft used
vehicle sales market, this channel has performed soundly,
representing strong cross-sell and remarketing synergies
with the GRS business through our trade-in program
offered to novated lease customers. The returned end-of-
lease vehicles are then remarketed through the Just Honk
retail channel, providing a consistent pipeline of quality
stock to the dealership, additional to the return of assets
from our fleet management business.
The equipment finance business within the segment had
another strong year, with solid organic growth, particularly
in the wheeled equipment sector, delivering pleasing
new business.
In terms of outlook, our focus for FY20 will be to maintain
momentum in winning new clients with requirement for
fleet management services and pursuing further cross-sell
opportunities within the GRS business. Increasing ROCE
through an increased share of P&A funding will remain a
key priority.
25
Key highlights and activities
$500.0m
Fleet asset (WDV)
Asset Management – AU/NZ
– Fleet asset WDV stable of $380.2
million as at 30 June 2019
– Continued progression towards off
balance sheet funding, accounting
for 18.0% of the total asset value,
increasing by 81% during the period
– Diversification of customer base led to
new client wins in the not-for-profit sector
– Equipment finance opportunities
gaining momentum
11.3%
NAF increase
Asset Management – UK
– Fleet asset WDV of $118.1 million
as at 30 June 2019
– FY19 UNPATA of $3.2 million
– Challenging UK market conditions
– Achieved strong NAF increase of 11.3%
over the prior period to $986.9 million
Asset Management and
Finance Broking – UK
While the foundational platform established in the UK over the
past few years has the business well positioned as a top five
provider of asset finance and saw the business experience a
4.1% uplift in revenue during the year to $63.9 million, FY19’s
performance was impacted by a combination of external
factors which placed further pressure on margins.
Consumer sentiment in the UK new car market remained
subdued, impacting business investment appetite, and
subsequently, our volumes during the period, with fleet
registrations more heavily impacted than the wider
consumer market.
Ultimately these factors affected our ability to achieve
the asset finance volumes expected, and together with an
increased investment in people in order to further expand
our broking network across new regions, impacted
overall profitability.
We were pleased during the year to introduce into the
business a new customer relationship management platform,
enabling facilitation of a more structured customer contact
program using a combination of resources (people) and
communication tools, and providing for enhanced data
analytics and customer segmentation.
A portfolio sell down of $165.8 million during the year in order
to release capital led to an 18.0% decrease in the written
down value of assets under management to $118.1 million
as at 30 June 2019, while pleasingly net amount financed
increased to $986.9 million from $886.5 million in FY18.
26
MMS Annual Report 2019
Retail Financial
Services
Retail Financial Services
Both the retail and aggregation businesses focused on
enhancing their value proposition and product offering
during the year, in the face of softer economic conditions
and regulatory challenges.
Retail/Risk
The risk product business operated in a difficult trading
environment, as the downturn in the motor vehicle industry
impacted on volumes, and a combination of regulatory and
economic factors created headwinds.
In the context of a changing regulatory environment, the
business implemented further enhancements to the design
and distribution of a number of its products during the year.
Operationally, a focus on increasing sales penetration through
franchise dealerships was a priority during the period, with
these channels representing a greater volume of stock,
and potential for improved margins, in the current trading
environment. This will remain a focus in FY20.
In November 2018, the business launched a new Presidian
retail brand designed to create a clearer brand differentiation
between franchise and independent used vehicle dealerships.
Introduction of the new brand coincided with the appointment
by the business of a new underwriter offering enhanced value.
From a regulatory perspective, the business will continue to
monitor and actively prepare for several potential reforms
following the Royal Commission. These include a proposed
deferred sales model, and the removal of the Point of Sale
Exemption for car dealers.
Additionally, ASIC launched a review of point-of-sale
add-on products during the year, the outcomes of which
are not known in the short term. As part of our focus on
enhancing our product offering, we have been actively
engaged with ASIC, as we look to drive positive change in
the sector and maintain our commitment to delivering
market-leading products.
To this end, the redesign of our risk products during the year
including of our dealer warranty product, underpinned an
18.0% increase to $13.1 million in the level of net warranty
claims paid during FY19.
The segment is also subject to the outcome of a class action
claim brought against our warranty business. The claim
concerns the Davantage Group Pty Ltd (a subsidiary of
Presidian Holdings Pty Ltd which was acquired by the MMS
Group in 2015) and relates to allegations concerning warranty
products sold by Davantage Group (trading as NWC) between
1 July 2013 and 28 May 2015. The proceedings are being
vigorously defended.
Aggregation
The aggregation business delivered a strong performance in
FY19, delivering increases in NAF of 5.1% and UNPATA of
16.4% above the previous year.
During the period our two aggregation brands - National
Finance Choice (NFC) and United Financial Services (UFS)
- updated their look and identity under new branding, now
presenting as NFC Aggregation and UFS Aggregation.
This change aligns NFC and UFS in the way the business
presents the aggregation business to brokers, lenders and the
wider market. To support and promote these changes, the
NFC Aggregation digital presence was updated, ushering in
a new phase for NFC online, with mobile friendly navigation,
search engine optimisation, an updated visual identity, and
a significantly improved user experience.
27
Key highlights and activities
The business performance during the year was particularly
pleasing, given it was delivered following one of the most
significant changes in the asset finance industry in the last
decade, with the removal of flex commissions from November
2018. Uncertainty resulting from the Royal Commission also
affected sentiment in the finance broker segment and the
period saw the withdrawal from the broker market of a large
traditional lender.
Strategic management of, and continuing strong partnership-
based relationships with, our large and diverse panel of
lenders continued to be a foundation of the business’ result
for the period. A number of new lenders joined our panel in
the period, providing our brokers with an even greater breadth
and depth of secured and unsecured lending products for
both consumers and commercial entities. With the increased
focus on diversification by our brokers, we saw continued
growth in commercial loans introduced by our broker network.
During the period, a significant number of finance brokers
also chose to join the NFC-UFS Aggregation community -
a pleasing result given the relative high levels of competition
in the aggregation market, particularly in the second half
of the period.
Regulatory update
The business awaits further details on how and when
recommendations from the Royal Commission will be
implemented. Recommendations that may have relevance to
the aggregation business include the proposed removal of the
NCCP Point of Sale Exemption, and any changes which may
flow from ASIC’s review of Responsible Lending (RG209).
This evolving regulatory environment will continue to be
monitored closely to ensure that the business is able to
respond appropriately during FY20 and beyond. As part of
this approach, the business is actively involved as a member
of The Australian Finance Industry Association (AFIA), the
Finance Brokers’ Association (FBAA) and the Commercial
and Asset Finance Brokers’ Association (CAFBA).
$1,033m
Net amount financed
– FY19 UNPATA of $6.4 million, down
from the previous year’s $8.6 million
– Segment continues to operate with
market and regulatory uncertainty
– Aggregation business performed
well despite challenging conditions
– Net amount financed of $1,033.2
million in FY19, a decrease of 2.7%
from $1,061.5 million in FY18
– Net claims paid increased 18%
to $13.1 million
28
MMS Annual Report 2019
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
Acting Chairman of the Audit,
Risk & Compliance Committee
Member of the Remuneration
& Nomination Committee
Mike Salisbury MBA
Appointed
1 October 2014
(as Chief Executive Officer),
5 February 2015
(as Managing Director)
Positions
Managing Director &
Chief Executive Officer
John Bennetts B Ec, LLB
Appointed
1 December 2003
Positions
Non-Executive Director
Member of the Audit,
Risk & Compliance Committee
Mr Poole is currently Chairman of Aurizon Holdings
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 Lifestyle Communities
Limited, Newcrest Mining Limited and Japara
Healthcare Limited. Mr Poole is considered an
independent director under the Company’s
definition of independence.
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.
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. Mr Bennetts is a Non-Executive Director of
Sacred Heart Mission and also of Culture is Life.
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
& 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.
29
Ian Elliot
Appointed
27 May 2014
Positions
Non-Executive Director
Chairman of the Remuneration
& Nomination Committee
Mr Elliot is Chairman of the Dry July Foundation.
Formerly, Mr Elliot was Non-Executive Chairman
of Impelus Limited (2017-2018) and 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.
Helen Kurincic
MBA, FAICD
Appointed
15 September 2018
Positions
Non-Executive Director
Member of the Audit,
Risk & Compliance Committee
Member of the Remuneration
& Nomination Committee
Ms Kurincic is Non-Executive Chair of Integral Diagnostics
Limited, Non-Executive Director of Estia Health Limited
and HBF Health Limited. Formerly, Ms Kurincic was the
Chief Operating Officer and Director of Genesis Care from
its earliest inception, creating and developing the first and
largest radiation oncology and cardiology business across
Australia. She has also formerly held Board roles across
the publicly listed, private, not-for-profit and government
sectors as well as being the former CEO of Benetas
and Heart Care Victoria. Ms Kurincic is a Fellow of the
Australian Institute of Company Directors. Ms Kurincic
is considered an independent director under the
Company’s definition of independence.
Mark Blackburn
Dip Bus (Acct), CPA, GAICD
Appointed
26 October 2011
Positions
Chief Financial Officer
& Company Secretary
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.
30
MMS Annual Report 2019
Remuneration
Report (Audited)
The Remuneration and Nomination Committee
(RNC) of McMillan Shakespeare Limited
(the Company or MMS) is pleased to present
the 2019 Remuneration Report (Report).
During FY19, the Company was pleased to announce
the appointment of a new Non-Executive Director of the
Company, Ms Helen Kurincic. Ms Kurincic is a highly
experienced executive and Director of both ASX listed and
unlisted companies and brings a deep understanding of the
health, government and not-for-profit sectors to our Board.
Finally, in response to stakeholder feedback, we
have sought to simplify how we explain our executive
remuneration framework and practices in this year’s Report.
We welcome your feedback.
Executive Summary
At MMS, we are committed to achieving long-term,
sustainable returns for our shareholders by leveraging
scale, introducing new technology and pursuing value-
accretive, strategic growth opportunities to cement our
leading market position in a rapidly changing landscape.
The RNC and Board of the Company are committed to
ensuring our executive remuneration framework remains
fit-for-purpose going forward. As disclosed in last year’s
Remuneration Report, the RNC undertook a comprehensive
review of our executive remuneration framework during FY17.
As a result of this review, we ceased paying short-term
incentives to our Executive KMP from FY18, with variable
reward delivered wholly under our long term incentive program
(LTIP) comprising annual grants of performance tested equity.
We also introduced a minimum shareholding requirement for
all KMP to provide additional alignment with shareholders.
The Board is satisfied our current structure (detailed
throughout this Report) is market competitive and encourages
our Executives to focus on long term sustainable performance
and health of business in the interests of our shareholders and
other key stakeholders including our customers and people.
Remuneration Report (Audited) 31
Alignment Between
Performance and Remuneration
What did the Company achieve?
FY18 Grants -
2 and 3 Year Performance LTIP
Metric
Average ROCE in the period
FY18 and FY19 (inclusive)
FY171
FY18
FY19
Metric
Achieved
Vesting
Target
Met
Minimum
Vesting
Target
20.6%
ROCE - excluding impairment charges and
FY19 UK contract loss
ROCE - including impairment charges and FY19
UK contract loss
Underlying EPS CAGR in the
period FY18 and FY19
6.0%
Underlying EPS - excluding impairment charges
and FY19 UK contract loss
Underlying EPS - including impairment charges
and FY19 UK contract loss
N/A
20.0%
21.2%
20.6%
Yes
N/A
13.6%
17.7%
15.7%
No
104.8
113.2
107.3
1.2%
86.3
61.6
80.8
(3.2%)
No
No
1 FY17 is the base year for Underlying EPS metric calculation only and does not apply to the ROCE calculation.
The LTIP metrics for vesting of options and rights is based on performance including impairment charges and FY19 UK
contract loss. Accordingly, the performance hurdles have not been satisfied and no performance options or rights are
likely to vest in respect of the FY18 two year LTIP. In respect of the FY18 three year LTIP, based on performance for the
two years ended FY19, it is unlikely that the performance hurdles will be satisfied and any of the performance options or
rights will vest.
What did Executives receive?
– The Company does not pay short-term incentives to its KMP and no LTIP grants vested with Executive KMP during FY19.
– As disclosed in last year’s Report, 55% of the legacy FY15 LTIP options (tested against underlying EPS targets) vested
in FY18. These options came off a holding lock and became exercisable on 31 August 2018, subject to payment of
a strike price of $10.18 (refer section 4(d) for further detail). No FY15 Performance Options were exercised by KMP
during FY19 (refer section 7 for further detail).
Other remuneration changes
– Fixed annual remuneration increases of 2.5% were made in FY19 for the Executive KMP. Opportunity levels under
our LTIP were also increased by 2.5% to aid market competitiveness. We note our fixed pay (and total remuneration)
levels remain conservative relative to peers (refer section 4 for further detail).
– Our approach to Board Committee fees was also revised in FY19 for consistency with market practice, to ensure we
remain competitive with comparable companies and to continue to attract and retain the best talent (refer section 5(b)
for further detail).
– The Company will ask shareholders at the upcoming AGM to approve a FY20 LTIP for the Managing Director that
includes both financial and strategic objectives.
32
MMS Annual Report 2019
1. Contents
Section
Who does this report cover?
Reference
Section 2
Page 32
Executive remuneration
framework and policy – overview
Section 3
Page 33
Executive remuneration
framework – 2019 outcomes
Non-Executive Director
remuneration
Remuneration governance
Other remuneration information
Section 4
Page 36
Section 5
Page 41
Section 6
Page 43
Section 7
Page 45
2. Who does this Report cover?
This Report outlines the remuneration arrangements in place
for the Key Management Personnel (KMP) of the Company,
which comprises all Non-Executive Directors and those senior
employees who have authority and responsibility for planning,
directing and controlling the activities of the Company.
The table below sets out the Company’s Executive KMP
and Non-Executive Directors during the 2019 Financial Year.
Executive KMP
Name
Position
Mr M. Salisbury
Mr M Blackburn
Chief Executive Officer (CEO)
and Managing Director
Group Chief Financial Officer
(CFO) and Company Secretary
Mr G Kruyt
Managing Director, Maxxia UK
Mr A. Tomas1 (former)
Managing Director,
Fleet and Financial Products
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 H. Kurincic2
Non-Executive Director
Ms S. Dahn3 (former)
Non-Executive Director
1 Mr A.Tomas has resigned and his last day of service was 13 July 2018.
2 Ms H Kurincic was appointed as a Non-Executive Director of the
Company with effect from 15 September 2018.
3 Ms S Dahn retired as a Non-Executive Director of the Company and
ceased being a KMP with effect from 30 September 2018.
Remuneration Report (Audited) 33
3. Executive remuneration framework and policy – overview
Our Strategic Pillars
Winning in the Core
Brave New World
One Business
Telling Our Story
–
– New business
wins & retention
Industry leading
product & service
delivery
Improved productivity
–
– Acquisitions
– New markets
– New customer
segments
– Group-wide business
–
collaboration
– Business synergies
Integration of
–
new business
– Aligned strategies
Internal staff
communications
strategy
– Branding & marketing
– B2B client
development events
Customer
Centricity
Our People
Technology
Platforms
Our Executive Remuneration
Strategy and Policy
Design
Principles
MMS’ executive remuneration strategy and policies support
our strategic pillars. Our executive remuneration policy is
designed to align the interests of executives and shareholders,
while attracting and retaining key executive talent who are
critical to the growth and success of the Company.
– Attraction and retention of key talent through
market competitive fixed remuneration for the role.
– Aligning reward with the creation of sustainable,
long-term value for the Company’s shareholders.
As of FY18, our executives do not receive short-term
incentives (only LTIPs delivered wholly in equity), and a
minimum shareholding requirement has been introduced.
Incentivise high performance through stretching
LTIP performance measures aligned with the
Company’s strategy.
–
– Retention of key talent. Vesting of our long-term
incentives are subject to executives’ continued
employment with the Company.
34
MMS Annual Report 2019
Our Executive Remuneration
Framework (Snapshot)
d
e
x
F
i
e
v
i
t
n
e
c
n
I
m
r
e
T
-
g
n
o
L
Cash salary +
superannuation
Performance Rights (50%)
Measured against average ROCE
(49.1%) and CAGR EPS (50.9%)
Performance Options (50%)
Measured against average ROCE
(49.1%) and CAGR EPS (50.9%)
Strike price
of $16.64
12 month
exercise period
F19
F20
F21
F22
F23
Our Executive Remuneration
Framework
Element
Description
Strategic link
Fixed remuneration
Fixed remuneration comprises base salary
and superannuation (and, in some cases,
non-cash benefits such as motor vehicle
lease payments and car parking benefits).
Fixed remuneration is determined on an
individual basis having regard to:
– The individual’s role, duties and
responsibilities and performance levels;
– General market conditions; and
– Remuneration offered to comparable
roles within related industries.
Refer section 4(b) for further detail
Fixed remuneration of the Executive KMP
is set to attract and retain the calibre of
talent required to drive outcomes for the
Company’s shareholders and deliver on
the Company’s strategy.
The RNC reviews fixed remuneration
annually (or on promotion) to ensure fixed
remuneration levels remain appropriate
and market competitive.
Remuneration Report (Audited)
35
Long-term incentive
Incentives are delivered wholly in
an all-equity LTIP.
– Instrument: 50% Performance Rights
(granted at face value) and 50%
Performance Options
– Performance measures: absolute
average Return on Capital Employed
(49.1%) and the Company’s CAGR in
underlying Earnings Per Share (50.9%)
– Other conditions: vesting of the LTIP
is subject to continued employment
with the Company
– Performance period: 3 years
– Exercise period: Options have a strike
price of $16.64 and can be exercised
in the one-year period following
vesting.
Refer section 4c for further detail on
2019 LTIP grants
By delivering variable reward wholly
in long-term performance tested equity
(with no STI or cash component),
our framework encourages sustainable
decision making and a focus on the
long-term health of business (including
the interests of customers), to drive
long term value for shareholders.
Vesting of the LTIP is subject to the
achievement of challenging performance
hurdles to drive a high-performance
culture amongst our Executive Team.
The ROCE and EPS hurdles are aligned
with our strategic pillars and our focus on
both earnings and capital optimisation.
All Performance Options issued also have
an exercise price (or strike price) which
ensures executives are only rewarded
if the share price improves and value is
delivered to shareholders.
Reward Mix
We set out below the mix between fixed remuneration and LTIP at
maximum for current Executive KMP. The Board believes this is an
appropriate mix to ensure that Executives are focussed on generating
value for shareholders over the long term (based on targeted financial
metrics). Fixed pay levels remain conservative relative to peers.
Key
Fixed remuneration
Long-term incentive
Chief Executive Officer
Chief Financial Officer
MD, Maxxia UK
30.6%
31.9%
31.0%
69.4%
69.1%
69.0%
36
MMS Annual Report 2019
4. Executive remuneration framework – 2019 outcomes
(a) Overview of company performance
The table below sets out the Company’s performance over the past five years in respect of key financial
and non-financial indicators.
Indices
FY19
FY18
FY17
FY16
FY15
Net profit attributable to
Company members
Underlying net profit after
income tax (UNPATA)1
NPAT growth
UNPATA growth
Dividends paid
$63,672,478
$50,302,815
$67,901,770
$82,469,341
$67,486,611
$88,696,719
$93,518,774
$87,166,863
$87,172,942
$69,570,837
26.6%
(25.9%)
(17.7%)
(5.1%)
7.3%
-
22.2%
25.3%
22.8%
24.1%
$61,173,277
$56,216,997
$54,076,388
$46,588,889
$43,912,091
Dividend payout ratio2
69.0%
64.5%
63.0%
60.1%
61.4%
Share price as at 30 June
$12.21
$16.00
$13.40
$13.68
$12.09
Market capitalisation (A$m)
1,016.0
1,331.3
1,210.0
1,138.1
973.9
Earnings per share
77.0 cents
60.9 cents
81.6 cents
99.4 cents
87.0 cents
Underlying earnings per share3
107.3 cents
113.2 cents
104.8 cents
105.1 cents
89.7 cents
ROCE (%)4
21
20
20
21
20
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. FY19 UNPATA excludes one-off provision for a UK
contract of $3.7m (post tax).
2 Dividend payout ratio is calculated as total dividend for the financial year divided by UNPATA for the financial year.
3 Underlying earnings per share is based on UNPATA.
4 Return on capital employed (ROCE) is adjusted to reflect twelve months trading for acquisitions made in the financial year and excludes one-off payments in relation
to transaction costs incurred in the acquisitions, amortisation of acquisition intangibles, one-off closure costs and impairment of acquired intangible assets.
Remuneration Report (Audited) 37
(b) Fixed annual remuneration
(c) LTIP awarded in 2019 – further detail
Fixed remuneration of the Executive KMP is reviewed by
the RNC annually (or on promotion) to determine whether
changes are appropriate in order to remain market
competitive and attract and retain the talent required to
drive outcomes for the Company’s shareholders.
In considering fixed remuneration changes, the RNC has
regard to external benchmarking and generally positions
fixed remuneration at the market median of comparable
roles within comparator companies (taking into account
revenue, employee numbers and market capitalisation).
Fixed annual remuneration increases of 2.5% were made
in FY19 (effective from 1 July 2018) for the Executive KMP.
Overall fixed pay (and total remuneration) levels remain
conservative relative to peers.
In FY19, the Executive KMP were granted an LTIP in equal
parts performance options (50%) (Performance Options)
and performance rights (50%) (Performance Rights) as
part of the Company’s annual LTIP program.
As noted in the FY18 Remuneration Report, rolling annual
grants will be made under the Company’s LTIP going
forward (as against larger amounts which vest every
three years) to align with market practice.
Specific details on the Performance Rights and
Performance Options granted to Executive KMP
during FY19 are provided in section 7 of the Report.
Detailed summary – FY19 LTIP grant
Element
Description
Opportunity levels
(% of fixed remuneration)
Consideration/
exercise price
The opportunity levels offered to the Executive KMP in FY19 were increased by 2.5% to:
– 44% of fixed remuneration for the CEO;
– 44.7% of fixed remuneration for the CFO; and
– 44.8% of fixed remuneration for the MD, Maxxia UK.
The Board determined that an increase in LTIP opportunities was appropriate having regard
to the incentive opportunity levels offered to comparable roles within comparator companies.
Incentive opportunities (and total remuneration) remains conservative relative to peers.
Performance Options: Options are granted for nil consideration. However, participants are
required to pay an exercise (or ‘strike’) price to exercise them and receive the shares. The
exercise price in respect of the Performance Options is the 10 day Volume Weighted Average
Price (VWAP) of Shares traded in the period immediately before 2 July 2018, being $16.64.
Performance Rights: No amount is payable upon grant of the Performance Rights
or upon vesting.
Allocation methodology
Performance Options: The number of Options allocated is determined using an option
pricing model. The valuation used is not reduced to account for performance hurdles.
Performance Rights: Rights are allocated on a face value basis. That is, the number of
Performance Rights granted is calculated by dividing each participant’s opportunity by
the market price of the Company’s shares.
Performance period
3 years in respect of both the Performance Rights and Performance Options
38
Detailed summary – FY19 LTIP grant
Element
Description
Performance hurdles
Subject to the Executive remaining employed for the performance period, vesting of the
Performance Options and Performance Rights is subject to the achievement of
two performance hurdles:
– the Company’s CAGR in underlying EPS which applies to 50.9% of the
Performance Options and Performance Rights respectively; and
– absolute average ROCE over the performance period which applies to 49.1%
of the Performance Options and Performance Rights respectively.
The following vesting schedules apply to both the Performance Options and Rights
respectively (with vesting on a straight-line basis between each level of performance).
Underlying EPS (CAGR)
(period FY19, FY20, FY21 inclusive)
Average ROCE
(period FY19, FY20, FY21 inclusive)
Level of
performance (%)
Percentage of
awards vesting
Level of
performance (%)
Percentage of
awards vesting
6%
10%
14%
41.66%
83.34%
100%
22.25%
23.25%
24.25%
50%
75%
100%
Calculation of Underlying EPS (CAGR) shall be based on comparing the underlying EPS
results in the final year of the performance period to the Underlying EPS results for FY18
as the base year.
The ROCE performance condition is based on the Company’s average ROCE over
the performance period.
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 Rules.
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.
In the event that the Executive takes unpaid leave for a period exceeding three months
during FY19, FY20 or FY21, the vesting criteria outlined above with respect to the
performance hurdles 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.
MMS Annual Report 2019Remuneration Report (Audited) 39
Detailed summary – FY19 LTIP grant
Element
Description
Exercise period on
Performance Options
Performance Options must be exercised by the Executive within the 12 months following
lodgement of the Company’s financial statements for the year ended 30 June 2021.
Voting and dividend
entitlements
No voting rights or dividend entitlements attach to the Performance Options or
Performance Rights.
Malus
(i.e. forfeiture
of awards)
Treatment upon
cessation of
employment
Change of control
Hedging
Where a participant has committed an act of fraud, defalcation or gross misconduct in
relation to the affairs of the Company, Performance Options and Performance Rights
will be lapsed.
If the Executive leaves employment with the Company within the 3 year performance period,
both the Performance Options and Performance Rights will lapse (with no payment to the
participant).
On a change of control, the Board has discretion to waive the performance conditions
attached to the Performance Options and Performance Rights, and the exercise conditions
attached to the Performance 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.
(d) Legacy LTIP vesting in 2019 – further detail
No legacy LTIP grants vested with Executive KMP during FY19.
However, as disclosed in the FY17 and FY18 Remuneration Reports, legacy options granted to KMP in August 2014
(FY15 Performance Options) were eligible to vest in 31 August 2017, subject to the achievement of underlying EPS targets
and continued employment with the Company (refer p 28 and 30 of the FY17 Remuneration Report for further detail on
performance hurdles).
As disclosed in the FY18 Remuneration Report, total vesting for the FY15 LTIPs (across the three years) was 55% and
were exercisable subject to a strike price of $10.18. KMP were a subject to a 12-month holding lock applied from the
date of vesting until 31 August 2018, during which any shares acquired by exercising vested Options could not be sold.
None of the FY15 Performance Options were exercised by KMP during FY19 as set out in section 7 of this Report.
In FY18, the Company granted LTIP Options and Rights under its new annual LTIP program (as noted above) which
potentially vest in FY20 and FY21. Based on the Company’s performance against the EPS and ROCE performance
targets to date, these Options or Rights may not vest.
40
MMS Annual Report 2019
(e) Executive KMP remuneration – statutory disclosures
The following table sets out the executive remuneration for FY19 in accordance with the requirements of the
Accounting Standards and Corporations Act 2001 (Cth).
Executive KMP
Mr M. Salisbury
(CEO and
Managing Director)
Mr G. Kruyt
(Managing Director
Maxia UK)
Mr M. Blackburn
(Group CFO and
Company Secretary)
Mr A. Tomas 6
(Managing Director,
Fleet and Financial
Products)
Cash
salary/
fees
$
Annual
leave
entitlements
Other
Benefits 1
Super-
annuation
Long
Service
Leave
Options
and
Rights 2,3,4
Total
remuneration
Percentage of
remuneration as
options and rights
Total value of
remuneration
received 4-5
$
$
$
$
$
$
FY19
861,426
14,660
29,448
25,018
18,925
(161,603)
787,874
FY18
797,700
23,472
70,328
24,989
21,920
288,956
1,227,365
FY19
680,617
(25,488)
261,601
93,272
(4,937)
(93,099)
911,966
FY18
642,255
56,845
129,872
23,659
24,615
194,099
1,071,345
FY19
638,101
52,727
8,095
25,000
12,807
(93,311)
643,419
FY18
613,271
20,238
16,254
24,989
13,450
195,544
883,746
%
n/a
24%
n/a
18%
n/a
22%
n/a
$
915,892
893,017
1,035,490
795,786
671,196
654,514
19,302
FY19
11,712
-
6,062
1,528
-
FY18
437,559
20,145
113,964
24,989
11,363
-
-
19,302
608,020
-
576,512
Total Remuneration
FY19
2,191,856
41,899
305,206
144,818
26,795
(348,013) 2,362,561
FY18
2,490,785
120,700
330,418
98,626
71,348
678,599
3,790,476
2,641,880
2,919,829
1 Other benefits reflect 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 2019. 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.
3 Performance Rights were granted to Executive KMP during the financial years ended 30 June 2018 and 30 June 2019 (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 of
grant and discounting it by the dividend yield of the Company.
4 The expense in FY19 comprises the fair value expense of Performance Options and Rights granted in FY19 and the reversal of Performance Options and
Rights granted in FY18 with vesting periods in FY20 and FY21 which may not vest based on the Company’s performance against the EPS and ROCE
performance targets to date.
5 Value of remuneration received comprises salary, benefits and superannuation salary packaged, annual and long service leave used and bonuses paid in the year.
6 Mr A. Tomas resigned and ended service on 13 July 2018.
Remuneration Report (Audited)
41
5. Non-Executive Director remuneration
(a) Remuneration policy and arrangements
The Board sets the fees for the Chairman and the other Non-Executive Directors. The Board’s policy is to remunerate the
Chairman and Non-Executive Directors:
– at market competitive rates, having regard to the fees paid for comparable companies, the need to attract
Directors of the requisite calibre and expertise and their workloads (taking into account the size and complexity of the
Company’s operations and their responsibility for the stewardship of the Company); and
– in a manner which preserves and safeguards their independence. Neither the Chairman nor the other
Non-Executive Directors are entitled to any performance-related pay. The primary focus of the Board is on the
long term strategic direction of the Company.
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 $900,000 per annum).
(b) Fees and other benefits
During FY19, the Board reviewed its approach to its Non-Executive Director fees (particularly Committee fees) and
determined that it was appropriate to pay separate fees in respective of Committee membership, as consistent with
market practice.
The table below sets out the annual fees payable (inclusive of superannuation) to the directors of MMS
(effective from 1 October 2018). The fee schedule has been determined having regard to fees paid to comparable
roles within MMS’ peers.
Fees / benefits
Description
Director’s Fees
Chairman
Director (base fee) – all Non-Executive Directors
Audit, Risk and Compliance Committee – Chair
Audit, Risk and Compliance Committee – Membership
Remuneration and Nomination Committee – Chair
Remuneration and Nomination Committee – Membership
FY19 ($)
Effective 1 October 2018
$210,125
$115,000
$25,000
$12,500
$20,000
$10,000
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 or termination payments
(other than payments relating to accrued superannuation entitlements).
42
(c) Non-Executive Director remuneration – statutory disclosure
The fees paid or payable to the directors of the Company in respect of the 2019 financial year are set out below.
Cash salary/
fees1
Other
Benefits2
Super-
annuation
Total value of
remuneration
received
Total
remuneration
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 H Kurincic3
(Non-Executive Director)
Ms S. Dahn4 (Non-
Executive Director) – former
Total remuneration
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
$
190,725
187,215
113,585
105,023
94,142
86,130
122,146
118,722
99,410
-
34,247
136,986
654,255
634,076
$
-
-
-
-
17,730
18,893
-
-
-
-
-
-
17,730
18,893
$
18,119
17,785
10,790
9,977
10,628
9,977
11,604
11,278
9,444
-
3,253
13,014
63,838
62,031
$
208,844
205,000
124,375
115,000
122,500
115,000
133,750
130,000
108,854
-
37,500
150,000
735,823
715,000
$
208,844
205,000
124,375
115,000
122,500
115,000
133,750
130,000
108,854
-
37,500
150,000
735,823
715,000
1 The amounts shown reflect directors’ fees only.
2 Other benefits comprise salary packaging.
3 Ms H Kurincic was appointed as a Non-Executive Director of the Company with effect from 15 September 2018.
4 Ms S Dahn retired as a Non-Executive Director of the Company and ceased being a KMP with effect from 30 September 2018.
MMS Annual Report 2019Remuneration Report (Audited) 43
6. Remuneration governance
(a) Responsibility for setting remuneration
Responsibility for setting a remuneration policy and determining Executive and Non-Executive Director remuneration
rests with the Board.
The Board has established the 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 on our website (www.mmsg.com.au/overview/#governance).
The RNC obtains external independent advice from remuneration consultants when required, and will use it to guide and
inform their decision-making. During FY19, no remuneration recommendations (as defined in the Corporations Act 2001
(Cth)) were received.
(b) Details of executive service agreements
The table below sets out key information in respect of the service agreements of the CEO and other Executive KMP.
Element
Duration
Description
Ongoing
Periods of notice
required to terminate
– CEO: 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.
– Executive KMP: 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 in respect of the above
notice periods.
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.
(c) Minimum shareholding requirements
In FY18, the Company introduced minimum shareholding requirements for its Executive KMP and Non-Executive
Directors to facilitate share ownership and encourage an ‘ownership’ mindset (refer section 6(d) for further detail on
current senior executive and director share ownership).
The table below sets out key information in respect of this Policy. Please refer to the ‘Share Ownership and Retention Policy’
on the Company’s website for further detail (www.mmsg.com.au/overview/#governance).
Directors and officers
Description
Effective 1 October 2018
Executive KMP
50% of one year’s
fixed remuneration
The later of:
– 5 years from September 2017; or
– 5 years from date of commencement as Executive KMP
Non-Executive
Directors
50% of one year’s
director fees
The later of:
– 5 years from September 2017; or
– 5 years from date of commencement as Non-Executive Director
44
(d) Executive KMP and Director share ownership
The following table sets out the number of shares held directly, indirectly or beneficially by Directors and Executive
KMP (including their related parties).
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 H. Kurincic1
19,000
3,343,025
6,050,941
-
-
Ms S Dahn (former)2
4,000
Executive KMP
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Mr A. Tomas3
10,276
-
3,000
-
1 Ms H Kurincic was appointed with effect from 15 September 2018.
2 Ms S Dahn retired with effect from 30 September 2018.
3 Mr A Tomas resigned, his last day of service was 13 July 2018.
-
-
-
-
-
-
-
-
-
-
11,000
-
-
-
11,000
-
-
-
-
-
30,000
3,343,025
6,050,941
-
11,000
N/A
10,276
-
3,000
-
MMS Annual Report 2019Remuneration Report (Audited)
45
7. Other remuneration information
(a) Detail of LTIP securities
The terms and conditions of each grant of Performance Options and Performance Rights to Executive KMP affecting their
remuneration in FY19 and each relevant future financial year are set out below.
Grant Date
Type of LTI securities
Expiry Date
Share price at
valuation date
Exercise
Price
Value per option
at grant date1
Date Exercisable
19/08/14
FY15 Performance
Options
24 months following the
3 Year Lodgement Date.
$10.18
$10.18
$3.01
3 Year Lodgement Date
(September 2017)2
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
24/10/173
2 Year Performance
Options
12 months following the
2 Year Lodgement Date.
$15.23
$13.45
$3.17
24/10/173
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
24/10/173
3 Year Performance
Options
12 months following the
3 Year Lodgement Date.
$13.45
$13.45
$3.20
24/10/173
3 Year Performance
Rights
12 months following the
3 Year Lodgement Date.
$15.23
-
$13.29
02/07/18
3 Year Performance
Options
12 months following the
3 Year Lodgement Date.
$16.14
$16.64
$2.54
02/07/18
3 Year Performance
Rights
12 months following the
3 Year Lodgement Date.
$16.14
-
$14.12
23/10/184
3 Year Performance
Options
12 months following the
3 Year Lodgement Date.
$15.90
$16.64
$2.25
23/10/184
3 Year Performance
Rights
12 months following the
3 Year Lodgement Date.
$15.90
-
$13.95
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)
3 Year Lodgement Date
(expected to be September 2021)
3 Year Lodgement Date
(expected to be September 2021)
3 Year Lodgement Date
(expected to be September 2021)
3 Year Lodgement Date
(expected to be September 2021)
1 Reflects the fair value at grant date for options granted as part of remuneration, calculated in accordance with AASB2 Share Based Payment expensed.
2 Subject to a 12 month holding lock from the date of vesting until 31 August 2018, during which any shares acquired by exercising vested Options could not be sold.
3 The issue to Mr Mike Salisbury occurred on 24 October 2017, after shareholder approval at the Company’s AGM.
4 The issue to Mr Mike Salisbury occurred on 23 October 2018, after shareholder approval at the Company’s AGM.
46
Details of the LTIP securities over ordinary shares in the Company provided as remuneration to each Executive KMP
are set out below.
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
$
M
r
M
.
S
a
l
i
s
b
u
r
y
M
r
G
.
K
r
u
y
t
M
r
M
.
l
B
a
c
k
b
u
r
n
24/10/17
2 Year Performance Options
71,140
24/10/17
2 Year Performance Rights
17,860
24/10/17
3 Year Performance Options
66,027
24/10/17
3 Year Performance Rights
18,814
-
-
-
-
23/10/18
3 Year Performance Options
105,272
2.25
23/10/18
3 Year Performance Rights
18,937
13.95
03/07/17
2 Year Performance Options
52,846
03/07/17
2 Year Performance Rights
13,266
03/07/17
3 Year Performance Options
49,047
03/07/17
3 Year Performance Rights
13,975
-
-
-
-
02/07/18
3 Year Performance Options
78,201
2.54
02/07/18
3 Year Performance Rights
14,067
14.12
03/07/17
2 Year Performance Options
52,965
03/07/17
2 Year Performance Rights
13,297
03/07/17
3 Year Performance Options
49,159
03/07/17
3 Year Performance Rights
14,007
-
-
-
-
02/07/18
3 Year Performance Options
78,377
2.54
02/07/18
3 Year Performance Rights
14,100
14.12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
FY20
222,668
FY20
248,611
FY21
211,286
FY21
250,038
FY22
176,561
FY22
196,676
FY20
156,953
FY20
156,937
FY21
156,950
FY21
156,939
FY22
148,128
FY22
148,114
FY20
157,306
FY20
157,304
FY21
157,309
FY21
157,299
FY22
148,461
FY22
148,461
MMS Annual Report 2019Remuneration Report (Audited)
47
(b) Movement of LTIP securities granted
The table below reconciles the Performance Options and Performance Rights held by each Executive KMP from
the beginning to the end of FY19.
Name
LTI Securities
Balance
at the
start of
the year
Number
Granted
during
year1
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
303,354
105,272
Performance Rights
36,674
18,937
Performance Options
220,598
78,201
Performance Rights
27,241
14,067
Performance Options
243,060
78,377
Performance Rights
27,304
14,100
Mr A. Tomas2
Performance Options
112,301
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
166,187
242,439
-
55,611
118,705
180,094
-
41,308
140,936
180,501
-
41,404
112,301
-
1 Granted pursuant the Company’s LTIP (refer 4(c)).
2 Mr A Tomas resigned, his last day of service was 13 July 2018.
(c) Shares issued on Performance Options
No ordinary shares in the Company were issued following the exercise of Performance Options by Executive KMP during
FY19. Any shares issued on exercise of options were acquired on market under the terms of the Company’s Share Trust Plan.
(d) Other transactions and balances with KMP
There were no loans made during the year, or remaining unsettled at 30 June 2019, between the Company and its KMP
and/or their related parties.
End of the audited Remuneration Report
48
MMS Annual Report 2019
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 Options
Performance Rights
Performance Rights
Performance Rights
Voluntary Options
Voluntary Options
538,129
403,321
17,340
374,515
15,920
681,525
105,654
111,295
122,585
8,979
12,500
$10.18
$13.45
$14.97
$13.45
$14.97
$16.64
-
-
-
$13.45
$13.45
30 September 2019
30 September 2020
30 September 2020
30 September 2021
30 September 2021
30 September 2022
30 September 2020
30 September 2021
30 September 2022
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:
Director
Mr. T Poole (Chairman)
Mr M. Salisbury (Managing Director)
Mr J. Bennetts
Mr R. Chessari
Mr I Elliot
Ms H Kurincic
Rights
-
55,611
-
-
-
-
Options
-
408,626
-
-
-
-
Ordinary shares
30,000
10,276
3,343,025
6,050,941
-
11,000
No Director during FY19, 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, other than
for payment of $35,000 for the provision of IT services on arms’ length terms by Mailguard Pty Ltd, of which John Bennetts
is a substantial shareholder.
49
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 FY19,
are disclosed in Note 32 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 2019
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 124 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
21 August 2019
Melbourne, Australia
50
MMS Annual Report 2019
Five year summary
Five-Year Summary 2015 – 2019
2019
2018
2017
2016
2015
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 (%)4
Other
Employees (FTE)6
Employee engagement score (%)7
549.7
63.7
88.7
221.9
66.1
66.1
245.8
12.4
17.2
80.7
(14.0)
6.4
74.0
69
77.0
23
107.3
21
1,334
79
545.4
50.3
93.5
207.7
64.1
64.1
243.7
25.5
21.6
92.5
(38.5)
8.6
73.0
65
60.9
24
113.2
20
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
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. FY19 UNPATA excludes one-off provision for a UK
contract of $3.7m (post tax).
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 dividend for the financial year divided by UNPATA for the financial year.
4 Prior period comparatives have been restated to measure ROE and ROCE, which are based on UNPATA and underlying EBIT respectively, to exclude one-off
acquisition related expenses, the amortisation of acquisition intangibles and the impairment of acquired intangible assets. Equity and capital employed used in
the calculations includes the add back of impairment of acquired intangible asset charges incurred in the respective financial period.
5 Underlying earnings per share is based on UNPATA.
6 As at 30 June.
7 Employee engagement survey conducted biennially.
51
Financial Report 2019
52
MMS Annual Report 2019
53
Statements of Profit or Loss
and Other Comprehensive Income
For the year ended 30 June 2019
Consolidated Group
Parent Entity
Revenue from contracts with customers
Interest income
Other
Dividends received
Note
7
8
8
2019
$’000
547,894
1,781
-
-
2018
$’000
543,806
1,598
-
-
Revenue from continuing operations
549,675
545,404
2019
$’000
-
776
265
189,173
190,214
2018
$’000
-
43
-
56,406
56,449
(132,096)
(1,093)
(962)
9(d)
9(c)
9(a)
9(b)
23
17
10(a)
Expenses
Employee benefit expense
Leasing and vehicle management expenses
Brokerage commissions and incentives
Depreciation and amortisation expenses
Net claims incurred
Other operating expenses
Impairment losses
Loss on disposal of business
Contingent consideration fair valuation
Finance costs
Share of equity accounted joint venture loss
Total expenses
Profit before income tax
Income tax (expense) / benefit
Net profit for the year
Profit is attributable to:
Owners of the Company
Non-controlling interest
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
(138,774)
(100,355)
(36,478)
(81,108)
(13,097)
(46,881)
(23,940)
-
1,168
(10,514)
-
(92,894)
(42,018)
(86,036)
(11,103)
(42,718)
(39,388)
(8,559)
5,348
(9,644)
(1,365)
(449,979)
(460,473)
99,696
(35,879)
63,817
63,672
145
63,817
(1,194)
1,036
279
121
84,931
(35,097)
49,834
50,303
(469)
49,834
169
3,457
(37)
3,589
-
-
-
-
(539)
-
-
-
(817)
-
(2,449)
187,765
424
188,189
188,189
-
188,189
157
-
(47)
110
-
-
-
-
(537)
(44,587)
-
-
(1,154)
-
(47,240)
9,209
783
9,992
9,992
-
9,992
(68)
-
20
(48)
Total comprehensive income for the year
63,938
53,423
188,299
9,944
Total comprehensive income for the year is attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
Basic earnings per share (cents)
Diluted earnings per share (cents)
63,793
145
63,938
77.0
76.4
53,892
(469)
53,423
60.9
60.6
11
11
188,299
-
188,299
9,944
-
9,944
The above statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
54
MMS Annual Report 2019
Statements of
Financial Position
As at 30 June 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Assets under operating lease
Inventory
Prepayments
Deferred acquisition costs
Derivative financial instruments
Total current assets
Non current assets
Property, plant and equipment
Finance lease receivables
Intangible assets
Other financial assets
Deferred acquisition costs
Deferred tax assets
Total non current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Other liabilities
Contract 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
13
14
15
18
18
15
6
16(b), 16(a)
10(c)
19
20
20
21
4, 22
23
4, 22
23
21
10(c)
24(a)
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
137,762
61,028
57,412
74,030
12,310
6,076
2,859
-
351,477
214,102
80,654
191,328
-
2,929
13,008
502,021
853,498
94,588
8,847
6,051
11,088
9,075
2,490
8,779
-
1,157
142,075
319,520
1,374
8,116
1,365
9,677
340,052
482,127
371,371
135,868
(4,760)
240,263
371,371
99,667
52,402
71,137
70,910
10,896
5,449
2,385
37
312,883
238,461
100,495
205,939
1,169
2,226
729
549,019
861,902
95,267
9,075
8,955
10,197
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
9,044
49,350
-
-
-
21
-
88
58,503
-
-
-
286,243
-
-
286,243
344,746
87,150
-
-
-
-
4,775
5,761
-
-
97,686
13,585
-
-
-
947
14,532
112,218
232,528
135,868
934
95,726
232,528
3,991
7,258
-
-
-
-
-
-
11,249
-
-
-
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
The above statements of financial position should be read in conjunction with the accompanying notes.
55
Statements of
Changes in Equity
For the year ended 30 June 2019
Consolidated Group
-
-
-
-
-
-
-
Issued
capital
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
24
135,868
229,941
11,591
-
(2,146)
-
135,868
227,795
11,591
63,672
-
63,672
-
-
Cash
flow Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Non-
Controlling
Interest
$’000
Total
$’000
37
-
37
-
(5,596)
(464)
371,377
-
-
(2,146)
(5,596)
(464)
369,231
-
145
63,817
(915)
1,036
-
121
(915)
1,036
145
63,938
2019
Equity as at beginning of year
as originally reported
Change in accounting policies (note 2(e))
Re-stated equity as at the beginning
of period
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
Dividends paid
Equity contribution
Intra-equity transfer
12
25(a)
-
(750)
(61,173)
-
-
-
9,969
(9,969)
-
-
-
-
-
-
-
-
-
-
125
-
(750)
(61,173)
125
-
Equity as at 30 June 2019
135,868
240,263
872
(878)
(4,560)
(194)
371,371
Consolidated Group
2018
Issued
capital
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Equity as at beginning of year
24
141,088
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(c)
(9,747)
50,303
-
50,303
-
-
-
12
-
-
(56,217)
-
-
-
-
1,499
-
-
-
-
Cash
flow Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Non-
Controlling
Interest
$’000
Total
$’000
(95)
-
132
(9,053)
-
370,995
-
(469)
49,834
3,457
-
3,589
132
3,457
(469)
53,423
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
1,499
4,477
50
(2,855)
(56,217)
5
Equity as at 30 June 2018
135,868
229,941
11,591
37
(5,596)
(464)
371,377
The above statements of changes in equity should be read in conjunction with the accompanying notes.
56
MMS Annual Report 2019
Statements of
Changes in Equity
For the year ended 30 June 2019
2019
Parent Entity
Issued
Capital
$’000
Retained
Earnings
$’000
Option
Reserve
$’000
Note
Cash flow
Hedge
Reserve
$’000
Total
$’000
Equity as at beginning of year
24
135,868
(41,259)
11,591
(48)
106,152
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
Dividends paid
Intra-equity transfer
Equity as 30 June 2019
-
-
-
-
-
-
188,189
-
188,189
-
-
-
-
188,189
110
110
110
188,299
-
(750)
(61,173)
-
9,969
(9,969)
-
-
-
(750)
(61,173)
-
135,868
95,726
872
62
232,528
12
25(a)
Parent Entity
2018
Issued
Capital
$’000
Treasury
Reserve
$’000
Retained
Earnings
$’000
Note
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)
4,966
9,992
-
9,992
-
-
-
-
(56,217)
(41,259)
11,591
(48)
106,152
Equity as at beginning of year
24
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(c)
(9,747)
6,892
12
-
135,868
-
-
The above statements of changes in equity should be read in conjunction with the accompanying notes.
57
Statements
of Cash Flows
For the year ended 30 June 2019
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
Other
Consolidated Group
Parent Entity
Note
2019
$’000
2018
$’000
2019
$’000
574,529
(338,662)
90,239
182,000
586,545
(257,172)
86,036
91,601
(318,756)
(336,694)
27(b)
-
-
-
-
-
1,781
(9,541)
-
1,598
(11,217)
776
(791)
-
189,173
(48,702)
(43,037)
-
-
-
-
2018
$’000
-
(1,463)
-
-
-
43
(1,134)
56,406
-
-
Net cash from operating activities
27(a)
132,888
117,660
189,158
53,852
Cash flows from investing activities
Payments for capitalised software
Payments for plant and equipment
Net reimbursement for acquisition costs
Payments for subsidiary investments (net of cash acquired)
Payments for contingent consideration
Payments for joint venture subordinated loans
6(c)
(15,197)
(4,184)
1,113
-
(3,741)
(812)
(11,095)
(3,081)
-
-
-
(868)
-
-
-
-
-
-
(4,641)
(4,929)
-
-
-
-
Net cash used in investing activities
(22,821)
(15,044)
(4,641)
(4,929)
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
Other
Repayments and loans to / from controlled entities
27(c)
27(c)
148,278
(159,244)
-
-
12
(61,173)
125
-
133,231
(141,408)
(2,855)
4,527
(56,217)
-
-
-
(10,762)
-
-
(61,173)
-
-
(11,500)
(2,489)
4,161
(56,217)
-
(107,529)
15,278
Net cash used in financing activities
(72,014)
(62,722)
(179,464)
(50,767)
Effect of exchange changes on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
42
38,095
99,667
Cash and cash equivalents at end of year
13
137,762
357
40,251
59,416
99,667
-
5,053
3,991
9,044
-
(1,844)
5,835
3,991
The above statements of cash flows should be read in conjunction with the accompanying notes.
58
58
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
1 General information
2 Significant accounting policies
The financial report of McMillan Shakespeare Limited and its
subsidiaries for the year ended 30 June 2019 was authorised for
issue in accordance with a resolution of the directors on 21 August
2019 and covers McMillan Shakespeare Limited (‘the Company’
or the ‘parent entity’) as an individual entity as well as ‘the Group’,
consisting of McMillan Shakespeare Limited and its subsidiaries
(‘the Group’) as required by the Corporations Act 2001.
The financial report is presented in Australian dollars, which is the
Group’s functional and presentation currency.
McMillan Shakespeare Limited is a company limited by shares and
domiciled in Australia, whose shares are publicly traded on the
Australian Stock Exchange.
(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 the 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
New accounting standards and amendments have been applied for
the first time for annual reporting period commencing 1 July 2018
as follows:
− AASB 9 Financial Instruments
− AASB 15 Revenue from Contracts with Customers
− Classification and Measurement Share-based payment
Transactions – Amendment to AASB 2
− Annual Improvements 2015-2017 cycle
− Transfers to Investment Property– Amendments to AASB 140
− Interpretation 22 Foreign Currency Transactions and
Advance Consideration
The Group’s accounting policies have been amended to adopt
AASB 9 and AASB 15 and make certain retrospective adjustments
as a consequence and these are disclosed in note 2(e). The other
amendments above did not have any significant impact on the
amounts recognised in prior periods and are not expected to
significantly affect current or future periods.
MMS Annual Report 2019 5959
Notes to the Financial Statements
For the year ended 30 June 2019
Impact on the Statement
of Financial Position
30 June 2019
$’000
Assets
Right-of-use asset
Deferred tax asset
Liabilities
Lease liabilities
Unearned property incentives reduced
Equity
32,107
2,892
50,317
8,572
(6,746)
From the adoption of AASB 16, the Group’s financial statements
will change for the following.
− Rental expenses 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.
− Interest cover ratio will improve and the lease liability will add to
the total borrowings and consequently, affects the borrowing ratio.
From the current assessment, the lease liability is expected to be
accommodated in the significant headroom in the Group’s bank
borrowing leverage ratio.
− 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.
(d) New accounting standards and interpretations
not yet adopted
A new accounting standard AASB 16 Leases has been issued
but not mandatory for adoption in the year ended 30 June 2019.
The Group has not adopted this standard early and the extent of
the impact has been determined as noted below subject to the
finalisation of some minor items which are not expected to have a
significant impact. This standard is first applicable to the Group for
financial periods beginning 1 July 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 leases previously
accounted for as 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 date of initial application of AASB 16 by the Group is
1 July 2019.
The Group has reviewed its financing arrangements with respect
to the lease accounting rules in AASB 16. The new standard
will affect primarily the Group’s non-cancellable operating lease
commitments. The Group plans to use the modified retrospective
method for the transition to AASB 16 and consequently, will not
re-state comparative information. Under the modified retrospective
method, ROU will be determined on a fully retrospective basis
and apply the Group’s incremental borrowing rate at the date
of transition as a practical expedient and lease liability will be
determined using the effective interest basis. The resulting
difference on transition will be transferred to equity.
Accounting for the Group’s operating lease assets as lessor
The Group’s accounting as lessor is substantially unchanged under
AASB 16. 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 18 to the financial statements. Income from the
leasing of these assets is disclosed in lease rental service revenue
(note 7).
Accounting for the Group’s operating lease commitments as lessee
Under the current accounting standard AASB 117, the Group’s
operating lease commitments are not recognised on the balance
sheet and rental payments under the leases were expensed
when incurred. From the impact assessment of the new
standard completed to date on all of the Group’s existing leasing
arrangements except for some minor arrangements, the following
is a summary of the effect on the financial statements on transition
at 1 July 2019.
60
60
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(e) Changes in accounting policies
Two new accounting standards were adopted at the beginning
of the financial year in AASB 9: Financial Instruments and AASB 15:
Revenue from Contracts with Customers, that affected the Group’s
accounting policies. These are discussed below together with the
impact on the financial statements.
(i) AASB 9: Financial Instruments
AASB 9 replaces the provisions of AASB 139 relating to the
recognition and de-recognition, classification and measurement
of financial assets and financial liabilities, impairment of financial
assets and hedge accounting.
The Group has applied AASB 9 prospectively with an initial
application date of 1 July 2018. The impact from changes has
not been re-stated in the comparative information and the
differences have been recognised directly in retained earnings
and other components in equity.
The classification under AASB 9 did not have a significant
impact on the Group.
Subsequent measurement depends on the Group’s business
model for managing the asset and the cash flow characteristics
of the asset.
Classification and measurement
Amortised cost
These are assets that are held solely to collect contractual cash
flows that represent principal and interest. Changes to the carrying
value of these instruments are recognised in the statement of
profit or loss.
Fair value through Other Comprehensive Income (FVOCI)
These are assets held to collect contractual cash flows (principal
and interest) and for selling the assets and where the movement
in the carrying value of the assets are taken through OCI, except
for impairment gains and losses and interest and foreign exchange
differences. When the asset is de-recognised the cumulative
balance is transferred from equity to profit or loss.
Fair value to profit or loss (FVPL)
Assets that do not meet the above criteria are measured and any
changes in value are included in profit or loss.
The adoption of AASB 9 from 1 July 2018 has resulted in changes
to accounting policies and adjustments to the financial statements
as follows.
As originally
reported
$’000
AASB 9
transition
$’000
99,667
28,747
23,655
-
-
-
Re-stated
$’000
99,667
28,747
23,655
171,632
(1,223)
170,409
37
-
37
1,169
(1,169)
-
(95,267)
(3,498)
-
-
-
(3,746)
3,746
(5,209)
5,209
-
-
(95,267)
(3,498)
-
-
-
(8,955)
(8,955)
(12,524)
339,604
-
-
(12,524)
339,604
Cash and cash
equivalents
Trade
receivables
Other
receivables
Finance lease
receivables
(current and
non-current)
Derivative
financial
instruments
Subordinated
loan receivable
Investment in
Joint Venture
Trade and
other payables
Receivables
in advance
Other liabilities
- Maintenance
fees received
in advance
Provisions -
Rebates and
cancellations
Contract
liabilities
Other
provisions
(current and
non-current)
Borrowings
(current and
non-current)
MMS Annual Report 2019
61
61
Notes to the Financial Statements
For the year ended 30 June 2019
Trade receivables
Group applies the simplified approach set out in AASB 9 to
measure expected credit losses which uses a lifetime expected
credit loss allowance for all trade receivables. The credit loss
allowance is determined from the Group’s historical default rates
and considers the potential impact of forward-looking factors.
Historically, approximately 70% of trade receivables are outstanding
within 30 days and not past due with agreed contractual settlement
terms and more than 90% of total receivables are not outstanding
beyond 90 days of invoice date. At transition date of 1 July 2018,
the re-calculated credit loss allowance under AASB 9 simplified
approach was substantially similar to the provision for doubtful
debts of $714,000 that was reported against gross carrying
receivables of $29,461,000.
Subordinated loan receivable
The Group applies the simplified approach set out in AASB 9 to
measure expected credit losses for its subordinated loan to Maxxia
Ltd in the UK to which the Group has a 50% interest under a joint
venture arrangement (JV). The loan is considered to form part of
the net investment in the JV, taking into consideration its role in the
Group’s strategy and operations in the UK. There was no objective
evidence of credit default by the JV at the last reporting date and
its carrying value of $1,169,000 which included the equity
accounted loss of the JV, was not considered to be impaired.
However, on applying the expected credit loss model under AASB
9 and taking into account the Group’s review of expected future
financial performance and the impact of possible prospective
changes to the JV’s strategic role, it has been determined to
fully provide a loss allowance against the loan.
As the loan receivable has equity accounted the JV’s loss of
$6,129,000 cumulatively to 30 June 2018, the carrying value
has been re-stated in accordance with AASB 9 (as amended) where
the equity accounted loss will be reversed to result in the original
amount of loans provided of $7,298,000. The assessment of the
loan on an ECL basis has resulted in a provision for loss allowance
of $7,298,000 that is recognised in retained earnings. The impact
from restatement is summarised as follows.
Impairment
The measurement of debt instruments carried at amortised
cost and FVOCI now include a forward looking assessment of
the expected credit losses associated with the debt instrument.
The Group has three types of assets that are subject to the new
expected credit loss model in finance lease receivables and trade
receivables. The accounting policies for these assets have been
revised accordingly, and the impact is as follows.
Finance lease receivables
The Group uses the AASB 9 simplified approach to measure the
expected credit losses. This model uses an expected lifetime
expected loss allowance for finance lease receivables.
Expected credit losses are calculated on finance lease receivables
that are grouped at a practical level based on substantially shared
credit risk characteristics and using criteria from the Group’s
credit management system. The Group’s credit management
system utilises a default probability that is based on each
customer’s credit rating and residual lease duration. The loss
allowance includes the expected recovery rate from the discharge
of collateralised assets and potential impact from sensitivity
assessments. On this basis, the credit loss allowance as at
1 July 2018 was determined as follows.
Expected loss rate
Gross carrying amount
Credit loss allowance
0.71%
$171,632,000
$1,223,000
In accordance with the transitional provisions in AASB 9, the credit
loss allowance of $1,223,000 has been recognised in retained
earnings as at 1 July 2018 and comparative figures have not been
re-stated. The impact to the financial statements is as follows.
As originally
reported
$’000
AASB 9
transition
$’000
Re-stated
$’000
171,632
(1,223)
170,409
729
861,902
229,941
246
(977)
(977)
975
860,925
228,964
371,377
(977)
370,400
Finance lease
receivables
Deferred
tax assets
Total assets
Retained
earnings
Equity/net
assets
62
62
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
As originally
reported
$’000
(6,129)
AASB 9
transition
$’000
(1,169)
Re-stated
$’000
(7.298)
1,169
(1,169)
-
Retained
earnings
Other financial
assets –
Subordinated
loan receivable
The impact on retained earnings on 1 July 2019 on transition to
AASB 9 is as follows.
As originally
reported
$’000
AASB 9
transition
$’000
Re-stated
$’000
171,632
(1,223)
170,409
729
246
1,169
(1,169)
975
-
229,941
(2,146)
227,795
Finance lease
receivables
Deferred tax
asset
Subordinated
loan receivable
Retained
earnings
Hedging
Hedge accounting under AASB 9 introduces greater flexibility to
the type of risk components that can be hedged and introduces a
new effectiveness test that 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. All of the hedge contracts entered into have been
designated as hedging instruments and qualify under the new
standard and is relatively unchanged.
(ii) AASB 15: Revenue from Contracts with Customers
The Group adopted AASB 15 from 1 July 2018 which resulted
in accounting policy changes affecting the recognition of certain
revenue streams. In accordance with the transition provisions
in AASB 15, the Group has not retrospectively re-stated the
comparatives in the previous corresponding period.
Impact on accounting policies
Remuneration Services
Revenue is recognised for fees received for the provision of salary
packaging services over the period the services are completed.
Fees for this service are independent of other fees that are
collected for other services. Where the administration service
includes the procurement of products and services including
novated leases, financial services and asset maintenance, the
Group acts in the capacity as agent and accordingly, does not
recognise the proceeds collected from customers for the cost of
procurement as revenue. Only commissions received as agent are
recognised as revenue and at the time that customers receive their
procured service or product and where there are no remaining
performance obligations. The Group also receives volume based
incentives and commissions from service providers and revenue
is recognised in the period when the measurement criteria are
completed and all performance targets are achieved. Remuneration
services revenue from contracts with customers is recognised at
the point in time that services are provided.
Lease rental services
Revenue from rental services relate to fleet management services
provided by the Asset Management segment. These services
include the provision of asset rental and financing, in-life asset
management services, fleet management, finance brokerage
through Principle and Agency arrangements (P&A) and motor
vehicle disposal. Operating lease rental income is recognised
over the period of the lease term on a straight line basis for a
constant period of return on the amount invested in the lease
asset. Fees from in-life management services are recognised
over the term of the contract. The provision of tyre and
management services are recognised as revenue over the contract
term based on the extent of costs incurred to date over expected
total costs. Tyre and management fees received in advance of
amounts recognised as revenue are deferred as contract liabilities.
Brokerage fees received for the introduction of lease finance for
customers to external financiers under a P&A arrangement are
recognised as commission revenue when performance obligations
are completed and accounted for at a point in time. Proceeds from
motor vehicle disposals are recognised as revenue at the point in
time the asset is transferred and consideration received with no
remaining performance obligations.
MMS Annual Report 2019
6363
Notes to the Financial Statements
For the year ended 30 June 2019
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 and volume based commissions from service providers.
Commission revenue is recognised at a point in time for services
rendered and the customer has received the service. The Group
acts as agent in this respect. Where there is potential for clawback
by the financial services provider or a rebate paid, the amount is
recognised as contract liabilities and in revenue as part of variable
consideration. Contract liabilities for clawbacks and rebates are
measured on an expected basis using historical trends to estimate
the potential amount.
Revenue is recognised in the capacity as agent from the third party
distribution of insurance products and the administration of risk
warranty products. The Group does not carry the risk as underwriter
for the sale of warranty products and it is at the Group’s discretion
to assist dealers to meet the cost of customer claims in relation
to dealer warranty products. 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.
Accounting for rebates and commission clawback
Commissions received for the origination of financial services to
a provider is subject to a clawback when the underlying service
contracts are terminated by the customer under certain contractual
arrangements. The Group previously recognised an expense for
the provision for rebates and cancellations based on an
expected amount.
There is no material change from the current expected amount
basis to that required under AASB 15 in calculating commission
clawed back for rebates and cancellations. The net movement in
the carrying value of the expected amounts gives rise to variable
consideration and is recognised as an adjustment to revenue. The
expected amount is disclosed as a contract liability. The impact
on the profit or loss for the corresponding period was a reduction
of commission revenue in the Asset Management segment of
$2,049,000 with a corresponding reduction expenses. There was
no impact to total assets, liabilities, retained earnings or equity.
(f) Summary of Other Accounting Policies
The Group’s accounting policies are provided below in addition to
specific accounting policies that are applicable to items disclosed in
the notes to the financial statements.
(i) Principles of consolidation
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 decisions 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.
64
64
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(ii) Business combinations
(iii) Current versus non-current classification
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.
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.
(iv) Financial instruments
A financial instrument is any contract that gives rise to a financial
asset and to the counter-party a financial liability or equity
instrument.
Financial assets
Financial assets are classified at initial recognition and
subsequently measured at amortised cost or fair value through
profit or loss. The classification into these categories depend on
the purpose for which the asset was acquired such as the financial
asset’s contractual cash flow characteristics and the Group’s
business model for managing them.
With the exception of trade receivables, the Group initially measures
a financial asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss, transaction costs.
The Group’s trade receivables do not contain a significant
financing component or for which the Group has applied the
practical expedient, are measured at the transaction price
determined under AASB 15.
MMS Annual Report 2019 6565
Notes to the Financial Statements
For the year ended 30 June 2019
(i) Financial assets at amortised cost
(v) Other employee benefits
Superannuation
The amount charged to the profit or loss in respect of
superannuation represents the contributions made by the
Group to superannuation funds.
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.
(vi) 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.
(vii) Leasing
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.
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.
Financial assets are assessed for impairment at the end of
each reporting period on an expected credit loss (ECL) basis.
The ECL method employs the use of estimates and judgement
of events and indicators in the foreseeable future that may
affect the carrying value at reporting date.
The Group’s subordinated loan to a joint venture (JV) partner
that is considered to form part of the Group’s net investment
in the JV is measured at amortised cost (refer note 16(b)).
The parent entity’s investments in subsidiaries are carried at
cost and less impairment. The cost of investment also includes
the contribution to subsidiaries for its distribution of share-
based payments in the equity of the Company.
(ii) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss, or
financial assets mandatorily required to be measured at fair
value. Changes in the fair value of this category of financial
assets is recognised in the statement of profit or loss.
(iii) De-recognition
A financial asset or part thereof is de-recognised from the
statement of financial position when the rights to the cash
flows of the asset have expired or that these rights have been
transferred that effectively removes the Group’s rights to the
risks and rewards of ownership of the financial asset.
Financial liabilities
Financial liabilities are classified as financial liabilities at fair value
through profit or loss or at amortised cost. All financial liabilities are
recognised initially at fair value and in the case of borrowings, net
of transactions costs.
(i) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
liabilities held for trading and those liabilities designated upon
initial recognition.
(ii) Amortised cost
Borrowings
The Group’s borrowings are interest-bearing are subsequently
measured at amortised cost using the expected interest rate
method and the resulting gains or losses recognised in profit
or loss.
Payables
The Group’s payables arise from normal business activities and
held for short term and are measured at transactional costs.
66
66
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
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.
(viii) Deferred acquisition costs (DAC)
Acquisition costs incurred in deriving warranty income are deferred
and recognised as contract 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.
(ix) 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 (contract 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 contract liability recorded is
adequate.
(x) Outstanding claims liability
The liability represents claims authorised, prior to reporting date,
and paid in the subsequent reporting period.
(xi) Inventories
The inventory of motor vehicles is stated at the lower of cost
and net realisable value. Following termination of the lease or
rental contract the relevant assets are transferred from Assets
under Operating Lease to Inventories at their carrying amount.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs to make the sale.
(xii) 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.
(xiii) 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.
There is no change in accounting policy following the adoption of
AASB 9. The designation of derivative contracts as the hedging
instruments are unchanged and the measurement criteria has
remained similar.
Cash flow hedge accounting
The Group enters into interest rate swap contracts as cash
flow hedges to minimise the exposure to the variability in cash
flows from external borrowings that are priced using variable
interest rates. All of the hedge contracts entered into have been
designated as hedging instruments. At the inception of the hedging
instrument, the Group documents the economic 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. Any gains or losses arising from changes in the fair value of
the hedge contracts are taken to other comprehensive income (OCI)
to the extent of the effective portion of the cash flow hedge and
the ineffective portion recognised in the statement of profit or loss.
These gains or losses in OCI are accumulated in a component in
equity and are re-classified to the statement of profit or loss when
the hedge contract is consumed.
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.
MMS Annual Report 2019 6767
Notes to the Financial Statements
For the year ended 30 June 2019
(xiv) Provisions
(xvii) Issued capital
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event and when it is
probably that the Group is required to settle the obligation,
and the obligation can be reliably estimated.
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.
(xv) 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”).
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.
Group companies
On consolidation of the financial results and affairs of foreign
operations, assets and liabilities are translated at prevailing
exchange rates at reporting date and income and expenses for the
year at average exchange rates. The resulting exchange differences
from consolidation are recognised in other comprehensive income
and accumulated in equity. On disposal of a foreign operation,
the component of other comprehensive income relating to that
particular foreign operation is recognised in profit or loss.
(xvi) 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.
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.
Shares purchased by the Company or any entity in the Group are
classified as treasury shares and the incremental cost of acquiring
those share are deducted from share capital.
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 an indefinite lives are tested for
impairment biannually 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 is that uses a cost of capital and risk premia specific to
the cash generating unit amongst other factors.
Lease assets residual value
The Group has proprietary interest to assets held under operating
leases and accordingly, carry an inherent risk for the residual value
of the asset. Estimates of significance are used in 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 a 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 an
assessment of the future value of these P&A funded assets.
68
68
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
Tyre and maintenance services
The Group holds the residual risk for the provision of tyre and
maintenance services which ultimately affects profit or loss for
those contracts. Profit attributed over the life of the contract and
losses that are provided in full in the period that the loss making
contract is first determined, is adjusted in the amount of revenue
recognised. The assessment of attributable revenue requires
significant estimates in relation to factors that affect expected
realisable margins and stage of completion. Calculations are
performed monthly and key estimates and underlying assumptions
are reviewed on an ongoing basis.
Underwriting premium revenue and deferred acquisition costs
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.
Costs directly in relation to the origination of underwriting premium
revenue are deferred acquisition costs. The measurement is similar
to the methodology used to assess unearned premium and requires
the use of judgement to estimate the pattern of incidence of risk.
Impairment of financial assets
Finance lease receivables, trade and other receivables are
assessed for expected credit loss (ECL). The ECL for finance
lease receivables includes the inherent risk attached to the
credit assessment of each customer, estimate of customer
default risk, environment and inventory risk and other factors
affecting recoverability.
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,
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 a 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.
(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 (P&A) facilities.
This level is expected to cover any short term financial market
constraint for funds. The Group monitors daily positive operating
cash flows and forecasts cash flows for a twelve month period.
Significant cash deposits have been maintained which enable the
Group to settle obligations as they fall due without the need for
short term financing facilities. The Chief Financial Officer and the
Group Treasurer monitor the cash position of the Group daily.
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.
MMS Annual Report 2019 6969
Notes to the Financial Statements
For the year ended 30 June 2019
Asset Management revolving borrowing
facilities in local currency
2019
2018
Facility
Used
Unused
Facility
Used
Unused
Revolving borrowing facilities (AUD ‘000)
384,342
296,880
87,462
375,922
293,029
82,893
Secured bank borrowings
(excluding borrowing costs)
Maturity
dates
Facility
Used
Unused
Facility
Used
Unused
AUD’000
AUD’000
AUD’000
NZD’000
NZD’000
GBP’000
GBP’000
GBP’000
31/03/2021
31/03/2021
31/03/2021
31/03/2021
31/03/2021
31/01/2021
31/03/2021
31/03/2021
85,000
35,000
90,000
20,000
15,000
35,000
22,000
22,000
65,000
35,000
80,800
13,700
14,700
16,700
21,200
12,000
20,000
-
9,200
6,300
300
18,300
800
10,000
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
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 other bank uncommitted P&A facilities of $145 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.
Total borrowing facilities at reporting date increased by approximately $8.4 million together with the extension of maturity dates for some facilities
following the re-negotiation with the Club of financiers during the year. The revolving facilities of $65 million that were due to mature on 31
March 2020 were extended for another year. The NZD32.7m facilities that were due to mature on 31 March 2020 have increased to NZD 35.0
million with a new maturity date of 31 March 2021. Committed bank facilities for UK operations reduced by GBP10 million in aggregate as the
mix of internal funding and the employment of P&A in the provision of lease financing continue to evolve. The facilities for GBP35 million and
GBP22 million were extended another year to March 2021. The headroom from committed facilities and uncommitted P&A facilities, a GBP6
million committed working capital facility for the Company’s UK joint venture supported by an unsecured guaranteed by the Company, together
with contractual lease receivable cash flows, will provide the necessary funding requirements for the next twelve months of forecast new lease
additions.
70
70
MMS Annual Report 2019
Notes to the Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2019
For the year ended 30 June 2019
Other amortising borrowing
facilities in local currency
Amortising borrowing facilities (AUD ‘000)
2019
2018
Facility
31,565
Used
Unused
31,565
-
Facility
45,284
Used
Unused
45,284
-
Total Borrowings (AUD ‘000)
415,907
328,445
87,462
421,206
338,313
82,893
The amortising facilities are borrowed in local currency as follows.
Secured bank borrowings
(excluding borrowing costs)
Maturity
dates
Facility
Used
Unused
Facility
Used
Unused
AUD’000
AUD’000
AUD’000
GBP’000
GBP’000
31/03/2020
31/12/2022
29/09/2022
31/01/2021
31/03/2022
-
8,927
10,435
2,520
4,307
-
8,927
10,435
2,520
4,307
-
-
-
-
-
30,125
30,125
-
-
3,500
5,015
-
-
3,500
5,015
-
-
-
-
-
The above amortising facilities of $19.4 million were established to fund the acquisition of the Presidian Group, the facility of GBP2.5 million was to
fund the acquisition of CLM Fleet Management plc and the facility for GBP4.3 million to fund the acquisition of European Vehicle Contracts Limited
and Capex Asset Finance Limited.
Maturities of financial liabilities
The table below summarises the maturity profile of the Group and the parent entity’s financial liabilities based on contractual undiscounted
payments at the expected settlement dates. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within
12 months equal their carrying value as the impact of discounting is not significant.
MMS Annual Report 2019 Notes to the Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2019
For the year ended 30 June 2019
Consolidated Group –
at 30 June 2019:
Contractual maturities
of financial liabilities
Less than 6
months
$’000
Trade payables
Other creditors and liabilities
Borrowings
27,150
80,137
11,988
6–12
months
$’000
-
6,983
11,599
1–2 years
$’000
2–5 years
$’000
-
2,112
317,462
-
682
19,474
119,275
18,582
319,574
20,156
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
7171
Over 5
years
$’000
-
-
-
-
Over 5
years
$’000
-
-
-
-
Total
contractual
cash flows
$’000
27,150
89,914
Carrying
Amount /
liabilities
$’000
27,150
89,859
360,523
328,299
477,587
445,308
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
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets)/
liabilities
$’000
Parent –
at 30 June 2019:
Contractual maturities
of financial liabilities
Amounts payable to
wholly owned entities
and other payables
Borrowings
Financial guarantee contracts
Parent –
at 30 June 2018:
Contractual maturities
of financial liabilities
Amounts payable to
wholly owned entities
and other payables
Borrowings
Financial guarantee contracts
Less than 6
months
$’000
6–12
months
$’000
1–2 years
$’000
2–5 years
$’000
87,150
3,185
6,293
96,628
-
3,073
6,107
9,180
-
5,922
306,876
-
7,924
5,311
312,798
13,235
-
-
-
-
87,150
87,150
20,104
324,587
19,346
309,953
431,841
416,449
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
150,099
6,320
7,096
-
6,203
6,909
-
19,091
124,698
-
-
192,490
163,515
13,112
143,789
192,490
-
-
-
150,099
150,099
31,614
331,193
30,083
307,793
512,906
487,975
72
72
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(g) 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
2019
$’000
55,002
137,762
138,067
280,705
611,536
2018
$’000
52,402
99,667
171,632
302,128
625,829
2019
$’000
-
9,044
-
-
9,044
2018
$’000
-
3,991
-
-
3,991
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.
(h) 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.
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.
MMS Annual Report 2019 7373
Notes to the Financial Statements
For the year ended 30 June 2019
AUD’000
GBP’000
Total AUD‘0001
2019
2018
Borrowings
‘000
Weighted average
interest rate %
Borrowings
‘000
Weighted average
interest rate %
227,051
56,727
328,445
2.72%
1.91%
2.56%
222,836
64,865
338,311
3.36%
1.88%
2.85%
1. Excluding capitalised borrowing costs of $146,000 (2018: $394,000).
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 2019, the Group’s borrowings for the Asset Management business of $256,591,000 (2018:
$259,843,000) were covered by interest rate swaps at a fixed rate of interest of 2.94% (2018: 2.90%).
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
2019
Balance
$’000
137,762
(309,083)
256,591
(19,362)
2018
Balance
$’000
99,667
(308,187)
259,843
(30,125)
65,908
21,198
1. Excluding capitalised borrowing costs of $146,000 (2018: $394,000) for Asset Management and $26,000 (2018 $42,000) for the bank loan for Presidian.
Sensitivity analysis – floating interest rates:
At 30 June 2019, 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 $780,408 (2018: $700,755) higher or lower and the parent entity $18,056
(2018: $45,000) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings
balances at reporting date.
(ii) Foreign currency risk
The Group’s exposure to foreign currency risk arises from holding 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 predominantly 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.
74
74
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(i) 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 $280,705,000 (2018: $302,128,000) included a residual value
provision of $4,182,000 (2018: $4,653,000).
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 employee benefits administration services for salary packaging and ancillary services
including novated leasing asset and finance procurement, motor vehicle administration and other services, but does not provide financing.
Asset Management - This segment provides financing and finance brokerage services and ancillary fleet management associated with motor
vehicles, commercial vehicles and equipment and retail of used motor vehicles.
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
businesses. Segment revenue and expenses are reported as attributable to the shareholders of the Company and exclude outside equity
interests share.
MMS Annual Report 2019 7575
Notes to the Financial Statements
For the year ended 30 June 2019
2019
Segment from contracts
with customers
Interest revenue
Segment revenue
Timing of revenue recognition:
– At a point in time
– Over time
Segment revenue from contracts with customers
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
Acquisition costs
Provision for finance lease contract loss
(refer note 9(a))
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
Group
Remuneration
Services
$’000
Asset
Management
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
221,851
245,089
80,689
-
704
-
221,851
245,792
80,689
137,562
84,289
221,851
134,563
110,526
245,089
48,992
31,697
80,689
265
1,077
1,342
265
-
265
547,894
1,781
549,674
321,382
226,512
547,894
66,069
17,229
6,359
(960)
88,697
-
-
-
-
-
-
-
-
(1,687)
1,168
(863)
(4,600)
-
(5,982)
1,147
(4,835)
(3,145)
-
-
-
(18,254)
(21,399)
1,024
(20,375)
-
-
265
-
-
265
(80)
185
(4,832)
1,168
(598)
(4,600)
(18,254)
(27,116)
2,091
(25,025)
66,069
12,394
(14,016)
(775)
63,672
76
76
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
2018
Segment revenue from contracts with
customers as originally reported
Interest revenue
Segment revenue
Timing of revenue recognition:
– At a point in time
– Over time
Segment revenue from contracts with customers
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
Group
Remuneration
Services
$’000
Asset
Management
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
207,712
243,547
92,547
-
179
-
207,712
243,726
92,547
130,925
76,787
207,712
127,695
115,852
243,547
60,518
32,029
92,547
-
1,419
1,419
-
-
-
543,806
1,598
545,404
319,138
224,668
543,806
64,148
21,601
8,634
(864)
93,519
-
-
-
-
-
-
-
-
-
(1,620)
5,348
(311)
-
3,417
477
3,894
(8,559)
(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
(c) Other segment information
(i) Segment revenue
Segment revenue is reconciled to the Statement of Profit of Loss as follows:
Total segment revenue
2019
$’000
2018
$’000
547,894
543,806
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 $60,498,000 (2018: $53,139,000) from the Group’s
largest contract. This is the only customer representing greater than 10% of total segment revenue.
MMS Annual Report 2019
7777
Notes to the Financial Statements
For the year ended 30 June 2019
(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:
2019
Segment assets
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation2
2018
Segment assets2
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation3
Group
Remuneration
Services
$’000
Asset
Management
$’000
175,494
66,380
14,848
7,530
540,400
362,466
95,078
69,675
Group
Remuneration
Services
$’000
Asset
Management
$’000
222,177
54,136
12,233
6,189
578,958
373,121
132,075
75,516
Retail
Financial
Services
$’000
103,374
27,543
840
22,157
Retail
Financial
Services
$’000
128,228
32,053
-
50,491
Unallocated1
$’000
Consolidated
$’000
34,230
25,738
-
-
853,598
482,127
110,766
99,362
Unallocated1
$’000
Consolidated
$’000
(68,593)
30,083
-
-
861,902
490,525
144,308
132,196
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 (RFS) segment, utilising the
Group’s borrowing capacity and equity to fund the initial acquisition and ongoing loan maintenance utilising centralised treasury controlled funds.
2. Segment assets in 2018 have been restated to re-classify inter-entity balances relating to unallocated segment activities from the GRS segment to the
Unallocated segment
3. RFS depreciation and amortisation includes impairment of goodwill and other intangibles of $18.2 million (2018: $39.4 million) and in 2018 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
2019
$’000
472,711
65,073
10,814
548,598
2018
$’000
476,356
61,396
7,652
545,404
2019
$’000
335,882
118,238
35,892
489,012
2018
$’000
452,856
65,668
25,097
543,621
78
78
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
6 Intangible Assets
(a) Carrying values
Goodwill
Cost
Impairment loss
Net carrying value
Brands
Brands at cost - indefinite life
Impairment loss and disposal
Net carrying value of brands with an indefinite life
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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
197,748
(60,321)
137,427
22,443
(13,171)
9,272
6,598
(5,720)
10,150
28,602
(12,216)
(5,298)
11,088
60,673
(30,286)
30,387
13,070
(13,070)
-
6,657
(4,381)
2,276
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
191,328
205,939
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
MMS Annual Report 2019
7979
Notes to the Financial Statements
For the year ended 30 June 2019
Intangible assets in software development costs and contract costs, which are not acquired from business combination, are initially measured at
cost and subsequently remeasured 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
Dealer relationships and networks
Customer contracts
Brand names
Useful life
6 to 13 years
5 to 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 are expected from them.
Brand names that have an indefinite life 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
2019
Net book amount
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Total
$’000
Balance beginning of year
155,280
11,551
13,897
2,984
Additions
Transfer to Property, Plant and Equipment
Impairment1
Amortisation
Changes in foreign currency
-
-
(17,985)
-
-
-
-
132
(1,401)
-
-
-
(269)
(2,705)
165
-
-
-
(725)
17
22,142
15,197
(518)
-
85
205,939
-
-
-
15,197
(518)
(18,254)
(6,434)
(85)
(11,350)
-
-
-
314
191,328
Closing balance
137,427
10,150
11,088
2,276
30,387
1 Impairment of intangible assets relate to RFS Retail
80
80
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(c) Reconciliation of written down values (continued)
Consolidated Group
2018
Net book amount
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Total
$’000
Balance beginning of year
191,186
13,734
21,109
Additions
Impairment
Disposal of business
Amortisation
Changes in foreign currency
-
(34,761)
(3,056)
-
(639)
(209)
-
(1,335)
1,911
-
Closing balance
155,280
11,551
-
(3,095)
(1,934)
(2,692)
509
13,897
4,451
-
(893)
-
(737)
163
19,719
10,332
-
(1,500)
(6,409)
-
547
250,746
-
-
-
10,332
(39,388)
(6,699)
(462)
(11,635)
-
2,583
2,984
22,142
85
205,939
(d) Impairment test of goodwill
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 value 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 aggregation business (RFS aggregation)
Retail Financial Services segment retail business (RFS retail)
European Vehicle Contracts Limited (EVC)
Capex Asset Finance Limited (CAPEX)
Consolidated Group
2019
$’000
24,190
9,102
12,955
16,753
65,859
-
3,487
5,081
2018
$’000
24,190
9,102
12,840
16,685
65,859
17,985
3,473
5,146
137,427
155,280
MMS Annual Report 2019
8181
Notes to the Financial Statements
For the year ended 30 June 2019
(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 FY20 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 following average growth rate
assumptions were used in the five year cash flow projections.
CGU
Growth rates
Assumptions
Maxxia and Remserv
Between 1 - 5%
Assumption for steady growth in industry where the CGUs have a
pre-dominant position
EVC
CAPEX
ASF
CLM
Between 3 – 7%
Assumption of moderate growth below historical average growth rates
Between 3 – 11%
Assumption of moderate recovery in the next year followed by
steady growth that is below historical average
Between 3 – 6%
Assumption of moderate growth below historical average growth rates
Between 2 – 5%
Assumption of moderate recovery in the next year followed by
steady growth that is below historical average
RFS Aggregation
Between 2 – 5%
Assumption of moderate growth below historical average growth rates
Cash flows beyond the five year period are extrapolated using conservative growth rates between 1.8% to 2.0% in line with long term CPI.
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 15.8% (2018: 13.8%) 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 2021 and November
2021 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 Finance (ASF) and CLM used a pre-tax discount rate of 12.2% (2018: 13.0%).
From sensitivity tests applied to EVC, CAPEX and CLM, a 0.25% change to the discount rate indicated an impact of $323,000,
$272,000 and $504,000 respectively and a 5% change to revenue indicated an impact of $610,000, $510,000 and $707,000
respectively. ASF has traded to plan and a 5% change to the key assumptions is unlikely to cause significant impairment.
82
82
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
Retail Financial Services CGUs
The RFS segment operates two business groups in Aggregation and Retail that targets the wholesale and retail markets respectively.
The Aggregation and Retail CGUs applied a pre-tax discount rate of 14.1% (2018: 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 $3.5 million for every 0.50%
change to the discount rate and for a 5% change in earnings growth assumption, the estimated recoverable amount could vary by $4.1 million.
The RFS Retail CGU generated revenue that was close to plan but its profitability was below plan due to the changing industry and regulated
practices and consequently, lowered the growth assumptions used in the impairment assessment model. This resulted in an impairment
charge of $17,928,000 for goodwill and $269,000 for Dealer Relationships in the Statement of Profit and Loss in the year.
The warranty business in RFS retail is undertaking enhancements to the design and distribution of the warranty products.
As disclosed in note 29, the Company has a pending 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.
7 Revenue from contracts with customers
Consolidated Group
Parent Entity
Remuneration services
Lease rental services
Proceeds from sale of leased assets
Brokerage commissions and financial services
Other
2019
$’000
221,831
126,560
82,036
116,621
846
2018
$’000
207,714
133,100
78,133
123,887
972
Total revenue from contract with customers
547,894
543,806
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
-
-
-
-
(i) Remuneration services
The Group provides employee benefits administration services for salary packaging and ancillary services including novated leasing asset and
finance procurement, motor vehicle administration and other services, but does not provide financing. Following the change in accounting policy,
administration service fees are collected from customers for the provision of salary packaging services and recognised as revenue at the point in
time that the services are rendered, net of any rebates payable to the employer organisation. Under the previous accounting policy, rebates were
expensed. Fee rates are contractually agreed with each client employer and the provision of administration services are considered to have been
satisfied for each period completed.
The Group receives certain interest for managing funds held in trust for clients pursuant to contractual agreement and is recognised as revenue
in the period that the interest is received for (refer note 13(b)).
The Group derives fees and commission for the procurement of lease finance and financial as well as volume based commissions. Under the
new accounting policy, fees and commission received from the origination of financing and insurance products is recognised at a point in
time when the customer has executed the lease finance or activated the insurance cover and that the Group has no outstanding obligations
consistent wiht previous policy. The Company acts as agent and does not include the premium on policies as revenue. Volume-based rebates
from providers are received on a retrospective basis and revenue is recognised for the period that the rebates are received for.
(ii) Lease rental services
The Asset Management segment provides fleet administration and finance services. Rental income is received for the leasing of assets, interest
from the provision of finance leasing and fees for the provision of tyre and maintenance and other in-life fleet services.
Rental income from operating leases is recognised as revenue on a straight line basis over the term of the lease. 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. Fees received for tyre and
maintenance services are recognised as revenue to the extent that services are completed based on the percentage of costs incurred relative
to expected costs at completion and less the deferral for the portion not recognised as revenue in the period. Fees for fleet administration are
recognised as revenue in the period that services are provided.
MMS Annual Report 2019 8383
Notes to the Financial Statements
For the year ended 30 June 2019
(iii) Sale of leased assets
The Asset Management segment sells motor vehicles at the termination of their lease contract. The Company assumes ownership of the motor
vehicle and disposes the asset as principal. Revenue is recognised for the net proceeds when settlement is completed and ownership of the
motor vehicle passed to the customer.
(iv) Brokerage commissions and financial services
The Group earns revenue from the third party distribution of and administration of wholesale motor vehicle extended warranty products.
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. Fees from the sale of wholesale
warranty discretionary product is recognised as revenue over time and measured using the historical profile of claims to measure probable
future performance obligations net of premium clawbacks. Premium income is subject to clawback for policy terminations and is estimated on
a historical profile of termination rates. Premium income that is not recognised as revenue in the period is deferred in liabilities as unearned
warranty premium.
In the aggregation business, volume-based incentives are received based on the volume of financial products introduced by the network of
dealers and brokers with financiers and providers using contracted rates. Volume-based incentives are recognised as revenue in the period
based on the fact that finance originations are activated by the financier net of rebates provided to dealers and brokers in the network.
Commission income is received from brokerage services for the procurement of lease finance to motor vehicle fleet operators and other
customers as agent of or under a principal and agency arrangement (P&A) with financiers. Under a P&A arrangement the Group acts as agent
for the procurement of lease asset financing and does not possess credit risk or carry on risks of ownership of the underlying finance or asset
with the customer. Commission income from these services is recognised as revenue when the financing arrangements are funded and free
from any service deliverables less a provision for an estimate of expected clawback of commissions from future terminations. The clawback
provisions are calculated using the historical profile of finance terminations. In P&A, the Group has a put and call option to acquire the asset
from the financier at its residual value on termination of the lease which creates an exposure of the carrying value to expected market price for
which the potential impact is assessed at reporting date and the shortfall provided for.
8 Other income items
Consolidated Group
Parent Entity
Interest income
Dividends received
Other income
2019
$’000
1,781
-
1,781
2018
$’000
1,598
2019
$’000
776
-
189,173
1,598
189,949
2018
$’000
43
56,406
56,449
(i)
Interest
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.
(ii) Dividends
Dividends are recognised when the Company’s right to receive payment is established.
84
84
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
9 Profit and loss information
Consolidated Group
Parent Entity
(a) Impairment losses
Impairment of goodwill
Impairment of other intangible assets
Finance lease receivables loss allowance
Subordinated loan loss allowance
Impairment of investment in subsidiaries
2019
$’000
17,985
269
4,874
812
-
2018
$’000
34,761
4,627
-
-
-
23,940
39,388
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
-
-
44,587
44,587
The Group’s impairment of goodwill and other intangible assets relate to the RFS retail segment following a review of the projected cash flows.
Refer note 6(e) for the bases and assumptions used in the assessment.
The expected loss allowance from finance leases is due mainly to the UK asset management business having entered into a series of short-term
contracts, allowing the return of vehicles without the customary contract break fee with a customer that has subsequently been placed into
administration and many vehicles having been returned prematurely.
(b) Loss on disposal of business
Goodwill written-off
Intangible assets written-off
Redundant assets written-off
Termination costs of contractual arrangements, employees and property
Other closure costs
Consolidated Group
Parent Entity
2019
$’000
-
-
-
-
-
-
2018
$’000
3,056
2,142
1,500
1,471
390
8,559
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
-
-
-
-
In the year ended 30 June 2018, 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 write-off of redundant assets and costs of
closure.
MMS Annual Report 2019 8585
Notes to the Financial Statements
For the year ended 30 June 2019
(c) Other operating expenses
Consulting
Marketing
Property and corporate
Technology and communication
Other
(d) Other expense items
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
Rental expense on operating leases
Minimum lease payments
Superannuation
Consolidated Group
Parent Entity
2019
$’000
5,180
6,106
10,939
13,044
11,612
46,881
2018
$’000
2,396
4,930
11,130
11,909
12,353
42,718
2019
$’000
2018
$’000
199
-
340
-
-
539
201
-
336
-
-
537
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
6,519
-
66,246
3,511
4,832
81,108
6,409
462
71,218
3,183
4,764
86,036
9,647
9,238
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Defined contribution superannuation expense
8,796
8,520
86
86
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
10 Income Tax Expense / (Benefit)
Consolidated Group
Parent Entity
(a) Components of tax expense / (benefit)
Current tax expense / (benefit)
Adjustments for current tax of prior years
Deferred tax
Income tax expense / (benefit)
2019
$’000
42,075
56
(6,252)
35,879
2018
$’000
37,237
(190)
(1,950)
35,097
2019
$’000
(82)
-
(342)
(424)
(b) The prima facie tax payable on profit before income tax is
reconciled to the income tax expense / (benefit) as follows:
2019
$’000
2018
$’000
2019
$’000
Consolidated Group
Parent Entity
2018
$’000
(773)
-
(10)
(783)
2018
$’000
9,209
Profit before income tax
Prima facie tax payable on profit before
income tax at 30% (2018: 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
99,696
84,931
187,765
29,908
25,479
56,329
2,763
668
5,396
(222)
203
-
(251)
233
(56)
35,879
344
11,345
(1,040)
-
410
123
(1,351)
(213)
35,097
-
-
-
-
-
-
-
13,376
-
-
-
-
-
-
56,329
16,139
-
-
(56,753)
(16,922)
Income tax expense / (benefit)
35,879
35,097
(424)
(783)
MMS Annual Report 2019
8787
Notes to the Financial Statements
For the year ended 30 June 2019
(c) Deferred tax asset / (liability)
The balance comprises temporary differences and tax losses
attributed for:
Amounts recognised in profit or loss
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
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
FX
292
6,795
(6,686)
9,778
(1,718)
-
589
325
(6,126)
(127)
-
3,122
209
3,331
13,008
(9,677)
3,331
(3,204)
6,252
279
4
168
6,581
(7,680)
8,450
(2,549)
(2,062)
916
806
(7,644)
(342)
151
(3,205)
1
(3,204)
729
(3,933)
(3,204)
(5,344)
1,963
(37)
214
Closing balance at 30 June
3,331
(3,204)
-
-
-
160
(1,134)
-
-
53
-
-
-
-
-
-
-
(696)
-
-
158
-
-
-
(921)
(538)
(26)
(947)
-
(947)
947
(558)
(342)
(47)
-
(947)
(20)
(558)
-
(558)
(558)
(568)
10
-
-
(558)
(d) Income tax asset
6,026
-
-
-
During the year the Company received amended income tax assessments for FY12, FY13 and FY14 of $6,206,000 which the Company
considers to have been incorrectly determined and has raised objections with the taxation authorities. However the Company has paid the
assessments to reduce the income tax liabilities and prevent any potential charges and is working with the taxation authorities to recover
the payments.
88
88
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(e) Unrecognised temporary differences
Temporary differences that have not been tax effected:
Unused tax losses for which no deferred tax asset
has been recognised
Foreign currency translation of investments in subsidiaries
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
1,329
4,560
5,889
1,329
5,596
6,925
-
-
-
-
-
-
Unused tax losses were incurred by a subsidiary that is now dormant and is unlikely to generate sufficient taxable income to use these losses
or is expected to be available for group relief.
Foreign exchange translation differences in overseas investments will only be realised when the investments are disposed of in the
foreseeable future.
(f) Recognition and measurement
The income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for
each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in
the countries where the entities in the Group operate and generate taxable income.
(i) Deferred tax
Deferred tax assets and liabilities are recognised for all temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based
on those rates which are enacted or substantially enacted. Deferred tax is not recognised if they arise from the initial recognition of goodwill.
Deferred tax assets are reviewed at each reporting date and the carrying value is reduced to the extent that it is probable future taxable profits
will be available to utilise these temporary differences. Deferred tax assets and liabilities are offset only if certain criteria are met with respect to
legal enforceability and within the same tax jurisdiction.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amounts and tax bases of investments
in subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Current and deferred tax on items that are accounted for in other comprehensive income or equity are recognised in other comprehensive
income and equity respectively. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and the deferred taxes relate to the same taxable entity and the same taxing authority.
(ii) Tax consolidation
The Company and its wholly-owned Australian resident entities are members of a tax consolidated group under Australian taxation law. The
Company is the head entity in the tax consolidated group. Entities within the tax consolidated group have entered into a tax funding agreement
and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, the Company and each of the entities in the
tax consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax
asset of the head entity.
(iii) Investment allowances
Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances) or a tax
credit under the incentive regime in Australia in relation to eligible research & development expenditure. The Consolidated Group accounts for
such allowances as a reduction in income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits.
MMS Annual Report 2019
8989
Notes to the Financial Statements
For the year ended 30 June 2019
11 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
2019
2018
77.0
60.9
$63,672
$50,303
82,667
82,616
Basic earnings per share is calculated by dividing the profit attributable to members of the Company by the weighted average number of
ordinary shares outstanding during the financial year.
Diluted earnings per share
Diluted EPS – cents per share
Earnings used to calculate basic earnings per share ($’000)
76.4
60.6
Weighted average number of ordinary shares outstanding during the year used in the calculation of basic
EPS (‘000)
Weighted average number of options on issue outstanding (’000)
82,667
82,616
2,392
1,483
Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted
EPS (‘000)
85,059
84,099
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.
90
90
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
12 Dividends
Final fully franked ordinary dividend for the year ended
30 June 2018 of $0.40 (2017: $0.35) per share franked
at the tax rate of 30% (2017: 30%)
Interim fully franked ordinary dividend for the year ended
30 June 2019 of $0.34 (2018: $0.33) per share franked
at the tax rate of 30% (2018: 30%)
Franking credits available for subsequent financial years
based on a tax rate of 30% (2018 – 30%)
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
33,066
28,938
33,066
28,938
28,107
27,279
28,107
27,279
61,173
56,217
61,173
56,217
128,758
111,752
128,758
111,752
The above amounts represent the balance of the franking account at the end of the financial year end adjusted for:
–
–
–
franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid
as dividends.
Recognition and measurement
Dividends are brought to account when declared and appropriately authorised before the end of the financial year but not distributed at balance date.
MMS Annual Report 2019
9191
Notes to the Financial Statements
For the year ended 30 June 2019
13 Cash and Cash Equivalents
Consolidated Group
Parent Entity
Cash on hand
Bank balances
Short term deposits
2019
$’000
9
103,377
34,376
137,762
2018
$’000
9
69,839
29,819
99,667
2019
$’000
4
9,040
-
9,044
2018
$’000
4
3,987
-
3,991
(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 2019, the floating interest rates for the Group and parent entity were between 0.77% and 1.80% (2018: 1.35% and 1.6%). The short term
deposits are also subject to floating rates, which in 2019 were between 1.76% and 2.53% (2018: 1.80% and 2.20%). These deposits have an
average maturity of 90 days (2018: 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 arrangements 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 specially 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 the Group
Client monies in trust, interest accruing to clients
Consolidated Group
Consolidated Group
2019
2018
Average
interest rate %
2.50%
2.36%
Average
interest rate %
2.30%
2.23%
$’000
380,123
32,518
412,641
$’000
373,485
33,085
406,570
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 at an average interest rate of 2.50% (2018: 2.30%).
Interest received
Consolidated Group
2019
$’000
9,570
2018
$’000
9,077
92
92
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
14 Trade and Other Receivables
Current
Trade receivables
Other receivables
Income tax receivable (refer note 10(d))
Amounts receivable from wholly owned entities
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
23,636
31,366
6,026
-
28,747
23,655
-
-
61,028
52,402
-
-
-
49,350
49,350
-
-
-
7,258
7,258
The carrying amount of all current receivables are equal to their fair value as they are short term and fully recoverable.
(a) Trade receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business and held with the objective of
collecting cash flows. They are generally settled within 30 days and the carrying amount that includes a loss allowance of $793,000 is generally
considered to equal their fair value and recoverable.
Impairment of trade receivables
The recoverability of trade receivables is reviewed on an ongoing basis. The Group applies the AASB 9 simplified model of recognising lifetime
expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit
losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. The expected loss rate
for trade receivables has been based on the credit loss history on sales over the previous 36 months and adjusted for forward looking factors.
On this basis, the loss allowance for trade receivables have been estimated as follows.
Consolidated Group
Parent Entity
Expected loss rate
Gross carrying amount
Loss allowance
Ageing and expected credit loss
of trade receivables
Not past due
Past due 30 days
Past due 31-60 days
Past due 61-90 days
Past due > 90 days
Total
$’000
18,840
3,176
1,062
457
894
24,429
2019
$’000
3.25%
24,429
793
2018
$’000
2.41%
29,461
714
2019
Loss
allowance
$’000
Amount not
impaired
$’000
18,840
3,176
1,062
326
232
-
-
-
(131)
(662)
(793)
Total
$’000
23,155
4,198
746
301
1,061
23,636
29,461
2019
$’000
2018
$’000
-
-
-
2018
-
-
-
Loss
allowance
$’000
Amount not
impaired
$’000
-
-
(87)
(102)
(525)
(714)
23,155
4,198
659
199
536
28,747
(b) 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.
(c) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the Group and carried at amortised cost. None of the
other current receivables are impaired or past due.
MMS Annual Report 2019
9393
Notes to the Financial Statements
For the year ended 30 June 2019
15 Finance Lease Receivables
Consolidated Group
Parent Entity
Current finance lease receivables
Non-current finance lease receivables
2019
$’000
57,412
80,654
2018
$’000
71,137
100,495
138,066
171,632
2019
$’000
2018
$’000
-
-
-
-
-
-
Recognition and measurement
Asset Management finance lease contracts entered into with customers are recognised as finance lease receivables and classified as financial
assets that are measured at amortised cost as the objective is to collect contractual cash flows comprising principal and interest.
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.
Impairment of financial assets
Finance lease receivables loss provision
Expected credit loss provision
Specific provision
The movement in the expected loss provision is set out below.
Balance at start of year
Re-statement of loss provision on transition to AASB 9
Re-stated carrying value at start of the financial year
Specific loss allowance1
Loss allowance discharged
Changes in foreign currency
Balance at end of year
1 Includes the one-off provision for a UK contract of $4,600,000.
Consolidated Group
Parent Entity
2019
$’000
1,128
2,021
3,149
2018
$’000
-
741
741
2019
$’000
2018
$’000
-
-
-
-
-
-
Consolidated Group
Parent Entity
2019
$’000
191
1,223
1,414
4,874
(3,059)
(80)
3,149
2018
$’000
2019
$’000
2018
$’000
191
-
191
-
-
-
191
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group applies the AASB 9 simplified approach to measuring Expected Credit Losses (ECL) which uses a lifetime expected loss allowance
for all trade receivables and finance and hire purchase lease receivables. To measure ECL, trade receivables and finance lease and hire
purchase receivables have been grouped based on substantially shared credit risk characteristics.
The Group uses the assessment criteria from its credit management system and forward looking indicators to reflect macro-economic factors
to estimate the expected credit loss for finance leases and hire purchase receivables. The expected loss rate is calculated using the credit
management system’s default rate assigned for each customer adjusted by the expected recoverable rate plus deflators for duration and other
economic or business environmental factors.
94
94
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
On this basis, the loss expected at reporting date was determined as follows.
Expected loss rate
Gross carrying amount
Loss allowance
Amounts receivable under finance lease receivables
Within one year
Later than one but not more than five years
Later than five years
Consolidated Group
Parent Entity
2019
$’000
0.79%
142,829
2018
$’000
0.71%
171,632
1,128
1,223
2019
$’000
2018
$’000
-
-
-
-
-
-
Consolidated Group
Minimum
lease
payments
2019
$’000
Present value
of lease
payments
2019
$’000
Minimum
lease
payments
2018
$’000
Present value
of lease
payments
2018
$’000
67,579
80,513
292
56,796
80,985
285
81,432
98,253
3,756
74,638
93,357
3,637
148,384
138,066
183,441
171,632
Less: unearned finance income
(10,318)
-
(11,809)
-
Present value of minimum lease payments
138,066
138,066
171,632
171,632
MMS Annual Report 2019
9595
Notes to the Financial Statements
For the year ended 30 June 2019
16 Other financial assets
(a) Investment in subsidiaries
Shares in subsidiaries at cost
Consolidated Group
Parent Entity
2019
$’000
-
2018
$’000
2019
$’000
2018
$’000
-
286,243
282,246
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described in Note 2.
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
National Dealer Services Pty Ltd
Motorsure Pty Ltd
Presidian Management Services Pty Ltd
ADU Investments 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
2019
% Owned
2018
Principal activities
Australia
Australia
Australia
Australia
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%
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%
75%
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
Retail financial services
Retail financial services
Retail financial services
Retail financial services
Asset management
Plan management services
Investment holding
Asset management
Fleet management services
Fleet management services
Fleet management services
Fleet management services
Dormant
Asset management and services
Software development
1 These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with ASIC Corporations (Rounding in Financial / Directors’
Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission. For further information refer to Note 33.
96
96
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
Recognition and measurement
The Group’s investment in its subsidiaries are recognised at cost less impairment.
(b) Subordinated loan receivable
Carrying value at start of the financial year previously stated
Reverse share of losses of equity accounted joint venture –
refer note 2(e)(i)
Expected loss allowance – refer note 2(e)(i)
Re-stated carrying value at start of the financial year
New loans during year
Expected credit loss allowance
Share of losses of equity accounted joint venture
Changes in foreign currency
Carrying value at end of the financial year
Consolidated Group
Parent Entity
2019
$’000
1,169
6,129
(7,238)
-
812
(812)
-
-
-
2018
$’000
1,586
-
-
1,586
1,442
-
(1,365)
(494)
1,169
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Recognition and measurement
The loan and other expense receivable is made up of advances to the joint venture with Maxxia Limited in the UK (“JV”, refer note 17) as part
of the working capital facility provided pursuant to the Group’s investment arrangement and forms part of the net investment in the JV. The loan
is classified as a financial asset at amortised cost. In the previous financial year, the fair value of the loan was not materially different to the
carrying value and there was no objective evidence that the JV would default. On transition to AASB 9 (as amended) at the start of the financial
year, fair value was assessed on an expected credit loss basis and it was considered appropriate to provide for a loss allowance that was
consistent with the trading outlook and prospective strategic plans being considered. Accordingly, the credit loss allowance takes precedence in
application to the loan receivable before equity accounting to absorb the Group’s share of the JV’s loss that is in excess of investment cost.
At reporting, the subordinated loan was assessed to be impaired and $812,000 was expensed in the Statement of Profit and Loss.
Risk exposure
The maximum facility under the arrangement is GBP5.0 million together with other expenses agreed between the joint venture parties. 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 JV from 50% to 60%. The loan accrues interest at commercial rates and the balance at
reporting date approximates fair value.
MMS Annual Report 2019
9797
Notes to the Financial Statements
For the year ended 30 June 2019
17 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
2019
$’000
337
(337)
-
2018
$’000
337
(337)
-
2019
$’000
2018
$’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. Under the contractual agreement, the Group together with the joint
venture partner jointly control the economic activities and key decisions of the JV entity. The arrangement requires unanimous consent of the
parties for decisions about the JV’s relevant activities which include key strategic, financial and operating policies that affect the Group’s returns.
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 any 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.
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net liabilities
The net liabilities of Maxxia Limited (UK) is reconciled to the carrying amount of the Group’s interest is as follows.
Net liabilities of JV
Group ownership interest (50%)
Carrying amount
Cumulative losses of JV equity accounted
The Group’s share of the JV losses is limited to its carrying value.
Consolidated Group
2019
$’000
9,550
97
9,647
16,906
8,057
24,963
2018
$’000
6,144
81
6,225
11,382
7,233
18,615
(15,316)
(12,390)
(15,316)
(7,658)
-
-
(12,390)
(6,195)
-
(6,466)
98
98
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
Joint venture financial results
Revenues
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
18 Property, Plant and Equipment
(a) Plant and equipment
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
Consolidated Group
2019
$’000
6,164
(9,077)
(2,913)
-
(2,913)
-
-
2018
$’000
4,040
(6,770)
(2,730)
-
(2,730)
(1,365)
-
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
25,385
(17,958)
7,427
23,278
(16,035)
7,243
434,508
(153,803)
458,732
(156,604)
280,705
288,132
74,030
214,102
302,128
309,371
70,910
238,461
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
--
-
-
-
-
-
-
Total plant and equipment
288,132
309,371
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
74,030
70,910
206,675
231,218
280,705
302,128
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(b) Movements in cost and accumulated depreciation
Year ended 30 June 2019
Balance at the beginning of year
Additions
Transfer from software development
Disposals / transfers to assets held for sale
Depreciation expense
Residual value adjustment
Change in foreign currency
Balance at 30 June
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
9999
Total
$’000
309,371
95,316
518
(48,520)
(69,757)
472
732
Consolidated Group
Plant and
equipment
$’000
Assets under
operating lease1
$’000
7,243
3,395
518
(63)
(3,511)
-
(155)
7,427
7,542
2,581
-
(3,183)
303
7,243
302,128
91,921
-
(48,457)
(66,246)
472
887
280,705
288,132
299,189
131,046
(56,163)
(71,218)
(726)
306,731
133,627
(56,163)
(74,401)
(423)
302,128
309,371
1. Accumulated provision for impairment loss at reporting date is $4,182,000 (2018: $4,653,000).
(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 rental payments received are 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 is classified as inventory.
100
100
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
19 Trade and Other Payables
Consolidated Group
Parent Entity
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Amounts payable to wholly owned entities
2019
$’000
27,150
6,177
61,261
-
2018
$’000
2019
$’000
2018
$’000
28,078
2,515
64,674
-
-
-
1,741
85,409
-
-
246
149,853
94,588
95,267
87,150
150,099
Recognition and measurement
Trade and other payables are recorded initially at fair value, and subsequently at amortised cost. Given that they are short term in nature their
carrying value is representative of fair value and undiscounted. Trade and other payables and non-interest bearing are unsecured. Financial
liabilities are derecognised when the Group’s obligations are discharged, cancelled or expire pursuant to its commitments.
20 Other Liabilities
(a) Other liabilities
Revenue received in advance
Unearned property incentives
Consolidated Group
Parent Entity
2019
$’000
3,257
5,590
8,847
2018
$’000
3,498
5,577
9,075
2019
$’000
2018
$’000
-
-
-
-
-
-
Recognition and measurement
Revenue received in advance
Customer receipts in advance represent payments for future services.
Unearned property incentives
Property incentives received are amortised over the term of the lease.
(b) Contract liabilities
Maintenance fees received in advance
Rebates and cancellations
Consolidated Group
Parent Entity
2019
$’000
3,388
2,663
6,051
2018
$’000
3,746
5,209
8,955
2019
$’000
2018
$’000
-
-
-
-
-
-
Maintenance fees received in advance
Maintenance fees received in advance is income from maintenance service contracts that is unearned based on the historical profile of
costs incurred to date over expected total cost.
Rebates and cancellations
Brokerage commissions from the provision of financial services allow for rebates to be paid to its dealer/broker network and commissions
received from the origination business may be clawed back by the financial service providers. The potential for rebates and clawback are
calculated based on the historical profile of rebates and commissions and changes to the provision are recognised in revenue from contracts
with customers.
MMS Annual Report 2019
101101
Notes to the Financial Statements
For the year ended 30 June 2019
21 Provisions
Consolidated Group
Parent Entity
Current
Employee benefit liabilities
Provision for onerous contracts
Non current
Provision for long service leave
Provision for onerous contracts
Balance at start of the year
Employee benefits earned and accrued in the year
Finance charges and provision adjustments
Payments in the year
Balance at the end of the year
2019
$’000
10,339
749
11,088
1,365
-
1,365
2018
$’000
2019
$’000
2018
$’000
9,729
468
10,197
1,391
936
2,327
-
-
-
-
-
-
-
-
-
-
-
-
Employee benefit liabilities
Provision for onerous rent
2019
$’000
11,120
7,929
(7,345)
11,704
2018
$’000
10,655
7,022
(6,557)
11,120
2019
$’000
1,404
-
(147)
(508)
749
2018
$’000
1,886
-
24
(508)
1,404
Recognition and measurement
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and where it is probable
that the Group is required to settle the obligation, and the obligation can be reliably estimated.
Provisions are measured at the present value of expenditure expected at settlement. The discount rate used to determine the present value
reflects the current pre-tax market rate of the time value of money and the risks specific to the liability. The increase in the provision due to the
passage of time is recognised as interest expense.
Employee benefits
Employee entitlements to annual and long service leave have been provided for based on amounts expected to be paid when the leave
entitlements are used. Employee leave provisions are presented as current liabilities in the statement of financial position if the Group does not
have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is
expected to occur.
Annual leave and long service leave that is 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.
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.
102
102
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
22 Borrowings
Current
Bank loans – at amortised cost
Non-current
Bank loans – at amortised cost
Total borrowings
(a) Recognition and measurement
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
8,779
14,505
5,761
11,500
319,520
323,371
328,299
337,876
13,585
19,346
18,583
30,083
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 $308,953,000 (2018: $337,876,000).
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 Maxxia Finance Ltd satisfy various business parameters.
At all times throughout the year, the Group operated with significant headroom against all of its borrowing covenants.
(c) Fair value disclosures
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market
interest rate that is available to the Group for similar financial instruments. The fair value of current borrowings approximates the carrying
amount, as the impact of discounting is not significant.
(d) Risk exposures
Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in Note 4.
MMS Annual Report 2019 103103
Notes to the Financial Statements
For the year ended 30 June 2019
23 Contingent consideration
Consolidated Group
Parent Entity
Current
Non-current
Contingent consideration
(a) Recognition and measurement
2019
$’000
-
1,374
1,374
2018
$’000
1,756
4,402
6,158
2019
$’000
2018
$’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
Fair value adjustment in Profit or Loss
Finance expense
Payments
Change in foreign currency
Balance at 30 June
2019
$’000
6,158
(1,168)
265
(3,741)
(140)
1,374
2018
$’000
10,815
(5,348)
311
-
380
6,158
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
-
-
-
-
Contingent consideration is initially recorded at fair value on business combination and subsequently, reassessed at the fair value at each
reporting date. Changes to the carrying value is recognised in the Statement of Profit or Loss.
The fair value assessed at reporting date resulted in an adjustment of $4,324,000 for European Vehicle Contracts Limited (EVC) and Capex
Asset Finance Limited (CAPEX). Based on the performance to date and expected performance and plans to the date of the earnouts, it was
considered unlikely that further payments will be required under the existing agreements. A contingent consideration of $3,156,000 has
been valued for Anglo Scottish Finance plc (ASF) under a revised agreement completed in the year. The original agreement recognised
earn-out targets that were deemed aggressive performance targets based on post-acquisition performance achieved to 30 June 2018 which
consequently, affected the prospects of achieving the original earnout targets and the provision written-back to the Statement of Profit or Loss
for the year then ended. These impacts have been recognised in the Statement of Profit or Loss.
24 Issued Capital
(a) Share capital
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
83,204,720 (2018: 83,204,720) fully paid ordinary shares
135,868
135,868
135,868
135,868
(b) Movements in issued capital
Shares issued
Treasury shares
Shares held by external shareholders at 30 June 2019
There were no movements in issued capital during the year.
Number
of shares
Issue
price
83,204,720
(538,129)
82,666,591
-
-
Ordinary
shares
$’000
135,868
-
135,868
104
104
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
Shares issued 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
Number
of shares
Issue
price
$10.92
-
$14.08
83,204,720
-
-
(692,369)
82,512,351
(255,752)
409,992
82,666,591
Ordinary
shares
$’000
141,088
4,477
50
(9,747)
135,868
-
-
135,868
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.
The balance of 538,129 treasury shares brought forward at the beginning of the year was unchanged at reporting date.
(d) Options
At 30 June 2019, there were 2,030,950 (2018: 1,392,861) unissued ordinary shares for which options were outstanding and exercisable at an
average price of $13.68 (2018: $11.59). 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 31.
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 27% (2018: 39%) calculated as net debt of $190,713,000 (2018: $238,209,000) divided by total debt and
equity of $699,843,000 (2018: $609,562,000). 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.
MMS Annual Report 2019
105105
Notes to the Financial Statements
For the year ended 30 June 2019
25 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.
The balance in reserves representing share-based equity rights and options are transferred to retained earnings upon vesting.
During the year $9,969,000 was transferred to retained earnings.
(b) Cash flow hedge reserve
Revaluation - gross
Deferred tax
Balance at the end of the financial year
Consolidated Group
Parent Entity
2019
$’000
(1,157)
279
(878)
2018
$’000
36
1
37
2019
$’000
88
(26)
62
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
2019
$’000
2018
$’000
(4,560)
(5,596)
2019
$’000
-
2018
$’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
In the previous year, the Company contributed $2,855,000 to the EST to acquire MMS shares for distribution to employees under the Group LTIP.
The EST holds a balance of 538,129 of treasury shares.
106
106
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
26 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
2019
$’000
(1,194)
37
Contingent consideration
(1,374)
(6,158)
2018
$’000
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 of approximately $9.5m and EBITDA in the
region of $3.2m.
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 ASF is based on variable earnouts depending on the achievement of EBITDA targets.
A 5% increase in EBITDA is not expected to make a material difference to the earnout.
Consolidated Group
Carrying
amount
2019
$’000
Carrying
amount
2018
$’000
Fair
value
2019
$’000
Fair
value
2018
$’000
Finance lease receivables – non-current
80,654
100,495
77,231
92,267
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 3.30% (2018: 3.58%). 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.
MMS Annual Report 2019
107107
Notes to the Financial Statements
For the year ended 30 June 2019
27 Cash Flow Information
(a) Reconciliation of cash flow from operations with
profit from operating activities after tax
Consolidated Group
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Profit for the year
63,817
49,834
188,189
9,992
Non cash flows in profit from operating activities
Amortisation
Impairment
Depreciation
Option expense
Loss on disposal of business
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 and disposals
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
(Decrease) / increase in provisions
11,351
23,940
69,757
(750)
-
(1,168)
-
11,635
39,388
74,401
1,499
8,559
(5,348)
1,365
(318,756)
(336,694)
42,996
227,104
57,214
160,865
-
-
-
-
-
-
-
-
-
-
(4,403)
25,233
(6,347)
(5,962)
3,103
2,973
(6,354)
64,990
(5,022)
(2,192)
1,684
1,836
179
2,162
(1,760)
388
-
-
-
44,587
-
-
-
-
-
-
-
-
1,772
(73)
(2,416)
(10)
-
-
Net cash from operating activities
132,888
117,660
189,158
53,852
(b) Proceeds from sale of lease portfolio
Proceeds from a sale of a portion of the UK fleet that was moved off balance sheet as part of the 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 to change the mix of funding between syndicate banks together with the
repayment of amortising loans.
108
108
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
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
2019
$’000
2018
$’000
328,430
338,312
-
-
2019
$’000
19,362
36,059
2018
$’000
30,125
149,853
Financing liabilities
328,430
338,312
55,421
179,978
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
2019
$’000
338,312
(10,696)
-
814
2018
$’000
339,966
(8,176)
2019
$’000
179,978
(10,762)
-
(113,795)
6,522
-
2018
$’000
174,577
(11,500)
16,901
-
Liabilities at the end of the period
328,430
338,312
55,421
179,978
28 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
2019
$’000
8,024
31,808
17,095
56,927
2018
$’000
9,659
25,325
7,498
42,482
2019
$’000
2018
$’000
-
-
-
-
-
-
-
-
MMS Annual Report 2019 109109
Notes to the Financial Statements
For the year ended 30 June 2019
29 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 for obligations under principal and agency facilities
Guarantee provided in respect of a working capital facility
Guarantees provided in respect of property leases.
Consolidated Group
Parent Entity
2019
$’000
12,550
14,478
10,724
5,512
43,264
2018
$’000
13,050
-
-
6,440
2019
$’000
50
11,171
10,724
-
19,490
21,945
2018
$’000
50
-
-
-
50
The Company has been served with a class action 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 class action
seeks orders that the NWC warranties are void, and seeks either the restitution or a refund of the premium paid and interest on that amount,
regardless of whether claims were in fact met and the contracts performed. 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.
110
110
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
30 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 2019 and 2018 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
2019
$
2018
$
2019
$
2018
$
-
-
-
-
-
-
189,173,277
56,406,000
49,350,000
7,258,226
85,409,000
149,852,525
Consolidated Group
Parent Entity
2019
$
2018
$
2019
$
2018
$
3,210,946
3,594,872
2,276,442
2,194,232
208,656
26,795
(348,013)
160,657
71,348
678,599
113,856
31,732
(254,914)
112,009
35,370
483,500
3,098,384
4,505,476
2,167,116
2,825,111
MMS Annual Report 2019
111111
Notes to the Financial Statements
For the year ended 30 June 2019
31 Share-Based Payments
The Company operates a 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 Options and Performance Rights during the year. Historically, the
Company has only issued Performance and Voluntary Options and on a triennial basis. Under the new LITP, the Company will seek 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 and Performance Rights with a three year vesting period. Performance Options
and Performance Rights were issue in the July 2018 grant. The issuance to the Managing Director was granted on 24 October 2017 following
shareholder approval on that day.
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, which may be exercised into ordinary shares subject to 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 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.
Performance hurdles and vesting entitlements
Refer page 38 for details of the terms and conditions for Performance Options and Performance Rights issued in the year.
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.
112
112
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(a) Options
Set out below are summaries of options granted under the plans:
Performance Options Consolidated Group and parent entity - 2019
Grant date
Expiry date
19 August 2014
30 September 2019
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
3 July 2018
30 September 2022
23 October 2018
30 September 2022
Weighted average exercise price
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
$10.18
$13.45
$14.97
$13.45
$13.45
$14.97
$13.45
$16.64
$16.64
538,129
343,769
17,340
71,140
319,057
15,920
66,027
-
-
-
-
-
-
-
-
-
593,796
105,272
1,371,382
699,068
$11.56
$16.64
-
-
-
-
-
-
-
-
-
-
-
-
(11,388)
-
-
538,129
332,381
17,340
71,140
(10,569)
308,488
-
-
(17,543)
-
15,920
66,027
576,253
105,272
538,129
-
-
-
-
-
-
-
-
(39,500)
2,030,950
538,129
$14.87
$13.68
$10.18
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
MMS Annual Report 2019
113113
Notes to the Financial Statements
For the year ended 30 June 2019
Voluntary Options Consolidated Group and parent entity - 2019
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 2018
3 July 2017
3 July 2017
30 September 2020
30 September 2021
$10.18
$13.45
$13.45
Weighted average exercise price
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
Voluntary Options Consolidated Group and parent entity - 2018
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 2018
3 July 2017
3 July 2017
30 September 2020
30 September 2021
$10.18
$13.45
$13.45
Weighted average exercise price
23,981
-
(23,981)
-
-
23,981
$10.18
8,979
12,500
21,479
$13.45
-
-
(23,981)
$10.18
-
-
-
-
-
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
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
2018
$2.54
Nil
$16.64
October
2018
$2.25
Nil
$16.64
2 July 2018
23 October 2018
3.3 years
$16.14
28%
4.2%
2.1%
2.9 years
$15.90
27%
4.6%
2.1%
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.
114
114
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(b) Rights
Set out below is a summary of Performance Rights granted during the year.
Grant date
Exercise date1
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
3 July 2018
30 September 2021
24 October 2017
30 September 2021
Granted
during
the year
Exercised or
sold during
the year
86,287
4,365
17,860
90,894
4,598
18,814
-
-
-
-
-
-
-
-
106,803
18,937
Forfeited
during
the year1
(2,858)
-
-
(3,011)
-
-
(3,155)
-
Balance
at end of
the year
Exercisable
at end of
the year
83,429
4,365
17,860
87,883
4,598
18,814
103,648
18,937
-
-
-
-
-
-
-
-
-
222,818
125,740
(9,024)
339,534
1 The first available exercise date is the date that the Company’s financial statements for the respective years are 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 2018
23 October 2018
Share price
at grant date
Expected life
(years)
Expected
dividend yield
$16.14
$15.90
3.3
2.9
4.2%
4.6%
Fair
value
$14.12
$13.95
(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
2019
$
(359,636)
4,960
(405,103)
2018
$
682,954
5,994
811,049
(749,779)
1,499,997
2019
$
2018
$
-
-
-
-
-
-
-
-
The amount expensed in a period is based on the cumulative amount at each reporting date less amounts expensed in previous periods.
MMS Annual Report 2019
115115
Notes to the Financial Statements
For the year ended 30 June 2019
32 Auditor’s Remuneration
Consolidated Group
Parent Entity
2019
$
2018
$
2019
$
2018
$
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 entities in the Consolidated Group
Assurance related
Remuneration of a network firm of the parent entity auditor:
285,200
278,000
219,220
202,850
Audit or review of the financial statements (UK)
182,673
166,961
-
-
-
-
-
-
116
116
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
33 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 2019 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
2019
$’000
2018
$’000
360,794
(101,400)
(69,318)
(39,598)
(3,622)
(4,739)
(7,947)
(10,391)
(6,681)
(2,038)
-
115,060
(33,841)
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)
Profit attributable to members of the parent entity
81,219
41,352
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
Intra-equity transfer from option reserve
Retained earnings at the end of the financial year
110
(22)
81,329
41,330
202,057
81,219
(61,173)
9,969
216,922
41,352
(56,217)
-
232,072
202,057
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
(b) Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Finance lease receivables
Assets under operating lease
Inventory
Income tax receivable
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
117117
2019
$’000
2018
$’000
100,806
31,293
11,061
74,030
7,026
6,026
69,574
25,626
13,197
67,704
9,740
-
230,242
185,841
177,571
214,813
60,600
8,284
11,410
174,760
432,625
662,867
77,181
4,775
10,324
11,484
103,764
2,076
188,153
190,229
293,993
52,977
3,520
12,820
168,901
453,031
638,872
75,369
1,420
10,144
11,500
98,433
2,125
188,819
190,944
289,377
368,874
349,495
135,868
934
232,072
368,874
135,868
11,570
202,057
349,495
118
118
MMS Annual Report 2019
Notes to the Financial Statements
For the year ended 30 June 2019
34 Events subsequent to the reporting date
On 21 August 2019, MMS announced its intention to return around $80 million to shareholders through an off-market ordinary share buy-back
(Buy-Back). The Buy-Back will be funded from existing cash. MMS will maintain a strong balance sheet following the Buy-Back.
Details about the Buy-Back will be contained in a Buy-Back booklet, including regarding shareholders’ eligibility and the tender process. The
booklet is expected to be released on 28 August 2019 and will be sent to shareholders shortly after that date. The Record Date will be Thursday,
29 August 2019.
Other than the above and matters disclosed in this Annual Report there were no material events subsequent to reporting date.
MMS Annual Report 2019
Directors’ Declaration
The Directors are of the opinion that:
1.
the financial statements and notes on pages 53 to 118 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 2019 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; and
3. at the date of this declaration, there are reasonable grounds to
believe that the members of the extended closed group identified
in Note 33 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 33.
119119
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 Directors
of McMillan Shakespeare Limited.
Tim Poole
Chairman
Michael Salisbury
Managing Director
21 August 2019
Melbourne, Australia
120
120
MMS Annual Report 2019
Independent Audit Report
As at 30 June 2019
Collins Square, Tower 5
727 Collins Street
Melbourne Victoria 3008
Correspondence to:
GPO Box 4736
Melbourne Victoria 3001
T +61 3 8663 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 2019, 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 2019 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.
MMS Annual Report 2019
121121
Independent Audit Report
As at 30 June 2019
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 2019 the Group has $137,427,000 of goodwill and
$23,514,000 in other intangible assets contained within
separate cash generating units (CGUs).
Our procedures included, amongst others:
• reviewing the model for compliance with AASB 136
Impairment of Assets;
During the year the group recognised an impairment against
goodwill and other intangible assets totalling $18,254,000
relating to the Retail Financial Services Retail business CGU.
Management is required to perform an impairment test on
goodwill, other infinite life intangibles, and capitalised software
development costs at least annually, and is also required to
perform an impairment test on other intangible assets with
finite 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 CGUs,
impairment indicators and triggers. This involves consideration
of the future results of the business, growth and the discount
rates applied.
• reviewing the completeness and accuracy of the underlying
data used in the calculation;
• assessing management’s determination of CGUs 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 expert 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;
• 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;
• assessing 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 a sensitivity analysis in relation to the cash flow
projections, discount and growth rate assumptions on
CGUs. The impairment analysis considered both the
individual and collective impacts; and
• assessing the adequacy of the Group’s disclosures within
the financial statements.
122
122
MMS Annual Report 2019
Independent Audit Report
As at 30 June 2019
Warranty revenue, unearned premium liability and
deferred acquisition costs (Note 3)
The warranty area of the business derives revenues through
the gross wholesale premiums obtained upon dealers entering
into the sale of warranty products to used vehicle consumers.
Revenue is recognised over the term of the warranty in line
with the profile of expected future claims. This gives rise to the
unearned premium liability.
We consider this a key audit matter due to the inherent
subjectivity over the nature of the estimations used in
determining the unearned premium liability.
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 to
perform. The profit or loss on these contracts is uncertain
given the cost of fulfilling the future obligations can only be
estimated based on the historic performance of this service
line. Therefore, at each reporting period the profit or loss on
these contracts is recognised by reference to the satisfied
performance obligations which are defined by the remaining
length of time the Group are contracted to provide such
maintenance services.
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:
verifying the mathematical accuracy of the unearned
premium liability and warranty revenue calculations to
ensure the revenue profile assumptions have been
correctly applied;
reviewing the completeness and accuracy of the underlying
data used in the calculation;
assessing the reasonableness of management’s key
assumptions in relation to the revenue recognition profile,
which is based on the profile of future claim costs, by:
analytically reviewing the claims pattern during the year
to determine appropriateness of the percentages used in
the revenue recognition profile;
selected a sample of claims in the current year to
supporting documentation and payments; 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; and
assessing the adequacy of the Group’s disclosures within
the financial statements.
Our procedures included, amongst others:
reviewing a sample of 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 completeness and accuracy of the underlying
data used in the calculation;
evaluating the key assumptions applied in the model for
reasonableness and performed sensitivity 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 agreed details to supporting documentation to assess
the completeness and accuracy of actual costs used in
developing the cost profile assumptions;
considering changes in key inputs into the provision
through inquiries of management; and
assessing the adequacy of the Group’s disclosures within
the financial statements.
MMS Annual Report 2019 123123
Independent Audit Report
As at 30 June 2019
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 year ended 30 June 2019, 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.
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 30 to 47 of the Directors’ report for the year ended 30 June
2019.
In our opinion, the Remuneration Report of McMillan Shakespeare Limited, for the year ended 30 June 2019 complies
with section 300A of the Corporations Act 2001.
124
124
MMS Annual Report 2019
Independent Audit Report
As at 30 June 2019
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
Darren Scammell
Partner – Audit & Assurance
Melbourne, 21 August 2019
5
MMS Annual Report 2019 125125
Auditor’s Independence Declaration
For the year ended 30 June 2019
Collins Square, Tower 5
727 Collins Street
Melbourne Victoria 3008
Correspondence to:
GPO Box 4736
Melbourne Victoria 3001
T +61 3 8663 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 2019, 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
Darren Scammell
Partner – Audit & Assurance
Melbourne, 21 August 2019
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.
126
126
MMS Annual Report 2019
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 8 August 2019, the number of shares held by substantial shareholders and their associates is as follows:
Shareholder
HSBC Custody Nominees (Aust) Ltd
JP Morgan Nominees Australia Limited
Chessari Holdings Pty Limited 2
Citicorp Nominees Limited
CS Third Nominees Pty Ltd
Number of Ordinary Shares
Percentage of Ordinary Shares 1
31,256,931
10,175,722
6,050,941
6,409,294
3,606,645
37.57
12.23
7.27
7.70
4.33
1 As at 8 August 2019, 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 8 August 2019, 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
Options exercisable at $16.64 and expiring on 30 September 2022
Number of Holders
5,014
4
26
1
26
1
27
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 8 August 2019, 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+
2,986
1,620
234
146
28
As at 8 August 2019 there were 296 shareholders who held less than a marketable parcel of 39 fully paid ordinary shares in the Company.
ON-MARKET BUY BACK
The Company does not have a current on-market buy-back.
MMS Annual Report 2019
127127
Shareholder Information
TOP 20 SHAREHOLDERS
As at 8 August 2019, 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 Pty Limited
Citicorp Nominees Pty Limited
Chessari Holdings Pty Ltd2
CS Third Nominees Pty Limited
Asia Pac Technology Pty Ltd3
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
Ann Leslie Ryan
Milton Corporation Limited
AFICO Pty Ltd
CPU Share Plans Pty Ltd
MOHL Invest Pty Ltd
Aust Executor Trustees Ltd
MOHL Invest Pty Ltd
HSBC Custody Nominees (Australia) Limited-GSCO ECA
NWC Group Pty Ltd
Sandhurst Trustees Ltd
Citicorp Nominees Pty Limited
Totals: Top 20 holders of issued Capital
Total Remaining Holders Balance
Number of
Ordinary Shares
31,256,931
10,175,772
6,409,294
6,050,941
3,606,645
3,343,025
2,777,715
1,755,670
1,374,977
1,008,418
662,538
564,555
538,129
425,000
396,205
340,000
298,989
279,470
263,164
256,907
71,784,345
11,420,375
1 As at 8 August 2019, 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
UNQUOTED SECURITIES
Percentage of
Ordinary Shares 1
37.57
12.23
7.70
7.27
4.33
4.02
3.34
2.11
1.65
1.21
0.80
0.68
0.65
0.51
0.48
0.41
0.36
0.34
0.32
0.31
86.27
13.73
Date of escrow expiry
3 January 2018
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 exercisable at $16.64 and expiring on 30 September 2022
Options do not carry a right to vote
538,129
412,500
17,340
387,015
15,920
681,525
4
28
1
29
1
27
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MMS Annual Report 2019 129
McMillan Shakespeare Limited
ABN 74 107 233 983
AFSL No. 299054
Level 21, 360 Elizabeth Street
Melbourne Victoria 3000
www.mmsg.com.au
Corporate Directory
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